Plug Power Inc. (NASDAQ:PLUG) Q1 2024 Earnings Call Transcript

Plug Power Inc. (NASDAQ:PLUG) Q1 2024 Earnings Call Transcript May 9, 2024

Plug Power Inc. misses on earnings expectations. Reported EPS is $-0.46124 EPS, expectations were $-0.33. Plug Power Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Plug Power First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Meryl Fritz, Marketing and Communications Manager. Thank you, Meryl. You may begin.

Meryl Fritz: Thank you. Welcome to the Plug Power Q1 earnings call. This call will include forward-looking statements. These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. 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 to not unduly rely on forward-looking statements and such statements should not be read or understood as a guarantee of future performance or results.

Such statements are based upon the current expectations, estimates, forecasts and projections as well as the current beliefs and assumptions of management and are subject to significant 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 31st, 2023, subsequent quarterly reports on Form 10-Q and other reports we file from time to time with the Securities and Exchange Commission. These forward-looking statements speak only of 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 a result of new information.

At this point I would like to turn the call over to Plug Power’s CEO, Andy Marsh.

Andy Marsh: Thank you, Meryl, and good morning, everyone, and thank you for joining us today. This quarter has been pivotal for Plug. As we continue to execute on our mission to drive the green hydrogen economy, we are focused intensely on enhancing our cash management strategies and accelerating sales growth. These efforts are crucial as we navigate through the recalibrations necessary for long-term sustainable growth. Our strategic decisions this quarter are designed to solidify our leadership in the green hydrogen economy. We’ve made significant strides in scaling up our operations. Our hydrogen generation network has been — particularly has seen substantial growth. The production facilities in Georgia, Tennessee are currently performing at full capacity and we’re eagerly anticipating the completion of our new plant in Louisiana.

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Q&A Session

This addition will not only boost our production capacity by 15 tonnes per day, but also significantly reduce our dependency on third-party hydrogen suppliers. Building on this momentum, we are planning the development of up to six additional hydrogen plants across United States. This expansion is critical for meeting the demand for green hydrogen as industry and transport sectors seek sustainable energy solutions. The strategic placements of these plants will help mitigate logistical challenges, reducing the cost of hydrogen delivery and enhancing our competitive edge in the market. Plug continues to advance the pending loan guarantee from the Department of Energy and awaits the conditional commitment approval announcement. This program is expected to bolster the build-out Plug’s liquid hydrogen facilities throughout the United States.

Commensurately, the company has started a process with advisers to complement our anticipated DOE projects with project equity investors and project finance partners to finance the build-out of the plants. Our strategy, expanding partnerships and securing new deals has continued to bear fruit this quarter. The extension of our partnership with Uline, and securing a substantial deal with a top US automotive manufacturer are a testament to our robust business model and our ability to deliver comprehensive hydrogen solutions that meet diverse customers’ needs. These partnerships not only demonstrate our market leadership, but also reinforces the trust that major industrial players place in Plug to support their transition to sustainable energy practices.

In Europe, our significant expansion efforts are highlighted by the commissioning of 20 PEM electrolyzer systems at sites throughout the continent, representing the largest build-out of its kind in the Western world. This is a key part of our strategy to meet the rapidly growing demand for our products globally. Pivotal component of our strategy for electrolyzers is the basic engineering and design package, which currently encompasses projects totaling approximately 4.5 gigawatts. These BEDP contracts are just not a testament to our technology and market leadership, they represent potential future sales that could be transformative for Plug. By facilitating our customers’ journey to final investment decisions, these packages can significantly shorten the sales cycle and enhance our ability to lock in substantial long-term contracts.

As we continue to advance our technology and increase our project capabilities, Plug is enhancing its footprint, not just in the US but globally. This strategic expansion aligns perfectly with our mission to lead in the green hydrogen economy, ensuring that we remain at the forefront of delivering innovative and sustainable energy solutions. Look, despite our successes, we have faced challenges, particularly this quarter with equipment margins due to strategic inventory reductions and this quarter of product sales. In response, we’ve implemented a series of restructuring measures aimed at reducing costs and improving efficiencies. This includes headcount reductions and operational considerations, which are difficult, but necessary decisions to enhance our long-term sustainability and profitability.

Looking to the future, Plug is poised for significant growth. The foundations we are building today through operational excellence, strategic expansion and a real focus on robust financial health are designed to solidify our leadership in the hydrogen market. As the world continues to turn to sustainable solutions, Plug will be ready to meet and exceed the demands of the growing industry. To conclude, we remain deeply committed to our strategic goals and are optimistic about the opportunities ahead. Now Paul, Sanjay and I are ready to take your questions and provide further insights into our journey.

Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first questions comes from the line of James West with Evercore ISI. Please proceed with your questions.

James West: Hey, good morning, Andy. How are you?

Andy Marsh: Okay, James. Good morning.

James West: So we’re a few more months into your pricing strategy adjustments. And curious, initially, how that went, how it’s going now? I suspect your customers will kind of understand the pricing needed to be adjusted. But I’d love to hear your kind of thoughts or your views on how that process has gone so far and what we should expect over the next several quarters?

Andy Marsh: So James, our primary focus, first and foremost, has been looking to increase the value of — the price of hydrogen and also the price of service. When we look at our top eight customers, six of those customers, we have come to final written contractual agreements and the two remaining customers, we are actually at the point where we’re down to final steps in the negotiations. We expect that the hydrogen business will be approaching gross margin breakeven by the fourth quarter, which will be a major accomplishment. But I think even — and this is broadly with the material handling market, but we’ve actually learned a lot along this journey about the value we are bringing to customers. And it is why I expect during the coming three quarters, that you’re going to see equipment sales and we know where they’re going to be for the second quarter are going to rebound.

We feel really good about that after this recalibration process. And when I look at the electrolyzer business, I can tell you that we have been very successful in raising prices 10% to 15% as we negotiate and work with the customers. So across the board, it’s been a difficult journey, a learning journey by things being really beneficial for the long-term success of this business.

James West: Okay. Got it. And then just a follow-up for me. With Georgia, Tennessee online and Louisiana coming online soon and I think the focus probably shifts to Texas next. But as we think about as we’re getting towards maybe now or the end of the year, how much of your current hydrogen, I guess, green hydrogen supply that you’re providing to customers, are you now and going to be satisfying by year-end with your own production versus buying from third parties?

Andy Marsh: Yes. James, I would expect we’ll be in the 65% range because of growth this year. So today, we’re — today, we’re about at 50 tonnes per day. I expect we’ll be closer to 65 tonnes per day by year-end. We’ll have about 45 tonnes of our own capacity. And you’re right, the next big event after that is bringing taxes online and that should be late in ’25, and that would bring 45 tonnes per day of hydrogen.

James West: Got it. Okay. Great. Thanks, Andy.

Andy Marsh: Thanks, James.

Operator: Thank you. Our next questions come from the line of Eric Stine with Craig-Hallum. Please proceed with your questions.

Eric Stine: Good morning, everyone.

Andy Marsh: Good morning, Eric.

Eric Stine: Hey, so you called out the cost savings measures taken in the quarter, I know previously you had talked about targeting $75 million in annual cost savings. So just curious what you just disclosed for 1Q, is that above and beyond the $75 million? And maybe just some thoughts on given this path you’re going down margins profitability, where those cost savings can go all-in?

Andy Marsh: I’m going to turn that over to Paul.

Paul Middleton: Yes. So a couple of things, Eric. One, we’ve made really good progress. A lot of the actions that we had announced and thought about have been completed and you’re starting to see that in the rates. You’ll see a full quarter benefit of that in Q2 because it was kind of mid-quarter when some of those were taken. There’s also actions that are underway. So some things like rooftop consolidations, some were able to do fairly quickly and some will be completed in Q2. And so you’ll see some of those benefits start to manifest in Q2 and progress on into Q3. We’ve come out of the gate laser-focused on cash management. And across this organization, everybody understands that cost curtailment and cost downs are critically important.

So I’m absolutely optimistic and excited that I’m sure there’s more opportunities as we progress through the year that we’re going to continue to find and look to reduce the cost. So some things are pretty clear and we’re able to act on those pretty quickly. And some things just take some time to work through to figure out what those best actions and activities are. So I think we’re in a great position in terms of what we announced and in a great position of what we can do incrementally.

Eric Stine: All right. That’s good color. Thank you. And maybe just a follow-up. The DOE loan, I know you’ve had confidence in that all along, but it does seem like your commentary this morning would maybe take that up another notch, maybe just current thoughts on timing and next steps.

Andy Marsh: Well, look, I think you hit it on the head, Eric. We continue to advance the process with the DOE and we’re anxiously awaiting the committed approval announcement. And look it is — if you talk about items we’re laser focused on it.

Eric Stine: Got it. And amount, I mean, no changes there. It’s just — it’s consistent with what you’ve talked about in the past?

Andy Marsh: It is consistent with what we talked about in the past.

Eric Stine: Okay. Thank you very much.

Andy Marsh: You’re welcome, Eric.

Operator: Thank you. Our next questions come from the line of Manav Gupta with UBS. Please proceed with your questions.

