Earnings Call: Q1 2019

May 7, 2019

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. 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 Q1 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 ks for the fiscal year ending December 31, 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, 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 for joining the Q1 conference call today. Today, we issued our Q1 shareholder letter, which provides details about our Q1 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 Q1, that we shipped 5% more GenDri units this quarter versus the Q1 of 2018, gross billings were down. It is important to note that the Q1 gross billings declined because of the timing of closing a project financing deal. The deal closed 6 days post the close of the quarter and represented a significant portion of our revenue gap. A positive in our financials is the improvement of EBITDA versus prior quarter. Even at a lower gross billing level, EBITDA improved by over $3,000,000 based primarily on lower service costs. Looking forward, we are expecting gross billings of between $55,000,000 to $60,000,000 in the second quarter, reflecting over 100% sequential growth. The first half is in line with our previous guidance and approximately 1 third of our revenue in the first half. Today, we are reiterating our guidance for the year, dollars 235,000,000 to $240,000,000 in gross bookings, positive EBITDA for the full year 2019 and 4 major announcements during the year. Some of our announcements are tied directly to our ProGen market. In the Q1, we launched our new 30 kilowatt ProGen Hydrogen engine for e mobility applications. The ProGen product line offers a pre engineered modular and scalable architecture that makes it simple for use by customers. The offering reiterate 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 officer is starting to generate considerable customer interest globally. 1 of the 4 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. Now, I'd like to open the line for questions. Our first question comes from the line of Eric Stine with Craig Hallum. You are now live. Hi, Andy. Good morning, Aaron. Good morning. I well, I'd love to ask more about the EV announcement that's coming in May, but I suspect that that's one I'll just have to wait on. But maybe just on the other three announcements that you had targeted, I believe in the past you talked about distributor, industrial gas company and then the 3rd potentially being stationary. Just maybe I know it's been a couple of months, but how is your view of those opportunities changed or taken shape and your thoughts about all of those in 2019? Sure. And I'm even going to I think the word distributor is underestimating the partnership. Okay. I would expect that that announcement will be in June. And where we are in the programs and the activities, I've met with them numerous times. And there's someone with a huge global footprint that would give us a reach that we never had in the past. So again, there we are looking to close the first major deal with them and we're going to use that as the opportunity to make the announcements. So that's proceeding. On the stationary power front, I actually think that will happen beginning of Q3. 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. So and looking to position products more in the 3rd world and really excited about I've been quite impressed with the activity. And there is lots of activities going on to hydrogen. And I think that 3rd, Q4, we will be making that announcement. Look, I have a funnel of announcements. So I know I have 4 in my pocket and I hope that the announcing more. It's a good time to be in the hydrogen industry. Yes. It's I had Sanjay Shrestha 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. And Sanjay pointed to me, it felt like solar in 2,007 on the verge of reaching out, talking about going to hydrogen conferences before and how many it felt like a family affair and it doesn't feel that way to them today. And I think that says a lot about the growth and opportunities in the industry. Got it. Well, and clearly, next question here, I mean, not one of the 4 major announcement, but just wonders or wonder how it helps you the partnership, I guess what, announced within the last month with CHEM for the stationary piece. And I know it's a little different, but it is targeting some of the same markets, 3rd world. So just wondering how that helps you, how you see the opportunity with that partnership? So we not only have we CHEM is really focused on South Africa and Sub Sahara Africa. And we have met with folks in the Energy Ministry in South Africa over the last week and a half in DC. Not only were they well and up to date on the activity going on in CHEM, but kind of outlined their support and their relationship with CHEM. And they see a large opportunity developing and brewing in South Africa. We think there will be there could be substantial revenue in the back half of the year associated with CHEM in that activity. Got it. And maybe last one for me, just kind of bookkeeping or financial. It looks like R and 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 has you've gotten 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 and D Association in product development. So I don't expect the run rate for R and D to decrease. Paul, do you have any comments? I 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 think this is just a bit of a timing thing in the quarter. So I think it'll next quarter, it'll be back to our normal run rate. Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer and Company. 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? Yes. So Colin, we have a board meeting today and tomorrow. And we're really just beginning the big push on this activity. And 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 our Board meeting today later in the day. The first announcement, I think, will be somewhere in the $30,000,000 to $35,000,000 range. I look at the opportunity, but it actually could be as it grows, it could be significantly larger than that. We the funnel is growing. I think part of the challenges in the and I see the activity more in Europe, quite honestly, in Asia than the U. S. I think in the U. S, one of 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 and FedEx has actually made some introductions to us to find someone that not only can build the products and power up time of that products from probably close to 99% and we went through the harsh winters. But 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 One of our challenges is quite honestly, plugs 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. And then 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. I would love to just understand how we start to see that become available for you guys for operational uses. Yes. So it's the bulk of it will get released, if not majority of it in the next 4 years. Think about it like about a $20,000,000 to $22,000,000 run rate of release. It's parallels the underlying project agreements that are associated with that. And the particular structure we have with the key PPA customer and the bank, it puts it on about a 4 year amortization period. So that's we got some legacy programs and we got some new ones and 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, basically looks at that as very interesting project investment opportunity, and they basically look at it as having back levered existing programs in place and financing that. So but it's about $20,000,000 to $22,000,000 this year is the way to think about it. Okay. And I'll take some questions around collateralization and a few other things offline. Thanks so much, guys. Thanks, Collyn. Thank you. Our next question comes from the line of Amit Dayal with H. C. Wainwright. You are now live. Thank you. Good morning, Andy. Good morning, Paul. Good morning, Amit. So you're maintaining guidance for the year. However, sort of reading between the lines, you seem very optimistic about the pipeline building, etcetera. So this guidance is not dependent on any of the announcements potentially coming in the next few quarters. And once these announcements hit, do you expect to potentially raise guidance? So 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. But look, I think if you go back historically, we've been really good about meeting our revenue guidance. There's no reason for us to this is represents 30% growth. If the opportunity comes and we think it makes sense, we'll do that. But I think it'd be premature at this time. And so I've been very cautious about revenue guidance and I'm not going to become over aggressive. And last year, we bumped it a little in the Q4, because we saw what we're going to do in the quarter and we had 3 quarters in our back pocket. If the time comes, it makes sense to bump it up, we will. But I want to have 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. And that's fair. Just looking at sort of the unrecognized portion of the GenDrive shipped this quarter, Will inventory, etcetera, normalize going into, say, the 2nd and third quarters? Or do you still expect to maintain certain high levels of inventory for the next few quarters? Yes. I think the combination of the programs that rolled over, there was inventory finished goods associated with that plus the build going on for Q2 and the balance of the year is what really drove the investment in inventory in the Q1. But yes, I expect it to tailor off as we deliver those programs, and that number will come down. And our goal long term is to run it as nimbly as we can. So we'll continue to focus on driving that inventory down. And I expect by year end, it will 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, on top of this by the end of the year? I think in the 20 to 25 range. Okay. All right. So we should be touching almost 100 by the end of the year? I think that's good. I haven't been thinking about it in that level. You are absolutely right, Amit. I've been just focusing on $235,000,000 to $245,000,000 and EBITDA breakeven, but I think you're right on the money. Thank you. That's all I have. Thank you. 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. Yes. We have a couple that are in the process. And I think there were I think there's about 3 that kind of roll into the Q2. So there weren't any new builds, Jeff, but there were if you know what I mean, there's WIP. Got it. And then is there a way to quantify the 6 day lag with the financing, what if that had been in place by March 31, what that unit number would have been or revenue exposed to that, A. And 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. Yes. I think, well, first of all, on your question, there was a couple of programs and then collectively it was about $10,000,000 This was the biggest of it. It was the majority of it in kind of $7 plus 1,000,000 range. Some of the other ones closed on the heels of that as well. But in terms of really the driver, these overall, there's many factors that drive this, timing, construction, delivery, the customer needs and what they've got going on in their facilities. And then you've got the banks and other players in the market. So it's just sometimes these are long lead cycles, 3, 4 months, and sometimes it's just hard to corral everything to happen at one time. So I don't know that there's necessarily one particular driver, but 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. So to be straight forward, Paul, I think we started to work this in early March. Yes. And it was I think the bank administratively just because maybe some of the other issues they had, had nothing to do with plug. It just slowed down the internal processes. Okay. So we actually gave it the normal lead time, Jeff, and we would have thought we would have been closed by the 3rd week of March. It just didn't happen. Okay. But for the rest of the year for 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 exact same partners that we have. And I think, yes. Okay. Got it. Yes. We got I think this quarter had a little bit of a hump, but we were 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 or 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 noncash depreciation starting to kick in, which might have affected some of the timing of it. But then you have timing of ebbs and flows with the customers in terms of usage and leverage on those existing assets. But 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. And then 2 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 $20,000,000 to $22,000,000 amortizing over 4 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. Yes. 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. And so I think we're given some flavor around that. What I do think is that as we've seen that the timing of deployments and the collection of cash can play havoc on our quarter end numbers. And our goal and effort is, as it always has been, is to drive to close those things as timely as we can. And so that's why we're just saying that the timing of that can affect that. The restricted cash doesn't really play into it because that doesn't necessarily show up in our operating cash flow. So 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. So that's not necessarily the issue. But it's really just a factor of timing between collections. And so I think that's why we're given the range that we are, is that we if you put it in context with our EBITDAS numbers, just to give you some reference there. Got it. And then the last one, just to give you some reference there. Got it. And then 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 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-one hundred and 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. So I am focused today on Class 4 to 6. But as our plants have rolling out offerings that would address Class 8 trucks, We do think there is a look, where the fuel cells make sense, it makes sense in heavy asset utilization applications where payloads important. I know in these delivery vans, we have some data that shows the payload can be 50% to 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. And we don't see any issues how to scale it up. There's actually 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. So 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. And one highlight, I actually started, 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 degree F or actually minus 30 degree F, 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 act 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. But 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. 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 o'clock at Goodwin Proctor's office at 628th Avenue in New York. It's a New York Times building. And 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 and transportation. For those who cannot attend in person, it is webcast and it can be it's available at www.plugpower.com. And I hope you find the opportunity to stream the proceedings. So thank you, everyone.