PLUG POWER INC quarterly report, Q1 FY2021

Plug Power Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; unaudited consolidated financial statements. Amounts below are in U.S. dollars. The company sells hydrogen fuel-cell systems and infrastructure, maintenance services, power through PPAs, and hydrogen fuel.

Financial performance and liquidity

Metric	Q1 2021	Q1 2020
Revenue	$72.0 million	$40.8 million
Gross loss / margin	$12.2 million / (16.9)%	$9.7 million / (23.8)%
Operating loss	$48.3 million	$25.6 million
Net loss attributable to company	$60.7 million	$37.4 million
Basic and diluted loss per share	$0.12	$0.12
Cash used in operating activities	$117.1 million	$60.4 million

• Revenue increased 76%, led by fuel-cell system and infrastructure sales, up 129%, and fuel delivered, up 52%. Systems and infrastructure sales generated a 38.1% gross margin, versus 31.7% a year earlier.
• Service, PPA and hydrogen-fuel lines remained loss-making. Fuel-delivery gross margin fell to (99.0)% from (53.5)%; service gross margin fell to (116.5)% from (58.7)%. The company cited higher fuel costs, service costs and a $1.5 million provision for service loss contracts.
• Research and development expense rose to $9.7 million from $4.8 million; selling, general and administrative expense rose to $25.6 million from $11.1 million. The company attributed increases to expansion, hiring, stock compensation and costs related to the prior-period restatement.
• Cash and cash equivalents were $4.35 billion, restricted cash $344.1 million and working capital $4.90 billion at quarter-end. Cash and restricted cash totaled $4.69 billion.
• Financing activities provided $3.59 billion, principally from approximately $1.8 billion net proceeds from a registered share offering and approximately $1.6 billion from the SK-related share sale. Investing activities used $418.4 million, including $405.2 million invested in available-for-sale securities.
• At March 31, total liabilities included $161.3 million of long-term debt, $191.8 million of convertible notes and $182.8 million of finance obligations. Operating and finance lease liabilities totaled $132.6 million. The secured term loan bears 9.5% interest, matures in 2025 and is secured by substantially all company and guarantor-subsidiary assets; the company reported covenant compliance or waivers.

Material changes and unusual items

• Common shares issued and outstanding increased substantially amid the offerings and conversions. The quarter included 32.2 million shares sold in a registered offering and 55.0 million sold to an SK subsidiary; the latter was priced at $29.2893 per share. Weighted-average shares rose to 513.5 million from 305.2 million.
• The company early adopted ASU 2020-06 on January 1, 2021. Adoption increased the carrying amount of convertible notes by $120.7 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million; it is expected to lower future noncash interest expense.
• Q1 included $1.7 million of revenue reductions for customer warrant provisions and a $0.8 million expense from remeasuring acquisition-related contingent consideration. The filing also describes a $399.7 million Amazon-warrant revenue reduction recorded in 2020, not Q1 2021.
• The company restated previously issued 2018–2020 financial statements. It says investors should not rely on previously released statements for affected periods and should instead refer to the restated information in its 2020 Form 10-K and the comparative figures presented here.

Outlook, risks and contingencies

• Management said available working capital was expected to fund operations for at least one year after issuance of the financial statements. It plans to invest in manufacturing capacity, strategic acquisitions and partnerships, and capital projects. No specific revenue or profit guidance is provided in the filing text.
• Management’s strategy includes expansion into on-road vehicles and large-scale stationary power, international growth, electrolyzers and green hydrogen, and partnerships including SK and Renault. The Renault joint venture, finalized in June 2021, is 50%-owned by Plug Power France and 50%-owned by Renault; each party expected to invest pro rata at least €65 million through 2022.
• Key risks include continuing losses and negative operating cash flow; whether revenue growth can translate into positive margins; customer and supplier concentration; manufacturing scale-up and product reliability; hydrogen supply costs and infrastructure; dilution and convertible-note exposure; and COVID-related or other supply-chain disruption.
• Three customers accounted for 71.2% of Q1 revenue, and two customers represented 67.7% of accounts receivable at quarter-end. Management noted that increased customer usage had raised service costs and that fuel costs were affected by supplier rate increases and force majeure issues.
• Disclosure controls and procedures were deemed ineffective because a material weakness in internal control over financial reporting remained unremediated at March 31. The weakness involved insufficient trained accounting resources and deficiencies affecting expense presentation, lease accounting, impairment and accrual estimates, and interim inventory adjustments.
• The filing describes product-liability litigation related to a 2018 forklift accident, securities class actions and derivative suits concerning disclosures and internal controls. The company reported no legal accruals. It also had $198.6 million of restricted cash required as sale/leaseback security and $144.4 million of letters of credit backed by restricted cash.

Important facts for investors to verify

• Reconcile the restated comparative figures with the 2020 Form 10-K and subsequent amended or corrective disclosures.
• Track remediation and independent testing of the material weakness, and verify the reliability of future financial reporting.
• Assess whether service, PPA and fuel-delivery losses and service-contract loss provisions improve as the installed base grows.
• Verify cash deployment, ongoing operating cash burn, restricted-cash availability, debt and lease obligations, and the funding commitments for strategic ventures.
• Monitor share-count dilution, warrant exercises, convertible-note settlement exposure and customer concentration.
• Review the status and potential exposure of the product-liability, securities and derivative litigation. The filing cover page also marks “No” for having filed all required reports and for submitting all required Interactive Data Files; investors should verify these cover-page certifications and their context.