普拉格能源 (PLUG) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Plug Power second quarter financial results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) It is now my pleasure to introduce your host, Cathy Yudzevich, Manager of Investor Relations for Plug Power. You may begin.

Good morning. Thank you for joining Plug Power to discuss our second quarter results for 2011. Andy Marsh, CEO and Gerry Anderson, CFO will be on this call today. Call will also be archived on our website at PlugPower.com in the investor section under presentation. 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 revenue, and product orders for 2011.

These statements are based on current expectations that are subject to certain assumptions, risks and uncertainties any of which are difficult to predict, or beyond our control and that may cause our actual result to differ materially from the expectations in our forward-looking statements. We encourage our listeners to refer our SEC filings for a complete recital of the Safe Harbor statement, as well as other risks and uncertainties discussed under item 1-A, risk factors and our annual report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011. 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 the call over to Andy Marsh.

Thank you, Cathy. Good morning, everyone; and thank you for joining us. With strong customer traction and introduction of a streamlined product platform, 2011, marks the year of Plug Power will be a viable business with significant revenue stream and positive gross margins. The indications of our success are undeniable. As of the date of this call, Plug Power has accumulated the largest backlog ever reported in the Company's history with a value of over $24 million. So far, year-to-date, we have received orders for 1194 units.

With an average selling price of $18,000 per system. We are on target to achieve positive gross margins, by December 2001. After implementing major changes to our product line which will result in reduced material cost, reduced labor hour per unit, and reduction of per unit cost to fixed load. I would like to spend the next few minutes discussing the three critical end points driving our path towards profitability -- sales, shipments, and gross margin improvements. Plug Power received orders for 431 units in the second quarter with additional orders for 208 units in the month of July. Bringing the total orders year-to-date to 1195 for units. The Company has had significant market traction with orders already doubling last year's total, and with an expanding marquee customer base purchasing our products.

We've added two large companies to our customer portfolio with our recent orders -- Kroger and Procter and Gamble. Kroger purchased 161 units for its Compton, California facility, a brownfield site; Kroger is one of the largest food retailers in the United States, second only to Walmart. They made the decision to purchase our products after a successful demonstration that proved the strength of our value proposition of improving productivity. With our products, customers can reduce the size of their forklift truck fleet and increase efficiency. They eliminated complicated and timely battery change out processes, and they eliminate battery droop and keep operation moving product at constant speed. With the addition of Kroger to our customer list, Plug Power sold total site conversions to both number 1 and number 2 food retailer in the United States with the fleet of over 14,000 forklift trucks Kroger is exactly the type of customers that will help this business sustain long-term sales growth.

In July, we also added Procter and Gamble to our growing customer base with the purchase of 53 units per manufacturing site in Oxnard, California. P&G is a global supplier of consumer products, and as with Kroger, they decided to purchase Plug Power products after a successful trial. Given the strength of our value proposition, we are currently in negotiations for a number of additional P&G sites. We've also seen significant repeat orders from Walmart and Sysco. Walmart Cornwall purchased over 155 units for a brownfield site in July after successful deployment at Walmart Calgary. We also received orders from Sysco for their Los Angeles and Riverside locations. One a breenfield site, and other a brownfield site.

The most recent order, an impressive series of prior orders for other Sysco facilities, including Front Royal, Philadelphia, Houston, San Antonio, Boston and Long Island. With over 100 sites, Sysco continues to be one of our strongest long-term customers committing to Plug Power's pride. Turning to discussion of our shipment activity, Plug Power is committed to shipping over 1600 units by the end of 2011. At the close of the second quarter, 217 units were shipped, we have an additional 1006 units to ship in 2011, which are currently part of our backlog, and we are also expecting another 451 in orders this year with 2011 shipment deadline at which Plug Power has also received some letters of commitment. In total, we are prepared to ship 1674 units in 2011. Gross margin improvement is the final critical input staging this Company for profitability in 2012.

As we discussed last quarter, our development team is making 2 important changes to our high power and low power products to reduce material costs. First on our high power platform, as used in our Class 1 sit-down counter-balance truck and Class 2 products for the reach trucks, we've introduced technology to significantly simplify the system for over a 25% reduction in component count. This platform will dramatically lower our cost of material by over 30%. Second, we are making major change in the thermal management strategy for low power platform, for use in our Class 3 in the pallet trucks moving from a liquid cold thermal management system to a fan-cool system.

