Greeting, and welcome to the Plug Power Q2 Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Teal Hoyos, Senior Director of Marketing and Communications. Thank you, Teal. You may begin.

Thank you. Welcome to the 2023 second quarter earnings call. This call will include forward-looking statements. These forward-looking statements contain projections of 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 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 based upon the current expectations, estimates, forecasts and projections, as well as the current beliefs and assumptions of management and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including, but not limited to, the risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2022, quarterly results on Form 10-Q and other results we file from time to time with the Securities and Exchange Commission. These forward-looking statements speak only of the day in which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug's CEO, Andy Marsh.

Thank you, Teal. And thank you everyone for joining Plug’s second quarter conference call. Plug is in the process of developing an unparalleled hydrogen fuel cell platform. This encompasses our diverse array of products, extensive international collaborations, backing from government entities, financial partners, and our robust infrastructure. Our second quarter outcome reveals noticeable growth in several of our recently launched products, particularly in our cryogenics sector, which garnered $69 million in revenue, making a more than threefold rise over the previous year. Our international collaborations are yielding positive results as well. Through our joint venture with Renault, the initial product from HYVIA garnered positive reviews. Kilometres magazine, a renowned authority in the realm of commercial vehicles in France, bestowed the heavy commercial vehicle of the year 2023 award upon the HYVIA Fuel Cell Electric Vehicle Master van. Through our partnership with SK, our joint venture Hyverse achieved a significant milestone as the first megawatt-scaled electrolyzer to be certified in Korea. Our strong governmental backing spans across key global capitals from Washington DC to Brussels, Helsinki, Paris, and Seoul, Plug has cultivated robust connections with government authorities. Given the vital intersection of energy and climate change with governmental policies, we have proven ourselves as trustworthy experts capable of offering insights and impartial analysis on the path towards a carbon neutral world. This strategic policy alignment is reaping rewards in the present. As an American manufacturing company, Plug generated a $10 million increase in gross margin dollars during the second quarter attributed to the provisions promoting American-made products under the IRA. We anticipate further advances as we tap into manufacturing incentives within the IRA along with the production tax credit for hydrogen. The IRA is starting to pay dividends to Plug. Furthermore, we have actively secured multiple sources of non-dilutive capital as we diligently expand our global green hydrogen generation network. Presently, Plug is in the final stages of the second round of due diligence with the DOE’s Loan Program office for a $1 billion project financing facility. We have a term sheet framework, and we're working through final processes to get this structure approved, and we are assessing various options, including corporate debt facilities for major financial institutions, alternative infrastructure, project financing, and solutions for ITC project financings. Lastly, the unmatched nature of our manufacturing infrastructure is substantiated not only by our internal evaluation but also by feedback from customers and potential clients. Initially designed to support 2.5 gigawatts of MEAs, our Rochester facility now boasts scalable potential of up to 7.5 gigawatts as we advance the production process. I had the privilege of personally touring our Vista facility, our 400,000 square foot integration factory with a customer this past Tuesday, and honestly, they were astonished because they’ve been at everyone else’s facilities. Additionally, our hydrogen plant in Georgia, for which we're hosting an Investor Day on August 23rd, stands as the largest green hydrogen plant in North America. Navigating the process of scaling our business presents its own set of challenges, and our ability to surmount these challenges serves as a distinct advantage for Plug. One challenge has been our gross margin issue. What’s not readily apparent is that excluding one-time charges, our margins in the second quarter would’ve been minus 12%, over 20% better than Q1. Throughout the rest of 2023, we will see continual margin expansion. An industry leader shared with me recently, the endeavor is truly valuable when it comes with its share of challenges, and this in the end provides a differential advantage. The journey of mastering the construction of hydrogen plants, expanding factory capabilities, developing customers, and concurrently introducing an array of new products has undoubtedly been demanding. However, we firmly believe that the efforts invested in these undertakings will yield substantial benefits for all those invested in Plug’s success. At this point, Paul, Sanjay, and I are prepared to address any questions you may have. I think we're open for questions.

Our first question comes from Bill Peterson with JP Morgan.

Lot to digest in the release, so forgive me if we miss some things here, but I wanted to talk about the upcoming guidance from the US Treasury related to the IRA. I know you've expressed confidence in the past, and it seems like there may be some positive news forthcoming. But first of all, when should we get some resolution on the additionality and matching things? And if it was going to be unfavorable, how would the economics compare between a US hydrogen plant and a plant in Europe?

