普拉格能源 (PLUG) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Plug Power 2011 fourth-quarter and year-end financial results. At this time, all participants are in a listen-only mode. A brief 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, Ms. 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 2011 fourth-quarter and year-end 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 2012. 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 results to differ materially from the expectations in our forward-looking statements.

We encourage our listeners to review our SEC filings for a complete recital of our Safe Harbor statement, as well as 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, 2010 filed with the SEC on March 31, 2011.

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

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

Thank you, Cathy. Good morning, everyone, and thank you for joining our call. Plug Power exited 2011 with a record-setting year for product orders, shipments, improvement in gross margins and market growth. Though falling short of some of our annual projections, I firmly believe 2011 will prove to be one of the most critical growth years in Plug Power's history.

Last year, we proved we are a commercial organization capable of shipping volume production. We proved we can enhance our product performance and simultaneously significantly reduce costs. We proved we can target smart international market expansion without burdening our balance sheet. And with record demand for our systems last quarter, we proved the viability of a profitable business opportunity.

I would like to begin today's call with a discussion of our record orders. Last year's new customers complemented Plug Power's growing customer list. New 2011 customers included Air Liquide, Newark Farm Market, Kroger, P&G and Associated Wholesale Grocers. We also saw significant repeat orders from Wal-Mart, Cisco Sysco, BMW, Wegmans and Coca-Cola.

Overall in total last year, Plug Power saw a significant increase in orders, from $12.1 million in 2010 to $46.1 million in 2011, representing over 2500 unit sales.

In the fourth quarter, Plug Power booked $18.1 million in orders with customers such as Wal-Mart, Associated Wholesale Grocers and BMW. Last quarter, we closed a deal with Wal-Mart for a follow-on order for 254 systems, including service representing $5.2 million. This full fleet conversion followed a successful deployment and operation of the initial 63-system fleet for use in their Washington Courthouse facility in Ohio.

We also closed a deal with BMW for a follow-on order for 139 systems and service representing $3.8 million. This order will expand the fleet operating at the Spartanburg, South Carolina facility to 225 systems, the largest manufacturing fleet of its kind. Both BMW and Wal-Mart Washington Court House are repeat customers operating brownfield facilities.

Associated Wholesale Grocers, or AWG, joined our ranks of key corporate accounts. They will be converting two of their 11 distribution systems to GenDrive solutions, one a greenfield site and the other a brownfield site, for a total of 553 systems representing $8.9 million.

We also executed a five-year service-only contract with Wegmans for $1.5 million. As the installed base of our product grow, we project that recurring revenue from service will represent 10% in the near future, and long-term, approaching 20%, as the installed base becomes more substantial.

Overall, in total last year, we saw an impressive increase in orders, from 543 unit orders in 2010 to 2503 unit orders in 2011, representing a 361% increase. Even with this marked increase, our sales still represent a small share of a $4 billion potential market in North America.

Because of the growing business acceptance of the advantage of fuel-cell-powered forklift trucks, we foresee continual year-over-year high-growth rates for our offering, as we are still only penetrating a small percentage of the overall market.

As we turn to a review of our shipment milestones, Plug Power shipped a total of 1024 GenDrive systems in 2011, and have over 2000 units in the installed base by year-end, resulting in a product and service revenue for the full year of $23.2 million. Though this figure represents a 48% increase from our revenue performance in 2010, we were still disappointed to meet our annual shipment and revenue targets.

Three primary factors contributed to the shipment shortage. First, some customer-delayed deployments of products, representing approximately $5 million. Second, our new low-power and high power product platforms were introduced later in 2011 than originally expected. And third, we experienced delays with certain material shipments from China.

We are incorporating these lessons learned as we move forward. For instance, we have observed that the order-to-shipment timeline is closer to 12 months versus the six months we had previously projected and used as guidance. As a result, Plug Power is setting our 2012 shipment expectations at 2300 systems, and we expect product and service revenue to be approximately $40 million. At the moment, we have $36 million in backlog, of which $27 million is expected to ship in 2012.

Long-term, our shipping performance in the fourth quarter of 2011 is a good barometer to validate our business's ability to ship over 10,000 systems per year out of our manufacturing facility. In the last two weeks of 2011 alone, we shipped 368 systems, which would correspond to an annual projected production capacity of approximately 9500 units.

Turning now to a discussion of gross margins, Plug Power's product and service gross margins last quarter improved 44 percentage points over Q4 2010, largely due to material costs down and better use of production capacity. As we track towards positive gross margins, much of our improvement will be attributed to the introduction of our new product platform that uses 30% fewer components and require one third the labor time to assemble.