The fundamental change will allow for significant component reduction, which in turn will reduce material and labor cost by 30%. Both the high power and low power platform innovations will be launched during the fourth quarter of this year. Increased sales and shipments have also driven higher volume, which will have a significant impact to Plug Powers fixed and variable costs. For instance, we expect our fixed cost per unit to decrease by a factor of 5 from 2010 to 2012 due to better absorption associated with higher volume. We are also starting to see reduced cost by our suppliers as we buy in larger quantities. Reduction in material, labor cost and reductions in fixed and variable costs have positioned Plug Power to achieve positive gross margins during the fourth quarter of 2011, and profitability in 2012. Now I would like to turn the call over to Gerry Anderson for a detailed discussion of our second quarter financials.

Thank you, Andy, and good morning everyone. I would like to spend a few minutes highlighting some significant points about the strength about the strength of the Company's backlog and our momentum and order commitment this year. As Andy noted earlier, we ended our second quarter with a backlog value of $24.2 million, which is comprised of 1296 GenDrive units, and thus far in quarter 3, we have booked another 208 units with a value of $4.4 million. Of these 1504 units, we expect 1006 of them to be shipped over the remainder of 2011, with the bulk of shipments occurring in quarter 4, based on customer requirements and expected availability of hydrogen delivery infrastructure.

Our backlog includes not only the new first time buyers such as Kroger and P&G, but 2 follow-on orders at sites already using our products, and 10 new sites from repeat customers such as Sysco and Walmart. With the release of our Class 2 product last year, we have established a leadership position with a full product set that can allow a customer to make the decision to completely transform their powering technology away from incumbent lead acid batteries to fuel cells. Additionally, with over st 1200 units operating in commercial applications, perspective customers can talk to users of our products and see the units in action, which remains our best testimonial as to the value and effectiveness of our GenDrive solution. One last point I would like to make regarding our quarter end backlog is about the mix.

It is comprised of 795 of the low power Class 3 pallet jack GenDrives, 486 Class 2 units and 15 Class 1 units. This is indicative of our success in the high throughput, merchandising, and gross retype operations where the typical composition is roughly 2-1, Class 3 to Class 2 units. Now reviewing our operating results for the second quarter of 2011; total revenue was $4.3 million a 40% or $1.2 million increase over quarter 2 of last year, and was comprised of $2.6 million, from products and services, $1.6 million from R&D contracts, and $163,000 from licensed technology revenue. With 73 units shipped in quarter 2, our year-to-date total stands at 217 units. With 1006 units valued at $20.6 million already in the backlog that are expected to ship over the remainder of the year and the additional 451 unit orders expected to close and ship that Andy noted earlier in his presentation, we expect to be able to achieve the lower end of both our shipment and revenue guidance for the year.

The $1.6 million in R&D contract revenue realized during the quarter includes work on several projects including Department of Defense programs that will include the shipment of 40 GenDrive units to 2 military facilities. Accordingly, we will recognize the revenue from these shipments within R&D contract revenue in our financial statements and now expect full year R&D contract revenue to exceed $3 million. Lastly, during the quarter, we realized another $163,000 in licensed technology revenue, and we expect that same level of revenue for 1 more quarter. For a more detailed review of our revenue recognition policies, as well as other accounting policies, we encourage you to review our filings with the SEC. Our total cost of revenue for the second quarter of 2011 was $7.4 million and was comprised of $4.9 million for product and service cost of revenue, and $2.5 million for cost of R&D contract revenue.

The gross margin for product and service revenue at minus 88% for the quarter, was adversely impacted by the low shipment level, which resulted in under absorption of both direct labor and overhead for the quarter. As we have previously noted, we expect to achieve positive gross margins by quarter 4 of this year, primarily due to 2 factors -- lower cost of materials from cut in, of engineering design improvements and better absorption of labor and overhead cost as our production scales to meet higher shipment levels. Key considerations for success over the remainder of the year will be the staging of both inventory and labor to meet shipment demands, particularly, in the fourth quarter. We have been working diligently with our suppliers to have them ready for the ramp up, and have a disciplined plan in place to bring in temporary labor to handle the assembly task as the inventory arrives. We see the fourth quarter as a good test for ability to capitalize on our 10,000 unit annual capacity in our manufacturing plant.

Our cost of revenue for R&D contracts at $2.5 million represented 158% of revenue. Again, the majority of our contracts are 50-50 cost share arrangements, so we do expect similar margin results for the full year for our R&D contract work. In our operating expense categories, research and development expenses for the quarter at $1.1 million, was a 75% or $3.3 million decline from the prior year comparable quarter. This operating expense line has been the primary benefactor of the restructurings and business rationalization that we completed last year. We do expect a modest uptick in our R&D expense run rate over the latter half of the year as our engineers build out prototypes and final test new designs before they enter serial production.

