Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion contained in this Form 10‑K contains “forward‑looking statements,” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Form 10‑K. In evaluating these statements, you should review Part I, Item 1A: Risk Factors and our Consolidated Financial Statements and notes thereto included in Part II, Item 8: Financial Statements and Supplementary Data of this Form 10‑K.
Overview
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, the Company has recently entered new electric vehicle markets, specifically ground support equipment and electric delivery vans. These applications promote the advancement of hydrogen fueling and accelerate commercialization of hydrogen-fueled products.
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 (LPG), propane, methanol, ethanol, gasoline or biofuels. The Company 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 retail-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 system;
GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service 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; and
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans;
GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks. We manufacture our commercially-viable products in Latham, NY.
Results of Operations
Our primary sources of revenue are from sales of fuel cell systems and related infrastructure, services performed on fuel cell systems and related infrastructure, Power Purchase Agreements (PPAs), and fuel delivered to customers. Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.
In the third quarter of 2018, it was determined that the presentation in
our consolidated statements of operations of certain service arrangements and the amortization of the associated finance obligations had not been
appropriately accounted for resulting in an overstatement of our revenue and cost of revenue. This previous presentation resulted in a gross up of these line items and had no impact on our gross profit (loss) or net loss. The Company corrected the 2017 and 2016 annual financial statements to be consistent with the current period presentation and will correct comparable financial information in future filings.
The amount reclassified from revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for years ended December 31, 2017 and 2016 was $3.8 million and $3.6 million, respectively. The amount reclassified
from cost of revenue
on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the years ended December 31, 2017 and 2016 was $3.1 million and $3.1 million, respectively.
The Company does not consider the impact of the prior period correction to be material to the prior period consolidated financial statements. The Company also removed related fuels cell units and infrastructure sites from its services metrics, for purposes of discussing its results of operations.
In 2017, in separate transactions, the Company issued to each of Amazon and Walmart warrants to purchase shares of the Company’s common stock. The Company recorded a portion of the estimated fair value of the warrants as a reduction of revenue based upon the projected number of shares of common stock expected to vest under the warrants, the
proportion of purchases by Amazon, Walmart and their affiliates within the period relative to the aggregate purchase levels required for vesting of the respective warrants, and the then-current fair value of the warrants. Beginning in September 2018, the provision for common stock warrants is allocated to our individual revenue line items based on estimated contractual cash flows by revenue stream. Prior period amounts have been reclassified to be consistent with current period presentation. The amount of provision for common stock warrants recorded as a reduction of revenue during the year ended December 31, 2018, 2017 and 2016, respectively is shown in the table below (in thousands):
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|
|
|
|
|
|
|
|
|
|
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Year ended December 31,
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2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
4,877
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|
$
|
8,657
|
|
$
|
—
|
Services performed on fuel cell systems and related infrastructure
|
|
|
1,951
|
|
|
3,463
|
|
|
—
|
Power Purchase Agreements
|
|
|
262
|
|
|
7,412
|
|
|
—
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Fuel delivered to customers
|
|
|
3,100
|
|
|
10,135
|
|
|
—
|
Total
|
|
$
|
10,190
|
|
$
|
29,667
|
|
$
|
—
|
Revenue, cost of revenue, gross profit/(loss) and gross margin for the years ended December 31, 2018, 2017, and 2016, was as follows (in thousands):
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|
|
|
|
|
|
Cost of
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Gross
|
|
Gross
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|
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Net Revenue
|
|
Revenue
|
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Profit/(Loss)
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Margin
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|
For the year ended December 31, 2018:
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|
|
|
|
|
|
|
|
|
|
|
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Sales of fuel cell systems and related infrastructure
|
|
$
|
107,292
|
|
$
|
84,439
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|
$
|
22,853
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|
21.3
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%
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Services performed on fuel cell systems and related infrastructure
|
|
|
22,002
|
|
|
23,698
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|
|
(1,696)
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|
(7.7)
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%
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Power Purchase Agreements
|
|
|
22,869
|
|
|
36,161
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|
|
(13,292)
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|
(58.1)
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%
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Fuel delivered to customers
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|
|
22,469
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|
|
27,712
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|
|
(5,243)
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|
(23.3)
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%
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Other
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|
|
—
|
|
|
—
|
|
|
—
|
|
—
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%
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Total
|
|
$
|
174,632
|
|
$
|
172,010
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|
$
|
2,622
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|
1.5
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%
|
For the year ended December 31, 2017:
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|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
62,631
|
|
$
|
54,815
|
|
$
|
7,816
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|
12.5
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%
|
Services performed on fuel cell systems and related infrastructure
|
|
|
16,202
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|
|
19,814
|
|
|
(3,612)
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|
(22.3)
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%
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Power Purchase Agreements
|
|
|
12,869
|
|
|
31,292
|
|
|
(18,423)
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|
(143.2)
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%
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Fuel delivered to customers
|
|
|
8,167
|
|
|
22,013
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|
|
(13,846)
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|
(169.5)
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%
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Other
|
|
|
284
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|
|
308
|
|
|
(24)
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|
(8.5)
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%
|
Total
|
|
$
|
100,153
|
|
$
|
128,242
|
|
$
|
(28,089)
|
|
(28.0)
|
%
|
For the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
39,985
|
|
$
|
29,543
|
|
$
|
10,442
|
|
26.1
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%
|
Services performed on fuel cell systems and related infrastructure
|
|
|
17,347
|
|
|
19,071
|
|
|
(1,724)
|
|
(9.9)
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%
|
Power Purchase Agreements
|
|
|
13,687
|
|
|
16,601
|
|
|
(2,914)
|
|
(21.3)
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%
|
Fuel delivered to customers
|
|
|
10,916
|
|
|
13,864
|
|
|
(2,948)
|
|
(27.0)
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%
|
Other
|
|
|
884
|
|
|
865
|
|
|
19
|
|
2.1
|
%
|
Provision for loss contracts related to service
|
|
|
—
|
|
|
(1,071)
|
|
|
1,071
|
|
(100.0)
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%
|
Total
|
|
$
|
82,819
|
|
$
|
78,873
|
|
$
|
3,946
|
|
4.8
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%
|
Revenue –
sales of fuel cell systems and related infrastructure
. Revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.
Revenue from sales of fuel cell systems and related infrastructure for the year ended December 31, 2018 increased $44.7 million, or 71.3%, to $107.3 million from $62.6 million for the year ended December 31, 2017. Included within revenue was provision for common stock warrants of $4.9 million and $8.7 million for the years ended December 31, 2018 and 2017, respectively, contributing to the increase in revenue. The main driver for the increased revenue was an increase in GenDrive and infrastructure sites, recognized as revenue, as well as pricing mix. The number of GenDrive units shipped and hydrogen installations remained flat at approximately 5,000 and 17 for the years ended December 31, 2018 and 2017, respectively. The inconsistency between the increase in fuel cells and infrastructure recognized as revenue, as compared to the flat trend in shipments, as mentioned above, is due to sale/leaseback transactions accounted for as operating leases in 2018 as opposed to finance lease in 2017 (which also included the recognition of gross profit under ASC Topic 842 as opposed to the previous standard, as discussed further below).
Revenue from sales of fuel cell systems and related infrastructure for the year ended December 31, 2017 increased $22.6 million, or 56.6%, to $62.6 million from $40.0 million for the year ended December 31, 2016. Included within revenue was provision for common stock warrants of $8.7 million for the year ended December 31, 2017, offsetting the increase in revenue. There was no provision of common stock warrants for the year ended 2016. The main driver for the increased revenue was an increase in GenDrive deployment volume and infrastructure site increases, as well as pricing mix. There were 3,293 units recognized as revenue during the year ended December 31, 2017, compared to 1,383 for the year ended December 31, 2016. An additional 1,785 units were shipped in 2017 and held as leased assets. As such, the Company will recognize revenue on these units over the life of the related PPA under “Power Purchase Agreements” in the Consolidated Statement of Operations. Ten hydrogen installations occurred during the year ended December 31, 2017, for which the Company recognized revenue. In addition, seven additional sites were constructed and held as leased assets.
There were seven hydrogen installations for the year ended December 31, 2016, for which the Company recognized revenue. In addition, 11 additional sites were constructed and held as leased property during the year ended December 31, 2016.
Revenue – services performed on fuel cell systems and related infrastructure
. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At December 31, 2018, there were 12,083 fuel cell units and 42 hydrogen installations under extended maintenance contracts, an increase from 9,768 and 6,796 fuel cell units and 32 and 22 hydrogen installations at December 31, 2017 and 2016, respectively.
Revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2018 increased $5.8 million, or 35.8%, to $22.0 million from $16.2 million for the year ended December 31, 2017. Included within revenue from services was provision for common stock warrants of $2.0 million and $3.5 million for the years ended December 31, 2018 and 2017, respectively, contributing to the increase in revenue. The increase in service revenues was due to the increase in units under service contracts. The revenue increase was not as significant as the increase in number of units under service contracts mainly due to deployments that occurred later in 2018 and, therefore, did not earn or only partially earned service revenue for 2018 as well as the occurrence of slightly less billable incidents and nonrecurring revenue. The average number of units under extended maintenance contracts in 2018 was 10,782, compared to 8,072 in 2017. This 33.6% increase in average units serviced throughout the year is directionally consistent
with the fluctuation in revenue after considering the impact of the noncash provision for common stock warrants.
Revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2017 decreased $1.1 million, or 6.6%, to $16.2 million from $17.3 million for the year ended December 31, 2016. Included within revenue was provision for common stock warrants of $3.5 million for the year ended December 31, 2017, contributing to the decrease in revenue. There was no provision of common stock warrants for the year ended 2016. The increase in service revenues was due to the increase in units under service contracts. The revenue increase was not as significant as the increase in number of units under service contracts mainly due to deployments that occurred later in 2017 and, therefore, did not earn or only partially earned service revenue for 2017 as well as the occurrence of slightly less billable incidents and nonrecurring revenue. The average number of units under extended maintenance contracts in 2017 was 7,947, compared to 6,554 in 2016. This 21.3% increase in average units serviced throughout the year is directionally consistent
with the fluctuation in revenue after considering the impact of the noncash provision for common stock warrants.
Revenue – Power Purchase Agreements.
Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. The equipment and service can be associated with sale/leaseback transactions in which the Company sells fuel cell systems and related infrastructure to a third-party, leases them back and operates them at customers’ locations who are parties to PPAs with the Company. Alternatively, the Company can retain the equipment as leased property and provide it to customers under PPAs. At December 31, 2018, there were 37 GenKey sites associated with PPAs, as compared to 33 at December 31, 2017 and 25 at December 31, 2016.
Revenue from PPAs for the year ended December 31, 2018 increased $10.0 million, or 77.7%, to $22.9 million from $12.9 million for the year ended December 31, 2017. Included within revenue was provision for common stock warrants of $0.3 million and $7.4 million for the years ended December 31, 2018 and 2017, respectively, contributing to the increase in revenue. The remaining increase is due to the increased number of sites the Company has deployed with these types of arrangements. The average number of sites under PPA arrangements was 35 in 2018, as compared to 30 in 2017.
Revenue from PPAs for the year ended December 31, 2017 decreased $0.8 million, or 6.0%, to $12.9 million from $13.7 million for the year ended December 31, 2016. Included within revenue was provision for common stock warrants of $7.4 million for the year ended December 31, 2017, contributing to the decrease in revenue. There was no provision of common stock warrants for the year ended 2016. This decrease is largely offset by the increased number of sites the Company has deployed with these types of arrangements. The average number of sites under PPA arrangements was 30 in 2017, as compared to 21 in 2016.
Revenue – fuel delivered to customers
. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party. As part of the GenKey solution, the Company contracts with fuel suppliers to purchase liquid hydrogen, which is then sold to its customers. At December
31, 2018, there were 72 sites associated with fuel contracts, as compared to 58 at December 31, 2017 and 40 at December 31, 2016. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.
Revenue associated with fuel delivered to customers for the year ended December 31, 2018 increased $14.3 million, or 175.1%, to $22.5 million from $8.2 million for the year ended December 31, 2017. Included within revenue was provision for common stock warrants of $3.1 million and $10.1 million for the years ended December 31, 2018 and 2017, respectively, contributing to the increase in revenue. The remaining increase in revenue is primarily due to an increase of sites taking fuel deliveries in 2018, compared to 2017. The average number of sites receiving fuel deliveries was 66 in 2018, as compared to 50 in 2017, as well as increase in price.
Revenue associated with fuel delivered to customers for the year ended December 31, 2017 decreased $2.7 million, or 25.2%, to $8.2 million from $10.9 million for the year ended December 31, 2016. Included within revenue was provision for common stock warrants of $10.1 million for the year ended December 31, 2017, contributing to the decrease in revenue. There was no provision of common stock warrants for the year ended 2016. The increase in revenue is due to an increase of sites taking fuel deliveries in 2017, compared to 2016. The average number of sites receiving fuel deliveries was 50 in 2017, as compared to 33 in 2016.
Cost of revenue – sales of fuel cell systems and related infrastructure
. Cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials, labor costs, and allocated overhead costs related to the
manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.
Cost of revenue from sales of fuel cell systems and related infrastructure for the year ended December 31, 2018 increased $29.6 million, or 54.0%, to $84.4 million, compared to the year ended December 31, 2017 of $54.8 million, driven by the previously stated greater number of units and hydrogen installations recognized as revenue. Gross margin generated from sales of fuel cell systems and related infrastructure was 21.3% for the year ended December 31, 2018, up from 12.5% for the year ended December 31, 2017, due to the level of the provision for common stock warrants recorded, which had a 4.3% and 12.1% impact on revenue, respectively.
Cost of revenue from sales of fuel cell systems and related infrastructure for the year ended December 31, 2017 increased $25.3 million, or 85.5%, to $54.8 million, compared to the year ended December 31, 2016 of $29.5 million, driven by the previously stated greater number of units and hydrogen installations recognized as revenue. Gross margin generated from sales of fuel cell systems and related infrastructure was 12.5% for the year ended December 31, 2017, down from 26.1% for the year ended December 31, 2016, due to increase the level of the provision for common stock warrants recorded, as previously discussed. The provision for common stock warrants had a 12.1% impact on gross margin for the year ended December 31, 2017. Also, impacting the change year over year were product mix changes as well as expediting costs associated with a significant ramp up of production volume related to acquiring a large customer account that required higher deployments during the year ended December 31, 2017 as compared to the same period in 2016.
Cost of revenue – services performed on fuel cell systems and related infrastructure
. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. At December 31, 2018, there were 12,083 fuel cell units and 42 hydrogen installations under extended maintenance contracts, compared to 9,768 and 32 at December 31, 2017 and 6,796 and 22 at December 2016, respectively.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2018 increased $3.9 million, or 19.6%, to $23.7 million, compared to the year ended December 31, 2017 of $19.8 million. Gross margin improved to (7.7%) for the year ended December 31, 2018 from (22.3%) for the year ended December 31, 2017. The change versus the prior year is due to the decrease in the level of the provision for common stock warrants recorded, as previously discussed, as well as a reduction in costs resulting from changes in product configuration rolled out to new key accounts and leverage of the existing fixed costs in the field. The provision for common stock warrants had an 8.1% and 17.6% impact on revenue, respectively.
Cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2017 increased $0.7 million, or 3.9%, to $19.8 million, compared to the year ended December 31, 2016 of
$19.1 million. Gross margin declined to (22.3%) for the year ended December 31, 2017 from (9.9%) for the year ended December 31, 2016. The change versus the prior year is due to increase in the level of the provision for common stock warrants recorded offset by reduction in costs resulting from changes in product configuration rolled out to new key accounts and leverage of the existing fixed costs in the field. The provision for common stock warrants a 17.6% impact on revenue for the year ended December 31, 2017.
Cost of revenue—provision for loss contracts related to service
. During 2015, the Company recognized a $10.1 million provision for loss contracts related to service. This provision represented extended maintenance contracts that had projected costs over the remaining life of the contracts that exceeded contractual revenues. During the year ended December 31, 2016, the Company renegotiated one of its service contracts and replaced 96 of the older fuel cell systems in service at that particular customer. As a result, the projected costs over the remaining life of the amended contract were estimated to be reduced as compared to the previous estimate, resulting in a lower necessary accrual. The change in estimate was recorded as a gain within cost of revenue where the original charge was recorded.
