Plug Power Inc. — Q2 2013 Form 10-Q
Business context and reporting period. Plug Power designs and sells hydrogen fuel-cell systems, primarily GenDrive products for material-handling equipment. This unaudited filing covers the quarter and six months ended June 30, 2013; comparisons are with the same 2012 periods unless noted.
Financial results and liquidity
| Metric | Q2 2013 | Six months 2013 |
|---|---|---|
| Total revenue | $7.50 million | $13.94 million |
| Operating loss | $6.62 million | $12.99 million |
| Net loss attributable to Plug Power | $9.32 million | $17.90 million |
| Net loss per common share | $0.14 | $0.31 |
| Net cash used in operating activities | Not separately stated for the quarter | $10.93 million |
- Six-month revenue declined 9.5% to $13.94 million; Q2 revenue declined 2.1% to $7.50 million.
- Calculated gross loss, after product/service and R&D-contract costs, was $2.01 million in Q2 (about negative 26.8% of revenue) and $4.18 million for six months (about negative 30.0%). The comparable 2012 calculated margins were about negative 23.7% and negative 25.2%, respectively.
- At June 30, cash and cash equivalents were $7.41 million, including separately reported restricted cash of $0.75 million. Net working capital was $11.13 million; total liabilities were $26.97 million.
- The $3.38 million balance under the Silicon Valley Bank line of credit was repaid in January 2013; the facility expired March 29 and was no longer available. Capital-lease obligations totaled about $1.64 million, and the sale-leaseback financing obligation was about $2.52 million, plus a $0.06 million current portion.
- Cash fell from $9.38 million at December 31, 2012. Six-month investing activities provided $3.22 million, mainly from the HyPulsion interest sale; financing activities provided $5.75 million, including equity, warrant exercises, preferred stock and sale-leaseback financing.
Changes versus the prior period
- Q2 shipments fell to 246 fuel-cell systems from 388; six-month shipments fell to 484 from 687. Management said higher-priced product mix helped keep Q2 product and service revenue nearly level despite fewer shipments.
- Operating losses narrowed by about 12% in Q2 and 15% for the six-month period, as lower R&D and selling, general and administrative expenses partly offset weaker revenue and higher product/service costs in Q2.
- Net losses nevertheless increased to $9.32 million in Q2 from $6.48 million, and to $17.90 million for six months from $13.06 million. A non-cash increase in the fair value of warrant liabilities generated losses of $5.83 million in Q2 and $7.96 million for six months; the prior-year periods recorded gains. A $3.23 million gain on the HyPulsion interest sale partly offset the current-period losses.
- Common shares issued increased substantially following the February offering and warrant exercises: 80.68 million shares were issued at June 30 versus 38.40 million at December 31, 2012. The filing reported 80.80 million shares outstanding on August 12.
Outlook, management commentary and risks
- Management expected 2013 operating cash burn of approximately $15–$20 million, described as revised, and believed available cash, recent financing and future sales would fund operations through fiscal year-end 2013. This forecast depends on sales, costs, cash-burn assumptions and continued access to funding.
- The company expected continued net losses and negative operating cash flows. It cited a $3–$4 million expected annual expense reduction from its 2012 restructuring, and was exploring additional debt or equity financing, strategic partnerships and government programs; it had no commitment for additional funds.
- The filing raises substantial liquidity and going-concern uncertainty: continuation depends on future funding, growth in orders and shipments, and profitable performance of after-sale service commitments. Failure to secure funding or improve operations could materially harm the company and threaten its ability to continue operating.
- Air Liquide invested approximately $2.6 million for Series C redeemable convertible preferred stock and acquired an additional 25% of HyPulsion for about $3.3 million; Plug Power retained 20%. The preferred stock carries an 8% annual dividend, senior liquidation rights, conversion and redemption terms, and Air Liquide board-designation and financing-participation rights.
- Other risks include customer concentration (five customers represented 82.1% of receivables at June 30; four represented 63.6% of six-month revenue), GenDrive reliability and warranty costs, order conversion, margin improvement, financing availability and possible Nasdaq delisting. The company reported prior GenDrive component-quality issues and continued retrofits. No legal proceedings were reported; management said disclosure controls were effective and no material internal-control changes occurred.
Important facts for investors to verify
- Whether cash burn, financing availability and operating performance support the stated expectation of funding through year-end; the filing says the company had no commitment for additional capital.
- Shipment/order conversion, unit economics and the company’s ability to improve negative gross margins while meeting service and warranty obligations.
- The potential dilution and economic effects of warrants, preferred-stock conversion and the Air Liquide financing terms.
- The filing’s cash-flow narrative is inconsistent: the financial statements and most liquidity discussion report six-month operating cash use of $10.93 million, while one overview sentence says $7.7 million. Confirm the reported figure against the cash-flow statement.