# PLUG POWER INC (PLUG) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PLUG POWER INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1093691/000155837022002620/plug-20211231x10k.htm
Accession: 0001558370-22-002620
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PLUG/
All MD&A years: /company/PLUG/mda/
Next year: /company/PLUG/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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The discussion contained in this Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Annual Report on Form 10-K. In evaluating these statements, you should review Part I, Forward-Looking Statements, Part I, Item 1A, “Risk Factors” and our consolidated financial statements and notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

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Overview

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Plug 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 back-up power applications for telecommunications, transportation, and utility customers. Plug supports these markets with an ecosystem of vertically integrated products that make, transport, handle, dispense and use hydrogen.

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Our current products and services include:

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GenDrive: GenDrive is our hydrogen fueled 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.

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

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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 cellengines.

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GenSure: GenSure is our stationary fuel cell solution providing scalable, modular Proton Exchange Membrane (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.

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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 cellpower.

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

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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 generated by using renewable energy inputs, such as solar or wind power.

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Other services include our ongoing ‘internet of things’-based maintenance and on-site service program for material handling fuel cells, mobility and stationary fuels cells, hydrogen handling and dispensing systems.

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We provide our products and solutions worldwide through our direct sales force, and by leveraging relationships with original equipment manufacturers (“OEMs”) and their dealer networks. Plug is currently targeting Asia, Australia, Europe, Middle East and North America for expansion in adoption. Europe has rolled out ambitious targets for the hydrogen economy and Plug is seeking to execute on its strategy to become one of the European leaders. This includes a targeted account strategy for material handling, securing strategic partnerships with European OEMs, energy companies, utility leaders and accelerating our electrolyzer business. Our global strategy includes leveraging a network of integrators or contract manufacturers. We manufacture our commercially viable products in Latham, New York, Rochester, New York, Houston, Texas and Spokane, Washington and support liquid hydrogen generation and logistics in Charleston, Tennessee.

Part of our long-term plan includes Plug penetrating the on-road vehicle market and large-scale stationary market. Plug’s formation of joint ventures with HyVia and AccionaPlug S.L. in Europe and SK in Asia not only support this goal but are expected to provide us with a more global footprint. Plug has been successful with acquisitions, strategic partnerships and joint ventures, and we plan to continue this mix.  For example, we expect our relationships with Brookfield and Apex to provide us access to low-cost renewable energy, which is critical to low-cost green hydrogen.

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Recent Developments

COVID-19 Update

As a result of the COVID-19 pandemic outbreak in March 2020, state governments—including those in New York and Washington, where our manufacturing facilities are located—issued orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces to employees and customers.  As a result, we put in place a number of protective measures in response to the COVID-19 outbreak, which included the canceling of all commercial air travel and all other non-critical travel, requesting that employees limit non-essential personal travel, eliminating all but essential third-party access to our facilities, enhancing our facilities’ janitorial and sanitary procedures, encouraging employees to work from home to the extent their job function enabled them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing and service operations.  

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In June 2021, in accordance with revised CDC guidelines and where permitted by state law, employees who were fully vaccinated against COVID-19 and have been through Plug’s certification process, were permitted to enter Plug facilities without a face covering. Individuals inside Plug facilities who did not wish to go through the certification process were required to wear proper face coverings and continued to maintain social distancing of six feet or greater. In states where the guidelines for face coverings was still government mandated, Plug complied with the state and local jurisdictions and enforced face mask usage, as well as social distancing at our sites.  In early August 2021, we adjusted our guidance as a result of an influx of COVID-19 cases and began requiring all employees and visitors regardless of vaccination status to wear a face-covering at all times while within a Plug facility, and strongly encouraged social distancing. We continue to provide enhanced janitorial and sanitary procedures, encourage employees to work from home to the extent their job function enables them to do so, and encourage the use of virtual employee meetings. Additionally, starting on January 3, 2022, all U.S. based employees, including temporary employees are required to either be vaccinated against COVID-19, or be subject to weekly COVID-19 testing in an effort to stop the spread of COVID-19 and continue to protect our workforce.

We cannot predict at this time the full extent to which COVID-19 will impact our business, results, and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers, and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability of key components, increase prices or both, as the COVID-19 pandemic has caused significant challenges for global supply chains resulting primarily in transportation delays.  These transportation delays have caused incremental freight charges, which have negatively impacted our results of operations. We expect that these challenges will continue to have an impact on our businesses for the foreseeable future. Certain of our customers, such as Walmart, significantly increased their use of units and hydrogen fuel consumption as a result of COVID-19.  In the year ended December 31, 2021, our services and PPA margins were negatively impacted by incremental service costs associated with increased usage of units at some of our primary customer sites.

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We continue to take proactive steps to limit the impact of these challenges and are working closely with our suppliers and transportation vendors to ensure availability of products and implement other cost savings initiatives. In addition, we continue to invest in our supply chain to improve its resilience with a focus on automation, dual sourcing of critical components and localized manufacturing when feasible. To date, there has been limited disruption to the availability of our products, though it is possible that more significant disruptions could occur if these supply chain challenges continue.

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Capital Raises and Strategic Investments

On December 9, 2021, we completed the previously announced acquisition of Frames, a leader in engineering, process and systems integration serving the energy sector, for a purchase price of approximately $123.6 million, consisting of $94.5 million in cash, and $29.1 million based on future earnouts over the next four years from the closing date. 

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On November 22, 2021, we completed the previously announced acquisition of Applied Cryo for a purchase price of approximately $159.3 million, consisting of $98.6 million in cash, $46.7 million in stock and $14.0 million based on future earnouts over the next two and half years.

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On February 24, 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold  54,966,188 shares of its common stock to a subsidiary of SK Holdings  at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.

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Inflation, Material Availability and Labor Shortages

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In 2021, we experienced higher than expected commodity costs and supply chain costs, including logistics, procurement, and manufacturing costs, largely due to inflationary pressures. We expect this cost inflation to remain elevated through at least 2022.  

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Our operations require significant amounts of necessary parts and raw materials.  From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate any significant, broad-based difficulties in obtaining raw materials or components necessary for production, there have been supply chain and logistical challenges that have resulted in supply constraints and commodity price increases on certain raw materials and components used by the Company in production, as well as increased prices for freight and logistics, including air, sea and ground freight. Consequently, the Company may experience supply shortages for raw materials or components in the future, which could be further exacerbated by increased commodity prices as a result of additional inflationary pressures. Although we have offset a portion of these increased costs through price increases and operational efficiencies to date, there can be no assurance that we will be able to continue to do so. If we are unable to manage fluctuations through pricing actions, cost savings projects, and sourcing decisions as well as through  productivity improvements, it may adversely impact our gross margins in future periods. For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “Market Risks−Our ability to source parts and raw materials from our suppliers could be disrupted or delayed in our supply chain which could adversely affect our results of operations.” in Part I, Item 1A herein.  

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Additionally, we have observed an increasingly competitive labor market. Tight labor markets have resulted in longer times to fill open positions and labor inflation.  Increased employee turnover, changes in the availability of our workers, including as a result of COVID-19-related absences, and labor shortages in our supply chain have resulted in, and could continue to result in, increased costs which could negatively affect our financial condition, results of operations, or cash flows.

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Results of Operations

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Our primary sources of revenue are from sales of fuel cell systems, related infrastructure and equipment, services performed on fuel cell systems and related infrastructure, PPAs, and fuel delivered to customers.  Revenue from sales of fuel cell systems, related infrastructure and equipment represents sales of our GenDrive units, GenSure stationary backup power units, cryogenic stationary and onroad storage, electrolyzers and hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution.  Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.

