Earnings Call: Q4 2018

Mar 7, 2019

Greetings, and welcome to the Plug Power Inc. 4th Quarter Year End 2018 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Teal Vabaquajoyas, Director, Marketing Communications. Thank you. You may begin. Thank you. Good morning, and welcome to the Plug Power 2018 4th Quarter and Full Year 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, A, Risk Factors and our Annual Report on Form 10 ks for the fiscal year ending December 31, 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 in which the statements are made, and we do not undertake to 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. Good morning, and thank you for joining the call today. In January, we had our annual update call Prior to the earnings release, we provide our investors, partners, customers and employees a recap of the prior year and provide an outlook for the upcoming year. Today, we'll provide an update to both our results for the Q4 As well as a reminder of our plans for 2019, which is really described in detail in the shareholder letter. I will just review a few highlights and then we'll open the floor for questions. Some highlights for the Q4 in 2018 Include 4th quarter gross bookings of $62,100,000 versus $32,900,000 gross billings In Q4 of 2017, the company in 2018 had total gross billings of $184,800,000 42% increase versus 2017. We're really excited about the fact that we had our first positive adjusted EBITDA quarter in 2018 and the Q4 of $500,000 the first positive quarter in the company's history. We achieved that by delivering over 1900 0 emission electric vehicles in the 4th quarter. We also, in 2018 produced our 1st ProGen metal plate stacks. Our metal stacks are 2.5 times denser than our prior technology and offer a 25% cost reduction of volume. And finally, production in 1st units utilizing plug power design and manufactured fuel cell membrane With the target building of over 400,000 membranes in the coming year. This year, We expect to become the largest manufacturer of proton exchange membrane in the United States. That's not to say 2018 did not have some challenges, such as the unfortunate events that occurred at P&G in May. Investigation is not complete. A plug power in the supplier of the carbon fiber tank have identified That the supplier had improperly qualified the tank to the ISO standards. Since the tank was improperly qualified, The supplier is completely funding a replacement program for approximately 3,000 tanks in the field. This program will have no financial impact to Plug Tower. The work in 2019 We'll build upon our success in 2018. The majority of our revenue will be dominated by our material handling business. Our success in building out this segment will allow us to achieve $235,000,000 to $245,000,000 in gross billings The adjusted EBITDA positive in 2019. Our 4th quarter run rate for both gross billings and adjusted EBITDA should provide investors a high level of confidence in Plug Power's ability to achieve these goals. Additionally, 2019 We'll also include our ongoing improvements in service costs and hydrogen efficiencies, coupled with an intense sales effort To expand this business in North America and Europe. The value proposition is strong. Our service performance For our largest customers have been almost flawless and the pull for our products is increasing, especially in heavy usage applications Like food district, big fusion and automotive manufacturing. With 25,000 emissions electric vehicles in the field, Plug Power is the most experienced company in providing fuel cell and hybrid solutions to e mobility applications. Emability applications using fuel cells are ideal for heavy asset utilization applications Like forklift trucks, delivery vans, ground support equipment, heavy duty vehicles, autonomous guided vehicles and aerial taxis. The benefits of fuel cells in eMobility applications include fast fueling, longer range, higher power density And simpler infrastructure for fleet vehicles. A good deal of our work in the past year with respect to membrane design Manufacturing, Stack Development and our ProGen line have been focused on developing a suite of high performance, Low cost modules that can be easily adapted in a multitude of e mobility applications. As our business grows, These applications will represent a larger percentage of our revenue. In the coming year, Plug Power is committed to making 4 major business announcements, And I assure investors, some of them will be in new e mobility applications. Paul and I are now available for your questions. Thank you. The floor is now open for questions. A confirmation tone will indicate your line is in the question Our first question is coming from Colin Rusch of Oppenheimer. Please go ahead with your question. Colin, your line is live. Do you have a question, please? Colin, please make sure your phone is not on mute. We'll move on to the next question. Our next question is coming from Carter Driscoll of B. Riley FBR. Please go ahead. Good morning, gentlemen. Good morning, Carter. Well, it's quite a doozy of a comment. You just left in there at the end of the Prepared remarks, Andy. You talked about 4 major announcements this year. Maybe you could Give us additional color, some of them related to obviously the core material handling business, some being mobility. Relative to what you've been pursuing over the last couple of years, is there