普拉格能源 (PLUG) 2018 Q2 法說會逐字稿

Ladies and gentlemen, greetings, and welcome to the Plug Power Second Quarter 2018 Earnings Call.

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

Thank you, Teal, you may begin.

Thank you.

Good morning, and welcome to the Plug Power 2018 Second Quarter Earnings Call.

This call will include forward-looking statements, including, but not limited to, statements about our expectations regarding full year 2018 revenue, deployments of GenKey sites and GenDrive units, gross margins, bookings, liquidity and cash collections and usage and the impact of the Amazon and Walmart relationships and the revenue to be derived from those relationships and our outlook for 2018 including growth, future cost reductions, expansion in Europe, further testing and expansion of applications for ProGen, including opportunities in the on-road electronic vehicle market 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 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, 2017, and our definitive proxy statement on Schedule 14A filed with the SEC on March 30, 2018, as well as other reports we file from time to time with the SEC.

These forward-looking statements speak as -- only as the day that they are made 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 good morning, everyone.

We've developed a unique set of capabilities and relationships at Plug Power.

As a pioneer in developing the commercial mobility markets for fuel cells, it's sometimes been a struggle, but the results of our work are starting to become visible in our financial statements and, we believe, will provide dividends in other markets in the future.

Just take a look and compare our quarter-to-quarter performance.

Gross revenues of $39.9 million in the second quarter 2018, an increase of over 75% in the second quarter of 2017.

Adjusted gross margins of 8.1% versus negative 1.9% in the second quarter 2017.

When you look at those numbers, you can see the benefit of our relationships with Amazon and Walmart and our sales performance.

The in-house stack and global sourcing ability we've developed really demonstrates our ability to continue to reduce cost and is showing up in our gross margins.

Hydrogen gross margins were positive at first for Plug Power, and service is improving as labor utilization has improved and our products have continued to become more reliable.

With these improvements, we're projecting our revenue would jump up 25% for the year and that we will reach EBITDAS breakeven in the second half.

In the third quarter, we're projecting revenues in the range of $47 million and $52 million and EBITDAS between minus $3 million and $0 million.

We remain focused on building the material handling market for fuel cells, a market with over 6 million forklift trucks and an application in which we believe our product value proposition addresses over 40% of the market.

There are other market opportunities for Plug Powers, and the capabilities we have developed: fuel cell MEA stacks, service network with unparallel reach, leadership position in design and building of hydrogen fueling stations and customer relationships that are unique in the industry.

We know these capabilities can be leveraged across a broad range of applications.

Our success in the first market will allow us the opportunity to be selective in choosing our next market and future partners.

We're seeing interest in our solutions for delivery vans and ground support equipment globally.

Our deployments to date suggest these applications are much more environmentally benign as we're used to operating in harsh and rapidly changing environments.

Example of our ability to offer products in new application is our delivery van for FedEx that has been running spectacularly.

Finally, let me reemphasize, Plug's building big business in material handling and starting to see the financial benefits.

We're, by far, the leader in real-world commercial applications.

Our GenDrive products have operated over 180 million hours.

We're starting to leverage our expertise, and we'll be moving appropriately into other markets.

And as the segment for mobile fuel cells grow, Plug Power is well positioned for the future.

Paul and I are now available to take your questions.

Adam, we can now open the line for questions, please.

Well, while we're waiting for the line to be opened for questions, let me just highlight a few successes that we've had.

For example, we had a new customer, we deployed our first units with this quarter, one of the largest retailer in the U.S.; had 150 unit deployment, quite exciting.

We also had one of our products qualified with a global system integrator for backup power systems, which they're looking to be deploying and have reached markets in China, India and Africa, and they'll be utilizing Plug Power's products.

We're very excited about both applications and both recent wins, and the business is looking positive.

On that note, Teal, are we ready for Q&A?

Teal?

Yes, we're just trying to connect with our operator, Andy, just one more moment.

