Greetings, and welcome to the Plug Power third quarter earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator or technical assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Teal Vivacqua Hoyos, Director of Marketing Communications. Thank you. You may begin.
Thank you. Good morning, welcome to the Plug Power 2019 third 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. 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 31st, 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.
Good morning, everyone. We're pleased with the quarter, and a detailed description was provided in our shareholder letter released earlier in the day. I'd like to go over some highlights. We achieved over $61 million in gross billings. We had Adjusted EBITDA of $2.5 million. I'd like to highlight the EBITDA would've been $7.1 million without the higher than normal warrant charges. I believe this is an indicator that our operating performance continues to improve as we scale. A few highlights for the quarter include, and this one really excites me, our first order from Fiat Chrysler for over 240 units, another validation of our value proposition for material handling in automotive applications. Today, we have BMW, Daimler, Honda, VW, GM, and now Fiat Chrysler as customers.
European expansion continues, leveraging some of our new channel partners with an order for nearly 100 units at the BMW Leipzig factory in Germany. This deal was part of a German funding activity and Plug Power products support 1/2 the programs that were supported in the recent announcement. Three, the sales funnel for Non-Material Handling applications for our ProGen engines and stacks are continuing. We have many OEMs and integrators testing our systems and stacks. This includes a wide range of activities that we're pursuing, including a variety of on-road and off-road applications, large-scale stationary projects, and aerial projects. We also, in the quarter, closed a supply agreement with United Hydrogen for liquid hydrogen, which will positively impact our gross margins in future quarters. Hydrogen and vertically integrating into generation with partners is a key part of our strategy.
Fourth quarter will be a record for Plug Power as we are on track to achieve $235 million- $245 million in revenue and break-even Adjusted EBITDA for the year, a major accomplishment for the company. We have announced two of our major four announcements for the year. First one was the deployment of 500 units with StreetScooter using our ProGen engine in Germany by DHL. StreetScooter is 100% owned by DHL. Our global partnership with ENGIE. ENGIE has a global footprint across 70 nations. We have already closed an order with ENGIE in a new region for Plug Power worth over $6 million. This is a deal that would have never been identified without ENGIE. We have another deal pending that should close this quarter. Announcement three, which will be for a new multi-site customer, will be announced this year.
We're already working with them, preparing three sites for early 2020. Announcement four, which will further extend our Hydrogen Strategy, supporting our five-year plan that was rolled out in September at the Plug Symposium. At the symposium, Plug Power outlined our plans for the next five year. All the slides from the presentation can be found at our website. To highlight a few items, Plug rolled out a $1 billion revenue plan by 2024, with a mix of $750 million in Material Handling, $200 million in On-Road Vehicles, and $50 million in Stationary Power. The company is targeting, in 2024, $200 million in EBITDA and $170 million in operating income. An aggressive plan, but with our broad offering capability as the only turnkey shop in the fuel cell space, we believe these targets are achievable. At the seminar, the logic for achieving these goals were clearly enunciated.
Paul and I are now pleased to take your questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from Chris van Horn with B. Riley FBR. Please state your question.
Good morning. Thanks for taking my call.
Good morning, Chris.
Could you provide some additional detail on the Fiat Chrysler award? Maybe the timing of the rollout where from a geographical perspective that is, and just maybe a little bit more detail how it came about.
Sure. I think the positive item is the sales cycle was relatively short. It was in the range of six to seven months. The deployment will occur in Detroit, Michigan. There was a press release yesterday where Chrysler talked about this activity. It'll be for approximately 240 units, and overall it'll be worth over $10 million to Plug Power.
Okay. Got it. Go ahead.
Of course, we're looking to expand that relationship.
Okay. Thanks for that detail. When I think about, you set out the 2024 plans. When I think about 2020, is there anything you can tell us directionally on how you see that year playing out? Is it more back half weighted or how do you see 2020 looking right now?
Good question, Chris. Overall, I think at the Symposium, we laid out that revenue growth will be in the 30% range. I would expect that the first quarter will be lighter, but I think you'll see a strong ramp and much stronger second and third quarter than this year. We have a great deal of visibility to 2020 already, more than we've ever had in the business. We know about where 85% of everything we plan to ship will go, which is extraordinary for us. I think it shows that the business is really maturing.
Okay. Got it. Last one from me, when you think about the R&D how do we think about that spend going forward, and what specifically are you working on in that area?
