Q2 2019 Earnings Call
Greetings and welcome to the plug power second quarter earnings call.
At this time all participants are in a listen only mode.
The question and answer session will follow this presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host Teal Vivacqua Hoyas director of marketing and communications. Thank you you may begin.
Thank you.
Good morning, and welcome to the plug power 2019 second quarter earnings call. This call will include forward looking statements. We intend. These forward looking statements to be covered by the safe Harbor provision for forward looking statements contained in section 27, a of the Securities Act of 933 and section 21 E of the Securities Exchange Act of 934.
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 one a risk factors in our annual report on Form 10-K for the fiscal year ending December 30, Onest 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 powers CEO Andy Marsh.
Thank you for joining the second quarter conference call.
Today, we issued our second quarter shareholder letter, which provides details about our second quarter performance.
As well as our outlook for the remainder of the year.
Let me start by saying it was a good quarter.
The key highlight is that we showed substantial improvement in operating margins and adjusted EBITDA.
His proven is both year over year and on a sequential basis.
This underscores inherent operating leverage is in our business model.
At quarter end gross billing rate of about $60 million, we're breakeven at our current cost structure.
In addition.
Ongoing cost reductions continue to lower this threshold.
Some highlights for the quarter include.
The company deployed over 2000 Gendrive units.
Up 70% year over year and reported gross billings of $58.6 million.
Up 50% year over year.
Additionally, the company was EBITDA breakeven for the second time in the past three quarters.
We also completed a small tuck in small scale hydrogen fuel cell technology acquisition.
To complement our suite of offerings for broader logistics robotics, and you wait the markets.
We expanded into on road vehicle applications and secured our first commercial scale deployment of Progen fuel cells on road logistics with Street Scooter a subsidiary of DHL.
As people know DHL as the world's largest logistics and mail communication service companies.
Starting with 100 units were on the road vehicles to program and expected to expand.
According to Mark has regularly the head of German operations at DHL Express.
If everything works as we imagine it would you could be soon be 500 vehicles worldwide.
He further added that 80% to 90% last mile delivery vehicles will likely be a hybrid system, including batteries in fuel cells.
Few more miles before moving onto the question and answers.
One.
We are reiterating our 2019 guidance.
Gross revenues between $235 million to $245 million.
Adjusted EBITDA for the full year 2019, when you exclude noncash charges for customer warrants three and finally, the company will make forward major announcements.
DHL Street scatter was our first.
Also we will be hosting the plug power symposium on September 17th and 18th in late in New York, We're bringing together a group of the hydrogen fuel cell industry thought leaders to discuss pertinent issues that will help accelerate the growth of the industry.
Program will feature key industrial players, including suppliers and major customers and we will ask them to share their experience and growth aspirations.
Additionally, we will share additional insights on the second day heim, highlighting both plug power's near term and long term plans.
Paul and I will now be open to your questions.
Thank you.
Ladies and gentlemen at this time, we will begin the question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone indicate that your line is in the question queue.
You May press Star two if you would like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Colin Rusch with Oppenheimer and company. Please state your question.
Thanks, So much guys, obviously theres been some significant M&A activity in the in the sector and that in the past quarter with Cummins move into the space can you talk a little bit about what you think the implications are for infrastructure, buildout and availability and bankability of that infrastructure as we go through the back half of this year and into next year.
I think collyn.
We view that acquisition is good for the whole eco system.
For the hydrogen fuel cell industry.
And we think it's just a small piece of a bigger pie that's going on globally.
I think when you look at to.
To mid therapy made.
By large companies that.
No. They view that this industry that there will be over $300 billion of investments over the next 10 to 12 years.
No obviously infrastructure as part of that.
And when I when I take a look.
I have a parochial view of this.
But.
I think the fact that plug power's deployed more units built more hydrogen infrastructure used for hydrogen than anyone else, which we think is a real.
Long term opportunity for the company.
That.
We think we're well positioned for.
This expanding growing industry and I think our results in this past quarter.
He is an indicator that.
Okay and then the follow up here is just really about the development activity on the over the road market. Obviously, there is an awful lot going on can you give us a sense of kind of order of magnitude in terms of how many folks you're talking to in terms of new programs. Obviously, you mentioned the number of documents you expect to make but.
Order of magnitude on the number of conversations and then.
The cadence of how those things are likely to move forward.
Sure.
Colin So let me just take a step back and say.
