Plug Power Financial Review and How Does the Amazon Deal Impact the Bottom Line

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Amazon Deal- Analyst Report PLUG Power

On April 5, 2017, Plug Power announced a new partnership with (NASDAQ: AMZN). The online retail giant will begin integrating Plug Power fuel cells and hydrogen technology in 11 warehouses within its fulfillment network over the next year, with additional facilities expected to follow. The deal should generate $70 million in revenue in 2017, and possibly twice as much the following year.

The company also announced that it will collaborate with Amazon on expanding the applications for Plug Power’s ProGen line of fuel cell engines. In exchange, the company will grant Amazon warrants to acquire 55,286,696 common shares of Plug Power. Vesting of the warrants is tied to $600 million in payments by Amazon for goods and services supplied by Plug Power over the life of the deal.


The exercise price of the first tranche of warrants will be $1.1893, calculated based on the volume weighted average closing price of Plug Power’s common shares for the thirty trading days ending April 4, 2017.  However, as shown above, the exercise price will reset after $200 million in revenue is generated  from Amazon, and the 34,917,912 warrants in the first tranche have vested. The exercise price for the warrants in the second tranche will be the volume weighted average closing price of the common shares, at the time that such warrants vest.

Deal Analysis

This transaction should benefit the company in both the short and long-term. If Amazon adopts Plug Power technology as anticipated, the company will generate $600 million in revenue over the life of the deal. This figure is significant considering Plug Power’s 2016 full-year revenue of $85.9 million. Among other things, this revenue stream will be useful for research and capital expenditure planning. Most importantly, Plug Power CEO Andy Marsh noted on a recent call with analysts that the company’s goal is to be profitable by the end of 2Q 2018, and that this agreement makes that a realistic possibility.

From a long-term perspective, Plug Power has not only gained a major customer and investor, but also a partner in developing new applications for its technology. This could help the company create new products and push into untapped markets such as China. On the same call, Marsh highlighted several other benefits of the deal:

  1. Multi-site deployments drive down product and service costs;
  2. The company is demonstrating the potential to do well without the benefit of green energy investment tax credits; and
  3. There is no financing overhang from this transaction – prior deals have limited the company’s financial flexibility.


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Company Description

Plug Power Inc. (NASDAQ: PLUG) founded in 1997 and headquartered in Latham, New York, is a clean energy company focused on designing, developing, manufacturing and commercializing hydrogen fuel cell systems. The company also has facilities in Spokane, Washington and Boulogne-Billancourt, France. It has been named to Deloitte’s 2016 Technology Fast 500TM, a listing of the 500 fastest growing technology, media, telecommunications, life sciences and energy tech companies in North America.

The company was founded in 1997 as a joint venture between DTE Energy and Mechanical Technology and subsequently went public in 2002.

Plug Power’s primary focus has been in the materials handling market, specifically electric forklifts and pallet jacks.  It is now broadening its scope and focusing on electric vehicles and other industrial applications. The company offers an array of products for all phases of the energy consumption process including hydrogen fuel cell engines, hydrogen fuel cell systems, fueling delivery systems, stationary back up fuel cells, and maintenance services.

Notable customers include Nike, BMW, Wal-Mart, Home Depot, Mercedes-Benz, Kroger, and Whole Foods. As noted above, Plug Power recently announced a new multi-year partnership with Amazon.


Hydrogen fuel cells have several advantages over typical lead-acid batteries.  They are more reliable and can withstand more extreme temperatures and rugged environments. Other benefits include:

  • Significantly shorter recharge times;
  • Ability to hold more energy;
  • Reduced greenhouse emissions;
  • Fewer replacements; and
  • Less costly to dispose of since materials are less hazardous.

