.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 2021
OR
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☐ |
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)
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Delaware |
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22-3672377 |
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
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Incorporation or Organization) |
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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:
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Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on Which Registered |
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Common Stock, par value $.01 per share |
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PLUG |
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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.
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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 August 2, 2021 was 574,355,448.
INDEX to FORM 10-Q
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Page |
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Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited) |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Notes to Interim Condensed Consolidated Financial Statements |
8 |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
54 |
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55 |
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56 |
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58 |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
58 |
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58 |
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58 |
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58 |
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59 |
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60 |
2
PART 1. FINANCIAL INFORMATION
Item 1 — Interim Financial Statements (Unaudited)
Plug Power Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
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June 30, |
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December 31, |
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2021 |
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2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,160,170 |
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$ |
1,312,404 |
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Restricted cash |
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81,460 |
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64,041 |
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Available-for-sale securities, at fair value
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1,242,721 |
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— |
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Equity securities |
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120,302 |
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— |
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Accounts receivable |
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91,359 |
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43,041 |
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Inventory |
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209,820 |
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139,386 |
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Prepaid expenses and other current assets |
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60,579 |
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44,324 |
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Total current assets |
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4,966,411 |
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1,603,196 |
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Restricted cash |
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347,933 |
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257,839 |
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Property, plant, and equipment, net |
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110,475 |
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74,549 |
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Right of use assets related to finance leases, net |
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16,926 |
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5,724 |
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Right of use assets related to operating leases, net |
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145,803 |
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117,016 |
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Equipment related to power purchase agreements and fuel delivered to customers, net |
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78,918 |
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75,807 |
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Goodwill |
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72,083 |
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72,387 |
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Intangible assets, net |
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38,052 |
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39,251 |
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Other assets |
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12,225 |
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5,513 |
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Total assets |
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$ |
5,788,826 |
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$ |
2,251,282 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
70,027 |
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$ |
50,198 |
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Accrued expenses |
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35,405 |
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46,083 |
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Deferred revenue |
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27,004 |
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23,275 |
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Operating lease liabilities |
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19,915 |
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14,314 |
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Finance lease liabilities |
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2,728 |
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903 |
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Finance obligations |
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33,846 |
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32,717 |
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Current portion of long-term debt |
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30,403 |
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25,389 |
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Other current liabilities |
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31,750 |
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29,487 |
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Total current liabilities |
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251,078 |
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222,366 |
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Deferred revenue |
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45,272 |
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32,944 |
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Operating lease liabilities |
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122,203 |
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99,624 |
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Finance lease liabilities |
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12,380 |
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4,493 |
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Finance obligations |
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161,959 |
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148,836 |
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Convertible senior notes, net |
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192,011 |
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85,640 |
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Long-term debt |
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130,081 |
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150,013 |
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Other liabilities |
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42,973 |
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40,447 |
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Total liabilities |
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957,957 |
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784,363 |
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Stockholders’ equity: |
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Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 586,848,225 at June 30, 2021 and 473,977,469 at December 31, 2020 |
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5,868 |
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4,740 |
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Additional paid-in capital |
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6,962,720 |
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3,446,650 |
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Accumulated other comprehensive income |
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34 |
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2,451 |
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Accumulated deficit |
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(2,097,319) |
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(1,946,488) |
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Less common stock in treasury: 15,926,068 at both June 30, 2021 and December 31, 2020 |
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(40,434) |
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(40,434) |
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Total stockholders’ equity |
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4,830,869 |
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1,466,919 |
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Total liabilities and stockholders’ equity |
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$ |
5,788,826 |
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$ |
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)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net revenue: |
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Sales of fuel cell systems and related infrastructure |
$ |
99,278 |
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$ |
47,746 |
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$ |
146,050 |
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$ |
68,214 |
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Services performed on fuel cell systems and related infrastructure |
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5,675 |
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6,236 |
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11,720 |
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12,757 |
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Power Purchase Agreements |
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8,361 |
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6,579 |
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16,187 |
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13,000 |
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Fuel delivered to customers |
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11,121 |
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7,372 |
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22,248 |
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14,705 |
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Other |
|
122 |
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62 |
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310 |
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138 |
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Net revenue |
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124,557 |
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67,995 |
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196,515 |
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|
108,814 |
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Cost of revenue: |
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Sales of fuel cell systems and related infrastructure |
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79,913 |
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33,888 |
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108,887 |
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47,862 |
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Services performed on fuel cell systems and related infrastructure |
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15,475 |
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7,773 |
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28,561 |
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18,120 |
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Provision for loss contracts related to service |
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6,694 |
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|
706 |
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8,179 |
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|
801 |
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Power Purchase Agreements |
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22,234 |
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14,504 |
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|
40,577 |
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|
29,275 |
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Fuel delivered to customers |
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40,331 |
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11,076 |
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62,474 |
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|
22,330 |
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Other |
|
208 |
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|
63 |
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|
306 |
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|
144 |
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Total cost of revenue |
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164,855 |
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|
68,010 |
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|
248,984 |
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|
118,532 |
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Gross loss |
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(40,298) |
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(15) |
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(52,469) |
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(9,718) |
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Operating expenses: |
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Research and development |
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11,247 |
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4,873 |
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20,989 |
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9,647 |
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Selling, general and administrative |
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38,652 |
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|
21,644 |
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|
64,231 |
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32,753 |
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Change in fair value of contingent consideration |
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(560) |
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— |
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|
230 |
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|
— |
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Total operating expenses |
|
49,339 |
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|
26,517 |
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|
85,450 |
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|
42,400 |
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Operating loss |
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(89,637) |
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|
(26,532) |
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|
(137,919) |
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|
(52,118) |
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Interest |
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(10,268) |
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(13,368) |
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(22,534) |
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|
(25,157) |
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Other expense, net |
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(70) |
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|
(94) |
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|
(268) |
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|
(151) |
