Greetings and welcome to the Plug Power First Quarter 2022 Earnings Call. At this time, all participants are in a listening-only mode. A question-and-answer session will follow the formal presentation. Please note that this call is being recorded. I will now turn the conference over to our host Teal Hoyos, Director of Marketing and Communications. Thank you. You may begin.

Thank you. Welcome to the 2022 first 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 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 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 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, 2021, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug's CEO, Andy Marsh.

Well, thank you, Teal, and thank you for joining Plug's first quarter earnings call. You can find a detailed review of the quarter in our shareholder letter. But let me give a few thoughts to start this call. I recognize that macroeconomic conditions are challenging. Like everyone, we have seen some of the challenges in the supply chain and the price of natural gas. Plug's future is not based on the economy today, but the future. The present is very bright. In the present, how many companies will increase by well over 80% this coming year in revenue? In the future for hydrogen fuel cells, as outlined by Bloomberg and others, there’s a unique $10 trillion opportunity. All of our activities are tied to this opportunity and tied to a world that is energy independent and green. Ultimately, green and energy independence are synonymous. An indicator of our present is our sales funnel for electrolyzers. The funnel is approximately $50 million. We've committed to book one gigawatt this year in electrolyzers; we will likely be increasing this goal soon. As for the future, I'm sometimes asked, can this business scale? Let me give you a simple example based on Q1 financials by telling our gross margin improvement story. Our GenDrive product gross margin is over 30%. The cost of our new products will continue to come down, as we experience our traditional 25% learning curve for fuel cells and electrolyzers. At today's volumes, all our present proxy will have a minimum of 30% gross margins. Our service and learnings are being implemented and demonstrate now and will cut our service costs ultimately by 45%. With deployment of our green hydrogen network of 70 tons, which will be available by year's end, our costs will be one-third of today's costs. Our PPA, which includes assets we can ultimately own, will be net positive. These numbers align with our 2025 goal of $3 billion in revenue, 20% EBITDA, and 17% operating income. This is the equation for success. We're building the category king, with clear strategic and tactical plans, great customers, and employees that are unmatched in the industry. I've never been more positive about the fit between our strategic and tactical plans as I feel today. Paul, Sanjay and I are now ready to take your questions.

Thank you. Our first question comes from Chris Souther with B. Riley. Please state your question.

Yes. Thanks for taking my question here. Nice to see some of the non-material handling stuff really take off here. Could you give us a sense of how that $45 million breaks down between electrolyzer on-road and any other end markets there?

I'm going to let Paul answer that question.

Yes. I would say it's about probably roughly one-third of electrolyzers, but that pipeline is growing and scaling. That business will be a lot bigger in the second half given the ramp of the pipeline and the production capacity. The other stuff is mainly the acquisitions.

Okay. Got it. And then just another one on the fuel margin improvements. It seems like you're continuing to be very positive on the long-term trajectory there. And if we're looking at kind of one-third of the cost for green hydrogen versus what we're paying today how should we kind of feather that in as the capacity ramps up? Do you think that's kind of an immediate when capacity comes online we should kind of assume that lower pricing, or is during kind of the ramp-up? Is it going to take some time to kind of hit that type of rate?

Chris I'm going to let Sanjay take this one.

So, the cost will decrease as the plant ramps up, which is expected. By the end of 2023, we're aiming to be at breakeven and achieve positive cash flow from operations by 2024. As the 17 tons come online, it will significantly lower our blended cost in 2023, with further improvements in 2024. By 2025, we are confident that we can reach our corporate gross margin target of 30%. In addition, in April, our Tennessee plant operated at 93% capacity after the expansion, which will also contribute to lowering our overall blended cost. As the plants come online, we will gradually increase output, and once utilization reaches 90%, the benefits of reduced fuel costs will be fully realized.

Appreciate. Thanks a lot, Sanjay.

Thanks, Chris. Our next question comes from James West of Evercore ISI. Please go ahead.

Good afternoon, Andy.

Good afternoon, James.

I'm curious about the recent MOU you signed with Olin Corporation to take away some of their byproduct hydrogen. I know the initial JV looks to be relatively small, but they produce if I'm correct a lot more hydrogen than the initial JV suggests. It seems like this could be game-changing. Could you talk a little bit about kind of your strategic thinking here the rationale and how it came about?

