Quarterly Report (10-q)

Date : 05/10/2018 @ 5:27PM
Source : Edgar (US Regulatory)
Stock : Plug Power, Inc. (PLUG)
Quote : 1.97  -0.18 (-8.37%) @ 8:00PM

Quarterly Report (10-q)

.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                    TO                   

 

Commission File Number: 1-34392

 

PLUG POWER INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

22-3672377

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

968 ALBANY SHAKER ROAD, LATHAM, NEW YORK 12110

(Address of Principal Executive Offices, including Zip Code)

 

(518) 782-7700

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

(Do not check if a smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares of common stock, par value of $0.01 per share, outstanding as of May 10, 2018 was 214,274,571.

 

 


 

INDEX to FORM 10-Q

 

 

Page

 

 

PART I.   FINANCIAL INFORMATION  

 

 

 

Item 1 – Interim Consolidated Financial Statements (Unaudited)  

3

 

 

Consolidated Balance Sheets  

3

 

 

Consolidated Statements of Operations  

4

 

 

Consolidated Statements of Comprehensive Loss  

5

 

 

Consolidated Statement of Stockholders’ Equity  

6

 

 

Consolidated Statements of Cash Flows  

7

 

 

Notes to Interim Consolidated Financial Statements  

8

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations  

32

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk  

45

 

 

Item 4 – Controls and Procedures  

45

 

 

PART II.   OTHER INFORMATION  

 

 

 

Item 1 – Legal Proceedings  

45

 

 

Item 1A – Risk Factors  

45

 

 

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

47

 

 

Item 3 – Defaults Upon Senior Securities  

47

 

 

Item 4 – Mine Safety Disclosures  

47

 

 

Item 5 – Other Information  

47

 

 

Item 6 – Exhibits  

47

 

 

Signatures  

49

 

 

 

 

2

 


 

PART 1.  FINANCIAL INFORMATION

 

Item 1 — Interim Financial Statements (Unaudited)

 

Plug Power Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2018

 

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,746

 

$

24,828

 

Restricted cash

 

 

13,811

 

 

13,898

 

Accounts receivable

 

 

22,986

 

 

15,331

 

Inventory

 

 

47,348

 

 

48,776

 

Prepaid expenses and other current assets

 

 

14,641

 

 

16,774

 

Total current assets

 

 

145,532

 

 

119,607

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

28,412

 

 

29,329

 

Property, plant, and equipment, net of accumulated depreciation of $32,193 and $31,588, respectively

 

 

10,835

 

 

10,414

 

Leased property, net of accumulated depreciation of $13,987 and $11,812, respectively

 

 

88,167

 

 

87,065

 

Goodwill

 

 

9,714

 

 

9,445

 

Intangible assets, net of accumulated amortization of $1,925 and $1,735, respectively

 

 

3,724

 

 

3,785

 

Other assets

 

 

11,922

 

 

11,165

 

Total assets

 

$

298,306

 

$

270,810

 

 

 

 

 

 

 

 

 

Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

42,609

 

$

42,362

 

Accrued expenses

 

 

8,190

 

 

10,595

 

Deferred revenue

 

 

9,084

 

 

8,630

 

Finance obligations

 

 

37,662

 

 

34,506

 

Current portion of long-term debt

 

 

14,763

 

 

18,762

 

Other current liabilities

 

 

1,033

 

 

866

 

Total current liabilities

 

 

113,341

 

 

115,721

 

Deferred revenue

 

 

25,083

 

 

25,809

 

Common stock warrant liability

 

 

3,133

 

 

4,391

 

Finance obligations

 

 

35,383

 

 

37,069

 

Convertible senior notes, net

 

 

58,275

 

 

 —

 

Long-term debt

 

 

12,871

 

 

13,371

 

Other liabilities

 

 

19

 

 

94

 

Total liabilities

 

 

248,105

 

 

196,455

 

 

 

 

 

 

 

 

 

Redeemable preferred stock:

 

 

 

 

 

 

 

Series C redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $16,664); 10,431 shares authorized; Issued and outstanding: 2,620 at March 31, 2018 and December 31, 2017

 

 

709

 

 

709

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 229,192,631 at March 31, 2018 and 229,073,517 at December 31, 2017

 

 

2,292

 

 

2,291

 

Additional paid-in capital

 

 

1,273,680

 

 

1,250,899

 

Accumulated other comprehensive income

 

 

2,606

 

 

2,194

 

Accumulated deficit

 

 

(1,198,484)

 

 

(1,178,636)

 

Less common stock in treasury: 14,985,057 at March 31, 2018 and 587,151 at December 31, 2017

 

 

(30,602)

 

 

(3,102)

 

Total stockholders’ equity

 

 

49,492

 

 

73,646

 

Total liabilities, redeemable preferred stock, and stockholders’ equity

 

$

298,306

 

$

270,810

 

 

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

 

3

 


 

 

 

Plug Power Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2018

    

2017

    

Revenue:

 

 

 

 

 

 

 

Sales of fuel cell systems and related infrastructure

 

$

11,458

 

$

2,197

 

Services performed on fuel cell systems and related infrastructure

 

 

6,598

 

 

5,149

 

Power Purchase Agreements

 

 

5,489

 

 

4,311

 

Fuel delivered to customers

 

 

5,535

 

 

3,491

 

Other

 

 

 —

 

 

87

 

Gross revenue

 

 

29,080

 

 

15,235

 

Provision for common stock warrants

 

 

(1,885)

 

 

 —

 

Net revenue

 

 

27,195

 

 

15,235

 

Cost of revenue:

 

 

 

 

 

 

 

Sales of fuel cell systems and related infrastructure

 

 

10,122

 

 

2,286

 

Services performed on fuel cell systems and related infrastructure

 

 

6,870

 

 

6,566

 

Power Purchase Agreements

 

 

8,291

 

 

6,615

 

Fuel delivered to customers

 

 

5,896

 

 

4,149

 

Other

 

 

 —

 

 

98

 

Total cost of revenue

 

 

31,179

 

 

19,714

 

 

 

 

 

 

 

 

 

Gross loss

 

 

(3,984)

 

 

(4,479)

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

8,648

 

 

5,998

 

Selling, general and administrative

 

 

8,309

 

 

9,145

 

Total operating expenses

 

 

16,957

 

 

15,143

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(20,941)

 

 

(19,622)

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(3,105)

 

 

(2,137)

 

Change in fair value of common stock warrant liability

 

 

1,258

 

 

(2,280)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

$

(22,788)

 

$

(24,039)

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

2,953

 

 

 —

 

 

 

 

 

 

 

 

 

Net loss attributable to the Company

 

$

(19,835)

 

$

(24,039)

 