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Realized gain on investments, net |
|
18 |
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— |
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|
18 |
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— |
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Change in fair value of equity securities |
|
323 |
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|
— |
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|
323 |
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|
— |
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Gain on extinguishment of debt |
|
— |
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|
13,222 |
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— |
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|
13,222 |
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Loss before income taxes |
$ |
(99,634) |
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$ |
(26,772) |
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$ |
(160,380) |
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$ |
(64,204) |
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|
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Income tax benefit |
|
— |
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|
17,371 |
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— |
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|
17,371 |
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Net loss attributable to the Company |
$ |
(99,634) |
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$ |
(9,401) |
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$ |
(160,380) |
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$ |
(46,833) |
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|
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Preferred stock dividends declared |
|
— |
|
|
(13) |
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— |
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|
(26) |
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Net loss attributable to common stockholders |
$ |
(99,634) |
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$ |
(9,414) |
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$ |
(160,380) |
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$ |
(46,859) |
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Net loss per share: |
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Basic and diluted |
$ |
(0.18) |
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$ |
(0.03) |
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$ |
(0.30) |
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$ |
(0.15) |
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|
|
|
|
|
|
|
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Weighted average number of common stock outstanding |
|
567,033,722 |
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|
316,645,050 |
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|
540,394,003 |
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|
310,918,626 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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|
2021 |
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2020 |
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2021 |
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2020 |
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|
|
|
|
|
|
|
|
Net loss attributable to the Company |
|
$ |
(99,634) |
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$ |
(9,401) |
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$ |
(160,380) |
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$ |
(46,833) |
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Other comprehensive gain (loss): |
|
|
|
|
|
|
|
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|
|
|
|
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Foreign currency translation gain (loss) |
|
|
581 |
|
|
107 |
|
|
(542) |
|
|
(129) |
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Change in net unrealized loss on available-for-sale securities |
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|
(1,967) |
|
|
— |
|
|
(1,875) |
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|
— |
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Comprehensive loss attributable to the Company |
|
$ |
(101,020) |
|
$ |
(9,294) |
|
$ |
(162,797) |
|
$ |
(46,962) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
— |
|
|
(13) |
|
|
— |
|
|
(26) |
|
Comprehensive loss attributable to common stockholders |
|
$ |
(101,020) |
|
$ |
(9,307) |
|
$ |
(162,797) |
|
$ |
(46,988) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
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Accumulated |
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||
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Additional |
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Other |
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Total |
|||
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|
Common Stock |
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Paid-in |
|
Comprehensive |
|
Treasury Stock |
|
Accumulated |
|
Stockholders’ |
||||||||||
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Shares |
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Amount |
|
Capital |
|
Income |
|
Shares |
|
Amount |
|
Deficit |
|
Equity |
||||||
|
December 31, 2020 |
|
473,977,469 |
|
$ |
4,740 |
|
$ |
3,446,650 |
|
$ |
2,451 |
|
15,926,068 |
|
$ |
(40,434) |
|
$ |
(1,946,488) |
|
$ |
1,466,919 |
|
Net loss attributable to the Company |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(160,380) |
|
|
(160,380) |
|
Cumulative impact of Accounting Standards Update 2020-06 adoption |
|
— |
|
|
— |
|
|
(130,185) |
|
|
— |
|
— |
|
|
— |
|
|
9,549 |
|
|
(120,636) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
(2,417) |
|
— |
|
|
— |
|
|
— |
|
|
(2,417) |
|
Stock-based compensation |
|
15,166 |
|
|
— |
|
|
20,815 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
20,815 |
|
Public offerings, common stock, net |
|
32,200,000 |
|
|
322 |
|
|
2,022,866 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
2,023,188 |
|
Private offerings, common stock, net |
|
54,966,188 |
|
|
549 |
|
|
1,564,088 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
1,564,637 |
|
Stock option exercises |
|
1,760,450 |
|
|
18 |
|
|
4,687 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
4,705 |
|
Exercise of warrants |
|
20,843,108 |
|
|
208 |
|
|
15,242 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
15,450 |
|
Provision for common stock warrants |
|
— |
|
|
— |
|
|
3,243 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
3,243 |
|
Conversion of 3.75% Convertible Senior Notes |
|
3,016,036 |
|
|
30 |
|
|
15,155 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
15,185 |
|
Conversion of 5.5% Convertible Senior Notes |
|
69,808 |
|
|
1 |
|
|
159 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
160 |
|
June 30, 2021 |
|
586,848,225 |
|
$ |
5,868 |
|
$ |
6,962,720 |
|
$ |
34 |
|
15,926,068 |
|
$ |
(40,434) |
|
$ |
(2,097,319) |
|
$ |
4,830,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
318,637,560 |
|
$ |
3,186 |
|
$ |
1,506,953 |
|
$ |
1,288 |
|
15,259,045 |
|
$ |
(31,216) |
|
$ |
(1,350,307) |
|
$ |
129,904 |
|
Net loss attributable to the Company |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(46,833) |
|
|
(46,833) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
(129) |
|
— |
|
|
— |
|
|
— |
|
|
(129) |
|
Stock-based compensation |
|
586,558 |
|
|
6 |
|
|
6,325 |
|
|
— |
|
33,371 |
|
|
(143) |
|
|
— |
|
|
6,188 |
|
Stock dividend |
|
5,156 |
|
|
— |
|
|
20 |
|
|
— |
|
— |
|
|
— |
|
|
(20) |
|
|
— |
|
Public offerings, net |
|
— |
|
|
— |
|
|
(269) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(269) |
|
Stock option exercises |
|
6,905,936 |
|
|
69 |
|
|
15,729 |
|
|
— |
|
175 |
|
|
— |
|
|
— |
|
|
15,798 |
|
Equity component of convertible senior notes, net of issuance costs and income tax benefit |
|
— |
|
|
— |
|
|
115,952 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
115,952 |
|
Purchase of capped calls |
|
— |
|
|
— |
|
|
(16,253) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(16,253) |
|
Termination of capped calls |
|
— |
|
|
— |
|
|
24,158 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
24,158 |
|
Provision for common stock warrants |
|
— |
|
|
— |
|
|
7,983 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
7,983 |
|
Accretion of discount, preferred stock |
|
— |
|
|
— |
|
|
(29) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(29) |
|
Conversion of preferred stock |
|
2,998,526 |
|
|
30 |
|
|
1,148 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
1,178 |
|
Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit |
|
9,409,591 |
|
|
94 |
|
|
(52,855) |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(52,761) |
|
Shares issued for acquisitions |
|
9,658,465 |
|
|
97 |
|
|
49,576 |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
49,673 |
|
June 30, 2020 |
|
348,201,792 |
|
$ |
3,482 |
|
$ |
1,658,438 |
|
$ |
1,159 |
|
15,292,591 |
|
$ |
(31,359) |
|
$ |
(1,397,160) |
|
$ |
234,560 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
6
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
||||
|
|
|
June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
Operating Activities |
|
|
|
|
|
|
|
Net loss attributable to the Company |
|
$ |
(160,380) |
|
$ |
(46,833) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation of long-lived assets |
|
|
9,725 |
|
|
6,069 |
|
Amortization of intangible assets |
|
|
730 |
|
|
398 |
|
Stock-based compensation |
|
|
20,815 |
|
|
6,188 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
(13,222) |
|
Amortization of debt issuance costs and discount on convertible senior notes |
|
|
1,726 |
|
|
6,528 |
|
Provision for common stock warrants |
|
|
3,452 |
|
|
7,983 |
|
Income tax benefit |
|
|
— |
|
|
(17,371) |
|
Loss on service contracts |
|
|
4,399 |
|
|
277 |
|
Fair value adjustment to contingent consideration |
|
|
(230) |
|
|
— |
|
Net realized gain on investments |
|
|
(18) |
|
|
— |
|
Lease origination costs |
|
|
(4,553) |
|
|
— |
|
Change in fair value for equity securities |
|
|
(323) |
|
|
— |
|
Changes in operating assets and liabilities that provide (use) cash: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
(48,318) |
|
|
(18,333) |
|
Inventory |
|
|
(70,588) |
|
|
(37,983) |
|
Prepaid expenses, and other assets |
|
|
(22,967) |
|
|
(11,887) |
|
Accounts payable, accrued expenses, and other liabilities |
|
|
4,047 |
|
|
3,903 |
|
Deferred revenue |
|
|
15,848 |
|
|
2,392 |
|
Net cash used in operating activities |
|
|
(246,635) |
|
|
(111,891) |
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(33,062) |
|
|
(5,009) |
|
Purchases of equipment related to Power Purchase Agreements and equipment related to fuel delivered to customers |
|
|
(7,598) |
|
|
(6,256) |
|
Purchase of available-for-sale securities |
|
|
(1,504,891) |
|
|
— |
|
Proceeds from sales and maturities of available-for-sale securities |
|
|
260,313 |
|
|
— |
|
Purchase of equity securities |
|
|
(119,979) |
|
|
— |
|
Net cash paid for acquisition |
|
|
- |
|
|
(45,286) |
|
Net cash used in investing activities |
|
|
(1,405,217) |
|
|
(56,551) |
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
Proceeds from exercise of warrants, net of transaction costs |
|
|
15,450 |
|
|
— |
|
Proceeds from public and private offerings, net of transaction costs |
|
|
3,587,825 |
|
|
(269) |
|
Proceeds from exercise of stock options |
|
|
4,705 |
|
|
15,798 |
|
Proceeds from issuance of convertible senior notes, net |
|
|
— |
|
|
205,100 |
|
Repurchase of convertible senior notes |
|
|
— |
|
|
(90,238) |
|
Purchase of capped calls and common stock forward |
|
|
— |
|
|
(16,253) |
|
Proceeds from termination of capped calls |
|
|
— |
|
|
24,158 |
|
Principal payments on long-term debt |
|
|
(15,564) |
|
|
(21,626) |
|
Proceeds from long-term debt, net |
|
|
— |
|
|
49,000 |
|
Repayments of finance obligations and finance leases |
|
|
(17,281) |
|
|
(11,129) |
|
Proceeds from finance obligations |
|
|
32,159 |
|
|
27,678 |
|
Net cash provided by financing activities |
|
|
3,607,294 |
|
|
182,219 |
|
Effect of exchange rate changes on cash |
|
|
(163) |
|
|
(24) |
|
Increase in cash, cash equivalents and restricted cash |
|
|
1,955,279 |
|
|
13,753 |
|
Cash, cash equivalents, and restricted cash beginning of period |
|
|
1,634,284 |
|
|
369,500 |
|
Cash, cash equivalents, and restricted cash end of period |
|
$ |
3,589,563 |
|
$ |
383,253 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
11,261 |
|
$ |
9,466 |
|
|
|
|
|
|
|
|
|
Summary of non-cash activity |
|
|
|
|
|
|
|
Recognition of right of use asset - finance leases |
|
$ |
11,286 |
|
$ |
— |
|
Recognition of right of use asset - operating leases |
|
|
39,271 |
|
|
6,836 |
|
Conversion of preferred stock to common stock |
|
|
— |
|
|
441 |
|
Conversion of convertible senior notes to common stock |
|
|
15,345 |
|
|
— |
|
Change in accounts payable related to accrued purchases of property, plant and equipment |
|
|
6,124 |
|
|
— |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
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.
Our wholly-owned subsidiary, Plug Power France, has created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.
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 interim condensed consolidated financial statements as of and for each of the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.
Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our quarterly report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. In addition, we include our share of the results of HyVia using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia.
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 June 30, 2021, cash equivalents consisted of commercial paper and U.S. Treasury securities with original maturities of three months or less, and money market funds. Due to their short-term nature, the carrying amounts reported in the unaudited interim condensed consolidated balance sheets approximate the fair value of cash and cash equivalents.
9
Available-for-sale securities
Available-for-sale securities is comprised of commercial paper with original maturities greater than three months, U.S. Treasury securities, municipal debt, certificates of deposit and corporate bonds. We consider these securities to 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. Realized gains and losses are due to the sale and maturity of securities classified as available-for-sale and represent the net gain (loss) from accumulated other comprehensive income reclassifications for previously unrealized net gains on available-for-sale debt securities.
Equity securities
Equity securities are comprised of fixed income and equity market index mutual funds. Equity securities are valued at fair value with changes in the fair value recognized in our unaudited interim condensed consolidated statement of operations. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following year.
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 (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 $120.6 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 June 30, 2021 are either not applicable to the Company or are not expected to have a material impact on the Company.
3. 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 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
10
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):
4. Earnings Per Share
Basic earnings per common stock are computed by dividing net loss attributable to common stockholders by the weighted average number of common stock outstanding during the reporting period. 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 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:
| (1) | During the three months ended June 30, 2021 and 2020, the Company granted 117,500 and 89,649 stock options, respectively. During the six months ended June 30, 2021 and 2020, the Company granted 698,500 and 174,649 stock options, respectively. |
| (2) | During the three months ended June 30, 2021 and 2020, the Company granted 98,000 and 96,649 shares of restricted stock, respectively. During the six months ended June 30, 2021 and 2020, the Company granted 653,000 and 96,649 shares of restricted stock, respectively. |
| (3) | In April 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Amazon, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 13,960,354 shares of the Company’s common stock as of June 30, 2021. |
In July 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 13,094,217 shares of the Company’s common stock as of June 30, 2021.
| (4) | In March 2018, the Company issued the 5.5% Convertible Senior Notes due 2023 (the “5.5% Convertible Senior Notes”). In September 2019, the Company issued the 7.5% Convertible Senior Note due 2023 (the “7.5% Convertible Senior Note”), which was fully converted into 16.0 million shares of common stock on July 1, 2020. In May 2020, |
11
| 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. There were no conversions in the second quarter of 2021. |
5. Inventory
Inventory as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
6. Equipment Related to Power Purchase Agreements and Fuel Delivered to Customers, net
Equipment related to power purchase agreements and fuel delivered to customers, net at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
As of June 30, 2021, the Company had deployed long-lived assets at customer sites that had associated Power Purchase Agreements (“PPAs”). These PPAs expire over the next one to ten years. PPAs contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Depreciation expense was $2.0 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $3.8 million and $4.3 million for the six months ended June 30, 2021 and 2020, respectively.