Product Catalogue:

  • ProGen: Hydrogen fuel engine that is used as a component for the GenDrive and GenSure. It enhances the electric range (duration) and has a wide range of transportation applications. ProGen is generally sold as a component within Plug Power’s other products, but can also be sold standalone (provided ProGen engines to Fedex).
  • GenDrive: Hydrogen Fueled Proton Exchange Membrane (PEM) fuel cell system used to power material handling vehicles.
  • GenFuel: A delivery system to provide refueling to Plug Power products.
  • GenSure (formerly ReliOn): Stationary fuel cell that provides back up power, grid supplementation, and off grid power.
  • GenCare: A maintenance program for Plug Power products. This includes advanced system monitoring, preventative maintenance, periodic system enhancements, parts inventory logs, training, and rapid response onsite services.

All products integrate together to create a complete solution: GenKey. It is a solution for customers transitioning their material handling vehicles or stationary power applications from typical lead batteries to hydrogen fuel cell power. GenKey solution includes GenFuel, GenCare, and GenDrive or GenSure.

Earnings Review

Revenue for the year ended December 31, 2016, fell 17 percent year-over-year to $85.9 million. This was driven by a $38 million decrease in sales of fuel cell systems and related infrastructure. However, recurring revenues from services performed on fuel cell systems, power purchase agreements, and fuel delivered to customers all grew year-over-year.


For the year ended December 31, 2016, research and development expense increased 42 percent to $21.2 million. Selling, general, and administrative expenses were flat year-over-year at $34.3 million. Plug Power’s net loss for 2016 was $57.6 million ($0.32 per share), slightly higher than the $55.8 million loss ($0.32 per share) reported in the prior year. The company’s gross margin in 2016 was 4.6 percent. In comparison, Plug Power reported gross losses of $11.2 million, $4.9 million, and $9.9 million for the years ended December 31, 2013, 2014, and 2015, respectively. As noted above, the company’s stated goal is to reach profitability by the end of 2Q 2018.


As of December 31, 2016, Plug Power listed $46.0 million in cash and equivalents, restricted cash of $54.6 million, and net working capital of $44.4 million. As of December 31, 2015, these balances totaled $64.0 million, $47.8 million, and $88.5 million, respectively. Net cash used in operations decreased 37 percent to $29.6 million. While the company’s cash and net working capital balances are decreasing, cash used in operations is also decreasing.


The company has issued the following earnings guidance for 2017:


  • Total GAAP Revenue of $130 million;
  • GAAP Gross Margin of 8% to 12%;
  • Bookings of $325 million; and
  • $25 to $35 million of net cash used in operating and investing activities.

On a recent call with analysts, CEO Marsh indicated that the company’s prior guidance did consider a pending agreement with Amazon, but not the finalized terms. Therefore, there is the potential for more favorable guidance for the 2017 fiscal year.


Stock Performance

As of April 4, 2015, Plug Power shares were up eight percent year-to-date. After the Amazon deal was disclosed, Plug Power shares surged to $2.40 in intraday trading before settling at $2.25, a 73 percent increase from the prior close of $1.30. Prior to the transaction, Jeffrey Osborne from Cowen and Company had a price target of $1.75, and Amit Ayal of Rodman & Renshaw had a price target of $3.00.

The total trading volume of 137.1 million shares was nearly 29 times the daily six-month trailing average of 4.7 million. The company now has a market capitalization in excess of $400 million.

Stock Influences

  • Profitability and cash flow in 2017 will indicate whether the company is on track to reach its stated goal of profitability by mid-2018;
  • Entry into the Chinese market;
  • Possible applications of the company’s technology to consumer vehicles; and
  • Changes in customer base.


Risk Factors

  • The company’s customer base is highly concentrated – approximately 34 percent of consolidated revenues were derived from Wal-Mart in the year ended December 31, 2016;
  • The company may require additional capital funding in the future which may not be available;
  • Product costs are not yet competitive with existing technologies; and
  • The company may not complete research and development of certain commercially viable products.



Overall, Plug Power’s deal with Amazon seems beneficial to the company’s financial outlook. Revenue from this partnership will provide additional flexibility to the company and allow it to potentially benefit from the growth of Amazon’s distribution network. Further, the long-term benefits of having Amazon as a technological collaborator could be significant. However, Plug Power must first demonstrate that it can capitalize on this deal to reach profitability.


Our February coverage of PLUG Power’s Tech can be viewed here-


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