Q1 2020 Earnings Call

You supporting our Center customers in food retails and internet sales has been stellar and business is essential Distributing retail food in the US during the crisis more than 30% of the feeding people's Cable in the United States need through plug power's products. We've also see a seasonal increase for internet retail customers receive free spirit. Will you be able to keep a rep time our customer site to well over 99%

This crisis has highlighted the value of our solution what it brings to customers and during the past quarter. We've seen unforeseen orders to accelerate deployment with some of these customer this allowed the company reiterate our guys of three hundred million dollars in Gross bookings for the year and twenty million dollars in Eva. I also took the we are in a sector that will remain successful during and post this crisis. I and many others believe online shopping will accelerators resolve this experience a segment are solutions brings the most value. So we continue to execute on our five year plan. We released a high-powered 825 kilowatts Tak won't positions plug on road and large-scale backup power markets.

Even during these unusual times discussion and some testing continues.

As you can imagine quite excited about our plans as we execute our hydrogen strategy that was laid out at the Plug Power Symposium this past September did not match the pending transaction to acquire United hydrogen in the united hydrogen operates a low-carbon 6 and 1/2 * liquid hydrogen plants a dead that was soon be expanded the ten-ton this represents 25% of our hydrogen usage by year end and we'll support improvements in our hydrogen margin month. We also have a letter to 10 to require electrolyzer company plan to build this business into one of the leading electrolyzer companies in the world. If you recall when we bought a new years ago plug took a method in the a company that is now the largest manufacturers of any Aid in the world.

We plan to do the same with this.

acquisition

finally you may have seen the generate Capital are trying to read it providers has doubled our line of credit while simultaneously dropped our interest rates by 3.5%. This is a testimony. The depth of that news. The company will meet incredibly difficult times recognize a plug power would continue to thrive am willing to take these unusual success steps to support the continued great and plug power pole and I are now more than happy to take your questions.

Like whenever he comes out to your question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your lines in the question queue. You may start to if you'd like to remove your question for the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one. One moment, please while we pull up for questions about our first question today is coming from calling Rush from Oppenheimer. Your line is now live. Thanks so much guys, and so the first question is really about the guys, you know, obviously getting you guys pretty great visibility coming out of the fourth quarter into Revenue this year. So I wanted to get an update on the mix of customers with you know, underlined that guy and and then sort of visibility to have their support that from an order perspective at this point.

To reply. So at the moment, we have two hundred ninety million dollars of the three hundred million dollars in the past. So he'll very very concrete guidance to give you a field. Usually at this time. It's about seventy-five percent of what we expect what we've seen since the last call is there has been somewhat it's change. I'll say in the mix, you know, I mentioned that the food retail and as well as Internet retail that we have or see new orders during the first quarter while we see a Slowdown not a cancellation by slowdowns requirement for some of our auto companies that we do business office, which is not surprising. So we have a great deal of visibility and a great deal of confidence in the numbers and you know, just you know what I look at the phone number.

To allow us to close the ten million dollar Gap every confidence level, you know fair to say extremely high.

Perfect. And then, you know looking at the balance sheet, it's good to see some some additional liquidity there and flexibility, you know, obviously you guys have a certain amount of restricted cash still on the book you talk a little bit about your options for reducing that that will restricted cash and and how much progress you you made a move that forward.

Sure.

I'm going to let Paul take that question Paul.

Tu Randi and thanks for calling. I think well good news is is we've disclosed previously we've signed into a much more robust wage structure with one of the key customers that these program finances are associated with and now we're already making significant progress and if we're get you know, 70 80,000 of the cash they won in those transactions. They're still love it. They could set aside that we kind of equate to the long-term service piece. But you know, the majority of the proceeds are available to us they won and I think I'm going to see and and even new customers that were working with. Uh, we've got structures that were we're using they're kind of like vendor financing programs where we're getting the, you know the wage to get the majority of that cash up front there. So I think you definitely going to see that number come down over and over the near-term with the offset of that fact that you know, the Wilbur

Some incremental layers just cuz we do more programs and and since most of the customers, you know, including those in the EPA program continue to grow their scope, you know, there will be some some upward amount of general, you know, we're a much better position today with with these structures and continue to make progress on the you know, putting forth, you know structures to give us the majority of the cash. These transactions are not disclosing it turns around these Acquisitions, but just the fact that you're being Club. Do you have a sensor or magnitude, you know an implant around financing those, you know, your your public currency is kind of pretty good run. But, you know, are you home with all all cash? Are you searching through with all Equity? It gives a sense of kind of drop shouting process at this point.

