Plug Power Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. Plug Power develops and sells hydrogen fuel-cell systems and related infrastructure, services, hydrogen fueling, and power purchase agreement (PPA) solutions, primarily for material-handling and stationary-power markets. Amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $15.3 | $9.4 |
| Gross profit (loss) / margin | $0.2 / 1.1% | $(2.1) / (22.4)% |
| Operating expenses | $13.1 | $10.7 |
| Operating loss | $(13.0) | $(12.8) |
| Net loss attributable to the company | $(11.8) | $(11.1) |
| Net loss per common share, basic and diluted | $(0.07) | $(0.06) |
| Net cash used in operating activities | $(6.9) | $(13.6) |
| Net cash used in investing activities | $(13.6) | $(0.2) |
| Net cash provided by (used in) financing activities | $23.4 | $(0.8) |
| Cash and cash equivalents at period end | $66.9 | $64.0 at Dec. 31, 2015 |
| Restricted cash at period end | $47.9 | $47.8 at Dec. 31, 2015 |
| Working capital at period end | $62.8 | $88.5 at Dec. 31, 2015 |
| Total assets / total liabilities at period end | $222.2 / $105.0 | $209.5 / $83.6 at Dec. 31, 2015 |
Short-term borrowing was $24.0 million at quarter-end, following a $25.0 million draw under a $30 million secured term loan. The loan bears 12% annual interest, matures March 2, 2017, and is secured by substantially all assets of the loan parties. A $5 million undrawn portion is subject to lender discretion. The loan requires minimum unencumbered cash at least equal to outstanding principal and imposes a current-assets-minus-current-liabilities covenant. A separate master lease agreement requires at least $50 million of unrestricted cash, subject to a stated cure provision.
Material changes and operating drivers
- Revenue rose 62.8% year over year. Services revenue increased to $5.3 million from $2.6 million, PPA revenue to $2.7 million from $1.0 million, and fuel-delivery revenue to $2.0 million from $0.7 million. The company attributed growth largely to a larger installed base and more customer sites.
- Fuel-cell system and infrastructure sales were broadly flat at $5.2 million. The company recognized revenue on 160 GenDrive units versus 265 a year earlier; another 674 units shipped during the quarter were held as leased assets. Three hydrogen sites were constructed and held as leased assets.
- Gross profit improved from a $2.1 million loss to $0.2 million. Product sales margin improved to 25.3% from 0.2%, including GenDrive margin of 36.4% versus 12.7%. However, service, PPA, fuel-delivery, and other categories remained loss-making in aggregate.
- Operating expenses increased 23%, principally as research and development rose to $4.8 million from $2.9 million; management cited personnel costs, hydrogen-infrastructure refinement, cost-down programs, and stack-performance prototyping. Operating loss remained approximately $13.0 million.
- Cash provided by financing, mainly the new secured borrowing, more than offset operating and investing outflows. Investing cash use included $11.7 million for construction of leased assets. Cash rose by $2.9 million, while working capital fell by $25.8 million from year-end.
Outlook, risks, and unusual items
- Management stated that working capital, expected future operating cash generation, and project-financing sources under evaluation were expected to fund operations for at least the next 12 months. This outlook depends on assumptions about project financing, product sales and service, costs, and cash burn.
- The company reported recurring operating cash outflows, continued losses, and a $1.0 billion accumulated deficit. It warned that inability to generate positive cash flow or obtain external financing could require it to delay, reduce, or cease operations or seek bankruptcy protection.
- Liquidity is constrained by loan and lease covenants and restricted funds. Of $47.9 million of restricted cash, $46.8 million secured sale/leaseback arrangements; $25 million of unencumbered cash was required under the term-loan covenant at quarter-end. The filing also reports a $50 million unrestricted-cash minimum under the master lease agreement.
- Service-contract loss accrual was $8.3 million at March 31, 2016, down from $10.1 million at the start of the quarter through $1.7 million of realized losses; no additional provision was recorded in Q1. Service gross margin remained negative at 9.7%.
- Walmart represented 47.7% of Q1 revenue, down from 63.5% a year earlier. Two customers together represented 42.6% of accounts receivable at quarter-end.
- Fair-value gains on common-stock warrant liabilities contributed $1.3 million to reported results; valuation relies on Level 3 assumptions and may change with share price and volatility. The company also recognized a $0.4 million income-tax benefit after a statute of limitations expired.
- GE and an affiliate sued the company for $1.0 million under an indemnification agreement; Plug Power said it was vigorously defending the action. Management said other litigation, net of insurance and accruals, was not expected to have a material adverse effect.
Key facts for investors to verify
- Whether the company converts shipments, backlog, and leased deployments into sustainable revenue and positive gross margins, particularly in services, PPAs, and fuel delivery.
- Whether project financing becomes available on acceptable terms and supports repayment or refinancing of the 12% term loan before its March 2017 maturity.
- Cash availability after restricted balances and covenant requirements, and the company’s ability to maintain the $50 million master-lease threshold and term-loan covenants.
- Progress in reducing service-contract losses and validating the assumptions underlying the $8.3 million remaining loss-contract accrual.
- Customer concentration, especially Walmart exposure, and collection of receivables from major customers.
- Outcome and potential financial impact of the GE indemnification litigation.