Q4 2019 Earnings Call

Greetings and welcome to the plug power fourth quarter and year end 2009, <unk> earnings conference call. At this time, all participants already listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

This conference is being recorded it is now my pleasure to introduce your host Healios director of marketing Communications. Thank you you may begin.

And your and earnings call I would like to begin by reminding everybody that this call will include forward looking statements. We intend to these forward looking statements to be covered by the safe Harbor provisions for forward looking statements contained.

And in the private Securities Litigation Reform Act is 1995.

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 because they involve risks and uncertainties and actual results may differ materially from those discussed as a result of various factors, including but not limited to rest.

Certainties discussed under I don't want a risk factors and our most recent annual report on form 10-K, it's always other reports we file from time to time with the FCC.

These forward looking statements speak only as of today in which these statements are made and were not under any obligation and expressly disclaim any obligation to update any forward looking statements. After this call in today's call. We will also refer to certain non-GAAP financial measures definitions of these.

Non-GAAP financial measures are available in the presentation accompanying this call.

That's the point I would like to turn the call over to plug powers CEO Andy Marsh.

Thank you to you and thank you everyone for joining our fourth quarter and yearend conference call.

My remarks today will be brief since we provided an update in January.

Well, let me just highlight a few items shoot for fall when I take question.

The fourth quarter and 29 Ti for record years for gross billings and EBITDA.

For the fourth quarter, the company had $94.5 billion a gross billings.

Power cheap $10.9 billion EBITDA.

For the year copy met our gross billings targets and far exceed our EBITDA target a breakeven achieving $9.2 billion.

I believe this year's financial result demonstrates the viability of our business coal to achieve $1 billion in revenue and $200 billion in EBITDA in 2024.

2020, we expect $300 million in gross billings in $20 billion an EBITDA.

Today as we speak we have over 90% required backlog to meet the year.

Backlog is supported by our three petty store customers supported by two large recent orders.

Investor letters provides more highlights for 2019 in pre tail pre tells expected 2020 a bench.

For now Paul and I are now happy to answer any questions Seattle was made up.

Thank you ladies and gentlemen, we are now going to conduct our question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation <unk> indicate that your line isn't the question Q you May press star to if he would like to remove your question from the Q for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star.

He is.

Our first question comes from the line of Chris Van Horn with B. Riley FBR. Please proceed with your question.

Good morning, everyone. Thanks for taking my call morning, Chris.

So I guess since the last time, we spoke there's been some you know news on a macro level around Corona virus and I'm just wondering if.

You see any impacts to your business or if there's anything to think about there.

So.

Hey, Good question, Chris I was prepared for that to be the first question [laughter] you know a like most companies are we're following their buys for the CDC and the World Health organization.

Now they are appropriate to start east you know the key issues for us has really been monitoring our supply chain.

We saw a two to three week disruption in China.

But you know at the moment offer Chinese suppliers are operating and we see many of them are working overtime.

We're also tracking our Oh, there's suppliers that have.

Dependencies on China and their reports are similar to our experience.

No we don't see the issues, having in any impact on the first quarter.

And we don't expect any revenue impact for the year, we've we've seen no changes with their customers.

Like everybody else will continue to monitor but.

You know.

Sure well sticky I'll spend a supply chain and it seems to be back up in.

Functioning and beginning to accelerate.

Okay got it thank you for that color.

And since we last spoke you, obviously announced that you're partnering with lightning systems, Yeah, maybe a little bit more detailed there and you know what role you're going to play and and anything more about that partnership.

Sure.

So.

As you know, Chris we had the.

A number of pedestal customers in.

Some of them that we have in common with lightly.

We're.

Working with them.

To put some.

I asked for and class a class four and some class six products on the road.

In the coming half year, and that Oh, well, we'll be providing is the.

Engine for the products that fuel cell modules the stacks the fueling system and they will do the truck integration.

They kind of a great youre experiencing battery electric vehicles, and now they're extending into fuel cell electric vehicles course customers you know have identified.

