Notes to Consolidated Financial Statements
1. Nature of Operations
Description of Business
Plug Power Inc., or the Company, is a leading provider of alternative energy technology focused on the design, development, commercialization and manufacture of hydrogen fuel cell systems used primarily for the material handling and stationary power market.
We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and associated hydrogen storage and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. Plug Power develops complete hydrogen delivery, storage and refueling solutions for customer locations. Hydrogen can also be obtained from the electrolysis of water, or produced on-site at consumer locations through a process known as reformation. Currently the Company obtains hydrogen by purchasing it from fuel suppliers for resale to customers.
We provide and continue to develop commercially viable hydrogen and fuel cell product solutions to replace lead‑acid batteries in material handling vehicles and industrial trucks for some of the world’s largest distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications (forklifts and electric industrial vehicles) at multi‑shift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity, flexibility and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products prove valuable with telecommunications, transportation and utility customers as a robust, reliable and sustainable power solution. Our current products and services include:
GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling vehicles;
GenFuel: GenFuel is our hydrogen fueling delivery system;
GenCare: GenCare is our ongoing maintenance program for GenDrive fuel cells, GenSure products and GenFuel products;
GenSure: GenSure (formerly ReliOn) is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors;
GenKey: GenKey is our turn-key solution combining either GenDrive or GenSure with GenFuel and GenCare, offering complete simplicity to customers transitioning to fuel cell power;
ProGen: ProGen is our fuel cell engine technology, under development for use in mobility and stationary fuel cell systems;
GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks.
We were organized as a corporation in the State of Delaware on June 27, 1997.
Unless the context indicates otherwise, the terms “Company,” “Plug Power,” “we,” “our” or “us” as used herein refers to Plug Power Inc. and its subsidiaries.
Liquidity
Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as delivery of the hydrogen fuel, continued development and expansion of our products, payment of lease obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of building a sales base; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.
We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common shareholders of $57.6 million, $55.8 million and $88.6 million for the years ended December 31, 2016, 2015, and 2014, respectively, and has an accumulated deficit of $1.1 billion at December 31, 2016.
During the year ended December 31, 2016, cash used in operating activities was $29.6 million, consisting primarily of a net loss attributable to the Company of $57.5 million, offset by the impact of noncash charges/gains of $10.9 million and net inflows from fluctuations in working capital and other assets and liabilities of $16.9 million. The changes in working capital primarily were related to collections of accounts receivable and managing of accounts payable, offset by consumption against the accrual for loss contracts related to service. As of December 31, 2016, we had cash and cash equivalents of $46.0 million and net working capital of $44.4 million. By comparison, at December 31, 2015, we had cash and cash equivalents of $64.0 million and net working capital of $88.5 million.
Net cash used in investing activities for the year ended December 31, 2016, totaled $58.1 million and included purchases of property, plant and equipment and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we sell and equipment we lease directly to customers are included in net cash used in operating activities and net cash used in investing activities, respectively.
During the year ended December 31, 2016, we generated $69.9 million in cash flows from financing activities, primarily comprised of increases in finance obligations, borrowings against short and long-term loan agreements, as described in Notes 9 and 10, Short-Term Borrowing and Long-Term Debt, and proceeds from the issuance of common and preferred stock and warrants, as described in Notes 12 and 13, Stockholders’ Equity and Redeemable Preferred Stock, offset by an increase in restricted cash and payments on short-term borrowing and long-term debt.
Prior to 2016, the Company signed sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company had sold certain fuel cell systems and hydrogen infrastructure to the financial institutions, and leased the equipment back to support certain customer locations and to fulfill its varied PPAs. In connection with these operating leases, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s lease obligations. Cash received from customers under the PPAs is used to make lease payments. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements was $53.6 million which has been fully secured with restricted cash and pledged service escrows.
The master lease agreement with one of the financial institutions required the Company to maintain a minimum balance of unrestricted cash. This requirement was removed in October 2016, when the Company elected to pledge additional cash collateral of $12.0 million. The Company’s remaining contractual lease payments to this financial institution are fully secured through a combination of restricted cash and pledges on funds escrowed for future service by the Company.
During the year ended December 31, 2016, cash flows from financing activities included short-term borrowings and long-term debt, which are described more fully in Notes 9 and 10, Short-Term Borrowing and Long-Term Debt, respectively. On March 2, 2016, the Company entered into a loan agreement with Generate Lending, LLC., pursuant to which $25.0 million was borrowed upon closing and issuance costs of $1.3 million were incurred. On June 27, 2016, this borrowing was converted to long-term project financing from the same lender. On June 27, 2016, the Company borrowed $25.0 million under a loan agreement with Hercules Capital, Inc., and incurred related issuance costs of $1.4 million. On December 22, 2016 the Company repaid the loan in full. On December 23, 2016, the Company, entered into a loan and security agreement with NY Green Bank, borrowing $25.0 million under a loan agreement on the date of closing and issuance costs of $1.2 million were incurred.
During 2016, we received gross proceeds of $30.0 million from underwritten public offerings of our common stock and preferred stock as well as warrants to purchase additional shares of common stock. Net proceeds after underwriting discounts and commissions and other fees and expenses were $27.5 million. During 2014, we received gross proceeds of $176.7 million from three underwritten public offerings. Net proceeds after underwriting discounts and commissions and other fees and expenses were $165.7 million. In addition, during 2014, we received $18.3 million from the exercise of previously issued common stock warrants.
We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings and long-term debt and project financing. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least one year after the date that the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions.