Teal Vivacqua - Director, Marketing Communications Andrew J. Marsh - President and Chief Executive Officer Paul B. Middleton - Chief Financial Officer.

Matt B. Koranda - ROTH Capital Partners LLC Aditya A. Satghare - FBR Capital Markets & Co. Moses Sutton - Cowen & Co. LLC.

Greetings, and welcome to Plug Power's 2014 Fourth Quarter and Year End Results. At this time, all participants are in a listen-only mode. It is now my pleasure to introduce Ms. Teal Vivacqua, Director of Marketing and Communications for Plug Power. Thank you, Ms. Vivacqua. You may begin..

Thank you. Good morning, and welcome to the Plug Power 2014 fourth quarter and year-end financial results conference call.

This call will include forward-looking statements, including but not limited to statements regarding our expectations for future business and financial performance, bookings, product shipments, revenue, margin, EBITDA, geographic and market expansion, and inorganic growth.

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, 2013, 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 statements after this call. At this point, I'd like to turn the call over to Plug Power's CEO, Andy Marsh..

recognize over $100 million in revenue, book over $200 million, continue to increase gross margins, and continue investing in expanding our hydrogen offering. With respect to our $100 million revenue goal, the company has clear visibility to 85% of this year's target.

The revenue includes new and repeat customers and recurring revenues for service and hydrogen. With one of our larger customers, Walmart, we expect to deploy 7 to 10 sites this year. We are presently converting the Walmart site in Bedford, Pennsylvania, which is to be followed shortly by Wintersville, Ohio, and Mankato, Minnesota.

I know there is a great deal of anticipation concerning the names of two new large retail customers not yet announced. We continue to work with their marketing departments and hope to tell you more soon. In 2015, we are targeting $200 million in bookings, with approximately 75% coming from repeat customers.

The company has made significant investment in the sales team, has the largest sales funnel ever and the sales leadership expects to hit a second inflection point for bookings in the coming years to grow and accelerate the business. Now, I'd like to provide some thoughts on gross margins. I bucket our activities in four categories.

GenDrive, fuel cell product that replaces a lead-acid battery in a forklift truck; hydrogen infrastructure, aftermarket service; and fuels. The gross margins for GenDrive improved dramatically in the past year. We doubled our GenDrive shipments and gross margins increased from minus 7% to 18%.

The results clearly demonstrate the impact from the simplified, more robust designs, supply chain maturity and unit volume. The GenDrive solution, though new by any standards, is our oldest product offering.

And not surprisingly, we have the most experience with the product's performance and experienced typical cost improvement curves for an emerging technology. We expect the hydrogen infrastructure provided as part of GenFuel to rapidly follow suit as we implement changes to improve cost and quality.

One new change is that the hydrogen infrastructure is now being built on skids in-house, which simplifies logistics, spreads factory load and provides greater quality control. We expect our hardware products, GenDrive and GenFuel hydrogen infrastructure, to ultimately achieve 35% gross margins.

The service business could become a higher gross margin business but will represent the greatest challenge in the near term. Three items are important to substantial margin increases for our service business. One, the performance of the units in the field; two, reduction of liquid-cooled stack failures; and three, utilization of our labor force.

In the past year, the performance of the units in the field improved by over 70%, with uptimes exceeding 98%. As the mix in the units in the field become more of our newer units, the average cost for maintaining a unit in the field declines dramatically.

The only concern that we have today is the lifetime performance of the liquid-cooled stacks used in the high-power units. Work is ongoing between Plug and Ballard to reduce the failures, and we expect to see the results of this work in the second half of the year.

Long term, Plug Power is developing approaches to enhance stack life that could service a higher-margin business in our products. Labor utilization is another near-term challenge that we see as a low-hanging fruit for Plug Power.

As we deploy more units centrally located like in Ohio, where we will have four sites by the end of the second quarter, labor utilization factors will increase and the business will become more profitable. We're just paying for the initial ramp of the service team today.

Finally, I like to discuss the margin opportunity with hydrogen, which is a link to our future growth. The company can achieve $500 million in revenue in material handling in the next four years or five years without expanding into other market segments. We entered the material-handling market for three reasons.

One, there is a financial value proposition which has been clearly demonstrated by our list of repeat customers. Two, a big market, over 6 million forklift trucks, which will allow Plug to drive volume, allowing us to reduce the cost of fuel cells.

This has been proven to be true, demonstrated by a 75% reduction of our class-3 products over the past five years. Yet, and three, the amortization cost of hydrogen infrastructure per unit of hydrogen used was relatively low.

