.
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 |
FOR THE QUARTERLY PERIOD ENDED SeptemberJune 30, 20202021
OR
☐ | 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.
(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 YORK 12110
(Address of Principal Executive Offices, including Zip Code)
(518) 782-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
| | |||
| | |||
Title of |
| Trading Symbol(s) | | Name of |
Common Stock, par value |
| PLUG | | The |
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 every Interactive Data File required to be submitted 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 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 $0.01 per share, outstanding as of November 6, 2020August 2, 2021 was 415,598,288.574,355,448.
INDEX to FORM 10-Q
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, | ||
| | 2020 | | 2019 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 448,140 | | $ | 139,496 |
Restricted cash | | | 55,704 | | | 54,813 |
Accounts receivable | |
| 113,133 | |
| 25,448 |
Inventory | |
| 134,306 | |
| 72,391 |
Prepaid expenses and other current assets | |
| 26,731 | |
| 21,192 |
Total current assets | |
| 778,014 | |
| 313,340 |
| | | | | | |
Restricted cash | |
| 227,528 | |
| 175,191 |
Property, plant, and equipment, net of accumulated depreciation of $20,661 and $17,417, respectively | | | 64,820 | |
| 14,959 |
Leased property, net | | | 309,475 | |
| 244,740 |
Goodwill | | | 71,962 | | | 8,842 |
Intangible assets, net | |
| 39,169 | |
| 5,539 |
Other assets | |
| 9,661 | |
| 8,573 |
Total assets | | $ | 1,500,629 | | $ | 771,184 |
| | | | | | |
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 58,793 | | $ | 40,376 |
Accrued expenses | |
| 32,031 | |
| 14,213 |
Deferred revenue | |
| 17,226 | |
| 11,691 |
Finance obligations | | | 63,692 | | | 49,507 |
Current portion of long-term debt | | | 74,829 | | | 26,461 |
Other current liabilities | |
| 17,280 | |
| 8,543 |
Total current liabilities | |
| 263,851 | |
| 150,791 |
Deferred revenue | |
| 29,648 | |
| 23,369 |
Finance obligations | |
| 337,150 | |
| 265,228 |
Convertible senior notes, net | | | 105,088 | | | 110,246 |
Long-term debt | | | 120,380 | | | 85,708 |
Other liabilities | |
| 27,068 | |
| 13 |
Total liabilities | |
| 883,185 | |
| 635,355 |
| | | | | | |
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: 0 at September 30, 2020 and 2,620 at December 31, 2019 | |
| — | |
| 709 |
Series E redeemable preferred stock, $0.01 par value per share; Shares authorized: 35,000 at both September 30, 2020 and December 31, 2019; Issued and outstanding: 0 at September 30, 2020 and 500 at December 31, 2019 | | | — | | | 441 |
Stockholders’ equity: | | | | | | |
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 406,123,816 at September 30, 2020 and 318,637,560 at December 31, 2019 | |
| 4,061 | |
| 3,186 |
Additional paid-in capital | |
| 2,083,199 | |
| 1,507,116 |
Accumulated other comprehensive income | |
| 1,958 | |
| 1,400 |
Accumulated deficit | |
| (1,431,340) | |
| (1,345,807) |
Less common stock in treasury: 15,926,068 at September 30, 2020 and 15,259,045 at December 31, 2019 | | | (40,434) | | | (31,216) |
Total stockholders’ equity | |
| 617,444 | |
| 134,679 |
Total liabilities, redeemable preferred stock, and stockholders’ equity | | $ | 1,500,629 | | $ | 771,184 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3,160,170 | | $ | 1,312,404 |
Restricted cash | | | 81,460 | | | 64,041 |
Available-for-sale securities, at fair value | | | 1,242,721 | | | — |
Equity securities | | | 120,302 | | | — |
Accounts receivable | |
| 91,359 | |
| 43,041 |
Inventory | |
| 209,820 | |
| 139,386 |
Prepaid expenses and other current assets | |
| 60,579 | |
| 44,324 |
Total current assets | |
| 4,966,411 | |
| 1,603,196 |
| | | | | | |
Restricted cash | |
| 347,933 | |
| 257,839 |
Property, plant, and equipment, net | | | 110,475 | |
| 74,549 |
Right of use assets related to finance leases, net | | | 16,926 | | | 5,724 |
Right of use assets related to operating leases, net | | | 145,803 | | | 117,016 |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,918 | |
| 75,807 |
Goodwill | | | 72,083 | | | 72,387 |
Intangible assets, net | |
| 38,052 | |
| 39,251 |
Other assets | |
| 12,225 | |
| 5,513 |
Total assets | | $ | 5,788,826 | | $ | 2,251,282 |
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 70,027 | | $ | 50,198 |
Accrued expenses | |
| 35,405 | |
| 46,083 |
Deferred revenue | |
| 27,004 | |
| 23,275 |
Operating lease liabilities | | | 19,915 | | | 14,314 |
Finance lease liabilities | | | 2,728 | | | 903 |
Finance obligations | | | 33,846 | | | 32,717 |
Current portion of long-term debt | | | 30,403 | | | 25,389 |
Other current liabilities | |
| 31,750 | |
| 29,487 |
Total current liabilities | |
| 251,078 | |
| 222,366 |
Deferred revenue | |
| 45,272 | |
| 32,944 |
Operating lease liabilities | | | 122,203 | | | 99,624 |
Finance lease liabilities | | | 12,380 | | | 4,493 |
Finance obligations | |
| 161,959 | |
| 148,836 |
Convertible senior notes, net | | | 192,011 | | | 85,640 |
Long-term debt | | | 130,081 | | | 150,013 |
Other liabilities | |
| 42,973 | |
| 40,447 |
Total liabilities | |
| 957,957 | |
| 784,363 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 586,848,225 at June 30, 2021 and 473,977,469 at December 31, 2020 | |
| 5,868 | |
| 4,740 |
Additional paid-in capital | |
| 6,962,720 | |
| 3,446,650 |
Accumulated other comprehensive income | |
| 34 | |
| 2,451 |
Accumulated deficit | |
| (2,097,319) | |
| (1,946,488) |
Less common stock in treasury: 15,926,068 at both June 30, 2021 and December 31, 2020 | | | (40,434) | | | (40,434) |
Total stockholders’ equity | |
| 4,830,869 | |
| 1,466,919 |
Total liabilities and stockholders’ equity | | $ | 5,788,826 | | $ | 2,251,282 |
The accompanying 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, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net revenue: | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | | $ | 83,528 | | $ | 38,877 | | $ | 151,661 | | $ | 80,117 |
Services performed on fuel cell systems and related infrastructure | | | 6,829 | | | 6,205 | | | 19,586 | | | 17,889 |
Power Purchase Agreements | |
| 6,704 | |
| 6,595 | |
| 19,854 | |
| 19,114 |
Fuel delivered to customers | |
| 9,831 | |
| 7,649 | |
| 24,536 | |
| 21,320 |
Other | | | 97 | | | 135 | | | 235 | | | 135 |
Net revenue | | | 106,989 | | | 59,461 | | | 215,872 | | | 138,575 |
Cost of revenue: | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | |
| 68,509 | |
| 24,990 | |
| 115,929 | |
| 50,440 |
Services performed on fuel cell systems and related infrastructure | |
| 7,074 | |
| 6,461 | |
| 21,746 | |
| 18,802 |
Provision for loss contracts related to service | | | 4,306 | | | — | | | 4,306 | | | — |
Power Purchase Agreements | |
| 14,087 | |
| 10,353 | |
| 42,034 | |
| 28,064 |
Fuel delivered to customers | |
| 14,172 | |
| 9,160 | |
| 32,267 | |
| 25,935 |
Other | |
| 131 | |
| 150 | |
| 275 | |
| 150 |
Total cost of revenue | |
| 108,279 | |
| 51,114 | |
| 216,557 | |
| 123,391 |
| | | | | | | | | | | | |
Gross (loss) profit | |
| (1,290) | |
| 8,347 | |
| (685) | |
| 15,184 |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 11,964 | | | 8,028 | | | 32,133 | | | 24,334 |
Selling, general and administrative | | | 14,277 | | | 10,400 | | | 46,948 | | | 33,351 |
Total operating expenses | | | 26,241 | | | 18,428 | | | 79,081 | | | 57,685 |
| | | | | | | | | | | | |
Operating loss | | | (27,531) | | | (10,081) | | | (79,766) | | | (42,501) |
| | | | | | | | | | | | |
Interest and other expense, net | |
| (17,241) | |
| (7,972) | |
| (42,022) | |
| (24,178) |
Change in fair value of common stock warrant liability | |
| — | |
| 427 | |
| — | |
| 7 |
Change in fair value of contingent consideration | | | (1,130) | | | — | | | (1,130) | | | — |
Gain (loss) on extinguishment of debt | |
| — | |
| (518) | |
| 13,222 | |
| (518) |
| | | | | | | | | | | | |
Loss before income taxes | | $ | (45,902) | | $ | (18,144) | | $ | (109,696) | | $ | (67,190) |
| | | | | | | | | | | | |
Income tax benefit | |
| 6,523 | |
| — | |
| 24,182 | |
| — |
| | | | | | | | | | | | |
Net loss attributable to the Company | | $ | (39,379) | | $ | (18,144) | | $ | (85,514) | | $ | (67,190) |
| | | | | | | | | | | | |
Preferred stock dividends declared and accretion of discount | |
| — | |
| (13) | |
| (19) | |
| (39) |
Net loss attributable to common stockholders | | $ | (39,379) | | $ | (18,157) | | $ | (85,533) | | $ | (67,229) |
Net loss per share: | | | | | | | | | | | | |
Basic and diluted | | $ | (0.11) | | $ | (0.08) | | $ | (0.26) | | $ | (0.29) |
Weighted average number of common stock outstanding | |
| 371,010,544 | |
| 236,759,521 | |
| 330,949,265 | |
| 229,519,323 |
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | ||||||||
| June 30, | | June 30, | ||||||||
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Net revenue: | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 99,278 | | $ | 47,746 | | $ | 146,050 | | $ | 68,214 |
Services performed on fuel cell systems and related infrastructure | | 5,675 | | | 6,236 | | | 11,720 | | | 12,757 |
Power Purchase Agreements |
| 8,361 | |
| 6,579 | |
| 16,187 | |
| 13,000 |
Fuel delivered to customers |
| 11,121 | |
| 7,372 | |
| 22,248 | |
| 14,705 |
Other | | 122 | | | 62 | | | 310 | | | 138 |
Net revenue | | 124,557 | | | 67,995 | | | 196,515 | | | 108,814 |
Cost of revenue: | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure |
| 79,913 | |
| 33,888 | |
| 108,887 | |
| 47,862 |
Services performed on fuel cell systems and related infrastructure |
| 15,475 | |
| 7,773 | |
| 28,561 | |
| 18,120 |
Provision for loss contracts related to service | | 6,694 | | | 706 | | | 8,179 | | | 801 |
Power Purchase Agreements |
| 22,234 | |
| 14,504 | |
| 40,577 | |
| 29,275 |
Fuel delivered to customers |
| 40,331 | |
| 11,076 | |
| 62,474 | |
| 22,330 |
Other |
| 208 | |
| 63 | |
| 306 | |
| 144 |
Total cost of revenue |
| 164,855 | |
| 68,010 | |
| 248,984 | |
| 118,532 |
| | | | | | | | | | | |
Gross loss |
| (40,298) | |
| (15) | |
| (52,469) | |
| (9,718) |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Research and development | | 11,247 | | | 4,873 | | | 20,989 | | | 9,647 |
Selling, general and administrative | | 38,652 | | | 21,644 | | | 64,231 | | | 32,753 |
Change in fair value of contingent consideration | | (560) | | | — | | | 230 | | | — |
Total operating expenses | | 49,339 | | | 26,517 | | | 85,450 | | | 42,400 |
| | | | | | | | | | | |
Operating loss | | (89,637) | | | (26,532) | | | (137,919) | | | (52,118) |
| | | | | | | | | | | |
Interest |
| (10,268) | |
| (13,368) | |
| (22,534) | |
| (25,157) |
Other expense, net |
| (70) | |
| (94) | |
| (268) | |
| (151) |
Realized gain on investments, net | | 18 | | | — | | | 18 | | | — |
Change in fair value of equity securities | | 323 | | | — | | | 323 | | | — |
Gain on extinguishment of debt | | — | | | 13,222 | | | — | | | 13,222 |
| | | | | | | | | | | |
Loss before income taxes | $ | (99,634) | | $ | (26,772) | | $ | (160,380) | | $ | (64,204) |
| | | | | | | | | | | |
Income tax benefit |
| — | |
| 17,371 | |
| — | |
| 17,371 |
| | | | | | | | | | | |
Net loss attributable to the Company | $ | (99,634) | | $ | (9,401) | | $ | (160,380) | | $ | (46,833) |
| | | | | | | | | | | |
Preferred stock dividends declared |
| — | |
| (13) | |
| — | |
| (26) |
| | | | | | | | | | | |
Net loss attributable to common stockholders | $ | (99,634) | | $ | (9,414) | | $ | (160,380) | | $ | (46,859) |
| | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | |
Basic and diluted | $ | (0.18) | | $ | (0.03) | | $ | (0.30) | | $ | (0.15) |
| | | | | | | | | | | |
Weighted average number of common stock outstanding |
| 567,033,722 | |
| 316,645,050 | |
| 540,394,003 | |
| 310,918,626 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial 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, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | | | | | | | | | | |
Net loss attributable to the Company | | $ | (39,379) | | $ | (18,144) | | $ | (85,514) | | $ | (67,190) |
Other comprehensive gain (loss) - foreign currency translation adjustment | |
| 687 | |
| (531) | |
| 558 | |
| (655) |
Comprehensive loss | | $ | (38,692) | | $ | (18,675) | | $ | (84,956) | | $ | (67,845) |
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | | | | | | | | | | | |
Net loss attributable to the Company | | $ | (99,634) | | $ | (9,401) | | $ | (160,380) | | $ | (46,833) |
Other comprehensive gain (loss): | | | | | | | | | | | | |
Foreign currency translation gain (loss) | |
| 581 | |
| 107 | |
| (542) | |
| (129) |
Change in net unrealized loss on available-for-sale securities | | | (1,967) | | | — | | | (1,875) | | | — |
Comprehensive loss attributable to the Company | | $ | (101,020) | | $ | (9,294) | | $ | (162,797) | | $ | (46,962) |
| | | | | | | | | | | | |
Preferred stock dividends declared | | | — | | | (13) | | | — | | | (26) |
Comprehensive loss attributable to common stockholders | | $ | (101,020) | | $ | (9,307) | | $ | (162,797) | | $ | (46,988) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ (Deficit) 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 |
| (Deficit) Equity | ||||||
December 31, 2019 |
| 318,637,560 | | $ | 3,186 | | $ | 1,507,116 | | $ | 1,400 |
| 15,259,045 | | $ | (31,216) | | $ | (1,345,807) | | $ | 134,679 |
Net loss attributable to the Company | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (85,514) | |
| (85,514) |
Other comprehensive loss | | — | |
| — | |
| — | |
| 558 |
| — | |
| — | |
| — | |
| 558 |
Stock-based compensation | | 402,003 | |
| 4 | |
| 9,254 | |
| — |
| — | |
| — | |
| — | |
| 9,258 |
Stock dividend | | 5,156 | |
| — | |
| 19 | |
| — |
| — | |
| — | |
| (19) | |
| — |
Public offerings, common stock, net | | 35,276,250 | | | 353 | | | 344,045 | | | — | | — | | | — | | | — | | | 344,398 |
Stock option exercises | | 13,736,265 | |
| 137 | |
| 32,416 | |
| — |
| 667,023 | |
| (9,218) | |
| — | |
| 23,335 |
Equity component of 3.75% Convertible Senior Notes issued, net of issuance costs and income tax expense | | — | | | — | | | 108,347 | | | — | | — | | | — | | | — | | | 108,347 |
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 | | $ | 2,083,199 | | $ | 1,958 |
| 15,926,068 | | $ | (40,434) | | $ | (1,431,340) | | $ | 617,444 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 |
| 234,160,661 | | $ | 2,342 | | $ | 1,289,714 | | $ | 1,584 |
| 15,002,663 | | $ | (30,637) | | $ | (1,260,290) | | $ | 2,713 |
Net loss attributable to the Company |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (67,190) | |
| (67,190) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| (655) |
| — | |
| — | |
| — | |
| (655) |
Stock-based compensation |
| 1,715,454 | |
| 17 | |
| 7,910 | |
| — |
| — | |
| — | |
| — | |
| 7,927 |
Stock dividend |
| 15,067 | |
| — | |
| 39 | |
| — |
| — | |
| — | |
| (39) | |
| — |
Issuance of common stock, net | | 16,333,585 | | | 163 | | | 37,935 | | | — | | — | | | — | | | — | | | 38,098 |
Stock option exercises |
| 258,409 | |
| 3 | |
| 460 | |
| — |
| 256,382 | |
| (579) | |
| — | |
| (116) |
Provision for common stock warrants | | — | | | — | | | 10,244 | | | — | | — | | | — | | | — | | | 10,244 |
Accretion of discount, preferred stock | | — | | | — | | | (772) | | | — | | — | | | — | | | — | | | (772) |
Conversion of preferred stock |
| 1,499,402 | |
| 15 | |
| 1,868 | |
| — |
| — | |
| — | |
| — | |
| 1,883 |
September 30, 2019 |
| 253,982,578 | | $ | 2,540 | | $ | 1,347,398 | | $ | 929 |
| 15,259,045 | | $ | (31,216) | | $ | (1,327,519) | | $ | (7,868) |
| | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| 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 | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (160,380) | |
| (160,380) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | (130,185) | | | — | | — | | | — | | | 9,549 | | | (120,636) |
Other comprehensive loss | | — | |
| — | |
| — | |
| (2,417) |
| — | |
| — | |
| — | | | (2,417) |
Stock-based compensation | | 15,166 | |
| — | |
| 20,815 | |
| — |
| — | |
| — | |
| — | |
| 20,815 |
Public offerings, common stock, net | | 32,200,000 | | | 322 | | | 2,022,866 | | | — | | — | | | — | | | — | |
| 2,023,188 |
Private offerings, common stock, net | | 54,966,188 | | | 549 | | | 1,564,088 | | | — | | — | | | — | | | — | | | 1,564,637 |
Stock option exercises | | 1,760,450 | |
| 18 | |
| 4,687 | |
| — |
| — | |
| — | |
| — | |
| 4,705 |
Exercise of warrants | | 20,843,108 | |
| 208 | |
| 15,242 | |
| — |
| — | |
| — | |
| — | | | 15,450 |
Provision for common stock warrants | | — | | | — | | | 3,243 | | | — | | — | | | — | | | — | |
| 3,243 |
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 |
June 30, 2021 | | 586,848,225 | | $ | 5,868 | | $ | 6,962,720 | | $ | 34 |
| 15,926,068 | | $ | (40,434) | | $ | (2,097,319) | | $ | 4,830,869 |
| | | | | | | | | | | | | | | | | | | | | | |
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 |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (46,833) | |
| (46,833) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| (129) |
| — | |
| — | |
| — | |
| (129) |
Stock-based compensation |
| 586,558 | |
| 6 | |
| 6,325 | |
| — |
| 33,371 | |
| (143) | |
| — | |
| 6,188 |
Stock dividend |
| 5,156 | |
| — | |
| 20 | |
| — |
| — | |
| — | |
| (20) | |
| — |
Public offerings, net | | — | | | — | | | (269) | | | | | — | | | — | | | — | | | (269) |
Stock option exercises |
| 6,905,936 | |
| 69 | |
| 15,729 | |
| — |
| 175 | |
| — | |
| — | |
| 15,798 |
Equity component of convertible senior notes, net of issuance costs and income tax benefit | | — | | | — | | | 115,952 | | | — | | — | | | — | | | — | | | 115,952 |
Purchase of capped calls | | — | | | — | | | (16,253) | | | — | | — | | | — | | | — | | | (16,253) |
Termination of capped calls | | — | | | — | | | 24,158 | | | — | | — | | | — | | | — | | | 24,158 |
Provision for common stock warrants | | — | | | — | | | 7,983 | | | — | | — | | | — | | | — | | | 7,983 |
Accretion of discount, preferred stock | | — | | | — | | | (29) | | | — | | — | | | — | | | — | | | (29) |
Conversion of preferred stock |
| 2,998,526 | |
| 30 | |
| 1,148 | |
| — |
| — | |
| — | |
| — | |
| 1,178 |
Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit | | 9,409,591 | | | 94 | | | (52,855) | | | — | | — | | | — | | | — | | | (52,761) |
Shares issued for acquisitions | | 9,658,465 | | | 97 | | | 49,576 | | | — | | — | | | — | | | — | | | 49,673 |
June 30, 2020 |
| 348,201,792 | | $ | 3,482 | | $ | 1,658,438 | | $ | 1,159 |
| 15,292,591 | | $ | (31,359) | | $ | (1,397,160) | | $ | 234,560 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
|
|
|
|
|
|
|
6
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | |
| | Nine months ended | ||||
| | September 30, | ||||
|
| 2020 |
| 2019 | ||
Operating Activities | | | | | | |
Net loss attributable to the Company | | $ | (85,514) | | $ | (67,190) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation of property, plant and equipment, and leased property | |
| 9,381 | |
| 8,944 |
Amortization of intangible assets | |
| 835 | |
| 518 |
Stock-based compensation | |
| 9,258 | |
| 7,927 |
Gain on extinguishment of debt | | | (13,222) | | | — |
Provision for bad debts and other assets | |
| — | |
| 1,253 |
Amortization of debt issuance costs and discount on convertible senior notes | | | 12,183 | | | 6,257 |
Provision for common stock warrants | | | 25,198 | | | 3,706 |
Loss on disposal of leased assets | | | — | | | 212 |
Fair value adjustment to contingent consideration | | | 1,130 | | | — |
Provision for loss contracts related to service | | | 4,306 | | | — |
Change in fair value of common stock warrant liability | |
| — | |
| (7) |
Income tax benefit | | | (24,182) | | | — |
Changes in operating assets and liabilities that provide (use) cash: | | | | | | |
Accounts receivable | |
| (86,004) | |
| 11,702 |
Inventory | |
| (57,718) | |
| (32,691) |
Prepaid expenses, and other assets | |
| (4,956) | |
| 427 |
Accounts payable, accrued expenses, and other liabilities | |
| 35,748 | |
| 13,293 |
Deferred revenue | |
| 16,647 | |
| (6,152) |
Net cash used in operating activities | |
| (156,910) | |
| (51,801) |
Investing Activities | | | | | | |
Purchases of property, plant and equipment | |
| (11,265) | |
| (4,635) |
Purchase of intangible assets | | | (1,638) | | | (1,860) |
Purchases for construction of leased property | | | (13,699) | | | (2,851) |
Net cash paid for acquisitions | |
| (45,113) | |
| — |
Proceeds from sale of leased assets | |
| — | |
| 375 |
Net cash used in investing activities | |
| (71,715) | |
| (8,971) |
Financing Activities | | | | | | |
Proceeds from issuance of preferred stock, net of transaction costs | |
| — | |
| (37) |
Proceeds from public offerings, net of transaction costs | |
| 344,398 | |
| 38,098 |
Proceeds from exercise of stock options | |
| 23,335 | |
| (116) |
Payments for redemption of preferred stock | | | — | | | (4,040) |
Proceeds from issuance of convertible senior notes, net | | | 205,098 | | | 39,052 |
Repurchase of convertible senior notes | | | (90,238) | | | — |
Purchase of capped calls | | | (16,253) | | | — |
Proceeds from termination of capped calls | | | 24,158 | | | — |
Principal payments on long-term debt | | | (27,845) | | | (21,186) |
Proceeds from long-term debt, net | | | 99,000 | | | 99,496 |
Repayments of finance obligations | | | (18,634) | | | (59,461) |
Proceeds from finance obligations | |
| 47,568 | |
| 57,249 |
Net cash provided by financing activities | |
| 590,587 | |
| 149,055 |
Effect of exchange rate changes on cash | |
| (90) | |
| (119) |
Increase in cash, cash equivalents and restricted cash | |
| 361,872 | |
| 88,164 |
Cash, cash equivalents, and restricted cash beginning of period | |
| 369,500 | |
| 110,153 |
Cash, cash equivalents, and restricted cash end of period | | $ | 731,372 | | $ | 198,317 |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Cash paid for interest | | $ | 16,975 | | $ | 8,673 |
| | | | | | |
Summary of non-cash investing and financing activity | | | | | | |
Recognition of right of use asset | | $ | 56,377 | | $ | 78,626 |
Conversion of preferred stock to common stock | | | — | | | 1,883 |
Conversion of convertible notes to common stock | | | 42,873 | | | — |
| | | | | | |
| | | | | | |
| | Six months ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
Operating Activities | | | | | | |
Net loss attributable to the Company | | $ | (160,380) | | $ | (46,833) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation of long-lived assets | |
| 9,725 | |
| 6,069 |
Amortization of intangible assets | |
| 730 | |
| 398 |
Stock-based compensation | |
| 20,815 | |
| 6,188 |
Gain on extinguishment of debt | | | — | | | (13,222) |
Amortization of debt issuance costs and discount on convertible senior notes | | | 1,726 | | | 6,528 |
Provision for common stock warrants | | | 3,452 | | | 7,983 |
Income tax benefit | | | — | | | (17,371) |
Loss on service contracts | | | 4,399 | | | 277 |
Fair value adjustment to contingent consideration | | | (230) | | | — |
Net realized gain on investments | | | (18) | | | — |
Lease origination costs | | | (4,553) | | | — |
Change in fair value for equity securities | | | (323) | | | — |
Changes in operating assets and liabilities that provide (use) cash: | | | | | | |
Accounts receivable | |
| (48,318) | |
| (18,333) |
Inventory | |
| (70,588) | |
| (37,983) |
Prepaid expenses, and other assets | |
| (22,967) | |
| (11,887) |
Accounts payable, accrued expenses, and other liabilities | |
| 4,047 | |
| 3,903 |
Deferred revenue | |
| 15,848 | |
| 2,392 |
Net cash used in operating activities | |
| (246,635) | |
| (111,891) |
| | | | | | |
Investing Activities | | | | | | |
Purchases of property, plant and equipment | |
| (33,062) | |
| (5,009) |
Purchases of equipment related to Power Purchase Agreements and equipment related to fuel delivered to customers | | | (7,598) | | | (6,256) |
Purchase of available-for-sale securities | | | (1,504,891) | | | — |
Proceeds from sales and maturities of available-for-sale securities | | | 260,313 | | | — |
Purchase of equity securities | | | (119,979) | | | — |
Net cash paid for acquisition | | | - | | | (45,286) |
Net cash used in investing activities | |
| (1,405,217) | |
| (56,551) |
| | | | | | |
Financing Activities | | | | | | |
Proceeds from exercise of warrants, net of transaction costs | |
| 15,450 | |
| — |
Proceeds from public and private offerings, net of transaction costs | |
| 3,587,825 | |
| (269) |
Proceeds from exercise of stock options | |
| 4,705 | |
| 15,798 |
Proceeds from issuance of convertible senior notes, net | | | — | | | 205,100 |
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 | | | (15,564) | | | (21,626) |
Proceeds from long-term debt, net | | | — | | | 49,000 |
Repayments of finance obligations and finance leases | | | (17,281) | | | (11,129) |
Proceeds from finance obligations | |
| 32,159 | |
| 27,678 |
Net cash provided by financing activities | |
| 3,607,294 | |
| 182,219 |
Effect of exchange rate changes on cash | |
| (163) | |
| (24) |
Increase in cash, cash equivalents and restricted cash | |
| 1,955,279 | |
| 13,753 |
Cash, cash equivalents, and restricted cash beginning of period | |
| 1,634,284 | |
| 369,500 |
Cash, cash equivalents, and restricted cash end of period | | $ | 3,589,563 | | $ | 383,253 |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Cash paid for interest | | $ | 11,261 | | $ | 9,466 |
| | | | | | |
Summary of non-cash activity | | | | | | |
Recognition of right of use asset - finance leases | | $ | 11,286 | | $ | — |
Recognition of right of use asset - operating leases | | | 39,271 | | | 6,836 |
Conversion of preferred stock to common stock | | | — | | | 441 |
Conversion of convertible senior notes to common stock | | | 15,345 | | | — |
Change in accounts payable related to accrued purchases of property, plant and equipment | | | 6,124 | | | — |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
Notes to Interim Condensed Consolidated Financial Statements1.
