EDIT: Plug Power Q4 Earnings Conference Call: Full Transcript

the remainder of the transcript was added Friday afternoon. Operator: Greetings and welcome to Plug Power Fourth Quarter 2015 earnings call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Teal Vivacqua, Director of Marketing for Plug Power. Thank you, you may begin. Teal Vivacqua: Director of Marketing & Communications: Thank you. Good morning and welcome to the Plug Power fourth quarter 2015 earnings call. This call will include forward-looking statements, including but not limited to statements regarding 2016 objectives including those related to revenue, sales, bookings, gross margins, and GenKey and GenFuel inflations. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors, however, investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties and actual results may differ materially from those discussed as a result of various factors, including but not limited to, the risks and uncertainties discussed under Item 1A, risk factors, in our Annual Report on Form 10-K for the fiscal year ending December 31, 2014, as well as other reports we file from time-to-time with the SEC. These forward-looking statements speak only as of the day on which the statements are made and we do not undertake or intend to update any forward-looking statement after the call. At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh. Andy Marsh: President and Chief Executive Officer: Thank you, Teal. Good morning, everyone. Thank you for joining the Plug Power fourth quarter 2015 earnings call. I'd like to start our time together a recap of our business achievements in 2015 and those mean for Plug Power in 2016. Following that, CFO Paul Middleton will discuss our fourth quarter and yearend 2015 financial results. At the start of 2015, we set some aggressive growth and operational goals and we discussed these with our shareholders that demonstrate our progress throughout the year. In our January business update call, I shared the news that we met these goals and now I can disclose the actual numbers with you. Our goal for 2015 revenues was $100 million and we beat that with actual results totaling $103.3 million. Contracts bookings which we predicted would hit $200 million actually came in at $205 million. Both of these results show that demand is strong in our core markets and that our value proposition of a more productive and sustainable distribution center is really being experienced by our customers. Also in 2015, we beat our GenKey install goal by installing 16 sites and we also beat our GenDrive gross margin goal of 25%. Although, we're a bit conservative than earlier reported. Later on Paul will tell you about the accounting rules that led to a profit deferral of $3.6 million in the fourth quarter that impacted both revenues and margins. Prior to accounting for the profit deferral, our fourth quarter GenDrive gross margins were 35%. I cannot emphasize enough how important of a milestone this is that we continue to drive expansion margins on all of other products lines with the goal of being rapidly growing and profitable company. Finally, we added eight new customers, two more than our goal of six. Now let's take a closer look at these customers from the next slide. The new customers we added in 2015 represented successful sales efforts in our core large distribution center market and also in expanding our value proposition to smaller distribution centers and to the European distribution centers. Nike and Home Depot are part of our core market. Nike's old GenKey system, included a 186 GenDrive fuel cells and then Home Depot that purchased 172 fuel cells for its newest distribution in Troy, Ohio. I was able to attend the grand opening of the distribution center and focus on sustainability is the future of this distribution industry. In 2015 we closed our acquisition of HyPulsion and have been able to add two significant European customers; Colruyt, representing a purchase of 200 GenDrives. We've also worked hard to make the productivity benefits from our fuel cell cost affective for smaller distribution centers and that's paid off with the addition of ULine, Young's, FreezPak and Dietz and Watson. I think we call ULine a distribution center, it's actually quite big with over 150 units. As you can see, we rolled out more than 10 GenKey sites at Walmart distribution centers across North America in 2015. One of our goals for 2016 is to expand in number of anchor accounts that have multiple sites where our solutions can be deployed. Today Walmart and Kroger represent two of those anchor accounts. Working with these accounts will more a year programs will drive predictability, profitable revenue streams for this business. Some of the other additional anchor casts we had success with in 2015 included BMW, Volkswagen, and Lowe's. So now let's take a look at the work of our engineering and manufacturing teams. We've had a year concerted efforts to make dramatic improvements in our generalized gross margins. Fuel cells represent over 50% of our sales. So improving their margin has a big impact on the overall bottom line. In the past four years we have had a positive 33 point swing in margin contributions from negative 22% gross margins in 2012 to positive 21% margins for the full year 2015 on a GAAP basis or positive 26% on an adjusted basis. Similarly, we've made significant improvements in margins and cost reductions on our infrastructure products. Last year our change I challenged our manufacturing team to improve our hydrogen infrastructure products. They made a great initial design but the installation process was a little too cumbersome and costly. The result for their efforts is a pre-manufactured infrastructure skill that is built Latham, New York and our goal is to drive the gross margins for our hydrogen infrastructure to follow a similar path that we