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Information pertaining to fiscal year 2019 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 starting on page 36 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on May 13, 2021.  Such information is hereby incorporated by reference into this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Provision for Common Stock Warrants

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In 2017, in separate transactions, the Company issued to each of Amazon.com NV Investment Holdings LLC and Walmart, Inc. (“Walmart”) warrants to purchase shares of the Company’s common stock. The Company recorded a portion of the estimated fair value of the warrants as a reduction of revenue based upon the projected number of shares of common stock expected to vest under the warrants, the proportion of purchases by Amazon, Walmart and their affiliates within the period relative to the aggregate purchase levels required for vesting of the respective warrants, and the then-current fair value of the warrants. During the fourth quarter of 2019, the Company adopted ASU 2019-08, with retrospective adoption as of January 1, 2019.  As a result, the amount recorded as a reduction of revenue was measured based on the grant-date fair value of the warrants. Previously, this amount was measured based on vesting date fair value with estimates of fair value determined at each financial reporting date for unvested warrant shares considered to be probable of vesting. Except for the third tranche, all existing unvested warrants are measured using a measurement date of January 1, 2019, the adoption date, in accordance with ASU 2019-08. For the third tranche of the shares under Walmart’s warrant, the exercise price will be determined once the second tranche vests. For the third tranche of the Amazon Warrant Shares, see below for the exercise price and measurement dates used.

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The amount of provision for common stock warrants recorded as a reduction of revenue during the years ended December 31, 2021 and 2020 respectively, is shown in the table below (in thousands):

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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Net revenue, cost of revenue, gross profit/(loss) and gross margin for the years ended December 31, 2021 and 2020 were as follows (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Net","\u200b","Cost of","","Gross","","Gross"],["\u200b","\u200b","Revenue","\u200b","Revenue","\u200b","Profit/(Loss)","\u200b","Margin"],["For the year ended December 31, 2021:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Sales of fuel cell systems, related infrastructure and equipment","\u200b","$","392,777","\u200b","$","307,157","\u200b","$","85,620","","21.8","%"],["Services performed on fuel cell systems and related infrastructure","\u200b","","26,706","\u200b","","63,729","\u200b","","(37,023)","","(138.6)","%"],["Provision for loss contracts related to service","\u200b","\u200b","\u2014","\u200b","\u200b","71,988","\u200b","\u200b","(71,988)","\u200b","\u2014","%"],["Power Purchase Agreements","\u200b","","35,153","\u200b","","102,417","\u200b","","(67,264)","","(191.3)","%"],["Fuel delivered to customers","\u200b","","46,917","\u200b","","127,196","\u200b","","(80,279)","","(171.1)","%"],["Other","\u200b","","789","\u200b","","1,165","\u200b","","(376)","","(47.7)","%"],["Total","\u200b","$","502,342","\u200b","$","673,652","\u200b","$","(171,310)","","(34.1)","%"],["For the year ended December 31, 2020:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Sales of fuel cell systems, related infrastructure and equipment","\u200b","$","(94,295)","\u200b","$","171,404","\u200b","$","(265,699)","","(281.8)","%"],["Services performed on fuel cell systems and related infrastructure","\u200b","","(9,801)","\u200b","","42,524","\u200b","","(52,325)","","(533.9)","%"],["Provision for loss contracts related to service","\u200b","\u200b","\u2014","\u200b","\u200b","35,473","\u200b","\u200b","(35,473)","\u200b","\u2014","%"],["Power Purchase Agreements","\u200b","","26,620","\u200b","","64,640","\u200b","","(38,020)","","(142.8)","%"],["Fuel delivered to customers","\u200b","","(16,072)","\u200b","","61,815","\u200b","","(77,887)","","(484.6)","%"],["Other","\u200b","\u200b","311","\u200b","\u200b","323","\u200b","\u200b","(12)","\u200b","(3.9)","%"],["Total","\u200b","$","(93,237)","\u200b","$","376,179","\u200b","$","(469,416)","","(503.5)","%"]]
[[/GREPCENT_TABLE]]

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Net Revenue

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Revenue – sales of fuel cell systems, related infrastructure and equipment.  Revenue from sales of fuel cell systems, related infrastructure and equipment represents sales of our GenDrive units, GenSure stationary backup power units, cryogenic stationary and onroad storage, electrolyzers and hydrogen fueling infrastructure referred to at the site level as hydrogen installations. Revenue from sales of fuel cell systems, related infrastructure and equipment for the year ended December 31, 2021 increased $487.1 million, or 516.5%, to $392.8 million from ($94.3) million for the year ended December 31, 2020. Included within revenue was a provision for common stock warrants of $0 and $331.1 million for the years ended December 31, 2021 and 2020, respectively. The main driver for the increase in revenue was the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020. Additionally, there was an increase in both the number of hydrogen fueling infrastructure sites and GenDrive units recognized as revenue. There were 49 hydrogen fueling infrastructure sites recognized as revenue during the year ended December 31, 2021 as compared to 27 in 2020. There were 12,806 GenDrive units recognized as revenue in 2021, as compared to 9,418 in 2020.  

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Revenue – services performed on fuel cell systems and related infrastructure.  Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2021 increased $36.5 million, or 372.5%, to $26.7 million from ($9.8) million for the year ended December 31, 2020. Included within revenue from services was provision for common stock warrants of $497 thousand and $36.0 million for the years ended December 31, 2021 and 2020, respectively. The main driver for the increase in revenue was the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020. In addition, the average number of GenDrive units under maintenance contracts during the year ended December 31, 2021 was 16,987, compared to 12,417 in 2020. The increase in revenue from services performed on fuel cell systems and related infrastructure in 2021 was also related to our expanding customer base and growth within in our current customer base, offset by a reduction in billings for run time hours that exceeded certain levels given certain changes in the overall contract with a customer.  

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Revenue – Power Purchase Agreements.  Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. Revenue from PPAs for the year ended December 31, 2021 increased $8.5 million, or 32.1%, to $35.2 million from $26.6 million for the year ended December 31, 2020. Included within revenue was provision for common stock warrants of $3.4 million and $2.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in revenue was a result of an increase in the average number of units and customer sites party to these agreements. There was an average of 19,370 units under PPAs generating revenue in 2021, compared to 15,469 in 2020. The average number of sites under PPA arrangements was 61 in 2021, compared to 39 in 2020. We continue to enhance our GenDrive units, which has resulted in higher demand for our GenDrive product.

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Revenue – fuel delivered to customers.  Revenue associated with fuel delivered to customers represents the sale of hydrogen that has been purchased by the Company from a third party or generated on site. Revenue associated with fuel

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delivered to customers for the year ended December 31, 2021 increased $63.0 million, or 391.9%, to $46.9 million from ($16.1) million for the year ended December 31, 2020. Included within revenue was provision for common stock warrants of $2.6 million and $55.2 million for the years ended December 31, 2021 and 2020, respectively. The main driver for the increase in revenue was the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020. In addition, there were 152 sites associated with fuel contracts at December 31, 2021, compared to 103 at December 31, 2020. While there has been an increase in the number of sites associated with fuel contracts, the full hydrogen supply will not commence until distribution centers are utilized at capacity. This is consistent with the increased sales of fuel cell systems, related infrastructure and equipment sales as well as increases in the level of deployment of PPA sites.  

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Cost of Revenue

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Cost of revenue – sales of fuel cell systems, related infrastructure and equipment.  Cost of revenue from sales of fuel cell systems, related infrastructure and equipment includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary back-up power units, cryogenic stationary and onroad storage, and electrolyzers, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.

