Business context and reporting period
Plug Power Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The company designs and sells hydrogen fuel-cell systems, infrastructure, fuel, and related service, principally for material-handling and stationary-power applications. It also cited expansion into electric delivery vans.
Financial performance and position
Amounts below are in millions of dollars except per-share data.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $57.1 | $35.2 | $75.7 | $61.6 |
| Gross profit (loss) | $10.2 | ($2.3) | $3.4 | ($6.3) |
| Gross margin | 17.8% | (6.6)% | 4.5% | (10.2)% |
| Operating loss | ($12.4) | ($23.0) | ($35.9) | ($43.9) |
| Net loss attributable to the company | ($18.6) | ($25.9) | ($52.5) | ($45.7) |
| Loss per common share, basic and diluted | ($0.08) | ($0.12) | ($0.23) | ($0.21) |
- Q2 revenue increased 62% year over year, driven primarily by fuel-cell system sales; 1,997 GenDrive units were recognized as revenue versus 822 a year earlier. First-half revenue grew 23%.
- For the six months, operating cash use was $48.5 million, investing cash use was $6.3 million, and financing provided $80.0 million. Cash, cash equivalents, and restricted cash totaled $135.3 million at period-end, but only $19.8 million was unrestricted cash; $115.5 million was restricted.
- Working capital was $50.2 million, versus $9.2 million at December 31, 2018. Inventory rose to $73.2 million from $47.9 million.
- Total liabilities were $436.0 million. The balance sheet included $99.7 million of long-term debt including its current portion, $66.8 million of convertible notes net, and $188.2 million of finance obligations.
Changes versus the prior comparable period
- Q2 gross profit turned positive, and operating and net losses narrowed. First-half gross profit also improved to positive, but the net loss increased year over year; the 2018 comparison included a $5.9 million income-tax benefit that was not recorded in 2019.
- Fuel-cell system and infrastructure sales revenue rose to $38.5 million in Q2 from $18.8 million. Service revenue declined 7% for the quarter, while PPA and fuel-delivery revenue increased.
- Gross margins remained negative in services, PPAs, and delivered fuel for both the quarter and first half. Management attributed service margin pressure to reliability-improvement investments and maintenance cycles; fuel margins were affected by a vendor billing dispute and higher depreciation on fuel equipment.
- Common shares issued increased during the first half through a 10-million-share registered offering and ATM sales, among other activity. Common shares outstanding were 251.96 million as of August 9, 2019.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is stated in the provided filing text. Management said current working capital, anticipated operating cash generation, financing sources, and equity offerings were expected to fund operations for at least one year after issuance of the statements, while cautioning that future funding may not be available on acceptable terms.
- The company continued to report substantial losses and negative operating cash flow. It warned that inability to generate positive cash flow or secure external financing could require it to delay, reduce, or cease operations or seek bankruptcy protection.
- In March and April 2019, the company borrowed $100 million under a secured Generate Capital term facility at 12% interest, due December 2022. The loan is secured by substantially all company and guarantor assets and includes covenants and a collateral-coverage test. The company also reported $100 million principal of 5.5% convertible notes due 2023.
- Sale/leaseback transactions generated $16.1 million of gross profit in the first half, according to the filing. These transactions also carry substantial lease and financing commitments; remaining payments under certain arrangements were secured by restricted cash, deposits, and service escrows.
- Series E preferred holders deferred the May and June 2019 installments; the filing describes 13 monthly redemption installments of approximately $2.7 million from May 2019 through May 2020, with conversion alternatives. Further equity issuance or conversion may dilute common shareholders.
- One customer represented approximately 71% of accounts receivable at June 30, 2019; two customers accounted for 66% of first-half revenue. The company also disclosed product-liability and related lawsuits arising from a 2018 forklift accident; it said the outcome could not yet be determined and did not expect a material impact.
- A vendor paid $4.5 million in the first half toward a field replacement program for certain composite fuel tanks; reimbursements were recorded as cost reductions. The filing also describes an immaterial prior-period presentation correction that did not affect gross profit or net loss.
Important facts for investors to verify
- Whether operating cash burn and losses can be reduced, and how much of reported gross-profit improvement is repeatable rather than transaction-related.
- How much cash is unrestricted and available after collateral requirements, lease payments, debt service, and preferred-stock obligations.
- Customer concentration, payment timing, and the status of the disclosed fuel billing dispute and tank replacement program.
- Terms, covenant compliance, collateral coverage, and repayment capacity under the 12% secured loan; potential cash settlement or dilution from convertible notes and preferred stock.
- Progress toward positive margins in service, PPA, and fuel-delivery activities, and the potential effects of the disclosed lawsuits and other risk factors.