Q1 2023 Plug Power Inc Earnings Call
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Greetings, everyone and welcome to the plug power first quarter earnings call.
During todays presentation, all participants' lines will remain in a listen only mode.
The words, we will conduct a question and answer session with instructions to follow.
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As a reminder, please note today's conference is being recorded Tuesday may nine 2023. It is now with pleasure that I turn today's conference over to Teal Hoyos Senior director of marketing and Communications. Please go ahead.
Thank you welcome to the 2023 first quarter earnings call. This call will include forward looking statements. These forward looking statements contain projections of future results of operations or 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, a of the Securities Act of 1933 and section 21 E 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 as such these statements should not be read or understood as a guarantee of future performance or results.
Such statements are based upon the current expectations estimates forecasts and projections as well as the current beliefs and assumptions of management and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those discussed its variance is a result.
Various factors, including but not limited to the 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, 2022 subsequent steps.
Quarterly reports on Form 10-Q, and other reports we file from time to time with the SEC.
These forward looking statements speak only as of the day, which the statements are made and we do not undertake or intend to update any forward looking statements. After this call or as a result of new information at this point I would like to turn the call over to club CEO Andy Marsh.
Thank you everyone for joining the call and thank you to you.
Before I begin the conference call I wanted to talk about two items.
One is we had a filing this morning, where we made a mistake with the date.
It certainly got US excited this year, we put 2024 instead of 2023. So if you are reacting to flood changed the guidance for 2023.
From $1 $4 billion as ever expected result, we haven't so sorry for any confusion that may have caused the second I really would like to share a video.
Participants on the phone you'll hear kind of a brief three minute to 30 seconds periods of silence, while those on the webcast can sit back and enjoy the video during the phone I'd suggest clicking to the webcast. It's really worth watching so if you can't if you Miss it it will be included in our archives for Lee.
Peter viewing so teal, let it roll.
Yeah.
Yeah.
Absolutely.
Okay.
Okay.
Yeah.
Thank you.
Hope you enjoyed the video App.
They're really showcases our Georgia plant and.
And you can find more detailed information on the status in the Investor letter.
To summarize our plants already producing gases hydrogen for our customers and we expect to achieve full production by the end of June .
Although we always strive for greater speed.
It's really worth noting we accomplish what we've accomplished since issuing full notice to proceed under our EPC contracted for full production in just 48 weeks.
Hey, Sir remarkable fee.
<unk> that can virtual gas companies and I was sitting at Cera week listening of one CEO talked about six years, we assumed for the usual estimate four years of a project of this scale.
By the end of June our Georgia plant with the largest green hydrogen plan the world that utilizes electrolyze, there's that's a significant.
<unk> achievement.
We plan to commission more plant, Texas, New York, and Louise Louisiana This year.
This year, our focus is really to execute.
Our primary goal is to achieve revenue of $1 4 billion.
And that's in 2023, which is supported by several activities, including lowering to scale or five megawatt electrolyze our systems in partnership with our fabricators scaling our stationary products that facilitate 20 megawatts in shipments.
What are the real competitive advantage is the infrastructure, we have established in Rochester, and Vista, which enables us to support our business growth.
And our customers really do recognize our ability to deliver our promises thanks, the tools and facilities we possess.
Our ability to construct green hydrogen plants is evident in Georgia and.
And we plan to further demonstrate this in taxes in New York, which will eliminate any doubts about our capabilities I'm going be walk in Georgia today I'm excited these.
These plans have garnered interest from both equity and debt investors. Moreover, plug has a range of non diluted solutions that can eliminate the necessity for future equity investments at the present level based on the current business plan.
And look this year, where we remain focused on government policies. This is an energy company and energy and government policy go hand in hand, including the IRR and.
In the European renewable energy directive.
Although these policies helpful plug has the opportunity to shape their developing further.
We have built this chart to show the lower than expected case for plug in 2023.
Expected case plug will achieve $1 4 billion in revenue and $140 million and gross margin dollars.
Look there is really just a couple of key ingredients of meeting that goal. It's shifting our 2075 megawatt electrolyzed water systems, which we have orders for <unk>.
As we learned to build them more efficiently and coordination with our three fabricators around the world.
We're close to closing out 500 about 500 megawatts of a large electrolyzed plant system order and there's many more behind that and those opportunities we recognize revenue.
On an ongoing basis and selling 60 times of liquefied in next three months Im sure <unk> be happy when the Q&A comes around to talk about that.
Also show that we have the opportunities beyond news listed above to achieve one 4 billion.
And all of these items do not come to pass revenue would be about $1 2 billion and gross margin would be approximately $50 million still at 80% increase in.
In revenue for the year.
Finally.