(unaudited)Nature of Operations
Unless the context indicates, the terms “Company,” “Plug Power,” “we,” “our” or “us” as used herein refers to Plug Power Inc. and its subsidiaries.
Description of Business
As a leading provider of comprehensive hydrogen fuel cell turnkey solutions, Plug Power Inc., oris facilitating the Company, is seekingparadigm shift to build a green hydrogen economy. The Company is focused onan increasingly electrified world by innovating cutting-edge hydrogen and fuel cell systems that are usedsolutions. In our core business, we provide and continue to power electric motors primarily in the electric mobility and stationary power markets, given the ongoing paradigm shift in the power, energy, and transportation industries to address climate change, energy security, and meet sustainability goals. Plug Power created the firstdevelop commercially viable market for hydrogen and fuel cell orproduct solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the HFC technology. As a result, the Company has deployed over 38,000 fuel cell systems,world’s largest retail-distribution and has become the largest buyer of liquid hydrogen, having built and operated a hydrogen network across North America.
manufacturing businesses. We are focusedfocusing our efforts on proton exchange membrane, or PEM, fuel cellindustrial mobility applications, including electric forklifts and fuel processing technologies, fuel cell/battery hybrid technologies,electric industrial vehicles, at multi-shift high volume manufacturing and associated hydrogen storagehigh throughput distribution sites where we believe our products and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogenservices provide a unique combination of productivity, flexibility, and oxygen to produce electricity and heat without combustion. Hydrogen is derived from multiple sources. The majority of liquid hydrogen in the United States is produced using the steam methane reforming process and utilizing by-product hydrogen from chlor alkali production. By-product hydrogen from a chlor alkali plant is considered to be low carbon hydrogen and in some cases, considered green hydrogen, depending on the source of electricity and geographic location. We source a significant amount of liquid hydrogen based on the chlor alkali process today.environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products have proven valuable with telecommunications, transportation, and utility customers as robust, reliable, and sustainable power solutions.
We provide and continue to develop commercially-viable hydrogen and fuel cell solutions for industrial mobility applications (including electric forklifts and electric industrial vehicles) at multi-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. In June of 2020, Plug Power completed the acquisitions of United Hydrogen Group, Inc. and Giner ELX, Inc. in line with the Company’s hydrogen vertical integration strategy, with plans to have more than 50% of the hydrogen used by the Company to be green by 2024. These acquisitions further enhance Plug Power’s position in the hydrogen industry with capabilities in generation, liquefaction and distribution of hydrogen fuel complementing its industry-leading position in the design, construction, and operation of customer-facing hydrogen fueling stations. These acquisitions establish a pathway for Plug Power to transition from low-carbon to zero-carbon hydrogen 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 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 cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;
GenSure: GenSure 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;
8
GenKey: GenKey is our vertically 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; and
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power MEA (membranemembrane electrode assembly)assembly (“MEA”), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines, in which Plug Powerengines; and
GenFuel 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 the largest producer in North America.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 (“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-viablecommercially viable products in Latham, NY,New York, Rochester, NYNew York and Spokane, WAWashington and support liquid hydrogen generation and logistics in Charleston, TN.
LiquidityTennessee.
Our cash requirements relate primarilywholly-owned subsidiary, Plug Power France, has created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). HyVia plans to working capital neededmanufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and 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 production and delivery of thesupply hydrogen fuel continued development and expansion of our products, payment of lease/financing 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 developing marketing and distribution channels; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangementsfueling stations to support the sale or leasing of our productsFCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France 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 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 stockholders of $85.5 million and $67.2 million for the nine months ended September 30, 2020 and 2019, respectively, and had an accumulated deficit of $1.4 billion at September 30, 2020.
We have historically funded our operations primarily through public and private offerings of equity and debt, as well as short-term borrowings, long-term debt and project financings. 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 and debt offerings, including our at-the-market offering, will provide sufficient liquidity to fund operations for at least one year after the date 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.
During the nine months ended September 30, 2020, net cash used in operating activities was $156.9 million, consisting primarily of a net loss attributable to the Company of $85.5 million, and net outflows from fluctuations in working capital and other assets and liabilities of $96.3 million. The changes in working capital primarily were related to increases and decreases in various current asset and liability accounts. As of September 30, 2020, we had cash and cash equivalents of $448.1 million and net working capital of $514.2 million. By comparison, at December 31, 2019, we had cash and cash equivalents of $139.5 million and net working capital of $162.5 million.
50% by Renault.
9
8
Net cash used in investing activities for the nine months ended September 30, 2020 totaled $71.7 million and included net cash paid for acquisitions, purchasesTable of intangible assets, 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 lease directly to customers are included in net cash used in investing activities.
Contents
Net cash provided by financing activities for the nine months ended September 30, 2020 totaled $590.6 million and primarily resulted from the issuance of shares of common stock and convertible senior notes, and proceeds from borrowing on long-term debt, offset by the repurchase of convertible senior notes and purchase of related capped calls.
Public and Private Offerings of Equity and Debt
Common Stock Issuances
In August 2020, the Company issued and sold in a registered direct 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 an At Market Issuance Sales Agreement (ATM), with B. Riley FBR, Inc., as sales agent, or FBR, pursuant to which the Company may offer and sell, from time to time through FBR, 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 ATM.
In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.
Prior to December 31, 2019, the Company entered into a previous ATM with FBR, which was terminated in the fourth quarter of 2019. Under this ATM, for the nine months ended September 30, 2019, the Company issued 6.3 million shares of common stock, resulting in net proceeds of $14.6 million.
In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of its common stock at a purchase price of $2.35 per share for net proceeds of approximately $23.5 million.
Convertible Senior Notes
In May 2020, the Company issued $212.8 million in aggregate principal amount of 3.75% convertible senior notes due 2025, which we refer to herein as the 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 5.5% Convertible Senior Notes due 2023, which we refer to herein as 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 October 2020, $28.0 million of the remaining 5.5% Convertible Senior Notes converted into 12.2 million shares of common stock.
In September 2019, the Company issued a $40.0 million in aggregate principal amount of 7.5% convertible senior note due 2023, which we refer to herein as the 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.
Operating and Finance Leases
The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). Transactions completed under the sale/leaseback arrangements are generally accounted for
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as operating leases and therefore the sales of the fuel cell systems and hydrogen infrastructure are recognized as revenue. In connection with certain sale/leaseback transactions, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against the Company’s finance obligations. 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 at September 30, 2020 was $332.8 million, $286.2 million of which were secured with restricted cash, security deposits backing letters of credit, and pledged service escrows.
The Company has varied master lease agreements with Wells Fargo Equipment Finance, Inc., or Wells Fargo, to finance the Company’s commercial transactions with various customers. The Wells Fargo lease agreements were entered into during 2017, 2018, 2019 and 2020. Pursuant to the lease agreements, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites. The Company has a customer guarantee for a large portion of the transactions entered into in connection with such lease agreements. The Wells Fargo lease agreements required letters of credit totaling approximately $78.8 million for the unguaranteed portion as of September 30, 2020. The total remaining lease liabilities owed to Wells Fargo were $114.3 million at September 30, 2020.
Over recent years, including in 2019, the Company has entered into master lease agreements with multiple institutions such as Key Equipment Finance (KeyBank), SunTrust Equipment Finance & Lease Corp. (now known as Truist Bank), First American Bancorp, Inc. (First American), Crestmark Equipment Finance (Crestmark) and U.S. Bank. During the nine months ended September 30 2020, the Company entered into additional lease agreements with KeyBank, First American, Truist Bank, Crestmark and U.S. Bank. Similar to the Wells Fargo lease agreements, the primary purpose of these agreements is to finance commercial transactions with varied customers. Most of the transactions with these financial institutions required cash collateral for the unguaranteed portions totaling $189.9million as of September 30, 2020. Similar to the Wells Fargo lease agreements, in many cases the Company has a customer guarantee for a large portion of the transactions. The total remaining lease liabilities owed to these financial institutions were $218.5 million at September 30, 2020.
Long-Term Debt
In March 2019, the Company entered into a loan and security agreement (Loan Agreement) with Generate Lending, LLC (Generate Capital) pursuant to which the Company borrowed $85.0 million (Term Loan Facility). The initial proceeds of the loan were used to pay in full the Company’s long-term debt and accrued interest of $17.6 million under the loan agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority, and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC as well as repurchase the associated leased equipment. In April 2019 and November 2019, the Company borrowed an additional $15.0 million and $20.0 million, respectively, under the Term Loan Facility with Generate Capital at 12% interest to fund working capital for ongoing deployments and other general corporate purposes. On March 31, 2020, the outstanding balance was $107.5 million. The principal and interest payments are paid primarily by restricted cash.
On May 6, 2020, the Company and Generate amended the Loan Agreement to, among other things, (i) provide an incremental term loan facility in the amount of $50.0 million, which has been fully funded, (ii) provide for additional, incremental term loans in an aggregate amount not to exceed $50.0 million, which are available to the Company in Generate Capital’s sole discretion, (iii) reduce the interest rate on all loans to 9.50% from 12.00% per annum, and (iv) extend the maturity date to October 31, 2025 from October 6, 2022. In the third quarter of 2020, the Company borrowed an additional $50.0 million under the amended Loan Agreement. See Note 8, Long-Term Debt, for additional information. Based on the amortization schedule as September 30, 2020, the outstanding balance of $185.0 million under the Term Loan Facility must be fully paid by October 31, 2025.
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2. Summary of Significant Accounting Policies
Restatement
As previously disclosed in the Explanatory Note to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (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 financial statements as of and for each of the quarterly periods ended March 31, 2020 and 2019, 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.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. Intercompany 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, 2019.2020 10-K.
The information presented in the accompanying unaudited interim condensed consolidated balance sheets as of December 31, 20192020 has been derived from the Company’s December 31, 20192020 audited consolidated financial statements.
Leases
The Company is a lesseeThere have been no changes in noncancelable (1) operating leases, primarily related to sale/leaseback transactions with financial institutionsour accounting policies from those reported in our 2020 10-K, except for deploymentthe adoption of the Company’s products at certain customer sites, and (2) finance leases, also primarily related to sale/leaseback transactions with financial institutions for similar commercial purposes. The Company accounts for leases in accordance with Accounting Standards Codification (ASC) Topic 842, Leases (ASC Topic 842)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 amended.
The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right of use (ROU) asset and a lease liability (i.e. finance obligation) at the lease commencement date. For operating leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measureddescribed in the same mannerRecently Adopted Accounting Guidance section. We have also expanded our accounting policy relating to cash equivalents, and dateavailable-for-sale securities as for operating leases, and is subsequently measured at amortized cost using the effective interest method.
Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term and (3) the lease payments.
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follows:
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of the useful life of the underlying asset or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability. The Company’s leases do not contain variable lease payments.
ROU assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – OverallCash Equivalents, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. NaN impairment losses have been recognized to date.
The Company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.
Operating and finance lease ROU assets are presented within leased property, net on the unaudited interim condensed consolidated balance sheets. The current portion of operating and finance lease liabilities is included in finance obligations within current liabilities and the long-term portion is presented in finance obligations within noncurrent liabilities on the unaudited interim condensed consolidated balance sheets.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company has elected to apply the short-term lease recognition and measurement exemption for other classes of leased assets. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
Revenue Recognition
The Company enters into contracts that may contain one or a combination of fuel cell systems and infrastructure, installation, maintenance, spare parts, fuel delivery and other support services. Contracts containing fuel cell systems and related infrastructure may be sold or provided to customers under a PPA, discussed further below.
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, or when circumstances indicate that warranty costs will be incurred, as applicable.
Revenue is measured based on the transaction price specified in a contract with a customer, subject to the allocation of the transaction price to distinct performance obligations as discussed below. The Company recognizes revenue when it satisfies a performance obligation by transferring a product or service to a customer.
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The Company accounts for each distinct performance obligation within its arrangements as a separate unit of accounting if the items under the performance obligation have value to the customer on a standalone basis. The Company considers a performance obligation to be distinct and have a standalone value if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer and the Company’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract. The Company allocates revenue to each distinct performance obligation based on relative standalone selling prices.
Payment terms for sales of fuel cells, infrastructure and service to customers are typically 30 to 90 days. Sale/leaseback transactions with financial institutions are invoiced and collected upon transaction closing. Service is prepaid upfront in a majority of the arrangements. The Company does not adjust the transaction price for a significant financing component when the performance obligation is expected to be fulfilled within a year.
In 2017, in separate transactions, the Company issued to each of Amazon and Walmart warrants to purchase shares of the Company’s common stock. The Company presents the provision for common stock warrants within each revenue-related line item on the unaudited interim consolidated statements of operations. This presentation reflects a discount that those common stock warrants represent, and therefore revenue is net of these non-cash charges. The provision of common stock warrants is allocated to the relevant revenue-related line items based upon the expected mix of the revenue for each respective contract. See Note 12, Warrant Transaction Agreements, for more details.
Nature of goods and services
The following is a description of principal activities from which the Company generates its revenue.
Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure.
The Company considers comparable list prices, as well as historical average pricing approaches to determine standalone selling prices for GenDrive fuel cells. The Company uses observable evidence from similar products in the market to determine standalone selling prices for GenSure stationary backup power units and hydrogen fueling infrastructure. The determination of standalone selling prices of the Company’s performance obligations requires significant judgment, including continual assessment of pricing approaches and available observable evidence in the market. Once relative standalone selling prices are determined, the Company proportionately allocates the transaction price to each performance obligation within the customer arrangement. The allocated transaction price related to fuel cell systems and spare parts is recognized as revenue at a point in time which usually occurs at shipment (and occasionally upon delivery). Revenue on hydrogen infrastructure installations is generally recognized at the point at which transfer of control passes to the customer, which usually occurs upon customer acceptance of the hydrogen infrastructure. In certain instances, control of hydrogen infrastructure installations transfers to the customer over time, and the related revenue is recognized over time as the performance obligation is satisfied. The Company uses an input method to determine the amount of revenue to recognize during each reporting period based on the Company’s efforts to satisfy the performance obligation.
(ii)Services performed on fuel cell systems and related infrastructure
Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. The transaction price allocated to services as discussed above is generally recognized as revenue over time on a straight-line basis over the expected service period.
In substantially all of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year service period from the date of product installation in exchange for an up-front payment. Services include monitoring, technical support, maintenance and services that provide for 97% to 98% uptime of the fleet. These services are accounted for as a separate performance obligation, and accordingly, revenue generated from these transactions, subject to the proportional allocation of transaction price, is deferred and recognized as revenue
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over the term of the contract, 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 as revenue on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. Sales of spare parts are included within service revenue on the unaudited interim consolidated statements of operations. When costs are projected to exceed revenues over the life of the extended maintenance contract, an accrual for loss contracts is recorded. Costs are estimated based upon historical experience and consider the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.
Upon expiration of the extended maintenance contracts, customers either choose to extend the contract or switch to purchasing spare parts and maintaining the fuel cell systems on their own.
(iii)Power Purchase Agreements
Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution.
When fuel cell systems and related infrastructure are provided to customers through a 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, a majority of the related infrastructure and, in some cases, service are sold to the third-party financial institution and leased back to the Company through either an operating or finance lease.
Certain of the Company’s sale/leaseback transactions with third-party financial institutions are required to be accounted for as finance leases. As a result, 0 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 classified as leased property, net in the unaudited interim condensed consolidated balance sheets. Costs to service the leased property, depreciation of the leased property, and other related costs are included in cost of PPA revenue in the unaudited interim condensed consolidated statements of operations. Interest cost associated with finance leases is presented within interest and other expense, net in the unaudited interim condensed consolidated statements of operations.
The Company also has sale/leaseback transactions with financial institutions, which were required to be accounted for as operating leases. The Company has lease obligations associated with these sale/leaseback agreements with financial institutions paid over the term of the agreements. At inception of these sale/lease transactions, the Company records a right of use asset value which is amortized over the term of the lease and recognized in conjunction with the interest expense on the obligation collectively as rental expense. 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 unaudited interim condensed consolidated statements of operations.
The Company includes all lease and non-lease components (i.e., maintenance services) related to PPAs within PPA revenue.
To recognize revenue, the Company, as lessee, is required to determine whether each sale/leaseback arrangement meets operating lease criteria. As part of the assessment of these criteria, the Company estimates certain key inputs to the associated calculations such as: 1) discount rate it uses to discount the unpaid lease payments to present value and 2) useful life of the underlying asset(s):
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(iv)Fuel Delivered to Customers
Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site. Fuel is delivered to customers under stand-ready arrangement, with no long-term commitment.
The Company purchases hydrogen fuel from suppliers in certain cases (and produces hydrogen onsite) and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed and is included in the respective “Fuel delivered to customers” lines on the unaudited interim consolidated statements of operations.
Contract costs
The Company expects that incremental commission fees paid to employees as a result of obtaining sales contracts are recoverable and therefore the Company capitalizes them as contract costs.
Capitalized commission fees are amortized on a straight-line basis over the period of time which the transfer of goods or services to which the assets relate occur, typically ranging from 5 to 10 years. Amortization of the capitalized commission fees is included in selling, general and administrative expenses.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses.
Cash Equivalents
For purposes of the unaudited interim condensed 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. At SeptemberJune 30, 2020,2021, cash equivalents consisted of commercial paper and U.S. Treasury securities with original maturities of three months or less, and money market accounts. The Company’s cash and cash equivalents are deposited with financial institutions locatedfunds. Due to their short-term nature, the carrying amounts reported in the United States and may at times exceed insured limits.
Equity Instruments – Common Stock Warrants
Common stock warrants that meet certain applicable requirements of ASC Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and other related guidance, including the ability of the Company to settle the warrants without the issuance of registered shares or the absence of rights of the grantee to require cash settlement, are accounted for as equity instruments. The Company classifies these equity instruments within additional paid-in capital on the unaudited interim condensed consolidated balance sheets.
Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon and Walmart as discussed in Note 12, Warrant Transaction Agreements. The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (ASU 2019-08), which requires entities to measure and classify share-based payment awards granted to a customer by applying the guidance under Topic 718, as of January 1, 2019. As a result, the amount recorded as a reduction of revenue is measured based on the grant-date fair value of the warrants. Except for the third tranche,sheets approximate the fair value of all warrants was measured at January 1, 2019, the adoption date of ASU 2019-08.
cash and cash equivalents.
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Available-for-sale securities
In orderAvailable-for-sale securities is comprised of commercial paper with original maturities greater than three months, U.S. Treasury securities, municipal debt, certificates of deposit and corporate bonds. We consider these securities to calculate warrant charges,be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the Company usessecurities in the Black-Scholes pricing model, which requires key inputs including volatilityfollowing year.
Available-for-sale securities are recorded at fair value as of each balance sheet date. As of each balance sheet date, unrealized gains and risk-free interest ratelosses, with the exception of credit related losses, are recorded to accumulated other comprehensive income. Any credit related losses are recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to operations. Realized gains and certain unobservable inputslosses are due to the sale and maturity of securities classified as available-for-sale and represent the net gain (loss) from accumulated other comprehensive income reclassifications for which there is little or nopreviously unrealized net gains on available-for-sale debt securities.
Equity securities
Equity securities are comprised of fixed income and equity market data, requiring the Company to develop its own assumptions. The Company estimatesindex mutual funds. Equity securities are valued at fair value with changes in the fair value of unvested warrants, considered to be probable of vesting. Based on this estimated fair value, the Company determines warrant charges, which are recorded as a reduction of revenuerecognized in theour unaudited interim condensed consolidated statement of operations.
We consider these securities to be
Use of Estimates
The unaudited interim condensed consolidated financial statementsavailable for use in our current year operations, and therefore classify them as current even if we do not dispose of the Company have been preparedsecurities 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 condensed 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. As of September 30, 2020, there have been no such reclassifications.following year.
Recent Accounting Pronouncements
Recently Adopted Accounting PronouncementsGuidance
In June 2016, Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued. Also, In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU requires a number of changes toOther than the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information to estimate expected credit losses over the entire lifetimeadoption of the asset, including losses where probability is considered remote. Additionally,accounting guidance mentioned in our 2020 10-K and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the standard requires the estimationadoption of lifetime expected losses for trade receivables and contract assets that are classified as current. The Company adopted these standards effectivenew accounting pronouncements.
On January 1, 2020 and determined the impact of the standards to be immaterial to the consolidated financial statements.
In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). The Company2021, we early adopted this standard effective January 1, 2020 and determined the impact of this standard to be immaterial to the consolidated financial statements.
In January 2017, Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350), 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 goodwillASU No. 2020-06, Debt—Debt with the carrying amount of that goodwill. The Company adopted this standard effective January 1, 2020.