First the announced with street, Scooter and DHL and the level of publicity that came with it.
Has been helpful. When.
Engaging folks.
From outside to come to plug power about potential.
Opportunities.
And I think that the.
We are.
We remain the.
Pure play pure play.
Company.
That is not tied up.
With anyone.
And it puts us in a unique position.
And we have.
A pre package well defined Progen engine, which has made it makes it easy for integrators Oems to integrate into their products.
And.
I'll, just say that said no we have had.
Tier one Oems here to visit us.
We've been dealing with the worldwide integrators, especially in Europe , and the United States.
And that said.
No I would expect that to.
Over the coming years that.
You will see.
Continual announcements by plug powers for our deployments in these sectors.
And I'll just sat.
Yes.
We're not really we're not talking about one or two units, where we want it.
One item said.
During my entire tenure here.
I have an open all that interested in.
A few units for show.
It has to lead to long term.
Program and project development and that has always been our focus and.
Thats the type of people we're engaging.
Okay. That's super helpful. Thanks, so much okay.
Thank you. Our next question comes from Eric Stine with Craig Hallum. Please state your question.
Hi, Paul.
Hey, Mark Hey, just interested in talking more.
You mentioned in your.
In your newsletter your priorities for hydrogen obviously.
Availability and price certainty key for adoption.
I know that you are starting to own more tank. So you can source hydrogen and.
The optimal price but.
Maybe some more details about some potential steps you can take to achieve your objectives.
I think.
Collyn you will see act.
Eric you will see activity.
In number of different areas.
You mentioned tanks I think Thats I think you hit on a critical point.
I think that to.
You will see that announcement, where.
We'll do a longer term deal.
For price stability.
With a.
With one of the liquid hydrogen companies.
I think.
You will also see collyn that.
Plug will take.
Some steps.
To move closer into the generation business.
And I think that.
At this symposium in mid September not to kind of kick the question now.
I think.
Part of our presentations will be about.
The strategic steps, we're taking to move deeper into hydrogen.
To improve our margins and make sure that.
Cost effective hydrogen is available for our customers.
Got it and is that fair to say I think earlier in the year. When you talked about the four major announcements something within industrial gas partner.
I believe was one of those four is it fair that we should still think about that being the case.
Yes.
Okay.
And then just.
Related to providing the fuel on the margin side, I mean, I know thats, an objective to get that to improve that.
You know just maybe steps there are or how you think thats trending and what we should look for going forward.
Paul do you want to take how you view is trending.
Yes, I think.
You know again, there's ebbs and flows given volatility of timing of events and different dynamics, but you've seen over the last.
A couple of years of continued progression and you're going to continue to see that you mentioned earlier Erik the.
The tank scenario as an example, we only own today about 10% of the tanks and out of all of our sites.
However, we've got a program now rolling out were actually replacing over the next year to year and a half and many of those in the field as those programs come up for renewal and we work on Refreshers with customers and so that's going to have a dramatic.
Impact in our ability to negotiate pricing with with our carriers and our fuel supply so.
Not to mention all of the efficiency investments that we have made and we continue to make.
So I think somewhere in the next 12 months you will see that.
Moving migrate towards kind of breaking even and then north.
Post that.
We should be in that.
Breakeven to positive range as we move on into.
The near term so.
Good results, so far and.
We expect it to continue to get better.
Got it okay, and maybe just sticking with margins just one last one for me just on the on the product gross margin very good 40% number.
Just maybe how that breaks down between Gen drive in infrastructure and I mean is this is this a good level to think about going forward.
I'll, let you take that Paul.
Yes. So in this particular quarter was all units so.
We had a lot of shipments to.
A lot of migration of.
A lot of programs, we were shipping infrastructure, but the.
The majority of revenue was units so that that helps.
Great deal, but we have seen tremendous growth in our on our margin profile of the infrastructure and.
We continue to see that trend as we as we progress.
Got it thank you.
Our next question comes from Amit Dayal with H.C. Wainwright. Please state your question.
Thank you good morning, Andy Good morning, Paul.
On the operating leverage side.
Is this 22.5 million Opex number sort of way you level off for the next few quarters.
Paul you want to take that.
I'm sorry.
Essentially its a question about is this operating expense for this quarter, where we expect to level off a few hey, good morning.
Sorry the.
I think we every year in the second quarter, we have.
A little bit of a bump for their annual compensation programs, but I expect next quarter reserve back to that kind of 17, and a half to $18 million level as we progress forward.