I'd like to highlight this is really important.
Application business. When you look at that slide is very little variability since it's more established.
During the early years of our application business.
We did experience some of those challenges have predictability and some years, we exceeded and others, we missed our projections.
A methodology, we just share gives us a high level very high level of confidence in the range of outcomes in the next seven months.
Be clear.
This is really important because it sometimes gets lost in the chatter.
Plug is leading the way in terms of building the actual products real things every day and constructing plants.
The company is doing what we're doing the field.
Our Georgia plant is exceptional and we're excited to showcase it to analysts in the coming months.
The feedback we receive from our customers has been overwhelmingly positive.
When it comes to the application business, we have a <unk>.
Mark will stable business model compared to other companies in the fuel cell industry. This is due to our focus on pedestal customers.
Lastly, a range of energy products is unparalleled in the industry and we're rapidly learning how to scale more efficiently than any of our comp editors, but more important our customers really like our products.
I don't want to shy away from the facts. Once again no. One is building real products and building plants like club it really separates us.
Paul <unk>, Jay and I are now available for your questions.
Thank you we.
We will now start the question and answer session to register your questions. Please press. The one followed by the four on your telephone you will hear a three ton prompt to acknowledge your request. If your question has been answered or you would like to withdraw a registration. Please press one three.
We do welcome all questions or comments to register please press one for on the telephone one moment. Please for the first question.
Yeah.
And our first question comes from the line of Andrew per cocoa.
Morgan Stanley . Please proceed with your question.
Great. Thanks, so much for taking my question here. So just first I wanted to ask a question around the IRI.
And some of the deeper treasury interpretations around hourly matching and deliverability and additionality and what might that mean for some of your first few plant that you are bringing online, but you still think you qualify for that whole $3 per kilogram and and what might that mean for your 2025 and 2028 green hydrogen ecosystem targets.
So Andrew I'm going to take a step back further than that.
I've spent a lot of time, especially in the last.
Two months in D C talking to folks in the administration.
I remember the primary purpose of the IRR.
As jobs climate.
And that really and national security and that really is driving the thinking of the folks in the administration.
From my discussions I believe that when you look at the European renewable energy directive.
That certainly has had a great deal of influence when those in D C, which.
Which interpret if you interpret that you can see it's very very favorable to the approach plug things since import.
No when I look at it.
Give you two examples where I think that resonates with administrators.
Vermont power every time I buy.
By electricity is generated more renewable energy.
It doesn't matter that the electrons that comes through my house come from <unk> comes from National grid.
That's really what's going on there.
That's.
Fundamentally plug supports generating more renewables plug supports generating electrolyze yours, and I believe from my discussions.
Thats in line ultimately what the administration will do.
Great. That's some helpful context, and maybe just switching over to.
The opex trends in the quarter I think Paul you had mentioned $125 million of Opex per quarter is the right run rate for 2023 came in a little bit above that in the first quarter. How should we think about that trending through the rest of the year and do you still feel comfortable with your operating income guidance for 2023.
Yes, so you know.
Thanks.
Had been talking about I was looking at 151 hundred 30, but the biggest delta in the quarter had to do with our acquisitions I mean, they continue to do better than we expected.
And as you can see we had to accrue more.
Consideration in terms of the earn out structures that we set up should they be successful.
We don't want pay when and if that happens so that's a high class problem and it was.
Primary delta for the quarter, but I think in the balance of the year. If you look at it the one five to 130 ish is the right run rate.
Great. Thank you.
Yes.
Thank you.
Thank you.
Yeah.
Well, we got next tier one moment. Please for the next question.
Mhm.
Yeah.
Okay.
Justin.
Sorry, our next question comes from the line of James West of Evercore ISI. Please proceed with your question.
Good morning, James Hey, Andy Good morning, How're you doing.
Okay.
So I wanted to.
Talking about hydrogen hubs for a minute.
Given that we're really close to the the commission that's going to advise the D O E on.
Recommendations to the daily on whats been submitted so for in the deal you should start allocating capital I believe.
At some point in the late third or fourth quarter, and there'll be a big build out and we've got of course applications from Texas, and California from Los Angeles, and then obviously the northeast as you know full well what role does.
<unk> play in that process I know, we have to establish production of green hydrogen in an embargo hundreds I'd love to hear your thoughts on that.
So James.
And I have to watch because everybody keeps reminding me I'm covered by NDA is on the hydrogen opex right.
He said every site that you mentioned.
Every hub plug has been engaged in at different levels.
Some of them are.
Such as the New York Hub, our name has been mentioned publicly west Virginia, the activity going on there with Senator Manchin.
I would tell you that.
Things like expansion of our hydrogen plants.
Are engaged in many hubs.
