普拉格能源 (PLUG) 2017 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to Plug Power Inc.

First Quarter 2017 Earnings Call.

(Operator Instructions) It is now my pleasure to introduce your host, Teal Vivaqua, Director of Marketing Communications.

Thank you, Teal, you may begin.

Thank you.

Good morning, and welcome to the Plug Power First Quarter 2017 Earnings Conference Call.

This call will include forward-looking statements including, but not limited to, statements regarding 2017 objectives, including goals related to revenue, sales, bookings, gross margins and GenKey and GenFuel installations.

We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

We believe that it is important to communicate our future expectations to investors.

However, investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties.

And actual results may differ materially from those discussed as a result of various factors, including, but not limited to, the risks and uncertainties discussed under item 1A, Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2016, as well as other reports we file from time to time with the SEC.

These forward-looking statements speak only as of the day on which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call.

At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh.

Thank you, Teal, and thank you, everyone, for joining Plug Power's First Quarter Conference Call.

We released our earnings this morning, as you may have noted, we changed the structures of our earnings release to a shareholder letter format.

The format is one used by other technology companies, and we believe this approach provides greater detail and transparency for investors.

The shareholder letter provides management views about the quarter, the rest of the year and links these developments to our long-term strategy.

The earnings call will also be different.

Management will review the highlights for the quarter as well as our financial expectations for the remainder of 2017.

The majority of the call, though, will be devoted to questions and answers.

First, I'd like to reiterate our guidance for the year.

We expect GAAP revenue of $130 million with gross margins -- GAAP gross margins between 8% to 12%.

We'll deploy 5,500 GenDrive units at 25 sites as well as 100 ProGen engines, and the company will book between -- book $325 million and will use between $25 million to $35 million in net cash, including operating and investing activities.

First quarter was in line with our internal expectations, and we expect 30% to 35% revenue in the first -- of our revenue in the first half of the year.

Our deployment will consist of six of our GenFuel sites in the first half with 12 sites scheduled for the third quarter, and the remainder in the fourth quarter.

I'd like to highlight, and I think this is really important, that the business is in backlog.

Going back to the quarter, I'm sure people may have been surprised by our cash use in the first quarter.

As we mentioned in our shareholder letter, we are negotiation with our key PPA customer to change terms to allow for lower cost financing for these deals.

We're waiting for the conclusion of these discussions to finance the first quarter deals.

The foreign financing of these deals had an impact of approximately $9 million in our cash use for the quarter.

Of course, the big news for the first quarter was the announcement of our strategic agreement with Amazon, valued at up to $600 million.

The deal highlights our leadership position in material handling market.

We're confident the transaction will accelerate business with new and existing customers through our drive penetration, new applications in markets and ultimately support our path to profitability.

Amazon's commitment to Plug Power is also a significant milestone for the fuel cell industry as a whole, as it validates the industry's path to commercially viable solutions.

The agreement not only establishes Amazon as an important long-term customer for Plug Power, but given the warrant component of the deal, also makes them an important stakeholder, aligning our interest as we grow the relationship.

We're now focusing on executing this deal and making sure that Amazon experiences the complete value of our offering.

Paul and I are now ready for any of your questions.

(Operator Instructions) Our first question comes from the line of Eric Stine from Craig-Hallum.

Just wanted to touch on guidance, just the thought process there, how we should think about that?

I'm a little surprised that you didn't take that up.

I mean clearly you've -- with Amazon, you've now got virtually 100% visibility into your -- what you're guiding for revenues, but just want to clarify, I mean, is this more the thought process that it's early in the year, things can move around?

Or any read-through to the base business because I would guess the base business, you still expect pretty nice growth.

Eric, I think that we want to make sure that we meet market expectations, and we've given it a lot of thought and we thought these are the numbers we know we can hit, so we do not want any surprises and that's really what we're working to minimize, and I think later in the year, if there are changes on the positive side, we'll be able to announce those changes, but we're looking at our backlog; we have a 100% in backlog.

We're confident, of course, we're going to be trying to do other deals throughout the year, but why add more risk?

