Teal Vivacqua - Director of Marketing & Communications Andy Marsh - CEO Paul Middleton - CFO

Matt Koranda - ROTH Eric Stine - Craig-Hallum Jeff Osborne - Cowen and Company

Greetings and welcome to Plug Power's 2015 Second Quarter financial results conference call. At this time all participants are in a listen-only mode. [Operator instructions] It is now my pleasure to introduce Ms. Teal Vivacqua, Director of Marketing & Communications for Plug Power. Thank you, Ms. Vivacqua, you may begin.

Thank you. Good morning and welcome to the Plug Power 2015 Second Quarter 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 end 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 Sections 27A of the Securities Act of 1933 and Sections 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.

Thank you, Teal, and welcome, everyone, to Plug Power's Second Quarter conference call. Second quarter 2015 was one of the Company's best-performing quarters in our history. We achieved record revenues, more than $24 million. Our sales team brought in bookings in excess of $59 million. For the year-to-date, our bookings are more than $106 million. Gross margins continue to expand. We achieved 7% in the second quarter with our oldest product line, GenDrive, achieving a gross margin of over 26%. Our results displayed in the second quarter of this year represents that Plug Power is following the path we laid out at the start of the year. We've aligned the organization with the proper leadership. This coupled with product development and of course cost-centric practices, leave us pleased with the progress we are making. I would like once more to reiterate our projections for 2015. More than $200 million in bookings for the year. More than $100 million in revenue, comprised of sales of more than 3,300 GenDrive units and construction of at least 15 GenFuel hydrogen infrastructures and I think quite important, continual progress on gross margins. The third quarter is going to be even better than the second quarter with revenues of over $30 million. To date already in the third quarter, we have already recognized over $10 million in revenue and have the shipment plans and orders to meet this forecast. As most of you know, Walmart has become a steady customer for our GenKey orders, GenKey drive shipments and GenFuel. This predictable and repetitive buying behavior helps us more accurately forecast the business and properly support the customer with on-time deployments and ongoing care. Four sites have already been deployed this year in Bedford, PA; Wintersville, Ohio; Mankato, Minnesota and Gas City, Indiana. In total, this number is higher than we talked about before. We will deploy 9 to 10 full GenKey sites for Walmart this year, and continue to expand in 2016. Clearly, we're creating strong value for Walmart. Kroger is another value customer who is using our complete GenKey solution. In the past quarter, Kroger deployed more than 150 units in Atlanta and will convert its Delaware, Ohio facility to hydrogen fuel cells in the third quarter. At the end of the third quarter, we will have converted five of Kroger's 30 distribution centers. We've been converting their facilities at a rate of one per quarter over the past year. The GenKey value proposition works very well for Kroger. More success with automotive manufacturers is also anticipated. Honda, Mercedes, BMW, VW, are all Plug Powered customers and we are in discussion for additional sites with each of these manufacturers. The value proposition works for automotive manufacturers because our hydrogen fuel cell solutions allow them to be highly predictable with their fleet. The value proposition is also being proven by our new customers, some of our large customers that operate distribution centers around the world, as well as midsize customers like Dietz and Watson, FreezPak, ULine, and Newark Farmers Market, are all recognizing that Plug Power's GenKey offerings saves them money and proves warehouse efficiency. This traction with midsized fleets is another sign of Plug Power's technology improvements, especially within our GenFuel offerings. We're showing how customers with as few as 20 lift trucks and reaching trucks are able to achieve positive payback. Our investment in the GenFuel business is showing great progress as we continue to expand our serviceable markets. Plug Power's value proposition is being embraced by many customers. This provides us with confidence that we can achieve our $100 million revenue goal and $200 million booking goal this year. Let me now transition to international sales expansion. We are really pleased to announce the completion of our acquisition of HyPulsion, the European JV we started with Air Liquide. Both Air Liquide and Plug view this venture as a success. Over the past few years, we've developed a full suite of GenDrive products, have worked with the qualifier units with OEMs such as Jungheinrich in steel, probably most important, in this week I have my first Plug Power European sales meeting. We have also engaged customers throughout Europe with a special focus