Q2 2022 Plug Power Inc Earnings Call
Greetings and welcome to plugs second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
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I will now turn the conference over to our host Teal Hoyos Senior director marketing and communications. Thank you you may begin.
Thank you and welcome to the 2022 second quarter update call. This call will include forward looking statements. These forward looking statements contain projections of our future results of operations or our financial position or other forward looking information.
We intend these forward looking statements to be covered by the safe Harbor provision for forward looking statements contained in section 27 eight of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of $19 34.
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 subject to risks and uncertainties that could cause actual results are.
Formats to differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under item one a risk factors in our annual report on Form 10-K for the fiscal year ending December 31, 2021, as well as other reports we file from time to time.
When the SEC.
These forward looking statements speak as.
Only as of the day on 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 <unk> CEO Andy Marsh.
Thank you T O and thank you everyone for attending <unk> second quarter Conference call.
The last week has been a monumental week for the world The U S.
The fuel cell and hydrogen industry and plug with the passing the inflation reduction act through the Senate.
The recently passed Bill would enact a clean hydrogen production tax credit the P. T C to incentivize the production of clean hydrogen providing a major inflection for the world to achieve net zero by 2050 and for hydrogen, especially green hydrogen to.
Provide 20% of the world's energy.
This bill provides a trifecta effect.
Good for climate, good for jobs and it's good for National Security.
Our Electrolyze your business has benefited from the push in Europe to become energy independent from corrupt regimes. We are seeing the benefit as our orders already have exceeded by 50% our projection for the year with most of that coming from Europe .
Now the momentum will grow rapidly here in the states with the PTC as demonstrated by our deal with New fortress Energy 120 megawatt order, which was announced last week, which can grow to 500 megawatts.
With the passage of the act, we expect a boom for our electric <unk> and green hydrogen business.
All applications that use gray hydrogen today, such as fertilizer manufacturers will now be a draw by green hydrogen at a competitive price with gray.
Applications. They are looking to move to hydrogen like steel and concrete manufacturing and natural gas heating.
We'll have a path to dramatically reduce their carbon footprint cost competitively.
Everyone wants green hydrogen now there is a path that always makes it competitive.
We believe that first big markets for Green hydrogen will be these industrial applications, where it's simpler to substitute green hydrogen for other feedstocks and remember these applications represented 26% of the world's C O two footprint.
But cost effective green hydrogen will also help us to expand our application business more rapidly.
As hydrogen becomes more plentiful and cost effective all of applications like Microsoft stationary product offering Hy Vee a band.
And of course powered material handling equipment becomes more attractive.
This bill is good for all our stakeholders, including customers shareholders, our employees and the communities for.
Our shareholders as mentioned at our Investor letter will move up our path to profitability by six months.
Finally, before Q&A I'd like to highlight plugs priorities beyond our revenue goals and 900 to 925 million and nine 2022 and 3 billion in 2025.
First our foremost first and foremost our path to profitability in 'twenty 'twenty four.
This includes the following key initiatives, one commissioning 70 tons of green hydrogen in 2022 and 500 by 2025 in the U S.
<unk> tons globally by 2028.
Our hydrogen business will reach more than 30% plus gross margins in 2020 for.
The math is quite simple via combination of vertical integration and the P. T C.
Obviously, we are reviewing the possibility of building more plants sooner than later to leverage our leadership position.
Two and you can see at our service business will be gross margin breakeven by year's end and growing to 30% gross margin by the story of 2024.
We're already experiencing significant improvements with the latest versions Abra products.
Hey look scale matters. So our goal is sell more electrolyzed sell more green hydrogen sell more fuel cells, especially for our stationary product Hy Vee and of course, our material handling business.
And for full deployment ever highly optimized and automated Giga factory and vistas site that will drive down our cost of our manufacturing and improve our quality.
These are a showcase manufacturing sites not just for the fuel cell industry bright across all industries and finally success with their four J D. S. K I V axial rep and for SKU.
Executing on these strategies alone will allow us to continue to expand upon our industry leadership position of course, we won't stop here, but my team knows executing the above is our top priority.
Pulsar, Jay and I are now open for your questions.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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Yeah.
And our first question comes from Colin Rusch with Oppenheimer. Please state your question.
Thanks, So much guys I guess, maybe a question for Sanjay Yeah looking at the green hydrogen opportunity in the U S. I am curious about the maturity of the conversations with potential industrial users.
And any sense of volume that you could start converting relatively quickly as well as your land position for incremental facilities.
And maturity of conversations with power sources.
It looks like it could get pretty competitive fairly quickly.
Yeah, So hey, Collyn how are you great question.
Let me take the second part of the question for US right. So one of the things we've been spending a lot of time doing and you've heard us say this before as well.
One of our biggest focused is sourcing right location. So that we can get the right price of power, which is renewable power the level of activity on that both internally as well as working with a third party. If anything has picked up quite a bit. So you guys as Andy mentioned in his prepared remarks, we're actually looking to build more plants faster not the other way around number one number two what.
We're really looking to do it and we've taken this approach right, where you know when the hydro is the best solution. We go for that Hydro and then we think about how can we expand our facility even without hydropower electricity second. We then look at wind force what are the right location for that how do you get the complement power there there's a lot of activity going on beyond some of the things we've talked to you all about in Texas.
There are other locations that are pretty far along please stay tuned we'll be able to talk about that even more and in terms of solar obviously, we're looking at multiple locations in the regions that you can think about and one other things were really doing is that how do you not only look at the land, but how can we expand that I can do you think about largest solar plan. How do you really think about approach like netapp.