We have a healthy business, it's growing -- are going to have an incredibly strong third and fourth quarter, and in third quarter we're going to do almost 45% of the sites that we're forecasting at the moment.

So I feel that with investors, we're going to do what we say, and if there's good news later on, we'll announce it.

You mentioned working on the financing solution, I mean is that also something that depending on the form of that could impact the guidance as well?

I mean just in terms of how you're able to recognize revenues?

That is correct.

And that's not included in the guidance projections here today, Eric.

Just sticking with guidance, just wanted to double check, I mean it's very similar to how you laid out guidance last time and you are including 100 ProGen modules for China.

Just want to clarify, are you still not including China in the guidance given just some of the timing uncertainty in that market?

That's correct, Eric.

The 100 ProGen engines all deploy, but revenue recognition for China, quite honestly, we're still getting our hands around, I mean -- actually Paul's in China at the moment and one of the issues is that we're making sure that we set up LCs, we set up financing, the Chinese have financings that they have LCs in place, that we get paid up front for not only the units, but to make sure the working capital.

In fact it's possible, those units, because of the -- could be shipped that we could receive the cash for, but we may not be able to recognize the revenue.

I hope that clarifies.

Maybe last one for me, this is more high level, but just as you think about on the fueling side and reformers, is that still something in 2017?

Your bookings or the business that you'll be booking during the year, the reformers is still a fairly small part of the business, but how do you think that can trend longer term and what does that mean for market opportunity?

I think that we are -- remain bullish about the reformers.

We've done our first deployments with reformers, we're pleased with the performance, and we believe that reformers offer an opportunity to expand our value proposition beyond distribution and manufacturing facilities with 50 units to 75 units.

We believe it will allow us to move down into smaller facilities.

Also, I haven't talked much about this, but I think it may have implications about our channel strategy long term.

And I think with the smaller sites, the relationship -- for the relationships with those customers may be dealt with through some of the forklift truck OEMs.

Our next question comes from the line of Carter Driscoll from FBR.

So first question, just kind of like housekeeping.

So the $9 million deferred as you're working to change of terms of relationship.

So if you had done four sites, is that fair to say -- you obviously didn't like the economics of it, but that $9 million would've been in the revenue figure for the quarter?

Paul, do you want to take that one?

Yes, so there were two sites we did in the first quarter, Carter, and basically if we had financed those with the bank, we projected the proceeds that we would get from that.

I think the follow-on is, as we finalize those financing terms, whether they account -- whether accounting rules provide for revenue recognition as we have in the past.

And so I think it's a fair assumption to assume that's kind of what would be total revenue associated with those transactions, should they come to term.

Is there any additional color, Andy, you can add on -- you were very excited when you announced the Amazon agreement, but the technology collaboration maybe got overshadowed by the nominal amount of the multi-year order.

Any additional color you can add on the technology collaboration, whether it's timing or form, or whether you think you can address the on-road versus potential off-road applications, trying to give us a flavor of how this is going to proceed?

Who is responsible?

Any milestones you're looking for near term or medium term?

Then I have one last follow-up.

Carter, I really can't comment on specific applications at this time.

I can say, we can say that we will strategically evaluate opportunities where there is a real use case for fuel cells.

We do have staff dedicated to work directly with Amazon to identify those applications and to work with the appropriate teams within their organization.

And obviously -- Carter, look, what I say about Amazon is covered by NDA, so I am cautious about what I can publicly share at this time beyond those statements.

That's fair.

They're notably needed on their technology path.

Europe -- is it fair to say that your deployment with Carrefour Group was -- that's an additional deployment at the first existing site, so as they get more comfortable -- the technology, rolling it out further within this distribution center and then your expectations for both the opportunity with that organization and then you had a win in Norway, which was unidentified, but maybe just talk about where you stand in Europe and how you're approaching that similarly or differently to your approach in North America?

I think, first, we are very excited about Carrefour and, again, it kind of gets -- if you think about the company's strategy, it's how they line up the big retailers, the big large manufacturers who can see the immediate value of our products and their application.

And I know, over the next three years to four years, Carrefour has plans to rollout 20-or-so distribution centers of similar size to the one we have deployed at the moment, and I view that our success, and to date it has been a success with Carrefour that it will provide opportunities to continue to expand within their footprint.