The Company terminated its contractual relationship with a fuel provider effective March 31, 2021. The Company has historically leased fuel tanks from this provider. As a result of this termination, the Company recognized various costs, primarily for removal of tanks, reimbursement of unamortized installation costs, costs to temporarily provide customers with fuel during the transition period, and certain other contract settlement costs. These costs amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
7. Property, Plant and Equipment
Property, plant and equipment at June 30, 2021 and December 31, 2020 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
||
|
Land |
|
|
1,165 |
|
|
1,165 |
|
Leasehold improvements |
|
$ |
1,401 |
|
$ |
1,121 |
12
|
Software, machinery and equipment |
|
|
133,349 |
|
|
94,449 |
|
Property, plant, and equipment |
|
|
135,915 |
|
|
96,735 |
|
Less: accumulated depreciation |
|
|
(25,440) |
|
|
(22,186) |
|
Property, plant, and equipment, net |
|
$ |
110,475 |
|
$ |
74,549 |
Depreciation expense related to property, plant and equipment was $1.6 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense related to property, plant and equipment was $3.3 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively.
8. Intangible Assets and Goodwill
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of June 30, 2021 were as follows (in thousands):
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):
The change in the gross carrying amount of the acquired technology from December 31, 2020 to June 30, 2021 was primarily due to foreign currency translation.
Amortization expense for acquired identifiable intangible assets for the three months ended June 30, 2021 and 2020 was $0.4 million and $0.2 million, respectively. Amortization expense for acquired identifiable intangible assets for the six months ended June 30, 2021 and 2020 was $0.7 million and $0.4 million, respectively.
The estimated amortization expense for subsequent years is as follows (in thousands):
|
|
|
|
|
|
Remainder of 2021 |
|
$ |
732 |
|
2022 |
|
|
1,463 |
|
2023 |
|
|
1,463 |
|
2024 |
|
|
1,442 |
|
2025 and thereafter |
|
|
3,952 |
|
Total |
|
$ |
9,052 |
Goodwill was $72.1 million and $72.4 million as of June 30, 2021 and December 31, 2020, respectively, which decreased $304 thousand due to currency translation loss for HyPulsion S.A.S., our French subsidiary. There were no impairments during the six months ended June 30, 2021 or the year ended December 31, 2020.
13
9. Long-Term Debt
In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).
During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On June 30, 2021, the outstanding balance under the Term Loan Facility was $150.8 million. In addition to the Term Loan Facility, on June 30, 2021 there was approximately $10.0 million of debt related to United Hydrogen Group, Inc. acquisition.
The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is payable on a quarterly basis. Principal payments are funded in part by releases of restricted cash, as described in Note 19, “Commitments and Contingencies.” Based on the amortization schedule as of June 30, 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 June 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
|
|
|
|
|
December 31, 2021 |
$ |
127,317 |
|
December 31, 2022 |
|
93,321 |
|
December 31, 2023 |
|
62,920 |
|
December 31, 2024 |
|
33,692 |
|
December 31, 2025 |
|
— |
10. Convertible Senior Notes
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, (“the Securities Act”). On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.
At issuance in May 2020, the total net proceeds from the 3.75% Convertible Senior Notes were as follows:
|
|
|
|
|
|
Amount |
|
|
|
(in thousands) |
|
|
Principal amount |
$ |
212,463 |
14
|
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. |
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 June 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During the six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued 3.0 million shares of common stock in conjunction with these conversions.
15
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):
|
|
|
|
|
|
June 30, |
|
|
|
2021 |
|
|
Principal amounts: |
|
|
|
Principal |
$ |
197,278 |
|
Unamortized debt issuance costs (1) |
|
(5,267) |
|
Net carrying amount |
$ |
192,011 |
| 1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
The following table summarizes the total interest expense and effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
|
|
|
|
|
|
June 30, |
|
|
|
2021 |
|
|
Interest expense |
$ |
1,850 |
|
Amortization of debt issuance costs |
|
306 |
|
Total |
|
2,156 |
|
|
|
|
|
Effective interest rate |
|
4.50% |
Based on the closing price of the Company’s common stock of $34.19 on June 30, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 2021 was approximately $1.3 billion. The fair value estimation was primarily based on an active stock exchange trade on June 24, 2021 of the 3.75% Senior Convertible Note. See Note 15, “Fair Value Measurements,” for a 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.
16
The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
5.5% Convertible Senior Notes
In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes were converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line.
On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
Common Stock Forward
In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction, (“the Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that
17
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. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.
11. Stockholders’ Equity
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share. As of June 30, 2021 and December 31, 2020, there were no shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding.
Common Stock and Warrants
The Company has one class of common stock, par value $0.01 per share. Each share of the Company’s common stock is entitled to one vote on all matters submitted to stockholders.
In February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8 billion.
In November 2020, the Company issued and sold in a registered equity offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million.
In August 2020, the Company issued and sold in a registered 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 570,922,157 and 458,051,401 shares of common stock outstanding as of June 30, 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 12, “Warrant Transaction Agreements.” At both June 30, 2021 and December 31, 2020, a total of 68,380,913 warrants had vested. Warrants were exercised with respect to
18
5,819,652 shares during the fourth quarter of 2020. In the first quarter of 2021, warrants were exercised with respect to 16,489,014 shares of common stock. In the second quarter of 2021, warrants were exercised with respect to an additional 4,745,905 shares of common stock. These warrants are measured at fair value at the time of grant or modification and are classified as equity instruments on the unaudited interim condensed consolidated balance sheets.
At Market Issuance Sales Agreement
On April 13, 2020, the Company entered into the At Market Issuance Sales Agreement with B. Riley Financial (“B. Riley”), as sales agent, pursuant to which the Company may offer and sell, from time to time through B. Riley, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company has not issued any shares of common stock pursuant to the At Market Issuance Sales Agreement.
12. Warrant Transaction Agreements
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 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.
19
The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).
The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual.
At December 31, 2020, all 55,286,696 of the Amazon Warrant Shares had vested. For service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2021 and 2020 was $105 thousand and $3.4 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2021 and 2020 was $209 thousand and $4.7 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares was $13.81 per share, which was determined pursuant to the 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 is 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:
20
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.
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 June 30, 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 June 30, 2021 and 2020 was $1.6 million and $1.0 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the six months ended June 30, 2021 and 2020 was $3.2 million and $1.9 million, respectively. During the three months ended March 31, 2021, the Walmart Warrant had been exercised with respect to 7,274,565 shares of common stock. There were no exercises during the three months ended June 30, 2021.
13. Revenue
Disaggregation of revenue
The following table provides information about disaggregation of revenue (in thousands):
21
|
Sale of hydrogen installations and other infrastructure |
|
|
40,109 |
|
|
6,961 |
|
|
60,462 |
|
|
12,789 |
|
Services performed on fuel cell systems and related infrastructure |
|
|
5,675 |
|
|
6,236 |
|
|
11,720 |
|
|
12,757 |
|
Power Purchase Agreements |
|
|
8,361 |
|
|
6,579 |
|
|
16,187 |
|
|
13,000 |
|
Fuel delivered to customers |
|
|
11,121 |
|
|
7,372 |
|
|
22,248 |
|
|
14,705 |
|
Other |
|
|
122 |
|
|
62 |
|
|
310 |
|
|
138 |
|
Net revenue |
|
$ |
124,557 |
|
$ |
67,995 |
|
$ |
196,515 |
|
$ |
108,814 |
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2021 |
|
2020 |
||
|
Accounts receivable |
|
$ |
91,359 |
|
$ |
43,041 |
|
Contract assets |
|
|
11,549 |
|
|
18,189 |
|
Contract liabilities |
|
|
93,665 |
|
|
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 June 30, 2021, the amount of contract liabilities included within deferred revenue was $72.3 million and the amount of contract liabilities within other current liabilities was $21.4 million on the accompanying unaudited interim condensed consolidated balance sheets. As of December 31, 2020, the amount of contract liabilities included within deferred revenue was $56.2 million and the amount of contract liabilities within other current liabilities was $20.1 million.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
22
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):
Contract costs
Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.
Capitalized contract costs at June 30, 2021 and December 31, 2020 were $1.2 million and $1.5 million, respectively.
14. Income Taxes
The Company did not record any income tax expense or benefit for the three or six months ended June 30, 2021. The Company recognized an income tax benefit for the three and six months ended June 30, 2020 of $17.4 million. Income tax benefit for the three and six months ended June 30, 2020 included $12.2 million resulting from the intraperiod tax allocation rules under Accounting Standards Codification (“ASC”) Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a source of future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the three and six months ended June 30, 2020 related to the recognition of net deferred tax liabilities in connection with the Giner, ELX Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.
The 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.
15. Fair Value Measurements
The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
23
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 no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2021.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| (1) | Included in “Cash and cash equivalents” in our unaudited interim condensed consolidated balance sheets as of June 30, 2021. |
The fair values for available-for-sale and equity securities are based on prices obtained from independent pricing services. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active markets for identical assets.
24
16. Operating and Finance Lease Liabilities
As of June 30, 2021, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote. At the end of the lease 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 19, “Commitments and Contingencies” for a description of cash held as security associated with the leases.
The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of June 30, 2021.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2021 were as follows (in thousands):
Rental expense for all operating leases was $8.2 million and $7.8 million for the three months ended June 30, 2021 and 2020, respectively. Rental expense for all operating leases was $16.3 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $26.5 million and $19.9 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
25
At June 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.1 million and $5.8 million, respectively, and were included in other assets in the consolidated balance sheets.
Other information related to the operating leases are presented in the following table:
Right of use assets obtained in exchange for new finance lease liabilities were $6.5 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets obtained in exchange for new finance lease liabilities were $12.1 million and $0.7 million for the six months ended June 30, 2021 and 2020, respectively.
