Plug Power Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited results; comparison is with Q1 2013. Plug Power develops and sells hydrogen fuel-cell systems and related fueling and maintenance solutions, primarily for material-handling vehicles.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $5.57 million | $6.45 million; down 13.5% |
| Operating loss | $7.38 million | $6.38 million |
| Net loss attributable to company | $75.86 million | $8.58 million |
| Net loss attributable to common shareholders | $75.91 million; $0.57 per share | $8.58 million; $0.18 per share |
| Cash used in operating activities | $8.89 million | $5.93 million |
| Cash and cash equivalents at period end | $63.23 million | $5.03 million at Dec. 31, 2013 |
| Working capital at period end | $72.57 million | $11.11 million at Dec. 31, 2013 |
Margins: Revenue less product, service, and R&D contract costs was a gross loss of approximately $2.31 million, or negative 41.4% of revenue, versus a gross loss of $2.17 million, or negative 33.7%, in Q1 2013. The filing does not present a single gross-margin subtotal.
Liquidity and obligations: Q1 financing activities provided $67.40 million, including $49.28 million of net proceeds from January and March equity offerings and $18.31 million from warrant exercises. The company reported $46.86 million in total liabilities, including a $25.74 million warrant liability, $2.48 million finance obligation, and capital-lease obligations. The Silicon Valley Bank credit agreement had expired in 2013. Restricted cash was $0.50 million.
Material changes and unusual items
- Product revenue fell 32.3% to $3.16 million, primarily due to fewer shipments: 165 fuel-cell systems versus 238 in Q1 2013. Service revenue rose 50.4% to $2.07 million, mainly from more GenCare contracts. R&D contract revenue declined 13.5% to $0.35 million.
- Service costs increased 38.1% to $4.02 million, attributed to more service contracts and personnel. R&D and SG&A expenses also rose, to $1.25 million and $3.25 million, respectively.
- The $68.43 million increase in the fair value of the common-stock warrant liability was a noncash expense and the principal reason reported net loss rose sharply. The valuation used a Level 3 Black-Scholes model with significant unobservable inputs; warrant exercises also reduced the liability.
- Common shares issued rose from 106.4 million at year-end to 144.1 million at March 31, 2014. The company’s accumulated deficit was $925.35 million.
Outlook, management commentary, and risks
- Management said cash, anticipated sales and warrant exercises, and recent offerings were expected to fund operations for at least the next 12 months. This depends on sales, costs, cash burn, and other operating assumptions. The company continued to report operating cash outflows and losses, and warned that insufficient financing could force it to delay, reduce, or cease operations or seek bankruptcy protection.
- A February Walmart order covers more than 1,700 GenDrive units at six distribution centers over two years, plus fueling infrastructure, hydrogen supply, and six-year service contracts. Walmart may terminate, subject to specified amounts tied to commissioning.
- After quarter-end, Plug Power acquired substantially all ReliOn assets for 530,504 shares valued at $4.0 million and assumed specified liabilities. A proposed Hyundai joint venture was only covered by a non-binding MOU, with finalization intended by July 31, 2014.
- On April 30, 2014, after quarter-end, the company completed an offering of 22.6 million shares for approximately $116.3 million in estimated net proceeds. This materially increased liquidity but also added dilution.
- Key risks include continued losses and financing needs; orders failing to ship, install, or convert to revenue; customer concentration; product reliability, warranty, and service costs; achieving forecast gross margins; manufacturing scale and cost reduction; and competition. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether Walmart orders and other bookings convert into timely shipments, installations, revenue, and cash collection—and the effect of Walmart’s termination rights.
- Whether service economics improve: service costs exceeded service revenue in the quarter, and overall gross margin remained negative.
- The warrant-liability valuation assumptions and potential earnings volatility, alongside dilution from warrant exercises and equity offerings.
- Post-quarter liquidity and share count after the April offering and ReliOn acquisition, including the company’s cash-burn trajectory.
- Customer concentration, warranty experience, and the terms and progress of the proposed Hyundai venture.
- The Series C preferred stock’s senior liquidation preference of approximately $77.9 million, 8% dividend, conversion terms, and potential impact on common shareholders.