experienced with our GenDrive products. We've also have efforts underway to improve our margins on hydrogen molecules. Our growing volume is helping us to get better pricing from our quadrants. At all of our GenKey sites combined, customers have more than do more than 3,000 per day dispensing more than two and half tons of hydrogen dealing through their forklift trucks lining ways to reduce the cost of hydrogen through volumes, better logistics and other means, makes the overall Plug Power Solution cost effective. For 2016, we'll expand on this by investing new ways to solve the challenge of hydrogen distribution by utilizing other technology such as reclamation. This is a long-term opportunity to expand our hydrogen fuelling business. We are looking in to the system engineering possibilities now and working with our business partners in order to make this a possibility in 2016. We are also making significant strides in improving the performance of our service business margins as a continue service bit margins continue to improve to doing a number of initiative including improved product reliability leveraging data to reduce parts and other material cost and increasing the number of fuel cells that each technician can service, and the last initiative where it's helped by an increasing concentration, our customer site which reduce travel time for technicians. We also and this has been significant for this business have added the ability to monitor each of our units remotely in the field in real time through our GenFuel infrastructure. This has really allowed us to improve the quality as well as the utilization of our workforce, and finally improvements in the stack life having a substantial impact on service margins and I'll touch on that more shortly. But first I'd like to reiterate management's goals for 2016. We will have top line revenue that will grow nearly 50% to reach $150 million in 2016. Contract bookings will total more than $275 million as we add more reference accounts, grow our midsize customer base and expand. GenKey installs will grow to 25 infrastructure sites a significant increase in our installs compared to 2015. We are also looking to grow our overall gross margins to more than 12% which is an increase from what we said on the January call which is net on the more than $10 million in deferred profits that the company plans to realize in 2016. One thinks about that $10 million. It actually adds about 7% on a non-GAAP basis to our gross margins. This increase is a result to the work we've done on stack like issue which I'll go in to more detail in next slide. Finally, increasing sales and margins will continue to drive down the operating cash need to grow the business. Our goal for the year is to use less than $20 million in operating cash flow with the further prediction that by yearend 2016, Plug Power will near positive EBITDA and breakeven operating cash flows. Finally, before I turn this call over to Paul, I want to address the stack lifetime issues we discussed on previous calls. From a pure scientific point of view, the good news is we've identified the cause of the premature failures of the stack members and we fixed it. We've been working closely since this issue arose and concluded that transfer release caused by tiny holes in the membrane began to form after about 2500 hours of operation. This is a result of using unreinforced membranes in the stack. Powered has switched to reinforced membranes on stack starting in fourth quarter 2015 and our Plug Power stack that we developed with our partner 3M has been using reinforced membranes from the start. Thanks to the laboratory testing about powered and 3M membrane provides us a high level of confidence that the stacks will operate for 10,000 hours or more in the field. Started shipping these stacks in fourth quarter of 2015 and so far the data shows no degradation in the performance of the stacks many of which have over 2500 hours of operating life. We have this information because as I talked about our GenKey system, we actually are able to remotely monitor stack each time the unit's refueled. So every time 2500 times a day, we're looking at these stacks in the field and can monitor and know what their life is. This further enhances our confidence that the customers using these upgraded stacks will experience 10,000 hours or more successful operations that we have been able to achieve in the lab. As a result of these findings we determined it's appropriate to take a onetime charge related to the losses occurred in the future service contracts that are affected by this issue. Paul will now discuss this in more detail. Paul. Paul Middleton: Chief Financial Officer: Thank you, Andy and good morning everyone. I want to start by discussing some specific accounting topics for which is important we are very clear. First let me address the accrual associate with this stack issues. As Andy discussed, proportion of our installed fleet under maintenance contracts, we have identified the design concern certain stacks provided by our external stack provider that is causing premature failures. In many cases we have been able to extend these stack lives with system enhancements but it has become apparent that these particular stacks will not meet the expected life which will result in higher than anticipated refurbishment cost. Again as Andy has conveyed, we are confident that our external stack provider as addressed the issue and that are new plug design stacks meet our expected life requirements. In regard to the associated legacy stacks and future costs, we have updated our cost forecast on these related maintenance agreements. Based on the updated analysis, about two thirds of the units we have under extended maintenance contract will have projected cost that exceeds the residual service revenue. Although collectively, the updated estimates