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Cost of revenue from sales of fuel cell systems, related infrastructure and equipment for the year ended December 31, 2021 increased $135.8 million, or 79.2%, to $307.2 million, compared to $171.4 million for the year ended December 31, 2020. This increase was primarily driven by an increase in the number of GenDrive units recognized as revenue, as well as an increase in hydrogen infrastructure installations recognized as revenue. There were 12,806 GenDrive units recognized as revenue during the year ended December 31, 2021, compared to 9,418 for the year ended December 31, 2020. There were 49 sites associated with hydrogen fueling infrastructure revenue for the year ended December 31, 2021 compared to 27 for the year ended December 31, 2020. The gross margin generated from sales of fuel cell systems, related infrastructure and equipment was 21.8% for the year ended December 31, 2021, compared to (281.8)% for the year ended December 31, 2020. This change was primarily due to the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020, offset by increased costs related to recent macroeconomic conditions.

Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. Cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended December 31, 2021 increased $21.2 million, or 49.9%, from $42.5 million to $63.7 million for the year ended December 31, 2020 due to an increase in the number of units under maintenance contracts, as well as certain unexpected costs including varied COVID related issues such as freight, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts. There were 16,987 units under maintenance contracts generating revenue during the year ended December 31, 2021, compared to 12,417  for the year ended December 31, 2020, on average. Gross margin (138.6)% for the year ended December 31, 2021 compared to (533.9)% for the year ended December 31, 2020. This change was primarily due to the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020. This was offset by certain unexpected costs including varied COVID related issues such as increased freight costs, certain vendor transition and force majeure issues that impacted hydrogen infrastructure service costs, and scrap charges associated with certain parts, as well as a reduction in billings for run time hours that exceeded certain levels given certain changes in the overall contract.

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Cost of revenue – Provision (benefit) for loss accrual.  The Company recorded a provision for loss accrual during 2021 of $72.0 million, an increase of $36.5 million over the provision for loss accrual of $35.5 million in 2020.  The increase in the provision for loss accrual during 2021 was driven primarily by an increase in estimated projected costs to service units and an increase in the number of service contracts during 2021.  The Company increased the provision due to cost increases in 2021 in combination with certain cost down initiatives taking longer to achieve than previously estimated. As a result, the Company increased its estimated projected costs to service fuel cell systems and related infrastructure.  

Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes depreciation of assets utilized and service costs to fulfill PPA obligations and interest costs associated with certain financial institutions for leased equipment. Cost of revenue from PPAs for the year ended December 31, 2021 increased $37.8 million, or 58.4%, to $102.4 million from $64.6 million for the year ended December 31, 2020. The increase in cost was a result of an increase in the

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average number of units and customer sites party to these agreements. There was an average of 19,370 units under PPAs recognized as revenue in 2021, compared to 15,469 in 2020. The average number of sites under PPA arrangements was 61 in 2021, compared to 39 in 2020. Gross loss increased to (191.3)% for the year ended December 31, 2021 compared to (142.8)% for the year ended December 31, 2020.  This is primarily due to certain COVID related issues such as increased freight costs, scrap charges associated with certain parts. Additionally, the provision for warrants for PPAs increased $0.6 million from $2.8 million at December 31, 2020 to $3.4 million at December 31, 2021.

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Cost of revenue – fuel delivered to customers.  Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers and internally produced hydrogen that is ultimately sold to customers.  Cost of revenue from fuel delivered to customers for the year ended December 31, 2021 increased $65.4 million, or 105.8%, to $127.2 million from $61.8 million for the year ended December 31, 2020. The increase was due primarily to higher volume of liquid hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. There were 152 sites associated with fuel contracts at December 31, 2021, compared to 103 at December 31, 2020. Gross loss improved to (171.1)% during the year ended December 31, 2021 compared to (484.6)% during the year ended December 31, 2020. This is primarily due to the provision for common stock warrants related to the accelerated vesting of the third tranche of the Amazon Warrant Shares, which was fully vested in 2020. This was offset by increased costs for the year ended December 31, 2021 due to vendor transition and force majeure events primarily related to hydrogen plant shutdowns. Additionally, 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 $17.0 million of various costs for the year ended December 31, 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.

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Expenses

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Research and development expense. Research and development expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.

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Research and development expense for the year ended December 31, 2021 increased $36.9 million, or 132.6%, to $64.8 million from $27.8 million for the year ended December 31, 2020. The overall growth in R&D investment is commensurate with the Company’s future expansion into new markets, new product lines, and varied vertical integrations.

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Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.

Selling, general and administrative expenses for the year ended December 31, 2021 increased $100.5 million, or 126.7%, to $179.9 million from $79.3 million for the year ended December 31, 2020.  This increase was primarily related to acquisition charges, and increases in compensation expense due to increased headcount, stock-based compensation and branding expenses.

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Impairment of long-lived assets. The Company recorded an impairment of $10.2 million for the year ended December 31, 2020, as compared to $6.4 million for the year ended December 31, 2020.  The impairment of long-lived assets in both years primarily related to right of use assets and equipment related to delivery of fuel to customers.  

Change in fair value of contingent consideration. The fair value of the contingent consideration related to the acquisition of Giner ELX, Inc. and United Hydrogen Group, Inc. was remeasured as of December 31, 2021, which resulted in a $11.2 million charge for the year ended December 31, 2021, as compared to $1.2 million for the year ended December 31, 2020.  The increase in fair value is primarily due to an increase in projected revenues associated with electrolyzers.

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Interest income. Interest income primarily consists of income generated by our investment holdings, restricted cash escrow accounts, and money market accounts. Interest income for the year ended December 31, 2021, increased $3.3

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million or 428.1%, as compared to the year ended December 31, 2020, and was due to an increase in available-for-sale securities during 2021 consisting primarily of corporate bonds and U.S. Treasuries.

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Interest expense. Interest expense consists of interest expense related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations. Interest expense for the year ended December 31, 2021, decreased $17.3 million or 28.6%, as compared to the year ended December 31, 2020.  This decrease was primarily driven by the exchange and conversion during both 2020 and 2021 of the 7.5% Convertible Senior Note and 5.5% Convertible Senior Notes, and the adoption of ASU 2020-06 which reduced the noncash interest expense on convertible notes.

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Other expense, net. Other expense, net consists of other expenses related to our foreign currency exchange losses, offset by interest and other income. Other expense, net increased $26 thousand for the year ended December 31, 2021 in comparison to 2020.

​

Realized loss on investments, net. Realized loss on investments, net consists of the sales related to available-for-sale debt securities. For the year ended December 31, 2021, the Company had $81 thousand of net realized loss on investments. The Company did not have an investment portfolio in 2020, and as such there were no realized gains or losses.

​

Change in fair value of equity securities. Change in fair value of equity securities consists of the changes in fair value for equity securities from the purchase date to the end of the period. For the year ended December 31, 2021, the Company had $6.7 million of change in the fair value of equity securities. The Company did not have equity secruities in 2020.  

​

Loss on equity method investments. Loss on equity method investments consists of our interest in HyVia, which is our 50/50 joint venture with Renault and our interest in AccionaPlug S.L., our 50/50 joint venture with Acciona. For the year ended December 31, 2021, the Company recorded a loss of $5.7 million on equity method investments as neither HyVia nor AccionaPlug S.L. had started commercial operations. The Company did not have any equity method investments in 2020.

​

Gain (Loss) on Extinguishment of Debt

​

During the fourth quarter of 2020, the Company issued an aggregate of 14,615,615 shares in connection with the conversion of approximately $33.5 million of its 5.5% Convertible Senior Notes. The resulting gain of approximately $4.5 million is reflected in the consolidated statement of operations for the year ended December 31, 2020.