We may have lost our operator.

(Operator Instructions) Our first question comes from the line of Chris Souther from Cowen.

I just wanted to see if you could walk through what are the levers to improving gross margin in the third quarter and the fourth quarter?

Can you walk us through some of the puts and takes you guys are looking for there?

Paul, do you want to take that -- answer that question?

Yes, absolutely.

I think it's a combination.

First of all, as we've talked a lot, we make really good margins on our equipment sales, and we're benefiting from increased favorable mix as we sell more equipment in the second half.

As we've talked about in the past, we do about 60%, 70% of our business in the second half.

So we expect nice volumes and that should contribute nicely to the overall margin mix.

Secondly, we continue to push heavily on cost-downs.

And so a lot of things that we're doing in service in terms of labor leverage on our units in the field as well as part cost on those units and reducing that burn rate continue to contribute.

And then as you've seen, the improvement that we've made on fuel, we expect to continue making progress and sustain those improvements as we go into the second half.

So the combination of those really should continue to really drive more operating leverage, and we should enjoy those benefits on in the second half and on into next year.

That's helpful.

And then I was wondering if you could maybe touch on the FedEx program.

It's great to see you've got a vehicle on the road.

What is kind of the time line that you guys are looking for there?

Sure, I'll take that one.

So we have been operating a FedEx van and actually for the last 31 days, it has been filling and running with no interaction between Plug Power and FedEx on keeping the truck on the road.

We have a meeting scheduled at the end of August to talk about the rollout of the next 20 units with FedEx and Workhorse.

And that we should be able to provide more insight at the beginning of the third quarter about the discussions with FedEx.

And quite honestly, they're quite happy with the unit.

There was a presentation to the DOE and FedEx presented and one of their competitors presented a solution with fuel cells.

We've been working on the program for the same time.

The competitor is not even at the integration stage yet.

So I think it's a statement of the capabilities Plug has developed.

And one of the statements I made, which is really, I think, critical when you think about a program like that.

Plug is used to working on in operations in forklift trucks where you see 50 Gs of shock and vibration.

You're operating freezers at minus 30 degrees C and driving out at 50 degrees C. Quite honestly, working on these delivery vans is a dream because the environment is so stable and consistent.

And these units have shock absorbers, and it's a much, much simpler application because of all the capabilities we've developed over time.

And then kind of the last one.

How should we think about the cash burn in the second half of the year and kind of overall liquidity?

I know next year, it looks like you guys were looking to move into positive cash flow.

So I just wanted to see how you guys are thinking about that for the back half here?

Paul, do you want to take that one?

Sure, absolutely.

It's actually, if you look at last year, in the fourth quarter what -- in terms of the turn of all that volume and we saw substantial positive operating cash flows effect.

It certainly helped our free cash flow benefit.

And we expect a similar turn this year.

The overall volumes in the first half are up and for the year will be up.

And as that second half build starts to convert, we should actually -- we forecast we're going to be actually positive cash flow -- free cash flows in the second half and obviously, improved margins and improved EBITDAS helps a lot in that as well.

So I think we're in a very good position.

We've actually also closed 2 of the first PPA finance programs this year under the new structure that we've struck, which has been improved greatly, given the reinstatement of the ITC.

That's providing tremendous spread both overall economically as well as cash liquidity in those transactions.

And we expect as we close more of those in the second half, those will add and make us strong as well.

And as we sit today, we really don't have a lot of debt compared to our overall asset and enterprise value.

Green Bank is our only real facility, it's about $25 million and that will be 100% serviced by the release of restricted cash, which a substantial amount gets released in the second half of this year.

And so we'll end the year with a fairly nominal position there, so we have a pretty good -- we have a wide range of options available to us.

And so we sit in a good spot as we navigate the balance of the year and on into next year.

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

First question is, can you talk about maybe just the contribution from Amazon and Walmart for the strong revenue performance in 2Q?

