Greetings, and welcome to the Plug Power Incorporated Third Quarter 2021 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Tuesday, November 9th, 2021. I would now like to turn the conference over to Teal Hoyos, Director of Marketing and Communications. Please go ahead.

Thank you. Welcome to the 2021 third quarter update call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or financial position, or state of forward-looking information. We intend that these forward-looking statements be covered by the Safe Harbor provision 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 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. As such statements are subject to risks and uncertainties that could cause actual results or performance to differ materially from those disclosed as a result of various factors, including, but not limited to risks and uncertainties discussed under item 1A-Risk Factors and our Annual Report on Form 10-K for the fiscal year ending December 31, 2020, as well as other reports we file 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 intend or undertake 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 Power's CEO, Andy Marsh.

Well, thank you, Teal, and welcome, everyone, to Plug’s third quarter conference call. My opening will be brief since details are provided in our investor letter. I was at COP26 last week in Glasgow, and hydrogen was front and center at the event. It really reiterates Plug's belief that our first-mover advantage will be a definite benefit as we advance our business. We plan to remain the leader in building out the global hydrogen economy. We're aggressive on all fronts and have the vision of building applications to the hydrogen ecosystem today. Let me emphasize today. And this is one of the reasons we are building out the first green hydrogen network in the United States. We view green hydrogen as a great accelerator of all fuel cell applications, many of which will be provided by Plug Power. We don't believe we can do this alone. We've accomplished this via successful acquisitions such as American fuel cell to provide us with leading-edge MEA technology. We're doing this through joint ventures with leaders such as SK, Renault, Fortescue, and Acciona, along with partnerships with companies such as Airbus and Lhyfe. Acquisitions and partnerships can provide us both technology and access to the market. You'll continue to see Plug travel down this path as we aggressively stake our claim in the potential market of $10 trillion. The acquisition of Frames provides Plug multiple benefits. Let me just name a few. Frames is used to executing on large projects and has worked with Plug for a number of years. They provide us with integration capabilities to address large-scale gigawatt electrolyzer plants. This matches with their global supply chain reach and provides us a unique capability when we combine it with Plug's leading-edge stack in electrolyzer technology. Now let me just divert for a second. I mean, just yesterday, I was in London working on a 750-megawatt deal. Being able to execute on large-scale plants is really, really critical. On the technology front, Frames brings expertise in water management, which is crucial in the electrolyzer industry. We are now in a better position to address waste and ocean water to provide ourselves and our customers a better, more cost-effective, environmentally friendly solution. We're thinking a great deal about offshore electrolyzers and between Frames’ water management expertise and offshore platforms expertise, this is real value. Additionally, their ability to manage gases such as drying hydrogen is a critical capability that Frames brings to the table. Also, it makes us very European. Of the pure-play hydrogen fuel cell companies, we will have one of the largest employee footprints in the industry, with operations in France, the Netherlands, and Germany. They also provide us 150 employees in India to provide back-office engineering support for both our electrolyzers and stationary products. Finally, they have long-term relationships throughout the world with companies that have net-zero carbon goals. We believe this acquisition provides us the strongest technical and operational team in the electrolyzer industry. I’d like to comment on the Applied Cryo Technology announcement that may have been lost in all the activities around the Plug Power Symposium. Today, liquid hydrogen is the only practical means for storing and delivering hydrogen to most customers based on the high volume metric density versus gaseous hydrogen. We believe the future storage and delivery of hydrogen will be a mixture of gaseous hydrogen delivered by pipeline, salt caverns, and liquid hydrogen. We believe liquid hydrogen will be necessary in storage for mobility and stationary applications even when hydrogen is delivered to a depot via pipelines. We believe Applied Cryo Tech provides us with the following: a liquid hydrogen delivery network and fleet; liquid hydrogen storage and a fantastic solution, hydrogen mobility fueling, which is particularly important for ports. As you know, that hydrogen will be exclusively green. Again, Applied Cryo Tech was a company known by Plug. When we analyzed our need for hydrogen trailers for the coming four years, we recognized the cash savings associated with this transaction, which paid for the acquisition. They also bring us market and technologies. We're also aggressively pursuing increasing the sales for Applied Cryo Tech, especially with some of our announced partners. These acquisitions allow us to increase our guidance to $900 million to $925 million in 2022. Finally, I'd like to discuss gross margins, especially hydrogen service. We are the largest user of liquid hydrogen in the world and are building a green hydrogen network as resilient and not burdened by fluctuating commodity pricing. We've taken on the burden of managing the hydrogen network, so our customers always have hydrogen. Our competition is electricity, and for large customers, electricity is always stable and, with long-term contracts, pricing remains consistent. With our green hydrogen network across the U.S., we aim to provide the same reliability. Our green hydrogen network will eliminate price variability and simplify logistics. In the short term, we're managing the burden such that green hydrogen is viewed as a dependable source of energy. This activity, as our network comes online, will become increasingly profitable for Plug Power. In the service business, Plug has demonstrated over 50 sites that we have the right equation to develop a cost-effective service offering. We will now roll these changes out across our network. In our shareholder letter, we stated we expect a 30% savings by the end of 2022 and 45% by the end of 2023 in our service business. We also see even more advances with our next-generation product. So now let me turn the phone over to questions. I have three members of our team with me today: Paul Middleton, our CFO; Sanjay Shrestha, who is the GM of our Hydrogen Energy business; as well as Jose Crespo, GM of our Material Handling business. We're now ready to take your questions.