To address the first part of your question, we believe that guidance will be provided in September. Based on our insights and corroborated by a recent Bloomberg article, which aligns with discussions we've had with various senators and White House officials, we expect the regulations to ultimately be reasonable. Comparing energy costs, currently there's a difference between Europe and the US. For example, with green hydrogen generation, at a cost of $0.03 per kilowatt hour, it might be around $2.50 in the US, particularly in Texas. In Europe, considering the Production Tax Credit (PTC), which aims to make hydrogen cost-competitive with natural gas, the costs including liquefaction and transportation could be between $4.50 and $5 at customer locations, with Texas being the most advantageous scenario. However, the support in Europe will depend on how effectively we navigate the government grant process. Our international partnerships are crucial in this regard; through our joint venture with HYVIA, we've successfully secured over EUR200 million in government grants to further develop that business. Does this clarify things for you, Bill?

Yes, that's very helpful. My second question is about your progress with the DOE Loan Program office. What else needs to be done, and what does the timeline look like if you successfully meet the requirements?

I'm going to hand that off to Paul, Bill.

So there's a couple of things. Well, first and foremost, the good news is we've come together, as Andy alluded in his comments, with an outline of the term sheet that we think will work for us and that they can get passed. So that's a big hurdle. Now they're off to the races doing the final due diligence around market studies and technical studies they just need to finish that process. Once we get through that, there’s a little bit more polishing to finalize the term sheet into a format that they can submit through their process to get approved. At this point, our best guess is that we would have something approved and be able to announce it hopefully by mid-November to early December. They are equally motivated to get it done as quickly as we can. So we’ve got weekly meetings and efforts to try and push out those final hurdles.

Our next question comes from Eric Stine with Craig-Hallum.

So I have not been able to digest the entire letter here. I might come back to some questions from your Investor Day. So you had talked about $4 billion in overall electrolyzer opportunities that you saw over the next 12 months. I'm curious whether that still holds, whether that's accelerated and maybe what area is the market where you are seeing the most traction with that business?

Eric, I'm going to turn it over to Sanjay.

Since we last talked about that, the number is actually, if anything, gone up a bit. We are tracking about 7.5 gigawatts of opportunity as much as $5 billion of potential revenue opportunity for us in that business. Additionally, we have identified project by project, these are the projects we believe could actually get to FID, final investment decision, over the next 18 months. Look, some of them might not materialize; some might move faster than expected, but that’s where the funnel sits right now. The mix is really favorable, as there’s a lot of opportunity in the US, including some sizable projects. We actually have a major opportunity with a significant oil and gas company in Europe, which we had discussed in our last earnings call, and there's plenty of those opportunities in Europe as well as in the Asia Pacific market. We are looking to close several more large electrolyzer deals before the year ends, and that's where the funnel sits.

And maybe Sanjay probably this is yours as well. I know a big topic was in terms of green hydrogen. Although you've got very extensive plans, whether that actually is going to end up being enough, and also the open question of how much you keep for your customers and how much you keep open that you might sell in the market. So maybe some updated thoughts on that would be great.

Our bringing our green hydrogen plants online is key to really expanding and improving our fuel business margin. We've talked about that again and again, right? Once we start to produce internally, that actually reduces our cost of green hydrogen by one third versus what we're having to pay right now in the market. Georgia, then Louisiana, then Texas, then New York, is the cadence of operations. Of course, our existing plant is in Tennessee. Once we have Texas up and running, that's when you’ll see our fuel business turn profitable, currently still having to buy from third parties under our existing contracts. Our primary goal is ensuring that we support our customers 24/7; it's mission-critical for them, and simultaneously expand our fuel margin. The third-party opportunity perspective, the funnel is bigger than 500 tons of opportunity. The near-term focus is how do we support our material handling business, and ensure that we have enough for our existing application business; we want the total customer cost of ownership to be favorable. We aim to keep about 20% reserve capacity to account for the force majeure situations we’ve seen in the North American liquid hydrogen market. That’s really our position at the moment.

No, I think you covered it, Sanjay.

Our next question comes from James West with Evercore ISI.

