Plug Power Continues Its Aggressive Market Expansion

Plug Power continues to meet all of my personal ‘earnings season’ expectations. They’re growing their customer base and satisfying those customers. At the same time, they’re meeting their steadily-increasing sales targets while increasing the size of their addressable market.

In the past, wherever I told people my personal ‘earnings season’ expectations for Plug, they would usually come back to me saying, “That’s all good, except that Plug Power sells their product suite at a loss.” Prior to this last quarter, Plug only achieved positive gross margins one time in history. . . and that time the margins were just north of 100k positive (so relatively negligible). This last quarter, however, Plug Power finally proved that they can sell their product suite to customers for a considerable profit. The company reached a gross margin of nearly 7% positive, and they reiterated their mid-term goal of ~30%.

Now that Plug has finally achieved considerable positive gross margins, people are instead asking me when I think Plug Power will turn a profit. I don’t know that answer. Here’s what I do know, though:

  • SG&A costs have been stable for the last three quarters, proving that the company has reached a ‘critical mass’ within their administrative structure.
  • The company can achieve positive gross margins, which they did this past quarter.
  • Plug has achieved record revenues four out of the past five quarters. So they are, in fact, increasing their revenue nearly every quarter (this is in spite of the larger mix of cheaper Class-3 GenDrive orders).

With stable SG&A and positive gross margins, it all comes down to increasing those gross margins and growing their revenue. For Plug’s current administrative structure, the chart below shows what numbers the company will need to achieve in order to become EBIDTA positive. So if you’re wondering when Plug will become profitable, just look at the chart.


With that out of the way, let’s talk about my takeaways from Q2.


Hypulsion Acquisition

In late July, Plug took over complete control of Hypulsion (now Plug Power Europe), their European joint-venture with Air Liquide. The European market for Plug Power fuel cells is larger than the market here in the United States. . . and from this point forward, Plug management expects growth to occur much quicker in Europe than it did in the United States. I am inclined to believe them, and here’s why:

  • Plug already has the European certifications required to put their product in nearly any forklift within the EU. Even better, they obtained those certifications at zero cash cost.
  • European labor costs are higher than labor costs in the United States (where Plug Power products are currently gaining the most traction). . . and one of Plug’s main value propositions is their products’ ability to reduce labor costs (by eliminating battery swaps and other related inefficiencies). The chart below shows how Europe contains twelve out of the thirteen countries with higher manufacturing labor costs than the United States.



Plug Power Financing

Plug Power’s revenue projections continue to suffer from revenue-recognition issues stemming from their sale-leaseback transactions with banks. Plug hopes to clear-up these issues by bypassing the banks and providing their own financing packages to customers. Not only would these financing packages put an end the current revenue-recognition issues, they would allow Plug to quickly close deals with a wider range of customers. Companies that don’t have the means or desire to pay up-front for GenKey will soon have the option to include quick financing within the GenKey deal itself. This is crucial to landing small-cap costumers, a tier of customers that can substantially increase Plug’s serviceable available market. GenKey has been a huge success in its current form, and adding a financing package to GenKey will likely make deals even more streamlined and popular. Also, Marsh has shown us numerous times that he will not offer a new product unless there are customers lined-up and ready to utilize it, so I expect more of the same with Plug Power Financing.


Developments Regarding Hydrogen Fueling for Smaller Sites

We have plans for [small-site GenFuel fueling systems] today which are simpler and easier. And what probably really excites me is the work we have ongoing to have an offering that can dramatically change the game for us. By the end of the next year I think you’ll see this first generation system which is better than anything else out there, and the next one is going to be even better.  — Andy Marsh

Early in the year, Plug emphasized that they would put a large focus on hydrogen fueling in 2015. We haven’t seen any PRs on this front, but it’s safe to say that the company is putting a strong focus on hydrogen behind the scenes. During the second quarter conference call, Andy Marsh highlighted that they already have a second generation small-site reformer/electrolyzer system in the works even though the first generation system has yet to be released. Plug has a lot of proprietary reformer technology sitting around from their early days, so I’m excited to see if Plug intends to put this IP to use within their upcoming small-site systems.

Yes, it does appear that Plug is currently putting a larger focus on small sites, but I’m alright with that. ‘Small sites’ include retail stores for Home Depot, Walmart (Sam’s Club), and presumably a lot of customers eventually brought-in by Plug Power Financing. ‘Small sites’ also include hydrogen fueling stations for cars. Every one of these small-site groups has the potential to increase Plug Power’s serviceable available market quite substantially. . . and providing fueling systems to these small sites sooner rather than later increases Plug’s domination of the hydrogen market before competitors even surface.


