.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERSeptember 30, 20172021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 1-34392
PLUG POWER INC.INC.
(Exact name of registrant as specified in its charter)
| | |
| | |
Delaware | | 22-3672377 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification Number) |
968 ALBANY SHAKER ROAD, LATHAM, NEW YORK12110
(Address of Principal Executive Offices, including Zip Code)
(518) (518) 782-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
| | |||
| | |||
Title of Each Class | Trading Symbol(s) | | Name of Each Exchange on Which Registered | |
Common Stock, par value $.01 per share | PLUG | | The NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||||||
Large accelerated filer | Accelerated filer | Non-accelerated filer ☐
| Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 212b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock, par value of $.01$0.01 per share, outstanding as of November 8, 20172021 was 228,470,294.576,355,807.
2
PART 1. FINANCIAL INFORMATION
Item 1 — Interim Financial Statements (Unaudited)
Plug Power Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 7,957 |
| $ | 46,014 |
|
Restricted cash |
|
| 14,902 |
|
| 11,219 |
|
Accounts receivable |
|
| 52,869 |
|
| 11,923 |
|
Inventory |
|
| 44,687 |
|
| 29,940 |
|
Prepaid expenses and other current assets |
|
| 12,758 |
|
| 11,837 |
|
Total current assets |
|
| 133,173 |
|
| 110,933 |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
| 33,668 |
|
| 43,403 |
|
Property, plant, and equipment, net of accumulated depreciation of $31,075 and $29,666, respectively |
|
| 8,657 |
|
| 8,246 |
|
Leased property, net of accumulated depreciation of $9,731 and $4,544, respectively |
|
| 75,344 |
|
| 54,060 |
|
Goodwill |
|
| 9,314 |
|
| 8,291 |
|
Intangible assets, net of accumulated amortization of $1,565 and $1,032, respectively |
|
| 3,892 |
|
| 3,933 |
|
Other assets |
|
| 11,635 |
|
| 11,966 |
|
Total assets |
| $ | 275,683 |
| $ | 240,832 |
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 38,650 |
| $ | 32,112 |
|
Accrued expenses |
|
| 8,912 |
|
| 8,519 |
|
Accrual for loss contracts related to service |
|
| — |
|
| 752 |
|
Deferred revenue |
|
| 8,262 |
|
| 5,736 |
|
Finance obligations |
|
| 23,913 |
|
| 14,787 |
|
Current portion of long-term debt |
|
| 22,081 |
|
| 2,964 |
|
Other current liabilities |
|
| 1,330 |
|
| 1,615 |
|
Total current liabilities |
|
| 103,148 |
|
| 66,485 |
|
Deferred revenue |
|
| 25,898 |
|
| 17,413 |
|
Common stock warrant liability |
|
| 5,657 |
|
| 11,387 |
|
Finance obligations |
|
| 35,466 |
|
| 29,767 |
|
Long-term debt |
|
| 17,933 |
|
| 20,829 |
|
Other liabilities |
|
| 119 |
|
| 241 |
|
Total liabilities |
|
| 188,221 |
|
| 146,122 |
|
|
|
|
|
|
|
|
|
Redeemable preferred stock |
|
|
|
|
|
|
|
Series C redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $16,664); 10,431 shares authorized; Issued and outstanding: 2,620 at September 30, 2017 and 5,231 at December 31, 2016 |
|
| 709 |
|
| 1,153 |
|
Series D redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $0 at September 30, 2017 and $18,500 at December 31, 2016); 5,000,000 shares authorized; Issued and outstanding: none at September 30, 2017 and 18,500 at December 31, 2016 |
|
| — |
|
| 8,469 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 228,120,565 at September 30, 2017 and 191,723,974 at December 31, 2016 |
|
| 2,282 |
|
| 1,917 |
|
Additional paid-in capital |
|
| 1,244,789 |
|
| 1,137,482 |
|
Accumulated other comprehensive income |
|
| 1,958 |
|
| 247 |
|
Accumulated deficit |
|
| (1,159,185) |
|
| (1,051,467) |
|
Less common stock in treasury: 582,328 at September 30, 2017 and December 31, 2016 |
|
| (3,091) |
|
| (3,091) |
|
Total stockholders’ equity |
|
| 86,753 |
|
| 85,088 |
|
Total liabilities, redeemable preferred stock, and stockholders’ equity |
| $ | 275,683 |
| $ | 240,832 |
|
Theaccompanying notes are an integral part of these unaudited interim consolidated financial statements.
3
Plug Power Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3,371,962 | | $ | 1,312,404 |
Restricted cash | | | 90,688 | | | 64,041 |
Available-for-sale securities, at fair value | | | 752,766 | | | — |
Equity securities | | | 147,649 | | | — |
Accounts receivable | |
| 132,370 | |
| 43,041 |
Inventory | |
| 229,814 | |
| 139,386 |
Prepaid expenses and other current assets | |
| 62,746 | |
| 44,324 |
Total current assets | |
| 4,787,995 | |
| 1,603,196 |
| | | | | | |
Restricted cash | |
| 390,542 | |
| 257,839 |
Property, plant, and equipment, net | | | 169,586 | |
| 74,549 |
Right of use assets related to finance leases, net | | | 22,039 | | | 5,724 |
Right of use assets related to operating leases, net | | | 167,907 | | | 117,016 |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,711 | |
| 75,807 |
Goodwill | | | 71,856 | | | 72,387 |
Intangible assets, net | |
| 37,644 | |
| 39,251 |
Other assets | |
| 13,820 | |
| 5,513 |
Total assets | | $ | 5,740,100 | | $ | 2,251,282 |
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 68,378 | | $ | 50,198 |
Accrued expenses | |
| 52,645 | |
| 46,083 |
Deferred revenue | |
| 35,463 | |
| 23,275 |
Operating lease liabilities | | | 23,284 | | | 14,314 |
Finance lease liabilities | | | 2,758 | | | 903 |
Finance obligations | | | 35,595 | | | 32,717 |
Current portion of long-term debt | | | 23,491 | | | 25,389 |
Other current liabilities | |
| 28,329 | |
| 29,487 |
Total current liabilities | |
| 269,943 | |
| 222,366 |
| | | | | | |
Deferred revenue | |
| 63,402 | |
| 32,944 |
Operating lease liabilities | | | 139,400 | | | 99,624 |
Finance lease liabilities | | | 17,027 | | | 4,493 |
Finance obligations | |
| 172,242 | |
| 148,836 |
Convertible senior notes, net | | | 192,320 | | | 85,640 |
Long-term debt | | | 123,764 | | | 150,013 |
Other liabilities | |
| 55,113 | |
| 40,447 |
Total liabilities | |
| 1,033,211 | |
| 784,363 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $0.01 par value per share; 1,500,000,000 shares authorized; Issued (including shares in treasury): 593,077,995 at September 30, 2021 and 473,977,469 at December 31, 2020 | |
| 5,930 | |
| 4,740 |
Additional paid-in capital | |
| 6,978,454 | |
| 3,446,650 |
Accumulated other comprehensive (loss) gain | |
| (2,338) | |
| 2,451 |
Accumulated deficit | |
| (2,203,989) | |
| (1,946,488) |
Less common stock in treasury: 17,032,648 at September 30, 2021 and 15,926,068 at December 31, 2020 | | | (71,168) | | | (40,434) |
Total stockholders’ equity | |
| 4,706,889 | |
| 1,466,919 |
Total liabilities and stockholders’ equity | | $ | 5,740,100 | | $ | 2,251,282 |
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|
| Three Months Ended |
| Nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Revenue: |
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|
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|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure |
| $ | 45,179 |
| $ | 5,653 |
| $ | 55,936 |
| $ | 19,992 |
|
Services performed on fuel cell systems and related infrastructure |
|
| 5,842 |
|
| 4,763 |
|
| 16,040 |
|
| 15,396 |
|
Power Purchase Agreements |
|
| 5,428 |
|
| 3,858 |
|
| 14,684 |
|
| 9,626 |
|
Fuel delivered to customers |
|
| 4,850 |
|
| 2,909 |
|
| 12,327 |
|
| 7,557 |
|
Other |
|
| 128 |
|
| 376 |
|
| 279 |
|
| 779 |
|
Gross revenue |
|
| 61,427 |
|
| 17,559 |
|
| 99,266 |
|
| 53,350 |
|
Provision for common stock warrants |
|
| (26,057) |
|
| — |
|
| (27,877) |
|
| — |
|
Net revenue |
|
| 35,370 |
|
| 17,559 |
|
| 71,389 |
|
| 53,350 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure |
|
| 35,671 |
|
| 4,241 |
|
| 44,398 |
|
| 16,182 |
|
Services performed on fuel cell systems and related infrastructure |
|
| 5,766 |
|
| 4,481 |
|
| 17,400 |
|
| 16,190 |
|
Provision for loss contracts related to service |
|
| — |
|
| — |
|
| — |
|
| (1,071) |
|
Power Purchase Agreements |
|
| 7,395 |
|
| 4,464 |
|
| 21,460 |
|
| 10,961 |
|
Fuel delivered to customers |
|
| 5,810 |
|
| 3,679 |
|
| 15,262 |
|
| 9,298 |
|
Other |
|
| 138 |
|
| 313 |
|
| 301 |
|
| 855 |
|
Total cost of revenue |
|
| 54,780 |
|
| 17,178 |
|
| 98,821 |
|
| 52,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
| (19,410) |
|
| 381 |
|
| (27,432) |
|
| 935 |
|
|
|
|
|
|
|
|
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|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 7,436 |
|
| 5,001 |
|
| 20,059 |
|
| 15,032 |
|
Selling, general and administrative |
|
| 9,535 |
|
| 8,636 |
|
| 36,584 |
|
| 25,485 |
|
Total operating expenses |
|
| 16,971 |
|
| 13,637 |
|
| 56,643 |
|
| 40,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (36,381) |
|
| (13,256) |
|
| (84,075) |
|
| (39,582) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net |
|
| (2,724) |
|
| (2,113) |
|
| (7,112) |
|
| (3,795) |
|
Change in fair value of common stock warrant liability |
|
| (1,878) |
|
| 1,975 |
|
| (16,454) |
|
| 4,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
| $ | (40,983) |
| $ | (13,394) |
| $ | (107,641) |
| $ | (38,668) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
| — |
|
| — |
|
| — |
|
| 392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company |
| $ | (40,983) |
| $ | (13,394) |
| $ | (107,641) |
| $ | (38,276) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared and accretion of discount |
|
| (25) |
|
| (26) |
|
| (3,086) |
|
| (78) |
|
Net loss attributable to common shareholders |
| $ | (41,008) |
| $ | (13,420) |
| $ | (110,727) |
| $ | (38,354) |
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | (0.18) |
| $ | (0.07) |
| $ | (0.52) |
| $ | (0.21) |
|
Weighted average number of common shares outstanding |
|
| 225,762,535 |
|
| 180,375,680 |
|
| 212,419,634 |
|
| 180,261,449 |
|
Theaccompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
3
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, | | September 30, | ||||||||
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Net revenue: | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 115,999 | | $ | 83,662 | | $ | 262,049 | | $ | 151,876 |
Services performed on fuel cell systems and related infrastructure | | 6,677 | | | 6,829 | | | 18,397 | | | 19,586 |
Power Purchase Agreements |
| 9,321 | |
| 6,629 | |
| 25,508 | |
| 19,629 |
Fuel delivered to customers |
| 11,556 | |
| 9,831 | |
| 33,804 | |
| 24,536 |
Other | | 369 | | | 97 | | | 679 | | | 235 |
Net revenue | | 143,922 | | | 107,048 | | | 340,437 | | | 215,862 |
Cost of revenue: | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure |
| 89,235 | |
| 69,428 | |
| 198,122 | |
| 117,290 |
Services performed on fuel cell systems and related infrastructure |
| 18,697 | |
| 9,180 | |
| 47,258 | |
| 27,300 |
Provision for loss contracts related to service | | 7,462 | | | 25,147 | | | 15,641 | | | 25,948 |
Power Purchase Agreements |
| 31,199 | |
| 14,744 | |
| 71,776 | |
| 44,019 |
Fuel delivered to customers |
| 27,857 | |
| 17,002 | |
| 90,331 | |
| 39,332 |
Other |
| 550 | |
| 131 | |
| 856 | |
| 275 |
Total cost of revenue |
| 175,000 | |
| 135,632 | |
| 423,984 | |
| 254,164 |
| | | | | | | | | | | |
Gross loss |
| (31,078) | |
| (28,584) | |
| (83,547) | |
| (38,302) |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Research and development | | 16,634 | | | 7,386 | | | 37,623 | | | 17,033 |
Selling, general and administrative | | 42,421 | | | 17,210 | | | 106,652 | | | 49,963 |
Change in fair value of contingent consideration | | 8,530 | | | 1,130 | | | 8,760 | | | 1,130 |
Total operating expenses | | 67,585 | | | 25,726 | | | 153,035 | | | 68,126 |
| | | | | | | | | | | |
Operating loss | | (98,663) | | | (54,310) | | | (236,582) | | | (106,428) |
| | | | | | | | | | | |
Interest, net |
| (5,361) | |
| (17,248) | |
| (27,895) | |
| (42,407) |
Other expense, net |
| (50) | |
| (303) | |
| (318) | |
| (452) |
Realized loss on investments, net | | (254) | | | — | | | (236) | | | — |
Change in fair value of equity securities | | (607) | | | — | | | (284) | | | — |
Gain on extinguishment of debt | | — | | | — | | | — | | | 13,222 |
Loss on equity method investments | | (1,736) | | | — | | | (1,736) | | | — |
| | | | | | | | | | | |
Loss before income taxes | $ | (106,671) | | $ | (71,861) | | $ | (267,051) | | $ | (136,065) |
| | | | | | | | | | | |
Income tax benefit |
| — | |
| 6,644 | |
| — | |
| 24,015 |
| | | | | | | | | | | |
Net loss attributable to the Company | $ | (106,671) | | $ | (65,217) | | $ | (267,051) | | $ | (112,050) |
| | | | | | | | | | | |
Preferred stock dividends declared |
| — | |
| — | |
| — | |
| (26) |
| | | | | | | | | | | |
Net loss attributable to common stockholders | $ | (106,671) | | $ | (65,217) | | $ | (267,051) | | $ | (112,076) |
| | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | |
Basic and diluted | $ | (0.19) | | $ | (0.18) | | $ | (0.48) | | $ | (0.34) |
| | | | | | | | | | | |
Weighted average number of common stock outstanding |
| 574,520,806 | |
| 371,010,544 | |
| 551,894,779 | |
| 330,949,265 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.statements
4
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | | | | | | | | | | | |
Net loss attributable to the Company | | $ | (106,671) | | $ | (65,217) | | $ | (267,051) | | $ | (112,050) |
Other comprehensive gain (loss): | | | | | | | | | | | | |
Foreign currency translation (loss) gain | |
| (172) | |
| 687 | |
| (714) | |
| 558 |
Change in net unrealized loss on available-for-sale securities | | | (2,200) | | | — | | | (4,075) | | | — |
Comprehensive loss attributable to the Company | | $ | (109,043) | | $ | (64,530) | | $ | (271,840) | | $ | (111,492) |
| | | | | | | | | | | | |
Preferred stock dividends declared | | | — | | | — | | | — | | | (26) |
Comprehensive loss attributable to common stockholders | | $ | (109,043) | | $ | (64,530) | | $ | (271,840) | | $ | (111,518) |
|
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|
|
|
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company |
| $ | (40,983) |
| $ | (13,394) |
| $ | (107,641) |