Curious how you guys are thinking about green hydrogen production in Europe. We obviously know the strategy in the US, you've got various projects in Europe, but I suspect there's more to come. What's the broader strategy to attack the European market with green hydrogen?

When you look at the cost of energy and the availability of green molecules, most of that will exist in the Northern and Southern Cone of Europe. As we mentioned in our letter, with ACCIONA, we're looking to have the first 15-ton plant commissioned by the latter half of 2024. The Port of Antwerp will support a significant number of our activities, particularly in France, as well as in Germany, where we will establish a 35-ton plant with initial hydrogen production slated for 2025. In Finland, we’re confident we can support up to 10% of Europe’s internal goals by 2030, aiming for FID in 2026. We are also exploring smaller plants in France and Germany to support our material handling and stationary customers. We have land we own in Denmark and other places, which could become sites for large hydrogen plants. The key item in Denmark and Finland is that both are working on hydrogen pipelines into Central Europe, which is our real focus.

Do you guys see a scenario playing out in the EU that could mirror the IRA's impact in the US, essentially supercharging the market?

We do. On paper, the dollars allocated in Europe appear to be larger than those in the US. The US has the advantage of being more of a public markets activity, so it's easier to navigate because it's based on tax credits. We believe the allocation in Europe could exceed that of the US between now and 2030, which is why we have partners like ACCIONA and why we work closely with the Port of Antwerp. For a company like Plug, it's critical to have the right European partners for leveraging that expansion.

Our next question comes from Manav Gupta with UBS.

Sanjay kind of alluded to this, but refining is a massive market opportunity as it relates to replacing gray hydrogen. You actually announced an order in Europe, one of the bigger ones to replace gray hydrogen with green hydrogen. Do you see this segment’s end market growing? Do you foresee US refiners looking to source green hydrogen in their operations?

I'm going to let Sanjay take that.

Yes, we see that as a meaningful opportunity. The production tax credit plays a major role in making it level with gray hydrogen pricing. The refining industry is a significant user of gray hydrogen and presents a major electrolyzer sales opportunity. We have discussions going on, not just in Europe but also in the US market. Hard to say when they will materialize into concrete opportunities, but we have multiple opportunities being discussed in this sector. We can offer a build-own-operate model or simply sell capital equipment as required. Rest assured, we have numerous discussions ongoing in both markets and foresee this being a big opportunity.

I have one quick follow-up. Recently, you introduced your HL 1500, the market's first portable hydrogen refueler. How are the conversations with potential customers going with that product? Do you see that product making an impact on your top line in '24 and '25?

I'll hand that one over to Sanjay.

We are actually sold out with that product for this year, indicating demand is strong. We have transit companies that are very interested, which also opens up traditional markets for us, even on a smaller scale. The mobile refueler has numerous applications for fuel cell electric vehicle companies looking to launch Class 7 and Class 8 trucks before the infrastructure is fully built out. We expect a significant impact in Q4 of this year, with substantial growth projected for both 2024 and 2025. This product already meets our corporate gross margin targets.

It’s critical for transitions, especially if you’re starting with five or six buses or considering four or five vehicles. This is a tailor-made product that will truly support the development of the industry, and it offers a unique proposition.

Our next question comes from Colin Rusch with Oppenheimer.

As you assess challenges regarding interconnection for renewables and larger power systems, can you discuss project development demand on the stationary power side, and how companies are considering diverting power into hydrogen to avoid some interconnection challenges?

We are witnessing substantial demand and activities related to powering EV vehicles, particularly delivery vans where grid availability is a challenge. We have orders that could result in shipping up to 17 megawatts this year. For next year, our projections indicate 50 to 75 megawatts, reflecting the demand's real presence. The stationary product helps overcome interconnection challenges in this market, and I believe it aligns perfectly with future peaker plants. This demand is real, and it works hand-in-hand with the challenges associated with electric vehicles as well as meeting our climate objectives.

As you scale and look at shorter time frames on projects, can you explain the evolution of your supply chain and their willingness to invest in additional capacity to support your growth?

That’s actually why I spent this whole afternoon on it. We’ve announced one critical supplier, Jonathan Matthew, and have established relationships with others in the electrolyzer business. I’m concerned about items like rectifiers and ensuring suppliers are positioned to meet our needs, control panels, and fabricators. For all those three items, Plug has been developing these relationships, and we do see people making investments. We've been working to create a campus approach at facilities like our Rochester facilities to leverage our government relations for attracting companies to places like New York and West Virginia, supporting our future needs.