Understood. Thank you.
This recent acquisition, Andy energy or I don't know, if I'm pronouncing that right.
That is correct.
How does this fit into your product suite.
When will this potentially become part of your sales efforts or show up in your.
Results any color on how we should expect this to support your growth efforts.
So there is actually two aspects here.
One is I'll call out.
Near to mid term.
And.
What intelligent and what our energy or has done is developed a very cost effective.
Low power platform.
And when we think about the warehouse for the future, which were actually deeply involved with now probably 2000 units that we have out there our automatic guided vehicles.
And.
We see that.
This technology is.
Even though designed originally designed for drones is really important for the intelligent robots for the future. So it really.
Helps us support to.
Not only are.
Customers today, but our customers for the future.
To move to hydrogen.
I would.
Also talk about said.
Though they've worked.
In small scale robotics people we.
Who've joined the company from the acquisition.
They also have a deep understanding of the aviation from their past slides.
And now I view.
Aviation opportunities things like.
Short haul.
Aerial taxis.
As Ed.
Probably a bit bit longer out.
But what it really is done and we have had engagements with the.
Folks who.
I have recognized that.
Yes, aerial taxis have real limitations using batteries.
Both from a weight and distance travelled point of view.
And somewhere around.
Traveling for 20 minutes, we believe fuel cells like with on road vehicles.
Are far superior to batteries and.
It is an area that.
From a technology sets an opportunity, we're exploring and we felt the people at energy or have Brad.
Really contributed greatly to those discussions since joining the company.
Understood.
Then moving on to these catalysts, you've highlighted previously as well as the timeline still.
We ended the year for the remaining three calculus to be presented to the street.
Yes, and I am sure you will hear one on a at the plug power symposium.
Understood. Thank you.
Just last one on the fueling sites number we were at 72 last quarter has that changed and are we still targeting the 100.
Level for the end of the year.
Yes.
Okay.
Any change to any any.
Increased from 72 in the first quarter.
We are.
No I believe its more than 72 and that may be 72 that we.
Okay Paul.
Yes, so the.
That's right, that's where we have the.
The infrastructure and the fueling associated with it.
The the number will have gone up a bit but again there is a timing difference in terms of when some of that will roll into the revenues for the full year.
Okay understood Thats all I have thank you so much guys.
Alright.
Thank you just a reminder to ask a question press star one on your telephone keypad Starkey followed by the one key on your telephone keypad.
Our next question comes from Chris Souther with Cowen. Please state your question.
Hey, Thanks for taking my question you mentioned, the 70% cost reduction over the last 10 years, which is impressive.
I just wanted to get an idea how does pricing and cost for the larger gendrive units for the Fccs compare on like a kilowatt basis.
Im trying to get an idea of how modulator the new systems are going to be and how much parts you can transfer from material handling business.
Yes, that's a.
Okay. Good question, Chris and.
If you take a look.
So for example, you know today.
99% of the new stack said I shipped in the second quarter, where plug stacks and.
No stack today.
Are beginning to ship with plug membranes.
And no.
That was an acquisition we did last year.
When you start thinking about the membrane design and.
The stack design.
That's certainly applicable on almost directly applicable.
Into on road vehicles.
And then you think about.
And.
Yes, if you start thinking about items, which the balance of plant, which is used to control and manage the stack.
Yes, very much like any electronic product the control system the monitoring system.
That's used for controlling the stack.
Is almost identical for on road vehicles, so the components that.
Is very very similar and very very beneficial.
Two new applications for plug power.
Got it and then.
Can you talk a bit about the infrastructure build out thats planned as far as the.
Around the street Scooter deal.
What are you guys, providing as part of that versus third parties.
How much spending by you other needs to take place for the first 200 and then.
The next.
Building up to the 500 DHL would be talking about kind of after that.
So Chris already in Germany.
There are over 100 fueling stations.
And so we will be using.
The publicly available street scooter DHL will be using the publicly available fueling stations plug Power's has not been involved in the build out of those publicly in sale both stations.
It will be centered around for those stations very much.
Set up as for fleet vehicles. So that's what's going on that's how the.
Hydrogen infrastructure will be handled for those products. The good news, it's not a.
Yes. It is.
Unlike many other places of the world.
The infrastructure is there today.
Well, that's great and then just the last one your 29 exceed guidance.
How did you grow at about.
20, 530% this year.
