Q4 2022 Plug Power Inc Earnings Call
Speaker 1: Greetings and welcome to Plugs fourth quarter and year end 2022 earnings call.
Speaker 1: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 1: Please note that this conference is being recorded.
Speaker 1: I will now turn the conference over to our host, Tia Hoyos, Senior Director of Marketing and Communications. Thank you. You may begin. Thank you. Welcome to the 2022 Fourth Quarter and Year-End Earnings Call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations.
Speaker 1: or of our financial position or other forward-looking information. We intend these forward-looking statements to be covered by the State's Harbor Provisions for forward-looking statements, contained in Section 27A of the Securities Act of 1933.
Speaker 1: and Section 21e of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements, and such should not be read or understood as a guarantee of future performance or results.
Speaker 1: Such statements are based upon the current expectations, estimates, forecasts, and projections, as well as the current beliefs and assumptions of management, and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially...
Speaker 1: from those discussed as a result of various factors including but not limited to the risks and uncertainties discussed under item 1a risk factor in the annual report on form 10k for the fiscal year ending December 31 2021. Subsequent quarterly reports on form 10q
Speaker 1: and other reports we file from time to time with the Securities and Exchange Commission. These forward-looking statements speak only as of the day in which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to PLUG's CEO , Andy Marsh. Thank you, Teal.
Speaker 2: and all those who have joined us on the call today. Our shareholder letter was made public 30 minutes ago, and as previously discussed in January , our performance did not meet our expectations. We attribute this primarily to three factors.
Speaker 2: obstacles while encountered while introducing new products, delays in constructing our hydrogen plants,
Speaker 2: and macroeconomic conditions that affected the cost of natural gas, resulting in a significant increase in the cost of our hydrogen.
Speaker 2: Despite the difficulties we faced this past year,
Speaker 2: I firmly believe our efforts in 2022 will serve as the foundation for Plugged success over the next five years.
Speaker 2: Allow me to take just a few minutes to explain how all the pieces fit together.
Speaker 2: Plug is actively pursuing every aspect of the hydrogen economy.
Speaker 2: including expanding the hydrogen ecosystem and establishing top-tier manufacturing and supply chain capabilities. One of our major advantages is a distinguished list of customers, including Amazon, Walmart, New Fortress Energy, and great partners like SK and Renaud.
Speaker 2: Moreover, our growth plans are supported by a policy environment that promotes renewables, such as the USA's IRA legislation and REpower Europe . We anticipate that our broad efforts across the hydrogen ecosystem will become apparent this year.
Speaker 2: Our hydrogen generation facilities, for instance, will play a crucial role in this effort. Our first green hydrogen plant in Georgia is set to begin hydrogen production early this year.
Speaker 2: However, this is just the start of our plan to expand our production of 500 tons per day across the United States by 2025.
Speaker 2: We're also building green plants in Europe , including projects in the Port of Antro Abruge and in collaboration with our Port Direct unit in Spain.
Speaker 2: Our plants will utilize plug electrolyzers and cryogenic equipment to produce and deliver liquid hydrogen via plug trailers.
Speaker 2: As part of our aggressive strategy, we also will provide products such as our electrolyzer platforms, stationary products for EV charging and peaker plants. We're also developing on-road vehicles through our JV partner, RENEL. All of these products will be marketed.
Speaker 2: and sold by our JV partner SK. We believe that our manufacturing supply chain capabilities are crucial differentiators in our industry.
Speaker 2: The state-of-the-art facilities we have in Rochester and Albany are unrivaled in the sector.
Speaker 2: Additionally, we have formed valuable partnerships with partners such as Johnson Matthey, which grants us access to invaluable product development and manufacturing expertise, as well as essential elements that are crucial to scaling the industry. At Plugged, we place a high priority.
Speaker 2: on the advantage of large-scale manufacturing, which we believe will accelerate our business growth and drive profitability.
Speaker 2: While some may doubt our capacity to achieve all these tasks simultaneously, we have confidence that our 4,000 global employees and partnerships can make it possible.
Speaker 2: Moreover, the favorable business environment for sustainable solutions will benefit all PLUGS stakeholders.
Speaker 2: By the end of 2023, we aimed to generate $1.4 billion in review, commission more than 200 tons of liquid green hydrogen plant and become the largest global player.
Speaker 2: exceed $400 million in electrolyzers fail.
Speaker 2: Deploy 30 megawatts of stationary power products, which will serve as a substantial source of recurring revenue for plug.
Speaker 2: and finally clearly demonstrate the path to profitability to all our investors.
Speaker 2: I do want to ensure complete transparency by acknowledging the potential challenges that may arise to our business activities throughout the year.
Speaker 2: Scaling new product platforms and building first-of-a-kind hydrogen plants involves taking account design and manufacturing learnings.
Speaker 2: especially for complex products like our electrolyzers and stationary products.
Speaker 2: Based on my experience, design issues that were not initially considered often arise within the first six months, and supply chain and manufacturing challenges tend to emerge during the first year. As someone who has been involved in introducing new platforms for many years, I can confidently say that it's unrealistic to expect flawless product launches.
Speaker 2: However, we believe that our plans are achievable and have built in some buffer in our projections for 2023. Finally, I believe at the end of 2023, no one will question PLUG's ability to scale the hydrogen economy. By 2026, we believe that our plans are achievable and have built in some buffer in our projections for 2023. Finally, I believe at the end of 2023, no one will question PLUG's ability to scale the hydrogen economy.
Speaker 2: we expect to generate $5 billion revenue and $20 billion by 2030. We are committed to achieving our vision of being the leader in the hydrogen economy and will continue to build and dream accordingly. Paul, Sanjay, and I are now open to take your questions.
Speaker 2: you and 20 billion by 2030. We're committed to achieving our vision and being the leader in the hydrogen economy and will continue to build and dream accordingly. Paul, Sanjay and I are now open to take your questions. Thank you.
Speaker 3: Ladies and gentlemen, at this time we will conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.
Speaker 3: You may press star followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Our first question comes from James West with Evercore ISI. Please state your question.
Speaker 2: Hey, good afternoon, guys. Good afternoon, James.
Speaker 4: Hey, good afternoon guys. Good afternoon, James. So, Andy.
Speaker 4: I like what you're doing in Europe here. You're getting more aggressive. I know you guys started with the US build out, but now with Anwar, especially with the JB partner in Iberia, it seems like that could accelerate into many more plants in that area of the world. Is that a fair assumption to make?
Speaker 2: That is a fair assumption to make, James. And our team has been particularly focused on the Nordic regions. And when we think about hydrogen generation in Europe , those are really the two areas. You know, that southern portion of Europe , such as Spain, as well as the Nordic region.
Speaker 4: where you have accessible hydropower and wind power, which we think makes a lot of sense. Right, OK, got it. And then on the EV charging front, as this has been emerging, could you characterize kind of where you're seeing that demand and maybe the level of demand that you're seeing?
Speaker 2: Yeah, so what we're seeing, I think James said.
Speaker 2: You're well aware of the challenges that folks have in bringing transmission lines. We rates of support.
Speaker 2: aware of the challenges that folks have in bringing transmission lines to support fleets of electric vehicles.
Speaker 2: And as folks are aware, we have some large customers who are looking to deploy EV vehicles. And on the EV side, the first deployments will be last mile delivery to charge EV vehicles because it's much easier to bring.
Speaker 2: hydrogen in its facility 70 miles away to generate the fuel and using our stationary power.
Speaker 2: products to power the vehicles. We also see, and our investors will see announcements over the coming month about first-generation peaker plants where we'll be deploying electrolyzers, say something, James, in the 8 to 10 megawatt scale at first.
Speaker 2: supported by our stationary products. So that's a real area of focus at the moment. And the combination of those two activities support the 30 megawatts.
Speaker 3: Gotcha, okay perfect. Thanks Andy. You're welcome James. Our next question comes from Manav Gupta with UBS. Please state your question.
Speaker 5: Christ, you recently announced a long-term strategic partnership with Johnson and Mattie. Help us understand what they bring to the table, why this partnership is important to you. Does it kind of ensure that future supply chain issues do not arise? Help us walk through that, please.
Speaker 2: Sure, Matt. Thank you for the question.
Speaker 2: Sure, Matt. Thank you for the question.
Speaker 2: We really believe when we take a look, Johnson Matthew has great capabilities.
Speaker 2: when it comes to being able to source precious metals, which is really critical in this industry, but also has been deeply involved in what we think are really interesting product development work in MEAs. And we use their technology today. We believe that
Speaker 2: one combining plug strength in applications, as well as MBA developments, but Johnson and Mathew gives us a much stronger product development platform for both our electrolyzers and fuel cell business.
Speaker 2: We also believe that, again, thinking of scale manufacturing where we're looking up to putting a 10 gigawatt plant here in the US with Johnson-Mathy, much like in thinking about something that looks like the Tesla plant in Nevada, we think that's an added strength.
Speaker 2: And obviously, when you start thinking about recycling precious metals, no one's better in the world than that than Johnson and Mathew. I think this provides Plug a unique technical advantage, manufacturing advantage, as well as addressing some of the larger concerns in the industry about the availability.
Speaker 5: of precious metals. Thank you, very clear. My very quick follow up is you sometimes don't get enough credit for your materials handling business. And you're looking at, you know, just basically looking to add about 80 new material handling sites in 2023. So if you could quickly talk about that.
Speaker 5: Thank you, Vayik. My very quick follow-up is you sometimes don't get enough credit for your materials handling business, and you're looking at, you know, just basically looking to add about 80 new material handling sites in 2023. So, if you could quickly talk about that. Sure.