And as you've metered and how do you really drive the cost of that electric city down and we're even evaluating some of the options surrounding nuclear if the price of power is right. So the discussion both internal work as well as with a third party is very very robust and column as you can imagine we are focused on one goal and only one goal and that is how do you drive that cost of renewable.
Sydney down so that we can continue to drive the cost of green hydrogen down and on the industrial front as you saw in our shareholder letter.
As Andy touched on it with this PTC it really opens all markets for US Green hydrogen is now economical forces green hydrogen and every single one of those applications you have seen some of the announcements here even before the PTC was enacted as Andy talked about this 120 megawatt electrolyze or opportunity. When you really think about the amount of the hydrogen that.
Great hydrogen being used in industrial applications today that really creates a very very substantial opportunity for us. So now again. This is a recent event here is going to be a lot of activity, we fully anticipate that and even if only 20% of those obligation goes with onsite electrolyte there youre talking about 10, plus gigawatt of Electrolyze our opportunity.
In this industrial opportunity for us as well would you like to add anything no perfect.
Anything else Cowen Yeah, Yeah, now I'd like to talk a little bit about supply chain for both the Elektra Liza and the fuel cells. I mean, obviously you know this is a kind of a watershed moment for the industry and you guys have kind of stretched out in front of a lot of competitors in terms of scaling up but I'm curious about your supply chain and your and their preparedness to truly are.
Spawn to how big this could get and how fast you guys want him out.
I'm sure that you kind of bounced those ideas around but and those conversations are going to get more concrete here, but im just curious where you can say about that at this point.
Cowen I would kind of first take a step back.
I'd say, there's actually three ingredients to that supply chain went actually has to do with design.
And when I think about her Pam Electrolyze design.
We envision that sooner rather than later.
That today will actually have about double the power, which actually simplifies really our supply chain. So a lot of that happens with.
Can you design the product simpler and that's continuing to go through our business.
Probably the more important one is.
Are we adding the right people and I think the reasons that we don't not foresee supply issues. This year is because the leadership we've put in place as you know I've hired Dave made Rick from Tesla, who drove.
There Reno facility.
To make sure Tesla vehicles could be deliver that same sort of mentality about how to develop those strategic relationships with suppliers. We've been working on for a long time and third look.
A lot of blood light about this whole integrated supply chain is your own manufacturing capability.
And the facility we built in Rochester the facility we built.
Built in Vista, which now we cannot supply.
I think dramatically changes every day. So we have sophisticated people who've been driving our supply chain for the past years, we have designs, which we're looking to reduce the number of parts, which help us with cost and supply chain and third we have the facilities and look.
Our goal is to continue to have that leadership position I don't want to downplay that.
And I'm not trying to on this call to downplay that we don't fight supply chain issues every day, we do.
But that is a.
The first item I get in the morning is what's going on and do they need me to make a call.
So it is a it is a everyday effort and it is more complicated, but I would say that it's it's less intense than it was.
Perfect. Thanks, so much.
Thanks Colin.
Our next question comes from James West with Evercore ISI. Please go ahead.
Hey, good afternoon, guys good afternoon James.
So Andy clearly game changing action here.
Recently.
One of the things I wanted to hone in on this is before we even talk about you know the PTC.
The data center the successful test that you had with Microsoft and the opening up of that market could you maybe talk through what the next steps or how that will evolve and how do you get to that I think you put out a $40 billion market opportunity number.
Yes.
Colin.
Sorry, James.
First it was a big step I mean.
Hi.
That activity with Microsoft to design that product was a combined two and a half year effort.
And already we have developed the next generation product, which will be rolling out the Microsoft and others.
In the fourth quarter here and I think in our letter we really outlined numbers for this market I think the numbers were in the next 12 months on Jay.
Yes, I think over the next 18 months about 200 megawatts of activity. So the numbers are.
Just starting James but do you know what that application and we're talking we're engaged with all of the data center operators, but it also is very applicable and I was down in the city of Albany talking about this today about the challenges many people are having with tower in Evs.
And I think our first big deployments believe or not will be powering electric vehicles, where hydrogen will be generated outside of town and brought in.
Power's stationary products believe or not.
That's one that's not as obvious, but it's actually probably will be the first biggest market for that opportunity and third this same products scaled as we scale it and there'll be different generated continuous generation is what we plan for S. K and for S. K by the end of 'twenty four we'll be deploying.
200 megawatts worth of product. So this is a huge opportunity for us and really just beginning but it's not only a huge up and you know and when you think about it. These are really the beginning of the future peak or plants that combined with the FERC Hot Sanjay is doing with pipelines and.
Well as green hydrogen generation, that's really the bigger vision the $40 billion really only represents what's going on in data centers.
Right. Okay. Okay got it that's very helpful. Andy and then the other thing you announced.
Earlier in the quarter was the.
The port in Antwerp.
And that you'll be building a large scale facility there.
That seems like a big deal.
It also probably the first one maybe a series of port applications that you might look to do.
We have exercised one is that fair, yeah, I would say absolutely I think.
And James if you look at that Port. It is the second largest chemical port in the world.
We're looking to add.
Theyre looking at Green hydrogen pipeline at that port to feed all the chemical plants and we certainly are looking to scale it and what was it 300 miles there's like 60% of the population of Europe is close enough to that Port boy, what ideal situation for plug there really be building.
Our high be it business material handling business and stationary so that is in here in the states James I actually believe the best opportunities for these hydrogen hubs.
I was.
Meeting with Senator Asaf in Georgia, and we talked a lot about the hydrogen hub possibilities in Georgia and one of the biggest focus is the port of Savannah, you'd think about the poorest, Nevada, I guess deported New York New Jersey.
