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Plug Power Shares Sell Off on Stock Offering. Should You Buy on the Dip?
Geoffrey Seiler, The Motley Fool
Sun, Jul 21, 2024, 4:20 AM MDT5 min read

https://finance.yahoo.com/m/c5bade22-2322-3d6c-9100-63105d04cb6d/plug-power-shares-sell-off-on.html

Shares of Plug Power (NASDAQ: PLUG) were sinking after the hydrogen fuel cell producer announced a secondary stock offering to help it raise cash. The downward move in the stock only added to its recent woes, with its price now plunging over 75% in the past year.

Let's look at the energy company's secondary offering and why the timing of this announcement likely is not good for the stock.

Plug Power needs to raise more cash
Plug Power announced last week that it would sell $200 million worth of shares in a public offering -- selling 78,740,157 shares at a price of $2.54 per share. That was an over 13% discount to its closing price of $2.93 before the announced offering. The offering (to be completed by Monday, July 22) increased its shares outstanding by about 10.6%.

The company also updated its cash balance for the quarter ending in June, noting it had $62.4 million in cash and equivalents on its balance sheet and restricted cash of approximately $956.5 million. At the end of the first quarter in March, it had $172.9 million in cash and equivalents on its balance sheet and $995.2 million in restricted cash. Plug Power's restricted cash stems from prior sale/leaseback agreements that will be released over the lease term, as well as having some letters of credit backed by security deposits.

The update indicates another quarter of substantial cash burn for the company, which has been struggling with a business model that has negative gross margins. This stems from Plug Power providing hydrogen fuel to its customers below its costs to acquire the fuel, although last quarter, it even sold its equipment at negative gross margins.

In order to help improve its business model, Plug Power has sought to build its own hydrogen plants in order to lower costs and be able to make a profit on its hydrogen fuel sales. Building hydrogen plants is not cheap, though, and the company has also run into some construction delays.

Currently, it has two plants operational, with a third expected to be completed by the end of this year. However, when fully ramped up, these plants are still expected to meet only about 65% of where Plug Power sees demand headed. In May, the company received a conditional commitment for an up to $1.66 billion loan guarantee from the U.S. Department of Energy (DOE), which would go a long way in helping the company finance its remaining projects. However, the potential loan has been the subject of scrutiny, with U.S. Sen. John Barrasso, R-Wyoming, a ranking member of the Senate Committee on Energy and Natural Resources, asking the loan to be investigated before being approved.

If the DOE loan is not approved, the company would have other options; however, these financing costs would most likely come at a higher cost in the form of more dilutive equity raises or higher-interest loans. In addition, traditional lenders may not want to finance the company given the current state of its business and cash burn.

Is it time to buy the dip in Plug Power?
At this point, buying the dip on Plug Power is probably not a good idea. Plug Power continues to burn through cash and needed the proceeds from the stock offering to bolster its dwindling cash position.

The time of the offering, meanwhile, is not ideal. If the company was going to report strong Q2 results and offer encouraging guidance, it would have been best served to have done the stock offering after it reported these results when its stock could have been at a higher price.

Plug Power has not yet announced its earnings date, but last year it reported its Q2 results on Aug. 9, so its earnings report is not that far away. The updated cash position already indicates that the company had another big quarter of cash burn, which means gross margin improvements may not have materialized.

Plug Power previously said it expected its hydrogen business to be near gross margin breakeven in the fourth quarter. If it walks back that guidance, the stock could still have a lot more room to fall from here.

At this time, Plug Power remains a very speculative stock. If the company gets its low-cost government loan, builds out its hydrogen plants, gets gross margin positive, and turns profitable, the stock could have a lot of upside. However, a lot has to go right for that to happen. As such, I think it is best to continue to stay on the sidelines.

