|
||||||||||||||||||||||||||
| SEC Info℠ | | | Home | | | Search | | | My Interests | | | Help | | | Sign In | | | Please Sign In | |||||||
|
||||||||||||||||||||||||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/08/22 Plug Power Inc. 10-Q 9/30/22 113:14M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.12M
2: EX-10.1 Material Contract HTML 90K
3: EX-10.2 Material Contract HTML 185K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 33K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 33K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 31K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 31K
13: R1 Document and Entity Information HTML 81K
14: R2 Condensed Consolidated Balance Sheets HTML 169K
15: R3 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
16: R4 Condensed Consolidated Statements of Operations HTML 150K
17: R5 Condensed Consolidated Statements of Comprehensive HTML 51K
Loss
18: R6 Condensed Consolidated Statements of Stockholders' HTML 150K
Equity
19: R7 Condensed Consolidated Statements of Stockholders' HTML 36K
Equity (Parenthetical)
20: R8 Condensed Consolidated Statements of Cash Flows HTML 176K
21: R9 Condensed Consolidated Statements of Cash Flows HTML 30K
(Parenthetical)
22: R10 Nature of Operations HTML 34K
23: R11 Summary of Significant Accounting Policies HTML 37K
24: R12 Acquisitions HTML 124K
25: R13 Extended Maintenance Contracts HTML 45K
26: R14 Earnings Per Share HTML 57K
27: R15 Inventory HTML 46K
28: R16 Property, Plant and Equipment HTML 48K
29: R17 Intangible Assets and Goodwill HTML 92K
30: R18 Long-Term Debt HTML 32K
31: R19 Convertible Senior Notes HTML 64K
32: R20 Stockholders' Equity HTML 91K
33: R21 Warrant Transaction Agreements HTML 57K
34: R22 Revenue HTML 131K
35: R23 Income Taxes HTML 34K
36: R24 Fair Value Measurements HTML 145K
37: R25 Investments HTML 164K
38: R26 Operating and Finance Lease Liabilities HTML 84K
39: R27 Finance Obligation HTML 73K
40: R28 Commitments and Contingencies HTML 57K
41: R29 Employee Benefit Plans HTML 151K
42: R30 Segment Reporting HTML 66K
43: R31 Subsequent Events HTML 31K
44: R32 Summary of Significant Accounting Policies HTML 40K
(Policies)
45: R33 Acquisitions (Tables) HTML 105K
46: R34 Extended Maintenance Contracts (Tables) HTML 45K
47: R35 Earnings Per Share (Tables) HTML 55K
48: R36 Inventory (Tables) HTML 46K
49: R37 Property, Plant and Equipment (Tables) HTML 46K
50: R38 Intangible Assets and Goodwill (Tables) HTML 95K
51: R39 Convertible Senior Notes (Tables) HTML 60K
52: R40 Stockholders' Equity (Tables) HTML 83K
53: R41 Warrant Transaction Agreements (Tables) HTML 47K
54: R42 Revenue (Tables) HTML 131K
55: R43 Fair Value Measurements (Tables) HTML 140K
56: R44 Investments (Tables) HTML 167K
57: R45 Operating and Finance Lease Liabilities (Tables) HTML 82K
58: R46 Finance Obligation (Tables) HTML 71K
59: R47 Employee Benefit Plans (Tables) HTML 144K
60: R48 Segment Reporting (Tables) HTML 61K
61: R49 Nature of Operations - Description Of Business HTML 37K
(Details)
62: R50 Acquisitions - Fair value of consideration HTML 47K
(Details)
63: R51 Acquisitions - Allocation of Purchase Price HTML 86K
(Details)
64: R52 Acquisitions - Goodwill (Details) HTML 49K
65: R53 Acquisitions - Narratives (Details) HTML 142K
66: R54 Extended Maintenance Contracts (Details) HTML 40K
67: R55 Earnings Per Share - Dilutive Potential Common HTML 118K
Shares (Details)
68: R56 Inventory (Details) HTML 40K
69: R57 Property, Plant and Equipment (Details) HTML 54K
70: R58 Intangible Assets and Goodwill - Gross Carrying HTML 50K
Amount (Details)
71: R59 Intangible Assets and Goodwill - Estimated HTML 52K
Amortization Expense (Details)
72: R60 Intangible Assets and Goodwill - Carrying Amount HTML 38K
of Goodwill (Details)
73: R61 Long-Term Debt (Details) HTML 39K
74: R62 Convertible Senior Notes - Conversion (Details) HTML 40K
75: R63 Convertible Senior Notes (Details) HTML 40K
76: R64 Convertible Senior Notes - Expenses and Interest HTML 40K
(Details)
77: R65 Convertible Senior Notes - Capped Call and Common HTML 70K
Stock Forward (Details)
78: R66 Stockholders' Equity - Common Stock and Warrants HTML 49K
(Details)
79: R67 Stockholders' Equity - Accumulated Other HTML 54K
Comprehensive Income (Details)
80: R68 Warrant Transaction Agreements - Amazon.com, Inc. HTML 106K
Transaction Agreement (Details)
81: R69 Warrant Transaction Agreements - Walmart Stores, HTML 58K
Inc. Transaction Agreement (Details)
82: R70 Revenue - Disaggregation of Revenue (Details) HTML 63K
83: R71 Revenue - Contract balances (Details) HTML 36K
84: R72 Revenue - Changes in contract assets and contract HTML 52K
liabilities (Details)
85: R73 Revenue - Estimated future revenue (Details) HTML 56K
86: R74 Revenue - Others (Details) HTML 30K
87: R75 Income Taxes (Details) HTML 33K
88: R76 Fair Value Measurements - Narrative (Details) HTML 48K
89: R77 Fair Value Measurements - Assets and liabilities HTML 70K
measured at fair value on a recurring basis
(Details)
90: R78 Fair Value Measurements - Assets and liabilities HTML 84K
measured at fair value on recurring basis that
have unobservable inputs (Details)
91: R79 Fair Value Measurements - Level 3 Instruments HTML 42K
Reconciliation (Details)
92: R80 Investments - Available-for-sale securities HTML 51K
(Details)
93: R81 Investments - Available-for-sale securities, HTML 49K
Unrealized Loss (Details)
94: R82 Investments - Equity Securities (Details) HTML 43K
95: R83 Investments - Contractual Maturity (Details) HTML 47K
96: R84 Operating and Finance Lease Liabilities - HTML 49K
Narrative (Details)
97: R85 Operating and Finance Lease Liabilities - Future HTML 87K
minimum lease payments under operating and finance
leases (Details)
98: R86 Operating and Finance Lease Liabilities - Other HTML 36K
information related to the operating leases
(Details)
99: R87 Operating and Finance Lease Liabilities - Other HTML 36K
information related to the finance leases
(Details)
100: R88 Finance Obligation - Narrative (Details) HTML 46K
101: R89 Finance Obligation - Future minimum payments under HTML 54K
finance obligations (Details)
102: R90 Finance Obligation - Other information (Details) HTML 34K
103: R91 Commitments and Contingencies - Concentrations of HTML 78K
Credit Risk (Details)
104: R92 Employee Benefit Plans - Assumptions For HTML 40K
Estimating Fair Value (Details)
105: R93 Employee Benefit Plans - Stock Activity, Weighted HTML 117K
Average Exercise Price (Details)
106: R94 Employee Benefit Plans - Restricted Stock Activity HTML 71K
(Details)
107: R95 Employee Benefit Plans - 401(K) Saving And HTML 43K
Retirement Plan (Details)
108: R96 Segment Reporting (Details) HTML 51K
111: XML IDEA XML File -- Filing Summary XML 209K
109: XML XBRL Instance -- plug-20220930x10q_htm XML 3.95M
110: EXCEL IDEA Workbook of Financial Reports XLSX 219K
9: EX-101.CAL XBRL Calculations -- plug-20220930_cal XML 293K
10: EX-101.DEF XBRL Definitions -- plug-20220930_def XML 1.11M
11: EX-101.LAB XBRL Labels -- plug-20220930_lab XML 2.01M
12: EX-101.PRE XBRL Presentations -- plug-20220930_pre XML 1.49M
8: EX-101.SCH XBRL Schema -- plug-20220930 XSD 283K
112: JSON XBRL Instance as JSON Data -- MetaLinks 582± 927K
113: ZIP XBRL Zipped Folder -- 0001558370-22-016911-xbrl Zip 581K
| UNITED STATES |
.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED i September 30, 2022
OR
i ☐ | 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: i 1-34392
i PLUG POWER INC.
(Exact name of registrant as specified in its charter)
| | |
| | |
i Delaware | | i 22-3672377 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification Number) |
i 968 ALBANY SHAKER ROAD, i LATHAM, NEW YORK i 12110
(Address of Principal Executive Offices, including Zip Code)
( i 518) i 782-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
| | |||
| | |||
Title of Each Class |
| Trading Symbol(s) | | Name of Each Exchange on Which Registered |
i Common Stock, par value $.01 per share |
| i PLUG | | The i 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. i 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). i 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.
| ||||
i Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company i ☐ | Emerging growth company i ☐ |
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 i ☐ No ☒
The number of shares of common stock, par value of $0.01 per share, outstanding as of November 4, 2022 was i 582,904,421 shares.
INDEX to FORM 10-Q
2
PART 1. FINANCIAL INFORMATION
Item 1 — Interim Financial Statements (Unaudited)
Plug Power Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | |
|
| September 30, |
| |||
| | 2022 | | 2021 | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | i 1,747,753 | | $ | i 2,481,269 |
Restricted cash | | | i 156,686 | | | i 118,633 |
Available-for-sale
securities, at fair value | | | i 819,440 | | | i 1,240,265 |
Equity securities | | | i 130,121 | | | i 147,995 |
Accounts receivable | |
| i 95,472 | |
| i 92,675 |
Inventory | |
| i 516,280 | |
| i 269,163 |
Contract assets | | | i 50,394 | | | i 38,637 |
Prepaid expenses and other current assets | |
| i 135,506 | |
| i 59,888 |
Total current assets | |
| i 3,651,652 | |
| i 4,448,525 |
| | | | | | |
Restricted cash | |
| i 650,651 | |
| i 532,292 |
Property, plant, and equipment, net | | | i 607,268 | |
| i 255,623 |
Right of use assets related to finance leases, net | | | i 49,603 | | | i 32,494 |
Right of use assets related to operating leases, net | | | i 311,878 | | | i 212,537 |
Equipment related to power purchase agreements and fuel delivered to customers, net | | | i 88,490 | |
| i 72,902 |
Contract assets | | | i 20,485 | | | i 120 |
Goodwill | | | i 230,719 | | | i 220,436 |
Intangible assets, net | |
| i 195,647 | |
| i 158,208 |
Investments in non-consolidated entities and non-marketable equity securities | | | i 41,162 | | | i 12,892 |
Other assets | |
| i 11,249 | |
| i 4,047 |
Total assets | | $ | i 5,858,804 | | $ | i 5,950,076 |
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | i 199,865 | | $ | i 92,307 |
Accrued expenses | |
| i 157,479 | |
| i 79,237 |
Deferred revenue and other contract liabilities | |
| i 108,026 | |
| i 116,377 |
Operating lease liabilities | | | i 43,363 | | | i 30,822 |
Finance lease liabilities | | | i 7,216 | | | i 4,718 |
Finance obligations | | | i 53,236 | | | i 42,040 |
Current portion of long-term debt | | | i 937 | | | i 15,252 |
Contingent consideration, loss accrual for service contracts, and other current liabilities | |
| i 29,269 | |
| i 39,800 |
Total current liabilities | |
| i 599,391 | |
| i 420,553 |
| | | | | | |
Deferred revenue and other contract liabilities | |
| i 81,119 | |
| i 66,713 |
Operating lease liabilities | | | i 245,715 | | | i 175,635 |
Finance lease liabilities | | | i 35,864 | | | i 24,611 |
Finance obligations | |
| i 250,358 | |
| i 211,644 |
Convertible senior notes, net | | | i 193,592 | | | i 192,633 |
Long-term debt | | | i 65,325 | | | i 112,794 |
Contingent consideration, loss accrual for service contracts, and other liabilities | |
| i 163,864 | |
| i 139,797 |
Total liabilities | |
| i 1,635,228 | |
| i 1,344,380 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $ i i 0.01 / par value per share; i i 1,500,000,000 / shares authorized; Issued (including shares in treasury): i 598,777,468 at September 30, 2022 and i 594,729,610 at December 31, 2021 | |
| i 5,988 | |
| i 5,947 |
Additional paid-in capital | |
| i 7,245,396 | |
| i 7,070,710 |
Accumulated other comprehensive loss | |
| ( i 35,025) | |
| ( i 1,532) |
Accumulated deficit | |
| ( i 2,897,446) | |
| ( i 2,396,903) |
Less common stock in treasury: i 18,015,881 at September 30, 2022 and i 17,074,710 at December 31, 2021 | | | ( i 95,337) | | | ( i 72,526) |
Total stockholders’ equity | |
| i 4,223,576 | |
| i 4,605,696 |
Total liabilities and stockholders’ equity | | $ | i 5,858,804 | | $ | i 5,950,076 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
3
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, | | |||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Net revenue: | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | $ | i 157,985 | | $ | i 115,999 | | $ | i 383,065 | | $ | i 262,049 |
Services performed on fuel cell systems and related infrastructure | | i 8,406 | | | i 6,677 | | | i 25,468 | | | i 18,397 |
Power purchase agreements |
| i 9,524 | |
| i 9,321 | |
| i 30,730 | |
| i 25,508 |
Fuel delivered to customers and related equipment |
| i 12,389 | |
| i 11,556 | |
| i 40,289 | |
| i 33,804 |
Other | | i 324 | | | i 369 | | | i 1,146 | | | i 679 |
Net revenue | | i 188,628 | | | i 143,922 | | | i 480,698 | | | i 340,437 |
Cost of revenue: | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment |
| i 127,381 | |
| i 89,235 | |
| i 310,362 | |
| i 198,122 |
Services performed on fuel cell systems and related infrastructure |
| i 12,619 | |
| i 18,697 | |
| i 38,106 | |
| i 47,258 |
Provision for loss contracts related to service | | i 5,727 | | | i 7,462 | | | i 8,843 | | | i 15,641 |
Power purchase agreements |
| i 35,549 | |
| i 31,199 | |
| i 102,194 | |
| i 71,776 |
Fuel delivered to customers and related equipment |
| i 53,129 | |
| i 27,857 | |
| i 134,008 | |
| i 90,331 |
Other |
| i 286 | |
| i 550 | |
| i 1,063 | |
| i 856 |
Total cost of revenue |
| i 234,691 | |
| i 175,000 | |
| i 594,576 | |
| i 423,984 |
| | | | | | | | | | | |
Gross loss |
| ( i 46,063) | |
| ( i 31,078) | |
| ( i 113,878) | |
| ( i 83,547) |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Research and development | | i 28,105 | | | i 16,634 | | | i 72,123 | | | i 37,623 |
Selling, general and administrative | | i 85,578 | | | i 42,421 | | | i 262,420 | | | i 106,652 |
Change in fair value of contingent consideration | | — | | | i 8,530 | | | ( i 2,605) | | | i 8,760 |
Total operating expenses | | i 113,683 | | | i 67,585 | | | i 331,938 | | | i 153,035 |
| | | | | | | | | | | |
Operating loss | | ( i 159,746) | | | ( i 98,663) | | | ( i 445,816) | | | ( i 236,582) |
| | | | | | | | | | | |
Interest income |
| i 13,429 | |
| i 4,151 | |
| i 19,321 | |
| i 5,664 |
Interest expense | | ( i 9,020) | | | ( i 9,512) | | | ( i 28,871) | | | ( i 33,559) |
Other expense, net |
| ( i 5,399) | |
| ( i 50) | |
| ( i 9,164) | |
| ( i 318) |
Realized loss on investments, net | | — | | | ( i 254) | | | ( i 1,315) | | | ( i 236) |
Change in fair value of equity securities | | ( i 4,221) | | | ( i 607) | | | ( i 22,864) | | | ( i 284) |
Loss on equity method investments | | ( i 4,280) | | | ( i 1,736) | | | ( i 10,304) | | | ( i 1,736) |
| | | | | | | | | | | |
Loss before income taxes | $ | ( i 169,237) | | $ | ( i 106,671) | | $ | ( i 499,013) | | $ | ( i 267,051) |
| | | | | | | | | | | |
Income tax expense |
| i 1,521 | |
| — | |
| i 1,530 | |
| — |
| | | | | | | | | | | |
Net loss | $ | ( i 170,758) | | $ | ( i 106,671) | | $ | ( i 500,543) | | $ | ( i 267,051) |
| | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | |
Basic and diluted | $ | ( i 0.30) | | $ | ( i 0.19) | | $ | ( i 0.87) | | $ | ( i 0.48) |
| | | | | | | | | | | |
Weighted average number of common stock outstanding |
| i 578,043,278 | |
| i 574,520,806 | |
| i 578,217,636 | |
| i 551,894,779 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended | ||||||||
| | September 30, | | |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | | | | | | | | | | | |
Net loss | | $ | ( i 170,758) | | $ | ( i 106,671) | | $ | ( i 500,543) | | $ | ( i 267,051) |
Other comprehensive loss: | | | | | | | | | | | | |
Foreign currency translation loss | |
| ( i 1,044) | |
| ( i 172) | |
| ( i 10,092) | |
| ( i 714) |
Change in net unrealized loss on available-for-sale securities | | | ( i 4,992) | | | ( i 2,200) | | | ( i 23,401) | | | ( i 4,075) |
Comprehensive loss attributable to the Company | | $ | ( i 176,794) | | $ | ( i 109,043) | | $ | ( i 534,036) | | $ | ( i 271,840) |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| Accumulated |
| |
|
| |
|
| |
| | ||
| | | | | | | Additional | | Other | | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Shares |
| Amount |
| Deficit |
| Equity | ||||||
| i 594,729,610 | | $ | i 5,947 | | $ | i 7,070,710 | | $ | ( i 1,532) |
| i 17,074,710 | | $ | ( i 72,526) | | $ | ( i 2,396,903) | | $ | i 4,605,696 | |
Net loss | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 156,489) | |
| ( i 156,489) |
Other comprehensive loss | | — | |
| — | |
| — | |
| ( i 16,930) |
| — | |
| — | |
| — | | | ( i 16,930) |
Stock-based compensation | | i 226,221 | |
| i 2 | |
| i 43,384 | |
| — |
| — | |
| — | |
| — | |
| i 43,386 |
Stock option exercises and issuance of shares of restricted common stock | | i 253,525 | |
| i 3 | |
| i 288 | |
| — |
| — | |
| — | |
| — | |
| i 291 |
Treasury stock acquired from employees upon exercise of stock options and vesting of restricted stock | | — | | | — | | | — | | | — | | i 71,627 | | | ( i 1,465) | | | — | | | ( i 1,465) |
Provision for common stock warrants | | — | | | — | | | i 1,743 | | | — | | — | | | — | | | — | |
| i 1,743 |
| i 595,209,356 | | $ | i 5,952 | | $ | i 7,116,125 | | $ | ( i 18,462) |
| i 17,146,337 | | $ | ( i 73,991) | | $ | ( i 2,553,392) | | $ | i 4,476,232 | |
Net loss | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 173,296) | |
| ( i 173,296) |
Other comprehensive loss | | — | |
| — | |
| — | |
| ( i 10,527) |
| — | |
| — | |
| — | | | ( i 10,527) |
Stock-based compensation | | i 108,216 | |
| i 2 | |
| i 44,857 | |
| — |
| — | |
| — | |
| — | |
| i 44,859 |
Stock option exercises and issuance of shares of restricted common stock | | i 391,967 | |
| i 4 | |