on high labor countries and the automotive manufacturing industry, where our value proposition is strongest. I said before, Plug Power's sells productivity and that concept holds value in Europe too as customers are looking for ways to recapture cost and productivity that are lost when changing batteries. We currently have a few additional product deployments going on as we speak with FM Logistics and Prelodis. We expect the European market to accelerate rapidly with the focused efforts on Plug Power's sales team. Many of our present North American customers are interested in the GenKey approach for Europe, which we believe is critical for market expansion. We have a number of deals in discussion and we anticipate that Europe will be contributing to the growth in the near-term. Now I would like to speak a bit about gross margins for our product line. I'm pleased to report we're making progress to enable positive gross margins across the board. Let's start by talking about GenDrive. In the past 24 months, gross margins have improved on our fuel-cell offering from 4% to 26%. This has been achieved via design simplification, purchasing power and scale manufacturing. With revised designs for the Class-2 and Class-3 fuel-cell products being offered in the fourth quarter and higher production level, this trend will continue. Part of our ongoing cost reduction efforts include incorporating Plug Power's own stack technology. We expect that a good portion of our Class-3 products for power trucks be shipped in the second half of 2015 will use a Plug Power air-cooled stack. Also we plan to be shipping some liquid-cooled stocks in the fourth quarter in our Class-2 reach truck units. These stacks of been designed to not only reduce initial product costs but also for longer life to reduce our service costs. We continue to evolve our product line and improve the performance of our fuel-cell technologies. Roadmaps continue to be in play to further drive down our product cost for the foreseeable future. This is an important point; we are doing the same for GenFuel and GenCare today. Today our service line incorporates both GenCare and GenFuel, and the margins for that product of move from minus 34% to minus 24% in the past quarter. These are numbers that we had with GenDrive in the past. I've talked about -- on many occasions some of the items which are ongoing to make these margins better. We anticipate that our service business will be profitable in 2016. That is because we reduced the failures of our GenDrive units by 70%, the largest single cost for our material in services stack replacement for high power, and by working with Ballard and with our new stacks, we have increased the life of high-powered stacks by 40%. We've also established a real-time monitoring system for GenDrive and GenFuel for each customer site that helps us to allocate resources appropriately. We also are engaging in developing predictive failure algorithms and leveraging geographical site concentration that allows Plug Power to migrate to a deeper [ph] model for our staff. This should enable us to have a higher workforce utilization. We have a product roadmap for GenDrive, GenCare and GenSys -- GenFuel which will allow all of our margins to continue to expand over the coming year. Finally, I would like to highlight, we are pleased with our 50% growth rate in 2015. $100 million revenue is an accomplishment. Our ambitions are to grow even faster. This factory we have here, shipping 800 units a quarter, we're doing in less than a shift. We can do a good deal more product. One important hurdle has been our ability to offer attractive financing terms to our customers by lending institutions. We believe if financing is simpler, deal closure would accelerate. And when you look back only two, three years ago, the solar industry had similar challenges and developed sophisticated financial vehicles to support accelerated growth and improve gross margins. We are looking at a variety of the options by studying that industry and have been successful, from facilitating a fund with direct investors to participating in so-called partnership flip-financing offering. Our goal is to have a finance vehicle in place for customers by year end that will not dilute our present shareholders. Let me emphasize, not dilute our present shareholders. And that will support the growth of Plug Power's business. Think of this as Plug Power financing. It is another element of our turnkey solution to customers. In summary, today we bring to our customers the following; a strong value proposition, focused around increased productivity and reducing operating costs. A set of turnkey solutions that include reliable, efficiency enhancing products, and outstanding service and an impressive list of some of the world's most forward thinking customers. We're growing at 50%. Based on feedback from our sales team, we believe with simple financing in place we can ship more units than are in our present plan. I would like to turn the call to Paul Middleton to discuss our financials for the second quarter. Paul?