Our next question comes from Jeff Osborne with TD Cowen.

I wanted to ask an update on the Georgia facility commissioning process. I thought it was expected to be up and running by early August or July, and now it still seems like you're just making gaseous hydrogen. Have you liquefied anything at this point or run at full capacity? Any comments on utilization or capacity factors?

We feel very confident that we're going to be producing liquid in Q3. Right now, we’re ramping up the electrolyzer. We're producing gaseous hydrogen at this point, and we’re in the process of ramping up our liquefiers. That’s why we’re hosting our Analyst Day on August 23rd; to showcase exactly what’s happening there. As of now, we aren’t producing liquid today, but we are ramping up the electrolyzer to enable that production. We acknowledge that we are three to six months behind our original timeline, but we want to ensure it’s done correctly for long-term operational benefits. This plant is also coming online in just 12 months since issuing the EPC contract, which is noteworthy. Additionally, we must consider that productivity can be reduced during July and August due to extreme heat. The team was out at 4:30 a.m. today to keep things moving.

And filling trailers...

Just one quick clarification regarding Georgia and then a second question. You're noting 2.5 tons daily, have you run full capacity on the electrolysis side?

Yes, that is correct. We have filled high-pressure tube trailers for third-party customers multiple times. We needed to run the gas plant correctly and optimize it to learn before ramping up the electrolyzer for the full 40 megawatts to support 15 tons of liquid production. We’re already initiating expansion of that capacity to 30 tons at the site based on our learnings and performance.

We’re confident in our electrolyzers’ effectiveness.

Follow-up on the hydrogen hubs. How are you positioned for that, and what do you think the timing of government awards will be?

The hydrogen hub and the IRA are closely connected. There was a letter released by the states of New York, Massachusetts, Connecticut, and Maine that emphasized the nationwide hydrogen hub's reliance on the IRA regulations. I spoke to the New York Governor about it recently. We expect to see some initial grant activity in the fourth quarter, but for the national network to develop, we need the hubs and the IRA to work in concert. The $9 billion allocated is significant, but more funding is needed to successfully support the hydrogen economy.

Our next question comes from Ameet Thakker with BMO Capital.

Thinking about the cadence of cash needs for the rest of the year, you've burned about $1 billion in cash with your operational and CapEx needs today. In addition to the potential $1 billion from the DOE program, would that all be funded at once to cover your Georgia, New York, and Texas plants, how should we think about it?

I’ll turn it over to Paul.

When examining our projected volume, you could expect almost double in the second half. We’ve invested considerably in working capital to prepare for our new offerings, scaling up electrolyzer and stationary solutions. I expect a reduction in cash burn moving forward. Our increasing volume with cost reductions will impact our margin profile positively. Regarding the DOE program, until it's finalized, we can't say definitively how it will play, but we're exploring various debt solutions, including corporate debt and project financing.

Just a quick housekeeping question. In the investor letter, you reiterated the revenue guidance for the year but not for gross margins. Could you level set us on that for the year?

We didn't provide specific updates on the full year margin profile. However, expect great sequential progress. You’ll see a significant step function in Q3 and even more in Q4, likely 30% to 40% range for Q3 and 50% to 60% range during Q4. Given these high sales levels, margin growth is expected.

Our next question comes from Amit Dayal with H.C. Wainwright.

Andy, you highlighted moving selling prices higher in your investor letter. Can you discuss which product offerings you're targeting first for this effort and how this translates into the rest of our portfolio?

One platform with real opportunity is our electrolyzer business, where our capabilities far exceed the competition. We’ve seen that as we've tested the market; there are real opportunities to raise prices. We’ve been winning orders. Across all segments, we are uniquely positioned, supported by investments in our infrastructure, hydrogen plants, and global resources, enabling us to deliver value.

As you anticipate significant improvements in margins in the second half, how do you see the cadence looking, aiming for breakeven levels in Q3 and then moving to a positive gross margin in Q4?

I don’t know if it will be quite breakeven in Q3, but it should be low teens. Positive margins are expected in Q4 with strong growth rates as we deliver towards the second half breakdown.

As your infrastructure comes online, is there a possibility for cost of goods sold to decline? How should we consider margin perspectives as your infrastructure supports all these products?

