Business context and reporting period
Plug Power Inc. filed this Form 10-K for the fiscal year ended December 31, 2016. The company develops hydrogen fuel-cell systems, fueling infrastructure and related services, principally for material-handling fleets, with additional stationary backup-power applications. It reported one operating segment.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $85.9 million | $103.3 million |
| Gross profit (margin) | $3.9 million (4.6%) | $(9.9) million (-9.6%) |
| Operating loss | $(51.5) million | $(59.0) million |
| Net loss attributable to common shareholders | $(57.6) million; $(0.32) per share | $(55.8) million; $(0.32) per share |
| Cash used in operating activities | $(29.6) million | $(47.3) million |
At December 31, 2016, cash and cash equivalents were $46.0 million, restricted cash was $54.6 million, and working capital was $44.4 million. Total assets were $240.8 million and stockholders’ equity was $85.1 million. Long-term debt was $23.8 million; finance obligations totaled $44.6 million. Investing activities used $58.1 million, largely for construction of leased property; financing activities provided $69.9 million. The accumulated deficit was $1.1 billion.
For Q4 2016, revenue was $32.6 million, gross profit was $3.0 million, operating loss was $11.9 million and net loss attributable to common shareholders was $19.2 million (loss per share of $0.11). In Q4 2015, revenue was $38.4 million, gross loss was $9.4 million and net loss attributable to common shareholders was $25.2 million (loss per share of $0.14).
Material changes versus the prior comparable period
- Annual revenue fell 16.8%, driven mainly by a 48.7% decline in fuel-cell system and infrastructure sales, to $40.0 million; recognized GenDrive units fell to 1,383 from 3,634. Service, PPA and hydrogen-delivery revenue increased as the installed base expanded.
- Gross profit improved by $13.8 million to $3.9 million. Product-sale margin improved to 26.1% from 13.2%, while service, PPA and fuel-delivery activities remained loss-making. The 2016 service cost line included a $1.1 million benefit from reducing the prior-year loss-contract provision.
- Net loss attributable to common shareholders increased by $1.8 million. Operating loss narrowed, but interest and other expense rose to $10.7 million, including costs associated with repaying the Hercules loan. A $4.3 million gain from the change in fair value of warrant liabilities partly offset expenses.
- Operating cash use improved by $17.6 million, but cash and cash equivalents fell $17.9 million and working capital decreased $44.1 million. Investing outflows rose sharply with growth in leased customer equipment.
- Orders were approximately $280.0 million versus $205.3 million; year-end backlog rose to approximately $382.5 million from $235.6 million. Backlog includes items with delivery or service periods ranging from about 90 days to 10 years and is not equivalent to near-term revenue.
Outlook, risks and unusual items
Management said existing working capital and expected operating cash, project financing and equity proceeds were expected to fund operations for at least one year after issuance of the financial statements, while warning that financing availability and terms were not assured. The filing provides no quantified revenue or earnings guidance. Management’s stated priorities included improving product cost, reliability and service, and further developing products and markets.
- The company continued to incur losses and negative operating cash flow and cautioned that it may never achieve or sustain profitability; it may need additional financing.
- Walmart accounted for 34.1% of 2016 revenue, down from 56.7% in 2015. Two customers represented 59.9% of year-end receivables. Customer concentration and order conversion, cancellation, installation and financing risks are material.
- Approximately $53.6 million was restricted to secure sale/leaseback obligations. The $25.0 million NY Green Bank loan carried an approximately 11.3% rate at year-end, matures in December 2019, is secured by substantially all company and guarantor-subsidiary assets, and includes covenants. Series D preferred stock required ten monthly redemption or conversion installments of about $1.9 million each from January through October 2017, creating cash and potential dilution considerations.
- The U.S. investment tax credit expired December 31, 2016; the filing said renewal discussions were ongoing and warned that loss of incentives could weaken customer economics.
- Critical components include sole-sourced items; hydrogen availability and cost, product reliability, warranty/service costs, competition and the ability to reduce manufacturing costs remain important risks. The filing disclosed a $1 million indemnification claim brought by GE, which Plug Power said it was vigorously defending.
- Management and the independent auditor reported effective internal controls over financial reporting as of December 31, 2016. The financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether backlog converts to purchase orders, shipments, installations and collected revenue on the expected schedule.
- Whether gross-margin improvement persists, particularly in service, PPAs and hydrogen delivery, and whether reliability gains reduce future warranty and loss-contract costs.
- Cash runway after restricted cash, debt service, finance obligations, preferred-stock installments and further investment in leased equipment are considered.
- Customer concentration, especially Walmart exposure, and the stability of major customer deployments and receivables.
- Availability and terms of future financing, compliance with NY Green Bank loan covenants, and potential dilution from preferred stock and warrants.
- Effects of the expired investment tax credit and other incentives on demand and customer economics.