Some of the issues associated with the deal when you start thinking about rage of wage.

Got it.

Got it Okay, and then as we look through 2020.

Yeah, maybe you could remind us of you know what what the what the pipeline looks like obviously are gonna have you know you're you're guiding for pretty strong growth.

And I think a bulk of that is going to come in the back half of the year I. Please correct me if I'm wrong, there, but you know just what is what does the pipeline look like and and you know in the past you've highlighted you know you see I'm certain announcements coming is or is there any update or to that kids as well sure Chris So.

We've never been in a better position.

We're sitting here today with 90%.

Oh Wow, the true $300 billion were targeting for the year already in house for delivery.

So.

When we look at this year I would say that.

The second and third quarter will actually both be very good.

With many that form it's happening in those quarters. So it will be a bit more front end loaded, especially seeing the second quarter.

Yes, I would think that a choppy now the coming out of the first half the year, it'll probably be close to 37, 40% of our deliveries for the year. So sure bigger numbers every traditional way of saying.

You know when it comes through announcements.

Yeah. Good deal that work, we're doing today is associated with hydrogen and.

No we would expect not only hydrogen of obviously as we outlined.

In our five year plan, we're targeting another headed store comp customer and a material handling business and we expect to see expansion.

For on road vehicles.

Become a year.

Okay. Thank you so much for the time this morning.

Chris.

Thank you. Our next question is from Eric Stine with Craig Hallum. Please proceed with your question.

Hi, Andy.

Good morning, Eric.

So I just wanted to start with the third I guess you call it pedestal customer mega customer and I know speculated to be home depot here, but you know you're starting to give more details on that just wondering.

Hi, how we should think about that in the context of you know a Walmart in an Amazon I mean do you see them.

Clearly you gave a the number you expect in 2020 do you view. This in terms of the overall either per year overall opportunity kind of in the same light as those two other customers.

And the I feared.

Great question, Eric and the answer very simply is yes.

Like a.

Amazon a walmart.

Yes, we have.

Plants would share claims.

About how our products will roll out over the next three to five years and the same goes for the third <unk> cost.

Mhm and they will be in the same range as Wal Mart and decide what an annual basis.

Got it okay.

Okay.

Maybe just turning to honor it a little bit Street scooter.

You mentioned, you mentioned that that program on pause and I know there you know they've been in the press talking about trying to figure out kind of what their strategy is going forward you mentioned that to you've got a big big plans I'm seeing a lot of interest is that something you think revives in that it is good.

Going forward with Street Scooter or do you expect to go after that opportunity with some other party.

Yeah, I you know.

No.

We're sorry about.

Sorry to see the street scooters, you calorific financial difficulties with her deep battery electric vehicle program.

[noise].

No.

No I.

We will continue.

The remaining contact him work with them.

And look.

You know I think that the press has been pretty clear that.

There really stepping back to kind of understand what their next steps are and so.

No.

We have no choice, but to continue to work with others and look at opportunities.

For the same in customers Oh, we do have.

You know work a number of vehicles and other activities ongoing.

Just step back you know, we're progen testing going on with full for large Oems.

And with one of them were rather detailed system negotiations discussions.

I think.

As a first question today was about our recently announced which lighting systems and yeah. We're looking at.

You know how to leverage that we especially with her pad is to customers.

And.

We are continuing to pursue other areas.

Yeah, maybe not to.

How you think about it at one ROE, but said.

No ground support equipment.

When I left my office today I saw notice about another.

Ground support equipment deployment were looking at said, we have activities going on aviation, which are more long term.

And.

And some large scale backup power.

He would like to emphasize so we're really.

Disappointed about the street scooter activity it where it stands in the pause.

And but it does have no impact on this year's performance.

With all the other activities going on we've seen no impact.

2024.

<unk>.

