Acquisitions

12 Months Ended

Dec. 31, 2022

Acquisitions

Acquisitions

3. Acquisitions

Alloy Custom Products, LLC and WesMor Cryogenics, LLC

On December 5, 2022, the Company acquired two subsidiaries of Cryogenic Industrial Solutions, LLC, Alloy Custom Products, LLC, and WesMor Cryogenics, LLC (collectively, “CIS”). The CIS acquisition will allow the Company to increase its production capabilities for stainless steel and aluminum cryogenic transport truck-mounted cryogenic pressure vessels, cryogenic transport trailers, and other mobile storage containers.

The fair value of consideration paid by the Company in connection with the CIS acquisition was as follows (in thousands):

Cash	$	30,700
Due to Cryogenic Industrial Solutions, LLC		500
Plug Power Inc. Common Stock		6,107
Total consideration	$	37,307

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	267
Accounts receivable		5,038
Inventory		11,120
Prepaid expenses and other assets		464
Property, plant and equipment		3,887
Right of use asset		1,538
Identifiable intangible assets		13,430
Lease liability		(1,562)
Accounts payable, accrued expenses and other liabilities		(3,826)
Deferred revenue		(6,193)
Total net assets acquired, excluding goodwill	$	24,163

The preliminary allocation of the purchase price is still considered provisional due to the finalization of the valuation for the assets acquired and liabilities assumed and related tax liabilities, if any, in relation to the CIS acquisition. Therefore, the fair values of the assets acquired and liabilities assumed are subject to change as we obtain additional information for valuation assumptions such as market demand for CIS product lines to support forecasted financial data, which will not exceed 12 months from the date of acquisition.

The fair value of the tradename totaling $6.2 million was calculated using the relief from royalty approach which is a variant of the income approach, and was assigned a useful life of fifteen years. The fair value of the customer relationships totaling $7.1 million was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach, and was assigned a useful life of fifteen years. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. The fair value of the non-compete agreements was $0.2 million with a useful life of five years.  

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the CIS acquisition was calculated as follows (in thousands):

Consideration paid	$	37,307
Less: net assets acquired		(24,163)
Total goodwill recognized	$	13,144

The acquisition of CIS contributed $3.7 million to total consolidated revenue for the year ended December 31, 2022.

Joule Processing LLC

On January 14, 2022, the Company acquired Joule Processing LLC (“Joule”), an engineered modular equipment, process design and procurement company founded in 2009.

The fair value of consideration paid by the Company in connection with the Joule acquisition was as follows (in thousands):

Cash		28,140
Contingent consideration		41,732
Total consideration	$	69,872

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to $130.0 million that the sellers are eligible to receive in cash or shares of the Company’s common stock (at the Company’s election). Of the total earnout consideration, $90.0 million is related to the achievement of certain financial performance and $40 million is related to the achievement of certain operational milestones.

The following table summarizes the final allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Current assets	$	2,672
Property, plant and equipment		493
Right of use asset		182
Identifiable intangible assets		60,522
Lease liability		(374)
Current liabilities		(2,612)
Contract liability		(3,818)
Total net assets acquired, excluding goodwill	$	57,065

The fair value of the developed technology totaling $59.2 million included in the identifiable intangible assets was calculated using the MPEEM approach. Therefore, to determine cash flow from the developed technology over its useful life of 15 years, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the tradename totaling $0.8 million was calculated using the relief from royalty approach which is a variant of the income approach, and was assigned a useful life of four years. The fair value of the non-compete agreements was $0.5 million with a useful life of six years.

In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory, included in inventory, was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $41.7 million representing the fair value of contingent consideration payable, and is recorded in the consolidated balance sheet

in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was $53.2 million as of December 31, 2022, and as a result a $11.5 million increase was recorded in the consolidated statement of operations for the year ended December 31, 2022.

Included in the purchase price consideration are contingent earn-out payments as described above. Due to the nature of the earn-outs, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be Level 3 financial instruments.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Joule acquisition was calculated as follows (in thousands):

Consideration paid	$	28,140
Contingent consideration		41,732
Less: net assets acquired		(57,065)
Total goodwill recognized	$	12,807

During the year ended December 31, 2022, the Company recorded a measurement period adjustment to decrease goodwill by $0.1 million due to the payment of a hold back liability, which was recorded in accrued expenses in the condensed consolidated balance. The acquisition of Joule contributed $36.5 million to total consolidated revenue for the year ended December 31, 2022, respectively.

Applied Cryo Technologies Acquisition

On November 22, 2021, the Company acquired 100% of the outstanding shares of Applied Cryo Technologies, Inc. (“Applied Cryo”). Applied Cryo is a manufacturer of engineered equipment servicing multiple applications, including cryogenic trailers and mobile storage equipment for the oil and gas markets and equipment for the distribution of liquified hydrogen, oxygen, argon, nitrogen and other cryogenic gases.

The fair value of consideration paid by the Company in connection with the Applied Cryo acquisition was as follows (in thousands):

Cash	$	98,559
Plug Power Inc. Common Stock		46,697
Contingent consideration		14,000
Settlement of preexisting relationship		2,837
Total consideration	$	162,093

Included in the $98.6 million of cash consideration above, $5.0 million is consideration held by our paying agent in connection with this acquisition reported as restricted cash, with a corresponding accrued liability as of December 31, 2022 on the Company’s consolidated balance sheet. We expect that this will be settled in the first half of 2023.

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to $30.0 million that the sellers are eligible to receive in the form of cash or shares of the Company’s Common Stock (at the Company’s election). Of the total earnout consideration, $15.0 million is related to the achievement of certain production targets during the period of January 1, 2022 through July 1, 2024, and $15.0 million is associated with the achievement of certain cost targets during the same period.