In August 2016, Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230)s: Classification of Certain Cash Receipts and Cash Payments, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in 2019 and determined the impact of this standard to be immaterial to the consolidated financial statements.
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Recently Issued and Not Yet Adopted Accounting Pronouncements
In August 2020, Accounting Standards Update (ASU) 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes due 2025 (the “3.75% Convertible Senior Notes”) is now accounted for Convertible Instrumentsas a single liability measured at its amortized cost. This accounting change removed the impact of recognizing the equity component of the Company’s convertible notes at issuance and Contracts in an Entity’s Own Equity, was issued to address issues identifiedthe subsequent accounting impact of additional interest expense from debt discount amortization. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the complexity associated with applying GAAPif-converted method for certain financial instruments with characteristicsconvertible instruments. The cumulative effect of liabilitiesthe accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and equity. This update is effective after December 15, 2021. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.reduced additional paid-in capital by $130.2 million.
Recent Accounting Guidance Not Yet Effective
In March 2020, Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): FacilitationAll issued but not yet effective accounting and reporting standards as of the Effects of Reference Rate Reform on Financial Reporting, was issued to provide temporary optional expedients and exceptionsJune 30, 2021 are either not applicable to the GAAP guidance on contract modifications and hedge accountingCompany or are not expected to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update is effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is evaluating the adoption method as well as thehave a material impact this update will have on the consolidated financial statements.
Company.
In March 2020, Accounting Standards Update (ASU) 2020-03, Codification Improvements to Financial Instruments, was issued to make various codification improvements to financial instruments to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. This update will be effective at various dates as described in this ASU. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.
In December 2019, Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, was issued to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update will be effective beginning after December 15, 2020. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.
3. AcquisitionsExtended Maintenance Contracts
Giner ELX, Inc. Acquisition
On June 22, 2020,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 impairment losses 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 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 acquired 100%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 outstanding shares of Giner ELX, Inc. (Giner ELX). Giner ELX is developer of electrolysis hydrogen generators which is used for on-site refueling of hydrogen fuel cells.
The fair value of consideration paid by the Company in connection with the Giner ELX acquisition was as follows (in thousands):
| | |
Cash | $ | 25,820 |
Plug Power Stock | | 19,263 |
Contingent consideration | | 7,790 |
Total consideration | | 52,873 |
The contingent consideration represents the estimated, preliminary fair value associated with earn-out payments of $16.0 million that the sellers are eligible to receive. Of the total earnout consideration, $8.0 million isCompany’s initiatives related to the achievementincreasing stack life, achieving better economies of the Allagash earn-out, $2.0 million is associated with the receipt of certain customer opportunities (purchase orders or other contracts) by December 31, 2021, and $6.0 million is associated with the achievement of certain revenue targets for years 2021 through 2023. The Allagash earn-out is achieved when the Company has produced at least 2 PEM electrolyzer stacks of one megawatt each, utilizing the dry build process and meets certain technical specifications as more fully described in the merger agreement. To be fully paid, the Allagash earn-out needs to be satisfied by July 31, 2023 and is reduced by approximately 8.33% each month beyond this date. In addition to the above, should the earn-out revenue exceed 150% of the 2023 target, the sellers will receive warrants with a value of $5.0 million and if
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the earn-out revenue exceeds 200%Table of the 2023 revenue target, the sellers will receive warrants with a value of $10.0 million. The warrants are exercisable within two years of issuance.
Contents
In connection with the Giner ELX acquisition, the Company revised the acquisition-date fair value of contingent consideration liabilities which resulted in an increase in other liabilities and goodwill of $0.7 million for the three months ended September 30, 2020.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
| | |
Accounts receivable | $ | 1,237 |
Inventory |
| 4,108 |
Prepaid expenses and other assets, net of deferred tax liability | | (4,707) |
Property, plant and equipment | | 596 |
Identifiable intangibles | | 29,930 |
Accounts payable, accrued expenses and other liabilities | | (2,136) |
Deferred revenue | | (2,348) |
Total net assets acquired, excluding goodwill | | 26,680 |
The preliminary fair value of acquired identified intangible assets were calculated with the assistance of an independent valuator and were determined through a variety of valuation techniques.
Identifiable intangibles consisted of developed technology, non-compete agreements, estimated in-process research and development (IPR&D), and customer relationships.
The fair value of acquired developed technology and non-complete agreements was nominal.
The fair value of the acquired IPR&D totaling $29.0 million was calculated using the multi-period excess earnings method (MPEEM) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the exploitation of IPR&D, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow and revenues. The fair value of IPR&D was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired IPR&D. The fair value of the acquired customer relationships totaling $0.4 million was calculated using a distributor method approach, which is a variant of the MPEEM under the income approach. The fair value of wet stack technology totaling $0.4 million was determined using the relief from royalty method.
In addition to identifiable intangible asset, the fair value of the deferred revenue was determined using a cost build-up approach. The direct cost of fulfilling the obligation plus a normal profit margin was used to determine the value of the assumed deferred revenue liability.
Included in the purchase consideration are three contingent earn-out payments (as described above): the Allagash earn-out, the customer opportunities, and the revenue targets. Due to the nature of the Allagash and customer opportunities, as outlined in the purchase agreement, a scenario based method (SBM) was used to value these contingent payments as the payments are milestone based in nature. The revenue targets are achieved when certain revenue thresholds are met, and the catch-up provision creates path-dependency. As such, the revenue targets were valued using Monte Carlo Simulation.
Included in Giner ELX’s net assets acquired are net deferred tax liabilities of $6.1 million. In connection of the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $5.2 million and recognized a tax benefit $5.2 million during the nine months ended September 30, 2020.
Goodwill associated with the Giner ELX acquisition was calculated as follows (in thousands):
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| | |
Consideration paid | $ | 52,873 |
Less: net assets acquired | | (26,680) |
Total goodwill recognized | | 26,193 |
The goodwill consists of the Company’s increased capabilities in green hydrogen supply through the production of electrolyzers. The synergies with the Company’s production of hydrogen storage and dispensing equipment is important to the Company as the demand for green hydrogen increases.
United Hydrogen Group Inc. Acquisition
On June 18, 2020, the Company acquired 100% of the outstanding shares of United Hydrogen Group Inc. (UHG). UHG produces and sells liquid hydrogen.
The fair value of consideration paid by the Company in connection with the UHG acquisition was as follows (in thousands):
| | |
Cash | $ | 19,293 |
Plug Power Stock | | 30,410 |
Contingent consideration | | 1,110 |
Total consideration | | 50,813 |
Included in cash and common stock in the above table is $1.0 million of cash and $6.5 million of common stock that was paid in April 2020 to purchase a convertible note in UHG. This convertible note included terms that allowed for reduction of the purchase price if the Company was to complete the acquisitions. As such, this note was cancelled in conjunction with the closing of this acquisition.
A portion of the purchase price of UHG was in the form of contingent consideration. The contingent consideration is contingent on future performance related to the expansion of the liquefication capacity of the Charleston, Tennessee liquid hydrogen plant (the Charleston Plant). The Company’s liability for this contingent consideration was measured at fair value based on the Company’s expectations of achieving the expansion milestone. The expected performance was assessed by management which was discounted to present value in order to derive a fair value of the contingent consideration.
In accordance with the merger agreement, the Company is obligated to pay $1.5 million by June 30, 2021 once the liquefication capacity of the Charleston Plant is complete to the UHG’s stockholders. Due to the level of progress made as of the reporting date, it is estimated that a payout will be made. As a result, the Company has recorded $1.1 million as the fair value of the contingent consideration.
The Company’s liability for contingent consideration was preliminarily measured and estimated at fair value based on unobservable inputs, and was considered a level 3 financial instrument. The fair value of the liability determined was primarily driven by the Company’s expectations of reaching the performance milestone. The expected milestone of expansion of the liquefication capacity of the Charleston Plant was discounted to present value in order to derive a fair value of the contingent consideration. The primary inputs of the calculation were the probabilities of achieving the milestone and a discount rate.
In connection with the UHG acquisition, the Company finalized the valuation of an existing customer contract and long-term debt which resulted in an increase in other liabilities of $1.9 million, a decrease in long-term debt of $1.7 million, and an increase in goodwill of $0.2 million for the three months ended September 30, 2020.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
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The preliminary fair valuescale for service labor, and improvements in design and operations of acquired identified intangible assets were calculated withinfrastructure. If the assistanceexpected cost saving initiatives are not realized, this will increase the costs of an independent valuation firmproviding services and were determined through a variety of valuation techniques.
Identifiable intangibles consisted of developed technology, as described below in Note 7, Intangible Assets. The fair value of the developed technology totaling $2.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying.
Additionally the Companycould adversely affect our estimated the fair value of an unfavorable customer contract. The fair value of the acquired unfavorable customer contract was calculated using a with and with-out analysis which is a variant of the income approach. Cash flows were calculated using pricing per terms of the existing contract and then compared to cash flows using expected market pricing. The difference between the two cash flows was used to determine the fair value of the contract.
UHG is eligible to receive earn-out payments, contingent on the company achieving certain milestones (successful completion of construction and achieving a defined capacity/production level). Due to the milestone nature of the payments, a scenario based method (SBM) was used to value these contingent payments.
Goodwill associated with the UHG acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | 50,813 |
Less: net assets acquired | | (14,339) |
Total goodwill recognized | | 36,474 |
Goodwill consists of the Company’s ability to expand liquid hydrogen manufacturing capability with an established management team. The Company now has capabilities in liquid hydrogen generation, liquefaction and distribution logistics, which is important in a growing hydrogen market.
For both UHG and Giner ELX, the above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectible. We have not identified any material unrecorded pre-acquisition contingencies where the related asset or liability, or an impairment is probable and the amount can be reasonably estimated. Purchased goodwill is not expected to be deductible for tax purposes. loss accrual.
The changefollowing table shows the rollforward of balance in the estimate of fair value of contingent consideration obligations during the third quarter of 2020 was primarilyaccrual for loss contracts, including changes due to a changethe passage of time, additions, and changes in the discount rate and a decrease in the discount period. The Company considers the impact to be immaterial to the unaudited interim condensed consolidated financial statements.
21estimates (in thousands):
| | | | | |
| Six months ended | | Year ended | ||
| June 30, 2021 | | December 31, 2020 | ||
Beginning Balance | $ | 24,013 | | $ | 3,702 |
Provision for Loss Accrual | | 8,179 | | | 35,473 |
Released to Service Cost of Sales | | (3,780) | | | (2,348) |
Released to Provision for Warrants | | — | | | (12,814) |
Ending Balance | $ | 28,412 | | $ | 24,013 |
The results of the Giner ELX and UHG are included in the Company’s results for the three months ended September 30, 2020 and are also included in the Company’s results for the nine months ended 2020.
4. Earnings Per Share
Basic earnings per common stock are computed by dividing net loss attributable to common stockholders by the weighted average number of common stock 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 stock 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 stock 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 securities are summarized as follows:
| | | | | | | | |
| | At September 30, | | At June 30, | ||||
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| 2020 |
| 2019 |
| 2021 |
| 2020 |
Stock options outstanding (1) | | 14,434,983 |
| 23,597,871 | | 9,165,066 |
| 16,273,120 |
Restricted stock outstanding (2) | | 5,992,974 |
| 4,333,560 | | 6,511,808 |
| 4,455,484 |
Common stock warrants (3) | | 110,573,392 | | 115,824,142 | | 83,518,821 | | 110,573,392 |
Preferred stock (4) | | — |
| 15,019,838 | ||||
Convertible Senior Notes (5) | | 56,872,730 |
| 59,133,896 | ||||
Convertible Senior Notes (4) | | 39,170,766 |
| 72,872,730 | ||||
Number of dilutive potential shares of common stock | | 187,874,079 |
| 217,909,307 | | 138,366,461 |
| 204,174,726 |
(1) | During the three months ended |
(2) | During the three months ended |
(3) | In April 2017, the Company issued |
In July 2017, the Company issued warrantsa warrant 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 12, Warrant“Warrant Transaction Agreements. Of these warrants issued, NaN have” The warrant had been exercised with respect to 13,094,217 shares of the Company’s common stock as of SeptemberJune 30, 2020.2021.
(4) |
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In March 2018, the Company issued the 5.5% Convertible Senior |
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the Company issued the |
5. Inventory
Inventory as of SeptemberJune 30, 20202021 and December 31, 20192020 consisted of the following (in thousands):
| | | | | | | | | | | | | | |
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| September 30, |
| December 31, |
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| June 30, |
| December 31, |
| ||||
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||
Raw materials and supplies - production locations | | $ | 85,924 | | $ | 48,011 | | | $ | 131,932 | | $ | 92,221 | |
Raw materials and supplies - customer locations | | | 10,007 | | | 9,241 | | | | 14,096 | | | 12,405 | |
Work-in-process | |
| 30,421 | |
| 12,529 | | |
| 58,147 | |
| 29,349 | |
Finished goods | |
| 7,954 | |
| 2,610 | | |
| 5,645 | |
| 5,411 | |
Inventory | | $ | 134,306 | | $ | 72,391 | | | $ | 209,820 | | $ | 139,386 | |
6. Leased PropertyEquipment Related to Power Purchase Agreements and Fuel Delivered to Customers, net
Leased propertyEquipment related to power purchase agreements and fuel delivered to customers, net at SeptemberJune 30, 20202021 and December 31, 20192020 consisted of the following (in thousands):
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| September 30, |
| December 31, |
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| June 30, |
| December 31, |
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| | 2020 | | 2019 |
| | 2021 | | 2020 |
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Right of use assets - operating | | $ | 275,211 | | $ | 198,068 | | |||||||
Right of use assets - finance | | | 42,161 | | | 41,475 | | |||||||
Capitalized costs of lessor assets | | | 51,814 | | | 41,465 | | |||||||
Equipment related to power purchase agreements and fuel delivered to customers | | $ | 97,547 | | $ | 92,736 | | |||||||
Less: accumulated depreciation | |
| (59,711) | |
| (36,268) | | | | (18,629) | | | (16,929) | |
Leased property, net | | $ | 309,475 | | $ | 244,740 | | |||||||
Equipment related to power purchase agreements and fuel delivered to customers, net | | | 78,918 | | | 75,807 | |
As of June 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 $2.0 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $3.8 million and $4.3 million for the six months ended June 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 various costs, 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. These costs amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
7. Property, Plant and Equipment
Property, plant and equipment at June 30, 2021 and December 31, 2020 consists of the following (in thousands):
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| | June 30, 2021 | | December 31, 2020 | ||
Land | | | 1,165 | | | 1,165 |
Leasehold improvements | | $ | 1,401 | | $ | 1,121 |
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Software, machinery and equipment | |
| 133,349 | |
| 94,449 |
Property, plant, and equipment | |
| 135,915 | |
| 96,735 |
Less: accumulated depreciation | |
| (25,440) | |
| (22,186) |
Property, plant, and equipment, net | | $ | 110,475 | | $ | 74,549 |
Depreciation expense related to property, plant and equipment was $1.6 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense related to property, plant and equipment was $3.3 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively.
7.8. Intangible Assets and Goodwill
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of SeptemberJune 30, 20202021 were as follows (in thousands):
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| | Weighted Average | | Gross Carrying | | Accumulated | | | | | | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||||
| | Amortization Period | | Amount | | Amortization | | Total |
| | Amortization Period | | Amount | | Amortization | | Total |
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Acquired technology |
| 10 years |
| $ | 13,138 | | $ | (3,601) | | $ | 9,537 | |
| 10 years |
| $ | 13,150 | | $ | (4,624) | | $ | 8,526 | |
Customer relationships, Backlog & Trademark | | 6 years | |
| 890 | | | (258) | | | 632 | | ||||||||||||
In process R&D |
| Indefinite | | | 29,000 | | | — | | | 29,000 | | ||||||||||||
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | |
| 890 | | | (364) | | | 526 | | ||||||||||||
In process research and development |
| Indefinite | | | 29,000 | | | — | | | 29,000 | | ||||||||||||
| | | | $ | 43,028 | | $ | (3,859) | | $ | 39,169 | | | | | $ | 43,040 | | $ | (4,988) | | $ | 38,052 | |
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 20192020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||||
| | Amortization Period | | Amount | | Amortization | | Total |
| | Amortization Period | | Amount | | Amortization | | Total |
| ||||||
Acquired technology |
| 9 years | | $ | 8,244 | | $ | (2,815) | | $ | 5,429 | |
| 10 years | | $ | 13,697 | | $ | (4,042) | | $ | 9,655 | |
Customer relationships & Trademark |
| 9 years | |
| 320 | | | (210) | |
| 110 | | ||||||||||||
Customer relationships, Non-compete agreements, Backlog & Trademark | | 6 years | | 890 | | | (294) | | | 596 | | |||||||||||||
In process research and development |
| Indefinite | |
| 29,000 | | | — | |
| 29,000 | | ||||||||||||
| | | | $ | 8,564 | | $ | (3,025) | | $ | 5,539 | | | | | $ | 43,587 | | $ | (4,336) | | $ | 39,251 | |
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The change in the gross carrying amount of the acquired technology from December 31, 20192020 to SeptemberJune 30, 20202021 was primarily due to changes in foreign currency translation, acquisitions of UHG and Giner ELX, and accrual for American Fuel Cell (AFC) milestone payment payments, as discussed below.
In the second quarter of 2020, the Company’s in-process research and development was related to the development of the dry build process associated with electrolyzer stacks, as part of acquisition of Giner ELX. The related intangible asset is not currently amortized, as research and development is ongoing. Upon completion of the dry build process, amortization will commence based upon the estimated useful life of the underlying asset. See Note 3 – Acquisitions, for more details.
Also, in the second quarter of 2020, the Company acquired technology as part of the acquisition of UHG. The technology relates to the chemical process of manufacturing liquid hydrogen from chlor-alkali waste stream. See Note 3 – Acquisitions, for more details.
In the second quarter of 2019, the Company acquired intellectual property from EnergyOr for $1.5 million. In addition, the Company agreed to pay the sellers a royalty based on future sales of relevant applications, not to exceed $3.0 million, by May 22, 2025. These royalties are added to the intangible asset balance, as incurred.
As part of the agreement to acquire the intellectual property from AFC, the Company shall pay AFC milestone payments not to exceed $2.9 million in total, if certain milestones associated with the production of components related to the acquired technology are met before April 2021. As of September 30, 2020, the Company paid $1.6 million and accrued $0.9 million in relation to the aforementioned milestones.translation.
Amortization expense for acquired identifiable intangible assets was $0.3 million for the three months ended SeptemberJune 30, 2021 and 2020 was $0.4 million and $0.8$0.2 million, for the nine months ended September 30, 2020.respectively. Amortization expense for the acquired identifiable intangible assets was $0.2 million for the threesix months ended SeptemberJune 30, 20192021 and $0.52020 was $0.7 million for the nine months ended September 30, 2019.and $0.4 million, respectively.
EstimatedThe estimated amortization expense for subsequent years wasis as follows (in thousands):
| | | | | | |
Remainder of 2020 |
| $ | 366 | |||
2021 | | | 1,464 | |||
Remainder of 2021 |
| $ | 732 | |||
2022 | | | 1,464 | | | 1,463 |
2023 | | | 1,464 | | | 1,463 |
2024 and thereafter | | | 5,411 | |||
2024 | | | 1,442 | |||
2025 and thereafter | | | 3,952 | |||
Total | | $ | 10,169 | | $ | 9,052 |
Goodwill was $72.1 million and $72.4 million as of June 30, 2021 and December 31, 2020, respectively, which decreased $304 thousand due to currency translation loss for HyPulsion S.A.S., our French subsidiary. There were 0 impairments during the six months ended June 30, 2021 or the year ended December 31, 2020.
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8.9. Long-Term Debt
In March 2019, the Company and its subsidiaries Emerging Power Inc. and Emergent Power Inc., entered into a loan and security agreement, as amended (the Loan Agreement)“Loan Agreement”), with Generate Lending, LLC (Generate Capital)(“Generate Capital”), providing for a secured term loan facility in the amount of $100.0$100 million (the Term“Term Loan Facility)Facility”). The Company borrowed $85.0 million under the Loan Agreement on the date of closing and borrowed an additional $15.0 million in April 2019 and $20 million in November 2019. A portion of the initial proceeds of the loan was used to pay in full the Company’s long-term debt with NY Green Bank, a Division of the New York State Energy Research & Development Authority, including accrued interest of $17.6 million (the Green Bank Loan), and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC and repurchase the associated leased equipment. In connection with this transaction, the Company recognized a loss on extinguishment of debt of approximately $0.5 million during the nine months ended September 30, 2019. This loss was recorded in gain (loss) on extinguishment of debt, in the Company’s unaudited interim condensed consolidated statement of operations. Additionally, $1.7 million was paid to an escrow account related to additional fees due in connection with the Green Bank Loan if the Company does not meet certain New York State employment and fuel cell deployment targets by March 2021. Amount escrowed is recorded in short-term other assets on the Company’s unaudited interim condensed consolidated balance sheets as of September 30, 2020. The Company presently expects to meet the targets as required under the arrangement. During the nine months
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ended September 30, 2020, the Company received $250 thousand from escrow related to the New York state employment targets.
Additionally, on May 6,During the year ended December 31, 2020, the Company, and its subsidiaries, Emerging Power, Inc. and Emergent Power, Inc., entered into a Fifth Amendment (the Amendment)under another series of amendments to the Loan Agreement, and Security Agreement, dated asborrowed an incremental $100.0 million. As part of March 29, 2019, as amended (the Loan Agreement) with Generate Lending, LLC (Generate Capital). The Amendment amendsthe amendment to the Loan Agreement, to, among other things, (i) provide for an incremental term loan in the amount of $50.0 million, (ii) provide for additional, uncommitted incremental term loans in an aggregate amount not to exceed $50.0 million, which may become available to the Company in Generate Capital’s sole discretion, (iii) reduce theCompany’s interest rate on all loansthe secured term loan facility was reduced to 9.50% from 12.00% per annum, and (iv) extend the maturity date was extended to October 31, 2025 from October 6, 2022. The $50 million incremental term loan has been fully funded. In connection with the restructuring, the Company capitalized $1.0 million of origination fees and expensed $300 thousand in legal fees. In the third quarter of 2020, the Company borrowed an additional $50.0 million, under the amended Loan Agreement.
On SeptemberJune 30, 2020,2021, the outstanding balance under the Term Loan Facility was $185.0$150.8 million. In addition to the Term Loan Facility, on June 30, 2021 there was approximately $10.0 million with a 9.5% annual interest rate.of debt related to 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 payable on a quarterly basis. Principal payments will beare funded in part by releases of restricted cash, as described in Note 16, Commitments19, “Commitments and Contingencies.” Based on the amortization schedule as of SeptemberJune 30, 2020,2021, the outstandingaforementioned loan balance of $185.0 million under the Term Loan Facility mustwill be fully paid by October 31, 2025. The Company is in compliance with, or has obtained waivers for, all debt covenants.
All obligations under the Loan Agreement are unconditionally guaranteed by Emerging Power Inc. and Emergent Power Inc. 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 contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales and (iii) compliance with a collateral coverage covenant. The Loan Agreement also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender. As of September 30, 2020, the Company was in compliance with all the covenants.
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 SeptemberJune 30, 2020,2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
| | | | |
December 31, 2020 | $ | 164,017 | ||
December 31, 2021 | | 127,317 | $ | 127,317 |
December 31, 2022 | | 93,321 | | 93,321 |
December 31, 2023 | | 62,920 | | 62,920 |
December 31, 2024 | | 33,692 | | 33,692 |
December 31, 2025 | | — | | — |
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9.10. 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, which is referred to herein as the 3.75% Convertible Senior Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or (“the Securities Act.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 | Amount | ||
| (in thousands) | (in thousands) | ||
Principal amount | $ | 212,463 | $ | 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 |
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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 Company’s $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which is referred to herein as 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:
1) | during any calendar quarter commencing after |
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 the 3.75% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; |
3) | if the Company calls any or all of the 3.75% Convertible Senior Notes for redemption, any such notes that have been called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or |
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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 will beis 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 June 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 six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued 3.0 million shares of common stock in conjunction with these conversions.
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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.
In accountingThe Company accounts for the issuance of the 3.75% Convertible Senior Notes the Company separated the notes into liability and equity components. The initial carrying amount of the liability component of approximately $75.2 million, net of costs incurred, was calculated by measuring the fair value ofas a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $130.3 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 3.75% Convertible Senior Notes. The difference between the principal amount of the 3.75% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 3.75% Convertible Senior Notes. The effective interest rate is approximately 29.0%. The equity component of the 3.75% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
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. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 3.75% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.6 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 transaction costs attributable to the equity component were approximately $4.4 million and were netted with the equity component in stockholders’ equity.
