Plug Power Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2018. Plug Power designs and sells hydrogen fuel-cell systems, infrastructure, services and fuel, primarily for material-handling vehicles, with additional stationary-power and electric-delivery-vehicle applications. The filing was signed November 9, 2018.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $53.2 million | $34.6 million | $114.8 million | $69.1 million |
| Gross profit (loss) | $4.4 million | $(19.4) million | $(1.9) million | $(27.4) million |
| Operating loss | $(12.6) million | $(36.4) million | $(56.6) million | $(84.1) million |
| Net loss attributable to Plug Power | $(15.6) million | $(41.0) million | $(61.3) million | $(107.6) million |
| Net loss per share, basic and diluted | $(0.07) | $(0.18) | $(0.28) | $(0.52) |
- Revenue increased about 54% in Q3 and 66% in the first nine months. Nine-month fuel-cell and infrastructure sales rose 38%; service revenue rose 56%, PPA revenue 116%, and delivered-fuel revenue 476%.
- Gross margin was 8.3% in Q3 and negative 1.6% for the nine-month period, compared with negative 56.1% and negative 39.7%, respectively, in 2017. Fuel-cell system sales margins improved, but services, PPAs and delivered fuel remained loss-making in 2018.
- Research and development expense rose to $25.5 million for nine months, primarily due to product-reliability work. Selling, general and administrative expense declined to $29.2 million, partly reflecting lower headcount and nonrecurring 2017 warrant charges.
- Net interest and other expense was $15.6 million for nine months, up from $7.1 million, including amortization of the convertible notes’ debt discount. A $3.3 million gain from the change in warrant-liability fair value also reduced the 2018 nine-month loss; the comparable 2017 period had a $16.5 million expense.
Cash, liquidity and debt
- Cash and cash equivalents were $13.8 million at September 30, 2018, down from $24.8 million at year-end 2017. Restricted cash was $48.2 million, bringing cash, cash equivalents and restricted cash to $62.1 million; restricted funds secure lease obligations and are not freely available.
- Working capital was $6.7 million, versus $3.9 million at December 31, 2017. Nine-month operating cash use was $41.6 million; investing cash use was $17.5 million; financing provided $53.2 million.
- The company reported a $1.2 billion accumulated deficit and stated it continues to experience net losses and negative operating cash flows. Management believed available working capital, anticipated operating cash, financing and equity sources would fund operations for at least one year after issuance of the statements, while cautioning that future funding is not assured.
- Debt and financing obligations include a $100 million principal amount of 5.5% convertible notes due 2023 (carrying value $61.5 million), a NY Green Bank loan with $21.2 million principal outstanding and an approximately 11.8% interest rate, and finance obligations of $135.3 million on the balance sheet. The Green Bank loan matures December 23, 2019; about $17.2 million of principal was estimated due in 2019.
- In November 2018, after quarter-end, the company raised approximately $31 million net through Series E convertible preferred stock. It is subject to 13 monthly redemption installments of approximately $2.693 million from May 2019 through May 2020, payable in cash or, subject to conditions, partly or wholly in stock at the company’s option.
Material changes, outlook and risks
- The March 2018 convertible-note financing generated $100 million principal, but the company’s stated net proceeds after the capped call, common-stock forward and issuance costs were approximately $52.4 million. It also agreed to a forward purchase of 14.4 million shares for settlement in 2023. Notes have an initial conversion price of about $2.29 per share; the capped call has an initial cap price of $3.82.
- Q3 revenue and cost of revenue include $6.8 million gross profit from operating-lease sale/leaseback transactions. The company also relies on sale/leaseback and project financing to support customer deployments; related lease payments, finance obligations and restricted cash are significant.
- The company corrected the 2017 comparative presentation for certain service arrangements and related financing amortization, which had overstated revenue and cost of revenue. The reclassification did not affect gross profit or net loss and was described as immaterial. Separately, customer warrants reduce reported revenue: warrant provisions were $7.9 million for the first nine months of 2018 versus $27.9 million in 2017.
- Revenue remains concentrated: two customers accounted for 61.9% of nine-month 2018 revenue, and two customers represented 75.3% of receivables at September 30. Amazon and Walmart warrant vesting depends on future customer purchases; the related estimates and fair values can affect reported revenue.
- A lawsuit filed in Louisiana in August 2018 relates to a May forklift accident at a customer facility and alleges product-defect, warning, warranty and negligence claims, seeking unspecified damages. Management said it could not assess the likelihood of an adverse outcome at this early stage but did not expect a material financial impact. A separate GE-related action was settled in September 2018.
- Management cited risks including continued losses and capital needs, financing availability and terms, achieving positive margins, customer concentration and order conversion, product reliability and acceptance, fuel and infrastructure costs, competition, and potential dilution and accounting effects from convertible securities. No specific numerical operating guidance was provided in the filing.
Most important facts for investors to verify
- Whether revenue growth translates into sustained positive gross margins, especially in services, PPAs and fuel delivery.
- Unrestricted liquidity and cash burn, including the availability and timing of project financing and the Series E redemptions.
- The full cash, dilution and refinancing implications of the convertible notes, common-stock forward, lease commitments and other financing obligations.
- Customer purchase and warrant-vesting assumptions, concentration exposure, and whether large customer orders convert to shipments and cash collection.
- Developments in the Louisiana litigation and costs associated with product reliability, service commitments and the reported customer-site accident.