Plug Power Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Plug Power designs and sells fuel-cell systems, primarily GenDrive products for material-handling equipment.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 / prior period |
|---|---|---|
| Total revenue | $7.75 million | $5.94 million; up 30.5% |
| Product and service revenue | $7.24 million | $4.99 million; up 44.9% |
| Operating loss | $7.81 million | $7.29 million |
| Net loss | $6.58 million; $0.28 per share | $7.24 million; $0.55 per share |
| Operating cash used | $3.48 million | $7.22 million |
| Cash and cash equivalents | $20.83 million at March 31 | $13.86 million at December 31, 2011 |
| Working capital | $29.08 million | $19.42 million at December 31, 2011 |
| Line-of-credit borrowings | None outstanding | $5.41 million at December 31, 2011 |
Direct costs of product/service and R&D contract revenue exceeded those revenues by approximately $2.07 million, before R&D, SG&A and amortization. Product/service revenue alone had a gross loss of approximately $1.82 million. Q1 financing cash flow was $10.39 million, primarily reflecting public-offering proceeds net of costs and repayment of the prior credit-line balance.
Changes and notable items
- The company shipped 299 fuel-cell systems, versus 144 in Q1 2011. Higher shipments drove product/service revenue growth and higher related costs.
- R&D contract revenue fell 34.4% to $515,000, primarily because fewer projects were active. Licensed technology revenue was zero, versus $163,000 a year earlier.
- Net loss narrowed despite a higher operating loss, principally because a $1.24 million noncash gain from revaluing warrant liabilities reduced reported loss; no corresponding warrant liability existed in Q1 2011. The liability was $4.08 million at quarter-end and uses Level 3 valuation inputs.
- A March public offering of 14.95 million shares generated approximately $15.79 million in net proceeds. Shares issued, including shares in treasury, increased to 37.93 million from 22.92 million at year-end. The offering also triggered warrant anti-dilution adjustments: the exercise price fell from $3.00 to $2.27 and warrant shares increased to 9.42 million.
- Plug completed the HyPulsion joint venture with Axane, an Air Liquide subsidiary, for European material-handling fuel cells. Axane owns 55% and Plug 45%; Plug contributed technology rights, not cash, and reports the investment under the equity method.
Outlook, risks and contingencies
- Management expected existing cash, future sales and available credit to fund operations into 2013, based on assumptions for sales, costs and cash burn. It cautioned that funding beyond 2013 was not assured and additional financing might be unavailable or dilutive. If liquidity is inadequate, the company could reduce or cease operations or seek bankruptcy protection.
- The Silicon Valley Bank facility was increased to $15 million and extended through March 29, 2013, subject to borrowing-base limits. It is secured by substantially all company assets and includes financial and operating covenants; the company reported compliance at March 31, 2012.
- Profitability depends on product orders and shipments, market acceptance, gross-margin improvement, product reliability and cost reductions, and access to components, hydrogen infrastructure and financing. The filing provides no numerical revenue or earnings guidance.
- Customer concentration is material: two customers accounted for 58.7% of Q1 revenue, and four customers represented 84.2% of receivables at quarter-end. A commitment to purchase 3,250 Ballard fuel-cell stacks through 2012 had approximately $5.1 million remaining.
- Plug was evaluating whether Q1 equity transactions caused another tax ownership change under IRC Section 382. If so, most remaining federal and state net operating loss carryforwards could expire unused; the company expected to complete its study in Q2. It reported no income-tax benefit because deferred tax assets were fully valuation-allowed.
- Management identified contingency measures including reducing discretionary spending, a possible sale-leaseback of real estate, and licensing technology. No legal proceedings or material subsequent events requiring disclosure were reported.
Investor verification priorities
- Track shipment growth, conversion of pending orders, product reliability and whether gross margins improve; Q1 shipment growth did not yet produce positive product gross margin.
- Assess cash burn and runway against management’s assumptions, and verify the borrowing base, covenant headroom and facility availability.
- Review dilution from the share offering and the potential effect of 9.42 million warrants, including their revised exercise price and liability valuation.
- Monitor major-customer exposure, the remaining Ballard purchase commitment and the results of the Section 382 ownership-change study.