Plug Power Inc. — Q2 2018 Form 10-Q
Business context and period. Unaudited results cover the quarter and six months ended June 30, 2018. Plug Power develops hydrogen fuel-cell systems, fueling infrastructure, maintenance and fuel services, primarily for material-handling and stationary-power markets; it is also pursuing electric delivery-van applications.
Financial performance
Amounts are in millions of dollars except per-share data. Revenue is reported net of provisions for customer warrants.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Gross revenue | $39.9 | $22.6 | $69.0 | $37.8 |
| Net revenue | $36.0 | $20.8 | $63.2 | $36.0 |
| Gross loss | $(2.3) | $(3.5) | $(6.3) | $(8.0) |
| Gross margin | (6.4)% | (17.0)% | (10.0)% | (22.3)% |
| Operating loss | $(23.0) | $(28.1) | $(43.9) | $(47.7) |
| Net loss attributable to common shareholders | $(25.9) | $(42.6) | $(45.7) | $(69.7) |
| Basic and diluted loss per share | $(0.12) | $(0.19) | $(0.21) | $(0.34) |
| Cash used in operating activities | Not separately reported in the filing excerpt | $(45.2) | $(58.3) |
Sales of fuel-cell systems and infrastructure drove revenue growth: Q2 sales increased 141% to $20.6 million, while six-month sales rose 198% to $32.1 million. Service, PPA and delivered-fuel revenue also increased. Warrant provisions reduced revenue by $3.9 million in Q2 and $5.8 million in the first half, compared with $1.8 million in each 2017 period.
Margins and expenses. Q2 system-and-infrastructure gross margin was 25.4%; service margin was 0.9%; fuel-delivery margin was 1.0%. PPA gross margin was deeply negative at (66.9)% in Q2 and (59.1)% in the first half. For the first half, R&D expense rose 35% to $17.1 million, while SG&A fell 24% to $20.6 million. Management attributed the SG&A decrease mainly to nonrecurring 2017 warrant charges and lower compensation, partly offset by $2.6 million of costs investigating a customer-site accident.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $15.0 million; restricted cash was $40.4 million. Working capital was $8.2 million, versus $3.9 million at year-end 2017.
- Cash, cash equivalents and restricted cash totaled $55.4 million. Restricted balances secure lease and financing obligations and are not equivalent to unrestricted operating cash.
- First-half investing cash outflow was $16.4 million; financing cash inflow was $48.9 million. Financing included $52.4 million of net proceeds after the capped call and stock-forward costs, plus sale/leaseback financing, offset in part by debt repayments.
- In March 2018, Plug issued $100 million of 5.5% convertible notes due 2023. Their June 30 carrying amount was $59.8 million, reflecting unamortized discount and issuance costs; the effective interest rate is approximately 16%. The notes are unsecured, with no required principal payments before maturity. The company also paid $43.5 million for a capped call and common-stock forward.
- The NY Green Bank term loan had $27.3 million outstanding, bears interest at approximately 11.8%, and matures in December 2019. The company estimated remaining principal payments of $10.2 million in 2018 and $17.1 million in 2019. Total finance obligations on the balance sheet were $74.3 million.
- Total liabilities were $249.4 million, total assets $276.2 million and stockholders’ equity $26.1 million. The company had an accumulated deficit of $1.2 billion.
Changes, outlook and risks
- Compared with the prior-year periods, revenue expanded substantially and losses narrowed, but the company remained loss-making and generated negative operating cash flow. Gross margins improved overall, while PPA margins worsened.
- Management said it expected available working capital, anticipated operating cash generation, financing and potential equity proceeds to fund operations for at least one year after issuance of the financial statements. This assessment depends on assumptions about sales, cash burn and access to financing; the filing warns funding may not be available on acceptable terms and that failure to secure funding could force a reduction or cessation of operations or bankruptcy proceedings.
- No quantitative revenue, margin or earnings guidance is provided in the supplied filing text. Management identified profitability, positive margins, customer demand, financing availability, working-capital needs and product reliability as important dependencies.
- Customer concentration is material: two customers represented 66.2% of first-half revenue, and three customers comprised 81.5% of receivables at June 30. The filing notes that major-customer loss could adversely affect results.
- Other notable items include the $2.6 million customer-site accident investigation, a $1 million indemnification claim brought by GE that Plug is defending, and potential intellectual-property milestone payments of up to $2.9 million. Management did not expect the disclosed litigation, after insurance and accruals, to have a material adverse impact.
- After quarter-end, the company completed approximately $16 million of financing in August 2018. It also disclosed an expected balance-sheet increase of more than $30 million in finance obligations when the new lease accounting standard is adopted.
Investor verification points
- Verify the pace and quality of reported sales growth, including conversion of shipments and customer commitments into recognized revenue and cash collections.
- Track gross-margin progress by business line, especially the continuing losses in PPAs and the low margins in service and fuel delivery.
- Assess liquidity using unrestricted cash, operating cash burn, restricted-cash release schedules and the availability and terms of future financing.
- Review debt-service requirements, the high effective interest cost of the convertible notes, lease obligations and potential dilution or cash settlement exposure.
- Monitor customer concentration, warrant-related revenue reductions, the customer-site accident investigation and the GE claim.