普拉格能源 (PLUG) 2010 Q3 法說會逐字稿

Greetings and welcome to the Plug Power third-quarter 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. It is now my pleasure to introduce your host, Cathy Yudzevich, Manager of Investor Relations for Plug Power. Thank you, Ms. Yudzevich, you may begin.

Good morning. Thank you for joining Plug Power to discuss our third-quarter results for 2010. 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 2010.

These statements are based on current expectations that are subject to certain assumptions, risks and uncertainties, any of which are difficult to predict beyond our control and that may cause our actual results to differ materially from the expectations in our forward-looking statements, including statements regarding the risk that unit orders will not ship, be installed and/or convert to revenue in whole or in part, the cost and timing of developing our products and our ability to raise the necessary capital to fund such development costs, the ability to achieve the forecasted gross margins on the sale of our products, the actual net cash used for operating expenses may exceed the projected net cash for operating expenses, the cost and availability of fuel and fueling infrastructures for our products, market acceptance of our GenDrive system, our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution, and servicing and the supply of key product components, the cost and availability of components and parts for our products, our ability to develop commercially viable products, our ability to reduce product and manufacturing costs, our ability to successfully expand our productlines, our ability to improve system reliability for GenDrive.

Competitive factors such as price competition and competition from other traditional and alternative energy companies, our ability to manufacture products on a large-scale commercial basis, our ability to protect our intellectual property, the cost of complying with current and future governmental regulation and other risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission on March 16, 2010 and 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. There was a time when fuel cell technology thrived only in labs and research centers. That time has passed. Driven to become the first profitable manufacturer of commercial fuel cell systems, Plug Power has installed more than 800 GenDrive systems in commercial customer operations across North America. These are not trials. Our GenDrive systems are operating in facilities that are 100% dependent upon the reliability and productivity provided by our GenDrive solutions.

Plug Power has experienced continual momentum in our customer discussions. We acknowledge our growth rate has not met our expectations due to delays in the cadence of corporate purchase orders. This has led Plug Power to adjust its shipment expectations for the year from 1100 units to between 650 to 800 systems.

That said, having shipped more systems year-to-date than any other full year prior, I am encouraged by this Company's growth and confident that our successes continue to lay the foundation for our path to profitability.

Accordingly, I am happy to use this opportunity to announce several successes that highlight the progress Plug Power is making with both our customers and strategic partnerships. Last Friday, Sysco Front Royal committed to fully transitioning their current battery power fleet to Plug Power's GenDrive solution. This opportunity has yielded 112 system purchase orders for a Sysco brownfield site in Virginia and represents the third Sysco site to fully convert to fuel cell operations.

We have also received a letter of intent for 160 systems at a fourth Sysco location and we are in continual discussions for a number of additional Sysco sites.

We have also executed a supply agreement in October with a large bottling company committing to a plan for the purchase of a minimum of 100 units by December 2011. Since the execution of this agreement, that company already identified the site for the first 36 systems to be deployed in 2011.

That value business from these marquee customers cannot be overstated. As the commercialization of Plug Power's fuel cell systems continue to ramp up, our customers' confidence in our products and value proposition will solidify our reputation as the leader of this industry.

The strength of Plug Power's strategic partnerships also continues to introduce new prospects through our expanding customer base. On October 19, Abel Womack issued a purchase order for 25 GenDrive systems for delivery at a CVS distribution center in Waverly, New York. Plug Power expects a purchase order for another 55 units in the fourth quarter of 2010 and first quarter of 2011 in conjunction with a full hydrogen deployment at this site.

The partnership recently generated similar successes. In December 2009, Abel Womack, the top Raymond dealer, Raymond and Plug Power jointly secured a purchase order from United Natural Foods through collaborative marketing efforts.

Looking forward, we expect our successful trials last quarter with Safeway, Ford, US Food and C&H to yield purchase orders in 2010. Combined, these manufacturing and high throughput operations represent a total opportunity of more than 150 distribution centers with more than 20,000 forklift trucks. Seven additional demonstrations are scheduled in the fourth quarter to keep our sales funnels stocked.

