普拉格能源 (PLUG) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Plug Power 2009 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cathy Yudzevich, Manager of Investor Relations for Plug Power. Ma'am, you may begin.

Good morning. Thank you for joining Plug Power to discuss our first quarter operational and financial results. Andy Marsh, CEO, and Gerry Anderson, CFO, will be on this call today. This call will also be archived on our website at plugpower.com in the Investors section under Presentations.

This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, expectations regarding revenues and product orders for 2009. These statements are based on current expectations and are subject to certain assumptions, risks, and uncertainties, many of which are difficult to predict, are beyond our control, and that may cause our actual results to differ materially from the expectations in our forward-looking statements.

These risks include, without limitation, the timing and quantity of orders, shipments and installations for our products; our ability to develop commercially viable energy products; the cost and timing of developing our products; market acceptance of our products; and our ability to lower the cost of our products and demonstrate their reliability. Other risks and uncertainties discussed under Items 1A Risk Factors in Plug Power's annual report on Form 10-K for the fiscal year ended on December 31, 2008, as filed with the SEC on March 16, 2009, and in the reports we file from time to time with the SEC.

Plug Power does not intend to, and undertakes no duty to update any forward-looking statements as a result of new information or future events.

At this time, it is my pleasure to turn this call over to Andy Marsh.

Thank you, Cathy. Good morning, everyone, and thank you for joining our call. Over a decade ago, Plug Power emerged as a leader in the pursuit of sustainable, clean energy solutions. Today, Plug Power is a company delivering those sustainable, clean energy solutions.

Since joining Plug Power a little over one year ago, my tenure has marked a significant shift in Company's priorities. Recognizing technology development must continue, I leveraged Plug Power's history of research expertise and transformed this Company into a sales-driven organization focused on revenue growth and profitability.

From a market perspective, the present business and government climate support rapid growth for companies developing innovative, alternative energy products. Fuel cells like solar and wind are part of the equation for energy independence and a cleaner, more sustainable lifestyle. I firmly believe, however, customers will only adopt alternative energy solutions when their operations experience increased value that is otherwise unattainable with traditional technologies.

To date, Plug Power's momentum in the marketplace has hinged on our ability to identify the markets in which our fuel cell systems offer the consumers the greatest value as a clean energy solution. Specifically, the material handling market, the prime power market, and the residential power market, each represent a pedestal supporting the foundation of Plug Power's path to profitability.

Accordingly, today's call will begin with a discussion of these markets and our restated 2009 milestones. Gerry Anderson will then discuss our first quarter financial results. Afterwards, we will conclude with a question-and-answer session and final comments.

I'd like to begin by discussing Plug Power's material handling product, GenDrive. GenDrive's ability to enhance customer productivity, while reducing overhead and operator downtime, makes the material handling market a reliable, near-term revenue opportunity. As Plug Power forges a path to profitability, the strength of the material handling market will provide a dependable stream of product sales and shipments.

During the first quarter of 2009, Plug Power shipped 187 GenDrive units, as customers across the country adopted fuel cell products into their operations. Most notably, 140 Class III GenDrive fuel cell units were shipped to central grocers in March for the grand opening of its state-of-the-art facility.

On April 15, the Department of Energy also announced $41.9 million in awards to spur the growth of fuel cell markets, drive economies of scale, accelerate the buildout of the hydrogen infrastructure. Plug Power's material handling customers, including FedEx Freight, Cisco, Janco, and Anheuser Bush received a total of $9.7 million, nearly one-quarter of all funding allocated. With this funding, Plug Power expects to ship over 300 Class I, Class II and Class III GenDrive systems to customers' distribution centers and manufacturing facilities in 2009 and 2010.

Market pull remains strong, as Plug Power advances strategic partnerships with lift truck manufacturers and suppliers to reduce material costs and hydrogen expenses. Bauer remains a strong partner in the evaluation and development of the latest stack technology to decrease reliability and reduce overall product cost.

Our negotiations with hydrogen suppliers have also accelerated, due to both independent customer interest and the April DOE award announcement. These activities and partnerships help extend our customers' reach beyond early adopters.

With the 2009 releases of our Class II standup product and our Class I, 3,000-pound sit-down counterbalance product, Plug Power will have a total available market in North America of approximately 720,000 trucks by year-end. The Class II standup product will also allow Plug Power to offer full site conversions for food distribution centers and warehousing applications.

In 2009, market opportunities have slowed for new forklift sales, which are down by approximately 50%. We are confident this market will recover. In the meantime, current lift truck fleets continue to experience lead acid battery failures every day.

