Plug Power Inc. — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context
Plug Power designs and sells hydrogen fuel-cell systems, hydrogen infrastructure, fuel, and related maintenance and power-purchase solutions. Its core market is material-handling equipment, with additional activity in stationary backup power and newer electric-vehicle applications. The company operates as one segment and relies substantially on third parties for hydrogen supply, financing, and certain components.
Key financial and operating metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $174.6 million | $100.2 million |
| Gross profit (loss) | $2.6 million | $(28.1) million |
| Gross margin | 1.5% | (28.0)% |
| Operating loss | $(69.5) million | $(101.8) million |
| Net loss attributable to common shareholders | $(78.2) million | $(130.2) million |
| Basic and diluted loss per share | $(0.36) | $(0.60) |
| Cash used in operating activities | $(57.6) million | $(60.2) million |
| Cash used in investing activities | $(19.6) million | $(44.4) million |
| Cash provided by financing activities | $119.3 million | $83.0 million |
| Cash and cash equivalents at year-end | $38.6 million | $24.8 million |
| Restricted cash at year-end | $71.6 million | $43.2 million |
| Working capital at year-end | $9.2 million | $3.9 million |
Revenue from fuel-cell systems and infrastructure was $107.3 million; services, $22.0 million; power purchase agreements (PPAs), $22.9 million; and fuel deliveries, $22.5 million. Systems and infrastructure sales generated a 21.3% gross margin. Services, PPAs, and fuel deliveries remained loss-making, with margins of (7.7)%, (58.1)%, and (23.3)%, respectively.
Research and development expense was $33.9 million, up from $28.7 million. Selling, general and administrative expense was $38.2 million, down from $45.0 million. Total assets were $390.3 million; total liabilities were $356.0 million; redeemable preferred stock was $31.6 million; and stockholders’ equity was $2.7 million.
Changes versus comparable periods
- Revenue increased 74% year over year, while gross profit improved by $30.7 million. Management attributed growth to more systems and infrastructure recognized as revenue, additional PPA and fuel-delivery sites, and accounting treatment of sale/leaseback transactions.
- Net loss narrowed by $52.0 million. The comparison includes a $9.2 million tax benefit in 2018 and a favorable $4.3 million change in the fair value of warrant liabilities, compared with a $15.2 million expense in 2017.
- Revenue growth did not correspond to higher shipments: GenDrive shipments were approximately 5,000 in both 2018 and 2017, and hydrogen installations were approximately 17 in each year. Lease classification and revenue-recognition timing affected reported revenue.
- Orders were approximately $225 million, down from $285 million. Backlog was approximately $540 million, up from $500 million; backlog includes items deliverable over periods ranging from about 90 days to 10 years and is not equivalent to near-term revenue.
- Amazon and Walmart accounted for 66.7% of 2018 revenue (22.1% and 44.6%, respectively), versus 71.8% combined in 2017. Walmart represented the larger share in 2018.
In the fourth quarter of 2018, revenue was $59.8 million, gross profit $4.5 million, operating loss $12.9 million, and net loss attributable to common shareholders $16.9 million. Fourth-quarter 2017 revenue was $31.1 million, gross loss $0.7 million, operating loss $17.7 million, and common-shareholder net loss $19.5 million.
Liquidity, debt, and financing
- Operating cash outflow remained significant at $57.6 million. Financing provided $119.3 million, including $95.9 million net proceeds from convertible notes, $30.9 million from Series E preferred stock, and increased finance obligations, offset in part by $43.5 million spent on note hedges and a common-stock forward.
- At year-end, approximately $91.1 million of finance obligations and long-term debt was classified as current; approximately $50 million was due in the second quarter of 2019. The company was negotiating to refinance a majority of these current amounts and warned that alternative debt or equity funding might be needed if negotiations failed.
- The company had $100 million principal amount of 5.5% convertible senior notes due March 2023, carried at $63.2 million net on the balance sheet, and $17.2 million outstanding under its NY Green Bank loan. The loan bore approximately 11.9% interest and matured in December 2019.
- Series E preferred stock raised approximately $30.9 million net, but is subject to monthly redemption or conversion installments beginning May 2019. Conversion terms can result in common-share issuance and dilution. Restricted cash supports financing and leasing arrangements and is not freely available for general use.
- Management stated that available working capital and expected funding sources were expected to support operations for at least one year after issuance of the financial statements, while cautioning that future financing was not assured.
Outlook, commentary, risks, and unusual items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management’s stated priorities include lowering product and service costs, improving reliability, and expanding fuel-cell applications and markets. It acknowledged continued losses and did not indicate when profitability would be achieved.
- ASC 842 lease adoption allowed Plug Power to recognize $16.4 million of gross profit on sale/leaseback transactions in 2018; prior accounting deferred that profit. This materially affects comparability. Adoption also recognized right-of-use assets and lease obligations.
- The company recorded $10.2 million of noncash reductions to revenue for Amazon and Walmart warrants in 2018, compared with $29.7 million in 2017. Warrant estimates and vesting depend partly on future customer purchases and share-price-related valuation assumptions.
- Convertible-note accounting includes a debt discount and an approximately 16% effective interest rate, so reported interest expense exceeds the 5.5% cash coupon. The notes are convertible and may create dilution or cash-settlement requirements; the company’s ability to settle principal in cash depends on available funding.
- Principal risks include continuing losses and negative operating cash flow; refinancing and access to financing; customer concentration and payment risk; dependence on hydrogen availability and pricing; loss-making service and PPA activities; sole-source suppliers and tariffs; product reliability and warranty costs; competition; and reliance on subsidies and incentives.
- A lawsuit arising from a May 2018 forklift accident alleges product defects, inadequate warnings, warranty breach, and negligence, seeking unspecified damages. The company said the case was at an early stage, intended to defend it, and did not expect a material financial impact. In 2019, the company also began replacing certain composite fuel tanks; the manufacturer was funding the incremental replacement cost.
- The company corrected prior-period presentation of certain service and finance-obligation amounts, reducing reported 2017 and 2016 revenue and cost of revenue without changing gross profit or net loss; management considered the correction immaterial. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Progress and terms of refinancing the approximately $50 million due in Q2 2019, and the company’s ability to fund ongoing cash burn without further dilution or restricted-cash pledges.
- Whether gross margins can become positive across services, PPAs, and hydrogen fuel—not only equipment sales—and whether the reported 2018 improvement is sustainable apart from ASC 842 effects and warrant accounting.
- Conversion of the $540 million backlog into shipments, installations, customer acceptance, and cash receipts, including the timing and contingency conditions attached to orders.
- Continuity of Amazon and Walmart demand, customer concentration, receivable collection, and the potential impact of warrant vesting and associated share dilution.
- Lease and financing obligations, restricted-cash release schedules, Series E redemption or conversion choices, and potential dilution from convertible notes, preferred stock, warrants, and equity issuance programs.
- Costs and customer impact of the tank-replacement program, developments in the accident litigation, and any additional warranty, reliability, or service-contract losses.