In addition to our recent sales activity, Plug Power's existing customers continue to independently promote the commercial success of their current fuel cell operations. Most notably, Plug Power celebrated alongside several customers as GenDrive powerlift truck fleets were deployed at Sysco Houston, United Natural Foods, BMW, Walmart Canada and Federal Express Freight.

Referencing FedEx Freight ribbon-cutting in Springfield, Missouri, US Energy Secretary, Steven Chu, touted the official launch of the fuel cell fleet deployed as part of the Department of Energy's Recovery Act funded stimulus program. As Secretary Chu stated, this investment is part of a broad effort to improve American competitiveness, reduce our dependence on foreign oil and support the country's leadership in the clean energy economy of the future.

In addition to our material handling activities and in line with the Company's objectives to monetize values associated with our GenSys and GenCore business, in October, Plug Power leveraged the strength of our intellectual property by executing a nonexclusive licensing agreement with IdaTech for the IP related to our stationary power products.

As companies cooperate to jointly develop and commercialize fuel cell industries, improvements across the board will be recognized most significantly in the developing supply chain of fuel cell compounds. These type of agreements will continue to help drive down prices and improve reliability. I would like to now turn the call over to Gerry Anderson to discuss our performance metrics in greater detail.

Thank you, Andy and good morning, everyone. While we had a good quarter in terms of shipments with 170 GenDrive units going out to eight different customers, admittedly, it was a frustrating quarter for us in terms of not being able to capitalize on our growing sales funnel and close any new deals by quarter-end.

During the quarter, we did have a reduction of 19 units to our year-to-date order book due to a change order from one of our customers who realized they would need fewer of our fuel cell powered units than anticipated to complete their daily workload. We ended the quarter with a backlog of 387 units, comprised solely of GenDrive systems with an estimated invoice value of approximately $10 million.

As Andy has already noted, based primarily on the timing of getting deal flow and our sales pipeline closed, we have lowered our full-year shipment guidance to be within the range of 650 to 800 units. To somewhat put things in perspective, our year-to-date shipment total of 371 units already exceeds full-year totals from any of our previous years and we expect our fourth quarter to be the best shipment quarter in our history.

Looking at operating results for the third quarter of 2010, total revenue was $5.8 million, a $3.2 million or 126% increase over 2009's quarter three results and was comprised of $4.8 million from products and services and $1 million from research and development contracts.

As we noted in last quarter's call, beginning with 2010, we have adopted revenue recognition guidance under ASU 2009-13 whereby the Company now recognizes revenue from equipment sales upon delivery. Accordingly, in our product and services revenue for the quarter, we recognized $3.6 million on shipments that, in prior years, would have been deferred and spread over contract lives.

This fact, along with an increase in shipments from 6 to 170 units accounts for the $3.8 million increase in product and service revenue for this quarter as compared to the quarter three of 2009.

Our revenue recognition policies, as well as other accounting policies, are more fully detailed in our filings with the SEC. We encourage you to review these documents for further explanations of our policies.

R&D contract revenue at $957,000 is a $540,000 or a 36% decline from the prior year comparable quarter. As we have previously noted, our efforts going forward are focused on commercial sales activities and the resultant product and service revenue instead of R&D contract revenue, which our 2010 financial results thus far bear out. We will continue to deploy resources to the R&D contract programs we are working on, but our full-year R&D contract revenue is forecasted to be less than $4 million.

Our total cost of revenue for the third quarter of 2010 was $9.1 million and was comprised of $7.3 million for product and service cost of revenue and $1.7 million for cost of R&D contract revenue. Product and service cost of revenue increased $6 million from the comparable prior year quarter. Again, the biggest driver here was the fact that 164 more units shipped in the 2010 quarter versus the comparable 2009 quarter. Our cost of revenue for R&D contracts decreased from the prior year quarter by $1.1 million, or 39%, to $1.7 million, which relates to the fewer number of contract deals we are working on this year as we focus our resources on commercial sales activities.

In our operating expense categories, research and development expenses for the quarter decreased $2.3 million, or 52%, to $2.1 million from the $4.4 million incurred in the third quarter of 2009. The wind-down of our operations in India, Canada and Holland are the primary drivers of this decrease.