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The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | | | |
| September 30, | June 30, | ||
| 2020 | 2021 | ||
Principal amounts: | | | | |
Principal | $ | 212,463 | $ | 197,278 |
Unamortized debt discount (1) | | (129,101) | ||
Unamortized debt issuance costs (1) | | (2,425) | | (5,267) |
Net carrying amount | $ | 80,937 | $ | 192,011 |
Carrying amount of the equity component (2) | $ | 130,249 |
1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
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):
| | |
| June 30, | |
| 2021 | |
Interest expense | $ | 1,850 |
Amortization of debt issuance costs | | 306 |
Total | | 2,156 |
| | |
Effective interest rate | | 4.50% |
Based on the closing price of the Company’s common stock of $13.41$34.19 on SeptemberJune 30, 2020,2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at SeptemberJune 30, 20202021 was approximately $532.3 million.$1.3 billion. The Company utilizedfair value estimation was primarily based on an active stock exchange trade on June 24, 2021 of the 3.75% Senior Convertible Note. See Note 15, “Fair Value Measurements,” for a Monte Carlo simulation model to estimatedescription of the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.hierarchy.
Capped Call
In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (3.75%(the “3.75% Notes Capped Call)Call”) with certain counterparties at a price of $16.2 million.
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The 3.75% Notes Capped Call cover,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 has beenwere recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheet.
7.5% Convertible Senior Note
In September 2019, the Company issued $40.0 million aggregate principal amount of 7.5% Convertible Senior Note due on January 5, 2023, which is referred to herein as the 7.5% Convertible Senior Note, in exchange for net proceeds of $39.1 million, in a private placement to an accredited investor pursuant to Rule 144A under the Securities Act. There were no required principal payments prior to the maturity of the 7.5% Convertible Senior Note. Upon maturity of the 7.5% Convertible Senior Note, the Company was required to repay 120% of $40.0 million, or $48.0 million. The 7.5% Convertible Senior Note bore interest at 7.5% per year, payable quarterly in arrears on January 5, April 5, July 5 and October 5 of each year beginning on October 5, 2019 and was to mature on January 5, 2023 unless earlier converted or repurchased in accordance with its terms. The 7.5% Convertible Senior Note was unsecured and did not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.
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On July 1, 2020, the 7.5% Convertible Senior Note automatically converted into 16.0 million shares of common stock.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, which is referred to herein as the 5.5% Convertible Senior Notes 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. Of the $128.9 million in aggregate consideration, $35.5 million and $93.4 million were allocated to the debt and equity components, respectively, utilizing an effective discount rate of 29.8% to determine the fair value of the liability component. As of the repurchase date, the carrying value of the 5.5% Convertible Senior Notes that were repurchased, net of unamortized debt discount and issuance costs, was $48.7 million. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. AsIn the fourth quarter of September 30, 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 $33.7$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 remained outstanding. In October 2020, $28.0 million of the remaining 5.5% Convertible Senior Noteswere converted into 12.2 million69,808 shares of common stock.
At issuance in March 2018, the total net proceeds from the 5.5% Convertible Senior Notes were as follows:
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 100,000 |
Less initial purchasers' discount | | (3,250) |
Less cost of related capped call and common stock forward | | (43,500) |
Less other issuance costs | | (894) |
Net proceeds | $ | 52,356 |
The 5.5% Convertible Senior Notes bear interest at 5.5%, payable semi-annually in cash on March 15 Interest expense and September 15 of each year. The 5.5% Convertible Senior Notes will mature on March 15, 2023, unless earlier converted or repurchased in accordance with their terms. The 5.5% Convertible Senior Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.
Each $1,000 principal amount of the 5.5% Convertible Senior Notes is convertible into 436.3002 shares of the Company’s common stock, which is equivalent to a conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events. Holders of these 5.5% Convertible Senior Notes may convert their 5.5% Convertible Senior Notes at their option at any time prior to the close of the last business day immediately preceding September 15, 2022, only under the following circumstances:
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On or after September 15, 2022, holders may convert all or any portion of their 5.5% Convertible Senior 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.
Upon conversion of the 5.5% Convertible Senior Notes, the Company will pay or deliver, as the case may be, 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. While the Company plans to settle the principal amount of the 5.5% Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods.
The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. Holders who convert their 5.5% Convertible Senior Notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the 5.5% Convertible Senior Notes or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 5.5% Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the repurchased 5.5% Convertible Senior Notes, plus accrued and unpaid interest.
The Company may not redeem the 5.5% Convertible Senior Notes prior to March 20, 2021. The Company may redeem for cash all or any portion of the 5.5% Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 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 on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 5.5% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
In accountingamortization for the issuance of the notes, the Company separated the 5.5% Convertible Senior Notes into liability and equity components. The initial carrying amount of the liability component of approximately $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 5.5% Convertible Senior Notes. The difference between the principal amount of the 5.5% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 5.5% Convertible Senior Notes. The effective interest rate is approximately 16.0%. The equity component of the 5.5% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
We incurred transaction costs related to the issuance of the 5.5% Convertible Senior Notes of approximately $4.1 million, consisting of initial purchasers’ discount of approximately $3.3 million and other issuance costs of $0.9 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 5.5% Convertible Senior Notes. Transaction costs attributable to the liability
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componentperiod were approximately $2.4 million, 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 5.5% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $1.7 million and were netted with the equity component in stockholders’ equity.
The 5.5% Convertible Senior Notes consisted of the following (in thousands):
| | | | | |
| September 30, | | December 31, | ||
| 2020 | | 2019 | ||
Principal amounts: | | | | | |
Principal | $ | 33,660 | | $ | 100,000 |
Unamortized debt discount (1) | | (7,477) | | | (27,818) |
Unamortized debt issuance costs (1) | | (403) | | | (1,567) |
Net carrying amount | $ | 25,780 | | $ | 70,615 |
Carrying amount of the equity component (2) | $ | — | | $ | 37,702 |
Based on the closing price of the Company’s common stock of $13.41 on September 30, 2020, the if-converted value of the 5.5% Convertible Senior Notes was greater than the principal amount. The estimated fair value of the 5.5% Convertible Senior Notes at September 30, 2020 and December 31, 2019 was approximately $195.3 million and $135.3 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 5.5% Convertible Senior Notes, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (5.5%(the “5.5% Notes Capped Call)Call”) with certain counterparties at a price of $16.0 million. The 5.5% Notes Capped Call cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 5.5% Convertible Senior Notes and is generally expectedmillion 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, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 5.5% Notes Capped Call is initially $3.82 per share, which represents a premium of 100% over the last then-reported sale price of the Company’s common stock of $1.91 per share on the date of the transaction and is subject to certain adjustments under the terms of the 5.5% Notes Capped Call. The 5.5% Notes Capped Call becomes exercisable if the conversion option is exercised.
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 iswas recorded in additional paid-in capital.capital in the unaudited interim condensed consolidated balance sheets.
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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, or (“the Common Stock Forward,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
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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 has beenwas 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.
In conjunction with the partial payoff of the 5.5% Convertible Senior Notes, the Common Stock Forward’s expiration date was extended to June 1, 2025.
The book valuesvalue of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.
During Octoberthe fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 3.54.4 million shares of its common stock. During the first quarter of 2021, 5.9 million shares settled and were received by the Company. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.
10.11. 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 SeptemberJune 30, 20202021 and December 31, 2019,2020, there were 0 shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding. See Note 11, Redeemable Convertible Preferred Stock, for a description of the Company’s Series C Preferred Stock and Series E Preferred Stock.
Common Stock and Warrants
The Company has one class of common stock, par value $.01$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 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 $1.8 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 directequity 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.
In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.
In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of the Company’s common stock at a purchase price of $2.35 per share. The net proceeds to the Company were approximately $23.5 million.
There were 390,197,748570,922,157 and 303,378,515458,051,401 shares of common stock outstanding as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
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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“Warrant Transaction Agreements.” At Septemberboth June 30, 20202021 and December 31, 2019, 40,737,564 and 26,188,4342020, a total of 68,380,913 warrants had vested. Warrants were exercised with respect to
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5,819,652 shares during the warrantfourth quarter of 2020. In the first quarter of 2021, warrants were exercised with respect to 16,489,014 shares had vested, respectively, and are therefore exercisable.of common stock. In the second quarter of 2021, warrants were exercised with respect to an additional 4,745,905 shares of common stock. These warrants are measured at fair value asat the time of January 1, 2019grant 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 FBRB. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through FBR,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.
11. Redeemable Convertible Preferred Stock
Series E Preferred Stock
In November 2018, the Company issued an aggregate of 35,000 shares of the Company’s Series E Preferred Stock in a private placement to certain accredited investors in reliance on Section 4(a)(2) of the Securities Act. The Company received net proceeds of approximately $30.9 million, after deducting placement agent fees and expenses payable by the Company. The Company is required to redeem the Series E Preferred Stock in 13 monthly installments in the amount of $2.7 million each from May 2019 through May 2020. The Company had 0 and 500 shares of Series E Preferred Stock outstanding at September 30, 2020 and 2019, respectively. The remaining 500 shares were converted to common stock in January 2020.
Series C Preferred Stock
In April 2020, 870 shares of Series C Preferred Stock were converted to 923,819 shares of common stock. In May 2020, the remaining the 1,750 shares of Series C Preferred Stock were converted into 1,858,256 shares of common stock.
12. Warrant Transaction Agreements
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the Amazon“Amazon Transaction Agreement)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“Amazon Warrant Shares)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. 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 during 2017. All future provisionupon execution of the Amazon Warrant.
Provision for common stock warrantsthe second and third tranches of Amazon Warrant Shares is measured based on their grant-date fair value and recorded as a charge against revenue.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 vested in 4 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 is $1.1893 per share. Thewere recorded in 2020, 2019 and 2018, respectively, under the terms of the original Amazon Warrant.
Under the terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares will vestvests in 8 equal installments, of 2,546,098 Amazon Warrant Shares
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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.
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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 June 30, 2021 and 2020 was $105 thousand and $3.4 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2021 and 2020 was $209 thousand and $4.7 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
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 iswas $13.81 per share, which iswas 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 final 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.
At September 30, 2020 and December 31, 2019, 27,643,347 and 20,368,782Fair value of the Amazon Warrant Shares had vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended September 30,at December 31, 2020 and 2019 was $17.3 million and $1.0 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, 2020 and 2019 was $22.0 million and $2.0 million, respectively.
During the third quarter of 2020, approximately $23.8 million of recorded revenue from Amazon was constrained by the tranche 3 of the Amazon Warrant Shares. An additional 7,274,565 Amazon Warrant Shares vested on November 2, 2020 representing the final vesting of tranche 2, resulting in cumulative vesting in 34,917,912 Warrant Shares since the execution of the Amazon Transaction Agreement. In accordance with terms of the Amazon Transaction Agreement as described above, upon final vesting of tranche 2, the tranche 3 Amazon Warrant Shares exercise price was determined to be $13.81 per share. Basedbased on the exercise price ofBlack 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 third tranche of the Amazon Warrant Shares, among other things, the fair value of the 20,368,784 tranche 3 Amazon Warrant Shares is estimatedCompany to be $10.60 each, compared to the fair value of tranche 2 Amazon Warrant Shares of $1.05 each.develop its own assumptions.
The Company also recorded a provisionused the following assumptions for losses of $4.3 million in the third quarter of 2020 related toits Amazon service contracts, caused primarily by the increase in the value of the tranche 3 warrants, driven by recent increases in the Company’s stock price.Warrant:
| | | | |
| | 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 |
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Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the Walmart“Walmart Transaction Agreement)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“Walmart Warrant Shares)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 unaudited interim condensed consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vestvests in 4 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 is $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 8 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
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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 final 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.
At Septemberboth June 30, 20202021 and December 31, 2019,2020, 13,094,217 and 5,819,652 of the Walmart Warrant Shares had vested, respectively.vested. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the three months ended SeptemberJune 30, 2021 and 2020 and 2019 was $1.3$1.6 million and $0.5$1.0 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the ninesix months ended SeptemberJune 30, 20202021 and 20192020 was $3.2 million and $1.7$1.9 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 three months ended June 30, 2021.
13. Revenue
Disaggregation of revenue
The following table provides information about disaggregation of revenue (in thousands):
| | | | | | | | | | | | |
Major products/services lines | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
Sales of fuel cell systems | | $ | 59,169 | | $ | 40,785 | | $ | 85,588 | | $ | 55,425 |
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Sale of hydrogen installations and other infrastructure | | | 40,109 | | | 6,961 | | | 60,462 | | | 12,789 |
Services performed on fuel cell systems and related infrastructure | | | 5,675 | | | 6,236 | | | 11,720 | | | 12,757 |
Power Purchase Agreements | | | 8,361 | | | 6,579 | | | 16,187 | | | 13,000 |
Fuel delivered to customers | | | 11,121 | | | 7,372 | | | 22,248 | | | 14,705 |
Other | | | 122 | | | 62 | | | 310 | | | 138 |
Net revenue | | $ | 124,557 | | $ | 67,995 | | $ | 196,515 | | $ | 108,814 |
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, | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
Sales of fuel cell systems | | $ | 51,864 | | $ | 29,775 | | $ | 107,779 | | $ | 67,566 |
Sale of hydrogen installations and other infrastructure | | | 31,664 | | | 9,102 | | | 43,882 | | | 12,551 |
Services performed on fuel cell systems and related infrastructure | | | 6,829 | | | 6,205 | | | 19,586 | | | 17,889 |
Power Purchase Agreements | | | 6,704 | | | 6,595 | | | 19,854 | | | 19,114 |
Fuel delivered to customers | | | 9,831 | | | 7,649 | | | 24,536 | | | 21,320 |
Other | | | 97 | | | 135 | | | 235 | | | 135 |
Net revenue | | $ | 106,989 | | $ | 59,461 | | $ | 215,872 | | $ | 138,575 |
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Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
Accounts receivable | | $ | 113,133 | | $ | 25,448 | | $ | 91,359 | | $ | 43,041 |
Contract assets | | | 12,029 | | | 13,251 | | | 11,549 | | | 18,189 |
Contract liabilities | | | 76,526 | | | 43,480 | | | 93,665 | | | 76,285 |
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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). Contract liabilities also include and advance consideration received from customers prior to delivery of products. These amounts areAs of June 30, 2021, the amount of contract liabilities included within deferred revenue was $72.3 million and the amount of contract liabilities within other current liabilities was $21.4 million on the accompanying unaudited interim condensed consolidated interim 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):
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Contract assets | |
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Transferred to receivables from contract assets recognized at the beginning of the period | | $ |
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Net change in contract assets | | |
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Contract liabilities | | Six months ended | |
| | June 30, 2021 | |
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | 49,628 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | (32,248) |
Net change in contract liabilities | | $ | 17,380 |
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Contract liabilities | | Nine months ended | |
| | September 30, 2020 | |
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | 58,732 |
Contract liabilities assumed as part of acquisitions | | | 18,107 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | (43,793) |
Net change in contract liabilities | | $ | 33,046 |
Estimated future revenue
The following table includes estimated revenue included in the backlog expected to be recognized in the future (sales of fuel cell systems and hydrogen installations are expected to be recognized as revenue within one year; sales of services and PPAs are expected to be recognized as revenue over five to seven years) related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, excludingincluding provision for common stock warrants as it is not readily estimable as it depends on the valuation of the common stock warrants when revenue is recognized (in thousands):
| | | | | | |
| | | | | | |
| | September 30, | | June 30, | ||
| | 2020 | | 2021 | ||
Sales of fuel cell systems | | $ | 50,285 | | $ | 55,348 |
Sale of hydrogen installations and other infrastructure | | | 62,705 | | | 52,193 |
Services performed on fuel cell systems and related infrastructure | | | 86,536 | | | 103,505 |
Power Purchase Agreements | | | 177,721 | | | 196,903 |
UHG molecule | | | 20,680 | |||
Fuel delivered to customers | | | 63,632 | |||
Other rental income | | | 3,705 | | | 2,504 |
Total estimated future revenue | | $ | 401,632 | | $ | 474,085 |
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Contract costs
Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.
Capitalized contract costs at SeptemberJune 30, 20202021 and December 31, 20192020 were $1.3$1.2 million and $0.5,$1.5 million, respectively. Expense related to the amortization of capitalized contract costs was not significant for the three or nine months ended September 30, 2020 and 2019.
14. Income Taxes
The Company did 0t record any income tax expense or benefit for the three or six months ended June 30, 2021. The Company recognized an income tax benefit for the three and ninesix months ended SeptemberJune 30, 2020 of $6.5 million and $24.2 million, respectively.$17.4 million. Income tax benefit for the three and ninesix months ended SeptemberJune 30, 2020 included $6.5$12.2 million and $19.0 million, respectively resulting from the intraperiod tax allocation rules under ASCAccounting Standards Codification (“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 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the ninethree and six months ended SeptemberJune 30, 2020 related to the recognition of net deferred tax liabilities in connection with the Giner, ELX Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.
The remaining net deferred tax asset generated from the Company’s current period 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.
15. Fair Value Measurements
During 2020, the Company had no financial instruments measured at fair value on a recurring basis.
The following table summarizesCompany records the amounts recorded on the unaudited interim condensed consolidated statement of operations for financial instruments measured at 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 a recurring basis forassumptions that market participants would use in pricing the three and nine months ended September 30, 2019 (in thousands):
| | | | | | | | | | | | | |
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| Significant |
| Significant |
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| | | | | in Active | | Other | | Other | | |||
| | | | | Markets for | | Observable | | Unobservable |
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| | | | | Identical Items | | Inputs | | Inputs |
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| | Total | | (Level 1) | | (Level 2) | | (Level 3) |
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Common stock warrant liability | | $ | 7 | | $ | — | | $ | — | | $ | 7 | |
The Company’s common stock warrant liability represents the only asset or liability, classified financial instrument measured at fair valuenot on a recurring basis in the unaudited interim condensed consolidated balance sheets. The fair value measurement is determined by using Level 3 inputs dueassumptions specific to the lack of active and observable markets that can be used to price identical assets. Level 3 inputs are unobservable inputs and should be used to determine fair value only when observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.
Fair value of the common stock warrant liability is based on the Black-Scholes pricing model which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.entity.
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The Company used the following assumptions to measure the fair valueTable of its liability-classified common stock warrants:
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There was 0 expected dividend yield for the warrants granted.
16. Commitments and Contingencies
Lessor Obligations
As of September 30, 2020, the Company had noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to nine years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2020 were as follows (in thousands):
| | | |
Remainder of 2020 |
| $ | 8,272 |
2021 | |
| 34,436 |
2022 | |
| 32,665 |
2023 | |
| 30,043 |
2024 | |
| 26,660 |
2025 and thereafter | | $ | 49,351 |
Total future minimum lease payments |
| $ | 181,427 |
Lessee Obligations
As of September 30, 2020, the Company had operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to eight years. Minimum rent payments under operating and finance leases are recognized on a straight-line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2020 and December 31, 2019 was $25.9 million and $31.7 million, respectively. The fair value of the finance obligation approximated the carrying value as of both September 30, 2020 and December 31, 2019.
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at September 30, 2020 was $144.3 million, of which $22.2 million and $122.1 million were classified as short-term and long-term, respectively, on the unaudited interim condensed consolidated balance sheets. The outstanding balance of this obligation at December 31, 2019 was $109.4 million, of which $15.5 million and $93.9 million were classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of September 30, 2020.
The Company has a finance lease associated with its property and equipment in Latham, New York. A liability relating to this lease of $2.8 million has been recorded as a finance obligation in the unaudited interim condensed
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consolidated balance sheet as of September 30, 2020. TheIn 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 this finance obligation approximated the carryingthree levels, which is determined by the lowest level input that is significant to the fair value as of September 30, 2020.measurement in its entirety.
Future minimum lease payments under operatingThese 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 finance leases (with initial or remaining lease terms in excess of one year) as of September 30, 2020 were as follows (in thousands):
| | | | | | | | | | | | |
| | | | | | | | Other | | Total | ||
| | Operating | | Finance | | Leased | | Finance | ||||
| | Leases | | Leases | | Property | | Obligations | ||||
Remainder of 2020 | | $ | 14,639 | | $ | 2,546 | | $ | 186 | | $ | 17,371 |
2021 | | | 58,505 | |
| 9,276 | |
| 590 | |
| 68,371 |
2022 | | | 58,480 | |
| 4,975 | |
| 573 | |
| 64,028 |
2023 | | | 55,655 | |
| 3,149 | |
| 549 | |
| 59,353 |
2024 | | | 54,203 | |
| 16,154 | |
| 632 | |
| 70,989 |
2025 and thereafter | | | 71,304 | | | — | | | 1,174 | | | 72,478 |
Total future minimum lease payments | | | 312,786 | | | 36,100 | | | 3,704 | | | 352,590 |
Less imputed lease interest | | | (84,903) | |
| (10,190) | |
| (947) | |
| (96,040) |
Sale of future services | | | 144,292 | | | — | | | — | |
| 144,292 |
Total lease liabilities | | $ | 372,175 | | $ | 25,910 | | $ | 2,757 | | $ | 400,842 |
Rental expenseconcluded 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 all operating leases was $14.6 million and $7.8 million for the three months ended September 30, 2020 and 2019, respectively. Rental expense for all operating leases was $40.1 million and $19.9 million for the nine months ended September 30, 2020 and 2019, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $24.5 million and $44.2 million for the three and nine months ended September 30, 2020, respectively, and $14.8 million and $30.9 million for the three and nine months ended September 30, 2019, respectively. Right of use assets obtained in exchange for new operating lease liabilities was $41.1 million and $86.5 million for the three and nine months ended September 30, 2020, respectively, and $38.4 million and $72.9 million for the three and nine months ended September 30, 2019.
At both September 30, 2020 and December 31, 2019, security deposits associated with sale/leaseback transactions were $5.8 million and were included in otheridentical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were 0 transfers betweenLevel1, Level2, or Level 3 during the unaudited interim condensed consolidated balance sheets.
six months
Other information related to the operating leases are presented in the following tables:
| | | | | |
| | Nine months ended | | | Nine months ended |
| | September 30, 2020 | | | September 30, 2019 |
Cash payments (in thousands) | $ | 40,500 | | $ | 19,222 |
ended June 30, 2021.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | |
| September 30, | ||||
| | 2020 | | | 2019 |
Weighted average remaining lease term (years) | | 5.5 | | | 5.25 |
Weighted average discount rate | | 12.1% | | | 12.1% |
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| | As of June 30, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents (1) | $ | 141,313 | $ | 141,313 | $ | 87,573 | $ | 53,740 | $ | — |
Corporate bonds | | 705,084 | | 705,084 | | — | | 705,084 | | — |
Commercial paper | | 329,722 | | 329,722 | | — | | 329,722 | | — |
U.S. Treasuries | | 170,477 | | 170,477 | | 170,477 | | — | | — |
Municipal debt | | 9,984 | | 9,984 | | — | | 9,984 | | — |
Certificates of deposit | | 27,454 | | 27,454 | | — | | 27,454 | | — |
Equity securities | | 120,302 | | 120,302 | | 120,302 | | — | | — |
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Liabilities | | | | | | | | | | |
Contingent consideration | | 9,990 | | 9,990 | | — | | — | | 9,990 |
Convertible senior notes | | 192,011 | | 1,320,194 | | — | | 1,320,194 | | — |
Long-term debt | | 160,484 | | 160,484 | | — | | — | | 160,484 |
Finance obligations | | 195,805 | | 195,805 | | — | | — | | 195,805 |
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| | | | | | | | | | |
| | 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 June 30, 2021. |
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.
