Greetings, and welcome to the Plug Power Second Quarter 2021 Earnings Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Teal Hoyos, Director of Marketing Communications. Thank you. You may begin.

Thank you. Welcome to the 2021 second quarter update call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements and such statements should not be read as a guarantee of future performance or results. Such statements are subject to risks and uncertainties that could cause actual results to perform or differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2020 as well as other reports we filed from time to time with the SEC. 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 results of new information. At this point, I would like to turn the call over to Plug Power’s CEO, Andy Marsh.

Thank you, Teal, and thank you for everyone for attending our call today. This quarter had a mixture of successes and challenges. The successes are easy to rattle off. Revenue increased dramatically by over 75% compared to the prior year, and the shipment of GenDrive units at new sites dramatically increased versus the prior year. We closed the HYVIA joint venture with Renault, targeting the light commercial market for vehicles in New York. This market is expected to have 500,000 vehicles by 2030, with over 30% of the market captured by the JV. We did have some challenges in the quarter associated with hydrogen costs. There are two major drivers for this cost: the bending of our relationship with our products, which had a short-term impact on pricing, and construction costs associated with replacing Air Products liquid tanks. This accounts for about two-thirds of the increase in hydrogen costs for the quarter. There was also a crisis involving the availability of hydrogen due to a force majeure event. This was due to a major hydrogen plant going down for two months in the Southeast, which impacted the U.S. hydrogen network. Why is this really important? Plug Power made sure our customers had hydrogen throughout this event. Let me discuss briefly our near and midterm corrective actions. Bureaucratic changes were a one-time event and will not be duplicated. We are also now not under a stranglehold by having industrial gas companies to own equipment at any of our customer sites, giving us greater flexibility in ensuring we have cost-effective hydrogen solutions for our customers. Second, the force majeure for hydrogen was unprecedented. In July, additional capacity was brought online by our partner, Linde, with over 30 tons per day, which will alleviate future issues. To give people some perspective, this represents an increase of over 10% of U.S. capacity. We are also increasing our own capacity in October by 3.5 tonnes in our Tennessee plant. Plug Power will have an additional 70 tonnes online in the third quarter of 2022, and additional sites online in early 2023. And just to remind everyone, we use about 50 tonnes of hydrogen daily at the moment. We have already announced additional green hydrogen sites across the board in New York, Pennsylvania, Georgia, and Texas. This week, we broke ground on our Georgia site, and the sites in New York and Texas will become the largest green hydrogen plants in the world. Someone asked, why did we absorb the costs associated with the force majeure? We believe protecting our customers from the challenges in the market today will pay off in the near term. We want our customers to know they can count on hydrogen being available and, more importantly, can count on Plug Power to meet their needs. They will be critical in helping us fill our new plants. We have exciting news coming up in the coming quarters. We are increasing our gross billing guidance for 2021 to $500 million. This means we'll be increasing our gross billings by over 50% from our 2020 numbers. We will close our JV with SK this quarter as planned. We are working on the final details of the relationship and both of us are quite excited. We will also be closing our JV with Acciona in the Iberian Peninsula. We plan to build 30 tonnes of liquid hydrogen capacity with Acciona, making it one of the largest liquid hydrogen producers in Europe. We are also targeting bookings of 250 to 500 megawatts of electrolyzers in 2021, with 250 megawatts shipping out of our new gigafactory. We will be making announcements in the second half regarding additional take-off agreements for hydrogen plants. Finally, and this is really important: with the gigafactory, we are utilizing state-of-the-art automated equipment in our new manufacturing processes. We're aiming to match our unprecedented capabilities in sales and design of fuel cells and electrolyzers and to become not only a leader in the manufacturing of new devices but a global manufacturing leader. That's why we hired Dave Mindrich, who ran the Tesla gigafactory in Nevada. We remain incredibly excited about the future. We will be holding our Third Annual Plug Power Symposium on October 14. We’re moving to a virtual event because of the recent uptick in COVID cases. You'll be able to sign up online next week, and we expect to have an in-person event in the spring to showcase our facility in Rochester. I was there yesterday and it was just great. We are now operating with four general managers for our different businesses. Keith Schmid is handling New Markets. This includes stationary and on-road vehicles. Keith has done a marvelous job closing up that HYVIA gap. And, as you know, Keith has been Plug's COO for seven years. Only half of our electrolyzer business is overseen by a person who has worked with Keith for 29 years and ran the U.S. hydrogen business for many years. Jose Crespo, who has led our sales efforts for six years, is now the head of our material handling business. Sanjay Shrestha, with a lengthy career in renewable energy, is running our energy business. Quarterly, I'll ask one of them to join the call. They're focused on building the business and I'm sure the analysts would like to speak with them. This quarter, I've asked Sanjay to join me along with our CFO Paul Middleton. We're ready now to take questions.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Colin Rusch with Oppenheimer. Please proceed with your question.