| i 525 | |
| — |
| — | |
| — | |
| — | |
| i 529 |
Treasury stock acquired from employees upon exercise of stock options and vesting of restricted stock | | — | | | — | | | — | | | — | | i 63,712 | | | ( i 1,195) | | | — | | | ( i 1,195) |
Provision for common stock warrants | | — | | | — | | | i 1,979 | | | — | | — | | | — | | | — | |
| i 1,979 |
| i 595,709,539 | | $ | i 5,958 | | $ | i 7,163,486 | | $ | ( i 28,989) |
| i 17,210,049 | | $ | ( i 75,186) | | $ | ( i 2,726,688) | | $ | i 4,338,581 | |
Net loss | | — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 170,758) | |
| ( i 170,758) |
Other comprehensive loss | | — | |
| — | |
| — | |
| ( i 6,036) |
| — | |
| — | |
| — | | | ( i 6,036) |
Stock-based compensation | | i 113,352 | |
| i 1 | |
| i 46,738 | |
| — |
| — | |
| — | |
| — | |
| i 46,739 |
Stock option exercises and issuance of shares of restricted common stock | | i 2,954,577 | |
| i 29 | |
| i 1,286 | |
| — |
| — | |
| — | |
| — | |
| i 1,315 |
Treasury stock acquired from employees upon exercise of stock options and vesting of restricted stock | | — | | | — | | | — | | | — | | i 805,832 | | | ( i 20,151) | | | — | | | ( i 20,151) |
Provision for common stock warrants | | — | | | — | | | i 33,886 | | | — | | — | | | — | | | — | |
| i 33,886 |
| i 598,777,468 | | $ | i 5,988 | | $ | i 7,245,396 | | $ | ( i 35,025) |
| i 18,015,881 | | $ | ( i 95,337) | | $ | ( i 2,897,446) | | $ | i 4,223,576 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| i 473,977,469 | | $ | i 4,740 | | $ | i 3,446,650 | | $ | i 2,451 |
| i 15,926,068 | | $ | ( i 40,434) | | $ | ( i 1,946,488) | | $ | i 1,466,919 | |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 60,746) | |
| ( i 60,746) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | ( i 130,249) | | | — | | — | | | — | | | i 9,550 | | | ( i 120,699) |
Other comprehensive gain |
| — | |
| — | |
| — | |
| ( i 1,031) |
| — | |
| — | |
| — | |
| ( i 1,031) |
Stock-based compensation |
| i 15,166 | |
| — | |
| i 9,695 | |
| — |
| — | |
| — | |
| — | |
| i 9,695 |
Public offerings, common stock, net | | i 32,200,000 | | | i 322 | | | i 2,022,866 | | | — | | — | | | — | | | — | | | i 2,023,188 |
Private offerings, common stock, net | | i 54,966,188 | | | i 549 | | | i 1,564,088 | | | — | | — | | | — | | | — | | | i 1,564,637 |
Stock option exercises |
| i 1,758,375 | |
| i 18 | |
| i 4,691 | |
| — |
| — | |
| — | |
| — | |
| i 4,709 |
Exercise of warrants | | i 16,308,978 | | | i 163 | | | i 15,282 | | | — | | — | | | — | | | — | | | i 15,445 |
Provision for common stock warrants | | — | | | — | | | i 1,601 | | | — | | — | | | — | | | — | | | i 1,601 |
Conversion of i 3.75% Convertible Senior Notes | | i 3,016,036 | | | i 30 | | | i 15,155 | | | — | | — | | | — | | | — | | | i 15,185 |
Repurchase of i 5.5% Convertible Senior Notes, net of income tax benefit | | i 69,808 | | | i 1 | | | i 159 | | | — | | — | | | — | | | — | | | i 160 |
| i 582,312,020 | | $ | i 5,823 | | $ | i 6,949,938 | | $ | i 1,420 |
| i 15,926,068 | | $ | ( i 40,434) | | $ | ( i 1,997,684) | | $ | i 4,919,063 | |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 99,634) | |
| ( i 99,634) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | i 64 | | | — | | — | | | — | | | ( i 1) | | | i 63 |
Other comprehensive gain |
| — | |
| — | |
| — | |
| ( i 1,386) |
| — | |
| — | |
| — | |
| ( i 1,386) |
Stock-based compensation |
| — | |
| — | |
| i 11,120 | |
| — |
| — | |
| — | |
| — | |
| i 11,120 |
Stock option exercises |
| i 2,075 | |
| — | |
| ( i 4) | |
| — |
| — | |
| — | |
| — | |
| ( i 4) |
Exercise of warrants | | i 4,534,130 | | | i 45 | | | ( i 40) | | | — | | — | | | — | | | — | | | i 5 |
Provision for common stock warrants | | — | | | — | | | i 1,642 | | | — | | — | | | — | | | — | | | i 1,642 |
| i 586,848,225 | | $ | i 5,868 | | $ | i 6,962,720 | | $ | i 34 |
| i 15,926,068 | | $ | ( i 40,434) | | $ | ( i 2,097,319) | | $ | i 4,830,869 | |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| ( i 106,671) | |
| ( i 106,671) |
Cumulative impact of Accounting Standards Update 2020-06 adoption | | — | | | — | | | — | | | — | | — | | | — | | | i 1 | | | i 1 |
Other comprehensive gain |
| — | |
| — | |
| — | |
| ( i 2,372) |
| — | |
| — | |
| — | |
| ( i 2,372) |
Stock-based compensation |
| i 46,242 | |
| — | |
| i 13,998 | |
| — |
| — | |
| — | |
| — | |
| i 13,998 |
Public offerings, common stock, net | | — | | | — | | | i 5 | | | — |
| — | |
| — | |
| — | | | i 5 |
Stock option exercises |
| i 2,815,652 | |
| i 28 | |
| i 583 | |
| — |
| i 1,106,580 | |
| ( i 30,734) | |
| — | |
| ( i 30,123) |
Exercise of warrants | | i 3,367,876 | | | i 34 | | | ( i 39) | | | — | | — | | | — | | | — | | | ( i 5) |
Provision for common stock warrants | | — | | | — | | | i 1,187 | | | — | | — | | | — | | | — | | | i 1,187 |
| i 593,077,995 | | $ | i 5,930 | | $ | i 6,978,454 | | $ | ( i 2,338) |
| i 17,032,648 | | $ | ( i 71,168) | | $ | ( i 2,203,989) | | $ | i 4,706,889 | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
6
Plug Power Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | |
| Nine months ended September 30, | | ||||
| 2022 |
| 2021 |
| ||
Operating activities | | | | | | |
Net loss | $ | ( i 500,543) | | $ | ( i 267,051) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation of long-lived assets |
| i 20,201 | |
| i 15,903 | |
Amortization of intangible assets |
| i 15,238 | |
| i 1,095 | |
Stock-based compensation |
| i 134,984 | |
| i 34,813 | |
Amortization of debt issuance costs and discount on convertible senior notes | | i 1,969 | | | i 2,371 | |
Provision for common stock warrants | | i 12,513 | | | i 4,746 | |
Deferred income tax expense | | i 699 | | | — | |
Impairment of long-lived assets | | i 763 | | | i 1,329 | |
(Benefit)/loss on service contracts | | ( i 21,984) | | | i 9,586 | |
Fair value adjustment to contingent consideration | | ( i 2,605) | | | ( i 8,760) | |
Net realized loss on investments | | i 1,315 | | | i 236 | |
Amortization of premium on available-for-sale securities | | i 6,383 | | | — | |
Lease origination costs | | ( i 5,991) | | | ( i 7,889) | |
Loss on disposal of assets | | i 268 | | | — | |
Change in fair value for equity securities | | i 22,864 | | | i 284 | |
Loss on equity method investments | | i 10,304 | | | i 1,736 | |
Changes in operating assets and liabilities that provide (use) cash: | | | | | | |
Accounts receivable |
| ( i 1,980) | |
| ( i 89,329) | |
Inventory |
| ( i 245,770) | |
| ( i 90,428) | |
Contract assets | | ( i 7,027) | | | — | |
Prepaid expenses and other assets |
| ( i 82,657) | |
| ( i 28,465) | |
Accounts payable, accrued expenses, and other liabilities |
| i 112,952 | |
| i 28,992 | |
Deferred revenue and other contract liabilities |
| i 6,055 | |
| i 42,330 | |
Net cash used in operating activities |
| ( i 522,049) | |
| ( i 348,501) | |
| | | | | | |
Investing activities | | | | | | |
Purchases of property, plant and equipment |
| ( i 317,553) | |
| ( i 91,384) | |
Purchases of equipment related to power purchase agreements and equipment related to fuel delivered to customers | | ( i 22,785) | | | ( i 17,900) | |
Purchase of available-for-sale securities | | ( i 295,329) | | | ( i 1,862,951) | |
Proceeds from sales of available-for-sale securities | | i 475,676 | | | i 1,105,874 | |
Proceeds from maturities of available-for-sale securities | | i 209,379 | | | i 21,780 | |
Purchase of equity securities | | ( i 4,990) | | | ( i 169,713) | |
Net cash paid for acquisitions |
| ( i 26,473) | |
| — | |
Cash paid for non-consolidated entities and non-marketable equity securities | | ( i 38,574) | | | — | |
Net cash used in investing activities |
| ( i 20,649) | |
| ( i 1,014,294) | |
| | | | | | |
Financing activities | | | | | | |
Proceeds from exercise of warrants, net of transaction costs |
| — | |
| i 15,445 | |
Payments of contingent consideration | | ( i 2,667) | | | — | |
Proceeds from public and private offerings, net of transaction costs |
| — | |
| i 3,587,830 | |
Payments of tax withholding on behalf of employees for net stock settlement of stock-based compensation | | ( i 22,811) | | | ( i 30,734) | |
Proceeds from exercise of stock options |
| i 2,135 | |
| i 5,316 | |
Principal payments on long-term debt | | ( i 62,794) | | | ( i 29,129) | |
Proceeds from finance obligations | | i 83,980 | | | i 53,447 | |
Principal repayments of finance obligations and finance leases | | ( i 39,156) | | | ( i 20,413) | |
Net cash (used in) provided by financing activities |
| ( i 41,313) | |
| i 3,581,762 | |
Effect of exchange rate changes on cash |
| i 6,907 | |
| ( i 59) | |
(Decrease)/increase in cash and cash equivalents |
| ( i 733,516) | |
| i 2,059,558 | |
Increase in restricted cash | | i 156,412 | | | i 159,350 | |
Cash, cash equivalents, and restricted cash beginning of period |
| i 3,132,194 | |
| i 1,634,284 | |
Cash, cash equivalents, and restricted cash end of period | $ | i 2,555,090 | | $ | i 3,853,192 | |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Cash paid for interest, net of capitalized interest of $ i 9.8 million | $ | i 24,392 | | $ | i 10,341 | |
| | | | | | |
Summary of non-cash activity | | | | | | |
Recognition of right of use asset - finance leases | $ | i 20,807 | | $ | i 16,961 | |
Recognition of right of use asset - operating leases | | i 119,012 | | | i 65,083 | |
Net tangible liabilities assumed in a business combination | | ( i 5,124) | | | — | |
Intangible assets acquired in a business combination | | i 60,522 | | | — | |
Conversion of convertible senior notes to common stock | | — | | | i 15,345 | |
Net transfers between inventory and long-lived assets | | i 1,322 | | | — | |
Accrued purchase of fixed assets, cash to be paid in subsequent period | | i 61,814 | | | i 8,832 | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
1. Nature of Operations
Plug Power Inc. (the “Company,” “Plug,” “we” or “our”) is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions. While we continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead-acid and lithium batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses, we have expanded our offerings to support a variety of commercial operations that can be powered with green hydrogen. We also provide electrolyzers that allow customers — such as refineries, producers of chemicals, steel, fertilizer and commercial refueling stations — to generate hydrogen on-site. Additionally, we intend for our electrolyzers to be used to generate green hydrogen within Plug’s own plants that will then be sold to customers. 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 back-up power applications for telecommunications, transportation, and utility customers. Plug supports these markets with an ecosystem of integrated products that make, transport, handle, dispense and use hydrogen.
During the three months ended September, 30, 2022, our wholly-owned subsidiary, Plug Power LA JV, LLC, created a joint venture with Niloco Hydrogen Holdings LLC, a wholly-owned subsidiary of Olin Corporation (“Olin”), named “Hidrogenii”. We believe Hidrognii will support reliability of supply and speed to market for hydrogen throughout North America, and set the foundation for broader collaboration between Plug and Olin. Hidrogenii plans to begin with the construction of a i 15-ton-per-day hydrogen plant in St. Gabriel, Louisiana. Hidrogenii is owned i 50% by Plug Power LA JV, LLC and i 50% by Niloco Hydrogen Holdings LLC. As of September 30, 2022, there has been no activity related to this joint venture.
/ i2. Summary of Significant Accounting Policies
iPrinciples 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 our joint venture with Renault SAS (“Renault”) named HyVia SAS, a French société par actions simplifiée (“HyVia”), AccionaPlug S.L., and SK Plug Hyverse Co., Ltd., 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, AccionaPlug S.L., and SK Plug Hyverse Co., Ltd.
iInterim 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”).
The information presented in the accompanying unaudited interim condensed consolidated balance sheets as of December 31, 2021 has been derived from the Company’s December 31, 2021 audited consolidated financial statements.
/8
The unaudited interim condensed consolidated financial statements contained herein should be read in conjunction with our 2021 Form 10-K.
iRecent Accounting Pronouncements
Recently Adopted Accounting Guidance
Other than the adoption of the accounting guidance mentioned in our 2021 Form 10-K, 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.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of September 30, 2022 are either not applicable to the Company or are not expected to have a material impact on the Company.
i3. Acquisitions
Joule Processing LLC
On January 14, 2022, the Company acquired Joule Processing LLC (“Joule”), an engineered modular equipment, process design and procurement company founded in 2009.
iThe fair value of consideration paid by the Company in connection with the Joule acquisition was as follows (in thousands):
| | |
Cash | $ | i 28,140 |
Contingent consideration | | i 41,732 |
Total consideration | $ | i 69,872 |
/The contingent consideration represents the estimated fair value associated with earn-out payments of up to $ i 130 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $ i 90 million is related to the achievement of certain financial performance and $ i 40 million is related to the achievement of certain internal operational milestones.
iThe following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
| | |
Current assets | $ | i 2,672 |
Property, plant and equipment | | i 493 |
Right of use asset | | i 182 |
Identifiable intangible assets | | i 60,522 |
Lease liability | | ( i 374) |
Current liabilities | | ( i 2,612) |
Contract liability | | ( i 3,818) |
Total net assets acquired, excluding goodwill | $ | i 57,065 |
The preliminary allocation of the purchase price is still considered provisional due to the finalization of the valuation for the assets acquired and liabilities assumed in relation to the Joule acquisition. Therefore, the fair values of the assets acquired and liabilities assumed are subject to change as we obtain additional information for valuation assumptions such as market demand for Joule product lines to support forecasted revenue growth and the likelihood of
/9
achieving earnout milestones during the measurement period, which will not exceed 12 months from the date of acquisition. During the three and nine months ended September 30, 2022, the Company recorded an adjustment to goodwill of $ i 0 and $ i 0.1 million, respectively, due to the payment of a hold back liability related to the Joule acquisition, which was recorded in accrued expenses in the unaudited interim condensed consolidated balance sheet.
The fair value of the developed technology totaling $ i 59.2 million included in the identifiable intangible assets was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the developed technology over its useful life of i 15 years, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the tradename totaling $ i 0.8 million was calculated using the relief from royalty approach which is a variant of the income approach, and was assigned a useful life of i four years. The fair value of the non-compete agreements was $ i 0.5 million with a useful life of i six years.
In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $ i 41.7 million representing the fair value of contingent consideration payable, and is recorded in the unaudited interim condensed consolidated balance sheet in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was $ i 36.9 million as of September 30, 2022, and as a result $ i 0 and $ i 4.8 million reduction was recorded in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
Included in the purchase price consideration are contingent earn-out payments as described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. i Goodwill associated with the Joule acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | i 28,140 |
Contingent consideration | | i 41,732 |
Less: net assets acquired | | ( i 57,065) |
Total goodwill recognized | $ | i 12,807 |
The acquisition of Joule contributed $ i 0.6 million and $ i 3.9 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. The Company determined it impractical to report net loss for the Joule acquisition for the three and nine months ended September 30, 2022.
Applied Cryo Technologies Acquisition
On November 22, 2021, the Company acquired i 100% of the outstanding shares of Applied Cryo Technologies, Inc. (“Applied Cryo”). Applied Cryo is a manufacturer of engineered equipment servicing multiple applications, including cryogenic trailers and mobile storage equipment for the oil and gas markets and equipment for the distribution of liquified hydrogen, oxygen, argon, nitrogen, and other cryogenic gases.
10
The fair value of consideration paid by the Company in connection with the Applied Cryo acquisition was as follows (in thousands):
| | |
Cash | $ | i 98,559 |
Plug Power Inc. Common Stock | | i 46,697 |
Contingent consideration | | i 14,000 |
Settlement of preexisting relationship | | i 2,837 |
Total consideration | $ | i 162,093 |
/Included in the $ i 98.6 million of cash consideration above, $ i 5.0 million is consideration held by our paying agent in connection with the acquisition and is reported as restricted cash, with a corresponding accrued liability as of September 30, 2022 on the Company’s unaudited interim condensed consolidated balance sheet. We expect that this will be settled in 2022.