Thank you, Andy, and good morning, everyone. I'd like to start off by sharing some financial highlights from the second quarter. We ended the quarter with over $24 million in revenue, representing 39% growth over the second quarter of 2014. This growth stems primarily from our GenKey solution introduced in 2014, and the continuing commercial traction we're gaining in the market place. Second quarter 2015 represents continued sales growth and, even more important, a quarter of continued momentum in orders and build activity preparing for the number of GenKey programs slated for the balance of the year. In addition to the 892 GenDrive units and three hydrogen installations recognized in revenue during the second quarter, Plug shipped an additional 396 GenDrive units and made construction progress on over four hydrogen installations that will be recognized in the third quarter. Total gross margin as a percentage of sales was positive 7% in the second quarter 2015 as compared to total gross margin of 1% in the second quarter of 2014. This significant continued operating improvement is indicative of our ongoing progress, both in terms of volume and cost-down initiatives. We reported an excess of $59 million in orders in the second quarter of 2015 and ended the quarter with approximately $206 million in backlog. Our 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 growth in overall backlog is indicative of our success in the market and provides a strong base as we focus on delivering on 2015's forecast. We use $10.6 billion in cash for operating activities for the second quarter of 2015 to fund the ongoing commercial efforts as well as required working capital investments. We ended the quarter with $109 million in cash and $136 million in working capital, which we still believe is ample liquidity to support our growth in 2015 and beyond, and strongly positions us to continue to strategically invest in the right path to accelerate long-term growth. Breaking out product revenue for the second quarter, the Company recognized revenue of $15.3 million associated with 892 GenDrive units. Overall, this compared to $12.6 million in product revenue and 687 GenDrive units in the second quarter of 2014. The second quarter of 2015 results reflect growth and overall volume, but comparatively a higher concentration of Class-3 units which impacts the sales mix. In addition, the second quarter 2015 includes stationary power revenues stemming from our ReliOn acquisition which was almost double in comparable sales the second quarter of 2014. This also impacts sales mix. Gross margin for the product revenue for second quarter 2015 was $3.7 million positive, or 24% of sales, as compared to $2.1 million or 17% of revenue second quarter 2014. Volume certainly contributed to the improvement, but the Company's continued focus on product design improvements, supply-chain leverage, and manufacturing process streamlining continues to drive margin enhancements. Service revenues for the second quarter 2015 were $8.4 million compared to $4.4 million in the second quarter 2014. This growth stems primarily from the new GenKey solution and three hydrogen installations in the second quarter of 2015, with only one hydrogen installation in the second quarter of 2014. The growth also stems from the growing number of GenCare service contracts and fuel delivery agreements, both associated with the success of the GenKey offering. Gross margin for service revenues in the second quarter of 2015 was negative in the amount of $2.1 million, or 24% negative as a percentage of revenue. This compared to total negative gross margin of $1.5 million, or 34% negative as a percentage of revenue second quarter of 2014. The margin rate improvement on service revenues stems mainly from tremendous improvements in our installed GenDrive base performance and cost to support them. The Company continues to make great strides in product design and resource leverage, the key drivers that will enable our service business to achieve longer-term target margin profiles. Research and development costs for the second quarter of 2015 were $3.4 million, as compared to $1.4 million in the second quarter of 2014. The incremental investments are commensurate with the Company's growth, including investments associated with ReliOn and our ongoing stack development, as well as increased investment in productizeing our hydrogen infrastructure platform. SG&A and amortization expenses in the second quarter of 2015 was $8 million, as compared to $5.4 million in the second quarter of 2014. The majority of incremental cost is associated with tremendous sales growth and require resources to support and drive future growth. Net loss, adjusted for the change in fair value of common stock warrants, for the second quarter of 2015 was $9.9 million as compared to the comparable adjusted net loss for the second quarter of 2014 of $5.8 million. Turning briefly to our view on the full-year 2015. Our confidence continues to build in the projections we previously shared of total revenue of 2015 exceeding $100 million. We still believe we'll recognize revenue for over 3,300 GenDrive units and over 15 new hydrogen infrastructure sites in 2015, as compared to over 2,600 GenDrive units and 10 hydrogen infrastructure sites in 2014. As previously forecasted, we saw a sequential ramp in the second quarter. We anticipate this trend to continue through the balance of the year. In terms of total administration expenses, as we have previously shared, we believe we've approached the required critical mass level we’ll only need to invest incrementally to support continued growth. Therefore, we see tremendous leverage opportunities in a 2015 forecast and we envision we will see this leverage even further as we move into 2016. In regards to margin expectations, we are seeing and still anticipate, sequential improvement throughout the year across all our product and service businesses. Overall gross margin and EBITDAS margin rates are moving in the right direction. In the fourth quarter 2015, we still anticipate that we'll exceed 29% gross margin on our GenDrive units, driven from the increased volume leverage, supply-chain costs-downs, and product design improvements. In regards to overall service margins, we still foresee substantial improvements which can stem from many factors. Growth in the hydrogen and infrastructure sales, the continued positive blending of the run rate of the newer more reliable GenDrive units designs, and our continued significant progress in addressing uptime issues of the installed fleet. We still expect overall growth and revenue profitability to enable us in the fourth quarter of 2015 to begin approaching the break-even rate of EBIDAS. In conclusion, we're satisfied with our sales growth and build activity. As we move into the back half of 2015, we look forward to continue building on our strong platform and sharing with you our continued progress. We will now open the lineup for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Matt Koranda with ROTH, please proceed with your question.

