Yahoo Finance Plug Power Inc. (NASDAQ:PLUG) Q4 2023 Earnings Call Transcript
Plug Power Inc. (NASDAQ:PLUG) Q4 2023 Earnings Call Transcript March 1, 2024
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: Hello, and welcome to the Plug Power Fourth Quarter 2023 and Year End Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to [Merrill Dresty] (ph), Marketing and Communications Manager for Plug Power. Please go ahead, Merrill.
Unidentified Company Representative: Thank you. Welcome to the Plug Power Q4 year-end earnings call. This 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's 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 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 31, 2023, 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 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'd like to turn the call over to Plug Power's CEO, Andy Marsh.
Andy Marsh: Thank you, Merrill, and thank you everyone for joining today's call. On January 24th, Paul and I provided an overview of Plug Power's results and achievements from the past year. A highlight was the launch of our Georgia plant, making us a leader in the PEM electrolyzer space and the world's foremost producer of liquid green hydrogen. This achievement signifies a leap forward for the hydrogen industry, placing Plug Power at the vanguard green hydrogen production and challenging the status quo. Our ambitions continues with the initiation of a joint venture with Olin at St. Gabriel, Louisiana, poised to further assert our leadership in the liquid hydrogen production world with its upcoming operation expected in the third quarter.
Additionally, the securing of a $1.6 billion term sheet from the Department of Energy is a testament to our commitment to enhancing our hydrogen production capabilities across the United States. We expect conditional approval under the term sheet in the coming weeks. Financially, in the past quarter, we made important strides in improving cash management and fostering growth that bolsters cash generation, effectively addressing our going concern. We had operational successes, such as expanding our material handling footprint with giants like Walmart, Home Depot and Amazon, and pioneering with a 1-megawatt electrolyzer system for on-site green hydrogen generation at an Amazon facility. Our launch of innovative platforms and products, including a high power stationary fuel cell system and 100-megawatt electrolyzer project for GALP, underscores our relentless pursuit of innovation and leadership in the green energy sphere.
These efforts reflect our strategic intent to augment our product suite and enlarge our market footprint, cementing our role in spearheading a more sustainable energy future. As we move into 2024, our focus sharpens on fortifying our financial foundation and sustaining continued expansion. Our resolve to propel the hydrogen economy is matched by our strategic shift towards capitalizing on existing investment and a cautious approach to cash management, setting the stage for persistent growth and innovation. Cornerstone to this year's strategic direction is a significant restructuring aim in unlocking $75 million in savings, demonstrating our commitment to operational excellence and fiscal discipline. Additionally, we've reevaluated our pricing to ensure it mirrors the unparalleled view value of our innovative offering.
Looking ahead, investors can expect to see a marked improvement in our financial health, highlighted by improved gross margins and reduced cash outflows, supported by a decrease in working capital. These initiatives are critical for navigating financial complexity and laying down the groundwork for continuous innovation and leadership in the renewable energy sector, promising a clear trajectory for value creation and sustainable growth in the dynamic hydrogen economy. Now, let me turn the discussion over to Paul for financial insights.
Paul Middleton: Good morning, everybody. As I shared back in January in the business update, 2023 was another substantial year for Plug Power, and there were many positives. Focusing specifically on a 10-K filing last night, there are a few highlights I would point out. Based on our actions in the last few months, we have addressed the going concern issue. As we finalized the accounting for the fourth quarter, sales for the fourth quarter came in at $222 million, which was slightly higher than the guidance we had provided back in January. Regarding the material weakness issues identified in our 2022 filing, based on the efforts in 2023, we have resolved the issues that were outstanding, and this reflects a substantial improvement in our key operations and processes.
We have two new specific issues in '23 that relate to new business dynamics, but these are much more narrow issues and we feel confident we can resolve these in the coming months. There were many challenges in 2023 as well, and some of these certainly impacted our Q4 2023 results. The chaos in the hydrogen fuel market in '23 with an unprecedented number of industry fuel facility shutdowns culminated in the third quarter and has since abated, but defects continued into the fourth quarter. Our own hydrogen plant's scale-up effort has taken longer than planned, and given our continued application growth and the new demand from these application sales, it has made the industry shortage and the new facility delays more of a pressing issue. Doing big new things generally often is harder than you plan and often -- and our new product platforms like the 5-megawatt electrolyzer system or high power stationary have held true to this, which in turn pushed some of the sales into 2024 and has delayed some of the cost down activities associated with these new platforms.
