- Plug Power stock price had surged after the company reported healthy Q4 2015 results.
- For the first time, Plug Power managed to exceed all its set targets.
- Plug Power shares appear primed for healthy long-term gains.
Shares of leading hydrogen fuel cell manufacturer Plug Power (NASDAQ:PLUG) climbed 15% after the company reported fourth quarter and full-year 2015 results on March 10 that exceeded expectations. Plug Power reported Q4 2015 revenue of $38.4M, good for a blistering 79.4% Y/Y growth and $2.22M higher than the consensus estimate. Meanwhile the company’s adjusted net loss of $9.9M, or EPS of -$0.05, was an improvement over the previous year’s comparable quarter when net loss clocked in at $13.3M or EPS of -$0.08.
Plug Power ended the year with revenue of $103.3M thus exceeding its target of $100M. It’s important to take note of the fact that this was an important milestone by the company because it marked the first time that Plug Power not only met but exceeded its revenue target. Plug Power shares sold off wildly in early 2014 after famous Wall Street short seller Citron Research accused the company’s management of being in the habit of overpromising and under-delivering. It appears as if Plug Power has now broken that jinx.
Plug Power also managed to exceed its other targets. The company exceeded its target for bookings after finishing the year with contract bookings of $205M compared to its target of $200M. Plug Power exceeded its goal of adding more than 6 new customers in 2015.
One of the most positive takeaways from that report was the company’s gross margins which have improved considerably, thanks to improvements in Plug Power’s GenDrive margins. GenDrive gross margins exceeded 25% by the end of 2015. Fuel stacks contribute 50% to Plug Power’s top line so an improvement in this segment has a strong bearing on the company’s overall gross margin. Four years ago, Plug Power’s GenDrive segment had a gross margin of -22%; the segment recorded gross margin of +21% for the full-year 2015, an impressive turnaround. The improvements in GenDrive margins are coming from the new GenKey solutions that use improved fuel stack membranes from Ballard Power Systems (NASDAQ:BLDP) and 3M (NYSE:MMM). Older GenDrive units were plagued by high premature failure rates leading to Plug Power incurring a high cost of service revenue which have been responsible for the company’s spiraling losses. Plug Power has implemented a monitoring system that allows the company to remotely monitor fuel stacks each time a customer refuels. The company said its customers in aggregate refuel their stacks ~2,500 times a day and the data it had received so far shows that the new fuel stacks are showing no signs of degradation after operating for 2,500 hours. Plug Power said that it remained confident that the new fuel stacks would operate for more than 10,000 hours in the field.
The improvement in Plug Power’s fuel stacks led to a pretty dramatic improvement in service revenue gross margin which improved from -33% a year ago to -21% during Q4 2015. Plug Power said that it had decided to take a $10.1M contract loss provision for contracts that the company anticipates it will incur losses from its older installed GenDrive units.
For 2016, Plug Power said that it expects revenue of $150M, good for almost 50% growth and gross bookings of $275M, good for 37.5% growth. Plug Power says that it expects revenue from its materials handling segment alone to reach $500M in the next 3-5 years. This certainly appears like an impressive target considering that low oil prices are expected to be a significant headwind for alternative fuel companies like Plug Power and Tesla (NASDAQ:TSLA). However, this goal appears achievable when you consider that Plug Power added 1,228 GenDrive units to its installed base in 2015 to finish the year with a total of 3,634 GenDrive units in operation despite oil prices hitting a 10-year low. The company also installed 18 new GenFuel systems during the year.
PlugPower expects to post near-positive EBITDA in 2016 and record breakeven operating cash flow.
Generally, this was a very positive report by Plug Power where the company managed to exceed all its set targets. Plug Power has in the past battled with reliability issues for its fuel stacks, but that now seems to be firmly in the back mirror. Further, the company is confident that all its new product lines will achieve margins of 30% or more sooner or later. Plug Power stock is still a long way off the $8 high it achieved in 2014 before Citron’s bear call sent it crashing. With the company now on the right track, Plug Power stock appears to have considerable upside and now is a good time to buy.