Congratulations on the strong gross margins. I just wanted to get a couple of housekeeping things straight and then we'll get into some questions. My math says 888 units shipped during the quarter, 396 of which will be recognized in Q3. So that's 492 units that were shipped and recognized within the quarter. Is that fair?

Within the quarter, that's correct.

Paul, correct me if I'm wrong, there's some units from the first quarter.

Yes.

Yes, yes, that is what I was getting to, I guess, is essentially I think about 400 units shipped in Q1 that were recognized in Q2, I think. Is that about right?

That's correct.

Okay, got it. Is there going to be a quarter this year where you guys think you might ship and recognize everything within a quarter, or should we just continue to bake in this lag of the 400 or so units that are going to roll into the following quarter?

Matt, I think that part of my discussion on some of the financing vehicles we are looking to put into place, whether it happens this year or early next year, I think that that lag -- the number of units in that lag will become smaller and smaller.

Okay. Got it, that's fair. In terms of the financing solution that you guys are envisioning here, I know you emphasized it will be non-dilutive. Could you just give us a little more color around your thinking in terms of maybe the structure or the source of funds for that sort of financing program?

I think, Matt, when you look at -- let's talk a direct investor model. If you look at a couple attributes of those types of investors, having a tax appetite, certainly has value, both for the tax credit and the long-term depreciation. So I think there are now in the U.S. three or four types of buyers of such an investment. One is the large family offices who bought into the solar deals in the early years, are one potential buyer. Insurance companies as well as other large institutions with tax appetites, as well as commercial banks. So I think the most probable next step is that you'll see a fund that will develop with direct investors to speed up the financing process. So that's one set of documents, one piece of information that we can put in front of customers.

Okay, great, that's helpful. In terms of gross margins, I'm just wondering if you could give us a little more color in terms of maybe the direct sources of improvements, especially as pertains to product gross margins. I mean, I know that a lot of it comes from increased volume here and just better fixed cost absorption, but can you help us understand potentially how much using your own internal stack contributed to the improvement in gross margins during the quarter?

