Greetings, and welcome to Plug Power's Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listening only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Teal Hoyos, Director of Marketing.

Thank you. Welcome to the 2021 fourth quarter update call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or our financial position or other forward-looking information. We intend these forward-looking statements to be covered by the safe harbor 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 or understood as a guarantee of future performance or results. Such statements are subject to risks and uncertainties that could cause actual results or performance to 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, 2011, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh.

Well, thank you, Teal, and good afternoon, and thank you for joining our year-end conference call. Before we take questions, I'd like to make a few comments about the future. 2021 Plug Power grew revenue over 50%, despite the constraints of supply chain and the impact of the pandemic. In 2022, Plug almost doubled revenue. Our position as the first mover in creating the hydrogen economy is our top priority. We've achieved this position because we have focused on customers like Walmart, partnerships like SK, our technologies, our products, and probably one of the fastest creative environments for our great staff. Why is our position as a first mover so important? Because hydrogen and fuel cell represent a $10 trillion opportunity that will change the energy landscape. Many large financial institutions are predicting that up to 20% of the world's energy will come from hydrogen. It is our belief that accelerating the transition to a hydrogen economy requires green hydrogen because it is critical for reaching the global climate goals. To achieve that goal, green hydrogen needs to be ubiquitous. Sometimes, I think it's missed that the steps we have taken in the past few years have been to achieve this goal. And let me reemphasize, it needs to be green because any other solution is only a half step. The focus on green hydrogen is why we are building out the first green hydrogen network in the US. We'll produce over 500 tons per day by 2025 and plan to duplicate this network around the world with partners like ACCIONA in Spain. It's also why we've acquired companies that know how to build hydrogen plants, generate hydrogen, leverage electrolyzers, liquefy hydrogen, like our recent acquisition, Joule, and transport hydrogen. We are also leveraging all the learnings from our own years of experience to make these offerings better. This journey will continue as we explore partnerships for pipeline and storage. Plug can not only provide the green hydrogen but also the applications. We have built more fuel cells than anyone else in the world, fuel cells that can be used in a variety of applications, including powering forklift trucks for Home Depot, on-road vehicles with our JV Renault, and stationary products with SK. You'll see more and more applications in the future. We believe that green hydrogen creates a possibility for the business to continue to double for years to come. We believe the future is now. Many have been watching the tragedies unfolding in Ukraine. This crisis highlights to people and nations that autocratic governments can't be the gas stations to the world. Liberal democracies will be accelerating the energy transition because of this horrible event. Plug is uniquely positioned to create the future as we can help people, companies, and governments transition to a carbon-free solution, not in some distant future, but today. We can do this because, in very simple terms, Plug is creating and building real products today for this new world. Paul, Sanjay, and I are now ready to take your questions.

Thank you. We will now conduct a question-and-answer session. Our first question today comes from James West of Evercore ISI. Please proceed with your question.

Hey, Andy. How are you doing?

Okay. Good afternoon, James.

Thanks. Good afternoon to you as well. So first one for me. I don't think you announced any new green hydrogen production facilities or offtake agreements yet. Am I right about that, or should we be expecting some announcements very soon?

It's one of the reasons I have Sanjay here with me. Let me allow Sanjay to address that, James.

Yes. Hey, James. How are you?

Hey, good. Thanks.

Good. So let me first talk about the plans, right? Again, as we said, we plan to have three plants built in 2022. We have actually been looking to break ground on many more this year, right? So that actually gives you basically a network here in North America by the end of 2023 and early 2024. And as it relates to our offtake agreements for this green hydrogen, first off, we talked about this a little bit in our shareholder letter. Our funnel right now, the sales funnel for that is about 600 tons per day, right? It comes from a variety of different markets, mobility market, industrial applications, and natural gas blending. Our goal here, as Andy talked about before, is to secure about 200 tons per offtake. So you should absolutely be expecting to hear more about it as we go into Q2 of this year in terms of new announcements and signing of these deals.