And the retailer that you highlighted, 150 units, the expectations of their continued engagement in the second half of the year?

And I have a few follow-ups.

So Paul, I'll take the second half of the question, and I'll let you take the first.

Carter, Paul and I are at different spots, so we're trying to coordinate here.

Got it.

So what we know about the new customers, I would expect that with the deployment that's going on at the moment, during the next 6 months, they will be validating the value proposition.

This retailer has well over 35 distribution centers.

And as we found, and you look at Walmart and Amazon, both of them, large retailers, large fleets, heavy usage of assets.

Working -- in Walmart's case, working at freezers.

This customer has a very, very similar profile.

And we know the results we've had with Walmart in improving their productivity and improving their operations, and there's no reason for me to believe we can't prove that again with this customer.

It's one that, quite honestly, I've been working on for 5 or 6 years, so we're really excited to bring it into the fold.

I think when you think about deals like that, the relationships with Amazon and Walmart certainly helps when we're positioning products.

Paul, do you want to take the first part of that question?

Sure, Andy.

Just for context, as we look at Q2 as an example, we're benefiting from growth in Amazon.

Last year, when we won the award, we had 2 sites in the first quarter and then we did the bulk of their 2017 deployments in the third quarter this year.

Working with them and being able to spread that out a little bit more, we actually achieved 3 sites in Q2.

And there was actually incremental volume in the quarter from additional programs as well outside of Amazon and Walmart.

So nice traction and those -- and Walmart continues to add sites.

We continue to see increase there.

To date, the most recent programs we do with them have not been under revenue recognition.

So you see it in increased PPA payments, but you don't see as much of an impact in our GAAP statements as you do from Amazon and some of the other customers in terms of the traction.

But we expect both those and these other customer momentum to continue on into the second half.

I'm sorry, just to be clear, you're talking about the PPA structure is just Walmart, right?

Not the new customers, not adopted PPA structure?

Right, yes.

Sorry, yes, yes.

All right.

Andy, in the prepared remarks you talked about -- I think you've been very consistent in trying to find the right partner in China.

So maybe twofold question.

Has the tariff back-and-forth had any impact on discussions there or scope of the changes?

And it sounds as though what's important, as like you've said consistently, it's finding the right partner.

But are you at all changing that year-end is the time line you might be able to find such a partner?

Is that a little bit more of a state now?

I think that's a really good question, Carter, and as I've continued to take a very balanced approach to China.

Many of the issues that are in the press about

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Plug Power's shareholders have invested quite heavily in.

So we've been engaging with partners, and we're down to 2 discussions at the moment with companies that we believe have similar at least an appreciation of Western business styles from their past relationships.

The process is progressing.

Just knowing where we are today and just having an understanding of just the legal steps and business steps that would have to be taken, I'm not at the point where I'm saying this is going to be the partner, and I'm not at a point that I'm saying Plug is going to be entering this market.

But we -- so I would not expect anything this year.

I think part of it actually, Carter, is that I've -- the opportunities for the company are broad.

I really believe we're kind of in a unique position that I don't have to do something.

And the work we've done with FedEx has helped us engage with other people globally, especially in Europe and North America.

And I think that I look at those opportunities, I look at the breadth in the material handling market.

I mean, the ground support equipment, it won't be revenue this year.

But I have some really 4 or 5 active discussions going on with people who know me in most cases.

And I look at those opportunities.

I think, in the near-term, and I'm talking 2018, 2019, 2020, I think they're better opportunities, but we'll continue to pursue and discuss with China, but I haven't seen a deal I want to take yet.

Is that -- and maybe just a little more clarity.

Is it because the -- some of the old issues with China in terms of them wanting more IP than you willing to give up, the economics, the scope of the agreement isn't -- or the discussions aren't what you're hoping for?

Just trying to get a sense of what...

I would say IP and the breadth of the requests.

Though IP is a big concern.

Yes.