 

 

 

 

 

 

 

 

Preferred stock dividends declared

 

 

(13)

 

 

(26)

 

Net loss attributable to common shareholders

 

$

(19,848)

 

$

(24,065)

 

Net loss per share:

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.09)

 

$

(0.13)

 

Weighted average number of common shares outstanding

 

 

226,985,762

 

 

191,185,690

 

 

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

 

 

 

 

 

 

4

 


 

 

Plug Power Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

March 31,

 

 

 

    

2018

    

2017

    

 

 

 

 

 

 

 

 

 

 

Net loss attributable to the Company

 

$

(19,835)

 

$

(24,039)

 

 

Other comprehensive income - foreign currency translation adjustment

 

 

412

 

 

220

 

 

Comprehensive loss

 

$

(19,423)

 

$

(23,819)

 

 

 

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

 

5

 


 

Plug Power Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

Accumulated

    

 

    

    

    

 

    

    

 

    

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 Paid-in

 

Comprehensive

 

Treasury Stock

 

Accumulated

 

Stockholders’

 

 

    

Shares

    

Amount

    

Capital

    

Income

    

Shares

    

Amount

    

Deficit

    

Equity

 

December 31, 2017

 

229,073,517

 

$

2,291

 

$

1,250,899

 

$

2,194

 

 

587,151

 

$

(3,102)

 

$

(1,178,636)

 

$

73,646

 

Net loss attributable to the Company

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19,835)

 

 

(19,835)

 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

412

 

 

 —

 

 

 —

 

 

 —

 

 

412

 

Stock-based compensation

 

21,292

 

 

 —

 

 

2,005

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,005

 

Stock dividend

 

6,721

 

 

 —

 

 

13

 

 

 —

 

 

 —

 

 

 —

 

 

(13)

 

 

 —

 

Stock option exercises

 

91,001

 

 

 1

 

 

49

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

50

 

Equity component of convertible senior notes, net of issuance costs and income tax benefit

 

 —

 

 

 —

 

 

34,829

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

34,829

 

Purchase of capped call

 

 —

 

 

 —

 

 

(16,000)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,000)

 

Purchase of common stock forward

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14,397,906

 

 

(27,500)

 

 

 —

 

 

(27,500)

 

Exercise of warrants

 

100

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Provision for common stock warrants

 

 —

 

 

 —

 

 

1,885

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,885

 

March 31, 2018

 

229,192,631

 

$

2,292

 

$

1,273,680

 

$

2,606

 

 

14,985,057

 

$

(30,602)

 

$

(1,198,484)

 

$

49,492

 

 

 

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

6

 


 

Plug Power Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

 

    

2018

    

2017

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net loss attributable to the Company

 

$

(19,835)

 

$

(24,039)

 

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

 

 

 

 

 

 

 

Depreciation of property, plant and equipment, and leased property

 

 

2,780

 

 

2,002

 

Amortization of intangible assets

 

 

158

 

 

143

 

Stock-based compensation

 

 

2,005

 

 

2,462

 

Amortization of debt issuance costs

 

 

379

 

 

147

 

Provision for common stock warrants

 

 

1,885

 

 

 —

 

Change in fair value of common stock warrant liability

 

 

(1,258)

 

 

2,280

 

Income tax benefit

 

 

(2,953)

 

 

 —

 

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

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,655)

 

 

5,021

 

Inventory

 

 

1,428

 

 

(3,786)

 

Prepaid expenses and other assets

 

 

1,376

 

 

1,569

 

Accounts payable, accrued expenses, and other liabilities

 

 

(2,066)

 

 

(8,336)

 

Deferred revenue

 

 

(272)

 

 

(1,322)

 

Net cash used in operating activities

 

 

(24,028)

 

 

(23,859)

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,026)

 

 

(303)

 

Purchases for construction of leased property

 

 

(3,277)

 

 

(9,336)

 

Net cash used in investing activities

 

 

(4,303)

 

 

(9,639)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

50

 

 

 —

 

Payments for redemption of preferred stock

 

 

 —

 

 

(3,700)

 

Proceeds from issuance of convertible senior notes, net

 

 

96,057

 

 

 —

 

Purchase of capped call and common stock forward

 

 

(43,500)

 

 

 —

 

Principal payments on long-term debt

 

 

(4,649)

 

 

(50)

 

Increase in finance obligations

 

 

1,241

 

 

2,230

 

Net cash provided by (used in) financing activities

 

 

49,199

 

 

(1,520)

 

Effect of exchange rate changes on cash

 

 

46

 

 

35

 

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

 

 

20,914

 

 

(34,983)

 

Cash, cash equivalents, and restricted cash beginning of year

 

 

68,055

 

 

100,636

 

Cash, cash equivalents, and restricted cash end of year

 

$

88,969

 

$

65,653

 

Other Supplemental Cash Flow Information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,554

 

$

1,902

 

 

 

 

 

 

 

 

 

 

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

 

 

7

 


 

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited)

1.  Nature of Operations

 

Description of Business

 

Plug Power Inc., or the Company, is a leading provider of alternative energy technology focused on the design, development, commercialization and manufacture of hydrogen and fuel cell systems used primarily for the material handling and stationary power markets.  As part of the global drive to electrification, Plug Power has recently entered new electric vehicle markets, specifically ground support equipment and electric delivery vans.

 

We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and associated hydrogen storage and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. Plug Power develops complete hydrogen generation, delivery, storage and refueling solutions for customer locations. Currently the Company obtains the majority of its hydrogen by purchasing it from fuel suppliers for resale to customers.

 

In our core business, we provide and continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead‑acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications (electric forklifts and electric industrial vehicles) at multi‑shift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity, flexibility and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products prove valuable with telecommunications, transportation and utility customers as robust, reliable and sustainable power solutions.

 

Our current products and services include:

GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling electric vehicles, including class 1, 2, 3 and 6 electric forklifts and ground support equipment;

GenFuel:  GenFuel is our hydrogen fueling delivery, generation, storage and dispensing systems;

GenCare: GenCare is our ongoing maintenance program for GenDrive fuel cells, GenSure products, GenFuel products and ProGen 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;

GenKey: GenKey is our turn-key solution combining either GenDrive or GenSure 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; and

GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.

Plug Power provides our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks.

 

8


 

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

We were organized as a corporation in the State of Delaware on June 27, 1997.

 

Unless the context indicates otherwise, the terms “Company,” “Plug Power,” “we,” “our” or “us” as used herein refers to Plug Power Inc. and its subsidiaries.

 

Liquidity

 

Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as delivery of the hydrogen fuel,  continued development and expansion of our products, payment of lease/financing obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of building a sales base; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations.  As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.

