Summary
- This article discusses disclosures and projections made on Wednesday's Plug Power Inc. business update call. As already suspected by me three months ago, the company missed revised 2022 revenue projections by a mile.
- Adjusted for estimated contributions from recently acquired companies, Plug Power Inc.'s organic revenue growth for 2022 calculates to below 15%.
- Projections for 2023 appear to be way over the top again.
- On the call, management mentioned issues in the electrolyzer segment. In addition, the company's hydrogen generation capacity buildout remains substantially behind schedule.
- After more than a decade of constant under-promising and under-delivering, investors would be well-served to remain on the sidelines until Plug Power finally starts hitting the aggressive targets constantly provided by management.
Note:
I have covered Plug Power (PLUG) previously, so investors should view this as an update to my earlier articles on the company.
On Wednesday's business update call , Plug Power Inc. added another chapter to its decade-long story of overpromise and underdeliver as the company missed recently revised 2022 expectations by a mile again, very much as projected by me already three months ago.
At the mid-point of the new range, full-year 2022 revenues calculate to approximately $740 million, a far cry from the $825 million consensus estimate and approximately 20% below management's original range of $900 million to $925 million.
Even worse, organic growth was nowhere near the 45% to 50% indicated in the slide above. After adjusting for an estimated $165 million in contributions from recently acquired companies Applied Cryo Technologies, Frames Group and Joule Processing, Plug Power's year-over-year growth rate calculates to below 15%.
On the call, management admitted to a number of issues in the electrolyzer business which allegedly will be sorted out in the very near future. Electrolyzer backlog was stated at 2 GW, up from the 1,5 GW number provided in the Q3 investor letter , but backlog disclosed in the company's regulatory filings are constantly showing much lower numbers, likely due to management including large-scale projects like the 1 GW Esbjerg facility which remains subject to final investment decision ("FID").
As also expected by me for some time already, Plug Power failed miserably in ramping green hydrogen production capacity and ended 2022 with a paltry 2.5 tons per day of green hydrogen production at its Georgia plant as compared to 70 tons projected by management at the beginning of the year.
Even after having watered down buildout targets from "production" to "commissioning" in recent quarters and including plants utilizing byproduct hydrogen from strategic partner Olin ( OLN ), I do not expect Plug Power to commission plants with a capacity anywhere close to the projected 200+ tons per day this year.
As shown in the slide above, the company is banking on 45+ tons per day in capacity from projects which still remain in the exploration phase as of the time of this writing with commissioning in 2023 being highly unlikely.
In addition, except for the Georgia facility, no plant is expected to come online in the first half of the year with the Louisiana facility and Tennessee plant expansion still lacking construction permits.
Even when assuming all plants progressing according to the revised buildout schedule, hydrogen production won't be scaled to 200 tons per day before somewhere in H1/2024 and this number does not refer solely to green hydrogen.
Even after more than a decade of over-promising and underdelivering, Plug Power Inc. management apparently still hasn't learned from past missteps, as it continued to provide highly aggressive financial targets for 2023 and beyond:
To put management's 2023 projections in context:
- Organic revenue growth is expected to approach 90% this year, up from below 15% in 2022.
- Gross margin is projected to reach 10%, up from an estimated negative 20% to 25% last year.
- Operating expenses are expected to decrease to 34% of revenues as compared to an estimated 55% in 2022.
Please note that Plug Power has missed out on each and every projection related to margins, cash flows, and profitability made by management over the past decade, with the guidance for 2023 perhaps being the most ambitious annual forecast ever provided the company.
Remember also that the company is facing an up to $100 million revenue headwind this year, as recently acquired Frames Group has largely worked through its legacy backlog of engineered oil and gas equipment.
In the question-and-answer session, analysts once again provided management the opportunity to make even more questionable statements and projections, with CFO Paul Middleton stating Plug Power's year-end cash position at around $3 billion and projecting this number to remain roughly the same at the end of the year despite anticipated capital expenditures of approximately $1 billion for 2023.
Keep in mind that this number includes more than $800 million in restricted cash mostly related to sale-and-leaseback agreements for material handling equipment which are predominantly entered for revenue recognition purposes (as opposed to liquidity relief, which remains limited by the requirement to provide large amounts of cash collateral).
With the company having extended its lease offerings beyond core customer Walmart ( WMT ) in recent years, the amount of restricted cash on the balance sheet has grown exponentially and is likely to increase even further this year:
Company SEC-Filings
While the company expects to secure project financing for its new hydrogen production facilities and has applied for a $520 million loan guarantee from the DOE, I would be very surprised to see any of these anticipated funds come through with only one green hydrogen facility expected to enter full production in the first half of the year and the Louisiana and Tennessee plants utilizing byproduct hydrogen from Olin.
Management also pointed to Q1 benefiting from projects that slipped from Q4 into 2023, thus likely resulting in considerably lower seasonality, but minutes later projected two thirds of projected annual revenues to be recognized in the second half of the year as compared to a mix of roughly 40/60 in both 2021 and 2022.
In addition, after being poked by an analyst on the issue, management stated that the company won't be part of Fortescue Future Industries' ("FFI") electrolyzer gigafactory in Queensland, Australia, allegedly due to insufficient project economics.
Remember, the original letter of intent provided for Plug Power and FFI to establish a 50:50 joint venture for the construction of the world's largest electrolyzer production facility.
Under the agreement, FFI was also expected to purchase 250 megawatts of the company's electrolyzer solutions for its Australian projects which Plug Power expected to supply from its U.S. facility with delivery originally planned for the second half of 2022.
The terminated agreement with FFI is just the latest example of the company not bringing up negative developments for investors, very similar to last year's business update call when management discussed the surprise cancellation of a much-touted green hydrogen project with Brookfield Renewable Partners in Pennsylvania only after analyst questions surfaced on the call.
Bottom Line
Just four weeks ago, the company's abysmal 2022 performance would have likely resulted in the stock dropping into the single digits, but with market participants' risk appetite having increased considerably since the beginning of the year, I would expect analysts and investors to focus on the company's ambitious growth and profitability projections rather than looking in the rear view mirror.
But after more than a decade of under-promising and underdelivering, and given the sheer magnitude of improvements projected by management for this year, investors would be well-served to prepare for Plug Power underperforming expectations by a wide margin again.
While Plug Power Inc.'s disappointing 2022 performance is unlikely to pressure the stock on Thursday, investors should remain on the sidelines until the company finally starts delivering upon its aggressive targets.
For further details see:
Plug Power: Another Year Of Overpromise And Underdeliver Likely Ahead