Our selling, general and administrative expenses for the quarter were $3.4 million, a decrease of $543,000 or 14% from the prior year third quarter. The wind-down of operations in Canada, affected with the restructuring announced in May of this year, was the primary contributing factor to the decreased spend rate in SG&A.

Our net loss for the quarter ended September 30, 2010 was $9.3 million, or $0.07 per share on a basic and diluted basis. Weighted average shares outstanding for the quarter were $131.5 million. Net cash used in operating activities for the quarter was $15 million. Of the $15 million used in the quarter, $5.1 million was due to nonrecurring costs associated with the restructuring announced in May and $2 million was due to working capital expansion for inventory and receivables.

On September 30, 2010, the Company had $20.7 million in cash, cash equivalents and available-for-sale securities, $2.3 million in restricted cash balances and $26 million in working capital. We would now like to open the call to any questions.

(Operator Instructions). Zach Larkin, Stephens.

Hey, gentlemen, just a couple of questions on the cost front now that we have seen a lot of the one-time charges come through due to the ramp-down of the Indian and Canadian operations. Are the R&D levels and SG&A what we saw in this quarter representative of what we should be seeing going forward? And then also on the cost of products held, there was a decent jump up in that. Is that going to be a similar proportion going forward also?

Good morning, Zach. First of all, on our R&D and SG&A expenses, we do believe, with most of the restructurings behind us, that our annual run rate in these areas will be in the high teens, say $17 million to $19 million as we grow the business. In terms of the cost of goods sold side, keep in mind as well that we are now treated as a commercial enterprise and we are fully burdening our inventory.

So if you look at 170 units shipped this quarter, there is roughly $6,000 per unit in overhead that is applied to each of those units. So again, as we continue to utilize our capacity better and continue to drive down material costs through some of the sourcing activities and engineering activities, we would expect to make improvements in our gross margin.

Okay, that makes sense. I also wondered if you could maybe provide a little bit of color on 2011, how should we think about that in terms of shipments and future announcements in that regard?

Well, Zack, I think what we are looking at for 2011 hasn't changed significantly from what we have states in the past. We still expect to ship somewhere between 1800 and 2300 units next year. Our sales funnel is growing. Obviously we are trying to push customers over the finish line and get some of these deals closed. We would expect revenue next year based on those shipments to be somewhere in the mid-$30 million to mid-$40 million range and more importantly, probably looking at cash burn, we would expect to be able to hold our cash use to mid-teens to low $20 million range.

So, Zach, if you think -- this is Andy. So if you think about my portion of the talk, I talked about Sysco Front Royal. That is 112 units. I talked about another Sysco order where we have a letter of intent where we are waiting for permitting to be completed. That is 160 units. I talked about CVS, which is 70 units. And I talked about a large bottling company with a commitment of 100 units. You are talking about over the last six, seven weeks, we have seen order flow of about 450 units. So I think that, even with some of the disappointment, I think that allows us to feel a bit more comfortable with the outlook for 2011.

Okay, and you actually went right where I was going next. So all of the announcements that you made, we should anticipate those are going to be 2011 shipments. Nothing from those is going or should be expected to occur in 4Q?

100 of those could ship this quarter.

Okay. All right, thank you very much.

(Operator Instructions). Stuart Bush, RBC Capital Markets.

Hi, Andy. Talk to me -- I mean you have talked about these letters of intent and the backlog of projects in the pipeline here. What does it take to get some of these guys over the finish line? Are they concerned about being the first to pony up or given your current cash situation or what is the delay here? If you can just go into a little bit more detail about the timing that we should look to have these things closed.

Let me -- I will go through one by one about the timing and the challenges, Stuart, with the orders I talked about today. The Front Royal site, I think that -- I think that probably took us three months longer than expected. And I think that is more so say with maybe our customer and we have heard this from other forklift truck customers that purchase orders are coming out extremely slow and are being signed off from the highest level. I mean a positive is that purchase orders were signed by the CEO with the Company.

