普拉格能源 (PLUG) 2019 Q2 法說會逐字稿

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

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

I would now like to turn the conference over to our host, Teal Vivacqua Hoyos, Director of Marketing and Communications.

Thank you.

You may begin.

Thank you.

Good morning, and welcome to the Plug Power 2019 Second Quarter Earnings Call.

This call will include forward-looking statements.

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 risks and uncertainties discussed under item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2018 as well as other reports we file from time to time with the SEC.

These forward-looking statements speak only as of the day in 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 for joining the second quarter conference call.

Today, we issued our second quarter shareholder letter, which provides details about our second quarter performance as well as our outlook for the remainder of the year.

Let me start by saying it was a good quarter.

The key highlight is that we showed substantial improvement in operating margins and adjusted EBITDA.

This improvement is both year-over-year and on a sequential basis.

This underscores inherent operating leverages in our business model.

At a quarterly gross billing rate of about $60 million, we are breakeven at our current cost structure.

In addition, ongoing cost reductions continue to lower this threshold.

Some highlights for the quarter include, the company deployed over 2,000 GenDrive units, up 70% year-over-year and reported gross billings of $58.6 million, up 50% year-over-year.

Additionally, the company was EBITDA breakeven for the second time in the past 3 quarters.

We also completed a small tuck-in, small-scale hydrogen fuel cell technology acquisition to complement our suite of offerings for broader logistics, robotics and UAV [at] markets.

We expanded into on-road vehicle applications and secured our first commercial scale deployment of ProGen fuel cells for on-road logistics with StreetScooter, a subsidiary of DHL.

As people know, DHL is the world's largest logistics and mail communication service companies.

Starting with 100 units for on-the-road vehicles, the program is expected to expand.

According to Markus Rechling, the Head of German operations at DHL Express, if everything works as we imagine it would -- there could soon be 500 vehicles worldwide.

He further added that 80% to 90% of last-mile delivery vehicles would likely be a hybrid system including batteries and fuel cells.

A few more [highlights] before moving on to the question and answers.

One, we are reiterating our 2019 guidance.

Gross revenues between $235 million to $245 million; adjusted EBITDA for the full year 2019, when you exclude noncash charges for customer warrants; three, and finally, the company will make 4 major announcements.

DHL StreetScooter was our first.

Also we will be hosting the Plug Power Symposium on September 17 and 18 in Latham, New York.

We're bringing together a group of hydrogen fuel cell industries thought leaders to discuss pertinent issues that will help accelerate the growth of the industry.

Program will feature key industrial players including suppliers and major customers, and we'll ask them to share their experience and growth aspirations.

In addition, we'll share additional insight on the second day, highlighting both Plug Power's near-term and long-term plans.

Paul and I will now be open to your questions.

(Operator Instructions) Our first question comes from Colin Rusch with Oppenheimer & Co.

Yes.

Obviously, there's been some significant M&A activity in the sector in the past quarter with Cummins move into the space.

Can you talk a little bit about what you think the implications are for infrastructure build-out and availability and bankability of that infrastructure as we go through the back half of this year and into next year?

I think, Colin, we view that acquisition as good for the whole ecosystem for the hydrogen fuel cell industry.

And we think it's just a small piece of a bigger pie that's going on globally.

I think when you look at commitments that are being made by large companies that they view that this industry that there'll be over $300 billion of investments over the next 10 to 12 years.

Obviously, infrastructure is part of that.

And when I take a look, I have a parochial view of this.

But I think the fact that Plug Power has deployed more units, has built more hydrogen infrastructure, used more hydrogen than anyone else, which we think is a real long-term opportunity for the company.

That -- we think we're well positioned for this expanding growing industry and I think our results in this past quarter is an indicator of that.

Okay.

And then the follow-up here is just really about the development activity on the over-the-road market.

Obviously, there's an awful lot going on.

Can you give us a sense of kind of order of magnitude in terms of how many folks you're talking to in terms of new programs?