No doubt.

You -- can we talk maybe broadly about costs because -- you're being congratulated, obviously, positive margins on the fuel side, continuing progress at least in positive territory in the service side, which should only grow.

You expect, a, as you continue to grow that you'll maintain positive fuel margins or at least directionally move in positive territory?

And then talk about some cost-downs, the new plate technology and maybe on the infrastructure side as well from an equipment perspective?

Great.

So let me start with hydrogen.

And with hydrogen, it was a good quarter.

We've made progress in improving our hydrogen margins by increasing the efficiency of our systems, by deploying novel systems like the first 2 we did in -- #2 and #3 of our hybrid systems, which included reformers and liquid tanks in the past quarter.

I think hydrogen today, over the coming year, will have variations up and down just based on some customer mix and usage.

But in general, today hydrogen is a sale-resell business with a few sites having reformers which we control the price of.

I think that when you think out to 2019, 2020, the sale-resell portion of the business will be in the 5% margin.

The real opportunity is in these hybrid systems to help drive down costs, because the gas generates in their systems from a variable basis, but always you have to consider the fixed cost is significantly lower.

And I think it's an opportunity for Plug to leverage our relationships and in time grow that margin.

But if I was modeling that margin, I would treat it like a typical sale-resale business for the next few years at least.

Okay.

And any update on potentially doing a return to base centralized production model?

You talked about maybe a couple of different territories on the Northeast, but...

Yes, we are.

And actually, we are in -- probably most people don't know, we have -- we actually have, no, not a lot of people, but we have a rather large facility, large -- it's about 50,000 square-foot facility in Chicago area, where we've considered putting some on-site generation there for distribution with our hub-and-spoke model.

So that work is ongoing.

Especially, we believe that could really help support small customers and provide system backup for large customers and become a profit center for Plug Power.

Maybe just 2 more quick ones for me.

Are you shipping all MEAs now from Rochester after the (inaudible)?

So Carter, the manufacturer -- actually, as we speak, the first ones for us are coming off the line.

I'd expect to do somewhere in the range of 100 to 600 stacks this year with our own MEAs.

I think it's really exciting though.

So you asked about costs and what we see is that stacks represent about 20% to 25% of our cost structure for our products.

By using our own MEAs, we see those stack prices can reduce by 25%.

And look, it's not going to be overnight, but once we get the scales of using 1,000, 1,500 units a year with our own MEAs, we should start seeing the impact of that directly in our financial statements.

Plus the added benefit of Rochester is, I think, I've mentioned this before, the folks we hire are old GM engineers, and they've been extremely helpful in us developing our thought process, how to address other on-road mobility applications.

You talk about interest for delivery vans and ground support on a global basis, maybe you could call out territories maybe we haven't typically discussed and maybe wrap that in with a discussion of progress in Europe?

I know you've made some inroads with Carrefour Group.

And just maybe talk about the environment in Europe as well?

Yes.

So we did 2 new small deployments in Europe in the second quarter, and Carrefour has been going really well.

I mean, I look at the weekly reports.

And like I mentioned, the previous retail customers, we've been doing studies and that for value proposition, and I think both them and us are pleased with the progress to date.

At the end of the third quarter here, we'll be going to France with the leadership to talk about next steps.

So I think they're pleased, we're pleased.

We're happy we have 2 new opportunities there.

And we're also as -- the work we have going on with mobile products like delivery vans, we're actually engaging with companies in Europe on that activity.

The ground support equipment, we are looking at activities on the 3 main continents, in China, U.S. with one of our present customers and also in Europe with a few sites.

Our next question comes from the line of Eric Stine from Craig-Hallum.

Well, I mean most questions have been asked here early in the call.

But maybe I'll just stick with 2. You talked about the retail customer that it took you 5 to 6 years and so maybe you're in the same boat with this one, but you've been talking about a third mega customer, just maybe an update on where that stands?

