Ladies and gentlemen, greetings and welcome to the Plug Power first quarter earnings call. At this time, all participants are in a listen only mode. If you have not already done so, please close all other programs on your computer. If anyone should require operator or technical assistance during the conference, please push star zero on your telephone keypad, or the question mark icon on the top right corner of your screen. It is now my pleasure to introduce your host, Teal Vivacqua. Thank you. You may begin.
Thank you. Good morning, and welcome to the Plug Power 2018 first 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 margin, bookings, liquidity and cash collections and usage, 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 electric 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 31st, 2017, and our definitive proxy statement on Schedule 14A, filed with the SEC on March 30th, 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 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 CEO, Andy Marsh.
Thank you, Teal, and good morning, everyone. The investor letter today provides a clear description of our quarterly performance and our recipe for success in 2018. Our main objective for this year is to achieve EBITDAS breakeven in the second half of the year. To achieve this goal, there are four ingredients. One, more product sales, such as GenDrive fuel cells and GenFuel hydrogen fueling stations. Two, continue reduction of our product costs. During the past years, we have consistently met our objectives for these two goals. Our challenges have been, three, service costs, and four, hydrogen molecule costs. To achieve our service cost and hydrogen molecule cost goals, we have detailed plans and have allocated sufficient resources to meet our objectives.
The combination of these items will allow us to achieve our guidance for 2018, which is revenue between $155 million-$180 million and EBITDAS breakeven the second half of 2018. We are short-term focused but have not forgotten the future. The investor letter highlights the plans for our high power density metal plate stacks, which offers best-in-class performance. The initial rollout of this product is scheduled for the fourth quarter of 2018. The stacks, with a variety of power ranges, will support our next generation of ProGen engines. ProGen engines are designed to be easily integrated into airport ground support equipment, delivery vans, and in the future, trucks and buses. Leveraging ProGen engines, integrators can simply interface a fuel cell system to an existing electric vehicle. These products are applicable to applications across the globe, especially in geographical areas that are establishing hydrogen infrastructure today.
As we've said in the past, hydrogen fuel cells are a valuable powering solutions for some electric vehicles. The specific power density of fuel cells, their rapid fueling, and long range makes fuel cells the right solution for electric vehicles operating many hours a day, such as forklift trucks, buses, and automatic guided vehicles. These markets are Plug Power's targets. This year, first and foremost, we will meet our EBITDAS goals, as well as continue to develop markets for on-road applications. Paul and I are now open for questions.
Thank you. Ladies and gentlemen, at this time, we will be conducting our Q&A session. If you'd like to ask a question, please push star one on your telephone keypad now. A confirmation tone will indicate your line is in the question queue. You may push star two if you'd like to remove your question from the queue. For any participant using speaker equipment, it may be necessary to pick up your handset before pushing the star key. One moment while we poll for questions. Our first question comes from the line of Eric Stine from Craig-Hallum. Please go ahead.
Hi, Andy and Paul
Morning.
Morning. Wanted to see if we could talk a little bit about the two new customers you mentioned, the major food distributor. Are there any details you can share about potentially how big, maybe characterize their plans? And then also, is this the third mega customer that you've talked about in the past, or is that someone else?
Eric, it is someone else-
Okay
to answer your last question first. This food retailer is one of the five largest food retailers in the United States, so they have a rather large distribution footprint. We're just beginning. The rollout happened in the first quarter. If the value proposition proves out, we think it's a large opportunity for the company in the future. The second customer is actually rather interesting, because what we're beginning to see with some of our auto customers is that some of their suppliers who are located in the same geographical areas are now finding fuel cells an interesting solution as they visit the auto plants. This one's down in Spartanburg, and we're beginning to find that there's a lot of opportunities around the auto companies as we've developed lower cost hydrogen solutions that allow us to go to smaller sites.
Got it. Maybe just sticking with that third mega customer, I assume that's still in the works, or has anything changed there?
It's still in the works, and it's always difficult with some of these large customers, but as you work through their systems. I can tell you with both Walmart and Amazon, I thought I had the deals closed six to nine months before they actually were announced. We're going through the same path. We're working with the right people, the right folks in their organizations. With that customer, I expect we'll be doing a rollout in the third quarter, independent of the mega deal.
Okay, got it. Maybe just turning to-
We've already-
Well, remind me, orders and backlog.
We've already, by the way, Eric, done rollouts with them.
Okay. Thanks. Maybe just turning to orders. Remind me, is this something that you're no longer giving, orders and backlog?
We did $38 million bookings.
Okay. Just sticking with that, obviously the ITC.
My prime goal is meeting our EBITDA.
Yep.
Just so you know, my metrics for the year are EBITDA, cash flow, and revenue, but dominated by EBITDA and cash flows. That's what the organization is focused on. Obviously to meet the revenue targets, you need sales.