That's a good question, Matt. The fixed absorption is important, but probably less important than the overall cost reduction effort. I would say that if I was going to bundle the improvements in the business, about one-third come from just continual design enhancements and improvements, much like we're going through now in the third and fourth quarter. And to-date, very little of that is our own stack, but it will have a much greater impact as margins improve in the third and fourth quarter for the business. I would put another third in the category that suppliers are becoming believers. When you place larger purchase orders you're able to have greater purchasing power. I think that we've been able to develop more -- deeper relationships with many of our suppliers who view us as a long-term opportunity for them to grow their business. I think another a third comes from efficiencies, both with fixed costs as well as the labor in our factory. Our factory just runs at the moment. I know many of our investors have seen our factory and there isn't a great deal of hiccups, it just runs every day. It is a combination of fixed low [ph] coverage, I believe the efficiency of our labor force shouldn't be overlooked. I mean, we've come to the point where -- I think probably when, years ago, we were talking that we would be able to build about 3,000 units a quarter in this factory -- and I think our view is at the moment are well north of 5,000 units that this factory can manufacture and produce because we're just getting better at it. The simpler designs have helped our factory get better at it. I hope that helps, Matt.

Yes, very helpful, Andy. On the service gross margin front, was wondering if you could help us understand the outlook here. Are we still tracking the plan with how you guys had envisioned the year going? And how do you feel about service gross margins as we move into the back half of 2015? What are the expectations there?

I will let Paul handle the second part of that question, but on the first part, we're actually doing slightly better than we expected from our internal tracking. Our plans are being executed. I think a key item is, as I mentioned is that both stack life and labor utilization -- on the labor utilization front, we have been able to move the depo models with some customers, and the fact that in real time I can see everything that's going on at a GenCare customer, both from a downtime of units, what kind of problems they are seeing, as well as being able to see what's going on with our hydrogen infrastructure. Just walk in our engineering area and everybody knows what's going on. I think that visibility has allowed us to more efficiently manage our workforce and allowed us to perform better than our internal models suggested. I think Paul can give you a little bit more insight on the second half of the year.

Yes, I think we have mentioned in the past that GenDrive is our more mature business and we have the most experience with that. This experience gives us great confidence that we can replicate that improvement with other businesses, and we're certainly seeing that. I think some things you will see in the back half include higher percentage of hydrogen installation sales in the service bucket. We're going to have -- as we continue to ramp, you're going to see a higher mix -- the favorable mix helps the overall margin profile. This continues to be great improvements. Our [indiscernible] cost service, they installed fleet as a percentage of that install fleet continues to drive downward. For the product design improvements and just a lot of the improvements they've made in maintaining the installed base. Certainly, our expectation is overall revenue of that service segment, you're going to see continued improvement as we go forward.

Okay. Very helpful, guys. Just a quick follow-up to that. Do you think we could approach break-even on the service gross margin front as we move into Q4, or is that more of a 2016 event?

I would lean closer to 2016, but I think, directionally, we're moving in the right -- in that path.

Okay, got it. Last one for me then I'll get back into the queue. As it pertains to HyPulsion, I know the initial agreements, back when you initially started the joint venture, had always envisioned PLUG taking control eventually. But maybe you could help us understand, why now? What has changed in Europe to give you guys the confidence that you're going to see some good traction at this point in time? Essentially, could you just give us a sense of maybe the pipeline in Europe and maybe in terms of when you might be able to announce your first commercial order there?

Let me start with -- We continue to have a very good relationship with Air Liquide. I think during the process, I think it became clear to both companies that PLUG, a company with one focus, developing material handling market for both hydrogen service and GenDrives' fuel cells, was really in a much better position to understand customers' needs as well as driving deals to closure. I mean, to a large industrial company, a business with a -- that can grow into $100 million in two or three years is exciting to us, but may not be as exciting to a company like Air Liquide, in the big picture, to get the right resources at the right time to support customers. This has been a discussion that we have had ongoing, Matt, since the company -- it became clear that we were viable. I think both of us felt that it was in the best interest of building the industry for PLUG to take the lead. Since last April of 2014, I've had these discussions with high levels at Air Liquide. We just felt it was the best way -- and I think they agreed -- the best way to expand this business more rapidly. On the sales front, I think that you will hear either on the third quarter or fourth quarter conference call -- and I suspect probably on the fourth quarter conference call -- about a number of deals that we expect to close in Europe. The funnel’s healthy. I'll probably take a trip over there myself in September to look at all the top opportunities. On paper, the funnel is healthy. Jose Luis Crespo has really been deeply involved the last six months. We think this business could accelerate like Plug's North America business with the right focus and right efforts.