Plug Power's GenDrive products address a large market with a value proposition that has a payback time of less than two years for many potential customers. Moreover, many companies are experiencing difficulties facing internal sustainability goals to reduce their carbon footprints.

I recently spoke with an ex-general manager from a battery company. He told me that they are out of sustainability solutions and that recycling cartons just isn't enough to meet customers' requirements.

For instance, Plug Power completed an analysis for a customer, which showed that by converting 45 of their 129 distribution centers to fuel cell power forklift trucks, the customer's carbon emissions were reduced by more than 25% annually across the United States. This is the equivalent of taking 20,000 passenger vehicles off the road each year.

This analysis means many customers can meet internal goals for sustainability just by cutting over from lead acid batteries to fuel cell powered material handling equipment at their large distribution centers and manufacturing facilities. Our competition, lead acid batteries, can't address this need.

To be profitable in the material handling market, Plug Power needs sales of approximately 4,000 to 5,000 units a year. This represents less than 1% of the North American total available market. Plug Power's target is to achieve this goal in less than three years. Accordingly, this market represents the first pedestal for building a successful, profitable enterprise.

Now moving on to discussion of Plug Power's prime power business and GenSys product. Designed to provide primary power where grid power is unreliable or nonexistent, GenSys offers our Company an additional near-term revenue stream with significant opportunities for commercial deployments.

I'm happy to announce that Plug Power will now be offering GenSys as a commercially available solution providing considerable economic and environmental benefits abroad. As you know, our prime power efforts have been focused on providing a cost-effective solution to the need for reliable power at cell sites in remote locations in India.

Despite the global economic downturn, India added a record number of wireless subscribers during the first quarter of 2009. This ongoing subscriber growth continues to drive the rapid buildout of cell towers. Our in-country GenSys testing has demonstrated significant operating cost savings at locations in India, where deal generators and batteries are being used to provide power 24 hours per day. These operating cost savings are the results of the high electrical efficiencies inherent to fuel cells, which result in lower fuel costs to our customers.

We are moving aggressively to bring in-country GenSys sales, marketing, contract manufacturing, and support operations to India this year, and expect to make our initial product deliveries to customers during the fourth quarter.

We are also currently expected to ship at least 1,000 prime power units during the 12 months following the commencement of GenSys manufacturing in India, committing to a minimum of 500 unit orders this year. We have a letter of intent from a major telecommunication provider supporting this goal.

We believe the market for this product will continue to grow as we expand into other regions, increase our market reach in India, and reduce our cost to address a large segment of the market. To be profitable in the prime power market, Plug Power must generate approximately 2,000 unit orders per year. Like material handling, we target to achieve this goal in less than three years. Accordingly, the prime power market represents a second pedestal of our business.

I'll now turn to the residential power market and Plug Power's residential combined heat and power CHP system.

Unlike our material handling and prime power products, Plug Power's residential power solution is not commercially available today, and thus offers fewer near-term revenue opportunities. The residential CHP product, however, is strongly positioned as one of Plug Power's long-term revenue sources. Improving household efficiencies from 45% to 85%, this residential technology will significantly reduce home energy costs and carbon emissions while supplying home heating and electrical requirements.

Based on average New York State energy prices, for every dollar of fuel spent for a residential CHP system, a customer receives $0.98 in electricity and $0.60 of useful heat. Accordingly, every dollar spent towards fueling a Plug Power residential CHP system delivers $1.58 worth of energy, saving our customers, on average, 30%.

Moving from the laboratory to real-world applications by year-end, our residential CHP system will be running as part of reliability fleets, testing the product's commercial readiness and durability. Current members of our stakeholder programs in Europe, Asia, and North America continue to evaluate and provide feedback on our prototype CHP system.

During 2009, additional systems will be installed in pre-selected homes for real-world demonstrations. Our system is also pending installation for a local project partnership with Natural Grid.

In addition to these local reliability fleets, as part of the April 15 Department of Energy award announcement, the residential CHP product also received $3.4 million for a 12-unit, three-year demonstration project in residential and light commercial applications in New York and highly-visible locations in Southern California. As part of this project, Plug Power will partner with So Cal Gas, a Sempra Energy unit, and the National Fuel Cell Research Center at the University of California, Irvine.

While the residential CHP product is still a few years from commercial availability, this award reflects our resolve to secure the funding necessary to bring a commercially viable, combined heat and power fuel cell-based solution to the home. As part of this marketing effort, Plug Power is aggressively pursuing opportunities for large-scale fleet deployments. Accordingly, Plug Power believes our current investment in this technology will drive shareholder value in the future and represent our third pedestal to build a large successful enterprise.