Obviously, you've mentioned the number of announcements you expect to make, but kind of order of magnitude on the number of conversations and then the cadence of how those things are likely to move forward?

Sure.

Colin, so let me just take a step back and say, first, the announcement with StreetScooter and DHL and the level of publicity that came with it has been helpful in engaging folks from outside to come to Plug Power about potential opportunities.

And I think that we are -- we remain the pure-play company that is not tied up with anyone and it puts us in a unique position.

And we have a prepackaged, well-defined ProGen engine, which is made -- makes it easy for integrators, OEMs to integrate into their products.

And I'll just say that we have had Tier 1 OEMs here to visit us.

We've been dealing with worldwide integrators, especially in Europe and the United States.

And that I would expect that over the coming year that you'll see continual announcements by Plug Power for our deployments in these sectors.

And I'll just add, we're not talking about 1 or 2 units.

We're -- we want to -- one item is that during my entire tenure here, I haven't been all that interested in a few units for show.

It has to lead to long-term program, project development, and that has always been our focus, and that's the type of people we're engaging with.

Our next question comes from Eric Stine with Craig-Hallum.

Just interested in talking more, you mentioned it in your newsletter your priorities for hydrogen.

Obviously, availability and price certainty key for adoption.

I know that you are starting to own more tanks, so you can source hydrogen at the optimal price.

But maybe some more details about some potential steps that you can take to achieve your objectives?

I think, Colin, you'll see -- Eric, you'll see activity in a number of different areas.

You mentioned tanks.

I think it's -- I think you hit on a critical point.

I think that you'll see the announcement where we'll do a longer term deal for price stability with one of the liquid hydrogen companies.

I think you'll also see, Colin (sic) [Eric,] that Plug will take some steps to move closer into the generation business.

And I think that at the symposium in mid-September, not to kind of kick the question out, I think part of our presentations will be about the strategic steps we're taking to move deeper into hydrogen to improve our margins and make sure that cost-effective hydrogen is available for our customers.

Got it.

And is that, I mean, fair to say, I think earlier in the year when you talked about the 4 major announcements, something with an industrial gas partner, I believe, was one of those 4. Is it fair that we should still think about that being the case?

Yes.

Okay.

And then just related to providing the fuel on the margin side.

I mean, I know that's an objective to get that to improve that.

Just maybe steps there or how you think that's trending?

And what we should look for going forward?

Paul, do you want to take how you view it's trending?

Yes.

I think, again, there's ebbs and flows given volatility of timing of events and different dynamics.

But you've seen over the last couple of years a continued progression, and you're going to continue to see that.

You mentioned earlier, Eric, the tank scenario as an example.

We only own today about 10% of the tanks in -- out of all of our sites.

However, we've got a program now rolling out where we're actually replacing over the next 1 year to 1.5 years many of those in the field as those programs come up for renewal and we work on refreshers with customers.

And so that's going to have a dramatic impact in our ability to negotiate pricing with our carriers and our fuel supply.

So not to mention all of the efficiency investments that we have made and we continue to make.

So I think somewhere in the next 12 months, you'll see that move -- migrate towards kind of breaking even and then north -- post that, we should be in that breakeven to positive range as we move on into the near term.

So good results so far, and we expect it to continue to get better.

Got it.

Okay.

And maybe just sticking with margins.

Just one last one for me.

Just on the product gross margin, a very good 40% number.

Just maybe how that breaks down between GenDrive and infrastructure?

And I mean is this a good level to think about going forward?

I'll let you take that, Paul.

Yes.

So in this particular quarter, it was all units.

So that helps.

We had a lot of shipments to -- a lot of migration of lot of programs where we were shipping infrastructure.

But the majority of the revenue was units.

So that helps a great deal.

But we have seen tremendous growth in our margin profile of the infrastructure.

And we continue to see that trend as we progress.

Our next question comes from Amit Dayal with H.C. Wainwright.

On the operating leverage side, is this $22.5 million OpEx number sort of where you level off for the next few quarters?

Paul, you want to take that?

I'm sorry, I didn't hear it.

