Plug Power Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. Although the request identifies 2011 Q4, this is an annual filing; selected fourth-quarter figures are included below. Amounts are U.S. dollars unless stated otherwise.
Business context
Plug Power designs and sells PEM fuel-cell systems, principally GenDrive products for forklifts and other material-handling equipment. The company had shifted its focus to GenDrive and consolidated operations in Latham, New York. It reported 85% worldwide share of fuel-cell-powered material handling, citing an industry publication’s September 2010 estimate.
In 2011, Plug Power shipped 1,024 GenDrive units and received orders for 2,503 units. Year-end backlog was 1,969 units, with an indicated invoice value of approximately $36.0 million. Orders and backlog are not necessarily shipments or recognized revenue; some orders remain subject to contingencies.
Financial performance and liquidity
| Metric | 2011 | 2010 | Change / context |
|---|---|---|---|
| Total revenue | $27.6 million | $19.5 million | Up 41.9% |
| Product and service revenue | $23.2 million | $15.7 million | Up 47.6%; higher shipments |
| Operating loss | $31.1 million | $47.5 million | Loss narrowed |
| Net loss | $27.5 million | $47.0 million | Loss narrowed; includes a $3.4 million gain from a change in fair value of warrant liability |
| Loss per share | $1.46 | $3.58 | Basic and diluted; prior periods adjusted for the 1-for-10 reverse split |
| Cash used in operating activities | $33.3 million | $40.8 million | Operating cash outflow continued |
| Cash and cash equivalents at year-end | $13.9 million | $11.0 million | 2011 had no available-for-sale securities remaining |
| Working capital at year-end | $19.4 million | $23.7 million | Decreased |
| Borrowings under line of credit | $5.4 million | None | SVB facility; $7 million maximum availability subject to borrowing-base limits |
Product and service costs were $30.7 million against $23.2 million of related revenue, a negative product-and-service gross margin of approximately 32%. Across all revenue categories, reported direct costs exceeded revenue by approximately $9.3 million, or 33.6% of revenue. These figures exclude operating expenses.
Fourth-quarter 2011 revenue was $11.3 million from product and service, $0.5 million from R&D contracts, and $28,000 from licensed technology. Fourth-quarter net loss was $7.2 million, or $0.32 per share.
Year-end assets were $55.7 million and stockholders’ equity was $29.0 million. The balance sheet also included a $5.3 million common-stock warrant liability. The filing reports $6.5 million of long-term obligations in selected data; the precise composition is not clearly presented in the excerpt.
Material changes and notable items
- GenDrive shipments increased to 1,024 from 552 in 2010; product and service revenue rose 47.6%. Orders increased to 2,503 from 543, and backlog rose to 1,969 from 527 units.
- Research and development expense fell 56.2% to $5.7 million, while selling, general and administrative expense fell 43.1% to $14.5 million. Management attributed the reductions primarily to the 2010 restructuring and GenDrive commercialization focus.
- In May 2011, the company completed a stock-and-warrant offering. Cash-flow reporting shows $22.6 million of proceeds before $1.9 million of issuance costs; $8.8 million of the offering proceeds was initially recorded as warrant liability.
- After year-end, a March 2012 common-stock offering and full over-allotment generated approximately $15.7 million in net proceeds. The filing says proceeds were for general corporate purposes.
- A 2011 ownership change triggered IRC Section 382 limitations. The company estimated that approximately $618 million of net operating loss carryforwards would expire before use; the tax benefits were fully valuation-allowed.
Outlook, risks and contingencies
Management expected cash, anticipated sales and the SVB facility to fund operations through the end of 2012, but stated it could not assure funding beyond 2012 without additional external financing. It warned that, without additional capital before year-end 2012, operations might not be sustainable beyond the first quarter of 2013. The March 2012 offering occurred after the balance-sheet date and should be considered when assessing this outlook.
The company continued to incur losses and negative operating cash flow and stated it might never achieve profitability. Key risks include achieving positive product margins and lowering manufacturing and service costs; converting contingent orders and backlog into shipments and revenue; customer and accounts-receivable concentration; dependence on hydrogen infrastructure and sole- or limited-source suppliers, including Ballard; competition; product reliability and warranty exposure; and the availability of additional financing. Five customers represented 83% of year-end receivables, and three customers accounted for 39% of 2011 revenue.
The SVB facility was secured by substantially all company assets, included financial and operating covenants, and was scheduled to expire August 8, 2012. The company reported compliance with its covenants at year-end. A pending Soroof dispute remained unresolved; Plug Power had agreed to indemnify certain parties for up to $1 million, and GE had made an indemnification claim. Management said it was too early to assess the likelihood of an adverse outcome.
Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2011. The filing’s financial statements received an unqualified audit opinion from KPMG.
Important facts for investors to verify
- Whether the $36.0 million backlog converts to shipments, installation and recognized revenue, and whether older or contingent orders are delayed, modified or canceled.
- Actual cash burn, available borrowing capacity under the asset-based SVB facility, and liquidity after the 2012 equity offering and over-allotment.
- Whether GenDrive gross margins, reliability, warranty costs and service obligations improve as unit volumes grow.
- Customer concentration, receivable collectability, and continued supply and pricing from critical vendors and hydrogen providers.
- The status and potential financial effect of the Soroof litigation and related indemnification claim, and the effect of Section 382 on usable tax attributes.