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PLUG Plug Power

Filed: 21 Jun 21, 9:24pm

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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 March 31, 2021

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 Each Class

    

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share

 

PLUG

The NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No  

Indicate by check mark whether the registrant has submitted electronically 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-2 of the Exchange Act). Yes  No 

The number of shares of common stock, par value of $0.01 per share, outstanding as of June 7, 2021 was 568,317,504.

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)

    

March 31,

    

December 31,

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

4,349,066

$

1,312,404

Restricted cash

62,397

64,041

Available-for-sale securities, at fair value
(amortized cost $405,168 and allowance for credit losses of $0 at March 31, 2021)

405,260

Accounts receivable

 

42,632

 

43,041

Inventory

 

187,732

 

139,386

Prepaid expenses and other current assets

 

49,097

 

44,324

Total current assets

 

5,096,184

 

1,603,196

Restricted cash

 

281,665

 

257,839

Property, plant, and equipment, net

82,823

 

74,549

Right of use assets related to finance leases, net

11,270

5,724

Right of use assets related to operating leases, net

124,503

117,016

Equipment related to power purchase agreements and fuel delivered to customers, net

74,214

 

75,807

Goodwill

71,964

72,387

Intangible assets, net

 

38,393

 

39,251

Other assets

 

5,225

 

5,513

Total assets

$

5,786,241

$

2,251,282

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

47,168

$

50,198

Accrued expenses

 

28,595

 

46,083

Deferred revenue

 

16,948

 

23,275

Operating lease liabilities

18,778

14,314

Finance lease liabilities

1,794

903

Finance obligations

32,144

32,717

Current portion of long-term debt

21,389

25,389

Other current liabilities

 

24,997

 

29,487

Total current liabilities

 

191,813

 

222,366

Deferred revenue

 

40,611

 

32,944

Operating lease liabilities

103,533

99,624

Finance lease liabilities

8,507

4,493

Finance obligations

 

150,647

 

148,836

Convertible senior notes, net

191,768

85,640

Long-term debt

139,870

150,013

Other liabilities

 

40,429

 

40,447

Total liabilities

 

867,178

 

784,363

Stockholders’ equity:

Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 582,312,020 at March 31, 2021 and 473,977,469 at December 31, 2020

 

5,823

 

4,740

Additional paid-in capital

 

6,949,938

 

3,446,650

Accumulated other comprehensive income

 

1,420

 

2,451

Accumulated deficit

 

(1,997,684)

 

(1,946,488)

Less common stock in treasury: 15,926,068 at both March 31, 2021 and December 31, 2020

(40,434)

(40,434)

Total stockholders’ equity

 

4,919,063

 

1,466,919

Total liabilities and stockholders’ equity

$

5,786,241

$

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

March 31,

2021

    

2020

Net revenue:

Sales of fuel cell systems and related infrastructure

$

46,772

$

20,468

Services performed on fuel cell systems and related infrastructure

6,045

6,521

Power Purchase Agreements

 

7,826

 

6,421

Fuel delivered to customers

 

11,127

 

7,333

Other

188

76

Net revenue

71,958

40,819

Cost of revenue:

Sales of fuel cell systems and related infrastructure

 

28,974

 

13,974

Services performed on fuel cell systems and related infrastructure

 

13,086

 

10,347

Provision for loss contracts related to service

1,485

95

Power Purchase Agreements

 

18,343

 

14,771

Fuel delivered to customers

 

22,143

 

11,254

Other

 

98

 

81

Total cost of revenue

 

84,129

 

50,522

Gross loss

 

(12,171)

 

(9,703)

Operating expenses:

Research and development

9,742

4,774

Selling, general and administrative

25,579

11,109

Change in fair value of contingent consideration

790

Total operating expenses

36,111

15,883

Operating loss

(48,282)

(25,586)

Interest

 

(12,266)

 

(11,789)

Other expense, net

 

(198)

 

(57)

Loss before income taxes

$

(60,746)

$

(37,432)

Income tax benefit

 

 

Net loss attributable to the Company

$

(60,746)

$

(37,432)

Preferred stock dividends declared

 

 

(13)

Net loss attributable to common stockholders

$

(60,746)

$

(37,445)

Net loss per share:

Basic and diluted

$

(0.12)

$

(0.12)

Weighted average number of common stock outstanding

 

513,458,287

 

305,192,201

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

March 31,

    

2021

    

2020

Net loss attributable to the Company

$

(60,746)

$

(37,432)

Other comprehensive gain (loss):

Foreign currency translation loss

 

(1,123)

 

(236)

Change in net unrealized gain on available-for-sale securities

92

Comprehensive loss attributable to the Company

$

(61,777)

$

(37,668)

Preferred stock dividends declared

(13)

Comprehensive loss attributable to common stockholders

$

(61,777)

$

(37,681)

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’ Equity

(In thousands, except share amounts)

(Unaudited)

    

    

    

    

    

    

    

Accumulated

    

    

    

    

    

    

Additional

Other

Total

Common Stock

 Paid-in

Comprehensive

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Shares

    

Amount

    

Deficit

    

Equity

December 31, 2020

 

473,977,469

$

4,740

$

3,446,650

$

2,451

 

15,926,068

$

(40,434)

$

(1,946,488)

$

1,466,919

Net loss attributable to the Company

 

 

 

 

 

 

(60,746)

 

(60,746)

Cumulative impact of Accounting Standards Update 2020-06 adoption

(130,249)

9,550

(120,699)

Other comprehensive loss

 

 

 

(1,031)

 

 

 

(1,031)

Stock-based compensation

15,166

 

 

9,695

 

 

 

 

 

9,695

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

1,758,375

 

18

 

4,691

 

 

 

 

 

4,709

Exercise of warrants

16,308,978

 

163

 

15,282

 

 

 

 

15,445

Provision for common stock warrants

1,601

 

1,601

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

March 31, 2021

582,312,020

$

5,823

$

6,949,938

$

1,420

 

15,926,068

$

(40,434)

$

(1,997,684)

$

4,919,063

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

 

 

 

 

 

 

 

(37,432)

 

(37,432)

Other comprehensive loss

 

 

 

 

(236)

 

 

 

 

(236)

Stock-based compensation

 

156,416

 

2

 

3,051

 

 

1,962

 

(8)

 

 

3,045

Stock dividend

 

3,857

 

 

13

 

 

 

 

(13)

 

Stock option exercises

 

3,206,185

 

32

 

6,072

 

 

 

 

 

6,104

Provision for common stock warrants

2,566

2,566

Accretion of discount, preferred stock

(28)

(28)

Conversion of preferred stock

 

216,451

 

2

 

467

 

 

 

 

 

469

March 31, 2020

 

322,220,469

$

3,222

$

1,519,094

$

1,052

 

15,261,007

$

(31,224)

$

(1,387,752)

$

104,392

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)

Three months ended

March 31,

 

2021

    

2020

Operating Activities

Net loss attributable to the Company

$

(60,746)

$

(37,432)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation of long-lived assets

 

5,514

 

2,991

Amortization of intangible assets

 

364

 

175

Stock-based compensation

 

9,695

 

3,045

Amortization of debt issuance costs and discount on convertible senior notes

1,092

2,716

Provision for common stock warrants

1,705

2,566

Benefit on service contracts

(361)

(128)

Fair value adjustment to contingent consideration

(790)

Changes in operating assets and liabilities that provide (use) cash:

Accounts receivable

 

109

 

1,034

Inventory

 

(46,791)

 

(20,581)

Prepaid expenses, and other assets

 

(4,641)

 

(10,794)

Accounts payable, accrued expenses, and other liabilities

 

(23,516)

 

(3,374)

Deferred revenue

 

1,267

 

(620)

Net cash used in operating activities

 

(117,099)

 

(60,402)

Investing Activities

Purchases of property, plant and equipment

 

(9,879)

 

(2,507)

Purchases of equipment related to Power Purchase Agreements and equipment related to fuel delivered to customers

(3,332)

(3,848)

Purchase of available-for-sale securities

(405,168)

Net cash used in investing activities

 

(418,379)

 

(6,355)

Financing Activities

Proceeds from exercise of warrants, net of transaction costs

 

15,445

 

Proceeds from public and private offerings, net of transaction costs

 

3,587,825

 

Proceeds from exercise of stock options

 

4,709

 

6,104

Proceeds from borrowing of long-term debt

(5,315)

Principal payments on long-term debt

(14,461)

Repayments of finance obligations

(9,806)

(5,343)

Proceeds from finance obligations

 

10,661

 

9,024

Net cash provided by financing activities

 

3,594,373

 

4,470

Effect of exchange rate changes on cash

 

(51)

 

1

Increase/(decrease) in cash, cash equivalents and restricted cash

 

3,058,844

 

(62,286)

Cash, cash equivalents, and restricted cash beginning of period

 

1,634,284

 

369,500

Cash, cash equivalents, and restricted cash end of period

$

4,693,128

$

307,214

Supplemental disclosure of cash flow information

Cash paid for interest

$

2,608

$

5,155

Summary of non-cash activity

Recognition of right of use asset - finance leases

$

5,292

$

Recognition of right of use asset - operating leases

12,720

340

Conversion of preferred stock to common stock

441

Conversion of convertible senior notes to common stock

15,345

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

7

1.  Nature of Operations

Plug Power is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions.  In our core business, we provide and continue to develop commercially viable hydrogen and fuel cell product solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses. We are focusing our efforts on 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. 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.