on all open contracts in total would still project a net profitable position. Account involves do not allow the netting of all open profitable and loss contract projections. Therefore for the specific agreements where we anticipate a contract loss, we've recorded a loss contract provision of $10.1 million. The majority of this cost will be incurred with refurbishments planned over the next eight quarters of approximately $4 million of it in 2016. As we discussed in our January 2016 business update call, some of our material handling customers access our hydrogen and fuel cell solution to power purchase agreement. In those cases we have been using a saleleaseback approach to finance the assets and monetize the tax benefits. As per the accounting rules, any profit for product sales associated with the saleleaseback transactions must be deferred and recognized over the term of the financing agreement. For the fourth quarter 2015, this resulted in a $3.6 million deferral of gross profit which is reported as a reduction revenue and gross profit associated with these saleleaseback transactions. This was the first time Plug Power deferred profit on these saleleaseback transactions stemming from the growth in associated volume and tremendous growth in project profitability particularly GenDrive units. The key point here is as with direct paying customers, Plug Power is achieving continued gross profit momentum on these sales. The difference being the incremental revenue in gross profit from a book stand point what we spread over the financing term for these transactions. Last accounting point I wanted to touch on is the new reporting format. You'll see in the press release we've broken out our sales and margin in greater detail for our products and services and we'll be using this format going forward in our ongoing press releases and public filings. This format is driven an increasing transparency to the essence of our business. Given the routine external questions on the old format I am confident this will be a more meaningful approach to our investors and our other stakeholders. Now in regard to these accounting topics I addressed, we also thought important to be sure we would clarify the impact of these items on our financial results. Looking a Q4, excluding impact of these items, for the most part were charges for future costs or new for Plug Power, the adjusted numbers provides important insights to what Plug Power accomplished in Q4 2015 and gives perspective on expectations for 2016 and beyond. Looking at the full year of 2015 excluding the impact of these items that again for the most part were charges for future cost or new for Plug Power the adjusted numbers also provided insight to what Plug Power accomplished from an operational perspective for the full year of 2015. Turning to revenue. We ended the quarter with $38.4 million in revenue representing 79% growth over the fourth quarter of 2014. This growth stems primarily from the continued commercial traction we're gaining and proliferating our GenKey solution. If you include the $3.6 million deferred profit on saleleaseback transactions, revenue for Q4 2015 was $42 million on an adjusted basis which represents 96% growth over Q4 of 2014. For the full year of 2015, Plug Power recognized revenue of $103.3 million which represents a 61% growth over full year 2014. On an adjusted basis adding back the Q4 $3.6 million profit deferral, full year 2015 revenue would have been $106.9 million or a 66% increase over 2014. For the full year, Plug Power recognized revenues associated with 3,634 GenDrive units and sales associated with 18 hydrogen installations compared to 2406 GenDrive units and sales associated with 11 hydrogen installations for the full year of 2014. This growth is a clear indication of the traction Plug Power continues to make in the market. We recorded approximately $38.5 million orders in the fourth quarter 2015 and ended the quarter with $235 million in contract backlog. Our contract backlog is a combination of units and installations planned for the near term as well as service and hydrogen delivery commitments for the next few years. The continued growth and overall contract backlog is also indicative of our success in the market and given the majority of the contract backlog is associated with long-term revenues and provides a strong base as we focus on delivering on 2016 forecast and beyond. Total gross margin as a percentage of sales was negative 24.5% for the fourth quarter of 2015. Excluding the impact of the loss contract provision of $10.1 million and adding back the deferred profit of $3.6 million both recorded in the fourth quarter of 2015, the adjusted total gross margin for Q4 2015 was approximately 10% positive as compared to the prior year Q4 total gross margin loss of 7.7%. This year-over-year operating improvement is indicative of our ongoing progress both in terms of volume and cost initiatives. If we take a look at GenDrive, Plug Power has made tremendous progress in cost balance driven from supply-chain leverage, overhead leverage on increased volumes, and improved more simple product designs. In certain cases, our vertical integration strategies such as the launch of the new Plug Power stack in Q4 2015. We anticipate these improvements continuing in to 2016 and that we will grow overall GenDrive gross margin with more volume and further cost downs. In regards to our other offerings these effectively represent relatively new businesses for Plug Power, many of which were only launched in 2014. During 2015, we made great strides in improving these offerings and we anticipate even greater progress in 2016 as these businesses continue to mature. In fact we anticipate these businesses moving along the commercialization ramp to collectively breakeven in 2016 driven from increased volume and substantial cost down progress. In the