 

We have experienced and continue to experience negative cash flows from operations and net losses.  The Company incurred net losses attributable to common shareholders of $19.8 million for the three months ended March  31, 2018 and $130.2 million, $57.6 million, and $55.8 million for the years ended December 31, 2017, 2016, and 2015, respectively, and has an accumulated deficit of $1.2 billion at March 31, 2018.

 

During the three  months ended March 31, 2018, cash used in operating activities was $24.0 million, consisting primarily of a net loss attributable to the Company of $19.8 million and net outflows from fluctuations in working capital and other assets and liabilities of $7.2 million, offset by the impact of noncash charges/gains of $3.0 million. The changes in working capital primarily were related to an increase in accounts receivable and a decrease in accounts payable, accrued expenses and other liabilities, offset by decreases in inventory, prepaid expenses and other current assets. As of March 31, 2018, we had cash and cash equivalents of $46.7 million and net working capital of $32.2 million. By comparison, at December 31, 2017, we had cash and cash equivalents of $24.8 million and net working capital of $3.9 million.

 

Net cash used in investing activities for the three months ended March 31, 2018,  totaled $4.3 million and included purchases of property, plant and equipment and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we sell and equipment we lease directly to customers are included in net cash used in operating activities and net cash used in investing activities, respectively. Net cash provided by financing activities for the three months ended March 31, 2018 totaled $49.2 million and primarily resulted from net proceeds of $96.1 million from the issuance of Convertible Senior Notes and a $1.2 million increase in finance obligations, offset by $43.5 million of purchases of a capped call and a common stock forward associated with the Convertible Senior Notes, and $4.6 million of principal payments on long-term debt.

In March 2018, we issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes due in 2023 (Convertible Senior Notes). The total net proceeds from this offering, after considering costs of the issuance, were approximately $96.1 million. Approximately $43.5 million of the proceeds were used for the cost of a capped call

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

and a common stock forward, both of which are hedges related to the Convertible Senior Notes. The remaining net proceeds from the Convertible Senior Notes will be used for general corporate purposes, including working capital.

 

In previous years, the Company entered into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sold certain fuel cell systems and hydrogen infrastructure to the financial institutions, and leased the equipment back to support certain customer locations and to fulfill its varied PPAs.  In connection with these operating leases, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s lease obligations. Cash received from customers under the PPAs is used to make lease payments.  As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements was $30.8 million, which has been fully secured with restricted cash and pledged service escrows.

 

We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings, long-term debt and project financing, and recently with Convertible Senior Notes.  The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least one year after the date that the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company.  This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions. Additionally, the Company has other capital sources available, including the At Market Issuance Sales Agreement (see Note 8).

 

2.  Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying unaudited interim consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Interim Financial Statements

 

The accompanying unaudited interim 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 consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, filed for the fiscal year ended December 31, 2017.

 

The information presented in the accompanying unaudited interim consolidated balance sheet as of December 31, 2017, has been derived from the Company’s December 31, 2017 audited consolidated financial statements. All other information has been derived from the unaudited interim consolidated financial statements of the Company.

 

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Revenue Recognition

 

The Company enters into contracts that may contain one or a combination of fuel cell systems and infrastructure, installation, maintenance, spare parts, fuel delivery and other support services. Contracts containing fuel cell systems and related infrastructure may be sold, or provided to customers under a PPA.

 

The Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product, or when circumstances indicate that warranty costs will be incurred, as applicable.  Only a limited number of fuel cell units are under standard warranty.

 

Revenue is measured based on the consideration specified in a contract with a customer, subject to the allocation of consideration to individual performance obligations as discussed below. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

 

The Company accounts for each separate performance obligation of multiple deliverable arrangements as a separate unit of accounting if the delivered item or items have value to the customer on a standalone basis. The Company considers a performance obligation to be distinct and have a standalone value if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer and the Company’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract. The Company allocates revenue to each separate performance obligation based on relative standalone selling prices.

 

Payment terms for fuel cells, infrastructure and service are invoiced with terms ranging from 30 to 90 days. Service is prepaid upfront in a majority of the arrangements.  The Company does not adjust the transaction price for a significant financing component when the performance obligation is expected to be fulfilled within a year.

 

Nature of goods and services

 

The following is a description of principal activities from which the Company generates its revenue.

 

(i) Sales of Fuel Cell Systems and Related Infrastructure

 

Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure.

 

The Company considers list prices, as well as historical average pricing approaches to determine standalone selling prices.  Once relative standalone selling prices are determined, the Company proportionately allocates the sale consideration to each performance obligation within the customer arrangement. The allocated sales consideration related to fuel cell systems and infrastructure, spare parts, and hydrogen infrastructure is recognized at a point in time, when the performance obligation has been satisfied, which usually occurs at shipment if title and risk of loss have passed to the customer or upon commissioning.

 

(ii) Services performed on fuel cell systems and related infrastructure

 

Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. The sales consideration allocated to services as discussed above is generally recognized as revenue over time on a straight-line basis over the expected service period.

 

In a vast majority of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year service period from the date of product installation. Services include monitoring, technical support, maintenance and services that provide for 97-98% uptime of the fleet. These services are accounted for

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

as a separate performance obligation, and accordingly, revenue generated from these transactions, subject to the proportional allocation of sale consideration, is deferred and recognized in income over the term of the contract, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized in income on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. Sales of spare parts are included within service revenue on the accompanying consolidated statement of operations. When costs are projected to exceed revenues over the life of the contract, an accrual for loss contracts is recorded.  Costs are estimated based upon historical experience and consider the estimated impact of the Company’s cost reduction initiatives.  The actual results may differ from these estimates.

 

When costs are projected to exceed revenues over the life of an extended maintenance contract, an accrual for loss contracts is recorded.  Costs are estimated based upon historical experience and consider the estimated impact of the Company’s cost reduction initiatives.  The actual results may differ from these estimates.

 

Upon expiration of the extended maintenance contracts, customers either choose to extend the contract or switch to purchasing spare parts and maintaining the fuel cell systems on their own.

 

(iii) Power Purchase Agreements

 

Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution.

 

When fuel cell systems and related infrastructure are provided to customers through a PPA, revenues associated with these agreements are treated as rental income and recognized on a straight-line basis over the life of the agreements.  In conjunction with entering into a PPA with a customer, the Company may enter into sale/leaseback transactions with third-party financial institutions, whereby the fuel cells, a majority of the related infrastructure, and, in some cases service are sold to the third-party financial institution and leased back to the Company through either an operating or capital lease.