Okay. Great, great. And then just a follow-up for me. The Gigafactory in upstate, where does that stand today? Are we rolling out production? What's the production ramp look like?

Production ramp really starts heavy in early April, James. We have started making some electrolyzer stacks there. If you go there today, you'll see the plate stamping equipment. We're well positioned. I think in May, James, we'll be inviting you all up there to Rochester to showcase the new facility to the analysts and our investors. We're planning a big day in May to walk everyone around.

Great. Looking forward to it. Thanks, Andy. Thanks, Sanjay.

The next question is from Craig Irwin of ROTH Capital Partners. Please proceed with your question.

Good evening and thanks for taking my questions.

Good afternoon. Good afternoon, Craig.

Good afternoon. It’s definitely a good afternoon in the Northeast, that's for sure.

Yes. Yes. Yes, it is.

So Andy, there's a lot of moving parts at Plug right now, right? You've got so many different initiatives, so many fantastic partners, your product lines. Just a lot of things to really work through. Can you help us prioritize the key drivers of improving margins over the course of 2022? In your shareholder letter, you talked a little bit about some of the changes that have been made on the service side to improve the serviceability, reliability, and economics of service for both Plug and your customers. You've got the Gigafactory coming online with obviously, utilization revenue from the electrolyzer business and everything else that's working. You've got green hydrogen coming on. There's a lot of different things that can really move the margins in a positive way. How would you rank these different initiatives? Which ones do you think will make the higher dollar margin contribution to the company as we exit 2022?

I think by far, Craig, the top priority for margins is the green hydrogen network we're building out. That focus and having 70 tons per day of green hydrogen will have a dramatic impact on our margins. That will start to ramp at the end of 2022 and have a significant impact on 2023. That will take the business that is negative margins today. Sanjay, you expect that to be a 30% margin business.

Absolutely

By the end of 2023, we should be in that position, Craig. When you think about service, what I'm really thrilled about was the 5,000 units that we put out in the field, which represented our latest technology. Those units have already seen a 50% reduction in service costs. I think from a dollar point of view, it won't be as big as green hydrogen, but it will be significant. Scale matters and production facilities matter. The work that we're doing in the production facility, we expect to start seeing continued improvement even with this very difficult supply chain. We brought in a lot of the leadership who worked in the Tesla Gigafactory in Reno, Nevada, and they've already identified significant cost savings for our products without changing them, even in this very, very difficult climate we exist in today.

Thank you for that. As a follow-up, to simplify the understanding of the factors that will influence margins, can you clarify what 70 tons per day at the end of 2022 represents in relation to your total customer demand or sell-through? Is it reasonable to assume that the target margins of 30% are what you are likely achieving on some of your initial green hydrogen sales?

I'm going to let Sanjay take that since, as you know, Craig, he runs that business every day.

Yeah. So Craig, as you know, right, I mean, once we get to producing 70 tons per day, a couple of points to highlight here, right? Look, as you've pointed out, just by looking at our margin here in the near-term, you can actually extract what kind of pricing we're paying for it and you can also extract what kind of ASP we have, right? We've shared with you all what is going to be that cost of green hydrogen even without force plant and how that cost continuously goes down with plant number two, plant number three, right? Even with a similar pricing of what our customers are paying for gray hydrogen today with our in-house production of green hydrogen, yes, you're absolutely right, you will see that 30% kind of a gross margin in that business, number one. Number two, things only get better as you go through 2023 and if you go into 2024 because we're going to keep adding more production capacity. In terms of our internal demand, that number is between 40 to 50 tons per day, right? So as we get to 70 tons, as we get to bigger numbers, this will have multiple effects. One, we have an opportunity to sell it to additional new customers, additional new markets. Another thing also allows us to do is, in our opinion, very important to the entire hydrogen economy, which is help industry get through all these force majeure challenges that you often see, right? Make sure green hydrogen is economically ubiquitous. Once this North American network gets built, logistics costs will go down, cost of our green hydrogen continues to go down. Without changing the pricing structure, we feel very comfortable about the fact that you should see a step change in our margins.

