Plug Power Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Unaudited consolidated results. Plug Power develops hydrogen fuel-cell systems and related infrastructure, services, and fuel supply, primarily for material-handling and stationary-power applications.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net revenue | $20.8 | $20.5 | $36.0 | $35.8 |
| Gross profit (loss) | $(3.5) | $0.4 | $(8.0) | $0.6 |
| Gross margin | (17.0)% | 1.9% | (22.3)% | 1.5% |
| Operating loss | $(28.1) | $(13.4) | $(47.7) | $(26.3) |
| Net loss attributable to company | $(42.6) | $(13.1) | $(66.7) | $(24.9) |
| Net loss per share, basic and diluted | $(0.19) | $(0.07) | $(0.34) | $(0.14) |
- Revenue mix and margins: Q2 PPA revenue rose 61.5% to $4.9 million and hydrogen fuel revenue rose 51.1% to $4.0 million year over year. Fuel-cell system and infrastructure revenue declined 6.2% to $8.6 million. PPA and fuel-delivery activities remained loss-making; their Q2 margins were (50.7)% and (33.0)%, respectively. Product-sales margin improved to 24.8% from 11.8%.
- Cash flow: For the first half, operating cash use was $58.3 million versus $15.8 million a year earlier; investing cash use was $20.5 million versus $28.8 million; financing provided $34.8 million versus $46.6 million. Cash and cash equivalents fell to $2.1 million from $46.0 million at year-end 2016.
- Liquidity and balance sheet: June 30 working capital was $20.9 million, down from $44.4 million at December 31, 2016. Restricted cash was $52.0 million and is substantially tied to lease security. Long-term debt was $18.0 million, with $5.4 million current; finance obligations totaled $43.9 million. The NY Green Bank term loan carried an approximately 11.2% rate and a December 2019 maturity.
- Other balance-sheet changes: Inventory increased to $42.7 million from $29.9 million at year-end; leased property rose to $70.3 million from $54.1 million. The accumulated deficit was $1.1 billion.
Material changes and unusual items
- First-half net loss attributable to the company widened to $66.7 million from $24.9 million. Higher R&D and SG&A, worsening PPA and fuel margins, and warrant-related accounting contributed. Q2 SG&A rose to $17.9 million from $8.6 million, including $7.1 million related to the Amazon warrant tranche and agreement costs.
- A $1.8 million Amazon warrant provision reduced revenue in the first half. Separately, a $14.6 million noncash increase in the fair value of warrant liabilities was recorded as expense for the first half, compared with a $2.7 million benefit in the prior-year period. These valuation changes depend on model assumptions and stock-price inputs.
- The company issued Amazon warrants for up to 55.3 million shares, with most vesting tied to Amazon-related purchases and payments. At June 30, 5.8 million shares had vested. A July 2017 Walmart agreement provides for warrants for up to an additional 55.3 million shares, also subject to vesting tied to purchases and payments. These arrangements create potential dilution; related commercial agreements do not guarantee future orders.
- Common shares issued increased during the first half through public offerings, warrant exercises, and preferred-stock conversion. The company reported 224.7 million common shares outstanding on August 8, 2017.
Outlook, liquidity, and risks
- Management said it expected available working capital, anticipated operating cash, financing, and project funding to support operations for at least 12 months after the financial statements were issued. This expectation depends on assumptions about sales, project financing, costs, and cash burn; the filing cautions that future funding may not be available on acceptable terms.
- After quarter-end, the company borrowed an additional $20.0 million under an amended NY Green Bank facility, increasing the commitment from $25.0 million to $45.0 million. It also reported $13.6 million of July proceeds from Wells Fargo sale-leaseback transactions related to Walmart sites. Management said these arrangements, along with other customer and financing agreements, improved liquidity and working-capital management.
- The company continued to report losses and negative operating cash flow. It warned that if it cannot fund operations through cash flows or external financing, it may need to delay, reduce, or cease operations or seek bankruptcy protection.
- Major risks include customer concentration, shipment and order-conversion uncertainty, achieving positive gross margins, access to financing, continued losses, product reliability and service costs, fuel and infrastructure costs, and potential dilution. Walmart and Amazon accounted for 71.3% of first-half revenue; two customers represented 78.8% of receivables at June 30.
- A General Electric affiliate sued the company seeking $1.0 million under an indemnification agreement; Plug Power said it was defending the claim. Management did not expect known litigation, after insurance and accruals, to materially affect results, financial position, or cash flows.
Most important facts for investors to verify
- Whether post-quarter financing and sale-leaseback proceeds are sufficient to meet ongoing cash requirements, given June 30 cash of only $2.1 million and first-half operating cash use of $58.3 million.
- Whether product, service, PPA, and fuel-delivery margins improve; several substantial revenue streams were operating at negative gross margins.
- Actual customer orders, payments, and deployment milestones under Amazon and Walmart agreements, and the resulting warrant vesting, accounting effects, and potential dilution.
- The sustainability of customer concentration and the company’s ability to collect receivables and convert shipments and pending orders into revenue.
- Debt and lease-payment obligations, restricted-cash release schedules, and the terms and repayment conditions of amended financing facilities.