Plug Power Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Figures are in U.S. dollars unless otherwise noted. Plug Power develops and sells hydrogen fuel-cell systems and related fueling, installation, service, and maintenance solutions, primarily for material-handling equipment. The company acquired substantially all of ReliOn’s assets on April 2, 2014.
Financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $19.9 million | $4.6 million | $42.8 million | $18.6 million |
| Operating loss | $10.7 million | $8.0 million | $24.7 million | $21.0 million |
| Net loss attributable to the company | $9.4 million | $15.9 million | $81.3 million | $33.8 million |
| Net loss attributable to common shareholders | $9.4 million | $15.9 million | $81.5 million | $33.9 million |
| Loss per share, basic and diluted | $0.06 | $0.19 | $0.53 | $0.50 |
| Net cash used in operating activities | Not separately stated for the quarter | $31.0 million | $17.9 million |
Revenue grew sharply as GenDrive shipments rose to 835 units in Q3 from 155 a year earlier, and to 1,687 units for the nine months from 639. Q3 product revenue was $12.6 million and service revenue $6.9 million; nine-month figures were $28.3 million and $13.4 million, respectively. Research and development contract revenue declined year over year.
Combined costs of product, service, and R&D contract revenue exceeded revenue by approximately $1.1 million in Q3 and $3.2 million for the nine months, implying gross margins of approximately negative 5.5% and negative 7.5%, respectively. These are calculated from the reported revenue and cost line items.
At September 30, cash and cash equivalents were $156.5 million, versus $5.0 million at December 31, 2013; working capital was $177.6 million, versus $11.1 million. Total liabilities were $46.8 million. Capital lease obligations were $0.8 million current, with no long-term balance reported; finance obligation was $2.4 million, plus a $0.1 million current portion included in other current liabilities. The $15.5 million common-stock warrant liability is a fair-value derivative liability, not conventional borrowings.
Changes and unusual items
- 2014 revenue growth reflected higher unit shipments, growth in GenFuel and GenCare contracts, and ReliOn contribution. ReliOn accounted for $0.5 million of Q3 and $1.5 million of nine-month product revenue.
- Nine-month common-shareholder loss rose to $81.5 million, principally affected by a $58.4 million noncash increase in the fair value of warrant liabilities. Excluding this accounting change, reported net loss would be materially different; the filing does not provide an adjusted earnings measure.
- Q3 included a $2.4 million legal reserve related to the long-running Soroof dispute. After quarter-end, Plug Power reached a settlement in principle with Soroof on October 24, 2014; the filing says it was being finalized. GE and GEM separately settled and were dismissed from the case. Plug Power also disclosed GE’s $1 million indemnification claim related to the dispute.
- ReliOn acquisition accounting generated a $1.0 million bargain-purchase gain. The acquisition consideration was $4.0 million, paid through issuance of 530,504 common shares and assumption of specified liabilities.
- The company raised approximately $165.7 million net through public offerings in 2014 and received $18.3 million from warrant exercises. Common shares issued were 173.5 million at September 30; 173.1 million were outstanding November 5.
Outlook, liquidity, and risks
Management expected cash, future sales proceeds, and potential proceeds from warrant exercises to fund operations for at least the next 12 months. This outlook depends on assumptions about orders, shipments, costs, and cash burn; no numerical revenue or profitability guidance is provided. The company continued to report operating cash outflows and substantial accumulated losses, including a $930.9 million accumulated deficit. It warned that inability to fund operations could require delaying, reducing, or ceasing operations or seeking bankruptcy protection.
Key disclosed risks include failure to convert orders into shipments and revenue, achieving forecast gross margins or profitability, customer concentration, product reliability and acceptance, component and hydrogen infrastructure availability and cost, and dependence on additional capital. Two customers represented 36.6% of nine-month revenue; four customers represented 80.3% of accounts receivable at quarter-end. Approximately $715 million of tax-loss carryforwards subject to Section 382 limitations were expected to expire unused. Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control during the period.
Important facts for investors to verify
- Whether shipment growth converts into sustainable positive gross margins and lower operating cash burn.
- Cash runway under actual sales, working-capital, and operating-cost trends, without assuming future warrant exercises.
- Final terms and financial effect of the Soroof settlement and the related $1 million indemnification claim.
- Potential earnings volatility from the Level 3 warrant valuation and potential dilution from outstanding warrants, options, and preferred stock.
- ReliOn integration, customer concentration, and the ability to meet service and warranty obligations as the installed base grows.