Yes. James we do think it's an important step in building out our network. Olin has a waste stream which produces over 350 tons of hydrogen per day. That's significant.

Yes.

This relationship is really just the beginning. When you start looking at the cost, it is equivalent to under $0.02 a kilowatt hour for electricity and on top of that the complexity of the plant is much simpler. We think the relationship with Olin will become a critical element in building out our hydrogen network across the US which will position us to expand even more rapidly. I think Sanjay, what have I missed?

No, I think you've pretty much summed it up, Andy. But James, as you said, we're obviously pretty pleased with this partnership. More to come. As Andy said, there's a pretty substantial volume. This is one of those opportunities which will be a critical part of building this North American green hydrogen network together with a partner like Olin here.

Right. Okay. And then maybe Sanjay, if I can just ask why you chose – or they – or you guys chose the St. Gabriel Louisiana plant to start the project? Was there something unique about that, or is that just there's available capacity?

Well, first off this will be a 15-ton plant, right given the stage of where it is available feed gas potential to actually make that feed gas also green and so that's the rationale in terms of why we decided to work on that one there. This is a discussion we've been having for a long time, James. It materialized here just recently but it's the first one and hopefully many more to come going forward.

Okay. Got it. Great. Thanks, guys.

Thanks, James.

Our next question comes from Colin Rusch with Oppenheimer & Company. Please go ahead.

Thanks so much, guys. Could you talk a little bit about how you're…

Good afternoon, Colin.

Good afternoon, Andy. Could you talk a little bit about the evolution of your pricing strategy relative to adoption rates? And any sort of cost management that you're doing obviously inflation is impacting a lot of folks. And certainly, you guys can't be fully immune. But just trying to think about how you guys are approaching this with your customers to kind of throw the needle.

That's a great question, Colin. I want to be cautious when discussing pricing. However, we are concentrating on managing our costs to better support our customers in the hydrogen sector. Currently, product pricing for fuel cells reflects the rising costs in the market. Much of our service focuses on cost reduction, and our service model is developing in a way that Chris Soriana, who leads our service group, anticipates a 45% reduction. We aim to decrease costs further. While I won't claim there are price increases, our customers are becoming more receptive to a more transparent pricing strategy.

Excellent. And then just thinking about the new facility and the ramp there. I guess obviously, it looks like there's an awful lot of new automation in and I'm wondering if you can talk about kind of initial yields with that automation and what you're seeing so far as you start to ramp that up.

Yes, I think when we analyze the stack cost for electrolyzers, the automation will enable a reduction of that cost by 70%. This is significant and positions our electrolyzers to be highly competitive. This is why I expressed such confidence in the 1 gigawatt capacity, which will be quite profitable for Plug. I anticipate that number will grow as the year progresses. We are exploring projects that are each 1 gigawatt in size. Honestly, it's a favorable market because few players are positioned to produce at this level.

That’s incredibly helpful. Thank you so much.

You’re welcome, Colin.

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

Yes, hi.

Hi, Bill.

Hey, how are you doing?

I'm doing well, good.

My first question is on policy. And I guess, specifically in Europe, you probably saw last week the Repowering EU; the commissioner, as well as a lot of industry CEOs signed a declaration to basically massively increase the electrolyzer capacity even within the next call it three, four years. I guess my question is, is that something that Plug feels you need to be a part of in terms of having local manufacturing in Europe? And I guess, what does Plug need to do specifically in Europe to obtain its fair share of the $30 billion opportunity in Europe?

One of the hidden secrets Bill is that I probably invested more in fuel cells and electrolyzers in the past year than anyone else. I think that uniquely positions us. We do have discussions. If you think about our brand launch the other week, we were well represented by Belgium and the Port of Antwerp as well as many other entities. We have relationships with Lhyfe, which are experts in sourcing technologies to support the activity. I would not be light about the U.S. Last week I met with three senators from fossil fuel states, here in the United States. All of them are thinking about how they can move their economies to hydrogen economies in the future. I can tell you one of those senators who has been getting a lot of press time is very, very bullish on making sure that part of the climate bill includes substantial extension of the ITC for fuel cells and hydrogen, as well as the production tax credit. So for my time in D.C., I'm probably much more bullish than other folks, because quite honestly, we were meeting with the folks who are probably moderates in the debate and all of them are strong supporters of hydrogen and fuel cells.