Other information related to the finance leases are presented in the following table:
17. Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, 2021 was $176.3 million, $27.3 million and $149.0 million of which was classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $157.7 million, $24.2 million and $133.5 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 2021 and December 31, 2020.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, 2021 was $19.5 million, $6.5 million and $13.0 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $23.9 million, $8.0 million and $15.9 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation approximated the carrying value as of both June 30, 2021 and December 31, 2020.
Future minimum payments under finance obligations notes above as of June 30, 2021 were as follows (in thousands):
26
|
2023 |
|
|
46,165 |
|
|
3,148 |
|
|
49,313 |
|
2024 |
|
|
46,165 |
|
|
16,154 |
|
|
62,319 |
|
2025 and thereafter |
|
|
72,708 |
|
|
— |
|
|
72,708 |
|
Total future minimum payments |
|
|
234,728 |
|
|
28,489 |
|
|
263,217 |
|
Less imputed interest |
|
|
(58,461) |
|
|
(8,951) |
|
|
(67,412) |
|
Total |
|
$ |
176,267 |
|
$ |
19,538 |
|
$ |
195,805 |
Other information related to the above finance obligations are presented in the following table:
18. Investments
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at June 30, 2021 are summarized as follows (in thousands):
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at June 30, 2021 are summarized as follows (in thousands):
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of June 30, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
June 30, 2021 |
||||
|
|
|
Amortized |
|
Fair |
|
|
Maturity: |
|
Cost |
|
Value |
|
|
Within one year |
$ |
717,531 |
|
$ |
717,285 |
|
After one through five years |
|
527,087 |
|
|
525,436 |
|
Total |
$ |
1,244,618 |
|
$ |
1,242,721 |
27
19. Commitments and Contingencies
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $243.5 million was required to be restricted as security as of June 30, 2021, which restricted cash will be released over the lease term. As of June 30, 2021, the Company also had certain letters of credit backed by restricted cash totaling $143.7 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, U.S. Treasury securities, municipal debt and short-term high credit quality corporate debt securities. Equity securities are comprised of fixed income and equity market index mutual funds.
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.
At June 30, 2021, one customer comprised 78.5% of the total accounts receivable balance. At December 31, 2020, three customers comprised 73.9% of the total accounts receivable balance.
For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer. For the three and six months ended June 30, 2021, 81.3% and 77.7%, of total consolidated revenues were associated with three customers, respectively. For the three and six months ended June 30, 2020, 83.9% and 77.9% of total consolidated revenues were associated primarily with two customers, respectively.
20. Employee Benefit Plans
2011 Stock Option and Incentive Plan
On May 12, 2011, the Company’s stockholders approved the 2011 Stock Option and Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the issuance of up to a maximum number of shares of common stock equal to the sum of (i) 1,000,000, plus (ii) the number of shares of common stock underlying any grants pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and Incentive Plan that are forfeited, canceled, repurchased or are terminated (other than by exercise). The shares may be issued pursuant to stock options, stock appreciation rights, restricted stock awards and certain other equity-based awards granted to employees, directors and consultants of the Company. No further grants may be made under the 2011 Plan after May 12, 2021. Through various amendments to the 2011 Plan approved by the Company’s stockholders, the number of shares of the Company’s common stock authorized for issuance under the 2011 Plan has been increased to 42.4 million. The Company recorded expense of approximately $11.1 million and $2.5 million, for the three months ended June 30, 2021 and 2020, respectively, in connection with the 2011 Plan. The Company recorded
28
expense of approximately $19.6 million and $5.0 million, for the six months ended June 30, 2021 and 2020, respectively, in connection with the 2011 Plan. In July 2021, the 2021 Stock Option Incentive Plan (the “2021 Plan”) was approved by the Company’s stockholders, which provides for the sum of 22,500,000 shares in addition to 473,491 shares of common stock that are available for grant under the 2011 Plan to be issued under the 2021 Plan.
At June 30, 2021, there were outstanding options to purchase approximately 9.2 million shares of common stock. Options for employees issued under this plan generally vest in equal annual installments over three years and expire ten years after issuance. Options granted to members of the Board generally vest one year after issuance. To date, options granted under the 2011 Plan have vesting provisions ranging from one to three years in duration and expire ten years after issuance.
Compensation cost associated with employee stock options represented approximately $4.3 million and $1.5 million of the total share-based payment expense recorded for the three months ended June 30, 2021 and June 30, 2020, respectively. Compensation cost associated with employee stock options represented approximately $7.6 million and $2.9 million of the total share-based payment expense recorded for the six months ended June 30, 2021 and June 30, 2020, respectively. The Company estimates the fair value of stock options using a Black-Scholes valuation model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the option vesting period. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The assumptions made for purposes of estimating fair value under the Black-Scholes model for the 698,500 and 174,649 options granted during the six months ended June 30, 2021 and 2020, respectively, were as follows:
|
|
|
|
|
|
|
|
|
June 30, |
|
June 30, |
|
|
|
2021 |
|
2020 |
|
Expected term of options (years) |
|
5 |
|
6 |
|
Risk free interest rate |
|
0.61% - 1.04% |
|
0.45% - 1.37% |
|
Volatility |
|
72.46% - 73.69% |
|
64.19% - 64.80% |
There was no expected dividend yield for the employee stock options granted.
The Company has historically used the simplified method in determining its expected term of all its stock option grants in all periods presented. The simplified method was used because the Company did not believe historical exercise data provided a reasonable basis for the expected term of its grants, primarily as a result of the limited number of stock option exercises that have historically occurred. Due to the recent increase in exercise activity at the Company, beginning in the second quarter of 2021, the expected term is based on historical experience. The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past five years, which represents the Company’s best estimate of expected volatility.
A summary of stock option activity for the six months ended June 30, 2021 is as follows (in thousands except share amounts):
29
|
Options unvested at June 30, 2021 |
|
6,641,725 |
|
$ |
12.30 |
|
8.7 |
|
$ |
145,356 |
The weighted average grant-date fair value of options granted during the three months ended June 30, 2021 and 2020 was $29.23 and $4.88, respectively. The weighted average grant-date fair value of options granted during the six months ended June 30, 2021 and 2020 was $46.67 and $7.73, respectively. As of June 30, 2021, there was approximately $38.3 million of unrecognized compensation cost related to stock option awards to be recognized over the next three years. The total fair value of stock options that vested during the three months ended June 30, 2021 and 2020 was approximately $432 thousand and $493 thousand, respectively. The total fair value of stock options that vested during the six months ended June 30, 2021 and 2020 was approximately $520 thousand and $516 thousand, respectively.
Restricted stock awards generally vest in equal installments over a period of one to three years. Restricted stock awards are valued based on the closing price of the Company’s common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The Company recorded expense associated with its restricted stock awards of approximately $6.8 million and $932 thousand, for the three months ended June 30, 2021 and 2020, respectively. The Company recorded expense associated with its restricted stock awards of approximately $12.0 million and $2.0 million, for the six months ended June 30, 2021 and 2020, respectively. Additionally, for the six months ended June 30, 2021 and 2020, there was $67.0 million and $6.9 million, respectively, of unrecognized compensation cost related to restricted stock awards to be recognized over the next three years.
A summary of restricted stock activity for the year ended June 30, 2021 is as follows (in thousands except share amounts):
401(k) Savings & Retirement Plan
The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute 100% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings or less actual losses thereon. Participants are vested in the Company’s matching contribution based on years of service completed. Participants are fully vested upon completion of three years of service. During 2018, the Company began funding its matching contribution in a combination of cash and common stock. The Company issued 12,513 shares of common stock and 175,978 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the six months ended June 30, 2021 and 2020, respectively.
The Company’s expense for this plan was approximately $0.9 million, and $0.8 million for the three months ended June 30, 2021 and 2020, respectively. The Company’s expense for this plan was approximately $2.2 million, and $1.3 million for the six months ended June 30, 2021 and 2020, respectively.
Non-Employee Director Compensation
Each non-employee director is paid an annual retainer for his or her service, in the form of either cash or stock compensation. The Company granted 2,585 shares of common stock and 7,657 shares of common stock to non-employee directors as compensation for the three months ended June 30, 2021 and 2020, respectively. The Company granted 5,238 shares of common stock and 22,490 shares of common stock to non-employee directors as compensation for the six months ended June 30, 2021 and 2020, respectively. All common stock issued is fully vested at the time of issuance and is valued at fair value on the date of issuance. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $94 thousand and $55 thousand for the three months ended June 30, 2021 and
30
2020, respectively. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $179 thousand and $111 thousand for the six months ended June 30, 2021 and 2020, respectively.
21. Subsequent Events
We have evaluated events as of August 5, 2021 and have not identified any subsequent events.
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 of 1933, as amended (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; |
31
| ● | the risks involved with participating in joint ventures; |
| ● | our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; |
| ● | our ability to successfully pursue new business ventures; |
| ● | our ability to achieve the forecasted gross margin on the sale of our products; |
| ● | the cost and availability of fuel and fueling infrastructures for our products; |
| ● | the risks, liabilities, and costs related to environmental, health and safety matters; |
| ● | the risk of elimination of government subsidies and economic incentives for alternative energy products; |
| ● | market acceptance of our products and services, including GenDrive, GenSure and GenKey systems; |
| ● | our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution and servicing, and the supply of key product components; |
| ● | the cost and availability of components and parts for our products; |
| ● | the risk that possible new tariffs could have a material adverse effect on our business; |
| ● | our ability to develop commercially viable products; |
| ● | 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 formation of a joint venture with Renault in Europe and the announced future joint venture with SK
32
Group in Asia not only support this goal but are expected to provide us with a more global footprint. Plug has been successful with acquisitions, strategic partnerships, and joint ventures, and we plan to continue this mix. For example, we expect our relationships with Brookfield and Apex to provide us access to low-cost renewable energy, which is critical to produce low-cost green hydrogen.