Speaker 2: And you are right, it gets lost in the shuffle. And what I really like about the mix is it's really, a lot of it is some of our traditional customers like Walmart, we have a fairly aggressive plan this year within.
Speaker 2: But also, during the past year, we announced three new pedestal customers.
Speaker 2: And those pedestal customers, folks like Gaza, are looking to start deploying at scale. And that route, that's a benefit not only here in North America, but building out our European capabilities. So yes, it does get lost in the mix.
Speaker 2: And it will represent about half of it when you combine it with the hydrogen service that they'll use, it's almost half of our business in the coming year. Thank you for the big jump from last year. Thanks man. Thank you for very detailed responses.
Speaker 3: Our next question comes from Alex Kania with Wolf Research. Please state your question.
Speaker 6: Thanks. Good afternoon. I noticed on the discussion on the sales funnel for the electrolyzers that a substantial portion.
Speaker 6: Is related to, I guess, I guess, green hydrogen slash green ammonia. We've certainly seen a lot of blue hydrogen announcements. In the last few weeks, I'm just kind of wondering, it sounds like there's a lot of demand for green ammonia, but just what's your sense in terms of the time you have when we see.
Speaker 2: you know, larger type of announcements. Yeah, I will let Sanjay take that because I know Sanjay has been deeply engaged in that activity over the past month. So Sanjay, maybe you can give Alex a min say.
Speaker 7: Sure, happy to do that. And again, Alex, as you know, right, we've talked about it before. When you think about our funnel, and again, I just want to be clear, our funnel, it's well in excess of 30 billion. And when you break down what's in that funnel, almost 50% of that is really related to e-fuels, including green ammonia type opportunities.
Speaker 7: Now, we have some real meaningful activities going on here in North America. And in terms of the timing of when we might be able to talk about that, I believe that we'll be able to share something incremental with you all during 2023. And these ranges from multiple sizes of projects, some being pretty substantial opportunity in the Panhandle, Texas area, if you really think about it. So give us some time. There's a lot going on behind the scene and really looking forward to actually talking a lot more about it even in North America.
Speaker 6: how you see those deliveries.
Speaker 2: That's a good question. So view 2023 out. By the way, I'm going to take another step back.
We have a good deal of business activity which will occur with SK this year.
a good deal of business activity which will occur with SK this year, including supporting marketing.
electrolyzers in South Korea, bus fleets, and fueling stations where we have quite a bit of business in fueling stations that will be seen as revenue this year as that business begins to grow.
This year is really a testing and verification of our stationary products. And once that is complete, we will lock in the 200 megawatts and 400 megawatts worth of products. Simultaneously, which should give investors a little more confidence. We are also working on the details.
of the MEA and manufacturing plan in South Korea to support that 200, 400 megawatts per year size deployments between 25 and 2040. So those efforts, there is a...
a lot of development and manufacturing coordination going on between Plug and SK.
I hope that's helpful. Great. Thank you very much. Okay.
The next question comes from PJ Juvacar with Citi. Please state your question. Good afternoon, PJ. Yes, hi. Andy and everyone, good afternoon. My question is that given the delays that you had in 2022 in building these hydrogen plants, you haven't changed a figure by number of years before of your
200 tons per day number for 2023. Wondering what gives you confidence to keep that guidance the same. Maybe Sanjay, can you talk about that? Sure, happy to. So Andy, I can jump in here. So happy to do that. washed away again, so.
Well, PJ asked to talk to you today. Absolutely. So, PJ, a couple of things, right? And I think, you know, you guys must have seen that there is some update in the slide that we provided here in this shareholder matter, even versus the one that we had before. As you can see, there is a checkmark in Georgia from a commissioning.
standpoint, right? So we as and you can see that in the slide, we are talking about getting Georgia starting to produce by the end of this quarter and in early Q2 from a full production standpoint. There's been a tremendous learning period that we have had with the plant in Georgia. Let's not forget it's a first of the kind green hydrogen liquid plant in the world that has not been built in the past, right? So we've learned a lot. With that learning, what that has allowed us to do.
key EPC. When it comes to New York, we've actually spent a lot of time looking at the fatal flaw design analysis, substation work is moving ahead. So there's a lot of learning that we've been able to leverage from Georgia. And then when you look at the list of all the projects, Georgia this year, Louisiana this year, Tennessee expansion, ongoing work.
then we actually have bought about 45 tons of liquefier, one of the key long lead time items, which we can also leverage for some feed gas opportunity in terms of the 2023 opportunity. Now finally, Texas is a 45-ton plant, New York is a 75-ton plant, and at one point, Vijay, maybe we could do a slightly better job than maybe what we've done in the past is, there is about a six-month lag, right?
