Earnings Call: Q1 2018

May 9, 2018

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. Thank you. You may begin. Thank you. Good morning, and welcome to the Plug Power 2018 1st Regarding full year 2018 revenue, deployments of GenKey sites and GenDrive units, gross margins, bookings, liquidity In 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 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 discussed as a result of various factors, including but not limited to the 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, 20 17 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 only as of the day on which the statements are made, and we do not undertake or intend to update any forward looking statements after this call. At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh. Thank you, Teal, and good morning, 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 There are 4 ingredients: 1, more product sales such as GenDri fuel cells and Genfuel Hydrogen Fueling stations and 2, 2, continue reduction of our product costs. During the past years, We have consistently met our objectives for these two goals. Our challenges have been 3, service To achieve our service costs 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 $155,000,000 to $180,000,000 And EBITDA is breakeven in the second half of twenty eighteen. We are short term focused, But if not forgotten the future, the investor letter highlights the plans for our high power density metal plate stats, which offers best in class performance. The initial rollout of this product is scheduled for the Q4 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 Especially in geographical areas that are establishing hydrogen infrastructure today. As we've said in the past, Hydrogen fuel cells are valuable powering solutions for some electric vehicles. The specific power density of fuel cells, the rapid Fueling and long range makes fuel cells the right solution for electric vehicles operating many hours Today, such as forklift trucks, buses and automatic guided vehicles. These markets are Plug Power's targets. This year, 1st 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 and A session. A confirmation tone will indicate your line is in the question Our first question comes from the line of Eric Stein from Craig Hallum. Please go ahead. Hi, Andy. Hi, Paul. Good morning, Eric. Good morning. Morning. Just, so wanted to see if we could talk a little bit about the 2 new customers. You mentioned the major food distributor. I mean, are there any details you can share about potentially how big maybe characterize their plans? And then also, I mean, is this the 3rd mega customer that you've talked about in the past? Or is that someone else? So Eric, it is someone else. Okay. To answer your That's question first. This food retailer is one of the 5 largest food retailers in the United States. So they have a rather large We're just beginning. The rollout happened in the Q1. So, we know if the value proposition We think it's a large opportunity for the customer 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 the customers 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 Spartansburg and we're beginning to find that there's a lot of opportunities around the auto We've developed lower cost hydrogen solutions that allow us to go to smaller sites. Got it. And then maybe just sticking with that, I mean, the 3rd mega customer, is that still 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, Yes. I can remember I can tell you with both Walmart and Amazon, I thought I had the deals closed 6 to 9 months before they actually were announced. And we're going through the same path. We're working with the right people, the right folks in their organizations. And with that customer, I expect we'll be doing a rollout in the Q3, independent of It was a mega deal. Okay. Got it. Maybe just turning to Well, so remind me, orders and backlog And we've already, by the way, Eric done rollouts with them. Okay. Okay. Thanks. Maybe just turning to orders, I mean, remind me, is this something that you're no longer giving orders and backlog? We did $38,000,000 bookings. Okay. And then just Sticking with that, I mean, obviously the ITC My prime goal is meeting our EBITDAS. Yes. And just so you know, I mean, my metrics for the year are EBITDAS, cash flow and revenue, but dominated by EBITDAS and cash flows. So that's what the organization is focused on. DAS and cash flows. So that's what the organization is focused on. But obviously, to meet the revenue targets, you need sales. Right. I mean, 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. And when we were working on the package, it was dominated By sales activity, it is it has accelerated Dramatically the funnel over the past 2 months. I look at some of the deals They're in the pipeline, which I would not expect to really see revenue until 2019, but It's been a huge, huge help. And not only just in the material handling, We've also seen a great deal of interest over the past 2 months with delivery vans as well as Got it. And then last one for me. Just in terms of cash flow, working capital build here in the quarter, I guess, I was under the that you might see a little bit of a build rather than a usage, so, maybe just your outlook there, how we should think about that the rest of the year? Yes. I think as Consistent with what we've had in years past, I mean, the majority of the volume happens in the latter part of the year. So there will be some investment Build activity particularly over the next coming months. But on the same time, we're as Andy mentioned, with our key metrics And EBITDAS and cash flow, obviously, cash flow is tied to working capital. So 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. But Commensurately, we're focused on trying to run the business as lean as we can. So but we should see some investment In the Q2 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. Good 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 or Q4 and