Thank you. Our next question comes from the line of Eric Stine with Craig-Hallum, please proceed with your question.

Just sticking with Europe, I'm interested in your comments about customers in North America now that you've got full control, looking to expand to Europe and then may be tough to quantify, but is there any way if you look at the total size of your customer footprints in North America and provide some comparison to what those footprints look like in Europe and what the overall opportunity may be?

If you look at one area we've been quite successful with in North America is with German auto manufacturers. And that their footprint -- you take someone like BMW, their footprint in Germany is much -- by factor of 10, and maybe even a bit larger in Europe than it is in North America. And I think you look at somebody like the Volkswagen Group, they have a few facilities in North America, about 80 globally. You look at those companies -- and we believe, our main focus in Europe is going to be in really higher labor cost countries, as well as areas where there's intense manufacturing and distribution. So I think our main focus will be in places like Germany, [indiscernible], the UK. We put our own people on the ground in each of those regions already in the past month. I would say that we expect this business to grow. I think Europe next year could be in the range of $15 million in revenue for us if we execute it appropriately. I think that could continue to grow, like Plug Power's business has grown, I think we have the ability to double for a number of years to build this into a $100 million business in four or five years.

Okay, yes, that's very helpful. More limited, I guess, in areas you will focus in but -- and a little bit behind, but eventually you think that Europe can be, I mean, similar? Can it grow in lockstep with North America?

Right. I think it can grow at a faster rate than North America. I think, Eric, the initial focus -- one of the things is that I just don't want to go spend a lot of money in sales efforts and development efforts for Europe when I know that we have a strong value proposition in those three or four regions. And that, as we gather success there, I'm sure our focus will expand in Europe. You take somebody like VW, there's opportunities with VW in places like Spain and elsewhere. So when I say Germany, the main sales effort may be Germany, but working with these global auto companies, for example, the footprint will reach out and our activity will reach out. But we’re doing this very systematically. We have the products, we have OEM relationships we've developed with Air Liquide and other hydrogen relationships, and we're going to do this systematic and, quite honestly try to make it as profitable as soon as possible.

Okay. Understood. Maybe let's turn to the third quarter. I just wanted to clarify, did you say that to-date in the quarter you've done about $10 million? And I just was wondering if you could talk -- obviously it's related to GenKey -- but your level of visibility and what are some of the things that give you the confidence that $30 million plus is the number for this quarter?

What gives me the confidence? I have the ability to ship more than $30 million. I think we view $30 million as conservative. I have the backlog, I have the material, I have the shipment. I think it's not a question in any way, Eric, that I have to do anything from the sales front. My operations have become quite, quite efficient, to the point that I probably have to spend a half an hour a week talking to our manufacturing people about shipments -- I spend a lot more time on cost with them, but on shipments it's about a half an hour week. We have the bookings to make this quarter a reality. I think we came in with $30 million so that, quite honestly, I don't have to be explaining anything -- on the call in November because we know we have it.

Yes. So more project schedule and also just related to the revenue recognition around quarter end?

I would say revenue recognition. I would say that, I think Matt asked earlier, I think there will be a couple hundred units that will flow into the fourth quarter that we’ll ship in the third. But in no way will that impact my $30 million. I will -- we will be north of $30 million. The revenue is the least of my worries on this call this morning.

No, I get it. It's good to hear that's a conservative number, okay. Maybe the last one for me, just an update on the smaller hydrogen fueling units, one of your main things you are doing here going forward to expand the market? Thanks a lot.

Sure. At the moment, the products are, I'll say, miniature systems today. I think in the next year what you'll see is that our systems will be relatively unique for smaller sites. We have, as part of our product roadmap, just like we did with our GenDrive, when you take a GenDrive Class-3 product over five years, we drove it down from 24K to under 4K by the end of the year. We have plans for systems today which are simpler and easier and what probably really excites me is the work we have ongoing to have an offering that can dramatically change the game for us. By the end of the next year I think you'll see -- this first generation system which is better than anything else out there, but the next one is going to be even better.