Leveraging our hydrogen plants are engaged in hubs.
Our products.
Both our stationery, especially our stationary for peak or plants are involved in many hubs. So.
I expect.
Some money to start filtering out in November December timeframe.
I really don't think real dollars start ramping to late 'twenty five early 'twenty six.
My government affairs person sitting with me here, James and he's shaking his head, yes, so that's kind of our rent.
Understood Okay. Good.
Okay, but would you.
As long as you'll be involved there.
And then.
Maybe a follow up for me are not not related to the hubs.
Part, but.
You're the sort of Georgia.
Pushing out with them, so it's going extremely well and what are the kind of the key learnings that you guys have achieved from the startup that you think will make the sort of some of the additional facilities.
Facilities.
More efficient faster you know.
One in check.
We probably have 100 learnings James.
Okay.
I think the most important one.
Do you see that it's going on in Texas.
In Texas, we have been able to sign an EPC contract.
Where the EPC contractor is willing to sign up ahead of time for price and performance.
And that's I think a statement that.
What people are saying you know you can repeat I think that.
When we look at scaling.
We also.
This plant itself, we will expand it to 30 tons I don't think.
We'll be doing too much there will be less than 50 tons per day just from a.
The cost.
It kind of follows a typical cost curve that going from 15 to 30, probably only increases your.
Construction cost by 40% and your overall cost by 40%. So I think we're much more focus on plants like Texas and.
Taxes in New York that are large there could be some smaller plants. They go on where the infrastructure is really kind of see much simpler.
I think thats.
I think that's really one of the key learnings we've had.
But I can I, probably could go on and on.
Sure but.
That's that's really the heart I think of what we found important Sanjay you want to add anything no I agree with that FDA. James that's really it I think we understood that scale has a tremendous benefit and all the components as you got to manage and do it right and learnings of Georgia as Andy said is now, allowing us to really go into.
Okay.
Rather than time and material.
Okay got it got it thanks Andre Thanks, Andy.
Yes.
Our next question comes from the line of.
Manav Gupta of UBS. Please proceed with your question.
Guys I have two questions and they're kind of related.
Last name right upfront.
Hey, good morning.
Good morning, So your press release states something very interesting. It seems that you are in final stages of negotiating lot skewed project opportunities in U S Europe and Asia Pacific They are presenting potential backlogs of one gigawatt. So if we can get some more details on that and thinking is on that.
March seven announcement, you won a contract to build a 100 megawatt for Liza unit, but as I understand this was a competitive bidding process and you would selected versus our competitors. It kind of indicates you have a very good product out there. So if you could talk a little bit about the March 7th announcement with unit, but thank you.
Go ahead Sanjay.
Again, thank you for that question first off when we talk about this over a gigawatt booking opportunity on the Electrolyzed side of the house here in the near term. We're looking at 500 plus megawatt opportunity in Asia Pacific. We're looking at 500 plus megawatt opportunity here in North America, we're looking at another 100 megawatt of opportunity in Euro.
So please stay tuned obviously in some cases, where the contract negotiation in some cases, we're actually having a lot of discussion about it who we certainly plan to actually close on one two or all three of them here over the course of the next 90 days and that's really what we're referring to when we talk about that gigawatt plus bookings outlook in the near term and our Electrolyze. It.
Business.
Any details on the unit per contract.
Go ahead.
Again, I think look one of the key things well, let me let me yes.
Sure.
<unk>.
So one of the key items plug is really focus on customers not competitors.
And that.
When you look I think when people look and see that plug knows how to scale plug knows how to engage with customers plug knows how to do projects I think that separates us from our competition.
And when we take customers that we have been taking many customers to our Georgia plant to show them.
It provides us a significant differential advantage versus any of the other competitors. When you walk our factory in Rochester, you actually see people, making electrolyzed stacks in EMEA, you can't really see that scale anywhere else.
That's really why we win deals but.
We're focused on what this big market, we're focused on what we can provide what we can offer we don't get too worried about competition at the moment, we worry about us and our customers.
Thank you Dave.
Yeah, Okay. Thank you.
Okay.
And our next question comes from the line of Greg Lewis of B P. I G. Please proceed with your question.
Yeah, Hi, thank you.
Hey, good morning, Thank you for taking the time squeeze.
Squeezing me in here so.
So Andy you know I.
I guess you know recently you made that announcement around the Korean JV with SK with startup in 2025, I was hoping maybe for some maybe for a little bit of color around that.
The capex build of that and then really.
Kind of is this is this could.
Could we see.
Incremental projects from this initial joint venture.
Oh sure so let Greg.
We've been working with SK now for over two years and the JV with <unk>.
Finalized last year at this time with the final IP agreement done on December 31.
