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.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

OR

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

FOR THE TRANSITION PERIOD FROM                    TO                   

Commission File Number: 1-34392

PLUG POWER INC.

(Exact name of registrant as specified in its charter)

Delaware

22-3672377

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification Number)

968 ALBANY SHAKER ROAD, LATHAM, NEW YORK 12110

(Address of Principal Executive Offices, including Zip Code)

(518) 782-7700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share

 

PLUG

The NASDAQ Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No  

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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

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

The number of shares of common stock, par value of $0.01 per share, outstanding as of November 8, 2021 was 576,355,807.

INDEX to FORM 10-Q

Page

PART I. FINANCIAL INFORMATION

Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Loss

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Interim Condensed Consolidated Financial Statements

8

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

33

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

59

Item 4 – Controls and Procedures

60

PART II. OTHER INFORMATION

Item 1 – Legal Proceedings

61

Item 1A – Risk Factors

63

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

63

Item 3 – Defaults Upon Senior Securities

63

Item 4 – Mine Safety Disclosures

63

Item 5 – Other Information

63

Item 6 – Exhibits

64

Signatures

65

2

PART 1.  FINANCIAL INFORMATION

Item 1 — Interim Financial Statements (Unaudited)

Plug Power Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

    

September 30,

    

December 31,

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

3,371,962

$

1,312,404

Restricted cash

90,688

64,041

Available-for-sale securities, at fair value
(amortized cost $756,841 and allowance for credit losses of $0 at September 30, 2021)

752,766

Equity securities

147,649

Accounts receivable

 

132,370

 

43,041

Inventory

 

229,814

 

139,386

Prepaid expenses and other current assets

 

62,746

 

44,324

Total current assets

 

4,787,995

 

1,603,196

Restricted cash

 

390,542

 

257,839

Property, plant, and equipment, net

169,586

 

74,549

Right of use assets related to finance leases, net

22,039

5,724

Right of use assets related to operating leases, net

167,907

117,016

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

78,711

 

75,807

Goodwill

71,856

72,387

Intangible assets, net

 

37,644

 

39,251

Other assets

 

13,820

 

5,513

Total assets

$

5,740,100

$

2,251,282

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

68,378

$

50,198

Accrued expenses

 

52,645

 

46,083

Deferred revenue

 

35,463

 

23,275

Operating lease liabilities

23,284

14,314

Finance lease liabilities

2,758

903

Finance obligations

35,595

32,717

Current portion of long-term debt

23,491

25,389

Other current liabilities

 

28,329

 

29,487

Total current liabilities

 

269,943

 

222,366

Deferred revenue

 

63,402

 

32,944

Operating lease liabilities

139,400

99,624

Finance lease liabilities

17,027

4,493

Finance obligations

 

172,242

 

148,836

Convertible senior notes, net

192,320

85,640

Long-term debt

123,764

150,013

Other liabilities

 

55,113

 

40,447

Total liabilities

 

1,033,211

 

784,363

Stockholders’ equity:

Common stock, $0.01 par value per share; 1,500,000,000 shares authorized; Issued (including shares in treasury): 593,077,995 at September 30, 2021 and 473,977,469 at December 31, 2020

 

5,930

 

4,740

Additional paid-in capital

 

6,978,454

 

3,446,650

Accumulated other comprehensive (loss) gain

 

(2,338)

 

2,451

Accumulated deficit

 

(2,203,989)

 

(1,946,488)

Less common stock in treasury: 17,032,648 at September 30, 2021 and 15,926,068 at December 31, 2020

(71,168)

(40,434)

Total stockholders’ equity

 

4,706,889

 

1,466,919

Total liabilities and stockholders’ equity

$

5,740,100

$

2,251,282

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

3

Plug Power Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

    

2020

2021

    

2020

Net revenue:

Sales of fuel cell systems and related infrastructure

$

115,999

$

83,662

$

262,049

$

151,876

Services performed on fuel cell systems and related infrastructure

6,677

6,829

18,397

19,586

Power Purchase Agreements

 

9,321

 

6,629

 

25,508

 

19,629

Fuel delivered to customers

 

11,556

 

9,831

 

33,804

 

24,536

Other

369

97

679

235

Net revenue

143,922

107,048

340,437

215,862

Cost of revenue:

Sales of fuel cell systems and related infrastructure

 

89,235

 

69,428

 

198,122

 