Fantastic. Thanks for taking my questions.

Thanks, Craig.

The next question is from Colin Rusch of Oppenheimer. Please proceed with your question.

Thanks so much, guys. Can you give us a sense of the applications for the green hydrogen demand in the 1,000 tons per day pipeline? Like what percentage is refining and how much is material handling and over-the-road transportation?

Great. Colin, you're making Sanjay do a lot of work. Good to hear you, Colin.

Yeah. You need to work out, man.

Yeah. Let Sanjay take that one.

Thank you, Andy. So Colin, I think when we talk about the 600 tons of sales funnel, right, call it about 50-or-so opportunities, right? In that mix, obviously, you can imagine some of our existing customers transitioning from gray to green hydrogen, which means it's in material handling, which means it's also in new applications like stationary and some of the mobility opportunity, right? That certainly makes up a pretty important chunk of that. Then you look at some of the recent announcements we made with customers like Certarus, right, where they're actually buying some of our Green Hydrogen, we have a 10 tons per day offtake agreement with them, and that is more for blending purposes, right, where you can actually start to do green hydrogen blending, right? Then beyond that, we have a lot of opportunities surrounding the refining industry as well and some of the mainstream industrial applications as well, right? So it's a pretty broad mix. Our goal here is to really get that 600 tons to be more formal somewhere around that 200 tons per day by the end of the year, and that's what we're working towards.

Okay. That's super helpful. And then in some of these projects where you're bidding in electrolyzer capacity, I'm just curious what the competitive landscape is and how aggressive it is. You guys have talked about the fact that you're actually building things, which is a competitive advantage. But I'm curious, how vicious the competition is at this point from a cost perspective and just a technology performance perspective?

Colin, like many businesses, the first gate with customers is whether these people are capable of designing a system that meets their needs. In that area, we think we've walked through that first gate cleaner than our competition in most cases. That's a real differential advantage. The second gate is, we have a factory that can build stacks for electrolyzers. We feel well positioned there. Our experience, ability to build the product, and make decisions means we can screen customers. My first question to our sales team in electrolyzer is always, are we working with people who can build a plant, who understand the basics, who can fund their projects, and have application knowledge? In many ways, the screening process is the other way around. Now with Orascom over in Egypt, we are dealing with folks who know how to build and operate plans, and they are well-funded. The screening process is actually the other way around for Plug at the moment. With a $13 billion funnel, we're really screening through who can execute.

That’s super helpful. Thanks so much.

The next question is from Greg Lewis of BTIG. Please proceed with your question.

Thank you, and good afternoon, everybody.

Hi, Greg.

Hey, Andy, always a pleasure to talk to you. I was hoping for a little color this morning, I guess there was an announcement that a company is looking to move forward with a green hydrogen project in Houston, I believe, a 100-megawatt project, realizing that Plug was never going to be the only supplier of green hydrogen in the US. But as we think about that, are projects like that something the company is actively going after with their integrated solution, or at this stage in the game, do we have a couple of big key customers we're looking to supply, obviously in Australia and elsewhere, as well as building out your existing hydrogen network in the US? Just trying to understand, if as we see more projects like these, these are opportunities for Plug?

So Greg, I am quite familiar with that project. Plug is also aware of it. It's a very interesting initiative, and we have a good understanding of it.

Okay.

That is absolutely correct, Greg. We're looking to increase capacity in ways that go beyond just putting more equipment in. At this stage of the business, we can improve capacity by making enhancements to the product. We're working on the electrolyzer MEA to increase the power by 50%. So we feel well positioned with our current factory. I think there are over 300 pieces of equipment specified and designed to replicate that model again. We feel we have plenty of capacity for 2023. Thus, we're also considering where to build the next gigafactory.

Okay. Super helpful, Andy. Always a pleasure. Have a great night.

You too.

The next question is from Eric Stine of Craig-Hallum. Please proceed with your question.

Hi, everyone. Thanks for taking the questions.

Hey, Eric. How are you?