Got it Okay, maybe last one for me just an update to I know you you've been targeting a something with the industrial gas player or just an expansion of your hydrogen strategy. So maybe you could just kinda give us some updated thoughts there that'd be great.

Yeah. So.

It is you know as you know Eric.

At the plug power symposium.

We were pretty clear that between 24 will be selling 85 tons a day.

We look to be generating no half of that ourselves and we're looking to do have more than half of that being green hydrogen.

Yeah, we're engaged with many stakeholders.

That includes industrial gas companies.

As well as Electrolyzer companies and others.

I'll, just say that probably the.

Huh.

More I spent more time on hydrogen with the team that we have engaged with that led by Tim Cortez.

And I actually do with fuel cells today, and I expect that over the coming year.

Be really clear, how we'll be in position to generate more than half the hydrogen ourselves and have more than half the hydrogen green.

Got it thanks for that.

You're welcome.

Thank you. Our next question is from Colin Rusch with Oppenheimer and company. Please proceed with your question.

Thanks, so much guys.

Oh.

Hey, we're excited about the over the road opportunity for you guys, but shorter term, what's the material handling I appreciate the color on that but can you talk a little bit about the pipeline of activity you're looking at that obviously you have these.

Hi profile concentrated customers love to understand a little bit better.

The next layer down a smaller customers that can supplement that that growth looked like and how you see that flowing through the order book.

No.

Good question Colin.

We.

We never had.

A stronger.

Demand for the products.

And I think when you had.

Customers like Amazon and Wal Mart.

Being really so positive about the technology.

That that information builders down to other customers.

Oh.

Over the past four five months.

We've actually we've expanded our sales force almost doubled the size.

Mainly because all the inbound interest and being able to manage in health convert these customers.

We have.

No not only looking to sell directly but to the smaller customers.

We've been positioning our products to go through channels, we've talked about LNG, we've talked about some of the activity in Europe.

For positioning the products.

It here in North America, even.

Weve.

There are number independent dealer networks that are across the country and were specifically in areas like Chicago and Detroit.

We've been setting up partnerships with some of them that help position our products.

We have.

Rather ambitious goals.

2021 also and we.

We need to we need to add an additional pedestal customer, but we do see I take that.

Over the coming year, you'll see lots of smaller customers beginning to help fill in that book.

I also those should I call and that set and we haven't touched on it today.

As our activity in Europe.

So a few of our pedestal customers have positions in Europe.

And were much better position because of the success. We've had here in the U.S., we've been starting to do deployments outside the United States, which will also help grow this business.

That's incredibly helpful and then I guess this one's for Paul.

One of the thing that.

Like you guys are in a position to do is.

You know optimize your cost of capital on the structured finance side, given some of the PPI agreements.

The other sources of capital can you just give us an update in terms of progress on that.

Especially given the rate environment.

You know how soon or how close you might be.

Being able to.

Refinance all of those those pieces of paper.

As to cost capital.

Yeah. Thanks, Collyn I agree I think a closing a year with positive EBIT Austin closing year with close to 140 million on my balance sheet and liquid cash that I can use to fund this year's pipeline.

And guidance this year that were solidly moving into positive, but also for all factors that are driving.

Strengthening our position in increasing the availability of options to us I have more inbound calls from capital players that are kind of moving up the scale of of of Optionality to us than we've ever had before and it's I'm focused on a full time and thank you should see something in the near term.

As of the structures and improvements as we move through that scale and of course, a year and.

Good news success beget success and so.

We certainly envision that translating into a leverage and power to reduce our cost of capital here in the near term.

Great.

So I'll take my fine Thanks, guys. Thanks Todd.

Thank you. Our next question comes on the line of Jed sees inkjet doors Meyer with Canaccord Genuity. Please proceed with your question.

Hi, Thanks for taking my question good morning, Jed the morning, So I.

I guess first question just on a the market for material handling now that you have.

You know you're starting to make decent penetration with the main players in the market I'm curious what do you what do you estimate that.

