Plug Power Inc. (PLUG) Earnings Call Transcript

Greetings, and welcome to the Plug Power Fourth Quarter and Year-end 2020 Earnings Conference Call. [Operator Instructions] It's now my pleasure to turn the call over to Teal Hoyos, Director, Marketing Communications. Please go ahead, Teal.

Thank you. Welcome to the 2020 fourth quarter and year-end update call. This call will include forward-looking statements. The forward-looking statements contain projections of our future results of operations, or of our financial position or state other forward-looking information. 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 and such statements should not be read as a guarantee of future performance or results. Such statements are subject to risks and uncertainties that could cause actual results or performance to 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, 2019, or our quarterly reports filed on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2020 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 or as new -- or as a result of new information. 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, and thank you for joining the Plug Power end-of-the-year conference call. 2020, as everyone knows, from the world, was a very challenging year. We at Plug Power have been very fortunate. As we participated and witnessed globally the acceptance of hydrogen, especially green hydrogen as critical to help leave the world off fossil fuels. Estimates have been made by experts that hydrogen can represent 18% to 23% of world's energy by 2050 and is ramping today. We at Plug Power have been building our technology set for decades waiting for this moment. At PowerPoints, there are 10 years old that described how our work then will position us at the right moment. The work was more than technology, but building the first commercial market for fuel cells. Our first app, material handling, it's not glamorous, but it's built the company, proved our technology set and launched the full suite of products and new capabilities. Our turnkey solutions have provided end-to-end solutions, including selling hydrogen with building fueling stations and fuel cells and providing aftermarket service, really positions us today. Our relationships with Amazon and Walmart gave us insight into how to improve our offering, but also helped us identify and missing links in our portfolios. One of these insights was that large corporations' sustainability goals are real, and that for the market to expand green hydrogen was a necessity. Green hydrogen also became practical over the last couple of years since this is closely linked to the declining cost of renewable electricity. This insight drove us to make 3 decisions in 2020. We purchased the leading electrolyzer technology company, Gine ELX, that had the electrolyzer technology to convert electricity to hydrogen, green hydrogen. Two, we purchased United Hydrogen the first private company to build a large-scale liquid hydrogen plant. And finally, we made a commitment to build the first U.S. nationwide green hydrogen degeneration network, reaching 500 tonnes a day of capacity by 2025 and 1,000 tons per day globally by 2028. The macro trends to a more sustainable world, the recognition of hydrogen is vital to meeting these goals and Plug Power's expertise opened many relationships for us in the past year. Let me name a few. Brookfield and Apex, both partnered with Plug Power to provide sources of low-cost renewable electricity to generate green hydrogen. By the end 2022, we'll have over 70 tons to 100 tons per day at green hydrogen available in the U.S. by Plug Power. Renault, a leading global auto manufacturer, recognized Plug Power's unique ability to offer full turnkey solutions to the light commercial vehicle market. From their experience in these EVs, they recognized they need to offer more than the vehicle. The JV, which will be selling vehicles and fueling stations, will be formalized by late second quarter or early 3Q. SK, the second largest Korean conglomerate, recognized that Plug Power was the only company that could offer a complete solution in the hydrogen industry. We will be building everything from large-scale stationary products, hydrogen plants, electrolyzers and other apps. We will build a second gigafactory in Korea. The time line for this JV has been accelerating. And will be formally closed by the mid-third quarter. Also, as you may have seen, SK finalized their $1.6 billion investment into Plug Power last night. And four, and another step in our global green hydrogen story, Plug Power announced the deal with Spain's second largest renewable electricity supplier, ACCIONA. The JV plans to build 100 tons of green hydrogen generation capacity on the Iberian Peninsula. We'll be announcing more partnerships in 2021. Now back to 2020. In 2020, we experienced a 42% increase in gross billings, achieving $337 million. We're now generating cash from operations excluding the need for working capital, which is needed to grow. In 2021, we'll exceed $475 million in gross billings, with over 93% already accounted for in our plan. We have never been afraid of tough decisions. We accelerated warrants at the end of 2020. This decision will have the side benefit and making our GAAP financials more in line with how we operate our business. It caused a large onetime noncash charge but clears the deck for the future and quite a future. With $5 billion in the bag, a thoughtful expansion plan, a unique market opportunity, now it's the right time for Plug Power to invest. Our goals for 2021 are clear. Gross billings of $475 million. Annual gross margins in the high teens, achieving 20% by the fourth quarter. We view gross margin expansion as a critical indicator that our investments are paying off. Three, successfully launching our 2 JVs with Renault and SK. Four, continued expansion of our business via partnerships, acquisitions and other relationships. And finally, positioning the company to achieve $750 million in gross billings in 2022, which will position us for our $1.7 billion goal for 2020. Paul and I are now available for any questions you may have.