The contingent consideration represents the estimated fair value associated with earn-out payments of up to $ i 30.0 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $ i 15.0 million is related to financial performance, and $ i 15.0 million is related to internal operational milestones.
iThe following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):
| | |
Cash | $ | i 1,180 |
Accounts receivable | | i 4,123 |
Inventory |
| i 24,655 |
Prepaid expenses and other assets | | i 1,506 |
Property, plant and equipment | | i 4,515 |
Right of use asset | | i 2,788 |
Identifiable intangible assets | | i 70,484 |
Lease liability | | ( i 2,672) |
Accounts payable, accrued expenses and other liabilities | | ( i 7,683) |
Deferred tax liability | | ( i 16,541) |
Deferred revenue | | ( i 12,990) |
Total net assets acquired, excluding goodwill | $ | i 69,365 |
/The preliminary allocation of the purchase price is still considered provisional due to the tradename, technology, and customer relationship valuations. The Company continues to evaluate valuation assumptions such as the market demand for the Applied Cryo existing product lines to support forecasted revenue growth. Additionally, the Company continues to research the technology and buying power of Applied Cryo and evaluate the likelihood of achieving the additional production capacity needed in time to meet earnout milestones. During the three and nine months ended September 30, 2022, the Company recorded a measurement period adjustment to goodwill of $ i 0 and $ i 0.5 million, respectively, due to a release of escrow, which was recorded to accrued expenses in the unaudited interim condensed consolidated balance sheet. Any necessary adjustments will be finalized within one year from the date of acquisition.
Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. The fair value of the developed technology totaling $ i 26.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying. The developed technology has a useful life of i 15 years. The fair value of the tradename totaling $ i 13.7 million was calculated using the relief from royalty approach with a useful life of i 15 years. The fair value of the acquired customer relationships totaling $ i 26.6 million was calculated using the MPEEM approach and has a useful life of i 15 years. The fair value of the acquired
11
customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements was $ i 1.0 million with a useful life of i three years. The fair value of the customer backlog was $ i 2.9 million with a useful life of i one year.
In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.
Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to value these contingent payments. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $ i 14.0 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $ i 13.7 million as of September 30, 2022, and reductions of $ i 0 and $ i 0.3 million were recorded in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively.
Included in Applied Cryo’s total net assets acquired, excluding goodwill, were net deferred tax liabilities of $ i 16.5 million. In connection with the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $ i 16.5 million and recognized a tax benefit $ i 16.5 million during the year ended December 31, 2021.
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. i Goodwill associated with the Applied Cryo acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | i 162,093 |
Less: net assets acquired | | ( i 69,365) |
Total goodwill recognized | $ | i 92,728 |
The acquisition of Applied Cryo contributed $ i 11.7 million and $ i 44.7 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. The Company determined it impractical to report net loss for the Applied Cryo acquisition for the three and nine months ended September 30, 2022.
Frames Holding B.V. Acquisition
On December 9, 2021, the Company acquired i 100% of the outstanding shares of Frames Holding B.V. (“Frames”). Frames, a leading provider of turnkey hydrogen solutions.
iThe fair value of consideration paid by the Company in connection with the Frames acquisition was as follows (in thousands):
| | |
Cash | $ | i 94,541 |
Contingent consideration | | i 29,057 |
Settlement of preexisting relationship | | i 4,263 |
Total consideration | $ | i 127,861 |
/The contingent consideration represents the estimated fair value associated with earn-out payments of up to € i 30.0 million that the sellers are eligible to receive in the form of cash. The contingent consideration is related to the achievement of certain internal operational targets during the four years following the closing date and is payable in i two equal installments.
12
The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the total net assets acquired, excluding goodwill (in thousands):
| | |
Cash | $ | i 45,394 |
Accounts receivable | | i 17,910 |
Inventory |
| i 34 |
Prepaid expenses and other assets | | i 3,652 |
Property, plant and equipment | | i 709 |
Right of use asset | | i 1,937 |
Contract asset | | i 9,960 |
Identifiable intangible assets | | i 50,478 |
Lease liability | | ( i 1,937) |
Contract liability | | ( i 22,737) |
Accounts payable, accrued expenses and other liabilities | | ( i 18,465) |
Deferred tax liability | | ( i 11,259) |
Provision for loss contracts | | ( i 2,636) |
Warranty provisions | | ( i 7,566) |
Total net assets acquired, excluding goodwill | $ | i 65,474 |
/The preliminary allocation of the purchase price is still considered provisional due to outstanding customer valuation analysis. Identifiable intangible assets consisted of developed technology, tradename, acquired customer relationships, non-compete agreements and backlog. Any necessary adjustments will be finalized within one year from the date of acquisition. During the three and nine months ended September 30, 2022, the Company recorded a measurement period adjustment to goodwill of $ i 0 and $ i 7.2 million, respectively, due to the recording of the deferred tax treatment surrounding the tangible and intangible assets acquired.
The fair value of the developed technology totaling $ i 5.3 million was calculated using the relief from royalty approach which is a variant of the income approach, and it has a useful life of i eight years. The fair value of the tradename totaling $ i 11.6 million was calculated using the relief from royalty approach, and it has a useful life of i eight years. The fair value of the acquired customer relationships totaling $ i 27.2 million was calculated using the MPEEM approach which is a variant of the income approach, and it has a useful life of i 17 years. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements totaling $ i 4.9 million was calculated using the with and without income approach, and it has a useful life of approximately i four years. The fair value of the backlog was $ i 1.4 million, and it has a useful life of i one year.
Included in the purchase price consideration are contingent earn-out payments described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.
In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $ i 29.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $ i 26.2 million as of September 30, 2022. The change in fair value compared to December 31, 2021 was due to a change in the foreign currency translation, partially offset by an increase in the liability. The Company recorded an adjustment of $ i 0 and $ i 1.1 million for the three and nine months ended September 30, 2022 in the unaudited interim condensed consolidated statement of operations.
Included in Frames’ total net assets acquired, excluding goodwill, are net deferred tax liabilities of $ i 4.1 million.
13
The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. i Goodwill associated with the Frames acquisition was calculated as follows (in thousands):
| | |
Consideration paid | $ | i 127,861 |
Less: net assets acquired | | ( i 65,474) |
Total goodwill recognized | $ | i 62,387 |
The above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectable. Purchased goodwill is not expected to be deductible for tax purposes.
The acquisition of Frames contributed $ i 25.4 million and $ i 76.0 million to total consolidated revenue for the three and nine months ended September 30, 2022, respectively. i The following table reflects the unaudited pro forma results of operations for the three and nine months ended September 30, 2021 assuming that the Frames acquisition had occurred on January 1, 2021 (in thousands):
| | | | | |
| Three Months Ended | | Nine Months Ended | ||
| | ||||
Revenue | $ | i 159,304 | | $ | i 387,623 |
Net loss | $ | ( i 105,294) | | $ | ( i 264,640) |
The unaudited pro forma net income for the three and nine months ended September 30, 2021 has been adjusted to reflect increased amortization of intangibles as if the acquisition had occurred on January 1, 2021. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Frames acquisition occurred as of January 1, 2021 or indicative of the results that may be achieved in future periods.
None of the Joule and Applied Cryo Technologies acquisition was material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.
i4. 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 have been sold. i The following table shows the rollforward of balance in the accrual for loss contracts, including changes due to the provision for loss accrual, loss accrual from acquisition, releases to service cost of sales, and releases due to the provision for warrants (in thousands):
| | | | | |
| Nine months ended | | Year ended | ||
| | ||||
Beginning balance | $ | i 89,773 | | $ | i 24,013 |
Provision for loss accrual | | i 4,683 | | | i 71,988 |
Loss accrual acquired from acquisition | | — | | | i 2,636 |
Releases to service cost of sales | | ( i 30,827) | | | ( i 8,864) |
Increase to loss accrual related to customer warrants | | i 4,160 | | | |
Foreign currency translation adjustment | | ( i 189) | | | — |
Ending balance | $ | i 67,600 | | $ | i 89,773 |
/
i5. 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. 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
14
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:
i
| | | | |
| | |||
|
| 2022 |
| 2021 |
Stock options outstanding (1) | | i 25,549,257 |
| i 24,784,288 |
Restricted stock outstanding (2) | | i 3,737,292 |
| i 4,960,376 |
Common stock warrants (3) | | i 96,017,181 | | i 80,017,181 |
Convertible Senior Notes (4) | | i 39,170,766 |
| i 39,170,766 |
Number of dilutive potential shares of common stock | | i 164,474,496 |
| i 148,932,611 |
| (1) | During the three months ended September 30, 2022 and 2021, the Company granted options for i 1,838,123 and i 15,732,335 shares of common stock, respectively. During the nine months ended September 30, 2022 and 2021, the Company granted options for i 2,597,974 and i 16,430,835 shares of common stock, respectively. |
| (2) | During the three months ended September 30, 2022 and 2021, the Company granted i 295,661 shares of restricted stock awards and i 54,000 shares of restricted stock units and i 1,159,856 restricted stock awards, respectively. During the nine months ended September 30, 2022 and 2021, the Company granted i 399,512 shares of restricted stock awards and i 1,076,640 shares of restricted stock units and i 1,812,856 restricted stock awards, respectively. |
| (3) | In August 2022, the Company issued a warrant to acquire up to i 16,000,000 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 i no shares exercised of the Company’s common stock as of September 30, 2022. |
In April 2017, the Company issued a warrant to acquire up to i 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 i i 17,461,994 / shares of the Company’s common stock as of September 30, 2022 and 2021, respectively.
In July 2017, the Company issued a warrant to acquire up to i 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 i i 13,094,217 / shares of the Company’s common stock as of September 30, 2022 and 2021, respectively.
| (4) | In March 2018, the Company issued $ i 100.0 million in aggregate principal amount of the i 5.5% Convertible Senior Notes due 2023 (the “ i 5.5% Convertible Senior Notes”). In May 2020, the Company repurchased $ i 66.3 million of the i 5.5% Convertible Senior Notes and in the fourth quarter of 2020, $ i 33.5 million of the i 5.5% Convertible Senior Notes were converted into approximately i 14.6 million shares of common stock. The remaining $ i 0.2 million aggregate principal amount of the i 5.5% Convertible Senior Notes were converted into i 69,808 shares of common stock in January 2021. In September 2019, the Company issued $ i 40.0 million in aggregate principal amount of the i 7.5% Convertible Senior Note due 2023 (the “ i 7.5% Convertible Senior Note”), which was fully converted into i 16.0 million shares of common stock on July 1, 2020. In May 2020, the Company issued $ i 212.5 million in aggregate principal amount of the i 3.75% Convertible Senior Notes due 2025 (the “ i 3.75 Convertible Senior Notes). There were i i no / conversions for the three and nine months ended September 30, 2022. There were i no conversations for the three months ended September 30, 2021. For the nine months ended September 30, 2021, $ i 15.2 million of the i 3.75% Convertible Senior Notes were converted, resulting in the issuance of i 3,016,036 shares of common stock. |
Million of
15
6. Inventory
i Inventory as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| | | | | | | |
|
| September 30, |
|
| |||
| | 2022 | | 2021 | | ||
Raw materials and supplies - production locations | | $ | i 384,397 | | $ | i 187,449 | |
Raw materials and supplies - customer locations | | | i 17,482 | | | i 16,294 | |
Work-in-process | |
| i 98,179 | |
| i 58,341 | |
Finished goods | |
| i 16,222 | |
| i 7,079 | |
Inventory | | $ | i 516,280 | | $ | i 269,163 | |
/
i7. Property, Plant and Equipment
iProperty, plant and equipment at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| | | | | | |
| | | ||||
Land | | $ | i 1,165 | | $ | i 1,165 |
Construction in progress | | | i 473,429 | | | i 169,415 |
Leasehold improvements | | | i 18,213 | | | i 2,099 |
Software, machinery, and equipment | |
| i 157,018 | |
| i 112,068 |
Property, plant, and equipment | |
| i 649,825 | |
| i 284,747 |
Less: accumulated depreciation | |
| ( i 42,557) | |
| ( i 29,124) |
Property, plant, and equipment, net | | $ | i 607,268 | | $ | i 255,623 |
Construction in progress is primarily comprised of construction of i five hydrogen production plants, the Gigafactory in Rochester, NY, and our facility in the Slingerlands, NY. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of capital asset construction and amortized over the useful lives of the related assets. During the three and nine months ended September 30, 2022, the Company capitalized $ i 4.0 million and $ i 9.8 million of interest, respectively.
Depreciation expense related to property, plant and equipment was $ i 5.4 million and $ i 1.9 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense related to property, plant and equipment was $ i 13.5 million and $ i 5.2 million for the nine months ended September 30, 2022 and 2021, respectively.
/
i8. Intangible Assets and Goodwill
iThe gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of September 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| i 14 years |
| $ | i 103,414 | | $ | ( i 10,534) | | $ | i 92,880 | |
Dry stack electrolyzer technology | | i 10 years | | | i 29,000 | | | ( i 1,692) | | | i 27,308 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | i 12 years | |
| i 85,291 | | | ( i 9,832) | | | i 75,459 | |
| | | | $ | i 217,705 | | $ | ( i 22,058) | | $ | i 195,647 | |
/ /16
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | |
| | Weighted Average | | Gross Carrying | | Accumulated | | | | | ||
| | Amortization Period | | Amount | | Amortization | | Total |
| |||
Acquired technology |
| i 13 years | | $ | i 45,530 | | $ | ( i 5,392) | | $ | i 40,138 | |
Customer relationships, Non-compete agreements, Backlog & Trademark | | i 12 years | | | i 90,497 | | | ( i 1,427) | | | i 89,070 | |
In process research and development |
| Indefinite | |
| i 29,000 | | | — | |
| i 29,000 | |
| | | | $ | i 165,027 | | $ | ( i 6,819) | | $ | i 158,208 | |
The change in the gross carrying amount of the acquired technology from December 31, 2021 to September 30, 2022, was primarily due to the acquisition of Joule, the addition of the dry build electrolyzer stack related to the Giner ELX acquisition, and changes in foreign currency translation.
Amortization expense for acquired identifiable intangible assets for the three months ended September 30, 2022 and 2021 was $ i 4.9 million and $ i 0.4 million, respectively. Amortization expense for acquired identifiable intangible assets for the nine months ended September 30, 2022 and 2021 was $ i 15.2 million and $ i 1.1 million, respectively.
iThe estimated amortization expense for subsequent years is as follows (in thousands):
| | | |
Remainder of 2022 |
| $ | i 5,064 |
2023 | | | i 17,631 |
2024 | | | i 17,570 |
2025 | | | i 16,839 |
2026 | | | i 15,441 |
2027 and thereafter | | | i 123,102 |
Total | | $ | i 195,647 |
iThe change in the carrying amount of goodwill for the nine month period ended September 30, 2022 was as follows (in thousands):
| | | |
Beginning balance at December 31, 2021 | | $ | i 220,436 |
Acquisitions | | | i 12,943 |
Measurement period adjustments | | | i 6,496 |
Foreign currency translation adjustment | |
| ( i 9,156) |
Ending balance at September 30, 2022 | | $ | i 230,719 |
i9. 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 $ i 100 million (the “Term Loan Facility”). On September 30, 2022, the outstanding balance under the Term Loan Facility was $ i 57.3 million. The carrying value of the Term Loan Facility approximates fair value.
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 September 30, 2022, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025. At September 30, 2022, the Company was in compliance with all debt covenants under the Term Loan Facility.
/17
10. Convertible Senior Notes
i 3.75% Convertible Senior Notes
On May 18, 2020, the Company issued $ i 200.0 million in aggregate principal amount of i 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 $ i 12.5 million in aggregate principal amount of i 3.75% Convertible Senior Notes. During the three and nine months ended September 30, 2022, there were i i no / conversions of the i 3.75% Convertible Senior Notes.
iThe i 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | | | |
| | | ||
| | | 2022 | |
Principal amounts: | | | | |
Principal | | | $ | i 197,278 |
Unamortized debt issuance costs (1) | | | | ( i 3,686) |
Net carrying amount | | | $ | i 193,592 |
| 1) | Included in the unaudited interim condensed consolidated balance sheets within the i 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method. |
/ iThe following table summarizes the total interest expense and effective interest rate related to the i 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):
| | | | | | | |
| | September 30, | | | | ||
|
| 2022 |
| | 2021 | | |
Interest expense | | $ | i 1,849 | | $ | i 1,849 | |
Amortization of debt issuance costs | | | i 323 | | | i 306 | |
Total | | | i 2,172 | | | i 2,155 | |
| | | | | | | |
Effective interest rate | | | i 4.5% | | | i 4.5% | |
/Based on the closing price of the Company’s common stock of $ i 21.01 on September 30, 2022, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at September 30, 2022 was approximately $ i 849 million. The fair value estimation was primarily based on an active stock exchange trade on October 5, 2022 of the i 3.75% Convertible Senior Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy.
Capped Call
In conjunction with the pricing of the i 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “ i 3.75% Notes Capped Call”) with certain counterparties at a price of $ i 16.2 million. The i 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 i 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the i 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 i 3.75% Notes Capped Call is initially $ i 6.7560 per share, which represents a premium of approximately i 60% over the last then-reported sale price of the Company’s common stock of $ i 4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the i 3.75% Notes Capped Call. The i 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
/18
The net cost incurred in connection with the i 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets. The book value of the i 3.75% Notes Capped Call is not remeasured.
Common Stock Forward
In March 2018, the Company issued $ i 100.0 million in aggregate principal amount of the i 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, which have been fully converted into shares of common stock. In connection with the issuance of the i 5.5% Convertible Senior Notes, the Company entered into a forward stock purchase transaction (the “Common Stock Forward”), pursuant to which the Company agreed to purchase i 14,397,906 shares of its common stock for settlement on or about March 15, 2023. On May 18, 2020, 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 $ i 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 Common Stock Forward is not remeasured.
There were i i no / shares of common stock settled in connection with the Common Stock Forward during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Common Stock Forward was partially settled and i 0 shares and i 8.1 million shares were received by the Company, respectively.
i11. Stockholders’ Equity
Common Stock and Warrants
On August 24, 2022, a warrant to purchase up to i 16,000,000 shares of common stock was issued in connection with a transaction agreement with Amazon, as discussed in Note 12, “Warrant Transaction Agreements.” This warrant is measured at fair value at the time of grant or modification and is classified as an equity instrument on the unaudited interim condensed consolidated balance sheets.
In February 2021, the Company completed a sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold i 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $ i 29.2893 per share, or an aggregate purchase price of approximately $ i 1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of i 32.2 million shares of its common stock at a purchase price of $ i 65.00 per share for net proceeds of approximately $ i 2.0 billion.
In November 2020, the Company issued and sold in a registered equity offering an aggregate of i 43,700,000 shares of its common stock at a purchase price of $ i 22.25 per share for net proceeds of approximately $ i 927.3 million.
In August 2020, the Company issued and sold in a registered equity offering an aggregate of i 35,276,250 shares of its common stock at a purchase price of $ i 10.25 per share for net proceeds of approximately $ i 344.4 million.