Thank you. Our first question comes from the line of Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, everyone. Andy, how are you doing?

Okay.

Just so I understand, you're talking about developing electrolyzer assets offshore and piping hydrogen back on land. Did I hear that right or did I misunderstand something?

Yeah. That is correct. Let me be clear, Colin. They bring that capability to the table. I don't see that being critical for the next three to four years. We'll have demonstration projects in the coming years at a small scale for doing that. I see a couple advantages to that. So the advantage is moving hydrogen versus electricity. For the same price in a pipe, you can deliver 15 times more energy. It just makes a lot of sense if you can do it in the ocean. And if you look at the build-outs, for example, in Long Island, it's a large opportunity. Frames though, and let me be clear, Colin. In the next three to four years, we have plans that are more than a gigawatt in size. They've been working with us for several years on over 30% to 35% of our system integration. I thought it was time to make them part of the Plug team. Additionally, some of these large bids and proposals are extensive, just to give you a feel, one bid was over 750 pages long. It's really detailed, and the capability in India really adds to that equation, so that we can respond to customers rapidly. The level of activity in electrolyzers can't be understated. There's a lot of action going on with green ammonia, with methanization, and of course, green hydrogen. Quite honestly, I've been beginning to think about, with our grand opening of the gigafactory on Friday, that I need to expand very quickly because the opportunity set is so large.

That's super helpful, Andy. And then I guess maybe the second question is for Sanjay. It's really about preparation of the supply chain to support the build-out of electrolyzer capacity. With all of the consumables, not just the CapEx here, but all of the different elements that go into the full process. And the preparation of those folks to kind of march lockstep with you guys in the scale-up.

Yeah. So again, Colin, how are you?

Good to hear from you, Sanjay.

We have been investing significant time in assessing our competitive advantages, particularly in how we manage the production of our electrolyzer stacks. This control allows us to effectively reduce costs and optimize the balance of plant, making us distinct in the market and positioning us strongly to complete our green hydrogen generation projects. Additionally, as Andy mentioned, our involvement in numerous bids in the electrolyzer market positions us as our own customer, which serves as a valuable reference for third-party clients. From a supply chain standpoint, our gigafactory has been enhanced with new resources and talent to guarantee we have all necessary components. We have established an intricate timeline to monitor the arrival of electrolyzer parts at our facilities in Georgia and New York. We've mapped out the manufacturing schedule in our gigafactory, detailing when various components, including electrolyzers, liquefiers, and cold boxes, will be available. This meticulous planning instills confidence that our Georgia plant will be operational by summer next year—nearly a year since we began construction. We are pleased with our supply chain management and believe that the ability to control it ourselves strongly supports our strategy.

I think you hit it, Sanjay.

Thanks, guys.

Okay.

Thank you. Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please go ahead.

Hey, Craig.

Hey, Andy. Hey, everyone. Andy, I want to congratulate you. I've known you, Sanjay, and George McNamee, your Chairman, for over 20 years, and I have to say that this past year has seen more progress and change at Plug than in the last two decades. That's impressive. However, I have to admit that I'm a bit overwhelmed. I have been following this company for a long time and know many of your partners and key players in the supply chain. When I speak with investors, they seem to be looking in various directions and are sometimes a bit confused. With that in mind, I believe green hydrogen is the most significant strategic initiative at Plug Power right now, as it enables the carbon footprint reduction that everyone wants to achieve by using fuel cell technology. Based on that foundation, I notice in the shareholder letter that you're expecting margins to improve by 5 percentage points per hydrogen in the first quarter, reaching as much as 20% by the end of the fourth quarter. There's clearly something significant happening, something deeply transformative. Can you maybe explain the gross margin improvement concerning the hydrogen strategy, what is really working, and how the benefits will unfold over the next four quarters?