| $ | (38,276) |
|
Other comprehensive income - foreign currency translation adjustment |
|
| 555 |
|
| 23 |
|
| 1,711 |
|
| 317 |
|
Comprehensive loss |
| $ | (40,428) |
| $ | (13,371) |
| $ | (105,930) |
| $ | (37,959) |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.statements
5
Plug Power Inc. and Subsidiaries
Condensed Consolidated StatementStatements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| Accumulated |
| |
|
| |
|
| |
| | ||
| | | | | | | Additional | | Other | | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Capital |
| Income |
| Shares |
| Amount |
| Deficit |
| Equity | ||||||
December 31, 2020 |
| 473,977,469 | | $ | 4,740 | | $ | 3,446,650 | | $ | 2,451 |
| 15,926,068 | | $ | (40,434) | | $ | (1,946,488) | | $ | 1,466,919 |
Net loss attributable to the Company | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (267,051) | |
| (267,051) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | (130,185) | | | — | | — | | | — | | | 9,550 | | | (120,635) |
Other comprehensive loss | | — | |
| — | |
| — | |
| (4,789) |
| — | |
| — | |
| — | | | (4,789) |
Stock-based compensation | | 61,408 | |
| — | |
| 34,813 | |
| — |
| — | |
| — | |
| — | |
| 34,813 |
Public offerings, common stock, net | | 32,200,000 | | | 322 | | | 2,022,871 | | | — | | — | | | — | | | — | |
| 2,023,193 |
Private offerings, common stock, net | | 54,966,188 | | | 549 | | | 1,564,088 | | | — | | — | | | — | | | — | | | 1,564,637 |
Stock option exercises | | 4,576,102 | |
| 46 | |
| 5,270 | |
| — |
| — | |
| — | |
| — | |
| 5,316 |
Stock exchanged for tax withholding | | — | | | — | | | — | | | — | | 1,106,580 | | | (30,734) | | | — | | | (30,734) |
Exercise of warrants | | 24,210,984 | |
| 242 | |
| 15,203 | |
| — |
| — | |
| — | |
| — | | | 15,445 |
Provision for common stock warrants | | — | | | — | | | 4,430 | | | — | | — | | | — | | | — | |
| 4,430 |
Conversion of 3.75% Convertible Senior Notes | | 3,016,036 | | | 30 | | | 15,155 | | | — | | — | | | — | | | — | |
| 15,185 |
Conversion of 5.5% Convertible Senior Notes | | 69,808 | | | 1 | | | 159 | | | — | | — | | | — | | | — | | | 160 |
September 30, 2021 | | 593,077,995 | | $ | 5,930 | | $ | 6,978,454 | | $ | (2,338) |
| 17,032,648 | | $ | (71,168) | | $ | (2,203,989) | | $ | 4,706,889 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 |
| 318,637,560 | | $ | 3,186 | | $ | 1,506,953 | | $ | 1,288 |
| 15,259,045 | | $ | (31,216) | | $ | (1,350,307) | | $ | 129,904 |
Net loss attributable to the Company |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (112,050) | |
| (112,050) |
Other comprehensive gain |
| — | |
| — | |
| — | |
| 558 |
| — | |
| — | |
| — | |
| 558 |
Stock-based compensation |
| 402,003 | |
| 4 | |
| 9,254 | |
| — |
| — | |
| — | |
| — | |
| 9,258 |
Stock dividend |
| 5,156 | |
| — | |
| 20 | |
| — |
| — | |
| — | |
| (20) | |
| — |
Public offerings, net | | 35,276,250 | | | 353 | | | 344,045 | | | | | — | | | — | | | — | | | 344,398 |
Stock option exercises |
| 13,736,265 | |
| 137 | |
| 32,416 | |
| — |
| — | |
| — | |
| — | |
| 32,553 |
Stock exchanged for tax withholding | | — | | | — | | | — | | | — | | 667,023 | |
| (9,218) | | | — | | | (9,218) |
Equity component of convertible senior notes, net of issuance costs and income tax benefit | | — | | | — | | | 108,479 | | | — | | — | | | — | | | — | | | 108,479 |
Purchase of capped calls | | — | | | — | | | (16,253) | | | — | | — | | | — | | | — | | | (16,253) |
Termination of capped calls | | — | | | — | | | 24,158 | | | — | | — | | | — | | | — | | | 24,158 |
Provision for common stock warrants | | — | | | — | | | 32,529 | | | — | | — | | | — | | | — | | | 32,529 |
Accretion of discount, preferred stock | | — | | | — | | | (29) | | | — | | — | | | — | | | — | | | (29) |
Conversion of preferred stock |
| 2,998,526 | |
| 30 | |
| 1,148 | |
| — |
| — | |
| — | |
| — | |
| 1,178 |
Conversion of 7.5% Convertible Senior Note | | 16,000,000 | | | 160 | | | 42,713 | | | — | | — | | | — | | | — | | | 42,873 |
Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit | | 9,409,591 | | | 94 | | | (51,840) | | | — | | — | | | — | | | — | | | (51,746) |
Shares issued for acquisitions | | 9,658,465 | | | 97 | | | 49,576 | | | — | | — | | | — | | | — | | | 49,673 |
September 30, 2020 |
| 406,123,816 | | $ | 4,061 | | $ | 2,083,169 | | $ | 1,846 |
| 15,926,068 | | $ | (40,434) | | $ | (1,462,377) | | $ | 586,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
|
|
|
|
| Total |
| |||
|
| Common Stock |
| Paid-in |
| Comprehensive |
| Treasury Stock |
| Accumulated |
| Stockholders’ |
| |||||||||||
|
| Shares |
| Amount |
| Capital |
| Income |
| Shares |
| Amount |
| Deficit |
| Equity |
| |||||||
December 31, 2016 |
| 191,723,974 |
| $ | 1,917 |
| $ | 1,137,482 |
| $ | 247 |
|
| 582,328 |
| $ | (3,091) |
| $ | (1,051,467) |
| $ | 85,088 |
|
Net loss attributable to the Company |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (107,641) |
|
| (107,641) |
|
Other comprehensive income |
| — |
|
| — |
|
| — |
|
| 1,711 |
|
| — |
|
| — |
|
| — |
|
| 1,711 |
|
Stock-based compensation |
| 101,004 |
|
| 1 |
|
| 7,287 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,288 |
|
Stock dividend |
| 48,510 |
|
| 1 |
|
| 76 |
|
| — |
|
| — |
|
| — |
|
| (77) |
|
| — |
|
Public offerings, common stock, net |
| 9,314,666 |
|
| 93 |
|
| 20,571 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 20,664 |
|
Conversion of preferred stock, Series D |
| 9,548,393 |
|
| 96 |
|
| 7,682 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,778 |
|
Conversion of preferred stock, Series C |
| 2,772,518 |
|
| 28 |
|
| 416 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 444 |
|
Stock option exercises |
| 110,000 |
|
| 1 |
|
| 39 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 40 |
|
Exercise of warrants, net of warrants issued |
| 14,501,500 |
|
| 145 |
|
| 39,713 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 39,858 |
|
Provision for common stock warrants |
| — |
|
| — |
|
| 34,532 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 34,532 |
|
Accretion of discount |
| — |
|
| — |
|
| (3,009) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3,009) |
|
September 30, 2017 |
| 228,120,565 |
| $ | 2,282 |
| $ | 1,244,789 |
| $ | 1,958 |
|
| 582,328 |
| $ | (3,091) |
| $ | (1,159,185) |
| $ | 86,753 |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.statements
6
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | |
| | Nine months ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
Operating Activities | | | | | | |
Net loss attributable to the Company | | $ | (267,051) | | $ | (112,050) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation of long-lived assets | |
| 15,903 | |
| 9,860 |
Amortization of intangible assets | |
| 1,095 | |
| 835 |
Stock-based compensation | |
| 34,813 | |
| 9,258 |
Gain on extinguishment of debt | | | — | | | (13,222) |
Amortization of debt issuance costs and discount on convertible senior notes | | | 2,371 | | | 12,183 |
Provision for common stock warrants | | | 4,746 | | | 25,198 |
Income tax benefit | | | — | | | (24,015) |
Impairment of long-lived assets | | | 1,329 | | | — |
Loss on service contracts | | | 9,586 | | | 25,110 |
Fair value adjustment to contingent consideration | | | (8,760) | | | 1,130 |
Net realized loss on investments | | | 236 | | | — |
Lease origination costs | | | (7,889) | | | — |
Change in fair value for equity securities | | | 284 | | | — |
Loss on equity method investments | | | 1,736 | | | — |
Changes in operating assets and liabilities that provide (use) cash: | | | | | | |
Accounts receivable | |
| (89,329) | |
| (86,056) |
Inventory | |
| (90,428) | |
| (57,615) |
Prepaid expenses, and other assets | |
| (28,465) | |
| (4,956) |
Accounts payable, accrued expenses, and other liabilities | |
| 28,992 | |
| 41,125 |
Deferred revenue | |
| 42,330 | |
| 16,709 |
Net cash used in operating activities | |
| (348,501) | |
| (156,506) |
| | | | | | |
Investing Activities | | | | | | |
Purchases of property, plant and equipment | |
| (91,384) | |
| (11,265) |
Purchase of intangible assets | | | — | | | (1,638) |
Purchases of equipment related to power purchase agreements and equipment related to fuel delivered to customers | | | (17,900) | | | (13,699) |
Purchase of available-for-sale securities | | | (1,862,951) | | | — |
Proceeds from sales and maturities of available-for-sale securities | | | 1,105,874 | | | — |
Proceeds from sales of equity securities | | | 21,780 | | | — |
Purchase of equity securities | | | (169,713) | | | — |
Net cash paid for acquisition | | | — | | | (45,113) |
Net cash used in investing activities | |
| (1,014,294) | |
| (71,715) |
| | | | | | |
Financing Activities | | | | | | |
Proceeds from exercise of warrants, net of transaction costs | |
| 15,445 | |
| — |
Proceeds from public and private offerings, net of transaction costs | |
| 3,587,830 | |
| 344,398 |
Payments of tax withholding on behalf of employees for net stock settlement of stock-based compensation | | | (30,734) | | | (9,218) |
Proceeds from exercise of stock options | |
| 5,316 | |
| 32,553 |
Proceeds from issuance of convertible senior notes, net | | | — | | | 205,098 |
Repurchase of convertible senior notes | | | — | | | (90,238) |
Purchase of capped calls and common stock forward | | | — | | | (16,253) |
Proceeds from termination of capped calls | | | — | | | 24,158 |
Principal payments on long-term debt | | | (29,129) | | | (27,845) |
Proceeds from long-term debt, net | | | — | | | 99,000 |
Repayments of finance obligations and finance leases | | | (20,413) | | | (19,038) |
Proceeds from finance obligations | |
| 53,447 | |
| 47,568 |
Net cash provided by financing activities | |
| 3,581,762 | |
| 590,183 |
Effect of exchange rate changes on cash | |
| (59) | |
| (90) |
Increase in cash, cash equivalents and restricted cash | |
| 2,218,908 | |
| 361,872 |
Cash, cash equivalents, and restricted cash beginning of period | |
| 1,634,284 | |
| 369,500 |
Cash, cash equivalents, and restricted cash end of period | | $ | 3,853,192 | | $ | 731,372 |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Cash paid for interest, net capitalized interest of $2.6 million | | $ | 10,341 | | $ | 16,975 |
| | | | | | |
Summary of non-cash activity | | | | | | |
Recognition of right of use asset - finance leases | | $ | 16,961 | | $ | — |
Recognition of right of use asset - operating leases | | | 65,083 | | | 25,857 |
Conversion of preferred stock to common stock | | | — | | | 43,058 |
Conversion of convertible senior notes to common stock | | | 15,345 | | | — |
Accrued purchase of fixed assets, cash to be paid in subsequent period | | | 8,832 | | | — |
|
|
|
|
|
|
|
|
|
| Nine months ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
Net loss attributable to the Company |
| $ | (107,641) |
| $ | (38,276) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation of property, plant and equipment, and leased property |
|
| 6,596 |
|
| 2,912 |
|
Amortization of intangible assets |
|
| 443 |
|
| 443 |
|
Stock-based compensation |
|
| 7,288 |
|
| 6,745 |
|
Amortization of debt issuance costs |
|
| 496 |
|
| 469 |
|
Provision for common stock warrants |
|
| 34,570 |
|
| — |
|
Loss on disposal of leased property |
|
| — |
|
| 41 |
|
Provision for loss contracts related to service |
|
| — |
|
| (1,071) |
|
Change in fair value of common stock warrant liability |
|
| 16,454 |
|
| (4,709) |
|
Changes in operating assets and liabilities that provide (use) cash: |
|
|
|
|
|
|
|
Accounts receivable |
|
| (40,946) |
|
| 10,644 |
|
Inventory |
|
| (14,747) |
|
| (3,042) |
|
Prepaid expenses and other assets |
|
| (590) |
|
| (3,549) |
|
Accounts payable, accrued expenses, and other liabilities |
|
| 6,524 |
|
| 7,504 |
|
Accrual for loss contracts related to service |
|
| (752) |
|
| (5,745) |
|
Deferred revenue |
|
| 11,011 |
|
| (2,035) |
|
Net cash used in operating activities |
|
| (81,294) |
|
| (29,669) |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (1,820) |
|
| (2,464) |
|
Purchases for construction of leased property |
|
| (26,471) |
|
| (42,674) |
|
Net cash used in investing activities |
|
| (28,291) |
|
| (45,138) |
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
Change in restricted cash |
|
| 6,052 |
|
| 1,908 |
|
Proceeds from exercise of warrants, net of transaction costs |
|
| 17,636 |
|
| 111 |
|
Proceeds from exercise of stock options |
|
| 40 |
|
| 19 |
|
Payments for redemption of preferred stock |
|
| (3,700) |
|
| — |
|
Proceeds from public offerings, net of transaction costs |
|
| 20,664 |
|
| — |
|
Proceeds from short-term borrowing, net of transaction costs |
|
| — |
|
| 23,673 |
|
Principal payments on short-term borrowing |
|
| — |
|
| (25,000) |
|
Proceeds from borrowing of long-term debt, net of transaction costs |
|
| 20,147 |
|
| 23,407 |
|
Principal payments on long-term debt |
|
| (4,261) |
|
| — |
|
Increase in finance obligations |
|
| 14,664 |
|
| 29,242 |
|
Net cash provided by financing activities |
|
| 71,242 |
|
| 53,360 |
|
Effect of exchange rate changes on cash |
|
| 286 |
|
| (28) |
|
Decrease in cash and cash equivalents |
|
| (38,057) |
|
| (21,475) |
|
Cash and cash equivalents, beginning of period |
|
| 46,014 |
|
| 63,961 |
|
Cash and cash equivalents, end of period |
| $ | 7,957 |
| $ | 42,486 |
|
Other Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 2,357 |
| $ | 1,563 |
|
|
|
|
|
|
|
|
|
Summary of noncash financing activity-conversions of preferred stock to common stock: |
| $ | 8,222 |
|
| — |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.statements
7
Notes to Interim Consolidated Financial Statements (Unaudited)
Description of Business
Plug Power Inc., oris facilitating the Company, is a leading provider of alternative energy technology focused on the design, development, commercializationparadigm shift to an increasingly electrified world by innovating cutting-edge hydrogen 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.