​

In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to repurchase approximately $66.3 million of the 5.5% Convertible Senior Notes which resulted in a $13.2 million gain on early debt extinguishment.

​

Income Tax

​

The Company recognized an income tax benefit for the year ended December 31, 2021 of $16.2 million related to the recognition of net deferred tax liabilities in connection with the acquisition of Applied Cryo. This resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

The net deferred tax asset generated from the Company’s current period NOL has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the NOL carry forward will not be realized. The Company recognizes interest and penalties on the Interest and other expense, net line in the accompanying consolidated statements of operations.

​

The Company recognized an income tax benefit for the year ended December 31, 2020 of $30.8 million resulting from a source of future taxable income attributable to the net credit to additional paid-in capital of $25.6 million related to the issuance of the 3.75% Convertible Senior notes, offset by the partial extinguishment of the 5.5% Convertible Senior notes and $5.2 million of income tax benefit for the year ended December 31, 2020 related to the recognition of net deferred tax liabilities in connection with the acquisition of Giner ELX. This resulted in a corresponding reduction in our deferred

46

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tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

​

Liquidity and Capital Resources

​

As of December 31, 2021, the Company had $2.5 billion of cash and cash equivalents, $650.9 million of restricted cash and $1.2 billion of available-for-sale securities and $148.0 million of equity securities. In addition, the Company had net working capital of $4.0 billion as of December 31, 2021.

​

In January and February 2021, the Company issued and sold in a registered equity offering an aggregate of 32.2 million shares of its common stock at a purchase price of $65.00 per share for net proceeds of approximately $2.0 billion. Furthermore, in February 2021, the Company completed the previously announced sale of its common stock in connection with a strategic partnership with SK Holdings Co., Ltd. (“SK Holdings”) to accelerate the use of hydrogen as an alternative energy source in Asian markets. The Company sold 54,996,188 shares of its common stock to a subsidiary of SK Holdings at a purchase price of $29.2893 per share, or an aggregate purchase price of approximately $1.6 billion.

​

The Company has continued to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common stockholders of $460.0 million, $596.2 million and $85.6 million for the years ended December 31, 2021, 2020, and 2019, respectively. The Company’s cash used in operations totaled $358.2 million, $155.5 million, and $53.3 million for the year ended December 31, 2021, 2020 and 2019, and has an accumulated deficit of $2.4 billion at December 31, 2021.

​

The Company’s significant obligations consisted of the following as of December 31, 2021:

​

[[GREPCENT_TABLE]]
[["","(i)","Operating and finance leases totaling $206.5 million and $29.3 million, respectively, of which $30.8 million and $4.7 million, respectively, are due within the next 12 months. These leases are primarily related to sale/leaseback agreements entered into with various financial institutions to facilitate the Company\u2019s commercial transactions with key customers."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(ii)","Finance obligations totaling $253.7 million of which approximately $42.0 million is due within the next 12 months. Finance obligations consist primarily of debt associated with the sale of future revenues and failed sale/leaseback transactions."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(iii)","Long-term debt, primarily related to the Company\u2019s loan and security agreement (Loan Agreement) with Generate Lending, LLC (Generate Capital) totaling $128.0 million of which $15.3 million is classified as short term on the consolidated balance sheets. See Note 14, \u201cLong-Term Debt\u201d, for more details."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(iv)","Convertible senior notes totaling $192.6 million at December 31, 2021. See Note 15, \u201cConvertible Senior Notes,\u201d for more details."]]
[[/GREPCENT_TABLE]]

​

The Company believes that its current working capital of $4.0 billion at December 31, 2021, which includes unrestricted cash, cash equivalents of $2.5 billion, and available-for-sale securities of $1.2 billion, will provide sufficient liquidity to fund operations for a least one year after the date the financial statements are issued.

​

The Company plans to invest a portion of its available cash to expand its current production and manufacturing capacity and to fund strategic acquisitions and partnerships and capital projects. Future use of the Company’s funds is discretionary and the Company believes that its future working capital and cash position will be sufficient to fund operations even after these growth investments.

​

Common Stock Issuances

​

In November 2020, the Company issued and sold in a registered direct offering an aggregate of 43,700,000 shares of its common stock at a purchase price of $22.25 per share for net proceeds of approximately $927.3 million.

​

In August 2020, the Company issued and sold in a registered direct offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.

​

47

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In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.

​

In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of its common stock at a purchase price of $2.35 per share. The net proceeds to the Company were approximately $23.5 million.

​

Secured 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”).

​

Additionally, during the year ended December 31, 2020, the Company, under another series of amendments to the Loan Agreement, borrowed an incremental $100 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 December 31, 2021, the outstanding balance under the Term Loan Facility was $118.9 million. In addition to the Term Loan Facility, on December 31, 2021 there was approximately $9.1 million of debt related to United Hydrogen Group Inc, acquisition.

​

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 will be funded in part by releases of restricted cash, as described in Note 22, “Commitments and Contingencies.” Based on the amortization schedule as of December 31, 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 December 31, 2021 the Term Loan Facility requires the principal balance as of each of the following dates not to exceed the following (in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b"],["December 31, 2022","\u200b","105,904"],["December 31, 2023","\u200b","72,955"]]
[[/GREPCENT_TABLE]]

​

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, which is referred to herein as the 3.75% Convertible Senior Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or 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, after deducting the initial purchaser’s discount, the costs of related capped calls and other issuance costs, were approximately $189.2 million.

​

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.

48

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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, 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 year ended December 31, 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.

​

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.

​

49

Table of Contents

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 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):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b"],["\u200b","December 31,"],["\u200b","2021"],["Principal amounts:","\u200b","\u200b"],["Principal","$","197,278"],["Unamortized debt issuance costs (1)","\u200b","(4,645)"],["Net carrying amount","$","192,633"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","1)","Included in the 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."]]
[[/GREPCENT_TABLE]]

​

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):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b"],["\u200b","December 31,"],["\u200b","2021"],["Interest expense","$","7,446"],["Amortization of debt issuance costs","\u200b","1,670"],["Total","\u200b","9,116"],["\u200b","\u200b","\u200b"],["Effective interest rate","\u200b","4.50%"]]
[[/GREPCENT_TABLE]]

​

Based on the closing price of the Company’s common stock of $28.23 on December 31, 2021, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at December 31, 2021 was approximately $1.1 billion. Fair value estimation was primarily based on a stock exchange, active trade on January 3, 2022 of the 3.75% Senior Convertible Note. The Company considers this a Level 2 fair value measurement. Refer to Note 5, “Fair value measurements.”

​

Capped Call

​

In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions (the “3.75% Notes Capped Call”) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call covers, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60% over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

The net cost incurred in connection with the 3.75% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the consolidated balance sheet.

​

Common Stock Forward

​

In connection with the issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (the “Common Stock Forward”), pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes and the partial repurchase of the 5.5% Convertible Senior Notes, the Company amended

50

Table of Contents

and extended the maturity of the Common Stock Forward to June 1, 2025.  The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.

​

The net cost incurred in connection with the Common Stock Forward of $27.5 million was recorded as an increase in treasury stock in the consolidated balance sheets. The related shares were accounted for as a repurchase of common stock.

​

The book value of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.

​

During the fourth quarter of 2020, the Common Stock Forward was partially settled and, as a result, the Company received 4.4 million shares of its common stock. During the year ended December 31, 2021, 8.1 million shares were settled and received by the Company.