Our current products and services include:
GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling 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.
Our wholly-owned subsidiary, Plug Power France, has created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”). HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.
Recent Developments
COVID-19 Update
As a result of the COVID-19 pandemic outbreak in March 2020, state governments—including those in New York and Washington, where our manufacturing facilities are located—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
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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 certification process may enter Plug Power facilities without a face covering. Individuals inside Plug Power facilities who do not wish to go through the certification process are required to wear proper face coverings and continue to maintain social distancing of 6 feet or greater. In states where the guidelines for face coverings is still government mandated, Plug Power will comply with the state and local jurisdictions and enforce face mask usage, as well as social distancing at our sites.
Plug Power will continue to provide enhanced janitorial and sanitary procedures, encourage employees to work from home to the extent their job function enables them to do so, and encourage the use of virtual employee meetings.
We cannot predict at this time the full extent to which COVID-19 will impact our business, results, and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers, and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Although as of the date hereof, we have not observed any material impacts to our supply of components, the situation is fluid. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability of key components, increase prices or both. 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 and six months ended June 30, 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.
Strategic Activities
On June 3, 2021, our wholly-owned subsidiary, Plug Power France, created a joint venture with Renault named HyVia. HyVia plans to manufacture and sell FCELCVs and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault. We include our share of the results of HyVia using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia. We do not control this entity as our ownership is 50%, and as such HyVia is not included within our consolidated financial results for any period presented.
Charter Amendment
On July 30, 2021, our stockholders, upon recommendation of our Board of Directors, approved an amendment to our Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to increase the number of authorized shares of common stock from 750,000,000 shares to 1,500,000,000 shares. The Charter Amendment became effective upon the filing of the Charter Amendment with the Secretary of the State of the State of Delaware on August 2, 2021.
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Explanatory Note
As previously disclosed in the Explanatory Note to the 2020 10-K, the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited interim condensed consolidated quarterly financial statements of and for each of the quarterly periods ended March 31, 2020, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.
Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.
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 and six months ended June 30, 2021 and 2020, were as follows (in thousands):
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The amount of provision for common stock warrants recorded as a reduction of revenue during the three and six months ended June 30, 2021 and 2020, respectively, is shown in the table below (in thousands):
Net Revenue
Revenue – sales of fuel cell systems and related infrastructure. Revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations. Revenue from sales of fuel cell systems and related infrastructure for the three months ended June 30, 2021 increased $51.5 million, or 107.9%, to $99.3 million from $47.8 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of zero and $2.5 million for the three months ended June 30, 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 a decrease in the provision for common stock warrants. There were 3,666 GenDrive units recognized as revenue during the three months ended June 30, 2021, compared to 2,683 for the three months ended June 30, 2020. There was hydrogen infrastructure revenue associated with 16 hydrogen sites during the three months ended June 30, 2021, compared to four during the three months ended June 30, 2020.
Revenue from sales of fuel cell systems and related infrastructure for the six months ended June 30, 2021 increased $77.8 million, or 114.1%, to $146.1 million from $68.2 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $27 thousand and $3.1 million for the three months ended June 30, 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 a decrease in the provision for common stock warrants. There were 4,974 GenDrive units recognized as revenue during the six months ended June 30, 2021, compared to 3,508 for the six months ended June 30, 2020. There was hydrogen infrastructure revenue associated with 22 hydrogen sites during the six months ended June 30, 2021, compared to five during the six months ended June 30, 2020.
Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At June 30, 2021, there were 15,723 fuel cell units and 71 hydrogen installations under extended maintenance contracts, an increase from 11,557 fuel cell units and 47 hydrogen installations at June 30, 2020. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, 2021 decreased $0.6 million, or 9.0%, to $5.7 million as compared to $6.2 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of $131 thousand and $466 thousand for the three months ended June 30, 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, partially offset by the decrease in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of 2021.
Revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, 2021 decreased $1.0 million, or 8.1%, to $11.7 million as compared to $12.8 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $271 thousand and $724 thousand for the six months ended June 30, 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, partially offset by the decrease
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in the provision for common stock warrants. Although the number of units and sites grew year over year, many of the units and sites deployed in the second quarter of 2021 were deployed late in the quarter and hence the full impact of associated service revenues will commence in the third quarter of quarter 2021.
Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At June 30, 2021, there were 52 GenKey sites associated with PPAs, as compared to 32 at June 30, 2020. Revenue from PPAs for the three months ended June 30, 2021 increased $1.8 million, or 27.1%, to $8.4 million from $6.6 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of $902 thousand and $578 thousand for the three months ended June 30, 2021 and 2020, respectively. The increase in revenue from PPAs for the three months ended June 30, 2021 as compared to the three months ended June 30, 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 from PPAs for the six months ended June 30, 2021 increased $3.2 million, or 24.5%, to $16.2 million from $13.0 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $1.8 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively. The increase in revenue from PPAs for the six months ended June 30, 2021 as compared to the six months ended June 30, 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 June 30, 2021 increased $3.7 million, or 50.9%, to $11.1 million from $7.4 million for the three months ended June 30, 2020. Included within revenue was provision for common stock warrants of $714 thousand and $824 thousand for the three months ended June 30, 2021 and 2020, respectively. The increase in revenue was due to an increase in the number of sites with fuel contracts from 81 as of June 30, 2020 to 125 as of June 30, 2021, and a slight decrease in the provision for common stock warrants.
Revenue associated with fuel delivered to customers for the six months ended June 30, 2021 increased $7.5 million, or 51.3%, to $22.3 million from $14.7 million for the six months ended June 30, 2020. Included within revenue was provision for common stock warrants of $1.4 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively. The increase in revenue was due to an increase in the number of sites with fuel contracts from 81 as of June 30, 2020 to 125 as of June 30, 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 June 30, 2021 increased 135.8%, or $46.0 million, to $79.9 million, compared to $33.9 million for the three months ended June 30, 2020. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There were 3,666 GenDrive units recognized as revenue during the three months ended June 30, 2021, compared to 2,683 for the three months ended June 30, 2020. Revenue associated with 16 hydrogen installations was recognized during the three months ended June 30, 2021, compared to four during the three months ended June 30, 2020. Gross profit generated from sales of fuel cell systems and related infrastructure decreased to 19.5% for the three months ended June 30, 2021, compared to 29.0% for the three months ended June 30, 2020 primarily due to the mix impact of the equipment sold with varying margin profiles, including a higher mix of infrastructure and other new products, and mix of customer profiles with varying pricing structures.
Cost of revenue from sales of fuel cell systems and related infrastructure for the six months ended June 30, 2021 increased 127.5%, or $61.0 million, to $108.9 million, compared to $47.9 million for the six months ended June 30, 2020. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There
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were 4,974 GenDrive units recognized as revenue during the six months ended June 30, 2021, compared to 3,508 for the six months ended June 30, 2020. Revenue associated with 22 hydrogen installations was recognized during the six months ended June 30, 2021, compared to five during the six months ended June 30, 2020. Gross profit generated from sales of fuel cell systems and related infrastructure decreased to 25.4% for the six months ended June 30, 2021, compared to 29.8% for the six months ended June 30, 2020 primarily due to the mix impact of the equipment sold with varying margin profiles, including a higher mix of infrastructure and other new products, and mix of customer profiles with varying pricing structures.
Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. At June 30, 2021, there were 15,723 fuel cell units and 71 hydrogen installations under extended maintenance contracts, an increase from 11,557 fuel cell units and 47 hydrogen installations at June 30, 2020, respectively. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, 2021 increased 99.1%, or $7.7 million, to $15.5 million, compared to $7.8 million for the three months ended June 30, 2020. The increase in cost of revenue was due primarily to increase in volume and certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross loss increased to (172.7)% for the three months ended June 30, 2021, compared to (24.6)% for the three months ended June 30, 2020, primarily due to certain unexpected costs, including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts, partially offset by a change in the release of the previously recorded loss accrual from $300 thousand during the three months ended June 30, 2020 to $1.9 million during the three months ended June 30, 2021.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, 2021 increased 57.6%, or $10.4 million, to $28.6 million, compared to $18.1 million for the six months ended June 30, 2020. The increase in cost of revenue was due primarily to certain unexpected costs, including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross loss increased to (143.7)% for the six months ended June 30, 2021, compared to (42.0)% for the six months ended June 30, 2020, primarily due to certain unexpected costs including varied COVID related issues, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and a lower of cost or market adjustment associated with certain parts. This was partially offset by a release of the previously recorded loss accrual from $524 thousand during the six months ended June 30, 2020 to $3.8 million during the six months ended June 30, 2021.
Cost of revenue – provision for loss contracts related to service. The Company also recorded a provision for loss contracts related to service of $6.7 million for the three months ended June 30, 2021, compared to $0.7 million for the three months ended June 30, 2020. The provision increased as a result of 16 new sites under service contract during the three months ended June 30, 2021 as compared to four sites for the three months ended June 30, 2020.
The Company also recorded a provision for loss contracts related to service of $8.2 million for the six months ended June 30, 2021, compared to $0.8 million for the six months ended June 30, 2020. The provision increased as a result of 22 new sites under service contract during the six months ended June 30, 2021 as compared to five sites during the six months ended June 30, 2020.
Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes depreciation of assets utilized and service costs to fulfill PPA obligations and interest costs associated with certain financial institutions for leased equipment. At June 30, 2021, there were 52 GenKey sites associated with PPAs, as compared to 32 at June 30, 2020. Cost of revenue from PPAs for the three months ended June 30, 2021 increased 53.3%, or $7.7 million, to $22.2 million from $14.5 million for the three months ended June 30, 2020 due to the increase in units and sites under PPA contract as well as certain COVID related issues such as increased freight costs, certain force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross loss increased to (165.9)% for the three months ended June 30, 2021, as compared to (120.5)% for the three months ended June 30, 2020 primarily due to certain
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COVID related issues, certain force majeure issues that impacted hydrogen infrastructure service costs, and a lower of cost or market adjustment associated with certain parts.