When we talk about commissioning to full production, no different than how solar and wind industry actually talk about commissioning to commercial operation date. So when you take all that into consideration and look at all the list of those projects, 200 tons of commission we feel very good about by the end of the year. And by the middle of 2024, that 200-plus tons will be producing at full capacity. And that's how we're looking at it. For more information, visit www.fema.gov
Great, thank you. And Andy, I do want to talk to you. Talking to other hydrogen producers and industrial gas companies.
everyone is struggling to figure out the IRA benefit that you get. How much of that the producers will keep and how much of that will they pass on to their customers? I think I get different answers from different people. We're just wondering what are your sort of big picture views on that topic? Yes.
to figure out, you know, the IRA benefit that you get, how much of that the producers will keep and how much of that will they pass on to their customers? I think I get different answers from different people. But we're just wondering, what are your sort of big picture views on that topic? Yeah. So, Funnily enough, I agree.
I think it will be a, I think, let me take a step back. I think what it is in 2025 will be different in 2030-2032. That initially the producer will be able to capture a higher percentage.
of the production tax credit. Let's circle in the 70% range. I think as time goes on and there's more competition.
that the ability for the producer to capture that level, I think declined. If I was in crystal balls for tough, but I would think in 2028, 2029, you're probably talking 30%.
and other items. So that's how I think it'll play out. PJ and
I have real life data, at least initially, that probably is a pretty fair estimate of the initial number I'm putting out there.
That's fair. So you think there is an advantage to being the first mover in this space? No.
I feel very strongly about that based on contracts we've already signed.
Great, thank you. I'll pass it along. Okay. Okay.
Our next question comes from Amit Dayal with HC Wainwright. Please state your question. Thank you guys. I appreciate you guys taking the questions. Hi, Amit. Nice to talk to you. Hi, Andy. Thank you. Thank you. Same here. Just with respect to the...
The 200 tons that have been commissioned by the end of the year and then getting commercialized fully by mid 2024, in that context, how do we bridge this $1.4 billion revenue target for 2023? How do we break out the segments between materials?
Part of our sales, you know, somewhere between 50.
55 percent electrolyte is going to be a pretty meaningful part as we've been talking about that. That's probably roughly 30 plus percent. Stationary is going to be a meaningful part of our program this year. I think publicly we've talked with a target of up to 100 million of sales in that product line.
Then fuel probably makes up most of the rest. I put in that fuel category, other cryogenic equipment, and liquifiers, tankers, and things like that. What we're going to see as we turn on those plants this year and ramp up the fuel category.
And then what type of contracts is it?
Any other contracts that you might be setting up or monthly contracts, any color on how this will play out? Do you want to take that one for Amit? Sure, happy to do that. Hey Amit, how are you? As we briefly mentioned in the shareholder letter, we have almost 200 tons of offtake agreement in place right now.
between our pedestal customer like Amazon, Walmart and others. So, and again, these are all done from a portfolio perspective, if you would, right? So there's some situation where maybe an off-take agreement is from one particular plant and a meaningful amount of that. And in other situation, it's actually the network where they're actually allocated a certain amount of capacity from plant A, B, C and D, if you would, right? Now from a structuring standpoint, so there are situations where we have as long as a seven-year contract.
from a taker pay standpoint. There are situations where we have a five-year contract, right? And we also have a lot of negotiation and a discussion going on at this point in time where we're looking at some of the swap agreements, right? We're also looking at, you know, some of the players in the industry that might have other types of specialty gas but not hydrogen in a meaningful amount today. We're having discussion with folks like that, but from a contracting standpoint, that's what you can see right now.
Thank you, Sanjay, I appreciate it. That's all I have for you. Thank you. Okay, thanks a minute. Our next question comes from Eric Stein with Craig Hallam. Please state your question. Hi, everyone. Hey, Eric, how are you today? I'm doing okay, thanks. So maybe just on gross margin. Thanks. Just on gross margin, obviously a pretty critical...
what may be impact the linearity throughout the year.
Yeah, so Paul and Sanjay do you want to take that one?
So Paul and Sanjay, do you want to take that one? Yeah, I think... Paul, you can go first.
Sure. A couple things, Eric. There's some near-term events that are, for us, real important milestones. You know, Sanjay talked about turning on the Georgia plant and starting to scale that up. That's a real important milestone to show, and it'll start being accretive, you know, very quickly. And as we move forward in the course of the year, the additional facilities will be incrementally accretive as well. So that's an important one. Scaling up the electrolyzer production.
So those are near-term milestones that are very important for us because it's really going to come from shipping more product, which is a big chunk of what we're going to do this year and that is already accretive to leveraging the facilities, which we get through volume.
And then the gas improvements that we already see with natural gas prices abating as well as turning on the green hydrogen facility. So all those are important. And in terms of cadence, clearly we're going to still have kind of the one-third, two-thirds phenomenon seasonality of our sales for a number of reasons. And volume helps a lot. So you're going to see a bigger impact in the second half, both in terms of the volume as well as those cost-down efforts. But you will absolutely see progression and improvement in Q1.
sequentially and moving on through the course of the year given the improvements we're already seeing. And things like the natural gas cost abatements that we're already seeing benefits now. So, I think as the year progresses, we get to Q4, it's going to be a big quarter for us and a big year in terms of profitability. Got it.