​

Amazon Transaction Agreement

​

On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the “Amazon Transaction Agreement”), pursuant to which the Company agreed to issue Amazon the Amazon Warrant to acquire up to 55,286,696 shares of the Company’s common stock (the “Amazon Warrant Shares”), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the Amazon Warrant Shares was conditioned upon payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

​

Under the terms of the original Amazon Warrant, the first tranche of the 5,819,652 Amazon Warrant Shares vested upon execution of the Amazon Warrant, and the remaining Amazon Warrant Shares vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The $6.7 million fair value of the first tranche of the Amazon Warrant Shares, was recognized as selling, general and administrative expense upon execution of the Amazon Warrant.

​

Provision for the second and third tranches of Amazon Warrant Shares was recorded as a reduction of revenue, because they represent consideration payable to a customer.

​

The fair value of the second tranche of Amazon Warrant Shares was measured at January 1, 2019, upon adoption of ASU 2019-08. The second tranche of 29,098,260 Amazon Warrant Shares vested in four equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The last installment of the second tranche vested on November 2, 2020.  Revenue reductions of $497 thousand, $9.0 million and $4.1 million were associated with the second tranche of Amazon Warrant Shares were recorded in 2021, 2020, and 2019, respectively, under the terms of the original Amazon Warrant.  

​

Under the terms of the original Amazon Warrant, the third tranche of 20,368,784 Amazon Warrant Shares vests in eight equal installments, as Amazon or its affiliates, directly or indirectly through third parties, made an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The measurement date for the third tranche of Amazon Warrant Shares was November 2, 2020, when their exercise price was determined, as discussed further below. The fair value of the third tranche of Amazon Warrant Shares was determined to be $10.57 each. During 2020, revenue reductions of $24.1 million associated with the third tranche Amazon Warrant Shares were recorded under the terms of the original Amazon Warrant, prior to the December 31, 2020 waiver described below.  

​

On December 31, 2020, the Company waived the remaining vesting conditions under the Amazon Warrant, which resulted in the immediate vesting of all the third tranche of the Amazon Warrant Shares and recognition of an additional $399.7 million reduction to revenue.  

​

51

Table of Contents

The $399.7 million reduction to revenue resulting from the December 31, 2020 waiver was determined based upon a probability assessment of whether the underlying shares would have vested under the terms of the original Amazon Warrant. Based upon the Company’s projections of probable future cash collections from Amazon (i.e., a Type I share based payment modification), a reduction of revenue associated with 5,354,905 Amazon Warrant Shares was recognized at their previously measured November 2, 2020 fair value of $10.57 per warrant.  A reduction of revenue associated with the remaining 12,730,490 Amazon Warrant Shares was recognized at their December 31, 2020 fair value of $26.95 each, based upon the Company’s assessment that associated future cash collections from Amazon were not deemed probable (i.e., a Type III share-based payment modification).

​

The $399.7 million reduction to revenue was recognized during the year ended December 31, 2020 because the Company concluded such amount was not recoverable from the margins expected from future purchases by Amazon under the Amazon Warrant, and no exclusivity or other rights were conferred to the Company in connection with the December 31, 2020 waiver. Additionally, for the year ended December 31, 2020, the Company recorded a reduction to the provision for warrants of $12.8 million in connection with the release of the service loss accrual.  

​

The warrant was exercised with respect to 17,461,994 and 0 shares of the Company’s common stock as of December 31, 2021 and 2020, respectively.  

​

At both December 31, 2021 and December 31, 2020, 55,286,696 of the Amazon Warrant Shares had fully vested. The total amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the years ended December 31, 2021, 2020, and 2019 was $0.5 million, $420.0 million and $4.1 million, respectively.

​

The exercise price for the first and second tranches of Amazon Warrant Shares is $1.1893 per share.  The exercise price of the third tranche of Amazon Warrant Shares is $13.81 per share, which was determined pursuant to the terms of the Amazon Warrant as an amount equal to ninety percent (90%) of the 30-day volume weighted average share price of the Company’s common stock as of November 2, 2020, the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant is exercisable through April 4, 2027. The Amazon Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Amazon Warrant is classified as an equity instrument.

​

Fair value of the Amazon Warrant at December 31, 2020 and November 2, 2020 was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. All Amazon Warrant Shares were fully vested as of December 31, 2020.

​

The Company used the following assumptions for its Amazon Warrant:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","December 31, 2020","\u200b","November 2, 2020"],["Risk-free interest rate","\u200b","\u200b","0.58%","\u200b","0.58%"],["Volatility","\u200b","\u200b","75.00%","\u200b","75.00%"],["Expected average term","\u200b","\u200b","6.26","\u200b","6.42"],["Exercise price","\u200b","\u200b","$13.81","\u200b","$13.81"],["Stock price","\u200b","\u200b","$33.91","\u200b","$15.47"]]
[[/GREPCENT_TABLE]]

​

Walmart Transaction Agreement

​

On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the “Walmart Transaction Agreement”), pursuant to which the Company agreed to issue to Walmart a warrant (the “Walmart Warrant”) to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the “Walmart Warrant Shares”). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares conditioned upon payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.

​

52

Table of Contents

The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Warrant and was fully exercised as of December 31, 2020. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares vests in four installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant is exercisable through July 20, 2027.

​

The Walmart Warrant provides for net share settlement that, if elected by the holder, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. The Walmart Warrant is classified as an equity instrument. The warrant had been exercised with respect to 13,094,217 and 5,819,652 shares of the Company’s common stock as of December 31, 2021 and 2020, respectively.

​

At December 31, 2021 and December 31, 2020, 20,368,782 and 13,094,217 of the Walmart Warrant Shares had vested, respectively.  The total amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the years ended December 31, 2021, 2020, and 2019 $6.1 million, $5.0 million, and $2.4 million, respectively.

​

Fair value of the Walmart Warrant was based on the Black Scholes Option Pricing Model, which is based, in part, upon level 3 unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. Except for the third tranche, all existing unvested Walmart Warrant Shares are measured using a measurement date of January 1, 2019, the adoption date, in accordance with ASU 2019-08.  

​

The Company used the following assumptions for its Walmart Warrant:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","January 1, 2019"],["Risk-free interest rate","\u200b","\u200b","2.63%"],["Volatility","\u200b","\u200b","95.00%"],["Expected average term","\u200b","\u200b","8.55"],["Exercise price","\u200b","\u200b","$2.12"],["Stock price","\u200b","\u200b","$1.24"]]
[[/GREPCENT_TABLE]]

​

Lessee Obligations

​

As of December 31, 2021, the Company had operating leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, “Nature of Operations”) as summarized below.  These leases expire over the next one to nine years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.  

​

Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.  At the end of the lease term, the leased assets may be returned to the lessor by the Company, the Company may negotiate with the lessor to purchase the assets at fair market value, or the Company may negotiate with the lessor to renew the lease at market rental rates.  No residual value guarantees are contained in the leases.  No financial covenants are contained within the lease, however there are customary operational covenants such as assurance the Company properly maintains the leased assets and carries appropriate insurance, etc.  The leases include credit support in

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the form of either cash, collateral or letters of credit.  See Note 22, “Commitments and contingencies,” for a description of cash held as security associated with the leases.    

​

The Company has finance leases associated with its property and equipment in Latham, New York and at fueling customer locations.  The fair value of this finance obligation approximated the carrying value as of December 31, 2021.