So I think when it's it's fair to say that, you know, obviously these transactions have not closed yet wage, but I think it's fair to say that it'll be a combination of cash shares as well as that.

Perfect, all right guys. Thanks so much.

So next question today is coming from Jeff Osborne from Calvin and Company or Line is now live.

Good afternoon guys a couple of questions one in into q&d. I was just curious in the current quarter that we're in. We're there any limitations around, you know, getting into college sites around, you know, setting up new distribution centers that we should be aware of. I know your reader and guidance for the year, but I wasn't sure if it's more back in loaded because of social distancing.

actually

YouTube question she asking ask actually the second quarter busier than we especially the third quarter that we expected. Luckily. We can start thinking about food distribution internet distribution often easier in areas, which are low population life and the challenges of social distancing bond is difficult. You know, usually they're located 6100 Mi outside major cities Thursday. We're in the next 2 quarters. I bet it's 20 sites were bringing on Jeff the many of those permits. We've actually done virtual we're home, you know, we've used face times and other elements working with the local authorities. So, you know, we haven't it's really good question. It's one I've seen dead.

Just moved to 3 weeks out but they like seeing activities move in, you know, which I mentioned before, you know, the auto companies. We had a couple of programs going on a Chrysler that will continue and that obviously got pushed out a bit because of because of the crisis here, but I think it's geographically where these sites are. Um in combination you can do a lot of it, you know, the social distancing and the discipline besides is probably not as challenging since birth. And we do a lot of these builds with in Latham itself where we build them on skids Jack which you know, really limits the level of work that has to be out on the side walk. It is something that you know, especially on the early days of the crisis. I was really worried about

But it would seems things are running relatively smooth. That's great to hear. I just had three other ones. So I appreciate the detailed response or you can certainly be briefer. So a couple quick ones here the the commercial vehicle strategy, you know, lightening systems Etc. Do you see yourself in three years, you know selling direct to like an emerging issue such as them or do you want to be selling to a tier one supplier? I'm just trying to think about how the model changes for you relatives to, you know directly to the end user like an Amazon or a Walmart or Home Depot.

So, you know, we have a good relationship. So I want to ask you a quick Jeff. So the answer is both of them is yes, we see ourselves selling directly to me n t r ones as well as selling the integrators and one of the advantages of the relationships with people like Walmart on Amazon for example, is that they're more than willing to introduce us to the tier-one oems and recommend us as well as their preferred integrators.

Got it. That's helpful.

And then on generate the maybe this is out there in the ten Q, you know as that comes out, but you know, can you talk about the metrics that they looked at 2 to double, you know the availability and obviously lower the range. Is there any covenants that we need to be aware of around that facility itself?

I got Paul take that one. Yeah, well, they have you know formula that they the one we do have a covenant looks at home or a BL value of our assets and they also have an advanced formula get the restricted cash pools. But to be honest, I mean I think you know, there's a unique fun because unlike a lot of energies really don't have a lot of covenants and restrictions on our facility. They really get too into understanding the Enterprise and our Pipeline and the markets and the products that we sell and it's just basic phone not a you know, the faith that they have in us and what we're doing and the continued growth that we've we've continued to show and the growth of our overall portfolio so long, you know, they they recognize that you know, as we continue to grow this company now passing into the positive evidence, you know area and continue to grow from there that

We we rightfully should be able to access a lower cost of capital structure. So this is a as his part recognition of that as well. As you know, trying to make sure they're positioned to be a part of this ongoing opportunity, which we're excited to have them be a part of definitely makes sense. And my last question probably for you Andy on the electrolyzer sidekick, you just talk about the the technology itself. There's been a lot of developments in terms of you know, multi megawatt scale a lot of price compression in that industry debates about alkaline vs. Pem. Um, you know, how can the other Acquisitions you've done? I would sort of put in the camp of you bought a diamond in the rough on the cheap and then, you know, really integrated them well to to become integrated and drive down costs. I don't get the sense that that is what you're doing here given that you're you're Levering up and using cash and stock. So, can you just talk about you know, how you assess the technology changes?