long term we anticipate all of the offerings will achieve mid 30% margin profiles with some of these offerings achieving that milestone sooner than others. Research and development cost for the fourth quarter of 2015 were $4.5 million as compared to $2.2 million in the fourth quarter of 2014. The incremental investments are commensurate with the company's growth including our investments associated with our ongoing stack development and deployment as well as increased investment in productizing our hydrogen infrastructure platform and proving the offering designs. SG&A expense for the fourth quarter of 2015 was $10.2 million as compared to $9.4 million in the fourth quarter of 2014. Majority of the incremental cost is associated with tremendous sales growth and investments in required resources to support and drive future growth. In regards to total administration expenses, the continued story here is leverage. We anticipate tremendous leverage as we continue to grow and we anticipate the run rate as a percentage of sales to continue improving as we keep administration cost consistent while growing the top line. In regards to EBITDAS margin rates and operating cash flow run rates, we continue to move in the right direction. In Q4 2015, we achieved strong performance given the ramp in sale, improvements and margin and focus on working capital. Excluding certain transactions associated with the saleleaseback financing in the fourth quarter, Plug Power achieved an operating cash flow usage rate of less than 5% of sales. We ended the quarter up $108 million in cash, cash equivalents and restricted cash and over $88 million of working capital which we believe is ample liquidity to support our growth in 2016 and beyond and strongly positions us to continue strategically investing in the right path to accelerate long term growth. As we enter 2016 Plug Power represents an enterprise growing in at over 50% year a company that has developed a platform now working with some of the top financial institutions in the world to finance Plug Power's customer deployments and as a strong financial asset in a substantial pool of on off balance sheet funds the back portions of the contract deals closed funds that will be distributed to Plug over the next few years. In addition Plug Power continues to work with market leading financial institutions that are collaborating on innovative ways to fund Plug's deal that will yield even greater economics and more robust capital solutions for Plug in 2016 and beyond. So let me spend some time on our focus around liquidity and funding our growth. Our key goal remain to continue driving more efficiency and seamless direct customer financing platforms, develop more robust project financing solutions for our PPA-style transactions, maintain sufficient working capital to support the growing backlog of deployments, and avoid dilution of existing equity owners. Another major step in this direction is aligning with the right capital partners that can help provide access to a broader set of investors for our PPA style transactions who can not only monetize the tax benefits but provide more liquidity in these financings. Make sure we don't have the same regulatory and risk tolerance issues of traditional asset leasing institutions. The bridge loan facility we recently completed with one of these types of investors is intended to help Plug Power fund the deployment of its 2016 PPA pipeline and more importantly is the platform in which we see emerging and a range of new project funding approaches. We'll be able to share more during the year as these additional platforms develop but I would have you think about some of the varied approaches used in funding solar and wind to give you some perspective on the range of approaches we are considering. These are not only more attractive financing opportunities in the short term but could open up new possibilities in how Plug Power deploys and utilizes its assets in the future. As we close and celebrate 2015 and move in to 2016, we look forward to continue building on our strong platform and sharing with you our continued progress. We believe we are making the right market and product investments to not only achieve our long term business objectives but equally important set this stage for another successful year in 2016. We will now open the line for questions. Question & Answer Operator: Thank you. At this time we will be conducting a question-and-answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star, two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Once again, to ask a question, press star, one on your telephone keypad. Our first comes from Eric Stine with Craig-Hallum. Please state your question. Eric Stine:Craig-Hallum: Hi Andy, hi Paul. Andy Marsh: Hi, Craig. Paul Middleton: Good morning. Andy Marsh: Eric, sorry. Eric Stine: Maybe just starting on your operating cash burn target. I know you're targeting some $20 million just thoughts on how that trends in terms of the restricted versus unrestricted cash throughout the year? Paul Middleton: Well if you look at it from a pure operating standpoint Eric, we see and we continue to see tremendous improvements particularly if you look at Q4 if you back out those financing transaction that will operating cash flow at less than 5%. I mean that's pretty good base line to give you some indication where operating cash is where we envisioning that going. Our focus for next year to be candid is zero restricted cash. We certainly will have cash freed up from those restricted accounts but one of the primary divers in us working with these other investors is to develop more robust solutions so that they yield better financing liquidity answers and we don't have to restrict cash. So the forecast for less than $20 million is more than cutting in half what we did from an operating cash flow in 2015 and