Plug Power: Risks Still Remain With The Shorts

| About: Plug Power, (PLUG)
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Summary of Q4 earnings and fiscal 2014 guidance.

Extreme volatility due to poor visibility.

Why PLUG will most likely provide better visibility.

With Q4 earnings and fiscal 2014 guidance in, the most poignant question to scores of patient investors is: Will Plug Power (NASDAQ:PLUG) finally turn the corner this year, squeezing the shorts? And, as a nagging side note to the PLUG "soap" is: Will CEO Andy Marsh get his act together once and for all regarding guidance?

Both PLUG's sanguine Q4 earnings release and management's very strong guidance for an EBITDA-positive second half meaningfully solidified Wednesday's rebound in the stock that followed activist short seller Andy Left's expose report on Tuesday, of which, included scathing remarks about the company's business model and everything nasty about the CEO short of a call for his outright arrest.

Summary of Q4 Earnings and Fiscal 2014 Guidance

Briefly, the executive summary of Q4 2013 earnings is as follows:

PLUG reported a net loss of $28.9MM, or 28 cents per share. But excluding a $20.9MM one-time, no-cash loss due to a revaluation of outstanding stock warrants, the company's adjusted loss declined markedly to 8 cents per share from last year's Q4 per-share loss of 25 cents, aligning with Cowan's estimate.

Revenues rose 36% to $8MM from Q4 of 2012. And Y-o-Y metrics were all positive.

Highlights to PLUG's guidance includes:

1) Q1 of $5MM-6MM of revenue, and an EBITDA loss of $5MM-6MM.

2) Q2 of $16MM-18MM of revenue, and an EBITDA of $2MM to $0.

3) Q3 an EBITDA of $0.

4) Q4 Net Income positive, not including the remaining 4.5MM warrants outstanding, of which, will most likely be revalued upward for another one-time charge against earnings.

5) Gross margin to exceed 30% by Q4, mostly by way of the unit-cost benefit of economies of scale inherent with much larger volumes of units produced.

6) Revenue to reach $70MM during fiscal 2014.

7) Orders to reach $150MM during fiscal 2014.

Source: Plug Power, Inc. Discusses Q4 2013 Results (Webcast)

Extreme Volatility Due to Poor Visibility

The trade following the 10 a.m. earnings announcement showed a strong bid for PLUG shares at $7.50 and an equally strong offer at prices at or above $8 throughout the day, until the bulls won out at the bell. PLUG closed at $8, up $1.20, or 17.6% for the day. Approximately more than $1 billion traded hands on Thursday, surpassing the company's $820 million market cap.

The vicious slide and crisis in the stock on Tuesday appears to be over - for now.

However, the most recent episode in the PLUG "play" includes some hefty guidance that PLUG bulls are sure to point out in their fight with PLUG unbelievers, though the growing legion of critics are sure to respond in kind with: "I'll believe it when I see it."

"A lot has happened since our last earnings call. And when I step back and look at it all, I'm more bullish than ever that Plug Power is in the early stages for a rapid growth market," Marsh read from prepared text at the start of the conference call with investors. "I'm also bullish that we will make our goal of EBITDA breakeven in 2014."

After 16 years of more than an accumulated $820 million of real losses, Marsh's sighting of a breakeven EBITDA in 2014 will most likely fall on deaf ears among the most strident of bears, especially Citron Research editor, Andy Left, the figure behind the report which triggered the Tuesday massacre.

"On Thursday management will issue earnings and guidance. We warn investors. YOU CANNOT TRUST MANAGEMENT GUIDANCE," asserted Left, in his report, entitled, "Plugging Into Some Reality: Fair Value of Plug Power is 50 Cents."

Left went on to substantiate his claim against the company in his report by delineating guidance-to-actual discrepancies record of the past three years. You cannot trust any guidance from PLUG, "Not Even a Little Bit," he warned.

At the sight of the Left publication, PLUG cratered a whopping $5.41, or approximately 47.3% from the opening of $11.44.

Why PLUG Will Most Likely Provide Better Visibility

However, as an attentive listener (wouldn't miss this call for the world) to this morning's call, of not only the content of the presentation, but the pitch, tone and timbre of Andy Marsh's response to live questions from analysts, I came away with the feeling that his guidance this time could be a lot closer to actual results than some investors now believe.

From the sound of his responses to the various poignant questions posed by the participating analysts, I believe Marsh will get it straight with future guidance, and the operation at PLUG could be uphill from here. Here's why:

When discussing PLUG's GenKey solution, Marsh sounded confident that the well-publicized Wal-Mart (NYSE:WMT) reorder on Feb. 27 of 1,700+ fuel-cell packs and related services cemented the company's place as a credible supplier to the world's largest and legendarily most-discerning retailer.

And, in my opinion, Marsh should feel very confident in what has transpired, as the news of PLUG's sizable reorder from Wal-Mart splashed quite nicely through the business media, lending a lot of credibility to PLUG's competency that Andy Left appears to not appreciate at this time.

