Plug Power Inc. — FY2013 Form 10-K
Business context and reporting period. This summary covers the fiscal year ended December 31, 2013; the filing was signed March 31, 2014. Plug Power develops hydrogen fuel-cell systems and related fueling and service offerings, primarily for forklifts and material-handling operations. It reports as one segment. GenKey, a bundled fuel-cell, fueling and maintenance solution, was introduced in January 2014.
Financial and operating performance
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $26.6 million | $26.1 million |
| Product revenue | $18.4 million | $20.8 million |
| Service revenue | $6.7 million | $3.6 million |
| Research and development contract revenue | $1.5 million | $1.7 million |
| Operating loss | $29.0 million | $36.7 million |
| Net loss attributable to Plug Power | $62.7 million | $31.9 million |
| Net loss per share, basic and diluted | $0.82 | $0.93 |
| Cash used in operating activities | $26.9 million | $20.2 million |
| Cash and cash equivalents at year-end | $5.0 million | $9.4 million |
| Working capital at year-end | $11.1 million | $6.9 million |
Product gross loss narrowed to approximately $2.0 million from $4.6 million, while service revenue remained below service costs: service gross loss was approximately $8.3 million versus $8.7 million. Across product, service and R&D contract activities, costs exceeded the related revenue by approximately $11.2 million in 2013. The filing does not present a single consolidated gross-margin percentage.
- The $37.1 million adverse change in fair value of common-stock warrant liabilities was a major driver of the higher reported net loss; it was a non-cash valuation item. The warrant liability was $28.8 million at year-end, compared with $0.5 million a year earlier.
- Year-end total assets were $35.4 million and total liabilities were $50.9 million; stockholders’ equity was negative $17.9 million. The company had no borrowings under its bank line at year-end; that facility expired in March 2013. Recorded obligations included capital leases and a sale-leaseback finance obligation.
- GenDrive shipments fell to 918 from 1,391 in 2012; the company reported 1,079 orders and year-end backlog of 1,439 units, valued at about $24.2 million. GenCare and GenFuel backlog was about $25 million, to be recognized over contract terms. Backlog is subject to conditions and timing uncertainty.
- Three customers accounted for 33.2% of 2013 revenue. Five customers represented 78.3% of year-end accounts receivable.
Material changes, outlook and risks
- Product revenue declined 11.3%, primarily because fewer units shipped. Service revenue rose 84.2%, mainly from new GenCare contracts. Research and development and selling, general and administrative expenses declined to $3.1 million and $12.3 million, respectively.
- Net loss increased substantially, chiefly because of warrant fair-value accounting. The company also recorded a $3.2 million gain from selling a 25% interest in its Hypulsion joint venture to Axane; Plug Power retained 20% ownership.
- Management estimated 2014 operating cash burn of approximately $10–$15 million and said available cash, expected sales, warrant exercises and recent offerings should fund operations for at least twelve months. This is an estimate based on assumptions, not a guarantee.
- After year-end, Plug Power raised approximately $28.0 million net in a January 2014 offering and $21.5 million net in a March 2014 offering. It also received $18.2 million from warrant exercises through March 21, 2014. These financings increased liquidity but involved new shares and warrants and potential dilution.
- Key risks include continuing losses and possible need for further capital; orders failing to ship or convert to revenue; customer concentration; product reliability and warranty costs; dependence on hydrogen infrastructure and key suppliers, including Ballard; manufacturing scale-up, cost reduction and competition; and volatile share price. The company cited approximately $1.2 million remaining in reserves for identified GenDrive component issues.
- The Soroof dispute sought $3 million in damages. Plug Power said the outcome and likelihood of adverse exposure were too early to determine and disclosed an indemnification obligation capped at $1 million for certain losses.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the consolidated financial statements.
Important facts for investors to verify
- Whether 2014 cash burn and the stated twelve-month liquidity outlook were achieved, including actual working-capital needs and subsequent financing.
- How much reported backlog converted into shipments, installations and recognized revenue, and whether conditional or older orders were delayed or cancelled.
- Whether GenDrive product reliability improved and warranty/service costs declined sufficiently to improve unit economics.
- The continuing effects of warrant liabilities, preferred-stock terms, outstanding warrants and equity issuance on reported losses, cash needs and share dilution.
- Exposure and developments in the Soroof litigation, customer and receivable concentration, and the continuity and pricing of critical hydrogen and component supply.