Wesolutions. In our core business, we provide and continue to develop commercially-viablecommercially viable hydrogen and fuel cell product solutions to replace lead‑acidlead-acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest distributionretail-distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications, (forkliftsincluding electric forklifts and electric industrial vehicles)vehicles, at multi‑shiftmulti-shift high volume manufacturing and high throughput distribution sites where we believe 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 provehave proven valuable with telecommunications, transportation, and utility customers as robust, reliable, and sustainable power solutions.
Our current products and services include:
GenDrive: GenDrive is our hydrogen fueled PEMProton Exchange Membrane (“PEM”) fuel cell system providing power to material handling vehicles;electric vehicles, including class 1, 2, 3 and 6 electric forklifts, Automated Guided Vehicles (“AGVs”) and ground support equipment;
GenFuel: GenFuel is our liquid hydrogen fueling delivery, generation, storage, and dispensing system;
GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service program for GenDrive fuel cells,cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and GenFuel products;ProGen fuel cell engines;
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; GenSure High Power Fuel Cell Platform will support large scale stationary power and data center markets;
GenKey: GenKey is our turn-keyvertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power;
ProGen: ProGen is our fuel cell stack and engine technology under development for usecurrently used globally in mobility and stationary fuel cell systems;systems, and as engines in electric delivery vans. This includes the Plug Power membrane electrode assembly (“MEA”), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; and
GenFund: GenFundGenFuel Electrolyzers: GenFuel electrolyzers are modular, scalable hydrogen generators optimized for clean hydrogen production. Electrolyzers generate hydrogen from water using electricity and a special membrane and “green” hydrogen is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.generated by using renewable energy inputs, such as solar or wind power.
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers or OEMs,(“OEMs”) and their dealer networks. Plug Power is targeting Asia and Europe for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug Power is executing on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling as well as securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. We manufacture our commercially viable products in Latham, New York, Rochester, New York and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.
We were organized as
Our wholly-owned subsidiary, Plug Power France, created a corporationjoint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”) in the State of Delaware on June 27, 1997.
second quarter 2021. HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.
8
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
2. Summary of Significant Accounting Policies
Unless
Restatement
As previously disclosed in the context indicates otherwise,Explanatory Note to 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 $110.7 millionCompany’s Annual Report on Form 10-K for the nine monthsfiscal year ended September 30, 2017December 31, 2020 (the “2020 10-K”), the Company restated its previously issued audited consolidated financial statements as of and $57.6 million, $55.8 million, and $88.6 million for the years ended December 31, 2016, 2015,2019 and 2014, respectively,2018 and has an accumulated deficitits unaudited interim condensed consolidated financial statements as of $1.2 billion atand for each of the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, September 30, 2017.2020 and 2019 and December 31, 2019.
DuringPreviously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the nine months ended September 30, 2017, cash used in operating activities was $81.3 million, consisting primarily of a net loss attributable to the Company of $107.6 million and net outflows from fluctuations in working capital and other assets and liabilities of $39.5 million, offsetperiods affected by the impact of noncash charges/gains of $65.8 million. The changes in working capital primarily were related to building of inventory and, an increase in accounts receivable offset by an increase of accounts payable, and increases in deferred revenue. As of September 30, 2017, we had cash and cash equivalents of $8.0 million and net working capital of $30.0 million. By comparison, at December 31, 2016, we had cash and cash equivalents of $46.0 million and net working capital of $44.4 million.
Net cash used in investing activities for the nine months ended September 30, 2017, totaled $28.3 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. Net cash provided by financing activities for the nine months ended September 30, 2017 totaled $71.2 million and primarily resulted from net proceeds of $20.7 million pursuant to public offerings of common stock, net proceeds from borrowing of long-term debt of $20.6 million, net proceeds of $17.6 million pursuant to exercise of warrants, an increase in finance obligations of $14.7 million and a decrease in restricted cash, offset by redemption of Series D preferred stock and principal payments of long-term debt.
In connection with the consummation of the Walmart Transaction Agreement referenced in Note 5, Wal-Mart Stores, Inc. Transaction Agreement, the Company entered into a master lease agreement (the “Wells Fargo MLA”) with Wells Fargo to facilitaterestatement have not been amended. Accordingly, investors should not rely upon the Company’s commercial transactions with Walmart. Pursuantpreviously released financial statements for these periods and any earnings releases or other communications relating to the Wells Fargo MLA, the Company sells fuel cell systemsthese periods, and, hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites. Also, in connection with the consummation of the Amended Loan Agreement referenced in Note
9
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
8, Long-Term Debt, the Company entered into an amended and restated master lease agreement (the “Generate Capital MLA”) with Generate Capital to facilitate the aforementioned Company’s commercial transactions with Walmart. During July 2017, proceeds from transactions under this program, which are accounted for as capital leases, were $17.7 million.
In previous years, 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 $36.0 million, which has been fully secured with restricted cash and pledged service escrows.
We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings, long-term debt, project financing and warrant exercises. 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 thatperiods, investors should rely solely on 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.financial data for the relevant periods included in the 2020 10-K. Commencing with our quarterly report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompanyIntercompany balances and transactions have been eliminated in consolidation. In addition, we include our share of the results of HyVia using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia.
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)(“SEC”). In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles (GAAP)(“GAAP”), the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, filed for the fiscal year ended December 31, 2016.2020 10-K.
The information presented in the accompanying unaudited interim condensed consolidated balance sheetsheets as of December 31, 2016,2020 has been derived from the Company’s December 31, 20162020 audited consolidated financial statements. All other information has been derived from
Certain amounts in the unaudited interimprior period condensed consolidated financial statements have been reclassified to conform to the presentation of the Company.current period condensed consolidated financial statements.
There have been no changes in our accounting policies from those reported in our 2020 10-K, except for the adoption of Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), as described in the Recently Adopted Accounting Guidance section. We have also expanded our accounting policy relating to cash equivalents, available-for-sale securities, equity securities, and stock-based compensation as follows:
Cash Equivalents
109
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
Revenue Recognition
The Company recognizes revenue under arrangements for products and services, which may include the sale of products and related services, including revenue from installation, service and maintenance, spare parts, hydrogen fueling services (which may include hydrogen supply as well as hydrogen fueling infrastructure) and leased units. The Company also recognizes revenue under research and development contracts, which are primarily cost reimbursement contracts associated with the development of PEM fuel cell technology.
The Company enters into revenue arrangements that may contain a combination of fuel cell systems and infrastructure, installation, service, maintenance, spare parts, and other support services. Revenue arrangements containing fuel cell systems and related infrastructure may be sold, or provided to customers under a PPA.
Sales of and Services Performed on Fuel Cell Systems and Related Infrastructure
When sold to customers, the Company accounts for each separate deliverable of these multiple deliverable arrangements as a separate unit of accounting if the delivered item or items have value to the customer on a standalone basis. The Company considers a deliverable to have standalone value if the item is sold separately by us or another entity or if the item could be resold by the customer. The Company allocates revenue to each separate deliverable based on its relative selling price. For a majority of our deliverables, the Company determines relative selling prices using its best estimate of the selling price since vendor-specific objective evidence and third-party evidence is generally not available for the deliverables involved in its revenue arrangements due to a lack of a competitive environment in selling fuel cell technology. When determining estimated selling prices, the Company considers the cost to produce the deliverable, a reasonable gross margin on that deliverable, the selling price and profit margin for similar products and services, the Company’s ongoing pricing strategy and policies, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold, as applicable. The Company determines estimated selling prices for deliverables in its arrangements based on the specific facts and circumstances of each arrangement and analyzes the estimated selling prices used for its allocation of consideration of each arrangement.
Once relative selling prices are determined, the Company proportionately allocates the sale consideration to each element of the arrangement. The allocated sales consideration related to fuel cell systems and infrastructure, spare parts, and hydrogen infrastructure is recognized as revenue at shipment if title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated. The allocated sales consideration related to service and maintenance is generally recognized as revenue on a straight-line basis over the term of the contract, as appropriate.
For those customers who do not purchase an extended maintenance contract, the Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product. Only a limited number of fuel cell units are under standard warranty.
In a vast majority of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year warranty from the date of product installation. These types of contracts are accounted for as a separate deliverable, and accordingly, revenue generated from these transactions is deferred and recognized in income over the warranty period, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized in income on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. When costs are projected to exceed revenues on the life of the contract, an accrual for loss contracts is recorded. Costs are estimated based upon historical experience, contractual agreements and the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.
11
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
Power Purchase Agreements
When fuel cell systems and related infrastructure are provided to customers through a Power Purchase Agreement, or PPA, revenues associated with these agreements are treated as rental income and recognized on a straight-line basis over the life of the agreements. In conjunction with entering into a PPA with a customer, the Company may enter into sale/leaseback transactions with third-party financial institutions, whereby the fuel cells, related infrastructure, and service are sold to the third-party financial institution and leased back to the Company through either an operating or capital lease.
During 2017 and 2016, the Company’s sale/leaseback transactions with third-party financial institutions were required to be accounted for as capital leases under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 840-40, Leases – Sale/Leaseback Transactions (ASC Subtopic 840-40). As a result, no upfront revenue was recognized at the closing of these transactions and a finance obligation for each lease was established. The fuel cell systems and related infrastructure that are provided to customers through these PPAs are considered leased property on the accompanying unaudited interim consolidated balance sheet. Costs to service the leased property and the depreciation of the associated fuel cell systems and related infrastructure are considered cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.
All PPAs entered into through December 31, 2015 had a corresponding sale-leaseback transaction with a third-party financial institution, which was required to be accounted for as an operating lease. The Company accounts for these sale/leaseback transactions as operating leases in accordance with ASC Subtopic 840-40. The Company has rental expense associated with sale/leaseback agreements with financial institutions that were entered into commensurate with the PPAs. Rental expense is recognized on a straight-line basis over the life of the agreements and is characterized as cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.
Fuel Delivered to Customers
The Company purchases hydrogen fuel from suppliers and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed, and included in the respective “Fuel delivered to customers” lines on the unaudited interim consolidated statements of operations.
Research and Development Contracts
Contract accounting is used for research and development contract revenue. The Company generally shares in the cost of these programs with cost sharing percentages ranging from 30% to 50% of total project costs. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period and is included within the “other” revenue line on the unaudited interim consolidated statement of operations. All allowable work performed through the end of each calendar quarter is billed, subject to limitations in the respective contracts.
Cash Equivalents
Cash equivalents consist of money market accounts with an initial term of less than three months. At September 30, 2017 and December 31, 2016, cash equivalents consist of money market accounts. For purposes of the unaudited interim consolidated statements of cash flows, the Company considers all highly-liquid debt instrumentssecurities with original maturities of three months or less to be cash equivalents. The Company’sAt September 30, 2021, cash equivalents consisted of commercial paper and U.S. Treasury securities with original maturities of three months or less, and money market funds. Due to their short-term nature, the carrying amounts reported in the unaudited interim condensed consolidated balance sheets approximate the fair value of cash and cash equivalents are depositedequivalents.
Available-for-sale securities
Available-for-sale securities is comprised of commercial paper with financial institutions locatedoriginal maturities greater than three months, U.S. Treasury securities, certificates of deposit and corporate bonds. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the U.S. and mayfollowing year.
Available-for-sale securities are recorded at times exceed insured limits.
Common Stock Warrant Accounting
The Company accounts for common stock warrantsfair value as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.
12
Tableeach balance sheet date. As of Contents
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
Derivative Liabilities
Registered common stock warrants that require the issuance of registered shares upon exercise and do not sufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. We currently classify these derivative warrant liabilities on the accompanying unaudited interim consolidated balance sheets as a long-term liability, which are revalued at each balance sheet date, subsequentunrealized gains and losses, with the exception of credit related losses, are recorded to accumulated other comprehensive income (loss). Any credit related losses are recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to operations. Realized gains and losses are due to the initial issuance, usingsale and maturity of securities classified as available-for-sale and represent the Black-Scholes pricing model. This pricing model, which isnet gain (loss) from accumulated other comprehensive income (loss) reclassifications for previously unrealized net gains on available-for-sale debt securities.
Equity securities
Equity securities are comprised of fixed income and equity market index mutual funds. Equity securities are valued at fair value with changes in the fair value recognized in our unaudited interim condensed consolidated statement of operations. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following year.
Stock-based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The Company measures stock-based compensation cost at grant date, based in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes inon the fair value of the warrants are reflectedaward estimated under the current provisions of Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation. For service stock options and restricted stock awards, the Company estimates the fair value of stock-based awards using a Black-Scholes valuation model and recognizes the cost as expense on a straight-line basis over the option’s requisite service period.
In September 2021, the Company also issued performance stock option awards that include a market condition. The grant date fair value of performance stock options is estimated using a Monte Carlo simulation model and the cost is recognized using the accelerated attribution method.
Stock-based compensation expense is recorded in cost of revenue associated with sales of fuel cell systems and related infrastructure, cost of revenue for services performed on fuel cell systems and related infrastructure, research and development expense and selling, general and administrative expenses in the accompanying unaudited interim consolidated statements of operations as changebased on the employees’ respective function.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Other than the adoption of the accounting guidance mentioned in our 2020 10-K and ASU 2020-06, there have been no other significant changes in fair valueour reported financial position or results of common stock warrant liability.operations and cash flows resulting from the adoption of new accounting pronouncements.