As discussed, there were some delays in this product launch last year. As a result, the fourth-quarter shipments included approximately 80% of our old product platform. Even with the lower mixer of our new product platform being shipped, we achieved gross margin improvements that demonstrated our ability to achieve positive gross margins as volumes and mix continue to improve.

So moving forward, we expect our gross margin metrics to continue to improve as our new product platforms dominate our shipment and backlog numbers.

In 2012, we expect product and service gross margins to be 10% as compared to the 20% gross margins we had previously projected for the year. Approximately 40% of this gap is due to the impact of fewer shipments than we previously projected, which in turn inversely impacted fixed overhead or capacity absorption. We estimate 10% of the gap is related to a higher mix of old product designs that will consume existing inventory by May of 2012, and approximately 50% of this gap is linked to our pricing.

I would like to focus a bit on the gap in gross margin improvements linked to our pricing. We sell our products based on total cost of ownership. The cost of energy is a significant driver, in our case, as the cost of hydrogen. Accordingly, we plan to engage in targeted hydrogen partnerships that leverage the geographical strength of the very industrial gas companies that produce the optimum customer and sales opportunity. Ultimately, mutually beneficial domestic partnerships with the hydrogen companies will produce the favorable economic conditions for our customers and our solutions.

Plug Power's domestic hydrogen partnership strategy in large part builds on our relationship building and creation of the joint venture business with Air Liquide to engage a European material handling market. Our business in Europe exceeds the business opportunities available in North America.

On February 29 of this year, Plug Power completed the formation of HyPulsion, a joint venture with Axane, a wholly-owned subsidiary of Air Liquide. HyPulsion has been created to develop and sell hydrogen fuel cells for the European material handling market. Plug Power contribution to the joint venture includes a license to certain intellectual property rights in return for Axane's capital contributions to fund the operation of HyPulsion.

Importantly, Plug Power will not need to inject capital to support the joint venture. Instead, Plug Power will be reimbursed for our product development services to prepare our systems for the European material handling market.

Though the projected European sales numbers have not been rolled into our projection, the creation of HyPulsion has already spurred European sales traction, mirroring the North American sales traction numbers we experienced in early 2010. We are building upon Air Liquide's and Plug Power's customer relationships and have engaged over two dozen customers. We are anticipating our first sale of units by HyPulsion later this month.

As a European company, HyPulsion will also be eligible to participate and compete for European government funding opportunities. Hydrogen deployment is being targeted far more aggressively in Europe than in North America, in part due to Germany's goal to have 10,000 hydrogen cars on the road in 2016. Our joint venture is in a prime position to leverage some of this funding to promote the European hydrogen economy.

I would now like to turn the call over to Gerry Anderson for a discussion of our fourth quarter and year-ending financials.

Thank you, Andy, and good morning, everyone. Since Andy has covered quite a bit of our 2011 performance already, I will be as brief as possible on 2011 comments, provide some guidance on 2012 expectations and then move to any questions that call participants may have.

While we are disappointed in our 2011 shipment performance, it is important to point out that it was not a result of not having the order flow or production capacity to deliver, but rather the timing of our execution of our goals. We ended 2011 with $36 million in the backlog, including two thirds of the shippable value we need to deliver our 2012 plan. We also ended the year with over $10 million of inventory in preparation to ship many of the units we had planned to ship in quarter 4 of 2011.

Turning to our operating results for quarter 4 and full-year 2011, our revenue for quarter 4 was $11.9 million, and for the full year was $27.6 million, of which $23.2 million, or 84%, was from products and services. This is a 48% increase over the prior-year product and service revenue. We expect to improve upon this growth rate in 2012 with approximately $40 million from product and service revenue to be realized.

R&D contract revenue for quarter 4 was $544,000 and $3.9 million for the full year, or an 8% increase year-over-year. In 2012, our focus will remain on growing our commercial business, but we will have some continuing work on existing government programs. However, we do expect full year R&D contract revenue to drop to about $2 million in 2012.

Our cost of revenue for products and services in quarter 4 was $11.5 million, resulting in a negative 1.6% gross margin, and for the full year was $30.7 million, resulting in a negative 32.1% or negative $7.4 million gross margin. While we have noted in past calls the timing risk of executing on our gross margin improvement expectations, we remain disappointed that we did not deliver better results in 2011.