Impending PR for a New Membrane Supplier

I found it interesting that Marsh specifically mentioned an impending PR for a new fuel-cell-membrane supplier. Plug currently uses expensive platinum for the membrane within its fuel cells. The only reason to PR a new membrane would be to highlight some new technology or a much cheaper source of platinum. Either one of these developments would likely reduce the cost of building a fuel cell substantially, further increasing Plug’s gross margins. This is all speculation on my part, so I’m excited to see what develops (if anything).


Plug Continues to Meet All Bookings & Shipments Goals

Even though Plug falls short on meeting their revenue projections (due to revenue-recognition technicalities), they continue to meet their bookings goals and product shipments goals. Now that Plug makes money on every GenKey deal they close, execution on deals becomes more important than revenue predictions. More deals equal more shipments, and more shipments equal more money. Plug is projecting massive growth in bookings over the coming years, and if history repeats itself, they will meet these goals (even though they’ll likely continue to miss revenue targets, based on history).

The Plug Power sales team continues to be a strong point within the company. Now that the Hypulsion deal is closed, Plug finally has their own sales team on the ground in Europe. I’m interested to see how they perform, and I hope to see them exceed expectations as they have here in the United States.



Being an engineer, I’m a huge fan of data collection. As we’ve known for a while, Plug implements data collection and analytics within its GenKey products. Not only does this data help foreshadow/prevent failures, but it provides data to improve future products. Additionally, the data gathering is proprietary, making customers less likely to move away from Plug Power systems as long as Plug continues to show that this data improves product lifespans (which they have been showing thus far).


Other Noteworthy Items

  • By the fourth quarter, the majority of Class-3 GenDrive products will contain Plug Power’s own ReliOn stacks. Plug is moving even faster than they originally planned on this front.
  • Plug is on target to begin rolling-out their own liquid-cooled stacks by the fourth quarter. They have not pushed-back this target since it was first announced last year.
  • Plug is currently able to build 800 units per quarter utilizing less than one shift. Through more process and design improvements, Marsh estimates that they can get the current factory up to 5,000 GenDrive units per quarter, which exceeds the 3,000 to 4,000 units the plant can currently output.

Tours, Meetings, and POWER Trips: How Plug Power is Delivering


There’s been a lot going on with Plug Power over the past few days, and there’s still a lot more to come. Nonetheless, I’ll take this opportunity to step back and to look at the information and perspective I gathered this week.

Latham, NY


I hopped on over to Plug’s Latham, New York facility on Tuesday to experience the first day of their six-city Plug POWERTrip. I was immediately impressed with size of the crowd. I attended last year’s shareholder meeting in July, where there was only a sparse group. In contrast, Tuesday’s event drew a packed house. . . more seats had to be brought in to accommodate the more than sixty guests. The day began with a presentation, but the main draw for me was the factory tour (big thanks to Dan Connelly for showing us around).

During the tour, I made sure to ask the employees way too many questions (a trend that continued during Thursday’s annual shareholder meeting). I gathered a lot of good information throughout the event, and here are my main takeaways:

  • Plug just finished a multi-week renovation of their manufacturing facility, reorganizing the plant to better accommodate their current suite of products (including the skid I’ve been so excited about)
  • Currently, the facility is putting-out twenty GenDrive units per eight-hour shift (they’re currently only running one shift per day)
  • Two years ago, the plant could handle 10,000 units per year; last year the plant could handle 12,500 units per year; this year the plant can handle 15,000 units. . . process improvements continue to increase the existing plant’s capacity without requiring expansion
  • Plug can currently produce one hydrogen GenFuel skid every two weeks
  • P&G approached Plug and asked them to make a >40kW GenDrive for their ‘claw’ trucks, and Plug gave them the new product in less than six months (so Plug has proven that they can now go from a concept to an entirely new fuel cell product within six months)
  • Companies are finally adopting Plug products without asking for trial/test periods. . . companies are now doing full roll-outs for the initial site, followed by multi-site deals
  • The new GenFuel dispensers are leaps-and-bounds better than the hydrogen dispensers Plug rolled-out for Honda a decade ago
  • All GenDrives and Plug Power fueling stations utilize the same hydrogen fuel connectors currently used by fuel-cell cars
  • Plug currently has the rights to discretionally utilize any hydrogen infrastructure deployed at customers’ distribution centers