Was out there and you know future-proofing the the cost curve cuz there's been a lot of developments in that sector in particular.

Sure, so that Jeff when we took a look at you don't.

My dozen year Plug Power. I usually always start with a few customers one and my leading customers and we're doing some electrolyzer deployments this year. And when we look at that, our customers want to have a Greener footprint and I certainly, you know lose an opportunity when we looked at the sell products through our present channels. We also took a step back and thought about what an electrolyzer really is and it is a fuel it's a fuel-cell essentially running in reverse. And if you take a look at the capabilities we have in any a Manufacturing in system integration. It looks a lot like what we've got and that we can wage.

tribe down the clock

Considerably using the buying power that we've developed. We believe that on green hydrogen and the coughing electrolyzer to continue to go down and because of our scale, we believe we are in a very strong position to be a leader in a look when I look at it also that there's a huge opportunity as you know for electrolyzer globally, especially in your know Europe the European commission has announced plans between Europe and Africa to deploy over 18 gigawatts of electrolyzer by 2030 and I think with our fundamental a cost Advantage cuz the scale cause of our marketing reach with our sales teams, especially in the United States and Africa the United States and Europe as well as our relationships wage.

Customers who want Greener Solutions, it looks like it's just a natural fit.

Gotta make sense. Thank you.

No.

Thank you for next question is coming from Chris Van Horne from B. Ravi fpr your line is now live.

Good afternoon. Thanks for taking my call and hope everyone is doing well.

Thanks Chris. So I just want to touch on the 2024 targets. It seems like those are still intact. I don't want to just you know, get an update. Do you still see kind of the similar break out in terms of your Market opportunity that you highlighted from commercial vehicles et cetera and then was Acquisitions part of that plan or were these days with the Acquisitions that you're thinking about now kind of incremental to that?

City answer that question Chris is let me go through a couple of questions there. When I look at the 2024 plan, you know, I probably would you know almost bundle large-scale backup power with all vehicles both which uses similar technology in between a segment. We identified about a quarter billion dollars by Twenty twenty four. And you know, I probably my perspective at the moment is large-scale backup power may be larger than I expected and it's Andres vehicle is maybe slightly lower than I expected just because of the engagement we've been having and the speed of development in those two areas, you know, so that's kind of my view there. You know, when I look at, you know, the total commitment for twenty twenty four month.

Part of the margin Improvement building was associated with having our own ability to generate hydrogen. So in acquisition like United and further appointments really helped us more and large inside. I think as we talked about the electrolyzer market and as active adults, I think we'll try sharing up updated targets throughout the year about what we think is possible.

Great got it. And then, you know part of your value proposition and our view is that you know you offer a cost savings and certainly given the current environment. Are you having more conversations with you know around how you can be a cost saver for for some of your customers and and have you kind of seen those increased over the past couple of weeks as we sort of start to emerge from these shut down.

Chris with the customers that I've been busy as with during the past.

Nothing a half. We've added four new sites to my deployment this year to accelerate and they did that. You know, if we take a look at Food Distribution, there's some of these facilities whole building at 30% and work the and they did it even at the Christmas time Peak and they really I think there is a recognition without fuel cells and plug power products that really been impossible.

Okay. Got it. Thank you so much for the time and stay safe and healthy everyone.

Thanks, Chris.

Banker next question today

Do apologize question today is not mine.

Thank you from you guys. Can you give us a time frame for when these two Acquisitions that you are looking into potentially could close?

We would expect by the end of the second quarter in it. How are you? I'm good to hear you. Yes, Mom. I love Randy. If you could share, you know what the margins in these businesses look like I know you are indicating they're going to be a creative. But uh, if you could give us any color on the margins and in this business and how you can you know, potentially improve those, you know, if they're not at scale yet.

So one way to start thinking about United hydrogen at least during the near-term is to really be significant an impact moving the margins of our hydrogen business. If you remember him it up at the Plug Power Symposium, we outline that we expect hydrogen margins page twenty-four will let you over 30% and this would you know, this would be an incremental step in helping to achieve those higher margins eventually. I'm sure we'll look at leveraging this capability to support other customers and other Industries, you know, the hardware business itself, you know, we've demonstrated if you look at this quarter's 35% and we expect margins in that range going forward.