​

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of December 31, 2021 were as follows (in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","Finance","\u200b","Total"],["\u200b","\u200b","\u200b","Operating Lease","\u200b","Lease","\u200b","Lease"],["\u200b","\u200b","\u200b","Liability","\u200b","Liability","\u200b","Liabilities"],["2022","\u200b","$","51,538","\u200b","$","6,402","\u200b","$","57,940"],["2023","\u200b","\u200b","51,288","\u200b","","6,306","\u200b","\u200b","57,594"],["2024","\u200b","\u200b","50,437","\u200b","","6,278","\u200b","\u200b","56,715"],["2025","\u200b","\u200b","46,733","\u200b","\u200b","9,177","\u200b","\u200b","55,910"],["2026","\u200b","\u200b","38,760","\u200b","\u200b","5,847","\u200b","\u200b","44,607"],["2027 and thereafter","\u200b","\u200b","37,342","\u200b","\u200b","773","\u200b","\u200b","38,115"],["Total future minimum payments","\u200b","\u200b","276,098","\u200b","","34,783","\u200b","\u200b","310,881"],["Less imputed interest","\u200b","\u200b","(69,641)","\u200b","\u200b","(5,454)","\u200b","\u200b","(75,095)"],["Total","\u200b","$","206,457","\u200b","$","29,329","\u200b","$","235,786"]]
[[/GREPCENT_TABLE]]

​

Rental expense for all operating leases was $38.6 million, $22.3 million, and $14.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.  

​

The gross profit on sale/leaseback transactions for all operating leases was $99.8 million, $61.0 million, and $26.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Right of use assets obtained in exchange for new operating lease liabilities was $120.7 million, $58.5 million and $37.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

​

At December 31, 2021 and 2020, the right of use assets, net associated with operating leases was $212.5 million and $117.0 million respectively.  

​

At December 31, 2021 and 2020, the right of use assets associated with finance leases was $33.9 million and $5.7 million, respectively.  The accumulated depreciation for these right of use assets was $1.5 million and $102 thousand at December 31, 2021 and 2020, respectively.  

​

At December 31, 2021 and 2020, security deposits associated with sale/leaseback transactions were $3.5 million and $5.8 million, respectively, and were included in other assets in the consolidated balance sheet.

​

Other information related to the operating leases are presented in the following table:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended","\u200b","\u200b","Year ended"],["\u200b","\u200b","December 31, 2021","\u200b","\u200b","December 31, 2020"],["Cash payments (in thousands)","$","37,463","\u200b","$","22,626"],["Weighted average remaining lease term (years)","\u200b","5.6","\u200b","\u200b","6.0"],["Weighted average discount rate","\u200b","10.9%","\u200b","\u200b","11.7%"]]
[[/GREPCENT_TABLE]]

​

Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the consolidated statement of operations), and were $2.1 million for the year ended December 31, 2021. Finance lease costs were immaterial for the years ended December 31, 2020 and 2019.

​

Right of use assets obtained in exchange for new finance lease liabilities were $30.2 million and $4.1 million for the years ended December 31, 2021 and 2020, respectively.

​

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Other information related to the finance leases are presented in the following table:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended","\u200b","\u200b","Year ended"],["\u200b","\u200b","December 31, 2021","\u200b","\u200b","December 31, 2020"],["Cash payments (in thousands)","$","3,648","\u200b","$","471"],["Weighted average remaining lease term (years)","\u200b","4.56","\u200b","\u200b","5.6"],["Weighted average discount rate","\u200b","6.7%","\u200b","\u200b","8.2%"]]
[[/GREPCENT_TABLE]]

​

The Company has outstanding obligations to Wells Fargo under several Master Lease Agreements totaling $123.5 million at December 31, 2021. These outstanding obligations are included in operating lease liabilities, and finance obligations on the consolidated balance sheets.

​

Restricted Cash

​

In connection with certain of the above noted sale/leaseback agreements, cash of $275.1 million and $169.0 million, respectively, was required to be restricted as security as of December 31, 2021 and 2020, which will be released over the lease term. As of December 31, 2021 and 2020, the Company also had certain letters of credit backed by security deposits totaling $286.0 million and $152.4 million, respectively, that are security for the above noted sale/leaseback agreements.  

​

As of December 31, 2021 and 2020, the Company had $67.7 million and $0 held in escrow related to the construction of certain hydrogen plants.

​

The Company also had $10.0 million of consideration held by our paying agent in connection with the Applied Cryo acquisition reported as restricted cash as of December 31, 2021, with a corresponding accrued liability on the Company’s consolidated balance sheet.

​

The Company also had letters of credit in the aggregate amount of $0 and $0.5 million, respectively, at December 31, 2021 and 2020 associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as restricted cash.

​

Critical Accounting Estimates

​

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, bad debts, inventories, goodwill and intangible assets, valuation of long-lived assets, accrual for service loss contracts, operating and finance leases, product warranty accruals, unbilled revenue, common stock warrants, income taxes, stock-based compensation, and contingencies. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about (1) the carrying values of assets and liabilities and (2) the amount of revenue and expenses realized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

​

We believe that the following are our most critical accounting estimates and assumptions the Company must make in the preparation of our consolidated financial statements and related notes thereto.

​

Revenue Recognition

​

The Company enters into contracts that may contain one or a combination of fuel cell systems and infrastructure, installation, maintenance, spare parts, fuel delivery and other support services. Contracts containing fuel cell systems and related infrastructure may be sold directly to customers or provided to customers under a PPA. The Company also enters into contracts that contain electrolyzer stacks, systems, maintenance and other support services.

​

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The Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product, or when circumstances indicate that warranty costs will be incurred, as applicable.  Any prepaid amounts would only be refunded to the extent services have not been provided or the fuel cell systems or infrastructure have not been delivered.

​

Revenue is measured based on the transaction price specified in a contract with a customer, subject to the allocation of the transaction price to distinct performance obligations as discussed below. The Company recognizes revenue when it satisfies a performance obligation by transferring a product or service to a customer.

​

Promises to the customer are separated into performance obligations, and are accounted for separately if they are (1) capable of being distinct and (2) distinct in the context of the contract. The Company considers a performance obligation to be distinct if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer and the Company’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract. The Company allocates revenue to each distinct performance obligation based on relative standalone selling prices.

​

Payment terms for sales of fuel cells, infrastructure and service to customers are typically 30 to 90 days from shipment of the goods. Payment terms on electrolyzer systems are typically based on achievement of milestones over the term of the contract with the customer. Sale/leaseback transactions with financial institutions are invoiced and collected upon transaction closing. Service is prepaid upfront in a majority of the arrangements. The Company does not adjust the transaction price for a significant financing component when the performance obligation is expected to be fulfilled within a year.

​

In 2017, in separate transactions, the Company issued to each of Amazon.com NV Investment Holdings LLC and Walmart warrants to purchase shares of the Company’s common stock. The Company presents the provision for common stock warrants within each revenue-related line item on the consolidated statements of operations. This presentation reflects a discount that those common stock warrants represent, and therefore revenue is net of these non-cash charges.  The provision of common stock warrants is allocated to the relevant revenue-related line items based upon the expected mix of the revenue for each respective contract. See Note 18, “Warrant Transaction Agreements,’ for more details.

​

Nature of goods and services

​

The following is a description of principal activities from which the Company generates its revenue.

​

[[GREPCENT_TABLE]]
[["","(i)","Sales of Fuel Cell Systems, Related Infrastructure and Equipment"]]
[[/GREPCENT_TABLE]]

​

Revenue from sales of fuel cell systems, related infrastructure and equipment represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure.