Thanks for the time. Sanjay, do you want to comment on natural gas at all? Because I know there is a slight delay. Right, so Eric, as you recall, so there's about a quarter delay before we see the benefit of the decline in the natural gas price starting to flow into our cost of molecule. And another thing I just.
And by the way, when we talked about our margin cadence for the fuel business, we were thinking about natural gas maybe at around $4 an MMBTU by the end of the year. Clearly, the numbers are much lower than that. And if this trend holds, that certainly would be very helpful. And one final thing, I'll be remiss if I didn't mention this. As our plans come online, the cost actually is one-third for us versus what we're paying in the market today. That will actually have a pretty meaningful impact to how the trajectory changes for our fuel margin business throughout 2023.
Yeah, no, absolutely. Thanks for that. And then maybe just to follow up on a previous question. When you think about the credit and you talked about a 70% capture rate. I mean, if I'm doing the math right, I mean, that would seem like, you know, roughly $350 million a year incremental. And if I think about, well, you're going to, you're planning to double green hydrogen production, you know, over the next call it three, four years beyond 2025. But your capture rate is a little bit more than cut in half. I mean, that's a that's a number that's 350. Correct me if I'm wrong with that. It's a number that could be pretty constant as we look out on an annual basis. Do you want to comment on that, Sanjay? I guess.
I will just make one comment and then I will hand it off to you. Sounds good. Sanjay, that is assuming that our plans for what we build stays flat, which I think probably will continue to build more plants. But go ahead, Sanjay. And Eric, math-wise, you are absolutely right. At 500 tons, 70% capture rate, that is the number. But as Andy mentioned, right, obviously 500 tons is a number at a point in time. And given how big this hydrogen economy and hydrogen ecosystem is going to be, as we get to that time frame and beyond that, obviously those numbers are going to go up. And if the capture rate stays similar, then that steady cash flow number only goes up. Yes. Okay. Thank you.
Thanks, Eric. Our next question comes from Sam Burwell with Jeffries. Please stay here. Hi, Eddie. Hi, Sam. How are you today? Doing well. Doing well. On the top line in the quarter, came in a little bit light than what the guidance that you gave a month ago implied. And I think you guys explained that the guy down back at the business update was due to operational hiccups related to the electrolyzer ramping rollout. So.
I'm curious what caused the number to come in light and if those issues have been resolved, and then just how to think about how electrolyzers should ramp up through the year and how that impacts top line gross margins. There are actually two questions there, Sam. The first one I will let Paul address by the quarter was a little light, and the second one, I'll let Sanjay talk about the ramp of the electrolyzer business. So Paul? I think a combination of some of the issues that we shared and talked about previously in addition to, there was a meaningful chunk of activity associated with our acquisitions, and when you're moving what was effectively private companies into public company space and working through all their processes.
which is a good problem. So in terms of the electrolyzer scope and the timing and cadence, you wanna talk about that, Sanjay? Sure, happy to do that. Again, Sam, I think the way we are managing and running our electrolyzer business, right, is essentially there's two piece to that business. One, we have a project business, and we have a product business.
where we're really focusing on standardization, turnkey products. Now, within our project business, there's a lot of synergies that we can draw from our internal project, as well as things that we're doing for the external customer, like the work we have going on with new fortress energy. That's our project business, which I think, given the scope and size of that, that ends up becoming more on the percent of the completion accounting and timing of how the project ramps and rules out. Now, from a product standpoint, you know, with our one megawatt architecture and five megawatt architecture, especially with our five megawatt turnkey product, you know, this is really making green hydrogen easy, if you would, for our customers, because all our customer need in that case is land and water and availability of power. We are providing the water product. That's absolutely turnkey. And as you saw in some of our comments in our shareholder letter, since the launch of the product was seen tremendous traction there. Right. Now, in terms of a meaningful revenue ramp, you will see that become very meaningful as you go towards a lot of product Q3 and really into Q4. From a time.
I think how businesses respond.
I think how businesses respond is...
What seems like to you and investors is slow for some of these large companies is actually quite fast. So I do think there is a little bit of difference there. On the second item, I think we mentioned as a shareholder letter, we probably booked 30 of these five megawatt systems in the last two, three months of the court of last year. So there has been uptake. That being said, I think that...
Treasury will be coming out in July with the guidance. I'm not going to use the final guidance because there's always an evolution. But I think when Treasury comes out with its guidance that it will help finalize business cases of some companies which allow you know, there to be greater momentum. Look, when I look at plug, $1.4 billion this year is you know, fairly good traction with the IRA. But I do think that I do understand how investors may look at it and how large companies can look at it.
