Plug Power Inc. — Q2 2011 Form 10-Q
Business context and reporting period. Unaudited results for the quarter and six months ended June 30, 2011. Plug Power focused primarily on GenDrive hydrogen fuel-cell systems for material-handling equipment; it continued limited support of stationary-power products. Share and per-share figures reflect the May 19, 2011 one-for-ten reverse stock split.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $4.35 million | $3.10 million | $10.29 million | $7.47 million |
| Operating loss | $8.64 million | $18.61 million | $15.93 million | $29.31 million |
| Net loss | $6.75 million | $18.52 million | $14.00 million | $29.07 million |
| Loss per share | $0.41 | $1.41 | $0.95 | $2.22 |
| Operating cash used | — | $13.17 million | $24.50 million |
- Q2 revenue comprised $2.62 million of product and service revenue, $1.56 million of R&D contract revenue, and $163,000 of licensed-technology revenue. Six-month revenue was up about 38% year over year.
- Direct product/service and R&D contract costs exceeded revenue by $3.06 million in Q2 and $5.14 million in the first half, equivalent to approximate combined gross margins of negative 70% and negative 50%, respectively, before R&D, SG&A, and amortization.
- At June 30, cash and cash equivalents were $27.15 million; working capital was $30.6 million; total assets were $59.1 million and total liabilities $17.9 million. The company reported no borrowings under a credit line and no material long-term debt balance at quarter-end. Restricted cash of $525,000 remained pledged.
- Cash increased $16.20 million during the first half. Financing provided $20.00 million net, principally from the public offering; investing provided $9.38 million, mainly securities maturities, while operating activities used $13.17 million.
Material changes and notable items
- Q2 SG&A fell to $3.88 million from $10.54 million, and R&D expense to $1.11 million from $4.38 million. Management attributed reductions largely to the 2010 restructuring and wind-down of Canadian and Indian operations; Q2 2010 included $6.4 million of restructuring-related SG&A.
- Product/service revenue rose 12.7% in Q2 despite shipments falling to 73 systems from 97; six-month shipments increased to 217 from 201. Revenue recognition under the multiple-deliverable accounting standard contributed to reported revenue: management said $1.6 million of Q2 and $5.4 million of first-half 2011 revenue would otherwise have been deferred under prior guidance.
- The May offering raised approximately $20.2 million net, including over-allotment proceeds received in June. It issued 8.27 million shares and warrants for 7.13 million shares at a $3.00 exercise price. The warrants were recorded as a $6.98 million liability at June 30; a $1.79 million fair-value gain reduced reported loss. The valuation uses Level 3 assumptions and may fluctuate.
- Management reported 986 GenDrive orders received in the first half and a June 30 backlog of 1,296 orders, representing approximately $24.2 million of potential revenue. It expected about 60% of backlog orders to ship in the remainder of 2011.
Outlook, risks, and contingencies
- Management expected restructuring to reduce annual operating expenses by $12 million to $15 million starting in 2011. It anticipated 30%–40% material-cost reductions from product engineering changes, with effects beginning by year-end 2011.
- Management believed cash, future sales, and a subsequent credit facility would fund operations through the end of 2012, but warned it may need external financing beyond then. If financing is unavailable before the end of 2012, the company said it might have to delay, reduce, or cease operations or seek bankruptcy protection.
- After quarter-end, Plug Power entered an SVB facility providing up to $7 million, subject to borrowing-base limits, fees, collateral, and restrictive covenants, including a minimum adjusted quick ratio of 1.50:1. The facility expires August 8, 2012; availability is not equivalent to cash on hand.
- A June 30 commitment required purchase of 3,250 Ballard fuel-cell stacks through December 2012 for approximately $9.4 million; Plug Power also paid a $450,000 engineering fee.
- A British Columbia landlord’s complaint alleges breach of lease obligations and seeks restoration costs and unpaid rent. The company intended to defend the claim and said it was too early to assess adverse-outcome likelihood or exposure.
- A 2011 ownership change under IRC Section 382 may sharply limit tax-loss and credit carryforwards. Management was completing a formal study; the filing estimates only $22 million to $60 million of certain NOL and built-in-loss carryforwards may remain available. The deferred tax assets were fully valuation-allowed.
- Key operating risks include continued losses and cash burn, shipment and order conversion, product acceptance and reliability, component availability and costs, expected margins, and ability to raise capital. The company stated disclosure controls were effective at a reasonable assurance level.
Investor facts to verify
- Whether backlog orders convert to firm purchase orders, ship, install, and generate cash on the expected schedule.
- Whether unit economics and gross margins improve as forecast, including evidence of the projected material-cost reductions.
- Actual cash burn, borrowing-base availability, and compliance with SVB’s covenants and collateral requirements.
- Potential dilution and warrant-related valuation effects from the offering and outstanding equity awards.
- The outcome of the Section 382 study and the landlord litigation, including any change in estimated exposure.