The issues which have plagued Plug Energy (NASDAQ: PLUG) endured in its second quarter as the corporate as soon as once more posted poor outcomes. The inventory has misplaced about 80% of its worth prior to now 12 months.
Let’s take a more in-depth have a look at the problems the corporate is going through and whether or not it has a chance to stage a turnaround.
Plug Energy’s issues
The most important points going through Plug Energy are detrimental gross margins and money outflows. The corporate discovered a distinct segment promoting gas cells utilized in forklifts and different materials dealing with tools to high-volume warehouses. Nonetheless, together with these offers, it has lengthy bought the hydrogen gas wanted to energy these gadgets at a loss.
That development continued in its most up-to-date quarter, with the corporate reporting a gross lack of $131.3 million. That was worse than the $78.1 million gross loss it posted a 12 months in the past, however an enchancment from the gross lack of $159.1 million it recorded within the first quarter.
For the second time this 12 months, along with detrimental gas gross margins, it additionally had detrimental tools gross margins. On the brilliant facet, its detrimental gas gross margins did see some enchancment stemming from the inexperienced hydrogen manufacturing amenities that the corporate has constructed.
Constructing out hydrogen product crops in an effort to provide its clients with hydrogen gas is an enormous a part of its plan to attempt to get to optimistic gross gas margins. Elevated manufacturing from its Georgia facility, together with some worth will increase, helped gas the development. In the meantime, it is anticipating {that a} new hydrogen plant it’s constructing in Louisiana in a three way partnership with Olin will start producing hydrogen within the fourth quarter.
On condition that the corporate has been promoting each its tools and its gas at decrease costs than it prices to supply them, Plug Energy has continued to pile up losses and burn by way of money. Within the quarter, the corporate posted a lack of $262.3 million, or $0.36 a share. In the meantime, it had working money outflows of $254.7 million, whereas its free money move was detrimental $350 million.
Plug Energy’s steadiness sheet, the corporate has $214 million in debt towards $62.4 million in money. It additionally has $956.6 million in restricted money. Its restricted money is essentially from earlier sale/leaseback agreements that can be launched over the lease time period, and to a lesser extent, letters of credit score backed by safety deposits.
Given the shortage of obtainable money on its steadiness sheet, the corporate has been aggressively promoting shares to assist fund its operations and the continued buildout of its hydrogen crops. Within the quarter, it is acquired web proceeds of $266.8 million from fairness gross sales and $572.1 million by way of the primary half of the 12 months.
To place Plug Energy’s money burn and fairness raises in perspective, the corporate solely has a market cap of round $1.8 billion based mostly on its most up-to-date share rely.
Are Plug Energy’s issues fixable?
It is attainable that the corporate can repair its issues, however it’s getting much less and fewer seemingly that it’s going to occur. First, its core gas cell enterprise has been performing poorly. With all of Plug Energy’s points, it is virtually straightforward to overlook that its tools gross sales plunged almost 65% 12 months over 12 months in Q2, and this was whereas it was being bought at a loss. However even when it was promoting extra tools final 12 months, its tools gross margins had been nonetheless solely simply above 13%.
The corporate is ready on a possible $1.66 billion low-interest mortgage from the Division of Power to assist fund the remainder of its hydrogen plant buildout, though the mortgage has been challenged by U.S. Sen. John Barrasso (R-Wyo.), a rating member of the Senate Committee on Power and Pure Sources. With out the mortgage, the corporate may very well be hard-pressed to search out further financing given the present state of its enterprise.
In the meantime, whereas hydrogen gas gross margins have improved, the chance of gas gross sales being a powerful revenue driver appears unlikely. Getting gas margins to breakeven could be an accomplishment, however that alone doesn’t remedy the corporate’s issues.
It is value noting that if Plug Energy had been to develop its enterprise to $1.5 billion a 12 months in income with 25% general gross margins, the $375 million in gross revenue would nonetheless not cowl the roughly $400 million in company prices that it’s on tempo for this 12 months. The corporate is projecting income of between $825 million to $925 million this 12 months. This simply demonstrates how removed from profitability it’s. In the meantime, Plug Energy will proceed to dilute shareholders and burn by way of money whereas it tries to implement a turnaround.
Whereas there are some shiny spots, reminiscent of improved hydrogen gas margins and electrolyzer gross sales, the corporate nonetheless has a protracted climb forward. As such, I’d avoid the inventory proper now.
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Plug Energy’s Issues Persist. Ought to Buyers Throw within the Towel on the Inventory? was initially revealed by The Motley Idiot