how that plays into it? Good questions. And let me start with the FedEx. We've really pleased as well as our other partners involved in the program with the performance of our delivery van with FedEx, it's I would say it's almost performed flawlessly For the 1st week and it is in many ways, this is a easier application for us Then the extremes of variations we see in forklift trucks. So I would expect that We've been talking about geographical regions where our products Fueling stations exist today, where, and you know, 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 Only is matched by Toyota in the industry. And that work, we are at the stage where The prototypes will be built during the Q2. We have samples running in the lab at the moment and that The initial rollouts will be actually in our forklift truck. But when I start talking about The value of fuel cells and mobility, one of them is power density. And this power density is a 70% improvement than most off the shelf stacks Today that you can purchase and 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. So we're pretty excited And for airport ground support equipment, I probably have 5 or 6 different deals we're working. And why airport ground support equipment really works is because the cost of putting in hydrogen infrastructure. If you're making a decision to go to electric, which is a decision I think most people are making, especially for newer And 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 and the value proposition becomes much stronger. Hope that helps you. Yes. Thanks, Andy. And back on forklifts, obviously, ITC's Causing acceleration, what if we look out in Europe, I think you called out a doubling with Carrefour. How's traction there? What else are you seeing in that market? Yes. So when I look at that market, there's really 3 areas we're primarily The U. K, France and Germany, in all three of those countries We have real commitment to put hydrogen infrastructure in place, which puts hydrogen fueling in place. And so in Germany, we're focused on the manufacturing sector. In France and UK, a lot of the activity is with retail. And I think it's reasonable to expect that over the coming years, we'll Start seeing doubleings of the number of units we're deploying in Europe. It's fuel cells, the value Proposition is 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. And we're Over the past 6 months, Europe has probably picked up a great deal. We have Sales people in Europe, we have service teams in Europe. We're also beginning to look Europe more European, which I think helps in the process. Great. And 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 EBITDAS? Thanks, guys. So on our internal metrics, Chip, we're meeting and targeting towards our hydrogen goals. So We've we beat our goals in the Q1. With service, we were a little bit Behind, some of that was due to overtime. But when we look at it, our service business is Heavily dependent upon its success on stock hours. And over the past 8 weeks, We've made some significant improvements. So we're very comfortable that we will meet our service goals for the quarter. And quite honestly, it's what we spend a great deal of time looking and monitoring and making real time improvements on. And 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. And we hit our goals, it can be very profitable. Great. Thank you. Our next question comes from the line of Carter Driscoll from B. Riley FBR. Please go ahead. Good morning, guys. Hey, Carter. Good morning. So Andy, just Kind of follow-up on the new stack and play technology. How critical is that successful launch In terms of timing, with the announcement you made that you hope to select a JV partner in China, in terms of can you hear increasingly the payload is Obviously, one of the biggest issues with commercial electric vehicles trying to expand in the Class 3 to Class kind of 4 or 5 up to 8. Just maybe you could just talk about the timing of those 2, whether they're at all codependent? And then I have a couple of follow ups. Sure. So, Carter, I think there's a when I think about 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 Which are valuable to customers and as you mentioned payload, I think product high efficiency, lower cost, which I think the metal plate stacks position will be critical for success in 2019, 2020, call it 2020 and beyond. So 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 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 pro gen engines than fueling stations With most. But, yes, I would say that The discussions have been very systematic. And we've been Relatively deliberate in these discussions because both the reward opportunity and the risks. And I would just say, I think, we're dealing with 4 partners who have International footprint, which brings me some level of comfort. Okay. A high level question 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 3rd Megadeal customer or at least begin shipments, maybe even potentially ramping into 2019 and another win in the distribution and then you talked about kind of the characterization of some of your old suppliers, the old auto customers that you've had some deployments with. I mean, I struggle to believe that you won't grow year on year at a higher rate in 2019 than you could even target for 2018. I mean, 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, but I mean is that unreasonable? I mean it just seems like hydrogen is really beginning to take over the Lexicon And particularly the commercial electric vehicle space, just high level comments about how do you think 2019 to play out Without necessarily quantifying anything. Good question, Carter. And 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. So I am excited about the potential. And I for good or bad, I'm an engineer and I look at the 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, it's so I think that Over the next 3 years, it's going to be strong growth opportunities for all the fuel And we haven't as an organization and And Board agree to what those numbers for 2019 will look like. But I think the growth opportunities have never been brighter. And I think the growth These now are different because I think the technology is well established and you can count on the performance And then it's really and I can see that the commitment on hydrogen Is that a different level with those providers than I've seen in the past? I mean, Shell is beginning to Engage in the hydrogen market more aggressively. And the industrial gas companies are large, but Shell is probably 10 to And if Shell makes hydrogen readily available, I think the opportunities for the market are And I think companies like Plug and others in the industry will benefit. So, 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 Okay. 