Sure. I'll talk about what we're working on, and I will let Paul talk about where he sees the spend going. On the R&D front, the key items to us are increasing power capacity of our products for a variety of applications. I probably have about 15- 20 applications in the funnel, 15 or 20 opportunities in our funnel, and there's about five that quite honestly I really, really want. When you look at it, a lot of that starts with higher power stacks. We're looking to have products by mid-second quarter, which will be in the 125 kW range for our ProGen engine. We already have customers wanting to start testing them as soon as possible, and that by going to ProGen, our vision of products is that they should be as easy to use as batteries.
ProGens are designed that someone who is not an expert in fuel cells can pick one up, plug it in, and it works as well as a battery. When I think about that, Chris, that's why people start with batteries sometimes. We want them to start with fuel cells without a lot of additional support from Plug Power. Our design philosophy iis make it easy, put it in a box, have two or three connections, and you're ready to use the fuel cell. Paul, on the spend rate?
Yeah, I think, I guess piggybacking off of what Andy shared, one of the most exciting aspects for me is that leverage ability into these other applications and other markets. We don't have to double and triple resources in order to take advantage of those opportunities. We're building a platform and leverage and building a technology base in a way that makes it very easy to translate that into these other applications. So, there'll be some nominal increase over time, but it's probably in that 5%-7% on the upper end range. The only anomalies to that will be some of the things that we've talked about in terms of incremental opportunities and other strategic areas that we might get involved in, like Hydrogen Strategies, other areas. Those are to be determined as we continue to nurture and evaluate those spaces.
Okay. Thanks again for the time.
Okay.
Thank you. The next question comes from Eric Stine with Craig-Hallum. Please state your question.
Hi, Andy. Hi, Paul.
Good morning, Eric. How are you?
Morning. Doing well. I was hoping we could just start with Andy. You mentioned the one award that you already had and one that it sounds like is pretty near- term. I know that's a pretty broad-ranging agreement. Maybe just any specifics you can share on both of those, but then would also love to hear, you're a quarter in, just how you see that playing out, what that means in other areas. Any color there would be helpful.
Sure. Let me take a step back. You are correct. The opportunity with ENGIE is fairly widespread, and it includes both our ability to provide fueling solutions, fueling systems, as well as them positioning our Material Handling equipment and other applications around the world. This first deal that will be announced is for a fueling station that will support deployments of vehicles in a country to be named later. We have a second one, which should close this quarter, and that one is actually for Material Handling equipment, again, in a region of the world that Plug has never participated in. I think the combination of those two will be well over $12 million-$13 million. It's a combination for Plug of our expertise in products and capabilities and leveraging ENGIE's broad service capability. That helpful?
Yeah. No, that is helpful. I guess I'll stay tuned. Going forward, maybe next question.
by the way, both of them early. It will be in the first half of next year.
Okay. For deployments.
Yes.
Okay. Just, you laid out the two major announcements left that you're targeting, and maybe this is my misunderstanding, but I guess I had kind of thought that the next one was more in Stationary Applications, and it sounds like you described that a little bit differently. Just curious on that, whether I had read it wrong in the past or something has changed to some extent.
Eric, I would say I must have explained it wrong to you in the past. It is more along the way of our traditional Material Handling with obviously a larger retail customer.
Got it. Okay. All right, I guess I'll leave that alone. Maybe that's the official announcement of the third mega customer that you have discussed.
You got it, Eric. The fourth one, as I mentioned, is associated with Hydrogen.
Got it. All right. Maybe last one for me, just United Hydrogen, clearly part of the strategy. I mean is that something that you think -- I mean I know that your fourth targeted announcement has to do that strategy as well. But Aside from that, United Hydrogen, is that something that you potentially can replicate so that you have greater geographic coverage as you roll this out to more customers?
The answer to your question, Eric, you were at the Plug Power Symposium, and one of the items that Tim highlighted was looking for one of the items in the past is production agreements with hydrogen providers, as well as we've talked about more extensive partnerships on the generation side together. I think you can name every hydrogen provider in North America. We are in negotiations for similar type deals. We won't be limited to just that. I think that there's a big push for renewable hydrogen, and we are in discussions with what we would call non-traditional players in this market to work with leveraging both electrolyzers and renewable natural gas to expand our green footprint with hydrogen.
As I mentioned before, our plans in that generation front is really to be part of a partnership, an ownership position, not just a customer of the product.
All right. I'll turn it over. Thanks.
Okay.
Our next question comes from Christopher Souther with Cowen and Company. Please state your question.
