Plug Power Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited consolidated results. Plug Power develops and sells hydrogen fuel-cell systems and related infrastructure, service, fuel, and power-purchase-agreement (PPA) solutions, primarily for material handling and stationary power.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $15.2 million | $15.3 million |
| Gross profit (loss) / margin | $(4.5) million / (29.4)% | $0.2 million / 1.1% |
| Operating loss | $(19.6) million | $(13.0) million |
| Net loss attributable to Plug Power | $(24.0) million | $(11.8) million |
| Net loss attributable to common shareholders | $(24.1) million; $(0.13) per share | $(11.8) million; $(0.07) per share |
| Operating cash flow | $(23.9) million | $(6.9) million |
| Investing cash flow | $(9.6) million | $(13.6) million |
- Revenue mix shifted: system and infrastructure sales fell 57.9% to $2.2 million, while PPA revenue rose 59.3% to $4.3 million and delivered-fuel revenue rose 73.7% to $3.5 million. Management attributed lower system sales partly to recognizing 405 shipped units as leased assets, with revenue expected over the related PPA terms.
- All principal revenue categories reported gross losses in Q1 2017. PPA gross margin was (53.4)%, compared with (6.5)% a year earlier; services margin was (27.5)%, versus (9.7)%. Management cited higher leased-asset depreciation and servicing costs, including launch and commercialization costs for new configurations.
- Research and development expense increased 24.2% to $6.0 million, primarily for ProGen development, hydrogen infrastructure design, cost-reduction programs, and staffing. Selling, general and administrative expense increased 10.3% to $9.1 million.
- Cash and cash equivalents fell to $11.8 million from $46.0 million at December 31, 2016. Net working capital declined to $10.4 million from $44.4 million. Restricted cash was $53.9 million and is not freely available; it primarily secures lease obligations.
- Total liabilities were $141.1 million. The balance sheet reported $23.8 million of current and long-term debt combined and $46.8 million of finance obligations combined. The $25.0 million NY Green Bank loan carried an approximately 11.3% rate at quarter-end, matures December 2019, and is secured by substantially all company and guarantor-subsidiary assets. Remaining lease payments under the specified secured sale/leaseback agreements were $41.2 million.
Changes, outlook, and risks
- Compared with Q1 2016, revenue was nearly flat, but gross profit swung to a substantial loss and net loss approximately doubled. Operating cash use also increased materially.
- Management stated that working capital, anticipated future operating cash generation, financing, and equity proceeds were expected to fund operations for at least 12 months after issuance of the statements. This depends on assumptions about sales, project financing, cost structure, and cash burn; the filing cautions that funding may not be available on acceptable terms. No quantified operating guidance was provided.
- After quarter-end, Plug Power raised $18.2 million net through an at-the-market share offering and received $18.4 million from warrant exercises. The ATM agreement permits up to $75.0 million of common-stock sales. Series D preferred stock was converted into 9.55 million common shares.
- An April agreement provides for a warrant to Amazon’s subsidiary for up to 55.3 million shares, subject to vesting events linked to payments under existing commercial agreements. The agreements contemplate future purchase orders; the warrant is not itself a guarantee of those orders. Tech Opportunities also exercised warrants for $15.8 million and received replacement warrants for up to 5.25 million shares.
- Customer and collection concentration is significant: Walmart-related revenue represented 53.4% of Q1 revenue, and one customer represented 35.6% of receivables at March 31. The company reported continuing net losses, negative operating cash flow, and a $1.1 billion accumulated deficit, and warned that inability to obtain external financing could force it to delay, reduce, or cease operations or seek bankruptcy protection.
- Other exposures include debt covenants and repayment obligations, lease commitments, loss-making service and PPA economics, dependence on customer orders and financing, and a GE lawsuit seeking $1 million under an indemnification agreement, which the company is defending. Management said known litigation was not expected to have a material adverse impact after insurance and accruals.
Important facts for investors to verify
- Whether post-quarter equity and warrant proceeds, and any further financing, adequately address ongoing cash burn and the decline in unrestricted cash.
- Whether gross margins improve across systems, service, PPAs, and fuel, and whether leased deployments generate sufficient returns to cover depreciation, maintenance, and financing costs.
- Whether anticipated customer orders convert to shipments and revenue, especially given customer concentration and the contingent Amazon warrant structure.
- The extent of dilution from completed share issuances, preferred-stock conversion, exercised warrants, replacement warrants, and potential ATM sales or Amazon warrant vesting.
- The terms, collateral, covenants, and repayment capacity associated with the NY Green Bank loan, finance obligations, and restricted-cash-backed leases.