Hey. Doing well. Good to chat. So maybe just on materials handling, I know you've got the five pedestal customers you mentioned in your write-up that you've got three near-term, two in the EU, and one in North America. Just curious how we should think about those maybe playing out in terms of announcements throughout this year? And then curious, as you think about your 2025 expectations or outlook, is there a number you have in mind for the ultimate number of materials handling customers?

That's a good question, Eric. Europe is becoming really important to Plug Power. When you start looking at pure-play hydrogen and fuel cell players, Plug probably has the largest or second-largest staff in Europe. We have a facility in the Netherlands. I'm about to go to the grand opening of our facility in Germany in mid-March. We are well-positioned in Europe. I believe you'll see announcements in the US first; there's one customer we're final stages with to announce. Ultimately, I’d like to think about it like Jose. I think Jose has outlined what we must do to achieve $4 billion in revenue in that sector by 2030. I think you'll probably also see as the products become simpler, so will the hydrogen systems and that will become more important for the business.

Got you. That's a good transition. I was curious about your past acquisition of a small reformer company. How do you plan to expand into markets with fewer forklifts? I'm interested in your developments in green hydrogen and the decreasing costs. Can you share your thoughts on the current status of that process and your vision for entering smaller sites in the future?

What we're designing are smaller systems, much lower cost. Essentially, you'll have a 40-foot container, pick it up, drop it off, come back three days later for a new container. This is closely linked to how we maintain units at smaller sites. We have a universal engine coming out by the end of this year. These sites will not require service people, and we'll be able to deliver hydrogen, and take care of any issues when we drop by. The modules will be picked up and taken back to a centralized center if they need any work. Both of those projects are being closely tied together and will be finished by year's end. We expect to ship 500 to 1,000 of our universal engine by year's end, which reduces both the product cost and the service cost. If you want to call me another time, I'll be happy to give you more detail since it's interesting.

Yes. I'll take you up on that at some point.

And I did do it justice.

Our next question is from PJ Juvekar of Citi. Please go ahead with your question.

Yes. Good afternoon, Andy and Sanjay and Paul.

Good afternoon, PJ.

My first question is on HYVIA. I think the sales should ramp up in the joint venture in 2022. How many vehicles do you think you can make this year, given sort of these difficult supply chain backdrops and kit shortages? And just tell us about how you see this JV ramping up?

Yes. First, I am thrilled with the work at the JV. We have Plug personnel in France every week, and I think we expect to ship approximately 250 vehicles this year to about 20 different customers. It’s a wide variety of customers. That Master Van product can be leveraged to deliver goods by people like Amazon. By 2030, we expect to deliver about 250,000 of those units. I will be at the grand opening of the HYVIA manufacturing facility in France on March 14-15. I've been around a long time, and this is one of the best-run, very thoughtful product development cycles that we’re just really pleased with. The Master Van will be on the road this year, and we'll have the People Mover coming by year's end. There's also work going on with taxis and a next-generation platform for two to three years out. I'm really looking forward to it.

Right. Thank you. And my second question is maybe for Sanjay. As you ramp up your hydrogen production, what kind of investments do you need in logistics, like trucks and liquefaction tanks and storage tanks? Do you have that built out as well?

Great question, PJ. So let's take a step back, right? Typically, how we think about it is, for a 15-ton plant, you need about seven liquid tankers to deliver that hydrogen, right? That number could go down as the network really gets built out through the US, right? As you've seen, with the acquisition of Applied Cryo, we can build our own tankers, on-site stores, and vaporizers. This enables us to control the delivery timeline, reduce costs, and build faster. Our vertical integration strategy includes the acquisition of Joule Processing to get into the liquefaction business, which ensures our capability in the green hydrogen generation business. We can provide renewable power and now handle logistics ourselves, so we feel very good about the team that's become a part of Plug Power, and we see a lot of great things coming out of it.

Great. Great work. Thank you.

Thanks, PJ.

The next question is from Bill Peterson of JPMorgan. Please proceed with your question.

Yeah, hi, good afternoon, Andy and team.