Even I know in West, Virginia, when we met with Senator Manchin.
There is a an opportunity to bring hydrogen from west Virginia into the great Lakes, So ports ports and moving hydrogen is really really a huge opportunity.
Great. Thanks, Andy.
Thanks Jay.
Our next question comes from Alex Kania with Wolfe Research. Please state your question.
Hi afternoon, Thanks for Hi, there how's it going okay.
It's a great maybe like a philosophical question about how to think about.
The P T C with respect to pricing.
I guess in the near term if he's got fixed price contracts, maybe the P. T. C is something that you're able to kind of pocket, but then maybe over time, and obviously that would help out with that.
The near term kind of margin margin headwinds, but then over time is it is it fair to assume or I'm, just curious about how you're thinking about what the PTC means for how you negotiate green hydrogen deals moving forward.
Yeah I think.
I think a really good question Alex look.
I think that when.
When you think about the near term and contracts, we have the company will be able to.
Captured most of that PTC.
I think that.
Like other industries.
I think there'll be some sharing along the line, obviously, those who invest the most which is us will capture the majority, but I think that's how it will evolve.
Yeah.
Great. Thanks for that and then maybe a follow up just thinking about.
I'm.
I'm, sorry, I don't think it's much different than what you see with other credits.
I think what shouldn't be forgotten, though is a more competitive hydrogen price makes all our applications and quite honestly everybody's applications more interesting. So it's a great opportunity for our apps and it's a great opportunities for us to provide green hydrogen to us.
Others.
That makes sense, thanks, and maybe just thinking about the fact that the U S has a you know.
It is looking to have a pretty supportive policy environment and it looks like Europe is is aiming for something with Repower you I mean, how do you think about kind of balancing your focus.
Do you think you can kind of scale, you know kind of both of those continents and in kind of the way that you hope.
Or is this kind of may be deferred a little bit more attention towards the U S.
That's actually a real interesting question, Alex and you must have heard my testimony in front of the Energy Committee.
Because I mentioned without policy, our focus would move more radically to more rapidly to Europe .
At the moment.
We believe.
For plug the two best market opportunities or the U S and Europe .
And I'd.
I think we will be leveraging our partnerships more newer while most what we'll do here in the states will do it by ourselves.
Now in Spain, when you think about how to leverage solar you couldn't have a better partner than Nox yona.
While our activity in the wind belt up in Denmark with the with.
With age to energy and with other activities, we're looking at.
I think that's where we'll be focused with obviously with Renault Renault JV, we're focusing on leveraging their capabilities. So in Europe , I think it will be much more partnership oriented and people who can help.
Help help lead us in Europe here in the states, we will take a leadership position, but quite honestly without this bill more and more of our focus will turn to Europe , but now.
Now I think it'll be a much more balanced approach, but I always like to remind people of the pure play hydrogen players no. One in the past two years have invested more in Europe than plug plug is both an American company and a European company.
Great. Thanks, good to hear.
Take care.
Thanks, Alex.
Our next question comes from Bill Peterson with Jpmorgan. Please go ahead.
Yeah, Bill and team.
It's good to see.
Inflation reduction act passed sector, a couple a couple of I'd say.
Wanted to actually follow up on that last question on Europe , we saw the IP.
Hi Tech.
$5 4 billion euros, and plenty, we see a lot of logos on there.
Plug directly we see a lot of your partners I guess is there a path for pump to directly benefit and if so does it.
Payroll local manufacturing I'm, just kind of dovetail on that last question.
Hardest point benefit from that and what it's telling you can do to benefit more.
No I think that first our focus was our partnerships and if you look at Hy Vee and I know the numbers haven't been announced.
But the level of support.
Hi via has received.
Is significant.
And that has been.
That was our <unk>.
A major initiative for on road vehicles, we obviously have activities as plug alone going on in Belgium.
With support from the Belgium government.
I think as we get viewed.
As more and more European.
And I.
I take a look at the fact that.
I was invited to France, I was at a dinner with mccrone.
Plug power.
<unk> began to be recognized more and more throughout Europe , and I think as our presence becomes clearer we will be able to participate more directly but the moment, we felt that to maximize the amount of cash to support our activities in line with.
Our business goal that Hy Vee is certainly was the best vehicle and I can just tell you bill.
Bill that has really paid off.
Terrific.
The other side of that you did kind of make sure you're about electric cars and stationery as being the first big market I believe you're actually seeing some of that later this year as part of the sort of back half weighted hoping you could size that.
Opportunity I guess as a run rate exiting this year, but more importantly, how does that business look over the next few years given that looks like it's one of the if not the biggest stationary opportunity in the near term certainly one of the bigger ones.
If I was going to talk about from a plug perspective.
Stay sharing market.
Beyond Electrolyze yours.
We see the stationary market is.
Really going to grow more rapidly than on road vehicles in the next two to three years.
And it's really because.
Yes, Theres two big applications, one is as I mentioned earlier in the call powering electric vehicles.
The second one is this data center market.
Which when you have people like Microsoft.
And obviously.
If anyone's read the blog, we we've developed a very very close relationship that.
And really demonstrated a I think what do they call it a moon.
Yeah, It was equivalent to man's walking on the Moon.
They're looking to eliminate all diesel by 2025 or 2030.
Thank you.
That's going to be an incredible opportunity for plug.
If you think about 2024 for example.
I think this business will be that portion of our business could be.
More than 20, 25% of our business and then when I think about on road <unk>.
He is looking to have.
100000 vehicles on the road by 2030, so there's a real good roadmap for us with IV and the fact that we have 20 customers who are going to be piling our products over the next six months I think which is double the number that we expected when we talked to you at the beginning of the year I think.