We finished the day off with a quick story-time. Dan told us a story about a partial trial deployment at an early customer site. On the first day, employees came to work and saw that half of the forklifts had been equipped with fuel cells. Workers were weary to try-out the new technology, so they rushed to sign-out the battery lifts. The late-comers were forced to use Plug’s fuel-cell lifts. As the day wore on, the fuel-cell-lift operators began challenging the battery-lift operators to races, winning each time. At the end of the day, each fuel-cell lift operator moved more palettes than the battery-lift operators. More than pride was at stake in this competition, though, since each lift-truck operator at that facility was paid per palette moved. So the fuel-cell-truck operators brought home more money that day than battery-truck operators. The next day, employees got to work early to sign-out the fuel-cell trucks.

Plug Power’s New GenFuel Skid

New York City, NY

On Thursday I traveled to New York City to attend Plug Power’s annual shareholder meeting and POWERTrip presentation. If you listened to the webcast, I’m the guy who asked Andy Marsh a lot of questions. I’ll provide a run-down of the questions I asked, why I asked them, and what I took away from the answers.

Question 1: Are Plug’s hydrogen GenFuel fueling stations currently being manufactured to easily accommodate cars in the future?

Why I asked this question: I wanted to find out if the company is taking easy steps to make their GenFuel product desirable to the budding fuel-cell-car industry. Plug is always talking about vertical market expansion within material handling, but fuel-cell cars are the way to make Plug a household name. Cars are not a vertical market for GenDrives, but cars ARE a vertical market for GenFuel, so I was hoping that the company is taking the steps necessary to eventually realize this vertical market.

Commentary on the response: It appears the company is taking the necessary steps to address the fuel-cell-vehicle market. Plug Power’s current GenFuel fueling stations include connectors that can accommodate fuel-cell cars right now. The company is also building a roadmap for the GenFuel business, and that roadmap includes eventual expansion outside of material handling and into the automotive industry. Just like the material handling fuel cell market, eventual GenFuel expansion will occur in circles, starting around existing customer distribution centers. Plug has multiple GenFuel sites in California, the North-American birthplace for fuel-cell cars. So in my opinion, the company is currently positioned well to expand their GenFuel business into the automotive fueling industry.

Question 2: When Plug talks about ‘clear visibility into 90% of this year’s revenue goal,’ what is meant by this. . . is this based on talks with potential customers, assumptions, or actual deals signed?

Why I asked this question: I wanted to see just how solid and justified their $100 million revenue prediction for this year was.

Commentary on the response: Marsh said it best, so I’ll quote him here: “Yes, we know what we have. It’s about 92% to be exact. It changed last night.” So the company is already sure about $92 million of their $100 million goal. They have seven months to sign the remaining $8 million in deals. . . and if they can sign $92 million within the first five months of the year, the final $8 million should be a walk in the park.

Question 3: Being such a customer driven company, have customers asked for any new GenDrive product applications that Plug has had to turn down because the product would not be practical/profitable at the moment?

Why I asked this question: I wanted to see how much customers trust Plug to handle all of their fuel-cell applications. . . and to see just how much Plug comes to their customers’ minds.

Commentary on the response: Plug customers have asked for numerous GenDrive applications that the company has had to turn down at the moment. I think it’s a valuable fact that customers immediately think of Plug (instead of shopping around) whenever they dream-up a new potential fuel-cell application. Plug’s name is becoming synonymous with quality within the fuel-cell industry, and you can’t put a price on how valuable that company image is. Customers trust Plug and Plug products. You can doubt Andy Marsh when he says that the company is the world’s leading experts in hydrogen fuel cells, but you can’t doubt it when the customers say it.

Question 4: How have the TRU and range-extender trials been going, and how has GenDrive performed in outdoor applications?

Why I asked this question: I’ve heard a lot about GSE recently, but haven’t heard much from the company about TRU’s and range extenders over the past few months.

Commentary on the response: It sounds like we’ll see a good deal more about range-extenders later this year, but the TRU-market has hit a bit of a snag. While Plug had no problem developing the TRU units from the ground-up within a few months, Plug hasn’t developed a means to provide enough hydrogen to keep the TRU’s filled at customer sites. TRU’s are a huge market that will be ready to roll immediately only after Plug develops their large-scale hydrogen generation/distribution plan later this year.