Our hydrogen stations use as much as fuel as a gas station does today, resulting in spreading the cost of the infrastructure across tons of hydrogen used on a monthly basis at a typical site. So when we think about our business, few items are clear. First, we can make PEM fuel cells at lower cost with better performance than anyone else.

Our GenDrive units have performed more than 100 million hours in the field. That's 100 million hours. A single unit operates as many hours in a year as a car will in its lifetime with virtually no shock absorption on a forklift truck and we undergo thermal shock on a regular basis of 125 degrees as we drive in and out of freezers.

We can make a fuel cell work. There is no doubt to that. The challenge for Plug Power is to expand beyond $500 million in revenue in the coming years, is to deliver fuel cost effectively to small and larger sites.

Material handling was easy because large quantities of hydrogen are used daily in the system, and as we discussed, we can provide cost-effective hydrogen with 99.99% availability. Cost effective and available hydrogen is why I believe no other markets for PEM fuel cells today is yet viable.

To address this opportunity, we direct a portion of our staff to focus on using off-the-shelf technology, solve this problem, led by our VP of Hydrogen, Tim Cortes. All of our efforts in this area are geared to grow new markets as well as to complement our material handling markets today.

In 2015, we have three strategic objectives for our hydrogen business. First, to develop a viable cost-effective solutions to address smaller sites like retail stores and stationary power. This could include onsite electrolyzers, small reformers which is the core competency of Plug Power or a new distribution model for delivering hydrogen.

Such a solution could increase our market opportunity in North America by over 20% in the coming years. Second, we're looking to migrating this hydrogen generation either on site or at larger facilities to be used as a hub for distributing hydrogen.

This will most likely be done with partners that represents an opportunity for Plug Power to dramatically enhance margins for the hydrogen model fuel. And third, develop a much larger scale system which is required for transport refrigeration units. Some of these sites may require up to 2 tons of hydrogen per day.

Our ultimate goal is to make hydrogen a ubiquitous fuel. Our near-term goal is to develop hydrogen solutions to expand deeper into material handling and provide new solutions for stationary power, transport refrigeration units, and many other industries using diesel engine and batteries today.

In summary, this company without new hydrogen solutions can reach $500 million in revenue in the next four years to five years. We have a market, a valued proposition, products and a solid balance sheet.

We are dreaming beyond that goal and putting resources and focus on hydrogen, the enabler that can make fuel cells a universal clean engine to replace diesel engines and batteries across a wide spectrum of industries.

$500 million will be nice, but we are focused on meeting this challenge – we remain focused on meeting this challenge but are not going to let the broader opportunity to be missed to become an industrial powerhouse. And I'd like to turn the call over to Paul to discuss our results and his views on our near-term future..

growth in hydrogen infrastructure, a continued positive blending in the run rate of the newer, more reliable Gen unit designs, and our continued significant progress in addressing uptime issues of the installed fleet.

We still expect overall our growth in sales and profitability to enable us in the fourth quarter of 2015 to approach a breakeven rate on EBITDAS.

But we want to reinforce here again, we see tremendous additional market opportunities in adjacent spaces, opportunities that could double or triple our existing addressable markets, and to capitalize on these opportunities that may require a range of strategic actions and investments.

As we progress in 2015, we will have better line of sight of how this translates into near-term profitability trends. In conclusion, we celebrate with our investors and all stakeholders of a truly successful story for Plug as we wrap up what we believe was a breakout year commercially.

As we move into 2015, we look forward with great enthusiasm to build up a strong platform and look forward to sharing with you our continued success as we go through the year. We'll now open up the line for questions..

Thank you. Thank you. Our first question comes from Matt Koranda with ROTH Capital Partners. Please state your question..

Good morning, Andy and Paul. Thanks for taking my questions..

Good morning, Matt..

Good morning..

Just wanted to start out with the revenue recognition issue that you guys faced with the sale-leaseback transaction.

Could you talk about typically – or in a typical quarter what percent of units you guys ship typically have that sale-leaseback arrangement? Was this something that was new or have you guys done this transaction before?.

Can I answer?.

Yeah, go ahead..

Well, I mean, you say typical, I would answer with there's three quarters of tremendous commercial success last year and one thing we've drawn is – are those trends that you would draw from as go forward. As we go forward, I can tell you our commercial model is that we won't be doing sale-leasebacks outside of some very specific customer programs.

Our standard model is that customers will buy products from us or do their direct sale-leasebacks on their own. But for us, there are at least one program that we still do that for..

Okay.

So, reasonable to assume that this type of transaction probably will be tapering going forward and we shouldn't really expect too many additional revenue recognition issues going forward?.

