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spk17: and welcome to the Plug Power first quarter earnings call. During today's presentation, all participant lines will remain in a listen-only mode. Afterwards, we will conduct a question and answer session with instructions to follow. If at any time during today's presentation you need to reach an operator, please press star zero on your telephone. As a reminder, please note today's conference is being recorded Tuesday, May 9th, 2023. It is now with pleasure that I turn today's conference over to Teal Hoyos, Senior Director of Marketing and Communications. Please go ahead.
spk01: Thank you. Welcome to the 2023 first quarter earnings call. This call will include forward-looking statements. These forward-looking statements contain projections of future results of operations or of our financial position, or other forward-looking information. We intend these forward-looking statements to be covered by the State Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements and such statements should not be read or understood as a guarantee of future performance or results. Such statements are based upon the current expectations, estimates, forecasts, and projections as well as the current beliefs and assumptions of management and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including but not limited to the risks and uncertainties discussed under item 1A risk factors in our annual report on Form 10-K for the fiscal year ending December 31st, 2022. Subsequent quarterly reports on Form 10-Q and other reports we file from time to time with the FCC. These forward-looking statements speak only as of the day which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to PLUG CEO, Andy Marsh.
spk21: Good morning. Thank you, everyone, for joining the call, and thank you, Steele. Before I begin the conference call, I want to talk about two items. One is we had a filing this morning where we made a mistake with the date. It certainly got us excited here. We put 2024 instead of 2023. So if you're reacting to a plug change to the guidance for 2023 from $1.4 billion as our expected results, we haven't. So sorry for any confusion that may have caused. The second, I'd really like to share a video. Participants on the phone, you'll hear kind of a brief three minutes to 30-second periods of silence, while those on the webcast can sit back and enjoy the video. If you're on the phone, I suggest clicking to the webcast. It's really worth watching. So if you miss it, it'll be included in our archives for later viewing. So Teal, let it roll.
spk00: Hi everybody, my name is Steve Baker. I'm the Georgia plant manager for Plug Power here at Woodbine, Georgia. I have a background in cryogenics from the Marine Corps starting in 2006. I've also served as an operational leader for several IGCs. Behind me is our peach tree project, Plug Power's first 15-ton-a-day liquid plant. This plant will be in production in the second quarter. Why don't we go on in? We'll take a look around. All major plant equipment has been installed and is in place. Our storage tanks, our cold boxes, compression, electrolyzers, and behind me you see our rectifiers and PDC equipment ready for use as soon as commissioning completes. The process really begins behind me with our rectifiers where power is brought in from a local substation feeding just this facility. So now we're at the electrolyzer building, really the heartbeat of the plant. Inside this building, you'll see eight 5-megawatt PEM electrolyzers designed by Plug Power. These act as our feed package where all of our gas is produced. Ultimately, it then goes through our pipe rack, through the compressors, and into the liquefier. So now that we've seen where we have that power coming in and that hydrogen is ultimately produced at, behind us you'll see where we have all of our compressors for the facility. Each compressor out here has a specific job and ultimately is responsible for refrigerating and liquefying the hydrogen gas we've just produced. So we have five compressors on site. Each with a very specific job. All have been installed, are being loop-checked and tuned, commissioned, and will be ready to produce come Q2. Here you have our cold boxes. We have a perlite and vacuum cold box. That perlite cold box serves two main purposes. Pre-cooling for our hydrogen gas and re-liquefaction of that nitrogen. as part of that process. And in front of that, you'll see our vacuum cold box responsible for the last stages of refrigeration and ultimately where that hydrogen is then liquefied for storage. On either side of me here, you'll see our hydrogen storage tanks. Each vessel holds 90,000 gallons of liquid hydrogen. From these storage tanks, that hydrogen is then moved over to our load scales. We're able to fill tankers on a daily basis, deployment to fulfill our customer needs. So behind me, you'll see currently our Pathfinder project is in full commercial operation. Here you see we're currently filling two of our high pressure tube trailers, putting green hydrogen gas into the market. This plant has the ability to produce 2,100 kilograms of green hydrogen gas a day, servicing customers all over the Southern US. The timeline in which we've built this is incredible. world-class facility has been completed in 11 months. Industry standard for a liquefier is typically 48. What we've been able to accomplish is absolutely nothing short of amazing. I hope you've enjoyed today's tour of the 15-ton-a-day plant here in Georgia. Plug Power will be at 500 tons a day of production by the end of 2025, starting with the first 15 tons a day in Q2 of 2023 right here in Georgia.
spk11: Thank you.