[Operator Instructions] First question today is coming from Eric Stine from Craig-Hallum.

So you had mentioned in the prepared remarks there that the SK partnership, obviously, the investment closed overnight. But maybe just some clarity into how it's accelerated. Since that announcement, how do you view the opportunity? And maybe which areas do you think move faster than others?

Sure. So Eric, when we made the announcement, I think that I started out by saying I thought we were being conservative. We have developed actually 6 workstreams in the development of this JV, where the teams are meeting 2 to 3x a week. We've identified certain business opportunities, quite honestly, that are much larger than we even thought initially. And that -- I think that the first 3 opportunities will be, one, large-scale power generation, I would expect we'll be shipping products later this year or early next year. That's not in our $475 million plan. I think the second is SK has a real commitment to sustainability. I think you'll see electrolyzer products be moving over into SK for usage, again, early next year. And finally, there's a lot of work ongoing with hydrogen generation and fueling stations.

Got it. Okay. And just to clarify what I think I heard that, that's not in the $475 million on the large-scale power...

That's correct. That's not in the $475 million. The $475 million, as I mentioned in the prepared remarks, we have 93% in half at the moment. Usually, we're at 75% level at this time.

Got it. And maybe sticking with that topic -- or well, so you've got the 4 pedestal customers in materials handling. Curious what type of mix you see from those 4, the 1 recently added, but those 4 in 2021. And then you typically don't give the forward-year outlook this early in the year, at least I don't remember that you have. So I'd love to hear what the visibility you have is from the 4 customers you've got and potentially some others that you add into that 2022 goal that you've given today?

Sure. So we have between those 4 customers and others -- and Eric, those 4 customers probably represent 80% of our deployments here in 2020. 2021, that circle in the range that there's already $400 million in-house that's available for shipment this year. And it's -- I think that 1 of those 4 would represent more like 30%, and the rest will be kind of split a little bit even.

Got it. And then just in terms of a little bit on 2022, I mean that -- maybe you have given the forward year -- not the current year, but the forward-year guide or outlook this early. But just curious, you've got better visibility than you typically do into 2021. But what type of visibility do you have into 2022 based on their plans? And how does that compare to historical?

Yes. I mean, the -- I mean, I think there's 3 items going on here that helps us with 2020 to be able to have the insight into 2022. Obviously, after all these years, with many of these material handling customers. And I've got to talk about the 4, we're not doing short-term planning. We're doing 3- to 5-year planning. So there's a good deal of insight into their activities. The electrolyzer sales funnel was strong. And this year, we'll take that business, and like we've been a material handling, increase it by a factor of 7 or 8 this year, it will be in the $40 million-plus range, and we have a funnel that's close to $1 billion already built up for the electrolyzer business. And I think -- and as you know, Eric, everything in the funnel doesn't happen. And finally, when I take a look at, especially with SK with some of the initial deployment as well as with Renault, we're kind of sitting back feeling very, very good about how we achieve the 2021 goals.

Our next question today is coming from Colin Rusch from Oppenheimer.

Can you guys give us an update on where you're at just in terms of specific projects in terms of identifying sites on the renewable side for supporting the hydrogen rollout? And then how big the queue is behind that in terms of the sites that you could grow into as you start to see demand emerge?

So very clear, Colin. So we have 4 sites, 3 of them, which are moving into development stage, 2 in the Northeast, 1 in the Southeast and 1 in California because of, as you know, permitting issues in California can take a little bit longer, but we already actually own the land in California for the hot green hydrogen plant in the Valley around Frisco. We have probably over 15 to 17 renewable sites we're looking at for the ability to generate green hydrogen, which are spread widely across the country. I think the first 2 plants, first 2 or 3 plants, you'll see go up. I think you'll see 1 in the Northeast, 1 in the Southwest and 1 in Texas.

Okay. And as you look at those opportunities, is that going to be an opportunity for you guys to also build some sort of regulation or storage-type applications adjacent to those sites to help stabilize the grid. Certainly, that's one of the opportunities for hydrogen in terms of kind of being the connective tissue for some intermittent renewables and the larger power grid. But are those sites being chosen with multiple purposes in mind?

I'm going to say -- I'm going to give you a wishy-washy answer here. Yes, but not nearly as clearly defined as the generation portion. All these sites are grid-connected, though before the meter. So they're cost or wholesale-type prices. But -- and we've been obviously thinking a great deal about the issue you bring up. First and foremost, and we are committed to green hydrogen and providing our customers green hydrogen. And I can tell you when -- not surprising when we look at the wind farm activity. That we're looking at in Texas. And by the way, the wind farm user we work with actually was very successful doing the recent Texas storm. We certainly are looking the wind energy, how we put wind back on the grid at the right time and how to use it at the right time. But we are also -- and that's really clearly defined, but certainly, storage and generation is in the back of our mind, especially after what we see going on around the world. I think -- by the way, Colin, I think if that's the case, it's going to help us a great deal in those earnings.

