Plug Power Inc. — Form 10-K summary
Reporting period: Fiscal year ended December 31, 2015. The filing also provides unaudited quarterly results, including fourth-quarter 2015.
Business context
Plug Power designs and manufactures hydrogen fuel-cell systems, fueling infrastructure and related services, primarily for material-handling fleets, with a smaller stationary-power business. Its GenKey offering combines equipment, hydrogen infrastructure and maintenance. The company reported one operating segment and more than 10,300 GenDrive units deployed. In July 2015, it acquired Axane’s remaining 80% interest in HyPulsion, taking full ownership.
Financial and operating performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $103.3 million | $64.2 million |
| Gross loss (margin) | $9.9 million (9.6%) | $4.9 million (7.6%) |
| Operating loss | $59.0 million | $37.9 million |
| Net loss attributable to common shareholders | $55.8 million | $88.6 million |
| Net cash used in operating activities | $47.3 million | $40.8 million |
| Cash and cash equivalents at year-end | $64.0 million | $146.2 million |
| Restricted cash at year-end | $47.8 million | $0.5 million |
| Working capital at year-end | $88.5 million | $167.0 million |
- Revenue grew 60.8%, led by fuel-cell systems and infrastructure sales, which increased 61.5% to $78.0 million. GenDrive shipments rose to 3,431 from 2,406.
- Product sales gross margin improved to 13.2% from 10.2%; GenDrive margin increased to 21.3% from 13.7%. Service operations remained loss-making, with a 2015 gross margin of negative 63.7% before the separate loss-contract provision.
- The annual net loss narrowed substantially, but operating loss widened. The comparison was materially affected by noncash changes in warrant fair value: a $3.7 million gain in 2015 versus a $52.3 million loss in 2014.
- Fourth-quarter revenue was $38.4 million; operating loss was $24.1 million and net loss attributable to common shareholders was $25.2 million. Fourth-quarter gross loss of $9.4 million included a $10.1 million service loss-contract provision.
- Orders were approximately $205.3 million, versus $151.4 million in 2014; year-end backlog was $235.6 million, versus $133.4 million. Backlog spans products, installations and services delivered over periods ranging from roughly 90 days to 10 years and is not assured to convert to revenue.
Liquidity, debt and financing
Operating cash use increased year over year, while year-end cash declined by $82.2 million. The company attributed working-capital investment principally to inventory procured for backlog. Of $47.8 million in restricted cash, $46.8 million secured sale-leaseback and customer financing arrangements; these funds are not generally available for other uses. Working capital also fell by $78.5 million.
At December 31, 2015, the balance sheet included $14.8 million of noncurrent finance obligations, $5.7 million of warrant liability and substantial operating lease commitments. The company reported a $50 million minimum unrestricted-cash covenant under a master lease agreement. It stated that existing cash and expected resources were sufficient for at least 12 months, subject to assumptions about sales, costs, cash burn and other operating factors.
After year-end, on March 2, 2016, Plug Power entered a secured term-loan facility of up to $30 million and borrowed $12.5 million. The loan bears 12% annual interest, matures March 2, 2017, and is secured by substantially all borrower assets, including intellectual property. Additional availability is conditional or at the lender’s discretion. Covenants include minimum cash and working-capital requirements, and specified proceeds from restricted customer-financing accounts must prepay the loan beginning October 1, 2016.
Changes, outlook and material risks
- Service-contract economics deteriorated enough to require a $10.1 million provision. The charge related to projected costs exceeding revenues on 30 maintenance contracts covering about 5,400 units, principally because of premature stack failures. Management reported a redesigned stack entering production in the fourth quarter, but future service costs remain estimate-sensitive.
- Walmart accounted for 56.7% of 2015 revenue, up from 24.1% in 2014. Two customers represented 50.9% of year-end accounts receivable. Customer concentration and payment or deployment changes could materially affect results and cash flows.
- Management identified continuing losses, negative operating cash flow, potential need for further financing, execution and scaling challenges, product reliability and cost reductions, hydrogen availability and pricing, sole- or limited-source suppliers, competition, and dependence on incentives as significant risks. The investment tax credit was scheduled to expire December 31, 2016.
- The company reported no specific numerical earnings or revenue guidance. Its stated liquidity outlook was conditional, and it warned that orders may be delayed, cancelled or fail to convert to revenue.
- A New York action brought by General Electric seeks $1 million under an indemnification agreement; Plug Power said it was vigorously defending the claim. Management stated that known litigation, after insurance and accruals, was not expected to have a material adverse impact.
- Management and the auditor concluded internal control over financial reporting was effective at year-end; HyPulsion was excluded from the assessment, representing about 7.3% of assets and 0.3% of revenue.
Important facts for investors to verify
- Whether the 2016 secured loan’s availability, covenants and repayment requirements leave sufficient usable liquidity after restricted cash and lease obligations.
- Whether the new stack design improves fleet reliability as expected, and whether the $10.1 million service-contract accrual adequately covers remaining maintenance costs.
- How much of the $235.6 million backlog ships, is installed and converts to collected revenue, including the timing and cancellation conditions attached to orders.
- Whether Plug Power can diversify revenue away from Walmart and reduce customer and receivables concentration.
- Whether product, service and hydrogen-delivery margins improve enough to offset operating expenses and ongoing cash use, without relying on noncash warrant remeasurement to improve reported net loss.