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16. Operating and Finance Lease Liabilities
As of June 30, 2021, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote. At the end of the lease coststerm, the leased assets may be returned to the lessor by the Company, the Company may negotiate with the lessor to purchase the assets at fair market value, or the Company may negotiate with the lessor to renew the lease at market rental rates. No residual value guarantees are contained in the leases. No financial covenants are contained within the lease, however there are customary operational covenants such as assurance the Company properly maintains the leased assets and carries appropriate insurance, etc. The leases include amortizationcredit support in the form of either cash, collateral or letters of credit. See Note 19, “Commitments and Contingencies” for a description of cash held as security associated with the 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 June 30, 2021.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | |
| | | | | Finance | | Total | ||
| | | Operating Lease | | Lease | | Lease | ||
| | | Liability | | Liability | | Liabilities | ||
Remainder of 2021 | | $ | 17,298 | | $ | 1,826 | | $ | 19,124 |
2022 | | | 34,579 | |
| 3,731 | | | 38,310 |
2023 | | | 34,636 | |
| 3,708 | | | 38,344 |
2024 | | | 34,636 | |
| 3,715 | | | 38,351 |
2025 and thereafter | | | 73,276 | | | 4,921 | | | 78,197 |
Total future minimum payments | | | 194,425 | |
| 17,901 | | | 212,326 |
Less imputed interest | | | (52,307) | | | (2,793) | | | (55,100) |
Total | | $ | 142,118 | | $ | 15,108 | | $ | 157,226 |
Rental expense for all operating leases was $8.2 million and $7.8 million for the three months ended June 30, 2021 and 2020, respectively. Rental expense for all operating leases was $16.3 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets (i.e.,associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation expense)for these right of use assets was $26.5 million and interest on lease liabilities (i.e., interest$19.9 million at June 30, 2021 and other expense, net in the unaudited interim consolidated statement of operations). Finance lease costs were as follows (in thousands):December 31, 2020, respectively.
| | | | | |
| Nine months ended | | Nine months ended | ||
| September 30, 2020 | | September 30, 2019 | ||
Amortization of right of use asset | $ | 2,655 | | $ | 2,308 |
Interest on finance obligations | | 1,778 | | | 3,194 |
Total finance lease cost | $ | 4,433 | | $ | 5,502 |
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
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At June 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.1 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:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 16,081 | | $ | 9,674 |
Weighted average remaining lease term (years) | | 5.82 | | | 4.34 |
Weighted average discount rate | | 11.4% | | | 12.1% |
Right of use assets obtained in exchange for new finance lease liabilities was $41.1were $6.5 million and $86.5$0.7 million for the three and nine months ended SeptemberJune 30, 2021 and 2020, respectively, and $38.4respectively. Right of use assets obtained in exchange for new finance lease liabilities were $12.1 million and $72.9$0.7 million for the three and ninesix months ended SeptemberJune 30, 2019,2021 and 2020, respectively.
Other information related to the finance leases are presented in the following tables:table:
| | | | | | | | | | | |
| | Nine months ended | | | Nine months ended | | Six months ended | | | Six months ended | |
| | September 30, 2020 | | | September 30, 2019 | | June 30, 2021 | | | June 30, 2020 | |
Cash payments (in thousands) | $ | 7,847 | | $ | 57,659 | $ | 1,166 | | $ | 132 | |
Weighted average remaining lease term (years) | | 4.86 | | | 6.74 | | |||||
Weighted average discount rate | | 6.9% | | | 9.6% | |
| | | | | |
| As of September 30, | ||||
| | 2020 | | | 2019 |
Weighted average remaining lease term (years) | | 3.36 | | | 3.09 |
Weighted average discount rate | | 7.8% | | | 11.1% |
17. Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, 2021 was $176.3 million, $27.3 million and $149.0 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 $157.7 million, $24.2 million and $133.5 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 2021 and December 31, 2020.
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 June 30, 2021 was $19.5 million, $6.5 million and $13.0 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 approximated the carrying value as of both June 30, 2021 and December 31, 2020.
Future minimum payments under finance obligations notes above as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | |
| | | | | | | | Total | |
| | | Sale of Future | | | Sale/leaseback | Finance | ||
| | | revenue - debt | | | financings | Obligations | ||
Remainder of 2021 | | $ | 23,525 | | $ | 4,212 | | $ | 27,737 |
2022 | | | 46,165 | | | 4,975 | | | 51,140 |
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2023 | | | 46,165 | | | 3,148 | | | 49,313 |
2024 | | | 46,165 | | | 16,154 | | | 62,319 |
2025 and thereafter | | | 72,708 | | | — | | | 72,708 |
Total future minimum payments | | | 234,728 | | | 28,489 | | | 263,217 |
Less imputed interest | | | (58,461) | | | (8,951) | | | (67,412) |
Total | | $ | 176,267 | | $ | 19,538 | | $ | 195,805 |
Other information related to the above finance obligations are presented in the following table:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 26,508 | | $ | 20,148 |
Weighted average remaining term (years) | | 4.9 | | | 4.3 |
Weighted average discount rate | | 11.3% | | | 11.2% |
18. Investments
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at June 30, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 707,022 | | $ | 51 | | $ | (1,989) | | $ | 705,084 | | | — |
Commercial paper | | 329,471 | | | 253 | | | (2) | | | 329,722 | | | — |
Certificates of deposit | | 27,460 | | | — | | | (6) | | | 27,454 | | | — |
U.S. Treasuries | | 170,672 | | | — | | | (195) | | | 170,477 | | | — |
Municipal debt | | 9,993 | | | — | | | (9) | | | 9,984 | | | — |
Total | $ | 1,244,618 | | $ | 304 | | $ | (2,201) | | $ | 1,242,721 | | $ | — |
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at June 30, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2021 | ||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | 89,962 |
| $ | 17 | | $ | (81) | | $ | 89,898 |
Exchange traded mutual funds | | 30,016 | | | 388 | | | — | | | 30,404 |
Total | $ | 119,978 | | $ | 405 | | $ | (81) | | $ | 120,302 |
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of June 30, 2021 is as follows (in thousands):
| | | | | |
| June 30, 2021 | ||||
| | Amortized | | Fair | |
Maturity: | | Cost | | Value | |
Within one year | $ | 717,531 |
| $ | 717,285 |
After one through five years |
| 527,087 | |
| 525,436 |
Total | $ | 1,244,618 | | $ | 1,242,721 |
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19. Commitments and Contingencies
Restricted Cash
As security forIn connection with certain of the above noted sale/leaseback agreements, cash of $133.4$243.5 million was required to be restricted as security as of SeptemberJune 30, 2020,2021, which restricted cash will be released over the lease term. As of SeptemberJune 30, 2020,2021, the Company also had certain letters of credit backed by security depositsrestricted cash totaling $149.3$143.7 million that are security for the above noted sale/leaseback agreements.
In addition, as of September 30, 2020, the Company also had letters of credit in the aggregate amount of $0.5 million associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as restricted cash.
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 establishednot recorded any accruals for matters for which management considers a lossrelated to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.any legal matters.
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, at times may exceed the Federal depository insurance coverage of $0.25 million. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant. The Company’s available-for-sale securities consists primarily of investments in commercial paper, U.S. Treasury securities, municipal debt and short-term high credit quality corporate debt securities. Equity securities are comprised of fixed income and equity market index mutual funds.
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.
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At SeptemberJune 30, 2020,2021, 1 customer comprised approximately 84.5%78.5% of the total accounts receivable balance. At December 31, 2019, 22020, 3 customers comprised approximately 63.4%73.9% of the total accounts receivable balance.
For the nine months ended September 30, 2020, 71.8% of total consolidated revenues were associated primarily with two customers. For the nine months ended September 30, 2019, 62.3% of total consolidated revenues were associated primarily with 3 customers. 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 six months ended June 30, 2021, 81.3% and 77.7%, of total consolidated revenues were associated with 3 customers, respectively. For the three and six months ended June 30, 2020, 83.9% and 77.9% of total consolidated revenues were associated primarily with 2 customers, respectively.
20. Employee Benefit Plans
2011 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 may be 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 has been increased to 42.4 million. The Company recorded expense of approximately $11.1 million and $2.5 million, for the three months ended June 30, 2021 and 2020, respectively, in connection with the 2011 Plan. The Company recorded
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expense of approximately $19.6 million and $5.0 million, for the six months ended June 30, 2021 and 2020, respectively, in connection with the 2011 Plan. In July 2021, the 2021 Stock Option Incentive Plan (the “2021 Plan”) was approved by the Company’s stockholders, which provides for the sum of 22,500,000 shares in addition to 473,491 shares of common stock that are available for grant under the 2011 Plan to be issued under the 2021 Plan.
At June 30, 2021, there were outstanding options to purchase approximately 9.2 million shares of common stock. 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. To date, options granted under the 2011 Plan have vesting provisions ranging from one to three years in duration and expire ten years after issuance.
Compensation cost associated with employee stock options represented approximately $4.3 million and $1.5 million of the total share-based payment expense recorded for the three months ended June 30, 2021 and June 30, 2020, respectively. Compensation cost associated with employee stock options represented approximately $7.6 million and $2.9 million of the total share-based payment expense recorded for the six months ended June 30, 2021 and June 30, 2020, respectively. The Company estimates the fair value of 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 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 698,500 and 174,649 options granted during the six months ended June 30, 2021 and 2020, respectively, were as follows:
| | | | |
|
| June 30, | | June 30, |
| | 2021 |
| 2020 |
Expected term of options (years) | | 5 | | 6 |
Risk free interest rate | | 0.61% - 1.04% | | 0.45% - 1.37% |
Volatility | | 72.46% - 73.69% | | 64.19% - 64.80% |
There was 0 expected dividend yield for the employee stock options granted.
The Company has historically used the simplified method in determining its expected term of all its 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 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 historical experience. 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.
A summary of stock option activity for the six months ended June 30, 2021 is as follows (in thousands except share amounts):
| | | | | | | | | | |
|
| |
| |
| Weighted |
| | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic | ||
| | Shares | | Price | | Terms | | Value | ||
Options outstanding at December 31, 2020 | | 10,284,498 | | $ | 5.78 | | 7.8 | | $ | 289,316 |
Granted | | 698,500 | | | 46.82 | | — | | | — |
Exercised | | (1,812,099) | | | 2.65 | | — | | | — |
Forfeited | | (5,833) | | | 6.78 | | — | | | — |
Expired | | — | | | — | | — | | | — |
Options outstanding at June 30, 2021 | | 9,165,066 | | $ | 9.51 | | 7.9 | | $ | 226,164 |
Options exercisable at June 30, 2021 | | 2,523,341 | | | 2.17 | | 5.6 | | | 80,808 |
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Options unvested at June 30, 2021 | | 6,641,725 | | $ | 12.30 | | 8.7 | | $ | 145,356 |
The weighted average grant-date fair value of options granted during the three months ended June 30, 2021 and 2020 was $29.23 and $4.88, respectively. The weighted average grant-date fair value of options granted during the six months ended June 30, 2021 and 2020 was $46.67 and $7.73, respectively. As of June 30, 2021, there was approximately $38.3 million of unrecognized compensation cost related to stock option awards to be recognized over the next three years. The total fair value of stock options that vested during the three months ended June 30, 2021 and 2020 was approximately $432 thousand and $493 thousand, respectively. The total fair value of stock options that vested during the six months ended June 30, 2021 and 2020 was approximately $520 thousand and $516 thousand, respectively.
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 $6.8 million and $932 thousand, for the three months ended June 30, 2021 and 2020, respectively. The Company recorded expense associated with its restricted stock awards of approximately $12.0 million and $2.0 million, for the six months ended June 30, 2021 and 2020, respectively. Additionally, for the six months ended June 30, 2021 and 2020, there was $67.0 million and $6.9 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 June 30, 2021 is as follows (in thousands except share amounts):
| | | | | | |
|
| |
| Aggregate |
| |
| | | | Intrinsic | | |
| | Shares | | Value | | |
Unvested restricted stock at December 31, 2020 | | 5,874,642 | | $ | — | |
Granted | | 653,000 | | | — | |
Vested | | (149,650) | | | — | |
Forfeited | | (5,833) | | | — | |
Unvested restricted stock at June 30, 2021 | | 6,372,159 | | $ | 217,864 | |
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 12,513 shares of common stock and 175,978 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the six months ended June 30, 2021 and 2020, respectively.
The Company’s expense for this plan was approximately $0.9 million, and $0.8 million for the three months ended June 30, 2021 and 2020, respectively. The Company’s expense for this plan was approximately $2.2 million, and $1.3 million for the six months ended June 30, 2021 and 2020, respectively.
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 2,585 shares of common stock and 7,657 shares of common stock to non-employee directors as compensation for the three months ended June 30, 2021 and 2020, respectively. The Company granted 5,238 shares of common stock and 22,490 shares of common stock to non-employee directors as compensation for the six months ended June 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 $94 thousand and $55 thousand for the three months ended June 30, 2021 and
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2020, respectively. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $179 thousand and $111 thousand for the six months ended June 30, 2021 and 2020, respectively.
21. Subsequent Events
We have evaluated events as of August 5, 2021 and have not identified any subsequent events.
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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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, filed for the fiscal year ended December 31, 2019.2020 19-K. In addition to historical information, this Quarterly Report on Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”). These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to:
● | the risk that we continue to incur losses and might never achieve or maintain profitability; |
● | the risk that we will need to raise additional capital to fund our operations and such capital may not be available to us; |
● | the risk of dilution to our stockholders and/or stock price should we need to raise additional capital; |
● | the risk that our lack of extensive experience in manufacturing and marketing products may impact our ability to manufacture and market products on a profitable and large-scale commercial basis; |
● | the risk that unit orders may not ship, be installed and/or converted to revenue, in whole or in part; |
● | the risk that a loss of one or more of our major customers, or if one of our major customers delays payment of or is unable to pay its receivables, a material adverse effect could result on our financial condition; |
● | the risk that a sale of a significant number of shares of stock could depress the market price of our common stock; |
● | the risk that our convertible senior notes, if settled in cash, could have a material effect on our financial results; |
● | the risk that our convertible note hedges may affect the value of our convertible senior notes and our common stock; |
● | the risk that negative publicity related to our business or stock could result in a negative impact on our stock value and profitability; |
● | the risk of potential losses related to any product liability claims or contract disputes; |
● | the risk of loss related to an inability to remediate the material weakness identified in internal control over financial reporting as of December 31, 2020, or inability to otherwise maintain an effective system of internal control; |
● | the risk that the determination to restate the prior period financial statements could negatively affect investor confidence and raise reputational issues; |
● | the risk of loss related to an inability to maintain an effective system of internal controls; |
● | our ability to attract and maintain key personnel; |
● | the risks related to the use of flammable fuels in our products; |
● | the risk that pending orders may not convert to purchase orders, in whole or in part; |
● | the cost and timing of developing, marketing and selling our products; |
● | the risks of delays in or not completing our product development goals; |
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● | the risks involved with participating in joint ventures; |
● | our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; |
● | our ability to successfully pursue new business ventures; |
● | our ability to achieve the forecasted gross margin on the sale of our products; |
● | the cost and availability of fuel and fueling infrastructures for our products; |
● | the risks, liabilities, and costs related to environmental, health and safety matters; |
● | the risk of elimination of government subsidies and economic incentives for alternative energy products; |
● | market acceptance of our products and services, including GenDrive, GenSure and GenKey systems; |
● | our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution and servicing, and the supply of key product components; |
● | the cost and availability of components and parts for our products; |
● | the risk that possible new tariffs could have a material adverse effect on our business; |
● | our ability to develop commercially viable products; |
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● | our ability to reduce product and manufacturing costs; |
● | our ability to successfully market, distribute and service our products and services internationally; |
● | our ability to improve system reliability for our products; |
● | competitive factors, such as price competition and competition from other traditional and alternative energy companies; |
● | our ability to protect our intellectual property; |
● | the risk of dependency on information technology on our operations and the failure of such technology; |
● | the cost of complying with current and future federal, state and international governmental regulations; |
● | our subjectivity to legal proceedings and legal compliance; |
● | the risks associated with past and potential future acquisitions; and |
● | the volatility of our stock |
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 the extent to which any factor, or combination of factors, may cause actual results to differ materially from these contained in any forward-looking statements. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. These forward-looking statements speak only as of the date on which the statements were made. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q.
References in this Quarterly Report on Form 10-Q to “Plug Power,” the “Company,” “we,” “our” or “us” refer to Plug Power Inc., including as the context requires, its subsidiaries.
Overview
As a leading provider of comprehensive hydrogen fuel cell turnkey solutions, Plug Power Inc., oris facilitating the Company, is seekingparadigm shift to build a green hydrogen economy. The Company is focused onan increasingly electrified world by innovating cutting-edge hydrogen and fuel cell systems that are usedsolutions. In our core business, we provide and continue to power electric motors primarily in the electric mobility and stationary power markets, given the ongoing paradigm shift in the power, energy, and transportation industries to address climate change, energy security, and meet sustainability goals. Plug Power created the firstdevelop commercially viable market for hydrogen and fuel cell orproduct solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the HFC technology. As a result, the Company has deployed over 38,000 fuel cell systems,world’s largest retail-distribution and has become the largest buyer of liquid hydrogen, having built and operated a hydrogen network across North America.
manufacturing businesses. We are focusedfocusing our efforts on proton exchange membrane, or PEM, fuel cellindustrial mobility applications, including electric forklifts and fuel processing technologies, fuel cell/battery hybrid technologies,electric industrial vehicles, at multi-shift high volume manufacturing and associated hydrogen storagehigh throughput distribution sites where we believe our products and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogenservices provide a unique combination of productivity, flexibility, and oxygen to produce electricity and heat without combustion. Hydrogen is derived from multiple sources. The majority of liquid hydrogen in the United States is produced using the steam methane reforming process and utilizing by-product hydrogen from chlor alkali production. By-product hydrogen from a chlor alkali plant is considered to be low carbon hydrogen and in some cases, considered green hydrogen, depending on the source of electricity and geographic location. We source a significant amount of liquid hydrogen based on the chlor alkali process today.environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products have proven valuable with telecommunications, transportation, and utility customers as robust, reliable, and sustainable power solutions.
We provide and continue to develop commercially-viable hydrogen and fuel cell solutions for industrial mobility applications (including electric forklifts and electric industrial vehicles) at multi-shift high volume manufacturing and high throughput distribution sites where we believePart of our products and services provide a unique combination of productivity, flexibility and environmental benefits. In June of 2020,long-term plan includes Plug Power completedpenetrating the acquisitions of United Hydrogen Group, Inc.on-road vehicle market and Giner ELX, Inc. in line with the Company’s hydrogen vertical integration strategy, with plans to have more than 50% of the hydrogen used by the Company to be green by 2024. These acquisitions further enhancelarge-scale stationary market. Plug Power’s positionformation of a joint venture with Renault in Europe and the hydrogen industryannounced future joint venture with capabilities in generation, liquefaction and distribution of hydrogen fuel complementing itsSK
43
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industry-leading positionGroup in the design, construction,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 operation of customer-facing hydrogen fueling stations. These acquisitions establish a pathway for Plug Powerjoint ventures, and we plan to transition from low-carboncontinue this mix. For example, we expect our relationships with Brookfield and Apex to zero-carbon hydrogen solutions.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 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 cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;
GenSure: GenSure 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 vertically 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; and
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power MEA (membrane electrode assembly)“MEA”, a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines, in which Plug Powerengines; and
GenFuel 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 the largest producer in North America.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“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-viablecommercially viable products in Latham, NY,New York, Rochester, NYNew York and Spokane, WAWashington and support liquid hydrogen generation and logistics in Charleston, TN.Tennessee.
Our wholly-owned subsidiary, Plug Power France, has created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). 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—have issued orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces to employees and customers. We are currently deemed an essential business and, asAs a result, are exempt from these state orders, in their current form. In March 2020, we had
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put in place a number of protective measures in response to the COVID-19 outbreak. These measures includeoutbreak, 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 enablesenabled 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.
44 In May 2021, the Centers for Disease Control and Prevention (the “CDC”) revised guidance for fully vaccinated individuals regarding no longer needing to wear a mask indoors or practicing social distancing, which was subsequently adopted by the state of New York on May 19, 2021.
As a result, effective in June 2021 and in accordance with new CDC guidelines and where permitted by state law, employees who are fully vaccinated against COVID-19 and have been through Plug Power’s certification process may enter Plug Power facilities without a face covering. Individuals inside Plug Power facilities who do not wish to go through the certification process are required to wear proper face coverings and continue to maintain social distancing of 6 feet or greater. In states where the guidelines for face coverings is still government mandated, Plug Power will comply with the state and local jurisdictions and enforce face mask usage, as well as social distancing at our sites.
Plug Power will 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. Although as of the date hereof, we have not observed any material impacts to our supply of components, the situation is fluid. 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. SomeCertain of our customers, such as certain automotive manufacturers, have suspended operations at their facilities due to COVID-19. Accordingly, while those customers continue to pay for the leasing and servicing of our products, they are not purchasing hydrogen fuel. Other customers are essential businesses and remain in operation. Certain of these customers, such as Walmart, significantly increased their use of units and hydrogen fuel consumption as a result of COVID-19. In the ninethree and six months ended SeptemberJune 30, 2021 and the twelve months ended December 31, 2020, our services and power purchase agreementPPA margins were negatively impacted by incremental service costs associated with increased usage of units at some of our primary customer sites. In addition, future changes in applicable government orders or regulations, or changes in the interpretation of existing orders or regulations, could result in further disruptions to our business that may materially and adversely affect our financial condition and results of operations.
Borrowings/August 2020 Equity RaiseStrategic Activities
In the third quarter of 2020, the Company borrowed an additional $50.0 million, under an amended loan agreement with Generate Lending, LLC.
Also,On June 3, 2021, our wholly-owned subsidiary, Plug Power France, created a joint venture with Renault named HyVia. HyVia plans to manufacture and sell FCELCVs and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in August 2020,each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault. We include our share of the Company issuedresults of HyVia using the equity method based on our economic ownership interest and sold in a registered direct offering an aggregateour ability to exercise significant influence over the operating and financial decisions of 35,276,250 shares of its common stock at a purchase price of $10.25 per shareHyVia. We do not control this entity as our ownership is 50%, and as such HyVia is not included within our consolidated financial results for net proceeds of approximately $344.4 million.any period presented.
Amazon WarrantsCharter Amendment
On July 30, 2021, our stockholders, upon recommendation of our Board of Directors, approved an amendment to our Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to increase the number of authorized shares of common stock from 750,000,000 shares to 1,500,000,000 shares. The Charter Amendment became effective upon the filing of the Charter Amendment with the Secretary of the State of the State of Delaware on August 2, 2021.
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Explanatory Note
At SeptemberAs 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 December 31, 2019, 27,643,347 and 20,368,782 of the Amazon Warrant Shares had vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended September 30, 2020 and 2019 was $17.3 million and $1.0 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, 2020 and 2019 was $22.0 million and $2.0 million, respectively.December 31, 2019.
DuringPreviously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the third quarter of 2020, approximately $23.8 million of recorded revenue from Amazon was constrainedperiods affected by the tranche 3 ofrestatement have not been amended. Accordingly, investors should not rely upon the Amazon Warrant Shares. An additional 7,274,565 Amazon Warrant Shares vested on November 2, 2020, representing the final vesting of tranche 2, resulting in cumulative vesting in 34,917,912 Warrant Shares since the execution of the Amazon Transaction Agreement. In accordance with terms of the Amazon Transaction Agreement as described above, upon final vesting of tranche 2, the tranche 3 Amazon Warrant Shares exercise price was determinedCompany’s previously released financial statements for these periods and any earnings releases or other communications relating to be $13.81 per share. Basedthese periods, and, for these periods, investors should rely solely on the exercise pricefinancial 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 the third tranche of the Amazon Warrant Shares, among other things, the fair value of the 20,368,784 tranche 3 Amazon Warrant Shares is estimated to be $10.60 each, compared to the fair value of tranche 2 Amazon Warrant Shares of $1.05 each.fiscal 2020.
The Company also recorded a provision for losses of $4.3 million in the third quarter of 2020 related to Amazon service contracts, caused primarily by the increase in the value of the tranche 3 warrants, driven by recent increases in the Company’s stock price.
45
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, Power Purchase Agreements (PPAs), and fuel delivered to customers. Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.