Yeah. Thanks for that color. And I guess maybe sticking closer to home. I'm actually here in Long Beach. I know Plug has a decent presence here. But as there's a number of your peers in the hydrogen space pretty clearly the hydrogen is very much of interest here at the show. I know you're talking in your shareholder letter to share more on your potential strategy in the second half. But I guess in light of the clear interest, what can Plug do uniquely in a partnership? Would it be also not only to provide the fuel cell but also the fuel itself? I'm just kind of curious, what is Plug looking to do in the heavy-duty space?

I think if you look at the model we've used with Hyvia technology combining them together to offer a product rapidly to the market. I also want somebody who has sales channels. That’s really important for the future too. We have people we're working with. We spent a lot of time on this issue. I've always been maybe not first in making deals in certain areas. But we've always made smart deals when it comes to how we entered Europe, Asia, and Australia. I think that patience will pay off for Plug. I think you'll be hearing more in the second half of the year, as I said in the earnings letter. We meet every week on our progress in this area.

Thanks. Look forward to seeing more progress.

Great. Thanks, Bill.

Thank you. Our next question comes from Leo Mariani with KeyBanc. Please state your question.

Hi, Leo. Hey, how are you?

Okay. Great. I was hoping you could expand a little bit. And I think if I heard you right you made a comment that you're looking at projects currently on the electrolyzer side that are one gigawatt in size. Did I hear that right?

You did hear that right, Leo. And PEM is ideal for that. Let me take a step back. Do you realize that if you did a gigawatt project like that, it's probably 6.5 football fields of alkaline? With PEM, it's about 40 yards of a football field. That's one of the distinct advantages of PEM. When you start really looking at the total cost of ownership, PEM hands down.

Right. Okay. I guess that was - so it sounds like it would be a large-scale potential power project that you're in negotiations on.

Okay. It is. And we have more than one negotiation in this area. Let me just mention, Leo, negotiations and discussions in this area are not overnight. I personally have been in discussions on this for 14 months.

Okay. And I also just wanted to touch base on margins. So certainly just kind of noticing that your total gross margin was a little weaker here in the first quarter versus fourth quarter. Could you maybe just give a little color on sort of what the main drivers were there? And then additionally, how do you expect to see margins progress during 2022? Do you think you’ll see margins turn back positive by the end of the year?

Paul, you want to take that one?

Sure. So the first thing is if you look at the sales volume, it was down sequentially, and that's because of the seasonality of our business. We always do about one-third of the volume in the first half. Q1 is always the lowest version of that. It’s just a natural phenomenon in the material handling business. It’s also a phenomenon of scaling rapidly the way we are with some of these new markets and products. So right now they're going to be quite heavier in the second half just because of the passage of time and scaling up that pipeline. So with that, my equipment revenues are down sequentially against Q4. On an apples-and-apples basis, you have a lower mix of higher-margin business there. Having said that, we've got more positive activities going on in eight years than I've been with this company. We’re scaling a number of new products which will take time to ramp and scale them up. As they ramp and scale, as Andy alluded to, they'll certainly be in that 30% gross margin profile. We've got the fuel activities which we’ve talked about extensively, including on this call. I don't think people really appreciate the fact that it's a step-function change when you could generate that molecule at 40% of the costs we're paying today. That’s just dramatic, right? So that's really exciting, and the progress that we're making there in programs like we're doing with Olin helps to accelerate that. We are shipping products out with a substantially improved reliability profile. We have extensive capabilities to go back and retrofit the units inside an application and get those benefits. We have a tremendous amount of resources, more than we've ever had focused on reliability, and putting improved stack software, improved batteries, and different components that will really step-function change that cost curve. Andy said that within a short period, we’ll be reducing that cost by over 45%. So all of those activities are actively ongoing, alongside growing by more than double this quarter from last year. Despite the challenges of navigating growth, we’re doing all those things. So, I'm really excited about all the prospects of what's happening and how this will start to transition in a very short period. If you look at the two-thirds sales volume, that means we're going to do more sales in the last six months of this year than we did all of last year just in the context. That’s substantial in terms of volume and a lot of that means it’s going to be highly concentrated in product, which is where I guess the best margin profile. It should be very accretive and will be very accretive through the year.