Hey, good morning, guys. My first question, I was hoping I could just get a little bit more details on the new subscription program that you guys talked about in the letter. As far as what percent of the GenDrive shipments in the quarter were recognized and how the subscription gets recognized and flows through the P&L over time, if you could give some examples of that.
Paul, do you want to take that?
I guess to try and give you a simple answer on how it works. When a customer accesses our solution with the subscription, it's really like they're doing vendor financing and they're paying us to access the solution over time. There'll be a recurring amount of revenue that goes into our P&L over that duration of that period. When we deploy those projects, we finance them, and today we're financing them with traditional commercial banks and basically doing a sale-lease back. Because of the operating accounting lease rules, it qualifies for sale recognition. We basically are monetizing the project day one and recognizing the equipment revenue associated with selling off that project. Those revenues will show up in our financials as we monetize those programs for the equipment portions of that.
Then again, over the duration of five, six, seven-year term of the Subscription Program, we'd have a recurring revenue in from the customer.
Chris, let me kind of add to that. We've been looking at the way wind and solar were able to grow so rapidly. In 2020, we expect about 20% of our revenue will fall under the Subscription Program. Like wind and solar, we expect the interest rates to rapidly decline over time as Plug becomes more and more competitive. We have been engaging with many banks and with many institutions over how to roll out this program at a larger scale. We believe we are very aggressive about how to grow this revenue more rapidly. Growing revenue more rapidly will increase our margin position, will generate more cash for Plug Power, and that's how we're really thinking about the market.
To kind of follow up on that, was FCA or are there any other pending customers that were waiting for this type of solution? Do you see them kind of joining the program over the next quarter or so? Is that kind of how we should see it?
Who was that? I didn't hear what company you were referencing, Chris.
The Fiat Chrysler.
That is not a subscription model.
Okay, got it. Then to touch on the ENGIE and StreetScooter, the Hamburg, it seems to be a lot of focus on international. Could you talk a little bit about longer term, looking at that 2024 billing guidance of $1 billion. In broad strokes, what do you think Europe and other international markets make up of that? Do you have kind of a good sense of that?
Sure. I would put it in the $200 million range, Chris, with primarily being Europe.
Got it. Okay. Just the last one, with Amazon and Walmart, could you give us.
If you think about what we have already with StreetScooter, that could represent a quarter of it.
Okay. Just year-t o- date with Amazon and Walmart, could you give us a sense of what the percent of revenue thus far is versus kind of the other customers that have grown?
Probably in the 50%-60% range, Chris.
Appreciate it. Thanks, guys.
Okay.
Thank you.
Chris, it'll be lower next year.
Just a reminder, to ask a question at this time, press star one on your telephone keypad. To remove yourself from the queue, press star two. Our next question comes from Colin Rusch with Oppenheimer & Company. Please state your question.
Thanks so much. It's actually Colin Rusch. Guys, as you look at the potential to reduce the cost of capital on that Subscription business and in general, particularly as you get to a sustainable EBITDA positive situation, can you talk about your pricing strategy with customers and how that may evolve and enhance your addressable market?
Well, Colin, let me give you an example that there is opportunities long- term to own certain assets. There's assets like hydrogen infrastructure, which are very, very valuable. In round one, we may have the ability to own those assets at the end of the subscription period. Those assets are extremely valuable to Plug Power. Those assets could be revenue generators for years, just like Hydrogen Generation assets are available for generating cash for industrial gas company for years. I think a lot of our thought process is associated with, especially the value of those hydrogen infrastructure long- term. I think on pricing, we have goals for the business that allow us to get to 20% EBITDA, and that in 2024. Our pricing strategy as we work our numbers today is to support that kind of performance.
Okay. I have a couple follow-ups that I'll take offline. Just in terms of what you're seeing in terms of hydrogen fuel cost reduction, obviously there's an element of scale at this and purchasing power for you guys as the largest consumer of hydrogen. What are you seeing on the technology side in terms of the industry's ability to drive costs lower and the evolution and the cadence of that sort of cost reduction?
Let me give you a reference point, Colin. Yesterday, McKinsey rolled out the U.S. Hydrogen Roadmap. Which 20 companies participated in developing, and Plug Power was one of those companies. The number I'm about to give you is also what was presented the previous day where I'm a member of HTAC, which is the Hydrogen Technical Advisory Committee to the Department of Energy. In both of those presentations, scale, they felt, would drive the total cost of hydrogen, including infrastructure, in the $4-$5 range. If you take a step back, when you think about the fact, especially if you're comparing against gasoline, that's about $2.50 an effective per gallon. If you think about $4 for hydrogen, that puts you about in the $0.06 or $0.07 per kilowatt hour range.