Question 5: How and when does Plug plan to take a majority stake in HyPulsion?

Why I asked this question: Europe is an enormous market that currently has no impact on Plug’s bottom line, and I wanted to know when Plug would begin reaping the benefits/publicity from this market.

Commentary on the response: Marsh provided a quick, but powerful answer when he said, “Stay tuned.” To me, it sounds like an announcement is imminent. . . so my guess is that we’ll get a PR about HyPulsion sometime soon, possibly when the company talks about global sales in Chicago on June 2nd.

Other takeaways from the annual meeting:

Thanks to other people’s questions, we all got some more noteworthy topics to think about, and here’s my rundown of those topics:

  • Customers are currently running Plug Power’s GenDrive units within autonomous vehicles
  • Later this year, the company will become the world’s leader in hydrogen dispensing. . . and it’s only taken them a year to achieve this milestone
  • The company is selling hydrogen for $5/kg and netting 10% of that money (doing the math, that’s $0.50/kg)

Plug Power’s growth potential is mind-boggling, and I have no doubt that this company will be enormous some day. The company can expand in so many directions, and they are laying the groundwork for that expansion today, all while improving their bottom-line and their customers’ bottom-lines. I firmly believe that Plug is providing tomorrow’s technology today, and I’m excited/privileged to be a part of this journey. Customers are realizing the value of the Plug Power name, and with that customer trust, the company is poised for massive growth. Things are getting exponentially more exciting very fast.


How Plug Power is Prepping for the Mass Market


If you look closely at Plug Power’s recent presentations and sales brochures, you’ll notice sort of a new slogan flying around: Today’s Fuel Cells for proven, reliable power. And if you listen to recent conference calls, you’ll hear Andy Marsh talk about the future of hydrogen fueling stations. He’ll mention other companies’ grand visions for hydrogen stations in the 2020s, but then he’ll interject that Plug Power is actually making those stations today. At one point, Marsh nearly guaranteed that Plug Power would be the company to figure out hydrogen fuel on a grand scale. So it’s no surprise that Plug Power is making some subtle moves to prepare the company for that mass hydrogen fueling market.

As always, investors should listen closely to Plug’s conference calls and carefully read the PRs. . . pay attention to what facts the company highlights, and keep in mind that they carefully choose the wording within their PRs. Recently here’s what has stood out to me:

1. Plug Power highlighted the successful launch of an all-weather hydrogen fueling station at the Memphis Airport

2. Andy Marsh repeatedly mentioned the launch of a mini-GenFuel solution at FreezPak Logistics’ newest facility in New Jersey

3. The company is working on perfecting a GenFuel skid, and Andy Marsh even asked investors to visit Latham and check it out

4. Next month, Plug Power will showcase their hydrogen infrastructure at the Memphis Airport to various government officials and VIPs

While the entire list above is important, I made sure to bring extra emphasis to three italicized phrases: all-weather hydrogen fueling station, mini-GenFuel solution, and GenFuel skid. These three things are essential to creating a mass-market hydrogen fueling infrastructure.

Imagine a state legislature hoping to create a vast hydrogen network within their state, or a local gasoline station looking to install a hydrogen pump to support the growing demand for hydrogen cars. Imagine if that gas station didn’t need to close while installing the new hydrogen pump, and if the system could be slid into place in a few days on a skid. In order for these visions to become a reality, each fueling location would need to be small-scale, suitable for all weather conditions, and turnkey. Plug Power is mastering these mass-market needs today, all while providing value to current customers and reducing company costs.

As a side note, I know that I’m probably a little too enthused about the skid development. But I really appreciate how it shows a push to cut costs through innovation, it provides yet another turnkey solution for current customers (making GenKey even more turnkey than it already was), and it paves the road to penetrating that mass hydrogen market. . . all in one swoop. Impressive stuff in my opinion.

Gevo Investment Thesis



A quote from Gevo’s January business update:

Gevo has developed potentially disruptive new technologies that use ethanol as a feedstock for the production of hydrocarbons, renewable hydrogen, and other chemical intermediates, to augment its use of isobutanol as a feedstock for the alcohol-to-hydrocarbons business. . . Gevo is seeing enhanced interest in its alcohol-to-hydrocarbons business from potential strategic partners and is looking at multiple ways of monetizing this aspect of the business. . . [Gevo plans on] establishing multiple new strategic partnerships to accelerate the development of its hydrocarbons business, inclusive of Gevo’s new ethanol-to-hydrocarbons technologies.