Thanks so much, guys. Well done on the revenue guidance increase here. But what I would love to understand in more detail is what's going on with your customers in terms of the growth trajectory into 2022 and beyond? What sort of foundation are you laying at this point? What do you point to in terms of customer activity, conversion rates, and order size that would give us some comfort on the continued growth as we move forward?

So Colin, as you know, we've committed to taking a step back. I'm sitting here at the beginning of August. We have $500 million in-house for shipping this year, which is truly unprecedented. For next year, we feel incredibly comfortable with $750 million. I expect the electrolyzer business to generate $150 million, which means the material handling business will achieve $457 million this year. We believe that number will continue to grow. The energy business and new markets show great potential. Before this call, Sanjay and I had an extensive discussion about whether we should raise our guidance for 2022 today. We have a symposium on October 14, where I think you'll see us outline a new plan and provide insights into how the business can significantly grow in 2022 and 2024.

Okay, thanks so much for that. And the follow-up is really around the Class 6 truck, and the progress you've made on that in terms of finishing up designs, qualification of suppliers, and your ability to start building some of those with your partners.

Colin, we expect things are progressing. Unfortunately, we're not having an in-person event where we will showcase some vehicles, both the light commercial vehicles and the Class 6 to show off. I've seen the vehicle that we've developed for our JV. We're on track to conduct 10 significant pilots next year for on-road vehicles. More importantly, we are in discussions about the model for heavy-duty vehicle trucks. I didn’t mention that in my opening remarks, but I think you will certainly hear a lot more about it in the coming six months, and particularly at the Plug Power Symposium.

Perfect. Thanks so much, guys.

Good talking to you, Colin.

Thank you. Our next question comes from PJ Juvekar with Citi. Please proceed with your question.

Yes. Hi, good morning. Good to be on your call.

Good afternoon, PJ. It’s wonderful to talk to you.

Good to talk to you, Andy. I understand that you had to absorb some hydrogen costs for your customers this quarter. But as you build out your hydrogen network, will you have cost pass-throughs built into your future contracts?

I'll let Sanjay take that. Sanjay, I know you handle this daily.

Sure. Happy to do that. Thanks, PJ. A couple of points: Our aim is to really think about making green hydrogen as economical as possible. Number two, the way we're building this green hydrogen generation network is really focused on how to tackle force majeure situations, ensuring that if another plant shuts down due to such disruptions, it will not have a severe impact on the hydrogen industry or on Plug Power and our customers. We’re aiming for transparency; we do not wish to be opportunistic. If there is a disruption, this is not the time to raise prices. Our goal is to drive down the cost and price of hydrogen so that more applications open up. That's the approach we're taking. We want our end customers to get green hydrogen at the same price as gray hydrogen today.

Great, Sanjay. Thank you. As you get closer to building out your hydrogen network, the cost of construction is rising everywhere. Do you have a good handle on your building costs and your green power costs? Given all that, are you still sticking to your gross margin targets for hydrogen fuel that you highlighted before?

Sanjay, would you like to address that one as well?

