Plug Power Inc
NASDAQ:PLUG
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Plug Power Inc
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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. [Operator Instructions]
It is now my pleasure to introduce your host Teal Vivacqua. Thank you. You may begin.
Thank you. Good morning and welcome to the Plug Power 2018 first quarter earnings call. This call will include forward-looking statements, including, but not limited to statements about our expectations regarding full year 2018 revenue, deployments of GenKey sites and GenDrive units, gross margin, bookings, liquidity and cash collections in usage, the impact of the Amazon and Walmart relationships and the revenue to be derived from those relationships and our outlook for 2018, including growth, future cost reductions, expansion in Europe, further testing and expansion of applications for ProGen, including opportunities in the on-road electric vehicle market and achieving positive cash flow and gross service margins.
We intend that these forward-looking statements to be covered by the Safe Harbor provisions or forward-looking statements contained in Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties and actual results may differ materially from those discussed as a result of various factors, including but not limited to the risks and uncertainties discussed under item 1A, risk factors, in our Annual Report on Form 10-K for the fiscal year ending December 31, 2017, 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 everyone. The investor letter today provides a clear description of our quarterly performance and our recipe for success in 2018. Our main objective for this year is to achieve EBITDAS breakeven in the second half of the year. To achieve this goal there are four ingredients; one, more product sales such as GenDrive fuel cells and GenFuel hydrogen fueling stations. And two to continue reduction of our product cost.
During the past years we have consistently met our objectives for these two goals. Our challenges have been, three, service costs and four, hydrogen molecule cost. To achieve our service costs in hydrogen molecule fuel cost goals we have detailed plans and have allocated sufficient resources to meet our objectives.
The combination of these items will allow us to achieve our guidance for 2018, which is revenue between $155 million to $180 million and EBITDAS break even in the second half of 2018. We are short term focused, but if not forgotten the future. The investor letter highlights the plans for our high power density metal plate stack, which offers best in class performance.
The initial roll out of this product is scheduled for the fourth quarter of 2018. The stacks with a variety of power ranges will support our next generation ProGen engines. ProGen engines are designed to be easily integrated into airport ground support equipment, delivery vans and the future trucks and buses. Leveraging ProGen engines, integrators can simply interface a fuel cell system to an existing electric vehicles.
These products are applicable to applications across the globe, especially in geographical areas that are establishing hydrogen infrastructure today. As we've said, 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 a day such as forklift trucks, buses and automatic guided vehicles, these markets for Plug Power's targets. This year first and foremost we will meet our EBITDAS goals as well as continue to develop markets for on road applications.
Paul and I are now open for questions.
Thank you. Ladies and gentlemen at this time we will be conducting our Q&A session. [Operator Instructions] Our first question comes from line of Eric Stine from Craig Hallum. Please go ahead.
Hi, Andy and Paul.
Good morning, Eric.
Good morning, just wanted to see if we could talk a little bit about the two 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 third mega customer that you've talked about in the past or is it or is that someone else?
So Eric, it is someone else to answer your last question first. This food retailer is one of the largest food retailers in the United States, so they have a rather large distribution footprint. We're just beginning, the rollout happened in the first quarter. So we - if the value proposition proves out 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 - 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 Spartansburg and we were beginning to find there's a lot of opportunities around the auto companies as we've developed lower cost hydrogen solutions that allow us to go to smaller sites.
Got it and then maybe just sticking with that, I mean the third, that third 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. I can remember - I can tell you with both Walmart and Amazon I thought I had the deals closed six to nine months before they actually were announced and we're going through the same path. We're working with the right people, the right folks in the organizations and with that customer I expect we'll be doing a roll out in the third quarter independent of the mega deal.
Okay, got it. Maybe just turning to - well, sort of remind me, order in backlog.
And we've already by the way are done rollouts with them.
Okay, thanks. Maybe just turning to order, I mean remind me is this something that you're no longer giving orders and backlog.
We did 38 million bookings.
And then just sticking with that, I mean, obviously the ITC?
Right, the prime goal is beating our EBITDAS and just so you know, I mean my metrics for the year are EBITDAS, cash flow and revenue dominated by EBITDAS and cash flows, so that's what the organization is focused on, but obviously to meet the revenue targets you need sales.
Great, 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're working on the package, it was dominated by sales activity. It is - it has accelerated dramatically the funnel over the past two months. So I look at some of the deals that are in this 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 two months with delivery vans as well as airport ground support equipment.
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 impression that you might see a little bit of a build rather than a usage, maybe just your outlook there, how we should think about that the rest of the year.
Yeah, I think it was consistent was 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 being EBITDAS and cash flow, obviously cash flow is tied to working capital, so now are 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. So our primary focus is on delivering the business and doing it profitably, but commensurately we're focused on trying to run the businesses as lean as we can. But we should see some investment in the second quarter as we prepared 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 can touch a bit more on, if that acts 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 up in Q4 and how that plays into it?