we said today will feel very confident about those predictions and projections as we see the business moving forward Eric Stine: Okay. That's very good to hear. Thanks for that. May be just turning to the margins, I know you took the charge warranty related this quarter. Is that the primary reason that you up to your overall gross margin target for the year or is there something else, something else going on there reason to be more positive and then just, I mean how should we think about service gross margins throughout 2016? Paul Middleton: Yes. Well a couple of things. One, absolutely we want it to be fair and transparent and honest about it and so to the extent and we know that utilizing that provision that we took this quarter, it will benefit next year's results. So that's a place to kind of give an indicative perspective of how that will impact that but we expect it overall to keep churning the way we have been churning which is positive. If you look at, we didn't this you're looking at the Q4 results in this new format. If you were to look at the full year quarter over the last four quarters, what you'd see is it service margins despite these stack issues, we cut the loss in half on burn rate. So we expect that to continue in and certainly by getting these legacy costs behind us, that's going to only continue to improve the margin rate as we go forward. Eric Stine: Got it and I would… Andy Marsh: All that additional gross margin goes into the service business, correct. Paul Middleton: Yes. Eric Stine: Okay and I would assume I believe your own air-cooled stacks that those are happening, I mean started in fourth happening in the first quarter and will increase and also the water cooled that I would assume that that is a benefit to your margin as well? Andy Marsh: That is the benefit to the margin and Eric that was included in our projections from the January update call for 2016. Eric Stine: Okay. All right, maybe just last one from me. Two relatively new customers, Home Depot and Nike maybe just give some thoughts on how you think those play out, whether there are specific targets in 2016 but then beyond 2016 what do those two look like? Andy Marsh: No. I have to be considered customers so let me talk a little bit more generic. A customer like the Home Depot we started with one site and with many of these customers and you heard maybe during my remarks are that we are working with them in doing long term planning. Some of them are people like that the Home Depot as well as Nike do really put together roadmaps just not for 2016 but for 2016, 2017, 2018, as we have with Walmart and a few other customers. And we see and I have to say the rollout to Home Depot was probably the best we ever had at that time and we get better continuously and that some of the borders know we are beginning to make some progress with the Home Depot beyond this first site and I think you'll hear more about many of these customers becoming more like Walmart during the coming year and that's really where we're driving the business. We want to be able to sit down 4-5 customers and provide us all the revenue we need to continue to grow 50% per year and that's been the focus of our sales effort, our product cost down efforts and I think that when you look at the bookings for the year over $200 million or $275 million next year, we are on a path to achieve that goal and obviously we are driving ourselves much harder. Eric Stine: Okay. Thank you very much. Andy Marsh: Thanks Operator: Thank you. [Operator Instructions] Our next question comes from Craig Irwin with Roth Capital Partners. Please do your question. Craig Irwin:Roth Capital Partners: Hi. Good morning and thank you for taking my questions. Andy Marsh: We're going to see you next Tuesday. Craig Irwin: Fantastic. We are looking forward to hosting you at the conference, should be great time. Andy Marsh: Yes. Craig Irwin: So looking at the big picture right... Andy Marsh: Hello. Operator: Craig please press star, one again. Andy Marsh: The Company is here. Is there another question in queue then maybe we can go back to Craig. Craig Irwin: Hi, sorry about that Andy. I'll start my question again. Andy Marsh: Sure. Craig Irwin: So looking at the big picture right, coming in to 2016 the backlog coverage looks quite a bit better than coming into ‘15. Basically we are what something like 70% of forecasts versus something like 50% at the beginning of last year. Now I know mix duration are obviously the key considerations in there. Can you may see tease that apart a little bit for us and discuss whether or not you're maybe discounting some potential things that are in backlog as far as maybe being sticky for release given what's happening with some of the other industrial companies out there? Andy Marsh: Craig if you look at our backlog and there is a great slide from the January business updates call where Paul presented the 70% backlog. A good deal of the backlog beyond 2016 is in recurring revenue which will spread out over to a 3 to 5 year time period and so that represents a significant portion of beyond this year. Now we are obviously looking to increase our sales beyond what we are projecting but we've last year came out put out numbers that we knew we would hit and we were comfortable we could hit a $100 million in revenue and $200 million in bookings and this year, very comfortable, we have a pipeline and a plan how to do $150 million revenue for an industrial company so I think we're a lot more than an industrial company and $275 million in bookings and obviously we have internal goals to drive ourselves beyond that. But we know those numbers we're very comfortable with and we want to make sure that we need investors' expectation and a lot of work was done to make sure we put those numbers out and we can have this business to grow beyond 50% per year. I mean I sat back and