117,290

Services performed on fuel cell systems and related infrastructure

 

18,697

 

9,180

 

47,258

 

27,300

Provision for loss contracts related to service

7,462

25,147

15,641

25,948

Power Purchase Agreements

 

31,199

 

14,744

 

71,776

 

44,019

Fuel delivered to customers

 

27,857

 

17,002

 

90,331

 

39,332

Other

 

550

 

131

 

856

 

275

Total cost of revenue

 

175,000

 

135,632

 

423,984

 

254,164

Gross loss

 

(31,078)

 

(28,584)

 

(83,547)

 

(38,302)

Operating expenses:

Research and development

16,634

7,386

37,623

17,033

Selling, general and administrative

42,421

17,210

106,652

49,963

Change in fair value of contingent consideration

8,530

1,130

8,760

1,130

Total operating expenses

67,585

25,726

153,035

68,126

Operating loss

(98,663)

(54,310)

(236,582)

(106,428)

Interest, net

 

(5,361)

 

(17,248)

 

(27,895)

 

(42,407)

Other expense, net

 

(50)

 

(303)

 

(318)

 

(452)

Realized loss on investments, net

(254)

(236)

Change in fair value of equity securities

(607)

(284)

Gain on extinguishment of debt

13,222

Loss on equity method investments

(1,736)

(1,736)

Loss before income taxes

$

(106,671)

$

(71,861)

$

(267,051)

$

(136,065)

Income tax benefit

 

 

6,644

 

 

24,015

Net loss attributable to the Company

$

(106,671)

$

(65,217)

$

(267,051)

$

(112,050)

Preferred stock dividends declared

 

 

 

 

(26)

Net loss attributable to common stockholders

$

(106,671)

$

(65,217)

$

(267,051)

$

(112,076)

Net loss per share:

Basic and diluted

$

(0.19)

$

(0.18)

$

(0.48)

$

(0.34)

Weighted average number of common stock outstanding

 

574,520,806

 

371,010,544

 

551,894,779

 

330,949,265

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

4

Plug Power Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

Three months ended

Nine months ended

September 30,

September 30,

    

2021

    

2020

 

2021

    

2020

Net loss attributable to the Company

$

(106,671)

$

(65,217)

$

(267,051)

$

(112,050)

Other comprehensive gain (loss):

Foreign currency translation (loss) gain

 

(172)

 

687

 

(714)

 

558

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

(2,200)

(4,075)

Comprehensive loss attributable to the Company

$

(109,043)

$

(64,530)

$

(271,840)

$

(111,492)

Preferred stock dividends declared

(26)

Comprehensive loss attributable to common stockholders

$

(109,043)

$

(64,530)

$

(271,840)

$

(111,518)

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

5

Plug Power Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

    

    

    

    

    

    

    

Accumulated

    

    

    

    

    

    

Additional

Other

Total

Common Stock

 Paid-in

Comprehensive

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Shares

    

Amount

    

Deficit

    

Equity

December 31, 2020

 

473,977,469

$

4,740

$

3,446,650

$

2,451

 

15,926,068

$

(40,434)

$

(1,946,488)

$

1,466,919

Net loss attributable to the Company

 

 

 

 

 

 

(267,051)

 

(267,051)

Cumulative impact of Accounting Standards Update 2020-06 adoption

(130,185)

9,550

(120,635)

Other comprehensive loss

 

 

 

(4,789)

 

 

 

(4,789)

Stock-based compensation

61,408

 

 

34,813

 

 

 

 

 

34,813

Public offerings, common stock, net

32,200,000

322

2,022,871

 

2,023,193

Private offerings, common stock, net

54,966,188

549

1,564,088

1,564,637

Stock option exercises

4,576,102

 

46

 

5,270

 

 

 

 

 

5,316

Stock exchanged for tax withholding

1,106,580

(30,734)

(30,734)

Exercise of warrants

24,210,984

 

242

 

15,203

 

 

 

 

15,445

Provision for common stock warrants

4,430

 

4,430

Conversion of 3.75% Convertible Senior Notes

3,016,036

30

15,155

 

15,185

Conversion of 5.5% Convertible Senior Notes

69,808

1

159

160

September 30, 2021

593,077,995

$

5,930

$

6,978,454

$

(2,338)

 

17,032,648

$

(71,168)

$

(2,203,989)

$

4,706,889

December 31, 2019

 

