The deal with Amazon – which basically acquired a stake in Plug Power (Nasdaq: PLUG) through warrants and, at the same time, placed orders to have its forklift trucks retrofitted – may be the reason why Walmart has agreed to a change in the terms for its large Plug booking, which will improve the situation for the latter. Walmart was the first big Plug customer to request forklift conversions and an H2 refueling infrastructure at its logistics centers. The caveat was that Plug agreed to a leasing model which required the deposition of a certain amount of capital as collateral despite the leasing rates apparently not covering costs. Now, everything is said to change. Walmart is expanding the scope of the contract to 30 centers overall and has accepted to remove the need for restricted cash. It can also receive a stake in its fuel cell supplier by purchasing up to 53 million shares in tranches at preset terms through warrants at no cost. This will provide Plug gradually with fresh capital – depending on when warrants are exercised (price at over USD 2 per share). And the best side effect is that the new, improved terms will allow it to reduce interest rates to single digits.
Whether being both a large customer and shareholder is a good thing is another matter. Just like for Amazon, it’s good business for Walmart, as Plug secures bookings that positively impact revenue and, subsequently, may be reflected in the stock price. Both corporations could then convert the warrants into shares and sell them at a profit. Plug receives a cash infusion and both Amazon and Walmart may get the money back that they spent on Plug bookings – a strategy where I think everyone is a winner, although the old shareholders will have to agree to a stock dilution. But since only rising share prices will make the entire plan work for all parties involved, the advantages do seem to outweigh the negatives. It will close the chapter on uncertain times for Plug, so the company can focus on its potential for growth.
Figures and Outlook
Second-quarter figures proved disappointing: USD 22.6 million in revenue at a loss of USD 0.19 per share based on GAAP or minus USD 0.10 per share including warrants. But the prospects sounded promising: The third quarter is said to see the installation of 3,000 GenDrive systems and 10 H2 gas stations. The target for the entire year is USD 130 million in revenue, with a gross margin of 8 to 12 percent as a realistic estimate. The installation target is 5,600 GenDrive units in 2017 and 25 H2 filling stations. Unrestricted cash flow is thought to reach USD 25 to 35 million. With regard to bookings, USD 325 million is seen as attainable. Cash reserves are planned to hit USD 130 million, possibly through exercised warrants.
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, written September 8th, 2017