something within those announcements that is Completely unexpected, at least by what the Street believes is thinking about what you're pursuing? It's a good question. Prior, let me see if I can Kind of give a broad some broad strokes. First, we've been working on Some of the activities and deals for over a year. And obviously, from my comments, Some of them will deal with e mobility applications. And I think that those announcements may come sooner rather than later. We've also today, our distribution channels for our material handling equipment Is limited to our direct sales force. I think you'll see a global distribution agreement With a company with a much larger balance sheet that can really help accelerate the growth of our products not here in North America, but in Europe and Asia, as well as even maybe in some The wealthier countries in South America. I also think, Carter, that look, there's been A great deal of announcements on hydrogen being made by the industrial gas company. I think that you see folks like Air Products building 2 liquid plants, Air Liquide building a liquid plant, Praxair building a liquid plant. I believe you'll see maybe a partnership with us at one of those large industrial gas companies, Mainly because, quite honestly, we're the biggest user of liquid hydrogen in the U. S. These companies are increasing their capacities at 50%. And I think lots of them want to be the prime supplier to Plug Power and partner with Plug Power in the future. Okay. That's very helpful. Maybe more specifically, Some of the technology agreements, particularly with Amazon, was to focus on other types of mobility applications. Would it be fair to assume that something is one of those 4 could be with 1 of your existing partners? Yes. Okay. All right. I'm going to leave it there. So Obviously, you had a very strong end of the year. You reached your 1st quarter of adjusted EBITDA's profitability. You talked about it on a blended basis. I'm assuming you're Still going to have a kind of a second half tilt because of the influence of Amazon and Walmart. Could you talk, a, if that's still your expectation for the bookings that you provided, what are the kind of puts and takes It will get you the lower end of the range versus potentially the higher end of the range. And then do you see an opportunity to Potentially still add a sizable customer, maybe not the size of those 2, whether domestically or EU In 2019? I'm going to hand that off to Paul Carter and maybe I'll answer the last one after you get that, Paul. Great. Yes. I think so the short answer to your question, Carter, yes, we expect a similar seasonality when you look at the concentration of Distributor business and automotive tends to be more back end loaded than front end, but We continue to get good traction across those customers, and I think what you will see is continued growth Year over year, quarter over quarter, Q1 being bigger than Q1 last year kind of thing. So you'll continue See that trend, but on the overall mix of sales, yes, it will be more back end loaded. But on a run rate basis, there's a good chance We're in the year in a position where we're getting closer to that $60,000,000 a quarter every quarter as we go forward such that Which is kind of our magic breakeven, so we expect that to be a good position. And as we go through the year, I think that Not only we've shown it in Q4 now, but all of the things that we're doing and continue to do from a cost down reduction, you'll see that And a lot of things Andy talked about in terms of business announcements and other things, those will be upside To our traction and what we see unfolding here. So when we think about getting equal or better to that, it's about Really trying to drive some of those home and see if we can capitalize on some of that this year. And just maybe Sorry, Go ahead, Carter. I'm sorry. No, no. Please continue because I was going to take I was just going to ask a different question. Okay. I was just going to add, Carter, to your last question. I'm obviously frustrated we haven't made another big announcement in material handling. I remind myself of how long it took me to close that Took us as an organization that closed Amazon and Walmart, and I remain quite confident. Okay. Thank you for that. Maybe just, Paul, the margin downtick in equipment and services this quarter Was it a little surprising? Is it all related to the SEC kind of squeezing again in terms of reporting metrics? Or was there some other exogenous effect? I was a little surprised that the equipment sale margin being down sequentially. Well, you have to net out the customer warrants Depending on the analysis in your apples and apples and yes, they're now having us allocate that across the product lines, which makes comparability a little bit more challenging. But The other factor that factors in for us is mix with hydrogen infrastructure. If we have a quarter where there's a higher percentage of that, The good news is all of the product lines continue to grow in terms of their margin profiles. The best margin profile we have is GenDrives And hydrogen infrastructure is in mid teens and growing nicely and continuing to grow. And But from a mix standpoint on the overall margin of that product line, it can be impactful. The other thing is we had probably a little bit higher than average of stationary sales in Q4. So again, very nice margin profile in that