Ladies and gentlemen, greetings and welcome to Plug Power's first quarter earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the program, please push star zero on your telephone keypad. As a reminder, this program is being recorded. It is now my pleasure to introduce your host, Teal Vivacqua Hoyos. Thank you. You may begin.
Thank you. Good morning and welcome to the Plug Power 2019 first quarter earnings call. This call will include forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under Item 1A, Risk Factors, in our annual report on Form 10-K for the fiscal year ending December 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 in which the statements are made. 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 for joining the first quarter conference call today. Today, we issued our first quarter shareholder letter, which provides details about our first quarter performance, as well as our outlook for the remainder of the year. Let me start by saying that we are disappointed with our gross billing numbers during the first quarter. Though we shipped 65% more GenDrive units this quarter versus the first quarter of 2018, gross billings were down. It is important to note that the first quarter gross billings declined because of a timing of closing a project financing deal. The deal closed six days post the close of the quarter and represented a significant portion of our revenue gap. A positive in our financials is the improvements of EBITDA versus prior quarter. Even at a lower gross billing level, EBITDA improved by over $3 million, based primarily on lower service costs.
Looking forward, we're expecting gross billings of between $55 million-$60 million in the second quarter, reflecting over 100% sequential growth. The first half is in line with our previous guidance or approximately one-third of our revenue in the first half. Today, we are reiterating our guidance for the year, $235 million-$240 million in gross bookings, positive EBITDA for the full year 2019, and four major announcements during the year. Some of our announcements are tied directly to our ProGen work. In the first quarter, we launched our new 30-kilowatt ProGen hydrogen engine for mobility applications. The ProGen product line offers a pre-engineered modular and scalable architecture that makes it simple for use by customers. The offering reiterates Plug Power goal of playing a meaningful role in ongoing vehicle electrification on a global basis.
Our modular ProGen hydrogen engine provides distinct advantage over battery electric vehicles, especially in applications which require high asset utilization as well as long range. The offering is starting to generate considerable customer interest globally. One of the four major announcements will be associated with our ProGen line and will be announced in May post our customers' announcements. Contracts have already been executed for this program, and we look forward to sharing more information in the near future. I'd like to open the line for questions.
Thank you. Ladies and gentlemen, at this time, we will now be conducting our Q&A session. If you would 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 pull for questions. Our first question comes on the line of Eric Stine with Craig-Hallum. You are now live.
Hi, Andy.
Good morning, Eric.
Good morning. I'd love to ask more about the EV announcement that's coming in May, I suspect that that's one I'll just have to wait on. Maybe just on the other three announcements that you had targeted, I believe in the past, you talked about a distributor, industrial gas company, and then the third potentially being stationary. I know it's been a couple of months, but how has your view of those opportunities changed or taken shape and your thoughts about all of those in 2019?
Sure. I think the word distributor is underestimating the partnership.
Okay.
I would expect that announcement will be in June. Where we are in the programs and the activities, I've met with them numerous times. It is someone with a huge global footprint that would give us a reach that we never had in the past. Again, we are looking to close the first major deal with them, and we're going to use that as the opportunity to make the announcement. That's proceeding. On the stationary power front, I actually think that will happen beginning of the third quarter. Again, I've had personal meetings with them and gone through with their CEO, their program. It's a company much larger than Plug Power, who has been active in the fuel cell space. Looking to position products more in the third world and really excited about it. I've been quite impressed with the activity.
There is lots of activities going on at hydrogen, and I think that third, fourth quarter, we will be making that announcement. Look, I have a funnel of announcements, so I know I have four in my pocket, and I hope to be announcing more. It's a good time to be in the hydrogen industry.
Yep.
I had Sanjay Shrestha to join us recently, and he told me that he was down at the recent AMR, and there were over 1,000 people engaging in hydrogen discussions. Sanjay pointed to me, it felt like solar in 2007, on the verge of reaching out. He talked to me about going to hydrogen conferences before and how it felt like a family affair, and it doesn't feel that way to him today. I think that says a lot about the growth and opportunities in the industry.