spk21: I hope you enjoyed the video. Really, it showcases our Georgia plant, and you can find more detailed information on the status in the investor letter. Really, to summarize, our plant's already producing gas as hydrogen for our customers, and we expect it to achieve full production by the end of June. Although we always strive for greater speed, it's really worth noting that We accomplished what we've accomplished since issuing full notice to proceed under our EPC contract of full production in just 48 weeks. It's a remarkable feat, considering that conventional gas companies, and I was sitting at CIRA listening to one CEO talking about six years, but they usually estimate four years of a project to this scale. Additionally, by the end of June, our Georgia plant with the largest green hydrogen plant in the world that utilizes electrolyzers. That's a significant achievement. We plan to commission more plants in Texas, New York, and Louisiana this year. This year, our focus is really to execute. Our primary goal is to achieve revenue of $1.4 billion, and that's in 2023, which is supported by several activities, including learning to scale our 5-megawatt electrolyzer systems in partnership with our fabricators, scaling our stationary products to facilitate 20 megawatts in shipments. One of the real competitive advantages is the infrastructure we've established in Rochester and Vista, which enables us to support our business growth. Our customers really do recognize our ability to deliver on our promises. thanks to the tools and facilities we possess. Our ability to construct green hydrogen plants is evident in Georgia, and we plan to further demonstrate this in Texas and New York, which will eliminate any doubts about our capabilities. I'm going to be walking Georgia today. I'm excited. These plants have garnered interest from both equity and debt investors. Moreover, Plug has a range of non-diluted solutions that can eliminate the necessity for future equity investments at the present level based on the current business plan. And look, this year we remain focused on government policies. This is an energy company, and energy and government policy go hand in hand, including the IRA and the European Renewable Energy Directive. Although these policies have been helpful, PLUG has the opportunity to shape their development further. We have built this chart to show the lower and expected case for Plug in 2023. In the expected case, Plug will achieve $1.4 billion in revenue and $140 million in gross margin dollars. Look, there's really just a couple of key ingredients in meeting that goal. It's shipping our 27.5 megawatt electrolyzer systems, which we have orders for. as we learn to build them more efficiently in coordination with our three fabricators around the world. We're close to closing out 500 megawatts of a large electrolyzer plant system order, and there's many more behind that. And those opportunities, we recognize revenue on an ongoing basis. And selling 60 tons of liquefiers in the next three months I'm sure Sanjay will be happy when the Q&A comes around to talk about that. Also, we have the opportunities beyond those listed above to achieve $1.4 billion. And all of these items do not come to pass. Revenue would be about $1.2 billion, and gross margin would be approximately $50 million, still an 80% increase in revenue for the year. Finally, I'd like to highlight this is really important. Our application business, when you look at that slide, has very little variability, since it's more established. During the early years of our application business, we did experience some of those challenges of predictabilities, and some years we exceeded, and others we missed our projections. The methodology we just shared gives us a high level, very high level of confidence in the range of outcomes in the next seven months. Be clear, this is really important because it sometimes gets lost in the chatter. Plug is leading the way in terms of building actual products, real things every day, and constructing plants. No other company is doing what we're doing in the field. Our Georgia plant is exceptional, and we're excited to showcase it to analysts in the coming months. The feedback we received from our customers have been overwhelmingly positive. When it comes to the application business, we have a remarkable stable business model compared to other companies in the fuel cell industry. This is due to our focus on pedestal customers. Lastly, our range of energy products is unparalleled in the industry, and we're rapidly learning how to scale more efficiently than any of our competitors, but more important, Our customers really like our products. Finally, I don't want to shy away from the facts. Once again, no one is building real products and building plants like plugs. It really separates us. Paul, Sanjay, and I are now available for your questions.
spk17: Thank you. We will now start the question and answer session. To register your questions, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered or you would like to withdraw a registration, please press 13. Again, we do welcome all questions or comments. To register, please press 14 on the telephone. One moment, please, for the first question. And our first question comes from the line of Andrew Percoco of Morgan Stanley. Please proceed with your question.
spk07: Great. Thanks so much for taking my question here. So just, you know, first I want to ask a question around the IRA and some of the Treasury interpretations around hourly matching and deliverability and additionality. What might that mean for some of your first few plans that you're bringing online? But you still think you'll qualify for the full $3 per kilogram and And what might that mean for your 2025 and 2028 grain hydrogen ecosystem targets?
spk21: So, Andrew, I'm going to take a step back further than that. I've spent a lot of time, especially in the last two months in D.C., talking to folks in the administration. And remember, the primary purpose of the IRA is jobs, climate change, And that really, and national security. And that really is driving the thinking of the folks in the administration. From my discussions, I believe that when you look at the European Renewable Energy Directives, that that certainly has had a great deal of influence on those in D.C., which, you know, which interpret, if you interpret that, you can see it's very, very favorable to the approach PLUG thinks is important. Now, when I look at it, I'll give you two examples where I think that resonates with administrators. In my house in Saratoga Springs, I buy power from Vermont Power. Vermont Power, every time I buy electricity, is generating more renewable energy. It doesn't matter that the electrons that come through my house come from National Grid. That's really... what's going on. That's, you know, fundamentally, plug supports generating more renewables, plug supports generating electrolyzers, and I believe from my discussions, that's in line, ultimately, with what the administration will do.
spk07: Great. That's some helpful context. And maybe just switching over to the optics trends in the quarter. I think Paul, you had mentioned 125 million of optics per quarter is the right run rate for 2023. You came in a little bit above that in the first quarter. How should we think about that trending through the rest of the year? And do you still feel comfortable with your operating income guidance for 2023? Yeah.