business, but not quite the same that we get on the forklift GenDrive. So That impacts it. But fundamentally, if you look at the bottom line between all of them, they continue to go North in terms of the margin profiles, and we expect that trend to continue as we go forward. And Paul, in the Q4, the comparison is dominated by the way we have to recognize Walts across the product line. Is that correct? Yes. Unfortunately, it kind of skews the numbers and the comparison a bit. Okay. And that applies to the service line item as well? Yes. Okay. I'll be back in queue. Thanks, gentlemen. Thanks, Carter. Thank you. Our next question is coming from Colin Rusch of Oppenheimer. Please go ahead. Can you talk a little bit about the development that you're seeing on from Tier 1s in In terms of powertrain development for light and medium duty vehicles, it seems to me that we were seeing some movement on that front. We'd just love to see what you're So Colin, the answer is that And I'm going to separate some of the activity out. There is Obviously, folks like Toyota and Honda GM developing their own technology. I think there are a number of OEMs, both in, I'll call, Tier 1 auto space as well as in other providers of engines and motors. And we're seeing a matter of fact, we have a visitor from one of those companies here today. So that engagement level is certainly much higher. We also are seeing globally That there are what I would qualify as more integrators who may buy Ford Chassis, Attach electric motors, build delivery vans and other vehicles, and we are seeing a good deal Activity in that area. And that really comes to the heart of the ProGen engine, that how we think about the market. We it's hard to pick out who's going to be the winners, who's going to be the losers. What we believe is that by making a box that's very easy for someone to apply That's denser than the competition. We're not going to be in position to having to pick winners in the e mobility space. It has implications certainly to our sales channels and our efforts, but That's really has been the heart of our work on membranes, our work on stacks, our work on engines and how We can best deploy not only the light duty vehicles, but in other applications because quite honestly, there's about 4 or 5 power levels, Not a whole lot different than how one thinks about lithium batteries, and really that's how we're attacking the market. Okay. That's super helpful. And then just from a working capital perspective, as you guys migrate up to higher levels of Revenue, how should we think about the accounts receivable? I may have missed it, but it seems that you're going to see a little bit of unwind in the 1st part of this year, but I just want Yes. I think, I guess, specific to receivables, one thing that works in our favor is Because of the tax credit, the company, our customers and the banks that they use to finance these are incentivized to get them closed before quarter ends. And so we haven't traditionally had a big AR balance. It's kind of worked in our favor in that regard. I do expect it to grow just by sheer volume of time in both companies. But I don't I think even with the growth that we'll have this year, which I think if you look to the midpoint of our range being 30%, I don't know if AR goes up that much, but you will see it tick up a bit. And even on the inventory front, I think we continue to work with our vendors and our production processes and things that we're doing that If anything, I hope that, that actually comes down slightly, as we continue to run more lean and get better at Planning and working through the supply chain process. But I always say if business ticks up You get a big one it's a big win, you get one of these announcements that Danny is talking about, and we have to have a surge. It's a high class problem. But from an everyday run-in the business standpoint, I don't think that that's we should expect a big necessarily a big number there To the manifest this year. Thanks so much. That's super helpful. Thanks, guys. Thank you. Our next question is coming from Sameer Joshi of H. C. Wainwright, please go ahead with your question. Thanks, Andy. Thanks, Paul. Good morning, Javier. Okay. So just a clarification on the eMobility announcement that we should be Is it with FedEx or is it with someone else? I'm going to Samir, I hate ducking questions, so I'm going to just be a little non committal on that question. So the answer is we expect it soon. Okay. In terms of the guidance you have provided and also the deals that you expect to announce, Should we expect that these deals are incremental or additional to the guidance that you have provided? Or is it baked into the guidance? That's a good question. I think when one thinks about the guidance, And as you know, we've been able over the past last year, we were able to increase guidance as the year went on. I think A good deal of the announcements will have more implications to 2020, but you may see some Marginal you may see some increases slight increases in revenue and slight increases in margins Based on these announcements, I obviously hope it's bigger, but the guidance It's based on what we have a very, very high confidence level of achieving. Understood. Thanks for that. In response to one of the questions, you also mentioned that the Stationary power in 4th quarter was stronger than you expected. Do you expect that segment to continue to grow at Sameer, I do, but I think it will be intermittent. As been publicly discussed, we've been working with Southern Company for almost 3 years now, Supporting the build out of their new network. We do have deals pending In other areas, some of that through partners from a global perspective, Leveraging our ProGen module into backup power applications. But No, I think that, that business will be Irregular, for the coming, I would say, the coming few years. And then I think that, like material handling, We'll start getting a higher level of predictability. Fuel cells do have some Advantages in LTE and 5 gs Networks. 