Plug Power Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
Business context
Plug Power develops and sells hydrogen and fuel-cell products and services, including fuel-cell systems, hydrogen infrastructure, electrolyzers, cryogenic equipment, maintenance, power purchase agreements (PPAs), and delivered hydrogen. It reports one operating segment. The quarter includes revenue from acquisitions completed in 2021 and January 2022.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $140.8 | $72.0 |
| Cost of revenue | $176.2 | $84.1 |
| Gross loss / margin | $(35.3) / (25.1)% | $(12.2) / (16.9)% |
| Operating loss | $(139.2) | $(48.3) |
| Net loss | $(156.5) | $(60.7) |
| Basic and diluted loss per share | $(0.27) | $(0.12) |
| Cash used in operating activities | $(209.9) | $(117.1) |
| Capital expenditures for property, plant and equipment | $(78.4) | $(9.9) |
At March 31, cash and cash equivalents were $2.50 billion; restricted cash was approximately $683 million; available-for-sale securities were $799 million; and equity securities were $148 million. Management reported working capital of $3.7 billion and stated that available working capital and cash should fund operations for at least one year after the financial statements were issued. Investing activities provided $273.9 million, primarily reflecting proceeds from sales and maturities of securities, partly offset by capital spending, acquisitions, and investments.
Total liabilities were $1.33 billion and stockholders’ equity was $4.48 billion. Key obligations included $192.9 million of convertible notes, $109.1 million of long-term debt (including $99.8 million outstanding under the Generate Capital term loan), $260.2 million of finance obligations, and $255.9 million of lease liabilities. The term loan is scheduled to be repaid by October 2025; the company reported compliance with its covenants.
Material changes versus Q1 2021
- Revenue rose approximately 96%, with about $40.1 million attributable to Applied Cryo, Frames, and Joule, which contributed no revenue in Q1 2021. Fuel-cell systems, infrastructure, and equipment sales increased to $108.8 million from $46.8 million.
- Revenue growth did not translate into improved overall profitability: gross loss widened to $35.3 million from $12.2 million, and gross margin fell to (25.1)% from (16.9)%. Equipment gross margin declined to 18.4% from 38.1%; PPAs and delivered fuel continued to produce substantial gross losses.
- Operating expenses increased to $103.8 million from $36.1 million. Selling, general and administrative expense rose to $80.9 million, including higher headcount, stock-based compensation, and branding costs; research and development expense increased to $20.5 million.
- Operating cash outflow increased to $209.9 million from $117.1 million. Inventory increased to $333.4 million from $269.2 million, while property, plant and equipment rose to $324.7 million from $255.6 million, including construction in progress for hydrogen plants and the Rochester Gigafactory.
- Cash and cash equivalents were broadly stable compared with year-end 2021, while available-for-sale securities declined to $799.2 million from $1.24 billion. Unrealized losses on those securities were $17.7 million at quarter-end.
Outlook, management commentary, and risks
- The filing provides no numeric revenue, earnings, or margin guidance. Management expects inflationary commodity, logistics, procurement, and manufacturing costs to remain elevated through at least the remainder of 2022, and expects higher hydrogen molecule costs to continue at least through 2022.
- Management cited supply-chain constraints, freight costs, labor inflation and shortages, COVID-related staffing and supply issues, and Russia-Ukraine-related uncertainty as potential pressures on cost, margins, and operations. It said some increased costs had been offset through pricing and efficiency actions, but could not assure this would continue.
- Service, PPA, and delivered-hydrogen activities generated negative gross margins. The company recorded a $2.0 million service-contract loss provision in the quarter and reported an $82.5 million ending accrual for extended maintenance contract losses.
- The company continues to incur substantial losses and operating cash outflows, and identified risks involving future capital needs, execution and scale-up, customer concentration, order conversion, product reliability, acquisitions, and competition. Five customers represented 67% of quarterly revenue; two customers represented 30% of accounts receivable at quarter-end.
- Internal control over financial reporting remained ineffective at March 31, 2022, with material weaknesses not remediated. Disclosed control issues include expense presentation, service-contract loss accruals, physical inventory and inventory-cost capitalization, and IT controls for fuel billings. Management reported remediation efforts were ongoing.
- Acquisition purchase-price allocations remained preliminary. Contingent consideration liabilities totaled $103.2 million at quarter-end; valuation depends in part on unobservable assumptions and milestone outcomes. In April 2022, Plug and Olin announced a memorandum of understanding to explore a green-hydrogen joint venture; the filing does not describe a completed transaction.
Important facts for investors to verify
- Whether revenue growth can be sustained and converted into improved gross margins, particularly in PPAs, service, and delivered hydrogen.
- Cash burn, planned capital investment, restricted-cash requirements, and the assumptions behind management’s liquidity assessment.
- Progress in remediating material weaknesses and whether subsequent filings confirm effective operation of the relevant controls.
- Acquisition integration, final purchase-price allocations, earn-out liabilities, and acquired businesses’ contribution to results.
- Customer concentration, backlog conversion, and exposure to inflation, hydrogen costs, labor availability, and supply-chain disruption.
- Potential dilution: the filing lists approximately 148.8 million potentially dilutive shares, excluded from diluted loss per share because the company reported a net loss. It also reports a $192.9 million carrying value for convertible notes and an estimated fair value of approximately $1.1 billion at March 31, 2022.