In light of these recent government activity and sales opportunities, Plug Power has adjusted two of its previously announced 2009 milestones.

First, Plug Power is increasing our 2009 guidance relative to orders from 500 to 1,000 units received by year's end. Additionally, Plug Power will also contain net cash to $38 million to $42 million for the full year. This increase from $33 million to $37 million is made to accommodate the launch of our GenSys prime power solution and the establishment of Plug Power's in-country GenSys sales, marketing, contract manufacturing and support operations in India this year.

The final two milestones remain unchanged -- Plug Power will still release the GenDrive Class II product in the fourth quarter. Plug Power is also still committed to announcing a path and timeline to profitability in the fourth quarter.

At this point, I'd like to turn the call over to Gerry Anderson for a discussion of first quarter financials.

Thank you, Andy, and good morning, everyone. In highlighting our order and shipment flow for the quarter and year-to-date thus far, I'd first like to reiterate our confidence in our businesses, which is demonstrated by the doubling of our full-year order target to 1,000 units. But that said, we do expect quarter-to-quarter order and sales activity to fluctuate widely, as we continue to build momentum in our businesses.

For the quarter just ended, we had two unit orders. However, the quarterly tally was impacted by the delay in the announcement of the Department of Energy awards, due to the federal government's transition to a new administration. We are pleased to report that all nine of the proposals submitted by our prospective customers were awarded. As a result, over 300 GenDrive units will be going into commercial applications and will be recognized by Plug Power as product sales.

Shipment activity for the first quarter was quite strong -- 198 total units shipped, of which 186 were GenDrive units. The majority of the GenDrive shipments supported Central Grocers' new distribution facility in Illinois. Our backlog at the end of the quarter was 284 units, consisting of 128 GenCore and 156 GenDrive systems with an estimated and voiceable value of $4.9 million.

Turning to our statement of operations, total revenue for the first quarter was $2.6 million -- $1.3 million from product and service sales and $1.3 million from research and development contracts. The 51% increase in product and service revenue over the comparable prior year quarter is due to our larger installed base, over which we continue to recognize revenue. With the 198 units shipped in the first quarter, our installed base has now reached approximately 863 units.

As noted in prior calls, due to our development stage status, we defer a recognition of product and service revenue and instead, recognize revenue on a straight-line basis over the service period of each installed system. At March 31, our deferred product revenue stood at $4.5 million, an $877,000 decrease over our 2008 year-end total. We expect to recognize this deferred revenue over future periods as the service contracts on the associated shipments are fulfilled.

Our first quarter 10-Q will be released later today and will provide further explanation of our revenue recognition policies as a development stage company. We encourage you to review that document once it is filed with the SEC.

R&D contract revenue at $1.3 million represents a $1.5 million decline from the prior-year first quarter. As commented on earlier, the delay in announcement of new DOE awards also impacted our R&D contract efforts. Two major demonstration programs totaling slightly more than $6 million in revenue were awarded to Plug Power, and we will now look to begin work on these programs over the next several months.

Additionally, as we noted earlier, the majority of the new DOE awards are in the hands of our customers. Plug Power will be recognizing product revenue as we deliver GenDrive units under these projects. Consequently, we now expect our full-year 2009 R&D revenues to be in the range of $8 million to $9 million.

Our total cost of revenue for the first quarter of 2009 was $2.7 million and was comprised of $500,000 for product and service revenue and $2.2 million for R&D contract revenue. Product and service cost of revenue is down $1.2 million from the prior-year first quarter, even though our shipments are three-fold higher thus far in 2009 than the comparable 2008 period.

This difference is attributable to Plug Power's decision to structure the Central Grocers' deal under a rental or operating lease. Accordingly, the value of these units will remain on Plug Power's balance sheet and will be amortized over their useful lives.

Our cost of revenue for R&D contracts, comprised of materials, labor, and overhead, represents 166% of R&D contract revenue for the quarter. The two new DOE programs awarded are both 50/50 cost share arrangements, so at the current mix of programs, we do expect cost as a percentage of revenue to track higher as we progress in 2009.

Research and development expenses costs incurred for internally funded R&D programs were $4.5 million for the first quarter of 2009, down from $10 million in quarter one of 2008. This decrease run rate results from the impact of the two restructurings completed in 2008, aimed at rationalizing our Company's size for our short-term business opportunities and increased focus on sales and marketing activities.

