普拉格能源 (PLUG) 2012 Q1 法說會逐字稿

Greetings, and welcome to the Plug Power 2012 first-quarter 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 2012 first-quarter results. Andy Marsh, CEO, and Gerry Anderson, CFO, will be on this call today. This call will also be archived on our web site at www.plugpower.com, in the Investor 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 revenue 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, are 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 refer to 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, 2011, filed with the SEC on March 30, 2012. 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.

I'd like to jump right into our first quarter performance and begin today's call with a discussion of our order shipments. In the first quarter, Plug Power shipped 299 systems, representing $8.2 million in invoice value. At the end of the first quarter, Plug Power also had approximately $7 million in total deferred revenue, inclusive of $2.4 million deferred for the first quarter shipments, which Gerry Anderson will be explaining later in this presentation. Many systems in the first quarter were delivered to current customers, including BMW, Sysco Philadelphia, Walmart, and Wegmans. Several new customers also received their first shipments, such as P&G Pinesville.

The size of our new customer fleets helped underscore the commercial scale of this market opportunity. For example, in the first quarter, Kroger Compton's Brownfield facility completed its conversion of 161 trucks to GenDrive systems. The conversion included the removal of all batteries, elimination of the battery room, and the insulation of the fuel cell systems in each of the forklift trucks. Air Products partnered with Plug Power to install the hydrogen infrastructure to support our GenDrive products.

The strong mix of both greenfield and brownfield customer sites also highlights at the core strength of our value proposition. Productivity improvement is making economic sense for both new and existing customer facilities. Overall, these systems contributed Plug Power's growing fleet deployment. To date, Plug Power has shipped over 2,200 GenDrive systems, logging over 6.5 million hours of run time. We are also on track to meet our target of shipping $40 million of revenue in 2012.

Order traction so far this year has been slower than expected; approximately $5 million, including our agreement with Lowe's. We see significant pickup with our present customer base and are forecasting annual orders to range, as expected, between $50 million to $60 million US. Still, Plug Power has received several key orders to date, strengthening our order book and building upon our elite customer accounts. Mercedes joined BMW as auto manufacturers who are embracing Plug Power's GenDrive solutions to optimize their operations. With plans to convert their entire fleet of approximately 195 forklift trucks, Mercedes placed an initial order for 72 units for the production process, as they migrate to a three-shift operation. Our GenDrive products will power their forklift truck fleet in their facilities that build the M-class, R-class, and GL-class vehicles. This is in their facility in Tuscaloosa, Alabama.

During the past month, Plug Power has also ran trials with three other major auto companies, as they target ramping production in late fourth quarter 2012. The auto market is a high-profile and target market for fuel cell products because it places a premium on maximizing productivity and efficiency. Meanwhile, as the companies expand after the recent recession with fewer manufacturing facilities, the pressures to increase efficiency has only increased. Part of the solution is moving to three shifts, and they are concluding that their current battery-powered forklift truck fleet cannot keep up with the demand. The characteristics of Plug Power fuel cells, eliminating battery change out, two-minute refueling, constant speed, and increased productivity matches the requirements needed by these companies to build more automobiles. This is why Plug Power has been intently focused when selling our products to this market in the past few quarters, and we expect to see the results of this activity in the coming quarters.

In the first quarter, Plug Power also signed a five-year supply agreement with Lowes to set product pricing and service terms for their new distribution center being built in Rome, Georgia. Lowes broke ground for the construction of this facility in 2011. Plug Power will be shipping units in the first quarter of 2013, to correspond with the grand opening of the distribution center. This milestone with Lowes marks the acquisition of our largest retail customer to date. We have also had a master agreement that allows us to simply add statement of work to future sites.

Stihl also joined as a new Plug Power customer, placing initial order for 31 units. With a focus on implementing sustainable technology solutions, Stihl shifted from battery technology to GenDrive products that take advantage of productivity improvements and eliminate toxic lead acid batteries and battery storage from their facility. This order from Stihl is also an important step, as the company uses its North American deployment as a benchmark for future European facility conversions.

In Europe, Ikea signed a contract with HyPulsion, our European joint venture with Air Liquide. After completing a series of initial GenDrive rentals at its facilities in southern France, Ikea intends to convert its entire 90-unit operation to GenDrive products in 2013. Long term, the site represents the first of many Ikea distribution centers considering GenDrive fuel cell solutions. Just as Plug Power has enjoyed repeat customer business from Walmart, Sysco, BMW and P&G, we look forward to adding Mercedes, Lowes, and Stihl to our growing list of repeat corporate accounts.