Got it. Clearly, next question here, not one of the four major announcement, but just wonder how it helps you, the partnership, I guess, announced within the last month with Chem for the stationary piece. I know it's a little different, but it is targeting some of the same markets, third world. Just wondering how that helps you, how you see the opportunity with that partnership.
Chem is really focused on South Africa and Sub-Saharan Africa. We have met with folks in the Energy Ministry in South Africa over the last week and a half in D.C. Not only were they well up to date on the activity going on in Chem, but kind of outlined their support and their relationship with Chem. They see a large opportunity developing and brewing in South Africa. We think there could be substantial revenue in the back half of the year associated with Chem and that activity.
Got it. Maybe last one for me, just kind of bookkeeping or financial. It looks like R&D this quarter, lowest level that we've seen in quite a while. Just curious, is that kind of a new run rate as some of your programs in the development, those are more mature? Or is this something that's more of a blip and we should see it returning to previous levels?
Paul, I'll let you answer, but I think primarily it's associated with probably less material used by the R&D association in product development. I don't expect the run rate for R&D to decrease. Paul, do you have any comment?
No, I think that's right, Andy. I think we haven't seen it grow tremendously in the last year or so. There's ebbs and flows, but I think this is just a bit of a timing thing in the quarter. I think next quarter will be back to our normal run rate.
Okay. Got it. Thank you.
Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer & Co.. You are now live.
Thanks so much, guys. As you move out of the warehouse business into adjacent markets with material handling, can you talk a little bit about the sales funnel and the pipeline and the cadence of moving that into billings and bookings?
Yeah. Colin, we have a board meeting today and tomorrow, we're really just beginning the big push on this activity. Quite honestly, I am stunned by the level of activity that we're beginning to see. I think there's probably 10 or 12 programs we're actually talking about at our board meeting today, later in the day. The first announcement, I think, will be somewhere in the $30 million-$35 million range. I look at the opportunity, as it grows, it could be significantly larger than that. The funnel is growing. I think part of the challenges, I see the activity more in Europe, quite honestly, in Asia than the U.S.. I think in the U.S., the FedEx program has been Last week in D.C., it was probably the star program about the progress that Plug has made.
I think one of our challenges is that finding the right system integrator, FedEx has actually made some introductions to us to find someone that not only can build the products. Our uptime of that product's been probably close to 99%, we went through the harsh winters. I think the real challenge is finding someone who FedEx has worked with who they can count on to provide the aftermarket service. One of our challenges is, quite honestly, Plug's had to provide all the aftermarket service, even for the vehicle itself, because the partner has been weak in that area.
Okay. That's super helpful. Just looking at the balance sheet with the new financing, can you just help me understand how the restricted cash is going to trend and when that gets freed up going forward? It's a pretty sizable amount. Would love to just understand how we start to see that become available for you guys for operational uses.
Yeah. The bulk of it will get released, if not majority of it, in the next 4 years. Think about it like about a $20 million-$22 million runway rate of release. It parallels the underlying project agreements that are associated with that. The particular structure we have with the key PPA customer and the bank, it puts it on about a 4-year amortization period. We've got some legacy programs and we got some new ones, but the combination puts them on a blended kind of 4-year amortization program. That money will go to effectively service the principal and interest on our debt facility. Our project lender, Generate Capital, basically looks at that as a very interesting project investment opportunity, and they basically look at it as having back-levered existing programs in place and financing that.
It's about $20 million-$22 million this year, is the way to think about it.
Okay. I'll take some questions around collateralization and a few other things offline. Thanks so much, guys.
Thanks, Colin.
Thank you. As a reminder, if you'd like to ask any questions, please push star one on your telephone keypad now. Our next question comes from the line of Amit Dayal with HC Wainwright. You are now live.
Thank you. Good morning, Andy. Good morning, Paul.
Good morning, Amit.
You're maintaining guidance for the year. However, sort of reading between the lines, you seem very optimistic about the pipeline building, et cetera. This guidance is not dependent on any of the announcements potentially coming in the next few quarters? Once these announcements hit, do you expect to potentially raise guidance?