Hi, Bill. How are you doing today?

Yeah, doing great. It’s been a great day. The first question I have is related to the deal we have in event last week. It's kind of an RFI request for information phase with feedback to by the end of March has Section 816 for electrolyzers, 813 for hubs. Look, I know you guys are aiming for coverage in most of the country, net projects at least your first set of projects are ahead of any hubs that arrive. But I guess my first question is, is Plug doing anything in terms of engagement, or I guess, is it important to kind of steer the direction? And then secondarily, what are your expectations, if there are any, in terms of benefits from some of these announced things from the bipartisan infrastructure law?

If there are hubs in the US, I believe every one of them will use Plug Power products. We've been deeply involved in all the hubs that are going on across the country. In New York, there was a press release put out by Senator Schumer right after the RFI came out, where he highlighted Plug Power three times. We've been working closely with NYSERDA and other folks in the Northeast, thinking through how to make New York the green hydrogen hub for the country. My view is that a successful hub builds the foundation for the future; it is not just a single government grant that allows you to build something. This is an opportunity across four or more places in the United States that builds the foundations for the hydrogen economy to help grow this industry.

Okay. Second question, I guess, is similar related, but it’s also related to a few other earlier questions. When we think about your merchant business for electrolyzers as well as captive for your green hydrogen production, how important is it to gain share or sell outside your captive business? How is your win rate?

Our win rate for the deals that have come to the finish line is probably close to 50%. We're selling to people who could be competitors to Sanjay. We're leveraging our technology. We believe that making the pie bigger helps the hydrogen economy. We're winning deals we're happy with and the revenue models are working. There's an opportunity for government policy to accelerate growth in the United States. I'm expecting we're going to see previews of the State of the Union tonight, where the President will address the need for climate change legislation which includes a $3 tax credit for green hydrogen, which the senator mentioned supports. We believe before the election, there will be a climate bill very friendly to hydrogen.

Okay. Thanks for that. Good luck.

Thanks, Bill.

The next question is from Stephen Byrd of Morgan Stanley. Please proceed with your question.

Hey, good afternoon. Thanks for taking my questions.

Hey, Stephen, how are you today?

Doing great, doing great. How are you doing?

Good.

Good. Well, thank you. I wanted to explore the US green hydrogen hub opportunity more. I guess as I understand it, the infrastructure bill that passed does include quite a bit of money for these hubs. I guess it's unclear. Would you mind just talking a little bit to the process for determining the allocation of these funds and what your work ties into that federal money available for hubs?

First, I want to be clear, Stephen. My business plans through 2025 are not dependent on those hubs. That being said, the hubs are a great opportunity. If you're asking me a process question, the RFI went out. I think responses are due March 8, pretty general. We expect the formal RFP is coming in late May, and I think you start seeing awards by the end of the year. It might start with smaller projects that grow. We're working closely with various organizations. The ability to lead a hub is still up for debate. I see it as additive; anything that grows the hydrogen economy makes hydrogen more attractive. We have all the capabilities to meet people's needs.

That's helpful. It does sound like a good opportunity. I wanted to also just talk about the green hydrogen generation network in Europe. Could you just expand a little bit on the expansion and the size of the EU hydrogen network mentioned in the 4Q letter?

I'm going to give that to Sanjay.

Hey, Stephen, how are you?

Great, thank you.

Look, I think given these unfortunate events here, right, we've seen LNG prices in Europe touch levels that bring hydrogen into parity. Our business plan is not contingent upon commodity prices. We've been focused on electricity prices in Europe, which can be very high. The partnership with ACCIONA is important for us because in Spain, given solar resources, you can achieve attractive prices for solar energy. We're evaluating about five sites but will narrow it down to two for two 15 tons per day plants to be operational by the end of 2024. We are looking for locations with the right wind resources and LCOE from wind power and how to transport hydrogen to demand centers. We have said that with ACCIONA; we want about 100 tons per day in the medium-term, and we’re working with other partners on visibility for up to 200 tons per day.

Got it. Thank you so much.