Our current products and services include:

GenDrive: GenDrive is our hydrogen fueled Proton 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;

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;

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 membrane electrode assembly (“MEA”), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; 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 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 viable products in Latham, New York, Rochester, New York and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.

8

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 quarterly 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 this quarterly report on Form 10-Q, we will include 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.

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”). 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”), 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 2020 10-K.

The information presented in the accompanying unaudited interim condensed consolidated balance sheets as of December 31, 2020 has been derived from the Company’s December 31, 2020 audited consolidated financial statements.

There have been no changes in our accounting policies from those reported in our 2020 10-K, except for the adoption of Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40),  as described in the Recently Adopted Accounting Guidance section. We have also expanded our accounting policy relating to cash equivalents, and available-for-sale securities as follows:

Cash Equivalents

The Company considers all highly-liquid debt securities with original maturities of three months or less to be cash equivalents. At March 31, 2021, cash equivalents consist of commercial paper with original maturities of three months or less. Due to their short-term nature, the carrying amounts reported in the unaudited interim condensed consolidated balance sheets approximate the fair value of cash and cash equivalents.

9

Available-for-sale securities

Available-for-sale securities is comprised of commercial paper with original maturities greater than three months and corporate bonds.  We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following 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 losses, 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.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

Other than the adoption of the accounting guidance mentioned in our 2020 10-K and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.

On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes due 2025, which is referred to herein as the 3.75% Convertible Senior Notes, is now accounted for as 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 the 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 if-converted method for convertible instruments. The cumulative effect of the accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.7 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million.

Recent Accounting Guidance Not Yet Effective

All issued but not yet effective accounting and reporting standards as of March 31, 2021 are either not applicable to the Company or are not expected to have a material impact on the Company.

3. Acquisitions

Giner ELX Inc. Acquisition

 

On June 22, 2020, the Company acquired 100% of the outstanding shares of Giner ELX, Inc. (“Giner ELX”). Giner ELX is a developer of electrolysis hydrogen generators which can be used for a variety of applications, including 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 common stock

19,263

Contingent consideration

7,790

Total consideration

$

52,873

The contingent consideration represents the estimated fair value associated with earn-out payments of up to $16.0 million that the sellers are eligible to receive. Of the total earnout consideration, $8.0 million is related to the achievement

10

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 will be reduced by approximately 8.33% each month beyond this date. In addition, 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 the earn-out revenue exceeds 200% of the 2023 revenue target, the sellers will receive warrants with a value of $10.0 million. The warrants will be exercisable within two years of issuance.

In connection with the Giner ELX acquisition, the Company revised the acquisition-date fair value of contingent consideration liabilities which were determined to be measurement period adjustments and resulted in an increase in other liabilities and goodwill of $0.7 million for the year ended December 31, 2020.

The following table summarizes the final 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

669

Property, plant and equipment

596

Identifiable intangibles

29,930

Accounts payable, accrued expenses and other liabilities

(1,621)

Deferred revenue

(2,350)

Deferred tax liability, net

(5,889)

Total net assets acquired, excluding goodwill

$

26,680

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 backlog and non-complete agreements was nominal.

The fair value of the acquired IPR&D related to the dry stack technology 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 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 assets, the fair value of acquired work in process and finished goods inventory was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.  Additionally, 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 was used to value these contingent payments as the payments are milestone based in nature. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments. The revenue targets are achieved when certain revenue thresholds are met,

11

and the catch-up provision creates path-dependency. As such, the revenue earn-out was valued using a Monte Carlo Simulation.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $7.8 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was remeasured as of March 31, 2021 and December 31, 2020, and was estimated to be $10.4 million and $9.6 million, respectively. The increase in fair value of $0.8 million and $1.8 million was primarily due to a change in the discount rate offset by a decrease in the discount period, and was recorded as an expense in the consolidated statement of operations at March 31, 2021 and December 31, 2020, respectively.  

Included in Giner ELX’s net assets acquired are net deferred tax liabilities of $5.9 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 of $5.2 million during the year ended December 31, 2020.

Goodwill associated with the Giner ELX acquisition was calculated as follows (in thousands):

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.

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 the reduction of the purchase price if the Company were to complete the acquisition of UHG. As such, this note was cancelled in conjunction with the closing of the UHG 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 two discrete milestones associated with 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. This fair value measurement was based on unobservable inputs and is considered a level 3 financial instrument. Due to the milestone nature of the payments, a scenario-based method was used to value these contingent payments.

The estimated fair value of the contingent consideration as of the acquisition date was $1.1 million. Subsequently, a payment of $300 thousand was made to the sellers as a result of achieving the first milestone related to the expansion of the liquefication capacity of the Charleston Plant. A reduction of the contingent consideration liability of $610 thousand was also recorded subsequent to the acquisition due to a reduction in the probability assessment that the second expansion

12

milestone will be met. As of March 31, 2021 and December 31, 2020, the remaining contingent consideration liability related to the UHG acquisition was $200 thousand.

The following table summarizes the final allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Accounts receivable

$

444

Inventory

 

89

Prepaid expenses and other assets

1,152

Property, plant and equipment

 

41,244

Leased property

796

Identifiable intangible asset

 

2,338

Long-term debt

(11,336)

Unfavorable customer contract

(15,757)

Accounts payable, accrued expenses, deferred revenue and finance obligations

(4,631)

Total net assets acquired, excluding goodwill

$

14,339

The identifiable intangible asset consisted of developed technology, as described below in Note 9, “Intangible Assets and Goodwill.” 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 Company 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. Further, the Company assumed interest-bearing debt. The fair value of the assumed debt was calculated using the discounted cash flow method.

In connection with the UHG acquisition, the Company finalized the valuation of an unfavorable 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.

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 recorded in connection with the Giner ELX and UHG acquisitions is not deductible for tax purposes.  

The results of the Giner ELX and UHG are included in the Company’s consolidated financial statements for the three months ended March 31, 2021 and the year ended December 31, 2020 from their respective dates of acquisition.

Neither the Giner ELX acquisition nor the UHG acquisition was material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented. Purchase accounting related to the Giner ELX and UHG acquisitions has been completed as of Q1 2021.

4. Extended Maintenance Contracts

On a quarterly basis, we evaluate any potential losses related to our extended maintenance contracts for fuel cell systems and related infrastructure that has been sold. We measure impairment losses at the customer contract level. The

13

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 considers its current service cost level and applies significant judgment related to expected cost saving initiatives. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life, achieving better economies of scale for service labor, and improvements in design and operations of infrastructure. If the expected cost saving initiatives are not realized, this will increase the costs of providing services and could adversely affect our estimated contract loss accrual.

The following table shows the rollforward of balance in the accrual for loss contracts, including changes due to the passage of time, additions, and changes in estimates (in thousands):

March 31,

December 31,

2021

2020

Beginning Balance

$

24,013

$

3,702

Provision for Loss Accrual

1,485

35,473

Released to Service Cost of Sales

(1,846)

(2,348)

Released to Provision for Warrants

(12,814)

Ending Balance

$

23,652

$

24,013

5. 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. After 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 under the 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 March 31,

    

2021

    

2020

Stock options outstanding (1)

9,020,891

 

19,803,872

Restricted stock outstanding (2)

6,416,308

 

4,600,227

Common stock warrants (3)

88,264,726

110,573,392

Preferred stock (4)

 

2,782,075

Convertible Senior Notes (5)

39,170,766

 

59,133,896

Number of dilutive potential shares of common stock

142,872,691

 

196,893,462

(1)During the three months ended March 31, 2021 and 2020, the Company granted 581,000 and 85,000 stock options, respectively.

(2)During the three months ended March 31, 2021 and 2020, the Company granted 555,000 and 0 shares of restricted stock, respectively.