/19
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income comprises the following (in thousands):
i
| | | | | | | | | |
| | Total Pre-Tax Amount | | Tax | | Net-of-Tax Amount | |||
| $ | ( i 28,989) | | $ | — | | $ | ( i 28,989) | |
Net unrealized loss on available-for-sale securities | | | ( i 4,992) | | | — | | | ( i 4,992) |
Foreign currency translation loss | | | ( i 1,044) | | | — | | | ( i 1,044) |
| $ | ( i 35,025) | | $ | — | | $ | ( i 35,025) | |
| | | | | | | | | |
| $ | ( i 1,532) | | $ | — | | $ | ( i 1,532) | |
Net unrealized loss on available-for-sale securities | | | ( i 23,401) | | | — | | | ( i 23,401) |
Foreign currency translation loss | | | ( i 10,092) | | | — | | | ( i 10,092) |
| $ | ( i 35,025) | | $ | — | | $ | ( i 35,025) | |
| | | | | | | | | |
| | Total Pre-Tax Amount | | Tax | | Net-of-Tax Amount | |||
| $ | i 34 | | $ | — | | $ | i 34 | |
Net unrealized loss on available-for-sale securities | | | ( i 2,200) | | | — | | | ( i 2,200) |
Foreign currency translation loss | | | ( i 172) | | | — | | | ( i 172) |
| $ | ( i 2,338) | | $ | — | | $ | ( i 2,338) | |
| | | | | | | | | |
| $ | i 2,451 | | $ | — | | $ | i 2,451 | |
Net unrealized loss on available-for-sale securities | | | ( i 4,075) | | | — | | | ( i 4,075) |
Foreign currency translation loss | | | ( i 714) | | | — | | | ( i 714) |
| $ | ( i 2,338) | | $ | — | | $ | ( i 2,338) | |
i12. Warrant Transaction Agreements
Amazon Transaction Agreement in 2022
On August 24, 2022, the Company and Amazon.com, Inc. (“Amazon”) entered into a Transaction Agreement (the “2022 Transaction Agreement”), under which the Company concurrently issued to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to i 16,000,000 shares (the “Amazon Warrant Shares”) of the Company’s common stock, subject to certain vesting events described below. The Company and Amazon entered into the 2022 Transaction Agreement in connection with a concurrent commercial arrangement under which Amazon agreed to purchase hydrogen fuel from the Company through August 24, 2029.
Warrant
i 1,000,000 of the Amazon Warrant Shares vested immediately upon issuance of the Amazon Warrant. i 15,000,000 of the Amazon Warrant Shares will vest in multiple tranches over the i 7- year term of the Amazon Warrant based on payments made to the Company directly by Amazon or its affiliates, or indirectly through third parties, with i 15,000,000 of the Amazon Warrant Shares fully vesting if Amazon-related payments of $ i 2.1 billion are made in the aggregate. The exercise price for the first i 9,000,000 Amazon Warrant Shares is $ i 22.9841 per share and the fair value on the grant date was $ i 20.36. The exercise price for the remaining i 7,000,000 Amazon Warrant Shares will be an amount per share equal to i 90% of the i 30-day volume weighted average share price of the Company’s common stock as of the final vesting event that results in full vesting of the first i 9,000,000 Amazon Warrant Shares. The Amazon Warrant is exercisable through August 24, 2029.
/20
Upon the consummation of certain change of control transactions (as defined in the applicable warrant) prior to the vesting of at least i 60% of the aggregate Amazon Warrant Shares, the Amazon Warrant will automatically vest and become exercisable with respect to an additional number of Amazon Warrant Shares such that i 60% of the aggregate Amazon Warrant Shares shall have vested. If a change of control transaction is consummated after the vesting of at least i 60% of the aggregate Amazon Warrant Shares, then no acceleration of vesting will occur with respect to any of the unvested Amazon Warrant Shares as a result of the transaction. The exercise price and the Amazon Warrant Shares issuable upon exercise of the Amazon Warrant are subject to customary antidilution adjustments.
At September 30, 2022, i 1,000,000 of the Amazon Warrant Shares issued pursuant to the 2022 Transaction Agreement had vested upon issuance. The warrant charge associated with the vested shares of $ i 20.4 million was capitalized to contract assets in our condensed consolidated unaudited interim financial statements based on the grant date fair value and is subsequently amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. The grant date fair value of tranches 2 and 3 will also be amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. Because the exercise price has yet to be determined, the fair value of tranche 4 will be remeasured at each reporting period end and amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three and nine months ended September 30, 2022 was $ i i 1.8 / million.
The assumptions used to calculate the valuations as of August 24, 2022 and September 30, 2022 are as follows:
i
| | | | |
| | Tranches 1-3 | | Tranche 4 |
| | | ||
Risk-free interest rate | | i 3.15% | | i 3.90% |
Volatility | | i 75.00% | | i 75.00% |
Expected average term | | i 7 years | | i 4 years |
Exercise price | | $ i 22.98 | | $ i 18.91 |
Stock price | | $ i 20.36 | | $ i 12.71 |
Amazon Transaction Agreement in 2017
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “2017 Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a warrant to acquire up to i 55,286,696 Amazon Warrant Shares, subject to certain vesting events described below. The Company and Amazon entered into the 2017 Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey (defined below) 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. At December 31, 2021, all i 55,286,696 of the Amazon Warrant Shares had vested.
The warrant had been exercised with respect to i i 17,461,994 / shares of the Company’s common stock as of September 30, 2022 and December 31, 2021.
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 i 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
21
not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares was 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 warrant had been exercised with respect to i i 13,094,217 / shares of the Company’s common stock as of September 30, 2022 and December 31, 2021.
At September 30, 2022 and December 31, 2021, i i 20,368,782 / 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 September 30, 2022 and 2021 was $ i 6.7 million and $ i 1.2 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the nine months ended September 30, 2022 and 2021 was $ i 10.4 million and $ i 4.4 million, respectively. During the three and nine months ended September 30, 2022 and 2021, respectively, the Walmart Warrant was exercised with respect to i i 0 / and i i 7,274,565 / shares of common stock.
The assumptions used to calculate the valuations of the final tranche of the Walmart Warrant as of September 30, 2022 are as follows:
i
| | |
| | |
Risk-free interest rate | | i 3.99% |
Volatility | | i 75.00% |
Expected average term | | i 3.5 years |
Exercise price | | $ i 18.91 |
Stock price | | $ i 12.09 |
i13. Revenue
Disaggregation of revenue
iThe following table provides information about disaggregation of revenue (in thousands):
| | | | | | | | | | | | |
Major products/services lines | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | ||||||||
| | September 30 | | September 30 | ||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Sales of fuel cell systems | | $ | i 75,919 | | $ | i 67,032 | | $ | i 146,859 | | $ | i 152,620 |
Sales of hydrogen infrastructure | | | i 37,139 | | | i 48,967 | | | i 96,641 | | | i 109,429 |
Sales of electolyzers | | | i 6,842 | | | — | | | i 14,576 | | | — |
Sales of engineered equipment | | | i 25,556 | | | — | | | i 76,080 | | | — |
Services performed on fuel cell systems and related infrastructure | | | i 8,406 | | | i 6,677 | | | i 25,468 | | | i 18,397 |
Power Purchase Agreements | | | i 9,524 | | | i 9,321 | | | i 30,730 | | | i 25,508 |
Fuel delivered to customers and related equipment | | | i 12,389 | | | i 11,556 | | | i 40,289 | | | i 33,804 |
Sales of cryogenic equipment | | | i 12,529 | | | — | | | i 48,909 | | | — |
Other | | | i 324 | | | i 369 | | | i 1,146 | | | i 679 |
Net revenue | | $ | i 188,628 | | $ | i 143,922 | | $ | i 480,698 | | $ | i 340,437 |
/ /22
Contract balances
iThe following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Accounts receivable | | $ | i 95,472 | | $ | i 92,675 |
Contract assets | | | i 70,879 | | | i 38,757 |
Contract liabilities | | | i 189,145 | | | i 183,090 |
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 in contract 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. These amounts are included within deferred revenue and other contract liabilities on the unaudited interim condensed consolidated balance sheets.
iSignificant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
| | | | | | |
| | | ||||
Contract assets | | | ||||
| | | ||||
Transferred to receivables from contract assets recognized at the beginning of the period | | $ | ( i 15,504) | | $ | ( i 14,638) |
Contract assets assumed as part of acquisition | | | — | | | i 9,960 |
Contract assets related to warrants | | | i 25,425 | | | — |
Revenue recognized and not billed as of the end of the period | | | i 22,201 | | | i 25,246 |
Net change in contract assets | | $ | i 32,122 | | $ | i 20,568 |
| | | | | | |
Contract liabilities | | | ||||
| | | ||||
Increases due to cash received, net of amounts recognized as revenue during the period | | $ | i 121,683 | | $ | i 182,052 |
Contract liabilities assumed as part of acquisitions | | | — | | | i 35,727 |
Revenue recognized that was included in the contract liability balance as of the beginning of the period | | | ( i 115,628) | | | ( i 110,974) |
Net change in contract liabilities | | $ | i 6,055 | | $ | i 106,805 |
/23
Estimated future revenue
iThe 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 i one year; sales of services and Power Purchase Agreements (“PPAs”) are expected to be recognized as revenue over five to i seven years) related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, net of the provision for common stock warrants (in thousands):
| | | |
| | | |
| | ||
| | 2022 | |
Sales of fuel cell systems | | $ | i 26,551 |
Sales of hydrogen installations and other infrastructure | | | i 28,492 |
Sales of electrolyzers | | | i 266,738 |
Sales of engineered equipment | | | i 26,859 |
Services performed on fuel cell systems and related infrastructure | | | i 121,761 |
Power Purchase Agreements | | | i 319,742 |
Fuel delivered to customers and related equipment | | | i 90,925 |
Sales of cryogenic equipment | | | i 50,674 |
Total estimated future revenue | | $ | i 931,742 |
Contract costs
Contract costs consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract. Capitalized contract costs at September 30, 2022 and December 31, 2021 were $ i 0.6 million and $ i 0.4 million, respectively.
i14. Income Taxes
The Company recorded $ i 1.5 million and $ i 0 of income tax expense for the three months ended September 30, 2022 and 2021, respectively. The Company recorded $ i 1.5 million and $ i 0 of income tax expense for the nine months ended September 30, 2022 and 2021, respectively. Tax expense for the three and nine months ended September 30, 2022 is due to foreign income taxes. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its domestic net deferred tax assets, which remain fully reserved.
The domestic 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.
/
i15. Fair Value Measurements
The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
| ● | Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities. |
24
| ● | 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. |
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. 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. There were i no transfers between Level 1, Level 2, or Level 3 for the three and nine months ended September 30, 2022.
Financial instruments not recorded at fair value on a recurring basis include equity method investments that have not been remeasured or impaired in the current period, such as our investments in HyVia, AccionaPlug S.L., and SK Plug Hyverse Co., Ltd. During the three and nine months ended September 30, 2022, the Company contributed approximately $ i 9.1 million and $ i 33.3 million, respectively, to HyVia, AccionaPlug S.L. and SK Plug Hyverse Co., Ltd.
iAssets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | | | | | | |
| | As of September 30, 2022 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents | $ | i 12,023 | $ | i 12,023 | $ | i 12,023 | $ | — | $ | — |
Corporate bonds | | i 211,533 | | i 211,533 | | — | | i 211,533 | | — |
U.S. Treasuries | | i 607,907 | | i 607,907 | | i 607,907 | | — | | — |
Equity securities | | i 130,121 | | i 130,121 | | i 130,121 | | — | | — |
Swaps and forward contracts | | i 650 | | i 650 | | — | | — | | i 650 |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | i 94,485 | | i 94,485 | | — | | — | | i 94,485 |
| | | | | | | | | | |
| | As of December 31, 2021 | ||||||||
| | Carrying | | Fair | | Fair Value Measurements | ||||
| | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash equivalents | $ | i 115,241 | $ | i 115,241 | $ | i 115,241 | $ | — | $ | — |
Corporate bonds | | i 226,382 | | i 226,382 | | — | | i 226,382 | | — |
U.S. Treasuries | | i 1,013,883 | | i 1,013,883 | | i 1,013,883 | | — | | — |
Equity securities | | i 147,995 | | i 147,995 | | i 147,995 | | — | | — |
Swaps and forward contracts | | i 70 | | i 70 | | i 70 | | — | | — |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Contingent consideration | | i 62,297 | | i 62,297 | | — | | — | | i 62,297 |
Swaps and forward contracts | | i 981 | | i 981 | | i 981 | | — | | — |
The liabilities measured at fair value on a recurring basis that have unobservable inputs and are therefore categorized as level 3 are related to contingent consideration. The fair value as of September 30, 2022 is comprised of $ i 76.6 million related to the acquisitions of Frames, Applied Cryo, and Joule, as well as $ i 17.9 million from two acquisitions in 2020. Giner ELX, Inc. was acquired in June 2020, and included in the purchase price are preliminary fair value associated with earnout payments of $ i 16.0 million that the sellers are eligible to receive. The remaining contingent consideration as of September 30, 2022 is related to the achievement of the dry build electrolyzer stack earnout and the achievement of certain revenue targets for years 2022 through 2023. As of September 30, 2022, the remaining estimated fair value of contingent consideration for Giner ELX Inc. is $ i 16.5 million. United Hydrogen Group Inc. was acquired in June 2020, and included in the purchase price was contingent consideration based on the future performance related to the expansion of the liquefication capacity of the Charleston, Tennessee liquid hydrogen plant. The Company’s liability for this contingent consideration was measured at fair value based on the Company’s expectations of achieving the expansion milestone. As of September 30, 2022, the remaining estimated fair value is $ i 1.4 million. In the unaudited interim condensed consolidated balance sheets, contingent consideration is recorded in the contingent consideration, loss accrual
25
for service contracts, and other liabilities financial statement line item, and is comprised of the following unobservable inputs:
i
| | | | | | |
Financial Instrument |
| Fair Value | Valuation Technique | Unobservable Input | Range (weighted average) | |
Contingent Consideration | | $ | i 83,443 | Scenario based method | Credit spread | i 16.24% |
| | | | | Discount rate | i 17.56% - i 19.19% ( i 18.38%) |
| | | i 10,350 | Monte carlo simulation | Credit spread | i 16.24% |
| | | | | Discount rate | i 18.84% - i 19.09% |
| | | | | Revenue volatility | i 49.11% |
| | | i 692 | Monte carlo simulation | Credit spread | i 16.24% |
| | | | | Revenue volatility | i 40.7% - i 24.4% ( i 35.0%) |
| | | | | Gross profit volatility | i 113.0% - i 23.0% ( i 65.0%) |
| | | i 94,485 | | | |
iThe change in the carrying amount of Level 3 liabilities for the three and nine month period ended September 30, 2022 was as follows (in thousands):
| | | |
| | Nine months ended | |
| | | |
Beginning balance at December 31, 2021 | | $ | i 62,297 |
Payments | | | ( i 2,667) |
Additions due to acquisitions | | | i 41,732 |
Fair value adjustments | | | i 2,461 |
Foreign currency translation adjustment | |
| ( i 604) |
Ending balance at March 31, 2022 | | | i 103,219 |
Fair value adjustments | | | ( i 5,066) |
Foreign currency translation adjustment | |
| ( i 1,645) |
Ending balance at June 30, 2022 | | | i 96,508 |
Fair value adjustments | | | — |
Foreign currency translation adjustment | | | ( i 2,023) |
Ending balance at September 30, 2022 | | $ | i 94,485 |
26
16. Investments
iThe amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at September 30, 2022 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| | |||||||||||||
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | i 220,537 | | $ | — | | $ | ( i 9,004) | | $ | i 211,533 | | | — |
U.S. Treasuries | | i 624,972 | | | i 133 | | | ( i 17,198) | | | i 607,907 | | | — |
Total | $ | i 845,509 | | $ | i 133 | | $ | ( i 26,202) | | $ | i 819,440 | | $ | — |
The amortized cost, gross unrealized gains and losses, fair value of those investments classified as available-for-sale, and allowance for credit losses at December 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | |
| | |||||||||||||
| Amortized | | Gross | | Gross | | Fair | | Allowance for | |||||
| Cost | | Unrealized Gains | | Unrealized Losses | | Value | | Credit Losses | |||||
Corporate bonds | $ | i 228,614 | | $ | — | | $ | ( i 2,232) | | $ | i 226,382 | | | — |
U.S. Treasuries | | i 1,014,319 | | | i 20 | | | ( i 456) | | | i 1,013,883 | | | — |
Total | $ | i 1,242,933 | | $ | i 20 | | $ | ( i 2,688) | | $ | i 1,240,265 | | $ | — |
iThe following table summarizes the fair value and gross unrealized losses on securities classified as available-for-sale, and length of time that the individual securities have been in a continuous loss positon as of September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| |||||||||||||||||
| Less than 12 months | | 12 months or greater | | Total | ||||||||||||
| Fair Value of | | | | Fair Value of | | | | Fair Value of | | | ||||||
| Investments with | | Gross Unrealized | | Investments with | | Gross Unrealized | | Investments with | | Gross Unrealized | ||||||
| Unrealized Losses | | Losses | | Unrealized Losses | | Losses | | Unrealized Losses | | Losses | ||||||
Corporate bonds | $ | i 433,615 |
| $ | ( i 4,385) | | $ | i 385,825 |
| $ | ( i 21,818) | | $ | i 819,440 |
| $ | ( i 26,202) |
Total available-for-sale securities | $ | i 433,615 | | $ | ( i 4,385) | | $ | i 385,825 | | $ | ( i 21,818) | | $ | i 819,440 | | $ | ( i 26,202) |
We regulary review available-for-sale securities for declines in fair values that we determine to be credit related. In order to determine whether an allowance for credit losses was required, we considered factors such as whether amounts related to securities have become uncollectible, whether we intend to sell a security, and whether it is more likely than not that we will be required to sell a security prior to recovery. The Company also reviewed the declines in market value related to our available-for-sale securities and determined that these declines were due to fluctuations in interest rates. As of September 30, 2022, the Company did not have an allowance for credit losses related to available-for-sale securities.