Cost of revenue – Power Purchase Agreements
. Cost of revenue from PPAs includes payments made to financial institutions for leased equipment and service used to fulfill the PPAs, and depreciation of leased property. Leased units are primarily associated with sale/leaseback transactions in which the Company sells fuel cell systems and related infrastructure to a third-party, leases them back, and operates them at customers’ locations who are parties to PPAs with the Company. Alternatively, the Company can hold the equipment for investment and recognize the depreciation and service cost of the assets as cost of revenue from PPAs. At December 31, 2018, there were 37 GenKey sites associated with PPAs, as compared to 33 at December 31, 2017 and 25 at December 31, 2016.
Cost of revenue from PPAs for the year ended December 31, 2018 increased $4.9 million, or 15.6%, to $36.2
million from $31.3 million for the year ended December 31, 2017. The increase was a result of the increase in the number of customer sites party to these agreements. Gross margin improved to (58.1%) for the year ended December 31, 2018 from (143.2%) for the year ended December 31, 2017, primarily due to decrease in the level of the provision for common stock warrants. The provision for common stock warrants had an 1.1% and 36.5% impact on revenue, respectively.
Cost of revenue from PPAs for the year ended December 31, 2017 increased $14.7 million, or 88.5%, to $31.3 million from $16.6 million for the year ended December 31, 2016. The increase was a result of the increase in the number of customer sites party to these agreements. Gross margin declined to (143.2%) for the year ended December 31, 2017 from (21.3%) for the year ended December 31, 2016, primarily due to increase in the level of the provision for common stock warrants. The provision for common stock warrants had a 36.5% impact on revenue for the year ended December 31, 2017.
Cost of revenue – fuel delivered to customers
. Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers. As part of the GenKey solution, the Company contracts with fuel suppliers to purchase liquid hydrogen and separately sells to its customers upon delivery. At December 31, 2018, there were 72 sites associated with fuel contracts, as compared to 58 at December 31, 2017 and 40 at December 31, 2016. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.
Cost of revenue from fuel delivered to customers for the year ended December 31, 2018 increased $5.7 million, or 25.9%, to $27.7 million from $22.0 million for the year ended December 31, 2017. The increase is due primarily to higher volume of liquid hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. Gross margin percent improved to (23.3%) during the year ended December 31, 2018 compared to (169.5%) during the year ended December 31, 2017 due to decrease in
the level of the provision for common stock warrants. The provision for common stock warrants had an 12.1% and 55.4% impact on revenue, respectively. Also, impacting the change year of year were improvements in efficiencies from changes in system design.
Cost of revenue from fuel delivered to customers for the year ended December 31, 2017 increased $8.1 million, or 58.8%, to $22.0 million from $13.9 million for the year ended December 31, 2016. The increase is due primarily to higher volume of liquid hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. Gross margin percent declined to (169.5%) during the year ended December 31, 2017 compared to (27.0%) during the year ended December 31, 2016 due to increase
in the level of the provision for common stock warrants. The provision for common stock warrants had a 55.4% impact on revenue for the year ended December 31, 2017. Also, impacting the change year over year were improvements in efficiencies from changes in system design.
Research and development expense.
Research and development expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.
Research and development expense for the year ended December 31, 2018 increased $5.2 million, or 18.2%, to $33.9 million, from $28.7 million for the year ended December 31, 2017.
The increase was primarily related to an increase in programs associated with improving product reliability to reduce ongoing service costs.
Research and development expense for the year ended December 31, 2017 increased $7.5 million, or 35.5%, to $28.7 million, from $21.2 million for the year ended December 31, 2016. This increase was primarily related to an increase in development in ProGen, and personnel related expenses from higher headcount, focused on refinement of hydrogen infrastructure design, multiple product cost-down programs and prototyping for stack performance enhancement.
Selling, general and administrative expenses.
Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets, and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the year ended December 31, 2018, decreased $6.8 million, or 15.1%, to $38.2 million from $45.0 million for the year ended December 31, 2017. This decrease primarily is due to the lack of provision for the common stock warrants in 2018.
Selling, general and administrative expenses for the year ended December 31, 2017, increased $10.7 million, or 31.3%, to $45.0 million from $34.3 million for the year ended December 31, 2016. This increase primarily is due to the provision for the common stock warrants issued to Amazon.com NV Investment Holdings LLC, as referenced below, as well as costs associated with increased headcount and increased insurance costs.
On April 4, 2017, the Company issued to Amazon.com NV Investment Holdings LLC a warrant to acquire up to 55,286,696 shares of common stock, subject to certain vesting events. The first tranche of 5,819,652 warrant shares vested upon the issuance of the warrant and was not contingent on future sales, and as a result, $7.1 million, the fair value of the first tranche warrant shares, including legal and other fees associated with the negotiation and completion of the agreement, was recognized as selling, general and administrative expense on the accompanying consolidated statement of operations for the year ended December 31, 2017.
Interest and other expense, net
. Interest and other expense, net consists of interest and other expenses related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations, as well as foreign currency exchange losses, offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, foreign currency exchange gains and other income. The Company has a series of finance leases with Generate Lending LLC and Wells Fargo and a loan and security agreement with NY Green Bank. In March of 2018, the Company issued convertible senior notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
Net interest and other expense for the year ended December 31, 2018, increased $12.0 million as compared to the year ended December 31, 2017. The increase is attributed to the increase in the outstanding balance of finance obligations and issuance of convertible senior notes, as mentioned above.
Net interest and other expense for the year ended December 31, 2017, decreased $0.6 million as compared to the year ended December 31, 2016. The decrease is attributed to a reduction of one-time fees incurred in 2016, offset by increases in the outstanding finance obligation balance.
Income taxes
. The deferred tax asset generated from our 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 as a component of income tax expense.
During the year ended December 31, 2018, the Company recognized an income tax benefit of $9.2 million, as a result of intraperiod tax allocation rules under ASC Topic 740-20,
Intraperiod Tax Allocation,
under which the Company recognized the benefit for current losses as a result of an entry to additional paid-in capital related to the issuance of the Senior Convertible Notes. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved. The remaining net deferred tax asset generated from our 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. During the years ended December 31, 2018 and 2017, there were no unrecognized tax benefits. During the year ended December 31, 2016 the Company released its liability for unrecognized tax benefits of $392 thousand, as the related statute of limitations expired.
Liquidity and Capital Resources
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 developing marketing and distribution channels; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.
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 $78.2 million, $130.2 million and $57.6 million for the years ended December 31, 2018, 2017, and 2016, respectively, and has an accumulated deficit of $1.3 billion at December 31, 2018.
During the year ended December 31, 2018, cash used in operating activities was $57.6 million, consisting primarily of a net loss attributable to the Company of $78.1 million, offset by the impact of noncash charges of $25.1 million, and net outflows from fluctuations in working capital and other assets and liabilities of $4.6 million. The changes in working capital primarily were related to reduction of inventory and an increase in deferred revenue offset by increases in accounts receivable and prepaid expenses, and a decrease in accounts payable, accrued expenses, and other liabilities. As of December 31, 2018, we had cash and cash equivalents of $38.6 million and net working capital of $9.2 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 year ended December 31, 2018, totaled $19.6 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 year ended December 31, 2018 totaled $119.3 million and primarily resulted from net proceeds of $52.4 million from the issuance of Convertible Senior Notes, net of purchases of a capped call and a common stock forward, $30.9 million from the issuance of preferred stock and a $44.9 million net increase in finance obligations, offset by $16.2 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 $95.9 million. Approximately $43.5 million of the proceeds were used for the cost of a capped call 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 were or will be used for general corporate purposes, including working capital.
The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions, and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). In connection with certain operating leases, the financial institutions required the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against our finance obligations. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements at December 31, 2018 is $82.2 million, which have been partially secured with restricted cash, security deposits and pledged service escrows of $80.4 million.
The Company has a master lease agreement with Wells Fargo (Wells Fargo MLA) to finance the Company’s commercial transactions with Walmart. The Wells Fargo MLA was entered into in 2017, and amended in 2018. Pursuant to the Wells Fargo MLA, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites under lease agreements with Walmart. The total remaining lease payments to Wells Fargo was $67.5 million at December 31, 2018. Transactions completed under the Wells Fargo MLA in 2018 were accounted for as operating leases and therefore recognized as revenue for the year ended December 31, 2018. Transactions completed under the Wells Fargo MLA in 2017 were accounted for as capital leases. The difference in lease classification is due to changes in financing terms and their bearing on lease assessment criteria. Also included in the remaining lease payments to Wells Fargo is a sale/leaseback transaction in 2015 that was accounted for as an operating lease. In connection with the Wells Fargo MLA, the Company has a customer guarantee for a majority of the transactions. The Wells Fargo transactions in 2018 required a letter of credit for the unguaranteed portion totaling $20.1 million.
In November 2018, the Company completed a private placement of an aggregate of 35,000 shares of the Company’s Series E Convertible Preferred Stock, par value $0.01 per share (Series E Preferred Stock), resulting in net proceeds of approximately $30.9 million.
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 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 discussed further below.
As of December 31, 2018, the Company has approximately $91.1 million of finance obligations and long-term debt classified as current liabilities, approximately $50.0 million of which is due in the second quarter of 2019. The Company is in the process of negotiating a refinance of a majority of these current liabilities with its primary lender in order to consolidate some of these facilities and extend the repayment schedule. Should the Company not come to an agreement with this lender, it will need to seek an extension and other capital sources in the near term, such as debt facilities with other lenders and/or equity solutions, which may include the At Market Issuance Sales Agreement.
Several key indicators of liquidity are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Cash and cash equivalents at end of period
|
|
$
|
38,602
|
|
$
|
24,828
|
|
$
|
46,014
|
|
Restricted cash at end of period
|
|
|
71,551
|
|
|
43,227
|
|
|
54,622
|
|
Working capital at end of period
|
|
|
9,245
|
|
|
3,886
|
|
|
44,448
|
|
Net loss attributable to common shareholders
|
|
|
78,167
|
|
|
130,178
|
|
|
57,591
|
|
Net cash used in operating activities
|
|
|
57,617
|
|
|
60,182
|
|
|
29,636
|
|
Net cash used in investing activities
|
|
|
19,572
|
|
|
44,363
|
|
|
58,075
|
|
Net cash provided by financing activities
|
|
|
119,344
|
|
|
83,011
|
|
|
69,885
|
|
NY Green Bank Loan
The Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. are parties to a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank), providing for a secured term loan facility in the amount of $45.0 million (Term Loan Facility). The Term Loan Facility was initially entered in December 2016 and provided for a term loan of $25 million. The Term Loan Facility was amended in July 2017 to provide for an additional $20.0 million term loan, increasing the size of the total commitment to $45.0 million. The new Term Loan Facility will be repaid primarily as the Company’s various restricted cash reserves are released over the term of the facility. In June 2018, the timing and amount of the remaining principal payments were modified. On December 31, 2018, the outstanding principal balance under the Term Loan Facility was $17.2 million.
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 December 31, 2018 was approximately 11.9%. The term of the loan is three years, with a maturity date of December 23, 2019. As of December 31, 2018, the remaining balance of $17.2 million is scheduled to be repaid during the year ending December 31, 2019. These payments will be funded in part by restricted cash released, as described in Note 18, 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 is currently on track to 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, 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.
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, 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 the Company will begin working together on technology collaboration, exploring the expansion of applications for the Company’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 consolidated statements of operations during 2017. 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 is $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 final 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.
At December 31, 2018 and 2017, 20,368,782 and 13,094,217 of the Amazon Warrant Shares have vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue during the years ended December 31, 2018 and 2017 was $9.8 million and $17.3 million, respectively.
Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant 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 consolidated statements 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 is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares 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.
At December 31, 2018 and 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 years ended December 31, 2018 and 2017 was $0.4 million and $12.4 million, respectively.
Redeemable Convertible Preferred Stock
In November 2018, the Company completed an offering of an aggregate of 35,000 shares of the Company’s Series E Redeemable Preferred Stock, par value $0.01 per share (Series E Stock), resulting in aggregate net proceeds of approximately $30.9 million, after deducting underwriting discounts and commissions and expenses payable by the Company. The Company is required to redeem the Series E Stock in thirteen monthly installments in the amount of $2.7 million each from May 2019 through May 2020.
Each share of Series E Stock was issued with an initial stated value of $1,000 per share. The Company is required to elect, on a monthly basis, whether it will redeem or convert the installment. Should the Company elect to redeem, the shares are valued at the stated value. Should the Company elect to convert, the holder of the shares will receive common
stock, with a conversion price discounted by 15% from the then current market value. The holders of the shares may elect to convert all or any whole amount of shares, at any time at a conversion price of $2.31 per share. Conversion prices are discounted upon a change in control, certain triggering events, or failure to make a redemption payment.
Except for our Series C Redeemable Convertible Preferred Stock (Series C Stock), which shall rank senior to the Series E Stock as to dividends, distributions and payments upon liquidation, dissolution and winding up, all shares of the Company’s capital stock, including common stock, rank junior in rank to the Series E Stock with respect to dividends, distributions and payments upon liquidation, dissolution and winding up.
Holders of the Series E Stock are not entitled to receive dividends except in connection with certain purchase rights and other corporate events, as described in the certificate of designations, or in connection with certain distributions of assets, as described in the certificate of designations, or as, when and if declared by the Company’s Board of Directors acting in its sole and absolute discretion. Holders of the Series E Stock have no voting rights, except on matters required by law or under the certificate of designations to be submitted to a class vote of the Series E Stock.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or other deemed liquidation event, the holders of the Series E Stock are entitled to receive, after any amount that is required to be paid to the Series C Stock and before any amount is paid to the holders of any of capital stock ranking junior to the Series E Stock, an amount per share equal to the greater of (i) 125% of the sum of the stated value plus any declared and unpaid dividends and late charges as provided in the certificate of designations, on the date of such payment and (ii) the amount per share such holder would receive if such holder converted such Series E Stock into common stock immediately prior to the date of such payment.
The Company had 2,620 shares of Series C Stock outstanding at December 31, 2018 and 2017. The holder of the Series C 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 years ended December 31, 2018 and 2017, respectively, all dividends have been paid in shares of common stock. Each share of Series C 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 Stock as of December 31, 2018 and December 31, 2017 was $0.2343. The Series C Stock votes together with the common stock on an as-converted basis on all matters.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or other deemed liquidation event, the holder of the Series C 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 Stock been converted to shares of common stock immediately prior to such liquidation event. The Series C Stock is redeemable at the election of the holder of the Series C Stock or the Company.
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 were as follows:
|
|
|
|
Amount
|
|
(in thousands)
|
Principal amount
|
$
|
100,000
|
Less initial purchasers' discount
|
|
(3,250)
|
Less cost of related capped call and common stock forward
|
|
(43,500)
|
Less other issuance costs
|
|
(894)
|
Net proceeds
|
$
|
52,356
|
The Convertible Senior Notes bear interest at 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 calendar quarter (and only during such calendar 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 calendar 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 (as defined in the indenture governing the Convertible Senior Notes) 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;
|
|
3)
|
|
if the Company calls any or all of the Convertible Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
|
|
4)
|
|
upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more than 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.
|
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. Holders who convert 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 or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 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 March 20, 2021. The Company may redeem for cash all or any portion of the Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
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 $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 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 $4.1 million, consisting of initial purchasers' discount of approximately $3.2 million and other issuance costs of $0.9 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.4 million, were recorded as debt issuance cost (presented as contra debt in the 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 $1.7 million and were netted with the equity component in stockholders’ equity.
The Convertible Senior Notes consist of the following
at December 31, 2018 (in thousands):
|
|
|
Principal amounts:
|
|
|
Principal
|
$
|
100,000
|
Unamortized debt discount (1)
|
|
(34,706)
|
Unamortized debt issuance costs (1)
|
|
(2,047)
|
Net carrying amount
|
$
|
63,247
|
Carrying amount of the equity component (2)
|
$
|
37,702
|
|
1)
|
|
Included in the 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 consolidated balance sheet within additional paid-in capital, net of $1.7 million in equity issuance costs and associated income tax benefit of $9.2 million.
|
As of December 31, 2018, the remaining life of the Convertible Senior Notes is approximately 51 months.
Based on the closing price of the Company’s common stock of $1.24 on December 31, 2018, the if-converted value of the Convertible Senior Notes was less than the principal amount.
Capped Call and Common Stock Forward
In conjunction with the issuance of the Convertible Senior Notes, the Company entered into capped call options (Capped Call) on the Company’s common stock with certain counterparties at a price of $16.0 million. The net cost incurred in connection with the Capped Call has been recorded as a reduction to additional paid-in capital in the consolidated balance sheet.
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 chooses 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.
|
(ii)
|
|
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 has been recorded as an increase in treasury stock in the consolidated balance sheet. 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.
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. 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 2018, the Company issued 3,804,654 shares of common stock and raised net proceeds of $7.0 million, after accruals, underwriting discounts and commissions and other fees and expenses, pursuant to the Sales Agreement. The Company has raised $30.2 million to date during the term of the Sales Agreement.
Operating Leases – as Lessor
As of December 31, 2018, the Company has several noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
|
2019
|
|
$
|
27,234
|
2020
|
|
|
25,503
|
2021
|
|
|
20,781
|
2022
|
|
|
12,044
|
2023
|
|
|
8,146
|
2024 and thereafter
|
|
|
7,946
|
Total future minimum lease payments
|
|
$
|
101,654
|
Operating Leases – as Lessee
As of December 31, 2018, the Company has several noncancelable operating leases (as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1, Nature of Operations to the Consolidated Financial Statements) as summarized below. These leases expire over the next one to seven years. Minimum rent payments under operating leases are recognized on a straight‑line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
|
2019
|
|
$
|
22,582
|
2020
|
|
|
21,255
|
2021
|
|
|
16,512
|
2022
|
|
|
11,060
|
2023
|
|
|
10,325
|
2024 and thereafter
|
|
|
13,352
|
Total future minimum lease payments
|
|
|
95,086
|
Less imputed lease interest
|
|
|
(24,171)
|
Total lease liabilities
|
|
$
|
70,915
|
The Company has received cash for future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at December 31, 2018 is $37.0 million, $5.7 million and $31.3 million of which is classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2017 was $10.4 million, $2.5 million and $7.9 million of which is classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The amount is amortized using the effective interest method.
Rental expense for all operating leases was $15.8 million and $13.4 million for the years ended December 31, 2018 and 2017, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $16.4 million for the year ended December 31, 2018. Right of use assets obtained in exchange for new operating lease liabilities were $42.2 million for the year ended December 31, 2018.
At December 31, 2018 and 2017, security deposits associated with sale/leaseback transactions were $6.8 million and $8.3 million, respectively, and are included in other assets on the consolidated balance sheet.
Other information related to the operating leases is presented in the following table:
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
Cash payments
|
$
|
14,926
|
Weighted average remaining lease term (years)
|
|
4.36
|
Weighted average discount rate
|
|
12.1%
|
Finance Leases – As Lessee
During the year ended December 31, 2017, the Company entered into sale/leaseback transactions, which were accounted for as finance leases and reported as part of finance obligations on the Company’s consolidated balance sheet. In June 2018, the timing and amount of the lease payments from certain previous sale/leaseback transactions were amended to extend the due date. The outstanding balance of finance obligations related to sale/leaseback transactions at December 31, 2018 was $81.9 million.
Future minimum lease payments under noncancelable finance leases related to sale/leaseback transactions (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
2019
|
$
|
59,151
|
2020
|
|
6,722
|
2021
|
|
6,722
|
2022
|
|
4,975
|
2023
|
|
3,166
|
2024 and thereafter
|
|
16,154
|
Total future minimum lease payments
|
|
96,890
|
Less imputed lease interest
|
|
(14,986)
|
Total lease liabilities
|
$
|
81,904
|
Finance lease costs include amortization of the right of use assets (i.e. depreciation expense) and interest on lease liabilities (i.e. interest and other expense, net in the consolidated statement of operations). Finance lease costs for the year ended December 31, 2018 is (in thousands):
|
|
|
|
Year ended
|
|
December 31, 2018
|
Amortization of right of use asset
|
$
|
7,549
|
Interest on finance obligations
|
|
6,908
|
Total finance lease cost
|
$
|
14,457
|
Right of use assets obtained in exchange for new finance lease liabilities were $2.2 million for the year ended December 31, 2018.
The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this agreement of $2.5 million has been recorded as a finance obligation, in the accompanying consolidated balance sheet as of December 31, 2018. Upon the adoption of ASC 842, the Company reclassified property and equipment of $1.5 million, subject to a finance lease, to right of use assets.
Other information related to the finance leases is presented in the following table.
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
Cash payments
|
$
|
33,715
|
Weighted average remaining lease term (years)
|
|
3.17
|
Weighted average discount rate
|
|
11.8%
|
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $34.3 million is required to be restricted as security and will be released over the lease term. The Company also has certain letters of credit backed by security deposits totaling $36.8 million that are security for the above noted sale/leaseback agreements.
The Company also has letters of credit in the aggregate amount of $0.5 million at December 31, 2018 associated with a finance obligation from the sale/leaseback of its building. Cash collateralizing this letter of credit is also considered restricted cash.
Income Taxes
Under Internal Revenue Code (IRC) Section 382, the use of loss carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Company’s shares owned by its
5 percent or greater shareholders a change of ownership has occurred under the provisions of IRC Section 382, the Company's federal and state net operating loss carryforwards could be subject to significant IRC Section 382 limitations.
Based on studies of the changes in ownership of the Company, it has been determined that an IRC Section 382 ownership change occurred in 2013 that limited the amount of pre-change net operating losses that can be used in future years to $13.5 million. These net operating loss carryforwards will expire, if unused, at various dates from 2020 through 2033. Net operating losses of $195.4 million incurred after the most recent ownership change are not subject to IRC Section 382 and are available for use in future years. Accordingly, the Company's deferred tax assets include $208.8 million of U.S. net operating loss carryforwards. The net operating loss carryforwards available at December 31, 2018, include $42.2 million of net operating loss that was generated in 2018 that does not expire. The remainder, if unused, will expire at various dates from 2032 through 2037.
Approximately $1.9 million of research credit carryforwards generated after the most recent IRC Section 382 ownership change are included in the Company's deferred tax assets. Due to limitations under IRC Section 382, research credit carryforwards existing prior to the most recent IRC Section 382 ownership change will not be used and are not reflected in the Company's gross deferred tax asset at December 31, 2018. The remaining credit carryforwards will expire during the periods 2033 through 2038.
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act makes broad and complex changes to the U.S. tax code including a reduction of the U.S. federal corporate tax rate from 35 percent to 21 percent effective for the 2018 tax year. Accordingly, federal deferred tax assets were adjusted in 2017 by $42.5 million to reflect the reduction in tax rates. Also, in 2017 the valuation allowance was reduced by $42.5 million resulting in no change to the net deferred tax asset. The deferred tax asset adjustments reduced the tax benefit of the current year losses by 33.5% as shown in the effective tax rate schedule. The valuation allowance rate impact includes an offsetting 33.5% for the tax rate reduction resulting in no change to the provision for income taxes.
Contractual Obligations
Contractual obligations as of December 31, 2018, under agreements with non‑cancelable terms are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
<1 year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
> 5 Years
|
|
Operating lease obligations(A)
|
|
$
|
70,915
|
|
$
|
12,865
|
|
$
|
30,871
|
|
$
|
16,077
|
|
|
11,102
|
|
Finance lease obligations(B)
|
|
|
84,412
|
|
|
55,697
|
|
|
11,101
|
|
|
7,609
|
|
|
10,005
|
|
Other finance obligations(C)
|
|
|
37,013
|
|
|
5,702
|
|
|
13,233
|
|
|
10,165
|
|
|
7,913
|
|
Purchase obligations(D)
|
|
|
5,099
|
|
|
5,075
|
|
|
16
|
|
|
8
|
|
|
—
|
|
Long-term debt(E)
|
|
|
16,936
|
|
|
16,803
|
|
|
78
|
|
|
55
|
|
|
—
|
|
|
|
$
|
214,375
|
|
$
|
96,142
|
|
$
|
55,299
|
|
$
|
33,859
|
|
$
|
29,020
|
|
|
(A)
|
|
The Company has several non‑cancelable operating leases that generally have six to seven year terms, primarily associated with sale/leaseback transactions and are partially secured with restricted cash. In addition, under a limited number of arrangements, the Company provides its products and services to customers in the form of a PPA that generally have six to seven year terms. The Company accounts for these non‑cancelable sale/leaseback transactions as operating leases in accordance with Accounting Standards Codification (ASC) Subtopic 842,
Leases
, which was early adopted in 2018. The liability recognized on the consolidated balance sheet is presented within finance obligations
.
See Note 18, Commitments and Contingencies, to the Consolidated Financial Statements for more detail.
|
|
(B)
|
|
During the years ended December 31, 2017 and 2016, the Company entered into a series of project financings, which are accounted for as finance leases and reported as part of the finance obligations on the Company’s consolidated balance sheet. These obligations are secured with restricted cash. The Company also has a finance obligation related to a sale/leaseback transaction involving its building.
|
|
(C)
|
|
The Company has received cash for future services to be performed associated with certain sale/leaseback transactions, which was treated as a finance obligation.
|
|
(D)
|
|
The Company has purchase obligations related to inventory build to meet its sales plan, stack and stack components for new units and servicing existing ones, and the maintenance of its building and storage of documents.
|
|
(E)
|
|
The Company has entered into a long-term debt agreement with NY Green Bank. Principal and interest payments will be made using the proceeds from the release of restricted cash.
|
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles and related disclosures requires management to make estimates and assumptions.
We believe that the following are our most critical accounting estimates and assumptions the Company must make in the preparation of its Consolidated Financial Statements and related disclosures:
Revenue Recognition
: The Company recognizes revenue under arrangements for products and services, which may include the sale of products and related services, including revenue from installation, service and maintenance, spare parts, hydrogen fueling services (which may include hydrogen supply as well as hydrogen fueling infrastructure) and leased units. The Company also recognizes revenue under research and development contracts, which are primarily cost reimbursement contracts associated with the development of PEM fuel cell technology. Revenue arrangements containing fuel cell systems and related infrastructure may be sold, or provided to customers under a PPA.
When sold to customers, the Company accounts for each distinct performance obligation of these arrangements as a separate unit of accounting if the delivered item or items have value to the customer on a standalone basis and meet the “distinct” criteria. There are two ways that a good or service that is promised to a customer is distinct: a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; b) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). The Company allocates revenue to each distinct performance obligation based on its relative stand-alone selling price. For GenDrives and related services as well as hydrogen infrastructure services, the Company determines relative stand-alone selling prices using its historical data. For hydrogen infrastructure, an observable approach for similar products in the market is used. Specifically, the Company generally uses an expected cost-plus margin approach in determining its list prices with this data also being used in the determination of stand-alone selling prices.
Once relative stand-alone selling prices are determined, the Company proportionately allocates the transaction price to each distinct performance obligation within the customer arrangement. The allocated transaction price related to fuel cell systems, spare parts and hydrogen infrastructure is recognized as revenue at a point in time which usually occurs at shipment (and occasionally upon delivery) for fuel cells and spare parts and upon customer acceptance for hydrogen infrastructure, depending on the terms of the arrangement, the point at which transfer of control passes to the customer and the performance obligation has been satisfied.
Due to unpredictability of the Company’s revenue profile, as well as fleet dynamics, the allocated transaction price related to service and maintenance is recognized as revenue on a straight-line basis over the expected service period. 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 addition to the above listed performance obligations, the Company also recognizes revenue from tank rentals and fuel deliveries. Both of these promised goods/services are considered stand-alone performance obligations and revenue is recognized at a point in time, when the goods/services are provided.
For those customers who do not purchase an extended maintenance contract, 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. Only a limited number of fuel cell units are under standard warranty.
In a vast majority of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year warranty from the date of product installation. These types of contracts are accounted for as a separate performance obligation, and accordingly, revenue generated from these transactions is deferred and recognized in income over the warranty period, 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.
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, related infrastructure, and service are sold to the third-party financial institution and leased back to the Company through either an operating or finance lease.
The Company purchases hydrogen fuel from suppliers in certain cases (or produces hydrogen onsite) and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed, and included in the respective “Fuel delivered to customers” lines on the accompanying consolidated statements of operations.
One of the critical estimates that management makes is the projection of service costs related to GenDrive units under extended maintenance contracts. This estimate is important in management’s determination of whether a loss contract exists, as well as the amount of any loss. When projected costs to be incurred over the remaining life of the extended maintenance contracts is estimated to exceed contractual revenues, a provision for loss contracts related to service is recorded. An analysis of projected expenses and revenues is performed on each extended maintenance contract. Cost of expected maintenance contracts consist of replacement parts, labor and overhead. A variety of assumptions are included in the estimates of future service costs, including the life of parts, failure rates of parts, and future costs of parts.
Valuation of long‑lived assets
: We assess the potential impairment of long‑lived assets, including identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, the following:
|
·
|
|
significant underperformance relative to expected historical or projected future operating results;
|
|
·
|
|
significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
|
|
·
|
|
significant negative industry or economic trends;
|
|
·
|
|
significant decline in our stock price for a sustained period; and
|
|
·
|
|
our market capitalization relative to net book value.
|
When we determine that the carrying value of long‑lived assets, including identifiable intangible assets, may not be recoverable based upon the existence of one or more of the above indicators of impairment, we would measure any impairment based upon the provisions of Financial Accounting Standards Board (FASB) ASC No. 350‑35‑30‑14, Intangibles—Goodwill and Other, and FASB ASC No. 360‑10‑35‑15,
Impairment or Disposal of Long‑Lived Assets
, as appropriate. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
Warrant Accounting:
The Company accounts for common stock warrants as either derivative liabilities or as equity instruments depending on the specific terms of the respective warrant agreements, as follows:
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 consolidated balance sheets as a long-term liability, which is 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 consolidated statements of operations as change in fair value of common stock warrant liability.
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 warrant increases, and conversely, as the market price of our common stock decreases, the fair value of the warrant decreases. Also, a significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in a significantly higher fair value measurement; and a significant decrease in volatility would result in a significantly lower fair value measurement. Changes in the fair value of the warrants are reflected in the 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 holder to require cash settlement, are accounted for as equity instruments. The Company classifies these equity instruments within additional paid-in capital on the accompanying consolidated balance sheets. Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon and Walmart. 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 are recorded as cumulative catch up adjustments as a reduction of revenue. There was no expected dividend yield for the warrants granted.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In September 2018, the Company early adopted ASC Topic 842, as amended, effective January 1, 2018 and elected the available practical expedients. This adoption had a material impact on the Company’s consolidated statements of operations in that it allowed the Company to recognize gross profit on sale/leaseback transactions of $16.4 million. The previous accounting standard only allowed revenue on sale/leaseback transactions to be recognized up to the amount of cost of goods sold and gross profit was deferred. Under ASC Topic 842, revenue can be recognized in full. Another impact from the adoption of ASC Topic 842 was the recognition of right of use assets and finance obligations for operating leases on the consolidated balance sheet, as well as expanded disclosures. The table below summarizes the impact of this initial adoption to the consolidated balance sheet as of January 1, 2018 (in thousands):
|
|
|
Recognition of right of use asset
|
$
|
34,416
|
Decrease in accrued expenses
|
|
385
|
Recognition of finance obligation
|
|
(34,161)
|
Decrease in prepaid expenses and other assets
|
|
(3,229)
|
Decrease in leased property, net of accumulated depreciation
|
|
(563)
|
Increase in accumulated deficit
|
|
3,487
|
In addition, the consolidated statements of operations for the year ended December 31, 2018 was impacted by a decrease of depreciation expenses of $0.3 million. See Note 18, Commitments and Contingencies
to the Consolidated Financial Statements
for gross profit recognized on sale/leaseback transactions accounted for under ASC Topic 842.
In June 2014, an accounting update, ASC Topic 606,
Revenue from Contracts with Customers
, 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 Topic 606. However, in subsequent periods, contract acquisition costs are capitalized in accordance with ASC Topic 606.