spk19: So, you know, I think what we have been talking about was like in that 125, 130, but the biggest Delta in the quarter, had to do with our acquisitions. I mean, they continued to do better than we expected, and as you can see, we had to approve more of consideration in terms of the earn-out structures that we set up. Should they be successful, it would only pay when and if that happened. So that's a high-class problem, and it was the primary delta for the quarter. But I think in the balance of the year, if you look at it, the 125 to 130 is the right run rate.
spk11: Great, thank you. I'll take the rest offline. Thank you. Thank you. Who we got next, Teal? One moment please for the next question.
spk17: Sorry, our next question comes from the line of James West of Evercore ISI. Please proceed with your question.
spk02: Good morning, James.
spk16: Hey, Andy. Good morning. How are you doing?
spk21: Okay.
spk16: So, Andy, I wanted to... Talk about hydrogen hubs for a minute. Given that we're really close to the commission that's going to advise the DOE or make recommendations to the DOE on what's been submitted so far, and the DOE should start allocating capital, I believe, at some point in the late third or fourth quarter, and there'll be a big build-out. And we've got, of course, applications from Texas, from California, from Texas, Los Angeles, and then obviously the Northeast, as you know full well. What role does this plug play in that process? I know we have to establish production of green hydrogen and an end market for green hydrogen, so I'd love to hear your thoughts on that.
spk21: So, James, and I have to watch because everybody keeps on reminding me I'm covered by NDAs on the hydrogen pumps. I can say that Every site that you mentioned, every hub, Plug has been engaged in at different levels. And some of them, such as the New York hub, our name has been mentioned publicly, West Virginia, the activity going on there with Senator Manchin. I would tell you that things like expansion of our hydrogen plants are engaged in many hubs. Leveraging our hydrogen plants are engaged in hubs. Our products, both our stationary, especially our stationary for peaker plants, are involved in many hubs. So, you know, like you, I expect some money to start filtering out in November, December timeframe. I really don't think real dollars start ramping to late 25 or early 26. And my government affairs person is sitting with me here, James, and he's shaking his head yes. So that's kind of our group.
spk16: Understood. Okay, good. But as long as you'll be involved there. And then maybe a follow-up for me, not related to the hubs part, but the start-up of Georgia, it got pushed, and now it's going extremely well. What are the kind of key learnings that you guys have achieved from that startup that you think will make the startups or the additional facilities more efficient, faster, to keep the timeline in check?
spk21: We probably have a hundred learnings, James. Okay. I think the most important one and you see that it's going on in Texas. In Texas, we've been able to sign an EPC contract where the EPC contractor is willing to sign up ahead of time for price and performance. And that's, I think, a statement that what people have seen, you know you can repeat. I think that when we look at scaling, we also... This plant itself, we'll expand it to 30 tons. I don't think we'll be doing too much. It'll be less than 50 tons per day just from the cost. It kind of follows a typical cost curve that going from 15 to 30 probably only increases your construction cost by 40% and your overall cost by 40%. So I think we're much more focused on plants like Texas and New York that are large. There could be some smaller plants like Olin where the infrastructure is really kind of much simpler. But I think that's really one of the key learnings we've had. But I probably could go on and on. Sure. That's really the heart, I think, of what we found important. Sanjay, you want to add anything?
spk03: No, I agree with that, Andy. James, that's really it. I think we understood that scale has a tremendous benefit, and all the components you've got to manage and think through it, right? And learnings of Georgia, as Andy said, is now allowing us to really go into a time and material. Okay, got it.
spk16: Thanks, Sanjay. Thanks, Andy.
spk17: Our next question comes from the line of Manav Gupta of UBS. Please proceed with your question.
spk15: Guys, I have two questions, and they're kind of related, so I'm going to ask them right up front.
spk02: Okay, good morning.
spk15: Good morning, sir. So your press release states something very interesting. It says that you are in final stages of negotiating large-scale project opportunities in U.S., Europe, and Asia Pacific countries. representing potential backlogs of one gigawatt. So if we can get some more details on that. And second is on a March 7th announcement, you won a contract to build a 100 megawatt electrolyzer with Uniper. As I understand, this was a competitive bidding process and you were selected versus your competitors. It kind of indicates you have a very good product out there. So if you could talk a little bit about the March 7th announcement with Uniper. Thank you.
spk03: Go ahead, Sanjay. Again, thank you for that question. First off, when we talk about this over a gigawatt of booking opportunity on the electrolysis side of the house here in the near term, we're looking at 500-plus megawatt opportunity in Asia Pacific. We're looking at 500-plus megawatt opportunity here in North America. We're looking at another 100 megawatt of opportunity in Europe. So, you know, please stay tuned. Obviously, in some cases, we're in the contract negotiation. In some cases, we're actually having a lot of discussion about it. We certainly plan to actually close on one, two, or all three of them here over the course of the next 90 days. And that's really what we're referring to when we talk about that gigawatt plus of bookings outlook in the near term in our electrolyzer business.
spk15: Any details on the Uniper contract?
spk03: Go ahead, Simon. Yeah, again, I think, look, one of the key things.