Of 2022.
And we're focused on our stationary products and in the Investor letter I highlighted the fact that.
There will be.
Good deal of activity for the stationary products for areas, where the grid doesn't exist today.
In Korea, because of the higher electrical costs.
Our plants with SK, starting in 'twenty five 'twenty six.
Go 400 megawatts of stationary products and then every year to 2000 4200 megawatts.
That in itself.
This factory, which.
Between the both of US will probably be in the 150 million type range $150 million to $200 million, which will be jointly split is really just the beginning of the deployment of the JV.
Already doing with the JV with.
We're shipping cryogenic trailers this year from plug.
We're shipping project modules for uses in buses in Korea, which we think's ramps to over 1000 units shortly.
We're engaged in Electrolyze your projects in our first Electrolyzed your projects are being shipped so on a wide range of basis.
This is going to be a very very powerful JV.
A little bit of time, but.
We're together.
Really.
Celebrating I think that if you will.
Went to the event.
Look I was in Australia, working on deals and our chairman was nice enough to go for me, but.
Chairman was with the President of South Korea, I think that says a lot about the relationship.
Okay, Great and then I did want to touch a little on the.
The green hydrogen in the network.
Lately in the last week was ace the advanced clean Transportation conference clearly it seems not surprisingly, California is going to be.
Really the epicenter of hydrogen demand in the U S. It seems like.
For the foreseeable future. It just seemed like a lot of money is going and there are a lot of vehicles on hydrogen are going to be going there.
As you think about the network and realizing that you know green electricity Green renewable power is key to servicing that.
What should we be thinking about.
More.
Hydrogen production plants in and around the California area versus where you know I guess, we have a diversified footprint in New York South East.
Taxes, but just as it seems like there's just coming more.
Demand from California or.
Or is it really we're just going to be shipping a lot of product there.
I'm going to let Sanjay answer that I'm going to make one comment.
It should not be overlooked Greg.
The demand for hydrogen.
Well in applications.
Like creating E fuels.
Mixing with natural gas in the pipeline.
With industrial applications like ammonia.
Probably all be nationwide, and probably ramp and be much larger than California that being said I'll, let sanjay talked about our California plant as well as other activities, we have going on I mean, Greg you're spot on right that is gonna be where a lot of demand is going to come for some of them move into T.
Patients and things like that so this is how we're looking at it one.
You do have a location that we have identified that we're going through all the permitting process and going through PGA need going through Cal ISO to move that project.
One of the dynamics as you would think about California is while the demand is.
Demand center, but you also have a very high price of electricity and you also have a situation where the permitting actually ends up taking longer than many other states. So that's a bit of a dichotomy that you got to deal with when you think about how many plants and how do you really build in California, but having said that we actually are looking at multiple projects now I mean multiple okay.
In the neighboring states to be able to support California, we're even looking at some of the opportunity that eventually might even end up making it all the way to California, even into West, Texas area, because we've done that before it really comes down to what is that lowest possible renewal electron we can get what is that cost of the hydrogen.
And does it makes sense to build a plant even look at delivery distance and ends up making it a lower cost as it gets into the California market right. So neighboring states, even our projects in California and other location is really how we plan to actually support as you rightfully pointed out the meaningful demand that we see coming from the state of California.
Super helpful. Andy Sanjay Thanks for the time.
Thanks, Greg.
And our next question comes from the line of Bill Peterson of J P. Morgan. Please proceed with your question.
Good morning, Bill Hi, Good morning, guys. Good morning, Andy and team nice quarter nice to speak with you. This morning.
I wanted to go to the guidance for the year just to make sure I understand I think you said it was largely energy solutions, but.
Last quarter, you talked about 55% you know kind of the current business I think 30% Electrolyze, there is 100 million and stationery.
I think the rescue called it fuel cryo and <unk> and so forth with that 15%, which I think is around $200 million. So what is the difference where does it come in at $1 2 billion and where does it come in at $1. Four is it is it electrolyzed is primarily or for fuel. If you could help us understand kind of what's changed in the guidance.
Bill.
What I've tried to be really clear.
What I tried to say is look.
Our ability to predict obviously hasn't been perfect.
So we spent lots and lots of time after last quarter.
And <unk> to the street, where the risk is in the one $4 billion.
And if you look at.
And it's been filed I think it's going to be re filed with 2023 chair.
If you look at the chart.
I wrote.
All with the team here kind of four key items. So what it is.
We're shipping 27, five megawatt electrolyze, there's containers this year.
That's probably around call that circa $100 million.
Look we have the orders for it it's making sure.
And we spent a lifetime on execution there and.
That's a big part of it.
If you look at that.
Another big difference Bill is.
Associated with that.