And then just from a you know, balance sheet perspective if these Acquisitions compose a new, you know, expand those businesses or business lines. So what kind of a balance sheet need will you have relative to the business model today?

No, I think that you know as I mentioned before, you know, the present our present position will finances. Our current business in Material Handling, you know, I think that in some of these areas will be Partnerships wage which will leverage especially in hydrogen which could reduce capital gains. And so, you know, I think when you look at this first deal, you know this transaction deal with generate Capital, it's an indication of some of our thought process about what the future balance sheet will look like and know it's a business continues to grow and you know, we're very very ambitious, you know, even beyond the billion dollars to grow requires capital and capital Club.

A wide variety of Partnerships through you know get through Equity, you know will be weighing each of them based on what we think maximizes the returns for the shareholders of plug power and thank you so much. Thanks a lot.

Thank you. As a reminder that star one to be placed in the question queue. Our next question is coming from Eric Stein from craig-hallum. Your line is now live.

Pineapple. Hey Eric, how are you? Hey, how are you?

Very good good. Well just sneaked a few in here at the end just on the hydrogen piece on the electrolyzer, you know, just any thoughts on how you think life spans the marketability to address other customers that maybe in the past had not been economical and I know in the past you you had a a partnership with high gear, you know a few years back and and we're looking to go down the reformer path as well curious, you know, if if electrolyzer is are are kind of the the new pastor.

I need look guys I mentioned before.

you know, I'm I'm you know, I think one of our core strengths is that we listen to customers and our customer base today in many cases have you know aggressive sustainability calls, you know, I see someone like Amazon and that, you know, we taking this path, uh, because we've been encouraged to head in this direction, but we also see in this market opportunity to expand our reach am not only in, you know, traditional markets but the places where they're looking to replace reformers today like in fertilizer manufacturing Thursday, we see huge opportunities for selling hydrogen and we and so, you know, you know, that kind of has been you know, the first driver is

my customers today run it like

I can driver is there's a huge Market opportunity as indicated by you know, the report you see being issued by people like Bloomberg the Kinsey and others about how big this Market opportunity is going on tour.

Got it. No, it's helpful. And with United Nations is really being the first company in twenty years in the United States to deploy a successful liquefier. And you know, if you start thinking about getting renewable Renewables behind-the-meter and two cents a kilowatt-hour and using the United liquefier Technology, you have extremely low cost hydrogen and that's really as also driven. Now we see that there's a marriage and mix between the two.

Yep. No, that makes sense. I guess my my my follow-up was just on United. I mean clearly you've got very significant hydrogen demand home plans out in the future. I mean, so is it it's safe to assume that this is a first step cuz clearly you've got designs on much bigger.

They are and you know working and you know, it doesn't mean necessarily the next activity we do in this area. We do by yourself, you know, we certainly would love to deal with the partner and you know, and so we do see rather broad opportunities, you know, when that partner could be someone who's a customer today as well as it investigates gas company or someone who's new to this industry.

Got it. Okay, maybe last one for me. I mean, obviously you're showing that the business in the face of covid-19.

To work, you know when I look at it, you know because of covid-19 actually improve the fact I'm on my Unix dramatically and I did make investments that you know, if you looked at the end of the fourth quarter, we had you know about ninety-eight percent uptime and her customer site, you know, we've actually at the moment, you know or over 99.5% and then we take about that difference. That's a big number of a big change and that took an investment. And now I really, you know, when we look at we're really in maintenance mode as far as keeping that level as well as the fact that uh, we continue to make improvements in the units themselves, which we believe ultimately and we'll start really seeing I think the impact in fourth-quarter. Yep.

really significant need

and our service margins

Okay, but in terms of first-quarter, I mean was it a case of I mean you kind of mentioned that it's not a it's not an issue of increased costs due to you know access of facilities or any of that month.

No, it really wasn't. It was really a cost associated with that. We really made sure because every unit was up and running perfectly and you said you know, I think that building improvements from you know, 98% to 99.5% and having the fleet completely cleaned up is really where most of the costs came from now. We're kind of been steady state.