Good question 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 vans with FedEx. It's - I would say it's almost performed flawlessly after the first week and it is - in many ways this is an easier application force than the extremes variations we see in forklift trucks. So I would expect that - we've been talking about geographical regions where our products for 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 roll out.
On the stacks and the stacks are really important for both cost reduction and to be able to provide power density that only matched by Toyota in the industry. And that work - we are at the stage where the prototypes will be built during the second quarter, we have samples are running in the lab at the moment and that the initial roll outs will be actually in our forklift trucks, but you know 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 that view is a critical to make packages which are high density, simple for people to integrate and really maximize the fuel that you can put in a product, so we're pretty excited about that.
And for an airport ground support equipment, I probably have five or six 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 deployments and you take a look at the cost of hydrogen infrastructure versus electric infrastructure for fleet vehicles, somewhere around 15 to 20 vehicles hydrogen infrastructure is lower cost and the value proposition becomes much stronger. Hope that helped chip?
Yeah, thanks Andy. And back on forklifts, obviously ITS is got an acceleration, what if we look out in Europe, I think you called out a doubling the car for, how it's traction there, what else you see in that market?
Yeah, so when I look at that market there's really three areas we're primarily focusing, the U.K., France and Germany and all three of those countries have real commitment, 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 U.K. a lot of the activities with retail and I think it's reasonable to expect that over the coming year we'll start seeing doublings 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 it's much more aggressive in Europe and we're - over the past six months Europe has picked up a great deal. We have sales people in Europe, we have service teams in Europe, we are also beginning to look Europe –more European, which I think helps in the process.
Great and then maybe just lastly on the - some decent projects on hydrogen delivery costs this quarter. May be you can talk about how you are tracking on your service and end field costs, how that got into your plans and your confidence in the back half goals on EBITDAS? Thanks guys.
Yeah, so on our internal metrics Chip, we are meeting and targeting towards our hydrogen goals. We beat our goals in the first quarter. With service we were a little bit behind, some of that was due to overtime. But when we look at it, our service business is heavily dependent upon its success on stock hours. And over the past eight weeks actually we've made some significant improvement. So we are very comfortable there, we will meet our service goals for the quarter. And quite honestly it's where 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 back in queue. Thanks.
Our service business Chip is actually very straight forward. It's all about labor and stacks and that's the equation. And if 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 I just kind of follow up of on the new stack and play technology, how critical is that successful launch in terms of timing with the announcements that you made that you hoped to select a JV partner in China? And in terms of - we hear increasingly that payload is obviously one of the biggest issues with commercial electric vehicles trying to expand in the class III, to across class IV, V up to VIII. Just may be you could just talk about timing of those two, whether they are all co-dependent, then I have a couple of follow ups.
Sure. Carter, I - so I think there is a - when I think about it there is short term and long term, I think short term - it's not dependent upon us beginning to roll out products. Long term, I think it has offerings which are valuable to customers and as you mentioned payload. Now, I think product densities, high efficiency, lower cost, which I think metal plate stacks position us for, will be critical for success in 2019, 2020 or 2020 and beyond. So I don't think it's required to launch a partnership in China. I think it's required to establish a successful long term business in the commercial vehicle market.
Okay, has the scope of your discussions with the remaining parties that you have kind of narrowed it down to, has that changed at all? Is it still encompassing in terms of whether you are providing the fuelling stations, but really a total turnkey solution, is that really a fair type acquisition if related to all?
I think that with most, yes. I think there is probably more emphasis on ProGen engines than fuel stations with most. But I would say that if - the discussions have been very systematic and we've been relatively deliberate in these discussions because both the rewards opportunity and the risk. And I would just say, I think we are dealing with four partners who have international foot prints which brings me sum level of comfort.
Okay. Yeah, a high level question, maybe you can or cannot address or may or may not choose to. But given the momentum you are starting to see in Europe, obviously the acceleration business from the ITC beginning to really percolate –bring the third mega deal customer at least beginning the shipments may be even essentially ramping into 2019 and another win in the distribution and then you talked about kind of characterization, some of your suppliers, a lot of customers that you had, some deployments with. I started to believe that you want to grow year-on-year at a high rate in 2019 and we would 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 un-reasonable? I mean, it just seems like hydrogen is really beginning to take over the electric con and in particular commercial electric vehicle space? Just high level comments about how you think 2019 to play out without naturally 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 a conversation for electric vehicles. So I am excited about the potential. For good or bad I am an engineer and I look at the attributes of fuel cells versus the attributes of batteries that I can see where fuel cells have unique advantages. All that being said, it's - so I think that over the next three years, it's going to be strong growth opportunities for all the fuel cell companies and we haven't as an organization and if Board agreed to what those numbers for 2019 will look like. But I think the growth opportunities have never been brighter and I think the growth opportunities now are different because I think the technology is well established and you can count on the performance of the product. And then it's really - and I can see that the commitment on hydrogen is at a different level with those providers than I have seen in the past. I mean Shell has beginning to engage in the hydrogen market more aggressively and the industrial gas companies are large, but Shell is probably 10 to 15 times larger. And if Shell makes hydrogen readily available, I think the opportunities for the market are tremendous. And I think companies like Plug and others in the industry will benefit. So I know I am not giving you exact numbers, but I think we are off the oil head and it's a good time to be in the fuel cell industry.