Manav Gupta: Good morning, guys. It looks like during the quarter, the equipment margins came under particular pressure. There were some improvements in other gross margin, but this is an area where you saw some pressure. But just trying to understand the outlook of it. Do you expect this to improve based on some of the other commentary you have made? But generally, what’s your outlook for the equipment margins? And do you genuinely believe that like 1Q could be the bottom here in equipment margins?

Paul Middleton: Yes, absolutely. I think I would say this, we’ve been pretty consistent that scale and volume makes a big difference. And so when you look at the level of equipment sales in Q1, those are — that was a lower level that those are situations that don’t drive the most opportunistic leverage on labor and overhead. We’ve got the facilities and the capacity to produce substantially more than we’re shipping at the moment. So there’s nothing but upside. And if you look at our forecast, Q1 is, as we’ve been consistently sharing is, always the lowest quarter of the year and it’s in that 10% to 12% range of our sales. And so if you think about that mathematically, that means we’re going to be shipping a substantial amount more and recognizing a lot more in the balance of the year.

So just volume alone is a big benefit. But even some of the cost reduction benefits that we announced in the first quarter those — a lot of those were operational. When you think about rooftop consolidations and headcount reductions and those will pay dividends as we balance through the year and we start to realize the full benefits of that. So it’s absolutely upside from here.

Manav Gupta: Okay. The second question is your outlook for your electrolyzer business. And do you think once the government absolutely finalizes the 45-week guidance, there will be more people who would know exactly what the guidance has looked like. So they’ll be more comfortable placing those electrolyzer order. So just trying to understand what’s your outlook for the sales of electrolyzers for the rest of the year?

Andy Marsh: I’m going to turn that, Manav, over to Sanjay, but I would highlight, when you look at the activities we have, we’re on the ground commissioning 50 megawatts in Europe today. And there’s — that activity in Europe is going to grow and continue to grow. And we expect that if I was going to use a crystal ball at the moment, you may even get some in between guidance in July — June, July time frame. And I would suspect at the moment final guidance at the end of the year, but I will let Sanjay talk about what he expects ahead of that business in 2024.

Sanjay Shrestha: Sure. So Manav I think you should absolutely expect meaningful sequential growth, as Andy just talked about it, right. We have over 20 systems that’s going through site acceptance test as well as final commissioning that will start to show up in Q2, that will start to show up in Q3. And by the way, for 2024, our electrolyzer business is really about executing on a pretty substantial backlog that we already have. Having said that, what you’re going to see here is, Andy touched on our basic engineering design packet, where we have a 4.5 gigawatt of that basic engineering design package. Some of that is in the US. A lot of that is in Europe. We also have a pretty big opportunity on that basic engineering design packet in Asia Pac.

And many of these customers, right, some of them are going into final investment decision by the end of this year. Some of them are going into the final investment decision by early 2025 and you will start to see the basic engineering design packet convert into backlog. And the good thing for us with that is it normally provides us with a substantial growth as you start to look beyond this year and into ’25 and ’26, it also makes this business very, very predictable. We can manage costs. We can manage working capital. We’re working off of a very substantial backlog. So when you look at that and then think about also a pulse from a cost reduction perspective, right, facility consolidation, things we are doing to reduce the overall cost of our stack.

So as you go into the end of this year, you should see pretty substantial change in the margin profile for that electrolyzer business, and that trend will only go to the right and keeps getting better as you go to ’25 and beyond. That’s how we should think about it.

Manav Gupta: Thanks Sanjay for a very detailed response. Thank you.

Sanjay Shrestha: Of course.

Andy Marsh: Thanks Manav.

Operator: Thank you. Our next questions come from the line of Bill Peterson with JPMorgan. Please proceed with your questions.

Bill Peterson: Hi. Good morning, everyone. Thanks for taking the questions.

Andy Marsh: Good morning, Bill.

Bill Peterson: We’d like to talk about the full year and also the first quarter. It did come in light. You did reiterate one-third in first half, two-thirds in the second half. I believe you had previously expected to drive year-on-year growth for your overall business in 2024, perhaps even double-digit growth. And I think that you were expecting originally maybe about 15% of full year revenue would land in the first quarter. That would have for the quarter was lighter than expectations. So I guess, first off, do you still expect to be able to drive year-year growth this year for the business overall? If that’s the case, that implies a pretty large step-up in 2Q revenues in a one-third, two-thirds scenario, maybe some of which is driven by what Sanjay just said.

But were some of the revenues in the first quarter, they didn’t show up and they’re showing up in the second quarter. What’s driving the step-up in the second quarter? And more importantly, what’s driving the step-up in the back half of the year? If you can parse by applications and energy and so forth, that would be helpful.