Selling, general and administrative expenses at be.$3.9 million for the quarter was a decrease of $6.7 million, or 63% from the prior year second quarter. Note however, quarter 2 of 2010 did include one time restructuring charges of $6.4 million. We would expect our SG&A run rate to remain fairly similar on a quarterly basis for the remainder of the year. Our net loss for the quarter ended June 30, 2011, was $6.8 million, or $0.41 per share on a basic and diluted basis as reported. Weighted average shares outstanding for the quarter were 16.3 million. Net cash used in operating activities was $6 million, and year-to-date is $13.2 million.

On June 30, 2011, the Company had $27.2 million in cash, cash equivalents and available for sale securities, $525,000 in restricted cash balances, and $30.6 million in working capital. We would also note that our quarter 2 cash and working capital numbers are inclusive of $20.2 million of additional capital raised during the quarter. Lastly, subsequent to the close of the quarter, we closed a $7 million revolving line of credit with Silicon Valley Bank, which further strengthens our access to working capital as our customer order fulfillment accelerates over the remainder of the year. Additional information on the banking facility will be available in our second quarter 10-Q, which will be filed with the SEC in the next few days. We would now like to open the call to any questions.

(Operator Instructions) Thank you, our first question is from Philip Shen with Roth Capital Partners.

My first question is about guidance, just for clarification, your prior guidance was, I believe, 1600 to 2300 units, shipped in 2011. Are you changing guidance now to just more than 1600?

Phil, I think based on where we are at and the additional orders that we expect to book between the end of the quarter. We expect to ship still in that target range but more towards the lower end of that range.

Okay. That's helpful. Looking at shipments, you guys had 170 -- 44 units shipped in Q1, and then just 73 units shipped in Q2, can you talk just about what happened in Q2. My understanding is that your shipments will be back half loaded, but I was looking more for kind of a buildup throughout the year. Q2, I was expecting to be better than Q1. So talk us through what happened there and then also, what you expect Q3 and Q4 shipments to be on a relative basis, perhaps you can't give us specific numbers, but Q3 relative to Q4 I would imagine is boing to be a bit lower but perhaps to what scale, what degree?

Sure, Phil. First, let me talk about quarter 2, and actually our quarter 2 shipment level was actually a little better than what we had expected based on delivery dates from customers. Again, you have certain constraints such as having hydrogen delivery infrastructure, and available for those customers that are building new facilities. It's dependant on their facility being up and running. Again, the second quarter played out not far from what we expected. In terms of the go forward as we noted in our talk, quarter 4 will be the heavy quarter again.

That's been consistent with us the last couple of years where the bulk of our shipments happened in quarter 4. While we don't expect this business to have this type of seasonality for that reason. It seems to be that a lot of our customers are back end loaded and having facilities ready on using their capital budgets. Over the remainder of the year, I think you are going to see, again, the bulk of our shipments will be in quarter 4.

Okay. So to date you have had 11% of your shipping guidance met, and the bulk will be in Q4; but, when I think about Q3, is it going to be similar to a Q1/2 number or is it going to be kind of mid point between what Q4 and Q2 was?

Again, without knowing, without having answers on all of the constraints such as the hydrogen stations, we would expect quarter 3 obviously to be better than quarter 2 and beginning acceleration, but we will also be building units in quarter 3 staging them in finished goods inventory to be ready for quarter 4, which again is when our customer requirements are the heaviest.

Let's transition to your backlog for a moment. I think if the implied unit backlog at the end of Q2 was 1300 units, 1296, what percent, I guess you were talking about 1006 units being shipped in 2011, is that correct?

That's correct. That 1006 does includes the 208 that we expected to have done at the end of June and the close of early July. Both of those deals are also 2011 shipments. That's the 1006.

Getting back to Q4 shipments, you were mentioning that when hydrogen infrastructure is delayed, that can impact your shipment schedule. What is the probability that additional or delays in customer hydrogen facility build outs can impact Q4 shipment levels?

Phil, I'm going to take that one. This is Andy. Yesterday I spent time reviewing all our orders versus the hydrogen deployment and for what we have scheduled to ship, our customers are aligned to have their hydrogen facilities up and running this year. Because we obviously are paying close attention to that because we don't want to bring in material if the hydrogen infrastructure is not in place. We do not see issues at the moment.