Equity Instruments
Common stock warrants that meet certain applicable requirements of ASC Subtopic 815-40, On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Hedging—Contracts in Entity’s Own Equity, and other related guidance, including (Subtopic 815-40) using the ability ofmodified retrospective approach. Consequently, the Company to settle the warrants without the issuance of registered shares or the absence of rights of the grantee to require cash settlement, areCompany’s 3.75% Convertible Senior Notes due 2025 (the “3.75% Convertible Senior Notes”) is now accounted for as a single liability measured at its amortized cost. This accounting change removed
10
the impact of recognizing the equity instruments. The Company classifies these equity instruments within additional paid-in capital oncomponent of the accompanying unaudited interim consolidated balance sheets. Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon.com, Inc. and Wal-Mart Stores, Inc. as discussed in Notes 4 and 5. These warrants are remeasuredCompany’s convertible notes at each financial reporting date prior to vesting, using the Monte Carlo pricing model. Once these warrants vest, they are no longer remeasured. This pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes in fair value resulting from remeasurement of common stock warrants issued in connection with the Amazon Transaction Agreementissuance and the Walmart Transaction Agreement, as described in Notes 4 and 5, Amazon.com, Inc. Transaction Agreement and Wal-Mart Stores, Inc. Transaction Agreement, respectively, and are recorded as cumulative catch up adjustments as a reductionsubsequent accounting impact of revenue.
Use of Estimates
The unaudited interim consolidated financial statementsadditional interest expense from debt discount amortization. Future interest expense of the Company have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation. These reclassifications did not have a net impact the results of operations or net cash flows in the periods presented.
Recent Accounting Pronouncements
In July 2017, an accounting update was issued to address narrow issues identifiedconvertible notes will be lower as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This update addresses the complexity of accounting for certain financial
instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. The Company early adopted this accounting update during the three months ended June 30, 2017. The adoption of this guidance and net loss per share will be computed using the if-converted method for convertible instruments. The cumulative effect of the accounting update was considered in determining that warrants issued during the second quarter of 2017 (see note 4) were equity classified.
13
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
In May 2017, an accounting update was issued to provide clarity and reduce both diversity in the practice and cost and complexity when applying the guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This accounting update is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. Earlyupon adoption is permitted, including adoption in any interim period. The amendments in this update should be applied prospectively to an award modified on or after the adoption date.
In January 2017, an accounting update was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with1, 2021 increased the carrying amount of that goodwill. Thisthe 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million as of September 30, 2021.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting update is effective for years beginning after December 15, 2019. Early adoption is permitted for interimand reporting standards as of September 30, 2021 are either not applicable to the Company or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact this update will have on the consolidated financial statements.
In November 2016, an accounting update was issued to reduce the existing diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This accounting update is effective for years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.
In October 2016, an accounting update was issued to simplify how an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of this update are intellectual property and property, plant, and equipment. This accounting update is effective for the annual periods beginning after December 15, 2017 and interim periods within those years. The Company does not expect the adoption of this updateexpected to have a significant effectmaterial impact on the consolidated financial statements.Company.
In August 2016, an accounting update was issued
3. Extended Maintenance Contracts
On a quarterly basis, we evaluate any potential losses related to reduceour extended maintenance contracts for fuel cell systems and related infrastructure that has been sold. We measure loss accruals at the existing diversity in practice in how certain cash receiptscustomer contract level. The expected revenues and cash payments are presentedexpenses for these contracts include all applicable expected costs of providing services over the remaining term of the contracts and classifiedthe related unearned net revenue. A loss is recognized if the sum of expected costs of providing services under the remaining term of the contract exceeds related unearned net revenue and is recorded as a provision for loss contracts related to service in the statementconsolidated statements of cash flows. This accounting updateoperations. A key component of these estimates is effectivethe expected future service costs. In estimating the expected future costs, the Company considers its current service cost level and applies significant judgment related to expected cost saving initiatives. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life, achieving better economies of scale for fiscal years beginning after December 15, 2018,service labor, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoptionimprovements in an interim period. The Company is evaluatingdesign and operations of infrastructure. If the impactexpected cost saving initiatives are not realized, this update will have onincrease the consolidated financial statements.
In February 2016, an accounting update was issued which requires balance sheet recognition for operating leases, among other changesestimated costs of providing services and will adversely affect our estimated contract loss accrual. Further, we continue to previous lease guidance. This accounting update is effective for fiscal years beginning after December 15, 2018. The Company is evaluating the impact this update will have on the consolidated financial statements.
In June 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers. In July 2015, the FASB announced a one year delaywork to improve quality and reliability; however, unanticipated additional quality issues or warranty claims may arise and additional material charges may be incurred in the required adoption date from January 1, 2017 to January 1, 2018.future. These quality issues could also adversely affect our contract loss accrual. Service costs during 2021 have been higher than previously estimated. The Company has established an internal implementation teamundertaken or will soon undertake several initiatives to overseeextend the adoptionlife and improve the reliability of its equipment. As a result of these initiatives and our additional expectation that the new standard. To dateincrease in certain costs attributable to the global pandemic will abate, the Company has identified relevant arrangementsbelieves that its contract loss accrual is sufficient. However, if elevated service costs persist, the Company will adjust its estimated future service costs and performance obligations and does not believe adoptionincrease its contract loss accrual estimate.
The following table shows the rollforward of balance in the standard will have a significant impact on the timing and amount of revenue recognized, as well as the amount of revenue allocatedaccrual for loss contracts, including changes due to the identified performance obligations. The Company anticipates providing further information about the impactspassage of adoption at year end. The Company is planning on accounting for the transition using the modified retrospective basis method.time, additions, and changes in estimates (in thousands):
| | | | | |
| Nine months ended | | Year ended | ||
| September 30, 2021 | | December 31, 2020 | ||
Beginning Balance | $ | 24,013 | | $ | 3,702 |
Provision for Loss Accrual | | 15,641 | | | 35,473 |
Released to Service Cost of Sales | | (6,055) | | | (2,348) |
Released to Provision for Warrants | | — | | | (12,814) |
Ending Balance | $ | 33,599 | | $ | 24,013 |
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
3.4. Earnings Per Share
Basic earnings per common sharestock are computed by dividing net loss attributable to common shareholdersstockholders by the weighted average number of common sharesstock outstanding during the reporting period. DilutedAfter January 1, 2021, the date of the adoption of ASU 2020-06, in periods when we have net income, the shares of our common stock subject to the convertible notes outstanding during the period will be included in our diluted earnings per share reflectsunder the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options, unvested restricted stock, common stock warrants, and preferred stock) were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive common share equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period.if-converted method. Since the Company is in a net loss position, all common stock equivalents would be considered to be anti-dilutive and are therefore not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.
The potentially dilutive potential common sharessecurities are summarized as follows:
|
|
|
|
|
|
|
| At September 30, |
| ||
|
| 2017 |
| 2016 |
|
Stock options outstanding (1) |
| 19,965,599 |
| 14,982,570 |
|
Restricted stock outstanding |
| 248,077 |
| 26,667 |
|
Common stock warrants (2) |
| 115,824,242 |
| 4,000,100 |
|
Preferred stock (3) |
| 2,782,075 |
| 5,554,594 |
|
Number of dilutive potential common shares |
| 138,819,993 |
| 24,563,931 |
|
11
| | | | |
| | At September 30, | ||
|
| 2021 |
| 2020 |
Stock options outstanding (1) | | 24,784,288 |
| 14,434,983 |
Restricted stock outstanding (2) | | 4,960,376 |
| 5,992,974 |
Common stock warrants (3) | | 80,017,181 | | 110,573,392 |
Convertible Senior Notes (4) | | 39,170,766 |
| 56,872,730 |
Number of dilutive potential shares of common stock | | 148,932,611 |
| 187,874,079 |
(1) |
| During the three months ended September 30, |
(2) |
|
(3) | In |
In January 2014, the Company issued 4,000,000 warrants as part of an underwritten public offering with an exercise price of $4.00 per warrant. In December 2016, as a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the exercise price of the $4.00 warrants was reduced to $0.65. Of these warrants issued in January 2014, all 4,000,000 warrants were exercised during the three months ended June 30, 2017, as described in Note 10, Stockholders’ Equity.
In December 2016, the Company issued 10,501,500 warrants as part of two concurrent underwritten public offerings with an exercise price of $1.50 per warrant. Of these warrants issued in December 2016, none and all 10,501,500 warrants were exercised during the three and nine months ended September 30, 2017, respectively, as described in Note 10, Stockholders’ Equity.
In AprilJuly 2017, the Company issued 5,250,750 warrants with an exercise price of $2.69 pera warrant as described in Note 10, Stockholders’ Equity. Of these warrants issued in April 2017, none have been exercised as of September 30, 2017.
In April 2017, the Company issued warrants to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note 4, Amazon.com, Inc.12, “Warrant Transaction Agreement.Agreements.” The first tranche of 5,819,652 warrant shares vested upon the execution of the transaction agreement. Of these warrants issued in April 2017, none havehad been exercised as of September 30, 2017.
15
Noteswith respect to Interim Consolidated Financial Statements (Unaudited) (continued)
In July 2017, the Company issued warrants to acquire up to 55,286,69613,094,217 shares of the Company’s common stock as of September 30, 2021.
(4) | In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due 2023 (the “5.5% Convertible Senior Notes”). In May 2020, the Company repurchased $66.3 million of the 5.5% Convertible Senior Notes and in the fourth quarter of 2020, $33.5 million of the 5.5% Convertible Senior Notes were converted into approximately 14.6 million shares of common stock. The remaining $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock in January 2021. In September 2019, the Company issued $40.0 million in aggregate principal amount of the 7.5% Convertible Senior Note due 2023 (the “7.5% Convertible Senior Note”), which was fully converted into 16.0 million shares of common stock on July 1, 2020. In May 2020, the Company issued $212.5 million in aggregate principal amount of the 3.75% Convertible Senior Notes. During the first quarter of 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted into 3,016,036 shares of common stock. There were 0 conversions in the second or third quarter of 2021. |
5. Inventory
Inventory as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):
| | | | | | | |
|
| September 30, |
| December 31, |
| ||
| | 2021 | | 2020 | | ||
Raw materials and supplies - production locations | | $ | 147,085 | | $ | 92,221 | |
Raw materials and supplies - customer locations | | | 13,611 | | | 12,405 | |
Work-in-process | |
| 61,525 | |
| 29,349 | |
Finished goods | |
| 7,593 | |
| 5,411 | |
Inventory | | $ | 229,814 | | $ | 139,386 | |
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6. Equipment Related to Power Purchase Agreements and Fuel Delivered to Customers, net
Equipment related to power purchase agreements and fuel delivered to customers, net at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):
| | | | | | | |
|
| September 30, |
| December 31, |
| ||
| | 2021 | | 2020 |
| ||
Equipment related to power purchase agreements and fuel delivered to customers | | $ | 99,230 | | $ | 92,736 | |
Less: accumulated depreciation | | | (20,519) | | | (16,929) | |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,711 | | | 75,807 | |
As of September 30, 2021, the Company had deployed long-lived assets at customer sites that had associated Power Purchase Agreements (“PPAs”). These PPAs expire over the next one to ten years. PPAs contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Depreciation expense was $1.9 million and $2.3 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense was $5.7 million and $6.6 million for the nine months ended September 30, 2021 and 2020, respectively.
The Company terminated its contractual relationship with a fuel provider effective March 31, 2021. The Company has historically leased fuel tanks from this provider. As a result of this termination, the Company recognized approximately $16.0 million of various costs in the six months ended June 30, 2021, primarily for removal of tanks, reimbursement of unamortized installation costs, costs to temporarily provide customers with fuel during the transition period, and certain other contract settlement costs, which were recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers. The Company also purchased certain fuel tanks from the fuel provider during the six months ended June 30, 2021. NaN such purchases were made during the three months ended September 30, 2021.
7. Property, Plant and Equipment
Property, plant and equipment at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):
| | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||
Land | | | 1,165 | | | 1,165 |
Leasehold improvements | | $ | 1,440 | | $ | 1,121 |
Construction in progress | | | 100,136 | | | 15,590 |
Software, machinery, and equipment | |
| 94,200 | |
| 78,859 |
Property, plant, and equipment | |
| 196,941 | |
| 96,735 |
Less: accumulated depreciation | |
| (27,355) | |
| (22,186) |
Property, plant, and equipment, net | | $ | 169,586 | | $ | 74,549 |
Construction in progress is primarily comprised of construction of hydrogen production plants and the Gigafactory in Rochester. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of capital asset construction and amortized over the useful lives of the related assets. During the nine months ended September 30, 2021, we capitalized $2.6 million of interest. Capitalized interest in 2020 was 0t significant.
Depreciation expense related to property, plant and equipment was $1.9 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense related to property, plant and equipment was $5.2 million and $3.2 million for the nine months ended September 30, 2021 and 2020, respectively.
8. Intangible Assets and Goodwill
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The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of September 30, 2021 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| 10 years |
| $ | 13,040 | | $ | (4,888) | | $ | 8,152 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | |
| 890 | | | (398) | | | 492 | |
In process research and development |
| Indefinite | | | 29,000 | | | — | | | 29,000 | |
| | | | $ | 42,930 | | $ | (5,286) | | $ | 37,644 | |
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2020 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| 10 years | | $ | 13,697 | | $ | (4,042) | | $ | 9,655 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | | | 890 | | | (294) | | | 596 | |
In process research and development |
| Indefinite | |
| 29,000 | | | — | |
| 29,000 | |
| | | | $ | 43,587 | | $ | (4,336) | | $ | 39,251 | |
The change in the gross carrying amount of the acquired technology from December 31, 2020 to September 30, 2021 was primarily due to foreign currency translation.
Amortization expense for acquired identifiable intangible assets for the three months ended September 30, 2021 and 2020 was $0.4 million and $0.3 million, respectively. Amortization expense for acquired identifiable intangible assets for the nine months ended September 30, 2021 and 2020 was $1.1 million and $0.8 million, respectively.
The estimated amortization expense for subsequent years is as follows (in thousands):
| | | |
Remainder of 2021 |
| $ | 363 |
2022 | | | 1,453 |
2023 | | | 1,453 |
2024 | | | 1,431 |
2025 and thereafter | | | 3,944 |
Total | | $ | 8,644 |
Goodwill was $71.9 million and $72.4 million as of September 30, 2021 and December 31, 2020, respectively, which decreased $531 thousand due to currency translation loss for HyPulsion S.A.S., our French subsidiary. There were 0 impairments during the nine months ended September 30, 2021 or the year ended December 31, 2020.
9. Long-Term Debt
In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).
During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On September 30, 2021, the outstanding balance under the Term Loan Facility was $137.7 million. In addition to the Term Loan Facility, on September 30, 2021, there was approximately $9.5 million of debt outstanding related to the United Hydrogen Group, Inc. acquisition.