318,637,560

$

3,186

$

1,506,953

$

1,288

 

15,259,045

$

(31,216)

$

(1,350,307)

$

129,904

Net loss attributable to the Company

 

 

 

 

 

 

 

(112,050)

 

(112,050)

Other comprehensive gain

 

 

 

 

558

 

 

 

 

558

Stock-based compensation

 

402,003

 

4

 

9,254

 

 

 

 

 

9,258

Stock dividend

 

5,156

 

 

20

 

 

 

 

(20)

 

Public offerings, net

35,276,250

353

344,045

344,398

Stock option exercises

 

13,736,265

 

137

 

32,416

 

 

 

 

 

32,553

Stock exchanged for tax withholding

667,023

 

(9,218)

(9,218)

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

108,479

108,479

Purchase of capped calls

(16,253)

(16,253)

Termination of capped calls

24,158

24,158

Provision for common stock warrants

32,529

32,529

Accretion of discount, preferred stock

(29)

(29)

Conversion of preferred stock

 

2,998,526

 

30

 

1,148

 

 

 

 

 

1,178

Conversion of 7.5% Convertible Senior Note

16,000,000

160

42,713

42,873

Repurchase of 5.5% Convertible Senior Notes, net of income tax benefit

9,409,591

94

(51,840)

(51,746)

Shares issued for acquisitions

9,658,465

97

49,576

49,673

September 30, 2020

 

406,123,816

$

4,061

$

2,083,169

$

1,846

 

15,926,068

$

(40,434)

$

(1,462,377)

$

586,265

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

6

Plug Power Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine months ended

September 30,

 

2021

    

2020

Operating Activities

Net loss attributable to the Company

$

(267,051)

$

(112,050)

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

Depreciation of long-lived assets

 

15,903

 

9,860

Amortization of intangible assets

 

1,095

 

835

Stock-based compensation

 

34,813

 

9,258

Gain on extinguishment of debt

(13,222)

Amortization of debt issuance costs and discount on convertible senior notes

2,371

12,183

Provision for common stock warrants

4,746

25,198

Income tax benefit

(24,015)

Impairment of long-lived assets

1,329

Loss on service contracts

9,586

25,110

Fair value adjustment to contingent consideration

(8,760)

1,130

Net realized loss on investments

236

Lease origination costs

(7,889)

Change in fair value for equity securities

284

Loss on equity method investments

1,736

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

Accounts receivable

 

(89,329)

 

(86,056)

Inventory

 

(90,428)

 

(57,615)

Prepaid expenses, and other assets

 

(28,465)

 

(4,956)

Accounts payable, accrued expenses, and other liabilities

 

28,992

 

41,125

Deferred revenue

 

42,330

 

16,709

Net cash used in operating activities

 

(348,501)

 

(156,506)

Investing Activities

Purchases of property, plant and equipment

 

(91,384)

 

(11,265)

Purchase of intangible assets

(1,638)

Purchases of equipment related to power purchase agreements and equipment related to fuel delivered to customers

(17,900)

(13,699)

Purchase of available-for-sale securities

(1,862,951)

Proceeds from sales and maturities of available-for-sale securities

1,105,874

Proceeds from sales of equity securities

21,780

Purchase of equity securities

(169,713)

Net cash paid for acquisition

(45,113)

Net cash used in investing activities

 

(1,014,294)

 

(71,715)

Financing Activities

Proceeds from exercise of warrants, net of transaction costs

 

15,445

 

Proceeds from public and private offerings, net of transaction costs

 

3,587,830

 

344,398

Payments of tax withholding on behalf of employees for net stock settlement of stock-based compensation

(30,734)

(9,218)

Proceeds from exercise of stock options

 

5,316

 

32,553

Proceeds from issuance of convertible senior notes, net

205,098

Repurchase of convertible senior notes

(90,238)

Purchase of capped calls and common stock forward

(16,253)

Proceeds from termination of capped calls

24,158

Principal payments on long-term debt

(29,129)

(27,845)

Proceeds from long-term debt, net

99,000

Repayments of finance obligations and finance leases

(20,413)

(19,038)

Proceeds from finance obligations

 

53,447

 

47,568

Net cash provided by financing activities

 

3,581,762

 

590,183

Effect of exchange rate changes on cash

 

(59)

 

(90)

Increase in cash, cash equivalents and restricted cash

 

2,218,908

 