Our electrolyze your plants and the Electrolyze our plants, you probably can circa circle another $30 million in revenue.
So between those two.
30 to 50, you're probably talking three quarters of the difference.
Then.
Sanjay has a lot of liquefied is looking to ship owners looking to sell.
In late negotiations and that'll get us to the 770 <unk>.
Also on this slide I did highlight the fact that.
Now theres other opportunities in the works.
That but that's really where all reside.
You look for example in the application business our traditional business.
Variations really about $20 million from expected too.
The lower case.
And that lower case, it really has to do with the.
Timing of a couple of projects, whether they happen in the fourth quarter first quarter.
I wanted to do this chart because I wanted to make sure investors knew how all the numbers lined up I hope that was helpful. Phil.
Bill.
Yes, sorry about that sorry.
You talked about.
No.
Sorry about that you talked about raising additional equity.
So potentially raising additional financing you talked about the <unk> launch and the ABL and probably you mentioned more to come in the second half of the year is there a preferred means of raising I guess presuming youre looking at the most non dilutive capital as possible, but what what is the preferred means of doing this as you look at the second half of the year or into next year.
I wanted to take a step back I'm going to hand, it to the experts.
Sanjay here.
You also may have people invest in the plants themselves Bill and we have lots of people who want to take share for example in Georgia.
Paul Yeah, and I think you touched on it I mean, obviously first and foremost it's non dilutive second is cost of capital third is flexible capital, but again as Andy said Theres a lot of parties that are interested in when you look at the breadth of what we're doing and the pace and the ambition, we have to grow and invest in scale.
It'll probably a combination of solutions as we continue to move forward, but the good news is we have an incredibly strong balance sheet, it's basically unlevered and we've got this portfolio of plants unfolding that are profitable portfolio to leverage up and recycling that capital it puts us in a great.
<unk> of Optionality.
That's that's.
Working towards the second half youre going to hear more and see more as we work through that in the next.
In the months to come.
Okay. Thank you.
Thanks Bill.
Thank you. Our next question comes from the line of Alex Kania of Wolfe Research. Please proceed with your question.
Great. Thanks, Good morning, Alex.
Maybe I could take another run at the kind of the I R. A guidance and maybe what that means.
Do you think that or would you be able to characterize there a bit of a decent amount of pent up demand or anything like that once you get them.
The kind of guidance either way in terms of matching or conditionality or something like that so I'm. Just wondering if you know as you've talked about these incremental opportunities you're seeing over the next 90 days how much of that would play into just getting resolution on the Irish rules and.
And even more beyond that would you could you see kind of a kind of a ramp up in any kind of announcements just once we have that clarity.
So Alex.
Yeah.
I think clarity probably comes to August September just to kind of frame it and.
Anytime you have.
Uncertainty.
You have folks.
<unk>.
<unk>.
The policy is defined.
Very similar to.
European.
Directive.
I think there'll be a flight.
I think that's that'll be important because it will create more and more jobs.
United States is scale allow companies to export.
I think that will be the outcome.
If they're very very restrictive I still think there will be more activity.
But I think a lot of the focus.
For many companies will be more European focused than U S focused.
No.
Thank you.
If the regulations are too tight.
Quite honestly.
Array would defeat the purpose I don't think that's going to be the outcome.
I know of.
No.
Good deal.
That fortunate enough to know people in D. C people are concerned about jobs people are concerned about the economy people are concerned about the climate.
They're concerned about America growing this industry and not handing it over to the Chinese.
Quite honestly is a big hot button.
<unk>.
I think.
When the regulation comes in.
Everybody is going to be.
Who is sitting here at the table with me is going to be quite happy.
Yeah.
Great. Thanks, and then.
Maybe just thinking about margins for the balance of the year I guess.
You know certainly gas prices have come down incrementally even since the previous earnings report.
Is that is that kind of a decent incremental tailwind.
For numbers as 10 minutes.
You know kind of upside or have you seen any kind of.
Offsets to maybe the momentum that we've seen on the gas side.
I'm going to let Jason take that one yeah, you're right I mean, I think look there's a quarter lag as we've always said right. So you will start to see that benefit as we go into Q2 Q3 and Q4. This year there is going to be some incremental benefit and obviously, we're seeing a lot of time, making sure that the gas price being used by our supplier.
Our actually matches that with how we're looking at it as well right. So the short answer to your question is yes, that's an incremental benefit.
Great. Thanks very much.
Thanks, Alex.
Yeah.
Thank you and our next question comes from the line of Amit <unk> of BMO capital markets. Please proceed with your question.
Good morning, Amit.
Good morning.
Good morning.
Can you hear me.
Yes, we can okay great.
Just real quick I, just wanted to kind of level set on capex.