Right. Anyway, obviously the ITC is definitely helping there in any way you can, talk about what you're seeing now versus before that was extended.
We had a board meeting last week, when we were working on the package, it was dominated by sales activity. It has accelerated dramatically the funnel over the past two months. I look at some of the deals that are in the pipeline, which I would not expect to really see revenue until 2019. It's been a huge help. Not only just in the material handling, we've also seen a great deal of interest over the past two months with delivery vans as well as airport ground support equipment.
Got it. Last one for me, just in terms of cash flow, working capital build here in the quarter. I guess I was under the impression that you might see a little bit of a build rather than a usage. Maybe just your outlook there, how we should think about that the rest of the year.
I think, as consistent with what we've had in years past, the majority of the volume happens in the latter part of the year. There will be some investment and build activity, particularly over the next coming months. At the same time, as Andy mentioned, with our key metrics being EBITDA and cash flow, obviously cash flow is tied to working capital. We're laser focused on trying to manage that well and drive down inventory levels and run the business a lot tighter with a lot more discipline. Our primary focus is on delivering the business and doing it profitably. Commensurately, we're focused on trying to run the business as lean as we can. We should see some investment in the second quarter as we prepare to build for the ramp that's coming.
Okay. Thanks a lot.
Thank you. Our next question comes from the line of Chip Moore from Canaccord. Please go ahead.
Morning. Thanks. Hey guys, maybe if we talk outside the core forklift market, maybe you could touch a bit more on FedEx, obviously deploying your first van, and then I think you called out the opportunity in the airport ground vehicle market. Maybe you can expand on that, and then also talk about the new metal stack coming out in Q4 and how that plays into it.
Good questions. Let me start with the FedEx. We're really pleased, as well as our other partners involved in the program, with the performance of our delivery van with FedEx. I would say it's almost performed flawlessly after the first week. In many ways, this is an easier application for us than the extremes and variations we see in forklift trucks. I would expect that, we've been talking about geographical regions where our products for fueling stations exist today, and that's pretty obvious where those areas are, places like California, where we could work with FedEx on a broader rollout. On the stacks, the stacks are really important for both cost reduction and to be able to provide power density that's only matched by Toyota in the industry. That work, we are at the stage where the prototypes will be built during the second quarter.
We have samples running in the lab at the moment, that the initial roll-outs will be actually in our forklift truck. When I start talking about the value of fuel cells and mobility, one of them is power density. This power density is a 70% improvement than most off-the-shelf stacks today that you can purchase. That we view as critical to make packages which are high density, simple for people to integrate, and to really maximize the fuel that you can put in a product. We're pretty excited about that. For airport ground support equipment, I probably have five or six different deals we're working. Why airport ground support equipment really works is because of the cost of putting in hydrogen infrastructure.
If you're making the decision to go to electric, which is a decision I think most people are making, especially for newer deployments, you take a look at the cost of hydrogen infrastructure versus electric infrastructure for fleet vehicles, somewhere around 15 or 20 vehicles, hydrogen infrastructure is lower cost, the value proposition becomes much stronger. Hope that helps you.
Yeah. Thanks, Andy. Back on forklifts, obviously ITC's causing acceleration. What if we look out in Europe? I think you called out a doubling with Carrefour.
Yeah.
How's traction there? What else are you seeing in that market?
Yeah. When I look at that market, there's really three areas we're primarily focusing: the U.K., France, and Germany. All three of those countries have real commitment to put hydrogen infrastructure in place, which puts hydrogen fueling in place. In Germany, we're focused on the manufacturing sector. In France and U.K., a lot of the activity is with retail. I think it's reasonable to expect that over the coming years, we'll start seeing doublings of the number of units we're deploying in Europe. Fuel cells, the value proposition's a little bit different but mainly driven by sustainability. Not that American companies are indifferent to sustainability, I think they're not, but much more aggressive in Europe. Over the past six months, Europe has probably picked up a great deal. We have salespeople in Europe. We have service teams in Europe.
We're also beginning to look more European, which I think helps in the process.
Great. Then maybe just lastly on me, some decent progress on hydrogen delivery costs this quarter. Maybe you can talk about how you're tracking on service and fuel costs, how that's tracking to your plans and your confidence in the back half goals on EBITDA. Thanks, guys.
On our internal metrics, Chip, we're meeting and targeting towards our hydrogen goals. We beat our goals in the first quarter. With service, we were a little bit behind. Some of that was due to overtime. When we look at it, our service business is heavily dependent upon its success on stack hours. Over the past eight weeks, actually, we've made some significant improvements. We're very comfortable that we will meet our service goals for the quarter. Quite honestly, it's what we spend a great deal of time looking and monitoring and making real-time improvements on. We believe ultimately that business can be more profitable than the product business as we have more scale, so we can utilize our labor force more efficiently, and we drive more hours out of our stacks, which we appear to be on track to do.