Craig, I will let Sanjay answer that, but let me just add that I agree with you. I consider green hydrogen kind of like the iPhone that enables all these applications with fuel cells as well as for chemical processes to aid potential customers in turning green. But Sanjay, once you talk about the gross margin growth.

Sure. Happy to do that, Andy, and hey, Craig, good to hear from you. Look, I think you picked up on something really interesting, right? So, as Andy mentioned during his prepared remarks, our big focus in 2021, even though we are paying more for the hydrogen, we're trying to ensure that none of our customers ever run into challenges related to the availability of hydrogen to run their mission-critical applications. That is by far the most important thing for us. But as you go into 2022, and when you go from Q4 to Q1, right, the first thing, we will actually have our Tennessee plant that is now instead of being 6.4 tons, it's going to be at 10 tons, right? So that expansion has happened and will contribute to a reduction in the costs. Number one, from a blended cost perspective. The second thing that will happen as you go into the second quarter of 2022, we will also have additional supply from other industrial gas customers that we're able to secure. That is also going to reduce the blended cost of hydrogen as well when you go into the second quarter. More importantly, what really happens Craig, as you pointed out that seismic shift, is in the second half of 2022, as some of our green hydrogen plants come online in the summer of that year, towards the end of the year, that's really what will dramatically drive the cost of that blended hydrogen as you move into the second half of the year. That's the reason why not just 2022, we talked about what happens in 2023. This fuel business goes from being a negative margin business to starting to approach breakeven. As you consider 2024, now you're discussing a 30% kind of gross margin number. This is all driven by the cost of our green hydrogen production that we expect, which we have shared with you all and which you have seen in the shareholder letter. That number is below $4 a kilogram, and you all know you can back into what the ASP is to our end customers, and that's why we feel quite good about 2021. It has been tough; however, margins will improve in 2022, especially looking into the second half of the year, it will continue to improve as you progress into 2023 and dramatically improve as you go into 2024. We are building this first-of-a-kind force majeure resilient green hydrogen generation network in North America. And Craig, one important thing to note here is that when we build this green hydrogen generation network, it will help our margin and sustainability perspective. It’s a must, as you highlighted, in the energy transition. This helps the entire hydrogen economy by providing comfortable supplies for our customers as well as supporting other hydrogen players in the industry to mitigate and manage through past challenges.

Thank you for that, Sanjay, and Andy. My next question is obviously the big one: guidance. You are clearly seeing acceleration across the board funded initiatives that are incredibly well-received by your customer base, where you're adding new verticals almost every month. Aviation is going to be really exciting to watch. What can you say is surprisingly you the most or has made much faster progress than you would have expected maybe at this time last year?

Craig, I think without a doubt it's the electrolyzer business. I am going to say this in a good way. I am consumed by meetings with Chairmen and Chief Executive Officers. For example, I was in Scotland on Friday, and the Chairman of a Company in their ammonia space asked me to come and stay in London for the weekend to discuss huge opportunities. That meeting happened, and I ended up leaving London last night around six o'clock. It is constant; the inflow for electrolyzers never stops, and it's why we made the Frames acquisition. I believe one of the real advances is that we're going to be among the few people with capacity to build electrolyzer plants. I think folks have recognized it. The Company I was with Monday highlighted that they were looking at this space for two years and concluded we have the best technology, the best products, and the best competencies, when it came to PEM technologies. Essentially, we are the only ones who could execute and help them meet their needs and support their net zero goals. I didn't foresee that a year ago. I believe somewhere in 2023, electrolyzers will be larger than Material Handling. I think by 2024, green hydrogen will also be larger than Material Handling.

Love it. Thank you. I'll hop back.

Okay.

Our next question comes from the line of PJ Juvekar with Citi, please go ahead.

Good morning, Andy and Sanjay. All good.

Good morning, PJ. Where are you?

It's been a long day. Good evening.

Where are you?

I'm based in New York, here.

Got you. Good evening.

Clearly, your margins and business have been heard within hydrogen, with purchase hydrogen costs going up, it started going up in the second quarter, and what was the impact in the third quarter? And then we look at your gross margins going up 30% in fuels by 2024. What are the main risks in achieving that number in your mind? Can you outline some of your pricing, electrolyzer costs, transportation costs? Can you just walk us through that?

I'll let Sanjay talk about that, PJ.