Some of the IRA guidance on varied provisions in 2023 were favorable to Plug, but recent guidance on PTC and manufacturing credits were not as favorable as hoped. We are active in the treasury comment process and continue to advocate for final rules that will be more appropriate for the industry. And lastly, as we said last time, the overall economy and political factors like the interest rate hikes have not exactly made it easier to find debt capital efficiently. Given these factors, as we discussed in the January Business Update call, we have decided to make certain decisions to posture for better cash position in lieu of just revenue. As an example, instead of our normal PPA sale leasebacks for which we get revenue, but must restrict a lot of the cash, we held many of those programs in Q4 that were underway in lieu of completing the standard sale leaseback transaction and commenced the program under the new IRA transferability rules, which we believe will allow us to sell the ITC benefits in 2024.
We've also slowed new pilot programs for new platforms, given they generally consume more cash in the initial phases. These were business decisions that will guide our near-term focus as well. During the fourth quarter, we had one of our significant traditional PPA customers move to a direct sales approach and they purchased seven sites. However, given the fuel issues previously mentioned, they pushed the deployment into '24. Also, as I mentioned, we purposely held off on traditional PPA sales leaseback transactions in the fourth quarter for other customers, which resulted in lower sales than historically. And on our 1- and 5-megawatt electrolyzer platforms, these are new designs and new offerings that have taken time to scale. Many new programs were shipped in Q4, but just did not get to final commissioning, hence the respective sales were pushed into '24.
As a net impact from overall lower sales than originally anticipated, this resulted in lower volumes and in turn lower fixed cost absorption. This, coupled with continued new product investments and certain inventory valuation charges as we continue to shape the business model and market approach, overall, resulted in lower gross margins than originally anticipated for the fourth quarter. The inventory provision were non-cash charges, and we remain focused on how to monetize and maximize the leverage of these assets, but given the dynamics, it was prudent to report these valuation adjustments. And the last comment I would make is that given the softening of the capital markets and our stock price, it led us to do a more in-depth evaluation of goodwill we had on our balance sheet.
As a result, we reported a non-cash impairment charge for the goodwill of $250 million. Turning our focus to '24, we know we must significantly improve margins and cash flow and we see this as an opportunity to reset. We are pursuing significant price increases across all offerings, equipment, service and fuel. We've implemented a reduction in workforce and hiring freeze, which will lower payroll costs. We are consolidating facilities and streamlining processes. We're reducing spend on non-personnel costs. We've invested significantly in inventory in 2023 to support the ongoing growth and this means we have much of the material we need for 2024 on hand. And so, our focus now is to optimize and significantly reduce the inventory investment. We're making certain focused commercial decisions, such as pushing traditional PPA customers to direct sales models versus our past practice where we subscribe to solution; we're managing the timing of deployments in certain new platforms with enhanced focus on cash and profitability; we will continue the nurturing effort on these platforms, but focus on escalating the cost curves before we ramp sales efforts.
Now that we've commissioned the new hydrogen facilities in Georgia and Tennessee, we will use these plants to drive margin improvement and fuel cost. Cost at these facilities is expected to be one-third the market cost without any ITC or PTC benefits. And we've slowed investment in the follow-on hydrogen facilities in Texas and New York until we find the right financing solution. In 2024, we are targeting to reduce the cash burn by over 70% from 2023 with lower CapEx, a reduction in investment working capital and improved margins. We're also targeting to leverage these improvements to achieve a positive cash flow rate in the next 12 months. Raising prices, slowing new product scaling and pushing traditional PPA market customers to direct sales models collectively will mean a lower revenue growth rate in the near term compared to our prior history, but we think this paradigm shift is critical and necessary given the market conditions.
And equally important, it will substantially improve the foundation for which Plug will be able to grow more rapidly and profitably in the years to come. We feel confident about these strategic decisions to adjust our near-term focus and to improve cash burn, and we are seeing benefits even in the first quarter. In addition, we filed an ATM facility, which can be used to address the accounting exercise for the going concern analysis given the liquidity available to us under the principal transaction aspect of the facility. Our near-term capital strategy is very focused: drive significant improvement in the cash burn by reducing CapEx, reducing inventory investment, improving margins and tempering new platform spending; work with the DOE to secure the DOE $1.6 billion project financing facility while developing complementary follow-on project financing solutions; leverage the ATM facility as needed as we continue to develop the very debt solutions we are evaluating and continuing to develop very debt opportunities.
The company has received and continues to receive many debt offers, but they have not been for terms that are interesting to the company. Part of this was driven from the ongoing interest rate hikes. The ATM program coupled with the reduced cash burn efforts puts us in a position to be more selective as we continue developing these solutions. I'll now turn it back to Andy.
Andy Marsh: Well, thank you everyone, and we're ready to take questions.
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