Your penetration or I should say the penetration of fuel cells into that market is and then do you define the market is just distribution centers with.

You know with 15 or over war or 50 or over forklifts or do you also include sorted that.

Last mile our stores.

Good question Jed.

So when we look at the penetration rate.

We.

Still have a large large market opportunity.

So today, there is approximately 6 million forklift trucks in the world.

Which add.

Based on the energy source of those forklift trucks, it's kind of turnaround time.

About every four years.

No our penetration rate is relatively minor compared to the overall opportunity.

So when you look at its itself.

It's under one for said today, so there's a huge huge market opportunity for the company to continue to expand.

We do you focus on.

Distribution centers and.

In manufacturing facilities and I think over the next three to five years that will be the market as hydrogen becomes a more you picky was fuel.

They are actually be certain advantages that you could have at stores.

You know your take on lumber your company I may sell lumber and had no five or six forklift trucks.

You know.

Having used batteries.

Often.

Creates issues, especially when you're hiring 16 17 euro.

[noise] young adults and.

Not remembering to charge the batteries and items like that so long term, we do see opportunities there.

But the main focus.

Over the coming three to five years, we'll be in distribution centers manufacturing facilities and that's a huge market that we could continue to penetrate.

One of the recent said when an earlier question I talked about now that we have the larger customers. We're beginning to spend time thinking about that developing distribution centers to reach smaller customers.

Got it usually products yet.

So if we if I just take what I. Thank you by the way so if I if I just repeat back what I heard you know if I look at the total penetration still relatively low but most of that.

Is tied up in started the retail stores, where you might have like a home depot for example, when I go up to my local home depot, they probably have 10 or 15, stackers that had the lead asset but their distribution centers gonna have 50 with the with the hydrogen of those distribution center.

As if you well where the value proposition is very clear what percentage of those have you now penetrated.

So.

Again, if you cut it look at the Matt.

You know call it.

Again less than one or 2%.

One or 2% of the main this disties that.

Right well, okay. All the distribution center no somebody like Walmart is much higher so with Walmart that numbers over 30% and others, obviously Amazon is a higher number.

But.

Even with them I mean, I think one of the.

[noise] beauties of this business model is that.

There is a recurring aspect. So you can see these customers buying new fuel cells every six years or so and.

And then you have the continuous revenue streams associated with hydrogen as well as aftermarket service.

Got it and so as we start thinking about new applications.

Segmentation such as the class three through sex.

Medium duty trucks.

Should we expect that.

Where you've had success and the infrastructure is already there at a you know Walmart at Lowe's or home depot for example.

That we should start to feed that business grow at a faster rate than the addition of a other.

Distribution center customers.

Hi.

Me.

I Hope I answered your question Jed right and you know Reask give fitel, okay. When I look when I look at.

Some of our large customers.

His whole wish you, a hydrogen infrastructure versus fuel cells, where you're going to get the fuel.

We we've actually.

Our addressing with them. So if you look at this year.

Literally.

With a couple of our pet is so customer if you could drive across the country.

Maybe get lost the low and West Texas.

Stopping at distribution centers and refilling the units out.

And.

To me that when we look at we're adding 35 more this year you see that continuous growth.

The obvious target for fast growth in these markets are with customers. We have today, who have hydrogen infrastructure, who understand the value of hydrogen and that we feed view and from our discussions view as a key target for expanding this marketing business and I think it's one.

And that integrators and Oems respect when they understand the breadth and depth of what we've done with hydrogen.

Got it that's useful.

I'll I'll take the rest offline. Thank you so much thank you Jay.

Thank you as a reminder, ladies and gentlemen to ask a question at this time. Please press star one on your telephone keypad. Our next question comes from the line.

What H.C. Wainwright. Please proceed with your question.

Hey, good morning, everyone. Thank you for taking my questions.

Thank you.

Hey, good morning so.

In the context of you know your 1 billion dollar revenue guidance for Green 24.

You know what how are we planning for the infrastructure buildout to support these levels or revenues.