Okay, that sounds great. Thanks.

Okay. Thanks Eric. Next question. Please. Turn from shimer from canaccord genuity. Your line is now live. All right. Thanks. A lot of been asked but just a couple of like a good the first Andy you touched on a bit but just one to dig in with the acquisition particularly given the the fact hit already own 30% Was it the concern that this would fall into the hands of another party or a month really a desire to scale the business and and kind of the the one plus one equals three the motivation for doing this.

Sure, you know I think since especially since the Plug Power Symposium, we've been really clear that we've waged to migrate more into the generation business and that could have a dramatic impact on our margins for hydrogen and relationship with the United has has has has been for a number of years and we thought it was time, you know ten tonnes of hydrogen as I mentioned represents about 25% of our usage and it's you know, we're really looking to drive improvements in our high margins and leverage the relationships that we've done.

Got it. That's helpful. So with that on the generation side, I mean, we've just seen that domlur and Volvo announced strategic wage tenure partnership around hydrogen for for Trucking. I'm curious what this does to your to your Tam. I don't remember if you discussed that at this Symposium, but how long it would seem like it would vastly expand that

Any I I take it if you take a bigger picture back. I think that's a statement of Vitality of this industry and that off today. I was on a Reuters webinar with leadership and the key on by and plug representing the United States and you know, I think that you know, we believe they you know, like twenty fifty 14% of us energy and 18% Global energy is going to come from packaging as and you know fuel cells I take them vehicles have insurance for uh for you know, one Road Trucking and I think blood power, you know of this tan off the Plug Power and Tam for the industry, I think will continue to expand each year and we have a nice leadership position with biggest user of liquid hydrogen in the world.

That would be coming a significant.

Generator of it regarding making our own green hydrogen. So I think all these are positive steps great and then just have a question in the near-term on education. I know you mentioned that this business is going to be a creative. It does look like the core plug business that operational costs are running a bit higher. I'm wondering if that sort of the if we may be viewing this is kind of the steady-state for for the business or whether or not q1 was an anomaly.

I will let Paul take that question. Great. Thank you.

Yeah. Hey Jen. Thanks Andy. Yeah, I think I would you know, I think if you look at it, you know sequentially from the back half the last year till now it's it's it's you know, relatively consistent and I think a a run-rate standpoint that's you know, in that range in that 20 to 21 range is from an optic standpoint is is a fair standard to use or estimate proxy. But you know as we continue to grow the overall top-line both with organic and inorganic you're going to see the continued leverage Trend that you have been seeing and we'll continue to see as we look forward great. That's helpful. Thank you guys.

Thanks.

I could ask question today is coming from Craig Irwin from World Capital Partners. Your line is not live. Good afternoon. Thanks for taking my questions. One thing that has said. Hey, I hope you guys are all well we seem to be doing calling is the update on the the pedestal customers, you know, the plus or minus 3.4 needed to get to your seven or a million-dollar Drive forklift Revenue by 2024 you have any of those customers to be engaged with your your current pedestal customers to observe the the peak capacity that they've been able to demonstrate in this in this unusual environment, you know, the e-commerce customer obviously is really benefiting with 10% more stupid and then you know Walmart has said publicly the grocery demand is up 400% off.

Year-over-year, um, you know has that has that drawn attention from some of these other pedestal customers. And are you maybe seeing that influenced their their decision process Craig? I think you actually are hating on a good point. The customers were engaging with who are pedestal, and I'm thinking of one of Europe now who's wanting me to delivery companies in France who has only one site with us and them, you know, like I was on the phone yesterday with our French sales team and they were explaining that they were really looking at the value at that one side of having fuel cells month and that will have some rather aggressive expansion plans. I see the same going on in the United States with some of the two or three largest retail customer.

They're so you know, I think that you know.

They said before I see that the success we've had in food retail is the like they you know with our present customers. They've taken notice. I told you that, you know, I've got four new sites for this year, which is really unusual, you know, because there's usually all kind of locked in between the year begins in that month. I would just say, you know remained rather bullish that you know over the next six to nine months would be the fourth package to the customer.