You'll we'll be bringing on a lot more production online I think you guys had said.
About $1 billion for the year.
It looks like the first.
First quarter was a little bit less than that from a ratable standpoint.
I just wanted to make sure that $1 billion number is kind of still the right number to think about for capex for the year.
Yes, that's our target I think the good news is the big.
Manufacturing plants or pretty close to done in terms of the spend so the balance of it is predominantly if not all around.
The green hydrogen platforms and is.
So the answer is yes, thats, our target and we're continuing to invest in advance.
Agenda.
Okay, Great and then I think Andy you mentioned earlier that like the I guess, the big dollars under the Doe program wouldn't start flowing through till 'twenty five 'twenty six.
So should we think about like some of the other options Youre looking at.
In terms of kind of the ABL.
Going down the equity in the individual plants is kind of like that kind of a bridge till we get there or is that something you always contemplated.
Yes.
I don't think and I'll, let Paul comment.
This equates to hydrogen hubs.
<unk>.
To our own plants being built out.
You know there really separate activities.
And our view was that we wanted as much hydrogen is available as rapidly as possible.
Green is possible.
And.
So.
Having investors implants like people, who dig a big oil wells they do that.
Who who are in that industry.
Our business model is that.
We're going to be really really big we're going to do some of it was folks we're going to do some of it independently.
We're going to make sure we get the most attractive financial finance deals recap, but.
<unk>.
There's really no correlation you can meet between the hubs.
And.
The lungs.
You want to add.
Just to clarify.
There's multiple things going on at the same time right. So we're working the hub conversation processes.
With industry partners as well as the dose.
But.
Apart from that and separate from that and specific to plug. We're also work in a conversation around a specific deal along that.
It could very well fund this year, we talk about all of our capital options in.
In the past that we're working in.
And you mentioned ABL in the OE is two of them, there's multiple different capital sources and with the strength of our balance sheet and the portfolio we're building.
We've got lots of parties that are interested that will be this year activities. Not 25 26. So just wanted to make sure that's really clear.
Thank you so much.
Thanks, Amit.
Yeah.
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Our next question comes from the line of Eric Stine of Craig Hallum. Please proceed with your question.
Good morning, Eric.
Eric.
Hello Hello.
Okay.
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We will proceed with the question and answer session.
Our next question comes from the line of Colin Rusch of Oppenheimer. Please proceed with your question.
Thank you good morning.
Andy.
You guys are working through the potential a b L.
It affords us that opportunity to leverage that up without meeting necessarily traditional metrics, having said that as we've publicly talked about you know given the path that we're on the trajectory we're on we're.
<unk>.
Confident that.
Early next year, we are moving into positive operating cash flows given.
Given the growth and margin trajectory so.
We haven't had a lot of constraints put on us in terms of those traditional metrics because we have such a big balance sheet in such a big.
Green hydrogen portfolio.
The one step back and I think the real key for US is as we bridge that leverage it into that next year and then move into the positive operating cash flows that opens up as you know traditionally more.
Significantly more institutional opportunities as we move so so.
So far so good and lots and lots of opportunities without having to worry too much about that in the short term okay.
Okay and then just.
From a working capital perspective, as you guys ramp up manufacturing I just want to get a sense of you know what our working capital needs are going to be and how much. Our finished goods inventory number that you posted this quarter.
Yeah. So as we've talked publicly we've specifically been ramping very quickly our electrolyze or in our stationary product platform. So the delta this quarter was specifically associated with that.
We've talked about the fact that we're going to be doubling the production of our electro laser program and second quarter from first quarter and we're starting to ship our first stationary products large scale station for us this quarter.
No.
Youre going to well, we will see that level out and as we move through the balance of the year with the leverage we anticipate we expect that actually to go now.
So for the balance of the year, we don't actually expect.
Hole that we're gonna be a relatively flat year over year, but not slightly down from a working capital standpoint.
That's incredibly helpful. Thanks, guys.
Thanks Scott.
Thank you. Our next question comes from the line of Chris <unk> of RBC capital markets. Please proceed with your question.
Hey, good morning, guys. Thank you.
Alright.
Kind of just mentioned.
Paul you just mentioned some positive free cash flow beginning maybe early next year and I think you all have a target for ops breakeven later this year, maybe fourth quarter. So can you maybe talk about kind of the drivers of what takes you there I guess versus where you are today, you know I guess just pointing out.
Some of the margins and then B the stage and maybe.
The PPA area looked kind of particularly soft this quarter. So.
Yeah.
What gets you from.
From where you are today to ops breaking them out of the year and positive free cash flow next year.
Yeah, I guess really there's a number of things, but first and foremost we do when we make positive margin on equipment and when you look at Q1 as an example.