How much of this will plug after shoulder.

So and Matt.

Let me.

Yeah, I think Theres, a combination I think that said.

No no pluck has not to.

Really shoulder.

You know the infrastructure.

Now we've done for Walmart Amazon.

You know when I do not expect this shouldering.

The large you know much of that infrastructure build out so.

You know is so I would say that said.

No I don't see that is a large.

Cost to us I think what my point on hydrogen and messes that said you know.

We're sitting here.

Having build out infrastructure for five years.

Having really turned it into a product.

And that our customers today have the infrastructure.

And you know we have.

Yes access to the hydrogen that makes it work and because we're looking at more fleet type vehicles.

No one in distribution distribution centers.

The cost of infrastructure.

To put vehicles on the road is much lower than if someone was starting from scratch.

Okay that answer question.

Yeah, and I can follow up on that off line as well.

Thank you.

In the context.

Customer additions you know more volumes coming through now you know deployments continuing at a faster base.

What is the trajectory lowering costs the Progen engine and other solutions as you scale you be able to capture margins a little faster than maybe how people are thinking about it.

Any color that would be helpful.

So I'll talk to cost and I'll, let Paul kind of talked about margins and you know if you look at it.

We've been on.

You know a learning curve of the.

25% every time, we've doubled the number of units in the field. Yes. So they interesting question is do you remain on that learning curve.

And if you take a step back I think the work we've done, especially when stacks bring your own remedies in house.

The work on the metal played stack.

Simplification electronics I think through now through 2024.

Our product Roadmaps been technology Road map.

You know continues to support those kind of cost declines I think I'll, let Paul answer and mid year.

Question about margins.

Sure and are you know the good news for blog does the themes are consistent I mean.

We've talked in the past week, we're still only using <unk> utilizing this manufacturing capacity around 25, 30%. So as we grow volumes again this year this tremendous leverage opportunities.

As we grow scale.

We continue to get greater leverage our supply chain and you know some of the things and he talked about as well as other vertical integration things. We're doing we're having a very impactful contributions to our margin levels and you know other dynamics, including more sites give us greater leverage on our service techs and our.

Resources, there so you're going to continue to see you know real strong margin progression. This year as we saw last year.

And we're going to keep focus to make sure we keep that margin train move into right direction.

Thank you Paul just maybe one last one from me the respect to the Street Scooter news.

Maybe any interest from you guys to just acquired that throwaway prices and maybe taking more control of your on road a strategy.

That's not our approach at the moment to admit to.

No.

We believe that.

The real value is in our technology.

And that.

We're not looking to become a system integrator.

Understood.

Okay. Thank you so much okay.

Thank you. Our next question comes from Stephen Byrd with Morgan Stanley. Please proceed with your question.

Hey, good morning.

Good morning, Steven.

Most my questions have been addressed I just at a high level question on a on green hydrogen there certainly you know.

I think it's fair to say surgeon interest and in the topic a lot of.

Fairly exciting developments at a high level.

Do you have any observations that you could share in terms of.

Progress down the cost curve technology improvements scale improvements other drivers it just feels that.

As you start to deploy green hydrogen that that could open up a.

Greater sales growth more clients, who the interested in.

In deploying hydrogen based solutions when it's a completely different by by renewable energy, but just any any high level observations on what you're seeing.

Sure, Steve and I would agree that.

Our customers.

Across the board are interested in.

Reducing their carbon footprint.

I think yes, obviously, there's commitments from stakeholders from investors to employees.

Thats driving.

And customers, that's driving that desire.

So.

When we look at there's demand.

I think that the key item then becomes.

How you generate green hydrogen and ultimately what the economic value is.

I would say that.

Some customers maybe willing to pay a slight premium for green hydrogen because it aligns with their corporate sustainability goals.

So you know when we look at it.

When we think about hydrogen I agree we think it's now both electrolyzers and renewable natural gas.