Almost entirely material handling it looks like maybe some of the street scooter gets recognized from Mike for the Q or so.
How does the pipeline for that core business look heading into 2020 as far as larger existing customers and new customers.
And what should we think about kind of the continued penetration for that business.
Heading forward, excluding street scooter and the other three deals.
Sure so.
Chris I think the key to that business will.
Continue to grow at the rate.
I think.
The key is.
Adding.
Another Walmart Amazon and we we feel confident about that.
At our.
Symposium in September not to kind of kick the question again.
We will roll out the 2020 expectations as well as.
Our police show for the next five years so.
I would say that said.
We do have an aggressive plan.
To continue to grow and expand the business and from a timing point of view.
Hi.
Yes. This is the.
I've been doing this for 11 years now.
The momentum in material handling and the other in other segments has never been greater for the company.
That's great I look forward to hearing more about that at the symposium that thanks.
Thanks, Chris.
Thank you once again to ask a question press star one on your telephone keypad.
Thats Star one on your telephone keypad.
Our next question comes from Craig Irwin with Roth Capital Partners. Please state your question.
Hi, good morning, and thanks for taking my questions.
Hi, Greg Hi, Andy.
Paul.
So when we look forward right your accomplishment looking backwards on the cost out is really impressive but when we look forward you did say in the in the presentation that you expect to be the largest U.S. I mean producer by the end of the year.
Can you maybe frame out for us the opportunity for continued cost reduction.
In in the stack and the overall system.
Are there potential components that you could you could pull in production on too.
Improve the economics for plug.
Are there pieces of the equation.
But you see as as as low hanging fruit for continued cost out that maybe can continue this trajectory over the next couple of years.
And.
Craig I think the answer yes. It is a very good question I think the answer your question is yes.
And.
And I would say this I.
I don't want to go too detailed in public.
But.
We we see except for example that.
Over the next year or two we can pull another 30% of the cost out of this back.
Based on.
Higher volume membrane production based on design changes to the stack itself.
When I when I look at the stack and other activities.
We're in very early stages here.
Fuel cell industry for driving down costs.
You know I think I look at the design itself.
Yes.
Yes, very much like my experience in telecom.
You continue to look at higher levels of integration.
And.
No.
Moving from Moldable boards, a single boards to fewer components.
A lot of it when I always look at this Craig I would say that.
Yes, 30, 530% to 50% of our cost reduction comes from.
Supply change in supply chain and volume.
And the rest comes from design innovation.
Our team has a three to five year roadmap, how we continue to bring down costs.
And.
Ultimately I think.
I think we can be on this track for a good for five more years.
Great that's good to hear.
Next thing I wanted to ask about is as a big picture question. So.
You know fuel cell superior to batteries I get it it's.
It's something that makes sense when you have.
So large facilities with lots of trucks and.
Refueling time and the operation of the the recharge ramp is a real as a real plus for.
For fuel cells, but.
Lithium ion.
Seems to be making a little bit inroads in the industry. It does share some of the positive attributes.
From an economic standpoint that.
That fuel cells do you know it is also quite a bit more expensive than lead acid can you maybe talk about where you see let's say mind fitting in.
Competitively over the next couple of years.
Is this something that.
That you see as a as a potential threat or is it maybe an opportunity for plug.
Yes, Craig Thats it.
Another good question I I would even take it up a step higher.
I've never been someone who said the fuel cells to answer all questions.
Thats perfect technology for all apps.
And where fuel cells.
Our successful.
Whether it's.
Material handling on road vehicles.
Is if you have fleet vehicles.
And you use the asset a great deal.
That means that the attributes of fast fueling constant power longer range actually add value to your application.
And you know I always look at this and think about from a customer point of view.
If I was running a single ship.
Shift with a fleet of 40 trucks.
I would be seriously looking at lithium batteries.
If I was looking at that same facility and I think it may grow to two to three shifts long term I think I would put fuel cells.
So I think.
Just like the broader electrification market I think there will be applications in material handling for batteries makes sense and I think they'll be applications, where fuel cells makes sense.
I like that response, thank you Andy Thanks for taking my questions.
Thank you Craig.
Thank you.
There are no further questions at this time I will turn it back to Andy Marsh for closing remarks. Thanks.
Well, thank you everyone for joining our call today.
And I'm looking forward to seeing all the analysts at our upcoming plug power symposium.
Thank you very much.
This concludes today's conference all parties may disconnect.
Have a great day.