That's a real sure clear sign that.
Those business opportunities are large.
Yes.
Okay. Thanks for that lots of good activities on track yeah.
Thanks Bill.
Thank you. Our next question comes from P. J <unk> with Citi. Please go ahead.
Hi P J.
Yes, good afternoon.
Good afternoon.
At news with P. P C.
And just a question on <unk>.
Liberalized cost of hydrogen.
Where do you think that cost is today on the U S. Gulf Coast, which is the biggest market for hydrogen in the U S and where do you think it goes post PTC.
Trying to gauge how quickly will the heavy duty industrial like refining on steel.
Start converting to green hydrogen.
I'm going to turn that over to saw J here P. J.
How are you so.
P. J as you know it very well right. When we talk about great hydrogen we got to kind of put that in context with on site.
<unk>, great hydrogen forces liquid hydrogen as well so I.
Despite the.
Commodity price volatility and all of that if he was just talking about onsite gray hydrogen supporting things like the refining industry or the ammo.
Ammonia and things like that that number would be probably around <unk> 50, a kilogram give or take okay. So if youre looking at the $1 25 to $1 50 kind of a number now take a step back right think about onsite electrolyze are four cents a kilowatt hour electricity right connected to that Electrolyze are then you take into consideration 52.
Five kilowatt hour of electricity when it got some capital cost. There then youll layer on PTC. So all of a sudden right. There is not a single application or the green hydrogen is not economical anymore. Obviously it will take some time for the industry evolve and grow as we move ahead, but that's what happens now take that into the liquid hydrogen market.
And think about long transportation.
<unk> application mobility application when you start to think about the diesel parity. Our view always had been it's not about thinking about can we charge more than diesel because it's our pheno system is more efficient we wanted to be at parity right. When you look at those numbers all of a sudden even from a liquid hydrogen perspective.
So market can comfortably be in that four to $5 range delivered and with PTC that path becomes even that much more clear and for folks like us. It actually allows us to provide that kind of a pricing make return on our planned and P. J I hope that folks do appreciate one point, which is we've been added now for some time.
And the fact that we've been building this green hydrogen plant. The work we have done the learnings. We have had I think really really stands out as a big fundamental where in a competitive advantage for <unk>.
Great. Thank you and clearly you guys have been ahead in terms of building out this green hydrogen infrastructure. So congrats to you guys. I guess my second question is you know with this PTC demand for green hydrogen takes off which it will.
Your electrons or orders could also go up just like what you've seen with <unk>.
Pyrogen energy of new fortress energy.
Now do you have enough capacity at Rochester, Rochester, built with PTC in mind or do you need to expand more.
Even more.
I think that's a real good question P J and I hope the answer is I have to expand more but let me kind of give a.
Picture, where I think.
I mentioned earlier that said, we do think there's possibilities that will.
We will be at what rate.
About a one megawatt a month in a 100 100 I'm doing my math wrong 100 megawatts a month by October in Rochester, I think there's a way to optimize that facility and pushed that probably up to $1 50 160.
I think there's an opportunity to make design improvements, but I do think.
Especially in Europe .
We'll be looking at opportunities to expand our manufacturing footprint to support that market. So we've already had I'll say. Some addition, some initial discussion so I think that's an opportunity.
And one of the items I think we did really well.
Was that.
We designed that plant that we can take that design and duplicate duplicated duplicated.
So that the footprint and design, we put together.
Probably would take is 15 months to build another plant.
<unk>.
I think when you look at that.
Yes, I think that we will be probably giving that a lot more serious thought, especially for Europe . So that we're.
We're in a great position to capitalize on this opportunity, but you know having built a plant.
And then just having a duplicated it's a lot simpler than doing it for the first time.
And I used to have a full head of hair.
P J before yeah.
Alright.
Yes.
Yeah.
Alright, well thank you everybody.
You hit it.
Okay.
Thanks, and our next question comes from Eric Stine with Craig Hallum. Please go ahead.
Hi, everyone.
Hello, Eric how are you today, Hello doing well.
So all the talk of the P. T C N N cost of hydrogen coming down I know something that you've talked about for years is.
Essentially expanding the small.
Smaller locations for materials handling just wondering what your thoughts are is that still an objective in wood that are or how would that expand the market opportunity.
You know and I won't talk about this much error, but.
The acquisition of ICT.
And the trailers, having controls or travelers actually make smaller hydrogen facilities simpler.
It reduces the cost of infrastructure.
And we.
We have done smaller sites and we're beginning to do more and we do see that.
The combination of lower hydrogen costs simpler onsite hydrogen infrastructure, where.
It becomes much easier just to do swap outs of trailers.
And Houston and think about our regional activity.
Zee and his team actually have it.
Enquired Lee implemented a few of those so we do think that's a great opportunity and the fact that.
The fuel which is dominate the cost <unk>.
Now we will be significantly lower.
Is a real real benefit.
And any any thoughts on how that expands the market opportunity might be it.
So I think at the plug symposium.
Hey, Jose pointed out.
Yeah.
Two.
How that business could be a.
$3 billion to $4 billion business opportunity with smaller scale.
And we really had that begin to ramp in the $25 26 timeframe.
We haven't.
Done any new projections, but obviously when you can think about what Jose was pointing at and with the lower cost of hydrogen you could see that being pulled in that's a real good question.
Got it that's helpful and maybe just last one for me in the release you mentioned two.
To kind of still customers in Europe that you are targeting.
Wondering if you can give any details there whether it's potential timing size et cetera.
Yeah, we're in the final final stages.