Selling, General and Administrative expenses were $3.2 million for the first quarter of 2009, representing a $3.3 million decrease over the comparable prior-year quarter. Again, the effects of the restructurings contributed to the lower run rate, primarily from reductions in General and Administrative expense categories.

Our net loss for the quarter ended March 31 was $8.2 million, or $0.06 per share on a basic and diluted basis. Weighted average shares outstanding were 128.5 million for the quarter. Net cash used in operating activities for the first quarter was $12.8 million. On March 31, 2009, the Company had $88.7 million in cash, cash equivalents, and available for sale securities, and $80.7 million in working capital.

At this time, we would now like to open the call to any questions.

(Operator Instructions). Steve Sanders, Stephens, Inc.

This is actually Trey for Steve. My first question is on the updated quarter guidance milestone. You obviously feel fairly good about the outlook. Did the DOE awards help with that increase? Could you talk a little bit about the driving factors there? And how should we be thinking about the timing of the order flow? Is it fairly even? Back-end loaded? Anything you could throw out there would be helpful.

Sure, Trey, this is Andy. The primary reason for increasing our outlook for the year is the success we are having in India. We are -- as I announced today, we have a letter of intent from a major telecommunication provider in India for units. We expect to be making an announcement on the final order in the coming months.

We also -- I believe the DOE awards provide us the assurance that meeting the additional 500 GenDrive units this year has made us very comfortable. We've already seen the first order associated with that deal from FedEx Freight, so that we're very, very confident that the 1,000 units orders for this year is achievable.

Okay. And then on the GenSys and the traction in India, what changed there in, I guess, the past couple of months? How do you see the market potential there for your GenSys line?

Trey, I think what has changed is that we have spent -- and we've been very conservative -- and we've spent the past six months looking and working through the material cost and operations in India to convince ourselves and build a business model that would allow us to be gross margin positive for the first unit we ship.

I think one of the changes in emphasis I've made in the business that any deal we do today, we're looking to make money on that deal instead of just using that to develop the market. And we went through an exhausted exercise. And at the end of that exercise, we concluded that by the time we've reached 2,000 unit sales, not only would be we be covering our material costs, but we would be covering any expenses associated with building that business and on a daily basis in that business.

So, when I used the numbers for GenSys of 2,000 units and GenDrive for 4,000 to 5,000 units, that means those businesses have reached the point where they're net income positive.

Okay, great. That was helpful. And then, Andy, I think you mentioned on the last call, as far as GenDrive and taking out costs, kind of towards that path to profitability, could you update us there on where you're at, as far as cost reduction? I think you said something along the lines of the 45% range by year-end, with the majority of that coming out of design and just improvements with any other piece being scaled.

Sure. Based on the last call, we are on track for those type of cost reductions. We're also driving the business actually a little bit harder. Sometimes during these difficult economic times, suppliers are more anxious to work with companies that have potentials, especially after we come out of the recessions and they envision larger volumes.

So we've been actually working two fronts rather aggressively. One front is that we're looking to simplify our designs. And on the F1 product, we've actually come up with quite an elegant architecture to support that activity. On the F3, we've made some dramatic changes over the past three to four months.

We've also, though -- when companies are in the development stage, their procurement reach is usually very close to where their design operations are. Today, we are aggressively looking at sourcing components not only 100 miles around the radius of Albany and 100 miles around the radius of Vancouver, but actually have established a global supply chain presence, and looking to buy components at the right place in the world with the right quality suppliers.

Our India activity, actually, over the last six months, have taught us a great deal about the cost of material in North America, in China, in India, and we're incorporating that throughout the business.

Okay, great. And then, Gerry, the operating expenses were obviously down significantly. Is this the kind of run rate that we should be looking at going forward? Or would you expect this to tick up slightly as the year progresses?

Yes, and again, Trey, in alignment with our guidance on revising the cash burn, we will have some uptick relative to funding the India operation. Not all of that cost is anticipated to be ongoing operating costs. We do have some startup costs. But we're very pleased with our run rate where it is right now. Absent the India initiative, we do expect that the type of run rate you saw on the first quarter would continue.

Okay, great. Thanks, guys.

Stuart Bush, RBC Capital.

So, I know it's a tough economic environment this quarter. So your revenues came in below where I was expecting. My main concern is what you mentioned on the statement -- and I'll take a look at the 10-Q about revenue recognition, but the Central Grocers' shipment -- when you guys originally announced it, you announced it as a purchase. Is it now a lease? Or can you explain what happened there or what the difference is? Maybe I just missed it in the past.