Great, that's good to hear. Then, transtioning to gross margins--?

Actually going to make another comment, to add on Gerry's -- in some ways we've also -- the more units we can ship with the newer design, the better our gross margins are, Phil. Designs are ready in the fourth quarter. There is kind of a balancing act there, first and foremost we have to meet customers needs. But if we can ship the unit and make more money on it by shipping it a month later, I'm more inclined to do that.

Good. That makes sense. It sounds like the new GenDrive architecture will be available in Q3. Better gross margin product is currently available; is that correct?

It will be available in the start of Q4.

Okay. In terms of when I think about my model and gross margins, the product and service revenue, gross margins, were, if I did my math correct here, negative 46%; is that correct?

For the quarter, it was actually minus 88%.

So if I just take the $2.6 million of product revenue, divide that by the COGS for product service, less one, I was getting minus 46%. Anyway, what kind of product and service gross margins should we expect for Q3. I know in Q4 we're expecting overall gross margins to turn positive, but incrementally, I'm just trying to get a sense, are we going to see better or similar gross margins in Q3, since the better gross margin product will not be available.

Phil, I try to steer you, and again, we've tried to be very careful on trying to peg quarter to quarter numbers. We've committed to a milestone of a full year number to get in the single digit positive gross margin range. If you think about the release of those new designs in quarter 4 that are going to eliminate between 30% and 40% of the material cost for the products, you look at the bulk of the shipments happening in the fourth quarter, that one quarter in and of itself, can carry us through those single digits gross margins through for the year.

Good. One last quick question on Ballard Power. Can you guys provide us a relationship -- an update on the relationship with Ballard. Any developments there that might be helpful to know in terms of exclusivity whether here in the US or elsewhere, or extension of that relationship?

We are in discussions with Ballard and that relationship will expand to key countries in Europe where we will be an exclusive relationship, that will be done this quarter. We have an MOU in place. Our relationship with Ballard will continue and extend to reach out beyond North America. We have been in discussions on expanding that relationship as time goes on.

Great. That's very helpful. Thanks very much. If I have any other questions I will get back in queue.

Thanks, Phil.

(Operator Instructions) Our next question is from George Santana with Ascendiant. Please proceed with your question.

Good morning. It was helpful, the backlog unit mix and the ASP, I think I heard $18,000 per system. Could you break that -- the ASP down by 3 unit types?

Sure, George. This is Gerry speaking. Again, think about our products, being the high powered Class 1, Class 2 products, typical selling price is in the mid-$20,000s, $25,000 to $27,000. The low power Class 3 pallet jack product would be in the range of $11,000 to $13,000. Again, with the mix that we have today, with almost 800 Class 3 units it does impact our average selling price for the backlog; but again, as business picks up, and we have more Class 1 units coming in, we do expect, and we've had traditionally around a $20,000 average selling price.

That's very helpful. Thank you. Also, could you talk a little bit about what you are seeing as the summer progresses here in terms of capital spending, by large corporation, is it delaying or just the strength of your product is driving increased sales? Thank you.

This is Andy, George. That's an interesting question because I have not seen a delay in our discussions and negotiations with customers, as you could see from July, we had a very good July, and we expect to have a very good August. So, the economic climate hasn't impacted our projections. It's much easier when you are starting from, quite honestly, from a very low revenue level with a product that offers value to move that revenue level up. I think that's the position we are in today.

I think Gerry made a point they think is true. A good deal of our customers are in food and beverage. Even during economic downturn, food and beverage industry still needs to service customers. With a customer like Kroger for retail, obviously, people are still going to go to a food store, we provide them a way to reduce their overall cost, which can be a real positive in this environment. Does that answer your question, George?

Yes. Absolutely, thank you.

(Operator Instructions) It appears we have no further questions at this time. I would like to turn the floor back over to Mr. Marsh for closing comments.

Thank you for your questions. Before closing, I would like to announce that Plug Power has been invited to present at the Rodman and Renshaw's Annual Global Investor conference on September 13, in New York City. There is no doubt Plug Power is established itself as a real business with real customers, and real demand. Our sales and shipment funnel was strong. We have 1194 order s to date with plans to ship over 1600 units this year. Plug Power is implementing a clear plan to dramatically change gross margins by year's end. Ultimately, when you add this all up, we have a plan for profitability in 2012, and I can say with confidence, we are well on the way to delivering on that promise. Thank you everyone.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.