(3)In April 2017, the Company issued a warrant to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement with Amazon, subject to certain vesting events, as described in Note 13, “Warrant Transaction Agreements. The warrant had been exercised with respect to 9,214,449 shares as of March 31, 2021.  

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In July 2017, the Company issued a warrant to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note 13, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 13,094,217 shares as of March 31, 2021.

(4)The preferred stock amount at March 31, 2020 represents the dilutive potential on the shares of common stock as a result of the conversion of the Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock) based on the conversion price as of March 31, 2020. Of the 10,431 shares of Series C Preferred Stock issued on May 16, 2013, all shares had been converted to common stock as of December 31, 2020.  

(5)In March 2018, the Company issued the 5.5% Convertible Senior Notes due 2023, which is referred to herein as the 5.5% Convertible Senior Notes. In September 2019, the Company issued the 7.5% Convertible Senior Note due 2023, which we refer to herein as the 7.5% Convertible Senior Note, which was fully converted into 16.0 million shares of common stock on July 1, 2020. In May 2020, the Company issued the 3.75% Convertible Senior Notes and repurchased $66.3 million of the 5.5% Convertible Senior Notes.  In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes converted into 14.6 million shares of common stock. The remaining $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted in January 2021. During the first quarter of 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted, resulting in the issuance of 3,016,036 shares of common stock.

6. Inventory

Inventory as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

    

March 31,

    

December 31,

 

2021

2020

Raw materials and supplies - production locations

$

123,450

$

92,221

Raw materials and supplies - customer locations

12,538

12,405

Work-in-process

 

46,118

 

29,349

Finished goods

 

5,626

 

5,411

Inventory

$

187,732

$

139,386

7. Equipment Related to Power Purchase Agreements and Fuel Delivered to Customers, net

Leased property at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

    

March 31,

    

December 31,

 

2021

2020

 

Equipment related to power purchase agreements and fuel delivered to customers

$

90,878

$

92,736

Less: accumulated depreciation

(16,664)

(16,929)

Equipment related to power purchase agreements and fuel delivered to customers, net

74,214

75,807

As of March 31, 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 is $1.8 million and $2.1 million for the three months ended March 31, 2021 and 2020 respectively.


​​

15

8. Property, Plant and Equipment

Property, plant and equipment at March 31, 2021 and December 31, 2020 consists of the following (in thousands):

March 31, 2021

December 31, 2020

Land

1,165

1,165

Leasehold improvements

$

1,378

$

1,121

Software, machinery and equipment

 

104,071

 

94,449

Property, plant, and equipment

 

106,614

 

96,735

Less: accumulated depreciation

 

(23,791)

 

(22,186)

Property, plant, and equipment, net

$

82,823

$

74,549

Depreciation expense related to property, plant and equipment was $1.6 million and $0.9 million for the periods ended March 31, 2021 and 2020, respectively.

9. Intangible Assets and Goodwill

The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of March 31, 2021 were as follows (in thousands):

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

 

Acquired technology

 

10 years

 

$

13,092

$

(4,260)

$

8,832

Customer relationships, Non-compete agreements, Backlog & Trademark

6 years 

 

890

(329)

561

In process research and development

 

Indefinite

29,000

29,000

$

42,982

$

(4,589)

$

38,393

The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2020 were as follows (in thousands):

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

 

Acquired technology

 

10 years

$

13,697

$

(4,042)

$

9,655

Customer relationships, Non-compete agreements, Backlog & Trademark

6 years 

890

(294)

596

In process research and development

 

Indefinite

 

29,000

 

29,000

$

43,587

$

(4,336)

$

39,251

The change in the gross carrying amount of the acquired technology from December 31, 2020 to March 31, 2021 was primarily due to foreign currency translation.

Amortization expense for acquired identifiable intangible assets for the three months ended March 31, 2021 and 2020 was $0.4 million and $0.2 million, respectively.

16

The estimated amortization expense for subsequent years is as follows (in thousands):

Remainder of 2021

    

$

1,093

2022

1,458

2023

1,458

2024

1,436

2025 and thereafter

3,948

Total

$

9,393

Goodwill was $72.0 million and $72.4 million as of March 31, 2021 and December 31, 2020 respectively, which decreased $400 thousand due to currency translation loss for HyPulsion S.A.S., our French subsidiary goodwill.  There were 0 impairments during the three months ended March 31, 2021 or the year ended December 31, 2020.

10. Long-Term Debt

In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).

During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and  the maturity date was extended to October 31, 2025 from October 6, 2022. On March 31, 2021, the outstanding balance under the Term Loan Facility was $151.5 million.

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 are funded in part by releases of restricted cash, as described in Note 20, “Commitments and Contingencies.” Based on the amortization schedule as of March 31, 2021, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025.  The Company is in compliance with, or has obtained waivers for, all debt covenants.  

The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.

As of March 31, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):

December 31, 2021

$

127,317

December 31, 2022

93,321

December 31, 2023

62,920

December 31, 2024

33,692

December 31, 2025

17

11. Convertible Senior Notes

3.75% Convertible Senior Notes

On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, (“the Securities Act”). On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.

At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:

Amount

(in thousands)

Principal amount

$

212,463

Less initial purchasers' discount

(6,374)

Less cost of related capped calls

(16,253)

Less other issuance costs

(617)

Net proceeds

$

189,219

The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.  The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.

The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.  

Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:

1)during any calendar quarter commencing after March 31, 2021 if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

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.

18

On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.  During the three months ended of March 31, 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.

The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes.

The 3.75% Convertible Senior Notes consisted of the following (in thousands):

March 31,

2021

Principal amounts:

Principal

$

197,278

Unamortized debt issuance costs (1)

(5,510)

Net carrying amount

$

191,768

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.

19

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):

March 31,

2021

Interest Expense

$

1,897

Amortization of Debt Issuance Costs

1,258

Total

3,155

Effective Interest Rate

4.5%

Based on the closing price of the Company’s common stock of $35.84 on March 31, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at March 31, 2021 was approximately $1.3 billion. The fair value estimation was primarily based on an active stock exchange trade on March 30, 2021 of the 3.75% Senior Convertible Note. See Note 16, “Fair Value Measurements” for a description of the fair value hierarchy.

Capped Call

In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.

5.5% Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, 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. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line.

On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.

20

Capped Call

In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

 

Common Stock Forward

In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction, (“the Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025.  The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.

The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.

The book value of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.

During the fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 4.4 million shares of its common stock. During the first quarter of 2021, 5.9 million shares settled and were received by the Company, with an additional 2.2 million that settled and were received by the company in April 2021.

12.  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 March 31, 2021 and December 31, 2020, there were 0 shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding.  

Common Stock and Warrants

The Company has one class of common stock, par value $.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.

21

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 equity offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.

There were 566,385,952 and 458,051,920 shares of common stock outstanding as of March 31, 2021 and December 31, 2020, respectively.

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 13, “Warrant Transaction Agreements.” At both March 31, 2021 and December 31, 2020, a total of 68,380,913 warrants had vested. Warrants were exercised with respect to 5,819,652 shares during the fourth quarter of 2020. Warrants were exercised with respect to an additional 16,489,014 shares during the three months ended March 31, 2021. These warrants are measured at fair value at the time of grant or modification and are classified as equity instruments on the unaudited interim condensed consolidated balance sheets.

At Market Issuance Sales Agreement

On April 13, 2020, the Company entered into the at Market Issuance Sales agreement with B. Riley Financial (“B. Riley”) as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the at Market Issuance Sales agreement.

13. Warrant Transaction Agreements

Amazon Transaction Agreement

On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the Amazon Warrant Shares was conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

Under 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 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 $6.7 million fair value of the first tranche of the Amazon Warrant Shares, was recognized as selling, general and administrative expense upon execution of the Amazon Warrant.

Provision for the second and third tranches of Amazon Warrant Shares is recorded as a reduction of revenue, because they represent consideration payable to a customer.

The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares vested in 4 equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made 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 last installment of the second tranche vested on November 2, 2020.  Revenue reductions of $9.0 million, $4.1 million and $9.8 million associated with

22

the second tranche of Amazon Warrant Shares were 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 vests in 8 equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.  

On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.

The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant.  A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).

The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 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. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended March 31, 2021 and 2020 was $104 thousand and $1.3 million, respectively.  During the three months ended March 31, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock. On June 11, 2021, an additional 4,534,130 warrants were exercised.

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 was $13.81 per share, which was determined pursuant to the terms of the Amazon Warrant as an amount equal to 90 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 was exercisable through April 4, 2027. The Amazon Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant provides 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. The Amazon Warrant is classified as an equity instrument.