A few weeks after this update, Andy Marsh, CEO of Plug Power (a company that needs a better, cheaper way to produce hydrogen) gets appointed to Gevo’s board of directors. Plug could obviously benefit from a strategic partnership with Gevo, so it’s not too farfetched to believe that this is the real reason why Marsh joined the board.

This is Andy Marsh’s first gig serving on multiple boards at one time. Every move Marsh has made while at Plug Power has been made with great calculation and precision. He isn’t known to show his hand without an impending end-goal in sight. Being on Gevo’s board gives him insight into their alcohol to hydrocarbons technology, which is currently drawing interest for its hydrogen-producing capabilities. And Plug is making it obvious that cheaper hydrogen generation is their largest goal, so this partnership could make sense. Gevo is a struggling company at the moment, so it would be smart for Plug to license or purchase their technology while it is relatively cheap.

So, for Gevo, my primary thesis is short: Andy Marsh and their hydrogen-producing alcohol-to-hydrocarbons technology. If Gevo sells-off this aspect of their company, I will likely sell my position in Gevo.

I also have a smaller, secondary thesis point, though, and it surrounds Gevo’s budding isobutanol technology. Their isobutanol mixes well with existing fossil-fuels, making it possible to produce cleaner, more renewable fuels without much effort. Isobutanol’s use as a drop-in, turnkey addition to existing fuels makes the substance desirable for licensees who want a quick and easy way to clean-up their fuels and their image. Customers can quickly work towards their renewable energy goals without needing to modify their existing technology.

This secondary thesis-point is a small percentage of my overall thesis for now. However, I will closely monitor this aspect of Gevo’s business over the coming months and decide whether or not it deserves to become a larger percentage of my thesis.

Plug Power Continues to Impress



This past Wednesday, Plug Power christened the new year with a much-anticipated business update. The goal of the conference call was to sum-up the successes of 2014 (and even a few mistakes) and to give the investment community a look into 2015. As is human nature, though, different people took away different things from the event. As for me, I came away from the call incredibly impressed and excited, and here’s why:

1. Plug nailed their lofty $150-million bookings goal and their shipments goal

Leading-up to the day of the conference call, analysts and investors alike were skeptical about Plug’s ability to achieve their bookings and shipments goals, but Plug nailed these two numbers in 2014. They continue to struggle with revenue recognition, though, but they’ll likely figure it out with experience as they move out of the start-up phase.

For a start-up company like Plug, bookings are a critical number and deserve major emphasis. It might not look pretty to the pocket book initially, but start-ups have to ‘start-up’ somewhere. In order to ensure long-term success, Plug needs to get companies into the habit of using Plug hydrogen and eventually re-buying Plug fuel cells every few years.

Ideally, all bookings turn into this growth-friendly recurring revenue stream down the line. Plug can never establish that recurring revenue stream without an initial crop of GenKey bookings, though. By closing-out GenKey’s first year with $150 million worth of orders, Plug has demonstrated the potential value of this stream in a big way, all while reassuring shareholders that many different companies are quickly getting into the habit of using Plug products. Plug continues to land new deals and prove that they can diversify their client-base while keeping existing customers happy (according to Marsh, some distribution centers are seeing a record output per individual since switching to Plug fuel cells). Plug has given me every reason to believe that this trend will continue.

[As a small aside, if you do the math, only $126 million of the $150 million in orders have been announced via PR to-date. That means there are at least $24 million in bookings from 2014 lingering in the background waiting to be announced. Coincidentally, we never got a PR for that eighth Walmart DC in Calgary, Alberta that Marsh mentioned on the call.]

2. Marsh stated that Plug will make an extensive investment in hydrogen generation and distribution in 2015

During July’s shareholder meeting, Marsh first revealed his plans to make a significant investment in hydrogen generation and distribution. This made me a little nervous at first, especially when Marsh stated that the company would likely spend about one-third of their total cash on this endeavor. Once I took my blinders off, though, I began to see the potential. . . I started to dream of analogies between Plug and Hewlett Packard. . . instead of selling massive amounts of ink, though, Plug would sell massive amounts of hydrogen. I eventually came back to reality, and my skepticism-turned-dream became curiosity. Ever since that meeting, I’ve wanted to hear more details about Plug’s plan to monetize their hydrogen vision and improve their current GenFuel margins.