And I was hoping I've actually been watching my phone to see if I could say anything.
But we do have we.
We've targeted three pedestal customers for this year.
I would expect all of those will be announced by before we speak in the fourth quarter.
Thank you.
Two in Europe , one in the United States Eric.
All right.
Yeah, and I think that the comment I made about us really.
Looking more European backed we have.
Probably in Europe today over 300 people.
As Roy made a big difference and being able to convince customers were serious.
Thank you.
And our next question comes from Chris Souther with B Riley. Please state your question.
Hi, yes, thanks for taking my question here.
Can you maybe talk a little bit about.
$15 billion Electrolyze their sales funnel I'm curious if you could frame the activity by geography, and maybe that timeline as customers are looking for.
For potential deliveries.
I'm curious does the PTC potentially changed your strategy within the U S around Electrolyze your sales versus.
Infrastructure yourself.
Yeah really good question so.
Chris.
Probably 70%, 80% of that funnel today is Europe and the middle East.
And that is the heart of the funnel.
There are just to give you a feel.
There is.
About.
Just for our smaller five megawatt system.
There's over 350.
Opportunities in our funnel.
Everything from bottle manufacturing, which you would think a lot about but.
Folks are looking to run their furnaces with the percent of hydrogen to concrete guidance actually the steel manufacturing.
There's a lot of smaller projects that.
Quite honestly or easier to deploy rapidly.
Because you don't have.
Essentially there are self contained systems and most of our shipments which will be about $140 million of electrolyzed versus second half will be like five megawatt controllers.
I think this time next year, when we report the third quarter.
Suspect about.
30% to 45% of our revenue will be coming from our Electrolyzed business.
I think by 2025.
It could be as much offensive path.
Okay.
Does the PTC potentially change as far as you're live in the U S maybe around selling versions.
LTE infrastructure yourselves or would you just take the potential growth of a market opportunity to do both.
Okay.
Really good question Chris.
And.
Yes.
This management team has been thinking about that question a good deal.
I think you could end up in circumstances, where.
You could build a hydrogen plant to support a fertilizer facility.
One a portion of that plan.
And be able to generate liquid hydrogen to support our customers.
And.
Without going into great detail.
We actually see that.
With the proliferation of our Electrolyze your business we.
We may develop.
Different model for partnerships and building some of the plants, which as I mentioned as we mentioned in the letter.
Could help us expand much more rapidly with partners.
I was in a meeting today.
With someone looking to build a one gigawatt electrolyze your plant.
Here in Texas, and one of the discussions we had was.
Yes.
Could we owned a portion of that plant. So we could use as part of our off take it would reduce obviously our capital costs.
And provided us an opportunity to.
Really.
Spain and grow more rapidly.
So the answer to your question is we have been giving that a lot of thought.
Okay. Okay I appreciate the color.
Great.
Great.
Thank you just a reminder to everyone to ask a question press star one on your telephone keypad to remove yourself from the queue Press star two.
Our next question comes from Sameer Joshi with H C. Wainwright. Please state your question.
Hey, good afternoon, everyone. Thanks for taking my questions.
The chart that you have in your letter on page three does that take into account the delivered cost of hydrogen.
As it has been localized production.
I'll, let Jay take that I'm, just going to add it doesn't really matter, if you're delivering great hydrogen or green hydrogen delivery costs are going to be the same but go ahead thats right add deepa Sameer that is really on site right. So that does not take into consideration the delivery costs that chart itself.
Got it okay.
And then maybe this one for Paul.
Can you just let us know what is happening with the inventory buildup.
Over the last two quarters.
Is that.
Planned inventory build up or is that some delayed sales.
Yes.
It's really in anticipation for the second half I mean, if you look at the sales.
What we've seen historically, we do about one third in the first half and we do too.
Two thirds in the second half.
It's going to be.
We're going to do is.
More sales in the second half and we did almost all of last year. So.
The big it's a big push.
We're ramping up new.
New facilities in production to support that as well as what we anticipate happening in the first quarter of next year or so.
I don't I don't see that continuing on into the second half I think it will tamper.
It will temper.
But it's really driven towards all of that growth that we are building for to deliver in the second half.
Understood.
And then last one also maybe for Paul on the SG&A.
Sequential increase has been almost $15 million to $16 million.
Should we see this level over the next few quarters or do you expect.
The increases in SG&A.
No.
Uh huh.
There was some.
I think I gave a number for the beginning of the year of 100 to 110.
Per quarter I think this quarter was a little heavier just because of the Microsoft <unk>.
Programs and some other.
New product launches.
But I think that 100 to 110 is a good proxy for us.
As we move forward.
Got it.
Thanks, Thanks, Paul Thanks for taking my question.
Our next.
<unk> comes from Amit <unk> with BMO. Please state your question.
Hi, Amit.
Hi, Thanks for squeezing me in.
Just real quick on the production and kind of outlook of 500 tonnes per day kind of exit rate in 2025 should we think about all of that as being kind of in the U S or.
Is that going to be kind of global just kind of thinking about how that the ptc's Mike.
Kind of flow to the bottom line.
I'll, let Jay take that one thank you Andy So I mean it does.
And this in prior calls as well as our 500 tonne. This reality number in North America and by 2028, we said we want to be a 1000 tons and that actually includes Europe as well when you do bring up a good point.
Larry opportunity for that 500 tons to be.
Potentially higher than some of the activity we have going on in Europe . The answer to that is yes, but that 510 numbers strictly referring to north American production by the end of 2025.
Okay.
Super and then just now.
Now that you have a kind of line of sight on the PTC I think you guys had talked about.