Fair value of the Amazon Warrant at December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.

23

The Company used the following assumptions for its Amazon 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

Walmart Transaction Agreement

On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares conditioned 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 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 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 vests 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 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 is exercisable through July 20, 2027.

The Walmart Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant provides 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. The Walmart Warrant is classified as an equity instrument.

At both March 31, 2021 and December 31, 2020, 13,094,217 of the Walmart Warrant Shares had 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 March 31, 2021 and 2020 was $1.6 million and $0.9 million, respectively. During the three months ended March 31, 2021 and December 31, 2020, the Walmart Warrant had been exercised with respect to 7,274,565 and 5,819,652 shares of common stock, respectively.

24

14. Revenue

Disaggregation of revenue

The following table provides information about disaggregation of revenue (in thousands):

Major products/services lines

Three months ended March 31,

2021

2020

Sales of fuel cell systems

$

26,419

$

14,732

Sale of hydrogen installations and other infrastructure

20,353

5,736

Services performed on fuel cell systems and related infrastructure

6,045

6,521

Power Purchase Agreements

7,826

6,421

Fuel delivered to customers

11,127

7,333

Other

188

76

Net revenue

$

71,958

$

40,819

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):

March 31,

December 31,

2021

2020

Accounts receivable

$

42,632

$

43,041

Contract assets

17,009

18,189

Contract liabilities

72,897

76,285

Contract assets relate to contracts for which revenue is recognized on a straight-line basis, however billings escalate over the life of a contract. Contract assets also include amounts recognized as revenue in advance of billings to customers, which are dependent upon the satisfaction of another performance obligation. These amounts are included within prepaid expenses and other current assets on the accompanying unaudited interim condensed consolidated balance sheets.

The contract liabilities relate to the advance consideration received from customers for services that will be recognized over time (primarily fuel cell and related infrastructure services) and advance consideration received from customers prior to delivery of products.  As of March 31, 2021, the amount of contract liabilities included within deferred revenue was $57.6 million and the amount of contract liabilities within other current liabilities was $15.3 million on the accompanying unaudited interim condensed consolidated balance sheets. As of December 31, 2020, the amount of contract liabilities included within deferred revenue was $56.2 million and the amount of contract liabilities within other current liabilities was $20.1 million.  

 

25

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):

Contract assets

Three months ended

March 31, 2021

Transferred to receivables from contract assets recognized at the beginning of the period

$

(2,625)

Revenue recognized and not billed as of the end of the period

1,445

Net change in contract assets

(1,180)

Contract liabilities

Three months ended

March 31, 2021

Increases due to cash received, net of amounts recognized as revenue during the period

$

13,045

Revenue recognized that was included in the contract liability balance as of the beginning of the period

(16,433)

Net change in contract liabilities

$

(3,388)

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, including provision for common stock warrants (in thousands):

March 31,

2021

Sales of fuel cell systems

$

66,033

Sale of hydrogen installations and other infrastructure

69,678

Services performed on fuel cell systems and related infrastructure

105,852

Power Purchase Agreements

185,431

Fuel delivered to customers

64,555

Other rental income

2,894

Total estimated future revenue

$

494,443

Contract costs

Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.

Capitalized contract costs at March 31, 2021 and December 31, 2020 were $1.7 million and $1.5 million, respectively.

15. Income Taxes

The Company did 0t record any income tax expense or benefit for the three months ended March 31, 2021 or 2020. 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 net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

26

16. Fair Value Measurements

The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 — unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value.

The fair values of the Company’s investments are based upon prices provided by an independent pricing service. Management has assessed and concluded that these prices are reasonable and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were 0 transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2021.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

As of March 31, 2021

Carrying

Fair

Fair Value Measurements

Amount

Value

Level 1

Level 2

Level 3

Assets

Cash equivalents (1)

$

93,941

$

93,941

$

$

93,941

$

Corporate bonds

99,171

99,171

99,171

Commercial paper

306,089

306,089

306,089

Liabilities

Contingent consideration

10,550

10,550

10,550

Convertible senior notes

191,768

1,320,952

1,320,952

Long-term debt

161,259

161,259

161,259

Finance obligations

182,791

182,791

182,791

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 March 31, 2021, in addition to cash of $4.3 billion.

27

The fair values for available-for-sale securities are based on prices obtained from an independent pricing service. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs.

17.  Operating and Finance Lease Liabilities

As of March 31, 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 term, 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 credit support in the form of either cash, collateral or letters of credit.  See Note 20, “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 March 31, 2021.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of March 31, 2021 were as follows (in thousands):

Finance

Total

Operating Lease

Lease

Lease

Liability

Liability

Liabilities

Remainder of 2021

$

24,082

$

1,874

$

25,956

2022

29,050

 

2,471

31,521

2023

29,107

 

2,446

31,553

2024

29,097

 

2,529

31,626

2025 and thereafter

56,232

3,103

59,335

Total future minimum payments

167,568

 

12,423

179,991

Less imputed interest

(45,257)

(2,122)

(47,379)

Total

$

122,311

$

10,301

$

132,612

Rental expense for all operating leases was $8.0 million and $4.8 million for the three months ended March 31, 2021 and 2020, respectively.  

The gross profit on sale/leaseback transactions for all operating leases was $16.0 million and $5.3 million for the three months ended March 31, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $11.9 million and $5.2 million for the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021 and December 31, 2020, the right of use assets associated with operating leases was $124.5 million and $117.0 million, respectively.  The accumulated depreciation for these right of use assets was $50.3 million and $48.6 million at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021 and December 31, 2020, the right of use assets associated with finance leases was $11.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $143 thousand and $102 thousand at March 31, 2021 and December 31, 2020, respectively.  

28

At March 31, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $2.4 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:

Three months ended

Three months ended

March 31,2021

March 31, 2020

Cash payments (in thousands)

$

6,734

$

8,199

Weighted average remaining lease term (years)

5.77

4.22

Weighted average discount rate

11.6%

12.0%

Right of use assets obtained in exchange for new finance lease liabilities were $5.6 million and 0 for the three months ended March 31, 2021 and 2020, respectively.

Other information related to the finance leases are presented in the following table:

Three months ended

Three months ended

March 31, 2021

March 31, 2020

Cash payments (in thousands)

$

433

$

78

Weighted average remaining lease term (years)

5.1

7.51

Weighted average discount rate

7.2%

8.8%

18. 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 March 31, 2021 was $161.0 million, $24.7 million and $136.3 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 March 31, 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 March 31, 2021 was $21.8 million, $7.4 million and $14.4 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 March 31, 2021 and December 31, 2020.

29

Future minimum payments under finance obligations notes above as of March 31, 2021 were as follows (in thousands):

Total

Sale of Future

Sale/leaseback

Finance

revenue - debt

financings

Obligations

Remainder of 2021

$

31,738

$

6,795

$

38,533

2022

41,554

4,976

46,530

2023

41,554

3,149

44,703

2024

41,554

16,154

57,708

2025 and thereafter

59,449

59,449

Total future minimum payments

215,849

31,074

246,923

Less imputed interest

(54,827)

(9,305)

(64,132)

Total

$

161,022

$

21,769

$

182,791

Other information related to the above finance obligations are presented in the following table:

Three months ended

Three months ended

March 31, 2021

March 31, 2020

Cash payments (in thousands)

$

12,816

$

9,879

Weighted average remaining term (years)

4.9

4.3

Weighted average discount rate

11.2%

11.1%

19. Investments

The gross unrealized gains and losses, and the amortized cost, allowance for credit losses, and fair value of those investments classified as available-for-sale at March 31, 2021 are summarized as follows (in thousands):

Amortized

Gross

Gross

Fair

Allowance for

Cost

Unrealized Gains

Unrealized Losses

Value

Credit Losses

Corporate bonds

$

99,239

 

$

$

(68)

$

99,171

$

Commercial paper

 

305,929

 

160

306,089

Totals

$

405,168

$

160

$

(68)

$

405,260

$

A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, is as follows (in thousands):

March 31, 2021

Amortized

Fair

Maturity:

Cost

Value

Within one year

$

375,804

 

$

375,927

After one through five years

 

29,364

 

29,333

Totals

$

405,168

$

405,260

30

20.  Commitments and Contingencies

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $198.6 million was required to be restricted as security as of March 31, 2021, which restricted cash will be released over the lease term. As of March 31, 2021, the Company also had certain letters of credit backed by restricted cash totaling $144.4 million that are security for the above noted sale/leaseback agreements.