/27
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at September 30, 2022 are summarized as follows (in thousands):
| | | | | | | | | | | |
| |||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | i 70,247 |
| $ | — | | $ | ( i 2,854) | | $ | i 67,393 |
Exchange traded mutual funds | | i 76,000 | | | — | | | ( i 13,272) | | | i 62,728 |
Total | $ | i 146,247 | | $ | — | | $ | ( i 16,126) | | $ | i 130,121 |
The cost, gross unrealized gains and losses, and fair value of those investments classified as equity securities at December 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | |
| |||||||||||
| | | | Gross | | Gross | | Fair | |||
| | Cost | | Unrealized Gains | | Unrealized Losses | | Value | |||
Fixed income mutual funds | $ | i 70,247 |
| $ | — | | $ | ( i 574) | | $ | i 69,673 |
Exchange traded mutual funds | | i 71,010 | | | i 7,312 | | | — | | | i 78,322 |
Total | $ | i 141,257 | | $ | i 7,312 | | $ | ( i 574) | | $ | i 147,995 |
iA summary of the amortized cost and fair value of investments classified as available-for-sale, by contractual maturity, as of September 30, 2022 and December 31, 2021 was as follows (in thousands):
| | | | | | | | | | | |
| | ||||||||||
| | Amortized | | Fair | | | Amortized | | Fair | ||
Maturity: | | Cost | | Value | | | Cost | | Value | ||
Less than 12 months | $ | i 437,867 |
| $ | i 433,615 | | $ | i 670,584 |
| $ | i 670,306 |
12 months or greater |
| i 407,642 | |
| i 385,825 | |
| i 572,349 | |
| i 569,959 |
Total | $ | i 845,509 | | $ | i 819,440 | | $ | i 1,242,933 | | $ | i 1,240,265 |
Accrued interest income was $ i 3.0 million and $ i 3.7 million at September 30, 2022 and December 31, 2021, respectively, and included within the balance for prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.
i17. Operating and Finance Lease Liabilities
As of September 30, 2022, 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 i 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, the lease contains customary operational covenants such as the requirement that the Company properly maintain the leased assets and carry appropriate insurance. 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 September 30, 2022.
/28
iFuture minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of September 30, 2022 were as follows (in thousands):
| | | | | | | | | |
| | | | | Finance | | Total | ||
| | Operating Lease | | Lease | | Lease | |||
| | Liability | | Liability | | Liabilities | |||
Remainder of 2022 | | $ | i 28,717 | | $ | i 2,501 | | $ | i 31,218 |
2023 | | | i 65,008 | |
| i 9,731 | | | i 74,739 |
2024 | | | i 64,055 | |
| i 9,704 | | | i 73,759 |
2025 | | | i 59,685 | |
| i 12,615 | | | i 72,300 |
2026 | | | i 51,780 | | | i 9,967 | | | i 61,747 |
2027 and thereafter | | | i 97,981 | | | i 5,596 | | | i 103,577 |
Total future minimum payments | | | i 367,226 | |
| i 50,114 | | | i 417,340 |
Less imputed interest | | | ( i 78,148) | | | ( i 7,034) | | | ( i 85,182) |
Total | | $ | i 289,078 | | $ | i 43,080 | | $ | i 332,158 |
Rental expense for all operating leases was $ i 17.4 million and $ i 9.6 million for the three months ended September 30, 2022 and 2021, respectively. Rental expense for all operating leases was $ i 46.5 million and $ i 25.8 million for the nine months ended September 30, 2022 and 2021, respectively.
At September 30, 2022 and December 31, 2021, security deposits associated with sale/leaseback transactions were $ i 5.2 million and $ i 3.5 million, respectively, and were included in other assets in the unaudited interim condensed consolidated balance sheets.
At September 30, 2022 and December 31, 2021, the right of use assets associated with finance leases was $ i 52.9 million and $ i 33.9 million, respectively. The accumulated depreciation for these right of use assets was $ i 3.3 million and $ i 1.5 million at September 30, 2022 and December 31, 2021, respectively.
Other information related to the operating leases are presented in the following table:
i
| | | | | |
| Nine months ended | | Nine months ended | ||
| | ||||
Cash payments (in thousands) | $ | i 44,565 | | $ | i 25,726 |
Weighted average remaining lease term (years) | | i 6.31 | | | i 5.72 |
Weighted average discount rate | | i 11.1% | | | i 11.2% |
Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the consolidated statement of operations), and were $ i 0.8 million and $ i 0.6 million for the three months ended September 30, 2022, respectively. Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the consolidated statement of operations), and were $ i 2.4 million and $ i 1.8 million for the nine months ended September 30, 2022, respectively.
Other information related to the finance leases are presented in the following table:
i
| | | | | |
| Nine months ended | | Nine months ended | ||
| | ||||
Cash payments (in thousands) | $ | i 6,166 | | $ | i 2,128 |
Weighted average remaining lease term (years) | | i 4.09 | | | i 4.57 |
Weighted average discount rate | | i 6.5% | | | i 6.9% |
29
18. Finance Obligation
The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at September 30, 2022 was $ i 287.3 million, $ i 49.9 million and $ i 237.4 million of which was classified as short-term and long-term, respectively, on the accompanying unaudited interim condensed consolidated balance sheet. The outstanding balance of this obligation at December 31, 2021 was $ i 236.6 million, $ i 37.5 million and $ i 199.1 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. Interest expense recorded related to finance obligations for the three months ended September 30, 2022 and 2021 was $ i 7.4 million and $ i 5.3 million, respectively. Interest expense recorded related to finance obligations for the nine months ended September 30, 2022 and 2021 was $ i 21.1 million and $ i 15.0 million, respectively. The fair value of this finance obligation approximated the carrying value as of September 30, 2022 and December 31, 2021.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2022 was $ i 16.3 million, $ i 3.4 million and $ i 12.9 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, 2021 was $ i 17.0 million, $ i 4.5 million and $ i 12.5 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 September 30, 2022 and December 31, 2021.
iFuture minimum payments under finance obligations notes above as of September 30, 2022 were as follows (in thousands):
| | | | | | | | | |
| | | | | | | | Total | |
| | Sale of future | | Sale/leaseback | | Finance | |||
| | revenue - debt | | financings | | Obligations | |||
Remainder of 2022 | | $ | i 20,008 | | $ | i 1,057 | | $ | i 21,065 |
2023 | | | i 80,034 | | | i 4,091 | | | i 84,125 |
2024 | | | i 80,034 | | | i 9,846 | | | i 89,880 |
2025 | | | i 74,777 | | | i 942 | | | i 75,719 |
2026 | | | i 58,054 | | | i 942 | | | i 58,996 |
2027 and thereafter | | | i 64,686 | | | i 1,759 | | | i 66,445 |
Total future minimum payments | | | i 377,593 | | | i 18,637 | | | i 396,230 |
Less imputed interest | | | ( i 90,266) | | | ( i 2,370) | | | ( i 92,636) |
Total | | $ | i 287,327 | | $ | i 16,267 | | $ | i 303,594 |
Other information related to the above finance obligations are presented in the following table:
i
| | | | | |
| Nine months ended | | Nine months ended | ||
| | ||||
Cash payments (in thousands) | $ | i 51,609 | | $ | i 41,325 |
Weighted average remaining term (years) | | i 4.86 | | | i 4.88 |
Weighted average discount rate | | i 11.1% | | | i 11.3% |
/
i19. Commitments and Contingencies
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $ i 356.9 million and $ i 275.1 million was required to be restricted as security as of September 30, 2022 and December 31, 2021, respectively, which restricted cash will be released over the lease term. As of September 30, 2022 and December 31, 2021, the Company also
/30
had certain letters of credit backed by security deposits totaling $ i 340.1 million and $ i 286.0 million, respectively, that are security for the above noted sale/leaseback agreements. As of September 30, 2022, the Company also had certain customer and customs related letters of credit totaling $ i 23.8 million.
As of September 30, 2022 and December 31, 2021, the Company had $ i 67.7 and $ i 67.7 million, respectively, held in escrow related to the construction of certain hydrogen plants.
The Company also had $ i 5.0 million and $ i 2.3 million of consideration held by our paying agent in connection with the Applied Cryo and Joule acquisitions, respectively, reported as restricted cash as of September 30, 2022, with a corresponding accrued liability on the Company’s unaudited interim condensed consolidated balance sheet. Additionally, the Company had $ i 11.5 million in restricted cash as collateral resulting from the Frames acquisition as of September 30, 2022.
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.
As previously disclosed, in the Company’s Quarterly Report on Form 10-Q filed on August 9, 2022, several actions were filed in the U.S. District Court for the Southern District of New York asserting claims under the federal securities laws against the Company and i two of its senior officers, Mr. Marsh and Mr. Middleton. On July 22, 2021, the court consolidated those actions into In re Plug Power, Inc. Securities Litigation, No. 1:21-cv-2004, pending in the (the “Securities Action”) and appointed a lead plaintiff. On October 6, 2021, lead plaintiff filed a consolidated amended complaint asserting claims on behalf of a putative class composed of all persons who purchased or otherwise acquired the Company’s securities between November 9, 2020 and March 9, 2021. The complaint asserted a claim against all defendants for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b5 promulgated thereunder and a claim under Section 20(a) of the Exchange Act against Mr. Marsh and Mr. Middleton as alleged controlling persons. The complaint alleged that defendants made “materially false” statements concerning (1) adjusted EBITDA; (2) fuel delivery and research and development expenses; (3) costs related to provision for loss contracts; (4) gross losses; and (5) the effectiveness of internal controls and procedures, and that these alleged misstatements caused losses and damages for members of the alleged class. On December 6, 2021, defendants filed a motion to dismiss the complaint. In an opinion and order entered on September 29, 2022, the court granted defendants’ motion to dismiss in its entirety but permitted the lead plaintiff to file an amended complaint. The current deadline for filing the amended complaint is November 21, 2022.
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
31
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.” The Liu Derivative Complaint and the Levy Derivative Complaint have been consolidated in In re Plug Power Derivative Litigation, Lead Case No. 1:21-cv-02753-ER and, by stipulation approved by the Court, the cases have been stayed pending the resolution of the motion to dismiss in the Securities Class 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 approximately two years from March 13, 2019 onwards, the company made a number of improper statements that “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 overfinancial 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 good 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) unjustenrichment. The St. Clair Derivative Complaint seeks a judgment “for the amount of damages sustained by the Company as aresult of the 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”;“[e]xtraordinary equitable and/or injunctive relief as permitted by law, equity, and state statutory provisions”; [a]warding to PlugPower restitution from defendants, and each of them, and ordering disgorgement of all profits, benefits, and other compensationobtained by the defendants”; [a]warding to plaintiff the costs and disbursements of the action, including reasonable attorneys’fees, accountants’ and experts’ fees, costs, and expenses”; and “[g]ranting such other and further relief as the [c]ourt deems justand proper.” By stipulation approved by the Court, the case has been stayed pending the resolution of the motion to dismiss in the Securities Class action.
On June 13, 2022, alleged Company stockholder Donna Max, derivatively on behalf of the Company as nominal defendant, filed a complaint in the United States District Court for the District of Delaware against the derivative defendants named in the Liu Derivative Complaint, captioned Max v. Marsh, et. al., case no. 1:22-cv-00781(D. Del.) (the “Max Derivative Complaint”). The Max Derivative Complaint alleges that, for the years 2018, 2019 and 2020, the
32
defendants did not “assure that a reliable system of financial controls was in place and functioning effectively”; “failed to disclose errors in the Company's accounting primarily relating to (i) the reported book value of right of use assets and related finance obligations, (ii) loss accruals for certain service contracts, (iii) the impairment of certain long-lived assets, and (iv) the classification of certain expenses previously included in research and development costs”; and that certain defendants traded Company stock at “artificially inflated stock prices.” The Max Derivative Complaint asserts claims for (1) breach of fiduciary against all defendants; (2) breach of fiduciary duty for insider trading against certain defendants; and (3) contribution under Sections 10(b) and 21D of the Exchange Act against certain defendants. The Max Derivative Complaint seeks an award “for the damages sustained by [the Company]” and related relief. By stipulation approved by the Court, the case has been stayed pending the resolution of the motion to dismiss in the Securities Action.
On June 29, 2022, alleged Company stockholder Abbas Khambati, derivatively on behalf of the Company as nominal defendant, filed a complaint in the Court of Chancery in the State of Delaware against the derivative defendants named in the Liu Derivative Complaint and Gerard A. Conway, Jr. and Keith Schmid, captioned Khambati v. McNamee, et. al., C.A. no. 2022-05691(Del. Ch.) (the “Khambati Derivative Complaint”). The Khambati Derivative Complaint alleges that the defendants “deceive[d] the investing public, including stockholders of Plug Power, regarding the Individual Defendants’ management of Plug Power’s operations and the Company’s compliance with the SEC's accounting rules”; “facilitate[d” certain defendants’ sales of “their personally held shares while in possession of material, nonpublic information”; and “enhance[d] the Individual Defendants’ executive and directorial positions at Plug Power and the profits, power, and prestige that the Individual Defendants enjoyed as a result of holding these positions.” The Khambati Derivative Complaint asserts claims for (1) breach of fiduciary; and (2) disgorgement and unjust enrichment. The Khambati Derivative Complaint seeks an award “for the damages sustained by [the Company] as a result of the breaches” alleged or “disgorgement or restitution”; “disgorgement of insider trading profits” and “all profits, benefits and other compensation obtained by [defendants’] insider trading and further profits flowing therefrom”; an order “[d]irecting the Company to take all necessary actions to reform and improve its corporate governance and internal procedures”; and related relief.
On July 19, 2022, alleged Company stockholder Anne D. Graziano, as Trustee of the Anne D. Graziano Revocable Living Trust, derivatively on behalf of the Company as nominal defendant, filed a complaint in the Court of Chancery in the State of Delaware against the derivative defendants named in the Khambati Derivative Complaint, captioned Graziano v. Marsh, et. al., C.A. no. 2022-0629 (Del. Ch.) (the “Graziano Derivative Complaint”). The Graziano Derivative Complaint alleges that the director defendants (i) “either knowingly or recklessly issued or caused the Company to issue the materially false and misleading statements” concerning “certain critical accounting issues”; (ii) “willfully ignored, or recklessly failed to inform themselves of, the obvious problems with the Company’s internal controls, practices, and procedures, and failed to make a good faith effort to correct the problems or prevent their recurrence”; (iii) the members of the Audit Committee failed “to prevent, correct, or inform the Board of the issuance of material misstatements and omissions regarding critical accounting issues and the adequacy of the Company’s internal controls”; (iv) “received payments, benefits, stock options, and other emoluments by virtue of their membership on the Board and their control of the Company”; (v) violated the Company’s Code of Conduct because they knowingly or recklessly engaged in and participated in making and/or causing the Company to make the materially false and misleading statements; and (vi) certain defendants “sold large amounts of Company stock while it was trading at artificially inflated prices.” The Graziano Derivative Complaint asserts claims for (1) breach of fiduciary; (2) breach of fiduciary duty against certain defendants for insider trading; (3) unjust enrichment; (4) aiding and abetting breach of fiduciary duty; and (5) waste of corporate assets. The Graziano Derivative Complaint seeks an award of “the amount of damages sustained by the Company”; seeks an order “[d]irecting Plug Power to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Plug Power and its stockholders from a repeat of the damaging events described herein”; and related relief. The parties to the Graziano Derivative Complaint and Khambati Derivative Complaint have been consolidated in Plug Power, Inc. Stockholder Derivative Litiation, Consolidated C.A. No. 2022-0569 and, by stipulation approved by the court, the cases have been stayed pending the resolution of the motion to dismiss in the Securities Action.
As previously disclosed, 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
33
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 April 2022, Plug reached a settlement with respect to the individual plaintiffs on terms well below the Company’s commercial liability insurance limits and continues to vigorously defend the remaining lawsuit against Proctor & Gamble.
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 $ i 0.3 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 U.S. Treasury securities 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 September 30, 2022, i one customer comprised i 28.4% of the total accounts receivable balance. At December 31, 2021, i one customer comprised approximately i 46.6% 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 nine months ended September 30, 2022, i 66.9% and i 53.2% of total consolidated revenues were associated with i i three / customers, respectively. For the three and nine months ended September 30, 2021, i 80.1% and i 80.6% of total consolidated revenues were associated primarily with i two and i three customers, respectively.
i20. Employee Benefit Plans
2011 and 2021 Stock Option and Incentive Plan
The Company has issued stock-based awards to employees and members of its Board of Directors (the “Board”) consisting of stock options and restricted stock awards. The Company accounts for all stock-based awards to employees and members of the Board as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized, excluding the Company’s matching contributions to the Plug Power Inc. 401(k) Savings & Retirement Plan and quarterly Board compensation, were $ i 44.2 million and $ i 12.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Stock-based compensation costs recognized, excluding the Company’s matching contributions to the Plug Power Inc. 401(k) Savings & Retirement Plan and quarterly Board compensation, were $ i 127.7 million and $ i 32.3 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The methods and assumptions used in the determination of the fair value of stock-based awards are consistent with those described in our 2021 Form 10-K.
/34
The components and classification of stock-based compensation expense, excluding the Company’s matching contributions to the Plug Power Inc. 401(k) Savings & Retirement Plan and quarterly Board compensation, were as follows (in thousands):
| | | | | | | | | | | |
| Three months ended | | Nine months ended | ||||||||
| | | | ||||||||
Cost of sales | $ | i 1,821 | | $ | i 680 | | $ | i 4,928 | | $ | i 1,231 |
Research and development | | i 1,483 | | | i 1,782 | | | i 4,062 | | | i 4,534 |
Selling, general and administrative | | i 40,935 | | | i 10,237 | | | i 118,710 | | | i 26,550 |
| $ | i 44,239 | | $ | i 12,699 | | $ | i 127,700 | | $ | i 32,315 |
Option Awards
The Company issues options that are time and performance-based awards. All option awards are determined to be classified as equity awards.
Service Stock Options Awards
The following table reflects the service stock option activity for the nine months ended September 30, 2022:
i
| | | | | | | | | | | |
|
| |
| |
| Weighted |
| | | ||
| | | | Weighted | | Average | | | | ||
| | | | Average | | Remaining | | Aggregate | |||
| | | | Exercise | | Contractual | | Intrinsic | |||
| | Shares | | Price | | Terms | | Value | |||
Options outstanding at December 31, 2021 | $ | i 9,786,909 | | $ | i 11.65 | | $ | i 7.70 | | $ | i 172,412 |
Granted | | i 1,097,974 | | | i 23.55 | | | — | | | — |
Exercised | | ( i 727,992) | | | i 2.86 | | | — | | | — |
Forfeited | | ( i 127,634) | | | i 24.05 | | | — | | | — |
Options outstanding at September 30, 2022 | $ | i 10,029,257 | | $ | i 13.47 | | $ | i 7.35 | | $ | i 101,193 |
Options exercisable at September 30, 2022 | | i 6,561,842 | | | i 8.35 | | | i 6.63 | | | i 90,283 |
Options unvested at September 30, 2022 | $ | i 3,467,415 | | $ | i 23.15 | | $ | i 8.72 | | $ | i 10,910 |
The weighted average grant-date fair value of the service stock options granted during the three months ended September 30, 2022 and 2021 was $ i 14.64 and $ i 15.82, respectively. The weighted average grant-date fair value of the service stock options granted during the nine months ended September 30, 2022 and 2021 was $ i 15.31 and $ i 19.76, respectively. The total intrinsic fair value of service stock options exercised during the nine months ended September 30, 2022 and 2021 was $ i 14.8 million and $ i 102.1 million, respectively. The total fair value of the service stock options that vested during the three months ended September 30, 2022 and 2021 was approximately $ i 15.5 million and $ i 10.4 million, respectively. The total fair value of the service stock options that vested during the nine months ended September 30, 2022 and 2021 was approximately $ i 21.74 million and $ i 10.9 million, respectively.