In March, Plug Power placed an underwritten public offering of 13 million shares of common stock, with net proceeds of $13.7 million. Shortly thereafter, Plug Power completed the sale of additional 1.95 million shares of common stock, with additional proceeds of approximately $2.1 million pursuant to the underwriters' exercise of its over allotment option. We also expanded our current credit facility, now offering Plug Power access to up to $15 million to meeting working capital requirements. As Plug Power's customer order fulfillment accelerates, additional access to the capital will help our Company secure inventory to meet shipment projections while maintaining a strong cash position.

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

Thank you, Andy, and good morning, everyone.

For the first quarter of 2012, our product and service revenue was $7.3 million, representing a 45%, or $2.2 million increase over the prior year first quarter, with a comparable expansion in units shipped of more than 100%. In explaining the apparent disconnect between revenue growth and shipment volume growth, I'd like to spend a few minutes talking about our deferred revenue and its impact on both our reported revenue and gross margins. As Andy noted earlier in our discussion, the amount invoiced for quarter one shipments was $8.2 million, and $2.4 million of that revenue has been deferred to the balance sheet and will be recognized when certain contingencies are fulfilled or services are rendered under extended warranties.

Approximately $2 million of the deferred revenue from this quarter's shipments will be realized as the units are commissioned and we have completed all of our installation services and reporting requirement for payments under the 1603 grant in lieu of credit program. The remaining portion of the deferrals for the quarter pertain to the fair market value of extended warranties included in the selling price to customers who have opted to purchase more than a one-year warranty. We ended the quarter with a total of $7 million in deferred revenue on our balance sheet, resulting from the net difference of the $2.4 million of new deferrals in the quarter, less the release of $1 million of previously deferred balances.

One last comment I would like to make regarding our revenue recognition policies is the timing impact on gross margin. While we defer revenue in accordance with our revenue recognition policies, more fully explained in our filings with the SEC which we encourage you to read, we recognize the full cost of units shipped in the quarter that they are shipped. In our earning press releases, we do provide a reconciliation table of gross margin, taking into effect these timing issues affecting revenue recognition.

Moving on to R&D contract revenue for the quarter, we realized $515,000, which is consistent with our expectation to be around a $2 million run rate for the full year. Turning to our cost of revenue for the quarter; cost of product and service revenue was $9.1 million, resulting in a reported 25.2% negative gross margin. However, if you refer to the gross margin reconciliation table provided in our press release, when adjusted for the deferred revenue issues discussed earlier, our adjusted product and service gross margin for the quarter would have been minus 9.3%. While not a GAAP accounting measure, we believe this provides a clear matching of product and service revenues and costs for the quarter.

During the quarter, we were also adversely impacted by lower shipment volumes than targeted. About $1.3 million in sales were pushed into quarter two, due to both customer requests to move up ship dates and our delays in the release of a few new designs needed to complete certain orders. While affecting revenue, the lower volumes also hurt our overhead absorption and direct labor utilization for the quarter. We do expect that both the ramp in shipment volumes and an increase in share of shipments from new product platforms over the remaining quarters of 2012 will boost gross margins into positive territory.

Cost of R&D contract revenue for the quarter was $766,000, resulting in a minus 49% gross margin. We expect similar results over the remainder of the year for our book of R&D contract business, due to the 50/50 cost share arrangements of most of our remaining contracts. Our operating expenses for the quarter totaled $5.7 million, and were comprised of research and development expenses at $1.2 million; selling, general, and administrative expenses at $3.9 million; and amortization expenses at $576,000. We expect our quarterly run rate for total operating expenses to remain fairly consistent to this over the remainder of the year.

Our net loss for the quarter ended March 31, 2012, was $6.6 million, or $0.28 per share, on a basic and diluted basis as reported. Weighted average shares outstanding for the quarter were 23.4 million, and our EBITDA loss for the quarter was $6.2 million. Net cash used in operating activities for the quarter was $3.5 million, and was favorably impacted by working capital changes of about $2.7 million. At the end of the quarter, the Company had $20.8 million in cash, cash equivalents, and available for sale securities, and $29.1 million in working capital, inclusive of the $15.8 million in net proceeds from the capital raise completed by quarter end. Additionally, the Company had availability of the full $15 million on its expanded and renewed revolving line of credit with Silicon Valley Bank.

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

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions)

Thank you. Our first question is coming from Phillip Shen of Roth Capital Partners.

Good morning, Andy and Gerry. Thanks for taking my questions.

Good morning, Phil.

I'd like to ask about backlog at the end of Q1. Can you give us a sense for what it was?