[Operator Instructions] Our next question is coming from Jeff Osborne from Cowen.

Congratulations on all the success so far. You've got a lot of irons in the fire for 2021. And I was just wondering if you can give us a sense of the operating expense trends and CapEx for modeling purposes as you gear up for the very heavy growth you've got for '22 through '24 that you talked about, Andy?

Sure. So Jeff, I would -- from the CapEx area, I would probably circle somewhere around $750 million, with most of that going to support the expansion of these hydrogen plants. We've done CapEx modeling for the next 5 years. And we still see a significant surplus on our balance sheet, even with our aggressive plans to build out these hydrogen plants. So to reach the 500 tons a day and to achieve everything we're looking to do, it's probably somewhere in the $2 billion to $2.5 billion range long term. As far as op expense, Paul, you may want to comment on that. Jeff, I would expect our op expense may be up to 30% higher this year. Paul, do you want to add to that?

Yes. I think -- yes, I'm sorry, Andy, can you hear me?

Yes.

The signal is not so great where I'm at. I apologize. But yes, I think that's right, Andy. I mean I think in that 30% to low 30% range per quarter is a good number. And I think one of the key things, Jeff, for this year, is you're going to see definite growth in sales and gross margins, and there's a strong focus there. And as Andy alluded, we're going to be investing in CapEx and some OpEx to -- for all these growth platforms. Because there's a lot in the fire and a lot of things happening. And we see the opportunity to really accelerate the growth even further. And so you will see some of that this year.

Got it. And then the -- is the 30% comment, is that off of the fourth quarter run rate or the aggregate number for all of 2020?

Yes. I would -- go ahead, Paul. Paul? Jeff, can you hear me?

I can hear you, Andy. Just given the fourth quarter was up quite sharply. I just want to make sure I'm using the right dataset.

No, no. I would use the annual basis, Jeff.

Got it. And then how are we proceeding along just given the pretty heavy CapEx there over the year as well as the upcoming years for these facilities. Are we at a point in time now where these sites can use leverage? Or is this all going to be straight out of the cash balance?

I'll let Paul -- so I think the answer to your questions, yes. Paul, are you there? Okay. I guess I'm going to have to take it, Jeff. I think you're going to see leverage coming into play. And I think you hit on a good point, Jeff. When I -- we've done modeling to make sure we have sufficient cash balances during the -- to do it all on our own. But I think you're going to start probably seeing leverage in the second half of the year as we start doing the build-out. So there has been work going on there. And I think they'll see probably -- on a conservative basis, we've said to ourselves what if we did it with all equity. We can do that. We're in a position to do that now, but we don't expect that to be the path.

Got it. And my last one for you, Andy, is just the 2 joint ventures, are we at a point in time where we can -- you can confirm that the results of those JVs will be consolidated in terms of revenue? Or will these all be below the line? That might be more of a question for Paul. But just in terms of the accounting treatment of the joint ventures themselves.

Yes. I know we're working in the negotiations to make sure we can consolidate. And I think it's -- I think we're getting there. I think that both partners understand the criticality of that for Plug. As you know, Jeff, there's a lot of accounting that goes into that. A lot of legal work that goes into that, but our team has been working there.

Our next question today is coming from Craig Irwin from ROTH Capital Partners.

I need to say congratulations, too. You guys had an absolutely phenomenal 2020, and let's continue that in 2021. So congrats.

Yes. My Board agrees with you, Craig.

Good. They should. So Andy, one of the things we haven't talked about much, but there is actually tremendous appetite for it out there is fuel cell trucks, right? Investors really want to see companies be successful in this market given the opportunity in the way to move away from oil and the potential for long-term economics even on green hydrogen to be really interesting. Can you maybe update us on what's going on in green in the fuel cell trucks for you right now? Are there new partnerships sort of percolating out there? What's the status with the different customers you've disclosed to date?