As you know that to the avail bit built fail ability, especially if you know curtailed.

Renewable energy from solar or wind in certain areas of world.

Can be quite attractive if you're generating that hydrogen through electrolyzers that.

Right spot.

We see that at four to five cents per kilowatt hour.

You can start making hydrogen which is competitive with the cost of generating hydrogen from natural gas.

When the renewable natural gas, it's probably a little bit more complicated.

I think mainly because.

Availability.

Availability I think that.

The.

[music].

The band if the benefits in the subsidies for renewable natural gas in certain areas is quite high which makes the price look more competitive.

Our ordinarily I think that said there will be a mixture of both but I think that over the next two to three years is the cost from Electrolyzers continued to decline.

That.

The competitiveness at Green hydrogen with the.

Green hydrogen within traditional hydrogen becomes much more interesting.

I guess I would also add I almost look at it like I look at electric vehicles.

All in Italy.

Whether its today or whether it's for five years out the cost of electric vehicles going to be lower costs and internal combustion engine.

Fundamentally simpler and.

I think you see the same kind of.

You started looking at Electrolyzers first first is reformers you can actually see.

That become even simpler when you look the basic cost structure.

Just fundamentally going to be lower cost because it's less complicated.

And.

So I think those same pass I think in many ways, even though they're different technologies.

The Roadmaps with cost downs are very very similar.

Hope that was helpful that was very helpful. It sounds like as you mentioned over the next year you do expect to see some fairly significant further improvements in the and the cost of Electrolyzers and the resulting hydrogen the comes out and if that's achieved it sounds like a if I'm understanding your comments that that that could put.

Green hydrogen in a position to be to be truly competitive is that is that possible do you think it could take a longer period of time.

No.

It's not only my position.

There's there's the Mckenzie hydrogen costs roadmap that was issued in January and if you go to the hydrogen Council website, which was.

Put together by over 80 companies and that.

They're viewing the view plug power coincides I think.

That the position I kind of outlined I think more of an industry view.

And in industry view, coupled with plug powers daily work on subjects. So I don't think what I'm, suggesting is.

Outside.

The new arms to views of many Pete.

Okay. That's all had super helpful. Thank you very much.

You're welcome Steve It.

Thank you once again, ladies and gentlemen, Tequila question at this time. Please press star one on your telephone keypad. Our next question comes from the line of Craig Irwin with Roth Capital Partners [laughter].

Hi, good morning, and thanks for taking my questions. Good morning right.

First actually take congratulations on that EBITDA nice chunky big number.

It's good to see making money.

Yes, Craig it is [laughter], which occur [laughter] excellent excellent. So there's a couple of things that haven't been covered but most of the issues that I I was interested in discussing have been covered at this point, but the first is the potential.

So from energy right. So I know that there are a bunch of things that you're chasing with them and they're a fantastic partner in markets, where it would be expensive for you just put enough salesforce to develop a support network.

Can you maybe frame out for us the potential with LNG over the next couple of years could it possibly end up looking similar.

To one obscure.

I guess, we're not calling them anchor customers recalling them pedestal customers could could mg resemble the pedestal customer over the next couple of years.

Boy that's a.

That's a great question and I I.

I think I'm going to start calling on that.

I was I think that.

Absolutely, yes, I think that.

The work Jose Crespo era.

Executive VP of sales is doing with them.

Outlining our business plans and I've never really presented it that way, but that is our goal when ambitions. When it comes to I think it's our goal ambitions and probably more important it's ngs goals and ambitions in their reach is.

Obviously more significant than plugs reach today, where we'll be in three or four years.

[music].

Okay excellent that that's good to hear so then again another another big Big picture question, right, where we're standing today your guidance.

300 million plus in revenue in 2020.

That obviously factors youre $172 million customer ramping in the back half of the year. So.

Let's just maybe annualized for the full year, we're basically half way there or.

700 million goal for.

The lift truck market in 2024.

As we look down the runway the four or five customers that you mentioned on your last call.