Compensation cost associated with service stock options represented approximately $ i 6.8 million and $ i 4.2 million of the total share-based payment expense recorded for the three months ended September 30, 2022 and 2021, respectively. Compensation cost associated with service stock options represented approximately $ i 19.2 million and $ i 11.9 million of the total share-based payment expense recorded for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was approximately $ i 42.4 million of unrecognized compensation cost related to service stock option awards to be recognized over the weighted average remaining period of i 1.85 years.
35
Performance Stock Option Awards
i
| | | | | | | | | | |
|
| |
| |
| Weighted |
| | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic | ||
| | Shares | | Price | | Terms | | Value | ||
Options outstanding at December 31, 2021 | | i 14,020,000 | | $ | i 26.92 | | i 6.70 | | $ | i 18,336,200 |
Granted | | i 1,500,000 | | | i 26.38 | | i 6.89 | | | — |
Options outstanding at September 30, 2022 | | i 15,520,000 | | $ | i 26.87 | | i 6.07 | | $ | — |
Options exercisable at September 30, 2022 | | i 1,391,000 | | | i 26.92 | | i 5.98 | | | — |
Options unvested at September 30, 2022 | | i 14,129,000 | | $ | i 26.86 | | i 6.07 | | $ | — |
The weighted average grant-date fair value of the performance stock options granted during the three and nine months ended September 30, 2022 and 2021 was $ i 9.73 and $ i 12.78, respectively. There were i i no / performance stock options exercised during the nine months ended September 30, 2022 or 2021, respectively. The total fair value of the performance stock options that vested during the three and nine months ended September 30, 2022 and 2021 was approximately $ i i 20.8 / million and $ i i 0 / million, respectively.
As of September 30, 2022, there were i 2,782,000 unvested stock options for which the employee requisite service period has not been rendered but are expected to vest. The aggregate intrinsic value of these unvested stock options is $ i 0 as of September 30, 2022. The weighted average remaining contractual term of these unvested stock options was i 6.1 years as of September 30, 2022.
Compensation cost associated with performance stock options represented approximately $ i 26.1 million and $ i 2.0 of the total share-based payment expense recorded for the three months ended September 30, 2022 and 2021, respectively. Compensation cost associated with performance stock options represented approximately $ i 76.5 million and $ i 2.0 of the total share-based payment expense recorded for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was approximately $ i 89.7 million of unrecognized compensation cost related to performance stock option awards to be recognized over the weighted average remaining period of i 2.07 years.
Restricted Stock Awards
The Company recorded expense associated with its restricted stock awards of approximately $ i 11.3 million and $ i 6.5 million for the three months ended September 30, 2022 and 2021, respectively. The Company recorded expense associated with its restricted stock awards of approximately $ i 32.0 million and $ i 18.5 million for the nine months ended September 30, 2022 and 2021, respectively. Additionally, as of September 30, 2022, there was $ i 75.0 million of unrecognized compensation cost related to restricted stock awards to be recognized over the weighted average period of i 1.91 years.
iA summary of restricted stock activity for the nine months ended September 30, 2022 is as follows (in thousands except share amounts):
| | | | | | | | | |
|
| | | Weighted |
| Aggregate |
| ||
| | | | Average Grant Date | | Intrinsic | | ||
| | Shares | | Fair Value | | Value | | ||
Unvested restricted stock at December 31, 2021 | | i 4,851,873 | | $ | i 21.59 | | $ | i 136,968 | |
Granted | | i 1,476,152 | | | i 23.60 | | | — | |
Vested | | ( i 2,474,065) | | | i 13.87 | | | — | |
Forfeited | | ( i 116,668) | | | i 24.89 | | | — | |
Unvested restricted stock at September 30, 2022 | | i 3,737,292 | | $ | i 23.50 | | $ | i 78,521 | |
The weighted average grant-date fair value of the restricted stock awards granted during the three months ended September 30, 2022 and 2021, was $ i 22.00 and $ i 32.29, respectively. The weighted average grant-date fair value of the restricted stock awards granted during the nine months ended September 30, 2022 and 2021, was $ i 23.60 and $ i 32.29, respectively. The total fair value of restricted stock awards vested for the three months ended September 30, 2022 and
36
2021 was $ i 25.5 million and $ i 68.6 million, respectively. The total fair value of restricted stock awards vested for the nine months ended September 30, 2022, and 2021 was $ i 34.3 million and $ i 72.95 million, respectively.
401(k) Savings & Retirement Plan
The Company issued i 310,159 shares of common stock and i 54,531 shares of common stock pursuant to the Plug Power Inc. 401(k) Savings & Retirement Plan during the nine months ended September 30, 2022 and 2021, respectively.
The Company’s expense for this plan was approximately $ i 2.5 million, and $ i 1.1 million for the three months ended September 30, 2022 and 2021, respectively. The Company’s expense for this plan was approximately $ i 6.7 million and $ i 3.4 million for the nine months ended September 30, 2022 and 2021, respectively.
Non-Employee Director Compensation
The Company granted i 4,342 shares of common stock and i 3,685 shares of common stock to non-employee directors as compensation for the three months ended September 30, 2022 and 2021, respectively. The Company granted i 14,282 shares of common stock and i 8,923 shares of common stock to non-employee directors as compensation for the nine months ended September 30, 2022 and 2021, 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 $ i 0.1 million and $ i 0.1 million for the three months ended September 30, 2022 and 2021, respectively. The Company’s share-based compensation expense in connection with non-employee director compensation was approximately $ i 0.3 million and $ i 0.3 million for the nine months ended September 30, 2022 and 2021, respectively.
i21. Segment Reporting
Our organization is managed from a sales perspective on the basis of “go-to-market” sales channels, emphasizing shared learning across end user applications and common supplier/vendor relationships. These sales channels are structured to serve a range of customers for our products and services. As a result of this structure, we concluded that we have i one operating and reportable segment — the design, development and sale of fuel cells and hydrogen producing equipment. Our chief executive officer was identified as the chief operating decision maker (CODM). All significant operating decisions made by management are largely based upon the analysis of Plug Power Inc. on a total company basis.
i
| | | | | | | | | | | | | | | | | |
| Revenues | | Long-Lived Assets as of | ||||||||||||||
| Three Months Ended | | Nine Months Ended | | | ||||||||||||
| | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | |
North America | $ | i 157,426 | | $ | i 140,151 | | $ | i 385,620 | | $ | i 328,139 | | $ | i 1,047,036 | | $ | i 570,778 |
Other | | i 31,202 | | | i 3,771 | | | i 95,078 | | | i 12,298 | | | i 10,203 | | | i 2,778 |
Total | $ | i 188,628 | | $ | i 143,922 | | $ | i 480,698 | | $ | i 340,437 | | $ | i 1,057,239 | | $ | i 573,556 |
/
i22. Subsequent Events
We have evaluated events as of November 8, 2022 and have not identified any subsequent events.
37
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 2021 Form 10-K. In addition to historical information, this Quarterly Report on Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act, and Section 21E of the 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,” “project” 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 that we may not be able to expand our business or manage our future growth effectively; |
| ● | the risk that delays in or not completing our product development goals may adversely affect our revenue and profitability; |
| ● | the risk that we may be unable to successfully pursue, integrate, or execute upon our new business ventures. |
| ● | 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 weaknesses identified in internal control over financial reporting as disclosed in this Quarterly Report on Form 10-Q, or inability to otherwise maintain an effective system of internal control; |
| ● | the risk that the restatement of our financial statements as of and for the years ended December 31, 2019 and 2018 and for each of the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, September 30, 2020 and 2019 could negatively affect investor confidence and raise reputational issues; |
| ● | the risk of loss related to an inability to maintain an effective system of internal controls; |
| ● | our ability to attract and maintain key personnel; |
| ● | the risks related to the use of flammable fuels in our products; |
| ● | the risk that pending orders may not convert to purchase orders, in whole or in part; |
| ● | the cost and timing of developing, marketing and selling our products; |
| ● | the risks of delays in or not completing our product development goals; |
| ● | the risks involved with participating in joint ventures, including our ability or inability to execute our strategic growth plan through joint ventures; |
| ● | our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; |
38
| ● | 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 or sanctions 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; |
| ● | the risks associated with geopolitical instability and global economic uncertainty, including the conflict between Russia and Ukraine, inflationary pressures, rising interest rates, and supply chain disruptions; 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, in our 2021 Form 10-K. 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,” the “Company,” “we,” “our” or “us” refer to Plug Power Inc., including as the context requires, its subsidiaries.
Overview
Plug is facilitating the paradigm shift to an increasingly electrified world by innovating cutting-edge hydrogen and fuel cell solutions. While we continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead-acid and lithium batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses, we have expanded our offerings to support a variety of commercial operations that can be powered with green hydrogen. We also provide electrolyzers that allow customers — such as refineries, producers of chemicals, steel, fertilizer and commercial refueling stations — to generate hydrogen on-site. Additionally, we intend for our electrolyzers to be used to generate green hydrogen within Plug’s own plants that will then be sold to customers. 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 back-up
39
power applications for telecommunications, transportation, and utility customers. Plug supports these markets with an ecosystem of integrated products that make, transport, handle, dispense and use hydrogen.
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 membrane electrode assembly, a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines.
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 and solutions worldwide through our direct sales force, and by leveraging relationships with original equipment manufacturers (“OEMs”) and their dealer networks. Plug is currently targeting Asia, Australia, Europe, Middle East and North America for expansion in adoption. The European Union (the “EU”) has rolled out ambitious targets for the hydrogen economy as part of the EU strategy for energy integration and Plug is seeking to execute on its strategy to become a leader in the European hydrogen economy. Plug intends to implement a targeted account strategy for material handling, securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. Our global strategy includes leveraging a network of integrators or contract manufacturers. We manufacture our commercially viable products in Latham, New York, Rochester, New York, Houston, Texas and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.
During the three months ended September, 30, 2022, our wholly-owned subsidiary, Plug Power LA JV, LLC, created a joint venture with Niloco Hydrogen Holdings LLC, a wholly-owned subsidiary of Olin Corporation (“Olin”), named “Hidrogenii”. We believe Hidrognii will support reliability of supply and speed to market for hydrogen throughout North America, and set the foundation for broader collaboration between Plug and Olin. Hidrogenii plans to begin with the construction of a 15-ton-per-day hydrogen plant in St. Gabriel, Louisiana. Hidrogenii is owned 50% by Plug Power LA JV, LLC and 50% by Niloco Hydrogen Holdings LLC. As of September 30, 2022, there has been no activity related to this joint venture.
Part of our long-term plan includes Plug penetrating the European hydrogen market, on-road vehicle market, and large-scale stationary market. Plug’s formation of joint ventures with HyVia SAS and Acciona Plug S.L. in Europe and SK Plug Hyverse Co., Ltd., 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.
40
Recent Developments
COVID-19 Update
While we no longer enforce our prior COVID-19 policies with respect to weekly COVID-19 testing, face coverings, or daily COVID-19 questionnaires, we continue to monitor the COVID-19 pandemic and emerging variants, and remain prepared to adjust our policies and safety protocols in line with guidance from state and federal agencies. Employees are still expected to remain home if they are not feeling well and should contact our COVID team for future guidance. Furthermore, we have resumed all commercial air travel and all other non-critical travel, while also allowing employees to resume their personal travel. We have enabled third-party access to our facilities, and are continuing our normal janitorial and sanitary procedures. We are no longer requiring staggered shifts in our manufacturing facilities and are offering hybrid work schedules to those whose job function enabled them to do so.
We cannot predict at this time the full extent to which COVID-19 and its related variants will continue to impact our business, results, and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers, and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability of key components, increase prices or both, as the COVID-19 pandemic has caused significant challenges for global supply chains resulting primarily in transportation delays. These transportation delays have caused incremental freight charges, which have negatively impacted our results of operations. We expect that these challenges will continue to have an impact on our businesses for the foreseeable future.
We continue to take proactive steps to limit the impact of these challenges and are working closely with our suppliers and transportation vendors to ensure availability of products and implement other cost savings initiatives. In addition, we continue to invest in our supply chain to improve its resilience with a focus on automation, dual sourcing of critical components and localized manufacturing when feasible. To date, there has been limited disruption to the availability of our products, though it is possible that more significant disruptions could occur if these supply chain challenges continue.
Inflation, Material Availability and Labor Shortages
Throughout the first half of 2022 and into the third quarter of 2022, we continued to experience higher than expected commodity costs and supply chain costs, including logistics, procurement, manufacturing costs, and fuel costs, largely due to inflationary pressures. We expect this cost inflation to remain elevated through at least the remainder of 2022 and possibly into 2023.
Our operations require significant amounts of necessary parts and raw materials. From time to time, the Company has encountered difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which has also negatively impacted the pricing of materials and components sourced or used by the Company. Increased fuel costs have negatively impacted fuel margins. Additionally, conflicts abroad, such as the Russia-Ukraine conflict, may potentially contribute to issues related to supply chain disruptions and inflation impacts. There have been supply chain and logistical challenges that have resulted in supply constraints and commodity price increases on certain raw materials, and components used by the Company in production, as well as increased prices for freight and logistics, including air, sea and ground freight. Consequently, the Company has experienced supply shortages for certain raw materials or components, which could be further exacerbated by increased commodity prices as a result of additional inflationary pressures. Although we have offset a portion of these increased costs through price increases and operational efficiencies to date, there can be no assurance that we will be able to continue to do so. If we are unable to manage fluctuations through pricing actions, cost savings projects, and sourcing decisions as well as through productivity improvements, it may adversely impact our gross margins in future periods.
Additionally, we have observed an increasingly competitive labor market. Tight labor markets have resulted in labor inflation and longer times to fill open positions. Increased employee turnover, changes in the availability of our workers, including as a result of COVID-19-related absences, and labor shortages in our supply chain have resulted in,
41
and could continue to result in, increased costs which could negatively affect our financial condition, results of operations, or cash flows.
Results of Operations
Our primary sources of revenue are from sales of fuel cell systems, related infrastructure and equipment, services performed on fuel cell systems and related infrastructure, Power Purchase Agreements (PPAs), and fuel delivered to customers. A certain portion of our sales result from acquisitions in legacy markets, which we are working to transition to renewable solutions. Revenue from sales of fuel cell systems, related infrastructure and equipment represents sales of our GenDrive units, GenSure stationary backup power units, cryogenic stationary and on road storage, electrolyzers and 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.
Based on historical experience, the Company experiences seasonality with respect to its revenue, with more revenue typically recognized in the second half of the fiscal year as compared to the first half.
42
Net revenue, cost of revenue, gross profit (loss) and gross margin (loss) percentage for the three and nine months ended September 30, 2022 and 2021, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | |
| | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||||||||||||||
| September 30, | | September 30, | ||||||||||||||||||||
| | | | Cost of |
| Gross |
| Gross | | | | | | Cost of |
| Gross |
| Gross | | ||||
| Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| | Net Revenue | | Revenue | | Profit/(Loss) | | Margin |
| ||||||
For the period ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | $ | 157,985 | | $ | 127,381 | | $ | 30,604 |
| 19.4 | % | | $ | 383,065 | | $ | 310,362 | | $ | 72,703 |
| 19.0 | % |
Services performed on fuel cell systems and related infrastructure |
| 8,406 | |
| 12,619 | |
| (4,213) |
| (50.1) | % | |
| 25,468 | |
| 38,106 | |
| (12,638) |
| (49.6) | % |
Provision for loss contracts related to service | | — | | | 5,727 | | | (5,727) | | N/A | | | | — | | | 8,843 | | | (8,843) | | N/A | |
Power purchase agreements |
| 9,524 | |
| 35,549 | |
| (26,025) |
| (273.3) | % | |
| 30,730 | |
| 102,194 | |
| (71,464) |
| (232.6) | % |
Fuel delivered to customers and related equipment |
| 12,389 | |
| 53,129 | |
| (40,740) |
| (328.8) | % | |
| 40,289 | |
| 134,008 | |
| (93,719) |
| (232.6) | % |
Other |
| 324 | |
| 286 | |
| 38 |
| 11.7 | % | |
| 1,146 | |
| 1,063 | |
| 83 |
| 7.2 | % |
Total | $ | 188,628 | | $ | 234,691 | | $ | (46,063) |
| (24.4) | % | | $ | 480,698 | | $ | 594,576 | | $ | (113,878) |
| (23.7) | % |
For the period ended September 30, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | $ | 115,999 | | $ | 89,235 | | $ | 26,764 |
| 23.1 | % | | $ | 262,049 | | $ | 198,122 | | $ | 63,927 |
| 24.4 | % |
Services performed on fuel cell systems and related infrastructure |
| 6,677 | |
| 18,697 | |
| (12,020) |
| (180.0) | % | |
| 18,397 | |
| 47,258 | |
| (28,861) |
| (156.9) | % |
Provision for loss contracts related to service | | — | | | 7,462 | | | (7,462) | | N/A | | | | — | | | 15,641 | | | (15,641) | | N/A | |
Power purchase agreements |
| 9,321 | |
| 31,199 | |
| (21,878) |
| (234.7) | % | |
| 25,508 | |
| 71,776 | |
| (46,268) |
| (181.4) | % |
Fuel delivered to customers and related equipment |
| 11,556 | |
| 27,857 | |
| (16,301) |
| (141.1) | % | |
| 33,804 | |
| 90,331 | |
| (56,527) |
| (167.2) | % |
Other |
| 369 | |
| 550 | |
| (181) |
| (49.1) | % | |
| 679 | |
| 856 | |
| (177) |
| (26.1) | % |
Total | $ | 143,922 | | $ | 175,000 | | $ | (31,078) |
| (21.6) | % | | $ | 340,437 | | $ | 423,984 | | $ | (83,547) |
| (24.5) | % |
The amount of provision for common stock warrants recorded as a reduction of revenue during the three and nine months ended September 30, 2022 and 2021, respectively, is shown in the table below (in thousands):
| | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||||
| | September 30, | | | |||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | ||||
| | | | | | | | | | | | | |
Sales of fuel cell systems, related infrastructure and equipment | | $ | (1,026) | | $ | — | | $ | (1,145) | | $ | (27) | |
Services performed on fuel cell systems and related infrastructure | |
| (227) | |
| (69) | |
| (558) | |
| (340) | |
Power purchase agreements | |
| (3,791) | |
| (652) | |
| (5,800) | |
| (2,454) | |
Fuel delivered to customers | |
| (3,527) | |
| (573) | |
| (5,010) | |
| (1,925) | |
Total | | $ | (8,571) | | $ | (1,294) | | $ | (12,513) | | $ | (4,746) | |
Net Revenue
Revenue – sales of fuel cell systems, related infrastructure and equipment. Revenue from sales of fuel cell systems, related infrastructure and equipment 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, electrolyzers and other equipment such as cryogenic storage equipment. Revenue from sales of fuel cell systems, related infrastructure and equipment for the three months ended September 30, 2022 increased $42.0 million, or 36.2%, to $158.0 million from $116.0 million for the three months ended September 30, 2021 primarily due to the inclusion of revenue of acquired businesses, as well as an increase in revenue on GenDrive units. The total revenue generated by Applied Cryo, Frames and Joule was approximately $38.0 million for the three months ended September 30, 2022. There was no revenue in the third quarter of 2021 related to these acquisitions. Revenue related to GenDrive units increased $10.6 million due to a change in mix as the number of units decreased from 4,559 for the three months ended September 30, 2021 to 3,524 GenDrive units for the three months ended September 30, 2022. Additionally, the Company’s revenue increased $5.1 million from electrolyzer sales during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Offsetting these increases, was a decrease in hydrogen infrastructure revenue
43
of $11.8 million due to 13 installations for the three months ended September 30, 2022 compared to 16 for the three months ended September 30, 2021.
