Plug Power Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Plug Power designs and sells hydrogen fuel-cell systems and related infrastructure, services, hydrogen fuel, and power purchase agreements (PPAs), primarily for material-handling and stationary-power applications.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $18.6 million | $26.4 million |
| Gross loss / margin | $6.8 million / (36.4)% | $4.0 million / (15.1)% |
| Operating loss | $23.5 million | $20.9 million |
| Net loss attributable to the company | $33.9 million | $19.8 million |
| Net loss attributable to common shareholders | $34.0 million; $0.15 per share | $19.8 million; $0.09 per share |
| Cash used in operating activities | $36.3 million | $24.0 million |
| Cash used in investing activities | $2.3 million | $4.3 million |
| Cash provided by financing activities | $37.7 million | $49.2 million |
At March 31, cash and cash equivalents were $39.3 million, restricted cash was $69.9 million, and reported working capital was $77.7 million, versus $38.6 million, $71.6 million, and $9.2 million, respectively, at December 31, 2018. Restricted cash is not freely available for general use. Total assets were $396.2 million and total liabilities were $365.7 million; stockholders’ equity was a deficit of $1.2 million.
Debt and financing included $85.0 million outstanding under a new secured Generate Capital term loan at quarter-end, bearing 12% interest and maturing December 2022. The additional $15.0 million available under the facility was borrowed in April. The company also reported $100.0 million principal amount of 5.5% convertible notes due 2023, with a $65.0 million net carrying amount, and $135.2 million of finance obligations. The term loan is secured by substantially all company and guarantor-subsidiary assets and includes covenants and collateral requirements.
Material changes versus prior-year quarter
- Revenue fell 29.6%, principally as fuel-cell and infrastructure sales decreased 79.1% to $2.2 million. The company recognized 94 fuel-cell units versus 304, and no hydrogen installations versus three.
- Service revenue increased 13.3% to $6.2 million as the installed base under maintenance contracts grew. PPA revenue decreased 12.4% to $4.7 million, while delivered-fuel revenue rose 10.2% to $5.5 million.
- Gross loss widened to $6.8 million. PPA and fuel-delivery lines remained loss-making, with reported gross margins of (91.2)% and (45.3)%, respectively. Management attributed margin pressure in part to higher noncash warrant provisions; total warrant-related revenue reductions were $4.2 million versus $1.9 million.
- Interest and other expense rose to $8.3 million from $3.1 million, reflecting debt and financing costs. The company also recorded a $2.1 million expense from the change in fair value of warrant liabilities, compared with a $1.3 million gain in Q1 2018.
- Operating cash use increased to $36.3 million, with inventory growth a significant working-capital use. The company issued 10 million common shares for net proceeds of $23.5 million and used new loan proceeds to refinance prior debt and terminate approximately $50.3 million of equipment leases.
Outlook, commentary, and risks
Management said existing working capital, anticipated operating cash generation, financing and potential equity proceeds were expected to fund operations for at least one year after issuance of the statements. This depends on assumptions about project financing, sales, costs, and cash burn; the company cautioned that future funding may not be available on acceptable terms. It reported continuing net losses, negative operating cash flows, and an accumulated deficit of approximately $1.3 billion. No specific revenue or earnings guidance was provided in the filing text.
Key risks include achieving positive gross margins and profitability, ongoing cash needs and access to financing, customer concentration and payment risk, product deployment and service execution, fuel and component costs, competition, and potential changes to incentives or regulation. The secured loan’s covenants, collateral coverage test, and repayment schedule add financing constraints. Two customers represented approximately 83.2% of accounts receivable at quarter-end; two customers accounted for 56.2% of Q1 revenue.
Unusual items include $3.5 million received from a vendor to help fund replacement of certain composite fuel tanks that did not meet supply-contract standards; the filing says amounts received reduce costs. A Louisiana lawsuit arising from a 2018 forklift accident alleges wrongful death and personal injury, among other claims. The company said the matter was at an early stage and it could not determine the likelihood of an adverse outcome; it did not expect a material impact. Management also disclosed a prior-period presentation correction that grossed up certain 2018 revenue and cost lines without affecting gross profit or net loss, and characterized it as immaterial.
Important facts for investors to verify
- Whether deployment volumes recover and revenue growth translates into improved gross margins, particularly for PPAs and hydrogen fuel.
- Actual cash burn, the amount and availability of unrestricted liquidity, and the company’s ability to meet the 12% secured-loan payments and other financing obligations.
- Progress against the Generate loan covenants and collateral coverage requirements, and any fees or restrictions tied to project-financing and state employment/deployment targets.
- Customer purchase activity and concentration, as well as the vesting and potential dilution from Amazon and Walmart warrants, preferred stock, and convertible notes.
- Costs, execution, and any further claims associated with the composite-tank replacement program and the Louisiana litigation.