Plug Power Inc. — Q2 2012 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2012. Plug Power designs and sells fuel-cell systems, principally GenDrive products for material-handling equipment. The company reported on August 14, 2012.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $7.66 million | $4.35 million | $15.41 million | $10.29 million |
| Operating loss | $(7.53) million | $(8.64) million | $(15.35) million | $(15.93) million |
| Net loss | $(6.48) million | $(6.75) million | $(13.06) million | $(14.00) million |
| Loss per share, basic and diluted | $(0.17) | $(0.41) | $(0.43) | $(0.95) |
| Operating cash used | Not presented by quarter | $(8.41) million | $(13.17) million |
- Q2 product and service revenue increased 175% year over year to $7.20 million; shipments rose to 388 fuel-cell systems from 73. Six-month product and service revenue increased 90% to $14.44 million, with 687 systems shipped versus 217.
- Cost of product and service revenue exceeded that revenue: the resulting gross loss was $1.44 million in Q2 2012, compared with $2.31 million in Q2 2011. For the six months, the gross loss was $3.27 million versus $4.01 million.
- Cash and cash equivalents were $15.85 million at June 30, 2012, and working capital was approximately $25.52 million. Total assets were $52.22 million; total liabilities were $19.45 million. Accumulated deficit was $767.85 million.
- No credit-line borrowings were outstanding at quarter-end. A Silicon Valley Bank facility provides up to $15 million, subject to borrowing-base limits and covenants, and expires March 29, 2013. The facility is secured by substantially all company assets.
- Six-month investing cash flow was $17,000 provided; financing cash flow was $10.39 million provided. Financing included $17.19 million in stock proceeds, offering costs of $1.40 million, and repayment of $5.41 million in credit-line borrowings.
Changes versus the prior comparable period
- Higher GenDrive shipments drove substantial product revenue growth and contributed to a narrower product-and-service gross loss. Research and development contract revenue declined 71% in Q2 and 59% for the six months, primarily due to fewer active projects.
- Operating losses narrowed despite increased research and development expense. SG&A declined 8% in Q2 but was essentially flat for the six-month period.
- Net losses improved partly because of a noncash gain from revaluing the warrant liability: $1.05 million in Q2 and $2.29 million for the six months. The liability declined from $5.32 million at year-end to $3.03 million at June 30; valuation depends on Level 3 inputs and a Black-Scholes model.
- Cash increased from $13.86 million at December 31, 2011, notwithstanding operating cash outflows, largely due to the March 2012 public offering. The company issued 14.95 million shares in the offering and over-allotment for net proceeds of approximately $15.79 million. The additional shares and warrant anti-dilution adjustment increased potential dilution.
Outlook, risks, and unusual items
- Management expected available cash, future sales and the credit facility to fund operations into 2013, based on current sales, cost, cash-burn and operating assumptions. It cautioned that funding beyond 2013 could require external financing and that financing may not be available. Failure to obtain needed funds could force reductions or cessation of operations or a bankruptcy filing.
- Management identified lower-than-expected shipments or gross margins and higher expenses as liquidity risks. Potential responses include discretionary spending cuts, a real-estate sale-leaseback, or licensing technology.
- In March 2012, an ownership change under IRC Section 382 meant all but approximately $14.9 million of federal and state net operating loss carryforwards were expected to expire before use. The associated deferred-tax-asset and valuation-allowance decrease was approximately $24.6 million; the filing states this did not affect current financial position, results or cash flows.
- Customer concentration is significant: three customers represented 63.2% of six-month revenue, and four customers represented 82.6% of receivables at June 30. The company also had an approximately $3.7 million remaining commitment to purchase fuel-cell stacks from Ballard.
- Plug Power formed HyPulsion with Air Liquide subsidiary Axane to develop and sell fuel-cell systems for the European material-handling market. Plug Power contributed technology rights for a 45% interest; it had a zero investment basis at June 30.
- The company continued to report recurring losses and negative operating cash flow and said it may never achieve profitability. Other cited risks include customer adoption, conversion of orders to revenue, manufacturing scale and costs, product reliability, component availability, competition and access to capital.
Important facts for investors to verify
- Whether shipment growth converts into recognized revenue and improves product gross margins; $2.7 million of revenue was deferred during the first six months for unmet contractual provisions or deliverables.
- Cash burn, borrowing-base availability and covenant compliance under the secured credit facility, particularly as it approaches its March 2013 expiration.
- The amount and potential effects of future equity or debt financing, including dilution and warrant-related effects.
- Customer concentration, warranty costs, and the remaining Ballard purchase commitment.
- How much of the company’s reported net-loss improvement reflects operating performance versus noncash warrant remeasurement.