And knowing that the new distributers are actually greenfield, our value proposition is even stronger because the cost of hydrogen infrastructure and the cost of battery rooms are similar proportions.

So we're excited about Carrefour and the team's done a good job.

I think in Europe, in general, again, the sales strategy is again focused on large retailers and manufacturers as well as -- I think this is important, leveraging our U.S. relationships over into Europe.

And we expect that Carrefour and a few other companies will be the base to move from, and I think from a hydrogen perspective you will see more partnering.

The deployment with Carrefour was with Air Liquide who's been a long-term partner with Plug Power, and I suspect that between Air Liquide and Linde, we'll probably be doing a good deal of work over the coming years.

Maybe just last one for me.

You mentioned in your prepared remarks, you introduced two new versions for Class 2 units.

Can you talk about the forum?

Did you re-architect it?

Did you pull some cost up?

And maybe put a number around where you think maybe on the material cost or process savings?

You've done a very good job over the last several years putting the cost out of the cost out of stacks and modules themselves.

Just maybe put that in perspective and maybe the timing of when you expect that to flow through?

We expect to see that in the third quarter.

So the timing of the pull through -- Carter, when I look at the business, we essentially have two base platforms: a low-power and a high-power platform in the material handling.

And we may integrate them into different packages.

And about every two years, like most technology companies, we redesigned the products based on advancements that we're making with the technology and generally what we've seen with each generation is about 20% cost reduction.

So I think that when we provide you the projections here, those units are actually running and operating, so we we're comfortable.

They're actually part of the third and fourth quarter projections we've already shared.

Our next question comes from the line of Amit Dayal from Rodman & Renshaw.

Most of my questions have been asked, but wanted some clarification on a few things.

In the press release, you said you did not finance the two PPA sites that were deployed in the first quarter.

So going forward, the terms of these PPA deals should they be kind of be reflecting more of what we saw in the first quarter?

It looks like you have made some adjustments on that side, and will we see any formal announcement on this front?

Paul, you want to take that?

And maybe I'll -- let me say it quick now, and I'll let you dig into details.

As I mentioned during the call here, Amit, that we decided to defer the financing that deal, and it's possible those deals will look more like sales leasebacks in the future because we're working with our PPA partner to reduce the cost of financing those deals in general.

And that's why we did not conclude the financing because it could have a dramatic impact when the level of cash that Plug could receive for those deals.

We think that the deals will look -- could look like our present form with much lower lease rates or could look like traditional sales leaseback, just depending upon the structure with the bank and our partner.

Paul, do you want to add to that?

I think I captured it, but you probably can add a little bit additional insight.

Sure.

So when you say first quarter, there were two sites what we did in the Q1, and for transparency, we've disclosed in the press release the value associated with those had we financed them with institutions, similar to what we have done in '14 and '15.

So at least for now I think it’s a proxy of what we're targeting, and as Andy said depending on the final terms of the structure that'll basically drive whether from the accounting rules from what you probably know, kind of, dictate whether it's an operating lease or capital lease.

If it's an operating lease, then there would be revenue recognition associated with it.

Understood.

And just moving on to the ProGen side.

Just wanted to confirm if you have shipped any ProGen units yet against that 100 unit expectation you have?

We are -- yes but not many, Amit.

So we've shipped a few units so far and we'll be shipping a few more in the month of May.

We would expect most of these shipments to be in the fourth quarter.

Got it.

And maybe one last question on any updates on the range extender related opportunity with FedEx or anybody else working on this?

Sure.

We have integrated the ProGen engine into the FedEx project.

It's being tested with our partner work horse to eventually move the units into FedEx.

We're watching the unit run around our parking lot about three to four weeks ago, so it appears that the unit is performing.

I think people should look at that as a little bit different than China.

I think that it's probably a 12 to 18 month strategy before attesting in qualification by FedEx.

I'll tell you what's really interesting, though.

Because we've been looking at costs, and one can think about the cost of a pure electric vehicle, the cost of a diesel engine vehicle or the cost of a hydrogen fuel cell vehicle.