Kind of looking for off takers for about 70% of <unk>.
Green hydrogen production.
PTC kind of helps to I guess seemingly kind of derisked. Some of this as well are you guys still thinking about 70% level or would you.
Kind of willing to kind of keep more production for yourselves are you looking to maybe do kind of the opposite actually ramp up.
Percentage strapped thinkers.
Yes, so isn't that a great question so.
A couple of points to highlight on that one I think.
So I just thought it's an important point to note here, which is with PTC. One another thing that it also does is capital formation right. So that's another big benefit that we will get some source of financing type of capital that comes in the structure of capital right. Now most of our investment has been largely focused on the all equity investment Thats another added benefit that.
You will see as you go forward, but look and I think that's what we're going through right now, but I think our focus is really we want to make sure that first and foremost priority. It hasnt changed for US right. We want to make sure that our customers are taking care of our obviously, our pedestal customer we want to make sure that they had never run out of hydrogen we want to make sure that we're adding more customers to that mix.
But we really haven't changed our view on that 70% loading of the planned at this point in time, but as Andy touched on some of the opportunity that we're starting to see in the stationary market that can really really drive the demand for our hydrogen or some of our customer and that's what makes that do we only load some of its plants for 50%.
Is that a 70% that's TBD at this point in time, we really haven't changed that view, but that number certainly is not going to go from being 70% or trying to sell up the entire plan given what we're seeing here.
Great. Thank you so much.
Yes.
Next question comes from Kashi Harrison with Piper Sandler Please state your question.
Kashi.
Hi, good afternoon, and thank you for taking the questions.
So actually moving.
Good afternoon, I was hoping if you could maybe just walk us through your margin expectation for for the rest of the year.
Gross margins please.
Yes, well.
The good news is.
Going to be heavily concentrated with equipment. If you look at the mix of sales and the growth that we're experiencing.
No.
I would say.
We're definitely going to see margin progression.
And I think it will.
Even in the fourth quarter, it'll move into positive range and could even hit double digits.
Depending on final mix.
There's a couple of big things happening.
Ramping as Andy mentioned, we're moving quickly to ramp electrolyze or sales.
Going from kind of scaling the plant first half two Max production.
In the short term.
Big step function change.
The other two things the fuel and the service we continue to make big progress.
But.
In fact that service in particular.
Yes.
I was working with the teams really impressive some of the things we've been doing including some of the enhancements to the field we've seen in some cases, 70% part reductions.
We're starting to see the benefits really pay off we think that will start paying off more in the second half, but youll see even a bigger step function as we move into next year and then the fuel as we've talked about really kind of kicking in.
First part of next year as we start launching those facilities.
We play out PTC so.
Progression through the year, but big Big step function changes in 'twenty three is because of some of those big events start to play out.
That's great color. Thank you.
Then.
It sounds like you have some new pedestal customers coming which is great.
But I want I was curious what you're hearing from your customers.
Surrounding the slowdown in the global economy do you think.
That might temper demand for.
On the material handling side or are you still getting positive indications from your pedestal customers that they are ready to.
Continue to grow as you think about 2023.
Yes, good question Kash, Yeah, I would say this.
Yes.
We have two advantages.
One is that we are adding new customers that Ken.
Help mitigate.
Any slowdown that could occur.
The second item too is that.
We haven't really seen.
We may have seen slow down at one customers and upticks and other customers.
Sometimes during these times, where it's difficult to acquire labor.
It's difficult to find ways to reduce costs.
You actually have an advantage in the selling process. So I can tell you.
One of our big customers, who I've worked with for years.
Is making the commitment to really dramatically.
Changeover.
They're remnants of the older technology.
Batteries to move to fuel cells.
We haven't seen what I've seen is some sloshing around.
But I have not seen a reduction and I think that.
Having lived through.
These tough times before I've always noticed said you were actually in a much better position. If you were in a business that is as a smaller market share of the overall.
Opportunity plus your selling cost savings, that's a pretty powerful message when things are slowing down and labors are tough too.
Tough to acquire.
Thank you for that color I appreciate it if I could just sneak one last one in.
I was wondering if you could maybe just give us a refresh on.
Your Capex outlook moving forward as you think about the U S. European hydrogen Buildout wondering if you have any good rule of thumb for.
Maybe thinking about capex on a per unit basis, just for modeling purposes.
Yes, well the bulk of our Capex is in the green hydrogen platform. So.
We do have as Andy mentioned, a number a couple of different facilities, we're building out for.
Production capacity expansion.
Andy mentioned, hopefully the PTC drives the need for even more we will see how that plays but.
We've talked about is kind of a $1 billion a year is a good proxy.
These these plants.
Our large scale and.
To get to the 500 tons.
It's in that range of about $1 billion a year.
In terms of the run rate.
I think.
Sides.
Colin I had great conversation about why the PTC is going to make it easier to get capital.
You want to comment.
Happy to do that cash right. So I think.
So Paul just to add to which is a set here I think.
What's the sort of the PTC it will probably likely follow what happens to capital formation in the solar and wind industry right in the beginning it was all about folks who are thinking about 10 megawatt solar project equity financing, but all of a sudden with the ITC and solar and PTC and when capital structure changing that weight, where equity was really only 20% of the.
Capital stack number one number two return expectation on that equity went from mid teens to single digit, thereby reducing the cost are for renewable electricity liberalized cost of that electricity, we see exactly the same pattern unfolding here with this PTC PTC for Green hydrogen is one source of capital type of capital of Elliott with your capital.