I can tell you next week I'll be at zero week for three and a half days and I probably in 40 hours of meetings already established mostly with the folks who are looking at the Alexa one as you. Got it. Thank you and just a reminder to the audience to ask a question at this time. Press star one on your telephone keypad.
next week I'll be at zero week for three and a half days and I probably in 40 hours of meetings already established mostly with the folks who are looking at the Alexa Longers. Got it. Thank you guys. Okay Sam. Thank you and just a reminder to the audience to ask a question at this time press star one on your telephone keypad to remove yourself from the question queue.
press the star key followed by the number two on your top keypad. Hi, I'm BGU. Hey, how are you? I took a question on the client, the business, just trying to understand the opportunity there. Can you talk about how big this could be for third party sales? Are you looking mostly to serve your internal needs or any any colleague can give there on the potential to run there? I'm sorry, BGU. I missed the product that star like I heard the right question. The client equipment. The client. The client. They're trying to quit. They're trying to actually absolutely.
As we sell our liquefier and electrolyzer products people are coming to us about our cryogenic trailers too. And we're actually looking at to expand the facility that we have in Houston to be able to support the demand.
On the liquefier, we are a real believer that during the next 10 years, liquid hydrogen is going to be the primary most cost effective means of transporting hydrogen in any distances.
And we believe that ultimately, the liquef fires also will be used off hydrogen pipeline to be able to deliver high quantity stories of people who are not on the pipeline. So we, you know, this year, we've already, I know Sanjay have four contracts, four liquef fires we sold, and that we're looking to continue to increase that number and there's a great deal of things.
of those products. We bought those businesses primarily for a security of supply as well as
using the cost savings we have from those at cryogenic equipment actually more than pays for the acquisitions. So it's a combination that the acquisitions are working.
And we're both our own use and external use. Long answer, if that was helpful, be sure. And our next question comes from Cassie Harrison with Piper Sandler. Please do your question.
Good evening, team, and thank you for taking the questions. Hi, Cashy. Hey, Andy. So, you know, I wanted to dig in a little bit to the Q4 results just one more time. You know, looking at the fuel cell systems and infrastructure line, you know, that's been a consistent 20% gross margin business and it dipped in 4Q. Could you just expand on what the drivers were there? And then, you know, a similar question for services and the loss provision line.
You probably have seen, we've talked extensively about launching two large-scale facilities, one here in Latham and one up in Rochester. Those are just coming online and starting to ramp. The combination of, we call it, unpaviable leverage at those initial phases.
of turning this on and conjunction with launching a number of new products which you always have some new product experience as you scale as initial product off your line. Those are what you're seeing negatively draw down the equipment margin. As we roll into 2023, you're going to see a step function change and leverage on those facilities. So it's a pretty big volume benefit that you're going to see in addition to...
you know, working out the kinks on those products. We're now up to, you know, launching that first large-scale stationery and electrolyzers at scale. And so we've worked through a lot of those initial bumps and bruises and speed bumps that you have when you do that. And so this year, you know, particularly as we progress through the year, you're going to continue to see, not just the leverage, but the margin of creation as we continue to scale those products and work through those issues. On the service line, you know, it's really, last year was affected in part with supply chain and other issues that we talked about. We're getting access to parts. We have a number of programs which we've seen tremendous benefits and the small population of sites and units that we've deployed them to. And we just didn't get as far along as we'd hoped to into putting those programs in place. Having said that, we've now worked through a lot of those issues and got the parts, you know, coming in and we've got active, you know, collaboration with the customers to do that and roll that out into much faster scale in 23. So we're more confident in ever in terms of the benefits that we're seeing in those live-old investments. And so, as you see those start to play through, you'll definitely see a significant...
positive trajectory in that service margin. And to be honest, as we move forward, I'm hoping that we're even hopefully under selling over deliver and on the service profile so that we're hopefully conservative in terms of what our position was and some of those lost positions that we grew. But we'll see as the first half will be important to really show that progress. And we're seeing that already in the first couple months. And so I think we're going to have real good progressions in the year. Thanks for the detail, Paul. Really, really appreciate it. Just have one quick follow up on liquidity and cash. Just looking at cash short-term securities restricted cash on the balance. We just sum it all of those up. It looks like you guys use about $1.4 billion of cash. I was just wondering, if you could speak to your expectations on cash usage in 2023. And then maybe also discuss how we should be thinking about the timing and size of the deal alone. If there's been any evolution in your expectations there. Thank you. Yeah, I appreciate that. When I look at cash, I look at the total pool of...
Fortunately, we have a great relationship with the DOE and they're actively working with us trying to close that program. It's a process. This is probably, you know, and appreciate. They're really going through all of the diligence as we speak, which is pretty vast. I mean, they're using industrial engineers to look at our plants or looking at our outside firms to do financial diligence. There's a lot of different processes they go through. But we've been talking about an outline of a billion dollar program.