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The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a transaction agreement, subject to certain vesting events,portion of the principal amount is payable on a quarterly basis. Principal payments are funded in part by releases of restricted cash, as described in Note 5, Wal-Mart Stores, Inc. Transaction Agreement. The first tranche of 5,819,652 warrant shares vested upon19, “Commitments and Contingencies.” Based on the execution of the transaction agreement. Of these warrants issued in July 2017, none have been exercisedamortization schedule as of September 30, 2017.2021, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025. The Company is in compliance with, or has obtained waivers for, all debt covenants.
The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.
The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.
As of September 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
| | |
December 31, 2021 | $ | 127,317 |
December 31, 2022 | | 93,321 |
December 31, 2023 | | 62,920 |
December 31, 2024 | | 33,692 |
December 31, 2025 | | — |
10. Convertible Senior Notes
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.
At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 212,463 |
Less initial purchasers' discount | | (6,374) |
Less cost of related capped calls | | (16,253) |
Less other issuance costs | | (617) |
Net proceeds | $ | 189,219 |
The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.
The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the
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Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.
Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:
|
|
2) | during the five business days after any five consecutive trading day period (such five consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of |
3) | if the |
4) | upon the occurrence of specified corporate events, as described in the indenture governing the 3.75% Convertible Senior Notes. |
On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.
The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. During the three months ended September 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During the nine months ended September 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued approximately 3.0 million shares of common stock in conjunction with these conversions.
In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.
The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.
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If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.
The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes.
The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | |
| September 30, | |
| 2021 | |
Principal amounts: | | |
Principal | $ | 197,278 |
Unamortized debt issuance costs (1) | | (4,958) |
Net carrying amount | $ | 192,320 |
1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining |
The following table summarizes the total interest expense and effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
4. Amazon.com, Inc.
| | |
| September 30, | |
| 2021 | |
Interest expense | $ | 1,849 |
Amortization of debt issuance costs | | 306 |
Total | | 2,155 |
| | |
Effective interest rate | | 4.50% |
Based on the closing price of the Company’s common stock of $25.54 on September 30, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at September 30, 2021 was approximately $1.0 billion. The fair value estimation was primarily based on an active stock exchange trade on September 30, 2021 of the 3.75% Convertible Senior Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy.
Capped Call
In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60%over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
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The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
5.5% Convertible Senior Notes
In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line.
On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
Common Stock Forward
In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (the “Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.
The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.
The book value of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.
18
During the fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 4.4 million shares of its common stock. During the three months ended September 30, 2021, 0 shares were settled and received by the Company. During the nine months ended September 30, 2021, 8.1 million shares were settled and received by the Company.
11. Stockholders’Equity
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share. As of September 30, 2021 and December 31, 2020, there were 0 shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding.
Common Stock and Warrants
The Company has one class of common stock, par value $0.01 per share. Each share of the Company’s common stock is entitled to 1 vote on all matters submitted to stockholders.
In February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $2.0 billion.
In November 2020, the Company issued and sold in a registered equity offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million.
In August 2020, the Company issued and sold in a registered equity offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.
During 2017, warrants to purchase up to 110,573,392 shares of common stock were issued in connection with transaction agreements with Amazon and Walmart, as discussed in Note 12, “Warrant Transaction Agreements.” At both September 30, 2021 and December 31, 2020, a total of 68,380,913 warrants had vested. Warrants were exercised with respect to 5,819,652 shares during the fourth quarter of 2020. For the three and nine months ended September 30, 2021, warrants were exercised with respect to 3,501,640 and 24,736,559 shares of common stock, respectively. These warrants are measured at fair value at the time of grant or modification and are classified as equity instruments on the unaudited interim condensed consolidated balance sheets.
At Market Issuance Sales Agreement
On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement.
12. Warrant Transaction Agreements
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Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon.com, Inc. (“Amazon”)Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, warrantsa warrant (the “Amazon Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. Additionally, Amazon and Plug Power will begin working together on technology collaboration, exploring the expansion of applications for Plug Power’s line of ProGen fuel cell engines. The vesting of the Amazon Warrant Shares is linked towas conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.
The majorityUnder the terms of the original Amazon Warrant, the first tranche of the 5,819,652 Amazon Warrant Shares vested upon execution of the Amazon Warrant, and the remaining Amazon Warrant Shares will vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The first tranche of 5,819,652 Amazon Warrant Shares vested upon the execution of the Amazon Transaction Agreement. Accordingly, $6.7 million the fair value of the first tranche of the Amazon Warrant Shares was recognized as selling, general and administrative expense onupon execution of the accompanying unaudited interim consolidated statement of operationsAmazon Warrant.
Provision for the nine months ended September 30, 2017.second and third tranches of Amazon Warrant Shares is recorded as a reduction of revenue because they represent consideration payable to a customer.
The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares will vestvested in four4 equal installments, of 7,274,565 Amazon Warrant Shares each timeas Amazon or its affiliates, directly or indirectly through third parties, makemade an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price forlast installment of the firstsecond tranche vested on November 2, 2020. Revenue reductions of $9.0 million, $4.1 million and $9.8 million associated with the second tranchestranche of Amazon Warrant Shares will be $1.1893 per share. Afterwere recorded in 2020, 2019 and 2018, respectively, under the terms of the original Amazon has made payments toWarrant.
Under the Company totaling $200.0 million,terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares will vestvests in eight8 equal installments, of 2,546,098 Amazon Warrant Shares each timeas Amazon or its affiliates, directly or indirectly through third parties, makemade an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.
On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.
The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).
The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December
20
31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual.
At December 31, 2020, all 55,286,696 of the Amazon Warrant Shares had vested. For service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended September 30, 2021 and 2020 was $106thousand and $17.3 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the nine months ended September 30, 2021 and 2020 was $315 thousand and $22.0 million, respectively. During the three and nine months ended September 30, 2021, the Amazon Warrant was exercised with respect to 3,501,640 and 17,461,994 shares of common stock, respectively.
The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares will bewas $13.81 per share, which was determined pursuant to the terms of the Amazon Warrant as an amount per share equal to ninety90 percent (90%) of the 30-day volume weighted average share price of the Company’s common stock as of November 2, 2020, the firstfinal vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant Shares areis exercisable through April 4, 2027.
The Amazon Warrant Shares provideprovides for net share settlement that, if elected by the holders,holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant Shares provideprovides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants areThe Amazon Warrant is classified as an equity instruments.instrument.
16
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
Because the Amazon Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Amazon must achieve for the Amazon Warrant Shares to vest, as detailed above, the final measurement date for the Amazon Warrant Shares is the date on which the Amazon Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Amazon Warrant Shares is being recorded as a reduction to revenue and an addition to additional paid-in capital based on the projected number of Amazon Warrant Shares expected to vest, the proportion of purchases by Amazon and its affiliates within the period relative to the aggregate purchase levels required for the Amazon Warrant Shares to vest and the then-current fair value of the related Amazon Warrant Shares. To the extent that projections change in the future as to the number of Amazon Warrant Shares that will vest, as well as changes in the fairFair value of the Amazon Warrant Shares, a cumulative catch-up adjustment will be recordedat December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the period in whichCompany to develop its own assumptions.
The Company used the estimates change.following assumptions for its Amazon Warrant:
At September 30, 2017, 5,819,652 of the Amazon Warrant Shares have vested. The amount of selling, general and administrative expense attributed to this first tranche recorded in April 2017, was $7.1 million, including legal and other fees associated with the negotiation and completion of the agreement. The amount of provision for common stock warrants recorded as a reduction of revenue during the three and nine months ended September 30, 2017 was $14.2 million and $16.1 million, respectively.
| | | | |
| | December 31, 2020 | | November 2, 2020 |
Risk-free interest rate | | 0.58% | | 0.58% |
Volatility | | 75.00% | | 75.00% |
Expected average term | | 6.26 | | 6.42 |
Exercise price | | $13.81 | | $13.81 |
Stock price | | $33.91 | | $15.47 |
5. Wal-Mart Stores, Inc.Walmart Transaction Agreement
On July 20, 2017, the Company and Wal-Mart Stores, Inc. (“Walmart”)Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares is linked toconditioned upon payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.
The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Transaction Agreement.Warrant and was fully exercised as of December 31, 2020. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the accompanying unaudited interim consolidated statement statements
21
of operations during 2017. All future provision for the threecommon stock warrants is measured based on their grant-date fair value and nine month periods ended September 30, 2017.recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vestvests in four4 installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares will beis $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight8 installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the firstfinal vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares areis exercisable through July 20, 2027.
The Walmart Warrant Shares provideprovides for net share settlement that, if elected by the holders,holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant Shares provideprovides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants areThe Walmart Warrant is classified as an equity instruments.instrument.
17
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
Because the Walmart Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Walmart must achieve for the Walmart Warrant Shares to vest, as detailed above, the final measurement date for the Walmart Warrant Shares is the date on which the Walmart Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Walmart Warrant Shares is being recorded as a reduction to revenueAt both September 30, 2021 and an addition to additional paid-in capital based on the projected number of Walmart Warrant Shares expected to vest, the proportion of purchases by Walmart and its affiliates within the period relative to the aggregate purchase levels required for the Walmart Warrant Shares to vest and the then-current fair value of the related Walmart Warrant Shares. To the extent that projections change in the future as to the number of Walmart Warrant Shares that will vest, as well as changes in the fair valueDecember 31, 2020, 13,094,217 of the Walmart Warrant Shares had vested. The total amount of provision for common stock warrants recorded as a cumulative catch-up adjustment will be recorded in the period in which the estimates change.
At September 30, 2017, 5,819,652reduction of revenue for the Walmart Warrant Shares have vested.during the three months ended September 30, 2021 and 2020 was $1.2 million and $1.3 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the nine months ended September 30, 2021 and 2020 was $4.4 million and $3.2 million, respectively. During the three months ended March 31, 2021, the Walmart Warrant had been exercised with respect to 7,274,565 shares of common stock. There were 0 exercises during the second or third quarter of 2021.
13. Revenue
Disaggregation of revenue
The following table provides information about disaggregation of revenue (in thousands):
| | | | | | | | | | | | |
Major products/services lines | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
Sales of fuel cell systems | | $ | 67,032 | | $ | 51,998 | | $ | 152,620 | | $ | 107,515 |
Sale of hydrogen installations and other infrastructure | | | 48,967 | | | 31,664 | | | 109,429 | | | 44,361 |
Services performed on fuel cell systems and related infrastructure | | | 6,677 | | | 6,829 | | | 18,397 | | | 19,586 |
Power Purchase Agreements | | | 9,321 | | | 6,629 | | | 25,508 | | | 19,629 |
Fuel delivered to customers | | | 11,556 | | | 9,831 | | | 33,804 | | | 24,536 |
Other | | | 369 | | | 97 | | | 679 | | | 235 |
Net revenue | | $ | 143,922 | | $ | 107,048 | | $ | 340,437 | | $ | 215,862 |
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
22
| | | | | | |
| | September 30, | | December 31, | ||
| | 2021 | | 2020 | ||
Accounts receivable | | $ | 132,370 | | $ | 43,041 |
Contract assets | | | 9,284 | | | 18,189 |
Contract liabilities | | | 115,595 | | | 76,285 |
Contract assets relate to contracts for which revenue is recognized on a straight-line basis; however, billings escalate over the life of a contract. Contract assets also include amounts recognized as revenue in advance of billings to customers, which are dependent upon the satisfaction of another performance obligation. These amounts are included within prepaid expenses and other current assets on the accompanying unaudited interim condensed consolidated balance sheets.
The contract liabilities relate to the advance consideration received from customers for services that will be recognized over time (primarily fuel cell and related infrastructure services) and advance consideration received from customers prior to delivery of products. As of September 30, 2021, the amount of contract liabilities included within deferred revenue was $98.9 million and the amount of contract liabilities within other current liabilities was $16.7 million on the accompanying unaudited interim condensed consolidated balance sheets. As of December 31, 2020, the amount of contract liabilities included within deferred revenue was $56.2 million and the amount of contract liabilities within other current liabilities was $20.1 million.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
| | | |
| | | |
Contract assets | | Nine months ended | |
| | September 30, 2021 | |
Transferred to receivables from contract assets recognized at the beginning of the period | | $ | (13,344) |
Revenue recognized and not billed as of the end of the period | | | 4,439 |
Net change in contract assets | | | (8,905) |
| | | |
Contract liabilities | | Nine months ended | |
| | September 30, 2021 | |
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | 91,985 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | (52,675) |
Net change in contract liabilities | | $ | 39,310 |
Estimated future revenue
Sales of fuel cell systems and hydrogen installations are expected to be recognized as revenue within one year and sales of services and PPAs are expected to be recognized as revenue over five to seven years. The following table includes estimated revenue included in the backlog expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, including provision for common stock warrants (in thousands):
| | | |
| | | |
| | September 30, | |
| | 2021 | |
Sales of fuel cell systems | | $ | 23,819 |
Sale of hydrogen installations and other infrastructure | | | 58,429 |
Services performed on fuel cell systems and related infrastructure | | | 105,548 |
Power Purchase Agreements | | | 212,360 |
Fuel delivered to customers | | | 62,609 |
Other rental income | | | 2,116 |
23
Total estimated future revenue | | $ | 464,881 |
Contract costs
Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.
Capitalized contract costs at September 30, 2021 and December 31, 2020 were $807 thousand and $1.3 million, respectively.
14. Income Taxes
The Company did 0t record any income tax expense or benefit for the three or nine months ended September 30, 2021. The Company recognized an income tax benefit for the three and nine months ended September 30, 2017 was $11.8 million.
6. Inventory
Inventory as2020 of September 30, 2017$6.6 and December 31, 2016 consists$19.0 million, respectively, resulting from the intraperiod tax allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a source of future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the following (in thousands):
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Raw materials and supplies |
| $ | 37,282 |
| $ | 26,298 |
|
Work-in-process |
|
| 4,082 |
|
| 1,865 |
|
Finished goods |
|
| 3,323 |
|
| 1,777 |
|
|
| $ | 44,687 |
| $ | 29,940 |
|
Raw materials and supplies include spare parts inventory held at service locations valued at $5.8 million and $3.3 million as of September 30, 2017 and December 31, 2016, respectively.
7. Leased Property
Leased property at September 30, 2017 and December 31, 2016 consists3.75% Convertible Senior Notes, offset by the partial extinguishment of the following (in thousands):
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Leased property |
| $ | 85,075 |
| $ | 58,604 |
|
Less: accumulated depreciation |
|
| (9,731) |
|
| (4,544) |
|
Leased property, net |
| $ | 75,344 |
| $ | 54,060 |
|
Depreciation expense related to leased property was $1.95.5% Convertible Senior Notes. In addition, the Company recorded $5.0 million and $0.9 million for the three months ended September 30, 2017 and 2016, respectively. Depreciation expense related to leased property was $5.2 million and $1.6 millionof income tax benefit for the nine months ended September 30, 2017 and 2016, respectively.