Excellent. Excellent, then if I could ask a question about United hydrogen one of the things that really impacts the economics of their liquefaction facility is a fact that it's located on the site Olin Corporation uses for some chlorine production, right and hydrogen is a byproduct. They're United hydrogen has a long-term Supply agreement with with Olin Corporation. But can you can you maybe describe for us your confidence that you would inherit the same positive economics with orange and can you share with us the duration of the disagreement? Is this something that is a multi-decade agreement or is it something where we could we could look for a probable negotiation within within the next month, you know single digit number of years.

So the contract is assignable and Craig we've already spoken with all and it is a molded deck at multi-decade agreement.

Excellent, and then are there potential expansion opportunities with Olin given that this is already a pretty constructive relationship.

I'll just say yes. Thank you Craig. Congratulations on the birth.

Thanks Greg this question, please tell me from Ethan Ellison from Morgan Stanley is alive.

Hey guys, this is Ethan on for Steven Bird. Hope you're all doing well. And thanks for taking my questions.

Okay. Yeah, I just have a couple of higher-level Market size in questions sort of building off your comments around Tam. I guess in terms of new Greenfield warehouse and distribution center space. I think we're plugs value proposition may be the most compelling. How do you think about plugs a potential markets here or the market share opportunity for fuel cells more generally in this part of the market going forward.

Sure, so we can you are right. No, as one of my largest customers told me about fuel cells are a no-brainer if you're building a new facility because you don't have to put the battery infrastructure in place a hydrogen infrastructure cost is about on par plus you get all the additional savings, but I think when you take a step back a good deal of the work we do a good job, sixty to seventy percent is actually associated with facilities that are already exist. So, you know what, I think about the value proposition let us to do with work the mortgage the stronger the value proposition, especially when you're talking Brownfield facilities, so, you know anywhere from I would say 30 to Thursday.

like trucks

If you work more than a shift in a half Plug Power in many instances, I can make a compelling value proposition. And so now that's why you know, when you start looking at our forecast for twenty $24 where they're looking at doing approximately twenty shipping twenty-five thousand years that's still represents a rather small percentage of market, you know, cuz over six million forklift trucks out there. So we have a a continual opportunity to grow this business. Well beyond what we've outlined at the Plug Power symposium

Yeah, that's really helpful. Maybe one follow-up and just another sort of longer-term growth question in terms of those locations where there are I think she said thirty five or more trucks working 1 and 1/2 or more shifts. Do you just have maybe some ballpark figures on what size of the market you think that is dead then a temporarily. Um, just how do you think about the growth rate of that Greenfield warehouse distribution center space longer-term whether it's a long-term kegger, maybe in terms of square footage or something or or just how you think about that market evolving?

I probably think maybe you know the answer your first question. Here's about 3.5 million opportunities out there for fuel cells into those type of distribution centers and Manufacturing facilities. I probably drank more quite honestly about the transition, uh to a sales you have many of the large retailers today trying to understand how they compete against the Amazons and grill marks of the world off. The value proposition is so strong there whether it's new distribution the role distribution centres. I think we make it rather compelling argument with no, you know, and I think that even I think you're going to see this as the world changes and you know, you see and tradition

Retail companies which you know, we're really struggling I think many of those sites of end up in sales of wind up being taken over by phone. No, you're doing it and internet retail sales and boy plug Solutions is a great solution for those opportunities.

Well, thanks for all that color and congrats on the corner guys. Take care. Okay. Thanks. Appreciate it. You know I can turn the floor off for any further or closing comments. Thank everyone for taking the time today.

no, this is

Is a difficult time for many companies and you know, when I look at the work our employees have been doing the keep essential business and customers going off and the growth opportunities. Their work is allowed for us in the future combined with bringing on new teammates and hydrogen. We we strongly stand behind our goals for this year of three hundred million dollars in Gross bookings 20% of 20 million.

As well as the fact that we see our goals for twenty twenty four are continuing take the steps to ensure that plugged our will reach a billion dollars in a billion dollars in Booking gross bookings, like twenty twenty four two hundred million dollars in ebitda and 170 million hours and operating income. So thank you for taking the time today and stay safe.

Thank you for the teleconference. Give me disconnect your line at this time and have a wonderful day. Let me thank you for your participation today.