Business context and reporting period
Plug Power Inc.’s Form 10-K covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. The company sells hydrogen fuel-cell systems, fueling infrastructure, service and fuel, primarily for material-handling and stationary-power applications. Its turnkey offerings include GenDrive, GenFuel, GenCare, GenSure, GenKey and ProGen.
The company reported more than 30,000 deployed fuel-cell systems and operates as one segment. Its fiscal year 2019 revenue was concentrated: 49.6% was associated primarily with two customers, down from 66.7% in 2018. Those customers also represented 63.4% of year-end accounts receivable, versus 52.3% in 2018.
Financial and operating highlights
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $230.2 million | $174.6 million |
| Gross profit and margin | $28.0 million; 12.1% | $2.6 million; 1.5% |
| Operating loss | $50.0 million | $69.5 million |
| Net loss attributable to Plug Power | $85.5 million | $78.1 million |
| Net loss per share, basic and diluted | $0.36 | $0.36 |
| Cash used in operating activities | $51.5 million | $57.6 million |
| Cash used in investing activities | $14.2 million | $19.6 million |
| Cash provided by financing activities | $325.1 million | $119.3 million |
Revenue increased 31.9%. Fuel-cell systems and related infrastructure generated $149.9 million, up from $107.3 million; 6,058 GenDrive units were recognized as revenue, compared with 4,426. Gross margin improved substantially, mainly reflecting stronger systems margins and fewer hydrogen-infrastructure installations. However, gross profit remained insufficient to cover operating expenses, and the net loss widened year over year, in part alongside higher interest and other expense.
Annual margins remained negative for services (14.2%), Power Purchase Agreements (54.9%) and delivered fuel (24.9%). Management cited service-program investments and maintenance cycles, lease-related costs, and higher hydrogen and equipment costs among the factors affecting these businesses.
At December 31, 2019, cash and cash equivalents were $139.5 million, restricted cash was $230.0 million, and working capital was $162.5 million. The company reported total assets of $771.2 million and stockholders’ equity of $134.7 million. It reported approximately $222.4 million of debt, including convertible notes and term-loan borrowings; finance obligations are additional and significant. The Generate Capital term loan carried 12% interest, had $112.7 million outstanding, and matured October 6, 2022. Cash and financing capacity should be assessed with the substantial restricted cash and lease obligations in view.
Fourth-quarter 2019 revenue was $91.7 million, gross profit was $12.8 million, operating loss was $7.5 million, and net loss attributable to common stockholders was $18.3 million. The filing’s quarterly table reports quarterly figures as unaudited.
Material changes versus the prior comparable period
- Revenue rose by $55.6 million, while gross profit rose by $25.3 million and gross margin increased from 1.5% to 12.1%.
- Operating loss narrowed by $19.4 million, but net loss attributable to the company increased by $7.4 million. Net interest and other expense rose, reflecting increased debt and financing costs.
- Operating cash outflow improved by $6.1 million, but remained substantial. Financing inflows rose sharply, supported by equity offerings, debt issuance and lease financing.
- Year-end cash and working capital increased markedly, while restricted cash rose to $230.0 million from $71.6 million. The increase in available liquidity therefore should not be equated with an equal increase in freely deployable cash.
- Common shares issued increased materially, including a 46-million-share public offering in December. Series E preferred shares were mostly converted into common stock during 2019; the remaining shares were converted in January 2020.
Outlook, management commentary, risks and unusual items
- Management expected approximately 36.5% of backlog to be filled during 2020. The filing does not provide a clear numerical revenue, margin or profitability forecast. Management said working capital, expected future operating cash generation, financing and equity or debt proceeds were expected to fund operations for at least one year after issuance of the financial statements, while cautioning that future funding was not assured.
- The filing states the company had never achieved operating profitability and anticipated continuing losses. It reported an accumulated deficit of $1.3 billion and warned that additional capital may be needed; failure to obtain financing and generate positive cash flow could require reduced operations or other drastic measures.
- Revenue recognition includes noncash reductions for customer warrants. The company early-adopted ASU 2019-08 retrospectively from January 1, 2019, revising its 2019 interim information and reducing 2019 warrant-related revenue deductions to $6.5 million from the $13.1 million previously reported for those quarters. Investors should distinguish this accounting change from underlying sales growth.
- Funding and liquidity risks include reliance on customer and project financing, cash restrictions supporting sale/leaseback arrangements, debt covenants, high-cost term debt and future lease payments. The company reported compliance with its Generate Capital loan covenants at year-end.
- Other key risks include customer concentration; hydrogen availability and cost; supplier dependence; execution, reliability and warranty risks; competition; potential dilution from options, warrants and convertible notes; and changes to government incentives. A 2019 replacement program for certain composite fuel tanks was being funded by the manufacturer.
- The filing describes lawsuits arising from a May 2018 forklift accident at a Procter & Gamble facility, including personal-injury and property/business-loss claims. The company said the claims were at an early stage, damages were unspecified, and it could not determine the likelihood of an adverse outcome; it did not expect a material financial impact.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The company disclosed the coronavirus outbreak in China as a potential supply-chain disruption risk, but did not quantify an effect on results.
Most important facts for investors to verify
- Reconcile the filing’s inconsistent backlog figures: the business discussion reports approximately $797.4 million at December 31, 2019, while another section reports approximately $840.6 million. The 2018 order figure also appears as both $225.0 million and $225.5 million in different passages.
- Confirm how much of the $230.0 million in restricted cash is available for release, on what schedule, and whether it can support operations or debt repayment.
- Assess the economics and cash requirements of PPAs, service contracts and hydrogen delivery, given their negative reported gross margins, alongside the stronger systems margin.
- Track customer concentration, accounts-receivable collection, customer order conversion and the timing of backlog fulfillment; backlog spans delivery periods from roughly 90 days to 10 years and is not equivalent to near-term revenue.
- Review debt and financing obligations together, including 12% Generate Capital debt, convertible-note settlement and dilution terms, covenants, restricted-cash collateral and contractual lease commitments.
- Monitor operating cash burn, the company’s path to positive gross margins across all product lines, and dependence on further external financing while it remains unprofitable.