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

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

 

Products and Services

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 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.

 

Recent Developments

Traders News Source previously wrote about Plug Power in April after the company announced a new multi-year dear with Amazon. The agreement called for the Plug Power’s hydrogen fuel cell technology to be integrated in 11 distribution warehouses, with additional facilities to be added thereafter. On the day the deal was announced, the shares gained 73 percent and closed at $2.25. Over the next week, Plug Power advanced a further 17 percent.

Three months later, the company announced that it had reached a new partnership agreement with Wal-Mart, one of its oldest and most important customers. Plug Power expects to deploy hydrogen fueling stations and fuel cell technology to 30 additional Wal-Mart sites over the next three years, with 10 sites already under contract and scheduled to be finished by the end of 2017. The 2017 commitments alone are estimated to be worth $80 million.

In addition to the new sites, Wal-Mart will provide project financing at a lower cost of capital, with no restricted cash, which is expected to render future transactions with Wal-Mart cash flow positive. In exchange, Plug Power has granted Wal-Mart warrants to acquire approximately 55 million shares at an average price of $2.1231 per share, a six percent discount from the recent closing price. The warrants will vest in installments tied to revenue milestones, up to a total of $600 million in aggregate payments from Wal-Mart for qualifying goods and services.

Shortly thereafter, the company reached an agreement with the NY Green Bank to increase its loan facility from $25 million to $45 million. Plug Power also reported that it had begun testing prototype delivery trucks for FedEx, and 5 / 7.5-ton delivery trucks in China. The company expects to begin more extensive on-road testing to begin in the third quarter of this year.

 

Second Quarter Earnings Review

Revenue for the quarter ended June 30, 2017, increased 10 percent year-over-year to $22.6 million. This was attributable to the delivery of four sites, which was in-line with prior guidance. However, the company noted that recurring revenue streams grew 24 percent from the same period one year ago.  However, Plug Power’s gross profit for the quarter was negative $3.5 million.

Operating expenses increased nearly 80 percent year-over-year, as selling, general, and administrative expenses doubled from the same period one year ago. Research and development expenses also increased 27 percent to $6.6 million. Accordingly, net income for the second quarter totaled negative $43 million, or $0.19 per share, as compared to negative $13 million, or $0.07 per share, in the second quarter of 2016.

As of June 30, 2017, Plug Power listed $2 million in cash and equivalents, restricted cash of $52 million, and net working capital of $20.9 million. Net cash used in operations for the six months ended June 30, 2017, totaled $58 million, nearly four times that used in the six months ended June 30, 2016.

After reporting second quarter earnings, the company reaffirmed earlier 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.

 

Stock Performance

As of September 15, 2017, shares of Plug Power closed at $2.25 after gaining less than one percent on the day, yielding a market capitalization of approximately $500 million. In the past year, the stock has recovered from a low of $0.83 in February. The stock soared after the Amazon agreement was disclosed, but gave back many of those gains after the company reported first quarter earnings. Shares received another boost after the Wal-Mart deal, but have remained volatile. The stock has shown strong resistance at $2.00 and has generally traded above that sine June.

Following are selected analyst ratings and price targets:

Analyst	Firm	Rating	Price Target	Date
Amit Dayal	Rodman & Renshaw	Buy	$4.00	8/9/2017
Eric Stine	Craig-Hallum	Buy	$3.00	8/9/2017
Jeffrey Osborne	Cowen	Buy	$3.00	8/8/2017

 

Stock Influences

• Improved profitability on the company’s existing business;
• Entry into the Chinese market;
• Possible applications of the company’s technology to consumer vehicles; and
• Further large customer wins.

 

Risk Factors

• The company’s customer base is highly concentrated and highly dependent on two large customers;
• The company has yet to reach profitability, and it is uncertain when earnings will turn positive;
• Product costs are not yet competitive with existing technologies; and
• Due to recent agreements with Amazon and Wal-Mart, investors face significant dilution risk.

 

Summary

After our prior report, Plug Power secured a new deal with one of its largest customers and improved key terms for financing. This gives the company greater visibility for future revenues and costs, and should make future financial results more predictable. However, first and second quarter results were largely disappointing, and many investors remain wary that the company can turn the newly-signed agreements with Amazon and Wal-Mart into positive cash flows.

 

Still, the company maintains that it is on track to meet full-year guidance, implying a strong recovery in the second half of 2017. Management believes that the largest headwinds have already passed, and Plug Power can now begin to realize the economic benefits of investments made earlier in the year. Second half results will be a good indication of whether the company can attain profitability in 2018 as anticipated.

 

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