During Wednesday’s conference call, Marsh resurrected this subject. He talked about testing electrolyzers in retail stores later this year. He talked about using Plug’s old reformer technology with a new focus. Then he capped the conference call by saying:

Just as 5 years ago I said the key to Plug’s future was to invest in material handling and build out a full product line, we will be putting a similar focus on hydrogen this year. . . We are going to be the ones who figure out hydrogen fuel. . . We can open-up the $40-billion global market and expand our reach past material handling.

Marsh is raising the bar quite high for this company, and I’m eager to see if Plug can deliver on his promise. Plug has proven their worth at promoting and growing GenDrive, so I have no problem giving them another opportunity to prove themselves with hydrogen generation/distribution. I really can’t wait to see what they come-up with this year.

3. They have $146 million in the bank to help grow the company

Plug has $146 million in cash going into 2015, leaving them a lot of room to invest and expand; the CFO promised to invest this money “aggressively, but prudently.” As a long-term investor, I appreciate a company’s willingness to spend aggressively when the right opportunity presents itself. . . and $146 million gives them plenty of firepower to do just that.

4. There were more than 600 people listening to Wednesday’s conference call

It may seem like something ridiculous to get excited about, but I truly believe this is a positive that most people overlook. Such a large turnout on the call demonstrates the growing popularity of PLUG stock, and that popularity continues to serve as free advertising for the company. Whether it’s from happy investors or disgruntled traders, one cannot underestimate free advertising (wherever it’s source). The company’s lore continues to spread through word-of-mouth (for free). And because of this popularity, Plug is quickly becoming synonymous with hydrogen fuel cells, a coveted position in the alternative energy sector previously held by Bloom Energy.

Some Perspective on Plug Power’s Q3 Update

Plug Power released their Q3 results. . . and people went mad. Looking at the StockTwits stream, you’d think that a Plug-Power fuel cell catastrophically exploded or that the company was under investigation for fraud. Neither of those things happened, yet people were out for blood. . . and I just don’t understand why. I saw the same report as everybody else, and I heard the same conference call as everybody else, but I just couldn’t find anything to be worried about. I even tried to re-read the report and conference call from the perspective of a downtrodden shareholder, but I still couldn’t find anything to be sad about. On the contrary, re-reading the conference call transcript got me even more excited, and here’s why:

  • Plug continues to spend money where it matters. They continue to ramp-up production and increase their workforce (even tripling their sales team). In spite of the costs attributed to this expansion in Q3, the company was only a $5-million late payment and a $2.8-million court settlement away from beating analyst estimates and breaking even for the quarter.
  • Coca-Cola was added to the growing list of repeat customers.
  • Over the past few months, Plug received inquiries from companies in Australia, China, and Singapore. Executives from other companies continue to ask for tours of current customers’ facilities. To me, it sounds like Plug is getting worldwide recognition for their hydrogen fuel cell value proposition.
  • Companies are definitely interested in hearing about Wal-Mart’s growing hydrogen infrastructure. However, companies are even more interested in the work being done in Europe (HyPulsion). We don’t hear much about HyPulsion, except that Plug intends to take majority ownership in that venture next year. I’m just imagining all the good info and PR that will trickle in from Europe once Plug takes that majority stake.
  • ReliOn might actually generate revenue for Plug, even though they were acquired solely for their stack tehnology.
  • As a matter of fact, Plug recently created a GenKey proposition based on ReliOn’s stationary power units.
  • Even more, Plug already has their first customer for the ReliOn GenKey package. . . a multi-site, $20-million deal.
  • Plug customers use six tons of hydrogen daily, and that number is quickly growing. According to the conference call, Plug still has a large hydrogen generation plan up their sleeves. The Praxair deal was only an option for stability and diversification until Plug’s hydrogen generation plan is ready and proven.
  • Plug is currently deploying their first outdoor hydrogen fueling station for FedEx in Memphis. Perfecting an outdoor fueling station sets the company up nicely for entering a mass consumer hydrogen market. Plug is quickly becoming the worldwide experts in hydrogen fueling, and if hydrogen cars take-off, somebody will need to build outdoor hydrogen fueling stations across country.
  • People seem to have misheard Plug’s projections for eventual profitability. The company never mentioned a projected EBITDA breakeven point during the call. They only mentioned that service-related operating margins will be break-even by the end of 2015. Even so, in my eyes, Plug Power is a start-up company that launched this past spring (after their $116-million secondary public offering). To be this close to profitability and to have their list of customers as a start-up in the hydrogen industry is impressive.

