Plug Power: Growth Not Losing Speed

Fuel cells in materials handling, © Plug Power

The fourth quarter brought another growth boost by 70% to USD 38.4 million compared to the same quarter last year. Plug Power’s total revenue added up to more than USD 103 million, although it could have been 3.6 million more if the sale-leaseback transactions hadn’t forced the company to distribute the amount for tax reasons across contracts. Revenue was originally thought to reach USD 100 million. The adjusted EPS with a loss of EUR 0.05 per share was within expectations. Sixty million of the around USD 111.8 million in cash reserves are “restricted,” i.e., related to sale-leaseback activities. Meanwhile, the US-based company has acquired a loan facility worth USD 30 million, which is the basis for refinancing and is said to replace the “tied-up cash reserves” within a year. There is also talk of a renewal of the governmental investment subsidies (30%), but nothing definite yet.

Plug Power’s 2016 target is a revenue increase of USD 150 million. It has already announced over USD 200 million in contract bookings. The goal is to increase the order total to above USD 275 million, which is easily achievable in light of the big customers that Plug Power has struck deals with recently. The company will use USD 20 million of its own cash in 2016, which is not endangering its liquidity. Nike and Home Depot are now two of these big customers (“The roll-out at Home Depot was probably the best we ever had.”).

There are already over 3,000 tank refills with a consumption of around 2.5 tH2 per day. Another very positive development is the increase in the gross profit margin to above 30%, so that the break-even scenario is expected to be 12 to 18 months away – an important milestone.

Political lobbying 
Plug Power increasingly relies on political lobbying, as the US tax framework (grants, write-offs, etc.) at federal and state level does affect regenerative energies like solar electricity, but there is no expressed mention of fuel cell use. It is mainly an issue of extending the run time of existing subsidy legislation. The company has recently given various senators a tour of the company and held presentations on-site – a clear sign of lobbying for extensions. This leads me to believe that tax incentives will only be a matter of time. Their impact, however, is somewhat crucial to the share price, since they may persuade some customers to order earlier if grants are approved. After what I could gather, the decision – as I believe, a positive one – will be made in the first half of the year.

I expect new impetus from Europe, since Plug Power’s US customer base consists mainly of Europe-based businesses, especially from the automotive industry (BMW, Daimler and VW), and I believe a transfer of the business model (fuel cell systems for forklift trucks at German production sites, set-up of an H2 infrastructure) to European locations can prove successful. In other words: Why does VW rely on fuel cell forklift trucks in the States, but not in Germany and Europe?

Interesting side note 
Just like Nike, Home Depot is now definitely one of Plug Power’s new big customers. The company has been able to win over the who’s who of retail corporations, which necessitates changes in the entire logistics chain. However, each building- and security-related change of a large distribution center to house H2-filling stations must be approved by various US agencies or the local construction authority. The applications filed can even be found on the internet. And this search will turn up a permit application for Home Depot’s distribution center in Savannah. Clever stockholders are now on the lookout for similar applications, since they can be used as an indicator of which projects Plug Power will work on in the future.

Still, one may ask why Plug Power refrained from announcing or touting the good news, since it is quite likely that the company signed framework agreements with large corporations like Home Depot, i.e., alteration of x distribution centers per year. Like Walmart, Home Depot has more than 100 of them. In light of quite a lot of share short selling, such news could have a positive impact on the stock price – if Plug Power had any interest in revealing such information!

USD 30 million funding 
In the meantime, the USD 30 million loan (which runs one year at 12.5% interest) that Plug Power took out not too long ago has fueled speculations: What should the money be used for (and why the comparably expensive conditions)? The only thing that seems clear is that Walmart urged for sale-leaseback contracts when placing its orders. This means that Plug Power needs to put money “aside” and consider this money “restricted,” which affects the company’s overall liquidity. The USD 30 million loan is seen as one step to free up “currently tied-up cash reserves/equity capital” and remove the restrictions. Plug Power intends to accomplish that goal until the end of 2016.

Risk Warning 
Investors must understand that buying and selling shares is done at their own risk. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they do not represent stakes in big companies and the volatility is significantly higher. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the assessments put forth in this article represent exclusively the author’s own opinion. This article focuses on mid-term and long-term perspectives and not short-term profit. The author may own shares in any of the companies mentioned in this article.

Author: Sven Jösting

1 thought on “Plug Power: Growth Not Losing Speed”

  1. “although it could have been 3.6 million more if the sale-leaseback transactions hadn’t forced the company to distribute the amount for tax reasons across contracts.”

    They also took a 10m charge for faulty stacks upfront in 2015. So real revenue was closer to 120m in 2015.


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