Quarter 4 did show a significant improvement on only one half the shipment volume we expected, and with only 20% of what was billed, based on new platform designs. We had expected slightly over 50% of shipments from the new designs, which would have driven margins into the 5% to 10% range.

For the full year, the points Andy noted earlier -- customer pushouts of delivery dates and delays on components from China -- impacted our shipment volumes and hence margins. And not getting the new designs into production earlier in the year impacted costs of our units sold and hence gross margins, as well as operating cash use for the full year.

Entering 2012, we are managing through these issues, we expect to see continuing cost improvement on our products and we are targeting our full-year product and service gross margins to be in the range of 10%.

Cost of R&D contract revenue for the fourth quarter was $726,000 and $6.2 million for the full year. As noted in previous calls, our contracts are largely 50-50 cost share arrangements, meaning for every $2 we spend, we receive $1 in revenue. We expect our 2012 margin results to be comparable for R&D contract revenue, which, as earlier indicated, will be in the $2 million range for the year.

In our operating expense categories, research and development expenses for the quarter were $2 million and $5.7 million for the full year, a 56% decline from the prior year, largely the result of restructurings implemented to focus solely on the GenDrive business.

Our fourth quarter R&D expense at $2 million was high compared to prior quarters in 2011, largely due to cost of materials for prototypes of the new platform designs. For 2012, we would expect a similar full-year run rate for R&D expense to that experienced in 2011.

Selling, general and administrative expenses were $3.5 million for the quarter and $14.5 million for the full year, a 43% decline from the prior year. We expect to see similar results for SG&A expenses in 2012.

Our net loss for the quarter ended December 31, 2011 was $7.2 million or $0.32 per share on a basic and diluted basis, as reported. And for the full year, the net loss was $27.5 million or $1.46 per share.

Weighted average shares outstanding for the quarter were 22.7 million and for the full year were 18.8 million. EBITDA for the quarter and full year was negative $5.5 million and negative $25.2 million, respectively. We expect 2012 full-year EBITDA to be in the negative $12 million to negative $13 million range.

Net cash used in operating activities for the quarter and full year were $14.2 million and $33.3 million, respectively. The quarter operating cash use was impacted by an $8 million increase in receivables, resulting from shipments going out too late in the quarter to convert back to cash by year end, a $4 million increase in inventory, as well as the shortfall in gross margin discussed earlier.

For the full year, the cash use was higher than targeted, largely due to the shortfall in gross margin for the year and a $9 million increase in accounts receivable, again due to the timing of year-end shipments.

At year-end, the Company had $13.9 million in cash, cash equivalents and available for sale securities and $19.4 million in working capital. Additionally, the Company had availability of $1.6 million on the $7 million revolving line of credit with Silicon Valley Bank. We would also point out that at year-end, we had $13.4 million in accounts receivable to convert back to cash to fund the business and pay off the revolver draw of $5.4 million.

For 2012, we expect to aggressively manage working capital and would look to reduce our inventory position to an average carry of $5 million to $6 million. We will also continue to evaluate alternatives to strengthen the Company's balance sheet and liquidity position.

We would now like to open the call to any questions.

(Operator Instructions) Eric Wu, Fertilemind Capital.

It's actually Aram Fuchs from Fertilemind Capital. Just wondering if you can give a little more detail. You mentioned there are problems in the supply chain to China. Is this something that is sort of one-off? Is this something that -- we've heard of labor inflation there. Is it something that makes you bring some of those supplies back on shore? Or what are some specific lessons learned there?

I think it has -- it does not have anything to do with the cost of goods from China or the quality of goods from China. I think the primary issues we run into was shipping issues and initial product ramp with our designs.

As I mentioned during the call, our product designs -- our execution of our product designs were a bit late, which slowed down the initial modeling and initial units for us to approve out of China. And then when one looked at the time frame from those initial samples until units could be shipped to Plug Power cost-effectively, it added probably five to six weeks to our supply chain that we were not projecting.

But we are aggressively continuing to search for the right country -- the right geographical region to buy all our components, and some of that is North America, some of that is China. Most of our China activity are associated with electronics and with metals and sheet metal type components.

Okay. And then the receivables, is the fact that it shipped late due to the problems with China? And are those receivables from your end customers, and are they likely to be collected?

Yes, it's largely, again, due to the fact that most of our units that we got out in the fourth quarter, as Andy noted, over 300 of them went out the last two weeks, and our normal terms are 30 days upon invoicing. These are all Fortune 500 companies. Most of these receivables have already been drawn in in quarter one. But again, it was a much higher carry balance than what we had originally projected.