Potential pedestal customers.

Can you maybe frame out for us what you need to do to convert those customers how many of them have existing installations.

Their experience is what the product and.

Are these the customers that you think get you to 700 million.

Our.

Is it possible that others come onto the list and one or two might drop off over the next couple of years to get us to that that 2024 goal.

As you know so.

I think that said.

Any so anyone who's done this over years.

Oh.

There will be.

New customers that come to a list in Dolby customers were dealing with that.

Because of business conditions that said.

That said they will.

Yes, there could be something in their business said plug can't control.

I'd take a step back.

I would say that said.

Especially you know.

Over the past holiday season.

When I talk to especially your attendance so customers.

Wes.

Are you have this technology.

They saw during the ramp and you know we have some customers who are moving.

10, 15, 20% more product out there distribution centers and they're telling me they could have never done it without fuel cells.

I think that validation.

Those.

That does that market chatter actually really helps expansion. It's a recognition to success in the success. We've had with then we're having with these targeted pad it's still customers.

We obviously internally Craig.

Driving that more to that list of five and we also were.

Driving to a.

Invert quicker and.

That's the goal and I.

I think the key to us is that.

As you, yes, these decisions seeking to side I'm going to do everything don't have that don't happen overnight.

Yeah.

I think we're positioned with many of them.

Convert quicker over the next year than we've ever been.

Excellent and then another question if I may.

[noise] system is a particularly interesting partner given that you.

Worked extensively with Amazon.

Them on the electric truck side, you obviously on the.

[laughter] lift truck side.

Can you say, whether or not the experience at both of you have.

Serving.

Certainly one of the most demanding customers brings you sort of closer in corporate culture.

Where maybe maybe there's alignment here that you might not signed with others in the industry.

And.

In a mutual understanding.

You know how to reach those targets at some of these customers are are looking at meaning is there anything else you can share with us and that relationship that.

But you think makes its really special.

I'd say.

You know.

Craig.

I think.

When you're dealing with customers flights.

I was on.

You know.

They are demanding.

But they also are.

Yes.

Extremely technically capable and understand challenges along the way what they expect to people like smog enlightening is that.

You are continuously looking for ways to improve their your product and help them improve their business.

And culturally.

Lightning matches well off for.

No plug culturally it's a company that.

Raises the Tam when we're not doing something is wells, we should know put all efforts to be successful.

I think lighting the same way and both companies are very technically astute.

Really interesting work, so I think that to the customer focus the technology focused.

Understanding that the cost focus needs to be there to develop the realistic business model is why it's a nice match.

Great well, congratulations I think I'm thinking that relationship.

Thanks, I'll hop back from kit.

Alright, great.

Thanks, Greg.

Thank you. Our next question comes from the line of Jeff Osborne with Cowen and company. Please proceed with your question.

Hey, good morning, guys. A couple of questions on my end I was hoping you could touch on the progress you've made in the in sourcing and is that something you could give an update on what the cost reductions you Ritchie achieved in 2019 because of that.

Yes, I think I'd say, yes, Jeff I'd be happy to talk about so.

In the fourth quarter.

More than.

So let me take a step back.

The key item, we focused on in 29 team has been really insourcing ours and be a manufacturing.

No so as well as stacks so in the fourth quarter.

Stacks represent about.

Bought 20.

25% of our product costs.

And in the fourth quarter.

We manufacturers for new products.

Well over 95% of new products went out with plug power stacks.

And well over 50% of the products went out with plug power and meetings, we will continue to work with others for EMEA phase two diverse keep a diversified supply chain.

But sad activity itself has reduced our cost about 30% in 29 Ti So for me.

Cost of goods, so point of view for the products overall, the impact was 5% to 6%.

We are.

Looking to go.

Deeper into EMEA days.

And I think that over the coming year, you'll probably hear more news about that but that has been a real real focus for the company.

I also think that in the coming years, especially in 2020, you'll probably hear more about.