In 2017, in separate transactions, the Company issued to each of Amazon and Walmart warrants to purchase shares of the Company’s common stock. The Company recorded a portion of the estimated fair value of the warrants as a reductionNet revenue, cost of revenue, based upon the projected number of shares of common stock expected to vest under the warrants, the proportion of purchases by Amazon, Walmartgross profit (loss) and their affiliates within the period relative to the aggregate purchase levels required for vesting of the respective warrants, and the then-current fair value of the warrants. During the fourth quarter of 2019, the Company adopted ASU 2019-08, with retrospective adoption as of January 1, 2019. As a result, the amount recorded as a reduction of revenue was measured based on the grant-date fair value of the warrants. Previously, this amount was measured based on vesting date fair value with estimates of fair value determined at each financial reporting date for unvested warrant shares considered to be probable of vesting. Exceptgross margin for the third tranche, all existing unvested warrants are using a measurement date of January 1, 2019, the adoption date, in accordance ASU 2019-08.three and six months ended June 30, 2021 and 2020, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
| | | | | | | | |
| Three Months Ended | | Six Months Ended | ||||||||||||||||||||
| June 30, | | June 30, | ||||||||||||||||||||
| | | | Cost of |
| Gross |
| Gross | | | | | | Cost of |
| Gross |
| Gross | | ||||
| Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| ||||||
For the period ended June 30, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 99,278 | | $ | 79,913 | | $ | 19,365 |
| 19.5 | % | | $ | 146,050 | | $ | 108,887 | | $ | 37,163 |
| 25.4 | % |
Services performed on fuel cell systems and related infrastructure |
| 5,675 | |
| 15,475 | |
| (9,800) |
| (172.7) | % | |
| 11,720 | |
| 28,561 | |
| (16,841) |
| (143.7) | % |
Provision for loss contracts related to service | | — | | | 6,694 | | | (6,694) | | N/A | | | | — | | | 8,179 | | | (8,179) | | N/A | |
Power Purchase Agreements |
| 8,361 | |
| 22,234 | |
| (13,873) |
| (165.9) | % | |
| 16,187 | |
| 40,577 | |
| (24,390) |
| (150.7) | % |
Fuel delivered to customers |
| 11,121 | |
| 40,331 | |
| (29,210) |
| (262.6) | % | |
| 22,248 | |
| 62,474 | |
| (40,226) |
| (180.8) | % |
Other |
| 122 | |
| 208 | |
| (86) |
| (70.5) | % | |
| 310 | |
| 306 | |
| 4 |
| 1.3 | % |
Total | $ | 124,557 | | $ | 164,855 | | $ | (40,298) |
| (32.4) | % | | $ | 196,515 | | $ | 248,984 | | $ | (52,469) |
| (26.7) | % |
For the period ended June 30, 2020: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | $ | 47,746 | | $ | 33,888 | | $ | 13,858 |
| 29.0 | % | | $ | 68,214 | | $ | 47,862 | | $ | 20,352 |
| 29.8 | % |
Services performed on fuel cell systems and related infrastructure |
| 6,236 | |
| 7,773 | |
| (1,537) |
| (24.6) | % | |
| 12,757 | |
| 18,120 | |
| (5,363) |
| (42.0) | % |
Provision for loss contracts related to service | | — | | | 706 | | | (706) | | N/A | | | | — | | | 801 | | | (801) | | N/A | |
Power Purchase Agreements |
| 6,579 | |
| 14,504 | |
| (7,925) |
| (120.5) | % | |
| 13,000 | |
| 29,275 | |
| (16,275) |
| (125.2) | % |
Fuel delivered to customers |
| 7,372 | |
| 11,076 | |
| (3,704) |
| (50.2) | % | |
| 14,705 | |
| 22,330 | |
| (7,625) |
| (51.9) | % |
Other |
| 62 | |
| 63 | |
| (1) |
| (1.6) | % | |
| 138 | |
| 144 | |
| (6) |
| (4.3) | % |
Total | $ | 67,995 | | $ | 68,010 | | $ | (15) |
| (0.0) | % | | $ | 108,814 | | $ | 118,532 | | $ | (9,718) |
| (8.9) | % |
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The amount of provision for common stock warrants recorded as a reduction of revenue during the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, is shown in the table below (in thousands):
| | | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, | ||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
| | | | | | | | | | | | | |
Sales of fuel cell systems and related infrastructure | | $ | (16,146) | | $ | (478) | | $ | (19,287) | | $ | (993) | |
Services performed on fuel cell systems and related infrastructure | |
| (688) | |
| (191) | |
| (1,412) | |
| (397) | |
Power Purchase Agreements | |
| (758) | |
| (325) | |
| (1,887) | |
| (1,032) | |
Fuel delivered to customers | |
| (1,034) | |
| (503) | |
| (2,612) | |
| (1,284) | |
Total | | $ | (18,626) | | $ | (1,497) | | $ | (25,198) | | $ | (3,706) | |
Net revenue, cost of revenue, gross profit (loss) and gross margin for the three and nine months ended September 30, 2020 and 2019, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended |
| | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| | September 30, | | | September 30, | | | 2021 | | 2020 | | 2021 | | 2020 | | ||||||||||||||||||||||
| | | | | Cost of |
| Gross |
| Gross |
| | | |
| Cost of |
| Gross |
| Gross | | | | | | | | | | | | | | | ||||
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| |||||||||||||||||||
For the period ended September 30, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Sales of fuel cell systems and related infrastructure | | $ | 83,528 | | $ | 68,509 | | $ | 15,019 |
| 18.0 | % | | $ | 151,661 | | $ | 115,929 | | $ | 35,732 |
| 23.6 | % | | $ | — | | $ | (2,497) | | $ | (27) | | $ | (3,141) | |
Services performed on fuel cell systems and related infrastructure | |
| 6,829 | |
| 7,074 | |
| (245) |
| (3.6) | % | |
| 19,586 | |
| 21,746 | |
| (2,160) |
| (11.0) | % | |
| (131) | |
| (466) | |
| (271) | |
| (724) | |
Power Purchase Agreements | |
| 6,704 | |
| 14,087 | |
| (7,383) |
| (110.1) | % | |
| 19,854 | |
| 42,034 | |
| (22,180) |
| (111.7) | % | |
| (902) | |
| (578) | |
| (1,802) | |
| (1,129) | |
Fuel delivered to customers | |
| 9,831 | |
| 14,172 | |
| (4,341) |
| (44.2) | % | |
| 24,536 | |
| 32,267 | |
| (7,731) |
| (31.5) | % | |
| (714) | |
| (824) | |
| (1,352) | |
| (1,578) | |
Other | |
| 97 | |
| 131 | |
| (34) |
| (35.1) | % | |
| 235 | |
| 275 | |
| (40) |
| (17.0) | % | |||||||||||||
Total | | $ | 106,989 | | $ | 103,973 | | $ | 3,016 |
| 2.8 | % | | $ | 215,872 | | $ | 212,251 | | $ | 3,621 |
| 1.7 | % | | $ | (1,747) | | $ | (4,365) | | $ | (3,452) | | $ | (6,572) | |
For the period ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Sales of fuel cell systems and related infrastructure | | $ | 38,877 | | $ | 24,990 | | $ | 13,887 |
| 35.7 | % | | $ | 80,117 | | $ | 50,440 | | $ | 29,677 |
| 37.0 | % | |||||||||||||
Services performed on fuel cell systems and related infrastructure | |
| 6,205 | |
| 6,461 | |
| (256) |
| (4.1) | % | |
| 17,889 | |
| 18,802 | |
| (913) |
| (5.1) | % | |||||||||||||
Power Purchase Agreements | |
| 6,595 | |
| 10,353 | |
| (3,758) |
| (57.0) | % | |
| 19,114 | |
| 28,064 | |
| (8,950) |
| (46.8) | % | |||||||||||||
Fuel delivered to customers | |
| 7,649 | |
| 9,160 | |
| (1,511) |
| (19.8) | % | |
| 21,320 | |
| 25,935 | |
| (4,615) |
| (21.6) | % | |||||||||||||
Other | |
| 135 | |
| 150 | ��� |
| (15) |
| (11.1) | % | |
| 135 | |
| 150 | |
| (15) |
| (11.1) | % | |||||||||||||
Total | | $ | 59,461 | | $ | 51,114 | | $ | 8,347 |
| 14.0 | % | | $ | 138,575 | | $ | 123,391 | | $ | 15,184 |
| 11.0 | % |
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.
46
Revenue from sales of fuel cell systems and related infrastructure for the three months ended SeptemberJune 30, 20202021 increased $44.7$51.5 million, or 114.9%107.9%, to $83.5$99.3 million from $38.9$47.8 million for the three months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $16.1 millionzero and $0.5$2.5 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The main drivers for the increase in revenue were the increase in GenDrive units recognized as revenue, change in product mix, variations in customer programs, and an increase in hydrogen installations offset partially by the increaseand a decrease in the provision for common stock warrants. There were 3,7093,666 GenDrive units recognized as revenue during the three months ended SeptemberJune 30, 2020,2021, compared to 1,5132,683 for the three months ended SeptemberJune 30, 2019.2020. There was hydrogen infrastructure revenue associated with 1316 hydrogen sites during the three months ended SeptemberJune 30, 2020,2021, compared to zerofour during the three months ended SeptemberJune 30, 2019.2020.
Revenue from sales of fuel cell systems and related infrastructure for the ninesix months ended SeptemberJune 30, 20202021 increased $71.5$77.8 million, or 89.3%114.1%, to $151.7$146.1 million from $80.1$68.2 million for the ninesix months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $19.3 million$27 thousand and $1.0$3.1 million for the ninethree months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The main drivers for the increase in revenue were the increase in GenDrive units recognized as revenue, change in product mix, variations in customer programs, and an increase in hydrogen installations offset partially by the increaseand a decrease in the provision for common stock warrants. There were 7,2174,974 GenDrive units recognized as revenue during the ninesix months ended SeptemberJune 30, 2020,2021, compared to 6,0583,508 for the ninesix months ended SeptemberJune 30, 2019.2020. There was hydrogen infrastructure revenue associated with 1822 hydrogen sites during the ninesix months ended SeptemberJune 30, 2020,2021, compared to twofive during the ninesix months ended SeptemberJune 30, 2019.2020.
Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At June 30, 2021, there were 15,723 fuel cell units and 71 hydrogen installations under extended maintenance contracts, an increase from 11,557 fuel cell units and 47 hydrogen installations at June 30, 2020. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended SeptemberJune 30, 2020 increased2021 decreased $0.6 million, or 10.1%9.0%, to $6.8$5.7 million as compared to $6.2 million for the three months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $0.7 million$131 thousand and $0.2 million$466 thousand for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The main drivers for the increasein decrease in revenue was additional contractual revenue associated with higher utilization of GenDrive units and an increasea reduction in units under service maintenance contracts,billings for run time hours that exceeded certain levels given certain changes in the overall contract, partially offset by the increasedecrease in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of 2021.
Revenue from services performed on fuel cell systems and related infrastructure for the ninesix months ended SeptemberJune 30, 2020 increased $1.72021 decreased $1.0 million, or 9.5%8.1%, to $19.6$11.7 million as compared to $17.9$12.8 million for the ninesix months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $1.4 million$271 thousand and $0.4 million$724 thousand for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The main drivers for the increasein decrease in revenue was additional contractual revenue associated with higher utilization of GenDrive units and an increasea reduction in units under service maintenance contracts,billings for run time hours that exceeded certain levels given certain changes in the overall contract, partially offset by the increase decrease
36
in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of quarter 2021.
Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At June 30, 2021, there were 52 GenKey sites associated with PPAs, as compared to 32 at June 30, 2020. Revenue from PPAs for the three months ended SeptemberJune 30, 20202021 increased $0.1$1.8 million, or 1.7%27.1%, to $6.7$8.4 million from $6.6 million for the three months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $0.8 million$902 thousand and $0.3 million$578 thousand for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The increase in revenue from PPAs for the three months ended SeptemberJune 30, 20202021 as compared to the three months ended SeptemberJune 30, 20192020 was primarily attributable to the increase in units associated with PPAs,new sites for existing customers and new customers accessing the PPA subscription solution, offset in part by the increase in the provision for common stock warrants.
Revenue from PPAs for the ninesix months ended SeptemberJune 30, 20202021 increased $0.8$3.2 million, or 3.9%24.5%, to $19.9$16.2 million from $19.1$13.0 million for the ninesix months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $1.9$1.8 million and $1.0$1.1 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The increase in revenue from PPAs for the ninesix months ended SeptemberJune 30, 20202021 as compared to the ninesix months ended SeptemberJune 30, 20192020 was primarily attributable to the increase in units associated with PPAs,new sites for existing customers and new customers accessing the PPA subscription solution, offset in part by the increase in the provision for common stock warrants.
Revenue – fuel delivered to customers. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site. Revenue associated with fuel delivered to customers for the three months ended SeptemberJune 30, 20202021 increased $2.2$3.7 million, or
47
28.5% 50.9%, to $9.8$11.1 million from $7.6$7.4 million for the three months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $1.0 million$714 thousand and $0.5 million$824 thousand for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The increase in revenue was due to an increase in the number of sites with fuel contracts infrom 81 as of June 30, 2020 compared to 2019,125 as of June 30, 2021, and an increase in the price of fuel, partially offset by the increasea slight decrease in the provision for common stock warrants.
Revenue associated with fuel delivered to customers for the ninesix months ended SeptemberJune 30, 20202021 increased $3.2$7.5 million, or 15.1%51.3%, to $24.5$22.3 million from $21.3$14.7 million for the ninesix months ended SeptemberJune 30, 2019.2020. Included within revenue was provision for common stock warrants of $2.6$1.4 million and $1.3$1.6 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The increase in revenue was due to an increase in the number of sites with fuel contracts infrom 81 as of June 30, 2020 compared to 2019, an increase in the price125 as of fuelJune 30, 2021, and an increasea slight decrease in the provision for common stock warrants.
Cost of Revenue
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, as well asand hydrogen fueling infrastructure referred to at the site level as hydrogen installations.
Cost of revenue from sales of fuel cell systems and related infrastructure for the three months ended SeptemberJune 30, 20202021 increased 174.1%135.8%, or $43.5$46.0 million, to $68.5$79.9 million, compared to $25.0$33.9 million for the three months ended SeptemberJune 30, 2019.2020. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There were 3,7093,666 GenDrive units recognized as revenue during the three months ended SeptemberJune 30, 2020,2021, compared to 1,5132,683 for the three months ended SeptemberJune 30, 2019.2020. Revenue associated with 1316 hydrogen installations was recognized during the three months ended SeptemberJune 30, 2020,2021, compared to zerofour during the three months ended SeptemberJune 30, 2019.2020. Gross marginprofit generated from sales of fuel cell systems and related infrastructure decreased to 18.0%19.5% for the three months ended SeptemberJune 30, 2020,2021, compared to 35.7%29.0% for the three months ended SeptemberJune 30, 2019,2020 primarily due to the increase inmix impact of the provision for common stock warrants.equipment sold with varying margin profiles, including a higher mix of infrastructure and other new products, and mix of customer profiles with varying pricing structures.
Cost of revenue from sales of fuel cell systems and related infrastructure for the ninesix months ended SeptemberJune 30, 20202021 increased 129.8%127.5%, or $65.5$61.0 million, to $115.9$108.9 million, compared to $50.4$47.9 million for the ninesix months ended SeptemberJune 30, 2019.2020. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There
37
were 7,2174,974 GenDrive units recognized as revenue during the ninesix months ended SeptemberJune 30, 2020,2021, compared to 6,0583,508 for the ninesix months ended SeptemberJune 30, 2019.2020. Revenue associated with 1322 hydrogen installations was recognized during the ninesix months ended SeptemberJune 30, 2020,2021, compared to zerofive during the ninesix months ended SeptemberJune 30, 2019.2020. Gross marginprofit generated from sales of fuel cell systems and related infrastructure decreased to 23.6%25.4% for the ninesix months ended SeptemberJune 30, 2020,2021, compared to 37.0%29.8% for the ninesix months ended SeptemberJune 30, 2019,2020 primarily due to the increase inmix impact of the provision for common stock warrants.equipment sold with varying margin profiles, including a higher mix of infrastructure and other new products, and mix of customer profiles with varying pricing structures.
Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. At June 30, 2021, there were 15,723 fuel cell units and 71 hydrogen installations under extended maintenance contracts, an increase from 11,557 fuel cell units and 47 hydrogen installations at June 30, 2020, respectively. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended SeptemberJune 30, 20202021 increased 9.5%99.1%, or $0.6$7.7 million, to $7.1$15.5 million, compared to $6.5$7.8 million for the three months ended SeptemberJune 30, 2019.2020. The increase in cost of revenue was due primarily to increase in volume and certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross marginloss increased to (3.6)(172.7)% for the three months ended SeptemberJune 30, 2020,2021, compared to (4.1)(24.6)% for the three months ended SeptemberJune 30, 2019,2020, primarily due to program investments targeting performance improvements,certain unexpected costs, including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts, partially offset by the increasea change in the provision for common stock warrants.release of the previously recorded loss accrual from $300 thousand during the three months ended June 30, 2020 to $1.9 million during the three months ended June 30, 2021.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the ninesix months ended SeptemberJune 30, 20202021 increased 15.7%57.6%, or $2.9$10.4 million, to $21.7$28.6 million, compared to $18.8$18.1 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increase in cost of revenue was due primarily to certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross margin decreasedloss increased to (11.0) (143.7)% for the ninesix months ended SeptemberJune 30, 2020,2021, compared
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to (5.1)(42.0)% for the ninesix months ended SeptemberJune 30, 2019,2020, primarily due to certain unexpected costs including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and a lower of cost or market adjustment associated with certain parts. This was partially offset by a release of the increase inpreviously recorded loss accrual from $524 thousand during the provision for common stock warrants.six months ended June 30, 2020 to $3.8 million during the six months ended June 30, 2021.
Cost of revenue – provision for loss contracts related to service. The Company also recorded a provision for loss contracts related to service of $4.3$6.7 million infor the third quarterthree months ended June 30, 2021, compared to $0.7 million for the three months ended June 30, 2020. The provision increased as a result of 2020, caused by16 new sites under service contract during the increase in the value of tranche 3 warrantsthree months ended June 30, 2021 as compared to four sites for the valuethree months ended June 30, 2020.
The Company also recorded a provision for loss contracts related to service of tranche 2 warrants.$8.2 million for the six months ended June 30, 2021, compared to $0.8 million for the six months ended June 30, 2020. The provision increased as a result of 22 new sites under service contract during the six months ended June 30, 2021 as compared to five sites during the six months ended June 30, 2020.
Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes depreciation of assets utilized and service costs to fulfill PPA obligations and interest costs associated with certain financial institutions for leased equipment. At June 30, 2021, there were 52 GenKey sites associated with PPAs, as compared to 32 at June 30, 2020. Cost of revenue from PPAs for the three months ended SeptemberJune 30, 20202021 increased 36.1%53.3%, or $3.7$7.7 million, to $14.1$22.2 million from $10.4$14.5 million for the three months ended SeptemberJune 30, 2019.2020 due to the increase in units and sites under PPA contract as well as certain COVID related issues such as increased freight costs, certain force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross margin decreasedloss increased to (110.1)(165.9)% for the three months ended SeptemberJune 30, 2020,2021, as compared to (57.0)(120.5)% for the three months ended SeptemberJune 30, 2019,2020 primarily due to program investments targeting performance improvements, as well as incrementalcertain
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COVID related issues, certain force majeure issues that impacted hydrogen infrastructure service costs, during the quarterand a lower of cost or market adjustment associated with increased usage of units at some of our primary customer sites caused by the COVID-19 pandemic and an increase in the provision for common stock warrants.certain parts.
Cost of revenue from PPAs for the ninesix months ended SeptemberJune 30, 20202021 increased 49.8%38.6%, or $14.0$11.3 million, to $42.0$40.6 million from $28.1$29.3 million for the ninesix months ended SeptemberJune 30, 2019.2020 primarily due to the increase in units and sites under PPA contract as well as certain COVID related issues such as increased freights costs, certain force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross margin decreasedloss increased to (111.7)(150.7)% for the ninesix months ended SeptemberJune 30, 2020,2021, as compared to (46.8)(125.2)% for the ninesix months ended SeptemberJune 30, 2019,2020 primarily due to program investments targeting performance improvements, as well as incrementalcertain COVID related issues, certain force majeure issues that impacted hydrogen infrastructure service costs, during the nine months ended September 30, 2020and a lower of cost or market adjustment associated with increased usage of units at some of our primary customer sites caused by the COVID-19 pandemic and an increase in the provision for common stock warrants.certain parts.
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 customers and costs for onsite generation. Cost of revenue from fuel delivered to customers for the three months ended SeptemberJune 30, 20202021 increased 54.7%264.1%, or $5.0$29.3 million, to $14.2$40.3 million from $9.2$11.1 million for the three months ended SeptemberJune 30, 2019.2020. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. The increase in fuel costs was due primarily to vendor transition and force majeure events primarily related to hydrogen plant shutdowns that impacted the cost of fuel. Gross margin decreasedloss increased to (44.2)(262.6)% during the three months ended SeptemberJune 30, 2020,2021, compared to (19.8)(50.2)% during the three months ended SeptemberJune 30, 2019,2020. The increased gross loss is primarily due to an increasethe vendor transition and force majeure issues mentioned above. The costs associated with vendor transition issues amounted to approximately $14.6 million for the three months ended June 30, 2021, and are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel paiddelivered to suppliers and an increase incustomers for the provision for common stock warrants.three months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
Cost of revenue from fuel delivered to customers for the ninesix months ended SeptemberJune 30, 20202021 increased 24.4%179.8%, or $6.3$40.1 million, to $32.3$62.5 million from $25.9$22.3 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. The increase in fuel costs was primarily due to vendor transition and force majeure events primarily related to hydrogen plant shutdowns that impacted the cost of fuel. Gross margin decreasedloss increased to (31.5)(180.8)% during the ninesix months ended SeptemberJune 30, 2020,2021, compared to (21.6)(51.9)% during the ninesix months ended SeptemberJune 30, 2019,2020. The increased gross loss is primarily due to an increasethe vendor transition and force majeure issues mentioned above. The cost associated with the vendor transition amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel paiddelivered to suppliers and an increase incustomers for the provision for common stock warrants.six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the six months ended June 30, 2021.
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 SeptemberJune 30, 20202021 increased $4.0$6.4 million, or 49.0%130.8%, to $12.0$11.2 million, from $8.0$4.9 million for the three months ended SeptemberJune 30, 2019.2020. The increase was primarily due to additionaloverall growth in R&D program investments such as programs associatedinvestment is commensurate with improvement of fuel efficiency, GenDrive unit performance andthe Company’s future expansion into new markets, new product development such as on-road delivery trucks, drone applications,lines, and increase in headcount.varied vertical integrations. The average number of R&D employees was 119 at June 30, 2020 compared to 216 at June 30, 2021.
Research and development expense for the ninesix months ended SeptemberJune 30, 20202021 increased $7.8$11.3 million, or 32.0%117.6%, to $32.1$21.0 million, from $24.3$9.6 million for the ninesix months ended SeptemberJune 30, 2019.2020. The increaseoverall growth in 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 primarily117 at June 30, 2020 compared to 191 at June 30, 2021.
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due to additional R&D program investments such as programs associated with improvement of fuel efficiency, GenDrive unit performance and new product development such as on-road delivery trucks, drone applications, and increase in headcount.
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 SeptemberJune 30, 2020,2021, increased $3.9$17.0 million, or 37.3%78.6%, to $14.3$38.7 million from $10.4$21.6 million for the three months ended SeptemberJune 30, 2019.2020. This increase was primarily related to acquisitionincreases in salaries and debt restructuring chargesstock-based compensation due to increased headcount and branding expenses, in addition to increases in salaries, employee bonuses, stock-based compensation and headcount.costs associated with the restatement of our previous years’ financial statements.
Selling, general and administrative expenses for the ninesix months ended SeptemberJune 30, 2020,2021, increased $13.6$31.5 million, or 40.8%96.1%, to $46.9$64.2 million from $33.4$32.8 million for the ninesix months ended SeptemberJune 30, 2019.2020. This increase was primarily related to acquisitionincreases in salaries and debt restructuring chargesstock-based compensation due to increased headcount and branding expenses, in addition to increases in salaries, employee bonuses, stock-based compensation and headcount.costs associated with the restatement of our previous years’ financial statements.
InterestContingent Consideration. The fair value of the contingent consideration related to Giner ELX, Inc. and other expense, netUnited Hydrogen Group Inc. was remeasured as of June 30, 2021, which resulted in a $560 thousand benefit for the three months ended June 30, 2021 and a $230 thousand charge for the six months ended June 30, 2021, both of which are reflected in the unaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2021, respectively.
Interest. Interest and other expense, net consists of interest and other expensesexpense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations, as well asobligations. Interest decreased $3.1 million, or 23.2%, from $13.4 million for the three months ended June 30, 2020 to $10.3 million for the three months ended June 30, 2021. Interest decreased $2.6 million, or 10.4%, from $25.2 million for the six months ended June 30, 2020 to $22.5 million for the six months ended June 30, 2021. Since June 2020, the Company borrowed approximately $50.0 million of additional long-term debt at a 9.5% interest rate, and entered into additional sale/leaseback finance obligation arrangements. This was offset by the exchange and conversion during 2020 of both the 7.5% Convertible Senior Notes and 5.5% Convertible Senior Notes, and the adoption of ASU 2020-06 which reduced the noncash interest expense on convertible notes.