Sure, Phil. The total value of our backlog at the end of the first quarter was $28.6 million in invoicable value; and about 78%, or a little bit more than $22 million of that bought backlog is expected to ship in 2012.

You used to provide that in terms of units, as well. What was the backlog in terms of units?

The total units in the backlog is 1,707, and a little more than 1,300 of that units are scheduled for 2012 delivery.

Great. And then you kind of talked about your -- Andy talked about a $40 million target for revenue. You had other items in your guidance last quarter. Are you reiterating your guidance, or can you give a sense for what the current outlook is?

Yes. I think, Phil, we are sticking with our guidance. And what we're looking at is roughly in the range of $40 million for product and service revenue for the year, and about $2 million of R&D contract revenue.

Great. And in terms of the gross image target, does that still stand at 10%?

Yes. We are looking for the full year to be somewhere in the 10% range. And if you remember on that, we do expect to exit 2012 with a much higher gross margin as additional design changes and cost downs are implemented later this year.

Right. Good. And then let's maybe talk about the pricing environment. Have you guys been able to win business without cutting pricing? Give us a sense for how that's shaping up.

I don't want to say too much here, Phil. But let's say it's better than I expected. Better than actually our projections.

Great. And frankly, you know, when we run our numbers in terms of greenfield IRRs for your customers, they range between like 50% and 100%. I think they're pretty attractive. So I guess you've already answered my next question, in terms of do you actually have room to kind of use pricing to improve margins.

It appears that our models probably had been conservative on pricing.

Okay. And on the supply side of hydrogen, can you help us understand or give us an update on whether or not the hydrogen providers are reducing their monthly infrastructure costs?

I would say, Phil, that I have not seen a dramatic change since we last talked in March.

Okay. And going into March, you had seen --

I would say this, that we've -- I say that, I don't want you to think there's nothing going on. No activity ongoing. There has been work where I would say where we've seen the hydrogen companies talking to what I'll call the more manual labor activity associated with these, and low-tech aspects of these distributions, i.e., running piping, portions of the fueling stations where they've been talking with partnering with smaller companies to do that work to help drive down their costs. But we haven't seen the impact of their discussions in our pricing yet.

Okay. That's helpful. Can you highlight for us in your backlog perhaps the mix of greenfield versus brownfield installations? And how do you see this evolving over the near term?

It's about -- it's about 60% brownfields at the moment, Phil, and that's off my head. I probably need to go run it exactly. But when I look at it, if I take a step back, companies like Walmart and P&G are mostly brownfield-type activities. You know, much of the activity we talked about today, the Lowe's is a greenfield, but everything else is brownfield-type activity. So somewhere between 50% to 60% brownfield.

Thank you. That's helpful. And then one last question if I may, and I'll jump back in queue. You mentioned Lowe's just now --

I should mention that, you know, part of it is, too, that in many ways, some of these brownfields, where the companies -- we talked about the auto industry. And they're confronted with do you want to build -- the auto industry had a great downsizing in their facilities. And now they're in -- the facilities remain, looking to go to three shifts, have limited space, are confronted with you have to put in a battery, an additional battery infrastructure. So even though it's a brownfield, in many ways building a battery room becomes an issue. And so it's, quote, classified as a brownfield, the battery room itself ends up being part of the value proposition.

Right. And makes your value proposition more compelling.

Makes it more compelling.

In terms of Lowe's, you gave us some nice details there about having a master agreement and how you're going to Rome, Georgia. Can you give us a sense for the volumes going into Rome? If you mentioned them, I didn't catch them.

It will be initially around 175, growing to about 215.

Great. And then for the master agreement with Lowe's, is this agreement only for new sites that Lowe's plans on putting in place, or would it be for both greenfield and brownfield installations within the company?

Greenfield/brownfield. General.

That's fantastic. Great. I'll jump back in queue. Thank you very much.

Thanks, Phil.

Okay. Thank you, Phil.

Thank you. (Operator Instructions) Our next question is coming from Mike Cikos of Sidoti and Company.

Good morning, Gerry. Good morning, Andy.

Good morning, Mike.

Just a couple of questions for you. Coming off one of Phil's questions regarding the number of units we're expecting, so you said that about 1,300 units are scheduled for delivery in 2012. Is that just out of the backlog? Do you expect to ship more units than just that 1,300?

Yes, we do. We expect some of the orders that are in our pipeline right now will close with expectation to deliver in 2012.

Okay. And then on the fourth call, there was talk -- I guess the units that you were looking to hit, as far as a number, was about 2,300. Are you still targeting that number then, or has there been a reduction or an increase at all?