spk21: Well, let me, yeah, I'm going to start. One of the key items, Plug, is really focus on customers, not competitors. And that when you look, I think when people look and see that Plug knows how to scale, Plug knows how to engage with customers, Plug knows how to do projects, I think that separates us from our competition. And when we take customers, and we have been taking many customers to our Georgia plant to show them, it really provides us a significant differential advantage versus any of the other competitors. When you walk our factory in Rochester, you actually see people making electrolyzer stacks and MEAs. You can't really see that scale anywhere else. That's really why we win deals. But we're focused on this big market. We're focused on what we can provide, what we can offer. We don't get too worried about competition at the moment. We worry about us and our customers.
spk15: Thank you, guys.
spk21: Okay. Thank you.
spk17: And our next question comes from the line of Greg Lewis of BTIG. Please proceed with your question.
spk18: Yeah, hi, thank you. Hey, good morning. Thank you for taking the time. Squeeze, get me in here. So, Andy, you know, I guess, you know, recently you made that announcement around the Korean JV with SK was start up in 2025. You know, I was hoping maybe for some, maybe for a little bit of color around, You know, the CapEx build of that, and then really, you know, kind of is this – could we see incremental projects from this initial joint venture?
spk21: Oh, sure. So, Greg, we've been working with SK now for over two years, and the JV was – finalized last year at this time with the final IP agreement done on December 31st of 2022. And we're focused on our stationary products. And in the investor letter, I highlight the fact that there will be a good deal of activity for the stationary products for areas where the grid doesn't exist today. But in Korea, because of the high electrical costs, Our plans with SK, starting in 2526, is to build 400 megawatts of stationary products, and then every year to 2040, 200 megawatts. That in itself, this factory, which between the both of us will probably be in the 150 million type range, 150 to 200 million, which will be jointly split. is really just the beginning of the deployment of the JV. We're already doing with the JV. We're shipping cryogenic trailers this year from plug. We're shipping progen modules for uses in buses in Korea, which we think ramps to over 1,000 units shortly. We're engaged in electrolyzer projects, and our first electrolyzer projects are being shipped. So on a wide range of bases, This is going to be a very, very powerful JV. Take a little bit of time, but we're together really accelerating. I think that if you went to the event, look, I was in Australia working on deals and our chairman was nice enough to go for me, but our chairman was with the president of South Korea. I think that says a lot about the relationship.
spk18: Okay, great. And then I did want to touch a little on the, you know, the green hydrogen, you know, the network. You know, last week was the Advanced Clean Transportation Conference. Clearly, it seems, you know, not surprisingly, California is going to be really the epicenter of hydrogen demand in the U.S. It seems like for the foreseeable future. It just seems like a lot of money is going in there. A lot of vehicles on hydrogen are going to be going there. As you think about the network and realizing that green electricity or green renewable power is key to servicing that, should we be thinking about more hydrogen production plants in and around the California area versus where – There's just coming more demand from California, or is it really we're just going to be shipping a lot of product there?
spk21: I'm going to let Sanjay answer that, but I'm going to make one comment that should not be overlooked, Greg. The demand for hydrogen itself in applications like creating e-fuels, like mixing with natural gas in the pipeline, with industrial applications like ammonia, probably will be nationwide and probably ramp and be much larger than California. That being said, I'll let Sanjay talk about our California plan as well as other activities we have going on.
spk03: I mean, Greg, you're spot on, right? That is going to be where a lot of demand is going to come for some of the mobility application and things like that. So this is how we're looking at it. One, you know, we already do have a location that we have identified that we're going through all the permitting process, going through PG&E, going through CalISO to move that project ahead, right? One of the dynamics as you think about California is while it's a demand center, you also have a very high price of electricity, and you also have a situation where the permitting actually ends up taking longer than many other states. So that's a bit of a dichotomy that you've got to deal with when you think about how many plants and how do you really build in California. But having said that, we actually are looking at multiple projects. Now, I mean multiple, okay, in the neighboring state to be able to support California. We're even looking at some of the opportunity that eventually might even end up making it all the way to California, even in the West Texas area, because we've done that before. It really comes down to what is that lowest possible renewable electron we can get? What is that cost of the hydrogen? And does it make sense to build a plant even with that delivery distance and ends up making it a lower cost as it gets into the California market, right? So neighboring states, even our project in California and other locations is really how we plan to actually support, as you rightfully pointed out, the meaningful demand that we see coming from the state of California.
spk18: Okay. Hey, super helpful, Andy, Sanjay. Thanks for the time.
spk21: Thanks, Greg.
spk17: And our next question comes from the line of Bill Peterson of J.P. Morgan. Please proceed with your question.
spk20: Morning, Bill. Hi. Good morning, guys. Good morning, Andy and team. Nice to speak with you this morning. I wanted to go to the guidance for the year just to make sure I understand. I think you said it was largely energy solutions, but You know, in the last quarter, you talked about, you know, 55%, you know, kind of, you know, current business, you know, I think 30 plus percent electrolyzers, 100 million in stationary. I think the rest you call it fuel cryo and so forth with that 15%, which I think is around 200 million. So what is the difference? Where does it come in at 1.2 billion and where does it come in at 1.4? Is it electrolyzers primarily or fuel? If you could help us understand, you know, kind of what's changed in the guidance.