Sure, Andy. Happy to do that. PJ, let me break that into two parts. First, regarding the power component, absolutely. There has been no change to that. If anything, we continuously look for locations with attractive available sources and expansion potential, which is why we're partnering with many different entities. Now, you bring up an excellent point that commodity prices are rising. Are we concerned about potential EPC costs rising marginally? Look, in large projects like this, there will always be some pluses and minuses. But at this point, given that the majority of the cost is variable, and primarily influenced by electricity, and CapEx is still a smaller component when you think about the total cost for a kilogram of green hydrogen, we really don't see any changes to our cost targets or margin projections.

Great, thank you. I'll pass along.

Thank you, PJ.

Thank you. Our next question comes from James West with Evercore ISI. Please proceed with your question.

Hey, good afternoon, guys.

Hey, James, how are you today?

I'm doing well, Andy. Your increased confidence in raising guidance sounds like it's driven more by your base materials handling business gaining traction. Or are you seeing momentum in some of the other areas you’re targeting, like data centers?

The answer is yes. A good part of my increased confidence for next year comes from the continuous performance of our material handling business, which will continue to grow at the rates we've seen before. We have now five pedestal customers. I started mentioning pedestal customers two years ago, and we had two. Now, we’ve already surpassed the number of pedestal customers we expected to have by 2024. That’s a huge accomplishment. I believe our electrolyzer business will reach at least $150 million next year. During my recent trip to Europe, we booked $30 million worth of business for next year just in that time. We are also working on some significant projects. One of the advantages we have over others in our industry is that we actually have a factory capable of producing stacks at the necessary pace for that market. This gives us a unique competitive edge. Additionally, I didn't even touch on the stationary market. We have activity in data centers, and the first units are being deployed now. We've also found that EV manufacturers struggle with bringing electricity to the grid, and we expect we could achieve $25 million to $30 million in business providing stationary power products to support EV installations. Following up, our current material handling customers will have hydrogen available at 165 sites by the end of this year. Given recent developments with citing issues and laws in California, we’re having discussions with our major customers about deploying stationary power products to support their buildings. These applications represent low-hanging fruit due to the existing hydrogen on site.

Right, that makes sense. Congratulations on that. Can you provide further insight regarding your green hydrogen take-off agreements as you bring production online? Should we expect these agreements to emerge consistently as production ramps? Will we learn about them beforehand? Do you anticipate having sold most of your hydrogen before it actually comes online?

Sanjay, please address that one.

Hey, James, great question. We've dedicated a lot of time to this. Initially, our priority was securing the sites and reliable renewable sources at the right cost for green hydrogen. As that aspect is now becoming a reality, we recently broke ground on our Georgia plant, which will be the first gas plant of its kind by the end of this year, followed by a 15-ton liquid plant by next summer. We’re engaged in multiple discussions about take-off agreements and look forward to providing updates at our upcoming symposium. Our goal is to ensure our customers benefit from green hydrogen while simultaneously expanding applications so that the market grows. We anticipate ramping our plants efficiently once they are online, particularly in Q4 of next year and early 2023, and we’ll have plenty of information to share in the months to come.

Okay, great. Thanks, Sanjay. Thanks, Andy.

Thanks, James.

Thank you. Our next question comes from Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Good evening, and thanks for taking my questions.

Good evening, Craig. How are you?

I'm doing great. Congratulations on that really nice revenue guidance. It's good to see the traction. Andy, I remember many years ago in Albany, when you were working on reducing costs in your systems. You really did an impeccable job through engineering innovation. And I am curious about the new gigafactory you're building. This is more an innovation on the manufacturing side, rather than just technology—it's a more holistic approach. Can you help us understand the potential cost improvements on stack production from this facility, and electrolyzer production as well? Are we looking at significant cost reductions that would impact overall system economics? Is there something key that you perceive as unlocking the long-term margins of the company?

Craig, you hit it on the head. I brought Dave in from Tesla to automate that factory and to help us significantly lower costs. When I consider the cost of MEAs, the fact we're transitioning to metal stamped plates for our stacks, and changing the manufacturing process for how we produce electrolyzers from a wet to a dry method, we see substantial reductions in costs. I think we are looking at a cost reduction of about 20% initially. However, we expect a lot more as we continue improving processes. During my recent visit to our Latham factory, we discussed enhancements in manufacturing both at the gigafactory and at Latham. We are considering systems to track production better, which will not only reduce material costs but also improve quality and service predictability. I was just at the gigafactory yesterday, observing the construction; I genuinely believe this will be a game changer for our costs.