Revenue from sales of fuel cell systems, related infrastructure and equipment for the nine months ended September 30, 2022 increased $121.0 million, or 46.2%, to $383.1 million from $262.1 million for the nine months ended September 30, 2021 primarily due to the inclusion of revenue of acquired businesses. The total revenue generated by Applied Cryo, Frames and Joule was approximately $124.9 million for the nine months ended September 30, 2022. There was no revenue in the prior year comparable period related to these acquisitions. Revenue related to GenDrive units decreased $3.5 million primarily due to a variation of timing in deployments as the number of units decreased from 9,533 for the nine months ended September 30, 2021 to 6,011 GenDrive units for the nine months ended September 30, 2022. Additionally, the Company’s revenue increased $8.4 million from electrolyzer sales during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Hydrogen infrastructure revenue decreased $12.8 million due to compared to the nine months ended September 30, 2021.
Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned primarily on our service and maintenance contracts, as well as sales of spare parts. At September 30, 2022, there were 19,726 fuel cell units and 89 hydrogen installations under extended maintenance contracts, an increase from 18,685 fuel cell units and 78 hydrogen installations at September 30, 2021. Revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, 2022 increased $1.7 million, or 25.9%, to $8.4 million as compared to $6.7 million for the three months ended September 30, 2021. The increase in revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, 2022 compared to 2021 was primarily related to our expanding customer base and growth within in our current customer base.
Revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, 2022 increased $7.1 million, or 38.4%, to $25.5 million as compared to $18.4 million for the nine months ended September 30, 2021. The increase in revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, 2022 compared to 2021 was primarily related to our expanding customer base and growth within in our current customer base.
Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At September 30, 2022, there were 95 GenKey sites associated with PPAs, as compared to 61 at September 30, 2021. Revenue from PPAs for the three months ended September 30, 2022 increased $0.2 million, or 2.2%, to $9.5 million from $9.3 million for the three months ended September 30, 2021. The increase in revenue from PPAs for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily attributable to the new sites for existing customers and new customers accessing the PPA solution, offset by an increase in the provision for common stock warrants of $3.8 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively. All of the new PPA sites in the third quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Revenue from PPAs for the nine months ended September 30, 2022 increased $5.2 million, or 20.5%, to $30.7 million from $25.5 million for the nine months ended September 30, 2021. The increase in revenue from PPAs for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily attributable to the new sites for existing customers and new customers accessing the PPA solution, offset by an increase in the provision for common stock warrants of $5.8 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively. All of the new PPA sites in the third quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Revenue – fuel delivered to customers and related equipment. Revenue associated with fuel delivered to customers and related equipment 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 September 30, 2022 increased $0.8 million, or 7.2%, to $12.4 million from $11.6 million for the three months ended September 30, 2021. The increase in revenue was due to an increase in the number of sites with fuel contracts from 141 as of September 30, 2021 to 182 as of September 30, 2022, offset by an increase in the provision for common stock warrants
44
of $3.5 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively. All of the new fuel sites in the third quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Revenue associated with fuel delivered to customers for the nine months ended September 30, 2022 increased $6.5 million, or 19.2%, to $40.3 million from $33.8 million for the nine months ended September 30, 2021. The increase in revenue was due to an increase in the number of sites with fuel contracts from 141 as of September 30, 2021 to 182 as of September 30, 2022, offset by the provision for common stock warrants of $5.0 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively. All of the new fuel sites in the third quarter of 2022 were not deployed until late in the quarter; therefore, the full impact on revenue has yet to be realized.
Cost of Revenue
Cost of revenue – sales of fuel cell systems, related infrastructure and equipment. Cost of revenue from sales of fuel cell systems, related infrastructure and equipment includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations, electrolyzers and other equipment such as cryogenic storage equipment. Cost of revenue from sales of fuel cell systems, related infrastructure and equipment for the three months ended September 30, 2022 increased 42.7%, or $38.1 million, to $127.4 million, compared to $89.2 million for the three months ended September 30, 2021. This increase was due to costs incurred by Applied Cryo, Joule, and Frames, all of which were recent acquisitions by the Company. These costs are incremental in the third quarter of 2022 as these acquisitions all occurred in the fourth quarter of 2021 or the first quarter of 2022. Gross profit generated from sales of fuel cell systems, related infrastructure and equipment decreased to 19.4% for the three months ended September 30, 2022, compared to 23.1% for the three months ended September 30, 2021 primarily due to the margin on the equipment revenue from recently acquired businesses being lower than our legacy equipment margins given the focus on integrating and scaling these new businesses. A certain portion of our sales of engineered equipment are from an acquisition; the sales of engineered equipment from an acquisition are not expected to continue beyond current commitments.
Cost of revenue from sales of fuel cell systems, related infrastructure and equipment for the nine months ended September 30, 2022 increased 56.7%, or $112.2 million, to $310.4 million, compared to $198.1 million for the nine months ended September 30, 2021. This increase was due to costs incurred by Applied Cryo, Joule, and Frames, all of which were recent acquisitions by the Company. These costs are incremental in the third quarter of 2022 as these acuiqistions all occurred in the fourth quarter of 2021 or the first quarter of 2022. Gross profit generated from sales of fuel cell systems, related infrastructure and equipment decreased to 19.0% for the nine months ended September 30, 2022, compared to 24.4% for the nine months ended September 30, 2021 primarily due to: (i) increased freight and material cost largely due to inflationary pressures, and higher labor costs given an increasingly competitive labor market and COVID-19 related staffing and coverage issues; and (ii) the margin on the equipment revenue from recently acquired businesses being lower than our legacy equipment margins given the focus on integrating and scaling these new businesses. A certain portion of our sales for the sales of engineered equipment are from an acquisition; the sales of engineered equipment from an acquisition are not expected to continue beyond current commitments.
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 September 30, 2022, there were 19,726 fuel cell units and 89 hydrogen installations under extended maintenance contracts, an increase from 18,685 fuel cell units and 78 hydrogen installations at September 30, 2021, respectively. Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, 2022 decreased 32.5%, or $6.1 million, to $12.6 million, compared to $18.7 million for the three months ended September 30, 2021. Gross loss decreased to (50.1%) for the three months ended September 30, 2022, compared to (180.0%) for the three months ended September 30, 2021. The decrease in cost of revenue and gross loss are both primarily due to an increase in the release of loss accrual of $7.3 million over the three months ended September 30, 2021.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, 2022 decreased 19.4%, or $9.2 million, to $38.1 million, compared to $47.3 million for the nine months
45
ended September 30, 2021. Gross loss decreased to (49.6%) for the nine months ended September 30, 2022, compared to (156.9%) for the nine months ended September 30, 2021, primarily due to an increase in the release of loss accrual of $24.7 million ove the nine months ended September 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 $5.7 million for the three months ended September 30, 2022, compared to $7.5 million for the three months ended September 30, 2021, related primarily to new service contracts entered into during the third quarter of 2022.
The Company also recorded a provision for loss contracts related to service of $8.8 million for the nine months ended September 30, 2022, compared to $15.6 million for the nine months ended September 30, 2021, related primarily to new service contracts entered into during the third quarter of 2022.
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 September 30, 2022, there were 95 GenKey sites associated with PPAs, as compared to 61 at September 30, 2021. Cost of revenue from PPAs for the three months ended September 30, 2022 increased 13.9%, or $4.4 million, to $35.5 million from $31.2 million for the three months ended September 30, 2021 due to the increase in units and sites under PPA contract as well as certain inflation related issues such as increased freight costs. Gross loss increased to (273.3%) for the three months ended September 30, 2022, as compared to (234.7%) for the three months ended September 30, 2021 primarily due to certain inflation related issues, such as increased freight charges, as well as an increase in the provision for common stock warrants of $3.8 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively.
Cost of revenue from PPAs for the nine months ended September 30, 2022 increased 42.4%, or $30.4 million, to $102.2 million from $71.8 million for the nine months ended September 30, 2021 due to the increase in units and sites under PPA contract as well as certain inflation and COVID-19 related issues, such as increased freight costs and scrap charges associated with certain parts. Gross loss increased to (232.6%) for the nine months ended September 30, 2022, as compared to (181.4%) for the nine months ended September 30, 2021 primarily due to certain inflation and COVID-19 related issues, such as increased freight charges and scrap charges associated with certain parts, as well as an increase in the provision for common stock warrants of $5.8 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Cost of revenue – fuel delivered to customers and related equipment. Cost of revenue from fuel delivered to customers and related equipment 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 September 30, 2022 increased 90.7%, or $25.3 million, to $53.1 million from $27.9 million for the three months ended September 30, 2021. 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, inefficiencies in fueling systems and higher fuel costs. The gross loss increased to (328.8%) during the three months ended September 30, 2022, compared to (141.1%) during the three months ended September 30, 2021, primarily due to the increase in cost of revenue described above, as well as a reduction of revenue resulting from an increase in the provision for common stock warrants of $3.5 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively.
Cost of revenue from fuel delivered to customers for the nine months ended September 30, 2022 increased 48.4%, or $43.7 million, to $134.0 million from $90.3 million for the nine months ended September 30, 2021. 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, inefficiencies in fueling systems and higher fuel costs. As a result of these inefficiencies and higher costs, gross loss increased to (232.6%) during the nine months ended September 30, 2022, compared to (167.2%) during the nine months ended September 30, 2021, primarily due to the increase in cost of revenue described above, as well as a reduction of revenue resulting from an increase in the provision for common stock warrants of $5.0 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively. We expect higher hydrogen molecule costs to continue at least through 2022.
46
Expenses
Research and development expense. Research and development (“R&D”) expense includes: materials to build development and prototype units, cash and non-cash stock-based compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.
Research and development expense for the three months ended September 30, 2022 increased $11.5 million, or 69.0%, to $28.1 million, from $16.6 million for the three months ended September 30, 2021. The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, acquisitions and varied vertical integrations.
Research and development expense for the nine months ended September 30, 2022 increased $34.5 million, or 91.7%, to $72.1 million, from $37.6 million for the nine months ended September 30, 2021. The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, acquisitions and varied vertical integrations.
Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash stock-based compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the three months ended September 30, 2022, increased $43.2 million, or 101.7%, to $85.6 million from $42.4 million for the three months ended September 30, 2021. This increase was primarily related to increased headcount, which resulted in increased salaries and stock-based compensation, as well as rebranding expenses.
Selling, general and administrative expenses for the nine months ended September 30, 2022, increased $155.8 million, or 146.1%, to $262.4 million from $106.7 million for the nine months ended September 30, 2021. This increase was primarily related to increased headcount, which resulted in increased salaries and stock-based compensation, as well as branding expenses.
Contingent consideration. The fair value of the contingent consideration is related to earnouts for the Giner ELX, Inc., United Hydrogen Group Inc, Frames, Applied Cryo and Joule acquisitions. The change in fair value for the three and nine months ended was $0 and $(2.6) million, respectively, primarily due to fair value remeasurements.
Interest income. Interest income primarily consists of income generated by our investment holdings, restricted cash escrow accounts, and money market accounts. Interest income for the three and nine months ended September 30, 2022 increased $9.3 million and $13.7 million, respectively, as compared to the three and nine months ended September 30, 2021. The increase is primarily related to the increase in interest rates during 2022.
Interest expense. Interest expense consists of interest expense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations. Interest expense for the three months ended September 30, 2022 decreased $0.5 million compared to the three months ended September 30, 2021, primarily related to a decrease in long-term debt and an increase in capitalized interest, offset by an increase in finance obligations. Interest expense for the nine months ended September 30, 2022 decreased $4.7 million compared to the nine months ended September 30, 2021, primarily related to a decrease in long-term debt and an increase in capitalized interest, offset by an increase in finance obligations.
Realized loss on investments, net. Realized loss on investments, net consists of the sales related to available-for-sale debt securities. For the three and nine months ended September 30, 2022, the Company had a loss of $0 and $1.3 million, respectively, of net realized loss on investments. For the three and nine months ended September 30, 2021, the Company had a gain of $0.3 million and $0.2 million, of realized loss on investments, net.
47
Change in fair value of equity securities. The change in fair value of equity securities decreased $3.6 million and $22.6 million for the three and nine months ended September 30, 2022, respectively, from September 30, 2021.
Loss on equity method investments. Loss on equity method investments consists of our interest in HyVia, which is our 50/50 joint venture with Renault, AccionaPlug S.L., which is our 50/50 joint venture with Acciona, and SK Plug Hyverse Co., Ltd., which is our 49/51 joint venture with SK E&S. For the three and nine months ended September 30, 2022, the Company recorded a loss of $4.3 million and $10.3 million on equity method investments, respectively. These losses are driven from the start-up activities for commercial and production operations. The Company did not have any equity method investments for the three or nine months ended September 30, 2021.
Income Taxes
The Company recorded $1.5 million and $0 of income tax expense for the three months ended September 30, 2022 and 2021, respectively. The Company recorded $1.5 million and $0 of income tax expense for the nine months ended September 30, 2022 and 2021, respectively. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its domestic net deferred tax assets, which remain fully reserved.
The domestic 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 September 30, 2022 and December 31, 2021, the Company had $1.7 billion and $2.5 billion, respectively of cash and cash equivalents and $807.3 million and $650.9 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 $2.0 billion. In February 2021, 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 of $500.5 million and $267.1 million for the nine months ended September 30, 2022 and 2021, respectively, and had an accumulated deficit of $2.9 billion at September 30, 2022.
The net cash used in operating activities for the nine months ended September 30, 2022 and 2021 was $522.0 million and $348.5 million, respectively. The Company’s working capital was $3.1 billion at September 30, 2022, which included unrestricted cash and cash equivalents of $1.7 billion. The Company plans to invest a portion of its available cash to expand its current production and manufacturing capacity, construction of hydrogen plants 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.
The net cash used in investing activities for the nine months ended September 30, 2022 and 2021 was $20.6 million and $1.0 billion, respectively. This included purchases of property, plant and equipment and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we lease directly to customers are included in net cash used in investing activities.
The net cash (used in) provided by financing activities for the nine months ended September 30, 2022 and 2021 was ($41.3)million and $3.6 billion, respectively. The change was primarily driven by proceeds from public and private offerings, net of transaction costs that occurred in 2021.
48
The Company’s significant obligations consisted of the following as of September 30, 2022:
| (i) | Operating and finance leases totaling $289.1 million and $43.1 million, respectively, of which $43.4 million and $7.2 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 $303.6 million, of which approximately $53.2 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 $66.3 million, of which $0.9 million is classified as short-term on our unaudited interim condensed consolidated balance sheets. |
| (iv) | Convertible senior notes totaling $193.6 million at September 30, 2022. |
Public and Private Offerings of Equity and Debt
Common Stock Issuances
In February 2021, the Company sold 54,966,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.
In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $2.0 billion.
In November 2020, the Company issued and sold in a registered direct 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 direct offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.
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 $0.2 million 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.
49
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”). On September 30, 2022, the outstanding balance under the Term Loan Facility was $57.3 million. The carrying value of the Term Loan Facility approximates fair value.
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 September 30, 2022, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025. At September 30, 2022, the Company was in compliance with all debt covenants under the Term Loan Facility.
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. During the three and nine months ended September 30, 2022, there were no conversions of the 3.75% Convertible Senior Notes.
The 3.75% Convertible Senior Notes consisted of the following (in thousands):
| | | | |
| | | ||
| | | 2022 | |
Principal amounts: | | | | |
Principal | | | $ | 197,278 |
Unamortized debt issuance costs (1) | | | | (3,686) |
Net carrying amount | | | $ | 193,592 |
| 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):
| | | | | | | |
| | September 30, | | | | ||
|
| 2022 |
| | 2021 | | |
Interest expense | | $ | 1,849 | | $ | 1,849 | |
Amortization of debt issuance costs | | | 323 | | | 306 | |
Total | | | 2,172 | | | 2,155 | |
| | | | | | | |
Effective interest rate | | | 4.5% | | | 4.5% | |
Based on the closing price of the Company’s common stock of $21.01 on September 30, 2022, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at September 30, 2022 was approximately $850 million. The fair value estimation was primarily based on an active stock exchange trade on October 5, 2022 of the 3.75% Convertible Senior Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy.
50
Capped Call
In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.
The net cost incurred in connection with the 3.75% Notes Capped Call were recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets. The book value of the 3.75% Notes Capped Call is not remeasured.
Common Stock Forward
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, which have been fully converted into shares of common stock. In connection with the issuance of the 5.5% Convertible Senior Notes, the Company 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. On May 18, 2020, 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 Common Stock Forward is not remeasured.
There were no shares of common stock settled in connection with the Common Stock Forward during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Common Stock Forward was partially settled and 2.1 million shares and 8.1 million shares were received by the Company, respectively.
Amazon Transaction Agreement in 2022
On August 24, 2022, the Company and Amazon.com, Inc. (“Amazon”) entered into a Transaction Agreement (the “2022 Transaction Agreement”), under which the Company concurrently issued to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant (the “Amazon Warrant”) to acquire up to 16,000,000 shares (the “Amazon Warrant Shares”) of the Company’s common stock, subject to certain vesting events described below. The Company and Amazon entered into the 2022 Transaction Agreement in connection with a concurrent commercial arrangement under which Amazon agreed to purchase hydrogen fuel from the Company through August 24, 2029.