spk21: So, Bill... I want to be really clear. What I try to say is, look, our ability to predict obviously hasn't been perfect. So we spent lots and lots of time after last quarter working through to make sure we enunciate to the street where the risk is in the $1.4 billion. And if you look at... And it's been filed. I think it's going to be refiled with 2023 Jericho. If you look at the chart, I wrote, Bill, with the team here, kind of four key items. So one of it is we're shipping 27 5 megawatt electrolyzers containers this year. That's probably around, call that circa $100 million. Look, we have the orders for it. It's making sure if we spent a lot of time on execution there and that's that's a big part of it. You know, if you look at another big difference, Bill is, you know, associated with our electrolyzer plants and the electrolyzer plants. You probably can circa circle another $30 million in revenue. So between those two, you're 30 to 50. You're probably talking 3 quarters of the difference. And then Sanjay has a lot of liquefiers he's looking to ship and looking to sell in late negotiations. And that'll get us to the 770. And also on this slide, I did highlight the fact that there's other opportunities in the works. But that's really where it all resides. You look, for example, in the application business, our traditional business, the variation is really about $20 million from expected to the lower case. And in that lower case, it really has to do with the timing of a couple projects, whether they happen in the fourth quarter or first quarter. I wanted to do this chart because I wanted to make sure investors knew how all the numbers lined up. I hope that was helpful, Bill.
spk13: Bill? Uh-oh.
spk20: Yeah, sorry about that. Sorry, you talked about, you know, sorry about that. You talked about raising additional, you know, potentially raising additional financing. You talked about the DOE loans and the ADL and probably, you know, you mentioned more to come in the second half of the year Is there a preferred means of raising, I guess, presumably you're looking at the most non-dilutive capital as possible, but what is the preferred means of doing this as you look at the second half of the year or in the next year?
spk21: I'm going to take a step back. I'm going to hand it to the experts, Paul and Sanjay here. We also may have people invest in the plants themselves, Bill, and we have lots of people who want to take a share, for example, in Georgians.
spk19: Yeah, and I think you touched on it. I mean, obviously, first and foremost, it's non-dilutive. Second is cost of capital. Third is flexible capital. But, you know, again, as Andy said, there's a lot of parties that are interested. And when you look at the breadth of what we're doing and the pace and the ambition we have to grow and invest and scale, you know, it'll probably be a combination of solutions as we continue to move forward. The good news is we have an incredibly strong balance sheet that's basically unlevered, and we've got this portfolio of plants unfolding that are, you know, a profitable portfolio to leverage up and recirculate that capital. It puts us in a great position of optionality, and, you know, that's when Andy and Ferb, you know, we're working toward the second half. You know, you're going to hear more and see more as we work through that in the next, in the months to come.
spk20: Okay, thank you.
spk13: Thanks, Bill.
spk17: Thank you. Our next question comes from the line of Alex Cagna of Wolf Research. Please proceed with your question.
spk05: Great, thanks. Good morning. Good morning, Alex. Morning. Maybe I could take another run at the kind of the IRA guidance and maybe what that means. Do you think that, or would you be able to characterize there a bit of, you know, decent amount of pent-up demand or anything like that once you get, you know, the kind of guidance either way in terms of, you know, matching or additionality or something like that? So I'm just wondering if, you know, as you've talked about these incremental opportunities you're seeing over the next 90 days, how much of that would play into just getting resolution on the IRA rules and And even more beyond that, could you see kind of a ramp up in kind of announcements just once we have that clarity?
spk21: So, Alex, I think clarity probably comes August, September, just to kind of frame it. And any time you have uncertainty, you have folks waiting. And if the policy is defined very similar to the European directive, I think there'll be a flood. I think that flood will be important because it will create more and more jobs and allow the United States to scale, allow companies to export. I think that'll be the outcome. If they're very, very restrictive, I still think there will be more activity. But I think a lot of the focus for many companies will be more European focus than US focus. So I think if the regulations are too tight, quite honestly, the IRA would defeat its purpose. I don't think that's going to be the outcome. I know of a good deal. I've had the fortune enough to know people in D.C. People are concerned about jobs. People are concerned about the economy. People are concerned about the climate. They're concerned about America growing this industry and not handing it over to the Chinese, which, quite honestly, is a big hot button. And I think when the regulation comes in, everybody who's sitting here at the table with me is going to be quite happy.
spk05: Great, thanks. And then maybe just thinking about margins for the balance of the year, I guess. Certainly gas prices have come down incrementally even since the previous earnings report. Is that kind of a decent incremental tailwind for numbers as a potential upside or Have you seen any kind of, you know, offsets to maybe that momentum that we've seen on the gas side?
spk03: I'm going to let Sajay take that one. Yeah, Alex, you're right. I mean, I think, look, there's a quarter lack, as we've always said, right? So you will start to see that benefit as it goes into Q2, Q3, and Q4 this year. There is going to be some incremental benefit. And obviously, we're spending a lot of time making sure that the gas price being used by our supplier actually matches that with how we're looking at it as well, right? So the short answer to your question is yes, that's an incremental benefit.
