Business context and reporting period
Plug Power Inc. designs, manufactures and sells hydrogen-fueled PEM fuel-cell systems, focusing on GenDrive products for material-handling equipment. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2011; comparisons are with the corresponding 2010 periods. Share data was retroactively adjusted for the May 2011 one-for-ten reverse stock split.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $5.47 million (2011); $5.75 million (2010) | $15.76 million (2011); $13.23 million (2010) |
| Operating loss | $8.79 million (2011); $9.40 million (2010) | $24.71 million (2011); $38.71 million (2010) |
| Net loss | $6.29 million (2011); $9.29 million (2010) | $20.29 million (2011); $38.37 million (2010) |
| Loss per share, basic and diluted | $0.28 (2011); $0.71 (2010) | $1.16 (2011); $2.93 (2010) |
| Net cash used in operating activities | Not provided for the quarter | $19.15 million (2011); $39.46 million (2010) |
- Quarterly revenue declined 4.9% year over year; nine-month revenue increased 19.1%. Product and service revenue was $4.31 million for the quarter and $11.93 million year to date. Nine-month product and service revenue rose 16.0%, while quarterly product and service revenue fell 10.1%.
- Product and service costs exceeded that revenue by $3.25 million in the quarter and $7.26 million year to date. Including costs of R&D contract revenue, direct costs exceeded total revenue by $3.79 million and $8.93 million, respectively.
- At September 30, cash and cash equivalents were $22.80 million, working capital was $24.54 million and total assets were $53.31 million. Cash rose $11.85 million from year-end 2010. The company reported $17.58 million of total liabilities, including a $4.56 million common-stock warrant liability.
- Nine-month cash flows included $10.49 million provided by investing activities and $20.52 million provided by financing activities. Financing included $22.58 million of offering proceeds, offset by $1.89 million of issuance costs.
- No current portion of long-term debt was reported at September 30, and the company said its prior term debt had been repaid. A revolving credit facility provides up to $7 million, subject to borrowing-base limits and covenants; the filing does not clearly state whether any amount was drawn at quarter-end.
Material changes versus the prior comparable period
- Nine-month operating and net losses narrowed substantially, primarily reflecting the 2010 restructuring, lower R&D and selling, general and administrative expenses, and a shift toward commercial production. Quarterly losses also improved.
- Nine-month product and service costs increased 26.4%, faster than product and service revenue, reflecting higher shipments and service costs, an obsolete-inventory charge and a warranty adjustment.
- Operating cash use declined to $19.15 million from $39.46 million. The 2011 period also included substantial equity financing, unlike the prior-year comparison.
- Net income benefited from a noncash $4.20 million year-to-date gain from the change in fair value of warrants. The warrant liability was initially recorded at $8.77 million and stood at $4.56 million at quarter-end.
Outlook, commentary, risks and unusual items
- Management reported 1,460 GenDrive orders received during the first nine months and a September 30 backlog of 1,535 orders, representing approximately $30.1 million of potential revenue. It expected about 69% of backlog orders to ship in fourth-quarter 2011; orders and backlog are not assurances of shipment or revenue.
- Management expected engineering changes and common components to reduce material costs by 30%–40%, with benefits beginning to affect results by year-end 2011. The company also reported 195 fuel-cell system shipments in the quarter and 412 year to date.
- Management believed cash, expected sales and the credit facility would fund operations through the end of 2012, based on current sales, cost, cash-burn and operating assumptions. It warned that additional financing may be needed beyond 2012 and that failure to obtain capital could force operational reductions, suspension or bankruptcy protection.
- Quarterly product costs included a $363,000 obsolete-inventory write-off and a one-time $562,000 warranty adjustment to update certain installed systems. A $673,000 gain on sale of leased assets was recorded after contractual contingencies were met.
- The company committed to purchase 3,250 fuel-cell stacks from Ballard through 2012 for approximately $9.4 million. Five customers accounted for 76.8% of accounts receivable at quarter-end, and customer concentration also affected revenue.
- The SVB facility is secured by substantially all company assets and imposes financial and operating covenants, including a minimum adjusted quick ratio. It expires August 8, 2012. The company also disclosed that a 2011 ownership change under IRC Section 382 substantially limited tax-loss and tax-credit carryforwards; the full valuation allowance meant no current financial-statement or cash-flow impact.
- A contract-related lawsuit was settled confidentially in October 2011 and formally dismissed. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether backlog converts to purchase orders, shipments and recognized revenue on the expected schedule, particularly the projected fourth-quarter shipments.
- Whether material-cost reductions and product reliability improvements materialize, and whether gross losses and warranty/service costs decline.
- Actual cash burn, facility utilization and covenant compliance, and the assumptions supporting management’s liquidity runway through 2012.
- The dilutive and accounting effects of the 7.13 million warrants issued with the 2011 offering; the offering increased shares outstanding and the warrants are classified as a liability.
- Customer concentration, the $9.4 million stack-purchase commitment, and any changes to financing needs or available tax attributes.