Andy Marsh: Sure. So Bill, let me take a step back, and I’m going to hand it off to Paul. We do expect, and as I said on the last call, growth this year. It’s certainly — it will be — we would expect that when we look at the numbers that by the first quarter, into the second quarter, we expect to be about 33%. So I think the analysts have us out there and the consensus the analysts have today when we review it in general, we think they’re about right for the second quarter. And so I think what the Street is guiding for the second quarter is in line with our revenue expectations. Paul, maybe you can talk about. I know part of it’s the commission of the electrolyzers, which kind of slipped from the first to second. I know there’s one material handling customers at three sites that were slipping into the quarter, but you may want to talk about that.

Paul Middleton: Yes. And I guess I’d just preface it by say, if you look at the math and you assume Q1 being, call it, 11%, 12% and 10% to 12% in that range of the full year, mathematically, that infers the full year, absolutely is going to grow off of next — last year, as an example. So that’s for sure. And as Andy said, there’s the 5-megawatt system, we’re really excited about that deployment and the pipeline, the backlog, the traction that we’re making, getting the customers to deploy that and work it through those start-up activities. That just provides a learning wheel that we can accelerate deployments as we balance through the year with all of those that we have in the pipeline. So those will come in, in Q2, and there’s a lot of activity for what will happen in the second half.

If you look at the second half, I mean, two-thirds of our sales as we inferred and you have the typical seasonality with material handling and then you have the added compounding benefit of the scaling of these new things that we’re doing with electrolyzers and electrification and new cryogenic hydrogen products that are starting to get traction. So it’s — those are the real compounding factors that drive that second half effect and I think we feel pretty good about Q2 and we feel really good about the full year.

Andy Marsh: Sanjay, maybe you can describe the electrolyzer business because you have the backlog there as well as you in your most of your cryogenic business. Maybe you can touch on that and I’ll touch a little on application.

Sanjay Shrestha: Absolutely. So Bill, I think, one of the key things here that actually did have an impact in Q1, as Paul alluded to, right, so all this 5-megawatt system that we’re going through commissioning process, rev rec happens when you actually do a full site acceptance test, right. A lot of that is on us. Some of that is on customers, and there’s a lot of factors you got to navigate through. And we’ve done that, right. Now I think as we sit here in Q2, you will actually see a lot of those get completed. And based on the number of systems we’re working on, you should anticipate that there’s going to be a pretty big sequential jump in that revenue going from Q1 to Q2 then to Q3, and that’s what’s going to really help the energy business sales.

Second piece here is also our cryogenic business where — and let me break that into two pieces here, right? As you think about our second half of the year for our cryo business, you should expect a meaningful growth in our mobile refueler. You should also expect meaningful growth in our liquid hydrogen trailer business, which obviously has a higher ticket item as well as a better margin profile, giving you a much bigger second half in that business than even in the first half. And finally, on the liquefaction side of our business, we anticipate new awards here, but these are big ticket items as well, right? So I think when you — the way you want to think about it, meaningful revenue contribution happens really in the second half of the year, not so much in the first half of the year, and that’s why this one-third and two-third is the reason why we feel pretty good about based on sort of the high-level growth number we’re talking about for the full year.

Andy?

Andy Marsh: Yes. And on the application side, Bill, we just got done a board meeting, and I can tell you, Jose Crespo, who runs our application business, feels that we don’t include hydrogen in that business, but we feel pretty confident, probably just like some of the cryo business and the electrolyzer business that the funnel is there, the orders are there, and that 35% of our revenue will be associated with applications. Most of that material handling customers, mostly people we’ve done business with for a long time. So I think, in general, this was a rough quarter, recalibrating customers to get through not doing PPAs anymore, so it took a little bit more time to get things closed. Working through the price increases. But I feel good we’ve come out of it, Bill. So — and so we feel we’re — we feel that pretty good about the year. And as Paul said, we’re probably at 10%, 12% of the year. And that we’ve always said we expect revenue to increase this year.

Bill Peterson: Yes. Thanks for the color and insights there. On the DOE loan — conditional loan approval, this looks like this has been shifted out by around 1.5 months. I thought prior expectations were at the end of March. So I guess what is your latest expectation around timing, the feasibility of securing the loan this year? I guess also even especially ahead of a presidential election? And based off the press release, it sounds like you’re thinking the DOE, the process could be waiting on additional, I guess, partners or project, equity investors. If you can explain more of why the delay and what the next steps are and what we should assume to think about for the full year — for the year on this DOE loan?