 

Certain of the Company’s sale/leaseback transactions with third-party financial institutions are required to be accounted for as capital leases.  As a result, no upfront revenue was recognized at the closing of these transactions and a finance obligation for each lease was established.  The fuel cell systems and related infrastructure that are provided to customers through these PPAs are considered leased property on the accompanying unaudited interim consolidated balance sheet.  Costs to service the leased property, depreciation of the leased property, and other related costs are considered cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.  Interest cost associated with capital leases is presented within interest and other expense, net on the accompanying unaudited interim consolidated statement of operations.

 

Each PPA entered into before December 31, 2015 had a corresponding sale/leaseback transaction with a third-party financial institution, which was required to be accounted for as an operating lease. The Company has rental expense associated with these sale/leaseback agreements with financial institutions.  Rental expense is recognized on a straight-line basis over the life of the agreements and is characterized as cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.

 

(iv) Fuel Delivered to Customers

 

Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.

 

The Company purchases hydrogen fuel from suppliers and sells to its customers upon delivery.  Revenue and cost of revenue related to this fuel is recorded as dispensed, and is included in the respective “Fuel delivered to customers” lines on the unaudited interim consolidated statements of operations.

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(v) Other

 

Other revenue primarily represents cost reimbursement research and development contracts associated with the development of PEM fuel cell technology.

 

Contract accounting is used for research and development contract revenue. The Company generally shares in the cost of these programs with cost sharing percentages ranging from 30% to 50% of total project costs. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period and is included within the “other” revenue line on the unaudited interim consolidated statement of operations. All allowable work performed through the end of each calendar quarter is billed, subject to limitations in the respective contracts.

 

Contract costs

 

The Company expects that incremental commission fees paid to employees as a result of obtaining sales contracts are recoverable and therefore the Company capitalizes them as contract costs.

 

Capitalized commission fees are amortized on a straight line basis over the period of time over which the transfer of goods or services to which the assets relate occur, typically ranging from 5 to 10 years, and are included in selling, general, and administrative expenses.

 

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses.

 

During 2017, the Company issued warrants to Amazon.com, Inc. and Wal-mart Stores, Inc. The fair value of warrants associated with each of these transactions are accounted for as revenue incentives as described in Note 10, Warrant Transaction Agreements.

 

Adoption of ASC Topic 606 - Transition Approach

 

As discussed in Recent Accounting Pronouncements, on January 1,2018, the Company adopted ASC Subtopic 606, Revenue from Contracts with Customers (ASC Subtopic 606), which offers two transition approaches: full retrospective and modified retrospective. The Company chose the modified retrospective approach as its transition method and will not experience a significant effect on the timing and amount of revenue recognized or the amount of revenue allocated to the identified performance obligations. There was an insignificant amount of historical contract acquisition costs that were expensed and were not capitalized upon adoption of ASC Subtopic 606. However, upon adoption, contract acquisition costs of $0.1 million were capitalized and are being amortized as described above.

 

Cash Equivalents

 

Cash equivalents consist of money market accounts with an initial term of less than three months. At March 31, 2018 and December 31, 2017, cash equivalents consist of money market accounts. For purposes of the unaudited interim consolidated statements of cash flows, the Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents.  The Company’s cash and cash equivalents are deposited with financial institutions located in the U.S. and may at times exceed insured limits.

 

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Common Stock Warrant Accounting

 

The Company accounts for common stock warrants as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.

 

Derivative Liabilities

 

Registered common stock warrants that require the issuance of registered shares upon exercise and do not sufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. We currently classify these derivative warrant liabilities on the accompanying unaudited interim consolidated balance sheets as a long-term liability, which are revalued at each balance sheet date subsequent to the initial issuance, using the Black-Scholes pricing model. This pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes in the fair value of the warrants are reflected in the accompanying unaudited interim consolidated statements of operations as change in fair value of common stock warrant liability.

 

Equity Instruments

 

Common stock warrants that meet certain applicable requirements of ASC Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity , and other related guidance, including the ability of the Company to settle the warrants without the issuance of registered shares or the absence of rights of the grantee to require cash settlement, are accounted for as equity instruments. The Company classifies these equity instruments within additional paid-in capital on the accompanying unaudited interim consolidated balance sheets. Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon.com, Inc. and Wal-Mart Stores, Inc. as discussed in Note 10.  These warrants are remeasured at each financial reporting date prior to vesting, using the Monte Carlo pricing model.  Once these warrants vest, they are no longer remeasured.  This pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes in fair value resulting from remeasurement of common stock warrants issued in connection with the Amazon Transaction Agreement and the Walmart Transaction Agreement, as described in Note 10, Warrant Transaction Agreements, and are recorded as cumulative catch up adjustments as a reduction of revenue.

 

Convertible Senior Notes

The Company accounts for the issued Convertible Senior Notes with separate liability and equity components. The carrying amount of the liability component was initially determined by estimating the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the estimated fair value of the liability component from the par value of the Convertible Senior Notes as a whole as of the date of issuance. This difference represents a debt discount that is amortized to interest expense, with a corresponding increase to the carrying amount of the liability component, over the term of the Convertible Senior Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The Company has allocated issuance costs incurred to the liability and equity components. Issuance costs attributable to the liability component are being amortized to expense over the respective term of the Convertible Senior Notes, and issuance costs attributable to the equity components were netted with the respective equity component in additional paid-in capital.

 

Use of Estimates

 

The unaudited interim consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited

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interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation.  These reclassifications did not have a net impact on the results of operations or net cash flows in the periods presented.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

In June 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers. The Company adopted this accounting update as of January 1, 2018. The standard outlines a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied. The standard also requires new, expanded disclosures regarding revenue recognition. The Company did not experience a significant effect on the timing and amount of revenue recognized or the amount of revenue allocated to the identified performance obligations. There is an insignificant amount of historical contract acquisition costs that were expensed under prior guidance and were not capitalized upon adoption of ASC Subtopic 606. However, in subsequent periods, contract acquisition costs are capitalized in accordance with ASC Subtopic 606 (see Note 11, Revenue).

 

In October 2016, an accounting update was issued to simplify how an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory.  Two common examples of assets included in the scope of this update are intellectual property and property, plant, and equipment.  The Company adopted this update on January 1, 2018 and it did not have any effect on the consolidated financial statements because our net tax position is zero.

 

In November 2016, an accounting update was issued to reduce the existing diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This accounting update was adopted retrospectively by the Company on January 1, 2018. The adoption of this update impacts the cash flows from financing activities due to the change in the presentation of restricted cash within the consolidated statement of cash flows. Net cash flows from financing activities and change in cash and cash equivalents, which now includes restricted cash, for the three months ended March 31, 2018 and 2017, decreased by $1.0 million and $0.7 million, respectively.