Amit, the answer to your question is our guidance is not based on these announcements. There may be a little bit of the revenue associated with that. Look, I think if you go back historically, we've been really good about meeting our revenue guidance. This represents 30% growth. If the opportunity comes and we think it makes sense, we'll do that. I think it'd be premature at this time. I've been very cautious about revenue guidance, and I'm not going to become overaggressive. Last year, we bumped it a little in the fourth quarter because we saw what we were going to do in the quarter, and we had three quarters in our back pocket. If the time comes, it makes sense to bump it up, we will.
There's ebbs and flows in the world, and I think that it doesn't hurt to have something in our back pocket for a rainy day.
Understood, that's fair. Just looking at the unrecognized portion of the GenDrive shipped this quarter, will inventory, et cetera, normalize, going into, say, the second and third quarters? Or do you still expect to maintain certain high levels of inventory for the next few quarters?
Yeah, I think the combination of the programs that rolled over, there was inventory, finished goods associated with that. Plus, the build going on for second quarter and the balance of the year is what really drove the investment in inventory in the first quarter. Yeah, I expect it to tailor off as we deliver those programs, and then that number will come down. Our goal long term is to run it as nimbly as we can. We'll continue to focus on driving that inventory down, and I expect by year-end, it'll be back in the normal range.
Understood. Just one last one for me. On the fueling sites, we are at around 72, I think, currently. How many should we see maybe added on top of this by the end of the year?
I think in the 20-25 range.
Okay. All right. We should be touching almost 100 by the end of the year?
I think that's good. I haven't been thinking about it on that level. You are absolutely right, Amit. I've been just focusing on 235 to 245 and EBITDA break even. I think you're right on the money.
Thank you. That's all I have.
Thank you. Ladies and gentlemen, as a final reminder, if you'd like to ask any questions, please push star one on your telephone keypad now. Our next question comes from the line of Jeff Osborne with Cowen and Company. You are now live.
Great, thank you. Good morning. A couple of questions on my end, Andy. Maybe just following up with Amit's question on the hydrogen sites. I saw it was flat. Were all your shipments to existing sites this quarter? No new distribution centers built out?
We have a couple that are in the process. I think there's about three that will roll into the second quarter. There weren't any new builds, Jeff, but there were, if you know what I mean, there's whip.
Got it. Then, is there a way to quantify the six-day lag with the financing? If that had been in place by March 31st, what that unit number would've been or revenue exposed to that, A. Then the B part of the question is, what happened with the prior facility? Are these better terms for your customer, or was the prior facility expired? I hadn't followed the dynamics there.
Well, first of all, on your question, there was a couple of programs. Then collectively it was about $10 million. This was the biggest of it. It was the majority of it and kind of $7-plus million range. Some of the other ones closed on the heels of that as well. In terms of really the driver, overall there's many factors that drive this: timing, construction, delivery, the customer needs and what they've got going on in their facilities. Then you've got the banks and other players in the market. It's just sometimes, these are long lead cycles, three, four months, and sometimes it's just hard to corral everything to happen at one time. I don't know that there's necessarily one particular driver.
We continue to push and push to try and make those processes more nimble and more efficient so we can drive them with the shorter lead times.
To be straightforward, Paul, I think we started to work this in early March.
Yeah.
I think the bank administratively, just because maybe of some of the other issues they had nothing to do with Plug. It just slowed down the internal processes.
That's helpful.
We actually gave it the normal lead time, Jeff, we would've thought we would've been closed by the third week of March. It just didn't happen.
Okay. For the rest of the year to hit the delivery guidance or the revenue guidance, is there any major new structures or financing partners that are needed for that delivery cadence?
No, we're working with the same partners that we have.
Okay. Got it.
I think Yeah.
I think this quarter had a little bit of a hump, but we have a clear view of how it plays out for the remainder of the year.
That's good to hear. A few other ones on my end, if you don't mind. On the fuel side, gross margins certainly have deteriorated. Can you just talk about what's transpiring on the fuel segment? Is that also just the whip that you were referring to in the quarter? That you had purchased a bunch of fuel and hadn't been paid for it because the sites weren't built out, and more of a timing issue, or is there something structurally that's going on the fuel delivery side?