The following table summarizes the final allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	1,180
Accounts receivable		4,123
Inventory		24,655
Prepaid expenses and other assets		1,506
Property, plant and equipment		4,515
Right of use asset		2,788
Identifiable intangible assets		70,484
Lease liability		(2,672)
Accounts payable, accrued expenses and other liabilities		(7,683)
Deferred tax liability		(16,541)
Deferred revenue		(12,990)
Total net assets acquired, excluding goodwill	$	69,365

During the year ended December 31, 2022, the Company recorded a measurement period adjustment to decrease goodwill by $0.5 million due to a release of escrow, which was recorded to accrued expenses in the condensed consolidated balance sheet.

Identifiable intangible assets consisted of developed technology, non-compete agreements, backlog, tradename, and customer relationships. The fair value of the developed technology totaling $26.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying. The fair value of the tradename totaling $13.7 million was calculated using the relief from royalty approach. The fair value of the acquired customer relationships totaling $26.6 million was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the exploitation of customer relationships, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements and backlog was $3.9 million.

In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.

Included in the purchase consideration are four contingent earn-out payments (as described above): the first production earn-out, second production earn-out, the first cost earn-out, and the second cost earn-out. Due to the nature of the earn-outs, as outlined in the purchase agreement, a scenario based method (“SBM”) was used to value these contingent payments as the payments are milestone based in nature. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet an initial liability of $14.0 million representing the fair value of contingent consideration payable, and is recorded in the consolidated balance sheet in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was $15.9 million as of December 31, 2022, and as a result a $1.9 million increase was recorded in the consolidated statement of operations for the year ended December 31, 2022.

In connection with the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $16.5 million and recognized a tax benefit $16.5 million during the year ended December 31, 2021.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Applied Cryo acquisition was calculated as follows (in thousands):

Consideration paid	$	162,093
Less: net assets acquired		(69,365)
Total goodwill recognized	$	92,728

Frames Holding B.V. Acquisition

On December 9, 2021, the Company acquired 100% of the outstanding shares of Frames Holding B.V. (“Frames”). Frames, a leader in turnkey systems integration for the energy section, designs, builds, and delivers processing equipment, separation technologies, flow control and safeguarding systems, renewable energy and water solutions.

The fair value of consideration paid by the Company in connection with the Frames acquisition was as follows (in thousands):

Cash	$	94,541
Contingent consideration		29,057
Settlement of preexisting relationship		4,263
Total consideration	$	127,861

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to €30.0 million that the sellers are eligible to receive in the form of cash. The contingent consideration is related to the achievement of certain production targets during the four years following the closing date and is payable in two equal installments. The first target is achieved when the Company has shipped or has made ready for shipment 100MW of containerized electrolyzer systems, or non-containerized electrolyzer systems or arrays. The remaining targets are achieved when the Company has shipped or has made ready for shipment an additional 50MW of containerized electrolyzer systems, or non-containerized electrolyzer systems or arrays, with a maximum of additional 150MW.

The following table summarizes the final allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	45,394
Accounts receivable		17,910
Inventory		34
Prepaid expenses and other assets		3,652
Property, plant and equipment		709
Right of use asset		1,937
Contract asset		9,960
Identifiable intangible assets		50,478
Lease liability		(1,937)
Contract liability		(22,737)
Accounts payable, accrued expenses and other liabilities		(18,465)
Deferred tax liability		(10,644)
Provision for loss contracts		(2,636)
Warranty provisions		(7,566)
Total net assets acquired, excluding goodwill	$	66,089

During the year ended December 31, 2022, the Company recorded a measurement period adjustment of an increase to goodwill by $6.6 million due to the recording of the deferred tax liabilities surrounding the tangible and intangible assets acquired.  

Identifiable intangible assets consisted of developed technology, non-compete agreements, backlog, tradename, and customer relationships.

The fair value of the developed technology totaling $5.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The fair value of the tradename totaling $11.6 million was calculated using the relief from royalty approach. The fair value of the acquired customer relationships totaling $27.2 million was calculated using the MPEEM approach which is a variant of the income approach. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements totaling $4.9 million was calculated using the with and without income approach. The fair value of the backlog was $1.4 million.

Included in the purchase consideration are four contingent earn-out payments (as described above). Due to the nature of the earn-outs, as outlined in the purchase agreement, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $29.1 million representing the fair value of contingent consideration payable, and is recorded in the consolidated balance sheet in the loss accrual for service contracts and other liabilities. The fair value of this contingent consideration was $31.0 million as of December 31, 2022, of which $3.4 million was due to an increase in the fair value of the liability and was recorded in the consolidated statement of operations, offset by $1.7 million due to the foreign currency translation.

Included in Frames’ net assets acquired are net deferred tax liabilities of $10.6 million.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Frames acquisition was calculated as follows (in thousands):

Consideration paid	$	127,861
Less: net assets acquired		(66,089)
Total goodwill recognized	$	61,772

Purchased goodwill is not expected to be deductible for tax purposes.

The acquisition of Frames would have contributed $75.7 million and $3.8 million to total consolidated revenue and net income for the year ended December 31, 2021, respectively, had the acquisition occurred on January 1, 2021. The following table reflects the unaudited pro forma results of operations for the year ended December 31, 2021 assuming that the Frames acquisition had occurred on January 1, 2021 (in thousands):

	For the year ended
	December 31, 2021
Revenue	$	570,502
Net loss	$	(456,510)

None of the CIS, Joule or Applied Cryo acquisitions were material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.