Hello, and welcome to the Plug Power Fourth Quarter 2023 and Year End Earnings Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Merrill Dresty, Marketing and Communications Manager for Plug Power. Please go ahead, Merrill.

Thank you. Welcome to the Plug Power Q4 year-end earnings call. This will include forward-looking statements. These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. 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's 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, 2023, and other reports we file from time to time with the Securities and Exchange Commission. These forward-looking statements speak only on the day in which 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'd like to turn the call over to Plug Power's CEO, Andy Marsh.

Thank you, Merrill, and thank you everyone for joining today's call. On January 24th, Paul and I provided an overview of Plug Power's results and achievements from the past year. A highlight was the launch of our Georgia plant, making us a leader in the PEM electrolyzer space and the world's foremost producer of liquid green hydrogen. This achievement signifies a leap forward for the hydrogen industry, placing Plug Power at the vanguard of green hydrogen production and challenging the status quo. Our ambitions continue with the initiation of a joint venture with Olin at St. Gabriel, Louisiana, poised to further assert our leadership in the liquid hydrogen production world with its upcoming operation expected in the third quarter. Additionally, securing a $1.6 billion term sheet from the Department of Energy is a testament to our commitment to enhancing our hydrogen production capabilities across the United States. We expect conditional approval under the term sheet in the coming weeks. Financially, in the past quarter, we made important strides in improving cash management and fostering growth that bolsters cash generation, effectively addressing our going concern. We had operational successes, such as expanding our material handling footprint with giants like Walmart, Home Depot, and Amazon, and pioneering a 1-megawatt electrolyzer system for on-site green hydrogen generation at an Amazon facility. Our launch of innovative platforms and products, including a high power stationary fuel cell system and a 100-megawatt electrolyzer project for GALP, underscores our relentless pursuit of innovation and leadership in the green energy sphere. These efforts reflect our strategic intent to augment our product suite and enlarge our market footprint, cementing our role in spearheading a more sustainable energy future. As we move into 2024, our focus sharpens on fortifying our financial foundation and sustaining continued expansion. Our resolve to propel the hydrogen economy is matched by our strategic shift towards capitalizing on existing investments and a cautious approach to cash management, setting the stage for persistent growth and innovation. Cornerstone to this year's strategic direction is a significant restructuring aimed at unlocking $75 million in savings, demonstrating our commitment to operational excellence and fiscal discipline. Additionally, we've reevaluated our pricing to ensure it reflects the unparalleled value of our innovative offering. Looking ahead, investors can expect to see a marked improvement in our financial health, highlighted by improved gross margins and reduced cash outflows, supported by a decrease in working capital. These initiatives are critical for navigating financial complexity and laying down the groundwork for continuous innovation and leadership in the renewable energy sector, promising a clear trajectory for value creation and sustainable growth in the dynamic hydrogen economy. Now, let me turn the discussion over to Paul for financial insights.