Yes. Hey, PJ. How are you? Good to hear from you. Look, I think, PJ, you obviously know the industrial gas market well, and you know the kind of pricing you're seeing in this market. If anything, we were to just extrapolate and say the green hydrogen pricing should be similar to what the gray hydrogen pricing in the market is right now based on what you're seeing we're paying for it today. If anything, I think that 30% margin ends up being conservative. But our goal here is to really provide our customers with green hydrogen at prices that are arguably better than what we have to pay for green hydrogen in the market today. Our goal, as you know, is to grow the size of this pie; we are not trying to go after the existing pie and take a small piece of it. We want to make sure green hydrogen is economical, so that there are more applications available. More specifically to your question on what are the risks? There are always things that can happen that are not anticipated. We know what that is. In some areas, we got to manage the demand charges and things like that. We know how to do that and contain the cost of renewable electricity. This is an area where we've spent a tremendous amount of time. Second, electrolyzer, look, this is something we control. That again is a huge differentiation and competitive advantage we have. Another thing, from a liquefaction perspective, I've touched on how we've already expanded our facility in Tennessee to 10 tons per day. We know how to run liquefiers. Now one other thing that we're doing, which I think is going to be tremendously helpful, if anything, going to help both the logistics cost as well as the delivery network for us and for the entire industry. Once this North America network is build-out, you can optimize transportation of hydrogen to various customers. There are always things that can happen that are unanticipated, but as we sit here right now, given that renewable costs are the biggest chunk of the variable cost in terms of producing green hydrogen, we control the electrolyzer. So we're feeling good to execute and get these plans built.

Great. Sanjay, thank you. And my second question is, on the Giga Factory that if that ramps up, you have the order book in front of you with electrolyzers needed for your hydrogen plants, your fuel cell stacking capability needed for your materials handling business. As the Giga Factory runs up, that operating leverage should translate into significant incremental margins. I was just wondering if that has been taken into account in your guidance and when does the real inflection point come?

Yeah, and good afternoon, PJ. Good to hear from you again. So it's going to have a significant effect next year. I mean, it's turning on as we speak, and we're going to be ramping production out of that facility. I would just broaden your comment by saying, when you look at the next 12 months, it really is amazing what's going to happen during that period. We are turning on the green hydrogen platform, which is going to have a substantial impact. We're scaling the Giga Factory and turning it on, which will have full-year production this year. We're scaling the new products, Andy talked about the growth of electrolyzers with our internal use as well as external sales; that's going to grow tenfold for next year. We've got other new products in EV and stationary scaling next year, we've got the joint venture scaling next year. We've got two acquisitions we've just made that are meaningful both in terms of sales and margin, and synergies on our existing spending of products and capex. We've got all the service improvements that we've been talking about. It's really, and we are scaling the Material Handling business, which is going to grow over 30% to 40% next year. So the next 12 months are going to be equally exciting and big in terms of the growth of the Company. We're guiding over 80% growth over this year and then you tap on all these margin initiatives that are going to have a meaningful impact. Those are all baked into our guidance and why we're extremely excited about the projections and how we're going to achieve that 30% run rate in the mid-term strategic planning horizon.

Great. Thank you, and I'll pass along.

Great, thanks, PJ.

Our next question comes from the line of Eric Stine with Craig-Hallum. Please go ahead.

Hi, everyone.

Good evening, Eric.

Good evening. So just as we think about the 2022 guidance, I characterize your business as accelerating. Just curious if you're able to break down maybe the impact of the frames acquisition, how much of it is just ongoing acceleration in your business. And as we think about frames, how do you prioritize that internal initiatives versus going after what is arguably a very sizable market opportunity?

Sure. If you look at it, the internal business, organic growth is expected to be between $508 million and $825 million next year. We are considering frames and Applied Cryo Tech to potentially boost it to around $925 million. That's my perspective on it. What was the second part of your question? I apologize, I was just taking notes. What was that again? What was the second part of your question?

It was simply just prioritizing. Obviously, you're acquiring this because of what it means for your internal business. But you've also got pipeline, I mean, if somebody prioritizes those two.

It's actually why? One of the biggest challenges, as you know for companies that are growing, is having the right staff and number of people. By year end, we will have 2,500 people. Prior to COVID, I was under 700, so you know, I had this massive increase. We’re looking for skilled individuals, and we have been acquiring companies to help us ramp and meet demands. When we look at prioritization, Sanjay has his organization. I was reviewing over the weekend with the team the layout of the plant in New York developed by his team exclusively. He has the skill set integrated into his business unit. This was a key decision that we made as an organization that we are going to make the business units very self-sufficient. Sanjay has the team and, really, Sanjay, I don’t think you need additional resources to execute on our present plans. All these team and electrolyzers will primarily support that activity. Obviously, we will help when we can with Sanjay, but that’s really how we manage the business. These GMs we put in place are all very strong. Our goal is to ensure these businesses are successful. Paul, would you like to add to that?

I think that covers it.

Yeah.