Warrant
1,000,000 of the Amazon Warrant Shares vested immediately upon issuance of the Amazon Warrant. 15,000,000 of the Amazon Warrant Shares will vest in multiple tranches over the 7- year term of the Amazon Warrant based on payments made to the Company directly by Amazon or its affiliates, or indirectly through third parties, with 15,000,000 of the Amazon Warrant Shares fully vesting if Amazon-related payments of $2.1 billion are made in the aggregate. The exercise price for the first 9,000,000 Amazon Warrant Shares is $22.9841 per share and the fair value on the grant date
51
was $20.36. The exercise price for the remaining 7,000,000 Amazon Warrant Shares will be an amount per share equal to 90% of the 30-day volume weighted average share price of the Company’s common stock as of the final vesting event that results in full vesting of the first 9,000,000 Amazon Warrant Shares. The Amazon Warrant is exercisable through August 24, 2029.
Upon the consummation of certain change of control transactions (as defined in the applicable warrant) prior to the vesting of at least 60% of the aggregate Amazon Warrant Shares, the Amazon Warrant will automatically vest and become exercisable with respect to an additional number of Amazon Warrant Shares such that 60% of the aggregate Amazon Warrant Shares shall have vested. If a change of control transaction is consummated after the vesting of at least 60% of the aggregate Amazon Warrant Shares, then no acceleration of vesting will occur with respect to any of the unvested Amazon Warrant Shares as a result of the transaction. The exercise price and the Amazon Warrant Shares issuable upon exercise of the Amazon Warrant are subject to customary antidilution adjustments.
At September 30, 2022, 1,000,000 of the Amazon Warrant Shares issued pursuant to the 2022 Transaction Agreement had vested upon issuance. The warrant charge associated with the vested shares of $20.4 million was capitalized to contract assets in our condensed consolidated unaudited interim financial statements based on the grant date fair value and is subsequently amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. The grant date fair value of tranches 2 and 3 will also be amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. Because the exercise price has yet to be determined, the fair value of tranche 4 will be remeasured at each reporting period end and amortized ratably as a reduction to revenue based on the Company’s estimate of revenue over the term of the agreement. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three and nine months ended September 30, 2022 was $1.8 million.
The assumptions used to calculate the valuations as of August 24, 2022 and September 30, 2022 are as follows:
| | | | |
| | Tranches 1-3 | | Tranche 4 |
| | | ||
Risk-free interest rate | | 3.15% | | 3.90% |
Volatility | | 75.00% | | 75.00% |
Expected average term | | 7 years | | 4 years |
Exercise price | | $22.98 | | $18.91 |
Stock price | | $20.36 | | $12.71 |
Amazon Transaction Agreement in 2017
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “2017 Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a warrant to acquire up to 55,286,696 Amazon Warrant Shares, subject to certain vesting events described below. The Company and Amazon entered into the 2017 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. At December 31, 2021, all 55,286,696 of the Amazon Warrant Shares had vested.
The warrant had been exercised with respect to 17,461,994 shares of the Company’s common stock as of September 30, 2022 and December 31, 2021.
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
52
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 was 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 warrant had been exercised with respect to 13,094,217 shares of the Company’s common stock as of September 30, 2022 and December 31, 2021.
At September 30, 2022 and December 31, 2021, 20,368,782 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 September 30, 2022 and 2021 was $6.7 million and $1.2 million, respectively. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the nine months ended September 30, 2022 and 2021 was $10.4 million and $4.4 million, respectively. During the three and nine months ended September 30, 2022 and 2021, respectively, the Walmart Warrant was exercised with respect to 0 and 7,274,565 shares of common stock.
The assumptions used to calculate the valuations of the final tranche of the Walmart Warrant as of September 30, 2022 are as follows:
| | |
| | |
Risk-free interest rate | | 3.99% |
Volatility | | 75.00% |
Expected average term | | 3.5 years |
Exercise price | | $18.91 |
Stock price | | $12.09 |
Operating and Finance Lease Liabilities
As of September 30, 2022, 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, the lease contains customary operational covenants such as the requirement that the Company properly maintain the leased assets and carry appropriate insurance. 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 September 30, 2022.
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 September 30, 2022 was $287.3 million, $49.9 million and $237.4 million of which was classified as short-term and long-term, respectively, on the accompanying unaudited interim condensed consolidated balance sheet. The outstanding balance of this obligation at
53
December 31, 2021 was $236.6 million, $37.5 million and $199.1 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 September 30, 2022 and December 31, 2021.
In prior periods, the Company entered into sale/leaseback transactions that were accounted for as financing transactions and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2022 was $16.3 million, $3.4 million and $12.9 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, 2021 was $17.0 million, $4.5 million and $12.5 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 September 30, 2022 and December 31, 2021.
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $356.9 million and $275.1 million was required to be restricted as security as of September 30, 2022 and December 31, 2021, respectively, which restricted cash will be released over the lease term. As of September 30, 2022 and December 31, 2021, the Company also had certain letters of credit backed by security deposits totaling $340.1 million and $286.0 million, respectively, that are security for the above noted sale/leaseback agreements. As of September 30, 2022, the Company also had certain customer and customs related letters of credit totaling $23.8 million.
As of September 30, 2022 and December 31, 2021, the Company had $67.7 and $67.7 million, respectively, held in escrow related to the construction of certain hydrogen plants.
The Company also had $5.0 million and $2.3 million of consideration held by our paying agent in connection with the Applied Cryo and Joule acquisitions, respectively, reported as restricted cash as of September 30, 2022, with a corresponding accrued liability on the Company’s unaudited interim condensed consolidated balance sheet. Additionally, the Company had $11.5 million in restricted cash as collateral resulting from the Frames acquisition as of September 30, 2022.
Investments
Our investment portfolio, including cash and cash equivalents, totaled $2.7 billion at September 30, 2022. Purchases of fixed maturity securities are classified as available-for-sale at the time of purchase based on individual security.
The composition of our investment portfolio, including cash and cash equivalents, as of September 30, 2022, is shown in the following table (in thousands):
| | | | | |
| | Carrying | | Percentage of | |
|
| Amount |
| Portfolio | |
Fixed maturity securities - available-for-sale | | | | | |
U.S. Treasuries | | $ | 607,907 | | 22.5% |
Corporate bonds | | | 211,533 | | 7.8% |
Total fixed maturity securities - available-for-sale | | $ | 819,440 | | 30.4% |
Equity securities | | | 130,121 | | 4.8% |
Cash and cash equivalents | | | 1,747,753 | | 64.8% |
Total investments, including cash and cash equivalents | | $ | 2,697,314 | | 100.0% |
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 have been sold. The following table shows the rollforward of balance in the accrual
54
for loss contracts, including changes due to the provision for loss accrual, loss accrual from acquisition, releases to service cost of sales, and releases due to the provision for warrants (in thousands):
| | | | | |
| Nine months ended | | Year ended | ||
| | ||||
Beginning balance | $ | 89,773 | | $ | 24,013 |
Provision for loss accrual | | 4,683 | | | 71,988 |
Loss accrual acquired from acquisition | | — | | | 2,636 |
Releases to service cost of sales | | (30,827) | | | (8,864) |
Increase to loss accrual related to customer warrants | | 4,160 | | | |
Foreign currency translation adjustment | | (189) | | | — |
Ending balance | $ | 67,600 | | $ | 89,773 |
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 unaudited interim condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, bad debts, inventories, goodwill and intangible assets, valuation of long-lived assets, accrual for service loss contracts, operating and finance leases, product warranty accruals, 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 2021 Form 10-K.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
Other than the adoption of the accounting guidance mentioned in our 2021 Form 10-K, 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.
Recent Accounting Guidance Not Yet Effective
All issued but not yet effective accounting and reporting standards as of September 30, 2022 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 Company’s 2021 Form 10-K under the section titled “Item 7A: Quantitative and Qualitative Disclosures About Market Risk.”
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
55
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 in 2018, 2019, 2020 and 2021 because of the material weaknesses in internal control over financial reporting described in Part II, Item 9A “Controls and Procedures” of our 2021 Form 10-K. The material weaknesses have not been remediated as of September 30, 2022.
Material Weakness
Management identified that the following deficiency existed in internal control over financial reporting in 2018, 2019, 2020 and 2021: 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 in the following areas:
| (a) | presentation of operating expenses; |
| (b) | accrual for loss contracts related to service; and |
| (c) | identification of adjustments to physical inventory. |
As of December 31, 2021, management identified additional deficiencies which were also the result of the Company not maintaining a sufficient complement of trained, knowledgeable resources to execute its responsibilities and conduct an effective risk assessment. Specifically, the process-level controls to ensure proper capitalization of inventory costs were not performed with an appropriate level of precision to detect and prevent a material misstatement. Additionally, management identified ineffective general information technology control activities over an information technology system that is used in calculating fuel billings, due to the ineffective risk assessment in identifying the relevant system. Management did not design and implement general information technology control activities in response to the current year growth in fuel delivered to customers.
The control deficiency, related to the accrual for loss contracts related to service, resulted in a material misstatement that was corrected prior to the filing of the 2021 Form 10-K. We did not identify any other material misstatements to the consolidated financial statements and there were no changes to previously issued financial results as a result of the other control deficiencies; however, the control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. As a result, we concluded the deficiencies described above represent material weaknesses in our internal control over financial reporting, and our internal control over financial reporting was not effective as of December 31, 2021.
The Company acquired Applied Cryo Technologies and Frames Holdings B.V. (together, the “Acquired Companies”) during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, the Acquired Companies’ internal control over financial reporting associated with total assets of $369.1 million and total revenues of $15.8 million included in the consolidated financial statements of the Company as of and the year ended December 31, 2021.
56
Remediation Activities
As reported on our 2021 Form 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) | Designing and implementing a comprehensive and continuous risk assessment process to identify and assess risks of material misstatements, and ensure that the impacted financial reporting processes and related internal controls are properly designed, maintained, and documented to respond to those risks in our financial reporting. |
| c) | Implementing more structured analysis and review procedures and documentation for the application of GAAP, complex accounting matters, and key accounting policies. |
| d) | Augmenting 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) | Deploying new tools and tracking mechanisms to help enhance and maintain the appropriate documentation surrounding our classification of operating expenses. |
| f) | Further enhancing our policies, procedures, and controls related to physical inventory counting both in interim periods and at year-end. |
| g) | Implementing general information technology controls over our information technology system used in calculating fuel billings. |
| h) | Implementing structured analysis and review procedures around the manual processes related to capitalization of inventory costs. |
| i) | Reporting 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 weaknesses 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 these controls are operating effectively.
(c) Changes in internal control over financial reporting
Exclusive of the steps taken as part of the 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) that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
57
Part II. OTHER INFORMATION
Item 1 – Legal Proceedings
See “Note 19: Commitments and Contingencies” within Item 1 of this Form 10-Q for a discussion regarding material legal proceedings.
Except as otherwise noted, there have been no material developments in legal proceedings. For previously reported information about legal proceedings, refer to Part I, Item 3, “Legal Proceedings,” of the Company’s 2021 Form 10-K.
Item 1A – Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that could materially affect the Company’s business, financial condition or future results discussed in the Company’s 2021 Form 10-K in Part I, Item 1A. “Risk Factors.” The risks described in the 2021 Form 10-K are not the only risks that could affect the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results in the future. As a supplement to the risk factors identified in the 2021 Form 10-K, below we have set forth two updated risk factors relating to the risks of inflationary pressures and economic downturn on the Company’s business. Other than as provided below, there have been no material changes to our risk factors since December 31, 2021.
Rising inflation rates, volatility in commodity prices and product shortages may adversely affect our financial results.
Some of our products contain commodity-priced materials. Commodity prices and supply levels affect our costs. For example, platinum and iridium are key materials in our PEM fuel cells and electrolyzers. Both platinum and iridium are scarce natural resources, and we are dependent upon a sufficient supply of these commodities. These resources may become increasingly difficult to source due to various cost, geopolitical, or other reasons, which in turn might have a material adverse effect on our business.
Any shortages could adversely affect our ability to produce commercially viable fuel cell systems, electrolyzers, or hydrogen production facilities, and in turn, significantly raise our cost of producing our products and services. While we do not anticipate significant near- or long-term shortages in the supply of platinum or iridium, a shortage could adversely affect our ability to produce commercially viable PEM fuel cells electrolyzers, or raise our cost of producing such products.
Global inflationary pressures, particularly in the United States, have increased recently to levels not seen in recent years, which could potentially increase commodity price volatility, increased operating costs (including our labor costs) and reduced liquidity. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which may result in limitations on our ability to access credit or otherwise raise debt and equity capital. Our ability to pass on such increases in costs in a timely manner depends on market conditions, and the inability to pass along cost increases could result in lower gross margins. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. In an inflationary environment, we may be unable to raise the sales prices of our products and services at or above the rate at which our costs increase, which could reduce our profit margins and have a material adverse effect on our financial results. We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our financial condition and could also have an adverse impact on our future growth.
58
The current economic downturn and weakness in the economy, market trends and other conditions affecting the profitability and financial stability of our customers could negatively impact our sales growth and results of operations.
The demand for our products and services is sensitive to the production activity, capital spending and demand for products and services of our customers worldwide. In recent months, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include falling overall demand for goods and services, leading to reduced profitability, reduced credit availability, higher borrowing costs, reduced liquidity, volatility in credit, equity and foreign exchange markets, and bankruptcies. These developments could lead to supply chain disruption, inflation, higher interest rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations. As our customers react to global economic conditions and the potential for a global recession, we may see them reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending on our solutions, delays in purchasing decisions, lack of renewals, inability to attract new customers, as well as pressure for extended billing terms or pricing discounts, would limit our ability to grow our business and negatively affect our operating results and financial condition.
Additionally, many of our customers operate in markets that may be impacted by market uncertainty, trade and tariff policies, costs of goods sold, currency exchange rates, central bank interest rate changes, foreign competition, offshoring of production, oil and natural gas prices, geopolitical developments, labor shortages, inflation, and a variety of other factors beyond our control. Any of these factors could cause customers to idle or close facilities, delay purchases, reduce production levels, or experience reductions in the demand for their own products or services. We have from time-to-time experience labor shortages and other labor-related issues. Labor shortages have become more pronounced as a result of the COVID-19 pandemic. For example, labor shortages might affect our ability to attain qualified candidates for certain positions within the Company.
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.
59
| | ||
3.1 | |||
3.2 | |||
3.3 | |||
3.4 | |||
3.5 | |||
3.6 | |||
3.7 | |||
3.8 | |||
3.9 | |||
4.1 | |||
10.1* | Form of Restricted Stock Unit Award Agreement for Non-U.S. Grantees | ||
10.2* | Form of Non-Qualified Stock Option Agreement for Non-U.S. Optionees | ||
10.3 | |||
31.1* | |||
31.2* | |||
32.1** | |||
32.2** | |||
101.INS* | Inline XBRL Instance Document | ||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||
61
* | Submitted electronically herewith. |
** | Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this certification is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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: November 8, 2022 | By: | /s/ Andrew Marsh |
| | |
| | President,
Chief Executive |
| | |
Date: November 8, 2022 | By: | |
| | |
| | Chief
Financial Officer (Principal |
62
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 8/24/29 | ||||
| 10/31/25 | ||||
| 6/1/25 | ||||
| 3/15/23 | ||||
| 12/31/22 | ||||
| 11/21/22 | ||||
| Filed on: | 11/8/22 | 8-K | ||
| 11/4/22 | ||||
| 10/5/22 | 4 | |||
| For Period end: | 9/30/22 | |||
| 9/29/22 | ||||
| 8/24/22 | 8-K | |||
| 8/9/22 | 10-Q, 8-K | |||
| 7/19/22 | ||||
| 6/30/22 | 10-Q, 4, 8-K, 8-K/A, DEF 14A | |||
| 6/29/22 | ||||
| 6/13/22 | ||||
| 3/31/22 | 10-Q | |||
| 1/14/22 | ||||
| 12/31/21 | 10-K | |||
| 12/9/21 | 8-K | |||
| 12/6/21 | ||||
| 11/22/21 | ||||
| 10/6/21 | 8-K | |||
| 9/30/21 | 10-Q | |||
| 7/22/21 | 4 | |||
| 6/30/21 | 10-Q, PRE 14A | |||
| 5/13/21 | 4 | |||
| 4/5/21 | ||||
| 3/31/21 | 10-Q, NT 10-Q | |||
| 3/9/21 | ||||
| 3/1/21 | ||||
| 1/1/21 | ||||
| 12/31/20 | 10-K, 10-K/A, 5, 8-K, NT 10-K | |||
| 11/9/20 | 10-Q, 4, 8-K | |||
| 9/30/20 | 10-Q, 4 | |||
| 7/1/20 | 4 | |||
| 6/30/20 | 10-Q | |||
| 5/29/20 | ||||
| 5/18/20 | ||||
| 3/31/20 | 10-Q | |||
| 12/31/19 | 10-K | |||
| 9/30/19 | 10-Q | |||
| 6/30/19 | 10-Q | |||
| 3/31/19 | 10-Q | |||
| 3/13/19 | 10-K | |||
| 12/31/18 | 10-K | |||
| 8/28/18 | 4, 8-K | |||
| 7/20/17 | 8-K, EFFECT | |||
| 4/4/17 | 8-K | |||
| 1/1/17 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/29/24 Plug Power Inc. 10-K 12/31/23 143:19M Toppan Merrill Bridge/FA 5/01/23 Plug Power Inc. 10-K/A 12/31/22 13:1M Toppan Merrill/FA 3/01/23 Plug Power Inc. 10-K 12/31/22 134:20M Toppan Merrill Bridge/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/25/22 Plug Power Inc. 8-K:1,3,7,9 8/24/22 13:743K Toppan Merrill/FA 8/05/21 Plug Power Inc. 10-Q 6/30/21 103:11M Toppan Merrill Bridge/FA 5/14/21 Plug Power Inc. 10-K 12/31/20 138:42M Toppan Merrill Bridge/FA 6/30/17 Plug Power Inc. 8-K:5,9 6/28/17 3:164K Toppan Merrill/FA 3/10/17 Plug Power Inc. 10-K 12/31/16 87:11M Toppan Merrill Bridge/FA 7/25/14 Plug Power Inc. 8-K:5,9 7/23/14 3:202K EDGARX.com, LLC/FA 5/19/11 Plug Power Inc. 8-K:3,5,9 5/19/11 3:91K EDGARX.com, LLC/FA 6/24/09 Plug Power Inc. 8-A12B 3:245K 3/16/09 Plug Power Inc. 10-K 12/31/08 10:2.9M EDGARX.com, LLC/FA |