Business context and reporting period
Plug Power Inc. designs, manufactures and services hydrogen fuel-cell systems and related hydrogen infrastructure, primarily for material-handling and stationary-power markets. This unaudited Form 10-Q covers the three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted.
Financial and operating results
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $9.4 million | $5.6 million; up 69% |
| Product revenue | $4.1 million | $3.2 million; up 29% |
| Service revenue | $5.3 million | $2.1 million; up 157% |
| Operating loss | $12.8 million | $7.4 million |
| Net loss attributable to common shareholders | $11.1 million; $0.06 per share | $75.9 million; $0.57 per share |
| Operating cash flow | $(13.6) million | $(8.9) million |
| Cash and cash equivalents at period end | $131.5 million | $146.2 million at December 31, 2014 |
Product gross margin improved to 6% from (9)%; service gross margin improved to (44)% from (95)%. The company recognized revenue on 265 fuel-cell systems versus 165 a year earlier. Another 419 systems shipped in the quarter were not recognized as revenue, pending project completion and finalization of sales-leaseback agreements.
At March 31, cash was $131.5 million, restricted cash $1.2 million, and working capital $155.7 million, down from $167.0 million at year-end. Total liabilities were $39.1 million. Reported obligations included $0.4 million current capital-lease obligations and a $2.4 million finance obligation; the filing does not show a material conventional borrowing balance. Inventory rose to $32.1 million from $24.7 million.
Material changes and unusual items
- Service growth reflected a larger installed base, more GenCare and GenFuel contracts, and hydrogen-infrastructure installation. Product revenue included systems sold through a sales-leaseback transaction.
- Operating expenses increased: R&D rose to $2.9 million from $1.3 million, and selling, general and administrative expenses to $7.1 million from $3.3 million. Management attributed this to growth investments, staffing, product programs and the inclusion of ReliOn, acquired in April 2014.
- The change in warrant fair value produced a $1.8 million noncash gain in Q1 2015, versus a $68.4 million noncash loss in Q1 2014. This large comparison materially affected reported net loss; valuation uses Level 3 assumptions.
- Operating cash use reflected the net loss and working-capital investment, including inventory build and systems shipped but not yet recognized as revenue. Cash decreased $14.7 million during the quarter.
Outlook, risks and contingencies
No specific revenue, margin or earnings guidance is provided. Management said current cash, expected sales proceeds and potential warrant exercises should fund operations for at least the next twelve months, based on assumptions about sales, costs and cash burn. The company cautioned that it continues to incur losses and negative operating cash flow; achieving profitability depends on orders and shipments, positive gross margins, customer financing, market acceptance, service costs and other execution factors. Management noted that inadequate financing could require it to delay, reduce or cease operations or seek bankruptcy protection.
Customer concentration is significant: one customer represented 63.5% of Q1 2015 revenue, and four customers represented 62.2% of receivables at quarter-end. Other disclosed risks include failure of orders to convert or ship, customer loss, product reliability and liability, manufacturing scale and cost, component availability, competition, and potential need for additional capital. Management reported no material change to previously disclosed risk factors; no legal proceedings were reported. Most of the company’s tax-loss carryforwards are subject to ownership-change limitations, with $715 million of limited carryforwards expected to expire before use.
Important facts for investors to verify
- Whether the 419 shipped-but-unrecognized systems convert to revenue, and the timing and terms of related project completions and leasebacks.
- Whether service and product margins continue to improve, particularly whether service operations can approach profitability.
- Cash burn, inventory requirements and the assumptions supporting management’s at-least-12-month liquidity estimate.
- Revenue and receivable concentration, including the company’s exposure to its largest customer.
- Warrant-liability valuation assumptions and the effect of share-price and volatility changes on reported results.
- Potential dilution from warrants, options and convertible preferred stock; common shares outstanding were 173,439,521 as of May 8, 2015.