8. Long-Term Debt
NY Green Bank Loan
On December 23, 2016, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank), pursuant to which NY Green Bank made available to the Company a secured term loan facility in the amount of $25.0 million (Term Loan Facility), subject to certain terms and conditions. The Company borrowed $25.0 million upon closing and incurred costs of $1.2 million. On July 21, 2017, the Company and
18
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
NY Green Bank entered into an amendment to the Term Loan Facility (Amended Loan Agreement), which among other things, provided for an additional $20.0 million term loan, increasing the size of the total commitment to $45.0 million, amended the interest rate, prepayment penalty (for any prepayment in the calendar year 2017 or 2018, a prepayment charge equal to 7.5% of the advance amount being prepaid) and product deployment and employment targets. The maturity date of the Amended Loan Agreement will remain at December 23, 2019. As with the existing facility, the up-sized facility will be repaid primarily as the Company’s various restricted cash reserves are released over the term of the facility. During the three months ended September 2017, the Company borrowed the additional $20.0 million of working capital financing and incurred closing costs of $0.5 million. At September 30, 2017, the outstanding principal balance under the Term Loan Facility was $40.8 million. The fair value of the Term Loan Facility approximates the carrying value as of September 30, 2017.
Advances under the Term Loan Facility bear interest at a rate equal to the sum of (i) the LIBOR rate for the applicable interest period, plus applicable margin of 9.5%. The interest rate at September 30, 2017 was approximately 10.8%. The term of the loan is three years, with a maturity date of December 23, 2019. As of September 30, 2017, estimated remaining principal payments will be approximately $8.0 million, $19.1 million, and $13.7 million during the remainder of the year ended December 31, 2017, and years ending December 31, 2018, and 2019, respectively. These payments will be funded by restricted cash released, as described in Note 14, Commitments and Contingencies.
Interest and a varying portion of the principal amount is payable on a quarterly basis and the entire then outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, is due and payable on the maturity date. On the maturity date, the Company may also be required to pay additional fees of up to $1.8 million if the Company is unable to meet certain goals2020 related to the deploymentrecognition of fuel cell systems in the State of New York and increasing the Company’s number of full-time employees in the State of New York. The Company is currently on track to meet those goals.
9. Accrual for Loss Contracts Related to Service
The following table summarizes activity related to the accrual for loss contracts related to service during the nine months ended September 30, 2017 and 2016, respectively (in thousands):
|
|
|
|
|
|
|
|
| Nine months ended | ||||
|
| September 30, 2017 |
| September 30, 2016 | ||
Beginning balance |
| $ | 752 |
| $ | 10,050 |
Change in estimate |
|
| — |
|
| (1,071) |
Reductions for losses realized |
|
| (752) |
|
| (5,745) |
Ending balance |
| $ | — |
| $ | 3,234 |
10. Stockholders’Equity
Exercise of Common Stock Warrants
On December 22, 2016, the Company issued 10,501,500 warrantsnet deferred tax liabilities in connection with offerings of common stock and Series D Redeemable Preferred Stock at an exercise price of $1.50 per share. On April 12, 2017, the Giner, ELX Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company and Tech Opportunities LLC (“Tech Opps”) entered into an agreement, pursuant to which Tech Opps exercised in fullhas not changed its warrants to purchase an aggregate of 10,501,500 shares of common stock, at an exercise price of $1.50 per share. The net proceeds received by the Company pursuantoverall conclusion with respect to the exercise of the existing warrants was $15.1 million and the Company issued to Tech Opps warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share. The warrants were exercisable as of October 12, 2017 and will expire on October 12, 2019. The warrants are subject to anti-dilution provisions in the event of issuance of additional shares of common stock and certain other conditions, as further described in the warrant agreement.
19
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
During April 2017, the 4,000,000 warrants issued in January 2014 as part of an underwritten public offering with Heights Capital Management Inc., were exercised in full to purchase an aggregate of 4,000,000 shares of the Company’s common stock, at an exercise price of $0.65 per share. The aggregate cash exercise price paid to the Company pursuant to the exercise of the warrants was $2.6 million.
Pursuant to the exercises of the above warrants, additional paid-in capital was increased $27.1 million and warrant liability reduced by $27.1 million.
At Market Issuance Sales Agreement
On April 3, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with FBR Capital Markets & Co., as sales agent (“FBR”), pursuant toneed for a valuation allowance against its net deferred tax assets, which the Company may offer and sell, from time to time through FBR, shares of common stock par value $0.01 per share having an aggregate offering price of up to $75.0 million. During 2017, the Company has issued 9,314,666 shares of common stock and raised net proceeds, after accruals, underwriting discounts and commissions and other fees and expenses, of $20.7 million, pursuant to the Sales Agreement.
11. Redeemable Convertible Preferred Stock
In December 2016, the Company completed an offering of an aggregate of 18,500 shares of the Company’s Series D Redeemable Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”) to purchase 7,381,500 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), resulting in aggregate proceeds of approximately $15.6 million. During the nine months ended September 30, 2017, the Company redeemed 3,700 shares of the Series D Preferred Stock, at an aggregate redemption price of approximately $3.7 million. On April 5, 2017, all of the remaining outstanding shares of the Series D Preferred Stock were converted into an aggregate of 9,548,393 shares of the Company’s common stock at a conversion price of $1.55. The conversion was done at the election of the holder in accordance with the terms of the offering. No shares of Series D Preferred Stock remain outstanding.
On January 26, 2017, Air Liquide sold an aggregate of 2,620 shares of the Company’s Series C Redeemable Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) to FiveT Capital Holding AG and FiveMore Special Situations Fund Limited. Following the sale, Air Liquide owned 2,611 shares of Series C Preferred Stock, Five T Capital Holding AG owns 1,750 shares of Series C Preferred Stock and FiveMore Special Situations Fund Limited owns 870 shares of Series C Preferred Stock. On August 28, 2017, Air Liquide acquired 2,772,518 shares of Common Stock by converting all 2,611 shares of Series C Preferred Stock at the conversion price of $0.2343. Following the conversion, Five T Capital Holding AG and FiveMore Special Situations Fund Limited continue to own 1,750 and 870 shares of Series C Preferred Stock, respectively.
12. Income Taxesfully reserved.
The net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
During
15. Fair Value Measurements
The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
● | Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities. |
● | Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
● | Level 3 — unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value. |
The fair values of the Company’s investments are based upon prices provided by an independent pricing service. Management has assessed and concluded that these prices are reasonable and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices,
24
quotes from less active markets or quoted prices of securities with similar characteristics. There were 0 transfers betweenLevel1, Level2, or Level 3 during the nine months ended September 30, 2016, the Company released its liability for unrecognized tax benefits of $392 thousand, as the related statute of limitations has expired.2021.
13. Fair Value Measurements
Derivative Liabilities
The Company’s common stock warrant liability represents the only asset or liability classified financial
20
Notes to Interim Consolidated Financial Statements (Unaudited) (continued)
instrumentAssets and liabilities measured at fair value on a recurring basis in the unaudited interim consolidated balance sheets. The fair value measurement is determined by using Level 3 inputs due to the lackare summarized below (in thousands):
| | | | | | | | | | |
| | As of September 30, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents (1) | $ | 610,651 | $ | 610,651 | $ | 140,574 | $ | 470,077 | $ | — |
Corporate bonds | | 530,089 | | 530,089 | | — | | 530,089 | | — |
Commercial paper | | 35,795 | | 35,795 | | — | | 35,795 | | — |
U.S. Treasuries | | 169,878 | | 169,878 | | 169,878 | | — | | — |
Certificates of deposit | | 17,004 | | 17,004 | | — | | 17,004 | | — |
Equity securities | | 147,649 | | 147,649 | | 147,649 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 18,520 | | 18,520 | | — | | — | | 18,520 |
Convertible senior notes | | 192,320 | | 1,006,639 | | — | | 1,006,639 | | — |
Long-term debt | | 147,255 | | 147,255 | | — | | — | | 147,255 |
Finance obligations | | 207,837 | | 207,837 | | — | | — | | 207,837 |
| | | | | | | | | | |
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,760 | | 9,760 | | — | | — | | 9,760 |
Convertible senior notes | | 85,640 | | 1,272,766 | | — | | 1,272,766 | | — |
Long-term debt | | 175,402 | | 175,402 | | — | | — | | 175,402 |
Finance obligations | | 181,553 | | 181,553 | | — | | — | | 181,553 |
(1) | Included in “Cash and cash equivalents” in our unaudited interim condensed consolidated balance sheets as of
The fair Financial instruments not recorded at fair value 16. Operating and
As of September 30, Leases The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of September 30, 2021. 25 Future minimum lease payments under
Rental expense for all operating leases was The gross profit on sale/leaseback transactions for all operating leases was $30.7 million and $25.2 million for the three months ended September 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $66.1 million and $44.9 million for the nine months ended September 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $26.6 million and $24.6 million for the three months ended September 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $62.5 million and $32.7 million for the nine months ended September 30, 2021 and 2020, respectively. At September 30, At September 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $22.8 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $757 thousand and $102 thousand at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were Other information related to the operating leases are presented in the following table:
26 Other information related to
17. Finance Obligation
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2021 was $17.3 million, $5.1 million and $12.2 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $23.9 million, $8.0 million and $15.9 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation
Other information related to the above finance obligations are presented in the following table:
27 18. Investments The
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at September 30, 2021 are summarized as follows (in thousands):
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of September 30, 2021 is as follows (in thousands):
Accrued interest income was $4.9 million at September 30, 2021 and is included within the balance for prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets. 19. Commitments and Contingencies Restricted Cash In connection with certain of the above noted sale/leaseback agreements,
Litigation Legal matters are defended and handled in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company has 28 Concentrations of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. Cash and restricted cash are maintained in accounts with financial institutions, which,
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has At September 30, For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer. For the three and nine months ended September 30, 20. Employee Benefit Plans 2011 and 2021 Stock Option and Incentive Plan On May 12, 2011, the Company’s stockholders approved the 2011 Stock Option and Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the issuance of up to a maximum number of shares of common stock equal to the sum of (i) 1,000,000, plus (ii) the number of shares of common stock underlying any grants pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and Incentive Plan that are forfeited, canceled, repurchased or are terminated (other than by exercise). The shares were issued pursuant to stock options, stock appreciation rights, restricted stock awards and certain other equity-based awards granted to employees, directors and consultants of the Company. NaN further grants may be made under the 2011 Plan after May 12, 2021. Through various amendments to the 2011 Plan approved by the Company’s stockholders, the number of shares of the Company’s common stock authorized for issuance under the 2011 Plan had been increased to 42.4 million. The Company recorded expenses of approximately $12.7 million and $2.3 million, for the three months ended September 30, 2021 and 2020, respectively, in connection with the 2011 Plan. The Company recorded expense of approximately $32.3 million and $7.3 million, for the nine months ended September 30, Option Awards The Company issues options that are time and performance-based awards. All option awards are determined to be classified as equity awards. Service Stock Options Awards
To date, options granted under the 2011 and 2021 Plans have vesting provisions ranging from one to three years in duration and expire ten years after issuance. Options for employees issued under this plan generally vest in equal annual installments over three years and expire ten years after issuance Options granted to members of the Board generally vest one year after issuance. The Company estimates the fair value of the service stock options using a Black-Scholes valuation model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the option vesting period. Key inputs and assumptions used to estimate the fair value of the service stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The assumptions made for purposes of estimating fair value under the Black-Scholes model for the 1,870,835 and 3,429,549 service stock options granted during the nine months ended September 30, 2021 and 2020, respectively, were as follows:
There was 0 expected dividend yield for the service stock options granted. The Company has historically used the simplified method in determining its expected term of all its service stock option grants in all periods presented. The simplified method was used because the Company did not believe historical exercise data provided a reasonable basis for the expected term of its grants, primarily as a result of the limited number of service stock option exercises that have historically occurred. Due to the recent increase in exercise activity at the Company, beginning in the second quarter of 2021, the expected term is based on the Company’s historical experience with employee early exercise behavior. The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past five years, which represents the Company’s best estimate of expected volatility. The following table reflects the service stock option activity for the nine months ended September 30, 2021:
The weighted average grant-date fair value of the service stock options granted during the three months ended September 30, 2021 and 2020 was $15.82 and $7.45, respectively. The weighted average grant-date fair value of the service stock options granted during the nine months ended September 30, 2021 and 2020 was $19.76 and $7.21, respectively. The total fair value of the service stock options that vested during the three months ended September 30, 2021 and 2020 was approximately $10.4 million and $5.2 million, respectively. The total fair value of the service stock options that vested during the nine months ended September 30, 2021 and 2020 was approximately $10.9 million and $5.9 million, respectively. Compensation cost associated with service stock options represented approximately $4.2 million and $1.1 million of the total share-based payment expense recorded for the three months ended September 30, 2021 and September 30, 30 2020, respectively. Compensation cost associated with service stock options represented approximately $11.9 million and 4.1 million of the total share-based payment expense recorded for the nine months ended September 30, 2021 and September 30, 2020, respectively. As of September 30, 2021 and 2020 there was approximately $50.2 million and $8.2 million of unrecognized compensation cost related to service stock option awards to be recognized over the next three years. Performance Stock Option Awards In September 2021, the Compensation Committee approved the grant of performance stock options to the Company’s Chief Executive Officer and certain other executive officers. These performance stock options are subject to both performance-based conditions tied to the achievement of stock price hurdles and time-based vesting; therefore, a Monte Carlo Simulation was utilized to determine the grant date fair value with the associated expense recognized over the requisite service period. Up to one-third (1/3) the performance stock options will vest and become exercisable on each of the first three anniversaries of the grant date, provided that the volume weighted average price of the Company’s common stock during any 30 consecutive trading day period in the three year performance period following the grant date of the stock options (“VWAP”) equals or exceeds certain levels. For the Company’s Chief Executive Officer, 25% of his performance stock options will be deemed to have satisfied the performance-based conditions and will be eligible to be exercised over time if the VWAP equals or exceeds $35; an additional 25% of his options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $50; an additional 16.675% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $65; an additional 16.65% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $80; and the remaining 16.675% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $100. There will be no interpolation for the Chief Executive Officer’s performance stock option if the VWAP falls between any two stock price hurdles, unless in the event of a change in control. For executive officers other than the Chief Executive Officer, 25% of the performance stock options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals $35; an additional 25% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals $50; and the remaining 50% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $100. If the VWAP falls between two of the stock price hurdles, an incremental number of options will become exercisable based on linear interpolation in $1 increments. Failure to achieve any of the stock price hurdles applicable to a performance stock option during the three-year performance period will result in the applicable options not becoming exercisable. The performance-based stock options have a maximum term of seven years from the grant date. Key inputs and assumptions used to estimate the fair value of performance stock options include the grant price of the awards, the expected option term, VWAP hurdle rates, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The following table presents key assumptions used to estimate the fair value of the performance stock option awards granted in 2021:
The following table reflects the performance stock option award activity for the nine months ended September 30, 2021. Solely for the purposes of this table, the number of performance options is based on participants earning the maximum number of performance options (i.e 200% of the target number of performance options). 31
The weighted average grant-date fair value of performance stock options granted during the three months and nine months ended September 30, 2021 was $12.78. There were 0 performance stock options that were exercised during the three months and nine months ended September 30, 2021. Compensation cost associated with performance stock options represented approximately $2.0 million of the total share-based payment expense recorded for the three months and nine months ended September 30, 2021. As of September, 30, 2021, there was approximately $183.7 million of unrecognized compensation cost related to performance stock option awards to be recognized over the next three years. Restricted Stock Awards Restricted stock awards generally vest in equal installments over a period of one to three years. Restricted stock awards are valued based on the closing price of the Company’s common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The Company recorded expense associated with its restricted stock awards of approximately $6.5 million and $1.2 million, for the three months ended September 30, 2021 and 2020, respectively. The Company recorded expense associated with its restricted stock awards of approximately $18.5 million and $3.2 million, for the nine months ended September 30, 2021 and 2020, respectively. Additionally, for the nine months ended September 30, 2021 and 2020, there was $81.2 million and $6.2 million, respectively, of unrecognized compensation cost related to restricted stock awards to be recognized over the next three years. A summary of restricted stock activity for the year ended September 30, 2021 is as follows (in thousands except share amounts):
401(k) Savings & Retirement Plan The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute 100% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings or less actual losses thereon. Participants are vested in the Company’s matching contribution based on years of service completed. Participants are fully vested upon completion of three years of service. During 2018, the Company began funding its matching contribution in a combination of cash and common stock. The Company issued 54,531 shares of common stock and 368,903 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the nine months ended September 30, 2021 and 2020, respectively. The Company’s expense for this plan was approximately $1.1 million, and $0.6 million for the three months ended September 30, 2021 and 2020, respectively. The Company’s expense for this plan was approximately $3.4 million, and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively. 32 Non-Employee Director Compensation Each non-employee director is paid an annual retainer for his or her service, in the form of either cash or stock compensation. The Company granted 3,685 shares of common stock and 4,146 shares of common stock to non-employee directors as compensation for the three months ended September 30, 2021 and 2020, respectively. The Company granted 8,923 shares of common stock and 26,636 shares of common stock to non-employee directors as compensation for the nine months ended September 30, 2021 and 2020, respectively. All common stock issued is fully vested at the time of issuance and is valued at fair value on the date of issuance. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $99 thousand and $56 thousand for the three months ended September 30, 2021 and 2020, respectively. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $277 thousand and $167 thousand for the nine months ended September 30, 2021 and 2020, respectively. 21. Subsequent Events In November 2021, the Company entered into a signing protocol to acquire Frames Group (“Frames”), a leader in engineering, process and systems integration serving the energy sector. The purchase price is approximately €115 million, of which €30 million is based on future earnouts over the next four years from the completion date. Plug Power will leverage Frames’ capabilities as well as its existing network of suppliers and contract manufacturing facilities to deliver electrolyzer solutions of all sizes, from one megawatt (MW) containerized solutions to solutions for 100 MW-1,000 MW standalone plants or integrated into customers’ processes. The acquisition is expected to be completed by the end of the year, and is subject to customary closing conditions, including receipt of Dutch works council advice. On October 14, 2021, the Company and its wholly-owned subsidiary Plug Power Hydrogen Holdings, Inc. entered into a definitive agreement for the acquisition of Applied Cryo Technologies, Inc. for a purchase price of approximately $170 million, of which $40 million will be in stock and $30 million will be based on future earnouts over the next two and half years. Applied Cryo Technologies, Inc. is a leading provider of technology, equipment and services for the transportation, storage and distribution of liquified hydrogen, oxygen, argon, nitrogen and other cryogenic gases. The acquisition is expected to close during the fourth quarter of 2021 and is subject to customary closing conditions, including receipt of all approvals or the termination or expiration of all waiting periods required under applicable antitrust laws. In October 2021, the Company and SK E&S Co., Ltd., an energy company affiliated with SK Holdings Co., Ltd., formed H2A, which is a joint venture designed to accelerate the use of hydrogen as an alternative energy source in Asian markets. Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our accompanying unaudited interim condensed consolidated financial statements and notes thereto included within this report, and our audited
33
34 The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks discussed in the section titled “Risk Factors” included under Part I, Item 1A, below. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or
References in this Quarterly Report on Form 10-Q to “Plug Power,” the “Company,” “we,” “our” or “us” refer to Plug Power Inc., Overview Plug Power is
Part of our long-term plan includes Plug Power penetrating the on-road vehicle market and large-scale stationary market. Plug Power’s formation of a joint venture with Renault in Europe and the announced future joint venture with SK Group in Asia not only support this goal but are expected to provide us with a more global footprint. Plug has been successful with acquisitions, strategic partnerships, and joint ventures, and we plan to continue this mix. For example, we expect our relationships with Brookfield and Apex to provide us access to low-cost renewable energy, which is critical to produce low-cost green hydrogen. Our current products and services include: GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling GenFuel: GenFuel is our liquid hydrogen fueling delivery, generation, storage, and dispensing system; GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service program for GenDrive fuel GenSure: GenSure GenKey: GenKey is our 35 ProGen: ProGen is our fuel cell stack and engine technology
We provide our products worldwide through our direct product sales force, and by leveraging relationships with Our wholly-owned subsidiary, Plug Power France, created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”) in the second quarter of 2021. HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault. Recent Developments COVID-19 Update As a result of the COVID-19 pandemic outbreak in March 2020, state governments—including those in New York and Washington, where our manufacturing facilities are located—issued orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces to employees and customers. As a result, we had put in place a number of protective measures in response to the COVID-19 outbreak, which included the canceling of all commercial air travel and all other non-critical travel, requesting that employees limit non-essential personal travel, eliminating all but essential third-party access to our facilities, enhancing our facilities’ janitorial and sanitary procedures, encouraging employees to work from home to the extent their job function enabled them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing and service operations. In June 2021, in accordance with revised CDC guidelines and where permitted by state law, employees who were fully vaccinated against COVID-19 and have been through Plug Power’s certification process, were permitted to enter Plug Power facilities without a face covering. Individuals inside Plug Power facilities who did not wish to go through the certification process were required to wear proper face coverings and continued to maintain social distancing of six feet or greater. In states where the guidelines for face coverings was still government mandated, Plug Power complied with the state and local jurisdictions and enforced face mask usage, as well as social distancing at our sites. In early August 2021, we adjusted our guidance as a result of an influx of COVID-19 cases and began requiring all employees and visitors regardless of vaccination status to wear a face-covering at all times while within a Plug Power facility, and strongly encouraged social distancing. We continue to provide enhanced janitorial and sanitary procedures, encourage employees to work from home to the extent their job function enables them to do so, and encourage the use of virtual employee meetings. We cannot predict at this time the full extent to which COVID-19 will impact our business, results, and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers, and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability
of key components, increase prices or both, as the COVID-19 pandemic has caused significant challenges for global supply chains resulting primarily in transportation delays. These transportation delays have caused incremental freight charges, which have negatively impacted our results of operations. We expect that these challenges will continue to have an impact on our businesses for the foreseeable future. We continue to take proactive steps to limit the impact of these challenges and are working closely with our suppliers and transportation vendors to ensure availability of products and implement other cost savings initiatives. In addition, we continue to invest in our supply chain to improve its resilience with a focus on automation, dual sourcing of critical components and localized manufacturing when feasible. To date, there has been limited disruption to the availability of our products, though it is possible that more significant disruptions could occur if these supply chain challenges continue. Strategic and Other Activities Entry into Definitive Agreement In November 2021, the Company entered into a signing protocol to acquire Frames Group (“Frames”), a leader in engineering, process and systems integration serving the energy sector. The purchase price is approximately €115 million, of which €30 million is based on future earnouts over the next four years from the completion date. Plug Power will leverage Frames’ capabilities as well as its existing network of suppliers and contract manufacturing facilities to deliver electrolyzer solutions of all sizes, from one megawatt (MW) containerized solutions to solutions for 100 MW-1,000 MW standalone plants or integrated into customers’ processes. The acquisition is expected to be completed by the end of the year, and is subject to customary closing conditions, including receipt of Dutch works council advice. On October 14, 2021, the Company and its wholly-owned subsidiary Plug Power Hydrogen Holdings, Inc. entered into a definitive agreement for the acquisition of Applied Cryo Technologies, Inc. for a purchase price of approximately $170 million, of which $40 million will be in stock and $30 million will be based on future earnouts over the next two and half years. Applied Cryo Technologies, Inc. is a leading provider of technology, equipment and services for the transportation, storage and distribution of liquified hydrogen, oxygen, argon, nitrogen and other cryogenic gases. The acquisition is expected to close during the fourth quarter of 2021 and is subject to customary closing conditions, including receipt of all approvals or the termination or expiration of all waiting periods required under applicable antitrust laws. 37 In October 2021, the Company and SK E&S Co., Ltd., an energy company affiliated with SK Holdings Co., Ltd., formed H2A, which is a joint venture designed to accelerate the use of hydrogen as an alternative energy source in Asian markets. Performance Stock Option Awards In September 2021, the Compensation Committee approved the grant of performance stock options to the Company’s Chief Executive Officer and certain other executive officers. These performance stock options are subject to both performance-based conditions tied to the achievement of stock price hurdles and time-based vesting; therefore, a Monte Carlo Simulation was utilized to determine the grant date fair value with the associated expense recognized over the requisite service period. The design of the performance options was developed with input from the Company’s independent compensation consultant. The performance stock options are strongly aligned with the Company’s culture of pay for performance and will ensure the executive team’s commitment and focus on delivering significant increases in stockholder value over the three-year performance period. Up to one-third (1/3) the performance stock options will vest and become exercisable on each of the first three anniversaries of the grant date, provided that the volume weighted average price of the Company’s common stock during any 30 consecutive trading day period in the three year performance period following the grant date of the stock options (“VWAP”) equals or exceeds certain levels. For the Company’s Chief Executive Officer, 25% of his performance stock options will be deemed to have satisfied the performance-based conditions and will be eligible to be exercised over time if the VWAP equals or exceeds $35; an additional 25% of his options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $50; an additional 16.675% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $65; an additional 16.65% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $80; and the remaining 16.675% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $100. There will be no interpolation for the Chief Executive Officer’s performance stock option if the VWAP falls between any two stock price hurdles, unless in the event of a change in control. For executive officers other than the Chief Executive Officer, 25% of the performance stock options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals $35; an additional 25% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals $50; and the remaining 50% of the options will be deemed to have satisfied the performance-based condition and will be eligible to be exercised if the VWAP equals or exceeds $100. If the VWAP falls between two of the stock price hurdles, an incremental number of options will become exercisable based on linear interpolation in $1 increments. Failure to achieve any of the stock price hurdles applicable to a performance stock option during the three-year performance period will result in the applicable options not becoming exercisable. The performance-based stock options have a maximum term of seven years from the grant date. Explanatory Note As previously disclosed in the Explanatory Note to the 2020 10-K, the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited interim condensed consolidated quarterly financial statements of and for each of the quarterly periods ended March 31, 2020, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019. Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020. 38 Results of Operations
Our primary sources of revenue are from sales of fuel cell systems and related infrastructure, services performed on fuel cell systems and related infrastructure, Net revenue, cost of revenue, gross profit (loss) and gross margin for the three and nine months ended September 30, 2021 and 2020, were as follows (in thousands):
The amount of provision for common stock warrants recorded as a reduction of revenue during the three and nine months ended September 30, 2021 and 2020, respectively, is shown in the table below (in thousands):
Net Revenue Revenue –sales of fuel cell systems and related infrastructure. Revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations. Revenue from sales of fuel cell systems and related infrastructure for the three months ended September 30,
39 an increase in hydrogen installations and a decrease in the provision for common stock warrants. There were 4,559 GenDrive units Revenue from sales of fuel cell systems and related infrastructure for the nine months ended September 30, Revenue – services performed on fuel cell systems and related 2020. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, Revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service.