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 statements 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 statements of cash flows. Net cash flows from financing activities and change in cash and cash equivalents, which now includes restricted cash, decreased by $11.4 million for the year ended December 31, 2017 and increased by $6.8 million for the year ended December 31, 2016.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In November 2018, an accounting update was issued to clarify the interaction between ASC Topic 808,
Collaborative Arrangements,
and Topic 606. Adoption of this update is effective for all reporting periods beginning after December 15, 2019. The Company is evaluating the impact this update will have on the consolidated financial statements.
In August 2018, an accounting update was issued to help entities evaluate the accounting for fees paid by a customer in cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update are effective for public companies beginning after December 15, 2019. Early adoption of the amendments in this update are permitted. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.
In June 2018, an accounting update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718,
Compensation-Stock Compensation
, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606. The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606. The Company does not believe this update will have a material effect on the consolidated financial statements.
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.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Plug Power Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Plug Power Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control – Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018 based on criteria established in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its accounting for leases in 2018 due to the adoption of the new lease standard, ASC Topic 842,
Leases
, as of January 1, 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2001.
Albany, New York
March 13, 2019
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2018 and 2017
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,602
|
|
$
|
24,828
|
|
Restricted cash
|
|
|
17,399
|
|
|
13,898
|
|
Accounts receivable
|
|
|
37,347
|
|
|
24,179
|
|
Inventory
|
|
|
47,910
|
|
|
48,776
|
|
Prepaid expenses and other current assets
|
|
|
14,357
|
|
|
7,926
|
|
Total current assets
|
|
|
155,615
|
|
|
119,607
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
54,152
|
|
|
29,329
|
|
Property, plant, and equipment, net
|
|
|
12,869
|
|
|
10,414
|
|
Leased property, net
|
|
|
146,751
|
|
|
87,065
|
|
Goodwill
|
|
|
9,023
|
|
|
9,445
|
|
Intangible assets, net
|
|
|
3,890
|
|
|
3,785
|
|
Other assets
|
|
|
8,026
|
|
|
11,165
|
|
Total assets
|
|
$
|
390,326
|
|
$
|
270,810
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
34,824
|
|
$
|
42,362
|
|
Accrued expenses
|
|
|
7,864
|
|
|
10,595
|
|
Deferred revenue
|
|
|
12,055
|
|
|
8,630
|
|
Finance obligations
|
|
|
74,264
|
|
|
34,506
|
|
Current portion of long-term debt
|
|
|
16,803
|
|
|
18,762
|
|
Other current liabilities
|
|
|
560
|
|
|
866
|
|
Total current liabilities
|
|
|
146,370
|
|
|
115,721
|
|
Deferred revenue
|
|
|
28,021
|
|
|
25,809
|
|
Common stock warrant liability
|
|
|
105
|
|
|
4,391
|
|
Finance obligations
|
|
|
118,076
|
|
|
37,069
|
|
Convertible senior notes, net
|
|
|
63,247
|
|
|
—
|
|
Long-term debt
|
|
|
133
|
|
|
13,371
|
|
Other liabilities
|
|
|
18
|
|
|
94
|
|
Total liabilities
|
|
|
355,970
|
|
|
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 December 31, 2018 and 2017
|
|
|
709
|
|
|
709
|
|
Series E redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $35,000 at December 31, 2018 and none at December 31, 2017); Shares authorized: 35,000 at December 31, 2018 and none at December 31, 2017; Issued and outstanding: 35,000 at December 31, 2018 and none at December 31, 2017
|
|
|
30,934
|
|
|
—
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 234,160,661 at December 31, 2018 and 229,073,517 at December 31, 2017
|
|
|
2,342
|
|
|
2,291
|
|
Additional paid-in capital
|
|
|
1,289,714
|
|
|
1,250,899
|
|
Accumulated other comprehensive income
|
|
|
1,584
|
|
|
2,194
|
|
Accumulated deficit
|
|
|
(1,260,290)
|
|
|
(1,178,636)
|
|
Less common stock in treasury: 15,002,663 at December 31, 2018 and 587,151 at December 31, 2017
|
|
|
(30,637)
|
|
|
(3,102)
|
|
Total stockholders’ equity
|
|
|
2,713
|
|
|
73,646
|
|
Total liabilities, redeemable preferred stock, and stockholders’ equity
|
|
$
|
390,326
|
|
$
|
270,810
|
|
See accompanying notes to consolidated financial statements.
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2018, 2017 and 2016
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net revenue:
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
$
|
107,292
|
|
$
|
62,631
|
|
$
|
39,985
|
Services performed on fuel cell systems and related infrastructure
|
|
22,002
|
|
|
16,202
|
|
|
17,347
|
Power Purchase Agreements
|
|
22,869
|
|
|
12,869
|
|
|
13,687
|
Fuel delivered to customers
|
|
22,469
|
|
|
8,167
|
|
|
10,916
|
Other
|
|
—
|
|
|
284
|
|
|
884
|
Net revenue
|
|
174,632
|
|
|
100,153
|
|
|
82,819
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
84,439
|
|
|
54,815
|
|
|
29,543
|
Services performed on fuel cell systems and related infrastructure
|
|
23,698
|
|
|
19,814
|
|
|
19,071
|
Provision for loss contracts related to service
|
|
—
|
|
|
—
|
|
|
(1,071)
|
Power Purchase Agreements
|
|
36,161
|
|
|
31,292
|
|
|
16,601
|
Fuel delivered to customers
|
|
27,712
|
|
|
22,013
|
|
|
13,864
|
Other
|
|
—
|
|
|
308
|
|
|
865
|
Total cost of revenue
|
|
172,010
|
|
|
128,242
|
|
|
78,873
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
2,622
|
|
|
(28,089)
|
|
|
3,946
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
33,907
|
|
|
28,693
|
|
|
21,177
|
Selling, general and administrative
|
|
38,198
|
|
|
45,010
|
|
|
34,288
|
Total operating expenses
|
|
72,105
|
|
|
73,703
|
|
|
55,465
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(69,483)
|
|
|
(101,792)
|
|
|
(51,519)
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net
|
|
(22,135)
|
|
|
(10,100)
|
|
|
(10,704)
|
Change in fair value of common stock warrant liability
|
|
4,286
|
|
|
(15,188)
|
|
|
4,344
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
$
|
(87,332)
|
|
$
|
(127,080)
|
|
$
|
(57,879)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
9,217
|
|
|
—
|
|
|
392
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company
|
$
|
(78,115)
|
|
$
|
(127,080)
|
|
$
|
(57,487)
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared and accretion of discount
|
|
(52)
|
|
|
(3,098)
|
|
|
(104)
|
Net loss attributable to common shareholders
|
$
|
(78,167)
|
|
$
|
(130,178)
|
|
$
|
(57,591)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.36)
|
|
$
|
(0.60)
|
|
$
|
(0.32)
|
Weighted average number of common shares outstanding
|
|
218,882,337
|
|
|
216,343,985
|
|
|
180,619,860
|
See accompanying notes to consolidated financial statements.
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31, 2018, 2017 and 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company
|
$
|
(78,115)
|
|
$
|
(127,080)
|
|
$
|
(57,487)
|
|
Other comprehensive (loss) income - foreign currency translation adjustment
|
|
(610)
|
|
|
1,947
|
|
|
(551)
|
|
Comprehensive loss
|
$
|
(78,725)
|
|
$
|
(125,133)
|
|
$
|
(58,038)
|
|
See accompanying notes to consolidated financial statements.
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2018, 2017 and 2016
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Comprehensive
|
|
Treasury Stock
|
|
Accumulated
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Equity
|
|
December 31, 2015
|
|
180,567,444
|
|
$
|
1,806
|
|
$
|
1,118,917
|
|
$
|
798
|
|
|
479,953
|
|
$
|
(2,909)
|
|
$
|
(993,876)
|
|
$
|
124,736
|
|
Net loss attributable to the Company
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(57,487)
|
|
|
(57,487)
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(551)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(551)
|
|
Stock-based compensation
|
|
105,479
|
|
|
1
|
|
|
9,289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,290
|
|
Stock dividend
|
|
66,061
|
|
|
1
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(104)
|
|
|
—
|
|
Public offerings, common stock, net
|
|
10,400,000
|
|
|
104
|
|
|
8,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,928
|
|
Stock option exercises
|
|
465,111
|
|
|
4
|
|
|
98
|
|
|
—
|
|
|
102,375
|
|
|
(182)
|
|
|
—
|
|
|
(80)
|
|
Exercise of warrants
|
|
119,879
|
|
|
1
|
|
|
251
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
252
|
|
December 31, 2016
|
|
191,723,974
|
|
$
|
1,917
|
|
$
|
1,137,482
|
|
$
|
247
|
|
|
582,328
|
|
$
|
(3,091)
|
|
$
|
(1,051,467)
|
|
$
|
85,088
|
|
Net loss attributable to the Company
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(127,080)
|
|
|
(127,080)
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,947
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,947
|
|
Stock-based compensation
|
|
148,077
|
|
|
1
|
|
|
9,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,209
|
|
Stock dividend
|
|
54,130
|
|
|
1
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(89)
|
|
|
—
|
|
Public offerings, common stock, net
|
|
10,170,759
|
|
|
102
|
|
|
22,890
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,992
|
|
Conversion of preferred stock, Series D
|
|
9,548,393
|
|
|
95
|
|
|
7,683
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,778
|
|
Conversion of preferred stock, Series C
|
|
2,772,518
|
|
|
28
|
|
|
416
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
444
|
|
Stock option exercises
|
|
154,166
|
|
|
2
|
|
|
106
|
|
|
—
|
|
|
4,823
|
|
|
(11)
|
|
|
—
|
|
|
97
|
|
Exercise of warrants, net of warrants issued
|
|
14,501,500
|
|
|
145
|
|
|
39,713
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,858
|
|
Provision for common stock warrants
|
|
—
|
|
|
—
|
|
|
36,322
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,322
|
|
Accretion of discount
|
|
—
|
|
|
—
|
|
|
(3,009)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,009)
|
|
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
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(78,115)
|
|
|
(78,115)
|
|
Cumulative effect from adoption of ASC 842
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,487)
|
|
|
(3,487)
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(610)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(610)
|
|
Stock-based compensation
|
|
741,216
|
|
|
8
|
|
|
8,763
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,771
|
|
Stock dividend
|
|
29,762
|
|
|
—
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52)
|
|
|
—
|
|
Public offerings, common stock, net
|
|
3,804,654
|
|
|
38
|
|
|
6,978
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,016
|
|
Stock option exercises
|
|
511,412
|
|
|
5
|
|
|
168
|
|
|
—
|
|
|
17,606
|
|
|
(35)
|
|
|
—
|
|
|
138
|
|
Equity component of convertible senior notes, net of issuance costs and income tax benefit
|
|
—
|
|
|
—
|
|
|
28,664
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,664
|
|
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
|
|
—
|
|
|
—
|
|
|
10,190
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,190
|
|
December 31, 2018
|
|
234,160,661
|
|
$
|
2,342
|
|
$
|
1,289,714
|
|
$
|
1,584
|
|
|
15,002,663
|
|
$
|
(30,637)
|
|
$
|
(1,260,290)
|
|
$
|
2,713
|
|
See
accompanying notes to consolidated financial statements.
PLUG POWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018, 2017 and 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company
|
|
$
|
(78,115)
|
|
$
|
(127,080)
|
|
$
|
(57,487)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment, and leased property
|
|
|
11,014
|
|
|
9,190
|
|
|
4,650
|
|
Amortization of intangible assets
|
|
|
693
|
|
|
593
|
|
|
590
|
|
Stock-based compensation
|
|
|
8,771
|
|
|
9,209
|
|
|
9,290
|
|
Provision for bad debts and other assets
|
|
|
1,626
|
|
|
250
|
|
|
—
|
|
Amortization of debt issuance costs and discount on convertible senior notes
|
|
|
6,347
|
|
|
770
|
|
|
1,760
|
|
Provision for common stock warrants
|
|
|
10,190
|
|
|
36,360
|
|
|
—
|
|
Loss on disposal of leased property
|
|
|
—
|
|
|
—
|
|
|
41
|
|
Provision for loss contracts related to service
|
|
|
—
|
|
|
—
|
|
|
(1,071)
|
|
Change in fair value of common stock warrant liability
|
|
|
(4,286)
|
|
|
15,188
|
|
|
(4,344)
|
|
Income tax benefit
|
|
|
(9,217)
|
|
|
—
|
|
|
(392)
|
|
Changes in operating assets and liabilities that provide (use) cash:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(14,398)
|
|
|
(9,951)
|
|
|
9,280
|
|
Inventory
|
|
|
19,041
|
|
|
(18,836)
|
|
|
2,812
|
|
Prepaid expenses, and other assets
|
|
|
(4,654)
|
|
|
2,157
|
|
|
(2,386)
|
|
Accounts payable, accrued expenses, and other liabilities
|
|
|
(10,266)
|
|
|
11,430
|
|
|
11,164
|
|
Accrual for loss contracts related to service
|
|
|
—
|
|
|
(752)
|
|
|
(8,227)
|
|
Deferred revenue
|
|
|
5,637
|
|
|
11,290
|
|
|
4,684
|
|
Net cash used in operating activities
|
|
|
(57,617)
|
|
|
(60,182)
|
|
|
(29,636)
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(5,142)
|
|
|
(4,090)
|
|
|
(2,743)
|
|
Purchase of intangible asset
|
|
|
(929)
|
|
|
—
|
|
|
—
|
|
Purchases for construction of leased property
|
|
|
(13,501)
|
|
|
(40,273)
|
|
|
(55,332)
|
|
Net cash used in investing activities
|
|
|
(19,572)
|
|
|
(44,363)
|
|
|
(58,075)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants, net of transaction costs
|
|
|
—
|
|
|
17,636
|
|
|
111
|
|
Proceeds from issuance of preferred stock and warrant, net of transaction costs
|
|
|
30,934
|
|
|
—
|
|
|
15,594
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
—
|
|
|
(182)
|
|
Proceeds from public offerings, net of transaction costs
|
|
|
7,195
|
|
|
22,992
|
|
|
11,940
|
|
Proceeds from exercise of stock options
|
|
|
138
|
|
|
97
|
|
|
102
|
|
Payments for redemption of preferred stock
|
|
|
—
|
|
|
(3,700)
|
|
|
—
|
|
Proceeds from issuance of convertible senior notes, net
|
|
|
95,856
|
|
|
—
|
|
|
—
|
|
Purchase of capped call and common stock forward
|
|
|
(43,500)
|
|
|
—
|
|
|
—
|
|
Proceeds from short-term borrowing, net of transaction costs
|
|
|
—
|
|
|
—
|
|
|
23,673
|
|
Principal payments on short-term borrowing
|
|
|
—
|
|
|
—
|
|
|
(25,000)
|
|
Proceeds from borrowing of long-term debt, net of transaction costs
|
|
|
—
|
|
|
20,147
|
|
|
47,400
|
|
Principal payments on long-term debt
|
|
|
(16,190)
|
|
|
(12,292)
|
|
|
(25,000)
|
|
Proceeds from sale/leaseback transactions accounted for as finance obligations
|
|
|
76,175
|
|
|
45,368
|
|
|
32,715
|
|
Repayments of finance obligations
|
|
|
(31,264)
|
|
|
(18,632)
|
|
|
(4,681)
|
|
Net cash provided by financing activities
|
|
|
119,344
|
|
|
71,616
|
|
|
76,672
|
|
Effect of exchange rate changes on cash
|
|
|
(57)
|
|
|
348
|
|
|
(121)
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
42,098
|
|
|
(32,581)
|
|
|
(11,160)
|
|
Cash, cash equivalents, and restricted cash beginning of period
|
|
|
68,055
|
|
|
100,636
|
|
|
111,796
|
|
Cash, cash equivalents, and restricted cash end of period
|
|
$
|
110,153
|
|
$
|
68,055
|
|
$
|
100,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
13,057
|
|
$
|
8,791
|
|
$
|
8,263
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash investing and financing activity
|
|
|
|
|
|
|
|
|
|
|
Recognition of right of use asset
|
|
$
|
79,057
|
|
$
|
—
|
|
$
|
—
|
|
Net transfers between inventory, leased assets and property, plant and equipment
|
|
|
18,175
|
|
|
—
|
|
|
|
|
Conversion of preferred stock to common stock
|
|
|
—
|
|
|
8,222
|
|
|
—
|
|
Issuance of common stock for acquisitions
|
|
|
—
|
|
|
—
|
|
|
14,459
|
|
See accompanying notes to consolidated financial statements
.