No, I think there's ebbs and flows. I think directionally, our efficiencies continue to grow, and I think you're just going to see some ebbs and flows as time goes on. We are investing in incremental equipment to drive some of that efficiency, so you see some non-cash depreciation starting to kick in, which might have affected some of the timing of it. You have timing of ebbs and flows with the customers in terms of usage and leverage on those existing assets. Even though it's down, I expect it will continue to trend overall in the right direction, and I think as the year goes on, you'll see that continue to improve.
Got it. Two other quick ones here. In the shareholder letter, there's reference to the cash flow guidance coming down due to receivables that you call out. Is that due to what Colin was asking in the $20 million-$22 million amortizing over four years and just the collection of that? I'm just trying to understand what the moving pieces are on receivables that would impact cash flow. Is that from the financing structure or some new terms with your customers? That was unclear.
I don't think we've actually. To be honest, Jeff, we haven't given operating cash flow guidance before. This was an attempt to try and provide some color around that, particularly given some advice and help with the SEC in terms of how to talk about our results. I think we're giving some flavor around that. What I do think is that, as we've seen, the timing of deployments and the collection of cash can play havoc on our quarter-end numbers. Our goal and effort, as it always has been, is to drive to close those things as timely as we can. That's why we're just saying that the timing of that can affect it. The restricted cash doesn't really play into it because that doesn't necessarily show up in our operating cash flows.
With the new presentation that started about a year ago, it shows up in cash overall, and whether it gets released or doesn't get released, it shows up in my cash position. That's not necessarily the issue. It's really just a factor of timing between collections. I think that's why we're given the range that we are, is if you put it in context with our EBITDA numbers, just to give you some reference there.
Got it. The last one, if I could, Andy, for you, just on the mobility side, certainly you highlighted FedEx and sort of the delivery van market. Can you just talk about the level of enthusiasm you're seeing? Is it all in that sort of sub 150-mile range, return to base, the class 4 to 6 market, or are you seeing any development efforts on your end for class 8? I was just curious on the long-haul side.
Sure, Jeff. I am focused today on class 4 to 6. As our plants have rolling out offerings that would address class 8 trucks, we do think there is a Look, where do fuel cells make sense? It makes sense in heavy asset utilization applications where payload's important. I know in these delivery vans, we have some data that shows the payload can be 50%-60% more versus battery electric vehicles. We're seeing a good deal of interest there. More globally than I would say domestically at the moment. Our offering will continue to expand. Our metal plate stack using our own membranes is what we've been putting into these delivery van products, we don't see any issues how to scale it up. It's actually not the stack.
It's items like compressors and other items that we spend the most time on as far as product development to really have a simple package for people to use. We do see interest there and look, like other folks, we are looking at a variety of different applications trying to leverage scalable modules to make it simpler for customers. One highlight, I actually started, and I'm going to say we actually started with the most difficult market first. I am amazed by how simple these class 4 to 6 delivery vans are versus going into material handling equipment where it's minus 40 degrees Fahrenheit, or actually minus 30 degrees Fahrenheit, where it's no shock and vibe on the unit, where you're driving outside from cold to warm, and you're putting on as many hours as a car will see in a year.
This app is actually ideal, and the learning we've had all over the years has made this a much simpler experience than I ever had in material handling. All that work, all that value, I can see translating easily into these other markets versus my previous experience.
Makes sense. I appreciate the thoughts. Thank you.
Great.
Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to Andy Marsh for closing.
Sure. Just a reminder, our shareholder meeting will be held tomorrow at 10:00 A.M. at Goodwin Procter's office at 620 8th Avenue in New York. It's a The New York Times Building. During the shareholder meeting, I look forward to giving a presentation in detail, which provides our full year guidance as well as our expected growth in material handling, and also the exciting work we have ongoing in the electrification of transportation. For those who cannot attend in person, it is webcast, and it's available at www.plugpower.com, and I hope you find the opportunities to stream the proceedings. Thank you, everyone.
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time and log off your computer. Thank you for your participation, and have a wonderful day.