I’m going to add one item, Sanjay. In Europe, due to what’s happening in Ukraine, I strongly believe – and I was in a discussion with a natural gas pipeline operator, sharing how natural gas will get to Europe. The focus is on accelerating transitions. Europe is not going to want to be dependent on Russia for natural gas in the future. Improving national security is paramount, and hydrogen is a solution.

Very helpful. Thank you.

Thank you.

The next question is from Alex Kania of Wolfe Research. Please proceed with your question.

Great, thanks.

Hi, Alex.

Hi there. How are you?

I’m good.

Good. So I have a question for Paul. Just given the cash position, how is the accounting end up working for the investment portfolio as we think about earnings over the course of the year?

If you're talking about the cash investments we made in the portfolio, in the markets that we're in, as you probably know, in short-term instruments, you're not getting a lot of yield anyway. We're trying to squeeze what we can out of that. There are strange rules limiting the cash we can invest. It's an interesting problem. So unfortunately, it's not a significant impact because of market yields. Our focus is really on preservation and the big things where we're going to get a return on investment, hydrogen platform, acquisitions, and growing those.

Yes. Great. Thank you. And then the other one is just kind of going back to Europe. I'm just thinking about – there's certainly a lot more focus on networks there from some of the network operators probably in more advanced stages than we're seeing in the US. So how do you see – as you're developing this hydrogen network, how could you integrate with that and differentiate yourselves versus some of the other peers that are active on the continent?

Sure. Fair question. Europe has been mostly a gases market. What we're doing is working with renewable developers in the right locations, securing the land and doing PPAs. In some cases, we might end up developing a business model where we can come in with plants producing green hydrogen at a competitive price. We think about the delivery from a triangular perspective, bringing the lowest green hydrogen to the market. For hydrogen delivery, we'll work closely with the right partners. There will be many players that are successful. Given recent developments, this market likely quicker than anticipated, and we're being strategic about who we partner with.

Great. Thanks very much.

Thanks, Alex.

The next question is from Amit Dayal of H.C. Wainwright. Please proceed with your question.

Thank you. Good afternoon, everyone.

So good to hear from you.

Thank you, Andy. Hope you’re doing well? Just a quick question on the outlook, Andy, for revenues for 2022. What portion do you think comes from the international markets for you?

That's a good question. I think the international market will be about 25%, Paul.

Yes.

Okay. Thank you. As we get into 2023, with all these partnerships you have in those markets, does that portion grow towards 30%, 40%, or maybe even higher in the next few years?

I believe the answer is yes, Amit. Part of it will depend on the situation, but by 2025, you’re likely looking at around 40%.

Okay. Thank you for that color, Andy.

Yeah.

With respect to the new units, the ones with this enhanced technology that you have been deploying, is that now the standard units going to all customers?

Yes.

Got it. Are you getting a higher sales price for these offerings as well? Is the price point also supporting the margins on this?

I'd really hate discussing pricing strategies on calls like this. We try to get the best price for the value we create with our customers.

Understood. I'll take my other questions offline, Andy. Thank you.

All right.

The next question is from Joseph Spak of RBC Capital Markets. Please proceed with your question.

Thanks so much. I was wondering if you could spend a minute on the SK E&S JV that was completed this past quarter. Just a little bit more about the ambitions, what are some of the near-term goalposts we should look for in that venture?

The JV's top priority is the development of the South Korean market focusing on stationary products. We'll ship stationary products to the JV, our initial offering by this year. The JV also has won mobility opportunities for buses, which could be about 750 jet ProGen per year. Korea is the first and main focus. There is considerable activity going on in South Vietnam. A key opportunity for the JV is putting power on the grid in South Korea, which could help meet our 2025 goals.

What exactly is each partner contributing? And what is the capitalization for the JV? Is that SK investment marked for this?

No. That is Plug Power's money to spend as we please. I reviewed it this morning, and I would likely put the number over the next three years in the $100 million type range.