Okay, and maybe just last one for me, just on the stack upgrades. I know you mentioned that you're going to do those for the 10 largest users, and just thoughts on what the cost of that may be? And then thoughts on if this is something that we should view as it's an ongoing initiative and to do that more broadly across your customer footprint.

Sure. Paul, I'll let you take that one.

I didn't get the context of the question.

We discussed the service costs related to the upgraded products.

Yeah. Sorry, I missed that. I think we launched a new stack system last year. We've seen how that's performed. The new units that we've launched since that time are tracking incredibly well. It's actually performing better than we anticipated. So as we continue to roll that back into our existing fleets, which we can retrofit fairly easily, it has a meaningful step function change in stack life, which is the biggest cost impact on our service costs. We're really, and along the way this year, we've actually added a number of new resources and people to help focus on go-forward reliability and improve that curve faster. It's paying dividends and what we're doing. So I think you're going to see those benefits roll out fairly quickly.

And Paul, we have a lot of that cost already accrued for.

Yes. Exactly. We have accounted for the incremental costs of the overall portfolio of what it takes to get there.

As a reminder, everyone, our next question comes from the line of James West with Evercore ISI. Please go ahead.

Hi, James.

Hey, Andy, how are you?

How are you doing? Okay.

Andy, you've been a busy man? I'm glad you have Sanjay and the rest of your team to help you out, given that you are the top segment.

Yes, James, I've been up for 45 hours straight. This pace is usually better suited for younger people, but I'm still feeling energized. I'm currently at the 45-hour mark.

That's good. Good. Glad to hear it. Maybe a question probably for Paul as we think about the F-35 guidance and any thoughts on moving towards, where do you think your electrolyzers get bigger than materials handling and green hydrogen eventually gets bigger as well. What should the revenue mix of that, $3 billion or so, look like when we get to 2025? How are you guys thinking about that?

I don't have the exact numbers in front of me, but in terms of the $3 billion, I think, as Andy said, electrolyzers are big, if not slightly bigger than material handling. Those combined with green hydrogen will be the big three chunks of revenue. We are seeing growth in the new markets for stationary and EV as well, but the majority of revenue will come from those three pillars.

James, no one has asked me this on the phones, so I will go ahead and discuss new markets. One of our objectives with Reno is to roll out 10 customers next year focusing on straightforward technology. While these rollouts won't be significant, we already have seven customers prepared. You may have seen me driving the van at the Plug Power symposium, but for me, if Craig had asked what surprised me last year, I believe this time next year, I will be discussing our progress in this area.

Right. Okay. Okay. Good. And then maybe just a last question, and if I could sneak it in here. The green hydrogen sales that you're anticipating and as these facilities come online, do you believe that you will have presold most of your capacity?

I am going to let Mr. Sanjay take that.

Hey, James, good to hear from you. So look, today we have not done things in your traditional way of how I think the industry operates, where you presell the plan then you decide to build it. As we sit here now, is the plan completely sold out? No, it is not. But frankly, that's somewhat intentional on our part right now because of all the new applications and opportunities we're seeing unfold. We want to ensure that we are really reserving that capacity, which is also why we've gone down the path of building these plans with our own capital, so that we do not have to engage in project financing and maintain that long-term off-take. Again, this is something we will shift focus on to ensure these plans are loaded up as they come online. But today, that's the approach we are taking to have that reserve capacity to support all the new applications that we anticipate over the coming years.

Okay, got it. Thanks, guys.

Thanks, James.

Thank you. Our next question comes from the line of Greg Lewis with BTIG. Please go ahead.

Yes. Thank you, and good afternoon, everybody.

Hi, Greg.

Yeah. I was hoping to dive in a little bit more into how we should think about the buckets of what's driving the margin improvement in terms of pricing, improvement in the supply chain, and economies of scale. You touched on the Frames and the ASP acquisition. Maybe some of that is internal savings. Any kind of broader strokes we can think about how we’re achieving the 2022 and 2023 improvements?

I think we should let Sanjay do hydrogen before you can answer the rest. Maybe you can run through hydrogen.