All right. Thank you very much.

Thanks, Leo.

Thank you. The next question comes from Eric Stine with Craig Hallum. Please go ahead.

Hi, everyone. Thanks for taking the questions.

How are you doing today, Eric?

Doing well, doing well. Thanks for taking the questions here. Maybe just to start, you announced the offtake with Walmart as part of the green hydrogen strategy. That was great to see. But if we think longer term and I know by 2028 the 1,000 tons per day goal, what is the right amount that you think you should have under offtake agreements? I mean, is there a certain percentage you want to have to be able to sell at spot, for lack of a better way to say it? Or do you really want to maximize that amount that's under contract?

Let me – let Sanjay take that one.

Great, Eric. Good question. Look, I think we touched on this a little bit on our last call as well. We don't want to sell out the entire capacity right? The way we're thinking about building this green hydrogen generation network is going to be resilient and will ensure that green hydrogen is economical and ubiquitous. Nobody should ever really worry about where the hydrogen comes from as they plan to adopt more and more fuel cell applications, right? The number that we've been targeting and discussing internally is between 70% to 80% of that capacity we want to have under long-term contracts, but we absolutely want to have that 20% to 30% capacity as flexible to help other players in the industry or potential customers in the industry so that hydrogen availability is never a concern.

Okay.

And Eric, one another important point is when we think about the whole green hydrogen offtake strategy on a long-term basis, and I think you know this but it's probably important for others to keep in mind. The demand multipliers that come from new applications are also very important. For instance, a forklift consumes one kilogram of hydrogen a day. Light commercial vehicles consume about six to eight kilograms a day, and Class 8 trucks consume 50 to 60 kilograms a day. A 24/7 stationary power solution consumes almost 1.4 tons a day. That's how the demand multiplies for hydrogen, which is another reason why we're very strategic and thoughtful in terms of entering into these long-term contracts to make sure that there is enough hydrogen available for our pedestal core customers as they embrace new applications.

Yes. No that makes perfect sense. Good color there. Maybe just last one for me. Materials Handling had a strong quarter here. I think in the past you've said you're targeting three additional pedestal customers in 2022. Just maybe thoughts on how you're trending there? And can you remind me, I mean are you counting on those three for your guidance? I guess they probably wouldn't have much of an impact even if you secure them today on 2022, it'd be more 2023?

That's correct, Eric. So our guidance of $925 million in revenue does not include that. Just got our call with their head of that business, Crespo. He's feeling very good about the two potential customers in Europe. I think in our earnings letter we mentioned the relationship with Lidl, which is developing and really feel good about the US customer. So we feel like we're trending well. Quite honestly that's the easy business for us. After these years, it's very systematic.

Got it. Okay. Thanks.

Next question comes from P.J. Juvekar with Citi. Please state your question.

Yes. Good afternoon, Andy, Sanjay, and Paul.

Good afternoon, P.J.

Andy, with the cost of natural gas going up in Europe, green hydrogen is at par or even cheaper than gray hydrogen in Europe. Your timing in Europe is great. Can you talk a little bit about your Duisburg, Germany facility? Would that be a hub like Rochester? And what are the plans there? You said water connection to different ports; what are the plans for that facility?

I would say that facility is currently a center for light manufacturing and distribution. You’ll see a couple of developments soon. We announced a small deal for 10 megawatts in Hungary. In Europe alone, there are likely around 300 opportunities for electrolyzers, which represents a significant push. Additionally, our activities in France, where we expect to receive strong financial support for establishing a facility, highlight the immense opportunities in Europe for electrolyzers in the context of energy independence. Plug is in a unique position because we can manufacture products today and ship them, which gives us an advantage over others in the market.

Great. And my second question is for Sanjay. Sanjay you mentioned here that the molecule cost could get cut in half next year as you start these green hydrogen plants. Can you give us a little bit more color on how does the cost go down by half with green hydrogen? Just curious. Thank you.