Great. Thanks very much. I'll hop out of queue. Thanks.
Our service business, Chip, is actually really straightforward. It's all about labor and stacks, that's the equation. We had to hit our goals. It can be very profitable.
Great.
Thank you. Our next question comes on the line of Carter Driscoll from B. Riley FBR. Please go ahead.
Morning, guys.
Hey, Carter.
Morning.
Andy, just to follow up on the new stack and plate technology, how critical is that successful launch in terms of timing with the announcements you made that you hope to select a JV partner in China? In terms of, hearing increasingly the payload is obviously one of the biggest issues with commercial electric vehicles trying to expand in the class 3 to class 4 or 5 up to 8. Just maybe you could just talk about the timing of those two, whether they're at all codependent, and then I have a couple of follow-ups.
Sure. Carter, I think when I think about it, there's short-term and long-term. I think short-term, it's not dependent upon us beginning to roll out products. Long-term, I think to have offerings which are valuable to customers, and as you mentioned, payload, I think product densities, high efficiency, lower cost, which I think the metal plate stacks position us for, will be critical for success in 2019, 2020, call it 2020 and beyond. I don't think it's required to launch the partnership in China. I think it's required to establish a successful long-term business in the commercial vehicle market.
Okay. Has the scope of your discussions with the remaining parties that you have kind of narrowed it down to, has that changed at all? Is it still all-encompassing in terms of whether you're providing the fueling stations, but really a total turnkey solution? Is that really a fair characterization of the way it's evolved?
I think that with most, yes. I think there's probably more emphasis on ProGen engines than fueling stations with most. Yeah, I would say that the discussions have been very systematic, and we've been relatively deliberate in these discussions because of both the reward opportunity and the risks. I would just say, I think we're dealing with four partners who have international footprints, which brings me some level of comfort.
Okay. A high-level question you maybe can or cannot address or may or may not choose to, but given the momentum you're starting to see in Europe, obviously the acceleration business from the ITC beginning to really percolate, potential to bring in the third mega deal customer, or at least beginning shipments, maybe even potentially wrapping into 2019 and another win in the distribution. Then you talked about the characterization of some of your old suppliers, the old auto customers that you had some deployments with. I struggle to believe that you won't grow year-over-year at a higher rate in 2019 than you even targeted for 2018. It seems like 2019 is setting up to be potentially a very strong year. Obviously, you're more focused on 2018 hitting your financial goals. Is that unreasonable?
It just seems like hydrogen is really beginning to take over the lexicon, and in particular, the commercial electric vehicle space. Just high-level comments about how you think 2019 could play out without necessarily quantifying anything.
Good question, Carter. Like you, I've never been so excited about, and I think I feel with my management team, I feel with our board, I feel with all the industry participants that hydrogen fuel cells seem to be stepping more into the conversation for electric vehicles. I am excited about the potential. For good or bad, I'm an engineer, and I look at the attributes of fuel cells versus the attributes of batteries, and I can see where fuel cells have unique advantages. All that being said, I think that over the next three years, it's going to be strong growth opportunities for all the fuel cell companies. We haven't, as an organization and a board, agreed to what those numbers for 2019 will look like. I think the growth opportunities have never been brighter.
I think the growth opportunities now are different because I think the technology is well established, and you can count on the performance of the products. I can see that the commitment on hydrogen is at a different level with those providers than I've seen in the past. Shell is beginning to engage in the hydrogen market more aggressively. The industrial gas companies are large, but Shell is probably 10 to 15 times larger. If Shell makes hydrogen readily available, I think the opportunities for the market are tremendous, and I think companies like Plug and others in the industry will benefit. I know I'm not giving you exact numbers, but I think we're all feeling that it's a good time to be in the fuel cell industry.
I appreciate that commentary, Andy. Maybe an update on, as much as you can, the technology collaboration angle with Amazon, potentially alluded to with something with Walmart. Obviously, on the road, delivery vans, the ground equipment with FedEx, and then obviously the delivery vehicle you've done, I am sure that is probably ramping in the back part of the year. In particular with Amazon, are there some types of work you are doing with them that may be outside of the scope of the kind of last-mile delivery or maybe an expansion within what we typically think about with last-mile delivery?
Yes. I really cannot say anything more, Carter.
Okay. All right. Maybe this last one for me, just talk about, you are starting to hear some commentary about some of the forklift OEMs increasing their efforts to build a purpose-built truck. What that would do either to galvanize the market, maybe potentially even cannibalize drop-in replacement. Maybe your thoughts about how economics would or would not change or even delivery cycles, if you are seeing that in fact accelerate.