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 electric mobility and stationary power markets. As part of the global drive to electrification, the Company has recently leveraged product proven in the material handling vehicle space to enter new, adjacent, electric vehicle markets, specifically 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 (LPG), propane, methanol, ethanol, gasoline or biofuels. The Company 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 retail-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 system;
GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service 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; and
ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans;
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks. We manufacture our commercially-viable products in Latham, NY.
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 developing marketing and distribution channels; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.
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 $78.2 million, $130.2 million and $57.6 million for the years ended December 31, 2018, 2017, and 2016, respectively, and has an accumulated deficit of $1.3 billion at December 31, 2018.
During the year ended December 31, 2018, cash used in operating activities was $57.6 million, consisting primarily of a net loss attributable to the Company of $78.1 million, offset by the impact of noncash charges of $25.1 million, and net outflows from fluctuations in working capital and other assets and liabilities of $4.6 million. The changes in working capital primarily were related to reduction of inventory and an increase in deferred revenue offset by increases in accounts receivable and prepaid expenses, and a decrease in accounts payable, accrued expenses, and other liabilities. As of December 31, 2018, we had cash and cash equivalents of $38.6 million and net working capital of $9.2 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 year ended December 31, 2018, totaled $19.6 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 year ended December 31, 2018 totaled $119.3 million and primarily resulted from net proceeds of $52.4 million from the issuance of Convertible Senior Notes, net of purchases of a capped call and a common stock forward, $30.9 million from the issuance of preferred stock and a $44.9 million net increase in finance obligations, offset by $16.2 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 $95.9 million. Approximately $43.5 million of the proceeds were used for the cost of a capped call 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 were or will be used for general corporate purposes, including working capital.
The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). In connection with certain operating leases, the financial institutions required the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against our finance obligations. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements at December 31, 2018 is $82.2 million, which have been partially secured with restricted cash, security deposits and pledged service escrows of $80.4 million.
The Company has a master lease agreement with Wells Fargo (Wells Fargo MLA) to finance the Company’s commercial transactions with Walmart. The Wells Fargo MLA was entered into in 2017 and amended in 2018. Pursuant to the Wells Fargo MLA, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites under lease agreements with Walmart. The total remaining lease payments to Wells Fargo was $67.5 million at December 31, 2018. Transactions completed under the Wells Fargo MLA in 2018 were accounted for as operating leases and therefore recognized as revenue for the year ended December 31, 2018. Transactions completed under the Wells Fargo MLA in 2017 were accounted for as capital leases. The difference in lease classification is due to changes in financing terms and their bearing on lease assessment criteria. Also included in the remaining lease payments to Wells Fargo is a sale/leaseback transaction in 2015 that was accounted for as an operating lease. In connection with the Wells Fargo MLA, the Company has a customer guarantee for a majority of the transactions. The Wells Fargo transactions in 2018 required a letter of credit for the unguaranteed portion totaling $20.1 million.
In November 2018, the Company completed a private placement of an aggregate of 35,000 shares of the Company’s Series E Convertible Preferred Stock, par value $0.01 per share (Series E Preferred Stock), resulting in net proceeds of approximately $30.9 million.
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 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 discussed further below.
As of December 31, 2018, the Company has approximately $91.1 million of finance obligations and long-term debt classified as current liabilities, approximately $50.0 million of which is due in the second quarter of 2019. The Company is in the process of negotiating a refinance of a majority of these current liabilities with its primary lender in order to consolidate some of these facilities and extend the repayment schedule. Should the Company not come to an agreement with this lender, it will need to seek an extension and other capital sources in the near term, such as debt facilities with other lenders and/or equity solutions, which may include the At Market Issuance Sales Agreement.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The 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.
Leases
The Company is a lessee in several noncancelable (1) operating leases, primarily related to sale/leaseback transactions with financial institutions for deployment of the Company’s products at certain customer sites, and (2) finance leases, also primarily related to sale/leaseback transactions with financial institutions for similar commercial
purposes. The Company accounts for leases in accordance with ASC Topic 842,
Leases
(ASC Topic 842). See Recently Adopted Accounting Standards, as the Company has early adopted ASC Topic 842 in 2018.
The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right of use (ROU) asset and a lease liability (i.e. finance obligation) at the lease commencement date. For operating leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.
Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
|
·
|
|
ASC Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit
|
in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
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·
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The lease term for all of the Company’s leases includes the noncancelable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
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·
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Lease payments included in the measurement of the lease liability comprise fixed payments, and the exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise the option.
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The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability. The Company’s leases do not contain variable lease payments.
ROU assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10,
Property, Plant, and Equipment – Overall
, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. No impairment losses have been recognized to date.
The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.
Operating and finance lease ROU assets are presented within leased property, net on the consolidated balance sheet. The current portion of operating and finance lease liabilities is included in finance obligations within current liabilities and the long-term portion is presented in finance obligations within noncurrent liabilities on the consolidated balance sheet.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company has elected to apply the short-term lease recognition and measurement exemption for other classes of leased assets. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
Adoption of ASC Topic 842 - Transition Approach
As discussed in Recent Accounting Pronouncements, effective January 1, 2018, the Company early adopted ASC Topic 842. Further, ASU 2018-11 was issued in July 2018, which allowed for a modified retrospective basis of accounting for the transition. The Company selected this transition method and, therefore, restatement of prior period consolidated financial statements or presentation of comparative disclosures is not necessary.
While determining the impact from the transition, the Company elected the practical expedients allowed under ASC 842. The Company did not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, or (3) initial direct costs for any existing leases. No modifications to leases effective upon January 1, 2018 were noted where hindsight expedients were necessary to apply.
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 transaction price specified in a contract with a customer, subject to the allocation of the transaction price to distinct performance obligations as discussed below. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
The Company accounts for each distinct performance obligation of within its arrangements as a distinct unit of accounting if the items under the performance obligation have value to the customer on a standalone basis. The Company considers a performance obligation to be distinct and have a standalone value if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer and the Company’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract. The Company allocates revenue to each distinct performance obligation based on relative standalone selling prices.
Payment terms for 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.
The Company presents the provision for common stock warrants within each revenue-related line item on the consolidated statements of operations. This presentation reflects a discount that those common stock warrants represent, and therefore revenue is net of these non-cash charges. The provision of common stock warrants is allocated to the relevant revenue-related line items based upon the expected mix of the revenue for each respective contract.
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 comparable list prices, as well as historical average pricing approaches to determine stand-alone selling prices. Once relative standalone selling prices are determined, the Company proportionately allocates the transaction price to each performance obligation within the customer arrangement. The allocated transaction price related to fuel cell systems, spare parts and hydrogen infrastructure is recognized as revenue at a point in time which usually occurs at shipment (and occasionally upon delivery) for fuel cells and spare parts and upon customer acceptance for hydrogen infrastructure, depending on the terms of the arrangement, the point at which transfer of control passes to the customer and the performance obligation has been satisfied.
(ii)
Services performed on fuel cell systems and related infrastructure
Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. The transaction price allocated to services as discussed above is generally recognized as revenue over time on a straight-line basis over the expected service period.
In substantially all of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year service period from the date of product installation. Services include monitoring, technical support, maintenance and services that provide for 97-98% uptime of the fleet. These services are accounted for as a separate performance obligation, and accordingly, revenue generated from these transactions, subject to the proportional allocation of transaction price, is deferred and recognized 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 statements 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 finance lease.
Certain of the Company’s sale/leaseback transactions with third-party financial institutions are required to be accounted for as financing 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 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 consolidated statements of operations. Interest cost associated with finance leases is presented within interest and other expense, net on the accompanying consolidated statement of operations.
The Company also has sale/leaseback transactions with financial institutions, which were 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 consolidated statements of operations.
The Company adopted ASC Topic 842, effective January 1, 2018. As part of the adoption, the Company elected the practical expedient to not separate lease and non-lease components (i.e. maintenance services) within its rental income related to all PPA-related assets.
(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 in certain cases (and produces hydrogen onsite) and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed, and is included in the respective “Fuel delivered to customers” lines on the consolidated statements of operations.
Contract costs
The Company expects that incremental commission fees paid to employees as a result of obtaining sales contracts are recoverable and therefore the Company capitalizes them as contract costs.
Capitalized commission fees are amortized on a straight-line basis over the period of time over which the transfer of goods or services to which the assets relate occur, typically ranging from 5 to 10 years. Amortization of the capitalized commission fees is included in selling, general, and administrative expenses.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses.
Adoption of ASC Topic 606 - Transition Approach
As discussed in Recent Accounting Pronouncements, on January 1, 2018, the Company adopted ASC Topic 606,
Revenue from Contracts with Customers
(ASC Topic 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 Topic 606. However, upon adoption, contract acquisition costs of $0.1 million were capitalized and are being amortized as described above.
Cash Equivalents
For purposes of the 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. At December 31, 2018 and 2017, cash equivalents consist of money market accounts. The Company’s cash and cash equivalents are deposited with financial institutions located in the U.S. and may at times exceed insured limits.
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 respective warrant agreements.
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 consolidated balance sheet 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 consolidated statements of operations as change in fair value of common stock warrant liability.
Accounts Receivable
Accounts receivable are stated at the amount billed or billable to customers and are ordinarily due between 30 and 60 days after the issuance of the invoice. Receivables are reserved or written off based on individual credit evaluation and specific circumstances of the customer. The allowance for doubtful accounts and related receivable are reduced when the amount is deemed uncollectible. As of December 31, 2018, and 2017, the allowance for doubtful accounts was $249 thousand.
Inventory
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value. All inventory, including spare parts inventory held at service locations, is not relieved until the customer has received the product, at which time the risks and rewards of ownership have transferred.
Property, Plant and Equipment
Property, plant and equipment are originally recorded at cost or, if acquired as part of business combination, at fair value. Maintenance and repairs are expensed as costs are incurred. Depreciation on plant and equipment, which includes depreciation on the Company’s primary manufacturing facility, which is accounted for as a financing obligation, is calculated on the straight-line method over the estimated useful lives of the assets. The Company records depreciation and amortization over the following estimated useful lives:
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Buildings
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20 years
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Building improvements
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5 ‑ 20 years
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Software, machinery and equipment
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1 ‑ 15 years
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Gains and losses resulting from the sale of property and equipment are recorded in current operations.
Leased Property
Leased property primarily consists of the cost of assets deployed related to finance leases. Depreciation expense is recorded on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset, generally six to seven years, and is included in cost of revenue for PPAs in the accompanying consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, leased property and purchased intangibles subject to amortization, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Assets to be disposed of and considered held for sale would be separately presented in the consolidated balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually.
The Company has the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.
The Company performs an impairment review of goodwill on an annual basis at December 1, and when a triggering event is determined to have occurred between annual impairment tests. For the years ended December 31, 2018, 2017, and 2016, the Company performed a qualitative assessment of goodwill for its single reporting unit based on multiple factors including market capitalization, and determined that it is not more likely than not that the fair value of its reporting unit is less than the carrying amount.
Intangible Assets
Intangible assets consist of acquired technology, customer relationships and trademarks, and are amortized using a straight-line method over their useful lives of 5 - 10 years. Additionally, the intangible assets are reviewed for impairment when certain triggering events occur.
Product Warranty Reserve
Aside from when included in the sale of an extended maintenance contract, the Company provides a one to two year standard product warranty to customers from date of installation of GenDrive units, and the GenSure sales generally include a two year standard product warranty. We currently estimate the costs of satisfying warranty claims based on an analysis of past experience and provide for future claims in the period the revenue is recognized. Factors that affect our warranty liability include the number of installed units, estimated material costs, estimated travel, and labor costs. The warranty reserve is included within the other current liabilities on the accompanying consolidated balance sheet.
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 consolidated balance sheets. Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon and Walmart as discussed in Note 13, Warrant Transaction Agreements. 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 13, Warrant Transaction Agreements and are recorded as cumulative catch up adjustments as a reduction of revenue.
Redeemable Preferred Stock
We account for redeemable preferred stock as temporary equity in accordance with applicable accounting guidance in FASB ASC Topic 480,
Distinguishing Liabilities from Equity
. Dividends on the redeemable preferred stock are accounted for as an increase in the net loss attributable to common shareholders.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
The Company accounts for uncertain tax positions in accordance with FASB ASC No. 740-10-25,
Income Taxes-Overall-Recognition
. The Company recognizes in its consolidated financial statements the impact of a tax position only if that position is more likely than not to be sustained on audit, based on the technical merits of the position.
Foreign Currency Translation
Foreign currency translation adjustments arising from conversion of the Company’s foreign subsidiary’s financial statements to U.S. dollars for reporting purposes are included in accumulated other comprehensive income in stockholders’ equity on the accompanying consolidated balance sheets. Transaction gains and losses resulting from the effect of exchange rate changes on transactions denominated in currencies other than the functional currency of the Company’s operations give rise to realized foreign currency transaction gains and losses, and are included in interest and other income and interest and other expense, respectively, in the accompanying consolidated statements of operations.
Research and Development
Costs related to research and development activities by the Company are expensed as incurred.
Stock-Based Compensation
The Company maintains employee stock-based compensation plans, which are described more fully in Note 15, Employee Benefit Plans.
Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The Company measures stock-based compensation cost at grant date, based on the fair value of the award, and recognizes the cost as expense on a straight-line basis over the option’s requisite service period.
The Company estimates the fair value of stock-based awards using a Black-Scholes valuation model. Stock-based compensation expense is recorded in cost of revenue associated with sales of fuel cell systems and related infrastructure, cost of revenue for services performed on fuel cell systems and related infrastructure, research and development expense and selling, general and administrative expenses in the accompanying consolidated statements of operations based on the employees’ respective function.
The Company records deferred tax assets for awards that result in deductions on the Company’s income tax returns, based upon the amount of compensation cost recognized and the Company's statutory tax rate. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company's income tax return are recorded in the income statement. No tax benefit or expense for stock-based compensation has been recorded during the years ended December 31, 2018, 2017 and 2016 since the Company remains in a net operating loss (NOL) position.
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 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications and Correction of Immaterial Errors
Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation. The provision for common stock warrants presented historically as one line item on the consolidated statements of operations has been allocated to each of the relevant revenue line items. This reclassification did not have an impact on gross profit (loss) or net loss within the consolidated statements of operations or major categories within the consolidated statements of cash flows in the periods presented.
In the third quarter of 2018, it was determined that the presentation in our consolidated statements of operations of certain service arrangements and the amortization of the associated finance obligations had not been appropriately accounted for resulting in an overstatement of our revenue and cost of revenue. This previous presentation resulted in a gross up of these line items and had no impact on our gross profit (loss) or net loss. The Company corrected the 2017 and 2016 annual financial statements to be consistent with the current period presentation and will correct comparable financial information in future filings. The amount reclassified from revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for years ended December 31, 2017 and 2016 was $3.8 million and $3.6 million, respectively. The amount reclassified from cost of revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the years ended December 31, 2017 and 2016 was $3.1 million and $3.1 million, respectively. The Company does not consider the impact of the prior period correction to be material to the prior period consolidated financial statements.
