普拉格能源 (PLUG) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Plug Power Second Quarter 2017 Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, John Cococcia.

Please go ahead.

Thank you.

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

This call will include forward-looking statements, including but not limited to statements about our expectations regarding the third quarter and full-year 2017 revenue; deployments of GenKey sites and GenDrive units; gross margin, bookings, liquidity and cash collections and usage; the impact of the Amazon and Walmart relationships and the 2017 revenue to be derived from those relationships; and our outlook for 2018 including growth, future cost reductions, expansion in Europe, further testing expansion of applications for ProGen and achieving positive cash flow and gross service margins.

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 to not 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, and its definitive proxy statement on Schedule 14A filed with the SEC on May 23, 2017, 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, John, and thank you, everyone, for joining Plug Power's second quarter conference call.

This morning we announced our second quarter earnings.

Just as a reminder, in the first quarter we changed the structure or our earnings release to its shareholder letter.

This format is one used by other technology companies and we believe this approach provides greater detail and transparency as well as -- and was well received by investors.

The shareholder letter provides management's views about the quarter, the rest of the year and our long-term strategy.

Like the last earnings call, management will review the highlights for the quarter as well as our financial expectations for the remainder of 2017.

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

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

We expect gross revenues of $130 million with adjusted gross margins between 8% to 12%.

We will deploy 5,600 GenDrive units, install 25 GenFuel sites and ship 100 ProGen engines.

The Company will also achieve $325 million in contract bookings and we will have $25 million to $35 million in free cash flow use in the year.

I want to be clear with our language.

Gross revenues represents revenues prior to deductions associated with warrant charges and adjusted gross margin excludes charges related to Amazon and Walmart warrant expenses.

First half was in alignment with our expectations and positions Plug for the second half of the year.

As noted in the shareholder letter, the third quarter will be a record for the Company as we deploy 10 GenKey sites and 3,000 GenDrive units, more than two times any previous quarter.

This will be more than half of our GenDrive shipment commitment for the entire year.

In the second quarter we prepared for this ramp procuring parts, preparing sites and adding new hourly labor to support these shipments.

And just to give folks a feel, we are already at record delivery orders for a quarter as we speak here on August 9th.

All the use of cash in the first half may make investors concerned.

The Company though will collect over $130 million in cash in the second half, $20 million which has already been received.

We believe these collections will allow the business to achieve our free cash flow targets for the year.

Additionally, the greenback loader received in July will support any short-term working capital need supporting this quarter's builds.

Moving on to commercial activities, the Walmart and Amazon deals announced over the past few months were a significant milestone for the industry and the Company.

These two transformational deals will have a significant impact on Plug Power's strategic trajectory and long-term financial buy/build.

Specifically, these agreements will be accretive to our cash position, accelerate our path to profitability and provide Plug Power with two collaborative partners that share our excitement for the opportunities that lie ahead for fuel cell technologies.

Further, the magnitude of these commitments from two preeminent global companies send a clear message to both current and prospective Plug Power customers from the significant value proposition of our GenKey solution and provide significant leverage as we explore and deploy ProGen engines in new markets around the world.

Finally, this gives Plug Power a strong base of business to build off of in 2017 and beyond, not only to continue to grow revenues, but to continue to rapidly reduce costs as volumes and visibility increases.

The goal is to execute on our existing business, add more key material handling customers, turn all our lines of businesses profitable, like GenDrive, and seek opportunities to expand into powering electric vehicles like the FedEx delivery van.

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

Thank you.

(Operator Instructions).

Our first question today is coming from Eric Stine from Craig-Hallum.

Please proceed with your question.

Good morning, everyone.

So I just wanted to start with China.

And just to clarify, because I know in the past you have not included it in the guidance.

Is that still how we should think about it?

I mean I know when you were talking about the reiteration of guidance you did list that as something that you expect.

So and, Eric, when you listen to my language I am talking about shipments, not revenue recognition.

Okay, okay.

So though and as I mentioned a few weeks ago, we're in the enviable position where we don't have to be as anxious with China because of our positions with Walmart, Amazon and in general in the material handling industry.

We've been spending a good deal of time thinking through who are the right partners, where is the right place to start in China.

But we have vehicles under testing on the road.

We're not feeling the pressures to just make a deal.

And so we're going through this methodically, thoughtfully but probably most importantly number one and number two, number three and number four on our priority list are making sure that Walmart and Amazon are satisfied with our performance and those activities are profitable for Plug Power.