Sure, I'm looking forward to your conference tomorrow. Let’s take a step back. You can see in our P&L how negatively the fuel business margin is affected. This is due to the rise in natural gas prices, which we haven’t passed on to our end customers. Our margins are taking a hit, and it's fair to say those numbers are significantly affected, likely in the high single-digit to low double-digit range. We have consistently mentioned that in all our green hydrogen plants, we are focused on securing low-cost, reliable electricity. We have also indicated the amount of electricity required to produce one kilogram of liquid hydrogen. Interestingly, the capital expenditure is not the main factor in this scenario. If the cost of producing green hydrogen comes down to around $4 per kilogram, that figure could essentially be halved. From a consolidated perspective, you won't see a complete improvement in gross margin immediately; it'll gradually enhance over time. We still have some legacy contracts set to expire in the years 2023, 2024, and 2025, but you will see margins improve. Also, as our plan progresses and utilization increases, we achieved over 90% utilization at our Tennessee plant in April. Despite the current challenges in the natural gas market, this will significantly contribute and aid in reducing molecule costs in Q2 compared to Q1 of this year.

Great. Thank you for that color.

Absolutely.

Thanks, P.J.

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

Good evening. Thanks for joining us.

Hi Craig.

Hey Andy. Thanks for responding to my question. I really appreciate it. Looking at the bigger picture, Plug is one of the few companies successfully operating in the wider fuel cells hydrogen sector. A crucial element of this is green hydrogen; you're collaborating with the right partners and consistently achieving significant milestones. What steps could you take to accelerate progress? Would an additional $100 million per year enable that? What could you achieve with that funding?

Well, Craig I can tell you, I give a lot of thought to how to really scale this electrolyzer business quicker. That means duplicating our facility in Rochester sooner rather than later could greatly benefit our business. Item 2, Craig is that the work we're doing on Class 8 vehicles over the next six months. That’s an area that we're fully committed to making a smart move. I think there are two big ones. I think the electrolyzer business; whoever has the capacity will win. During these times when people are getting nervous, we have the balance sheet to move aggressively ahead. It’s not off the table that we’ll consider further consolidation of this industry at the right time and price to grow Plug bigger and faster. This is one area that I think gives us strength that is sometimes hidden by other items.

So just as a follow-up then, it sounds like electrolyzers and Class 8 trucks are key markets you're prioritizing for potential acceleration and that you're happy with the targets you have for green hydrogen over the next couple of years. The flip side of that, you just signed this excellent agreement with Olin; I guess 350 400 tons a day available sort of at their facilities. What would you say the right number? What would make you say the right number is 2,000? Do we need market development to move faster to allow you to service into that, or are you scaled appropriately for how this is developing?

That's a great question. We are currently constructing a new 300,000 square foot facility in New York, which will provide us with the necessary infrastructure to expand beyond our current capabilities for equipment. We need to carefully consider how to scale our MEA capacity of 2.5 gigawatts at a faster pace. The more green hydrogen is available, the more we can leverage it, creating a flywheel effect, as Sanjay often mentions, which will enhance these applications. Having access to that hydrogen is crucial for our success, and we are highly focused on it. As for the electrolyzer business, I can't predict how large it could become, but Sanjay has mentioned some significant numbers.

Like 150 gigawatts of potential pending opportunities...

In the near term. Nobody has the capacity or the capability to build it. That's why I hired these folks from Tesla. If you look at my operations team, Greg, I got the guy who built the Reno factory. I have the folks who managed the supply chain for Musk in Reno. We are bringing talent and capability to scale this business quickly.

You definitely have the reputation for treating your staff a lot better. So I hope they're happy at Plug for walking your success.

Touché, Craig.

Thank you, guys.

Thanks, Craig.

Thanks, Craig.

There are no further questions at this time. I'll turn the floor back to Andrew Marsh for closing remarks.

Sure. Thank you everyone for joining the call today. We are building out the hydrogen ecosystem. We're doing it. We're building the plants. We have the trailers to deliver the products. We have the customers which are critical. We have the electrolyzers. We have the fuel cells. No one is in a better position to take advantage of this trend for the hydrogen economy in the coming years. So we're excited. We're going to deliver our $925 million this year and I look forward to talking to everyone on the second quarter call. Thanks everyone.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.