361,872

Cash, cash equivalents, and restricted cash beginning of period

 

1,634,284

 

369,500

Cash, cash equivalents, and restricted cash end of period

$

3,853,192

$

731,372

Supplemental disclosure of cash flow information

Cash paid for interest, net capitalized interest of $2.6 million

$

10,341

$

16,975

Summary of non-cash activity

Recognition of right of use asset - finance leases

$

16,961

$

Recognition of right of use asset - operating leases

65,083

25,857

Conversion of preferred stock to common stock

43,058

Conversion of convertible senior notes to common stock

15,345

Accrued purchase of fixed assets, cash to be paid in subsequent period

8,832

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

7

1.  Nature of Operations

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

Our current products and services include:

GenDrive: GenDrive is our hydrogen fueled Proton Exchange Membrane (“PEM”) fuel cell system providing power to material handling electric vehicles, including class 1, 2, 3 and 6 electric forklifts, Automated Guided Vehicles (“AGVs”) and ground support equipment;

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

GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service program for GenDrive fuel cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;

GenSure:  GenSure is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors; GenSure High Power Fuel Cell Platform will support large scale stationary power and data center markets;

GenKey: GenKey is our vertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power;

ProGen:  ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power membrane electrode assembly (“MEA”), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines; and

GenFuel Electrolyzers: GenFuel electrolyzers are modular, scalable hydrogen generators optimized for clean hydrogen production. Electrolyzers generate hydrogen from water using electricity and a special membrane and “green” hydrogen is generated by using renewable energy inputs, such as solar or wind power.

We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers (“OEMs”) and their dealer networks. Plug Power is targeting Asia and Europe for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug Power is executing on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling as well as securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. We manufacture our commercially viable products in Latham, New York, Rochester, New York and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.

Our wholly-owned subsidiary, Plug Power France, created a joint venture with Renault SAS (“Renault”) named HyVia, a French société par actions simplifiée (“HyVia”) in the second quarter 2021.  HyVia plans to manufacture and sell fuel cell powered electric light commercial vehicles (“FCELCVs”) and to supply hydrogen fuel and fueling stations to support the FCE-LCV market, in each case primarily in Europe. HyVia is owned 50% by Plug Power France and 50% by Renault.

8

2.  Summary of Significant Accounting Policies

Restatement

As previously disclosed in the Explanatory Note to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 10-K”), the Company restated its previously issued audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and its unaudited interim condensed consolidated financial statements as of and for each of the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, September 30, 2020 and 2019 and December 31, 2019.

Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should not rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in the 2020 10-K. Commencing with our quarterly report on Form 10-Q for the quarterly period ended March 31, 2021, we are including in our quarterly reports for fiscal 2021 restated results for the corresponding interim periods of fiscal 2020.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. In addition, we include our share of the results of HyVia using the equity method based on our economic ownership interest and our ability to exercise significant influence over the operating and financial decisions of HyVia.

Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles (“GAAP”), the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2020 10-K.

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

Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the presentation of the current period condensed consolidated financial statements.

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

Cash Equivalents

9

The Company considers all highly-liquid debt securities with original maturities of three months or less to be cash equivalents. At September 30, 2021, cash equivalents consisted of commercial paper and U.S. Treasury securities with original maturities of three months or less, and money market funds. Due to their short-term nature, the carrying amounts reported in the unaudited interim condensed consolidated balance sheets approximate the fair value of cash and cash equivalents.

Available-for-sale securities

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

Available-for-sale securities are recorded at fair value as of each balance sheet date. As of each balance sheet date, unrealized gains and losses, with the exception of credit related losses, are recorded to accumulated other comprehensive income (loss). Any credit related losses are recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to operations. Realized gains and losses are due to the sale and maturity of securities classified as available-for-sale and represent the net gain (loss) from accumulated other comprehensive income (loss) reclassifications for previously unrealized net gains on available-for-sale debt securities.

Equity securities

Equity securities are comprised of fixed income and equity market index mutual funds. Equity securities are valued at fair value with changes in the fair value recognized in our unaudited interim condensed consolidated statement of operations. We consider these securities to be available for use in our current year operations, and therefore classify them as current even if we do not dispose of the securities in the following year.

Stock-based compensation

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 estimated under the current provisions of Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation.  For service stock options and restricted stock awards, the Company estimates the fair value of stock-based awards using a Black-Scholes valuation model and recognizes the cost as expense on a straight-line basis over the option’s requisite service period.