Other expense, net. Other expense, net consists of other expenses related to our foreign currency exchange losses, offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, restricted cash foreign currency exchange gains and other income. Since September 30, 2019, the Company assumed approximately $170.0 million of additional long-term debt at 12% interest (which interest was reduced to 9.5% on May 6, 2020), issued a 7.5% Convertible Senior Note at 7.5% interest, issued $212.5 million convertible senior notes at 3.75% interest, and entered into additional sale/leaseback finance obligation arrangements.
Net interest and other expenseavailable-for-sale securities. This decreased $24 thousand for the three months ended SeptemberJune 30, 2020 increased $9.3 million, or 116.3%, as compared2021 in comparison to the three months ended SeptemberJune 30, 2019.2020. This increase was attributable to an increase in interest expense associated with the Company’s finance obligations, long-term debt and the issuance of the convertible senior note, as mentioned above.
Net interest and other expenseincreased $117 thousand for the ninesix months ended SeptemberJune 30, 2020 increased $17.8 million, or 73.8%, as compared2021 in comparison to the ninesix months ended September 30, 2019. This increase was attributable to an increase in finance obligations, long-term debt and the issuance of the convertible senior note, as mentioned above.
Common Stock Warrant Liability
The Company accounts for common stock warrants as common stock warrant liability with changes in the fair value reflected in the unaudited interim condensed consolidated statement of operations as change in the fair value of common stock warrant liability.
All remaining common stock warrants were fully exercised in the fourth quarter of 2019. As such, there was no change in fair value as of SeptemberJune 30, 2020.
Contingent Consideration
InNet realized gain (loss) on investments. Net realized gain (loss) on investments consists of the second quarter of 2020 the Company recorded a provisional amount of $7.8 million in contingent consideration,sales and maturities related to the valuation of Giner ELX’s earnout payments that the sellers are eligible to receive. In the third quarter of 2020, the Company assessed the fair value of the contingent consideration to be $8.9 million. The $1.1 million change in fair value of the contingent consideration is reflected in the unaudited interim condensed consolidated statement of operationsavailable-for-sale debt securities. This increased $18 thousand for both the three and ninesix months ended SeptemberJune 30, 2021 in comparison to the three and six months ended June 30, 2020.
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Gain (Loss) on ExtinguishmentChange in fair value of Debt
In May 2020, the Company used a portionequity securities. Change in fair value of equity securities consists of the net proceedschanges in fair value for equity securities from the issuancepurchase date to the end of the 3.75% Convertible Senior Notesperiod. This increased $323 thousand for the three and six months ended June 30, 2021 in comparison to repurchase approximately $66.3 million of the 5.5% Convertible Senior Notes which resulted in a $13.2 million gain on early debt extinguishment.
In March of 2019, the Company restructured its long-term debt with New York Green Bank, which resulted in a loss on early debt extinguishment of $0.5 million.three and six months ended June 30, 2020.
Income Tax
The Company did not record any income tax expense or benefit for the three or six months ended June 30, 2021. The Company recognized an income tax benefit for the three and ninesix months ended SeptemberJune 30, 2020 of $6.5 million and $24.2 million, respectively.$17.4 million. Income tax benefit for the three and ninesix months ended SeptemberJune 30, 2020 included $6.5$12.2 million and $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 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the ninethree and six months ended SeptemberJune 30,
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2020 related to the recognition of net deferred tax liabilities in connection with the Giner ELX, Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.
The remaining net deferred tax asset generated from the Company’s current period 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.
Liquidity and Capital Resources
Liquidity
OurAs of June 30, 2021 and December 31, 2020, the Company had $3.2 billion and $1.3 billion of cash requirements relate primarilyand cash equivalents and $429.4 million and $321.9 million of restricted cash, respectively. 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 $1.8 billion. Furthermore, in February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to working capital neededaccelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,996,188 shares of its common stock to operate and grow our business, including funding operating expenses, growth in inventory to support both shipmentsa subsidiary 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 installationSK Holdings at a purchase price of our customers’ hydrogen infrastructure as well as production and delivery$29.2893 per share, or an aggregate purchase price of the hydrogen fuel, continued development and expansion of our products, payment of lease/financing 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 developing marketing and distribution channels; 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 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.approximately $1.6 billion.
We have experienced and continueThe Company has continued to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common stockholders of $85.5$160.4 million and $67.2$46.9 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and had an accumulated deficit of $1.4$2.1 billion at SeptemberJune 30, 2020.2021.
51The Company’s significant obligations consisted of the following as of June 30, 2021:
(i) | Operating and finance leases totaling $142.1 million and $15.1 million, respectively, of which $19.9 million and $2.7 million, respectively, are due within the next 12 months. These leases are primarily related to sale/leaseback agreements entered into with various financial institutions to facilitate the Company’s commercial transactions with key customers. |
(ii) | Finance obligations totaling $195.8 million of which approximately $33.8 million is due within the next 12 months. Finance obligations consist primarily of debt associated with the sale of future revenues and failed sale/leaseback transactions. |
We have historically funded our operations primarily through public
(iii) | Long-term debt, primarily related to the Company’s Loan Agreement with Generate Capital totaling $160.5 million of which $30.4 million is classified as short term on our consolidated balance sheets. See Note 9, “Long-Term Debt”, for more details. |
(iv) | Convertible senior notes totaling $192.0 million at June 30, 2021. See Note 10, “Convertible Senior Notes” for more details. |
The Company’s working capital was $4.7 billion at June 30, 2021, which included unrestricted cash and private offeringscash equivalents of equity$3.2 billion. The Company plans to invest a portion of its available cash to expand its current production and debt, as well as short-term borrowings, long-term debtmanufacturing capacity and project financings. Theto fund strategic acquisitions and partnerships and capital projects. Future use of the Company’s funds is discretionary and the Company believes that its current working capital and cash anticipatedposition will be sufficient to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity and debt offerings, including our at-the-market offering, will provide sufficient liquidity to fund its operations for at least one year after the date 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.
During the nine months ended September 30, 2020, net cash used in operating activities was $156.9 million, consisting primarily41
Net cash used in investing activities for the nine months ended September 30, 2020 totaled $71.7 million and included net cash paid for acquisitions, purchases of intangible assets, 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 lease directly to customers are included in net cash used in investing activities.
Net cash provided by financing activities for the nine months ended September 30, 2020 totaled $590.6 million and primarily resulted from the issuance of shares of common stock and convertible senior notes, and proceeds from borrowing on long-term debt, offset by the repurchase of convertible senior notes and purchase of related capped calls.
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 $1.8 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 directequity 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 anthe At Market Issuance Sales Agreement (ATM), with B. Riley FBR, Inc.Financial (“B. Riley”), as sales agent, or FBR, pursuant to which the Company may offer and sell, from time to time through FBR,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 ATM.
In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.
Prior to December 31, 2019, the Company entered into a previous ATM with FBR, which was terminated in the fourth quarter of 2019. Under this ATM, for the nine months ended September 30, 2019, the Company issued 6.3 million shares of common stock, resulting in net proceeds of $14.6 million.
In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of its common stock at a purchase price of $2.35 per share for net proceeds of approximately $23.5 million.At Market Issuance Sales Agreement.
Convertible Senior Notes
In May 2020, the Company issued $212.8$212.5 million in aggregate principal amount of 3.75% convertible senior notes due 2025, which we refer to herein as the 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 5.5% Convertible Senior Notes due 2023, which we refer to herein as the 5.5% Convertible Senior Notes. In
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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 Octoberthe fourth quarter of 2020, $28.0$33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 12.214.6 million shares of common stock.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 a $40.0 million in aggregate principal amount of 7.5% convertible senior note due 2023, which we refer to herein as the 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.
Operating and Finance Leases
The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). Transactions completed under the sale/leaseback arrangements are generally accounted for as operating leases and therefore the sales of the fuel cell systems and hydrogen infrastructure are recognized as revenue. In connection with certain sale/leaseback transactions, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against the Company’s finance obligations. 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 at September 30, 2020 was $332.8 million, $286.2 million of which were secured with restricted cash, security deposits backing letters of credit, and pledged service escrows.
The Company has varied master lease agreements with Wells Fargo Equipment Finance, Inc., or Wells Fargo, to finance the Company’s commercial transactions with various customers. The Wells Fargo lease agreements were entered into during 2017, 2018, 2019 and 2020. Pursuant to the lease agreements, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites. The Company has a customer guarantee for a large portion of the transactions entered into in connection with such lease agreements. The Wells Fargo lease agreements required letters of credit totaling approximately $78.8 million for the unguaranteed portion as of September 30, 2020. The total remaining lease liabilities owed to Wells Fargo were $114.3 million at September 30, 2020.
Over recent years, including in 2019, the Company has entered into master lease agreements with multiple institutions such as Key Equipment Finance (KeyBank), SunTrust Equipment Finance & Lease Corp. (now known as Truist Bank), First American Bancorp, Inc. (First American), Crestmark Equipment Finance (Crestmark) and U.S. Bank. During the nine months ended September 30 2020, the Company entered into additional lease agreements with KeyBank, First American, Truist Bank, Crestmark and U.S. Bank. Similar to the Wells Fargo lease agreements, the primary purpose of these agreements is to finance commercial transactions with varied customers. Most of the transactions with these financial institutions required cash collateral for the unguaranteed portions totaling $189.9 million as of September 30, 2020. Similar to the Wells Fargo lease agreements, in many cases the Company has a customer guarantee for a large portion of the transactions. The total remaining lease liabilities owed to these financial institutions were $218.5 million at September 30, 2020.
Restricted Cash
As security for the above noted sale/leaseback agreements, cash of $133.4 million was required to be restricted as of September 30, 2020, which restricted cash will be released over the lease term. As of September 30, 2020, the Company also had letters of credit backed by security deposits totaling $149.3 million for the above noted sale/leaseback agreements.
In addition, as of September 30, 2020, the Company also had letters of credit in the aggregate amount of $0.5 million associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as restricted cash.
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Secured Debt
In March 2019, the Company and its subsidiaries Emerging Power Inc. and Emergent Power Inc., entered into a loan and security agreement, as amended (the Loan Agreement)“Loan Agreement”), with Generate Lending, LLC (Generate Capital)(“Generate Capital”), providing for a secured term loan facility in the amount of $100.0$100 million (the Term“Term Loan Facility)Facility”). The Company borrowed $85.0 million under the Loan Agreement on the date of closing and borrowed an additional $15.0 million in April 2019 and $20 million in November 2019. A portion of the initial proceeds of the loan was used to pay in full the Company’s long-term debt with NY Green Bank, a Division of the New York State Energy Research & Development Authority, including accrued interest of $17.6 million (the Green Bank Loan), and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC and repurchase the associated leased equipment. In connection with this transaction, the Company recognized a loss on extinguishment of debt of approximately $0.5 million during the nine months ended September 30, 2019. This loss was recorded in gain (loss) on extinguishment of debt, in the Company’s unaudited interim condensed consolidated statement of operations. Additionally, $1.7 million was paid to an escrow account related to additional fees due in connection with the Green Bank Loan if the Company does not meet certain New York State employment and fuel cell deployment targets by March 2021. Amount escrowed is recorded in short-term other assets on the Company’s unaudited interim condensed consolidated balance sheets as of September 30, 2020. The Company presently expects to meet the targets as required under the arrangement.
During the nine monthsyear ended September 30,December 31, 2020, the Company, received $250 thousand from escrow related to the New York state employment targets.
Additionally, on May 6, 2020, the Company and its subsidiaries, Emerging Power, Inc. and Emergent Power, Inc., entered into a Fifth Amendment (the Amendment)under another series of amendments to the Loan Agreement, and Security Agreement, dated asborrowed an incremental $100.0 million. As part of March 29, 2019, as amended (the Loan Agreement) with Generate Lending, LLC (Generate Capital). The Amendment amendsthe amendment to the Loan Agreement, to, among other things, (i) provide for an incremental term loan in the amount of $50.0 million, (ii) provide for additional, uncommitted incremental term loans in an aggregate amount not to exceed $50.0 million, which may become available to the Company in Generate Capital’s sole discretion, (iii) reduce theCompany’s interest rate on all loansthe secured term loan facility was reduced to 9.50% from 12.00% per annum, and (iv) extend the maturity date was extended to October 31, 2025 from October 6, 2022. The $50 million incremental term loan has been fully funded. In connection with the restructuring, the Company capitalized $1.0 million of origination fees and expensed $300 thousand in legal fees. In the third quarter of 2020, the Company borrowed an additional $50.0 million, under the amended Loan Agreement.
On SeptemberJune 30, 2020,2021, the outstanding balance under the Term Loan Facility was $185.0$150.8 million. In addition to the Generate Capital Loan, on June 30, 2021, there was approximately $10.0 million with a 9.5% annual interest rate.of debt related to the United Hydrogen Group acquisition.
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The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is payable on a quarterly basis. Principal payments will beare funded in part by releases of restricted cash, as described in Note 16, Commitments19, “Commitments and Contingencies.” Based on the amortization schedule as of SeptemberJune 30, 2020,2021, the outstandingaforementioned loan balance of $185.0 million under the Term Loan Facility mustwill be fully paid by October 31, 2025. The Company is in compliance with, or has obtained waivers for, all debt covenants.
All obligations under the Loan Agreement are unconditionally guaranteed by Emerging Power Inc. and Emergent Power Inc.
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 contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales and (iii) compliance with a collateral coverage covenant. The Loan Agreement also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender. As of September 30, 2020, the Company was in compliance with all the covenants.
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
54
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 SeptemberJune 30, 2020,2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
| | |
December 31, 2020 | $ | 164,017 |
December 31, 2021 | | 127,317 |
December 31, 2022 | | 93,321 |
December 31, 2023 | | 62,920 |
December 31, 2024 | | 33,692 |
December 31, 2025 | | — |
| | |
December 31, 2021 | $ | 127,317 |
December 31, 2022 | | 93,321 |
December 31, 2023 | | 62,920 |
December 31, 2024 | | 33,692 |
December 31, 2025 | | — |
Several key indicators of liquidity are summarized in the following table (in thousands):
| | | | | | | | | | | | |
|
| Nine months |
| Year |
| Six months |
| Year | ||||
| | ended or at | | ended or at | | ended or at | | ended or at | ||||
| | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 | ||||
Cash and cash equivalents at end of period | | $ | 448,140 | | $ | 139,496 | | $ | 3,160,170 | | $ | 1,312,404 |
Restricted cash at end of period | |
| 283,232 | |
| 230,004 | |
| 429,393 | |
| 321,880 |
Working capital at end of period | |
| 514,163 | |
| 162,549 | |
| 4,715,333 | |
| 1,380,830 |
Net loss attributable to common stockholders | |
| (85,533) | |
| (85,517) | |
| (160,380) | |
| (596,181) |
Net cash used in operating activities | |
| (156,910) | |
| (51,522) | |
| (246,635) | |
| (155,476) |
Net cash used in investing activities | |
| (71,715) | |
| (14,244) | |
| (1,405,217) | |
| (95,334) |
Net cash provided by financing activities | |
| 590,587 | |
| 325,060 | |
| 3,607,294 | |
| 1,515,529 |
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, which is referred to herein as the 3.75% Convertible Senior Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or 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 |
3.75% Convertible Senior Notes
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 212,463 |
Less initial purchasers' discount | | (6,374) |
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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 Company’s $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which is referred to
55
herein as 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:
1) | during any calendar quarter commencing after |
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 the 3.75% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; |
3) | if the Company calls any or all of the 3.75% Convertible Senior Notes for redemption, any such notes that have been called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or |
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 will beis 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 June 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 six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued 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.
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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.
In accountingThe Company accounts for the issuance of the 3.75% Convertible Senior Notes the Company separated the notes into liability and equity components. The initial carrying amount of the liability component of approximately $75.2 million,
56
net of costs incurred, was calculated by measuring the fair value ofas a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $130.3 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 3.75% Convertible Senior Notes. The difference between the principal amount of the 3.75% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 3.75% Convertible Senior Notes. The effective interest rate is approximately 29.0%. The equity component of the 3.75% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
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. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 3.75% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.6 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 transaction costs attributable to the equity component were approximately $4.4 million and were netted with the equity component in stockholders’ equity.
The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | | | |
| September 30, | June 30, | ||
| 2020 | 2021 | ||
Principal amounts: | | | | |
Principal | $ | 212,463 | $ | 197,278 |
Unamortized debt discount (1) | | (129,101) | ||
Unamortized debt issuance costs (1) | | (2,425) | | (5,267) |
Net carrying amount | $ | 80,937 | $ | 192,011 |
Carrying amount of the equity component (2) | $ | 130,249 |
1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
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):
| | |
| June 30, | |
| 2021 | |
Interest expense | $ | 1,850 |
Amortization of debt issuance costs | | 306 |
Total | | 2,156 |
| | |
Effective interest rate | | 4.50% |
Based on the closing price of the Company’s common stock of $13.41$34.19 on SeptemberJune 30, 2020,2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at SeptemberJune 30, 20202021 was approximately $532.3 million.$1.3 billion. The Company utilizedfair value estimation was primarily based on an active stock exchange trade on June 24, 2021 of the 3.75% Senior Convertible Note. See Note 15, “Fair Value Measurements” for a Monte Carlo simulation model to estimatedescription of the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.hierarchy.
Capped Call
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In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (3.75%(the “3.75% Notes Capped Call)Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call cover,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
57
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 has beenwas recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheet.sheets.
7.5% Convertible Senior Note
In September 2019, the Company issued $40.0 million aggregate principal amount of 7.5% Convertible Senior Note due on January 5, 2023, which is referred to herein as the 7.5% Convertible Senior Note, in exchange for net proceeds of $39.1 million, in a private placement to an accredited investor pursuant to Rule 144A under the Securities Act. There were no required principal payments prior to the maturity of the 7.5% Convertible Senior Note. Upon maturity of the 7.5% Convertible Senior Note, the Company was required to repay 120% of $40.0 million, or $48.0 million. The 7.5% Convertible Senior Note bore interest at 7.5% per year, payable quarterly in arrears on January 5, April 5, July 5 and October 5 of each year beginning on October 5, 2019 and was to mature on January 5, 2023 unless earlier converted or repurchased in accordance with its terms. The 7.5% Convertible Senior Note was unsecured and did not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.
On July 1, 2020, the 7.5% Convertible Senior Note automatically converted into 16.0 million shares of common stock.
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, which is referred to herein as the 5.5% Convertible Senior Notes 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. Of the $128.9 million in aggregate consideration, $35.5 million and $93.4 million were allocated to the debt and equity components, respectively, utilizing an effective discount rate of 29.8% to determine the fair value of the liability component. As of the repurchase date, the carrying value of the 5.5% Convertible Senior Notes that were repurchased, net of unamortized debt discount and issuance costs, was $48.7 million. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. AsIn the fourth quarter of September 30, 2020, approximately $33.7 million aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding. In October 2020, $28.0$33.5 million of the remaining 5.5% Convertible Senior Notes converted into 12.214.6 million shares of common stock.
At issuancestock which resulted in March 2018,a gain of approximately $4.5 million and was recorded on the total net proceeds fromunaudited interim condensed consolidated statement of operations on the 5.5% Convertible Senior Notes were as follows:gain (loss) on extinguishment of debt line.
| | |
| Amount | |
| (in thousands) | |
Principal amount | $ | 100,000 |
Less initial purchasers' discount | | (3,250) |
Less cost of related capped call and common stock forward | | (43,500) |
Less other issuance costs | | (894) |
Net proceeds | $ | 52,356 |
The 5.5% Convertible Senior Notes bear interest at 5.5%, payable semi-annually in cash on March 15 and September 15On January 7, 2021, the remaining aggregate principal of each year. The 5.5% Convertible Senior Notes will mature on March 15, 2023, unless earlier converted
58
or repurchased in accordance with their terms. The 5.5% Convertible Senior Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.
Each $1,000$160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes is convertiblewere converted into 436.300269,808 shares of the Company’s common stock, which is equivalent to a conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events. Holders of these 5.5% Convertible Senior Notes may convert their 5.5% Convertible Senior Notes at their option at any time prior to the close of the last business day immediately preceding September 15, 2022, only under the following circumstances:
On or after September 15, 2022, holders may convert all or any portion of their 5.5% Convertible Senior 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.
Upon conversion of the 5.5% Convertible Senior Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cashstock. Interest expense and shares of the Company’s common stock, at the Company’s election. While the Company plans to settle the principal amount of the 5.5% Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods.
The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. Holders who convert their 5.5% Convertible Senior Notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the 5.5% Convertible Senior Notes or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 5.5% Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the repurchased 5.5% Convertible Senior Notes, plus accrued and unpaid interest.
The Company may not redeem the 5.5% Convertible Senior Notes prior to March 20, 2021. The Company may redeem for cash all or any portion of the 5.5% Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 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 on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides
59
notice of redemption at a redemption price equal to 100% of the principal amount of the 5.5% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
In accountingamortization for the issuance of the notes, the Company separated the 5.5% Convertible Senior Notes into liability and equity components. The initial carrying amount of the liability component of approximately $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 5.5% Convertible Senior Notes. The difference between the principal amount of the 5.5% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 5.5% Convertible Senior Notes. The effective interest rate is approximately 16.0%. The equity component of the 5.5% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.period were immaterial.
We incurred transaction costs related to the issuance of the 5.5% Convertible Senior Notes of approximately $4.1 million, consisting of initial purchasers’ discount of approximately $3.3 million and other issuance costs of $0.9 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 5.5% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.4 million, 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 5.5% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $1.7 million and were netted with the equity component in stockholders’ equity.
The 5.5% Convertible Senior Notes consisted of the following (in thousands):
| | | | | |
| September 30, | | December 31, | ||
| 2020 | | 2019 | ||
Principal amounts: | | | | | |
Principal | $ | 33,660 | | $ | 100,000 |
Unamortized debt discount (1) | | (7,477) | | | (27,818) |
Unamortized debt issuance costs (1) | | (403) | | | (1,567) |
Net carrying amount | $ | 25,780 | | $ | 70,615 |
Carrying amount of the equity component (2) | $ | — | | $ | 37,702 |
Based on the closing price of the Company’s common stock of $13.41 on September 30, 2020, the if-converted value of the 5.5% Convertible Senior Notes was greater than the principal amount. The estimated fair value of the 5.5% Convertible Senior Notes at September 30, 2020 and December 31, 2019 was approximately $195.3 million and $135.3 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 5.5% Convertible Senior Notes, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (5.5%(the “5.5% Notes Capped Call)Call”) with certain counterparties at a price of $16.0 million. The 5.5% Notes Capped Call cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock
60
that underlie the initial 5.5% Convertible Senior Notes and is generally expectedmillion 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, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 5.5% Notes Capped Call is initially $3.82 per share, which represents a premium of 100% over the last then-reported sale price of the Company’s common stock of $1.91 per share on the date of the transaction and is subject to certain adjustments under the terms of the 5.5% Notes Capped Call. The 5.5% Notes Capped Call becomes exercisable if the conversion option is exercised.
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 iswas recorded in additional paid-in capital.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, or (“the Common Stock Forward,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
46
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 has beenwas 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.
In conjunction with the partial payoff of the 5.5% Convertible Senior Notes, the Common Stock Forward’s expiration date was extended to June 1, 2025.
The book valuesvalue of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.
During Octoberthe fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 3.54.4 million shares of its common stock. During the first quarter of 2021, 5.9 million shares settled and were received by the Company. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the Amazon“Amazon Transaction Agreement)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“Amazon Warrant Shares)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. 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
61 upon execution of the Amazon Warrant.
during 2017. All future provisionProvision for common stock warrantsthe second and third tranches of Amazon Warrant Shares is measured based on their grant-date fair value and recorded as a charge against revenue.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 vested in four 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 is $1.1893 per share. Thewere recorded in 2020, 2019 and 2018, respectively, under the terms of the original Amazon Warrant.
Under the terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares will vestvests in eight 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.
47
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, however 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 June 30, 2021 and 2020 was $105 thousand and $3.4 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2021 and 2020 was $209 thousand and $4.7 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock, respectively. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
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 iswas $13.81 per share, which iswas determined pursuant to the terms of the Amazon Warrant as an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the Company’s common stock as of November 2, 2020, the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant Shares arewas 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.
At September 30, 2020 and December 31, 2019, 27,643,347 and 20,368,782Fair value of the Amazon Warrant Shares had vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended September 30,at December 31, 2020 and 2019 was $17.3 million and $1.0 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, 2020 and 2019 was $22.0 million and $2.0 million, respectively.