When it comes to the 160 unit site, the issue is really to finalize the delivery date for that unit is associated with their ability to receive the appropriate permitting in the district they are looking to build the facility.

The CVS deal took me 15, 16 months and a good deal of it had to do with proving out the value proposition to that customer and we went back and forth, back and forth, but eventually we were able to show that when one looked at the energy costs, that by taking power off the grid, that we were actually helping them to reduce their additional electrical charges. So I see that one as a long battle, but a successful battle.

And with the large bottling company, I would say that that one actually didn't take too long. It probably was a six-month discussion and we were able to sign a supply agreement over the last few weeks. And over the coming months, I hope to be able to announce who that is exactly.

I think with many of the customers, Stuart, I think there is a couple challenges that come into play. I think that convincing the CFOs of the organization, not the operation individuals in the organization, the merits of the value proposition folks who run these facilities every day, it is apparent to them the performance of the trucks and the value it brings. That Sysco Front Royal, for example, they were able to order 15 less trucks than they would normally order. So they actually obviously saw the value and were able to communicate it.

I think that another challenge we see is that -- that it is the -- it is being the first and I think as we gather momentum with additional customers and additional sites, that becomes less risky. But I think that said, I think third, and I don't want to use this as an excuse, but I think if the economic times were a bit better and there was more building going on and this value proposition that we talked about previously for greenfield is much stronger, that that certainly would have helped us in the sales process. Did that answer the question, Stuart?

Yes, I think that is very helpful. I think we have seen the challenges as far as the timing -- predicting timing on orders for these types of installations. And given that dynamic, what sort of strategic backstops are you guys thinking about for liquidity or capital needs if you do need to bridge the timeframe to when some of these actually get signed off and start a delivery schedule?

Sure. And that's a good question. We are continually assessing strategic and financing opportunities for the Company. So I just, at this moment, I can't commit or comment on any specific strategic or capital-raising activity that may be going on.

Okay, thanks so much.

(Operator Instructions). Mr. Marsh, there are no further questions. Actually we do have a question now coming in from the line of [Harold Weber] with Morgan Stanley Smith Barney.

Andy, guys, how are you doing?

Okay, Harold.

A question, how are you standing as far as the hiring you guys were working on when I was there about hiring employees based on the ramp-up of the expected production?

I will let Mr. Anderson answer that, Harold.

Good morning. We have currently brought on nine people since October 1 that were part-time temporary positions in manufacturing to gear up for what we are shipping in the fourth quarter. And we also have a plan in place for next year on what we think we need in direct labor force and we will be adding more bodies accordingly to our manufacturing needs as we go forward. So we are adding people and quite honestly we are looking forward to having to bring more people on and build more units.

Okay, so that is going okay and you are getting -- you are what you feel that you need, not that you are going to have a bottleneck when the time comes to actually be pumping this stuff out?

No, we actually have people that are interested in being here. We have more of our temporary help that are asking when they can be brought on full time. So I don't think the labor issue will be a challenge.

And the supply chain is straight though so at this point?

Supply chain, we are making progress there. I am not going to say that we don't have our challenges. Again, we do compete with the auto industry for circuit boards, wiring harnesses, so we're working through issues there. We source tanks and some other components from China that we are working through, batteries as well. But we have a good team of people in our purchasing and sourcing group that are working through these issues in helping to get the components in the shop.

I just want to feel that when these orders are coming, you're going to be able to ship them.

We are counting on it.

Right, okay. Okay. Well, it sounds like it is happening. Let's hope we can turn up the speed on that a bit.

We agree, Harold.

Good to hear, guys. Thank you.

Mr. Marsh, there are no further questions at this time. I'll turn the floor back over to you for any closing remarks.

Thank you for your questions. Plug Power has grown during 2010, especially in the third quarter of this year. Our sales pipeline is strong. Customers continue to be fully engaged in the buying process. Our challenge continues to be predicting the timing of these details in this new market. As new customer adoption grows and repeat customer success continues, Plug Power is driven to become the first profitable manufacturer of commercial fuel cell systems. Thank you, everyone, for your time today.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.