When a company reports its quarterly earnings, management often presents just a sketch of how the company performed. But equally important for investors is the conference call, where management's commentary colors in the sketch, providing the full picture of the company's recent performance. Let's take a look at some highlights from Plug Power's (NASDAQ:PLUG) most-recent conference call to help discern the full picture for Q1 2016.
Blinded by the light?
Although Plug Power is seeing greater adoption of its hydrogen fuel-cell systems -- it deployed a record 834 GenDrive units during the past quarter -- the company continues to report a net loss. In order to remedy this, management is turning away from the sale/leaseback model that it had previously followed.
According to the CFO, Paul Middleton, the company is opting for a bright idea from another sector:
But I would have you think about some of the varied approaches used in funding solar and wind to give you some perspective on the range of approaches we are considering.
According to Middleton, these new approaches will help the company improve its liquidity, and achieve its goal of deploying its planned PPA sites without having to restrict cash, or raise equity. Although it will take time to see if the new approach yields the desired benefits, management claims that it's already proving successful.
Middleton reported that more than half of the PPA financing requirement for the year have already been completed. The company is working on "other partnerships that collectively will provide the balance of the financing capital for 2016."
Starting on the right foot
In pursuit of positive cash flow, management believes that its successful first quarter indicates that the company is well on its way to achieving its yearly target. According to Paul Middleton:
This first quarter is a strong indication that we are on track for our goal of using less than $20 million for the year in operating cash flows as we continue to grow the sales, and ramp cost down further.
During the first quarter, Plug Power reported using $6.92 million in operating cash flow -- almost 50% less than the same period last year. Furthermore, management reports that the improvement stems from adjusted revenue growth of more than 220% year over year.
Reporting bookings of $72 million in the first quarter, management suggested that the company is well positioned to achieve its target of $275 million in bookings for 2016 -- and more importantly, its goal of reaching breakeven on an EBITDA (earnings before interest, taxes, interest, depreciation, and amortization) basis by the end of the year.
More than just forklifts
Primarily, Plug Power serves the material-handling equipment market -- in other words, forklifts. The company believes that plenty of opportunity still exists in this market, but it's also looking to expand its offerings to other markets.
For example, the company has partnered with FedEx (NYSE:FDX) at its World Hub in Memphis. In April 2015, FedEx began operating 15 ground-support equipment (GSE) vehicles with Plug Power's hydrogen fuel cells, as well as a hydrogen fueling station. In addressing these new opportunities, the company's CEO, Andy Marsh, said:
We've also kicked off expansion on our high-power platform based on plug stack and system designs to grow our markets in the vehicles that are larger than forklift trucks.
Management already is working on a second-generation GenDrive unit for GSE applications, and Plug Power is leveraging its relationship with FedEx to gain exposure to yet another application for its hydrogen fuel-cell technology. Also during the conference call, Marsh revealed that the company is developing a design for FedEx to help the company achieve its goal of deploying delivery trucks that use hybrid hydrogen fuel-cell batteries that extend the range of the vehicles from 60 miles to 160 miles.
Like so many other conference calls, management didn't fall short in offering an optimistic outlook on its future. Unfortunately, the suggestion that the company is on the precipice of an auspicious turnaround is a siren song: alluring and sweet to hear, but if taken too close to heart, one will end up devastated.
The company's revelation that it's foregoing the sale/leaseback model in favor of alternative funding solutions sounds reasonable, but I'm reluctant to accept this as an answer to the company's financial woes. Moreover, the target of using less than $20 million in operating cash flow sounds attainable, but I'll believe it when I see it. Improved performance in the first quarter is commendable, but I suspect that, in one of the year's remaining quarters, the other shoe will drop, and the target will be missed.
Management's long-term plan for expanding into other markets is admirable, but take it with a degree of skepticism. The company's inability to realize profits in the forklift market suggests that success in other markets is far from a guarantee.
All in all, management's comments paint a promising picture, but this is standard operating procedure. The company has a long road ahead in proving to investors that its comments should not be taken with a dose of incredulity.