Perfect. Thanks so much.
Hey, it's a great report. If you Google U.S. Hydrogen Roadmap McKinsey, there'll be a website that it'll link you to, and the executive summary is up there today. I know a full description will be up there in the coming days, and I think it really will give people a broad view of what the companies are thinking this market can be.
Thank you. Our next question comes from Craig Irwin with Roth Capital Partners. Please state your question.
Good morning, and thanks for taking my questions. Andy, one of the most-
Good morning, Craig.
Good morning. One of the most interesting pieces of the shareholder day that you had in Albany was the presentation by the man from Deutsche Post, right? Where he showed the chart, range versus payload and how things pencil out for economics of fuel cells versus battery electric vehicles. You've talked a lot about the different things you're pursuing to grow on-road, right? The opportunities over the next couple of years. The same basic analysis also translates into the UAV and aviation environment, right? Where wind is extremely important. You would never have bought EnergyOr unless you believe in a future in that market. We don't hear a whole lot about it on a regular basis. Is there anything that you can maybe share with us as far as an update or progress, plans for this business, and a vision for where this fits in the future at Plug Power?
Craig, I think your description was perfect. The same issue, I'm going to start talking about vertical taxis, aerial taxis, that we see that application almost identical to On-Road Vehicle because of the power density of weight of fuel cells. Those are programs in which you are engaging with people where it's quite long- term. That's not going to be overnight. We're in discussions for people with programs for 2024, 2025. That being said, I think the learnings will be extremely valuable for on-road applications. We have two applications in the aerial space where our team is deeply engaged with customers, I think one of them will be a real surprise.
Okay. We look forward to learning about that. Is there an approximate timeline for us to see that publicly?
Yeah. I would tell you a month, Craig, but months usually turn into months, so I would say in the next six months.
Fantastic. My next question is about the delivered cost of hydrogen, right? Obviously, as the largest buyer of hydrogen, this is an intense focus for you guys over the next number of years, looking to buy hydrogen at the best possible prices for your customers and produce it at the best possible prices. There were some fairly exotic ideas tossed around several years ago, ranging even to purpose-built nuclear reactors for hydrogen production, right? There's a whole spectrum out there. Do you see any particular technologies coming onto the horizon that are ready for adoption within the next five years that can maybe halve the production cost of hydrogen today, and give us a real major tailwind above and beyond what we're seeing in the fuel cell market?
I can say this, Craig. You put in the time frame of five years. As you mentioned, there is a great deal of activity going on how to use nuclear energy, heat, or electricity, because there's so much strain on electricity to generate hydrogen. I listen to presentations from companies like the Southern Company on Monday and Tuesday this week at HTAC. I would say about 30% of the presentations were associated with regard to hydrogen. I think that's probably more than five years out. That being said, I think there's a good deal of activity going on in three areas with, I think, non-traditional players. You see some of the utilities really focusing on RNG to hydrogen, which I don't know if it'd be at scale, but I think it could be beneficial in helping pricing.
I think there's a lot of interest with solar companies to leverage it with electrolyzers to drive down costs. For that to work best, though, I think you need to have sites which are in with 150 mi. You need that generation facility within 150 mi of customers. Third, the practical way we're negotiating near- term is that we're much focused on the spigot cost at the site, then managing with our customers in negotiation what that spigot cost is. Then keeping transportation as a variable. There's also, Craig, work on on-site generation. I think you'll see us doing more of that next year to eliminate the transportation cost. I don't see, as I mentioned, I think the Road Map that was rolled out yesterday with that $4-$5 all-in a kilogram range is probably realistic.
Today, on a variable basis, we're probably between $5-$6 in most cases, depending upon where the site is. You could be a little lower or you could be a little higher, depending on range. I see buying power impacting that more for us, as well as ownership of some of the assets. Did that help?
Yeah, no, that's very helpful. Thank you. Thanks again for taking my questions.
Sure.
Thank you, ladies and gentlemen, this concludes our question and answer session. I'll now turn the floor back over to Mr. Marsh. Thank you.
Well, thank you everyone, and for those who did not attend the Plug Symposium, we have a few minute video which provides some snippets. I hope you enjoy it. Thank you, and looking forward to talking to you for the fourth quarter conference call. We got a big quarter coming.