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When Plug Power (NASDAQ: PLUG) posted its first-quarter results, the issues that have plagued the company over the past year remained front and center. The biggest of these issues is the company's negative gross margins and cash outflows.

The stock was down over 60% over the past year before news that the company received a huge $1.66 billion loan from the Department of Energy (DOE) sent shares skyrocketing higher.

Let's look at its most recent quarterly results, its loan approval, and why there could be a turnaround in the works.

Problems persist for Plug Power

Plug Power is a fuel cell company that found a niche selling fuel cells used in forklifts and other material handling equipment that companies such as Amazon and Walmart use in their high-volume warehouses. The problem with its business model, however, is that it would sell the hydrogen fuel needed to run its fuel cells at a loss.

This was once again the case in Q1, with the company reporting a gross loss of $159.1 million. That was worse than the $69.4 million gross loss it posted a year ago. This quarter was particularly bad, as in addition to having its typical negative gross margins on its fuel sales, it had negative equipment gross margins.

Consistently selling fuel at huge negative gross margins is neither a good nor a sustainable business model. Not surprisingly, the company has been bleeding cash, which continued in Q1.

Plug Power had operating cash outflows of $167.7 million, while its free cash flow was negative $266.4 million. That was actually a nice improvement compared to a year ago when its operating cash outflow was $276.9 million. However, much of the improvement came from a change in account receivables, as it was able to collect more debt from customers. Nothing in the underlying business changed besides this, and the amount customers now owe it has been reduced.

Plug Power is looking to fix its problems

In order to fix its current issues of negative gross margins and cash flow, Plug Power has begun building its own green hydrogen production facilities to lower costs and to be able to sell the green hydrogen it produces at a profit.

The company said that its two facilities in Georgia and Tennessee are now producing hydrogen at nameplate capacity (the output expected under ideal conditions). Combined, they can produce 25 tons per day (TPD) of liquid hydrogen. Meanwhile, the plant Plug Power's building in Louisiana is on track to be complete and begin production by the end of this year. Once the Louisiana plant is online, the company said it should be able to meet most of its customers' hydrogen fuel demands internally. However, after expected customer demand growth to 65 TPD, its own supply capacity would drop to around 65% of its own customer demand.

Plug Power also said that it is set to raise prices this year, especially hydrogen prices. This is expected to help its margins in the quarters ahead. It is looking to get to gross margin breakeven in its fuel business in the fourth quarter.

Getting to breakeven fuel gross margins by itself would not solve all of Plug Power's problems. Equipment gross margins were negative this quarter and only about 13% a year ago. And even with cost cuts, it had about $100 million in operating expenses this past quarter, so turning profitable could still be a ways off.

However, the company is showing some signs that turning a corner is possible. It still has a large hydrogen plant in Texas planned for next year, and it just received a commitment for a $1.66 billion low-interest loan from the DOE. The loan will help complete that project and help it build other green hydrogen facilities across the U.S. Once the Texas facility is completed, it should have enough capacity to supply all its current customers with its own production, and then start expanding beyond that with the help of the loan. The loan can be used to build up to six facilities, which gives it plenty of runway for growth.

Plug Power is a speculative investment

Any investment in Plug Power is still very speculative at this point. The company just reported awful first-quarter results, and it has been diluting shareholders by issuing stock using an at-the-market secondary program. It also doesn't have the best track record of delivering on promises, as evidenced by the continued delays of its hydrogen plants.

However, there are some early signs of a turnaround. Lowering its reliance on third-party hydrogen and raising prices is a big step in the right direction. Meanwhile, the loan from the DOE will now provide it with low-cost financing to help it build out its network of hydrogen plants. This is needed to change the economics of its business and thus is a huge deal.

Things are looking up for Plug Power, but this is a stock best suited only for aggressive investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.

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