Sure, happy to do that. So, Greg, again, I think as I briefly mentioned to one of Craig’s question on hydrogen. So today, we are obviously buying hydrogen other than our plant in Tennessee. We’re paying what market price is impacted by commodity price fluctuations and things of that nature. Our goal is to ensure customers have hydrogen available at all times, so their mission-critical applications are not impacted. As we look into 2022, we see a couple of things that will meaningfully impact this margin profile. First, the Tennessee plant, instead of 6.4 tons, will be 10 tons a day, and that will impact it in the first half of the year. We're obviously working with our strategic suppliers and adding a few more supply options, which will also help price-wise in the first half of the year. But when you go to the second half of 2022, our green hydrogen plants coming online in the summer, towards the end of that year, that will also dramatically drive down the blended price, and hence, that's the reason why we expect to achieve meaningful margin improvement by Q4 of this year to Q4 of 2022. As you then proceed to 2023, we'll have about four hydrogen plants commissioned by the end of 2022, and by the end of 2023, about six hydrogen plants operational. The hydrogen market has a consumption level; for instance, Material Handling is 1kg per day, and light commercial vehicles are 6 kilograms. For stationary power and typical operations, it can exceed 24/7 usage, which is more than a ton per day. The multiplier effects show that hydrogen demand is substantial given all the applications we are working on. As we sit here, we are not super concerned about loading the plants; we want to ensure there's a balance to mitigate issues.

That was very helpful, thank you. I wanted to discuss ACT further. This company had strong technology but was somewhat small before the acquisition. Now that it operates under Plug, what is the thinking behind it? Andy, you mentioned the challenge of bringing the right people on board. Considering the opportunities for ACT in 2022 and 2023, given Plug's rapid growth, is ACT adequately positioned to support that growth? Should we also consider aspects such as hydrogen trailers and other offerings from ACT? Will we still need to depend on third-party providers as well?

Greg, I expect to buy most of my trailers from Applied Cryo Technologies. I also expect that hydrogen trailers are much more complicated than stationary hydrogen tanks. This year, I probably purchased 65 stationary hydrogen tanks. I see this as a huge margin opportunity for Plug Power, as well as a potential sales opportunity. With their technology, we're going to be able to move further into vertically integrating the businesses. We look at what we have down there, and we're currently working one shift at the moment. There's no reason we can't expand the number of shifts and expand our capabilities. We have the land; I've been looking to see where we could add additional capability on the site. We've received a lot of outreach from customers already. Plug, with our stronger balance sheet and the ability to support these efforts, makes the business much more interesting to us. We view that as very complementary to our vertical integration strategy, and we believe we could double or triple the size of that business over the coming years.

Okay, great. Thank you all very much for the time.

Thanks, Greg.

Thank you. Our next question comes from the line of Bill Peterson with JPMorgan. Please go ahead.

Hi. Good afternoon.

Hi, Bill.

Andy and the team. Hope all is well there; it sounds like you might be jetlagged. Hopefully, you feel better soon.

I feel good; talking to you guys gets me going.

It sounds like you are really enthusiastic about the electrolyzer business and how it may surpass your current operations. I'm curious about the recent symposium where you mentioned 100 megawatts in external sales and reenter megawatts for your internal use. Could you provide an update on that? Is there room for growth, or is this capacity capped? Are you fully booked for 2022? Are you beginning to see bookings for 2023?

I believe that we will exceed the 2022 electrolyzer numbers that I suggested at the symposium. We are not overly focused because we built a big factory. Knowing the deal flow in our activities, I can see us announcing adjustments during our update call in January for 2022. I see a high probability that we will increase that number.

That's terrific. Thanks for the update. I want to talk about EV a little bit. We didn't spend too much time on this. I guess, if you have obviously some light commercial duty, this is an area well-suited for fuel cells. So I guess I'm curious to what you see as advantages for this fuel on maybe switching to more heavy or medium-duty. I believe a few quarters ago, you had talked about being in negotiations for maybe some partnerships in heavy-duty. I'm wondering where this stands. I think you expected to make some announcements. Are we still on track? Would you take an OEM approach here, or do you see direct sales? I'm curious what your activities are on the medium and heavy-duty side.

There are some good negotiations going on, Bill. Let me say that I am not eager to be an OEM parts supplier. Ultimately, that is a low-margin business. We're looking for and are engaged in discussions to have relationships that look very similar to the Reno model where Plug jointly owns the vehicle. I probably agree with you that obviously, heavy-duty, medium-duty vehicles are extremely interesting. When you look at the work being done by companies like DHL, and you look at the European goals for delivery vans, DHL points out that if you go over 200 kilometers, the fuel cell vehicles are essential. They also highlight that if you deliver vehicles with batteries, they're effectively carrying batteries around instead of packages. Fuel cell vehicles provide operators with great flexibility, keeping vehicles on the road for multiple purposes. As I stated earlier, if electrolyzers surprised me, I think next year I'll be talking a lot about vehicles.

Okay, great. Thanks for that.

Thank you. Our next question comes from the line of Jed Dorsheimer with Canaccord Genuity. Please go ahead.

Hi, Jed. Are you there, Jed?

Jed, you may be muted.

Yeah, I'm muted. Sorry everyone. Andy, I hope you get some rest. It sounds like you've had an incredible couple of days, so I look forward to hearing about it. What’s that?