Well, I think it will taper as a percentage of our total sales for sure. But we will have a portion of the sales in 2015 associated with these type of transactions..

Okay.

Any way to quantify the level that would be associated in 2015?.

20%, Matt, 25%..

Okay. Great. That's helpful, Andy. Thank you..

Okay..

And then service gross margins it looks like you guys year-over-year did a great job improving those but they dipped sequentially.

Can you just talk about what happened during the quarter that drove that sequential dip?.

Well, I think again, I would tell you specifically in the fourth quarter, it was the highest number of hydrogen installation sites the company has recognized.

And last year with the introduction of that product offering, that was something that we've been working through in terms of refining our design, our installation process, all of the resources that we go at it.

So I think you see a substantially higher concentration of the sales associated with that, and the maturing and learning of the process that goes along with that. And you also see some mix issues there associated with that compared to previous quarters.

I mean, I think it was three or four sites previous to Q4 and we had sales associated with over eight sites in Q4. So comparatively, I think that's not necessarily a great benchmark.

But we feel very confident with the trends that we're seeing that we're going to continue to see substantial margin improvement in that process as well as the ongoing service business..

I'd say this, Matt, first, I think that – and I think Paul would agree, as we mature the financial organization here at Plug that hydrogen infrastructure really needs to be pulled out of the service number and either reported with product or reported differently because I think that blurs the number today.

And the infrastructure, as I talked about, we have a clear path out for margins for the infrastructure ultimately to reach 35%. They continue to improve. They probably were a drag on the service business in the fourth quarter.

As we pull that out, see the numbers separately, we're seeing dramatic improvements now with the activity of bringing the units in-house, being able to buy and buy them in scale that margins for infrastructure will be double digits in 2015.

But I think that's really kind of been the issue, I think, in general, trying to get more clarity to separate that service line out. Now on the service front, as I mentioned, the two big issues, one actually fixes itself with growth, which has to do with the utilization of the service for it.

And the second one, I think, the cooperation we've been receiving from Ballard. My major cost item in the field is failure of high-power stacks, and I think that there is some work going on that, I think, we're going to see the benefits in the second half of the year. But that has been a drag on the service number.

And so we're quite confident that the labor utilization issue is going to be solved and I think we know that we have the right support, we have solutions which will allow us to meet our year-end goal for service margins, and I think we're thinking well beyond that how we make changes so that the service business can be over 35% gross margin business in the (32:13).

Long explanation but, Matt, I think that's really kind of the basis of it all..

Okay. I think that's fair.

One quick follow-up to that, is it possible for you guys to maybe just – can you break out what actual core service gross margins were versus the hydrogen infrastructure on the quarter? And if you can, maybe you could just directionally talk about how much lower versus that negative 35.7% gross margin were the infrastructure gross margins? Could you characterize that for us?.

I guess I'm not prepared to do it at the moment, to be honest, Matt. So, we can come back to you to follow up with that..

Okay. All right. No problem. Last one for me here, Walmart, you guys mentioned doing seven to 10 sites potentially this year.

It sounds like you guys are breaking ground for about four sites in the first half for the year, but could you talk about the cadence of sites completed with Walmart during the year?.

Sure. So, Matt, we started in May and we did four sites last year. And this year we'll do three to four sites in the first half of the year.

And I think that – look, as you know, it was a six-site deal and it's just adding addendums to put new sites on and also at the end of 2015 I expect that – and this is not counting some work we're doing with Walmart Canada on a separate activity that we'll against that contract do between 11 to 14, 15 new sites. So, really good progress..

Okay. Great, guys..

And as you know, the only reason Walmart does it is because they save money. And I think when you take a look at the numbers, the GenDrive units are profitable and generating money for us.

And this whole activity in the long run not only will allow us to fill this business and drive it at 35% gross margins across the board for GenDrive and GenFuel but also introduce us and engage many other customers. There's not a better salesperson for the company than Walmart is today..

Great. Thanks, Andy. Thanks, Paul. I'll jump back in queue here..

Okay..

Our next question comes from Aditya Satghare with FBR Capital Markets. Please state your question..

Thank you. Good morning, all..

Good morning, Aditya..

So, a few quick questions here. So Andy, when you think about some of your largest customers, and you talked about seven to 10 Walmart sites.

What are some of the key criterias as the contract expands, right? Is it still sort of individual sites, economics of individual sites, or do we get to a point where we start to see regional-type deployments, right, where there's maybe one full state gets awarded to Plug? And if so, how far are we away from that point?.