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5-14-24 sec filing on that loan

https://www.sec.gov/ix?doc=/Archives/edgar/data/1093691/000110465924060895/tm2414372d1_8k.htm

PLUG RECEIVES $1.66 BILLION CONDITIONAL COMMITMENT LOAN GUARANTEE FROM DEPARTMENT OF ENERGY FOR GREEN HYDROGEN DEVELOPMENT PIPELINE

Loan guarantee will bolster the buildout of Plug’s green hydrogen plant network across the United States, driving rapid advancement of the hydrogen economy

LATHAM, N.Y., May 14, 2024 -- Plug Power Inc. (NASDAQ: PLUG), a global leader in comprehensive hydrogen solutions for the green hydrogen economy, received a conditional commitment for an up to $1.66 billion loan guarantee from the Department of Energy’s (“DOE”) Loan Programs Office (“LPO”) to finance the development, construction, and ownership of up to six green hydrogen production facilities.

The production facilities, which will be selected for financing in accordance with procedures to be set forth in definitive documentation with DOE, will be built across the nation and supply major companies, including Plug’s existing customers, with low-carbon, made-in-America green hydrogen. The hydrogen generated will be used in applications in the material handling, transportation, and industrial sectors.

“Green hydrogen is an essential driver of industrial decarbonization in the United States,” said Plug Power CEO Andy Marsh. “Earlier this year, Plug successfully demonstrated our innovation and technical ability by launching the first commercial-scale green hydrogen plant in the country in Woodbine, Georgia. This loan guarantee will help us build on that success with additional green hydrogen plants.”

Marsh added, “We appreciate the partnership with the DOE Loan Programs Office and are pleased to have worked through an intensive due diligence process. The loan guarantee will prove instrumental to grow and scale not only Plug’s green hydrogen plant network, but the clean hydrogen industry in the United States.”

Plug, the leading commercial-scale manufacturer of electrolyzers, currently operates the largest proton exchange membrane (PEM) electrolyzer system in the United States at its Woodbine, Ga., hydrogen plant. Plug’s current green hydrogen generation network now has a liquid hydrogen production capacity of approximately 25 tons per day.

Plug’s green hydrogen production plants utilize the company’s own electrolyzer stacks manufactured at its state-of-the-art gigafactory in Rochester, NY, and Plug’s liquefaction and hydrogen storage systems engineered at its facility in Houston.

DOE’s support for Plug’s green hydrogen projects represents a major milestone in the U.S.’s commitment to advance the development of large-scale hydrogen production, processing, delivery, and storage. It also underscores the application of green hydrogen to help meet decarbonization goals across multiple sectors of the economy.

While this conditional commitment represents a significant milestone and demonstrates the DOE’s intent to finance the project, certain technical, legal, environmental and financial conditions, including negotiation of definitive financing documents, must be satisfied before funding of the loan guarantee.

LPO works in support of President Biden’s ambitions to drive growth in US manufacturing and innovation, create jobs, and build a clean energy economy that will address climate change and make communities more resilient.

Plug’s projects under the loan will adhere to the Biden Administration’s Justice 40 Initiative. This process includes gathering input from local labor, workforce, and economic development organizations in addition to first responder and non-profit organizations. The plants are expected to create good-paying jobs accessible to a diverse talent supply and help develop workforce skills needed to drive the transition to a clean energy economy.

LPO’s Title 17 Clean Energy Financing Program, which supports innovative energy and supply chain projects and projects that reinvest in existing energy infrastructure, will provide the financing to Plug.



About Plug



Plug is building an end-to-end green hydrogen ecosystem, from production, storage, and delivery to energy generation, to help its customers meet their business goals and decarbonize the economy. In creating the first commercially viable market for hydrogen fuel cell technology, the company has deployed more than 69,000 fuel cell systems and over 250 fueling stations, more than anyone else in the world, and is the largest buyer of liquid hydrogen.



With plans to operate a green hydrogen highway across North America and Europe, Plug built a state-of-the-art Gigafactory to produce electrolyzers and fuel cells and is developing multiple green hydrogen production plants targeting commercial operation by year-end 2028. Plug delivers its green hydrogen solutions directly to its customers and through joint venture partners into multiple environments, including material handling, e-mobility, power generation, and industrial applications.



For more information, visit www.plugpower.com.