Excellent. My follow-up question is about the heavy-duty market for trucks and buses. There seems to be a misconception that this market is still several years out. I know you've spoken about this for nearly two years now. Can you discuss how many stacks you've supplied for potential customers to evaluate, whether as engineering bench systems, test vehicles, or prototypes for business plans? Are we talking about single digits, or is there a much broader experience base that has been developed?

Craig, I'd say our experience is broader than you might think. We are actively building vehicles through our HYVIA partnership. The master van product you see is the real deal. We have multiple trials and anticipations for expanded vehicles beyond light commercial vehicles. Additionally, we have activity in the bus market, although I consider it a lower priority long-term. My intention is to provide a presentation shortly, discussing our various vehicle initiatives and I count it as significant activity. This is closely tied to our stationary product activities. I look at our 125-kilowatt module above all; it’s really a complete system, not just a module. From a density and performance standpoint, we believe it’s the best in the industry. Comparing our results to those of Toyota and Honda suggests we’re well-positioned. After the COVID situation improves, I would love for you to come and visit us.

Sounds like fun. Hey, congratulations on the progress.

Thanks, Craig.

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

Great. Thanks for taking the questions. It's Aaron Spychalla on for Eric.

Hey, Aaron, how are you?

Doing good, thanks, Andy. Regarding the pedestal customers, congratulations on being ahead of the timeline. Is the thought process of reaching $25 million in the back half still viable? Can you discuss the potential for other auto customers? Additionally, switching over to Europe, you've mentioned three pending customers; can you provide an update there?

Absolutely. For the pedestal customers, we anticipate $25 million in the second half and foresee surpassing 50 for 2022. We've identified additional sites around the globe to facilitate this. In Europe, we are making significant commitments. You’ll receive a scoop here: we're establishing a facility in Düsseldorf, Germany, with over 50,000 square feet to support our material handling customers in Europe. We'll conduct final assembly and maintain stocking levels there. We are confident in our strong relationships with our customers—those using our material handling equipment have performed better than others throughout COVID, and we showcase this success to engage new clients. Our partnership with Acciona in Spain is directly relevant to this, as building 30 tonnes of capacity will allow us to provide cost-effective hydrogen for both the material handling fleet and stationary products.

Great, thanks for the context. On the electrolyzer side, could you provide more detail on the pipeline? You previously had good news on the recent trip. What’s the size of the deployments as we look into next year given the capacity you’re bringing online?

We currently have a funnel that exceeds $2 billion for electrolyzers. I’ve released relatively modest numbers for next year based on this. We are in negotiations with customers for projects as large as 1 gigawatt. One such project will fall between the $500 million to $600 million range, indicating the substantial opportunity we see. We have a strong leadership team in place, which includes experts from across the globe, including SK in South Korea and activities happening in Oceania. Remarkably, we can produce stacks at the necessary pace due to the configuration of our gigafactory, representing a major strategic advantage. In addition, we see the infrastructure of our production facilities is modular, allowing us to build numerous plants using a consistent methodology.

Great, thanks for the call and best of luck on the exciting opportunities.

Thanks, Aaron.

Thank you. Our next question comes from Amit Dayal with H.C. Wainwright. Please proceed with your question.

Thank you. Good afternoon, everyone.

Good afternoon, Amit. How are you?

I'm good, Andy, great color on the cost. Just one question regarding the margin challenges—can we assume the bottom is in with the second quarter's gross losses and that we’ll see improvements going forward?

Sure. I'll let Sanjay take that since that challenge is in his area. Sanjay, would you like to share your thoughts?