1 is able to deploy the products in cabinets, Unlike diesel generators at a much higher density than those products, which allow customers to save footprint, Be able to integrate into cabinets, revenue producing radios and able to make a Smaller footprint. So there's actually a value proposition in 4 gs and 5 gs that really did not exist In previous deployments, Chris, not to go into detail, those networks Build on top of each other. The world's changing. I think that's good for Plug Power in the industry over the next 3 to 5 years. Understood. Thanks for that. And just one more. How much of the Progen that has been shipped right now actually contains the metal stack or is it going to be a slow deployment? Going to be a slow deployment. We've been thoughtful. We aren't aggressive. We've been shipping a lot. I would say that we're starting out by Shipping products with the membranes. And this year, we expect to be shipping 400,000 membranes. And I think by year end, you'll see some of our products like Class 1s incorporating the ProGen stack, And that'll play a step. I think you hit on an interesting point, which I really want to highlight. The engine used in our future gen drives will be identical from a technology point of view As the engines that are used that will be used in on road vehicles and other applications, again, really highlighting Our focus on how to leverage scope and scale and scope economies. Great. Thanks for taking my questions. I will take your questions offline. Thanks, Sameer. Thank you. At this time. Our next question is coming from Eric Stine of Craig Hallum. Please go ahead with your question. Hi, Andy and Paul. Hey, Eric. Good morning, Eric. Hey. So just a couple for me. You talked about it early in the prepared remarks and Potentially tying up with an industrial gas company, and so maybe the answer is similar as part of that. But just given the investment in the space And as a way to possibly improve margins there, I mean, just where do you stand in terms of Plug potentially owning the tank And then being able to source hydrogen, given that there's been a lot of investment there, source hydrogen from the lowest cost provider. Eric, I've actually been doing a little of that Already. Paul, we probably own a dozen tanks. So that is an activity that We continue to pursue. And potentially well, I mean, I guess, Potentially, if you tie up with someone, maybe it changes that or something that helps you on the margin side? Yes. Got it. Okay. And then maybe last one for me, and good to hear that potentially there's an EV announcement Here in the somewhat near term, but when you talk about autonomous vehicles, maybe just a reminder for us What Plug's experience there is to this point, if I'm not mistaken? I mean, you do Or you've got quite a few autonomous vehicles in materials handling already in the field? That is correct, Eric. We have over probably 1500 units, which are operating with Plug Power Fuel Cells, Which are autonomous in warehouses and manufacturing facilities, and we expect that to continue to expand in 2019. Also, it gives me an opportunity to highlight the work we're doing with Rensselaer on robotic fueling of our GenDrive units. So I would expect in the next year, We'll be deploying some units at the AGVs. We'll be able to just pull up to and robotic arm will Feed the unit and the unit will fill up and be back on the road, which when one thinks about the future of Lights out warehouses and manufacturing facilities and maybe on road fueling, it will be I think it's a huge step forward for us. Okay. Thanks a lot. I'll take the rest of my questions offline. All right. Thanks, Eric. Thank you. Our next question is coming from Chip Moore of Canaccord Genuity. Please go ahead with your question. Good morning, Andy and Paul. Good morning, Chip. Good morning. Hey, I wanted to just circle back to guidance. I think When we talked in January, we were talking about 70% to 75% coverage out of shippable backlog. It's been a couple of months. Any updates On visibility for the outlook? I would say that we're in this we're probably obviously, we've ticked up a little higher. We're probably closer at 70 7% to 78% range, I'm not really concerned. I actually think that we're pretty It's not it's just execution every day and our sales team has been able to deliver orders Year in and year out. Got it. And Andy, just wanted to follow-up when you talked about The telecom network expansion opportunity, right, as we look 3 plus years out and we really start to see that 5 gs build out and Cell tower densification, is there a way to size the opportunity in that space? And how can you position yourself to take advantage of that? Two items, and I'm going to separate North America and say Asia. And we do have a direct sales force