Right, understood.

No okay that's so that we still should think about that as potential upside to guidance.

Maybe can you just talk about -- just stick with China before moving on?

I mean some of the -- well, number one, how the testing is going, your thoughts about the certification process, but then also kind of some lessons learned there and progress?

As you said, you're thinking about how to find other partners so maybe just some of the considerations as you work towards that late 2017 and 2018?

I think that the testing has been -- we've been quite pleased with the testing.

We've gone through qualifications at the central location.

We're continuing to test with the OEM.

The -- no it's actually been fairly smooth for a new product.

When I think about the considerations, two items hang over us when I think -- hang over when we think about China.

One is that -- I've reiterated this on a number of occasions.

We want partners who are serious about the business for the long-term, who have thoughtful plans for the market that think through the challenges of not only putting vehicles on the road but understand the complexities of hydrogen and how deployments rationally can occur.

And that's -- I've spoken to many people in China.

I bet we've had over 40 people come through the facility here and I would say only 10% to 15% that I would sit back and say they understand the complexity.

Complexity may not be the right word but the challenges associated with introducing electric vehicles based on fuel cell technologies, especially when it comes to availability of hydrogen.

I think the second consideration is that finding a partner with the financial depth to support deployment.

There's many, as many people know, the -- in China many companies are highly leveraged and that we're looking for partnering with folks who have the financial viability to sustain a business for the long run and not treat it as a gamble and load a company up with debt to achieve market penetration.

We think there needs to be a rational mix of equity and debt with any partnership we go into.

Got it, okay.

Another question, I mean maybe it might be a little early on to ask this but I'll do it anyways.

I mean obviously two very high profile announcements, even though you had Walmart, I mean just for that to accelerate a little bit, maybe what that has done to your pipeline and do you think -- I mean, are you finding that there are customers that may want to go the Walmart route and do this with Wells Fargo or is it -- do you still think that the vast majority of customers will be that traditional up front sale?

The vast majority of our customers will pay us with cash or they will arrange their own leasing.

Yes, okay.

As does Amazon.

Okay and pipeline, I mean interest that it's generated, maybe too early to say, but obviously pretty high profile additions?

I would say that the pipeline is stronger, that I expect that we will be having a few more new names and we have added new names and hopefully soon I can discuss those names to our list of customers.

And I think probably most important we're, as I've mentioned on many occasions, we are quite focused on how to develop relationships with our present customers that the deals can be the size and the opportunities that Walmart and Amazon have brought the Company.

Right.

Um -- sorry.

Adding two marquis customer names a year for multisite deployment remains a goal of the Company.

Okay last one for me just on bookings, I mean obviously you're reiterating that bookings number for the year, I mean a pretty significant step up.

Should we think about for instance the Amazon business?

Is that something that kind of gets layered in as sites are added or maybe just talk about your visibility into the back half bookings?

Sure.

I would expect about half of the bookings to achieve our goals, if not even more, will be associated with Walmart and Amazon.

Okay thank you.

Thank you.

Our next question today is coming from Sameer Joshi from Rodman.

Please proceed with your question.

Good morning, guys.

Just a question on accounting actually.

Would you explain the reconciliation between the gross revenue and the net revenue and how the common stock warrants were priced here?

Sure, it's Paul Middleton.

Good morning, Sameer.

I think, specific to the revenue bucket, the warrants for the Amazon transaction, simplistically there will be some value of that that gets attributed to the revenues as we earn them every quarter.

So we've called that out as a deduction in the revenue so it's clear and transparent as to what's in there.

But that's -- the way to think -- I would think about it is that the gross revenues represent our commercial transaction with the customer as we continue to deliver and sell and the price that we will extract from the customer.

And the deduction which is called out is the non-cash amortization of those warrant values that has to be attributed to revenues.

Is it a Black Scholes valuation of the common warrants or is it based on the actual number of warrants that you issue at (inaudible)?

It's a variation of the Black Scholes but there's -- between us and Amazon we work together with actuarial valuation firms and come up with a value of those warrants and then that value gets amortized over time.

Understood, okay.

Thanks for that, Paul.

Just a macro or rather a high level question.

In the prepared letter there is a mention of transferring your experience and learning from the material handling and to delivery trucks and even ProGen basically.

Can you elaborate a little bit more on that, how well those two are similar and different?

Sure.

And I'm an electrical engineer so I am going to talk about it like an electrical engineer would.