Yeah, I look forward to talking, Jed.

Thanks. I guess first question, I just have a couple here, but with the updated guidance and maybe Paul gave this already or you gave us, Andy. What's the breakdown of revenues in terms of material handling in the near-term here? So of the 925, what would that be in terms of the different end markets?

You want to take it, Paul?

Yeah, I don't think we've given that out specifically, but I think Andy just said, 8-25 as our core businesses moving into the 9-25 with the acquisitions. So I think what we have provided is a number I think we've quoted with Electrolyzer next year being around 150. I think looking at Material Handling growing at 30% plus next year, if not higher. That's the guidance and insights that we've given so far.

So it'll be about Material Handling at about 600, 150 from electrolyzers and probably around 75 from new markets and 100 from acquisitions. I think that gets us there, Paul.

That's about right.

That's helpful, guys. And then just over on that, I was wondering if you could help me a little bit just on the math because it sounds like there's a variable that I'm missing in terms of maybe a big step function on costs down on the electrolyzer, or the efficiency. If I look at getting a kilo of green hydrogen, it's about 65 kilowatt hours of electricity to get that kilo in liquefied form. So is that a fairly constant number to use or do you see that dramatically changing? I guess that's my first question. The second is then if we apply a $0.05 cost of behind-the-meter electricity, I still struggle to get to under the $4.50 of cost.

So, Jed, I'm paying below $0.031 pretty much everywhere.

Okay.

And I'm approaching around $0.025 in some of those places. I think your analysis is right. Regarding the electrolyzers, it’s 52 kilowatt hours. You can think of 11 to 12 kilowatt hours for liquefying today. I think you're looking at liquefier efficiency getting down to an 8-8.5 kilowatt hour range, and probably electrolyzers you will see about a 7-8% improvement over the next two years.

Got it. That's helpful.

But I think that, Jed, you hit it on the head. It's the negotiation of electricity costs that is key to providing low-cost green hydrogen. As you know, Sanjay's really an expert at that.

Sanjay is an excellent negotiator. The question about the low electricity pricing, especially from renewables, is whether you are considering a mechanism of curtailment to achieve those prices. Is there anything else you can share beyond Sanjay's negotiation skills?

I'll let Sanjay answer that question.

It's not the curtailed power, but you bring up an interesting point. As you know today, to access that curtailed electricity requires negotiations. It is a more challenging process from that perspective. Looking ahead, that would be an interesting area where we could potentially benefit from renewable electricity costs. However, today, our new plans, and as you've experienced in the past, every time new solar or wind capacity is generated, the LCOE drops as it’s driven by the capex and the cost of capital. I think Andy has provided some numbers. I don't want to go too much more into that due to competitive reasons, but these are the numbers we expect, and that’s why we are confident about the green hydrogen costs.

Got it. Well, listen, that's super helpful. I will jump back in the queue. Thanks, guys.

Got it.

Next question comes from the line of Tom Curran with Seaport Research. Please go ahead.

Andy, I'm still picturing you in a conference room in London and I almost said good morning. Returning to the North America Green Hydrogen Generation build-out, so you're expecting to exit 2022 with four plants that collectively will be producing 70 tons per day. Then as we turn to 2023, you expect to exit there with six, representing 200 tons per day. At this point, just for the exit points of 2022 to 2023, Sanjay, could you share with us the percentage of that output that you expect to be looking for third-party off-take? In other words, do you already have the visibility and whether it’s a percentage or a range for how much of that 70 tons per day you'll be looking to contract by the end of '22? And then how much of the incremental 130 by the end of 2023?

That's a really good question. Let’s take them first on 2022. We are the largest user of liquid hydrogen in North America. We have many new applications that will create demand that you might not connect immediately. The typical rule of thumb, we expect about 80% of capacity will be called for when these plants come online. We want about a 20% buffer as that is important; given the events that happen in our industry, we want to have that excess capacity to support our customer and the hydrogen industry as a whole. We will discuss how we load these plants through the second half of next year, but as of now, we aren't super concerned with loading; we want to reserve enough for new applications to mitigate any challenges.

Great. That's helpful. And then turning to new markets, one that hasn't received much attention thus far in the call is stationary power, particularly data center backup power. Andy, you mentioned you are expecting 2022 to be the inflection year for fuel-cell mobility. What year does it look like could be the inflection year for stationary power?

Great question. I think actually, I haven’t thought about that. I would now, you've given me a new model to talk about. I believe 2023 will be where this starts taking off.

Thanks for taking my questions.

Thanks.

Our next question comes from the line of Pearce Hammond with Piper Sandler. Please go ahead.

Good afternoon and thanks for taking my questions.