Litigation

Legal matters are defended and handled in the ordinary course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.  The Company has not recorded any accruals related to 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 and short-term high credit quality corporate debt securities.

Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.

At March 31, 2021, 2 customers comprised approximately 67.7% of the total accounts receivable balance. At December 31, 2020, 3 customers comprised approximately 73.9% of the total accounts receivable balance.

For the three months ended March 31, 2021, 71.2% of total consolidated revenues were associated primarily with 3 customers. For the three months ended March 31, 2020 65.9% of total consolidated revenues were associated primarily with 2 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.

21. 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 $8.5 million and $2.5 million, for the three months ended March 31, 2021 and 2020, respectively, in connection with the 2011 Plan.

31

At March 31, 2021, there were outstanding options to purchase approximately 9.0 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 $3.3 million and $1.4 million of the total share-based payment expense recorded for the three months ended March 31, 2021 and March 31, 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 581,000 and 85,000 options granted during the three months ended March 31, 2021 and 2020, respectively, were as follows:

    

March 31,

March 31,

2021

    

2020

Expected term of options (years)

6

6

Risk free interest rate

0.61% - 0.73%

0.69% - 1.37%

Volatility

72.46%

64.19%

There was 0 expected dividend yield for the employee stock options granted.

The Company 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 does not believe historical exercise data provides 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. The Company expects to cease using the simplified method to determine its expected term for stock option grants in the second quarter of  2021.  The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past six years, which represents the Company’s best estimate of expected volatility.

A summary of stock option activity for the quarter ended March 31, 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

581,000

65.72

Exercised

(1,811,274)

2.65

Forfeited

(33,333)

1.74

Expired

Options outstanding at March 31, 2021

9,020,891

$

15.18

8.1

$

247,964

Options exercisable at March 31, 2021

2,284,519

2.07

5.7

77,143

Options unvested at March 31, 2021

6,736,372

$

11.73

8.9

$

170,820

The weighted average grant-date fair value of options granted during the three months ended March 31, 2021 and 2020 was $31.78 and $2.80, respectively. As of March 31, 2021, there was approximately $40.5 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 March 31, 2021 and 2020 was approximately $2.9 million and $1.2 million, respectively.

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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 $5.2 million and $1.0 million, for the three months ended March 31, 2021 and 2020, respectively. Additionally, for the three months ended March 31, 2021 and 2020, there was $64.1 million and $7.4 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 March 31, 2021 is as follows (in thousands except share amounts):

    

    

Aggregate

 

Intrinsic

Shares

Value

Unvested restricted stock at December 31, 2020

5,874,642

$

Granted

555,000

Vested

(10,001)

Forfeited

(3,333)

Unvested restricted stock at March 31, 2021

6,416,308

$

229,960

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 133,250 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the three months ended March 31, 2021 and 2020, respectively.

The Company’s expense for this plan was approximately $1.3 million, and $529 thousand for the three months ended March 31, 2021 and 2020, respectively.

Non-Employee Director Compensation

Each non-employee director is paid an annual retainer for their services, in the form of either cash or stock compensation. The Company granted 2,653 shares of common stock and 14,833 shares of common stock to non-employee directors as compensation for the three months ended March 31, 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 $85 thousand and $56 thousand for the three months ended March 31, 2021 and 2020, respectively.

22. Subsequent Events

On June 3, 2021, the Company, Plug Power France, a wholly-owned subsidiary of the Company (“Plug Power France”), Renault SAS (“Renault”) and HyVia, a French société par actions simplifiée (“HyVia”), entered into a definitive Joint Venture Agreement and related agreements to consummate the parties’ previously announced joint venture based in France (the “France JV”). HyVia, the joint venture entity, plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCE-LCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe.  HyVia will be owned 50% by Plug Power France and 50% by Renault.  The Company and Renault will make investments into HyVia to support necessary funding and growth, and the Company and Renault expect to invest on a pro rata basis not less than €65 million through 2022.

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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 and notes thereto included in our 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 and Section 21E of the Securities Exchange Act of 1934, as amended “the 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;
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;

34

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;
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 price.

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

Plug Power is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions.  In our core business, we provide and continue to develop commercially viable hydrogen and fuel cell product solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses. We are focusing our efforts on 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. 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.

Part of our long-term plan includes Plug Power penetrating the on-road vehicle market and large-scale stationary market. Plug Power’s announcements to form joint ventures with Renault in Europe and SK Group in Asia not only support this goal but are expected to provide us with a more global footprint. Plug has been successful with acquisitions, strategic partnerships, and joint ventures, and we plan to continue this mix.  For example, we expect our relationships with Brookfield and Apex to provide us access to low-cost renewable energy, which is critical to produce low-cost green hydrogen.

35

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;

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 “MEA”, a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; 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 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 “OEMs” and their dealer networks. Plug Power is targeting Asia and Europe for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug Power is executing on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling as well as securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. We manufacture our commercially viable products in Latham, New York, Rochester, New York and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.

Recent Developments

COVID-19 Update

As a result of the COVID-19 pandemic outbreak in March 2020, state governments—including those in New York and Washington, where our manufacturing facilities are located—issued orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces to employees and customers.  As a result, we had put in place a number of protective measures in response to the COVID-19 outbreak, which included the canceling of all commercial air travel and all other non-critical travel, requesting that employees limit non-essential personal travel, eliminating all but essential third-party access to our facilities, enhancing our facilities’ janitorial and sanitary procedures, encouraging employees to work from home to the extent their job function enabled them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing and service operations.  In 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 validation process may enter

36

Plug Power facilities without a face mask. Individuals inside Plug Power facilities who are not fully vaccinated 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 conduct health screening upon entrance to our facilities, 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. Certain of our customers, such as Walmart, significantly increased their use of units and hydrogen fuel consumption as a result of COVID-19. In the three months ended March 31, 2021 and the twelve months ended December 31, 2020, our services and PPA 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.

Capital Raises and Strategic Activities

On June 3, 2021, the Company, Plug Power France, a wholly-owned subsidiary of the Company, Renault SAS (“Renault”) and HyVia, a French société par actions simplifiée, entered into a definitive Joint Venture Agreement and related agreements to consummate the parties’ previously announced joint venture based in France. HyVia, the joint venture entity, plans to manufacture and sell “FCE-LCVs” and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe.  HyVia will be owned 50% by Plug Power France and 50% by Renault.  The Company and Renault will make investments into HyVia to support necessary funding and growth, and the Company and Renault expect to invest on a pro rata basis not less than €65 million through 2022.

On February 24, 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings  at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.

In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8 billion.

Explanatory Note

As previously disclosed in the Explanatory Note to the 2020 10-K, the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited quarterly consolidated financial statements of and for each of the quarterly periods ended March 31, 2020, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.

Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with this quarterly report on Form 10-Q, we will include in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.

37

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.

Net revenue, cost of revenue, gross profit (loss) and gross margin for the three months ended March 31, 2021 and 2020, were as follows (in thousands):

    

Cost of

    

Gross

    

Gross

Net Revenue

Revenue

Profit/(Loss)

Margin

 

For the period ended March 31, 2021:

Sales of fuel cell systems and related infrastructure

$

46,772

$

28,974

$

17,798

 

38.1

%

Services performed on fuel cell systems and related infrastructure

 

6,045

 

13,086

 

(7,041)

 

(116.5)

%

Provision for loss contracts related to service

1,485

(1,485)

N/A

Power Purchase Agreements

 

7,826

 

18,343

 

(10,517)

 

(134.4)

%

Fuel delivered to customers

 

11,127

 

22,143

 

(11,016)

 

(99.0)

%

Other

 

188

 

98

 

90

 

47.9

%

Total

$

71,958

$

84,129

$

(12,171)

 

(16.9)

%

For the period ended March 31, 2020:

Sales of fuel cell systems and related infrastructure

$

20,468

$

13,974

$

6,494

 

31.7

%

Services performed on fuel cell systems and related infrastructure

 

6,521

 

10,347

 

(3,826)

 

(58.7)

%

Provision for loss contracts related to service

95

(95)

N/A

Power Purchase Agreements

 

6,421

 

14,771

 

(8,350)

 

(130.0)

%

Fuel delivered to customers

 

7,333

 

11,254

 

(3,921)

 

(53.5)

%

Other

 

76

 

81

 

(5)

 

(6.6)

%

Total

$

40,819

$

50,522

$

(9,703)

 

(23.8)

%

The amount of provision for common stock warrants recorded as a reduction of revenue during the three months ended March 31, 2021 and 2020, respectively, is shown in the table below (in thousands):

Three months ended March 31,

2021

2020

Sales of fuel cell systems and related infrastructure

$

(27)

$

(644)

Services performed on fuel cell systems and related infrastructure

 

(140)

 

(258)

Power Purchase Agreements

 

(900)

 

(551)

Fuel delivered to customers

 

(638)

 

(754)

Total

$

(1,705)

$

(2,207)

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.