​

The Company uses a variety of information sources in determining standalone selling prices for fuel cells systems and related infrastructure. For GenDrive fuel cells, given the nascent nature of the Company’s market, the Company considers several inputs, including prices from a limited number of standalone sales as well as the Company’s negotiations with customers. The Company also considers its costs to produce fuel cells as well as comparable list prices in estimating standalone selling prices. The Company uses applicable observable evidence from similar products in the market to determine standalone selling prices for GenSure stationary backup power units and hydrogen fueling infrastructure. The determination of standalone selling prices of the Company’s performance obligations requires significant judgment, including periodic assessment of pricing approaches and available observable evidence in the market. Once relative standalone selling prices are determined, the Company proportionately allocates the transaction price to each performance obligation within the customer arrangement based upon standalone selling price. The allocated transaction price related to fuel cell systems and spare parts is recognized as revenue at a point in time which usually occurs upon delivery (and occasionally at shipment). Revenue on hydrogen infrastructure installations is generally recognized at the point at which transfer of control passes to the customer, which usually occurs upon customer acceptance of the hydrogen infrastructure. In certain instances, control of hydrogen infrastructure installations transfers to the customer over time, and the related revenue is recognized over time as the performance obligation is satisfied. The Company uses an input method to determine the amount of revenue to recognize during each reporting period when such revenue is recognized over time, based on the costs incurred to satisfy the performance obligation.

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​

(ii) Sales of Electrolyzer Systems and Solutions

​

Revenue from sales of electrolyzer systems and solutions represents sales of electrolyzer stacks and systems used to generate hydrogen for various applications including mobility, ammonia production, methanol production, power to gas and other uses.

​

The Company uses a variety of information sources in determining standalone selling prices for electrolyzer systems solutions. Electrolyzer stacks are typically sold on a standalone basis and the standalone selling price is the contractual price with the customer. Electrolyzer systems are sold either on a standalone basis or with an extended service agreement and other equipment. The Company uses an adjusted market assessment approach to determine the standalone selling price of electrolyzer systems. This includes considering both standalone selling prices of the systems by the Company and available information on competitor pricing on similar products. The determination of standalone selling prices of the Company’s performance obligations requires significant judgment, including periodic assessment of pricing approaches and available observable evidence in the market. Once relative standalone selling prices are determined, the Company proportionately allocates the transaction price to each performance obligation within the customer arrangement based upon standalone selling price. Revenue on electrolyzer systems and stacks is generally recognized at the point at which transfer of control passes to the customer, which usually occurs upon title transfer at shipment or delivery to the customer location. In certain instances, control of electrolyzer systems transfers to the customer over time, and the related revenue is recognized over time as the performance obligation is satisfied.

​

(iii)Services performed on fuel cell systems and related infrastructure

​

Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. The Company uses an adjusted market assessment approach to determine standalone selling prices for services. This approach considers market conditions and constraints, the Company’s market share, pricing strategies and objectives while maximizing the use of available observable inputs obtained from a limited number of historical standalone service renewal prices and negotiations with customers. The transaction price allocated to services as discussed above is generally recognized as revenue over time on a straight-line basis over the expected service period, as customers simultaneously receive and consume the benefits of routine, recurring maintenance performed throughout the contract period.

​

In substantially all of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five-to-ten-year service period from the date of product installation in exchange for an up-front payment. Services include monitoring, technical support, maintenance and services that provide for 97% to 98% uptime of the fleet. These services are accounted for as a separate performance obligation, and accordingly, revenue generated from these transactions, subject to the proportional allocation of transaction price, is deferred and recognized as revenue over the term of the contract, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized as revenue on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. When costs are projected to exceed revenues over the life of the extended maintenance contract, an accrual for loss contracts is recorded.  As of December 31, 2021 and 2020, the Company recorded a loss accrual of $89.8 million and $24.0 million, respectively. Costs are estimated based upon historical experience and consider the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.  See “Extended Maintenance Contracts” below.

​

Extended maintenance contracts generally do not contain customer renewal options. Upon expiration, customers may either negotiate a contract extension or switch to purchasing spare parts and maintaining the fuel cell systems on their own.

​

(iv)Power Purchase Agreements

​

Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution.

​

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Revenue associated with these agreements is recognized on a straight-line basis over the life of the agreements as the customers receive the benefits from the Company’s performance of the services.  The customers receive services ratably over the contract term.

​

In conjunction with entering into a PPA with a customer, the Company may enter into transactions with third-party financial institutions in which it receives proceeds from the sale/leaseback transactions of the equipment and the sale of future service revenue. The proceeds from the financial institution are allocated between the sale of equipment and the sale of future service revenue based on the relative standalone selling prices of equipment and service.  The proceeds allocated to the sale of future services are recognized as finance obligations.  The proceeds allocated to the sale of the equipment are evaluated to determine if the transaction meets the criteria for sale/leaseback accounting. To meet the sale/leaseback criteria, control of the equipment must transfer to the financial institution, which requires among other criteria the leaseback to meet the criteria for an operating lease and the Company must not have a right to repurchase the equipment (unless specific criteria are met). These transactions typically meet the criteria for sale/leaseback accounting and accordingly, the Company recognizes revenue on the sale of the equipment, and separately recognizes the leaseback obligations.  

​

The Company recognizes a lease liability for the equipment leaseback obligation based on the present value of the future payments to the financial institutions that are attributed to the equipment leaseback.  The discount rate used to determine the lease liability is the Company’s incremental borrowing rate, which is based on an analysis of the interest rates on the Company’s secured borrowings.  Adjustments that considered the Company’s actual borrowing rate, inclusive of securitization, as well as borrowing rates for companies of similar credit quality, were applied in the determination of the incremental borrowing rate.  The Company also records a right of use asset which is amortized over the term of the leaseback.  Rental expense is recognized on a straight-line basis over the life of the leaseback and is included as a cost of PPA revenue on the consolidated statements of operations.

​

Certain of the Company’s transactions with financial institutions do not meet the criteria for sale/leaseback accounting and accordingly, no equipment sale is recognized.  All proceeds from these transactions are accounted for as finance obligations. The right of use assets related to these transactions are classified as equipment related to the PPAs and fuel delivered to the customers, net in the consolidated balance sheets. Costs to service the property, depreciation of the assets related to PPAs and fuel delivered to the customers, and other related costs are included in cost of PPA revenue in the consolidated statements of operations. The Company uses its transaction-date incremental borrowing rate as the interest rate for its finance obligations that arise from these transactions. No additional adjustments to the incremental borrowing rate have been deemed necessary for the finance obligations that have resulted from the failed sale/leaseback transactions.

​

In determining whether the sales of fuel cells and other equipment to financial institutions meet the requirements for revenue recognition under sale/leaseback accounting, the Company, as lessee, determines the classification of the lease. The Company estimates certain key inputs to the associated calculations such as: 1) discount rate used to determine the present value of future lease payments, 2) fair value of the fuel cells and equipment, and 3) useful life of the underlying asset(s):

​

[[GREPCENT_TABLE]]
[["","\u25cf","ASC Topic 842 requires a lessee to discount its future lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in its leases because it does not have access to the lessor\u2019s estimated residual value or the amount of the lessor\u2019s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate to estimate the discount rate for each lease. Adjustments that considered the Company\u2019s actual borrowing rate, inclusive of securitization, as well as borrowing rates for companies of similar credit quality were applied in the determination of the incremental borrowing rate."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","In order for the lease to be classified as an operating lease, the present value of the future lease payments cannot exceed 90% of the fair value of the leased assets. The Company estimates the fair value of the lease assets using the sales prices."]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","In order for a lease to be classified as an operating lease, the lease term cannot exceed 75% (major part) of the estimated useful life of the leased asset. The average estimated useful life of the fuel cells is 10 years, and the average estimated useful life of the hydrogen infrastructure is 20 years. These estimated useful lives are compared to the term of each lease to determine the appropriate lease classification."]]
[[/GREPCENT_TABLE]]

​

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(v)Fuel Delivered to Customers

​

Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site. The stand-alone selling price is not estimated because it is sold separately and therefore directly observable.

