Plug Power Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Plug Power develops hydrogen fuel-cell systems, primarily for material-handling fleets, and provides related fueling and maintenance solutions; it acquired stationary-power provider ReliOn in April 2014.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Total revenue | $64.2 million | $26.6 million |
| Product revenue | $40.5 million | $18.4 million |
| Service revenue | $21.8 million | $6.7 million |
| Operating loss | $37.9 million | $29.0 million |
| Net loss attributable to common shareholders | $88.6 million | $62.8 million |
| Loss per share, basic and diluted | $0.56 | $0.82 |
| Net cash used in operating activities | $40.8 million | $26.9 million |
| Cash and cash equivalents at year-end | $146.2 million | $5.0 million |
| Working capital at year-end | $167.0 million | $11.1 million |
- Revenue increased approximately 141%, led by growth in product shipments and the new GenKey turnkey offering. The company shipped 2,406 GenDrive systems in 2014, versus 918 in 2013.
- Reported product gross margin was approximately 12.8%, compared with negative 10.7% in 2013. Service remained loss-making: its gross margin was approximately negative 40.1%, versus negative 124% in 2013. Across product, service and R&D contract revenue and costs, the calculated gross loss was about $4.9 million, or negative 7.6% of revenue, compared with about $11.2 million, or negative 42.3%, in 2013.
- The $88.6 million common-shareholder loss included a $52.3 million noncash expense from the increase in fair value of common-stock warrant liabilities. The warrant liability was valued using a model with significant unobservable inputs.
- Operating cash outflow increased year over year despite the sharp rise in revenue. Investing activities used $1.0 million; financing activities provided $182.9 million, largely from public offerings and warrant exercises.
- Cash increased substantially following three 2014 public offerings, which generated $165.7 million in net proceeds, and $18.3 million from warrant exercises. No borrowings under a line of credit were outstanding at year-end. The balance sheet reported $0.6 million of current capital-lease obligations and a $2.4 million finance obligation; contractual commitments also include substantial operating leases and future finance-obligation payments.
Fourth-quarter results
For Q4 2014, revenue was approximately $21.5 million, comprising $12.2 million of product revenue, $8.4 million of service revenue and $0.9 million of R&D contract revenue. Net loss attributable to common shareholders was $7.2 million, or $0.04 per share, compared with a $28.9 million loss, or $0.28 per share, in Q4 2013. The filing’s quarterly table reports a $75.9 million common-shareholder loss in Q1 2014 and $3.8 million of income in Q2; the provided filing text does not clearly explain the quarterly swings.
Material changes, outlook and risks
- Orders were approximately $151.4 million in 2014 versus $44.0 million in 2013; year-end backlog rose to approximately $133.4 million from $50.0 million. Backlog includes services and hydrogen deliveries extending as far as ten years and is not equivalent to near-term revenue; shipment and conversion depend on customer conditions and deployment schedules.
- Two customers represented 37.2% of FY2014 revenue, and four customers represented 69.9% of year-end receivables. Customer concentration, order timing and collection risk are material.
- Management said existing cash, expected sales and potential warrant exercises were expected to fund operations for at least twelve months. This is an estimate based on operating assumptions, not a guarantee. The company continued to incur losses and negative operating cash flow and cautioned that it might need additional financing.
- There is no quantified revenue, margin or profitability guidance in the provided filing text. Management’s priorities include lowering product and manufacturing costs, improving reliability, and scaling sales and service for the turnkey offering.
- Key risks include failure to achieve profitability; dependence on a small customer base; unconverted or delayed orders; manufacturing scale-up, product reliability and warranty exposure; reliance on certain sole- or limited-source suppliers; hydrogen availability and cost; competition and evolving regulation; and possible need for additional capital. Product use of flammable hydrogen also creates safety and liability risks.
- The company acquired ReliOn for $4.0 million in stock and recognized a $1.0 million bargain-purchase gain. It accrued a $2.4 million legal reserve for the Soroof dispute; the dispute was subsequently settled and dismissed with prejudice, with each party bearing its own costs.
- Common shares issued rose from 106.4 million at year-end 2013 to 173.6 million at year-end 2014, reflecting equity offerings, warrant exercises and other issuances. Further equity financing could dilute existing holders. Management and the auditor reported effective internal control over financial reporting; ReliOn was excluded from the control assessment.
Important facts for investors to verify
- Whether the $133.4 million backlog ships, is installed and converts to revenue on expected timing and economics.
- Whether product and service margins improve as GenKey deployments and the installed base grow, including the costs of hydrogen infrastructure, delivery and maintenance.
- Cash burn, runway and financing needs against management’s twelve-month liquidity estimate.
- Customer concentration, receivable collections and the impact of any order delays or reductions.
- The assumptions and potential earnings volatility associated with warrant-liability valuation, along with dilution from outstanding warrants, options and future capital raises.
- Progress on product reliability, warranty costs, supplier alternatives and manufacturing scale-up.