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Revenue from sales of fuel cell systems and related infrastructure for the three months ended March 31, 2021 increased $26.3 million, or 128.5%, to $46.8 million from $20.5 million for the three months ended March 31, 2020. Included within revenue was provision for common stock warrants of $27 thousand and $0.6 million for the three months ended March 31, 2021 and 2020, respectively. The main drivers for the increase in revenue were the increase in GenDrive units recognized as revenue, an increase in hydrogen installations, and an increase in the provision for common stock warrants. There were 1,308 GenDrive units recognized as revenue during the three months ended March 31, 2021, compared to 825 for the three months ended March 31, 2020. There was hydrogen infrastructure revenue associated with six hydrogen sites during the three months ended March 31, 2021, compared to one during the three months ended March 31, 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 March 31, 2021, there were 14,189 fuel cell units and 60 hydrogen installations under extended maintenance contracts, an increase from 10,662 fuel cell units and 45 hydrogen installations at March 31, 2020. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended March 31, 2021 decreased $0.5 million, or 7.3%, to $6.0 million as compared to $6.5 million for the three months ended March 31, 2020. Included within revenue was provision for common stock warrants of $0.1 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively. The main drivers in decrease in revenue was a reduction in billings for run time hours that exceeded certain levels given certain changes in the overall contract and commercial relationship, partially offset by the decrease in the provision for common stock warrants.

Revenue – Power Purchase Agreements.  Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At March 31, 2021, there were 50 GenKey sites associated with PPAs, as compared to 34 at March 31, 2020. Revenue from PPAs for the three months ended March 31, 2021 increased $1.4 million, or 21.9%, to $7.8 million from $6.4 million for the three months ended March 31, 2020. Included within revenue was provision for common stock warrants of $0.9 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively. The increase in revenue from PPAs for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily attributable to the 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 March 31, 2021 increased $3.8 million, or 51.7%, to $11.1 million from $7.3 million for the three months ended March 31, 2020. Included within revenue was provision for common stock warrants of $0.6 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. The increase in revenue was due to an increase in the number of sites with fuel contracts from 77 as of March 31, 2020 to 109 as of March 31, 2021, and a 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, and 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 March 31, 2021 increased 107.3%, or $15.0 million, to $29.0 million, compared to $14.0 million for the three months ended March 31, 2020. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There were 1,308 GenDrive units recognized as revenue during the three months ended March 31, 2021, compared to 825 for the three months ended March 31, 2020. Revenue associated with six hydrogen installations was recognized during the three months ended March 31, 2021, compared to one during the three months ended March 31, 2020. Gross profit generated from sales of fuel cell systems and related infrastructure increased to 38.1% for the three months ended March 31, 2021, compared to 31.7% for the three months ended March 31, 2020 primarily due to the mix impact of the units sold and customer profile.

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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 March 31, 2021, there were 14,189 fuel cell units and 60 hydrogen installations under extended maintenance contracts, an increase from 10,662 fuel cell units and 45 hydrogen installations at March 31, 2020, respectively. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended March 31, 2021 increased 26.5%, or $2.7 million, to $13.1 million, compared to $10.4 million for the three months ended March 31, 2020. Gross loss increased to (116.5)% for the three months ended March 31, 2021, compared to (58.7)% for the three months ended March 31, 2020, primarily due to a lower of cost or market adjustment associated with remanufactured parts.  This was partially offset by a change in the release of the previously recorded loss accrual from $224 thousand in the first quarter of 2020 to $1.8 million in the first quarter of 2021.  

Cost of revenue – provision for loss contracts related to service.  The Company also recorded a provision for loss contracts related to service of $1.5 million for the three months ended March 31, 2021, compared to $95 thousand for the three months ended March 31, 2020. The provision increased as a result of changes in the estimated projected future costs due to the realization that certain cost initiatives were not occurring as quickly as initially expected, as well changes in the number of service contracts.

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 March 31, 2021, there were 50 GenKey sites associated with PPAs, as compared to 34 at March 31, 2020. Cost of revenue from PPAs for the three months ended March 31, 2021 increased 24.2%, or $3.6 million, to $18.3 million from $14.8 million for the three months ended March 31, 2020 primarily due to the increase in units and sites under PPA contract. Gross loss increased slightly to (134.4)% for the three months ended March 31, 2021, as compared to (130.0)% for the three months ended March 31, 2020 primarily due to a change in common stock warrants provision.

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 March 31, 2021 increased 96.8%, or $10.9 million, to $22.1 million from $11.3 million for the three months ended March 31, 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. Gross loss increased to (99.0)% during the three months ended March 31, 2021, compared to (53.5)% during the three months ended March 31, 2020. The rate increases stem from a certain supplier in which we have commenced a transition, as well as certain force majeure issues.

Expenses

Research and development expense. Research and development 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 March 31, 2021 increased $5.0 million, or 104.1%, to $9.7 million, from $4.8 million for the three months ended March 31, 2020.  The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, and varied vertical integrations. The number of R&D employees was 113 at March 31, 2020 compared to 202 at March 31, 2021.

Selling, general and administrative expenses.  Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.

40

Selling, general and administrative expenses for the three months ended March 31, 2021, increased $14.5 million, or 130.3%, to $25.6 million from $11.1 million for the three months ended March 31, 2020. This increase was primarily related to increases in salaries and stock-based compensation due to increased headcount, in addition to costs associated with the restatement of our previous years’ financial statements.

Contingent Consideration.  The fair value of the contingent consideration related to Giner ELX and UHG was remeasured as of March 31, 2021, which resulted in $790 thousand charge that is reflected in the unaudited interim consolidated statement of operations for the three months ended March 31, 2021.

Interest. Interest consists of interest expense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations. Interest increased $500 thousand, or 4% from $11.8 million for the three months ended March 31, 2020 to $12.3 million for the three months ended March 31, 2021. Since March 2020, the Company assumed approximately $100.0 million of additional long-term debt at 12% interest (which interest was reduced to 9.5% on May 6, 2020), issued $212.5 million convertible senior notes at 3.75% interest, and entered into additional sale/leaseback finance obligation arrangements. This was offset by the exchange and conversion during 2020 of the 5.5% Convertible Senior Notes, the conversion on July 1, 2020 of the 7.5% 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 and available-for-sale securities. This increased $140 thousand in comparison to the three months ended March 31, 2020.

Income Tax

The Company did not record any income tax expense or benefit for the three months ended March 31, 2021 or 2020. 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 net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

Liquidity and Capital Resources

Liquidity

As of March 31, 2021 and December 31, 2020, the Company had $4.3 billion and $1.3 billion of cash and cash equivalents and $344.1 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 accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,996,188 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.

The Company has continued to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common stockholders of $60.7 million and $37.4 million for the three months ended March 31, 2021 and 2020, respectively, and had an accumulated deficit of $2.0 billion at March 31, 2021.

The Company’s significant obligations consisted of the following as of March 31, 2021:

(i)Operating and finance leases totaling $122.3 million and $10.3 million, respectively, of which $18.8 million and $1.8 million, respectively, are due within the next 12 months. These leases are primarily

41

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 $182.8 million of which approximately $32.1 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.

(iii)Long-term debt, primarily related to the Company’s Loan Agreement with Generate Capital totaling $161.3 million of which $21.4 million is classified as short term on our consolidated balance sheets. See Note 10, “Long-Term Debt”, for more details.

(iv)Convertible senior notes totaling $191.8 million at March 31, 2021. See Note 11, “Convertible Senior Notes” for more details.

The Company believes that its current working capital of $4.9 billion at March 31, 2021, which includes unrestricted cash and cash equivalents of $4.3 billion, will provide sufficient liquidity to fund operations for a least one year after the date the financial statements are issued.

The Company plans to invest a portion of its available cash to expand its current production and manufacturing capacity and to fund strategic acquisitions and partnerships and capital projects. Future use of the Company’s funds is discretionary and the Company believes that its working capital and cash position will be sufficient to fund its operations for the next twelve months.  

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 equity offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.

On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million.  As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement.