Cost of revenue from PPAs for the six months ended June 30, 2021 increased 38.6%, or $11.3 million, to $40.6 million from $29.3 million for the six months ended June 30, 2020 primarily due to the increase in units and sites under PPA contract as well as certain COVID related issues such as increased freights costs, certain force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. Gross loss increased to (150.7)% for the six months ended June 30, 2021, as compared to (125.2)% for the six months ended June 30, 2020 primarily due to certain COVID related issues, certain force majeure issues that impacted hydrogen infrastructure service costs, and a lower of cost or market adjustment associated with certain parts.
Cost of revenue – fuel delivered to customers. Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers and costs for onsite generation. Cost of revenue from fuel delivered to customers for the three months ended June 30, 2021 increased 264.1%, or $29.3 million, to $40.3 million from $11.1 million for the three months ended June 30, 2020. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. The increase in fuel costs was due primarily to vendor transition and force majeure events primarily related to hydrogen plant shutdowns that impacted the cost of fuel. Gross loss increased to (262.6)% during the three months ended June 30, 2021, compared to (50.2)% during the three months ended June 30, 2020. The increased gross loss is primarily due to the vendor transition and force majeure issues mentioned above. The costs associated with vendor transition issues amounted to approximately $14.6 million for the three months ended June 30, 2021, and are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the three months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the three months ended June 30, 2021.
Cost of revenue from fuel delivered to customers for the six months ended June 30, 2021 increased 179.8%, or $40.1 million, to $62.5 million from $22.3 million for the six months ended June 30, 2020. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. The increase in fuel costs was primarily due to vendor transition and force majeure events primarily related to hydrogen plant shutdowns that impacted the cost of fuel. Gross loss increased to (180.8)% during the six months ended June 30, 2021, compared to (51.9)% during the six months ended June 30, 2020. The increased gross loss is primarily due to the vendor transition and force majeure issues mentioned above. The cost associated with the vendor transition amounted to approximately $16.0 million for the six months ended June 30, 2021, which are recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers for the six months ended June 30, 2021. The Company also purchased certain fuel tanks from the fuel provider during the six months ended June 30, 2021.
Expenses
Research and development expense. Research and development (“R&D”) expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.
Research and development expense for the three months ended June 30, 2021 increased $6.4 million, or 130.8%, to $11.2 million, from $4.9 million for the three months ended June 30, 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 average number of R&D employees was 119 at June 30, 2020 compared to 216 at June 30, 2021.
Research and development expense for the six months ended June 30, 2021 increased $11.3 million, or 117.6%, to $21.0 million, from $9.6 million for the six months ended June 30, 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 average number of R&D employees was 117 at June 30, 2020 compared to 191 at June 30, 2021.
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Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the three months ended June 30, 2021, increased $17.0 million, or 78.6%, to $38.7 million from $21.6 million for the three months ended June 30, 2020. This increase was primarily related to increases in salaries and stock-based compensation due to increased headcount and branding expenses, in addition to costs associated with the restatement of our previous years’ financial statements.
Selling, general and administrative expenses for the six months ended June 30, 2021, increased $31.5 million, or 96.1%, to $64.2 million from $32.8 million for the six months ended June 30, 2020. This increase was primarily related to increases in salaries and stock-based compensation due to increased headcount and branding expenses, 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, Inc. and United Hydrogen Group Inc. was remeasured as of June 30, 2021, which resulted in a $560 thousand benefit for the three months ended June 30, 2021 and a $230 thousand charge for the six months ended June 30, 2021, both of which are reflected in the unaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2021, respectively.
Interest. Interest consists of interest expense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations. Interest decreased $3.1 million, or 23.2%, from $13.4 million for the three months ended June 30, 2020 to $10.3 million for the three months ended June 30, 2021. Interest decreased $2.6 million, or 10.4%, from $25.2 million for the six months ended June 30, 2020 to $22.5 million for the six months ended June 30, 2021. Since June 2020, the Company borrowed approximately $50.0 million of additional long-term debt at a 9.5% interest rate, and entered into additional sale/leaseback finance obligation arrangements. This was offset by the exchange and conversion during 2020 of both the 7.5% Convertible Senior Notes and 5.5% Convertible Senior Notes, and the adoption of ASU 2020-06 which reduced the noncash interest expense on convertible notes.
Other expense, net. Other expense, net consists of other expenses related to our foreign currency exchange losses, offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, restricted cash and available-for-sale securities. This decreased $24 thousand for the three months ended June 30, 2021 in comparison to the three months ended June 30, 2020. This increased $117 thousand for the six months ended June 30, 2021 in comparison to the six months ended June 30, 2020.
Net realized gain (loss) on investments. Net realized gain (loss) on investments consists of the sales and maturities related to available-for-sale debt securities. This increased $18 thousand for both the three and six months ended June 30, 2021 in comparison to the three and six months ended June 30, 2020.
Change in fair value of equity securities. Change in fair value of equity securities consists of the changes in fair value for equity securities from the purchase date to the end of the period. This increased $323 thousand for the three and six months ended June 30, 2021 in comparison to the three and six months ended June 30, 2020.
Income Tax
The Company did not record any income tax expense or benefit for the three or six months ended June 30, 2021. The Company recognized an income tax benefit for the three and six months ended June 30, 2020 of $17.4 million. Income tax benefit for the three and six months ended June 30, 2020 included $12.2 million resulting from the intraperiod tax allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a source of future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the 3.75% Convertible Senior Notes, offset by the partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the Company recorded $5.2 million of income tax benefit for the three and six months ended June 30,
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2020 related to the recognition of net deferred tax liabilities in connection with the Giner ELX, Inc. acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.
The 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 June 30, 2021 and December 31, 2020, the Company had $3.2 billion and $1.3 billion of cash and cash equivalents and $429.4 million and $321.9 million of restricted cash, respectively. In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $1.8 billion. Furthermore, in February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings to 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 $160.4 million and $46.9 million for the six months ended June 30, 2021 and 2020, respectively, and had an accumulated deficit of $2.1 billion at June 30, 2021.
The Company’s significant obligations consisted of the following as of June 30, 2021:
| (i) | Operating and finance leases totaling $142.1 million and $15.1 million, respectively, of which $19.9 million and $2.7 million, respectively, are due within the next 12 months. These leases are primarily related to sale/leaseback agreements entered into with various financial institutions to facilitate the Company’s commercial transactions with key customers. |
| (ii) | Finance obligations totaling $195.8 million of which approximately $33.8 million is due within the next 12 months. Finance obligations consist primarily of debt associated with the sale of future revenues and failed sale/leaseback transactions. |
| (iii) | Long-term debt, primarily related to the Company’s Loan Agreement with Generate Capital totaling $160.5 million of which $30.4 million is classified as short term on our consolidated balance sheets. See Note 9, “Long-Term Debt”, for more details. |
| (iv) | Convertible senior notes totaling $192.0 million at June 30, 2021. See Note 10, “Convertible Senior Notes” for more details. |
The Company’s working capital was $4.7 billion at June 30, 2021, which included unrestricted cash and cash equivalents of $3.2 billion. 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 at least one year after the date the financial statements are issued.
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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% Convertible Senior Notes were converted into 14.6 million shares of common stock, resulting in a gain of approximately $4.5 million which was recorded on the consolidated statement of operations on the gain (loss) on extinguishment of debt line. As of December 31, 2020, approximately $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding, all of which were converted to common stock in January 2021.
In September 2019, the Company issued $40.0 million in aggregate principal amount of 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds from this offering, after deducting costs of the issuance, were $39.1 million. On July 1, 2020, the note automatically converted fully into 16.0 million shares of common stock.
Secured Debt
In March 2019, the Company entered into a loan and security agreement, as amended (the “Loan Agreement”), with Generate Lending, LLC (“Generate Capital”), providing for a secured term loan facility in the amount of $100 million (the “Term Loan Facility”).
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 June 30, 2021, the outstanding balance under the Term Loan Facility was $150.8 million. In addition to the Generate Capital Loan, on June 30, 2021, there was approximately $10.0 million of debt related to the United Hydrogen Group acquisition.
42
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 19, “Commitments and Contingencies.” Based on the amortization schedule as of June 30, 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 June 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):
|
|
|
|
|
December 31, 2021 |
$ |
127,317 |
|
December 31, 2022 |
|
93,321 |
|
December 31, 2023 |
|
62,920 |
|
December 31, 2024 |
|
33,692 |
|
December 31, 2025 |
|
— |
Several key indicators of liquidity are summarized in the following table (in thousands):
3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.
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) |
43
|
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. |
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 June 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During the six months ended June 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued 3.0 million shares of common stock in conjunction with these conversions.
In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.
44
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):
|
|
|
|
|
|
June 30, |
|
|
|
2021 |
|
|
Principal amounts: |
|
|
|
Principal |
$ |
197,278 |
|
Unamortized debt issuance costs (1) |
|
(5,267) |
|
Net carrying amount |
$ |
192,011 |
| 1) | Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
The following table summarizes the total interest expense, the amortization of debt issuance costs and the effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
|
|
|
|
|
|
June 30, |
|
|
|
2021 |
|
|
Interest expense |
$ |
1,850 |
|
Amortization of debt issuance costs |
|
306 |
|
Total |
|
2,156 |
|
|
|
|
|
Effective interest rate |
|
4.50% |
Based on the closing price of the Company’s common stock of $34.19 on June 30, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 2021 was approximately $1.3 billion. The fair value estimation was primarily based on an active stock exchange trade on June 24, 2021 of the 3.75% Senior Convertible Note. See Note 15, “Fair Value Measurements” for a description of the fair value hierarchy.
Capped Call
45
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 was recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
5.5% Convertible Senior Notes
In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due on March 15, 2023, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. In the fourth quarter of 2020, $33.5 million of the remaining 5.5% Convertible Senior Notes converted into 14.6 million shares of common stock which resulted in a gain of approximately $4.5 million and was recorded on the unaudited interim condensed consolidated statement of operations on the gain (loss) on extinguishment of debt line.