Those are very attractive programs given the PTC and the nature of those and the cash generation opportunities. So, you know, I think in the second half you'll see either something in the DOE space or other programs that we'll act on, but I feel really good about the DOE program. I feel like that's a very real opportunity that has high probability of coming to fruition. So, we'll see as the months progress what makes sense for plot.
Thank you. And our next question comes from Bill Peterson with JP Morgan, please stay here. Hi Bill. Good afternoon. Sorry, I'm at an airport. My name is Paul Gersen, I'm an advanced student at Giddod. My first question is related to your production cost. In a February 3rd presentation, you talked about near-term production costs around $4 a kilogram. Just want to make sure that's still the right way to think about it. If you think about Georgia, you know, lighting up here to next month or so, your confidence level around that. And then how that would compare against comparable programs and maybe coming online, I guess, through 20, I guess probably later, but 24 times right? From your competitors.
So I did, do you want to take that? Yeah, happy to do that. Again, Bill, from a portfolio perspective, right? That $4 number, we are absolutely very confident about that. That's the number we've talked about, and we feel pretty good about it. So when the first 15-ton comes online in Georgia, the number will be a little bit more for that. But we have other plans that are actually got even better rates at the luxury city. That actually would have lower number than that, right? So I think from a portfolio perspective, we're going to think about our overall cost of green hydrogen. That's about the right number. So that's correct, number one. And number two, when you then think about, you know, and the goal here, Bill, right, is we just want to make sure that we keep driving the CapEx number stem, which obviously impacts the depreciation cost and the, you know, overall cost of that hydrogen molecule. But more importantly, we're really thinking about where can you get the lowest possible cost of that renewable electron, right? That has a much bigger impact in terms of driving that cost down and directionally.
you will actually see that as a cost-continue to go down. Okay, great. My second one is, I guess it's more related to potential off-take or strategy around heavy duty. We talked about heavy duty in the past and last last year. You did announce Nikola as an off-take and you can push it to be buying trucks. But I guess you have also, at the same time, more experience with Havia. So, I want to get a feel for how you're thinking about your strategy for heavy-duty trucking, you know, partnerships, Gavis, or just maybe just have off-take and dream of the likes of Nikola or other players. Yeah, so Bill, we have lots of discussions.
continue to go down. Thank you. OK, great. My second one is I guess it's more related to potential offtake or strategy around heavy duty. We've talked about heavy duty in the past and last last year. You did announce Nikola as an update and plus should be buying trucks. But I guess you have also a safe time more experience with Havia. So when I get a feel for how you're thinking about your strategy for heavy duty trucking, you know, partnerships, Gavis or just maybe just have offtake agreement with the likes of Nikola or other players. Yeah, so Bill, that we have lots of discussions at the board level.
about the potentials of the heavy duty vehicle market. I think first and foremost, we are quite interested in off-take agreements like the one we did with Nicola. I think that the question we struggle with is, does the margin associated with being a heavy duty vehicle provider in the long term align with the margin goal of our company? I would say this, I can tell you what we are not going to do. We are not going to independently build a heavy duty trucking company.
We do look at and we continue to explore potential JVs. So if I was going to give you an order, Bill, we'll sell hydrogen to anyone in the heavy duty vehicle industry. We'll look at JVs, but with a very thoughtful eye, thinking about the long-term margin profile of that industry of possibility we could just sell Pro-Gen engines, which may be more attracted to us, or even I think for real heavy volume stacks. And the third one is we're not going to do it alone. Okay, that's very clear. Thanks for the color and mag. Good luck on that piece and all these projects.
We do look at and we continue to explore potential JVs. So if I was going to give you an order bill, we'll sell hydrogen to anyone in the heavy-duty vehicle industry. We'll look at JVs, but with a very thoughtful eye, I think you've got the law curve, margin profile of that industry. Possibility we could just sell progen engines, which may be more attracted to us, or even I think for real heavy volume stacks. And the third one is we're not going to do it alone. Okay, that's very clear thanks for the color of the magma. Good luck on execution of all these projects. Thanks Bill.
Thank you. The next question comes from Sheriff Omega Robbie with BTIG. Please hit it your question. Mr. Omega Robbie your line is open. Go ahead. Hi. Can you hear me now? Yes. We can hear you. All right. Sorry about that. Thanks for taking my question. No problem. I wanted to ask a couple of quick ones following up on Manauf at the top of the call about material handling. Last quarter, I think he said about 35% of the material handling business was small and mid size. And how is that trending given, you know, you guys are targeting a handful of new pedestal customers this year. Good question. I would think that. When I look at the coming deployments over the next six to seven months, because some of our large pedestal customers.
are beginning to deploy at a faster rate again, it'll probably be mixed, that mix is probably 75, 80% for large sites the first half of the year, and then probably settling back into the medium, the 35% number we shared previously in the second half of the year. That's helpful. And then to follow up.