Convertible Senior Notes

In May 2020, the Company issued $212.5 million in aggregate principal amount of 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance, were $205.1 million. The Company used $90.2 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to repurchase $66.3 million of the $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes. In addition, the Company used approximately $16.3 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to enter into privately negotiated capped called transactions. In the fourth quarter of 2020, $33.5 million of the remaining 5.5%

42

Convertible Senior Notes were converted into 14.6 million shares of common stock, resulting in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line. As of December 31, 2020, approximately $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding, all of which were converted to common stock in January 2021.

In September 2019, the Company issued $40.0 million in aggregate principal amount of 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds from this offering, after deducting costs of the issuance, were $39.1 million. On July 1, 2020, the note automatically converted fully into 16.0 million shares of common stock.

Secured Debt

In March 2019, the Company entered into the “Loan Agreement”, with Generate Lending, providing for a secured term loan facility in the amount of $100 million.

During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On March 31, 2021, the outstanding balance under the Term Loan Facility was $151.5 million.

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 are funded in part by releases of restricted cash, as described in Note 20, “Commitments and Contingencies.” Based on the amortization schedule as of March 31, 2021, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025.  The Company is in compliance with, or has obtained waivers for, all debt covenants.  

The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.

As of March 31, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):

December 31, 2021

$

127,317

December 31, 2022

93,321

December 31, 2023

62,920

December 31, 2024

33,692

December 31, 2025

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Several key indicators of liquidity are summarized in the following table (in thousands):

    

Three months

    

Year

ended or at

ended or at

March 31, 2021

December 31, 2020

Cash and cash equivalents at end of period

$

4,349,066

$

1,312,404

Restricted cash at end of period

 

344,062

 

321,880

Working capital at end of period

 

4,904,371

 

1,380,830

Net loss attributable to common stockholders

 

(60,746)

 

(596,181)

Net cash used in operating activities

 

(117,099)

 

(155,476)

Net cash used in investing activities

 

(418,379)

 

(95,334)

Net cash provided by financing activities

 

3,594,373

 

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, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of the 3.75% Convertible Senior Notes.

At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:

Amount

(in thousands)

Principal amount

$

212,463

Less initial purchasers' discount

(6,374)

Less cost of related capped calls

(16,253)

Less other issuance costs

(617)

Net proceeds

$

189,219

The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.  The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.

The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of the 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 March 31, 2021 if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

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

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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 is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.  During the first quarter of 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.

The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

The Company accounts for the 3.75% Convertible Senior Notes as a liability. We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million which were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes.

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The 3.75% Convertible Senior Notes consisted of the following (in thousands):

March 31,

2021

Principal amounts:

Principal

$

197,278

Unamortized debt issuance costs (1)

(5,510)

Net carrying amount

$

191,768

1)Included in the 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 expense and effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):

March 31,

2021

Interest Expense

$

1,897

Amortization of Debt Issuance Costs

1,258

Total

3,155

Effective Interest Rate

4.5%

Based on the closing price of the Company’s common stock of $35.84 on March 31, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at March 31, 2021 was approximately $1.3 billion. Fair value estimation was primarily based on a stock exchange, active trade on March 30, 2021 of the 3.75% Senior Convertible Note. See Note 16, “Fair Value Measurements” for a description of the fair value hierarchy.    

Capped Call

In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into the “3.75% Notes Capped Call” with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

The net cost incurred in connection with the 3.75% Notes Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

5.5% Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a

46

repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line.

On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.

   

Capped Call

In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into “5.5% Notes Capped Call” with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

In conjunction with the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million which was recorded in additional paid-in capital.

Common Stock Forward

In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into the Common Stock Forward, pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial payoff of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025.  The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.

The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.

The book value of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.

During the fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 4.4 million shares of its common stock. During the first quarter of 2021, 5.9 million shares settled, with an additional 2.2 million that settled in April 2021.

Amazon Transaction Agreement

On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for

47

the Company’s fuel cell technology. The vesting of the Amazon Warrant Shares was conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

Under 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 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 $6.7 million fair value of the first tranche of the Amazon Warrant Shares, was recognized as selling, general and administrative expense upon execution of the Amazon Warrant.

Provision for the second and third tranches of Amazon Warrant Shares is recorded as a reduction of revenue, because they represent consideration payable to a customer.

The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares vested in four equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made 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 last installment of the second tranche vested on November 2, 2020.  Revenue reductions of $9.0 million, $4.1 million and $9.8 million associated with the second tranche of Amazon Warrant Shares were 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 vests in eight equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.  

On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.  

The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant.  A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share-based payment modification).

The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 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. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended March 31, 2021 and 2020 was $104 thousand and $1.3 million, respectively.  During the three months ended March 31, 2021, the Amazon Warrant was exercised with respect to 9,214,449 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 was $13.81 per share, which was determined pursuant to the

48

terms of the Amazon Warrant as an amount 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 was exercisable through April 4, 2027. The Amazon Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant provides 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. The Amazon Warrant is classified as an equity instrument.

Fair value of the Amazon Warrant at December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.

The Company used the following assumptions for its Amazon 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

Walmart Transaction Agreement

On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares conditioned 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 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 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 vests in four 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 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 is exercisable through July 20, 2027.

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The Walmart Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant provides 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. The Walmart Warrant is classified as an equity instrument.

At both March 31, 2021 and December 31, 2020, 13,094,217 of the Walmart Warrant Shares had 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 March 31, 2021 and 2020 was $1.6 million and $0.9 million, respectively. During the three months ended March 31, 2021, the Walmart Warrant had been exercised with respect to 13,094,217 shares of common stock.

Operating and Finance Lease Liabilities

As of March 31, 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 term, 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 credit support in the form of either cash, collateral or letters of credit.  See Note 20, “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 March 31, 2021.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of March 31, 2021 were as follows (in thousands):

Finance

Total

Operating Lease

Lease

Lease

Liability

Liability

Liabilities

Remainder of 2021

$

24,082

$

1,874

$

25,956

2022

29,050

 

2,471

31,521

2023

29,107

 

2,446

31,553

2024

29,097

 

2,529

31,626

2025 and thereafter

56,232

3,103

59,335

Total future minimum payments

167,568

 

12,423

179,991

Less imputed interest

(45,257)

(2,122)

(47,379)

Total

$

122,311

$

10,301

$

132,612

Rental expense for all operating leases was $8.0 million and $4.8 million for the three months ended March 31, 2021 and 2020, respectively.  

The gross profit on sale/leaseback transactions for all operating leases was $16.0 million and $5.3 million for the three months ended March 31, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $11.9 million and $5.2 million for the three months ended March 31, 2021 and 2020, respectively.

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At March 31, 2021 and December 31, 2020, the right of use assets associated with operating leases was $124.5 million and $117.0 million, respectively.  The accumulated depreciation for these right of use assets was $50.3 million and $48.6 million at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021 and December 31, 2020, the right of use assets associated with finance leases was $11.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $143 thousand and $102 thousand at March 31, 2021 and December 31, 2020, respectively.  

At March 31, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $2.4 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:

Three months ended

Three months ended

March 31,2021

March 31, 2020

Cash payments (in thousands)

$

6,734

$

8,199

Weighted average remaining lease term (years)

5.77

4.22

Weighted average discount rate

11.6%

12.0%

Right of use assets obtained in exchange for new finance lease liabilities were $5.6 million and zero for the three months ended March 31, 2021 and 2020, respectively.

.

Other information related to the finance leases are presented in the following table:

Three months ended

Three months ended

March 31, 2021

March 31, 2020

Cash payments (in thousands)

$

433

$

78

Weighted average remaining lease term (years)

5.1

7.51

Weighted average discount rate

7.2%

8.8%

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 March 31, 2021 was $161.0 million, $24.7 million and $136.3 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 March 31, 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 March 31, 2021 was $21.8 million, $7.4 million and $14.4 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 sheet.  The fair value of this finance obligation approximated the carrying value as of both March 31, 2021 and December 31, 2020.

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Future minimum payments under finance obligations notes above as of March 31, 2021 were as follows (in thousands):

Total

Sale of Future

Sale/leaseback

Finance

revenue - debt

financings

Obligations

Remainder of 2021

$

31,738

$

6,795

$

38,533

2022

41,554

4,976

46,530

2023

41,554

3,149

44,703

2024

41,554

16,154

57,708

2025 and thereafter

59,449

59,449

Total future minimum payments

215,849

31,074

246,923

Less imputed interest

(54,827)

(9,305)

(64,132)

Total

$

161,022

$

21,769

$

182,791

Other information related to the above finance obligations are presented in the following table:

Three months ended

Three months ended

March 31, 2021

March 31, 2020

Cash payments (in thousands)

$

12,816

$

9,879

Weighted average remaining term (years)

4.9

4.3

Weighted average discount rate

11.2%

11.1%

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $198.6 million was required to be restricted as security as of March 31, 2021, which restricted cash will be released over the lease term. As of March 31, 2021, the Company also had certain letters of credit backed by restricted cash totaling $144.4 million that are security for the above noted sale/leaseback agreements.