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 road delivery vans. The ground equipments FedEx and then obviously the delivery vehicles you've done I'm sure that's probably ramping the back part of the year. But in particular with Amazon, are there some types of what you are doing with them that may be outside of the scope of kind of last mail delivery or may be an expansion with them what we typically think about with last mail delivery?
Yes, I really can't say anything more Carter.
Okay, alright. 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 build truck. What's that to do either to galvanize the market or may be potentially even cannibalize drop in replacement, may be your thoughts about how economics would or would not change or even delivery cycles, if you've seeing that in fact it's already?
So if you look at cars - so part of the announcement that we made about a month ago, where we increased the fuel in our class II products for certain applications by 50%. Now, that was done in collaboration with an OEM, so there are certain products where we've been working closely with some OEM's. 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 four, five years out that - so the ProGen's engines that we are developing in our mind are engines which will be easily integrated by forklift trucks OEMs because essentially there are fuel cell on a box and with a high density and high performance they'll be able to put larger and larger fuel cell tanks in and the value proposition gets stronger.
This is huge market so with 6 million forklift trucks out there, five million of them, 4.8 million of them are going to be trucks that can be retrofit and people are going to throw their old equipment out. But I think over the next 15 year period, call it, you are going to go to boxes to where we are in this activity we have going on, where there's levels of integration between the two of us. Eventually Plug is selling both boxes and engines to forklift truck companies. Now if you think about it, I've been - I've talked about this in Investor Day where we are beginning to develop some channels with OEMs. And other folks who are interested in this market who have access; who have access around the world. So I think channels are going to become more important and I think as we are able to support smaller sites the hydrogen becomes easier as well as thinking about our ProGen's as engines which can just snap into forklift trucks.
Appreciate all the details. Andy I'll get back in the queue.
Okay, Carter.
Thank you. [Operator Instructions] Our following question comes from the line of Chris Sutter [ph] 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 can provide a little bit of color on 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 of between third and fourth quarter there?
My take is it's going to be - we would expect revenue to be about equal between the two quarters.
Okay, perfect. And then just on Amazon and Walmart, I just wanted to kind of - maybe have to check up on how many distributions centers you guys have installed since - after this two big deals to date. And can you just give kind of cadence on what the rest of the year looks like as far as those two and also the visibility you guys might have on any of the timing of the warrants?
So I'm going to let Paul take the warrant question and - I can only say what's public [ph] agreed to. Last August we outlined 30 sites every three 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 plan - the Amazon's on plans are. I can't say we are shipping to Amazon now and the roll outs, I think you can - to date you can classify as a success. Paul on the warrants?
Yeah, I think just for a context, Amazon's probably close to 30% end on invested. I think we expected though probably us going forward kind of net - over the next two to three years and 30% on the 200 million, but we'll struggle on to the quantity. It will be over the next three plus years to invest and then Walmart probably through the quantity on their warrants. It's probably in the 15% range and we'll take a few more years just in terms of the pace and in terms of how that structure works. They both invest based on cash payments and just on the nature of the relationship, Amazon buys the systems and Walmart accesses the systems with the PTA structures that they record more over time. So it will take a little bit longer for them to best in terms of their want.
So, Paul when you talk about Amazon being fully invested in three years, it's through the first tranche of 200?
Yeah.
Okay, and then just looking at the provision for common stock warrants, is that something that's going to be 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 it's going to be kind of a larger number like we've seen last year and a couple of quarters?
Sure, so we'll recognize and expense associate with that until each of them is to 600 million 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, so it is something that has to get re-measured from time-to-time and also it's a complicate calculation in terms of how far long they are investing in other attributes, but I think that would characterize it as that we'll have it as a charge until each of them hit that 600 million level. And the scale and size of it will go both with total revenues in a particular quarter in addition to what volatiles there may or may not be in the stock price in the course of the quarter.
Thanks, I appreciate that. I'll hop in the queue.
Thank you. Ladies and Gentlemen that is all the time we have for Q&A today. I would now like to turn the program back over to management for closing comments.
Thank you for joining the call today. I just like to reiterate that we're laser focus on meeting our guidance for the year, both revenue and EBITDAS. Officially, our shareholder meeting is next Wednesday, in New York City, at the Goodwin Procter's office, in the New York Times building, and 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.