<unk> will dramatically go up and we wouldn't actually be in a position where we have to fund all of this zest with our equity capital. It can be back leverage that can be tax equity all forms of capital will really help us one accelerate our build out and to keep driving the cost of green hydrogen down very similar to what happened to the solar and wind industry in the last decade.
Thank you excellent. Thank you Cassie.
Our next question comes from Sherry <unk> with BTG. Please state your question.
Sure.
Hi, how are you. Thank you for taking my question.
I'm doing fine.
Thanks.
So under the inflation reduction Act PTC aside is plug able to take advantage of domestic content requirements for U S steel for additional subsidies and just to make it two parts.
So does that equipment needs to be tied to a project like that.
120 megawatt plant you just announced in Texas.
Sherif.
There's a lot of work in.
I would say this.
One the PTC.
We will be able to capture the $3 a kilogram tax credit.
Plug.
<unk> has a great deal of domestic content in our products today.
And like most folks not only to meet.
Meet these kind of requirements, but also to shorten our supply chains.
We're doing more and more domestically.
So we.
<unk>.
We continue to take steps to make sure and look this.
This is not unique to United States.
We spent a lifetime with IV looking at European content subset.
Substituting European content. So we are looking at ways to maximize our domestic contracts.
To make sure we can.
Where it makes sense for our shareholders.
Take maximum advantage of.
What's most profitable to plug.
Great. Thank you for taking my question.
Yes.
Great.
Thank you. Your next question comes from Tom Curran with Seaport Research Partners. Please go ahead.
Good evening.
Hi, Andy.
Hi, Andy across the Atlantic.
We've recently heard some prominent industry voices season utility energy executives.
Press alarm that the European Commission isn't being realistic on the demand side for crude hydrogen.
Either with regards to which applications will prove economically viable and scalable or about how urgently.
They are doing enough to ensure announced projects actually make it to <unk> you have just shared some encouraging updates on the Hy Vee JV heidrick mobility stationary power Tam progress on <unk>.
These two hoped for incremental pedestal customers for MH.
Could you just take a step back and speak to these concerns at a broader higher level. What is your view on the pace at which key infrastructure projects for adoption and usage in Europe are reaching.
So Tom.
First and foremost.
Okay.
Theyre going there.
There are going to be projects that make it to the finish line.
Projects that do no doubt about it.
Yes.
It's just a reality.
So.
Ill.
I'll take a look.
Look at Denmark, where I've spent some time with leadership there.
Yes, they are.
We are serious.
About building 30 gigawatts of wind.
Power with the majority of that.
Really headed towards.
Generating a green hydrogen to support Europe .
They are serious.
And I have met with the former head of Parliament in Denmark.
Who is deeply involved in building the pipeline from northern Denmark into Germany.
That series.
There are projects, which.
I sit there and say that's not real theres, others, which have a combination of.
Government support.
Industrial support.
Application support.
Like hybrid.
Not to be.
Oh.
Controversial I also would suggest that maybe some which are part of the old energy world.
May not with this move is rapid.
Right.
I thought you'd appreciate an opportunity to respond directly to some of those doubts and worries.
And then.
Paul.
When it comes to <unk>.
The remainder.
<unk>.
The territory that services needs to cover to reach breakeven.
Year end, what should be the key drivers from.
A negative 32% gross margin for <unk> to breakeven as we exit this year.
Yes, labor leverage definitely will help but to be honest with you that the biggest impact we're seeing is reducing the touch points and thats with the reliability.
Improvements in so we've launched different equations from different.
Components and stacks and other configurations, new software upgrades, a whole lot of different solutions that both are going out into the new units that are getting deployed so we're already seeing out of the gate better performance.
And more importantly, we're able to retrofit and apply to the installed fleet and some of those improvements as I mentioned earlier, we're seeing dramatic reduction in parts. So.
I think it's the combination of its.
That and the labor leverage.
Next year it could be 150 sites so.
Yes.
Plus more hardware.
And then.
So.
We're going to see that continue to progress, but youre going to see some pretty good traction here very shortly as those start to play out.
As well as the growing benefits of that ever expanding.
Newly installed base of the latest generation stacks right, yes exactly.
Leverage on supply chain to leverage on the labor across the board absolutely.
Great. Thank you for taking my questions.
Thanks, Tom.
Our next question comes from Joseph Spak with RBC capital markets. Please go ahead.
Hi, Joseph.
Hey.
Thanks, Andy you mentioned a couple of times.
You think plug will be able to hold onto the Pepsi I'm just I just want to.
Clarify do you mean.
Eventually or even mislead because if you're not passing the PTC through how does how do you get to sort of initial competitiveness on green hydrogen.
I think when you take a step back.
Theres different good question Joe.
The Electrolyze your business, obviously, our customers take advantage of it.
As I mentioned I already have contracts with customers for hydrogen Joe that we can take full advantage of in the third.
I did mention in my comments.
He would be we would be in a position where we'd be sharing some of the PTC.
With other customers.
Yes.
I think that that's how the mix comes out okay.
Yes.
Clarify that.
And I thought that's why I said, but it's been a long call.
It has.
I guess maybe.
Secondarily and I don't want to I know this is very early days and preliminary but like functionally how like I get the math on this $500 million of incremental cash flow rate, but like how does it actually work because you are not a taxpayer right now so.
Thank you would need to set up some sort of entity to actually get that cash and maybe just some fine Joe.
You're off really quick for the first five years.
Direct pad. It is okay. So then is that is that actually.
So that 500 million would actually be revenue not just sort of a cash inflow from selling credits or whatnot.
I actually think it's correct me if I'm wrong, it's a reduction of cost to reduction of cost.
Okay.
And then lastly, I guess, maybe the big elephant in the room, but.