spk11: Great. Thanks very much. Thanks, Alex.
spk17: Thank you. And our next question comes from the line of Amit Thakkar of BMO Capital Markets. Please proceed with your question.
spk11: Good morning, Amit. Good morning.
spk13: Good morning. Can you hear me?
spk02: Yes, we can.
spk08: Okay, great. Just real quick, I just wanted to kind of level set on CapEx since you will be bringing on a lot more production online. I think you guys had said about a billion dollars for the year. It looks like the first quarter was a little bit less than that from a rateable standpoint. I just wanted to make sure that $1 billion number is kind of still the right number to think about for CapEx for the year.
spk19: Yes, that's our target. I think the good news is the big manufacturing plants are pretty close to done in terms of the spend. So the balance of it is predominantly, if not all, around the green hydrogen platforms. So the answer is yes, that's our target, and we're continuing to advance that agenda.
spk08: Okay, great. And then I think Andy had mentioned earlier that, like, I guess the big dollars under the DOE program wouldn't start flowing through until 25 or 26. So should we think about, like, some of the other options you're looking at, you know, in terms of kind of the ABLs or selling down equity in the individual plants as kind of like a kind of a bridge until we get there? Or is that something you always contemplated?
spk21: Yeah, I don't think, and I'll let Paul comment. I don't equate the hydrogen hubs to our own plants being built out. They're really separate activities. Our view is that we want as much hydrogen as available as rapidly as possible, as green as possible. Having investors in plants like people who dig big oil wells they do that, who are in that industry. Our business model is that we're going to be really, really big. We're going to do some of it with folks. We're going to do some of it independently. And we're going to make sure we get the most attractive finance deals we can. But there's really no correlation you can meet between the hubs and the loans. You want to add, Paul?
spk19: Just to clarify, you know, there's multiple things going on at the same time, right? So we're working the hub conversation processes, you know, with industry partners as well as the DOE. But apart from that and separate from that and specific to PLUG, we're also working a conversation around a specific DOE loan that, you know, could very well fund this year. You know, we talk about all of our capital options. In the past that we're working, you know, and you mentioned ABL and DOE is two of them. There's multiple different capital sources. And with the strength of our balance sheet and the portfolio we're building, you know, we've got lots of parties that are interested that will be this year activities, not 2526. So just want to make sure that's really clear.
spk08: Understood.
spk13: Thank you so much. Thanks, Amit.
spk17: Thank you. As a reminder, to register questions or comments, please press the 1 followed by the 4 on your telephone. Our next question comes from the line of Eric Stein of Craig Hallam. Please proceed with your question.
spk02: Good morning, Eric. Eric?
spk11: Hello, hello.
spk17: Pardon me, Mr. Stein, your line is open. Please verify your mute function. Lift your handset, please. Mr. Stein, your line is open. Please verify your mute function. Lift your handset. We will proceed with the question and answer session. Our next question comes from the line of Colin Rush of Oppenheimer. Please proceed with your question.
spk10: Good morning, Colin. Hey, Andy. As you guys are working through the potential ABL finance providers, can you talk a little bit about what sort of feedback you're getting on the operational metrics you need to meet and the duration you need to run these facilities before folks will close on one of these deals?
spk19: Yeah, the good news is scale matters. And when you look at how big our balance sheet is, it affords us that opportunity to leverage that up without, you know, meeting necessarily traditional metrics. Having said that, as we've publicly talked about, you know, given the path that we're on, the trajectory we're on, you know, we're strongly, you know, very confident that, you know, early next year we're moving into positive operating cash flows. given the growth and margin trajectory. So we haven't had a lot of constraints put on us in terms of those traditional metrics, you know, because we have such a big balance sheet and such a big green hydrogen portfolio that affords that backing. I think the real key for us is as we bridge that, leverage it into that next year, then move into the positive operating cash flows, that opens up, as you know, traditionally more, you know, significantly more institutional opportunities as we move. So far, so good, and lots of opportunities without having to worry too much about that in the short term.
spk10: Okay, and then just from a working capital perspective, as you guys ramp up manufacturing, I just want to get a sense of what the working capital needs are going to be and how much finished goods are in that inventory number that you posted this quarter.
spk19: Yeah, so as we've talked publicly, we've specifically been ramping very quickly our electrolyzer in our stationary product platform, so the delta this quarter was specifically associated with that. You know, we've talked about the fact that we're going to be doubling the production of our electrolyzer program in second quarter from first quarter, and we're starting to ship our first stationary product, large-scale stationary products this quarter. So, you know, I think you're going to – well, we will see that level out. And as we move to the balance of the year, with the leverage we anticipate, we expect it actually to go down. So, for the balance of the year, you know, we don't actually expect on a whole that we're going to be relatively flat, you know, year over year, if not slightly down from a working capital standpoint.
spk11: That's incredibly helpful. Thanks, guys. Thanks. Come on.
spk17: Thank you. Our next question comes from the line of Chris Dendrinos of RBC Capital Markets. Please proceed with your question.