 

Recently Issued and Not Yet Adopted Accounting Pronouncements

 

In January 2017, an accounting update was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.  Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This accounting update is effective for years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact this update will have on the consolidated financial statements.

 

In August 2016, an accounting update was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  This accounting update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period.  The Company is evaluating the impact this update will have on the consolidated financial statements.

 

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In February 2016, an accounting update was issued which requires balance sheet recognition for operating leases, among other changes to previous lease guidance.  This accounting update is effective for fiscal years beginning after December 15, 2018.  The Company has established an internal implementation team to oversee the adoption of the new standard. While the Company is evaluating the impact this update will have on the consolidated financial statements, it is expected that the future minimum lease payments under non-cancelable leases, as lessee, will be recorded on the Company’s consolidated balance sheets, as well as a right-of-use asset (see Note 14 for a summary of the Company’s non-cancellable operating leases).

 

3.  Earnings Per Share

 

Basic earnings per common share are computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options, unvested restricted stock, common stock warrants, preferred stock, and Convertible Senior Notes) were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases where applicable) that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive common share equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, Convertible Senior Notes and the weighted average number of common shares outstanding during the reporting period. In general, when the Company is in a net loss position, all common stock equivalents would be considered to be anti-dilutive and are, therefore, not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.

 

The dilutive potential common shares are summarized as follows:

 

 

 

 

 

 

 

 

At March 31,

 

    

2018

    

2017

Stock options outstanding (1)

 

19,733,986

 

14,857,592

Restricted stock outstanding

 

234,744

 

13,333

Common stock warrants (2)

 

115,824,142

 

14,501,600

Preferred stock (3)

 

2,782,075

 

15,102,981

Convertible Senior Notes

 

43,630,020

 

 —

Number of dilutive potential common shares

 

182,204,967

 

44,475,506


(1)

During the three months ended March 31, 2018 and 2017, the Company granted zero and 136,352 stock options, respectively.

 

(2)

In February 2013, the Company issued 23,637,500 warrants as part of an underwritten public offering with an exercise price of $0.15 per warrant.  Of these warrants issued in February 2013, zero and 100 were unexercised as of March 31, 2018 and 2017.

 

In January 2014, the Company issued 4,000,000 warrants as part of an underwritten public offering with an exercise price of $4.00 per warrant. In December 2016, as a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the exercise price of the $4.00 warrants was reduced to $0.65. Of these warrants issued in January 2014, all 4,000,000 warrants were exercised during 2017, as described in Note 8, Stockholders’ Equity. 

 

In December 2016, the Company issued 10,501,500 warrants as part of two concurrent underwritten public offerings with an exercise price of $1.50 per warrant.  Of these warrants issued in December 2016, all 10,501,500 warrants were exercised during 2017, as described in Note 8, Stockholders’ Equity.

 

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In April 2017, the Company issued 5,250,750 warrants with an exercise price of $2.69 per warrant, as described in Note 8, Stockholders’ Equity.  Of these warrants issued in April 2017, none have been exercised as of March 31, 2018.

 

In April 2017, the Company issued warrants to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement, subject to certain vesting events, as described in Note 10, Warrant Transaction Agreements.  Of these warrants issued, none have been exercised as of March 31, 2018.

 

In July 2017, the Company issued warrants to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement, subject to certain vesting events, as described in Note 10, Warrant Transaction Agreements. Of these warrants issued, none have been exercised as of March 31, 2018.

 

(3)

The preferred stock amount  represents the dilutive potential common shares of the Series C redeemable convertible preferred stock, based on the conversion price of the preferred stock as of March 31, 2018 and 2017, respectively.  Of the 10,431 Series C redeemable preferred stock issued on May 16, 2013, 7,811 and 5,200 had been converted to common stock through March 31, 2018 and 2017, respectively, with the remainder still outstanding.  Of the 18,500 Series D redeemable convertible preferred stock issued on December 22, 2016, 3,700 shares were redeemed during the three months ended March 31, 2017 and the remaining 14,800 were outstanding as of March 31, 2017 and were converted to common stock during the second quarter of 2017.

 

While the Company plans to settle the principal amount of the Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods. As noted above, the Company is in a net loss position. The conversion option would have a dilutive impact on net loss per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of the Convertible Senior Notes of $2.29 per share. During the three months ended March 31, 2018, the Company's weighted average common stock price was below the conversion price of the Convertible Senior Notes. The shares of common stock purchased in connection with issuance of the Convertible Senior Notes are excluded from weighted-average shares outstanding for basic and diluted earnings per share purposes although they remain legally outstanding.

 

4.  Inventory

 

Inventory as of March  31, 2018 and December 31, 2017 consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2018

    

December 31, 2017

 

Raw materials and supplies

 

$

40,482

 

$

42,851

 

Work-in-process

 

 

3,950

 

 

3,492

 

Finished goods

 

 

2,916

 

 

2,433

 

 

 

$

47,348

 

$

48,776

 

 

Raw materials and supplies include spare parts inventory held at service locations valued at $4.7 million and $5.5 million as of March 31, 2018 and December 31, 2017, respectively.

 

 

 

 

 

 

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5. Leased Property

 

Leased property at March 31, 2018 and December 31, 2017 consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2018

 

2017

 

Leased property

 

$

102,154

 

$

98,877

 

Less: accumulated depreciation

 

 

(13,987)

 

 

(11,812)

 

Leased property, net

 

$

88,167

 

$

87,065

 

 

Depreciation expense related to leased property was $2.2 million and $1.5 million for the three months ended March  31, 2018 and 2017, respectively. 

 

6.  Long-Term Debt

 

On December 23, 2016, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank), pursuant to which NY Green Bank made available to the Company a secured term loan facility in the amount of $25.0 million (Term Loan Facility), subject to certain terms and conditions.  The Company borrowed $25.0 million upon closing and incurred costs of $1.2 million.  On July 21, 2017, the Company and NY Green Bank entered into an amendment to the Term Loan Facility, which among other things, provided for an additional $20.0 million term loan, increasing the size of the total commitment to $45.0 million, amended the interest rate, prepayment penalty (for any prepayment in the calendar year 2017 or 2018, a prepayment charge equal to 7.5% of the advance amount being prepaid will apply) and product deployment and employment targets.  As with the existing facility, the up-sized facility will be repaid primarily as the Company’s various restricted cash balances are released over the term of the facility. During the year ended December 31, 2017, the Company borrowed the additional $20.0 million of working capital financing and incurred closing costs of $0.5 million. At March 31, 2018 and December 31, 2017, the outstanding principal balance under the Term Loan Facility was $28.3 million and $32.8 million, respectively.  The fair value of the Term Loan Facility approximates the carrying value as of March 31, 2018 and December 31, 2017, due to the variable interest rate of the Term Loan Facility. 