Permitting right, which can obviously be very difficult and take longer is that is that the biggest risk to timing that you see and maybe if you could provide any sort of color.
How do you see that progressing.
I'll, let the guy who deals with permitting everyday answer that Sanjay.
So again, its like any development business, Joe right as you can imagine so look I mean, there are areas, where we're able to do things faster than expected rate. There are situations, where things can actually take a bit longer than expected, but what I would like to highlight here, though is when you sort of think about when we're talking about 500 tonnes a day, it's north of 500.
Tons of opportunity right the opportunity is much larger than that.
Look at <unk>. We also try to think about if plan. It doesn't happen that was our plan b and potentially Clancy is going to get implemented here for us to get to that goal. So needless to say in light of some of the permitting dynamics, which is not going to go away, it's going to be it's going to be there in some cases, it's better than we thought in some cases it might not be as good as we thought about our funnel to.
Get to that 500 ton is obviously much larger than that.
Okay. Thank you very much everyone.
Okay.
Our next question comes from <unk> Satish with Wells Fargo. Please state your question.
Hi, Bernie.
Hi, Hi, Andy.
Two quick questions from me I guess, the so the PTC, what will certainly help with green hydrogen adoption and cost, but I guess the other key variable.
For pricing is electrolyzed, our cost so I'm just trying to trying to understand the trajectory for electrolyze. Their prices do you think they'll fall as you.
Proved manufacturing efficiencies or do you think the PTC is has created so much demand that electrical laser prices could hold steady.
I can tell you with our plants today, 75% of its electrical feedstock.
I mean, I think that tells it all so we'll we'll electrolyzed pricing comes that costs come down.
Absolutely.
But it is so dominated by feedstock that caused that.
The key item is.
The output.
The PTC itself will dominate.
Got it.
And you've talked about small green hydrogen facilities and the success there, but I guess I'm kind of wondering if you could talk through the puts and takes are going the other way.
And building large scale green hydrogen facilities now with the with the PTC, making hydrogen prices lower the market is a lot bigger so I guess does it make sense at some point to concentrate electrolyzed your capacity and then start gasify, the hydrogen and moving it through pipe versus liquefy it.
There's a lot of industrial demand in the Gulf Coast. There is a lot of pipeline capacity. There. So it seems like a good fit but curious for your thoughts.
I'll give you.
I'm, an engineer, so youre going to say, yes, and yes to answer.
I think that.
I'll give you an example.
And with one bottle manufacturer, who has 80 bottling plants throughout the world.
<unk> five megawatt electrolyzed or on site is ideal for him to be able to produce green bottles to satisfy customers, which are the beverage makers.
But in that case.
And there is lots of applications like that concrete manufacturing, where you can see small scale.
I'm a real believer.
In pipelines for hydrogen I believe that the.
Yes.
Infrastructure Bill for building out the hydrogen hubs.
Investments that can be made or building pipelines for hydrogen which come more large scale green hydrogen plants.
The cost of those that hydrogen will be lower.
Just.
Because the scale running and operating a plan doesn't change that dramatically all of those costs or increased by <unk>.
Selling smaller in those cases pipelines are ideal.
I think today.
If you take a look at what we're doing with H two energy in Denmark.
Perfect opportunity, where green hydrogen will be feeding our pipeline, which will be a public access pipeline for green hydrogen no better way to do it.
So, but I think it really depends upon the application.
Our location and quite honestly the time.
Thank you.
Real quick question I am a big big believer of pipeline so.
Thank you. Our next question comes from Greg Watson Koski with Weber Research. Please state your question.
Hi, Greg Hey, guys How're you doing.
Yes.
I'll just I'll keep it sure I'll keep it to one.
And it's kind of a piggyback off of the last one here. So can you speak a little bit more on what youre seeing on the development of the hydrogen midstream as a whole.
Just talked about pipelines, which we spoke about in the past being a little bit more of a future conversation at least in scale, but the PTC change your thoughts on that and or other means of transporting larger amounts of hydrogen over longer distances.
Yes.
I am going to turn it over to Jay.
But I will just add the lowest cost way to move hydrogen pipeline, absolutely Andy So up again Greg.
So we have a lot of activity going on in that front. So let me just give you a scenario right think about optimal wind location, where you can actually really feel for very large scale wind farm with a very high capacity factor and really get out optimal level life cost of that wind electricity, which can actually be very very low number then you have a large scale.
Electrolyze a plant, which is what we're doing for our customers and we can do that for ourselves as well. So we are talking to some of the major midstream companies to think through what is that the right volume what makes the economics work because you don't want to do a pipeline for a small amount of hydrogen and the economics doesn't work. So the way. This is probably going to unfold is no different than the existing energy.
Structure large scale renewables facility large scale electrolyze, our gaseous hydrogen satisfy the pipeline. So the economics gets really really optimize you can really take very large distances and for the last mile delivery ticket to various customer you probably would have liquid plans to supplement that networks. That's how it is going to unfold.
We've got a lot of work going on there and then thinking through how do you do large scaled stories in cavern and things like that so stay tuned hopefully we'll have more to talk about it going forward.
Got it thanks Andre.
Thanks, Greg.
Thank you there are no further questions at this time I'll hand, the floor back to Andrew Marsh for closing remarks.
So thank you everyone for hanging in there for an hour 15 minutes in.
I look forward to.
And yet the plug power symposium, our fourth symposium will be October 18th and 19th from it's from our Rochester, New York Giga factory. This will be a high grid event. So stay tuned for further event and registration details over the coming months. Thanks, everyone.
Thank you. This concludes today's conference all parties may disconnect have a good day.