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. I mean, obviously, on the road delivery vans, The ground equipment, the FedEx and then obviously the delivery vehicle you've done, I'm sure that's probably ramping the back part of the year. But particularly with Amazon, is are there some Types of work you're 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 can't say Okay. All right. Maybe just last one for me. Just talk about I started 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're seeing that, in fact, accelerate? So if you look at Carter, so 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. So there are certain products where We've been working closely with some OEMs. And so 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. So there is we are collaborating with the OEMs Much closer than we've had in the past. And if you start thinking, call it 4 or 5 years out, That so the ProGen engines that we're developing in our mind are engines which We'll be easily integrated by forklift trucks, OEMs, because essentially they're a fuel cell in a box. And 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. I this is a huge market. There's over 6,000,000 forklift trucks out there. 5,000,000 of them, 4,800,000 of them are going to be or trucks that Yes. Can be retrofitted and people aren't going to throw their old equipment out. But I think over the next Yes, 15 year period, call it. Now 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 2 of us. And eventually, Plug is selling both boxes and engines to Forklift Drug company. If you think about it, I've been 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. So, I think channels are going to become more important. And I think, as we're able to Port smaller sites that hydrogen becomes easier as well as thinking about our ProGens as engines, which can just snap in Forklift trucks. Appreciate all the details, Andy. I'll get back in the queue. Okay, Carter. Thank you. Our following question comes from the line of Chris 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 mix between 3rd Q4 there? My take is, it's going to be we would expect revenue to be about equal between the 2 quarters. I think that's a fair play. Yes, fair estimate. Okay, perfect. And then 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 She announced those 2 big deals to date and potentially gave kind of a cadence on what the rest of the year looks like as far as Those 2 and also the visibility you guys might have on any of the timing of the warrants. So I'm going to let Paul take the warrant question. And I'm going to I can only say what's public and have been agreed to. Last August, we outlined 30 sites over 3 years with Walmart. So 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 our plant the Amazon's plans I can say we are shipping to Amazon now. And the rollouts, I think you can to date, you can classify as a Paul, on the warrants? Yes. I think just for context, Amazon is probably close to 30% in on invested. I think we expect that they'll Probably best going forward kind of in that over the next 2 to 3 years and 30% on the 200 Yes. So 30% on the $200,000,000 but I was talking about in terms of total quantity. It will be over the next 3 plus years that they'll Best and then in Walmart, they're probably about total quantity on their warrants, it's probably in the 15% And we'll take a few more years just in terms of the pace, in terms of how that structure works. They both That's based on cash payments. And, just on the nature of the relationship, as you know, Amazon buys the systems and Walmart accesses the systems to the PPA structures that pay for a little bit more over time. So it will take a little bit longer for them To vest in terms of their warrant. So Paul, when you talk about Amazon being fully vested in 3 years, it's for the first Tranche of 200? Yes. Okay. And then just kind of looking at the provision for Common stock warrants, is that something that's going to be kind of fluctuating over the next couple of quarters? Or is that something we can think about as kind of a run rate in this kind of range or is it going to be kind of a larger number like we've seen kind of last year and a couple of the quarters? Sure. So it will we'll recognize an expense associated with that until each of them hit the $600,000,000 of qualified purchases. So We'll have that charge for some period of time. But unfortunately, it will vary based on movement of the stock price. And so It is something that has to get remeasured from time to time. And it also it's a complicated calculation in terms of how far along they are in the vesting and other attributes. But I think I would characterize it is that we'll have it as a charge until each of them hit that $600,000,000 level and it will 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. I appreciate that. I'll hop in the queue. Thank you. Ladies and gentlemen, that is all the time we have for Q and 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 Additionally, our shareholder meeting is next Wednesday in New York City at the Goodwin Procter's office in the we'll be conducting a question and answer session. And I 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.