On January 7, 2021, the remaining aggregate principal of $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock. Interest expense and amortization for the period were immaterial.
Capped Call
In conjunction with the pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “5.5% Notes Capped Call”) with certain counterparties at a price of $16.0 million to reduce the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be. The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
In conjunction with the pricing of the partial repurchase of the 5.5% Convertible Senior Notes, the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million, which was recorded in additional paid-in capital in the unaudited interim condensed consolidated balance sheets.
Common Stock Forward
In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction, (“the Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the
46
3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.
The net cost incurred in connection with the Common Stock Forward of $27.5 million 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. During the second quarter of 2021, an additional 2.2 million shares were settled and received by the Company.
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon 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 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.
47
On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.
The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant. A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share based payment modification).
The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual.
At December 31, 2020, all 55,286,696 of the Amazon Warrant Shares had vested, however for service contracts entered into prior to December 31, 2020, the warrant charge associated with that revenue was capitalized and is subsequently amortized over the life of the service contract. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2021 and 2020 was $105 thousand and $3.4 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2021 and 2020 was $209 thousand and $4.7 million, respectively. During the three months ended March 31, 2021 and June 30, 2021, the Amazon Warrant was exercised with respect to 9,214,449 shares of common stock and 4,745,905 shares of common stock, respectively. In July 2021, the Amazon Warrant was exercised with respect to an additional 3,501,640 shares of common stock.
The exercise price for the first and second tranches of Amazon Warrant Shares was $1.1893 per share. The exercise price of the third tranche of Amazon Warrant Shares was $13.81 per share, which was determined pursuant to the 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:
48
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.
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 June 30, 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 June 30, 2021 and 2020 was $1.6 million and $1.0 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the six months ended June 30, 2021 and 2020 was $3.2 million and $1.9 million, respectively. During the three months ended March 31, 2021, the Walmart Warrant had been exercised with respect to 7,274,565 shares of common stock. There were no exercises during the three months ended June 30, 2021.
Operating and Finance Lease Liabilities
As of June 30, 2021, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote. At the end of the lease 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
49
the lessor to renew the lease at market rental rates. No residual value guarantees are contained in the leases. No financial covenants are contained within the lease, however there are customary operational covenants such as assurance the Company properly maintains the leased assets and carries appropriate insurance, etc. The leases include credit support in the form of either cash, collateral or letters of credit. See Note 19, “Commitments and Contingencies” for a description of cash held as security associated with the leases.
The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations. The fair value of this finance obligation approximated the carrying value as of June 30, 2021.
Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2021 were as follows (in thousands):
Rental expense for all operating leases was $8.2 million and $7.8 million for the three months ended June 30, 2021 and 2020, respectively. Rental expense for all operating leases was $16.3 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $19.5 million and $14.4 million for the three months ended June 30, 2021 and 2020, respectively. The gross profit on sale/leaseback transactions for all operating leases was $35.4 million and $19.7 million for the six months ended June 30, 2021 and 2020, respectively.
Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $24.0 million and $2.9 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets for sale/leaseback transactions obtained in exchange for new operating lease liabilities was $35.9 million and $8.1 million for the six months ended June 30, 2021 and 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with operating leases was $172.3 million and $136.9 million, respectively. The accumulated depreciation for these right of use assets was $26.5 million and $19.9 million at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, the right of use assets associated with finance leases was $17.3 million and $5.7 million, respectively. The accumulated depreciation for these right of use assets was $380 thousand and $102 thousand at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021 and December 31, 2020, security deposits associated with sale/leaseback transactions were $3.1 million and $5.8 million, respectively, and were included in other assets in the consolidated balance sheets.
Other information related to the operating leases are presented in the following table:
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2021 |
|
|
June 30, 2020 |
|
Cash payments (in thousands) |
$ |
16,081 |
|
$ |
9,674 |
50
|
Weighted average remaining lease term (years) |
|
5.82 |
|
|
4.34 |
|
Weighted average discount rate |
|
11.4% |
|
|
12.1% |
Right of use assets obtained in exchange for new finance lease liabilities were $6.5 million and $0.7 million for the three months ended June 30, 2021 and 2020, respectively. Right of use assets obtained in exchange for new finance lease liabilities were $12.1 million and $0.7 million for the six months ended June 30, 2021 and 2020, respectively.
Other information related to the finance leases are presented in the following table:
Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, 2021 was $176.3 million, $27.3 million and $149.0 million of which was classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $157.7 million, $24.2 million and $133.5 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 2021 and December 31, 2020.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, 2021 was $19.5 million, $6.5 million and $13.0 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2020 was $23.9 million, $8.0 million and $15.9 million of which was classified as short-term and long-term, respectively on the accompanying consolidated balance sheets. The fair value of this finance obligation approximated the carrying value as of both June 30, 2021 and December 31, 2020.
Future minimum payments under finance obligations notes above as of June 30, 2021 were as follows (in thousands)
51
Other information related to the above finance obligations are presented in the following table:
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $243.5 million was required to be restricted as security as of June 30, 2021, which restricted cash will be released over the lease term. As of June 30, 2021, the Company also had certain letters of credit backed by restricted cash totaling $143.7 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. |
The fair values of the Company’s investments are based upon prices provided by an independent pricing service. Management has assessed and concluded that these prices are reasonable and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2021.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
52
|
Certificates of deposit |
|
27,454 |
|
27,454 |
|
— |
|
27,454 |
|
— |
|
Equity securities |
|
120,302 |
|
120,302 |
|
120,302 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
9,990 |
|
9,990 |
|
— |
|
— |
|
9,990 |
|
Convertible senior notes |
|
192,011 |
|
1,320,194 |
|
— |
|
1,320,194 |
|
— |
|
Long-term debt |
|
160,484 |
|
160,484 |
|
— |
|
— |
|
160,484 |
|
Finance obligations |
|
195,805 |
|
195,805 |
|
— |
|
— |
|
195,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020 |
||||||||
|
|
|
Carrying |
|
Fair |
|
Fair Value Measurements |
||||
|
|
|
Amount |
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
9,760 |
|
9,760 |
|
— |
|
— |
|
9,760 |
|
Convertible senior notes |
|
85,640 |
|
1,272,766 |
|
— |
|
1,272,766 |
|
— |
|
Long-term debt |
|
175,402 |
|
175,402 |
|
— |
|
— |
|
175,402 |
|
Finance obligations |
|
181,553 |
|
181,553 |
|
— |
|
— |
|
181,553 |
| (1) | Included in “Cash and cash equivalents” in our consolidated balance sheets as of June 30, 2021. |
The fair values for available-for-sale and equity securities are based on prices obtained from independent pricing services. Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active markets for identical assets.
Available-for-sale securities
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale securities, and allowance for credit losses at June 30, 2021 are summarized as follows (in thousands):
A summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, at June 30, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
June 30, 2021 |
||||
|
|
|
Amortized |
|
Fair |
|
|
Maturity: |
|
Cost |
|
Value |
|
|
Within one year |
$ |
717,531 |
|
$ |
717,285 |
|
After one through five years |
|
527,087 |
|
|
525,436 |
|
Total |
$ |
1,244,618 |
|
$ |
1,242,721 |
The cost, gross unrealized gains, gross unrealized losses, and fair value of those investments classified as equity securities at June 30, 2021 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
||||||||||
|
|
|
|
|
Gross |
|
Gross |
|
Fair |
|||
|
|
|
Cost |
|
Unrealized Gains |
|
Unrealized Losses |
|
Value |
|||
53
|
Fixed income mutual funds |
$ |
89,962 |
|
$ |
17 |
|
$ |
(81) |
|
$ |
89,898 |
|
Exchange traded mutual funds |
|
30,016 |
|
|
388 |
|
|
— |
|
|
30,404 |
|
Total |
$ |
119,978 |
|
$ |
405 |
|
$ |
(81) |
|
$ |
120,302 |
Off-Balance Sheet Arrangements
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 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 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of June 30, 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.
54
During the first six months of 2021, the Company purchased U.S. Treasury securities, corporate bonds, commercial paper, certificates of deposit, money market funds and municipal debt, in which the major components of market risk affecting us are credit risk and interest rate risk. We also purchased equity securities, in which the major component of market risk affecting us is equity risk.
Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of HyPulsion, S.A.S., our French subsidiary that develops and sells hydrogen fuel cell systems for the European material handling market. 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 2020 10-K. The material weakness has not been remediated as of June 30, 2021.
Material Weakness identified as of December 31, 2020
Management identified the following deficiency in internal control over financial reporting as of December 31, 2020: the Company did not maintain a sufficient complement of trained, knowledgeable resources to execute its responsibilities with respect to internal control over financial reporting for certain financial statement accounts and
disclosures. As a consequence, the Company did not conduct an effective risk assessment process that was responsive to changes in the Company's operating environment and did not design and implement effective process-level controls activities in the following areas:
| (a) | Presentation of operating expenses; |
| (b) | Accounting for lease-related transactions; |
| (c) | Identification and evaluation of impairment, accrual for loss contracts, certain expense accruals, and deemed dividends; and |
| (d) | Timely identification of adjustments to physical inventory in interim periods. |
As reported on our 2020 10-K, we continue to take steps to remediate this material weakness and will continue to take further steps until such remediation is complete. These steps include the following:
| a) | Hiring additional resources, including third-party resources, with the appropriate technical accounting expertise, and strengthening internal training, to assist us in identifying and addressing any complex technical accounting issues that affect our consolidated financial statements. |
| b) | We will design and implement a comprehensive and continuous risk assessment process to identify and assess risks of material misstatements and ensure that the impacted financial reporting processes and related internal controls are properly designed, maintained, and documented to respond to those risks in our financial reporting. |
55
| 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 June 30, 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. 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.