Essentially, it's a question about, is this operating expense for this quarter where we expect to level off in few [quarters...]

Yes, Amit.

Sorry.

The -- I think we -- every year, in the second quarter, we have a little bit of a bump with our annual compensation programs.

But I expect that next quarter reserve back to that kind of $17.5 million to $18 million level as we progress forward.

Understood.

This recent acquisition, Andy, EnergyOr -- I don't know if I'm pronouncing that right...

That is correct.

How does this fit into your product suite?

When will this potentially become part of your sales efforts or show up in your results?

Any color on how we should expect this to support your growth efforts.

So there's actually 2 aspects here, Amit.

One is, I'll call near to midterm and what intelligent -- and what EnergyOr has done is developed a very cost-effective, low-power platform.

And when we think about the warehouse of the future, which we're actually deeply involved with now, probably 2,000 units that we have out there are automatic-guided vehicles.

And we see that this technology is -- even though designed for drones is really important for the intelligent robots of the future.

So it really helps us support not only our customers today, but our customers for the future to move to hydrogen.

I would also talk about, though they've worked in small-scale robotics, people we -- who've joined the company from the acquisition, they also have a deep understanding of aviation from their past lives.

And now I view aviation opportunities, things like short-haul aerial taxis as probably a bit longer out, but what it's really has done and we have had engagements with folks who have recognized that aerial taxis have real limitations using batteries, both from a weight and distance travelled point of view.

And somewhere around traveling for 20 minutes, we believe, fuel cells, like with on-road vehicles, are far superior to batteries.

And it is an area that from a technology set and opportunity we're exploring and we felt that people at EnergyOr have really contributed greatly to those discussions since joining the company.

Understood.

Then moving on to these catalysts you've highlighted previously as well.

Is the time line still the end of the year for the remaining 3 catalysts to be presented to the street?

Yes, and I'm sure you'll hear one on at the Plug Power Symposium.

Understood.

Just last one on the fueling sites number.

We were at 72 last quarter.

Has that changed?

And are we still targeting the 100 level for the end of the year?

Yes.

Okay.

Any change to -- any increase from 72 in the first quarter?

We are -- I believe it's more than 72, and that may be 72 that we own, Paul?

Yes.

So the -- that's right.

That's where we have the infrastructure and the fueling associated with it.

The number will have gone up a bit, but again, there's a timing difference in terms of when some of that will roll into the revenues for the year.

(Operator Instructions) Our next question comes from Chris Souther with Cowen.

You mentioned the 70% cost reduction over the last 10 years, which is impressive.

I just wanted to get an idea how does pricing and costs for the larger GenDrive units for the FCEVs compare on like a kilowatt basis?

I'm trying to get an idea of how modular the new systems are going to be?

And how much common parts you can transfer from material handling business?

That's a good question, Chris.

And if you take a look, for example, today, 99% of the new stacks that I shipped in the second quarter were Plug stacks and those stacks today are beginning to ship with Plug membranes.

And that was an acquisition we did last year.

And when you start thinking about the membrane design and the stack design, that's certainly applicable and almost directly applicable into on-road vehicles.

And then you think about -- and if you start thinking about items which [to balance] a plant, which is used to control and manage the stack, very much like any electronic product, the control system and monitoring system that's used for controlling the stack is almost identical for on-road vehicles.

So the component set is very, very similar and very, very beneficial to new applications for Plug Power.

Got it.

And then can you talk a bit about the infrastructure build-out that's planned as far as around the StreetScooter deal.

What are you guys providing as part of that versus third parties?

How much spending by you, [other] needs to take place for the first 100 and then the next -- building up to the 500 DHLs would be talking about kind of after that?

So Chris, already in Germany, there are over 100 fueling stations.

And so we will be using the publicly available -- StreetScooter DHL will be using the publicly available fueling stations.

Plug Power has not been involved in the build-out of those publicly available fuel stations.

It will be centered around 4 of those stations, very much set up for fleet vehicles.

So that's what's going on -- that's how the hydrogen infrastructure will be handled for those products.