We're still right now targeting about 2,300 units to deliver in 2012. As we mentioned, we have some in our sales funnel right now that are expected to close with customer expectations to deliver this year.

Okay. And in the --

We probably, Mike, have the healthiest funnel we've ever had.

Okay. That's very helpful then. With the prepared remarks, I guess there were two things I wanted to just get some more clarity on. Did you say that the order traction to start off the year was slower than expected?

It was. And I think that -- I think a couple items came into play. I think that, you know, I think we're -- we have about three or four customers who are critical, and their buying patterns are more geared toward the second half of the year. And I think that has slowed items down. We had a couple accounts where our main contact changed out and we've had to work through a few items. But when I look at where we are with some new names and some old names, I'm pretty pleased that we're going to have a very good year.

With the three or four critical customers who tend to buy bigger in the second half, is it more so than what it's been in previous years?

I -- we're beginning to -- Mike, when I think about this business, so this company -- we went through a phase where last year was really the year that we really started having real sales traction. And we have companies like Walmart, Kroger, P&G, that combined we feel can make us a profitable company. And you know, we see that their buying power alone and their interest in fuel cells alone -- I should add Sysco to that, I don't know how I forgot Sysco -- is enough to build a basis for this business to grow. So when you think about this business, we booked more last year than we've -- our bookings last year was 2X what we booked cumulative in the life of the Company.

Okay. Okay.

We're on that kind of traction, Mike.

I see. And with the Ikea deal through HyPulsion, when is it you expect units to start shipping for them? Is that during 2013?

You know, I have nothing in the forecast for our European joint venture this year. So I expect those units to ship in 2013. I see European activity very much looks like Plug Power did in 2009. I think when I look at the meetings we're having, they're much better than the meetings Plug Power had in 2009. I think for two items, we're going in there as a more Air Liquide with -- as a $10 billion company selling this product. And we're going in there with an established record here in North America, where we can say, here are 35 sites that are using this technology.

I see. And the last thing that I wanted to ask -- I think Gerry had mentioned it earlier, regarding the lower shipment volumes that were then targeted during this quarter were due to the customer requests, which addresses the three to four bigger players who are holding off their orders now until the second half of 2012. But there were also delays on plugs in then from later than expected design launches?

Yes. So there's about $1.3 million in revenue value that we expected to ship in quarter one. Roughly $800,000 of that was customers who, again, getting fueling stations ready, having the facilities ready. They really just pushed it out several weeks. So we're going to deliver those units in quarter two. About a half million dollars of expected shipments are for design changes, which is basically just repackaging the guts of our engine into a casting. We had to get those castings from China. And then those castings have to be certified and specced by the fork truck OEMs. That took a little longer than expected. So those units, as well, are shipping in quarter two.

Okay. And I guess as far as the delays getting everything specced, what was that a result of?

Basically when we have a new design that's going into a different model fork truck built by the OEM, the OEM has to spec that GenDrive to operate in the truck. So we send the units to the OEM, they run them in their trucks, they do their tests, and then they certify the units in their trucks. So that took a few weeks longer than we anticipated.

Okay, and just one more --

And Mike, I actually view that as a barrier for entry for competitors, because it's not easy to do it as quick as Plug Power knows how to get it done.

Okay. All right. And just the last question, for modeling purposes, just to verify the prepared remarks and reiterate, as far as operating expenses we're looking at for the remainder of 2012, it would be similar to what we saw in this first quarter?

That's correct.

Okay. Thank you very much, guys.

Thank you, Mike.

Thank you, Mike.

Thank you. Our next question is coming from Gabriel Flores of Intervest.

Hello, gentlemen. It's actually Interinvest. We're shareholders of record of Plug Power, and very proud to be so.

Good morning, Gabriel.

Good morning, gentlemen. I have two questions, and then I'll jump back in the queue. First question, can you put a little bit more color on the kind of margins that each unit is generating at the moment, margin growth or margin compression and what factors go into expanding margins. And my second question is, can you talk a little bit to the possibility of further expanding business into Canada?

Sure, Gabriel, this is Gerry Anderson. So I'll take the first part of that question, on the margins. Again for the first quarter, and I think we've mentioned this in the past, that at the lower shipment volumes, our biggest challenge is covering the overhead structure of our business, which is primarily fixed. So you have about $4.5 million a year in overhead. So roughly $1 million, $1.2 million a quarter that has to be covered. So when you only ship 300 units, such as this quarter, it's hard to absorb all that. On the material and labor side, if you look at that as a contribution margin, we're positive on that aspect of our products shipping, and that's expected to continue to expand as we go forward as there are several design improvements coming out later this year, as well as significant traction we have with our vendors in the supply chain on leveraging prices due to our higher volumes of orders from them.