Absolutely. Hey, Amit, yes, you should expect continuing margin improvement as we advance through the year and into 2022. Reflecting back on Q2, it was a transition period for us, mainly moving from sourcing hydrogen from Air Products to Linde. This greatly impacted the cost of hydrogen. We also faced an unprecedented event where a key plant was out of commission for nearly two months, which forced us to mobilize a lot of resources just to ensure our end customers experienced minimal disruptions. While these challenges were significant, we believe we have overcome many of those current issues. The capacity is now returning to the market, and Linde has added over 30 tons of capacity in Texas. As our green hydrogen plants come online, the overall capacity will improve. Thus, you're correct in your assertion that Q2 should ideally mark the bottom, and barring any unforeseen events in the second half, we should see a positive trend.

It's reassuring to see that taking care of customers is a large priority for you guys as you commercialize. That's good to know. One more question for you, Sanjay, how far away are we from green hydrogen matching the price of gray hydrogen?

Amit, you've heard us state this multiple times. As we bring our first liquid hydrogen plant online in summer 2022, we plan to sell our green hydrogen at the same price customers are currently paying for gray hydrogen, while still seeing substantial improvements in our margin profile. Our outlook is that green hydrogen will achieve parity with gray hydrogen very soon, not in five or ten years. That said, we have to differentiate between liquid and gaseous hydrogen in these comparisons.

It primarily depends on the cost of the feedstock. Sanjay's team's significant work in securing long-term low-cost PPAs is a key factor influencing green hydrogen's impending cost-effectiveness against gray hydrogen.

Thank you so much, guys. I appreciate it.

Thank you. Our next question comes from Chris Souther with B. Riley. Please proceed with your question.

Hey, guys. Thanks for taking my question here. One last question on fuel costs for this quarter: of the $31 million in additional costs you mentioned, is there any component of that which will continue to recur over the next couple of quarters until you get that internal supply starting to come online? If you back that out, your fuel margins could go up to mid-teens, which would be a considerable step. I'm curious about the margin potential before your internal capacity goes online.

Chris, I'll let Sanjay address this, but good to hear from you.

Thanks, Andy. Hey, Chris, a couple of points: You're correct. We won’t incur the transition costs with Air Products again, nor will we sustain the same fuel margin issues going forward. Secondly, we have a strong relationship with Linde, and we are constantly discussing how we can decrease hydrogen costs, promoting the growth of many end markets. Our Tennessee plant capacity will increase from 6.4 to 10 tonnes a day by the end of October, which should also contribute positively from a cost perspective. Overall, expect hydrogen prices to trend downward as our internal supply ramps up. The major unknown is whether we will face another force majeure event as we enter the peak season in Q4. If there is one, it could have an adverse impact. However, barring such occurrences, expect improvement in the fuel margin trajectory as our internal capacity expands.

What we are doing this past quarter is setting the stage for the hydrogen economy to flourish. You'll witness significant benefits as we enhance our margin potential as well.

I want to take a moment to mention the infrastructure bill currently taking place in the U.S. which includes $8 billion allocated for hydrogen hubs, generating hydrogen for natural gas networks and fueling stations. We believe no company is better positioned than Plug Power to seize this opportunity.

The recent efforts in the U.S. administration to extend the tax credits for 10 more years, along with a proposed $3 tax credit for green hydrogen, are game changers. These initiatives will accelerate both the hydrogen industry and Plug Power's growth.

That's great to hear. Could you touch on the HYVIA joint venture and the strategy regarding hydrogen supply within the French market? It seems the Acciona deal is more focused on some industrial applications in Spain and Portugal. What are the plans for hydrogen production in France?

Yes and yes, Chris. The HYVIA joint venture encompasses using our electrolyzers to generate hydrogen for customers, which will be managed entirely by Plug. This includes fueling stations, the vehicles themselves, and aftermarket services. We aim to develop hydrogen production capabilities in France and throughout Europe over the coming years, leveraging our electrolyzers. Expect announcements about our operations in France soon. Ultimately, we will support some of the French activities initially with liquid hydrogen from our partnership with Acciona. The demand for liquid hydrogen in Europe is much higher compared to the U.S., and many are starting to realize the storage implications. With our upcoming facility with Acciona, we will become a significant player in liquid hydrogen almost overnight, and we anticipate further growth in this market.