When we designed the Rochester facility, we expected to achieve 2 gigawatts across different products. However, we now anticipate it can handle four to five times that volume. This overhead leverage will drive substantial reduction as we scale up. Our infrastructure and focus on operational enhancements will significantly impact margin profiles.

Our next question comes from Greg Lewis with BTIG.

How should we view the cadence of electrolyzer orders? Projects are typically large and lumpy, but are the smaller projects starting to build a base for smoothing orders over the next 12 months?

I'm going to turn that over to Sanjay.

Think of it as a mix of three parts: strategic stack sales, our 5-megawatt containerized turnkey product, and large-scale projects. This mix will provide a stable foundation with the 5-megawatt product and stack sales contributing over the next 12 months. In 2023, we've seen Q1 and Q2 be lumpy, but will see improvement with more contributions in Q3 and substantial bookings in Q4.

Our next question comes from Kashy Harrison with Piper Sandler.

Can you provide insights into the timing and value of financing transactions? How much capital do you expect to raise in the second half of 2023 or 2024?

I’m going to let Paul take that one.

In the next 18 months, across various sources, I'm targeting $1 billion to $1.5 billion in financing. That figure could potentially come from sources such as the DOE, corporate bonds, or ITC monetization. While we have access to debt capital, we're being strategic about timing and terms.

Just on Georgia, could you walk us through the timeline gap between the Analyst Day in June and what's currently happened? When it's online, will its output be for materials handling or stationary power?

The Georgia facility’s output is earmarked for both applications. Since June, we have made significant strides, and we plan to produce liquid this quarter. While we’ve been producing gaseous hydrogen, important adjustments needed to be made for optimal operations. It's been essential to implement those learnings for better long-term operations. The extreme Georgia heat has impacted productivity as well.

I noticed $45 million of incremental investment costs in the quarter for growth. Will these investments yield dividends going forward, or were they necessary to align infrastructure?

Those investments will absolutely contribute to growth. Our electrolyzers are expected to significantly increase volumes. This is a product generating profitable margins, and we have strong opportunities for ASP management in this space. The investment will propel our significant platforms, yielding benefits moving forward.

Our next question comes from Andrew Percoco with Morgan Stanley.

You’re pushing against additionality. What would it mean for your business and margins if additionality became a requirement? What are you currently assuming in margin guidance for 2024 and 2025 regarding the hydrogen tax credit?

The work we've done started before the IRA even existed. There’s real demand for hydrogen regardless of regulation. Let me hand it over to Paul to discuss margins.

The $3 per kilogram from the tax credit is significant. We won't miss out on these benefits. We have substantial relationships in Washington that help shape the outcomes in our favor. Production and operational timelines will enable us to accrue those benefits soon, impacting our margins moving forward.

Our next question comes from Abhi Sinha with Northland Capital.

It seems there’s incremental value to existing guidance. For 2024 and 2025, what projects could tip the scale toward the higher end of guidance? What should we be focused on?

We intend to stick with the guidance already provided. We are actively engaging around the world to grow our numbers, but we are confident in our current targets for 2024 and 2025.

Our next question comes from Tom Curran with Seaport Research Partners.

What are the main factors obstructing the services division from achieving breakeven gross margin? Are you surprised by their nature or severity? What underpins your confidence for profitability improvement in the services sector?

The technical challenge involves our customers taking more power from our units than originally anticipated, which requires more input for success. Fuel cells don’t respond well to constant starting and stopping. We’re working on six sites to implement our learnings and show improvements. Awareness of workforce needs has been a challenge, but I’m confident we can enhance our services division.

What are the current gross margins for each major product line in the equipment division, and where do you expect those to be running?

Material handling has historically surpassed 30% gross margins. As we grow, all equipment lines are expected to hit 30% to 35%. Electrolyzers are currently in the 20s but expected to rise quickly. Our various products have different phases, but overall, we anticipate growth across equipment segments.

On that note, let me tell the analysts that we're really looking forward to seeing you in Georgia on August 23rd. You will be able to see a plant like nowhere else in North America. So it's well worth coming to. You will soon receive a letter about our Plug Power Symposium at our Vista facility, remarkable facility just ten minutes south of us here in Latham. Thank you, everyone, for staying on. I look forward to seeing all the analysts down in Georgia. Bye now.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.