I’m really wondering how everybody missed this stuff from yesterday.

Understanding Plug Power’s Contract with Ballard



During Plug Power’s annual shareholder meeting in July, Andy Marsh hinted that execution was one of the few unknowns standing between six Walmart distribution centers and sixty. Plug’s goal is to deploy their fuel cell solution at every Walmart distribution center, but Plug needs to prove they can handle the increased demand first. And for good reason. Up until last year, Plug’s manufacturing floor was relatively idle, and nobody knew exactly how much they could handle.

Not long after the introduction of GenKey earlier this year, Walmart signed the first multi-site GenKey deal. The initial contract started off with just five distribution centers. Plug demonstrated that they could deliver though, so Walmart added another distribution center to the deal (Sterling, IL). And it appears that Plug has exceeded expectations once again. They’ve been able to deploy entirely new sites in about thirty days, and Andy Marsh has increased his plant-capacity estimate to above 10,000 units per year.

Now how does the Ballard deal relate to any of this? It’s obvious that Walmart doesn’t like unknowns. Every move they make is calculated and yearns for certainty. So there’s no doubt they noticed that the Plug-Ballard contract was expiring this year, leaving Plug without a long-term stack supply. Yes, Plug has ReliOn. . . but ReliOn’s integration into the forklift arena is unproven. Customers like Walmart want proven technology. With the Ballard contact, Plug has now set-up five years of crucial stability and reliability within their supply chain.

Plug has proven that their balance sheet is solid. Plug has proven that they can quickly and reliably deploy their GenKey solution. Plug has proven the value proposition behind a GenKey infrastructure. Plug has proven that a transition to their hydrogen and fuel-cell systems is seamless and turnkey. And now Plug has proven that they have a reliable supply chain that can keep-up with demand. There’s little left for them to prove. Time and product-awareness are quickly becoming the only things standing in the way of more orders.

RadioShack’s Last Day Could Be Its First


As I stated in my last post, I sold my entire stake in RadioShack a couple weeks back. But that doesn’t mean I’m ignoring the company. The recent deal with Standard General and Litespeed Management has me pretty intrigued.

I know that RadioShack has inked refinancing deals before, but this one is a bit different. If certain contingencies are met, this deal will give Standard General and Litespeed Management a majority stake in the company, allowing them the revamp the entire board of directors. Hopefully with a new board comes new ideas, new directions, and new life. As always, only time will tell, though. RadioShack still needs to make it through the holiday season with over $100 million in liquidity (along with a renegotiated supplier contract and a viable year-long business plan) before any of this can come to fruition.

Additionally, the deal requires RadioShack to issue 300,000,000 shares to the public with a $0.40 price tag. I’m hoping to see RadioShack reach a new group of investors with this offering. Because in order to attract a new crop of investors, RadioShack will need an absolutely rock-solid plan for the future. If Standard General ends-up buying all of these public shares, it will signify (to me) that RadioShack’s plan just isn’t good enough.

With so many new common shares potentially hitting the market, RadioShack is virtually starting an entirely new company (from a public-equity perspective). If Joe Magnacca’s turnaround plan slows their cash-burn enough for a revamped board of directors to come aboard, the company’s potential is enormous. It could really be day one for RadioShack. With new people and new ideas, a new RadioShack has the potential to innovate on a grand scale. How often is a ‘new’ company able to reach over 3,000 retail locations worldwide on their first day?

I’m eager to see how these next few months play out. In the mean time, I imagine this stock will become a nice toy for day and swing traders.

RadioShack Investment Crossroads


As mentioned in my last RadioShack-related post, I’ve been re-evaluating my position ever since they first announced the refinancing deal last month. And, with 70% of my thesis proven correct, I’ve decided to sell my position for now. Given RadioShack’s current situation, the remaining 30% of my thesis doesn’t offer enough upside at this point in time. Here’s why:

We all know that RadioShack is burning through cash at an expedited pace. Nobody knew exactly how fast, though, until they released their Q2 earnings report a couple weeks ago. In Q2, their cash-on-hand decreased from $61 million to $30.5 million and their credit-line decreased from $362 million to $152 million. If you do the math, you’ll see that they burned through $240.5 million in one quarter, leaving them with only $182.5 million for Q3. That means that Q3 would have to be about 25% better than Q2 in order for the company to stay solvent. With Q2’s burn-rate, though, they’d be lucky to survive through the end of Q3 in September.