listened to Paul talk about on non-GAAP basis that our fourth quarter to fourth quarter was over a 96% growth and I think that's fairly astonishing and there is a lot of room to grow in the material hand one market and we're excited about deploying 3500 units. There are over 6 million forklift trucks in the world so there is a lot of opportunity for this company continues to grow for a long-long time just in this segment and as I'll talk about at your conference, there's activities going on in other segment which may allow us to push this business even farther the future. Craig Irwin: Great and I would agree that the growth is completely astonishing. So my second question relates to the margin impact from a cut in of your own air-cooled stack you're making in partnerships with 3M. So it was a material chunk of the mix in the fourth quarter I am going to assume that there's some costs associated with the initial shipments of the unit that probably don't repeat and then maybe a different contribution to mix over the next couple of quarters hopefully rising but can you frame out for us, how the gross margins are likely to see an impact from the cut in of your new units? Andy Marsh: So on a non-GAAP basis the gross margin for GenDrive in the fourth quarter was 35% and it's really just not I think a stack represents a portion of the improvements we are looking for in 2016, we'll have in 2016 and Craig, I would praise it is on a non-GAAP basis we'll to continue to see improvements and I think that we've always said the stacks can help margin three to four points but there is other activities going on and we think the gross margins for GenDrive will continue to improve from a variety of (Audio Issues) earnings deployments are continuously driving down costs and we collect and this we collect, this is a I talked about briefly but as we keep as we have the ability now to really monitor every unit in the field, which will eventually grow to be enabled or remotely manage every unit in the field. You almost can think of our devise as an internet of things device that will, we're learning more and more what's going on and it allows us to think through the cost and the architectures of our products to continue to drive down the cost. I think we're just in this industry in general, we're just starting to get costs where we can eventually get to. Craig Irwin: At that's really encouraging. So the next question I wanted to ask you is about services. So, it was a little bit of a headwind in ‘15, you've obviously really spent a lot of time and energy focusing on services. You eliminate a lot of the moving parts, unnecessary compressors, power conversion components that were on prior, your prior generation GenDrive systems. Can you talk to us about your expectations for services margins whether or not you've baked in an impact from the lower part count, lower moving parts, lower complexity or if you continue to assume basically a flat line but a handling of discrete let's just call them issues like the power, the premature stack failures? Andy Marsh: So, Craig we will see not only improvements in the costs associated with stack replacements but also which will have a dramatic impact on our service margins over the next coming quarter. But also our new units, as I talked about the learnings for our class three for example local items, like how we design for vibration now and how we simplify the architectures associated with issues like that will allow the service improvements to continue. We have an internal plan called Service 20-20 which actually with the goal of having service to be as profitable long-term as products and that's and you'll see as our track record has demonstrated with GenDrive, we are on similar path with our service business. What are the challenges with service legacy products but as we have corrected the stack problem as we continue to make improvements on every unit we ship, you are going to see the same type of performance over the next years than we've experienced in GenDrive and that's front and center in the business and I know you know Keith Schmid our COO and he probably spends 70% of his time really mapping out long term how we design products today because we want to even make these better. Anything that goes out the door after effort today but also how we really manage and monitor our systems in the future with a goal of fewer breakdowns, fewer headcount for forklift truck we have in the field and to really, really make this a very, very sophisticated service business which we said in time that same activity we have going along will translate into any other market we enter into because we think we are developing some rather unique capabilities. The Company is much more focused on software and monitoring and control and really think that how this whole Internet of Things will change what we do for a living and make this service business better for our customers and give them better products as well as drive our cost down and make this a more profitable business. We probably need to move on to the next call. Craig Irwin: Thank you. Operator: Thank you. Our next question comes from Carter Driscoll with FBR. Please state your question. Carter Driscoll:FBR Good morning, gentlemen. So first of all obviously congratulations on those strong quarter and a good start to a bookings year. Paul has just been asked before obviously to secure the financing you guys talked about just talk about maybe about the engagement process on the financing, the size of the customer that you're hoping to engage with this and Paul maybe say across the finish line, is that the right way think about you going to utilize any financing vehicle and then maybe expectations for utilization this year. Anything you could share with us. Paul Middleton: Well I think I always have the positive some of the earlier comments shared lot. We