Sure. So Craig, I think that the model that we've used for Renault in Europe is one that we're looking to duplicate. And I can tell you that a good deal of our forward-looking thinking at the moment has to do with how to address that market. I think there's a couple of items we concluded. And I think the big one is we don't want to just be a first-tier auto parts supplier. And the JV with or no was structure that we're jointly selling vehicles because we have seen what happens in the world if you're just a part supplier to the auto industry. And I also don't know if you just go about doing the old way of just building cars and vehicles, like the auto industry has done traditionally. That you end up in a purchasing office instead of a CEO office. We do have discussions going on in the United States and elsewhere, especially with a focus on heavy-duty vehicles. One of our -- 2 of our big customers we'll actually be doing pilots very shortly. We also have already done work with folks who are kind of Tier 2 players like Nissan. But I think, finally, on top of that, we're -- with Renault, we have a fairly aggressive plan to really start rollouts by the fourth -- in the fourth quarter, early first quarter, with some initial deployments in the light commercial vehicle space where there are apps where it makes sense. When it comes to green hydrogen, I think like most people, we believe that electricity under $0.04 a kilowatt-hour makes green hydrogen, especially as a fuel, very competitive with grey hydrogen today. And as you know, Sanjay has spent an incredible amount of time thinking through how we can offer a better product than grey hydrogen with green hydrogen at similar pricing and make margins for Plug Power. And I think you've been around this a long time, Craig. That's what our customers want. I mean, they'll pay a slight premium for green, but nobody is looking to pay a huge, huge premium to be green.

Understood. That makes a lot of sense. My next question is about the infrastructure to fuel trials, potential small fleets of fuel cell trucks. So last year, you did mention that Plug had done some work with its existing partners, retrofitting some of the fueling infrastructure that serves their forklift fleets so that they could start with potentially doing fuel cell truck trials, maybe distribution to -- distribution center to distribution center-type work. Can you maybe update us on that? And then more importantly, Tesla gets $400 million a quarter basically in credits. And a large chunk of that $400 million comes from the installation of their supercharger network, they're charging infrastructure out there under the California incentive programs. Can you talk about the potential to pull down some of these incentives just by building out the network for your customers? Have you already got applications in? When do you expect that to potentially be achievable?

So if I look at -- I'm going to use 2 examples for you, Craig. When we look at the LCFS credits in California, we look at where we believe we can come with CI scores, especially since we are looking to be moving hydrogen with green hydrogen trucks that, at the pump, we believe the credit can be up to $4 a kilogram. So for those who are listening here who don't -- who may not understand, I mean that makes our cost, depending on how you split the green hydrogen. That almost makes the green hydrogen and probably does make it very, very less than fossil fuel diesel energy significantly. We also -- there is also bills beginning to circulate around Congress associated with the Biden green climate plan, which is suggesting up to a $2 credit per kilogram for green hydrogen, that makes the choice between green hydrogen and grey hydrogen, incredibly competitive. So I think that once Sanjay has his first 100 tons up that there'll be a great deal of government supports and credits and a real huge opportunity to increase the margin for Plug Power long term.

Our next question today is coming from Jed Dorsheimer from Canaccord Genuity.

I'm going to do a quick check here. I just want to know if my partners back on the line with me.

Okay.

Paul, are you there?

Yes. Andy, I'm here. I'm so sorry. Yes, I'm here, Andy. I don't know why this thing got out, but I'm back.

Okay. All right, Jed.

All right. Perfect. So a couple of questions. I guess just one, on the material handling side, and this might be better served for Paul because it kind of gets into warrant structure a little bit. But if I look at 2 of your 4 major customers, I've actually -- in '20 years, I've never seen this. I mean it's actually a fantastic situation where your customers are literally getting paid to take the product based on the kind of the warrants in 2017 because your stock has been so strong. So with the expiration of Amazon, I'm just wondering how -- and now only Walmart, how does that change the visibility in terms of -- how do you, Paul, kind of think about the bookings when this starts to pivot away? Because I'm assuming here that Walmart would also exercise the expiration here, too.

I'm going to take that, Jed, question, and I'm going to hand it off to Paul. So Jed, the warrants on that, most of the warrants have not been exercised. Walmart and Amazon, both have significant interest in the success of Plug Power financially. It's -- obviously, the -- I'm sure it wouldn't strike anybody surprisingly. I'm quite pleased with what happened. They -- they are -- and I'll then I'll hand it off to Paul, but they are committed to -- both companies view that hydrogen is critical for long term -- to meet their long-term climate goals and that they have a partner with Plug Power that goes well beyond financials. That has proven that we can deliver the product sets they need, and they continue to help us, both of them, to find new opportunities for fuel cells in green hydrogen. I can tell you 1 of them actually introduced me to 2 of their other investments in the last 3 weeks to help us grow and propel this business beyond just direct business with them. On that note, Paul, I hand it off to you.

Yes. Thanks, Andy. And I guess, the main comment that I would make is that by the fact that these have all -- the expenses for the 1 customer have been all reflected and reported at this point, there won't be additional charges for those in the future. And that should significantly make it easier and more simple in terms of interpretation on the results as we go forward. And I expect we've been using gross billings as a means by which to communicate the revenue and sales activities without those charges. But I think going forward, that number should be a lot closer to the GAAP revenue number, which will make it easier as well as we move forward.