To survive solely off of Standard General’s refinancing deal, RadioShack needed to act fast in Q3, finishing the deal and closing 1,100 stores. Fast-forward to September 22, eight days before the end of Q3. RadioShack sends out an SEC filing stating that “The Company and certain of its largest creditors have had discussions with a major vendor concerning potential modifications to the commercial relationship that could be beneficial to a financial restructuring of the Company. These discussions did not result in a change to the commercial relationship at this time but are continuing.”

Emphasizing what I said earlier, RadioShack needed to act fast. If they were acting fast, RadioShack would’ve put out a press release stating that they signed the refinancing deal long ago and already began closing under-performing stores. Instead, they send out an SEC filing announcing that they’re still playing around with other options.

At this point in time, refinancing is no longer enough. Refinancing only gives them the ability to cut costs through store closures, but it doesn’t give them any new cash. And they absolutely need cash NOW. With their low credit rating, RadioShack won’t be able to open-up new lines-of-credit without offering something huge in return. All they can offer at this point, though, is equity. And in their desperation for cash, they’re likely going to have to give up a tremendous amount of equity to get that cash.

So just how much equity would they have to give-up at this point? Well, according to their most recent 10-Q financial statement, they’re currently authorized to issue up to 650,000,000 common shares. As of right now, they’re sitting at around 146,000,000 shares on the open market, so that gives them the ability to issue north of 504,000,000 additional shares without asking current shareholders for approval. And then there’s also 1,000,000 preferred shares and 300,000 Series A shares available to issue.

To make a long story short, RadioShack only has two options now: mega-dilution or bankruptcy. With those being the only two viable options (both of which decrease shareholder value), maintaining my RadioShack investment provides no benefits at this time. So I plan to wait on the sidelines for either bankruptcy or an SPO. An SPO would likely provide the open market with largely discounted shares, making the risk-reward potential dramatically better for the thrill-seeking investor. And being that kind of investor, I wouldn’t hesitate buying back in at an SPO price. Because with RadioShack Labs, Fix It Here, and Defense Mobile rolling out, there’s a lot of potential upside if RadioShack has the time to implement Joe Magnacca’s turnaround plan.

Thoughts on Plug Power Form-4 Filings


Back on June 13, Plug Power chairman George C. McNamee transferred 365,000 of his company shares (nearly 60% of his total ownership) into a trust account that will likely benefit his family years from now. Then on August 26, Air Liquide cashed-in and sold half of their preferred shares, leaving the French gas supplier with just over 50% of their initial position in Plug Power.

With people worrying about the Air Liquide sale, I thought I’d take a minute to look at this through the eyes of a real-world investor:

If you made an investment that saw ten-fold returns, you would likely start looking into ways to maximize your new cash pile. You would re-think your initial investment and weigh your options. You’d take one of three routes regarding that initial investment:

  1. Keep all your shares – You’d likely take this route only if you anticipated probable and extraordinary near-term gains
  2. Sell all your shares – You’d take this route if you lost all faith in the company
  3. Keep some, sell some – You’d take this third route if you had faith in the current company’s long-term future but saw other good investments waiting around the corner

Air Liquide took the third route. A good investor always looks for ways to diversify their cash. It’s both smart and exciting to find other opportunities out there. Yes, Air Liquide has inside knowledge of the company, and yes, this likely means that they don’t anticipate tenfold gains for Plug tomorrow morning. But Air Liquide knows Plug Power is growing exponentially, and they have more than enough shares to benefit handsomely as Plug continues that growth.

As for McNamee, another person with inside knowledge of the company. . . he transferred more than half his shares into a trust account. Maybe he started working on his will, maybe he wants to pay for his grandkids’ college tuition, or maybe he just wanted to avoid taxes. However you look at it, he could have easily sold all those shares. Putting them into a trust account, though, shows that he believes in Plug Power’s long-term viability.

As a long-term Plug Power investor, I realize that I’d be irresponsible to blind myself to other opportunities out there. Like Air Liquide, I will always expand my portfolio as I see fit. That being said, Plug Power still has the potential to be absolutely gigantic someday, so unless my thesis gets proven wrong, I will always keep most of my initial investment in the company.

For all the swing and day traders out there, I have no clue how things will turn out for Plug on a day-to-day basis. For the long-term investors, though, there seems to be a good consensus regarding the benefits of a multi-year (even decade) Plug Power investment.