are going to continue to be able to share more as this unfolds but I think the key really is that Plug is moving in to a platform of working with a different pool of investors and these investors just have different--they don't have the same regulatory restriction and kind of risk tolerant restrictions if you will that traditional listing institutions have and so do you think about solar and wind and some of the different models that they view that some of the investors they have been able to access I think examples of the way to think about some of the platforms that we're considering and the goals still in those project financings are focused on monetizing attachment of bits and providing financing and liquidity. Today we've been doing a really good job at that particularly monetizing the tax benefits but we need to do better at working with a broader range of investors who and help us with both and that's really the goal. So I think as we continue this year you're going see more on that and working with partners like the one we just aligned with. Carter Driscoll: Thank you for that again apologize for not being able to the prepared remark as well in terms of the new format, reporting format did you break out maybe the higher Gen installation margins that are something that you think will be something that we can focus on as you continue to report on this new structure? Paul Middleton: We didn't break that out specifically in our press release or in our filings. I think we talk about GenDrive really as a proxy kind of trade we have accomplished as well as what we think you know we feel confident we will accomplish on other business I guess the way I would characterize the hydrogen infrastructure is, you know it's a new business. I mean we've done 25 of them and we have made tremendous strides in term of the way we've been focused on product that offering and some of the things we done to tighten that up and this year we're going to more than double the install base. So with that volume get the learnings that we've gotten with GenDrive, you get the volume like we've been able to leverage in GenDrive you get the design simplification over time. There's lots of things that we're already seeing, that we're starting to reap benefits for so I think the way I would think about is that as with any kind of new business and I think in the chart we showed in the back in January business update at gave some color that as a new product offering not surprisingly, it's not in the margin position yet but it's definitely moving in that north direction and we absolutely believe by this year we are going to move in to the north position and in the near term, it will be in that mid thirty's ranges just like GenDrive, there is no reason why it can't be so I think we'll as we continue to nurture that and grow that we'll be able to give you more color but that's a business that has we've improved tremendously and we continue to really focus in on. Carter Driscoll: What do you think the biggest all on just scale, what do you think the biggest component of driving that margin? Is it getting better fuel pricing, is it engaging with more vendors in terms of the equipment, if you could kind of give me a high level thought about what's specifically is going to drive that other than obviously just more deployments? Andy Marsh: So few items, we do have simplification of the architecture and just like GenDrive Carter, one of the reasons GenDrive is lower cost today than it was two or three years ago, your first goal is to make product work reliably, your second goal then becomes have it integrate functions so we have plans to integrate functions within our hydrogen system which will drive down costs. Two we have the how to installation costs at sites, there's still cost there that we have a very clear roadmap of how to bring those costs down considerably during the coming year and it's a rather large focus and third, that not just new suppliers, it is also working with your present suppliers you make modifications and changes to their components which drive down cost as you learn more and more in the field. So, I look at it to how have we made GenDrive gross margins 35% from minus 22% over three years and with the hydrogen infrastructure, we were actually 0% in the fourth quarter with the same sort of activities, design simplification, integration of components, working with suppliers to simplify their designs, and then getting better cost. So I think that we have a history now that we can say we know how to do that. Carter Driscoll: Got it and then it's similar to what not exactly but similar to what you've done on the stack side as well is in terms of the continuous improvements. I mean, I know some exact and then maybe just lastly I know I tend to ask this, maybe go ahead of myself but of the backlog figures any legal what is geared towards geographically Europe versus US? Andy Marsh: This year we, as I said we went out with numbers. We knew we can be and we are primarily 95% focused on North America for the numbers for this that we see Europe developing. We are actually at trade shows today are engaged with all the large auto companies in Europe and have a real, real focus there at the moment. So more to talk about during the year in Europe. Carter Driscoll: Yes, ok. Appreciate. I'll take the rest offline. Thank you very much. Andy Marsh: Okay. Operator: Thank you. Andy Marsh: Okay. I think it's everybody probably has to get back to work so I'd just like to close today with a reminder about some of the industry appearances Plug Power will be making in the coming month. Next Tuesday I'll be presenting the Roth conference on March 15. Additionally, we'll be in April, UTC in May and CBAT speaking to our international customers the first week of June. We are working to come out visit us and speak directly with your team. Thank you.