Fair Value

The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 — unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value.

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The fair values of the Company’s investments are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness 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 three months ended March 31, 2021.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

As of March 31, 2021

Carrying

Fair

Fair Value Measurements

Amount

Value

Level 1

Level 2

Level 3

Assets

Cash equivalents (1)

$

93,941

$

93,941

$

$

93,941

$

Corporate bonds

99,239

99,171

99,171

Commercial paper

305,929

306,089

306,089

Liabilities

Contingent consideration

10,550

10,550

10,550

Convertible senior notes

191,768

1,320,952

1,320,952

Long-term debt

161,259

161,259

161,259

Finance obligations

182,790

182,790

182,790

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 March 31, 2021, in addition to cash of $4.3 billion.

The fair values for available-for-sale securities are based on prices obtained from an independent pricing service. These securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs.

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Available-for-sale securities

The gross unrealized gains and losses, and the amortized cost, allowance for credit losses, and fair value of those investments classified as available-for-sale at March 31, 2021 are summarized as follows (in thousands):

Amortized

Gross

Gross

Fair

Allowance for

Cost

Unrealized Gains

Unrealized Losses

Value

Credit Losses

Corporate bonds

$

99,239

 

$

$

(68)

$

99,171

$

Commercial paper

 

305,929

 

160

306,089

Totals

$

405,168

$

160

$

(68)

$

405,260

$

A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, is as follows (in thousands):

March 31, 2021

Amortized

Fair

Maturity:

Cost

Value

Within one year

$

375,804

 

$

375,927

After one through five years

 

29,364

 

29,333

Totals

$

405,168

$

405,260

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements that are likely to have a current or future significant effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of 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 consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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, bad debts, inventories, intangible assets, impairment of long-lived assets and PPA executory contract consideration, accrual for loss on extended maintenance contracts, operating and finance leases, product warranty reserves, unbilled revenue, common stock warrants, income taxes, stock-based compensation, and 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.

There have been no changes in our critical accounting estimates from those reported in our 2020 10-K.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

Other than the adoption of the accounting guidance mentioned in our 2020 10-K and ASU 2020-06, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.

On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified

54

retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes is now accounted for as 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 the 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 if-converted method for convertible instruments. The cumulative effect of the accounting change upon adoption on January 1, 2021 increased the carrying amount of the convertible notes by $120.7 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million.

Recent Accounting Guidance Not Yet Effective

All issued but not yet effective accounting and reporting standards as of March 31, 2021 are either not applicable to the Company or are not expected to have a material impact on the Company.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

There has been no material change from the information provided in the 2020 10-K “Item 7A: Quantitative and Qualitative Disclosures About Market Risk,” other than those described below.

In March 2021, the Company purchased corporate bonds and commercial paper, in which the major components of market risk affecting us are credit risk and interest rate 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. 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.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) 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 202010-K. The material weakness has not been remediated as of March 31, 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:

55

(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.

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.

Exclusive of the steps taken in remediation activities, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2021 that has 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 (“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.

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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, Deep South Equipment Co., and Hyster-Yale Group, Inc.

On March 8, 2021, Company stockholder Dawn Beverly, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 1, 2021 (the “Class”), filed a complaint in the U.S. District Court for the Southern District of New York 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.) (the “Class Action Complaint”).  The Class Action Complaint includes 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 Class Action Complaint alleges 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 recoverability of the right to use assets with certain leases”; and (ii) “was reasonably likely to report material weaknesses in its internal control over financial reporting[.]” The Class Action Complaint alleges that, a result, “positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis,” causing Class members losses and damages. The Class Action Complaint seeks 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 March 18, 2021, Company stockholder Branislav Smolíček, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 1, 2021, filed in U.S. District Court for the Central District of California a complaint captioned Smolíček v. Plug Power Inc. et al., Case No. 2:21-cv-02402 (C.D. Cal.) (the “Smolíček Complaint”).  The Smolíček Complaint is substantially similar to the Class Action Complaint, asserting the same claims, for the same damages, against the same Defendants as the Class Action Complaint. The Company anticipates that the Smolíček Complaint will be consolidated with the Class Action Complaint under the Private Securities Litigation Reform Act of 1995.

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

57

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 May 4, 2021, Company stockholder Laxman Tank, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 16, 2021, filed in U.S. District Court for the Southern District of New York a complaint captioned Tank v. Plug Power Inc. et al., Case No. 1:21-cv-03985 (S.D.N.Y.) (the “Tank Complaint”).  The Tank Complaint is substantially similar to the Class Action Complaint, asserting the same claims, for the same damages, against the same Defendants as the Class Action Complaint. The Company anticipates that the Tank Complaint will be consolidated with the Class Action Complaint under the Private Securities Litigation Reform Act of 1995.

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 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, 2020 continue to apply to our business.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

(a)  Not applicable.

(b)  Not applicable.

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(c)  None.

Item 3 — Defaults Upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

None.

Item 5 — Other Information

On June 17, 2021, the Board of Directors of the Company set July 30, 2021 as the date for the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”).  The record date, time and location of the Annual Meeting will be set forth in the proxy statement for the Annual Meeting to be distributed to the stockholders prior to the meeting.  Because the date of the Annual Meeting is changing by more than 30 days from the anniversary date of the Company’s 2020 Annual Meeting of Stockholders, the Company is providing this information in accordance with Rule 14a−8 under the  Exchange Act.  Any stockholder proposal submitted pursuant to Rule 14a-8 under the Exchange Act for inclusion in the Company’s proxy materials for the 2021 Annual Meeting must have been received by our Secretary at our principal executive offices no later than the close of business on June 5, 2021, which is 30 days before the Company expects to begin to print and send proxy materials in connection with the Annual Meeting.  The Company has determined June 5, 2021 to be a reasonable time before it expects to begin to print and send its proxy materials.

In addition, any stockholder seeking to nominate a director or to bring other business before the Annual Meeting outside of Rule 14a-8 under the advance notice provisions included in the Company’s Amended and Restated Bylaws (the “Bylaws”) must have provided timely notice, as set forth in the Bylaws. Specifically, written notice of any such proposed business or nomination must have been received by the Company’s Secretary at our principal executive offices no later than the close of business on March 7, 2021.  The Company’s Bylaws specify certain requirements regarding the form and content of such a notice.

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Item 6 — Exhibits

3.1

Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.1 to Plug Power Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated by reference herein).

3.2

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.3 to Plug Power Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated by reference herein).

3.3

Second Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.1 to Plug Power Inc.’s Current Report on Form 8-K filed on May 19, 2011 and incorporated by reference herein).

3.4

Third Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.1 to Plug Power Inc.’s Current Report on Form 8-K filed on July 25, 2014 and incorporated by reference herein).

3.5

Certificate of Correction to Third Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.9 to Plug Power Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated by reference herein).

3.6

Fourth Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. (filed as Exhibit 3.1 to Plug Power Inc.’s Current Report on Form 8-K filed on June 30, 2017 and incorporated by reference herein).

3.7

Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Plug Power Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock. (filed as Exhibit 3.1 to Plug Power Inc.’s Registration Statement on Form 8-A filed on June 24, 2009 and incorporated by reference herein).

3.8

Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Plug Power Inc. classifying and designating the Series C Redeemable Convertible Preferred Stock. (filed as Exhibit 3.1 to Plug Power Inc.’s Current Report on Form 8-K filed on May 20, 2013 and incorporated by reference herein).

3.9

Fourth Amended and Restated By-laws of Plug Power Inc. (filed as Exhibit 3.9 to Plug Power Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 and incorporated by reference herein).

10.1 (1)

Consent and Tenth Amendment to the Loan and Security Agreement, dated June 2, 2021, by and among Plug Power Inc., Emerging Power Inc., Emergent Power Inc., the other borrowers from time to time party thereto, and Generate PPL SPV I, LLC, as assignee of Generate Lending, LLC.

31.1 (1)

Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 (1)

Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 (1)

Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 (1)

Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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)

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.

60

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:  June 21, 2021

By:

/s/ Andrew Marsh

Andrew Marsh

President, Chief Executive
Officer and Director (Principal
Executive Officer)

Date:  June 21, 2021

By:

/s/ Paul B. Middleton

Paul B. Middleton

Chief Financial Officer (Principal
Financial Officer)

61