The parts that make up the engine are essentially the same from the fuel cell membrane to the type of batteries we use to the tank types we use to the electric circuit boards to the control circuitry.

When you think about a package, you could lay the components on a desk in front of me and those components from material handling to a ProGen engine for a FedEx van would look the same, maybe scaled up versions of the same part, but would -- to you, Sameer, would look very, very similar.

The differences usually come in packaging techniques.

And that if you think about a forklift truck you have a box that has to fit into a certain compartment size; you can think of a FedEx van similarly.

What we've seen today is actually the density of fuel cells in forklift trucks are denser, which are more of a packaging challenge than we've seen to date in electric vehicles.

That dynamic could change in the future but that's really how I think about it.

Is that helpful?

Yes, yes.

So the competitive or rather the transfer of experience is mainly technological.

It is not how you approach the different markets and any difference in the sales technique.

That's another -- that's actually a good -- I gave you a technical answer, so the channels are also -- I think will be different.

So the products, the packaging is very, very -- is really the variation not the components that go inside the box.

The channels will be different.

The channels will be more OEM oriented, more value added integrator oriented while in material handling, because there is standard package sizes, standard products.

Those products are easily integrated into a vast variety of forklift trucks, most of the forklift trucks in the world that are electric.

And that there our sales channels are direct to the end customers because that is how they buy batteries today.

And if you think about it, most industries that when -- how people buy batteries is that they sell to OEMs.

Material handling is a little unique in that aspect.

Ground support equipment may be similar, but the sales channels will be different in these other markets.

Thanks for that clarification and congratulations on all the progress in the beginning of the year.

Thank you, Sameer.

(Operator Instructions).

Our next question is coming from Carter Driscoll from FBR Capital Markets.

Please proceed with your question.

Morning, guys.

Morning, Carter.

So first question is as you're targeting more on road applications are you looking to enhance the power rating of some of your stacks into larger configurations?

And if so, is that already underway?

Maybe talk about maybe incremental R&D spend if that is such a case?

And then I have a couple of follow-ups.

Thank you.

Sure so, Carter, we have -- the FedEx van and the Chinese product have 30 kilowatts of power, which is approximately 2X the largest forklift truck that we developed.

The stacks themselves are built up -- if you think about it, really built up versions of our present stack technology and that from an R&D point of view we have a good deal more focus on stack development for the ProGen engines and the markets in general, but we don't see a large vary -- and I'll let Paul comment also.

We don't see a large variation in change in our R&D spend as we go forward in the future over the next year to 18 months.

And I'll just add one other item to that and that's really because, Carter, we think about all these products as basic technology platforms that we think through how to integrate the package into a variety of packaging.

So, Paul, I'll let you add to the R&D spend.

Yes, I think as we have conveyed before, we feel like we've got the critical mass which, at the appropriate levels, does not only support this current level business but that we can leverage it for a lot more volume than we currently have.

So I think when we think about the way we've deployed those resources and what they're working on, where they're going to go, we feel pretty comfortable that we've got the right level of resources.

I don't think you're going to see much change in that as we go forward.

Does this incorporate the expectations for how the technology collaboration will unfold over time?

I mean if obviously we're speculating as to what -- how those manifest, whether it's robotics, drones, on the road vehicles, obviously you've given a lot of details about.

But if you were to accelerate with Amazon and/or Walmart, have you planned for some type of -- I want to say veering off the path -- but taking a different direction than what you've traditionally done with material handling and now on road?

Have you incorporated that level of spend into your current forecast?

And the answer to that is, and I am going to give you a generally yes, Carter.

And I think a lot has to do with how we think about the future.

And we think about the future, at least when it comes to fuel cells, as basic building block platforms that we can in maybe three to four platforms which we continue to redesign and improve the cost structure, the reliability, the efficiency and continue to go through that loop.

And we kind of look at the world as those devices almost could be viewed as like an integrated circuit that can be used in a variety of applications that continues to improve each generation.

And that's how we think about product development that -- not having many, many different platforms but having one or two technology platforms that [feed] five or six different product platforms.

But those product platforms are really packages that are different power levels and different performance expectations.

I'd say -- and the only caveat I'd put on that, you could run into, as many manufacturing companies run into opportunities -- engage in opportunities which are so high volume that it makes sense to do a level of customization.

And that could drive some additional costs.

So that's how I kind of think about our fuel cell work.

I think about our hydrogen work a little bit differently, but the fuel cell work is I think clearly defined.