The good news is it's not a -- unlike many other places of the world, the infrastructure is there today.

That's great.

And then just the last one.

Your 2019 guide has you growing about 25%, 30% this year, it's almost entirely material handling, although it looks like maybe some of the StreetScooter gets recognized in like 4Q or so.

How does the pipeline for that core business look heading into 2020 as far as larger existing customers and new customers?

And what should we think about kind of the continued penetration for that business heading forward excluding StreetScooter and the other 3 deals?

Sure.

So Chris, I think, the key to that business will continue to grow at the rate.

I think the key is adding another Walmart and Amazon, and we feel confident about that.

At our symposium in September, not to kind of kick the question again, we will roll out the 2020 expectations as well as our beliefs for the next 5 years.

So I would say that we do have an aggressive plan to continue to grow and expand the business.

And from a timing point of view, I -- this is -- I've been doing this for 11 years now.

The momentum in material handling and the other segments has never been greater for the company.

That's great.

I look forward to hear more about that at the symposium then.

(Operator Instructions) Our next question comes from Craig Irwin with Roth Capital Partners.

So when we look forward, right, your accomplishment looking backwards on the cost-out is really impressive.

But when we look forward, you did say in the presentation that you expect to be the largest U.S. MEA producer by the end of the year.

Can you maybe frame out for us the opportunity for continued cost reduction in the stack and the overall system?

Are there potential components that you could pull in production on to improve the economics for Plug?

Are there pieces of the equation that you see as low-hanging fruit for continued cost-out that maybe can continue this trajectory over the next couple of years?

And Craig, I think the answer -- it's a very good question.

I think the answer to your question is yes.

And I would say this.

I don't want to go too detail on public -- but we see, for example, that over the next year or 2, we can pull another 30% of the cost out of the stack based on higher volume membrane production, based on design changes to the stack itself.

When I look at the stack in other activities, we're in very early stages here in the fuel cell industry for driving down cost.

I think I look at the design itself, very much like my experience in telecom, you continue to look at higher levels of integration and moving from multiple boards to single boards to fewer components.

A lot of it.

When I always look at this, Craig, I would say that 35 -- 30% to 50% of our cost reduction comes from supply chain and volume and the rest comes from design innovation.

And our team has a 3- to 5-year road map how we continue to bring down costs.

And ultimately, I think we can be on this track for a good 4, 5 more years.

Great.

That's good to hear.

Next thing I wanted to ask about is a big-picture question.

So fuel cell's superior to batteries, I get it.

It's something that makes sense when you have large facilities with lots of trucks and refueling time and the operation of the recharge room is a real plus for fuel cells.

But lithium-ion seems to be making a little bit inroads in the industry.

It does share some of the positive attributes from an economic standpoint that fuel cells do.

It is also quite a bit more expensive than lead-acid.

Can you maybe talk about where you see lithium-ion fitting in competitively over the next couple of years?

Is this something that you see as a potential threat or is it maybe an opportunity for Plug?

Yes.

Craig, that's another great question.

I would -- and we're even going to take it up a step higher.

I've never been someone who said that fuel cells answer all questions, that it's a perfect technology for all apps.

And where fuel cells are successful, whether it's material handling, on-road vehicles is, if you have fleet vehicles and you use the asset a great deal.

That means that the attributes of fast fueling, constant power, longer range actually adds value to your application.

And I always look at this and think about from a customer point of view.

If I was running a single shift with a fleet of 40 trucks, I would be seriously looking at lithium batteries.

If I was looking at that same facility and I think it may grow to 2 to 3 shifts long term, I think I would put fuel cells in.

So I think just like the broader electrification market, I think there'll be applications in material handling where batteries make sense, and I think there'll be applications where fuel cells make sense.

There are no further questions at this time.

I'll turn it back to Andy Marsh for closing remarks.

Well, thank you, everyone, for joining our call today.

And I'm looking forward to seeing all the analysts at our upcoming Plug Power Symposium.

Thank you very much.

This concludes today's conference.

All parties may disconnect.

Have a great day.