Plug Power Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 9, 2018. This is an annual report, not a standalone fourth-quarter filing. The company designs and sells hydrogen fuel-cell systems, hydrogen infrastructure, fuel, and related services, primarily for material-handling and stationary-power customers.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Gross revenue | $132.9 million | $85.9 million |
| Warrant-related reduction to revenue | $29.7 million | None reported |
| Net revenue | $103.3 million | $85.9 million |
| Gross profit (loss) | $(28.1) million; (27.2%) margin | $3.9 million; 4.6% margin |
| Operating loss | $(101.8) million | $(51.5) million |
| Net loss attributable to common shareholders | $(130.2) million; $(0.60) per share | $(57.6) million; $(0.32) per share |
| Cash used in operating activities | $(60.2) million | $(29.6) million |
- Net revenue increased 20.2% year over year, while gross revenue rose 54.7%. Fuel-cell system and infrastructure revenue increased 78.3% to $71.3 million; service revenue rose 11.3% to $22.8 million; PPA revenue rose 48.2% to $20.3 million; and hydrogen-fuel revenue rose 67.7% to $18.3 million.
- FY 2017 included $29.7 million of Amazon- and Walmart-related warrant costs recorded as a revenue reduction ($17.3 million and $12.4 million, respectively). The company also recorded $7.1 million of Amazon warrant-related SG&A expense. These items materially affect comparisons and reported margins.
- Product sales generated a 23.1% gross margin, down from 26.1%. Service margin remained negative at (3.5%), PPA margin worsened to (51.1%) from (17.9%), and fuel-delivery margin improved to (20.3%) from (27.0%).
- FY 2017 fourth-quarter net revenue was $31.9 million, gross loss $0.7 million, net loss attributable to common shareholders $19.5 million, and loss per share $0.09.
- At year-end, cash and cash equivalents were $24.8 million, restricted cash $43.2 million, and working capital $3.9 million, versus $46.0 million, $54.6 million, and $44.4 million, respectively, a year earlier. Inventory increased to $48.8 million from $29.9 million.
- Operating cash outflow was $60.2 million; investing cash outflow was $44.4 million; financing provided $83.0 million. Financing included $23.0 million of net public-offering proceeds, $20.1 million of net long-term borrowings, $17.6 million of warrant-exercise proceeds, and $26.7 million of increased finance obligations.
- Year-end total liabilities were $196.5 million. Finance obligations were $71.6 million, and long-term debt carrying value was $32.1 million. NY Green Bank loan principal was $32.8 million, at approximately 10.8% interest, maturing December 2019; estimated principal payments were $19.1 million in 2018 and $13.7 million in 2019.
Material changes and business developments
- Orders were approximately $285 million in 2017 versus $280 million in 2016; reported backlog exceeded $500 million at year-end, compared with approximately $380 million a year earlier. Backlog includes long-duration service and fuel commitments and is not equivalent to near-term revenue.
- Amazon and Walmart accounted for 71.8% of FY 2017 consolidated revenue, approximately 42.4% and 29.4%, respectively. The company issued each a warrant for up to 55.3 million shares, with vesting tied largely to customer payments for purchases. At year-end, 13.1 million Amazon warrant shares and 5.8 million Walmart warrant shares had vested.
- Shares issued and outstanding increased from approximately 191.1 million at year-end 2016 to 228.5 million at year-end 2017. Further warrant vesting or equity financing could increase dilution.
- The company deployed 3,293 GenDrive units recognized as revenue in 2017, compared with 1,383 in 2016; another 1,785 units were shipped and held as leased assets. It had 33 GenKey sites associated with PPAs, versus 25 in 2016.
Outlook, risks, and unusual items
- Management stated that current working capital and anticipated operating cash, financing, and equity proceeds were expected to fund operations for at least one year after issuance of the financial statements. This depends on assumptions about sales, financing, costs, and cash burn; the company cautioned that future funding is not assured. It reported no operating profitability since formation and an accumulated deficit of approximately $1.2 billion.
- No specific revenue, earnings, or margin guidance is provided. Management emphasized cost reduction, product reliability, service support, and continued development, including ProGen and adjacent vehicle markets.
- Key risks include continued losses and operating cash outflows; dependence on external and customer-project financing; restricted cash supporting leasing arrangements; customer concentration; negative margins in service, PPA, and fuel activities; execution and product-reliability risks; hydrogen supply and cost; sole-source components; and competition and dependence on incentives.
- The NY Green Bank loan is secured by substantially all company and guarantor-subsidiary assets, includes restrictive covenants, and may incur up to $1.8 million in additional fees if specified New York deployment and employment goals are missed. The company said it was on track to meet those goals.
- A New York State Supreme Court action by GE seeks $1 million under an indemnification agreement; Plug Power said it is vigorously defending the case. Management stated that known litigation, after considering accruals and insurance, was not expected to have a material adverse impact.
- A material weakness in the design and operation of a control over restricted-cash classification was identified during the fourth quarter and reported as remediated by year-end. Prior-period errors were described as immaterial. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2017.
- The 2017 Tax Cuts and Jobs Act reduced the federal corporate rate; related deferred-tax-asset and valuation-allowance adjustments had no net effect on the tax provision. No income tax benefit was recorded for the year.
Important facts for investors to verify
- Whether reported backlog converts to funded orders, shipments, installations, and revenue on the expected timetable.
- How much of future revenue and cash flow remains dependent on Amazon and Walmart, and the warrant vesting, accounting, and potential dilution associated with their agreements.
- Whether core product margins improve and loss-making PPA, fuel-delivery, and service activities become profitable.
- Cash burn, restricted-cash availability, customer financing, debt and lease obligations, and the company’s ability to secure additional funding.
- Progress on product reliability, cost reduction, hydrogen supply economics, and the resolution or financial impact of the GE claim.