Subsequent Events
The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the consolidated financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the consolidated financial statements. Events and conditions arising after the balance sheet date but before the consolidated financial statements are issued are evaluated to determine if disclosure is required to keep the consolidated financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In September 2018, the Company early adopted ASC Topic 842, as amended, effective January 1, 2018 and elected the available practical expedients. This adoption had a material impact on the Company’s consolidated statements of operations in that it allowed the Company to recognize gross profit on sale/leaseback transactions of $16.4 million. The previous accounting standard only allowed revenue on sale/leaseback transactions to be recognized up to the amount of cost of goods sold and gross profit was deferred. Under ASC Topic 842, revenue can be recognized in full. Another impact from the adoption of ASC Topic 842 was the recognition of right of use assets and finance obligations for operating leases on the consolidated balance sheet, as well as expanded disclosures. The table below summarizes the impact of this initial adoption to the consolidated balance sheet as of January 1, 2018 (in thousands):
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Recognition of right of use asset
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$
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34,416
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Decrease in accrued expenses
|
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385
|
Recognition of finance obligation
|
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(34,161)
|
Decrease in prepaid expenses and other assets
|
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(3,229)
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Decrease in leased property, net of accumulated depreciation
|
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(563)
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Increase in accumulated deficit
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3,487
|
In addition, the consolidated statements of operations for the year ended December 31, 2018 was impacted by a decrease of depreciation expenses of $0.3 million. See Note 18, Commitments and Contingencies for gross profit recognized on sale/leaseback transactions accounted for under ASC Topic 842.
In June 2014, an accounting update, ASC Topic 606,
Revenue from Contracts with Customers
, 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 Topic 606. However, in subsequent periods, contract acquisition costs are capitalized in accordance with ASC Topic 606.
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 statements 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 statements of cash flows. Net cash flows from financing activities and change in cash and cash equivalents, which now includes restricted cash, decreased by $11.4 million for the year ended December 31, 2017 and increased by $6.8 million for the year ended December 31, 2016.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In November 2018, an accounting update was issued to clarify the interaction between ASC Topic 808,
Collaborative Arrangements,
and Topic 606. Adoption of this update is effective for all reporting periods beginning after December 15, 2019. The Company is evaluating the impact this update will have on the consolidated financial statements.
In August 2018, an accounting update was issued to help entities evaluate the accounting for fees paid by a customer in cloud computing arrangement (hosting arrangement) by providing guidance for determining when the
arrangement includes a software license. The amendments in this update are effective for public companies beginning after December 15, 2019. Early adoption of the amendments in this update are permitted. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.
In June 2018, an accounting update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718,
Compensation-Stock Compensation
, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606. The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606. The Company does not believe this update will have a material effect on the consolidated financial statements.
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.
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, and preferred stock) were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive common share equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Since the Company is in a net loss position, all common stock equivalents would be considered to be anti-dilutive and are, therefore, not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.
The following table provides the components of the calculations of basic and diluted earnings per share (in thousands, except share amounts):
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|
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Year ended December 31,
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2018
|
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2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(78,167)
|
|
$
|
(130,178)
|
|
$
|
(57,591)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
218,882,337
|
|
|
216,343,985
|
|
|
180,619,860
|
|
The dilutive potential common shares are summarized as follows:
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|
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|
|
|
|
At December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Stock options outstanding (1)
|
|
21,957,150
|
|
19,872,029
|
|
14,760,054
|
Restricted stock outstanding (2)
|
|
2,347,347
|
|
234,744
|
|
13,333
|
Common stock warrants (3)
|
|
115,824,142
|
|
115,824,242
|
|
14,501,600
|
Preferred stock (4)
|
|
17,933,591
|
|
2,782,075
|
|
17,490,078
|
Convertible Senior Notes (5)
|
|
43,630,020
|
|
-
|
|
-
|
Number of dilutive potential common shares
|
|
201,692,250
|
|
138,713,090
|
|
46,765,065
|
|
(1)
|
|
During the years ended December 31, 2018, 2017, and 2016, the Company granted 2,679,667, 5,485,863, and 3,702,500 stock options, respectively.
|
|
(2)
|
|
During the years ended December 31, 2018, 2017, and 2016, the Company granted 2,347,347, 234,744, and zero shares of restricted stock, respectively.
|
|
(3)
|
|
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, 100 and 100 were unexercised as of December 31, 2018, 2017 and 2016.
|
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 the year ended December 31, 2017, as described in Note 11, 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 the year ended December 31, 2017, respectively, as described in Note 11, Stockholders’ Equity.
In April 2017, the Company issued 5,250,750 warrants with an exercise price of $2.69 per warrant, as described in Note 11, Stockholders’ Equity. Of these warrants issued in April 2017, none have been exercised as of December 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 13, Warrant Transaction Agreements. Of these warrants issued, none have been exercised as of December 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 13, Warrant Transaction Agreements. Of these warrants issued, none have been exercised as of December 31, 2018.
|
(4)
|
|
The preferred stock amount represents the dilutive potential common shares of the Series C, D and E redeemable convertible preferred stock, based on the conversion price of the preferred stock as of December 31, 2018, 2017 and 2016, respectively. Of the 10,431 Series C redeemable preferred stock issued on May 16, 2013, 7,811 had been converted to common stock through December 31, 2017, with the remainder still outstanding. Of the 18,500 Series D redeemable convertible preferred stock issued on December 22, 2016, 3,700 shares have been redeemed and the remaining 14,800 have been converted to common stock during the year ended December 31, 2017. On November 1, 2018, the Company issued 35,000 shares of Series E redeemable convertible preferred stock. As of December 31, 2018, all Series E redeemable convertible preferred stock are outstanding.
|
|
(5)
|
|
In March 2018, the Company issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes. See Note 10, Convertible Senior Notes.
|
4. Inventory
Inventory as of December 31, 2018 and 2017 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Raw materials and supplies - production locations
|
|
$
|
32,941
|
|
$
|
37,369
|
|
Raw materials and supplies - customer locations
|
|
|
6,755
|
|
|
5,482
|
|
Work-in-process
|
|
|
5,589
|
|
|
3,492
|
|
Finished goods
|
|
|
2,625
|
|
|
2,433
|
|
Inventory
|
|
$
|
47,910
|
|
$
|
48,776
|
|
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2018 and 2017 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
—
|
|
$
|
90
|
|
Buildings
|
|
|
—
|
|
|
15,332
|
|
Building improvements
|
|
|
214
|
|
|
5,230
|
|
Software, machinery and equipment
|
|
|
27,058
|
|
|
21,350
|
|
Property, plant, and equipment
|
|
|
27,272
|
|
|
42,002
|
|
Less: accumulated depreciation
|
|
|
(14,403)
|
|
|
(31,588)
|
|
Property, plant, and equipment, net
|
|
$
|
12,869
|
|
$
|
10,414
|
|
Depreciation expense related to property, plant and equipment was $2.6 million, $1.9 million, and $1.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. Upon the adoption of ASC 842, the Company reclassified property and equipment, subject to a finance lease, to right of use assets. See Note 18, Commitments and Contingencies – Finance Leases as Lessee.
6. Leased Property
Leased property at December 31, 2018 and 2017 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Right of use assets - operating
|
|
$
|
76,747
|
|
$
|
—
|
|
Right of use assets - finance
|
|
|
39,905
|
|
|
—
|
|
Capitalized costs of lessor assets
|
|
|
41,040
|
|
|
98,877
|
|
Less: accumulated depreciation
|
|
|
(10,941)
|
|
|
(11,812)
|
|
Leased property, net
|
|
$
|
146,751
|
|
$
|
87,065
|
|
Capitalized costs of lessor assets associated with finance leases have been reclassified to right of use assets upon the adoption of ASC 842. Depreciation expense related to leased property was $8.4 million, $7.3 million, and $2.9 million the years ended December 31, 2018, 2017 and 2016, respectively.
7. Intangible Assets
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Gross Carrying
|
|
Accumulated
|
|
|
|
|
|
|
Amortization Period
|
|
Amount
|
|
Amortization
|
|
Total
|
|
Acquired technology
|
|
9 years
|
|
$
|
5,926
|
|
$
|
(2,176)
|
|
$
|
3,750
|
|
Customer relationships
|
|
10 years
|
|
|
260
|
|
|
(123)
|
|
|
137
|
|
Trademark
|
|
5 years
|
|
|
60
|
|
|
(57)
|
|
|
3
|
|
|
|
|
|
$
|
6,246
|
|
$
|
(2,356)
|
|
$
|
3,890
|
|
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Gross Carrying
|
|
Accumulated
|
|
|
|
|
|
|
Amortization Period
|
|
Amount
|
|
Amortization
|
|
Total
|
|
Acquired technology
|
|
9 years
|
|
$
|
5,200
|
|
$
|
(1,593)
|
|
$
|
3,607
|
|
Customer relationships
|
|
10 years
|
|
|
260
|
|
|
(97)
|
|
|
163
|
|
Trademark
|
|
5 years
|
|
|
60
|
|
|
(45)
|
|
|
15
|
|
|
|
|
|
$
|
5,520
|
|
$
|
(1,735)
|
|
$
|
3,785
|
|
The change in the gross carrying amount and accumulated amortization of the acquired technology from December 31, 2017 to December 31, 2018 is due to the acquisition of intellectual property from American Fuel Cell LLC in April 2018, as well as changes attributed to foreign currency translation. As part of the agreement to acquire the intellectual property, the Company shall pay American Fuel Cell LLC milestone payments not to exceed $2.9 million in total, if certain milestones
associated with the production of components related to the acquired technology are met before April 2021.
Amortization expense for acquired identifiable intangible assets for the years ended December 31, 2018, 2017, and 2016 was $0.7 million, $0.6 million, and $0.6 million, respectively. Estimated amortization expense for subsequent years is as follows (in thousands):
|
|
|
|
2019
|
|
$
|
534
|
2020
|
|
|
498
|
2021
|
|
|
498
|
2022
|
|
|
498
|
2023
|
|
|
498
|
2024 and thereafter
|
|
|
1,364
|
Total
|
|
$
|
3,890
|
8. Accrued Expenses
Accrued expenses at December 31, 2018 and 2017 consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Accrued payroll and compensation related costs
|
|
$
|
2,150
|
|
$
|
1,473
|
|
Accrued accounts payable
|
|
|
1,790
|
|
|
5,821
|
|
Accrued sales and other taxes
|
|
|
1,478
|
|
|
1,278
|
|
Accrued interest
|
|
|
1,605
|
|
|
—
|
|
Accrued litigation
|
|
|
—
|
|
|
1,076
|
|
Accrued other
|
|
|
841
|
|
|
947
|
|
Total
|
|
$
|
7,864
|
|
$
|
10,595
|
|
9. Long-Term Debt
NY Green Bank Loan
The Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc., are parties to a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank), providing for a secured term loan facility in the amount of $45.0 million (Term Loan Facility). The Term Loan Facility was initially entered in December 2016 and provided for a term loan of $25 million. The Term Loan Facility was amended in July 2017 to provide for an additional $20.0 million term loan, increasing the size of the total commitment to $45.0 million. The new Term Loan Facility will be repaid primarily as the Company’s various restricted cash reserves are released over the term of the facility. In June 2018, the timing and amount of the remaining principal payments were modified. On December 31, 2018, the outstanding principal balance under the Term Loan Facility was $17.2 million.
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 December 31, 2018 was approximately 11.9%. The term of the loan is three years, with a maturity date of December 23, 2019. As of December 31, 2018, the remaining balance of $17.2 million is scheduled to be repaid during the year ending December 31, 2019. These payments will be funded in part by restricted cash released, as described in Note 18, 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 is currently on track to 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, 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.
10. 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 were as follows:
|
|
|
|
Amount
|
|
(in thousands)
|
Principal amount
|
$
|
100,000
|
Less initial purchasers' discount
|
|
(3,250)
|
Less cost of related capped call and common stock forward
|
|
(43,500)
|
Less other issuance costs
|
|
(894)
|
Net proceeds
|
$
|
52,356
|
The Convertible Senior Notes bear interest at 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 calendar quarter (and only during such calendar 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 calendar 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 (as defined in the indenture governing the Convertible Senior Notes) 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;
|
|
3)
|
|
if the Company calls any or all of the Convertible Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
|
|
4)
|
|
upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more than 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.
|
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. Holders who convert 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 or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 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 March 20, 2021. The Company may redeem for cash all or any portion of the Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
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 $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 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 $4.1 million, consisting of initial purchasers' discount of approximately $3.2 million and other issuance costs of $0.9 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.4 million, were recorded as debt issuance cost (presented as contra debt in the 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 $1.7 million and were netted with the equity component in stockholders’ equity.
The Convertible Senior Notes consist of the following at December 31, 2018 (in thousands):
|
|
|
Principal amounts:
|
|
|
Principal
|
$
|
100,000
|
Unamortized debt discount (1)
|
|
(34,706)
|
Unamortized debt issuance costs (1)
|
|
(2,047)
|
Net carrying amount
|
$
|
63,247
|
Carrying amount of the equity component (2)
|
$
|
37,702
|
|
1)
|
|
Included in the 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 consolidated balance sheet within additional paid-in capital, net of $1.7 million in equity issuance costs and associated income tax benefit of $9.2 million.
|
As of December 31, 2018, the remaining life of the Convertible Senior Notes is approximately 51 months.
Based on the closing price of the Company’s common stock of $1.24 on December 31, 2018, the if-converted value of the Convertible Senior Notes was less than the principal amount.
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 common stock with certain counterparties at a price of $16.0 million. The net cost incurred in connection with the Capped Call has been recorded as a reduction to additional paid-in capital in the consolidated balance sheet.
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 has been recorded as an increase in treasury stock in the consolidated balance sheet. 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.
9.
11. Stockholders’ Equity
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par
value $.01 per
share. As of December 31, 2018 and 2017, there were no shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding. See Note 12, Redeemable Preferred Stock, for a description of the Company’s issued and outstanding Series C and E 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 219,157,998 and 228,486,366 shares of common stock outstanding as of December 31, 2018 and 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 exercised of the above warrants in 2017, additional paid-in capital was increased 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. As of December 31, 2017 and 2016, 100 warrants with an exercise price of $0.15 per share, remained outstanding. During February 2018, the remaining 100 warrants were exercised.
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 Note 13, Warrant Transaction Agreements. At December 31, 2018 and 2017, in connection with these agreements, warrants to acquire 26,188,434 and 18,913,869 shares of common stock, respectively, have vested and are therefore exercisable. These warrants are measured at fair value and are classified as equity instruments on the consolidated balance sheet.
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. 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 2018, the Company issued 3,804,654 shares of common stock and raised net proceeds of 7.0 million, after accruals, underwriting discounts and commissions and other fees and expenses, pursuant to the Sales Agreement. The Company has raised $30.2 million to date during the term of the Sales Agreement.
12. Redeemable Preferred Stock
In November 2018, the Company completed an offering of an aggregate of 35,000 shares of the Company’s Series E Redeemable Preferred Stock, par value $0.01 per share (Series E Stock), resulting in aggregate net proceeds of approximately $30.9 million, after deducting underwriting discounts and commissions and expenses payable by the Company. The Company is required to redeem the Series E Stock in thirteen monthly installments in the amount of $2.7 million each from May 2019 through May 2020.
Each share of Series E Stock was issued with an initial stated value of $1,000 per share. The Company is required to elect, on a monthly basis, whether it will redeem or convert the installment. Should the Company elect to redeem, the shares are valued at the stated value. Should the Company elect to convert, the holder of the shares will receive common stock, with a conversion price discounted by 15% from the then current market value. The holders of the shares may elect to convert all or any whole amount of shares, at any time at a conversion price of $2.31 per share. Conversion prices are discounted upon a change in control, certain triggering events, or failure to make a redemption payment.
Except for our Series C Redeemable Convertible Preferred Stock (Series C Stock), which shall rank senior to the Series E Stock as to dividends, distributions and payments upon liquidation, dissolution and winding up, all shares of the Company’s capital stock, including common stock, rank junior in rank to the Series E Stock with respect to dividends, distributions and payments upon liquidation, dissolution and winding up.
Holders of the Series E Stock are not entitled to receive dividends except in connection with certain purchase rights and other corporate events, as described in the certificate of designations, or in connection with certain distributions of assets, as described in the certificate of designations, or as, when and if declared by the Company’s Board of Directors acting in its sole and absolute discretion. Holders of the Series E Stock have no voting rights, except on matters required by law or under the certificate of designations to be submitted to a class vote of the Series E Stock.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or other deemed liquidation event, the holders of the Series E Stock are entitled to receive, after any amount that is required to be paid to the Series C Stock and before any amount is paid to the holders of any of capital stock ranking junior to the Series E Stock, an amount per share equal to the greater of (i) 125% of the sum of the stated value plus any declared and unpaid dividends and late charges as provided in the certificate of designations, on the date of such payment and (ii) the amount per share such holder would receive if such holder converted such Series E Stock into common stock immediately prior to the date of such payment.
