Plug Power Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. Plug Power develops and sells hydrogen fuel-cell systems, fueling infrastructure, related services, hydrogen fuel and power-purchase-agreement solutions, principally for industrial mobility and stationary power markets.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $143.9 million | $107.0 million | $340.4 million | $215.9 million |
| Gross loss (margin) | $(31.1) million (-21.6%) | $(28.6) million (-26.7%) | $(83.5) million (-24.5%) | $(38.3) million (-17.7%) |
| Operating loss | $(98.7) million | $(54.3) million | $(236.6) million | $(106.4) million |
| Net loss | $(106.7) million | $(65.2) million | $(267.1) million | $(112.1) million |
| Loss per share, basic and diluted | $(0.19) | $(0.18) | $(0.48) | $(0.34) |
- Revenue increased 34% year over year in Q3 and 58% for the nine-month period. Growth reflected higher fuel-cell system and hydrogen-infrastructure sales, more PPA sites and fuel-contract sites.
- Product and infrastructure sales generated positive gross margins: 23.1% in Q3 and 24.4% year to date. Services, PPAs and delivered fuel remained loss-making; total gross loss widened in dollars in Q3 and more than doubled year to date.
- Operating expenses rose to $67.6 million in Q3 from $25.7 million, driven by higher R&D, SG&A and contingent-consideration charges. Nine-month R&D was $37.6 million and SG&A was $106.7 million.
- Net interest expense was $5.4 million in Q3 and $27.9 million year to date, down from the comparable periods, primarily due to note conversions and adoption of new convertible-debt accounting.
- Cash flow: For the first nine months, operating cash use was $348.5 million, investing cash use was $1.014 billion, and financing provided $3.582 billion. Financing included $3.588 billion of net proceeds from public and private stock offerings.
- Liquidity: At September 30, cash and cash equivalents were $3.372 billion; restricted cash was $481.2 million; working capital was $4.518 billion. The company also held $752.8 million of available-for-sale securities and $147.6 million of equity securities.
- Debt and obligations: Long-term debt, including its current portion, was $147.3 million; convertible notes, net, were $192.3 million; finance obligations were $207.8 million. Operating and finance lease liabilities were $162.7 million and $19.8 million, respectively.
Material changes versus comparable periods
- Nine-month net loss increased to $267.1 million from $112.1 million, and operating cash use increased to $348.5 million from $156.5 million.
- Fuel-cell system and infrastructure sales rose to $116.0 million in Q3 from $83.7 million. The company recognized 4,559 GenDrive units and revenue associated with 16 hydrogen sites, versus 3,709 units and 13 sites a year earlier.
- Service economics deteriorated: Q3 service costs rose to $18.7 million against $6.7 million of revenue. Management cited higher freight, materials and labor costs, scrap charges, and lower billings under contract terms.
- Fuel-delivery costs rose faster than revenue. For the first nine months, delivered-fuel costs included approximately $16.3 million of vendor-transition costs, and the company cited higher hydrogen prices, delivery constraints and hydrogen-plant disruptions.
- Equity issuances materially expanded the share count. The company raised approximately $2.0 billion in a registered offering and approximately $1.6 billion from its strategic stock sale to an SK Holdings subsidiary during 2021.
Outlook, commentary and risks
- The filing provides no specific revenue, earnings or margin guidance. Management expected supply-chain-related freight, material and labor cost pressures to continue through year-end 2021 and begin to abate as supply chains normalize; higher hydrogen-molecule costs were expected to persist at least through 2021.
- Management said working capital and cash were expected to fund operations for at least one year after issuance of the financial statements. It planned to invest in manufacturing capacity, capital projects, acquisitions and partnerships.
- Service-contract loss accruals were $33.6 million at September 30, 2021, including $15.6 million of provision for the nine months. Management considered the accrual sufficient but warned that persistent elevated costs, unrealized cost savings, reliability problems or warranty claims could require additional accruals.
- Customer concentration is significant: two customers represented 80.1% of Q3 revenue, three represented 80.6% of nine-month revenue, and one customer accounted for 79.6% of accounts receivable at quarter-end.
- A material weakness in internal control over financial reporting remained unremediated. The company had restated prior-period financial statements and cautioned that previously filed reports for affected periods should not be relied upon; investors should refer to the restated data in its 2020 Form 10-K and 2021 interim filings.
- Legal matters include product-liability and property-damage litigation related to a 2018 forklift incident, securities class-action litigation, and shareholder derivative actions. The company reported no legal accruals.
- Subsequent to quarter-end, Plug Power signed an agreement to acquire Applied Cryo Technologies for approximately $170 million and entered a signing protocol to acquire Frames Group for approximately €115 million, each subject to closing conditions. It also formed the H2A joint venture with SK E&S in October 2021.
- Other notable items include a $8.8 million year-to-date contingent-consideration charge, a $1.3 million impairment charge associated with PPAs, and the January 2021 adoption of ASU 2020-06, which increased the carrying amount of convertible notes by $120.6 million at adoption.
Most important facts for investors to verify
- Whether revenue growth can translate into improving total gross margins, especially in services, PPAs and fuel delivery.
- Whether service-cost savings, equipment reliability improvements and hydrogen-supply normalization materialize, and whether the $33.6 million service-loss accrual remains adequate.
- Cash consumption, planned capital spending and acquisition funding compared with the company’s stated liquidity runway.
- Customer concentration, collection of receivables and the conversion of deployments, backlog and customer arrangements into recognized revenue and cash.
- Progress remediating the material weakness, and the status and potential impact of the disclosed litigation.
- Potential dilution: common shares outstanding were 576.4 million on November 8, 2021; outstanding warrants, stock awards and convertible notes could add shares. The convertible notes’ estimated fair value was approximately $1.007 billion versus a $192.3 million carrying amount at quarter-end.