In September 2021, the Company also issued performance stock option awards that include a market condition. The grant date fair value of performance stock options is estimated using a Monte Carlo simulation model and the cost is recognized using the accelerated attribution method.

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 consolidated statements of operations based on the employees’ respective function.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

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

On January 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. Consequently, the Company’s 3.75% Convertible Senior Notes due 2025 (the “3.75% Convertible Senior Notes”) is now accounted for as a single liability measured at its amortized cost. This accounting change removed

10

the impact of recognizing the equity component of the Company’s convertible notes at issuance and the subsequent accounting impact of additional interest expense from debt discount amortization. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the if-converted method for convertible instruments. The cumulative effect of the accounting change upon adoption on January 1, 2021 increased the carrying amount of the 3.75% Convertible Senior Notes by $120.6 million, reduced accumulated deficit by $9.6 million and reduced additional paid-in capital by $130.2 million as of September 30, 2021.

Recent Accounting Guidance Not Yet Effective

All issued but not yet effective accounting and reporting standards as of September 30, 2021 are either not applicable to the Company or are not expected to have a material impact on the Company.

3. Extended Maintenance Contracts

On a quarterly basis, we evaluate any potential losses related to our extended maintenance contracts for fuel cell systems and related infrastructure that has been sold. We measure loss accruals at the customer contract level. The expected revenues and expenses for these contracts include all applicable expected costs of providing services over the remaining term of the contracts and the related unearned net revenue. A loss is recognized if the sum of expected costs of providing services under the remaining term of the contract exceeds related unearned net revenue and is recorded as a provision for loss contracts related to service in the consolidated statements of operations. A key component of these estimates is the expected future service costs. In estimating the expected future costs, the Company considers its current service cost level and applies significant judgment related to expected cost saving initiatives. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life, achieving better economies of scale for service labor, and improvements in design and operations of infrastructure. If the expected cost saving initiatives are not realized, this will increase the estimated costs of providing services and will adversely affect our estimated contract loss accrual. Further, we continue to work to improve quality and reliability; however, unanticipated additional quality issues or warranty claims may arise and additional material charges may be incurred in the future. These quality issues could also adversely affect our contract loss accrual. Service costs during 2021 have been higher than previously estimated.  The Company has undertaken or will soon undertake several initiatives to extend the life and improve the reliability of its equipment. As a result of these initiatives and our additional expectation that the increase in certain costs attributable to the global pandemic will abate, the Company believes that its contract loss accrual is sufficient.  However, if elevated service costs persist, the Company will adjust its estimated future service costs and increase its contract loss accrual estimate. 

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

Nine months ended

Year ended

September 30, 2021

December 31, 2020

Beginning Balance

$

24,013

$

3,702

Provision for Loss Accrual

15,641

35,473

Released to Service Cost of Sales

(6,055)

(2,348)

Released to Provision for Warrants

(12,814)

Ending Balance

$

33,599

$

24,013

4. Earnings Per Share

Basic earnings per common stock are computed by dividing net loss attributable to common stockholders by the weighted average number of common stock outstanding during the reporting period. After January 1, 2021, the date of the adoption of ASU 2020-06, in periods when we have net income, the shares of our common stock subject to the convertible notes outstanding during the period will be included in our diluted earnings per share under the if-converted method. Since the Company is in a net loss position, all common stock equivalents would be considered anti-dilutive and are therefore not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.

The potentially dilutive securities are summarized as follows:

11

At September 30,

    

2021

    

2020

Stock options outstanding (1)

24,784,288

 

14,434,983

Restricted stock outstanding (2)

4,960,376

 

5,992,974

Common stock warrants (3)

80,017,181

110,573,392

Convertible Senior Notes (4)

39,170,766

 

56,872,730

Number of dilutive potential shares of common stock

148,932,611

 

187,874,079

(1) During the three months ended September 30, 2021 and 2020, the Company granted 15,732,335 and 3,192,400 stock options, respectively. During the nine months ended September 30, 2021 and 2020, the Company granted 16,430,835 and 3,367,049 stock options, respectively.

(2) During the three months ended September 30, 2021 and 2020, the Company granted 1,159,856 and 3,095,000 shares of restricted stock, respectively. During the nine months ended September 30, 2021 and 2020, the Company granted 1,812,856 and 3,189,649 shares of restricted stock, respectively.