And if you think about a pure EV, you have two issues with that kind of product: one you have an issue with the range.

The present battery solutions that are deployed by FedEx has a range of 60 miles.

By adding a fuel cell, one can achieve 175 miles of range.

The second item that has really fascinated me is when you look at the cost of energy.

And especially when you look at the all and fixed cost for a typical sized fleet.

You know, electrical costs actually -- especially infrastructure for electrical deployment, actually scales with the unit, while hydrogen units, actually kind of stay flat after you reach a certain point for the infrastructure.

And what we actually see is that fuel cells and batteries can actually be on a total kilowatt hour basis today if you're on par with diesel at the present cost of diesel, and if you go back to 2008 pricing for diesel, the solution is actually half the cost.

So we believe it's a really viable market and can provide both a clean environment as well as an offering that has a value proposition that reduces operating cost.

As you know, everyone wants to be green, but everyone wants to be green with cost savings.

And when we start looking at this delivery van market more and more, we actually believe there's an opportunity to reduce the operating cost for folks like FedEx.

And if you think about FedEx, so much of their business is driven by the cost of fuel, and the solution that reduces the cost of fuel will be quite attractive.

(Operator Instructions) Our next question comes from the line of Jeff Osborne from Cowen and Company.

A couple of questions on Walmart.

Given the uncertainty on how the accounting treatment will be for Walmart, is Walmart expected units this year in the 5,500 units or is that upside?

Yes, Jeff.

It's not a -- it is included and the risk there is very low.

Are you assuming a sale leaseback, then in terms of [revrack] in the 150 gap or 130 gap?

No.

We're not.

And I think that while I was talking to Eric, I may have not been clear.

I was mentioning that until the deal gets done, we're not going to change our forecast for the year till it's all papered up.

Maybe just the last question.

Sorry to beat this one to death.

But what is the gating factor with you're -- I assume you're using the same partner that you used for last year, and it sounds like you have a third-party bank involved.

Is it just due diligence that they have?

Is it something with Walmart on their end in terms of accepting this?

I'm sure they have a bunch of things on their plate, I'm just trying to get a sense as an outsider what is the gating issue to moving it forward?

I would just say, and Paul you can add to this, you're dealing with a large commercial bank, your dealing with us, you're dealing with Walmart and just the legalities in making sure.

I think a lot of it is associated with the legal details.

And I think -- and obviously we're trying to structure it so that the accounting treatment -- it may not -- I don't think it's going to -- anything we have going on is going to impact the cash flows, how we negotiate.

I think part of the negotiations actually also have to do with our accounting treatment.

Because quite honestly, look, I'd rather recognize it as revenue immediately.

It makes our financial statements easier to read, but that's part of the details are going on.

It sounds like you're pretty confident there, I just wanted to get a sense of the cash used in the year, the 25 to 35, it might have the uncertainty of Walmart at least over the next few months.

Should you expect a similar run rate of cash burn in 2Q, and then I guess more importantly as you ramp up the 12 sites in 3Q, I would think that would take up a lot of cash as well.

So is it right to think about the middle month of the year when the bulk of the cash gets used and then maybe the fourth quarter, you recoup some of that?

Paul, I'll let you add -- I know the third quarter's going to be a very good cash quarter for us.

I mean good in the way cash coming in, and I think we were actually doing some of the ramp-up for the second quarter and third quarter, even at the end of the first quarter.

I'll let Paul comment additionally on that.

Yes, so when you look at the first quarter and the fact we didn't finance any deployment, really and then so, you've got two that rolled into Q2 and you got four sites planned for Q2.

As those sites start turning, that's obviously very cash accretive and helpful.

And of course, if you look at Q3, with the volume plan there, it just get better as the year goes on.

So yes, there's a build early on and then, obviously, we start turning a lot of cash out of those systems as the year goes forward.

Got it.

That's helpful.

And then the last question, big picture-wise, can you just talk about the scope of what you're doing in China?

Vis-à-vis the FedEx program with your partner Workhorse in terms of your content in the vehicle?

Are you the system integrator with -- doing the battery integration with your fuel cell?