The Company had 2,620 shares of Series C Stock outstanding at December 31, 2018 and 2017. The holder of the Series C 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 years ended December 31, 2018 and 2017, respectively, all dividends have been paid in shares of common stock. Each share of Series C 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 Stock as of December 31, 2018 and December 31, 2017 was $0.2343. The Series C Stock votes together with the common stock on an as-converted basis on all matters.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or other deemed liquidation event, the holder of the Series C 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 Stock been converted to shares of common stock immediately prior to such liquidation event. The Series C Stock is redeemable at the election of the holder of the Series C Stock or the Company.
13. Warrant Transaction Agreements
Amazon Transaction Agreement
On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, 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 the Company will begin working together on technology collaboration, exploring the expansion of applications for the Company’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 consolidated statements of operations during 2017. 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 final 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.
At December 31, 2018 and 2017, 20,368,782 and 13,094,217 of the Amazon Warrant Shares had vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the years ended December 31, 2018 and 2017 was $9.8 million and $17.3 million, respectively.
Walmart Transaction Agreement
On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant 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 consolidated statements 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 final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares 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.
At December 31, 2018 and 2017, 5,819,652 of the Walmart Warrant Shares had vested. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the years ended December 31, 2018 and 2017 was $0.4 million and $12.4 million, respectively.
14. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by major product line and timing of revenue recognition, net of the provision for common stock warrants, where applicable (in thousands):
|
|
|
|
|
|
|
|
|
|
Major products/services lines
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Sales of fuel cell systems
|
|
$
|
75,146
|
|
$
|
49,179
|
|
$
|
30,008
|
Sale of hydrogen installations and other infrastructure
|
|
|
32,146
|
|
|
13,452
|
|
|
9,977
|
Services performed on fuel cell systems and related infrastructure
|
|
|
22,002
|
|
|
16,202
|
|
|
17,347
|
Power Purchase Agreements
|
|
|
22,869
|
|
|
12,869
|
|
|
13,687
|
Fuel delivered to customers
|
|
|
22,469
|
|
|
8,167
|
|
|
10,916
|
Other
|
|
|
—
|
|
|
284
|
|
|
884
|
Net revenue
|
|
$
|
174,632
|
|
$
|
100,153
|
|
$
|
82,819
|
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Accounts receivable
|
|
$
|
37,347
|
|
$
|
24,179
|
Contract assets
|
|
|
788
|
|
|
1,141
|
Contract liabilities
|
|
|
40,476
|
|
|
35,171
|
Contract assets relate to contracts for which revenue is recognized on a straight-line basis, however billings escalate over the life of a contract.
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 on the consolidated balance sheet.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
|
|
|
|
|
|
|
|
Contract assets
|
|
Year ended
|
|
|
December 31, 2018
|
Amortization of contract assets recognized at the beginning of the period
|
|
$
|
(353)
|
Revenue recognized and not billed as of the end of the period
|
|
|
—
|
Net change in contract assets
|
|
$
|
(353)
|
|
|
|
|
Contract liabilities
|
|
Year ended
|
|
|
December 31, 2018
|
Revenue recognized that was included in the contract liability balance as of the beginning of the period
|
|
$
|
(10,783)
|
Increases due to cash received, net of amounts recognized as revenue during the period
|
|
|
16,088
|
Net change in contract liabilities
|
|
$
|
5,305
|
Estimated future revenue
The following table includes estimated revenue expected to be recognized in the future (sales of fuel cell systems and hydrogen installations are expected to be recognized as revenue within one year; sales of services and PPAs are expected to be recognized as revenue over five to seven years) related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, excluding provision for common stock warrants as it is not readily estimable as it depends on the valuation of the common stock warrants when revenue is recognized (in thousands):
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
Sales of fuel cell systems
|
|
$
|
17,318
|
|
$
|
26,298
|
Sale of hydrogen installations and other infrastructure
|
|
|
9,141
|
|
|
15,512
|
Services performed on fuel cell systems and related infrastructure
|
|
|
73,381
|
|
|
77,453
|
Power Purchase Agreements
|
|
|
111,533
|
|
|
130,042
|
Total estimated future revenue
|
|
$
|
211,373
|
|
$
|
249,305
|
Contract costs
Contract costs consists of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.
Capitalized contract costs at December 31, 2018 and 2017 were $0.2 million and zero, respectively. Expense related to the amortization of capitalized contract costs was not significant for the year ended December 31, 2018.
15. Employee Benefit Plans
2011 Stock Option and Incentive Plan
On May 12, 2011, the Company’s stockholders approved the 2011 Stock Option and Incentive Plan (the 2011 Plan). The 2011 Plan provided for the issuance of up to a maximum number of shares of common stock equal to the sum of (i) 1,000,000, plus (ii) the number of shares of common stock underlying any grants pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and Incentive Plan that are forfeited, canceled, repurchased or are terminated (other than by exercise). The shares may be issued pursuant to stock options, stock appreciation rights, restricted stock awards and certain other equity-based awards granted to employees, directors and consultants of the Company. No grants may be made under the 2011 Plan after May 12, 2021. Through various amendments to the 2011 Plan approved by the Company’s stockholders, the number of shares of the Company’s common stock authorized for issuance under the 2011 Plan has been increased to 30.0 million. For the years ended December 31, 2018, 2017, and 2016, the Company recorded expense of approximately $7.4 million, $9.0 million, and $9.0 million, respectively, in connection with the 2011 Stock Option and Incentive Plan.
At December 31, 2018, there were outstanding options to purchase approximately 22.0 million shares of Common Stock and 2.3 million shares available for future awards under the 2011 Plan, including adjustments for other types of share-based awards. Options for employees issued under this plan generally vest in equal annual installments over three years and expire ten years after issuance. Options granted to members of the Board generally vest one year after issuance. To date, options granted under the 2011 Plan have vesting provisions ranging from one to three years in duration and expire ten years after issuance.
Compensation cost associated with employee stock options represented approximately $6.4 million, $8.6 million, and $9.0 million of the total share-based payment expense recorded for the years ended December 31, 2018, 2017, and 2016, respectively. The Company estimates the fair value of stock options using a Black-Scholes valuation model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the option vesting period. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The assumptions made for purposes of estimating fair value under the Black-Scholes model for the 2,679,667, 5,485,863 and 3,702,500 options granted during the years ended December 31, 2018, 2017 and 2016, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Expected term of options (years)
|
|
6
|
|
6
|
|
6
|
|
Risk free interest rate
|
|
2.81% - 2.88%
|
|
1.89% - 2.16%
|
|
1.27% - 1.69%
|
|
Volatility
|
|
98.31%-98.89%
|
|
99.24%-102.16%
|
|
103.87% - 104.88%
|
|
There was no expected dividend yield for the employee stock options granted.
The Company’s estimate of an expected option term was calculated in accordance with the simplified method for calculating the expected term assumption. The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past six years, which represents the Company’s best estimate of expected volatility.
A summary of stock option activity for the year December 31, 2018 is as follows (in thousands except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Terms
|
|
Value
|
|
Options outstanding at December 31, 2017
|
|
19,872,029
|
|
$
|
2.66
|
|
7.7
|
|
$
|
—
|
|
Granted
|
|
2,679,667
|
|
|
1.96
|
|
—
|
|
|
—
|
|
Exercised
|
|
(276,668)
|
|
|
0.63
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(246,378)
|
|
|
2.91
|
|
—
|
|
|
—
|
|
Expired
|
|
(71,500)
|
|
|
29.51
|
|
—
|
|
|
—
|
|
Options outstanding at December 31, 2018
|
|
21,957,150
|
|
$
|
2.51
|
|
7.1
|
|
$
|
1,432
|
|
Options exercisable at December 31, 2018
|
|
14,964,985
|
|
|
2.74
|
|
6.3
|
|
|
1,431
|
|
Options unvested at December 31, 2018
|
|
6,992,165
|
|
$
|
2.01
|
|
8.9
|
|
$
|
1,467
|
|
The weighted average grant date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $1.55, $1.67, and $1.39, respectively. As of December 31, 2018, there was approximately $8.8 million of unrecognized compensation cost related to stock option awards to be recognized over the next three years with all of this expected to vest. The total fair value of stock options that vested during the years ended December 31, 2018 and 2017 was approximately $7.1 million and $9.6 million, respectively.
Restricted stock awards generally vest in equal installments over a period of one to three years. Restricted stock awards are valued based on the closing price of the Company’s common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The Company recorded expense associated with its restricted stock awards of approximately $966 thousand, $335 thousand, and $88 thousand, for the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, for the years ended December 31, 2018, 2017 and 2016, there was $3.9 million, $208 thousand, and $43 thousand, respectively, of unrecognized compensation cost related to restricted stock awards to be recognized over the next three years.
A summary of restricted stock activity for the year ended December 31, 2018 is as follows (in thousands except share amounts):
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
Value
|
|
Unvested restricted stock at December 31, 2017
|
|
234,744
|
|
$
|
—
|
|
Granted
|
|
2,347,347
|
|
|
—
|
|
Vested
|
|
(234,744)
|
|
|
—
|
|
Unvested restricted stock at December 31, 2018
|
|
2,347,347
|
|
$
|
2,911
|
|
401(k) Savings & Retirement Plan
The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute 100% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings or less actual losses thereon. Participants are vested in the Company’s matching contribution based on years of service completed. Participants are fully vested upon completion of three years of service. During 2018, the Company began funding its matching contribution in a combination of cash and common stock. Accordingly, the Company has issued 633,827 shares of common stock to the Plug Power Inc. 401(k) Savings & Retirement Plan during 2018.
The Company’s expense for this plan was approximately $1.8 million, $1.6 million, and $1.4 million for years ended December 31, 2018, 2017 and 2016, respectively.
Non-Employee Director Compensation
Each non-employee director is paid an annual retainer for their services, in the form of either cash or stock compensation. The Company granted 107,389, 148,077, and 105,479 shares of stock to non-employee directors as compensation for the years ended December 31, 2018, 2017, and 2016, respectively. All common stock issued is fully vested at the time of issuance and is valued at fair value on the date of issuance. The Company’s share-based compensation expense for this plan was approximately $261 thousand, $276 thousand, and $267 thousand for the years ended December 31, 2018, 2017, and 2016 respectively.
16. Fair Value Measurements
The following table summarizes the financial instruments measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Identical
Items
|
|
Inputs
|
|
Inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balance at December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
105
|
|
$
|
—
|
|
$
|
—
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
4,391
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,391
|
|
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 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:
|
|
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Risk-free interest rate
|
|
1.64% - 2.66%
|
|
1.01% - 2.01%
|
Volatility
|
|
18.40% - 81.69%
|
|
43.60% - 108.77%
|
Expected average term
|
|
0.01 - 1.53
|
|
0.14 - 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.
The following table shows the activity in the common stock warrant liability (in thousands):
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Beginning of period
|
$
|
4,391
|
|
$
|
11,387
|
|
Change in fair value of common stock warrants
|
|
(4,286)
|
|
|
15,188
|
|
Issuance of common stock warrants
|
|
—
|
|
|
4,905
|
|
Exercise of common stock warrants
|
|
—
|
|
|
(27,089)
|
|
End of period
|
$
|
105
|
|
$
|
4,391
|
|
Equity Instruments
The fair value measurement of the Company’s equity-classified common stock warrants further described in Note 13, 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 for the years ended December 31, 2018 and 2017:
|
|
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Risk-free interest rate
|
|
2.60% - 3.02%
|
|
2.30% - 2.47%
|
Volatility
|
|
75.00% - 85.00%
|
|
85.00% - 90.00%
|
Expected average term
|
|
8.26 - 9.30
|
|
9.26 - 10.00
|
The Monte Carlo pricing models used in the determination of the fair value of the equity-classified warrants also incorporate assumptions involving future revenues associated with Amazon and Walmart, and related timing.
The following table represents the fair value per warrant on the execution date of the transaction agreements and as of December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
Amazon Warrant Shares
|
|
|
Walmart Warrant Shares
|
Issuance date - first tranche
|
$
|
1.15
|
|
$
|
1.88
|
As of vesting date - second tranche, first installment
|
|
2.16
|
|
|
—
|
As of vesting date - second tranche, second installment
|
|
1.54
|
|
|
—
|
As of December 2018 - second tranche
|
|
0.98
|
|
|
0.92
|
As of December 2017 - second tranche
|
|
2.13
|
|
|
1.92
|
17. Income Taxes
The components of loss before income taxes and the income tax benefit for the years ended December 31, 2018, 2017 and 2016, by jurisdiction, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Loss before income taxes
|
|
$
|
(85,925)
|
|
$
|
(1,407)
|
|
$
|
(87,332)
|
|
$
|
(125,871)
|
|
$
|
(1,209)
|
|
$
|
(127,080)
|
|
$
|
(56,317)
|
|
$
|
(1,562)
|
|
$
|
(57,879)
|
|
Income tax benefit
|
|
|
9,217
|
|
|
—
|
|
|
9,217
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
392
|
|
|
392
|
|
Net loss attributable to the Company
|
|
$
|
(76,708)
|
|
$
|
(1,407)
|
|
$
|
(78,115)
|
|
$
|
(125,871)
|
|
$
|
(1,209)
|
|
$
|
(127,080)
|
|
$
|
(56,317)
|
|
$
|
(1,170)
|
|
$
|
(57,487)
|
|
The significant components of deferred income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016, by jurisdiction, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Deferred tax (benefit) expense
|
|
$
|
(10,182)
|
|
$
|
933
|
|
$
|
(9,249)
|
|
$
|
7,675
|
|
$
|
(531)
|
|
$
|
7,144
|
|
$
|
(6,420)
|
|
$
|
(1,299)
|
|
$
|
(7,719)
|
|
Net operating loss carryforward generated
|
|
|
(10,038)
|
|
|
(665)
|
|
|
(10,703)
|
|
|
(19,117)
|
|
|
(17)
|
|
|
(19,134)
|
|
|
(16,727)
|
|
|
(2,827)
|
|
|
(19,554)
|
|
Rate change impact on net operating loss carryforwards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,609
|
|
|
—
|
|
|
23,609
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Valuation allowance increase (decrease)
|
|
|
11,003
|
|
|
(268)
|
|
|
10,735
|
|
|
(12,167)
|
|
|
548
|
|
|
(11,619)
|
|
|
23,147
|
|
|
4,126
|
|
|
27,273
|
|
Provision for income taxes
|
|
$
|
(9,217)
|
|
$
|
—
|
|
$
|
(9,217)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
The Company’s effective income tax rate differed from the federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
U.S. Federal statutory tax rate
|
|
(21.0)
|
%
|
(35.0)
|
%
|
(35.0)
|
%
|
Deferred state taxes
|
|
(1.9)
|
%
|
(1.4)
|
%
|
(3.1)
|
%
|
Common stock warrant liability
|
|
(1.0)
|
%
|
4.2
|
%
|
(2.6)
|
%
|
Provision to return and deferred tax asset adjustments
|
|
—
|
%
|
5.9
|
%
|
(2.9)
|
%
|
Change in unrecognized tax benefits
|
|
—
|
%
|
—
|
%
|
(0.7)
|
%
|
Change in U.S. Federal statutory tax rate
|
|
—
|
%
|
33.5
|
%
|
—
|
%
|
Other, net
|
|
0.4
|
%
|
2.0
|
%
|
(1.6)
|
%
|
Change in valuation allowance
|
|
12.9
|
%
|
(9.2)
|
%
|
45.2
|
%
|
|
|
(10.6)
|
%
|
0.0
|
%
|
(0.7)
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Intangible assets
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,146
|
|
$
|
1,698
|
|
$
|
1,146
|
|
$
|
1,698
|
Deferred revenue
|
|
|
9,304
|
|
|
8,083
|
|
|
—
|
|
|
—
|
|
|
9,304
|
|
|
8,083
|
Interest expense
|
|
|
5,239
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,239
|
|
|
—
|
Other reserves and accruals
|
|
|
592
|
|
|
850
|
|
|
—
|
|
|
—
|
|
|
592
|
|
|
850
|
Tax credit carryforwards
|
|
|
1,865
|
|
|
1,378
|
|
|
1,200
|
|
|
1,304
|
|
|
3,065
|
|
|
2,682
|
Amortization of stock-based compensation
|
|
|
8,442
|
|
|
6,904
|
|
|
—
|
|
|
—
|
|
|
8,442
|
|
|
6,904
|
Non-compensatory warrants
|
|
|
3,597
|
|
|
4,555
|
|
|
—
|
|
|
—
|
|
|
3,597
|
|
|
4,555
|
Capitalized research & development expenditures
|
|
|
19,116
|
|
|
14,496
|
|
|
4,294
|
|
|
4,666
|
|
|
23,410
|
|
|
19,162
|
Net operating loss carryforwards
|
|
|
49,058
|
|
|
39,437
|
|
|
9,306
|
|
|
8,641
|
|
|
58,364
|
|
|
48,078
|
Total deferred tax asset
|
|
|
97,213
|
|
|
75,703
|
|
|
15,946
|
|
|
16,309
|
|
|
113,159
|
|
|
92,012
|
Valuation allowance
|
|
|
(84,567)
|
|
|
(73,564)
|
|
|
(15,926)
|
|
|
(16,194)
|
|
|
(100,493)
|
|
|
(89,758)
|
Net deferred tax assets
|
|
$
|
12,646
|
|
$
|
2,139
|
|
$
|
20
|
|
$
|
115
|
|
$
|
12,666
|
|
$
|
2,254
|
Intangible assets
|
|
|
(37)
|
|
|
(76)
|
|
|
—
|
|
|
—
|
|
|
(37)
|
|
|
(76)
|
Convertible debt
|
|
|
(9,217)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,217)
|
|
|
—
|
Other reserves and accruals
|
|
|
—
|
|
|
—
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
|
—
|
Property, plant and equipment and right of use assets
|
|
|
(3,392)
|
|
|
(1,854)
|
|
|
—
|
|
|
(115)
|
|
|
(3,392)
|
|
|
(1,969)
|
Section 382 recognized built in loss
|
|
|
—
|
|
|
(209)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(209)
|
Deferred tax liability
|
|
$
|
(12,646)
|
|
$
|
(2,139)
|
|
$
|
(20)
|
|
$
|
(115)
|
|
$
|
(12,666)
|
|
$
|
(2,254)
|
Net
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
The Company has recorded a valuation allowance, as a result of uncertainties related to the realization of its net deferred tax asset, at December 31, 2018 and 2017 of approximately $100.4 million and $89.8 million, respectively. A reconciliation of the current year change in valuation allowance is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Increase in valuation allowance for current year increase in net operating losses
|
|
$
|
10,038
|
|
$
|
464
|
|
$
|
10,502
|
|
Increase (decrease) in valuation allowance for current year net increase (decrease) in deferred tax assets other than net operating losses
|
|
|
1,665
|
|
|
(281)
|
|
|
1,384
|
|
Decrease in valuation allowance as a result of foreign currency fluctuation
|
|
|
—
|
|
|
(451)
|
|
|
(451)
|
|
Decrease in valuation allowance due to change in tax rates
|
|
|
(700)
|
|
|
—
|
|
|
(700)
|
|
Net increase (decrease) in valuation allowance
|
|
$
|
11,003
|
|
$
|
(268)
|
|
$
|
10,735
|
|
The deferred tax assets have been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforwards and other deferred tax assets may not be realized due to cumulative losses.