It's accretive so every incremental dollar of sale of equipment, it's positive.
Majority is not 90% of that growth is coming from equipment sales.
No.
That coupled with the fact that we're gonna be ramping the leverage of those plants and those investments in scaling those new products will drive margin profile. So the balance of the year at $1 2 billion.
Roughly $1 billion or so is going to be products equipment sales and when you look at the.
Scaling margin, which we've traditionally hit in that 25% to 30% plus range.
A pretty substantial step function change in margin accretion.
Pes is fuel we've talked a lot about the things that we're doing there in terms of turn it on the screen hydrogen plants abatement of the natural gas.
Working with our partners on the distribution networks and fill logistics to drive efficiencies.
Talked publicly about ending the year on a breakeven run rate on fuel and moving into next year.
Quickly changing the paradigm. So those two are the sole biggest drivers.
And then secondly, I guess third to that I would just say we continue to make big strides on service reliability investments and we have a very concentrated effort. However that will be more and more smaller PPA and service will be a smaller percentage of what we do as we scale.
Growth in the curve that we're talking about.
It's predominantly going to be product and fuel and more so product in that equation as we move forward for the balance of this year.
Got it thanks and.
And I guess, maybe as my follow up here.
Sure.
Oh, no I was saying, Chris Paul maybe you should mentioned Tpa's down just because the warrant charges yes.
Yeah, we have a lot of noncash charges and so that's up year over year was $2 million or so in Q1 of 'twenty, two and was $14 million. This year Q1, so that's a noncash charge.
It, particularly affects our PPA and fuel.
In terms of the association with the customer associated with it and then on the whole gist.
Just so everybody has some context.
We run at about $60 million to $70 million a quarter of noncash charges holistically. So.
That's why I feel I'm incredibly excited and confident about the growth margin leverage backed with that non cash run rate.
And the confidence to get to those to get to those numbers as we move on into next year.
Got it okay. Thank you and then I guess just as my follow up here, you know reading kind of the front page of the shareholder letter here. It looks like you may be adding a qualifier on.
The 200 TBD of build out to maybe include are under construction. So can you maybe talk about hey, I guess is that true or are you kind of maybe delaying that a little bit and then what are the drivers I think you mentioned some ABL loan that loan coming in later this year there is some treasury clarity coming.
Hub announcements earlier this year, so is that a function of just I.
I guess timing or are you may be slowing things down just to see how needs.
Announcements that are coming along with it.
Something so.
Yes, so Chris no we're not changing anything at all right I mean, if anything we just wanted to actually try to provide more granularity after what we've learned from Georgia in terms of how long. It takes to go from construction commissioning to full production right. So there was no change in plans, where we as Andy said right. We're not waiting for any particular thing chair.
<unk> for us to continue down the path of getting to that 200 tons number but all we tried to do was try to actually provide you guys with more granularity based on what we've learned from Georgia, what does it take construction commissioning full production and that's really the tweaks that we've made there is nothing more than that.
Yeah, Okay. Thank you.
Alright.
Uh huh.
Thank you.
Our next question comes from the line of <unk>.
Kashi Harrington of Piper Sandler. Please proceed with your question.
Good morning, everybody and thanks for taking the questions.
Kashi.
Hi, good morning, Eddie.
So I wanted to go back to the the multiple financing options can.
Can you give us a sense of what milestones are if any need to be met from a project perspective before you can get financing and then should we be thinking about the transaction as a 2023 or 2020 for catalyst.
Well it goes Sanjay, yes, maybe Paul I can take this on the pediatric side on hydrogen plants, a couple of things right. So as Paul talked about our loan guarantee program as Paul talked about our ABL opportunity and as we talked about.
Level financing, but here's really what we're looking at Kashi right first off I think once our plant is running well except for 12 months. Then there is a stable cash flow that we can highlight snyder right and once we can do that it allows us to really go even down the path of the debt market thinking about what is that rate debt service coverage ratio.
It's.
Number one piece number two now that these plants are coming online. We are also looking at how can you really sort of like ring fence. The plant. If you were thinking about it from a PPA perspective to either a way to think about floor pricing on the hydrogen which will also open up a lot of different kind of a financing solution to really support the build out of this plant site.
And I think the way I encourage everybody to think about this is really what happened in the solar in the wind space right. When you actually have the beginning of the solar in the wind industry. It was 100% equity financed then we have PTC ITC, that's really led the financing markets open up in conjunction with also driving the cost.
That capital down so I think youre going to see something like that here in the hydrogen space as well, we're having as Paul said multiple different discussion with one of his sole focus in mind, what is the best and the lowest cost of capital to continue to drive the growth that we have ahead of us and substantial growth that's coming down the road. So that's how we're looking at it.