​

The Company purchases hydrogen fuel from suppliers in most cases (and sometimes produces hydrogen onsite) and sells to its customers.  Revenue and cost of revenue related to this fuel is recorded as dispensed and is included in the respective “Fuel delivered to customers” lines on the consolidated statements of operations.

​

Contract costs

​

The Company expects that incremental commission fees paid to employees as a result of obtaining sales contracts are recoverable and therefore the Company capitalizes them as contract costs.

​

Capitalized commission fees are amortized on a straight-line basis over the period of time which the transfer of goods or services to which the assets relate occur, typically ranging from 5 to 10 years. Amortization of the capitalized commission fees is included in selling, general and administrative expenses.

​

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses.

​

Impairment of Long-Lived Assets and PPA Executory Contract Considerations

​

We evaluate long-lived assets on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain assets may not be recoverable.  Long-lived assets that we evaluate include right of use lease assets, equipment deployed to our PPAs, assets related primarily to our fuel delivery business and other company owned long-lived assets.  

​

Upon the occurrence of a triggering event, long-lived assets are evaluated to determine if the carrying amounts are recoverable.  The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups.  For operating assets, the Company has generally determined that the lowest level of identifiable cash flows is based on the customer sites.  The assets related primarily to our fuel delivery business are considered to be their own asset group.  The cash flows are estimated based on the remaining useful life of the primary asset within the asset group.  

​

For assets related to our PPA agreements, we consider all underlying cash inflows related to our contract revenues and cash outflows relating to the costs incurred to service the PPAs.  Our cash flow estimates used in the recoverability test, are based upon, among other things, historical results adjusted to reflect our best estimate of future cash flows and operating performance.  Development of future cash flows also requires us to make assumptions and to apply judgment, including timing of future expected cash flows, future cost savings initiatives, and determining recovery values.  Changes to our key assumptions related to future performance and other economic and market factors could adversely affect the outcome of our recoverability tests and cause more asset groups to be tested for impairment.      

​

If the estimated undiscounted future net cash flows for a given asset group are less than the carrying amount of the related asset group, an impairment loss is determined by comparing the estimated fair value with the carrying amount of the asset group. The impairment loss is then allocated to the long-lived assets in the asset group based on the asset’s relative carrying amounts. However, assets are not impaired below their then estimated fair values.  Fair value is generally determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as well as year-over-year trends in pricing of our new equipment and overall evaluation of our industry and market, as considered necessary.  The Company considers these indicators with certain of its own internal indices and metrics in determining fair value in light of the nascent state of the Company’s market and industry.  The estimate of fair value represents our best estimates of these factors and is subject to variability.  Changes to our key assumptions related to future performance and other economic and market factors could adversely affect our impairment evaluation.

​

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The Company has determined that the assets deployed for certain PPA arrangements, as well as certain assets related to the delivery of fuel to customers, are not recoverable based on the undiscounted estimated future cash flows of the asset group. However, the estimated fair value of the assets in these asset groups equal or exceed the carrying amount of the assets or otherwise limit the amount of impairment that would have been recognized. The Company has identified the primary source of the losses for certain PPA arrangements to be the maintenance components of the PPA arrangements and the impact of customer warrant non-cash provisions. As the PPA arrangements are considered to be executory contracts and there is no specific accounting guidance that permits loss recognition for these revenue contracts, the Company has not recognized a provision for the expected future losses under these revenue arrangements. The Company expects that it will recognize future losses for these arrangements as it continues its efforts to reduce costs of delivering the maintenance component of these arrangements. The Company has estimated total future revenues and costs for these types of arrangements based on existing contracts and leverage of the related assets. For the future estimates, the Company used service cost estimates for extended maintenance contracts and customer warrant provisions at rates consistent with experience to date. The terms for the underlying estimates vary but the average residual term on the existing contracts is 5 years. Based on the future estimates with these assumptions, the losses could approximate $169.3 million. This estimate includes $24.0 million in non-cash charges for provision for customer warrants. Actual results could be significantly different than these estimates.

​

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 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 service costs, the Company considers its current service cost level and applies significant judgement related to expected cost saving estimates for initiatives being implemented in the field. The expected future cost savings will be primarily dependent upon the success of the Company’s initiatives related to increasing stack life and achieving better economies of scale on service labor. If the expected cost saving initiatives are not realized, this will increase the costs of providing services and could adversely affect our estimated contract loss accrual. Further, as 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 and will soon undertake several other 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. If actual service costs over the remaining term of existing extended maintenance contracts are 10% more than those estimated in the determination of the loss accrual for fuel cell systems and related infrastructure at December 31, 2021, the loss accrual would be approximately $18.3 million higher.

​

The following table shows the roll forward of balances in the accrual for loss contracts, including changes due to the provision (benefit) for loss accrual, loss accrual from acquisition, releases to service cost of sales and releases due to the provision for warrants (in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","December 31, 2021","\u200b","December 31, 2020","\u200b","December 31, 2019"],["Beginning balance","$","24,013","\u200b","$","3,702","\u200b","$","5,345"],["Provision (benefit) for loss accrual","\u200b","71,988","\u200b","\u200b","35,473","\u200b","\u200b","(394)"],["Loss accrual from acquisition","\u200b","2,636","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Released to service cost of sales","\u200b","(8,864)","\u200b","\u200b","(2,348)","\u200b","\u200b","(1,249)"],["Released to provision for warrants","\u200b","\u2014","\u200b","\u200b","(12,814)","\u200b","\u200b","\u2014"],["Ending balance","$","89,773","\u200b","$","24,013","\u200b","$","3,702"]]
[[/GREPCENT_TABLE]]

​

Equity Instruments  

​

Common stock warrants that meet certain applicable requirements of ASC Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and other related guidance, including the ability of the Company to settle the

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warrants without the issuance of registered shares or the absence of rights of the grantee to require cash settlement, are accounted for as equity instruments. The Company classifies these equity instruments within additional paid-in capital on the consolidated balance sheets.

​

Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon and Walmart as discussed in Note 18, “Warrant Transaction Agreements.” The Company adopted FASB Accounting Standards Update 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (ASU 2019-08), which requires entities to measure and classify share-based payment awards granted to a customer by applying the guidance under Topic 718, as of January 1, 2019.

​

In order to calculate warrant charges, the Company used the Black-Scholes pricing model, which required key inputs including volatility and risk-free interest rate and certain unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. The Company estimated the fair value of unvested warrants, considered to be probable of vesting, at the time. Based on that estimated fair value, the Company determined warrant charges, which are recorded as a reduction of revenue in the consolidated statements of operations.

​

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 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, related infrastructure and equipment, 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

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Recently Adopted Accounting Pronouncements

In October of 2021, ASU No. 2021-08- Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers was issued. The standard update provides an exception to the fair value measurement for revenue contracts acquired in a business combination. The Company has elected to early adopt the standards update as of the fourth quarter of 2021.

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 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.

In December 2019, Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, was issued to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update was adopted January 1, 2021 and did not have a material impact on the Company’s consolidated financial statements.

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Recently Issued and Not Yet Adopted Accounting Pronouncements

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In March 2020, ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued to provide temporary optional expedients and exceptions to the GAAP

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guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update was effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

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In March 2020, ASU 2020-03, Codification Improvements to Financial Instruments, was issued to make various codification improvements to financial instruments to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. This update will be effective at various dates beginning with date of issuance of this ASU. The adoption of this standard does not have a material impact on the Company’s consolidated financial statements.

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