You said you were targeting 50 to 60 new petal customer sites. Are any of those with existing customers or is that more of a proxy for adding new petal costs? Yeah. So let me make sure I'm clear about the number, Sherry. We'll do 80 deployments in the Tural Handling this year.
we will add three new pedestal customers this year. So those pedestal customers could, over the coming years, deploy anywhere between five to 10 sites per year. So just to kind of make sure that the numbers are clear to you. Yeah, thanks for clearing that up. It's good for me. All right, thank you. And our next question comes from Amit Takkar with...
I think that it's really related to what I talked about in January . It needs with the construction at our customer site being slowed down because of
the challenges in supply chain. And so this year, the number of sites we will do will be 2X and we know where they're going. So that's really, it really was more, it was more on the, it was really on the customer side and their ability to, you know, so much of our products go into new facilities with some of our customers. That really, that was really where the delay is. Got it. And then just one quick housekeeping issue. You guys reaffirmed 23 revenue and gross margins, but the operating income margins, I think you guys were targeting my 24%.
for 23 that's still unchanged right? I will let Paul answer that in the evening. Make sure you get the right answer Paul. Yeah, let me just clarify. So it was 1.4 billion, 10% gross margins. And what I've talked about is kind of a $125 million per quarter pop X rate is roughly as a proxy. So that kind of gives you the math in terms of, yes, the 24% being negative, yes, that was the number. And that's roughly you know, directly that and that range.
Thanks so much for that. And our next question comes from Craig Shair with 12-E brothers. Hi Craig. Hi. Good afternoon. Early evening. Andy, Sunja and Paul. So I'm on the answer to Cassie's question. I was a little confused, Paul. If you're successful with the DOE alum, do you not need to back lever and recycle the capital and the Green Hydrogen Network? The answer is for you, Paul. Yeah, no, I understand. The answer is it would probably be either or. You know, we're not going to be able to do that. We could do one or the other. There is a chance that we could do both.
You know, when you have a $5 billion balance sheet by itself, theoretically could leverage up that in an isolation as well as back-level those individual plant facilities. So I would say everything's in the mix, Greg, and we're going to work through the best capital decision for blog. So I'm excited about the DOE program. I think it's very viable and exciting potential program for us. But the good news is the options continue to open up to us, even unsolicited inbound opportunities from various lenders and people and banks that we want to make sure we're best positioned, taking advantage of the lowest cost to capital and most flexible capital opportunities. And we'll continue to think about what that best structure is. But I'm very optimistic about the DOE. I think that's a very viable and likely scenario. But likewise, we're going to certainly nurture...
different opportunities as well and make the best decision. So hopefully that helps. Certainly does. I guess this kind of segues a little in my second question. I don't know if this is kind of like, you know, completely off track. But if, if some Jay, let's say we fast forward nine months at the end of the year and your green hydrogen network and your own JD is doing better than it looked like the last three months, you know, in some of the ways we've seen. And perhaps you're in a position, particularly with lower gas prices if they sustain here. Where. Maybe if you're doing better than expected and the pace of internal hydrogen generation that it might make sense to just buy out some of these money losing.
third-party industrial gas contract given how much liquidity you have and then just have a clean, simpler to understand, more attractive set of operations going forward after you bite the bullet. Could that ever make sense? Would that opportunity ever present itself? Craig, I'll say it's a real interesting idea. Okay. Okay.
All right, thank you for that. Thank you. And our next question comes from Michael Blum with Wells Fargo. Please stay your question. Good evening, everyone. Just two questions from Michael. I just wanted to check in on the cost for hydrogen plants. There is a vet, eight to nine million dollars per ton per day is still holding steady and how you expect that to trend over time. And then also just want to see what we should assume for cat backs and 23 and maybe 24. Thanks. So, son, J. Do you want to take the first one and pull the second part of this?
Yes, so Michael, no change to that view, right? Obviously, the integrated green hydrogen plant is higher. The feedstock hydrogen plant, the likes of JV with Holand, that's a lower capex, right? But we really have no reason to change that number that you just talked about at this point in time. Paul? Yes, and I would say we're still targeting a billion dollars in capex this year as we go through the year. We'll have better visibility and timing of things. We're trying to accelerate the programs, and I'm working behind the scenes trying to defer the payments, being a good CFO , so we'll see how the timing of all that comes together in centers, but that's our focus.
Thank you. Thank you. And there are no further questions at this time. I'll hand the floor back to Andy Marsh for closing remarks. Well, thank you, everyone. Many of us from PLUG will be in Houston for CIRA week next week. Please come up and talk to us. I know Sanjay will be there. I'll be there and many other members of the PLUG team will be available. We're always interested to talk to investors and analysts. So thank you, everyone. Talk to you soon. Bye now. Thank you. And with that, we conclude today's conference on Parties Made Disconnect. Have a great evening.