Plug Power Inc. 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015; filed November 9, 2015. Plug Power designs and sells hydrogen fuel-cell systems and related fueling, installation, and maintenance services, primarily for material handling and stationary power applications.
Financial results
Amounts below are in millions except per-share data. Comparisons are with the corresponding 2014 period.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $31.4 | $19.9 | $64.9 | $42.8 |
| Operating loss | $(12.3) | $(10.7) | $(34.9) | $(24.7) |
| Net loss attributable to company | $(10.2) | $(9.4) | $(30.5) | $(81.3) |
| Net loss per common share | $(0.06) | $(0.06) | $(0.17) | $(0.53) |
| Net cash used in operations | Not separately stated | Not separately stated | $(37.3) | $(31.0) |
- Q3 product revenue rose 42.7% to $18.0 million; service revenue rose 94.4% to $13.4 million. For the nine months, product revenue increased 31.9% to $37.4 million and service revenue increased 102.9% to $27.2 million.
- Q3 product gross margin improved to 15.7% from 12.2%; nine-month product gross margin improved to 18.0% from 11.9%. Service gross margin remained negative, improving to (20.5)% in Q3 from (33.3)% and to (26.3)% for nine months from (42.9)%.
- Overall gross profit was approximately $0.1 million in Q3 and a loss of approximately $0.5 million for the nine months, based on reported revenue and revenue costs.
- At September 30, cash and cash equivalents were $85.0 million, versus $146.2 million at December 31, 2014. Working capital was $110.0 million, versus $167.0 million. An additional $30.2 million was restricted cash, including approximately $29.2 million pledged or escrowed for sale/leaseback arrangements.
- Total liabilities were $54.8 million. Finance obligations were $9.7 million; the filing also reports $44.9 million of future minimum operating lease payments. The filing does not present a separate conventional debt total.
Material changes and unusual items
- Plug Power acquired Axane’s remaining 80% interest in HyPulsion on July 31, 2015, taking full ownership. Consideration was paid in shares; the company issued approximately 6.4 million shares in total, including a post-closing true-up. The transaction expanded its European market presence.
- Revenue growth reflected more fuel-cell systems recognized and a larger installed base requiring GenCare maintenance and GenFuel delivery. Sales/leaseback transactions contributed to revenue recognition for 990 systems in Q3 and 1,726 systems year to date.
- Despite higher revenue, operating losses increased as research and development and selling, general and administrative expenses grew. Research and development expense was $10.5 million year to date, up from $4.3 million.
- Year-to-date 2015 results included a $4.6 million noncash gain from remeasurement of warrant liabilities; the comparable 2014 period included a $58.4 million noncash loss. The 2015 HyPulsion acquisition accounting included a $2.9 million gain on the previously held interest and $3.0 million of true-up expense.
Outlook, risks, and contingencies
- Management stated that cash, expected future sales and, if exercised, outstanding warrants were expected to fund operations for at least the next 12 months. This assessment depends on sales, costs, cash burn, and other operating assumptions. The company continued to report net losses and negative operating cash flow and warned that inadequate cash flow or financing could force it to delay, reduce, or cease operations or seek bankruptcy protection.
- Management reported improvement in product and service margins from manufacturing efficiencies, cost-reduction efforts, and lower parts costs, but service margins remained negative. The filing gives no numerical revenue, profit, or margin guidance.
- Management was investigating periodic fuel-cell stack-life degradation and said it could not yet estimate the cost or contract impact. The analysis could result in a future charge related to extended maintenance contracts.
- Customer concentration was significant: one customer primarily accounted for 56.7% of nine-month revenue. Three customers represented 46.6% of receivables at quarter-end.
- Customer leasing arrangements require financing and may tie up company cash. The filing identifies approximately $29.2 million pledged or escrowed and warns that inability to obtain financing on acceptable terms could hurt sales, liquidity, and results.
- GE and an affiliate sued Plug Power seeking $1 million under an indemnification agreement related to a settled distributor claim; Plug Power said it was vigorously defending the action. Management stated that known litigation, after insurance and accruals, was not expected to have a material adverse impact.
- Disclosure controls were assessed as effective, and the company reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether cash burn, restricted cash, and financing needs remain consistent with management’s stated 12-month liquidity outlook.
- Whether revenue growth converts into sustainable positive product and service margins and improved operating cash flow.
- The durability and economics of service contracts, including any costs or charges from stack-life issues.
- The extent of reliance on major customers and third-party or company-provided customer financing.
- The final HyPulsion acquisition accounting and the effects of share issuance and potential dilution.