Plug Power Management Discusses Q2 2012 Results - Earnings Call Transcript

Plug Power (PLUG)

Q2 2012 Earnings Call

August 14, 2012 10:00 am ET


Cathy Yudzevich

Andrew Marsh - Chief Executive Officer, President and Director

Gerald A. Anderson - Chief Financial Officer and Senior Vice President of Operations


Philip Shen - Roth Capital Partners, LLC, Research Division

Michael Cikos - Sidoti & Company, LLC



Greetings, and welcome to the Plug Power 2012 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cathy Yudzevich, Manager of Investor Relations for Plug Power. Thank you, miss, you may begin.

Cathy Yudzevich

Good morning. Thank you for joining Plug Power to discuss our second quarter results for 2012.

Andy Marsh, CEO; and Gerry Anderson, CFO, will be on this call today. This call will also be archived on our website at in the Investor section under Presentations.

This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, expectations regarding revenues and product orders for 2012.

These statements are based on current expectations that are subject to certain assumptions, risks and uncertainties, any of which are difficult to predict, are beyond our control and that may cause our actual results to differ materially from the expectations in our forward-looking statements.

We encourage our listeners to refer to our SEC filings for a complete recital of our Safe Harbor statement, as well as other risks and uncertainties discussed under Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission on March 30, 2012.

Plug Power does not intend to, and undertakes no duty to update any forward-looking statements as a result of new information or future events.

At this time, it is my pleasure to turn the call over to Andy Marsh.

Andrew Marsh

Thank you, Cathy. Good morning, everyone, and thank you for joining our call.

The good news today is that deployments of our GenDrive systems for the material handling market continued to accelerate.

In the second quarter, Plug Power shipped 388 units compared to 73 units in the second quarter of 2011. This is an increase of 432%. Products were shipped to customers including Sysco for deployment in their new Boston and Long Island distribution centers, BMW, WinCo, Mercedes, P&G Alexandria and Wal-Mart, Cornwall.

The recently announced order from Mercedes was received in early April 2012, and all 72 units were installed and operational by early July. This is the quickest cycle time between receiving an order and deployment at a site requiring new hydrogen fueling stations.

Air Products was able to complete this task in under 90 days, an effort that historically is required from 9 to 12 months.

We believe this bodes well for this -- for the future, and our continuing efforts to decrease the cycle time from orders to shipment.

The Mercedes site is also the first site that is exclusively using Plug's next-generation products, based on our new low and high-power platforms.

Other significant deployments in the second quarter included Sysco Boston, a new distribution center using 185 Plug Power fuel cells; and Sysco Long Island, another new distribution center, using 67 Plug Power GenDrive units.

Also during the quarter, BMW continued to expand their fleet at their facility in Spartanburg, South Carolina. Thus far in 2012, Plug has delivered 60 units, bringing BMW's total fleet to 161 units as of June 30, 2012, and have another 79 units still to be delivered by year's end.

P&G's site in Greensboro, with 129 units, was also now online as is the P&G site in Oxnard, California where 47 units were deployed.

Newark Farmers Market, a leader in wholesale distribution of fruits and vegetables in Northern -- Northeastern United States, serving partners such as the Shop Right grocery chain, deployed 96 units at their New Jersey facility.

Additionally, we're in the process of shipping and installing 254 units for the Wal-mart facility at Washington Court House, Ohio.

We continue to be the leader in deploying PEM fuel cells under 25 kilowatts, with over 2,800 units in the field having 8 million hours of operation. An indicator of our success in the industry is that in the United States, 19 out of every 20 hydrogen fuelings, fills a Plug Power fuel cell.

Another highlight is that all the units currently being shipped are using the next-generation platform for our low and high-power products.

The cost of these platforms reduces the variable cost for the product by up to 30%. Most of the savings come from a reduction in material cost.

Material cost is the largest contributor to our product cost, representing over 80% of the total variable cost of a unit.

By the fourth quarter, we expect the ratio of material cost to product price will be approximately 65%, and will, we believe, reduce to below 60% in 2013. This is one of the keys to our path to profitability.

In the second quarter, Plug Power achieved positive gross margins for product shipments, if one dismisses holdbacks due to 1603. As we have discussed previously, the 1603 holdback revenue will be recognized in later quarters in 2012 with no cost of sales.

The ability to achieve positive product gross margins show that the product cost reduction and scale production were having the expected impact on margins.

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