Business context and reporting period
Plug Power Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company sells hydrogen fuel-cell systems and infrastructure, related services, power through Power Purchase Agreements (PPAs), and delivered hydrogen. It reported more than 34,000 fuel-cell systems deployed.
In June 2020, Plug Power acquired United Hydrogen Group and Giner ELX to expand hydrogen production, liquefaction, distribution, and electrolyzer capabilities. Management’s stated strategic goal is for more than 50% of the hydrogen used by the company to be green by 2024.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts have been converted from thousands to millions where applicable.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $68.1 million | $57.5 million | $108.9 million | $79.1 million |
| Gross profit | $5.1 million | $10.6 million | $0.6 million | $6.8 million |
| Gross margin | 7.5% | 18.5% | 0.6% | 8.6% |
| Operating loss | $(26.3) million | $(11.9) million | $(52.2) million | $(32.4) million |
| Net loss attributable to the company | $(8.7) million | $(18.1) million | $(46.1) million | $(49.0) million |
| Net loss per common share | $(0.03) | $(0.08) | $(0.15) | $(0.22) |
Q2 revenue rose 18.3% year over year, led by increased fuel-cell unit sales and hydrogen installation revenue. Six-month revenue rose 37.6%. These gains did not translate into stronger overall gross profit: product and customer mix reduced fuel-cell system margins, while service, PPA, and delivered-fuel activities continued to generate gross losses. Q2 PPA gross margin was negative 106.0%, versus negative 35.9% a year earlier.
The Q2 net loss narrowed partly because of a $13.2 million gain on extinguishment of debt and a $17.7 million income tax benefit; the operating loss widened. The tax benefit included effects of convertible-note accounting and deferred tax liabilities from the Giner ELX acquisition. The company continued to maintain a full valuation allowance against its remaining net deferred tax assets.
For the six months, operating cash flow was $(111.2) million, investing cash flow was $(56.6) million, and financing cash flow was $181.6 million. Operating cash use increased from $(48.5) million in the first half of 2019, primarily reflecting working-capital outflows, including inventory and receivables.
At June 30, 2020, cash and cash equivalents were $152.5 million; restricted cash was $230.8 million; working capital was $186.3 million; total assets were $1.03 billion; and stockholders’ equity was $240.0 million. Restricted cash and other collateral support financing and sale/leaseback obligations and should not be treated as freely available cash.
Balance-sheet obligations included $50.9 million of current and $101.8 million of long-term debt, $142.7 million of convertible senior notes net, and $358.3 million of finance obligations. The Generate Capital term loan balance was $141.2 million at quarter-end, bearing 9.5% interest after an amendment that lowered the rate from 12% and extended the facility’s maturity. The company borrowed an additional $25 million under the facility on July 10, 2020.
Material changes versus the prior comparable period
- Revenue increased, but gross profit and gross margin declined in both the quarter and first half.
- Operating expenses rose: Q2 research and development expense was $9.8 million and selling, general and administrative expense was $21.7 million. Management attributed the SG&A increase in part to acquisition and debt-restructuring costs, compensation, stock-based compensation, and added headcount.
- First-half operating cash use more than doubled year over year, while inventory increased to $114.6 million from $72.4 million at year-end 2019.
- Assets and goodwill increased substantially following the June acquisitions. The preliminary purchase accounting recorded $61.7 million of goodwill across the two transactions; acquisition results were described as immaterial for the reported periods.
- Common shares issued, including shares used in acquisitions and the debt repurchase, increased the share count. The filing reported 365.8 million common shares outstanding as of August 5, 2020.
Outlook, commentary, risks, and unusual items
- Liquidity: Management said available working capital, expected operating cash generation, financing sources, and potential equity or debt offerings should fund operations for at least one year after the financial statements were issued. This depends on assumptions about sales, project financing, costs, and cash burn; the company cautioned that future financing may not be available on acceptable terms. No quantified revenue or profitability guidance was provided in the supplied filing text.
- Losses and funding: Plug Power reported continued net losses and negative operating cash flow, with an accumulated deficit of approximately $1.4 billion. Management warned that inability to generate cash or obtain external financing could require reducing or ceasing operations or seeking bankruptcy protection.
- COVID-19: The company remained classified as an essential business and reported no material supply impact observed as of the filing date, but warned that supplier disruption could limit components or raise costs. Increased customer equipment use during the pandemic raised service costs and hurt service and PPA margins; some customers had suspended operations and reduced hydrogen purchases.
- Customer and financing concentration: Two customers represented 88.4% of accounts receivable at quarter-end, and two customers accounted for 77.9% of first-half revenue. Sale/leaseback arrangements involve substantial lease obligations and restricted cash, letters of credit, and pledged collateral.
- Debt and dilution: The company issued $212.5 million of 3.75% convertible notes due 2025, receiving $205.1 million net, and used proceeds in part to repurchase $66.3 million principal of 5.5% notes. The remaining 5.5% notes principal was $33.7 million. The $40 million 7.5% convertible note automatically converted into 16.0 million shares on July 1, 2020. Convertible securities, warrants, stock issuance, and future fundraising create potential dilution.
- Litigation: Product-liability and related lawsuits concern a 2018 forklift accident at a customer facility. Damages were unspecified, and the company said it could not determine the likelihood of an adverse outcome at this stage; it did not expect a material impact.
- Other contingencies: The Generate loan is secured by substantially all company and guarantor-subsidiary assets and includes covenants; the company reported compliance at June 30, 2020. Earn-out consideration for the acquisitions depends on specified milestones and performance.
- Unusual accounting items: The Q2 and first-half results include the debt-extinguishment gain and income tax benefit noted above. Common-stock warrant provisions reduced revenue by $4.4 million in Q2 and $6.6 million in the first half.
Important facts for investors to verify
- Whether sales growth can produce sustained positive gross margins, particularly in services, PPAs, and hydrogen delivery.
- Cash burn, working-capital requirements, and the availability and terms of future financing; distinguish unrestricted cash from restricted cash and collateral.
- Debt, finance obligations, lease commitments, covenant requirements, and the expected effect of the July 2020 additional borrowing.
- Customer concentration, payment timing, and the impact of COVID-19 on customer utilization, fuel purchases, suppliers, and service costs.
- Acquisition integration, final purchase accounting, contingent earn-outs, and progress toward the 2024 green-hydrogen target.
- Potential share dilution from convertible notes, warrants, acquisition shares, and any future use of the $75 million at-the-market offering program.
- Developments in the forklift-accident litigation and any changes to management’s assessment of liquidity, contingencies, or risks.