Sure, Stuart. This is Gerry. It did end up being structured as an operating lease. As we worked through finalizing the financing with the customer, as you may be aware, there's a fairly significant investment tax credit that is available on these units. Our end customer was not able to utilize that tax credit, so we had to find a way to monetize that on behalf of the customer.

So we ended up structuring this where we basically own that equipment and we will bill them monthly in an operating lease. The good news on that is, is that that investment tax credit will come to Plug Power now, which we expect that to be in excess of $700,000. And we will probably be one of the first recipients of the new application process to receive a grant or a check from the government in lieu of credit.

When do you expect to receive -- which quarter should we expect to hit the books on that?

Well, we're still waiting for the Treasury to finalize the application process. We expect that that will be sometime early July. So our expectation is we will see that money in the third quarter.

Gerry, do you want to comment on KeyBanc's relationship in this deal?

Sure. KeyBanc, our banking partner, did come to the table and help us with this deal. In essence, they funded the inventory for us, so we do have a promissory note in place with KeyBanc. And, again, going forward, we're hopeful that we can line up banking partners to help us do deals with customers that would rather rent than own the equipment.

One of the avenues that we are also looking at and working with the government and Treasury with is a funding -- a guaranteed loan funding program. So, a lot of positives that we're working on to help facilitate financing deals.

That's great. So you are -- are you actively yet able to go out and pitch a lease versus own prospect to customers out in the marketplace now?

We are pitching that. We are working diligently with our financing partners, such as KeyBanc, and I would comment, just like everyone else, credit markets are extremely tight right now. But again, as I mentioned, the loan guarantee program that's being rewritten right now should be a big benefit to helping us do more business on a financing-lease basis.

So in your existing backlog, are there any other units in that backlog that are now expected to be structured as a lease instead of a sale?

A part of that backlog on the GenDrive side, approximately 80 units is with Central Grocers, so our expectation is that that will also be a lease. In terms of the remaining part of the backlog, we have not finalized financing arrangements with customers yet.

Okay, great. Thanks a lot, guys.

[Julie Katu], Simmons and Company.

I may have missed this, but I'm looking at your gross margins that you have this quarter for your Product and Service segment. And I'm just wondering is -- you were positive this quarter. I was just -- is it mostly a function of your higher shipments that we saw in the quarter? Or -- I know on last quarter's call, you'd expected to have by the second half of '09 all of your GenDrive units, to have a lower cost than their prices. I was wondering if you could speak to that.

Sure. This is Gerry again. And again, part of the reason that you see the results for the first quarter, as we've talked in the past, typically for our product sales, once we ship, we recognize the full cost of sales. The big difference for this quarter is 140 units that shipped under that Central Grocers arrangement.

Our operating lease is an operating lease, which means we own the assets. So, that does not hit cost of sales. Those assets are booked on our balance sheet under property, under leases. And it will be amortized over the useful life of the equipment.

So that's the major difference. Relative to the comments on where we expect to get through the end of the year, we are driving aggressively to have every GenDrive deal be gross margin positive. I would also say that we're pretty pleased with the results that we expect to see in the Central Grocer deal.

I can say that our variable costs for that deal was less than our price.

Okay, great. Thank you for clarifying.

(Operator Instructions). [Maggie Marlin], Ardour Capital.

Actually, I too was going to ask about the product gross margins, but I was already beat to it. So, no questions from me.

Okay.

(Operator Instructions). At this time, I'm showing no further questions. I'd like to turn the conference back over to Andy Marsh. Sir?

Thank you for your questions. Before concluding this call, I would like to tell everyone that the annual shareholders meeting will be held on May 20 at 10:00 a.m. Eastern time at the Goodwin Procter offices in New York City.

In conclusion, the face of Plug Power has changed. Having spent over 10 years developing our fuel cell technologies, Plug Power has finally transformed to a sales-driven organization poised to set a path and timeline for profitability. We have locked the key to a successful enterprise by identifying the three markets where our fuel cell energy solutions provide the optimum value for our customers. In doing so, this Company is well-positioned to take advantage of the present business and government climates to bolster sales and continue critical investments in the residential market.

In sum, there's never been a more compelling time to invest in sustainable, clean energy technologies, and there may never be a more exciting time to provide sustainable, clean energy solutions. Thank you, everyone, for your time this morning.

Thank you, ladies and gentlemen, for your participation in today's conference. You may disconnect your lines at this time. Thank you and have a lovely day.