I mean your confidence level in the past has been quite high on that one.

So it always, unfortunately, takes longer than you hope, especially when you're dealing with large customers.

It's been about a 9- to 12-month negotiations.

We are moving ahead.

I am positive.

And I really want to emphasize that when we provided guidance for the year and this quarter, that was not included.

So it has no impact on our guidance and, Eric, once I sign, you guys will be the first ones to know, the people on the phone here, the shareholders.

Right, right.

Maybe second one, just on the metal stack.

So it sounds like that's end of the year, so fiscal -- it will start to impact things in fiscal '19.

I mean, I know you're going to use that across the platform, but I mean is this -- is there more ideal application?

I mean is this really geared towards on-road just given its characteristics?

Or I mean, obviously, it's got benefits in materials handling, but just maybe talk a little bit how you're thinking about the impact of that stack as we get into fiscal '19?

Sure.

First, it is designed for all our applications, but it is a big step to help us move more aggressively into on-road applications, since the power density, I think we've shown before, is the same as best-in-class in the industry.

So higher packaging density actually are very beneficial in material handling in driving down costs and improving the value proposition.

Now kind of an interesting example, in the previous quarter, we were able to work with one of the large OEMs and eliminate some of the weight we had to put in our units, and we were able to increase the size of our tank by 40%, 50%, which strengthened the value proposition of those units that were deployed with Walmart and really added a great deal -- makes our case even more compelling.

Our second thought is -- too, is that material handling is going to drive the volume of our MEAs during the next couple of years and to -- and metal plates.

And by using it across the product line, the cost structure of all our products will be lower in costs.

So that's really the thought process.

It's always better as I think everyone knows: design a product; leverage scope economy and push it out across your business.

And with the plate technology, it'll be easy for us to reach 125 kilowatts, which really opens up most applications for on-road vehicle for Plug.

I got to tell you, it is the best and most interesting product Plug has developed during my tenure.

(Operator Instructions) Our next question comes from the line of Amit Dayal with H.C. Wainwright.

Just a question around the guidance.

Most of my other questions have been asked.

It looks like, just from all the of commentary on the call, you guys are tracking well for the year.

So I'm wondering why the guidance hasn't been narrowed down a little bit more.

Well, that's actually a good question.

It's one that having been around this business now for -- pushing this material handling industry for 5 or 6 years, we have orders in-house that exceed the low end of our guidance, for certain.

We've -- we really want to make sure that we don't disappoint anyone, and if somebody pushes something out to the first quarter, that we're well positioned that -- to hit our guidance and to not be at the low end of the guidance, but be at a position that people look at the numbers and know they can trust Plug Power when they [give that] number.

So we're just making sure that any variability that can happen, that we're in a position to address.

Obviously, when we come to the fourth quarter, I'm going to give you some pretty tight guidance for the fourth quarter, and that will allow us to meet our -- be able to give you a little bit tighter spread.

Great.

And in terms of seasonality associated with the retail side of things, should we expect the third quarter to once again be the strongest for the year?

I would suspect the -- and that you can -- if you look at the math, we've done so far about $70 million, I'm saying another $50 million this quarter.

So the third quarter and fourth quarter, I think, both will be strong.

Well, I believe there's no other questions.

I want to thank everyone for joining the Plug Power conference call.

And I would like to reemphasize that we are focused on building a big business in material handling, you can see the financial benefit.

And all that expertise, and I think it's so hard sometimes to explain all the capabilities we've developed in not only products but the whole range of the business from finance to sales to after-market service to manufacturing, we're really unique in the PEM fuel cell industry.

And I think that's -- when I take customers or potential partners from China to our facility, that's really what awes them from talking -- after talking to other folks in the industry.

So thank you for your time today, and I look forward to the third quarter.

Thank you, ladies and gentlemen.

This does conclude our teleconference for today.

You may now disconnect your line at this time and log off your computer.

Thank you for participation, and have a wonderful day.