Got it. Great. Thank you very much.

Ali Motamed, Robeco.

I was wondering if you could talk a little bit about the order guidance. We have backlog pretty much covering this year's sales, and we've had a lot of ramp in orders. Obviously, it seems like certain of these delays have been impacting us. But what would you expect going into next year for the orders?

We had a wonderful year in the past year, with orders increasing by 368%. We won't see that kind of increase in 2012. If I was -- we have internal goals that orders increase by 50% to 75% during the coming year.

Okay, and so going into next year, that would basically, hopefully, be the 12-month translation. And this year, you talked about trying to maybe strengthen that balance sheet. Any alternatives besides the equity markets? Obviously, we probably have some capacity, maybe some of your other investors do. But it seems like with the interest that is out there and the growth that is coming, that there could be other alternatives to capital raising maybe that are not dilutive.

Right. I would say this. We are continually monitoring our balance sheet. And as we did last year, we were able to leverage a debt facility with Silicon Valley Bank. One of our challenges always remains when we look at our balance sheet is the type of customers we have, which are Fortune 500 customers, which would like to see a strong combination of both equity and debt on our balance sheet. So we are continuously looking at it and looking to make the best decisions for our investors to minimize dilution.

Okay. Thank you.

Mitch Vine, Vine Security Journal.

Congratulations on the great progress in Q4.

Thank you.

Thank you, Mitch.

I guess my question is around your expectations for gross margins sort of as 2012 rolls out, and maybe some idea of how you see getting beyond the 10% gross margin number you mentioned earlier.

Mitch, first when we look at activity we have going -- first, I think that a large opportunity is this business has become more sophisticated. I think the example of how we partner with Air Liquide in Europe, that we have been in discussions with all the large US industrial gas companies to really work with them through their business models where they can be the most successful in pricing hydrogen for our customers.

And when we look at our products' pricing and total cost of ownership model, the price of hydrogen is really one of the largest challenges we face. And so I know that I'll probably explore more of this on future calls, but we are making some progress with the IGCs to look at regions where they can compete, look at some set pricing which is more competitive than what we see today. And we believe that will allow us to price our in a way that our margins can increase by five to 10 points.

We also, though, see -- remain -- when I look at our products, I think about early electronic design products I worked on in the '80s and saw those costs decrease by 300%, 400%. We are still on a learning curve with our material costs. And it is our strong belief that material costs will continue to decrease annually at clipped rates between 10% to 20%. And as we become more sophisticated in our manufacturing process, that those costs will continue to go down also.

All right. Thank you. One other question, just related to the ability to ship the backlog in the next couple of quarters. Do you see the constraints being more related to the leadtime for customers to be ready to take delivery, or do you see it more component availability?

Customer leadtimes, probably yes. I think that as we were going through that introduction of new designs, Mitch, there was some tension and some tension between driving supply chain and completing the design so you have high-reliability products. And we are through that.

So now, it is really working with customers and be more rapid in deploying the infrastructure to support the fuel cells, I think, are the key.

One of the exciting events that occurred this week was that we had Kroger, which we've talked about on the call. They've actually deployed all their units this week and they have over 160 fuel-cell trucks running as we speak on the phone and a 24/7 distribution center. That one, we were able to turn in nine months. So there is some opportunities we are able to turn quicker. We just have to -- we just have to work closer with the IGCs to make these deployments more seamless to drive down that leadtime.

Okay. Thanks very much.

(Operator Instructions) John Spatz, RBC Capital Markets.

Just a real quick one on the European customers that you mentioned. What of those are existing and what percent would be sort of new inquiries coming in?

Good question, John. I would circle that about 40% are existing North American customers.

Okay, great. Thank you very much.

There are no further questions at this time. I would like to hand the floor back over to Andrew Marsh for any closing remarks.

Thank you for your questions. I would like to reiterate that though we fell short in some of our 2011 projections, we cannot lose sight of the tremendous progress this Company has made year-over-year. Just compared to last year alone, we achieved a 361% increase in orders, we realized a 44% margin improvement in the fourth quarter, we completed the design work on two platforms that will reduce our material costs by 30%, we demonstrated our operational capability of shipping $200 million annually from our current facilities, we formed a JV with a major European hydrogen gas company without shareholder money to expand our business into Europe, and we currently have 67% of our expected 2012 shipments booked due to a record quarter of orders.

2012, we will build on our successes in 2011 and move this Company closer to profitability. Thank you, everyone, for your time today.

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