If you look at, Carter, the announcement that we made about a month ago, where we increased the fuel in our Class 2 products for certain applications by 50%.
That was done in collaboration with an OEM. There are certain products where we've been working closely with some OEMs. That truck, where that goes into, was a new vehicle for deployment at one of our large customers, which provided them the extra fuel, which improved the value proposition. We are collaborating with the OEMs much closer than we've had in the past. If you start thinking four or five years out, the ProGen engines that we're developing, in our mind, are engines which will be easily integrated by forklift trucks OEMs, because essentially they're a fuel cell in a box. With the high density and high performance, they'll be able to put larger and larger fuel cell tanks in, and the value proposition gets stronger. This is a huge market. There's over 6 million forklift trucks out there.
5 million of them, 4.8 million of them are going to be trucks that can be retrofitted, and people aren't going to throw their old equipment out. I think over the next 15-year period, call it, you're going to go to boxes where to where we are in this activity we have going on, where there's levels of integration between the two of us. Eventually, Plug is selling both boxes and engines to forklift truck company. If you think about it, I've talked about this at Investor Day, where we're beginning to develop some channels with OEMs and other folks who are interested in this market who have access around the world.
I think channels are going to become more important, and I think as we're able to support smaller sites, that hydrogen becomes easier, as well as thinking about our ProGen as engines which can just snap into forklift trucks.
Appreciate all the details, Andy. I'll get back in the queue.
Okay, Carter.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask any questions, please push star one on your telephone keypad. Our following question comes from the line of Christopher Souther from Cowen. Please go ahead.
Hey, thanks for taking my call. Most of my questions have been asked. I just wanted to see if you could provide a little bit of color on, in the second half of the year. I know it's going to be kind of a back-end loaded year. Would you be able to provide any kind of cadence between the mixture between third and fourth quarter there?
Paul, my take is we would expect revenue to be about equal between the two quarters.
I think that's a fair point. Yeah, fair estimate.
Okay, perfect. Just on Amazon and Walmart, I just wanted to kind of maybe have a checkup on how many distribution centers you guys have installed since you announced those two big deals to date. Potentially give kind of a cadence on what the rest of the year looks like as far as those two, and also the visibility you guys might have on any of the timing of the warrants.
I'm going to let Paul take the warrant question, and I can only say what's public and have been agreed to. Last August, we outlined 30 sites over three years with Walmart. That's public information. Amazon, we did announce that we did 10 sites last year. I'm not in a position where I can publicly say I have approval to say what the Amazon plans are. I can say we are shipping to Amazon now. The roll-outs, I think to date, you can classify as a success. Paul, on the warrants?
Yeah, I think, just for context, Amazon's probably close to 30% in on vested. I think we expect that they'll probably vest going forward, kind of in that over the next two to three years.
30% on the $200 million.
Yeah. 30% on the $200 million. I was talking about in terms of total quantity. It'll be over the next three plus years until they'll vest. In Walmart, they're probably about, in terms of quantity on their warrants, it's probably in the 15% range. Will take a few more years just in terms of the pace, in terms of how that structure works. They both vest based on cash payments and just on the nature of the relationship. As you know, Amazon buys the systems, and Walmart accesses the systems through the PPA structure, so they pay for it a little bit more over time. It'll take a little bit longer for them to vest in terms of their warrants.
Paul, when you talk about Amazon being fully vested in three years, it's for the first tranche of $200 million?
Yeah.
Okay, just kind of looking at the provision for common stock warrants, is that something that's gonna be kind of fluctuating over the next couple of quarters, or is that something that we can think about as kind of a run rate in this kind of range, or is it gonna be kind of a larger number like we've seen kind of last year and a couple of quarters?
We'll recognize an expense associated with that until each of them hit the $600 million of qualified purchases. We'll have that charge for some period of time. Unfortunately, it will vary based on movement of the stock price. It is something that has to get remeasured from time to time. It also, it's a complicated calculation in terms of how far along they are in the vesting and other attributes. I think I would characterize it is that we'll have it as a charge until each of them hit that $600 million level, and the scale and the size of it will go both with total revenues in a particular quarter in addition to what volatility there may or may not be in the stock price in the course of the quarter.
Okay. I appreciate that. I'll hop in the queue.
Thank you. Ladies and gentlemen, that is all the time we have for Q&A today. I would now like to turn the program back over to management for closing comments.
Thank you for joining the call today. I'd just like to reiterate that we're laser focused on meeting our guidance for the year, both revenue and EBITDA. Additionally, our shareholder meeting is next Wednesday in New York City at the Goodwin Procter's office in the New York Times building. Hope to see our investors there and the analysts. Thank you.
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time and log off your computer. Thank you for your participation, and have a wonderful day.