[Operator instructions] Our next question comes from the line of Jeff Osborne with Cowen and Company, please proceed with your question.

A couple of questions, most of them have been addressed. Paul, I was wondering if you could touch on the $206 million in backlog. I might have missed it. What is the product and service split of that?

Give me a second, I can give you a better idea.

Maybe while you're looking that up, just for Andy, I was wondering if you could expand on the ReliOn timing on for the air and liquid cooled units. Are those going to be in general availability for revenue, or are these beta units that you're sending to Walmart or other customers? I just wanted to understand that. And the second follow on question about ReliOn is just how do we think about the potential for increased warranty reserves as the first quarter or two of those units go out on the field?

I think in the fourth quarter, I feel that almost all of our low-power units that are shipped from our facility will be ReliOn units. Some in the third quarter. These have been tested, proven in the field, so we're past that stage, Jeff, we've been very conservative. From all the testing we've seen here and at customer sites, I expect that the ReliOn units will exceed the performance of what we presently use. I would go as far to say that if you look at ReliOn's history, these are not the first production stacks from ReliOn. There are thousands of ReliOn stacks in the field, most of them air-cooled units. The failure rate of those units and survey the application backup power, Jeff, is not as challenging as material handling, but we see rates that suggest to us that there should not be any additional need for warranty reserve, as well as the fact, Jeff, quite honestly the units cost less. When one fails, the cost to me is a lot less than when our present unit fails.

That's good to hear.

So we're pretty pleased with it.

And low-power historically has been, what, two-thirds of units?

I would say 50% -- If you think about distribution, a center like Kroger, about two-thirds are low-power, one-third high-power. Manufacturing facility that slips, usually because of our customer concentration. Somewhere between 50% to 60% are low-power, Jeff.

Okay. And you'll have the air cooled out sooner rather than later, and then exiting the year is when the ReliOn liquid-cooled would come out for the Class-1?

Actually, I would say that, not just out of our Spokane activity but out of our activity here in Latham, as well as -- and I'm sure sometime in the next month I'll probably be announcing our supplier for membranes for that activity. I would say all three of us have really been jointly involved. PLUG here, there's a lot of capability that exists in this business from all these years. There's reformer technology that people don't really think about. There's stack technology where PLUG, probably from a mechanical point of view, how to assemble, how to manufacture a stack that’s -- a liquid-cooled stack, PLUG has a deep of a knowledge as anyone else does in how to put together those offerings. We've been leveraging some old PLUG folks, some of our new PLUG folks in Spokane, as well as our real good partner on the membrane side.

Good to hear. Then last question. I don't know if Paul had the 206 split on the backlog, that would be helpful. And just when should we think about the HyPulsion GA for Europe? You mentioned the $15 million, but when exactly would you be taking orders and when would the first revenue -- is that the second half of the year? 2016?

I would say we would be taking orders this year and starting some revenue in the first half of 2016.

Okay. Excellent.

It's about 45% of the backlog is product oriented.

And do you happen to have the unit number with that, Paul? Is there any material change in pricing with the backlog relative to what's flowing through the P&L today?

It's a combination of GenDrives, hydrogen insulations and stationary. But demand -- I think you would see probably a fairly consistent mix.

Okay. Excellent. I appreciate it.

Thank you. There are no further questions at this time. I'd like to turn the floor back to Andy Marsh for closing comments.

Thank you for joining Plug Power's second-quarter conference call. We look forward to talking to you in the third quarter. As I said previously, we're very clear that $30 million in revenue will be achieved this quarter and we'll see continual progress on our gross margins. We'll hit our $100 million in revenue this year, $200 million in bookings and gross margins, I think it is demonstrated by GenDrive. We’ll continue to increase. Thank you, everyone. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.