Business context and reporting period
Plug Power Inc. designs and supplies hydrogen fuel-cell systems and related infrastructure, services, fuel, and power purchase agreements (PPAs), primarily for material-handling and stationary-power markets. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016; amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $17.6m | $31.4m | $53.4m | $64.9m |
| Gross profit (loss) | $0.4m | $0.1m | $0.9m | $(0.5)m |
| Operating loss | $(13.3)m | $(12.3)m | $(39.6)m | $(34.9)m |
| Net loss attributable to common shareholders | $(13.4)m | $(10.2)m | $(38.4)m | $(30.6)m |
| Basic and diluted loss per share | $(0.07) | $(0.06) | $(0.21) | $(0.17) |
- Total gross margin was 2.2% in Q3 and 1.8% for the nine months, versus 0.2% and (0.7%), respectively, in 2015. Product-sale margins improved, but service margins remained negative for the nine-month period; PPA and delivered-fuel margins were also negative.
- Research and development and selling, general and administrative expenses totaled $13.6m in Q3 and $40.5m for the nine months. Nine-month operating expenses rose from $34.4m in 2015.
- Cash and cash equivalents were $42.5m at September 30, 2016, versus $64.0m at year-end 2015. Restricted cash was $45.9m; working capital was $50.4m, down from $88.5m.
- Nine-month operating cash outflow was $29.7m, investing outflow was $45.1m (including $42.7m to construct leased property), and financing inflow was $53.4m. Cash declined by $21.5m over the period.
- At quarter-end, long-term debt was $23.5m and finance obligations were $45.7m, including current and long-term amounts. The secured Hercules term loan carries 10.45% interest, matures in June 2019, and includes cash covenants and an 8.25% end-of-term charge based on facility size.
Material changes versus prior comparable periods
- Q3 revenue fell 44% year over year; nine-month revenue fell 18%. Fuel-cell system and infrastructure sales declined sharply, partly because equipment shipped under 2016 capital-lease sale/leaseback arrangements is recorded as leased property and PPA revenue over time rather than as upfront equipment sales. In Q3, 769 units were shipped and held as leased property; for the nine months, 2,115 units were treated this way.
- Service, PPA, and fuel-delivery revenues grew with the expanding installed base and site count. PPA revenue rose to $9.6m for the nine months from $3.6m, while PPA costs increased faster, producing a nine-month PPA gross loss of $1.3m.
- Nine-month net loss widened to $38.4m from $30.6m, and interest and other expense increased to $3.8m from $0.1m, reflecting borrowing and financing costs. A $4.7m noncash gain from the change in warrant-liability fair value partially offset losses.
- The company entered capital-lease financing arrangements in 2016 and borrowed $25m under the Hercules facility. Nine-month investment in property and leased property increased substantially compared with 2015.
Outlook, risks, contingencies, and unusual items
- Management said current working capital, anticipated operating cash generation, and financing sources under evaluation were expected to fund operations for at least the next 12 months, but noted funding might not be available when needed or on acceptable terms. The company reported continuing net losses and negative operating cash flows and warned that insufficient funding could require it to delay, reduce, or cease operations or seek bankruptcy protection.
- Management’s outlook depends on orders and shipments, positive gross margins, customer financing, market acceptance, cost reductions, and availability of project and other financing. No specific revenue or earnings guidance is provided in the filing text.
- Subsequent to quarter-end, the company elected to pledge approximately $12m of additional cash collateral to eliminate a minimum-cash requirement tied to M&T Bank sale/leaseback arrangements. Much of its cash was already restricted or subject to lender covenants.
- A renegotiated service contract and replacement of 96 older fuel-cell systems reduced projected service-contract losses; the company recognized a $1.1m favorable change in estimate during the nine months. The remaining service-loss accrual was $3.2m.
- Walmart-related revenue represented 41.7% of nine-month 2016 revenue, down from 56.7% in 2015. Two customers represented 50.6% of quarter-end accounts receivable.
- GE and an affiliate sued Plug Power seeking $1m under an indemnification agreement; the company said it was vigorously defending the claim. Management did not expect known litigation, after insurance and accruals, to have a material adverse impact.
Most important facts for investors to verify
- Whether operating cash burn, gross margins, and losses improve enough to reduce dependence on external financing.
- Availability, terms, and covenant compliance for additional Hercules borrowing and other project financing; confirm how much reported cash is unrestricted and usable.
- Economics of PPAs and fuel delivery, including whether these growing revenue streams can achieve positive margins.
- Timing of customer orders, shipments, installations, and revenue recognition, particularly equipment recorded as leased property rather than upfront sales.
- Customer concentration, receivable collections, and the outcome or potential exposure from the GE indemnification litigation.