Plug Power Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; compared with the three months ended March 31, 2017. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context
Plug Power designs and sells hydrogen fuel-cell systems and related infrastructure, services, hydrogen fuel, and power-purchase-agreement (PPA) solutions, primarily for material-handling and stationary-power customers. It is also pursuing ground-support equipment and electric delivery-van applications. The filing is unaudited.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Gross revenue | $29.1 | $15.2 |
| Warrant provision deducted from revenue | $(1.9) | $0 |
| Net revenue | $27.2 | $15.2 |
| Gross loss | $(4.0) | $(4.5) |
| Gross margin on net revenue | (14.6)% | (29.4)% |
| Operating loss | $(20.9) | $(19.6) |
| Net loss attributable to the Company | $(19.8) | $(24.0) |
| Net loss per common share, basic and diluted | $(0.09) | $(0.13) |
| Cash used in operating activities | $(24.0) | $(23.9) |
| Cash used in investing activities | $(4.3) | $(9.6) |
| Cash provided by (used in) financing activities | $49.2 | $(1.5) |
Revenue growth reflected higher fuel-cell and infrastructure sales, service revenue, PPA revenue, and hydrogen deliveries. Systems and infrastructure sales increased to $11.5 million from $2.2 million; 304 units were recognized as revenue versus 34. Despite improved margins in several lines, all major revenue lines remained gross-loss-making except fuel-cell systems and infrastructure sales, which had an 11.7% gross margin. PPA gross margin remained deeply negative at (51.0)%; total gross margin also included the $1.9 million warrant-related revenue reduction.
Research and development expense increased 44% to $8.6 million, primarily for product-reliability work. Selling, general and administrative expense decreased 9% to $8.3 million. Interest and other expense rose 45% to $3.1 million. A $1.3 million gain from the change in fair value of warrant liabilities and a $3.0 million income-tax benefit helped reduce the reported net loss; the tax benefit arose from accounting allocation related to the convertible-note issuance, while deferred tax assets remained fully reserved.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $46.7 million, restricted cash was $42.2 million, and working capital was $32.2 million. At December 31, 2017, these were $24.8 million, $43.2 million, and $3.9 million, respectively. Restricted cash is pledged or otherwise restricted and is not freely available for general use.
- Total assets were $298.3 million; total liabilities were $248.1 million; stockholders’ equity was $49.5 million. Accumulated deficit was $1.2 billion.
- In March, the company issued $100 million of 5.5% convertible senior notes due March 2023, with an initial conversion price of approximately $2.29 per share. The balance-sheet carrying amount was $58.3 million after debt discount and issuance costs; the stated effective interest rate is approximately 16%. The notes are unsecured and have no scheduled principal payments before maturity.
- The notes transaction included a capped call and a forward purchase of 14.4 million shares, at a combined cost of $43.5 million. The filing reports approximately $96.1 million of proceeds before those hedge/forward costs; the detailed proceeds reconciliation shows approximately $52.6 million after the costs and other issuance deductions.
- NY Green Bank term-loan principal was $28.3 million at quarter-end, bears a variable rate (approximately 11.2% then), and matures December 2019. Finance obligations were $62.9 million. The balance sheet also showed $14.8 million current and $12.9 million long-term debt, excluding the separately presented convertible notes.
- Operating cash burn continued: cash used in operations was $24.0 million. Financing cash inflow, principally from the convertible-note financing, brought cash, cash equivalents, and restricted cash to $89.0 million at quarter-end.
Changes, outlook and risks
- Net revenue rose 78% year over year, while net loss narrowed from $24.0 million to $19.8 million. Operating loss widened to $20.9 million from $19.6 million, and operating cash use was broadly unchanged.
- Management said existing working capital, anticipated operating cash generation, and expected borrowing, project financing, and equity proceeds should fund operations for at least one year after issuance of the financial statements. This assessment depends on sales, financing and cost assumptions; the company cautioned that funding may not be available on acceptable terms. It warned that failure to obtain funding and achieve positive operating cash flow could force it to delay, reduce, or cease operations or seek bankruptcy protection. No specific revenue or profit guidance was provided.
- Customer concentration is significant: two customers accounted for 74.2% of Q1 revenue and approximately 77.6% of accounts receivable at March 31. The Amazon and Walmart commercial arrangements contemplate, but do not guarantee, future orders; associated warrants can cover up to approximately 110.6 million shares in total, subject to purchase-related vesting conditions.
- Other key risks include sustained losses and cash burn, dependence on external financing and customer financing, negative margins in services, PPAs and fuel delivery, product reliability and service costs, fuel and component costs, market acceptance, and possible dilution. Management described the $1 million GE indemnification lawsuit as being vigorously defended and stated that known litigation was not expected to have a material adverse impact after considering insurance and accruals.
- The company adopted ASC 606 on January 1, 2018 and reported no significant effect on revenue timing or amount. Disclosure controls were assessed as effective; the filing reported no material change in internal control over financial reporting, apart from controls associated with the convertible notes and ASC 606.
Important facts for investors to verify
- Whether revenue growth converts into sustainable positive gross margins and lower operating cash burn, especially in PPA, service and fuel-delivery activities.
- How much of reported cash is available for operations after restricted cash, lease obligations and other financing requirements.
- The convertible notes’ effective interest cost, repayment or conversion scenarios, and the net financing proceeds after the capped call and stock forward.
- Potential dilution from the convertible notes, Amazon and Walmart warrants, and other equity awards; confirm the vesting and purchase assumptions underlying warrant-related revenue reductions.
- Continuity of major-customer orders and collections, given the reported customer concentration in revenue and receivables.
- Progress against management’s one-year liquidity assumptions and the status and potential exposure of the GE litigation.