That’s great. Could you also share the timeline for the bus powertrain and fuel cell module kits that are being developed with your new partner? Are you in advanced discussions with OEMs regarding system purchases? Additionally, are there plans for collaborating outside of North America?

BAE has a global footprint and utilizes our products in various applications. They already have units through Plug Power and a significant sales network that extends beyond the U.S. We view them as an excellent partner.

That’s great. I’ll hop in the queue. Thanks, guys.

Okay.

Thank you. Our next question comes from Jed Dorsheimer with Canaccord Genuity. Please proceed with your question.

Hi, thanks. Good evening, Andy.

Good evening, Jed. How are you?

Good. I want to touch on the force majeure situation. What triggered those shutdowns during the first half of the year?

Sanjay, would you like to address that one?

Sure. Happy to do that. So, Jed, during the first week of May, one of our key industrial gas suppliers experienced a plant outage, which was expected to last two weeks. Unfortunately, mechanical issues delayed the reopening by an additional two weeks, leading to significant disruptions. Typically, our industrial gas customers maintain a certain amount of storage to deal with these situations. Had it been just a two-week event, the pressure on the industry wouldn't have been as great. There were also additional plants meant to come online; however, they too faced ramp-up issues that affected the supply chain. By looking back, we find that all the relevant capacities are now coming back online, including the additional capacity that Linde has incorporated in Texas.

Thanks for that extra color; it's appreciated. More generally, could we distinguish between the overhead costs related to your CapEx investments and the manufacturing inefficiencies that you’re expecting to improve over time?

Let me clarify. The higher costs we are incurring are primarily associated with our Tennessee plant expansion. We are increasing capacity from 6.4 tonnes to 10 tonnes a day. This will indeed contribute to overall costs, but those costs generally are lower than those affecting our fuel margin. For another perspective, the capex expenditures associated with Green Hydrogen’s production and commissioning are indeed significant, however, as we ramp up new plants, the impact of labor turnover will lessen.

That’s very helpful. If I can squeeze one more in, I heard today about a new manufacturing process pertaining to catalytic decomposition of methane from waste. What are your thoughts on this? It was something I hadn’t heard before but it seems it’s more R&D than commercial opportunity currently.

One has to evaluate the availability of that feedstock nationwide. In my experience, that factor is more important to consider than the specific technology itself.

Great. Thank you, guys.

Okay, take care, Jed.

Thank you. Our final question comes from Bill Peterson with JPMorgan. Please proceed with your question.

Yeah. Thanks for taking my question, and nice to see you Andy and team.

Thanks, Bill.

I wanted to learn about the Plug Symposium announcement. We’re looking forward to seeing the progress made. I know you had to go virtual, which makes sense, but I noticed it was delayed by a month. Is there a link between that delay and any production timing or other delays? How does the manufacturing plan compare to your original projections? I’m asking this because supply constraints across multiple industries are currently affecting lead times and resources.

It hasn't impacted our timelines. The project is proceeding as planned. Last quarter, we shipped $126 million and projected to ship over $150 million in the third quarter. Our team has been executing diligently. I reviewed our construction schedule yesterday. We’re largely on track with all operations and equipment is being delivered as per our schedule. For instance, a crucial addition to our plan is the metal stamping equipment for our stacks. We signed off on this equipment last week in Europe before its shipment. Project management and supply chain efficiency have become vital; thus, our daily 8:30 AM meetings focus on addressing any challenges. So far, we’ve navigated the complexities effectively.

That’s great. I’m curious about your margin trajectory in the second half and next year as it relates to system costs. You reached close to 20% margin in the June quarter. How does this look as you move through the year and into next year?

Paul, I'll let you address this one.

Thanks, Andy, and thanks for the question. Regarding equipment margins, we routinely hit the 35% mark. I expect this to continue as we generate more volume, particularly in the second half, which is expected to be one and a half times the first half. I anticipate maintaining that 35% plus margin as we move forward.

Thanks for that color.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.