I got to watch how I say this, Aditya, because it is a little sensitive. But I'll say this, I wouldn't think about it about states. I would think about maybe certain regions in the summertime and certain regions in the wintertime, and we may have it backwards this year.

But I think that the discussions are more in circles than in a specific state because Texas, Arkansas, Louisiana, you can kind of almost put a circle around. Ohio, Indiana, Illinois, you can almost put a circle around..

Got it. Understood. Understood. Second question on the hydrogen infrastructure, could you elaborate? When you said that you plan to build the skid in-house, could you sort of help me understand as to maybe the process in place today versus what is changing the most and....

First, you're welcome to come up to see it. It's happening now. So I think that part of thinking through – a good deal of that work at the moment construction, Aditya, happens in the field, and comes from multiple suppliers and managing the logistics and qualities from multiple suppliers in the field.

Some are at other manufacturers who have built semi-portions of the unit for us.

The approach we've taken is that we have a standard skid in which essentially 80% of the critical components can be brought in-house here, tested here, things like liquid pumps, the gas compressors, items like that which can be built on one skid, in-house tested, verified, reduces labor cost in the field, reduces logistic cost of chasing.

So it's essentially a 10x20 foot skid, which most of the items are mounted on, constructed and shipped out to the field from here. So, again, it kind of gives you a cadence in manufacturing.

It helps reduce the load here, reduces the number of people you need in the field and, just as important, the troubleshooting for it is done in-house where they're outside in minus 10-degree weather. So when you think about that, all you have to do at the site is hang the fueling stations which are inside, which we built here in-house at Plug Power.

You have to put the piping and do the piping from the fueling station to our skid, so that's outside work with our people, and then make a final connection to a liquid pump. So it makes the on-site work relatively small.

And if you just think about it, you have much greater repeatability in your (39:19) processes if you know you're building every one exactly the same, under the same quality system with the same people overlooking the activity. It also allows you to manage inventory much better. So, there's lots of benefits for us bringing this in-house..

Understood. And last question from my side.

When you talked about the high-power stacks from ReliOn, right, does it potentially change the mix of the systems you are shipping or is it another way where you can improve the reliability of the systems as you launch the stack?.

When we launch a stack, I mean our goal, Aditya, is to have stacks which operate for five years or six years without having been replaced. So, that's a goal that we're focused on for our in-house stack development as well as make clear to Ballard that that's the goal we need to achieve for units we purchase from them..

Understood. Thank you. And thanks for all the updates today..

Okay. It's all right..

Our next question comes from Moses Sutton with Cowen and Co. Please state your question..

Hi. This is Moses Sutton on for Jeff Osborne. Thanks for taking our question.

Can you provide more color on the timeframe for the internal stack development? Is R&D spending expected to persist at a higher level due to this effort?.

Moses, I think first I think Paul mentioned that I think the words you used, we see essentially our OpEx expense remain relatively flat during the coming year; that we have geared up for the activity. When it comes to stacks, we have Plug Power low power stacks working in the field today.

And we expect to continue to ramp more of those units into our products. In the end of third quarter, our high-power stack will be ready for production and we will be producing units in the fourth quarter with the Plug Power stack..

Great. That's very helpful. And how much of this quarter's revenue approximately came from ReliOn? And maybe you could provide some guidance on ReliOn revenue in 2015, especially related to the $20 million contract..

ReliOn revenue was in the $4 million to $5 million range. And in the coming year we expect ReliOn revenue to be $6 million to $7 million..

Great. That's very helpful. Thank you..

Okay..

Ladies and gentlemen, there are no further questions at this time. I'll turn the conference back to Andrew Marsh for closing remarks. Thank you..

Thank you. And outlining 2015, Plug Power will continue to showcase ourselves at powerhouse and hydrogen fuel cell space. There are several exciting marketing initiatives in March that we're happy to announce.

In the coming weeks, new Plug Power website will be launched, an update that fully integrates our hydrogen, material handling and stationary businesses at one site. In April, we'll be hosting a media event alongside the Department of Energy to showcase our ground support fuel cell units at the Memphis Airport.

We intend this event to attract VIP guests from state and federal legislations. And finally, in March here Plug Power will be exhibiting at Chicago at ProMat, the largest material handling show in North America. Our sales and marketing team will be on site promoting GenKey to over 30,000 attendees at booth number 672.

If you're at the show and I'll be there, we invite you to stop by personally to see a simulated hydrogen fueling from a GenFuel system, GenFuel dispenser into a GenDrive fuel cell. I appreciate everyone taking time this morning and really look forward to everything 2015 has in store. Have a nice day. Thank you..

Thank you. This concludes today's conference. All parties may disconnect. Have a good day..