(3) In April 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Amazon, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 17,461,994 shares of the Company’s common stock as of September 30, 2021.  

In July 2017, the Company issued a warrant to acquire up to 55,286,696 shares of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note 12, “Warrant Transaction Agreements.” The warrant had been exercised with respect to 13,094,217 shares of the Company’s common stock as of September 30, 2021.

(4) In March 2018, the Company issued $100.0 million in aggregate principal amount of the 5.5% Convertible Senior Notes due 2023 (the “5.5% Convertible Senior Notes”).  In May 2020, the Company repurchased $66.3 million of the 5.5% Convertible Senior Notes and in the fourth quarter of 2020, $33.5 million of the 5.5% Convertible Senior Notes were converted into approximately 14.6 million shares of common stock. The remaining $160 thousand aggregate principal amount of the 5.5% Convertible Senior Notes were converted into 69,808 shares of common stock in January 2021. In September 2019, the Company issued $40.0 million in aggregate principal amount of the 7.5% Convertible Senior Note due 2023 (the “7.5% Convertible Senior Note”), which was fully converted into 16.0 million shares of common stock on July 1, 2020. In May 2020, the Company issued $212.5 million in aggregate principal amount of the 3.75% Convertible Senior Notes.  During the first quarter of 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted into 3,016,036 shares of common stock. There were no conversions in the second or third quarter of 2021.

5. Inventory

Inventory as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

    

September 30,

    

December 31,

 

2021

2020

Raw materials and supplies - production locations

$

147,085

$

92,221

Raw materials and supplies - customer locations

13,611

12,405

Work-in-process

 

61,525

 

29,349

Finished goods

 

7,593

 

5,411

Inventory

$

229,814

$

139,386

12

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

Equipment related to power purchase agreements and fuel delivered to customers, net at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

    

September 30,

    

December 31,

 

2021

2020

 

Equipment related to power purchase agreements and fuel delivered to customers

$

99,230

$

92,736

Less: accumulated depreciation

(20,519)

(16,929)

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

78,711

75,807

As of September 30, 2021, the Company had deployed long-lived assets at customer sites that had associated Power Purchase Agreements (“PPAs”). These PPAs expire over the next one to ten years. PPAs contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.

Depreciation expense was $1.9 million and $2.3 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense was $5.7 million and $6.6 million for the nine months ended September 30, 2021 and 2020, respectively.

The Company terminated its contractual relationship with a fuel provider effective March 31, 2021. The Company has historically leased fuel tanks from this provider. As a result of this termination, the Company recognized approximately $16.0 million of various costs in the six months ended June 30, 2021, primarily for removal of tanks, reimbursement of unamortized installation costs, costs to temporarily provide customers with fuel during the transition period, and certain other contract settlement costs, which were recorded in the Company’s unaudited interim condensed consolidated statement of operations as cost of revenue – fuel delivered to customers. The Company also purchased certain fuel tanks from the fuel provider during the six months ended June 30, 2021. No such purchases were made during the three months ended September 30, 2021.

7. Property, Plant and Equipment

Property, plant and equipment at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

December 31, 2020

Land

1,165

1,165

Leasehold improvements

$

1,440

$

1,121

Construction in progress

100,136

15,590

Software, machinery, and equipment

 

94,200

 

78,859

Property, plant, and equipment

 

196,941

 

96,735

Less: accumulated depreciation

 

(27,355)

 

(22,186)

Property, plant, and equipment, net

$

169,586

$

74,549

Construction in progress is primarily comprised of construction of hydrogen production plants and the Gigafactory in Rochester.  Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of capital asset construction and amortized over the useful lives of the related assets. During the nine months ended September 30, 2021, we capitalized $2.6 million of interest. Capitalized interest in 2020 was not significant.  

Depreciation expense related to property, plant and equipment was $1.9 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense related to property, plant and equipment was $5.2 million and $3.2 million for the nine months ended September 30, 2021 and 2020, respectively.