And in China versus FedEx as using Workhorse battery system, I just wanted to get a sense of -- and if that's the case, what -- how do we think about the revenue content per vehicle as we think about those 100 ProGen engines?

So I would think, Jeff, from a revenue contribution, it's in the range of $50,000 to $60,000 per engine.

I think from a battery point-of-view, we will not be providing the batteries, but we are providing a good deal -- we're providing all the technology to integrate the battery.

So essentially, it's actually the OEM that's providing the batteries, but we're providing all the interface and system work from the batteries to the fuel cell.

I hope that's -- so we're doing -- going into details of stacks, the balance of plans, the radiation systems, the control systems, the OEM is buying separately to hydrogen -- as well as the interface to the hydrogen system.

They're really just buying the tank and batteries and we're doing all the interface to the system.

So 80% of the system is us.

As you know, our products -- our fuel cell products for material handling, our hybrid units that we use lithium batteries, one of the core capabilities the company has is the ability to integrate batteries successfully with fuel cells.

And even with Workhorse, Jeff, a lot of the control work is, I'll say joint.

At what point -- so it sounds like you've got initial shipments here more in May with the ramp in the fourth quarter as you provided earlier.

But at what point, Andy, do you think the ecosystem of vendors and potentially the end customer for this arrangement in China would be made public, so that investors can have a better appreciation for the potential there?

I think, Jeff, probably between now and the August call, we should be able to a give a great -- a lot more clarification of what's going on.

Now I've probably been a little bit more hesitant than some when it comes to negotiating these terms in some ways because with Amazon and Walmart, we have a strong fundamental business here and it probably allows me to be -- not that any other folks aren't being cautious, because they are.

But it allows us to maybe take it a little bit slower because it really doesn't -- it really -- if China's success was not successful, this business will be successful Plug Power.

And I think it puts me in a rather unique position when it comes to fuel cell industry as far as mobility-type applications.

Our next question is a follow-up from the line of Carter Driscoll from FBR.

Andy, just -- don't know if you can answer this or not, but is there any material change in what you are sourcing back in-house and then maybe a high versus low power in the initial push in Amazon, third quarter?

So, Jeff -- I'm sorry, Eric -- Carter, I'm going to get it right here.

We are -- as we put in the shareholder letter that we're bringing more and more in-house and I would expect 90% of the stacks shipped Amazon will be Plug stacks.

And that we'll continue to have a certain level of diversification there.

As you know, we continue to look at the right items to outsource and the right items to do inside.

But we build our batteries inside and we source cells.

We are building our own stacks and I think that from a cost point-of-view, we're always thinking about what items to vertically integrate.

And I think the part of -- if you really think about it from a design point-of-view, we're always thinking about the integration, how to simplify the design and if possible, what can we do inside and what makes sense to do outside.

At the moment, stacks and batteries, we've concluded are part of our internal offering as well as hydrogen infrastructure is ultimately an item that we vertically integrated.

And then just the anticipated mix of the initial push in Amazon in terms of different classes.

Good question.

So a good deal of the Amazon products will be -- I'm trying to think whether I should say this or not; I'm looking at my lawyer here.

I would say that the mix is similar to what you've seen with our other business.

Ladies and gentlemen, we have no further questions in queue at this time.

I would like to turn the floor back over to Mr. Andrew Marsh for closing comments.

Thank you, everyone.

We're excited about the coming year.

I think that there's a few points I'd just like to rehighlight.

One, we provided our guidance, and like different from any other year, it's all in backlog and it should provide investors a great deal of confidence that we'll hit the numbers we've outlined.

As you could tell from the call, the PPA agreement that we're working through to make sure that we can maximize the cash flow for Plug Power, make sure we can continue to satisfy our customers and as the world moves through electrification, we believe that when we look at some of the underlined value propositions, especially for delivery vans that we can provide value today for customers who want to make this transformation to electric.

So, I appreciate the call, and we look forward to sharing more with investors over the coming quarters.

Thank you.

Thank you, ladies and gentlemen.

This does conclude the teleconference for today.

You may now disconnect your lines at this time and log off your computers.

Thank you for your participation, and have a wonderful day.