In sourcing some of the hydrogen generation and how we do that to help reduce the cost there.

Got it that's very helpful. I appreciate the detailed response and so as you look at sort of quadrupling your revenue between now and 2024 in broad strokes, what's the capex requirement to get there I know Paul touched on the 25, 30% utilization.

My guess is that's a figure more on your test and assembly.

They are in late them, but not on the EMEA is and stack assembly, but.

Hey can you put that in context, and then get from here to there what the cadence of Capex would be.

I'm going to let Paul take that one.

Yeah. So I think you know we've been trending at around 3% to 4% of sales I guess.

Well the math.

I think there might be some lumpiness as we go forward as you start thinking about step functions with adding capacity, adding manufacturing capacity for EMEA is production and metal plate staffing and some other things that we're talking about but on a on a trend basis I don't expect it to be wildly different. So if you think about.

In the upper end, 5% you know on trend basis, that's probably to the Max It I would assume you know.

As we go forward.

That's helpful. And then you mentioned, Paul the the 37 and 40% in the first half.

Revenue in the you've got your new customer ramping in the second half can you give us any indication given that there's only a few weeks left in Q1, what the mix between Q1 in Q2 would be I assume a slow start to the or is it pretty linear between Q1 in Q2.

I would say I'm going to take that one I would say.

If I look at the year.

I would say that.

Q.

All 40% for the year Jeff.

Call it.

You know.

You know into.

Second quarter is probably be two times higher than the first quarter.

Second quarter is going to second quarter is a big quarter.

First faster.

Yep.

And then you touched a lot of course as you touched in detail on the green hydrogen and Electrolyzer cost coming down which is helpful.

Narrative and putting in context, but one of the challenges that we've heard about over the past couple of quarters is the lack of compression in price and tanks.

Is that something that you're seeing and what's your outlook. There just as you see greater adoption.

For fuel cell applications in particular and transportation.

Yeah, that's actually.

Jeff So for us.

We have our supply chain secure to meet our needs for the core.

That being said when I.

Look at.

When I look at where there's opportunities to drive down costs in hydrogen infrastructure, Yeah, Let me take a step back on compressors, Jeff we use a lot of liquid pumps.

And which is different than the mechanical compressors and we use liquid pumps, because one you are lower costs and too.

They are rapidly bring up hydrogen in case you need.

You know if there's any interruption that.

The amount of hydrogen IP can produce can generate an hour and gas is for liquid is much higher than a compressor.

That being said, there's many applications, where mechanical compressors are required and I think that there's a huge opportunity I think to cost reduce mechanical compressors to make this industry continue to be more competitive.

And.

No I think that's that's a real area I think most of us in the industry has been a great deal time thinking about when the liquid tank side.

No I think the issue there is a.

You need to have a view you.

To six seven months supply chain issue.

So you need to work closely with the suppliers you need to make sure you know.

We provide than the ramp but.

We.

I can tell you have we spent a lot of time, Tim Cortez with liquid tank providers and make sure that.

We have sufficient to meet our customer needs.

Let me finally take a step back you know good do you have our focus is.

Thinking about fleets in thinking back contain vehicles.

You don't need as many liquid tanks for that kind of map is if you want to deal.

Retail fueling stations.

That's helpful Real quick any last comments on Fedex aired all but your other customers there, but just any update you can offer on the Fenix program would be helpful.

I would say Jeff said.

Nothing that's exciting we certainly talking work with Fedex and.

It's.

No I think that Jan.

We view our relationship with lightning is an opportunity to.

Think about how better to serve fedexs needs.

Makes sense I appreciate it thanks guys. Okay. Thank you Jeff.

So.

Hi, gentlemen, we understand it my question answer session. So I'd like to pass the floor back over to Mr. Marsh for any additional concluding comments.

Well I appreciate it.

Everyone attending the call today and.

We look forward to talking to many folks that offline over the coming days. So thank you everyone.

Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.

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