40 Revenue – fuel delivered to
party or generated on site. Revenue associated with fuel delivered to customers for the three months ended September 30, Revenue associated with fuel delivered to customers for the nine months ended September 30,
Cost of Cost of revenue – sales of fuel cell systems and related infrastructure. Cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, Cost of revenue from sales of fuel cell systems and related infrastructure for the three months ended September 30, Cost of revenue from sales of fuel cell systems and related infrastructure for the nine months ended September 30,
Cost of revenue – services performed on fuel cell systems and related 41 costs incurred for our product service and hydrogen site maintenance contracts and spare parts. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, Cost of revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, Cost of revenue – provision for loss contracts related to service. The Company also recorded a provision for loss contracts related to service of $7.5 million for the three months ended September 30, 2021, compared to $25.2 million for the three months ended September 30, 2020. The decrease in the The Company also recorded a provision for loss contracts related to service of $15.6 million for the nine months ended September 30, 2021, compared to $26.0 million for the nine months ended September 30, 2020. The decrease in the provision for loss contracts related to service was primarily a function of a higher provision in 2020, due to an increase in estimated projected cost to service fuel cell systems and related infrastructure, as the Company determined in the third quarter of 2020 that certain cost down initiatives were taking longer to achieve than originally estimated. This was offset by the increase in the provision as a result of more new sites under service contract during the nine months ended September 30, 2021 as compared to number of sites for the three months ended September 30, 2020. In addition, the Company determined during the third quarter of 2020 that the projected provision for the Amazon Warrant would be significantly higher than previously estimated. Cost of revenue – Power Purchase 2020. Cost of revenue from 42 to Cost of revenue from Cost of revenue – fuel delivered to customers. Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to costs for onsite generation. Cost of revenue from fuel delivered to customers for the three months ended September 30,
hydrogen installations completed under GenKey agreements, costs associated with managing availability of molecule in the supply chain as well as a shortage of delivery capability (both drivers and delivery assets), and higher fuel costs. Cost of revenue from fuel delivered to customers for the nine months ended September 30,
Expenses Research and development expense. Research and development (“R&D”) expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities. Research and development expense for the three months ended September 30, Research and development expense for the nine months ended September 30, R&D
investment is commensurate with the Company’s future expansion into new markets, new product lines, and varied vertical integrations. The average number of R&D employees was 132 at September 30, 2020 compared to 227 at September 30, 2021. Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the three months ended September 30, Selling, general and administrative expenses for the nine months ended September 30, Contingent Consideration. The fair value of the contingent consideration related to the Giner ELX, Inc. and United Hydrogen Group Inc. acquisitions was remeasured as of September 30, 2021, which resulted in a $8.5 million charge for the three months ended September 30, 2021 and a $8.8 million charge for the nine months ended September 30, 2021, both of which are reflected in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2021, respectively, primarily due to an increase in projected revenues associated with Interest, Other expense, net. Other expense, net consists of other expenses related to our foreign currency exchange
Realized loss on investments, net. Realized loss on investments, net consists of the sales and maturities related to Change in fair value of
44 Income Tax The Company did not record any income tax expense or benefit for the
Liquidity and Capital Resources
As of September 30, 2021 and December 31, 2020, the Company had $3.4 billion and $1.3 billion of cash The Company has continued
45 The Company’s working capital was $4.5 billion at September 30, 2021, which included unrestricted cash and cash equivalents of
Public and Private Offerings of Equity and Debt Common Stock Issuances In February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion. In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $2.0 billion. In November 2020, the Company issued and sold in a registered equity offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million. In August 2020, the Company issued and sold in a registered equity offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million. On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement. Convertible Senior Notes In May 2020, the Company issued $212.5 million in aggregate principal amount of 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance, were $205.1 million. The Company used $90.2 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to repurchase $66.3 million of the $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes. In addition, the Company used approximately $16.3 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to enter into privately negotiated capped called transactions.In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock, resulting in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line. As of December 31, 2020, approximately $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding, all of which were converted to common stock in January 2021. In September 2019, the Company issued $40.0 million in aggregate principal amount of 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds from this offering, after deducting costs of the issuance, were $39.1 million. On July 1, 2020, the note automatically converted fully into 16.0 million shares of common stock. Secured Debt In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”). 46 During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On September 30, 2021, the outstanding balance under the Term Loan Facility was $137.7 million. In addition to the Term Loan Facility, on September 30, 2021 there was approximately $9.5 million of debt outstanding related to the United Hydrogen Group, Inc. acquisition. The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions. The Loan Agreement provides that if As of September 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
Several key indicators of liquidity are summarized in the following table (in thousands):
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes. 47 At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:
The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms. The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries. Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:
On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. During the three months ended September 30, 48 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During the nine months ended September 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued approximately 3.0 million shares of common stock in conjunction with these conversions. In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances. The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice. If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date. The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes. The 3.75% Convertible Senior Notes consisted of the following (in thousands):
The following table summarizes the total interest expense, the amortization of debt issuance costs and the effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
49
Based on the closing price of the Company’s common stock of $25.54 on September 30, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at September 30, 2021 was approximately $1.0 billion. The fair value estimation was primarily based on an active stock exchange trade on September 30, 2021 of the 3.75% Convertible Senior Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy. Capped Call In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60%over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised. The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets. 5.5% Convertible Senior Notes In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line. On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial. Capped Call In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets. 50 In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets. Common Stock Forward In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (the “Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions. The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock. The book value of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured. During the fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 4.4 million shares of its common stock. During the three 0 shares were settled and received by the Company. During the nine months ended September 30, 2021, 8.1 million shares were settled and received by the Company. Amazon Transaction Agreement On April 4, 2017, the Company and
Provision for the The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares 51 the second Under the On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue. The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification). The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual. At December 31, 2020, all 55,286,696 of the Amazon Warrant Shares had vested. For service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended September 30, 2021 and 2020 was $106thousand and $17.3 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the nine months ended September 30, 2021 and 2020 was $315 thousand and $22.0 million, respectively. During the three and nine months ended September 30, 2021, the Amazon Warrant was exercised with respect to 3,501,640 and 17,461,994 shares of common stock, respectively. The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares The Amazon Warrant
52 The Company used the
On July 20, 2017, the Company and
The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart The Walmart Warrant
53 31, 2021, the
As of September 30, Leases The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of September 30, 2021. Future minimum lease payments under
The gross profit on Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $26.6 million and $24.6 million for the three months ended September 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $62.5 million and $32.7 million for the nine months ended September 30, 2021 and 2020, respectively. 54 At September 30, 2021 and December 31, 2020, the right of use assets associated with operating leases was $200.2 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $32.3 million and $19.9 million at September 30, At September 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was At September 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.3 million and $5.8 million, respectively, and were included in other assets in the consolidated balance sheets Other information related to the operating leases are presented in the following table:
Right of use assets obtained in exchange for new finance lease liabilities were $5.8 million and $0 for the three months ended September 30, 2021 and 2020, respectively. Right of use assets obtained in exchange for new finance lease liabilities were $17.9 million and $686 thousand for the nine months ended September 30, 2021 and 2020, respectively. Other information related to the finance
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2021 was $17.3 million, $5.1 million and $12.2 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $23.9 million, $8.0 million and $15.9 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation 55 Future minimum payments under finance obligations notes above as of September 30, 2021 were as follows (in thousands)
Other information related to the above finance obligations are presented in the following table:
Restricted Cash
Fair Value The Company In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of These levels are:
56 The fair values of the Company’s investments are based upon prices provided by an Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
The fair values for available-for-sale and equity securities are based on prices obtained from independent pricing services. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active markets for identical assets. Available-for-sale securities The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale securities, and allowance for credit losses at September 30, 2021 are summarized as follows (in thousands):
57 A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, at September 30, 2021 is as follows (in thousands):
The cost, gross unrealized gains, gross unrealized losses, and fair value of those investments classified as equity securities at September 30, 2021 are summarized as follows (in thousands):
Extended Maintenance Contracts On a quarterly basis, we evaluate any potential losses related to our extended maintenance contracts for fuel cell systems and related infrastructure that has been sold. We measure loss accruals at the customer contract level. The expected revenues and expenses for these contracts include all applicable expected costs of providing services over the remaining term of the contracts and the related unearned net revenue. A loss is recognized if the sum of expected costs of providing services under the remaining term of the contract exceeds related unearned net revenue and is recorded as a provision for loss contracts related to service in the consolidated statements of operations. A key component of these estimates is the expected future service costs. In estimating the expected future costs, the Company considers its current service cost level and applies significant judgment related to expected cost saving initiatives. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life, achieving better economies of scale for service labor, and improvements in design and operations of infrastructure. If the expected cost saving initiatives are not realized, this will increase the estimated costs of providing services and will adversely affect our estimated contract loss accrual. Further, we continue to work to improve quality and reliability; however, unanticipated additional quality issues or warranty claims may arise and additional material charges may be incurred in the future. These quality issues could also adversely affect our contract loss accrual. Service costs during 2021 have been higher than previously estimated. The Company has undertaken or will soon undertake several initiatives to extend the life and improve the reliability of its Off-Balance Sheet Arrangements The Company does not have off-balance sheet arrangements that are likely to have a current or future significant effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of Critical Accounting Estimates Management’s discussion and analysis of our financial condition and results of operations are based upon our 58 liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition,
(1) the carrying values of assets and liabilities and (2) the amount of revenue and expenses realized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Stock-based compensation Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. In September 2021, the Recent Accounting Pronouncements Recently Adopted Accounting Guidance Other than the On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes is now accounted for as a
Recent Accounting Guidance Not Yet Effective All issued but not yet effective accounting
Item 3 — Quantitative and Qualitative Disclosures about Market Risk There has been no material change from the information provided in the 2020 10-K “Item 7A: Quantitative and Qualitative Disclosures About Market Risk,” other than those described below.
59 Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of Item 4 — Controls and Procedures (a) Disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective in 2018, 2019 and 2020 because of the material weakness in internal control over financial reporting described in Part II, Item 9A “Controls and Procedures” of our 2020 10-K. The material weakness has not been remediated as of September 30, 2021. Material Weakness Management identified that the following deficiency existed in internal control over financial reporting in 2018, 2019 and 2020: the Company did not maintain a sufficient complement of trained, knowledgeable resources to execute its responsibilities with respect to internal control over financial reporting for certain financial statement accounts and disclosures. As a consequence, the Company did not conduct an effective risk assessment process that was responsive to changes in the Company's operating environment and did not design and implement effective process-level controls activities in the following areas:
As reported on our 2020 10-K, we continue to take steps to remediate this material weakness and will continue to take further steps until such remediation is complete. These steps include the following:
60
As we work to improve our internal control over financial reporting, we may modify our remediation plan and may implement additional measures as we continue to review, optimize and enhance our financial reporting controls and procedures in the ordinary course. The material weakness will not be considered remediated until the remediated controls have been operating for a sufficient period of time and can be evidenced through testing that they are operating effectively. (b) Changes in internal control over financial reporting.
PART II. OTHER INFORMATION Item 1 — Legal Proceedings
In March and May 2021, Company stockholders, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 16, 2021 (the “Class”), filed complaints in the U.S. District Court for the Southern District of New York and U.S. District Court for the Central District of California against the Company, Plug Chief Executive Officer Andrew Marsh, and Plug Chief Financial Officer Paul Middleton (together, the “Defendants”), captioned Dawn Beverly et al. v. Plug Power Inc. et al., Case No. 1:21-cv-02004 (S.D.N.Y.), Smolíčekv. Plug Power Inc. et al., Case No. 2:21-cv-02402 (C.D. Cal.) and Tank v. Plug Power Inc. et al., Case No. 1:21-cv-03985 (S.D.N.Y.). The complaints include two claims, for (1) violation of Section 10(b) of the Exchange Act and Rule 10b5 promulgated thereunder (against all Defendants); and (2) violation of Section 20(a) of the Exchange Act (against Mr. Marsh and Mr. Middleton). The complaints allege that Defendants failed to disclose that the Company (i) “would be unable to timely file its 2020 annual report due 61 in its internal control over financial reporting[.]” The complaints allege that, a result, “positive statements about the Company’s On March 31, 2021, Company stockholder Junwei Liu, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against certain Company directors and officers (the “Derivative Defendants”), captioned Liu v. Marsh et al., Case No. 1:21-cv-02753 (S.D.N.Y.) (the “Liu Derivative Complaint”). The Liu Derivative Complaint alleges that, between November 9, 2020 and March 1, 2021, the Derivative Defendants “made, or caused the Company to make, materially false and misleading statements concerning Plug Power’s business, operations, and prospects” by “issu[ing] positive financial information and optimistic guidance, and made assurances that the Company’s internal controls were effective,” when, “[i]n reality, the Company’s internal controls suffered from material deficiencies that rendered them ineffective.” The Liu Derivative Complaint asserts claims for (1) breach of fiduciary duties, (2) unjust enrichment, (3) abuse of control, (4) gross mismanagement, (5) waste of corporate assets, and (6) contribution under Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Liu Derivative Complaint seeks a judgment “[d]eclaring that Plaintiff may maintain this action on behalf of Plug”; “[d]eclaring that the [Derivative] Defendants have breached and/or aided and abetted the breach of their fiduciary duties”; “awarding to Plug Power the damages sustained by it as a result of the violations” set forth in the Liu Derivative Complaint, “together with pre-judgment and post-judgment interest thereon”; “[d]irecting Plug Power and the [Derivative] Defendants to take all necessary actions to reform and improve Plug Power’s corporate governance and internal procedures to comply with applicable laws”; and “[a]warding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees, costs, and expenses”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.” On April 5, 2021, Company stockholders Elias Levy and Camerohn X. Withers, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned Levy et al. v. McNamee et al., Case No. 1:21-cv-02891 (S.D.N.Y.) (the “Levy Derivative Complaint”). The Levy Derivative Complaint alleges that, from November 9, 2020 to April 5, 2021, the Derivative Defendants “breached their duties of loyalty and good faith” by failing to disclose “(1) that the Company would be unable to timely file its 2020 annual report due to delays related to the review of classification of certain costs and the recoverability of the right to use assets with certain leases; (2) that the Company was reasonably likely to report material weaknesses in its internal control over financial reporting; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” The Levy Derivative Complaint asserts claims for (1) breach of fiduciary duty (as to the named director defendants), (2) unjust enrichment (as to certain named director defendants), (3) waste of corporate assets (as to the named director defendants), and (4) violations of Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Levy Derivative Complaint seeks a judgment “declaring that Plaintiffs may maintain this action on behalf of the Company”; finding the Derivative Defendants “liable for breaching their fiduciary duties owed to the Company”; directing the Derivative Defendants “to take all necessary actions to reform and improve the Company’s corporate governance, risk management, and internal operating procedures to comply with applicable laws”; “awarding damages to the Company for the harm the Company suffered as a result of Defendants’ wrongful conduct”; “awarding damages to the Company for [the named officer Derivative Defendants’] violations of Sections 10(b) and 21D of the Exchange Act”; “awarding Plaintiffs the costs and disbursements of this action, including attorneys’, accountants’, and experts’ fees”; and “awarding such other and further relief as is On May 13, 2021, Company stockholder Romario St. Clair, derivatively and on behalf of nominal defendant Plug, filed a complaint in the Supreme Court of the State of New York, County of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned St. Clair v. Plug Power Inc. et al., Index No. 653167/2021 (N.Y. Sup. Ct., N.Y. Cty.) (the “St. Clair Derivative Complaint”). The St. Clair Derivative Complaint alleges that, for 62 approximately two years beginning on March 13, 2019, the Company “failed to disclose and misrepresented the following material, adverse facts, which the [Derivative] Defendants knew, consciously disregarded, or were reckless in not knowing,” including: “(a) that the Company was experiencing known but undisclosed material weaknesses in its internal controls over financial reporting; (b) the Company was overstating the carrying amount of certain right of use assets and finance obligations associated with leases; (c) the Company was understating its loss accrual on certain service contracts; (d) the Company would need to take impairment charges relating to certain long-lived assets; (e) the Company was improperly classifying research [and] development costs versus costs of goods sold; and (f) the Company would be unable to file its Annual Report for the 2020 fiscal year due to these errors.” The St. Clair Derivative Complaint asserts claims for (1) breach of fiduciary and (2) unjust enrichment. The St. Clair Derivative Complaint seeks a judgment “for the amount of damages sustained by the Company” as a result of the Derivative Defendants’ breaches of fiduciary duties and unjust enrichment; “[d]irecting Plug Power to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws”; for “equitable and/or injunctive relief as permitted by law, equity, and state statutory provisions”; “awarding to Plug Power restitution” and “ordering disgorgement of all profits, benefits, and other compensation obtained” by the Derivative Defendants; “awarding to plaintiff the costs and disbursements of the action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses”; and “granting such other and further relief as the [c]ourt deems just and proper.”
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds (a) (b) Not applicable. (c) None. Item 3 — Defaults Upon Senior Securities None. Item 4 — Mine Safety Disclosures None.
Signatures
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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