Well, that's going to lead me to my next question that you just raised is on the fueling side you talked about kind of early hub and spoke potential opportunities.

Is there anything you can share?

I know you mentioned one in northern New Jersey, maybe other potential geographic locations?

Or -- long-term strategy obviously is to drop the per kilogram fuel cost, whether that's a centralized or it remains hub and spoke.

Just longer-term plans in terms of bringing down the fuel cost, done a good job in services and certainly on the product side, but fuel still tends to bleed at the gross margin line.

And just maybe you could share.

It would be helpful.

Thank you.

I think that's -- by the way, I agree with your assessment, Carter.

When I think about the business, I feel that I'm turning the corner on service.

The GenDrives and products I am very comfortable with.

On hydrogen we still are -- we still have rooms for enhancements.

And I think when we think about hydrogen there is the hub and spoke model for supporting and servicing small customers, places like Northern New Jersey, like maybe the Chicago area, Dallas area, California where -- Southern California where we've developed a level of scale with the number of sites, with the number of customers, which make it easier to service other customers in the area, both from a fuel and service point of view.

So I think they're the most likely area for hubs.

I would say our experiment in -- I would call our experiment in Northern Jersey is going well and I think in the later half of the year we'll expand those opportunities to use the hub and spoke model.

We've also been giving a great deal of thought about other levels of hydrogen, how to provide hydrogen from eletrolyzers and reformers to more large scale liquid plants and how we could partner with experts in those areas.

Okay.

Maybe a couple of quick ones from me.

So you -- by my calculations, you've -- on the free cash flow you used about $70 million this year, so you need to generate somewhere between $35 million and $45 million in the second half of the year to get down to that same target range you began the year with.

Is that -- just numerically, is that correct?

Yes that's the right numbers.

And again, just the timing, even though we did some deployments in the first half, effectively all of my collections for the deployments are going to happen in the second half.

So we've already collected, as an example, over $25 million for those -- for deployments, mainly for things that happened in the first half.

And in total it should exceed $130 million in the second half so it should be a fairly rich cash flow couple quarters for us.

Okay, all right.

And then just lastly, we talked obviously domestically about new opportunities, some of the earlier questions and then maybe penetrating some of the customers that you have in the past.

But Europe you had Carrefour, maybe expectations.

I think you laid out in the script for maybe some more plans 2018.

But other retailers, anything incremental you can add with somebody of say a [Kia] size, where those discussions are currently?

Thank you.

Carter, I -- we are focused on closing two deals with two -- for multi-site opportunities with the large retailers this year.

We put into our plan one closure and we've been -- we're pleased with the progress we're making.

These customers are customers who have used our product, have seen the value of our product, have built business cases supported by senior level of management that have demonstrated that fuel cells can make their facilities run more -- run smoother.

We're also seeing a dynamic, which we believe supports us as companies are trying to ship more and more out of distribution centers and assets they already own.

That means working those facilities harder.

And fuel cells in general, whether it's forklift trucks or electric vehicles, the heavier an asset is used the better fuel cells compete.

Our value proposition is that we increase run time, eliminate battery change out, higher productivity because of the performance of fuel cells versus batteries and if you're taking a distribution center and you want to increase the output by 20%, 25%, fuel cells can be a real simple solution to allow you to achieve that goal.

Maybe this is the last question before I turn it over.

On the -- you've now had several quarters of really sourcing internally your own stacks for a significant percentage of the deployments.

And can you talk about expectations for or I should say real world feedback from how those perform versus what you had sourced in the past?

Are they performing in line, exceeding expectations.

And as that relates specifically to the progress you made on the service gross margins versus just deploying more in the field and being able to leverage a greater deployment base to help drive down that margin line?

I am going to say, Carter, they are falling in line and, because of using our own stacks, their cost structure is more favorable from both initial production as well as long-term services.

Okay I'll go back in the queue, appreciate answering all my questions, gentlemen.

(Operator Instructions).

Our next question today is coming from Jeff Osborne from Cowen and Company.

Please proceed with your question.

Hey good morning, guys.

Most of them have been answered but I was just curious how -- you mentioned modeling R&D, can feel content there.

Any update on how we think about SG&A, especially heading into 2018, any major initiatives there?

Paul?

Again, I don't anticipate large growth in that bucket.

I think, depending on quarter-to-quarter, so as an example next quarter was we work through the accounting for the Walmart I think you'll probably see a similar charge for the upfront piece of that.