Your patience is appreciated, Pearce.

Well, I'll try to be quick. This is my first question, just following up on all the questions on how hydrogen is probably more of a housekeeping question. So with the customers in hydrogen delivery, do you simply pass along your hydrogen cost to the customers or do you have to bear the hydrogen price risk or is that the customers?

So Pearce, with our new network, that issue goes away. Currently, as Sanjay discussed, we're buffering some of this because we want hydrogen to be successful. Let me tell you the difference between the network Plug’s running and the network you may see in California that one of the large industrial gas companies provides; we ensure hydrogen is at these sites every day, on time, ensuring operations run smoothly. Ultimately, we strongly believe our approach with shared control, while substituting with green hydrogen provides us with dependable solutions for the future, and in discussions, we seek to displace some incumbents.

Thanks, Andy. I appreciate the answer. And that's it for me.

Okay. Thanks, Pearce.

Alright. Thank you. Our next question comes from the line of Joseph Spak with RBC Capital Markets. Please go ahead.

Hey Andy. So look, I know you guys are building this business to be profitable and to stand on its own. But going back to the green hydrogen and bringing molecule costs down by 10% by the end of next year. I want to confirm that that doesn't include any PTC. Then if we were to consider that, what would the cost go down to, and do you have an internal sensitivity on what that could do to demand and profitability?

Absolutely. You want to take that, Sanjay?

Sure. Happy to do that, Andy. Hey Joe, good to hear from you. Look, I think first part of your question, no, we have not baked the PTC into that. As you know, it's a very important policy, not just for the U.S., but also for the whole hydrogen economy as part of energy transition efforts. Hydrogen should be part of that mix, and green hydrogen must be part of that mix. However, we’ve indicated we expect a 30% gross margin rate based on current ASPs in the market and the expected cost of our green hydrogen by the 2024 time frame. If you were to include a $2 or $3 PTC, depending on the structure, you could certainly see substantial cash generation potential from that, right? Historically, an ITC or PTC has driven costs down in the wind and solar industry—green hydrogen will benefit from similar incentives. Our 2022 margin expansion does not take those factors into account.

But if we did, it sounds like your '24, '25 targets can be maybe pulled forward by a couple of years?

I think that would be a fair characterization, yes.

Okay. The second question is related to the significant activities happening at Plug, including various organic investments, joint ventures, partnerships, and mergers and acquisitions. It can be challenging to evaluate how effectively you are utilizing your capital expenditures. Andy, your earlier remarks suggest that pursuing OEM doesn’t seem to be the right fit for you, which makes sense. Can you provide insight on how you assess situations within the hydrogen economy to decide whether to pursue opportunities organically, through a venture, or via acquisition?

That's a great question. When you think about how we evaluate centures, I think a lot about sales channels. The Reno JV served as a great example; when I could have gone into the vehicle business, you know they have two distinct advantages we cannot develop in the next 3-4 years or longer. The first is their electric vehicle capability. The second is their extensive customer reach and reputation in Europe, providing us with immediate credibility. We have the same strengths that we bring to the table, as we know how hydrogen ecosystems work. I am aware that entering markets like Europe and Korea presents challenges. Let's discuss SK, why do that with them? It is both partnership and market; they have the hydrogen and policies in Korea that enable us to put stationary products at scale quickly. We could not accomplish that alone. When considering acquisitions, many have been technology oriented to fill in our hydrogen ecosystem. Consider Cellex, which allowed us to enter the material handling market. AFC, which focused on membrane business, and Energy Ore, which focuses on aviation. Our acquisition of Frames strengthens our electrolyzer technology. I would classify partnerships and ventures as more sales channel-oriented, while acquisitions are more technology-oriented for enhancing the hydrogen ecosystem. Hope that was helpful, Joseph.

Yeah, thanks. I appreciate that color.

On that note, I think we're done here as far as questions go. I appreciate everyone's patience. Thank you for calling in to this call. We are building something really special here. We are the company. I was invited to meetings that I wouldn't have attended before, sitting next to John Currie while discussing the hydrogen ecosystem. Plug is included in these discussions because we are not just talking; we are actively executing. We are the company to reach out to if you want to build electrolyzer systems at scale. If you seek a full range of fuel cell solutions from stationary to on-road vehicles, Plug manufactures complete systems, not merely components. This is a unique status. Finally, I shouldn't overlook the green hydrogen network that we're building out. This is real — we've broken ground, and the plants will be online in the third and fourth quarter. This is not a pipe dream or PowerPoints; this is real engineering, real people. We're now at 2,500 strong, paving the way for this business. Thank you for listening, and I look forward to speaking with you in January for our business update call.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.