What Andy Left may be missing is, and I'm speculating a little bit here, but I seriously suspect that the sizable Wal-Mart reorder was the result of completed corrections by PLUG's engineers to technical difficulties with the company's fuel-cell packs operating in the field.

Assuredly, Wal-Mart must have been acutely aware of the problems related to the beta testing.

When Marsh delineated the reasons for his expectation of higher gross margins for 2014 at the end of the call, I believe he also provided clues to the reason for the repeated missed expectations of the past, and it also may account for the timing of the Wal-Mart order.

It appears to me that the delays and wild guidance misses may have been the result of intermittent halts to production while the company improved the overall robustness of PLUG's units.

We've "enhanced [the] Gen2 and Gen3 products that will be shipped in 2014, [and they've been] updated for improved reliability and easy service ability," Marsh said. He also reported that PLUG has "improved [the] embedded software," giving the unit a "higher degree of diagnostic accuracy," and therefore less downtime if/when issues arise.

The timing of the new and "enhanced" products, along with Wal-Mart's plunge to expand its order with PLUG by a five-fold clip is probably not a coincidence.

And why would anyone at Wal-Mart order so many units from a man that Andy Left feels, maybe, should be investigated by the SEC for running what he feels amounts to a Ponzi scheme?

Wal-Mart's actions strongly imply otherwise, and I've stated so in previous articles on the subject of the Wal-Mart deal. See Plug Power: Setting Straight Some Harsh Words and Wal-Mart Poised To Go All-In With Plug Power

"We no longer have to prove the value of GenDrive to customers," Marsh claimed. "With the 4,500 units now in the field, [potential customers] assume that this is a viable solution for large-scale deployment," especially when competing large retailers, grocers and others take in the knowledge of Wal-Mart's stamp of approval.

And maybe to lend some credibility to my point, too, is Marsh's announcement on the conference call, in which he tossed more red meat to the bulls when he announced a new and significant order. This time, the order came from another automobile manufacturer (in addition to PLUG's two other vehicle manufacturing customers, BMW and Mercedes).

"And over the last day and yesterday, we received our first GenKey order from a new auto manufacturing company," Marsh announced.

"When I announce the name, people are going to just shake their head and say, yeah, these guys wouldn't do it unless it really makes sense," he added. "And when you convince someone like we convinced to turn their system over to us as a turnkey, I think it says a lot about the company."

That meaningful development shouldn't come as a big surprise, as I'm sure Wal-Mart executives involved in the PLUG program have received calls from other company executives who need that blue-chip testimonial before plunging in with PLUG.

Personally, I've experienced this "me too" phenomenon myself while working as an analyst at another multinational retailer. I've observed grown men and women attempt to keep their jobs by observing the success or failure of others who take, what they may perceive is, a chance on a new thing, before jumping to a decision.

And speaking directly to investors about, what had to be, the Left elephant in the room, Marsh stated, the "[new] GenKey provides a recurring and increasing revenue stream that's expected to give Plug Power a more predictable business model."

Marsh was also asked by an analyst on the call about Left's suggestion that PLUG is doing business with Wal-Mart out of desperation to be affiliated with an iconic customer, giving away the PLUG store in the process.

"We are receiving revenue for the Wal-Mart deal," Marsh said. "I've never talked with Andrew, so I really don't know where he got that information. But, we are receiving payment for the product, the service, hydrogen infrastructure and hydrogen fuel."

"And they're paying for everything, and they're paying at a fair market value for the product, and it's over 1,700 units," he added.

Before Marsh signed off, he reassured investors of his commitment of heightened communications during the rapid increase of orders at the Latham, N.Y. facility.

"And what I continue to commit to the street is, that this company will be extremely transparent during this ramp, because if you're growing as fast as we are, it's difficult to keep track of everything for investors."


I've felt for a couple of months that PLUG has been on the cusp of turning around a 16-year legacy of losses. The "momentum," as Marsh put it, is indeed different this time. The Wal-Mart deal may, in retrospect, turn out to be the inflection point to profitability.

I also believe that PLUG has been working closely with Wal-Mart in a collaborative important to both parties. If, in fact, the technical difficulties experienced with the beta units are indeed corrected, as I believe they have been, I expect other large companies to sign up for PLUG's GenKey solution before the Investment Tax Credits (ITC) expire at the end of 2016.

It's also been suggested that PLUG may experience a heightened demand because of the fast-approaching expiration date of the ITC, which may account for PLUG's lofty projection of $150MM in new orders expected during 2014.

In the meantime, however, PLUG expects to achieve much lower unit costs before the expiration date of the ITC through economies of scale, which comes with much higher production volumes.

Therefore, I believe significant risks still remain with the short sellers of PLUG.

Source: Plug Power, Inc. Discusses Q4 2013 Results (Webcast)

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PLUG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.