and strong relation If you start thinking about people like AT and T, Verizon, Sprint, T Mobile, All of them have deployed Plug Power Fuel Cells in their network chip. And Part of our part of the challenges in that business has always been density. And if you think about, I'll call the 1st generation 5 gs, you'll be adding in more cabinets and it will become denser. And to us, that's really where the opportunity is. And the opportunities will most likely be in urban and suburban areas, Where users will be able to, as I mentioned, put more functionality in their cabinet, Integrate our products in, eliminate diesel generators for the new build out and probably more important to us, Gives us a simple way to deliver hydrogen to those sites. So I think that's one aspect. No, I think there's probably another opportunity there associated with I think this is a little later with the rural deployment. It can be a low cost way for service providers to provide bandwidth to the home, broadband to homes. And I think there will be some opportunities there. But when I look at if you had density And we can deliver hydrogen effectively if you have density, and we do today for the Southern Company. And when I look at these new networks, there's a huge opportunity just because of how the large service providers are looking to build it out. And with all of them, I have qualified product already. That's great. Appreciate it. Thanks very much. Thank you. Our next question is coming from Chris Souther of Cowen. Please go ahead with Question. Hey, good morning. Thanks for taking my question. Can you talk a bit about the shift towards kind of more purpose built fuel cell power lift trucks And next gen Class 1 products starting production this month. Just wanted to get an idea of the puts and takes for both Plug and the customers from initial cost perspective, Sales, distribution and service perspective, total cost of ownership and also whether the You had mentioned the global distribution partner potential. Is that around kind of servicing more purpose built lifts? Or what is kind of the strategy with that? So, Chris, when we think about the work we've done with ProGens, Metal Stacks and Memberings is how we can make units that They were applicable across a long wide range of applications. So that's kind of step 1 Is that that work has been done. And that's important to us because it does help us drive down Long term cost and makes it easier to service the units As well as continuously improve the units. From a distribution point of view, Again, it almost makes the way we're designing this service becomes much simpler that these can become Almost replaceable boxes that you don't have to have a great deal of capability to service a unit. And I think over the past year and a half, as we've watched Our service costs as we watched our uptime of our units continue to improve and as we watch the Simplicity of building hydrogen infrastructure, as we've mass produced it, that we finally found comfortable That we could start leveraging distributors and people with a much wider, broader footprint than Plug Power to sell and distribute our products. And that's really, I think, the combination of those three items Will allow us to continue to grow our business in the core material handling business, but use all those learnings. And when you have 25,000 units in the field, you get much more learnings than others may get and be able to Move those same products, base products into more mobility oriented applications. As I mentioned, everything from ground sport equipment to delivery vans and autonomous guided vehicles and Maybe someday in the future, aerial taxis. I appreciate the color there. And then can you Give an idea of percent of revenue that's Walmart, Amazon 2018, and we're just going to bake in the 2019 guidance with that and Maybe just kind of where the real growth levers are going to be as far as those 2 customers versus kind of some of the new things you're talking about in the food and automotive, That'd be great. Do you want to give that a shot, Paul? Yes. I think it's I'm going to use a proximization of about 50% or so. And I think We continue to get traction with additional customers, but as Walmart and Amazon continues to grow in their base too, it kind of That percentage in check, I think you will see over time and probably in 2019 that, that percentage goes down as a percentage of revenue Given traction, we're getting in another with other customers and other programs. And so, exact numbers for 2019, it's hard to say, but I think it's In that 50 ish range and plus or minus and maybe slightly lower As we go forward. Okay. So it's kind of both growing, but it's just the other pieces are starting to grow a little faster. Yes. Yes. Appreciate it. Thanks, guys. Thank you. At this time, I'd like to turn the floor back over to Mr. Marsh Thank you, everyone, for joining our earnings call. And if you'd like to hear more from us, today, I'm hosting a chorus session To answer questions from the general public, the open session will provide me an opportunity to discuss numerous topics Ranging from Plug Power's business to the role of hydrogen fuel cells in today's energy economy. You can Access the session directly at Quora or from the link on Plug Power's homepage. Thank you, everyone, for your time today. Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time and have a wonderful day.