Excellent. Thank you.

Yes.

Okay. Let me talk a little bit about Canada. And first, Gabriel, if you're in Toronto, I think it's the week of June 4, the World Hydrogen Conference, where Plug Power will be receiving an award for leading the hydrogen industry in commercialization at the conference, and we will be presenting at the Air Liquide booth. I will be on a panel discussing fuel cell technologies with people from companies such as Canadian Tire. We do have sales individuals who have been courting accounts in Canada. We have deployments already with a few Walmart sites, Walmart in Calgary, Walmart in Cornwall. Have a few more Walmart sites on the drawing board. And we've been attempting to leverage that relationship into -- and Walmart's been wonderful. They've taken over 80 people through their facility to help promote our products. So I expect you'll see additional sales in Canada over the next six months.

Excellent. Thank you very much.

Okay.

Thank you. Our last question is coming from Ali Motamed of Robeco.

Can you talk about the little accounting change and how that fits into your guidance, and it looks like we're deferring a little more than maybe we have in the past, yet we're keeping our guidance. Can you talk about what we should be incorporating?

Sure, Ali. This is Gerry again. And it's not really an accounting change. I mean, it is what we have been following since 2010. And basically what it amounts to, when we look at the bundled services that are included in a deal such as installation and training, providing information for a customer to file for their tax credits, we have to render those services and fulfill those before we can recognize that portion of the revenue. So we had three rather large deals in quarter one, which is more than what we've typically experienced, that had significant contingencies tied to fulfilling those installation services and filing for the tax credits. So it's really nothing more than a timing issue. So I shipped the units, I have to recognize the cost, but some of that revenue comes in when we file the applications and complete commissioning. We don't expect that to be a major barrier for us to achieve our $40 million of revenue.

The other piece that's included in that deferred revenue, though, is when we sell deals to customers that buy extended warranties. That portion of the revenue, from a GAAP accounting purposes, has to be deferred and recognized over the warranty term. So again, depending on what customers sign up for extended warranties, that portion of the revenue would be spread out. But again, that would be incremental on top of the $40 million.

So to help Ali here, of that $2.4 million that was deferred in the first quarter, how much will we see as revenue this year?

Well, $2 million of it is tied to the installations and the commissioning. Then, of the $400,000 that's for extended warranties, you'll see maybe 10% of it.

So Ali, we're going to see $2 million. What kind of COGS are we going to see with that $2 million?

When we recognize that $2 million, there's no COGS tied to it, because I've already taken the full cost this quarter when we shipped the units.

So is that helpful, Ali?

Yes, that's helpful. Will we be having an even bigger effect, though, in the back half, right? I mean, so this is a continual process, I guess? And we'll always be, to a certain extent, lagging the economic profitability by a few quarters?

Yes. There will be some. And again, it's dependent on what gets -- what we sign up for in deals with customers. And it is part of the reason, Ali, that we try to provide that gross margin reconciliation table in our earnings press releases.

And so when you talk about gross margin guidance, though, which gross margin are you talking about?

Well, we still expect in our actual GAAP financial statements that we will achieve positive for the year. And we've targeted to be around 10%.

And so how much are you going to defer for the year, of this revenue with no associated costs? You think on average? Because in the back half, we'll start having some big orders, right? And that period we're going to be deferring a lot more. I mean, if we're deferring, let's say 20% or so now, in the last couple of quarters we're going to be putting up nice $10 million-plus quarters.

Right.

And so we're going to be deferring like, what $4 million or $5 million that won't be recognized at 100% profit margin until next year?

Not necessarily. Again, it depends on some of the deals. We do have a few more deals that have the1603 filing requirements. That's usually a one to two quarter timing delay. And then those contracts where we do have customers with extended warranty, the value of what we sell the customer actually is increased for the value of that warranty. So we still have built into our model what we expect to receive on the actual unit sale. So the deferral does not impact our expectation to hit the $40 million of revenue.

And those extended warranties are generally quite profitable?

Our expectation is on the service side of our business that we will have a nicely profitable business as the install base continues to grow. And we have the obvious economies of scale of selling parts and servicing the after market.

Okay. Perfect. Thank you.

You're welcome.

Thank you, Ali.

Thank you. At this time, I'd like to hand the floor back over to Mr. Marsh for any closing remarks.

Thank you for your questions. Before concluding this call, I'd like to remind you, our audience, that Plug Power's annual meeting will be held at the office of Goodwin and Procter, the New York Times Building, 620 8th Avenue in New York City, on May 16 at 10.00 AM. Thank you for joining the call today.

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