In March and May 2021, Company stockholders, individually and on behalf of all persons who purchased or otherwise acquired Plug securities between November 9, 2020 and March 16, 2021 (the “Class”), filed complaints in the U.S. District Court for the Southern District of New York and U.S. District Court for the Central District of California against the Company, Plug Chief Executive Officer Andrew Marsh, and Plug Chief Financial Officer Paul Middleton (together, the “Defendants”), captioned Dawn Beverly et al. v. Plug Power Inc. et al., Case No. 1:21-cv-02004 (S.D.N.Y.), Smolíček v. Plug Power Inc. et al., Case No. 2:21-cv-02402 (C.D. Cal.) and Tank v. Plug Power Inc. et al., Case No. 1:21-cv-03985 (S.D.N.Y.). The complaints include two claims, for (1) violation of Section 10(b) of the Exchange Act and Rule 10b5 promulgated thereunder (against all Defendants); and (2) violation of Section 20(a) of the Exchange Act (against Mr. Marsh and Mr. Middleton). The complaints allege that Defendants failed to disclose that the Company (i) “would be unable to timely file its 2020 annual report due to delays related to the review of classification of certain costs and the recoverability of the right to use assets with certain leases”; and (ii) “was reasonably likely to report material weaknesses
56
in its internal control over financial reporting[.]” The complaints allege 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 complaints seek compensatory damages “in an amount to be proven at trial, including interest thereon”; “reasonable costs and expenses incurred in th[e] action”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.” On July 22, 2021, the U.S. District Court for the Southern District of New York consolidated the three cases and appointed a lead plaintiff. On July 28, 2021, Tank v. Plug Power, et. al., was voluntarily dismissed.
On March 31, 2021, Company stockholder Junwei Liu, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against certain Company directors and officers (the “Derivative Defendants”), captioned Liu v. Marsh et al., Case No. 1:21-cv-02753 (S.D.N.Y.) (the “Liu Derivative Complaint”). The Liu Derivative Complaint alleges that, between November 9, 2020 and March 1, 2021, the Derivative Defendants “made, or caused the Company to make, materially false and misleading statements concerning Plug Power’s business, operations, and prospects” by “issu[ing] positive financial information and optimistic guidance, and made assurances that the Company’s internal controls were effective,” when, “[i]n reality, the Company’s internal controls suffered from material deficiencies that rendered them ineffective.” The Liu Derivative Complaint asserts claims for (1) breach of fiduciary duties, (2) unjust enrichment, (3) abuse of control, (4) gross mismanagement, (5) waste of corporate assets, and (6) contribution under Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Liu Derivative Complaint seeks a judgment “[d]eclaring that Plaintiff may maintain this action on behalf of Plug”; “[d]eclaring that the [Derivative] Defendants have breached and/or aided and abetted the breach of their fiduciary duties”; “awarding to Plug Power the damages sustained by it as a result of the violations” set forth in the Liu Derivative Complaint, “together with pre-judgment and post-judgment interest thereon”; “[d]irecting Plug Power and the [Derivative] Defendants to take all necessary actions to reform and improve Plug Power’s corporate governance and internal procedures to comply with applicable laws”; and “[a]warding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees, costs, and expenses”; and “[s]uch other and further relief as the [c]ourt may deem just and proper.”
On April 5, 2021, Company stockholders Elias Levy and Camerohn X. Withers, derivatively and on behalf of nominal defendant Plug, filed a complaint in the U.S. District Court for the Southern District of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned Levy et al. v. McNamee et al., Case No. 1:21-cv-02891 (S.D.N.Y.) (the “Levy Derivative Complaint”). The Levy Derivative Complaint alleges that, from November 9, 2020 to April 5, 2021, the Derivative Defendants “breached their duties of loyalty and good faith” by failing to disclose “(1) that the Company would be unable to timely file its 2020 annual report due to delays related to the review of classification of certain costs and the recoverability of the right to use assets with certain leases; (2) that the Company was reasonably likely to report material weaknesses in its internal control over financial reporting; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” The Levy Derivative Complaint asserts claims for (1) breach of fiduciary duty (as to the named director defendants), (2) unjust enrichment (as to certain named director defendants), (3) waste of corporate assets (as to the named director defendants), and (4) violations of Sections 10(b) and 21D of the Exchange Act (as to the named officer defendants). The Levy Derivative Complaint seeks a judgment “declaring that Plaintiffs may maintain this action on behalf of the Company”; finding the Derivative Defendants “liable for breaching their fiduciary duties owed to the Company”; directing the Derivative Defendants “to take all necessary actions to reform and improve the Company’s corporate governance, risk management, and internal operating procedures to comply with applicable laws”; “awarding damages to the Company for the harm the Company suffered as a result of Defendants’ wrongful conduct”; “awarding damages to the Company for [the named officer Derivative Defendants’] violations of Sections 10(b) and 21D of the Exchange Act”; “awarding Plaintiffs the costs and disbursements of this action, including attorneys’, accountants’, and experts’ fees”; and “awarding such other and further relief as is just and equitable.” On April 27, 2021, the U.S. District Court for the Southern District of New York consolidated the Liu Derivative Complaint and the Levy Derivative Complaint under Case No. 1:21-cv-02753-ER (the “Consolidated Action”).
On May 13, 2021, Company stockholder Romario St. Clair, derivatively and on behalf of nominal defendant Plug, filed a complaint in the Supreme Court of the State of New York, County of New York against the Derivative Defendants named in the Liu Derivative Complaint, captioned St. Clair v. Plug Power Inc. et al., Index No. 653167/2021 (N.Y. Sup. Ct., N.Y. Cty.) (the “St. Clair Derivative Complaint”). The St. Clair Derivative Complaint alleges that, for
57
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.
(c) None.
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
None.
Item 5 — Other Information
None.
58
Item 6 — Exhibits
| (1) | Filed herewith. |
|
* |
Submitted electronically herewith. |
59
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: August 5, 2021 |
By: |
/s/ Andrew Marsh |
|
|
|
Andrew Marsh |
|
|
|
President, Chief Executive
|
|
|
|
|
|
Date: August 5, 2021 |
By: |
/s/ Paul B. Middleton |
|
|
|
Paul B. Middleton |
|
|
|
Chief Financial Officer (Principal
|
60
EXHIBIT 3.7
FIFTH CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PLUG POWER INC.
Plug Power Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation has duly adopted resolutions (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware this Fifth Certificate of Amendment of Amended and Restated Certificate of Incorporation (this “Fifth Amendment”) to increase the authorized capital stock of the Corporation from 755,000,000 shares to 1,505,000,000 shares; and (ii) declaring this Fifth Amendment to be advisable, submitted to and considered by the stockholders of the Corporation entitled to vote thereon for approval by the affirmative vote of such stockholders in accordance with the terms of the Corporation’s Amended and Restated Certificate of Incorporation, as amended by the Certificate of Amendment of the Amended and Restated Certificate of Incorporation dated June 21, 2000, the Second Certificate of Amendment of the Amended and Restated Certificate of Incorporation dated May 19, 2011, the Third Certificate of Amendment of the Amended and Restated Certificate of Incorporation dated July 25, 2014, the Certificate of Correction to the Third Certificate of Amendment of the Amended and Restated Certificate of Incorporation dated December 21, 2016 and the Fourth Certificate of Amendment of the Amended and Restated Certificate of Incorporation dated June 30, 2017 (collectively, the “Certificate of Incorporation”) and Section 242 of the General Corporation Law of the State of Delaware (the “DGCL”) and recommended for approval by the stockholders of the Corporation.
SECOND: That this Fifth Amendment was duly adopted in accordance with the terms of the Certificate of Incorporation and the provisions of Section 242 of the DGCL by the Board of Directors and stockholders of the Corporation.
THIRD: That upon the effectiveness of this Fifth Amendment, the first paragraph of Article IV of the Certificate of Incorporation is hereby deleted and is replaced in its entirety with the following:
“The total number of shares of capital stock which the Corporation shall have the authority to issue is One Billion Five Hundred Five Million (1,505,000,000) shares, of which (i) One Billion Five Hundred Million (1,500,000,000) shares shall be Common Stock, par value $0.01 per share, and (ii) Five Million (5,000,000) shares shall be preferred stock, par value $0.01 per share (consisting of 170,000 shares of previously designated Series A Junior Participating Cumulative Preferred Stock and 4,830,000 shares of undesignated preferred stock).”
IN WITNESS WHEREOF, the Corporation has caused this Fifth Certificate of Amendment of Amended and Restated Certificate of Incorporation to be executed by Andrew Marsh, its President and Chief Executive Officer, this day of July, 2021.
|
PLUG POWER INC. |
||
|
By: |
|
/s/ Andrew Marsh |
|
Name: |
|
Andrew Marsh |
|
Title: |
|
President and Chief Executive Officer |
Exhibit 31.1
I, Andrew Marsh, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plug Power Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2021
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by: |
/s/ Andrew Marsh |
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Andrew Marsh |
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Chief Executive Officer |
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Exhibit 31.2
I, Paul B. Middleton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plug Power Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2021
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by: |
/s/ Paul B. Middleton |
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Paul B. Middleton |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Plug Power Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2021 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Andrew Marsh, Chief Executive Officer of the Company, certify, solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is being furnished and not filed, and shall not be incorporated into any documents for any other purpose, under the Securities Exchange Act of 1934, as amended or the Securities Act of 1933, as amended. A signed original of this written statement required by § 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ Andrew Marsh |
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Andrew Marsh |
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Chief Executive Officer |
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August 5, 2021 |
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Plug Power Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2021 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Paul B. Middleton, Interim Chief Financial Officer of the Company, certify, solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is being furnished and not filed, and shall not be incorporated into any documents for any other purpose, under the Securities Exchange Act of 1934, as amended or the Securities Act of 1933, as amended. A signed original of this written statement required by § 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ Paul B. Middleton |
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Paul B. Middleton |
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Chief Financial Officer |
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August 5, 2021 |
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