Thanks for that Sanjay and then maybe a question for.
Paul.
Can you refresh us on what's the driver behind the high a restricted cash balance on the balance sheet and whether you would expect are released to unrestricted cash in coming quarters or years. Thank you.
Yeah. So a.
A lot of long term forward.
Remember, but for a lot of the equipment deals that we do in the material handling space.
Do we monetize the benefits of the bank the banks for those programs and and so a lot of times. When you have to post cash tobaccos deals we've actually been successful in getting customers. The biggest customer we have as an example, who signed them too.
Water commitments and we get.
70, 80% of the cash upfront and so what youre looking at now is the layers that are adding or kind of the balance of that residual.
The good news is we are starting to see.
The benefits of the new R. A on the ITC front. So we're we've actually closed our first 40% deal.
This quarter, we are targeting our first 50% ITC deal.
You know that that really yields two benefits one do we get more value on the project and then secondly, we paid the bank less right because they they give us the majority of those tax benefits in the deal structure. So we're moving from 70 to 80 cents on the dollar in some cases 50 cents on the dollar of about it.
Payback on the deal structures, and so and now that we don't have any debt all of that cash releases to us. So.
Probably about 20% to 25% per year, it's released it to us.
Can use to fund our current operations as well as our near term operations.
I expect that to change as we just talked earlier as we work continue to work through and move towards a positive cash flows I think youll see more and more of that.
Scale down and get released in.
Move towards more traditional institutional financing in the near term.
Yeah.
Okay.
Okay.
Thank you. Our next question comes from the line of Sam Burwell of Jefferies. <unk> Company. Please proceed with your question.
Good morning.
How are you beat me to it doing well.
Thanks for squeezing me in at the end.
I wanted to unpack something on slide four the financial predictions on the expected case and a lower case.
It looks like there's a 200 million delta on the revenue line.
$90 million Delta on the gross margin line, so that implies like a 45% incremental margin, let's say is that the margin thats associated with the key items that you call out on the right, namely the Elektra lots of containers. The the liquefied and then I guess, the the larger electric larger plant or am I thinking about that incorrectly.
I would think about those on the right.
On a variable basis.
Somewhere around 40% gross margin.
And the rest of it is associated with the <unk>.
Sam.
Inefficiencies in our operation.
Okay understood that that's certainly helpful.
And then one last one on financing.
I mean is there any way you can quantify like the difference in cost of capital between the deal where you project financing and maybe the a b else I know I think you guys at least had called out low single digits, but that was a few fed rate hikes ago. So is the D. O. We learned going to be something that costs the overnight risk free rate is it.
Spread to that is it below that because of the D V wants to subsidize green hydrogen.
Yeah. So I mean, nothing is done until it's done and so it's hard to give you an exact answer but I would tell you.
High single digit is not out of the question if not mid <unk> mid <unk>.
Single digit in that range I would also add Paul the ABL and the project finance here are really two separate ask Greg Yeah, and it does not necessarily exclusive right. So.
And it could be certainly could be both.
Got it thanks for the color.
Okay.
Cute.
Thank you and our final question comes from the line of Brett Caselli of Morningstar. Please proceed with your question.
Good morning, Brent.
Please.
Thanks, Andy I'll leave it at one just in the interest of time.
With with respect to the 2023 guidance and the 60 tons per day of liquefaction in there is that all third party sales or is any of that for plug sort of internal used I just wanted to clarify so its all third party.
Sorry, Jay do you want to add to that.
Absolutely and it's all third party breath.
Live discussions as we speak right now.
Okay.
Anything else correct.
Nope I'm all set thank you.
So I do appreciate everyone joining our call this morning.
I would like to take a step back and remind everybody.
We expect to do $1 $4 billion in 2023 and.
And I hope you clearly see.
The Roadmaps and.
Where we have challenges and opportunities.
I also.
I hope folks watch that video and watch Steve Baker plant manager again.
Talk about what we've built in Georgia.
Is it reasonable Wall Street Journal has gone to Georgia to see that plant because they had nowhere else to go.
There's a reason the economist went to Georgia to see that plan because there is nowhere else to go.
We are doing real things today, whether it's building building electrolyze yours, whether its building large scale stationary projects, but let me tell you.
That's an amazing project and we have product and we only talked about briefly.
We feel factories, we scale, we're ready for this explosion in the hydrogen economy.
Thank you for listening today and this year is our execution year and a huge inflection point for the company. Thank you everyone.
Yes.
And that does conclude today's presentation. We do thank you for your participation and ask that you. Please disconnect. Your lines have a great rest of the day everyone.
Okay.
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Okay.
Thanks, Ed.
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