Okay, thanks for that information, Andy. Could you remind us of the one-gigawatt electrolyzer backlog target by the end of the year and its current status? I apologize if I missed that. Also, is that target for both captive and external projects? Could you provide the breakdown?

All that's external. Sanjay's business is not part of our numbers. We have a $13 billion funnel for that business, which is roughly between 17 to 18 gigawatts of opportunity. So our ambitions are focused on folks who can execute, understand their needs, and have funding. One really interesting part of this market is to substitute existing plants using gray hydrogen. The offtake for that green hydrogen from our plant in Egypt is actually for an ammonia plant that now uses grey hydrogen. I keep finding more opportunities for substitution, which ensures revenue.

Yeah, thanks for the color.

The next question is from Tom Curran of Seaport Research Partners. Please proceed with your question.

Good afternoon. As I zero in on the gross margin ambitions of bid, this might be another rare one for Paul. So before services, I know that you set a target of reducing costs on a per unit basis by 30% by the end of this year. Can you confirm or update that goal? And now that we are two months into the year with presumably better visibility, give us some idea of what the quarterly progression toward that year-end level should look like?

Yes. There's multiple initiatives that we're working on. One, the mix of units we put out last year performed better out of the gate, which you'll see reflected. We’re retrofitting initiatives back into the fleet, at different customer timelines. We still have the 30% target, and you'll see benefits starting to really feed in the second half. These initiatives will extend the life of parts and cause less frequent service. The benefits will be more apparent in the latter part of this year. Next year, you’ll see a significant change.

That was a helpful summary. Thanks, Paul. And then, Andy, what does last month's announcement about your strategic collaboration with Atlas Copco and Fives tell us about your strategy for H2 liquefaction plants and equipment? Do you expect to stay competitive in bidding on projects where customers might want to use a rival?

Sanjay can answer that question.

Tom, as you know, Atlas is a big player in this market. The reason to partner is that they have visibility on our needs and lead time constraints with Fives being a strong fabrication house. This consortium brings multiple advantages including cost savings, managing supply chain challenges, and our goal to grow environmentally friendly hydrogen. We want to provide customers with complete solutions, managing supply from electrolyzers to liquefiers. We're looking to grow our business, ensure customers have their needs met.

Got it. Thanks for taking my questions.

Thank you, Tom.

The next question is from Ameet Thakkar of BMO Capital Markets. Please proceed with your question.

Hi, Andy. Thanks for squeezing me in.

Sure, Ameet.

Real quick for me, real quick for me. Just it looked like there was a big sequential increase in R&D and SG&A kind of like 60%, 70% versus the third quarter. Kind of thinking about how we should think about that for the year or next quarter. Is there some lumpiness associated with that at the end of the year, or how do we think about that going forward?

Yeah. Some of that R&D is associated with building out our first big stationary plant. There's probably $6 million to $7 million, where it's material to build out the engineering model for the first products. That will go away.

There's also been legal costs from the acquisitions. A lot of that work was done prior to year-end, with due diligence and accounting. So definitely some lumpiness. Overall, that $90 million bucket per quarter is a good proxy.

Great. That's super helpful. And then going back to hydrogen supply, you mentioned force majeure issues throughout 2021. But going forward, are there no additional force majeures you've encountered in the second half of 2021? Have you managed through that?

Go ahead, Sanjay.

A couple of factors are in play. When it comes down to hydrogen costs from suppliers, natural gas significantly affects prices. Some of what we saw in Q4 was a result of natural gas prices. We also had supplier curtailment back in Q4, where maintenance led to several plants being down at the same time. We managed well through that. I think as our network is built, it will benefit the hydrogen industry since we will be able to address future hiccups and support suppliers as well.

Great, thanks for that, guys.

Thank you.

I think that is our last call for the day. I’d like to end where my personal remarks ended. Plug is creating the new world today with our real products. The energy transition is going to happen faster than people thought, even just a week or two ago. There's no one in a better position because of our hydrogen ecosystem to take advantage of this change than Plug, and I look forward to talking more throughout the year. Thank you, everyone.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.