Under Internal Revenue Code (IRC) Section 382, the use of loss carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Company’s shares owned by its 5 percent or greater shareholders a change of ownership has occurred under the provisions of IRC Section 382, the Company's federal and state net operating loss carryforwards could be subject to significant IRC Section 382 limitations.
Based on studies of the changes in ownership of the Company, it has been determined that an IRC Section 382 ownership change occurred in 2013 that limited the amount of pre-change net operating losses that can be used in future years to $13.5 million. These net operating loss carryforwards will expire, if unused, at various dates from 2020 through 2033. Net operating losses of $195.4 million incurred after the most recent ownership change are not subject to IRC Section 382 and are available for use in future years. Accordingly, the Company's deferred tax assets include $208.8 million of U.S. net operating loss carryforwards. The net operating loss carryforwards available at December 31, 2018, include $42.2 million of net operating loss that was generated in 2018 that does not expire. The remainder, if unused, will expire at various dates from 2032 through 2037.
The ownership change in 2013 also resulted in net unrealized built-in losses per IRS Notice 2003-65 which should result in recognized built in losses during the five year recognition period. These recognized built in losses will translate into unfavorable book to tax add backs in the Company’s 2018 U.S corporate income tax return of approximately $0.9 million that resulted in a gross deferred tax liability of zero at December 31, 2018. This gross deferred tax liability offsets existing gross deferred tax assets effectively reducing the valuation allowance. This has no impact on the Company’s current financial position, results of operations, or cash flows because of the full valuation allowance.
Approximately $1.9 million of research credit carryforwards generated after the most recent IRC Section 382 ownership change are included in the Company's deferred tax assets. Due to limitations under IRC Section 382, research credit carryforwards existing prior to the most recent IRC Section 382 ownership change will not be used and are not reflected in the Company's gross deferred tax asset at December 31, 2018. The remaining credit carryforwards will expire during the periods 2033 through 2038.
At December 31, 2018, the Company has unused Canadian net operating loss carryforwards of approximately $13.6 million. The net operating loss carryforwards if unused will expire at various dates from 2026 through 2034. At December 31, 2018, the Company has Scientific Research and Experimental Development (SR&ED) expenditures of $16.5 million available to offset future taxable income. These (SR&ED) expenditures have no expiry date. At December 31, 2017, the Company has Canadian ITC credit carryforwards of $1.2 million available to offset future income tax. These credit carryforwards if unused will expire at various dates from 2022 through 2028.
At December 31, 2018, the Company has unused French net operating loss carryforwards of approximately $17.6 million. The net operating loss may carryforward indefinitely or until the Company changes its activity.
As of December 31, 2018, the Company has no un-repatriated foreign earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Unrecognized tax benefits balance at beginning of year
|
|
$
|
—
|
|
$
|
—
|
|
$
|
437
|
|
Reductions for tax positions of prior years
|
|
|
—
|
|
|
—
|
|
|
(469)
|
|
Currency translation
|
|
|
—
|
|
|
—
|
|
|
32
|
|
Unrecognized tax benefits balance at end of year
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. Open tax years in the US range from 2014 to 2017. Open tax years in the foreign jurisdictions range from 2009 to 2018. However, upon examination in subsequent years, if net operating losses carryforwards and tax credit carryforwards are utilized, the US and foreign jurisdictions can reduce net operating loss carryforwards and tax credit carryforwards utilized in the year being examined if they do not agree with the carryforward amount. As of December 31, 2018, the Company was not under audit in the U.S. or non-U.S. taxing jurisdictions.
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act makes broad and complex changes to the U.S. tax code including a reduction of the U.S. federal corporate tax rate from 35 percent to 21 percent effective for the 2018 tax year. Accordingly, federal deferred tax assets were adjusted in 2017 by $42.5 million to reflect the reduction in tax rates. Also, in 2017 the valuation allowance was reduced by $42.5 million resulting in no change to the net deferred tax asset. The deferred tax asset adjustments reduced the tax benefit of the current year losses by 33.5%
as shown in the effective tax rate schedule. The valuation allowance rate impact includes an offsetting 33.5% for the tax rate reduction resulting in no change to the provision for income taxes.
18. Commitments and Contingencies
Operating Leases – as Lessor
As of December 31, 2018, the Company has several noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
|
2019
|
|
$
|
27,234
|
2020
|
|
|
25,503
|
2021
|
|
|
20,781
|
2022
|
|
|
12,044
|
2023
|
|
|
8,146
|
2024 and thereafter
|
|
|
7,946
|
Total future minimum lease payments
|
|
$
|
101,654
|
Operating Leases – as Lessee
As of December 31 2018, the Company has several noncancelable operating leases (as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to seven years. Minimum rent payments under operating leases are recognized on a straight‑line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
|
2019
|
|
$
|
22,582
|
2020
|
|
|
21,255
|
2021
|
|
|
16,512
|
2022
|
|
|
11,060
|
2023
|
|
|
10,325
|
2024 and thereafter
|
|
|
13,352
|
Total future minimum lease payments
|
|
|
95,086
|
Less imputed lease interest
|
|
|
(24,171)
|
Total lease liabilities
|
|
$
|
70,915
|
The Company has received cash for future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at December 31, 2018 is $37.0 million, $5.7 million and $31.3 million of which is classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The outstanding balance of this obligation at December 31, 2017 was $10.4 million, $2.5 million and $7.9 million of which is classified as short-term and long-term, respectively, on the accompanying consolidated balance sheet. The amount is amortized using the effective interest method. The fair value of this finance obligation approximates the carrying value as of December 31, 2018.
Rental expense for all operating leases was $15.8 million and $13.4 million for the years ended December 31, 2018 and 2017, respectively.
The gross profit on sale/leaseback transactions for all operating leases was $16.4 million for the year ended December 31, 2018. Right of use assets obtained in exchange for new operating lease liabilities were $42.2 million for the year ended December 31, 2018.
At December 31, 2018 and 2017, security deposits associated with sale/leaseback transactions were $6.8 million $8.3 million, respectively, and are included in other assets on the consolidated balance sheet.
Other information related to the operating leases is presented in the following table:
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
Cash payments
|
$
|
14,926
|
Weighted average remaining lease term (years)
|
|
4.36
|
Weighted average discount rate
|
|
12.1%
|
Finance Leases – As Lessee
During the year ended December 31, 2017, the Company entered into sale/leaseback transactions, which were accounted for as finance leases and reported as part of finance obligations on the Company’s consolidated balance sheet. In June 2018, the timing and amount of the lease payments from certain previous sale/leaseback transactions were amended to extend the due date. The outstanding balance of finance obligations related to sale/leaseback transactions at December 31, 2018 was $81.9 million. The fair value of the finance obligation approximates the carrying value as of December 31, 2018.
Future minimum lease payments under noncancelable finance leases related to sale/leaseback transactions (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are (in thousands):
|
|
|
2019
|
$
|
59,151
|
2020
|
|
6,722
|
2021
|
|
6,722
|
2022
|
|
4,975
|
2023
|
|
3,166
|
2024 and thereafter
|
|
16,154
|
Total future minimum lease payments
|
|
96,890
|
Less imputed lease interest
|
|
(14,986)
|
Total lease liabilities
|
$
|
81,904
|
Finance lease costs include amortization of the right of use assets (i.e. depreciation expense) and interest of lease liabilities (i.e. interest and other expense, net in the consolidated statement of operations). Finance lease costs for the year ended December 31, 2018 is (in thousands):
|
|
|
|
Year ended
|
|
December 31, 2018
|
Amortization of right of use asset
|
$
|
7,549
|
Interest on finance obligations
|
|
6,908
|
Total finance lease cost
|
$
|
14,457
|
Right of use assets obtained in exchange for new finance lease liabilities were $2.2 million for the year ended December 31, 2018.
The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this agreement of $2.5 million has been recorded as a finance obligation, in the accompanying consolidated balance sheet as of December 31, 2018. The fair value of this finance obligation approximates the carrying value as of
December 31, 2018. Upon the adoption of ASC 842, the Company reclassified property and equipment of $1.5 million, subject to a finance lease, to right of use assets.
Other information related to the finance leases is presented in the following table:
|
|
|
|
|
Year ended
|
|
|
December 31, 2018
|
Cash payments
|
$
|
33,715
|
Weighted average remaining lease term (years)
|
|
3.17
|
Weighted average discount rate
|
|
11.8%
|
Restricted Cash
In connection with certain of the above noted sale/leaseback agreements, cash of $34.3 million is required to be restricted as security and will be released over the lease term. The Company also has certain letters of credit backed by security deposits totaling $36.8 million that are security for the above noted sale/leaseback agreements.
The Company also has letters of credit in the aggregate amount of $0.5 million at December 31, 2018 associated with a finance obligation from the sale/leaseback of its building. Cash collateralizing this letter of credit is also considered restricted cash.
Litigation
Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.
Concentrations of credit risk
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.
At December 31, 2018, three customers comprise approximately 52.3% of the total accounts receivable balance. At December 31, 2017, three customers comprised approximately 59.0% of the total accounts receivable balance.
For the year ended December 31, 2018, 66.7% of total consolidated revenues were associated primarily with two customers. For the year ended December 31, 2017 and 2016, 71.8% and 34.1% of total consolidated revenues were associated primarily with two customers. For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer.
19. Unaudited Quarterly Financial Data (in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
2018
|
|
Net revenue (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
10,613
|
|
$
|
18,820
|
|
$
|
36,668
|
|
$
|
41,191
|
|
Services performed on fuel cell systems and related infrastructure (2)
|
|
|
5,483
|
|
|
5,691
|
|
|
5,156
|
|
|
5,672
|
|
Power Purchase Agreements
|
|
|
5,372
|
|
|
5,438
|
|
|
5,555
|
|
|
6,504
|
|
Fuel delivered to customers
|
|
|
4,950
|
|
|
5,280
|
|
|
5,786
|
|
|
6,453
|
|
Net revenue
|
|
|
26,418
|
|
|
35,229
|
|
|
53,165
|
|
|
59,820
|
|
Gross (loss) profit
|
|
|
(3,984)
|
|
|
(2,310)
|
|
|
4,409
|
|
|
4,507
|
|
Operating expenses
|
|
|
16,957
|
|
|
20,668
|
|
|
17,054
|
|
|
17,426
|
|
Operating loss
|
|
|
(20,941)
|
|
|
(22,978)
|
|
|
(12,645)
|
|
|
(12,919)
|
|
Net loss attributable to common shareholders
|
|
|
(19,848)
|
|
|
(25,881)
|
|
|
(15,578)
|
|
|
(16,860)
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.09)
|
|
$
|
(0.12)
|
|
$
|
(0.07)
|
|
$
|
(0.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
Net revenue (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
2,197
|
|
$
|
7,650
|
|
$
|
38,060
|
|
$
|
14,724
|
|
Services performed on fuel cell systems and related infrastructure (2)
|
|
|
4,372
|
|
|
3,908
|
|
|
2,217
|
|
|
5,706
|
|
Power Purchase Agreements
|
|
|
4,311
|
|
|
4,945
|
|
|
(1,663)
|
|
|
5,276
|
|
Fuel delivered to customers
|
|
|
3,491
|
|
|
3,440
|
|
|
(4,149)
|
|
|
5,384
|
|
Other
|
|
|
87
|
|
|
64
|
|
|
128
|
|
|
5
|
|
Net revenue
|
|
|
14,458
|
|
|
20,007
|
|
|
34,593
|
|
|
31,095
|
|
Gross loss
|
|
|
(4,479)
|
|
|
(3,543)
|
|
|
(19,410)
|
|
|
(657)
|
|
Operating expenses (3)
|
|
|
15,143
|
|
|
24,529
|
|
|
16,971
|
|
|
17,060
|
|
Operating loss
|
|
|
(19,622)
|
|
|
(28,072)
|
|
|
(36,381)
|
|
|
(17,717)
|
|
Net loss attributable to common shareholders
|
|
|
(27,074)
|
|
|
(42,645)
|
|
|
(41,008)
|
|
|
(19,451)
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.14)
|
|
$
|
(0.19)
|
|
$
|
(0.18)
|
|
$
|
(0.09)
|
|
|
(1)
|
|
Revenue amounts reported in prior periods have been reclassified to be presented net of provision for common stock warrants, as referenced in Note 2, Summary of Significant Accounting Policies.
|
|
(2)
|
|
Presentation of certain service arrangements and the amortization of the associated finance obligations for 2018 and 2017 has been corrected resulting in changes to previously reported interim financial information. See Note 2, Summary of Significant Accounting Policies, for details.
|
|
(3)
|
|
Operating expenses in the second quarter of 2017 includes the impact of $7.1 million charge related to the fair value of Amazon Warrant Shares as discussed in Note 13, Warrant Transaction Agreements.
|
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