 

Advances under the Term Loan Facility bear interest at a rate equal to the sum of the LIBOR rate for the applicable interest period, plus applicable margin of 9.5%. The interest rate at March 31, 2018 and 2017 was approximately 11.2% and 11.3%, respectively.  The term of the loan is three years, with a maturity date of December 23, 2019.  As of March 31, 2018, estimated remaining principal payments will be approximately $14.6 million and $13.7 million during the years ending December 31, 2018, and 2019, respectively.  These payments will be funded in part by restricted cash released, as described in Note 14, Commitments and Contingencies.

 

Interest and a varying portion of the principal amount is payable on a quarterly basis and the entire then outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, is due and payable on the maturity date.  On the maturity date, the Company may also be required to pay additional fees of up to $1.8 million if the Company is unable to meet certain goals related to the deployment of fuel cell systems in the State of New York and increasing the Company’s number of full-time employees in the State of New York.  The Company currently believes that it will meet those goals.

 

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

 

The Term Loan Facility contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens,

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making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales.  The Term Loan Facility also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender.

 

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

 

7. Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount of 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 of 1933, as amended.  There are no required principal payments prior to maturity of the Convertible Senior Notes. The total net proceeds from the Convertible Senior Notes are as follows:

 

 

 

 

Amount

 

(in thousands)

Principal amount

$

100,000

Less initial purchasers' discount

 

(3,250)

Less cost of the capped call and common stock forward

 

(43,500)

Less other issuance costs

 

(693)

Net proceeds

$

52,557

The Convertible Senior Notes bear interest of 5.5%, payable semi-annually in cash on March 15 and September 15 of each year.  The Convertible Senior Notes will mature on March 15, 2023, unless earlier converted or repurchased in accordance with their terms. The Convertible Senior Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.

Each $1,000 of principal of the Convertible Senior Notes will initially be convertible into 436.3002 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events.  Holders of these Convertible Senior Notes may convert their Convertible Senior Notes at their option at any time prior to the close of the last business day immediately preceding September 15, 2022, only under the following circumstances:

1)

during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2018 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

 

2)

during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day; or

 

3)

upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more then 50% of the total voting power of the Company’s common stock, recapitalization of the Company, dissolution or liquidation of the Company, or the Company’s common stock ceases to be listed on an active market exchange.

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

On or after September 15, 2022, holders may convert all or any portion of their Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

 

Upon conversion of the Convertible Senior Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.   While the Company plans to settle the principal amount of the Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods.

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. A holder who converts their Convertible Senior Notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the Convertible Senior Notes are, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the repurchased Convertible Senior Notes, plus accrued and unpaid interest.

The Company may not redeem the Convertible Senior Notes prior to the maturity date, and no sinking fund is provided for the Convertible Senior Notes.

In accounting for the issuance of the Convertible Senior Notes, the Company separated the Convertible Senior Notes into liability and equity components. The initial carrying amount of the liability component of approximately $58.3 million was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.8 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes. The difference between the principal amount of the Convertible Senior Notes and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes.  The effective interest rate is approximately 16.0%. The equity component of the Convertible Senior Notes is included in additional paid-in capital in the consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.

 

We incurred transaction costs related to the issuance of the Convertible Senior Notes of approximately $3.9 million, consisting of initial purchasers' discount of $3.3 million and other issuance costs of approximately $0.6 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.3 million, were recorded as debt issuance cost (presented as contra debt in the unaudited interim consolidated balance sheet) and are being amortized to interest expense over the term of the Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $1.6 million and were netted with the equity component in stockholders’ equity.

The Convertible Senior Notes consisted of the following:

 

 

 

 

 

Principal amounts:

At March 31, 2018

  Principal

$

100,000

  Unamortized debt discount (1)

 

(39,438)

  Unamortized debt issuance costs (1)

 

(2,287)

  Net carrying amount

$

58,275

  Carrying amount of the equity component (2)

$

37,782

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Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

1)

Included in the unaudited interim consolidated balance sheet within Convertible Senior Notes, net and amortized over the remaining life of the Convertible senior notes using the effective interest rate method.

 

2)

Included in the unaudited interim consolidated balance sheet within additional paid-in capital, net of $1.6 million in equity issuance costs.

As of March 31, 2018, the remaining life of the Convertible Senior Notes is approximately 60 months.

Based on the closing price of the Company’s common stock of  $1.89 on March 31, 2018, the if-converted value of the Convertible Senior Notes was less than the principal amount.

 

Capped Call and Common Stock Forward

 

Capped Call

 

In conjunction with the issuance of the Convertible Senior Notes, the Company entered into capped call options (Capped Call) on the Company’s stock with certain counterparties at a price of $16.0 million. The net cost incurred in connection with the Capped Call was recorded as a reduction to additional paid-in capital in the unaudited interim consolidated balance sheet as of March 31, 2018.

The Capped Call is generally expected to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions will initially be $3.82 per share, which represents a premium of 100% over the last reported sale price of the Company’s common stock of $1.91 per share on the date of the transaction, and is subject to certain adjustments under the terms of the Capped Call. The Capped Call becomes exercisable if the conversion option is exercised.

By entering into the Capped Call, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Convertible Senior Notes.

 

Common Stock Forward

 

In connection with the sale of the Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (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. 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 consolidated balance sheet as of March 31, 2018.  The related shares were accounted for as a repurchase of common stock.

 

The fair values of the Capped Call and Common Stock Forward are not remeasured each reporting period. 

 

 

 

 

 

 

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

8.  Stockholders’   Equity

 

Preferred Stock

 

The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.

 

The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share. As of March 31, 2018 and December 31, 2017, there were no shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding.  See Note 9, Redeemable Preferred Stock, for a description of the Company’s issued and outstanding Series C and D redeemable preferred stock.

 

Common Stock and Warrants

 

The Company has one class of common stock, par value $0.01 per share. Each share of the Company’s common stock is entitled to one vote on all matters submitted to stockholders. There were 214,207,574 and 228,486,366 shares of common stock outstanding as of March 31, 2018 and December 31, 2017, respectively.

 

On December 22, 2016, the Company issued warrants to purchase 10,501,500 shares of common stock in connection with offerings of common stock and Series D Redeemable Preferred Stock at an exercise price of $1.50 per share.  On April 12, 2017, the Company and Tech Opportunities LLC (“Tech Opps”) entered into an agreement, pursuant to which Tech Opps exercised in full its warrants to purchase an aggregate of 10,501,500 shares of common stock.  The net proceeds received by the Company pursuant to the exercise of the existing warrants was $15.1 million and the Company issued to Tech Opps warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share.  The warrants were exercisable as of October 12, 2017 and will expire on October 12, 2019. The warrants are subject to anti-dilution provisions in the event of issuance of additional shares of common stock and certain other conditions, as further described in the warrant agreement. 