spk06: Good morning, guys. Thank you. Paul, you kind of just mentioned some positive free cash flow beginning maybe early next year, and I think you all have a target for ops break even later this year, maybe fourth quarter. So can you maybe talk about kind of the drivers of what takes you there, I guess, versus where you are today? You know, I guess just pointing out, you know, some of the margins and maybe the PPA area looked kind of particularly soft this quarter. So, you know, what gets you from where you are today to ops break even end of the year and then positive free cash flow next year?
spk19: Yeah, I guess, you know, really there's a number of things, but First and foremost, we make positive margin on equipment. And when you look at Q1 as an example, it's accretive. So every incremental dollar I sell of equipment, it's positive. The majority, if not 90% of that growth, is coming from equipment sales. So that, coupled with the fact that we're going to be ramping the leverage of those plants and those investments and scaling those new products, will drive margin profile. So of the balance of the year at 1.2 billion, you know, roughly 1 billion or so is going to be products and equipment sales. And when you look at the, you know, scaling margin, which we've traditionally hit in that 25 to 30% plus range, you know, that gets you a pretty substantial step function change in margin and accretion. Second piece is fuel. We've talked a lot about the things that we're doing there in terms of turning on these green hydrogen plants, the abatement of the natural gas, you know, working with our partners on the distribution networks and field logistics to drive efficiencies. You know, we've talked publicly about ending the year on a break-even run rate on fuel and moving into next year, you know, quickly changing the paradigm. So those two are the sole biggest drivers, you know, and then second, I guess third to that, I would just say, you know, we continue to make big strides on service and reliability investments, and we have a very concentrated effort However, that will be, you know, more and more smaller. PPA and service will be a smaller percentage of what we do as we scale, you know, the growth and the curve that we're talking about. You know, it's predominantly going to be product and fuel and more so product in that equation as we move forward for the balance this year.
spk06: Got it. Thanks. And I guess maybe as my follow-up here.
spk21: Hold on a second, Chris. Paul, maybe you should mention PPA is down just because of the warrant charges.
spk19: Yeah, we have a lot of non-cash charges. And so, you know, that's up year over year. It was $2 million or so in Q1 of 22 and was $14 million this year in Q1. So that's, you know, a non-cash charge. It particularly affects PPA and fuel, you know, in terms of the association with the customer associated with it. And then on the whole, just, you know, just so everybody has some context, We run at about $60 to $70 million a quarter of non-cash charges holistically. So, you know, that's why I feel I'm incredibly excited and confident about the growth, the margin leverage, back with that non-cash run rate that gives me confidence to get to those numbers as we move on into next year.
spk06: Got it. Okay, thank you. And then, yeah, I guess just as my follow-up here, reading kind of the front page of the the shareholder letter here it looks like you maybe added a qualifier um on the 200 tpd of build out to maybe include uh under construction so can you maybe talk about you know hey i guess is that true are you kind of maybe delaying that a little bit um and then what are the drivers i think you mentioned you know some abl loan the doe loan coming in later this year there's some treasury clarity coming the the hub announcements earlier this year so Is that a function of just, I guess, timing, or are you maybe slowing things down just to see how these, I guess, announcements that are coming with this might impact your plans?
spk03: So, Chris, no, we're not changing anything at all, right? I mean, if anything, we just wanted to actually be try to provide more granularity after what we've learned from Georgia in terms of how long it takes to go from construction commissioning to full production. There was no change in plans. As Andy said, right, we're not waiting for any particular thing to materialize for us to continue down the path of getting to that 200 tons number. But all we tried to do was try to actually provide you guys with more granularity based on what we learned from Georgia, what does it take, construction, commissioning, full production, and that's really the tweak that we made there, nothing more than that.
spk13: Okay, thank you.
spk17: Thank you. Our next question comes from the line of Kashi Harrison of Piper Sandler. Please proceed with your question.
spk04: Good morning, everybody. Thanks for taking the questions.
spk02: Morning, Kashi.
spk04: Good morning, Andy. So I want to go back to the the the multiple financing options. Can you give us a sense of what milestones, if any, need to be met from a project perspective before you can get financing? And then should we be thinking about a transaction as a 2023 or 2024 catalyst?
spk03: Where do I go, Sajay? Yeah, maybe, Paul, I can take this on the project side on hydrogen plants. A couple of things, right? So as Paul talked about our loan guarantee program, as Paul talked about our ABL opportunity, and as we talked about – project level financing. But here is really what we're looking at, Kashi, right? First off, I think once our plant is running Luxa for 12 months, then there is a stable cash flow that we can highlight to any land provider, right? And once we can do that, that allows us to really go even down the path of the debt market, thinking about what is that right debt service coverage ratio is going to be, piece number one. Piece number two, now that these plants are coming online, We are also looking at how can you really, you know, sort of like ring fence the plant, if you would, thinking about it from a PPA perspective to either a way to think about floor pricing on the hydrogen, which will also open up a lot of different kinds of financing solution to really support the build out of this plant, right? And I think the way I encourage everybody to think about this is really what happened in the solar and the wind space, right? When you actually had beginning of the solar and the wind industry, it was 100% equity financed. Then we have PTC. Then we have ITC. That really let the financing market open up in conjunction with also driving the cost of that capital down. So I think you're going to see something like that here in the hydrogen space as well. We're having, as Paul said, multiple different discussions with only sole focus in mind. What is the best and the lowest cost of capital to continue to drive the growth that we have ahead of us and substantial growth that's coming down the road? So that's how we're looking at it.