8. Intangible Assets and Goodwill

13

The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of September 30, 2021 were as follows (in thousands):

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

 

Acquired technology

 

10 years

 

$

13,040

$

(4,888)

$

8,152

Customer relationships, Non-compete agreements, Backlog & Trademark

6 years 

 

890

(398)

492

In process research and development

 

Indefinite

29,000

29,000

$

42,930

$

(5,286)

$

37,644

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

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

 

Acquired technology

 

10 years

$

13,697

$

(4,042)

$

9,655

Customer relationships, Non-compete agreements, Backlog & Trademark

6 years 

890

(294)

596

In process research and development

 

Indefinite

 

29,000

 

29,000

$

43,587

$

(4,336)

$

39,251

The change in the gross carrying amount of the acquired technology from December 31, 2020 to September 30, 2021 was primarily due to foreign currency translation.

Amortization expense for acquired identifiable intangible assets for the three months ended September 30, 2021 and 2020 was $0.4 million and $0.3 million, respectively. Amortization expense for acquired identifiable intangible assets for the nine months ended September 30, 2021 and 2020 was $1.1 million and $0.8 million, respectively.

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

Remainder of 2021

    

$

363

2022

1,453

2023

1,453

2024

1,431

2025 and thereafter

3,944

Total

$

8,644

Goodwill was $71.9 million and $72.4 million as of September 30, 2021 and December 31, 2020, respectively, which decreased $531 thousand due to currency translation loss for HyPulsion S.A.S., our French subsidiary. There were no impairments during the nine months ended September 30, 2021 or the year ended December 31, 2020.

9. Long-Term Debt

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

During the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100.0 million. As part of the amendment to the Loan Agreement, the Company’s interest rate on the secured term loan facility was reduced to 9.50% from 12.00% per annum, and the maturity date was extended to October 31, 2025 from October 6, 2022. On September 30, 2021, the outstanding balance under the Term Loan Facility was $137.7 million. In addition to the Term Loan Facility, on September 30, 2021, there was approximately $9.5 million of debt outstanding related to the United Hydrogen Group, Inc. acquisition.

14

The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. Interest and a portion of the principal amount is payable on a quarterly basis.  Principal payments are funded in part by releases of restricted cash, as described in Note 19, “Commitments and Contingencies.” Based on the amortization schedule as of September 30, 2021, the aforementioned loan balance under the Term Loan Facility will be fully paid by October 31, 2025.  The Company is in compliance with, or has obtained waivers for, all debt covenants.  

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

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

As of September 30, 2021, the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):

December 31, 2021

$

127,317

December 31, 2022

93,321

December 31, 2023

62,920

December 31, 2024

33,692

December 31, 2025

10. Convertible Senior Notes

3.75% Convertible Senior Notes

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

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

Amount

(in thousands)

Principal amount

$

212,463

Less initial purchasers' discount

(6,374)

Less cost of related capped calls

(16,253)

Less other issuance costs

(617)

Net proceeds

$

189,219

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

The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the

15

Company’s $100 million in aggregate principal amount of the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.  

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

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

2) during the five business days after any five consecutive trading day period (such five consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of the 3.75% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

3) if the Company calls any or all of the 3.75% Convertible Senior Notes for redemption, any such notes that have been called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

4) upon the occurrence of specified corporate events, as described in the indenture governing the 3.75% Convertible Senior Notes.

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

The initial conversion rate for the 3.75% Convertible Senior Notes is 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. During the three months ended September 30, 2021, certain conditions allowing holders of the 3.75% Convertible Senior Notes to convert were met. The 3.75% Convertible Senior Notes are therefore convertible during the calendar quarter ending September 30, 2021 at the conversion rate discussed above. During the nine months ended September 30, 2021, $15.2 million of the 3.75% Convertible Senior Notes were converted and the Company issued approximately 3.0 million shares of common stock in conjunction with these conversions.

In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.

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

16

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

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

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

September 30,

2021

Principal amounts:

Principal

$

197,278

Unamortized debt issuance costs (1)

(4,958)

Net carrying amount

$

192,320

1) Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method.

The following table summarizes the total interest expense and effective interest rate related to the 3.75% Convertible Senior Notes (in thousands, except for effective interest rate):

September 30,

2021

Interest expense

$

1,849

Amortization of debt issuance costs

306

Total

2,155

Effective interest rate

4.50%

Based on the closing price of the Company’s common stock of $25.54 on September 30, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at September 30, 2021 was approximately $1.0 billion. The fair value estimation was primarily based on an active stock exchange trade on September 30, 2021 of the 3.75% Convertible Senior Notes. See Note 15, “Fair Value Measurements,” for a description of the fair value hierarchy.

Capped Call