 

During April 2017, warrants issued in January 2014 as part of an underwritten public offering with Heights Capital Management Inc., were exercised in full to purchase an aggregate of 4,000,000 shares of the Company’s common stock, at an exercise price of $0.65 per share. The aggregate cash exercise price paid to the Company pursuant to the exercise of the warrants was $2.6 million.

 

Pursuant to the exercises of the above warrants, additional paid-in capital was increased $27.1 million and warrant liability reduced by $27.1 million.

 

During 2013, the Company completed a series of underwritten public offerings. One of the underwritten public offerings included accompanying warrants to purchase common stock. During February 2018, the remaining 100 warrants with an exercise price of $0.15 per share were exercised. There were zero and 100 warrants outstanding as of March 31, 2018 and December 31, 2017, respectively.

 

During 2017, additional warrants to purchase up to 110,573,392 shares of common stock were issued in connection with transaction agreements with Amazon and Walmart, as discussed in Notes 10.  In connection with these agreements, warrants to acquire 18,913,869 shares of common stock have vested and are therefore exercisable as of March 31, 2018 and December 31, 2017.  These warrants are measured at fair value and are classified as equity instruments on the consolidated balance sheets.

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

 

At Market Issuance Sales Agreement

 

On April 3, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with FBR Capital Markets & Co., as sales agent (“FBR”), pursuant to which the Company may offer and sell, from time to time through FBR, shares of common stock par value $0.01 per share having an aggregate offering price of up to $75.0 million.  The Company has raised $23.0 million to date. Under the Sales Agreement, in no event shall the Company issue or sell through FBR such a number of shares that exceeds the number of shares or dollar amount of common stock registered. During the three months ended March 31, 2018, the Company did not offer any shares pursuant to the Sales Agreement.

 

 

9.  Redeemable Convertible Preferred Stock

 

In December 2016, the Company completed an offering of an aggregate of 18,500 shares of the Company’s Series D Redeemable Preferred Stock, par value $0.01 per share (Series D Preferred Stock) and warrants to purchase 7,381,500 shares of the Company’s common stock, par value $0.01 per share (Common Stock), resulting in aggregate proceeds of approximately $15.6 million.  During the three months ended March 31, 2017, the Company redeemed 3,700 shares of the Series D Preferred Stock, at an aggregate redemption price of approximately $3.7 million.  On April 5, 2017, all of the remaining outstanding shares of the Series D Preferred Stock were converted into an aggregate of 9,548,393 shares of the Company’s common stock at a conversion price of $1.55.  The conversion was done at the election of the holder in accordance with the terms of the offering. After the conversion, no shares of Series D Preferred Stock remain outstanding. In December 2017, the series was deauthorized by the Board of Directors.

 

During the third quarter of  2017, 2,611 shares of the Company’s Series C Redeemable Preferred Stock, par value $0.01 per share (Series C Preferred Stock) were converted to common stock.  At March 31, 2018, there were 2,620 shares of Series C Preferred Stock outstanding. 

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or other deemed liquidation event, as defined in the Securities Purchase Agreement, the holder of the Series C Redeemable Preferred Stock will be entitled to be paid an amount per share equal to the greater of (i) the original issue price, plus any accrued but unpaid dividends or (ii) the amount per share that would have been payable had all shares of the Series C Redeemable Preferred Stock been converted to shares of common stock immediately prior to such liquidation event. The Series C Redeemable Preferred Stock is redeemable at the election of the holder of the Series C Redeemable Preferred Stock or the Company.

 

The holder of the Series C Redeemable Preferred Stock is entitled to receive dividends at a rate of 8% per annum, based on the original issue price per share of $248.794, payable in equal quarterly installments in cash or in shares of common stock, at the Company’s option. During the three months ended March 31, 2018 and 2017, respectively, dividends have been paid in the form of shares of common stock. Each share of Series C Redeemable Preferred Stock is convertible into shares of common stock with the number of shares of common stock issuable upon conversion determined by dividing the original issue price per share of $248.794 by the conversion price in effect at the time the shares are converted. The conversion price of the Series C Redeemable Preferred Stock as of March 31, 2018 and December 31, 2017 was $0.2343. The Series C Redeemable Preferred Stock votes together with the common stock on an as-converted basis on all matters.

 

10.  Warrant Transaction Agreements

 

Amazon.com, Inc.

 

On April 4, 2017, the Company and Amazon.com, Inc. (“Amazon”) entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Holdings LLC, a wholly owned subsidiary of Amazon, warrants to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. Additionally, Amazon and Plug Power will begin working together on technology collaboration, exploring the expansion of applications for Plug Power’s line of ProGen fuel cell engines.  The vesting of the Amazon Warrant Shares is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

 

The majority of the Amazon Warrant Shares will vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The first tranche of 5,819,652 Amazon Warrant Shares vested upon the execution of the Amazon Transaction Agreement.  Accordingly, $6.7 million, the fair value of the first tranche of Amazon Warrant Shares, was recognized as selling, general and administrative expense on the unaudited interim consolidated statement of operations during 2017 as this was considered to be marketing in nature and not a revenue incentive cost or contract acquisition cost.  The second tranche of 29,098,260 Amazon Warrant Shares will vest in four installments of 7,274,565 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Amazon Warrant Shares will be $1.1893 per share. After Amazon has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Amazon Warrant Shares will vest in eight installments of 2,546,098 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Amazon Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the first vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant Shares are exercisable through April 4, 2027.

 

The Amazon Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant Shares provide for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events.  These warrants are classified as equity instruments.

 

Because the Amazon Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Amazon must achieve for the Amazon Warrant Shares to vest, as detailed above, the final measurement date for the Amazon Warrant Shares is the date on which the Amazon Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Amazon Warrant Shares is being recorded as a reduction to revenue and an addition to additional paid-in capital based on the projected number of Amazon Warrant Shares expected to vest, the proportion of purchases by Amazon and its affiliates within the period relative to the aggregate purchase levels required for the Amazon Warrant Shares to vest and the then-current fair value of the related Amazon Warrant Shares. To the extent that projections change in the future as to the number of Amazon Warrant Shares that will vest, as well as changes in the fair value of the Amazon Warrant Shares, a cumulative catch-up adjustment will be recorded in the period in which the estimates change.

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Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

 

At March  31, 2018 and December 31, 2017,  13,094,217 of the Amazon Warrant Shares have vested.  The amount of provision for common stock warrants recorded as a reduction of revenue during the three months ended March 31, 2018 was $1.7 million. 

