Plug Power Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. Plug Power develops fuel-cell and hydrogen products, infrastructure and services, including electrolyzers and hydrogen production facilities.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $198.7m | $188.6m | $669.2m | $480.7m |
| Gross loss | $138.0m | $46.1m | $285.5m | $113.9m |
| Gross margin | (69.4%) | (24.4%) | (42.7%) | (23.7%) |
| Operating loss | $274.0m | $159.7m | $717.6m | $445.8m |
| Net loss | $283.5m | $170.8m | $726.4m | $500.5m |
| Loss per share, basic and diluted | $0.47 | $0.30 | $1.22 | $0.87 |
Cash flow: Operating cash outflow was $863.9m for the first nine months, versus $522.0m in 2022. Capital spending on property, plant and equipment was $484.0m, versus $317.6m. Investing activities provided $460.5m, mainly reflecting $961.2m of security maturities; financing activities provided $14.4m. Cash, cash equivalents and restricted cash totaled $1.162bn at period end.
Liquidity and obligations: September 30 cash and cash equivalents were $110.8m; restricted cash was $1.052bn in total. Available-for-sale securities were $388.8m and equity securities $67.8m. Management reported working capital of $1.3bn. The balance sheet included $194.9m of convertible notes, $372.4m of finance obligations and $401.6m of operating and finance lease liabilities. Long-term debt carrying value was approximately $4.1m. Restricted funds and securities should not be treated as freely available cash.
Material changes and drivers
- Nine-month revenue rose 39%, but gross loss more than doubled and gross margin contracted. Equipment revenue grew, including electrolyzers, hydrogen infrastructure, liquefiers and cryogenic equipment; fuel-cell system revenue declined. Q3 revenue growth was modest despite growth in PPAs and delivered fuel.
- Losses reflect persistently high costs and substantial investment. Management cited ramp-up costs for new products, customer mix, parts and logistics costs, and fuel supply constraints. Q3 equipment sales had a gross loss, while service, PPA and delivered-fuel activities also remained loss-making.
- Service-contract loss provisions rose to $55.2m for the nine months, compared with $8.8m in the prior-year period; the Q3 provision was $41.6m. The company cited inflation in labor, parts and overhead and the remaining service periods.
- Inventory increased to $1.024bn from $645.6m at year-end, with cash use from inventory of $411.7m. A $24.1m lower-of-cost-or-market adjustment for the nine months related to losses on new product offerings.
- PP&A and fuel sites expanded, but related costs remained well above revenue. The quarter also included a $10.8m other-than-temporary impairment of available-for-sale securities. Nine-month operating expenses included $11.7m of impairment and a $26.3m increase in contingent-consideration expense.
Outlook, risks and unusual items
- Going concern: Management stated that existing cash and investment securities are not expected to fund operations through the next 12 months from the filing date, raising substantial doubt about the company’s ability to continue as a going concern. Additional capital is required. Potential options include securities sales, debt, project financing and loan-guarantee programs, but plans are not final and funding is not assured; management concluded the plans do not alleviate the substantial doubt.
- The company expects operating losses for the foreseeable future while expanding manufacturing, building hydrogen plants and funding inventory. Management said bookings and revenue may be uneven in the near term. No firm numerical earnings or revenue guidance is provided here.
- Estimated future revenue under unsatisfied or partly unsatisfied obligations was $1.203bn, expected to be recognized over periods ranging from under one year to as long as ten years. The filing cautions that orders may be delayed, modified or cancelled and this amount is not a measure of actual future revenue or profitability.
- Management identified heightened impairment risk for goodwill, intangible assets and property, plant and equipment if operating targets are missed or required financing is unavailable. Four hydrogen plants were under construction; construction in progress was $934.0m.
- Risks include hydrogen availability and supplier force majeure events, supply-chain and labor pressures, inflation, execution of new products and hydrogen plants, customer concentration, financing and dilution. Three customers accounted for 44.3% of Q3 revenue and 46.6% of nine-month revenue.
- Disclosure controls and procedures were reported ineffective as of September 30, 2023 because previously identified material weaknesses in internal control over financial reporting had not been remediated. The company paid a $1.25m SEC civil penalty in September 2023, without admitting or denying findings, related to prior financial-statement restatements.
- The filing describes pending securities and derivative litigation, trade-secret and employment claims; it recorded no accrual for legal matters. A ransomware incident in March 2023 involved encryption of systems and exfiltration of limited data; the company stated it did not believe the incident had a material business or financial impact based on information then available.
Important facts for investors to verify
- Progress and terms of new financing, cash runway, and the amount of unrestricted liquidity available after collateral and project restrictions.
- Whether gross margins and service-contract economics improve, including future service-loss provisions and costs of new products, hydrogen and logistics.
- Inventory utilization, obsolescence exposure, and conversion of the $1.203bn estimated future revenue into executed orders, revenue and cash.
- Hydrogen plant construction, production capacity, supplier availability and the expected timing and economics of new product deployments.
- Remediation of material weaknesses and developments in the securities, derivative, trade-secret and employment proceedings.
- Potential dilution from future capital raising, warrants, stock-based awards and convertible notes; common shares outstanding were 605.5m on November 3, 2023.