During the third quarter of 2020, approximately $23.8 million of recorded revenue from Amazon was constrained by the tranche 3 of the Amazon Warrant Shares. An additional 7,274,565 Amazon Warrant Shares vested on November 2, 2020 representing the final vesting of tranche 2, resulting in cumulative vesting in 34,917,912 Warrant Shares since the execution of the Amazon Transaction Agreement. In accordance with terms of the Amazon Transaction Agreement as described above, upon final vesting of tranche 2, the tranche 3 Amazon Warrant Shares exercise price was determined to be $13.81 per share. Basedbased on the exercise price ofBlack 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 third tranche of the Amazon Warrant Shares, among other things, the fair value of the 20,368,784 tranche 3 Amazon Warrant Shares is estimatedCompany to be $10.60 each, compared to the fair value of tranche 2 Amazon Warrant Shares of $1.05 each.develop its own assumptions.
The Company also recorded a provisionused the following assumptions for losses of $4.3 million in the third quarter of 2020 related toits Amazon service contracts, caused primarily by the increase in the value of the tranche 3 warrants, driven by recent increases in the Company’s stock price.Warrant:
| | | | |
| | | | |
| | 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 |
48
Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the Walmart“Walmart Transaction Agreement)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“Walmart Warrant Shares)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 unaudited interim condensed consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vestvests in four installments of
62
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 is $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 eight 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 final 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.
At Septemberboth June 30, 20202021 and December 31, 2019,2020, 13,094,217 and 5,819,652 of the Walmart Warrant Shares had vested, respectively.vested. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the three months ended SeptemberJune 30, 2021 and 2020 and 2019 was $1.3$1.6 million and $0.5$1.0 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the ninesix months ended SeptemberJune 30, 20202021 and 20192020 was $3.2 million and $1.7$1.9 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 no exercises during the three months ended June 30, 2021.
Lessor ObligationsOperating and Finance Lease Liabilities
As of SeptemberJune 30, 2020,2021, the Company had noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to nine years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2020 were as follows (in thousands):
| | | |
Remainder of 2020 |
| $ | 8,272 |
2021 | |
| 34,436 |
2022 | |
| 32,665 |
2023 | |
| 30,043 |
2024 | |
| 26,660 |
2025 and thereafter | | $ | 49,351 |
Total future minimum lease payments |
| $ | 181,427 |
Lessee Obligations
As of September 30, 2020, the Company had operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature“Nature of Operations)Operations”) as summarized below. These leases expire over the next one to eightnine years. Minimum rent payments under operating and finance leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
In prior periods, At the end of the lease term, the leased assets may be returned to the lessor by the Company, entered into sale/leaseback transactions that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations relatedthe Company may negotiate with the lessor to sale/leasebackpurchase the assets at fair market value, or the Company may negotiate with
63
49
the lessor to renew the lease at market rental rates. No residual value guarantees are contained in the leases. No financial covenants are contained within the lease, however there are customary operational covenants such as assurance the Company properly maintains the leased assets and carries appropriate insurance, etc. The leases include credit support in the form of either cash, collateral or letters of credit. See Note 19, “Commitments and Contingencies” for a description of cash held as security associated with the leases.
transactionsThe Company has finance leases associated with its property and equipment in Latham, New York and at September 30, 2020 and December 31, 2019 was $25.9 million and $31.7 million, respectively.fueling customer locations. The fair value of thethis finance obligation approximated the carrying value as of both SeptemberJune 30, 2021.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2021 were as follows (in thousands):
| | | | | | | | | |
| | | | | Finance | | Total | ||
| | | Operating Lease | | Lease | | Lease | ||
| | | Liability | | Liability | | Liabilities | ||
Remainder of 2021 | | $ | 17,298 | | $ | 1,826 | | $ | 19,124 |
2022 | | | 34,579 | |
| 3,731 | | | 38,310 |
2023 | | | 34,636 | |
| 3,708 | | | 38,344 |
2024 | | | 34,636 | |
| 3,715 | | | 38,351 |
2025 and thereafter | | | 73,276 | | | 4,921 | | | 78,197 |
Total future minimum payments | | | 194,425 | |
| 17,901 | | | 212,326 |
Less imputed interest | | | (52,307) | | | (2,793) | | | (55,100) |
Total | | $ | 142,118 | | $ | 15,108 | | $ | 157,226 |
Rental expense for all operating leases was $8.2 million and $7.8 million for the three months ended June 30, 2021 and 2020, respectively. Rental expense for all operating leases was $16.3 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2019.2020, the right of use assets associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $26.5 million and $19.9 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.1 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:
| | | | | |
| | Six months ended | | | Six months ended |
| | June 30, 2021 | | | June 30, 2020 |
Cash payments (in thousands) | $ | 16,081 | | $ | 9,674 |
50
Weighted average remaining lease term (years) | | 5.82 | | | 4.34 |
Weighted average discount rate | | 11.4% | | | 12.1% |
Right of use assets obtained in exchange for new finance lease liabilities were $6.5 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets obtained in exchange for new finance lease liabilities were $12.1 million and $0.7 million for the six months ended June 30, 2021 and 2020, respectively.
Other information related to the finance leases are presented in the following table:
| | | | | | |
| | Six months ended | | | Six months ended | |
| | June 30, 2021 | | | June 30, 2020 | |
Cash payments (in thousands) | $ | 1,166 | | $ | 132 | |
Weighted average remaining lease term (years) | | 4.86 | | | 6.74 | |
Weighted average discount rate | | 6.9% | | | 9.6% | |
Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at SeptemberJune 30, 20202021 was $144.3$176.3 million, $27.3 million and $149.0 million of which $22.2 million and $122.1 million werewas classified as short-term and long-term, respectively, on the unaudited interim condensedaccompanying consolidated balance sheets.sheet. The outstanding balance of this obligation at December 31, 20192020 was $109.4$157.7 million, $24.2 million and $133.5 million of which $15.5 million and $93.9 million werewas classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of SeptemberJune 30, 2021 and December 31, 2020.
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 Company has aoutstanding balance of finance lease associated with its propertyobligations related to sale/leaseback transactions at June 30, 2021 was $19.5 million, $6.5 million and equipment in Latham, New York. A liability relating to this lease$13.0 million of $2.8 million has been recordedwhich was classified as a finance obligation inshort-term and long-term, respectively on the unaudited interim condensedaccompanying consolidated balance sheetsheet. 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 of September 30.short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation approximated the carrying value as of Septemberboth June 30, 2021 and December 31, 2020.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year)obligations notes above as of SeptemberJune 30, 20202021 were as follows (in thousands):
| | | | | | | | | | | | |
| | | | | | | | Other | | Total | ||
| | Operating | | Finance | | Leased | | Finance | ||||
| | Leases | | Leases | | Property | | Obligations | ||||
Remainder of 2020 | | $ | 14,639 | | $ | 2,546 | | $ | 186 | | $ | 17,371 |
2021 | | | 58,505 | |
| 9,276 | |
| 590 | |
| 68,371 |
2022 | | | 58,480 | |
| 4,975 | |
| 573 | |
| 64,028 |
2023 | | | 55,655 | |
| 3,149 | |
| 549 | |
| 59,353 |
2024 | | | 54,203 | |
| 16,154 | |
| 632 | |
| 70,989 |
2025 and thereafter | | | 71,304 | | | — | | | 1,174 | | | 72,478 |
Total future minimum lease payments | | | 312,786 | | | 36,100 | | | 3,704 | | | 352,590 |
Less imputed lease interest | | | (84,903) | |
| (10,190) | |
| (947) | |
| (96,040) |
Sale of future services | | | 144,292 | | | — | | | — | |
| 144,292 |
Total lease liabilities | | $ | 372,175 | | $ | 25,910 | | $ | 2,757 | | $ | 400,842 |
Rental expense for all operating leases was $14.6 million and $7.8 million for the three months ended September 30, 2020 and 2019, respectively. Rental expense for all operating leases was $40.1 million and $19.9 million for the nine months ended September 30, 2020 and 2019, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $24.5 million and $44.2 million for the three and nine months ended September 30, 2020, respectively, and $14.8 million and $30.9 million for the three and nine months ended September 30, 2019, respectively. Right of use assets obtained in exchange for new operating lease liabilities was $41.1 million and $86.5 million for the three and nine months ended September 30, 2020, respectively, and $38.4 million and $72.9 million for the three and nine months ended September 30, 2019.
| | | | | | | | | |
| | | | | | | | Total | |
| | | Sale of Future | | | Sale/leaseback | Finance | ||
| | | revenue - debt | | | financings | Obligations | ||
Remainder of 2021 | | $ | 23,525 | | $ | 4,212 | | $ | 27,737 |
2022 | | | 46,165 | | | 4,975 | | | 51,140 |
2023 | | | 46,165 | | | 3,148 | | | 49,313 |
2024 | | | 46,165 | | | 16,154 | | | 62,319 |
2025 and thereafter | | | 72,708 | | | — | | | 72,708 |
Total future minimum payments | | | 234,728 | | | 28,489 | | | 263,217 |
Less imputed interest | | | (58,461) | | | (8,951) | | | (67,412) |
Total | | $ | 176,267 | | $ | 19,538 | | $ | 195,805 |
At both September 30, 2020 and December 31, 2019, security deposits associated with sale/leaseback transactions were $5.8 million and were included in other assets in the unaudited interim condensed consolidated balance sheets.51
Other information related to the operating leasesabove finance obligations are presented in the following tables:table:
| | | | | |
| | Nine months ended | | | Nine months ended |
| | September 30, 2020 | | | September 30, 2019 |
Cash payments (in thousands) | $ | 40,500 | | $ | 19,222 |
64
| | | | | |
| September 30, | ||||
| | 2020 | | | 2019 |
Weighted average remaining lease term (years) | | 5.5 | | | 5.25 |
Weighted average discount rate | | 12.1% | | | 12.1% |
Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the unaudited interim consolidated statement of operations). Finance lease costs were as follows (in thousands):
| | | | | |
| Nine months ended | | Nine months ended | ||
| September 30, 2020 | | September 30, 2019 | ||
Amortization of right of use asset | $ | 2,655 | | $ | 2,308 |
Interest on finance obligations | | 1,778 | | | 3,194 |
Total finance lease cost | $ | 4,433 | | $ | 5,502 |
Right of use assets obtained in exchange for new finance lease liabilities was $41.1 million and $86.5 million for the three and nine months ended September 30, 2020, respectively, and $38.4 million and $72.9 million for the three and nine months ended September 30, 2019, respectively.
Other information related to the finance leases are presented in the following tables:
| | | | | |
| | Nine months ended | | | Nine months ended |
| | September 30, 2020 | | | September 30, 2019 |
Cash payments (in thousands) | $ | 7,847 | | $ | 57,659 |
| | | | | | | | | | |
| As of September 30, | | Six months ended | | | Six months ended | ||||
| | 2020 | | | 2019 | | June 30, 2021 | | | June 30, 2020 |
Weighted average remaining lease term (years) | | 3.36 | | | 3.09 | |||||
Cash payments (in thousands) | $ | 26,508 | | $ | 20,148 | |||||
Weighted average remaining term (years) | | 4.9 | | | 4.3 | |||||
Weighted average discount rate | | 7.8% | | | 11.1% | | 11.3% | | | 11.2% |
Restricted Cash
As security forIn connection with certain of the above noted sale/leaseback agreements, cash of $133.4$243.5 million was required to be restricted as security as of SeptemberJune 30, 2020,2021, which restricted cash will be released over the lease term. As of SeptemberJune 30, 2020,2021, the Company also had certain letters of credit backed by security depositsrestricted cash totaling $149.3$143.7 million that are security for the above noted sale/leaseback agreements.
In addition, as of September 30, 2020, the Company also had letters of credit in the aggregate amount of $0.5 million associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as restricted cash.Fair Value
Legal matters are defendedThe Company records the fair value of assets and handledliabilities 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 ordinary course of business.principal or most advantageous market for that asset or liability. The Company has established accruals for matters for which management considers a lossfair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.entity.
65In 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, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2021.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | | | | | | |
| | As of June 30, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents (1) | $ | 141,313 | $ | 141,313 | $ | 87,573 | $ | 53,740 | $ | — |
Corporate bonds | | 705,084 | | 705,084 | | — | | 705,084 | | — |
Commercial paper | | 329,722 | | 329,722 | | — | | 329,722 | | — |
U.S. Treasuries | | 170,477 | | 170,477 | | 170,477 | | — | | — |
Municipal debt | | 9,984 | | 9,984 | | — | | 9,984 | | — |
52
Certificates of deposit | | 27,454 | | 27,454 | | — | | 27,454 | | — |
Equity securities | | 120,302 | | 120,302 | | 120,302 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | 9,990 | | 9,990 | | — | | — | | 9,990 |
Convertible senior notes | | 192,011 | | 1,320,194 | | — | | 1,320,194 | | — |
Long-term debt | | 160,484 | | 160,484 | | — | | — | | 160,484 |
Finance obligations | | 195,805 | | 195,805 | | — | | — | | 195,805 |
| | | | | | | | | | |
| | | | | | | | | | |
| | 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 consolidated balance sheets as of June 30, 2021. |
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
Concentrations
The amortized cost, gross unrealized gains and losses, fair value of Credit Riskthose investments classified as available-for-sale securities, and allowance for credit losses at June 30, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | 707,022 | | $ | 51 | | $ | (1,989) | | $ | 705,084 | | | — |
Commercial paper | | 329,471 | | | 253 | | | (2) | | | 329,722 | | | — |
Certificates of deposit | | 27,460 | | | — | | | (6) | | | 27,454 | | | — |
U.S. Treasuries | | 170,672 | | | — | | | (195) | | | 170,477 | | | — |
Municipal debt | | 9,993 | | | — | | | (9) | | | 9,984 | | | — |
Total | $ | 1,244,618 | | $ | 304 | | $ | (2,201) | | $ | 1,242,721 | | $ | — |
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, at June 30, 2021 is as follows (in thousands):
Concentrations
| | | | | |
| June 30, 2021 | ||||
| | Amortized | | Fair | |
Maturity: | | Cost | | Value | |
Within one year | $ | 717,531 |
| $ | 717,285 |
After one through five years |
| 527,087 | |
| 525,436 |
Total | $ | 1,244,618 | | $ | 1,242,721 |
The cost, gross unrealized gains, gross unrealized losses, and fair value of credit risk with respect to receivables exist due to the limited numberthose investments classified as equity securities at June 30, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2021 | ||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value |
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Fixed income mutual funds | $ | 89,962 |
| $ | 17 | | $ | (81) | | $ | 89,898 |
Exchange traded mutual funds | | 30,016 | | | 388 | | | — | | | 30,404 |
Total | $ | 119,978 | | $ | 405 | | $ | (81) | | $ | 120,302 |
Off-Balance Sheet Arrangements
At September 30, 2020, one customer comprised approximately 84.5% of the total accounts receivable balance. At December 31, 2019, two customers comprised approximately 63.4% of the total accounts receivable balance.
For the nine months ended September 30, 2020, 71.8% of total consolidated revenues were associated primarily with two customers. For the nine months ended September 30, 2019, 62.3% of total consolidated revenues were associated primarily with three customers. 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.
Off-Balance Sheet Arrangements
As of September 30, 2020, theThe 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 operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, 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, for bad debts, inventories, intangible assets, valuationimpairment of long-lived assets and PPA executory contract consideration, accrual for loss contracts on service,extended maintenance contracts, operating and finance leases, product warranty reserves, unbilled revenue, common stock warrants, income taxes, stock-based compensation, contingencies, and purchase accounting.contingencies. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about (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.
We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates”, as well as a discussion of significant accounting policies included in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements, both of which are included
There have been no changes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.critical accounting estimates from those reported in our 2020 10-K.
Recent Accounting Pronouncements
Recently Adopted Accounting PronouncementsGuidance
In June 2016, Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued. Also, In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU requires a number of changes toOther than the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information to estimate expected credit losses over the entire lifetimeadoption of the asset, including losses where probability is considered remote. Additionally,accounting guidance mentioned in our 2020 10-K and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the standard requires the estimationadoption of lifetime expected losses for trade receivables and contract assets that
66new accounting pronouncements.
are classified as current. The Company adopted these standards effectiveOn January 1, 2020 and determined the impact of the standards to be immaterial to the consolidated financial statements.
In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). The Company2021, we early adopted this standard effective January 1, 2020 and determined the impact of this standard to be immaterial to the consolidated financial statements.
In January 2017, Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350), 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 goodwillASU No. 2020-06, Debt—Debt with the carrying amount of that goodwill. The Company adopted this standard effective January 1, 2020.
In August 2016, Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230)s: Classification of Certain Cash Receipts and Cash Payments, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in 2019 and determined the impact of this standard to be immaterial to the consolidated financial statements.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In August 2020, Accounting Standards Update (ASU) 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes is now accounted for Convertible Instrumentsas a single liability measured at its amortized cost. This accounting change removed the impact of recognizing the equity component of the Company’s convertible notes at issuance and Contracts in an Entity’s Own Equity, was issued to address issues identifiedthe subsequent accounting impact of additional interest expense from debt discount amortization. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the complexity associated with applying GAAPif-converted method for certain financial instruments with characteristicsconvertible instruments. The cumulative effect of liabilitiesthe accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and equity. This update is effective after December 15, 2021. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.reduced additional paid-in capital by $130.2 million.
In March 2020, Recent Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): FacilitationGuidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of the Effects of Reference Rate Reform on Financial Reporting, was issued to provide temporary optional expedients and exceptionsJune 30, 2021 are either not applicable to the GAAP guidance on contract modifications and hedge accountingCompany or are not expected to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update is effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is evaluating the adoption method as well as thehave a material impact this update will have on the consolidated financial statements.
Company.
In March 2020, Accounting Standards Update (ASU) 2020-03, Codification Improvements to Financial Instruments, was issued to make various codification improvements to financial instruments to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. This update will be effective at various dates as described in this ASU. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.
In December 2019, Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, was issued to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update will be effective beginning after December 15, 2020. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.
Item 3 — Quantitative and Qualitative Disclosures about Market Risk
From time to time, we may invest our cashThere has been no material change from the information provided in government, government backedthe 2020 10-K “Item 7A: Quantitative and interest-bearing investment-grade securities that we generally hold for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments orQualitative Disclosures About Market Risk,” other market risk sensitive instruments, positions or
67than those described below.
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transactionsDuring the first six months of 2021, the Company purchased U.S. Treasury securities, corporate bonds, commercial paper, certificates of deposit, money market funds and municipal debt, in any material fashion, except forwhich the 5.5% Notes Capped Call and Common Stock Forward purchased in March 2018 related to the issuancemajor components of 5.5% Convertible Senior Notes and the 3.75% Notes Capped Call purchased in May 2020 related to the issuance of 3.75% Convertible Senior Notes. We are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.affecting us are credit risk and interest rate risk. We also purchased equity securities, in which the major component of market risk affecting us is equity risk.
Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of HyPulsion, S.A.S., our French subsidiary that develops and sells hydrogen fuel cell systems for the European material handling market.market. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location. The Company reviews the level of foreign content as part of its ongoing evaluation of overall sourcing strategies and considers the exposure to be not significant. Our HyPulsion exposure presently is mitigated by low levels of operations and its sourcing is primarily intercompany in nature and denominated in U.S. dollars.
Item 4 — Controls and Procedures
(a) Disclosure controls and procedures.
The chief executive officer and chief financial officer, based on their evaluation ofWe maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures are effective for ensuringdesigned to ensure that information required to be disclosed in theour reports that it fileswe file or submitssubmit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Commission’sSEC rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’sour management, including itsour Chief Executive Officer (our principal executive officerofficer) and Chief Financial Officer (our principal financial officerofficer) as appropriate, to allow for timely decisions regarding required disclosure.
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 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 June 30, 2021.
Material Weakness identified as of December 31, 2020
Management identified the following deficiency in internal control over financial reporting as of December 31, 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:
(a) | Presentation of operating expenses; |
(b) | Accounting for lease-related transactions; |
(c) | Identification and evaluation of impairment, accrual for loss contracts, certain expense accruals, and deemed dividends; and |
(d) | Timely identification of adjustments to physical inventory in interim periods. |
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:
a) | Hiring additional resources, including third-party resources, with the appropriate technical accounting expertise, and strengthening internal training, to assist us in identifying and addressing any complex technical accounting issues that affect our consolidated financial statements. |
b) | We will design and implement a comprehensive and continuous risk assessment process to identify and assess risks of material misstatements and ensure that the impacted financial reporting processes and related internal controls are properly designed, maintained, and documented to respond to those risks in our financial reporting. |
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c) | We will implement more structured analysis and review procedures and documentation for the application of GAAP, complex accounting matters, and key accounting policies. |
d) | We will augment our current estimation policies and procedures to be more robust and in-line with overall market dynamics including an evaluation of our operating environment in order to ensure operating effectiveness of certain process-level control activities. |
e) | We also intend to deploy new tools and tracking mechanisms to help enhance and maintain the appropriate documentation surrounding our classification of operating expenses. |
f) | We will report regularly to the Company’s Audit Committee on the progress and results of the remediation plan, including the identification, status, and resolution of internal control deficiencies. |
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.
ThereExclusive of the steps taken in remediation activities, there were no changes in the Company’s internal control over financial reporting that(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the last fiscal quarter ended June 30, 2021 that havehas materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
On August 28, 2018, a lawsuit was filed on behalf of multiple individuals against the Company and five corporate co-defendants in the 9th Judicial District Court, Rapides Parish, Louisiana. The lawsuit relates to the previously disclosed May 2018 accident involving a forklift powered by the Company’s fuel cell at a Procter & Gamble facility in Louisiana. The lawsuit alleges claims against the Company and co-defendants, including Structural Composites Industries, Deep South Equipment Co., Air Products and Chemicals, Inc., and Hyster-Yale Group, Inc. for claims under the Louisiana Product Liability Act or LPLA,(“LPLA”) including defect in construction and/or composition, design defect, inadequate warning, breach of express warranty and negligence for wrongful death and personal injuries, among other damages. Procter & Gamble has intervened in that suit to recover worker’s compensation benefits paid to or for the employees/dependents. Procter & Gamble has also filed suit for property damage, business interruption, loss of revenue, expenses, and other damages. Procter & Gamble alleges theories under the LPLA, breach of warranty and quasi-contractual claims under Louisiana law. Defendants include the Company and several of the same co-defendants from the August 2018 lawsuit, including Structural Composites Industries, (“SCI”), an affiliate of Worthington Industries, Deep South Equipment Co., and Hyster-Yale Group, Inc. Fact
In March and expert discovery amongMay 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 parties is ongoing,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 to delays related to the review of classification of certain costs and the formerrecoverability of the two cases was set for mediation for early November 2020 until it was postponed dueright to further discovery requests by the partiesuse assets with certain leases”; and delays caused by the impact of COVID-19. We continue(ii) “was reasonably likely to defend against these lawsuits vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with these lawsuits, but the Company does not expect thereport material weaknesses
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lawsuits to havein its internal control over financial reporting[.]” The complaints allege that, a material impact onresult, “positive statements about the Company’s financial position, liquidity business, operations, and prospects were materially misleading and/or resultslacked a reasonable basis,” causing Class members losses and damages. The complaints seek compensatory damages “in an amount to be proven at trial, including interest thereon”; “reasonable costs and expenses incurred in th[e] action”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.” On July 22, 2021, the U.S. District Court for the Southern District of operations, or to otherwise haveNew York consolidated the three cases and appointed a material adverse effect on the Company. lead plaintiff. On July 28, 2021, Tank v. Plug Power, et. al., was voluntarily dismissed.
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 just and equitable.” On April 27, 2021, the U.S. District Court for the Southern District of New York consolidated the Liu Derivative Complaint and the Levy Derivative Complaint under Case No. 1:21-cv-02753-ER (the “Consolidated Action”).
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
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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 1A – Risk Factors
The risk factors discussed under the heading “Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 continue to apply to our business.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) None.
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
None.
Item 5 — Other Information
(a) None.
(b) None.
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Item 6 — Exhibits
| |
| |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
3.7 | |
3.8 | |
3.9 | |
31.1 (1) | |
|
|
31.2 (1) | |
|
|
32.1 (1) | |
|
|
32.2 (1) | |
|
|
101.INS* | Inline XBRL Instance Document (1) |
101.SCH* | XBRL Taxonomy Extension Schema Document (1) |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document (1) |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document (1) |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document (1) |
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101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document (1) |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) (1) |
(1) | Filed herewith. |
* | Submitted electronically herewith. |
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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.
| | |
| PLUG POWER INC. | |
| | |
Date: | By: | /s/ Andrew Marsh |
| | Andrew Marsh |
| | President, Chief Executive |
| | |
Date: | By: | /s/ Paul B. Middleton |
| | Paul B. Middleton |
| | Chief Financial Officer (Principal |
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