spk04: Thanks for that, Sanjay. And then maybe a question for Paul. Can you refresh us on what's the driver behind the high restricted cash balance on the balance sheet and whether you would expect a release to unrestricted cash in coming quarters or years? Thank you.
spk19: Yeah, so a lot of long-term followers probably remember, but for a lot of the equipment deals that we do in the material handling space, we monetize the benefits to the banks for those programs, and so a lot of times we have to post cash to back those deals. We've actually been successful in getting customers, the biggest customer we have, as an example, who signs into... Colorado water commitments and we get, you know, 70, 80% of the cash up front. So what you're looking at now is the layers that are adding or kind of the balance of that residual. The good news is we are starting to see the benefits of the new IRA on the ITC front. So we've actually closed our first 40% deal. This quarter we're targeting our first 50% ITC deal. you know, that really yields two benefits. One, that we get more value on the project. And then secondly, we pay the bank less, right? Because they give us the majority of those tax benefits in the deal structure. So, you know, we're moving from, you know, 70, 80 cents on the dollar, in some cases, 50 cents on the dollar of having to pay back on the deal structures. And so, and now that we don't have any debt, all of that cash releases to us. So, and we probably about you know, 20%, 25% per year that gets released into us that we can use to fund our current operations as well as our near-term operations. I expect that to change, you know, as we just talked earlier, as we continue to work through and move towards positive cash flows. I think you'll see more and more of that, you know, scale down and get released and move towards more traditional institutional financing in the near term. Okay.
spk17: Thank you. Our next question comes from the line of Sam Burwell of Jefferies & Company. Please proceed with your question.
spk12: Sam Burwell, Jefferies & Company, Good morning, Amanda. How are you? Beat me to it. Doing well. Thanks for squeezing me in at the end. Wanted to unpack something on slide four, the financial projections on the expected case and the lower case. it looks like there's a $200 million delta on the revenue line, $90 million delta on the gross margin line. So that implies like a 45% incremental margin, let's say. Is that the margin that's associated with the key items that you call out on the right, namely the electrolyzer containers, the liquefiers, and then I guess the larger electrolyzer plant? Or am I thinking about that incorrectly?
spk21: I would think about those on the right on a variable basis somewhere around 40% gross margin, and the rest of it is associated with SAM inefficiencies in our operation.
spk12: Okay, understood. That's certainly helpful. And then one last one on financing. I mean, is there any way you can quantify the difference in cost of capital between the DOE project financing and maybe the ABLs? I know, I think you guys at least had called out low single digits, but that was a few Fed rate hikes ago. So is the DOE loan going to be something that costs the overnight risk-free rate? Is it a spread to that? Is it below that because the DOE wants to subsidize green hydrogen?
spk19: Yeah. So, I mean, nothing's done until it's done. And so, you know, it's hard to give you an exact answer, but I would tell you, you know, high single digit is not out of the question, if not mid, you know, single digit, you know, in that range.
spk21: I would also add, Paul, the ABL and the project financing are really two separate acts, right?
spk19: Yeah, and they're not necessarily exclusive, right? So, and it could be, certainly could be both.
spk12: Got it. Thanks for the call, Jensen.
spk13: Okay.
spk17: Thank you. And our final question comes from the line of Brett Castelli of Morningstar. Please proceed with your question.
spk02: Good morning, Brent.
spk09: Thanks, Andy. I'll leave it at one just in the interest of time. With respect to the 2023 guidance and the 60 tons per day of liquefaction in there, is that all third-party sales, or is any of that for plug sort of internal use? I just wanted to clarify.
spk21: It's all third-party. Sanjay, do you want to add to that?
spk03: No, absolutely. It's all third-party, Brett, and we have multiple live discussions as we speak right now.
spk11: Okay. Anything else, Brett?
spk09: Nope. I'm all set. Thank you.
spk21: All right. So I do appreciate everyone joining our call this morning. I would like to take a step back and remind everybody that we expect to do $1.4 billion in 2023, and I hope you clearly see the roadmaps and the where we have challenges and opportunities. I also hope folks watch that video and watch Steve Baker, our plant manager again, talk about what we built in Georgia. There's a reason the Wall Street Journal has gone to Georgia to see that plant, because they had nowhere else to go. There's a reason The Economist went to Georgia to see that plant. because there's nowhere else to go. We are doing real things today, whether it's building electrolyzers, whether it's building large-scale stationary projects. Let me tell you, that's an amazing product that we only talked about briefly. We've built factories. We've scaled. We're ready for this explosion in the hydrogen economy. So I want to thank you for listening today. And this year is our execution year and a huge inflection point for the company. Thank you, everyone.
spk17: And that does conclude today's presentation. We do thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.
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