So excluding anomalies of things like, I think on the whole, on average, you're going see it continue to trend fairly flat.

And as you -- as we continue to grow the volume, you're going to see tremendous leverage on that base.

Got it.

And your -- Paul, the 3,000 units for the third quarter, obviously an impressive number.

But from an income statement perspective is there a sense of how many of those would be cash sales versus the financed?

I am going to let Paul take that.

My guess, I am going to guess it's in 70% range for cash sales.

Andrew and I must think alike because that's the number I had in my head, so.

We're reading the same Excels.

There you go, and then --.

I've got to tell you, Jeff, this is -- watching this factory run is the most fun I've had as the CEO of Plug Power.

This factory is filled but we have been able to reorganize the lines that we have really put traditional production flow with assembly line techniques in place that really has allowed this factory to hum.

So it's been -- as I mentioned on the call, I've shipped as many units so far this quarter as my best quarter ever.

And we're not -- the Company seems to be able to sustain this with -- pretty cleanly.

So it is hard to convey the excitement when you walk out and see a factory pumping the way it's pumping.

That's great to hear.

Is there any bias in the fourth quarter then to hit the full-year guidance at Walmart or the financed solutions would be a greater percentage of the mix then, just given the timing of those shipments?

Yes I actually think the fourth quarter actual will probably be more because, if you think about it, it's probably about 70% also, right Paul?

Yes I think that's right in terms of non-Walmart PPA deployments and revenues.

There's probably more, Jeff, manufacturing type company shipments in the fourth quarter because in the fourth quarter the retail folks next to usually adding some units to their fleets are trying not to interrupt the flow because of the holiday season and when I look at our load for the fourth quarter, it's probably more manufacturing oriented than the present quarter.

So is that a bias towards automotive makers or who -- when you say manufacturing?

By automotive workers and automotive companies.

Okay that's what I thought.

Just two other quick ones; one, can you give us an update on FedEx and the progress there with the first unit?

I think that last call you talked about it zipping around the parking lot.

I didn't know if we've shipped that and it's out in the field yet or just an update on the timing there.

And then an unrelated question, but I think there was a group of constituents in the House that Democrats said they'd proposed a tax credit for all renewables and essentially they would be scored on carbon reduction.

I didn't know, so in essence being technology agnostic I was just curious if either yourselves or some lobbying organization within the fuel cell industry had been a part of that discussion.

Jeff, on the first part, we will have 20 of the FedEx trucks deployed in the fourth quarter, so we're on schedule to achieve that.

And so at the moment we're finalizing qualification of those units here and they look good.

On the tax credit, I'm actually not aware of the credit you're talking about.

I would suspect, at least in this time frame if it's a Democratic bill, the opportunity for passage is probably low.

We do see there are two bills associated specifically with fuel cells that have been actively engaged -- there's been a good deal of engagement by the industry on the House and Senate side.

There's a bill by Congressman Tom Reed that has over 100 co-signers for the tax credit for fuel cells to mimic solar and that bill has a majority.

I believe 60 of the 100 co-signers are Republicans.

There's also been a bill introduced by Dean Heller and Carper of Delaware -- Heller, as you know, being one of the more vulnerable Republicans, to promote fuel cells and signatures are being lined up for those bills at the moment.

Now, we're not running our business thinking about tax credit for fuel cells.

It would be great if it happens.

But there is more activity going on in Congress than may be publicized.

And we think that there is a possibility and let's not call it tax reform, let's say a tax bill, that if it goes through Congress that there is opportunity for the fuel cell industry.

Perfect, thanks so much for the clarification.

But, Jeff, I wouldn't model it.

Thank you.

We have reached the end of our question and answer session.

I'd like to turn the floor back over to Andy for any further or closing comments.

I appreciate everyone's time today.

As Paul and I have talked about, we're both very excited about what's going on in this business for the third quarter, shipping many units today as we speak for Amazon and Walmart.

We're going to be generating a great deal of cash the second half of the year.

And I think probably what's most critical is that this is a long-term sustainable business.

We have marquis customers.

We've proven our value proposition.

We've made great strides and have had success in driving down product costs.

The market is beginning to see that we're achieving -- beginning to start achieving some success with service, and we will get there with hydrogen.

And so we are -- never been more confident than the Plug Power team feels today.

So thank you for your time and I am really looking forward to the third quarter conference call.

Thank you.

Thank you.

That does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.

We thank you for your participation today.