 

Wal-Mart Stores, Inc.

 

On July 20, 2017, the Company and Wal-Mart Stores, Inc. (“Walmart”) entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares, is linked to payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.

 

The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Transaction Agreement.  Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the unaudited interim consolidated statement of operations during 2017. The second tranche of 29,098,260 Walmart Warrant Shares will vest in four installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares will be $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the first vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares are exercisable through July 20, 2027.

 

The Walmart Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant Shares provide for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events.  These warrants are classified as equity instruments.

 

Because the Walmart Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Walmart must achieve for the Walmart Warrant Shares to vest, as detailed above, the final measurement date for the Walmart Warrant Shares is the date on which the Walmart Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Walmart Warrant Shares is being recorded as a reduction to revenue and an addition to additional paid-in capital based on the projected number of Walmart Warrant Shares expected to vest, the proportion of purchases by Walmart and its affiliates within the period relative to the aggregate purchase levels required for the Walmart Warrant Shares to vest and the then-current fair value of the related Walmart Warrant Shares. To the extent that projections change in the future as to the number of Walmart Warrant Shares that will vest, as well as changes in the fair value of the Walmart Warrant Shares, a cumulative catch-up adjustment will be recorded in the period in which the estimates change.

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Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

 

At March  31, 2018 and December 31, 2017,  5,819,652 of the Walmart Warrant Shares have vested.  The amount of provision for common stock warrants recorded as a reduction to revenue during the three months ended March  31, 2018 was $0.2 million.

 

11. Revenue

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by major product line and timing of revenue recognition (in thousands):

 

 

 

 

 

 

 

 

Major products/services lines

 

Three months ended

 

 

March 31, 2018

 

March 31, 2017

Sales of fuel cell systems

 

$

6,574

 

$

1,817

Sale of hydrogen installations and other infrastructure

 

 

4,884

 

 

380

Services performed on fuel cell systems and related infrastructure

 

 

6,598

 

 

5,149

Power Purchase Agreements

 

 

5,489

 

 

4,311

Fuel delivered to customers

 

 

5,535

 

 

3,491

Other

 

 

 —

 

 

87

    Total gross revenue

 

$

29,080

 

$

15,235

 

Contract balances

 

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

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

Accounts receivable

 

$

22,986

 

$

15,331

Contract assets

 

 

6,005

 

 

9,316

Contract liabilities

 

 

45,864

 

 

46,777

 

The contract assets relate to the Company’s rights to consideration for work completed but not billed. These amounts are included within prepaid expenses and other current assets on the accompanying 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). These amounts are included within deferred revenue and finance obligations on the accompanying consolidated interim balance sheets. A portion of the finance obligation balance has restricted cash held in escrow, which will be released over the contract period.

 

 

 

 

 

 

 

 

 

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Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

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

 

 

 

 

 

 

 

 

Contract assets

 

Three months ended

 

 

March 31, 2018

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

 

$

(4,965)

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

 

 

1,654

    Net change in contract assets

 

$

(3,311)

 

 

 

 

 

 

 

 

 

 

Contract liabilities

 

Three months ended

 

 

March 31, 2018

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

 

$

3,125

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

 

 

(2,212)

    Net change in contract liabilities

 

$

913

 

Estimated future revenue

 

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

Sales of fuel cell systems

 

$

23,034

 

$

26,298

Sale of hydrogen installations and other infrastructure

 

 

11,552

 

 

15,512

Services performed on fuel cell systems and related infrastructure

 

 

84,614

 

 

89,079

Power Purchase Agreements

 

 

124,553

 

 

130,042

    Total estimated future revenue

 

$

243,753

 

$

260,931

 

All consideration from contracts with customers is included in the amounts presented above.

 

Contract costs

 

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

 

Capitalized contract costs at March 31, 2018 and December 31, 2017 were $0.1 million and zero, respectively. Expense related to the amortization of capitalized contract costs was not significant for the three months ended March 31, 2018.

 

 

12.  Income Taxes

 

The Company recognized an income tax benefit in the current period of $3.0 million as a result of the intraperiod tax allocation rules under ASC Subtopic 740-20, Intraperiod Tax Allocation, under which the Company recognized a benefit for current losses as a result of an entry to additional paid-in capital related to the issuance of the Convertible Senior Notes discussed in Note 7. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

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Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

The remaining net deferred tax asset generated from the Company’s net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

 

13.  Fair Value Measurements

 

Convertible Senior Notes

 

The fair value of the Convertible Senior Notes was $60.6 million on issuance which approximated its fair value at March 31, 2018.  The fair value was determined based on Level 3 inputs, including assumed volatility of 45.0%.  The Company carries the Convertible Senior Notes at face value less an unamortized discount on its consolidated balance sheet, and presents the fair value for required disclosure purposes only.  For further information on the Convertible Senior Notes see Note 7.

 

Derivative Liabilities

 

The Company’s common stock warrant liability represents the only asset or liability classified financial instrument measured at fair value on a recurring basis in the unaudited interim consolidated balance sheets.  The fair value measurement is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical assets.  Level 3 inputs are unobservable inputs and should be used to determine fair value only when observable inputs are not available.  Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.

 

Fair value of the common stock warrant liability is based on the Black-Scholes pricing model which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.

 

The Company used the following assumptions for its liability-classified common stock warrants:

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2018

 

March 31, 2017

Risk-free interest rate

 

1.64% - 2.28%

 

1.01% - 2.01%

Volatility

 

18.40% - 81.95%

 

62.0% - 105.20%

Expected average term

 

0.01 - 1.53

 

0.89 - 5.23

 

There was no expected dividend yield for the warrants granted.

 

If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Generally, as the market price of our common stock increases, the fair value of the warrants increase, and conversely, as the market price of our common stock decreases, the fair value of the warrants decrease. Also, a significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in significantly higher fair value measurements; and a significant decrease in volatility would result in significantly lower fair value measurements.

28

 


 

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

 

The following table shows the activity in the common stock warrant liability (in thousands):

 

 

 

 

 

 

 

 

 

Three months ended

 

Common stock warrant liability

March 31, 2018

    

March 31, 2017

 

Beginning of period

$

4,391

 

$

11,387

 

Change in fair value of common stock warrants

 

(1,258)

 

 

2,280

 

End of period

$

3,133

 

$

13,667

 

 

Equity Instruments

 

The fair value measurement of the Company’s equity-classified common stock warrants further described in Note 10, Warrant Transaction Agreements, is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical instruments. 

 

Fair value of the equity-classified common stock warrants is based on the Monte Carlo pricing model which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions.

 

The Company used the following assumptions for its equity-classified common stock warrants:

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2018

 

March 31, 2017

Risk-free interest rate