Good morning, everybody. As I shared back in January in the business update, 2023 was another substantial year for Plug Power, and there were many positives. Focusing specifically on a 10-K filing last night, there are a few highlights I would point out. Based on our actions in the last few months, we have addressed the going concern issue. As we finalized the accounting for the fourth quarter, sales for the fourth quarter came in at $222 million, which was slightly higher than the guidance we provided back in January. Regarding the material weakness issues identified in our 2022 filing, based on the efforts in 2023, we resolved the issues that were outstanding, and this reflects a substantial improvement in our key operations and processes. We have two new specific issues in '23 that relate to new business dynamics, but these are much more narrow issues, and we feel confident we can resolve these in the coming months. There were many challenges in 2023 as well, and some certainly impacted our Q4 2023 results. The chaos in the hydrogen fuel market in '23 with an unprecedented number of industry fuel facility shutdowns culminated in the third quarter and have since abated, but defects continued into the fourth quarter. Our own hydrogen plant's scale-up effort has taken longer than planned, and given our continued application growth and the new demand from these application sales, it has made the industry shortage and the new facility delays more of a pressing issue. Doing big new things generally often is harder than you plan, and our new product platforms like the 5-megawatt electrolyzer system or high power stationary have held true to this, which in turn pushed some of the sales into 2024 and has delayed some of the cost-saving activities associated with these new platforms. Some of the IRA guidance on varied provisions in 2023 were favorable to Plug, but recent guidance on PTC and manufacturing credits were not as favorable as hoped. We are active in the treasury comment process and continue to advocate for final rules that will be more appropriate for the industry. Lastly, the overall economy and political factors like the interest rate hikes have not exactly made it easier to find debt capital efficiently. Given these factors, as we discussed in the January Business Update call, we have decided to make certain decisions to better our cash position instead of just focusing on revenue. For example, instead of our normal PPA sale leasebacks for which we get revenue but must restrict a lot of the cash, we held many of those programs in Q4 that were underway in lieu of completing the standard sale leaseback transaction and began the program under the new IRA transferability rules, which we believe will allow us to sell the ITC benefits in 2024. We've also slowed new pilot programs for new platforms, as they generally consume more cash in the initial phases. These were business decisions that will guide our near-term focus as well. During the fourth quarter, we had one of our significant traditional PPA customers move to a direct sales approach, and they purchased seven sites. However, given the fuel issues previously mentioned, they pushed the deployment into '24. Additionally, as I mentioned, we purposely held off on traditional PPA sales leaseback transactions in the fourth quarter for other customers, which resulted in lower sales than historically. On our 1- and 5-megawatt electrolyzer platforms, these are new designs and new offerings that have taken time to scale. Many new programs were shipped in Q4 but did not get to final commissioning; hence, the respective sales were pushed into '24. As a net impact from overall lower sales than originally anticipated, this resulted in lower volumes and, in turn, lower fixed cost absorption. This, coupled with continued new product investments and certain inventory valuation charges as we continue to shape the business model and market approach, overall resulted in lower gross margins than originally anticipated for the fourth quarter. The inventory provisions were non-cash charges, and we remain focused on how to monetize and maximize the leverage of these assets, but given the dynamics, it was prudent to report these valuation adjustments. Lastly, given the softening of the capital markets and our stock price, it led us to conduct a more in-depth evaluation of goodwill we had on our balance sheet. As a result, we reported a non-cash impairment charge for the goodwill of $250 million. Turning our focus to '24, we know we must significantly improve margins and cash flow, and we see this as an opportunity to reset. We are pursuing significant price increases across all offerings: equipment, service, and fuel. We've implemented a reduction in workforce and hiring freeze, which will lower payroll costs. We are consolidating facilities and streamlining processes. We're reducing spending on non-personnel costs. We invested significantly in inventory in 2023 to support ongoing growth, meaning we have much of the material we need for 2024 on hand. Our focus now is to optimize and significantly reduce inventory investment. We're making certain focused commercial decisions, such as pushing traditional PPA customers to direct sales models versus our past practice where we subscribed to solutions; we're managing the timing of deployments in certain new platforms with enhanced focus on cash and profitability. We will continue the nurturing effort on these platforms but focus on escalating the cost curves before we ramp sales efforts. Now that we've commissioned the new hydrogen facilities in Georgia and Tennessee, we will use these plants to drive margin improvement and fuel cost. Costs at these facilities are expected to be one-third of the market cost without any ITC or PTC benefits. We've slowed investment in the follow-on hydrogen facilities in Texas and New York until we find the right financing solution. In 2024, we are targeting to reduce cash burn by over 70% from 2023 with lower CapEx, a reduction in investment working capital, and improved margins. We are also targeting to leverage these improvements to achieve a positive cash flow rate in the next 12 months. Raising prices, slowing new product scaling, and pushing traditional PPA market customers to direct sales models collectively will mean a lower revenue growth rate in the near term compared to our prior history, but we think this paradigm shift is critical and necessary given the market conditions. We feel confident about these strategic decisions to adjust our near-term focus and to improve cash burn, and we are seeing benefits even in the first quarter. Additionally, we filed an ATM facility, which can be used to address the accounting exercise for the going concern analysis given the liquidity available to us under the principal transaction aspect of the facility. Our near-term capital strategy is very focused: drive significant improvement in cash burn by reducing CapEx, reducing inventory investment, improving margins, and tempering new platform spending; work with the DOE to secure the DOE $1.6 billion project financing facility while developing complementary follow-on project financing solutions; leverage the ATM facility as needed as we continue to develop the various debt solutions we are evaluating and continuing to develop debt opportunities. The company has received and continues to receive many debt offers, but they have not been for terms that are interesting. Part of this was driven by ongoing interest rate hikes. The ATM program coupled with the reduced cash burn efforts puts us in a position to be more selective as we continue to develop these solutions.

Well, thank you everyone, and we're ready to take questions.

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from James West from Evercore ISI. Your line is now live.

Hey, good morning, Andy, Paul.

Good morning, James. I got Sanjay here also.

Good morning, Sanjay. The first question pertains to the bridge debt financing. We're currently facing reduced cash levels, which has understandably raised concerns in the market. I know that the ATM is expected to alleviate some of those worries. However, I have two questions. First, when can we expect you to announce any bridge financing plans? Second, does the ATM, from an accounting perspective, aid in securing the DOE loan?

Yeah... So, I guess, just answering the second question first. Obviously, us solving the going concern helps not only the DOE loan but helps other debt solutions as well. It helps in many ways, and so that is significantly helpful. The capacity of that facility, not to say we will use it all, is something that we can use ongoing as we move through the year to continue to address future liquidity solutions while we chase and develop things like the DOE loan and other things. First and foremost, our focus the last quarter was solving the going concern, which we have done. That helps tremendously with customers, vendors, and other debt providers. We are still nurturing several different parties. As of last week, we received term sheets, and we're nurturing solutions. I would also say we expect a significant reduction in the burn this year, and we're sitting in a good position as we started the year. We're already seeing benefits of that in the first quarter. CapEx will come down tremendously. Inventory is a substantial asset that we can leverage to help reduce the burn in our working capital. Success begets success, and so we'll continue working through solutions into the second quarter, keeping you posted as things unfold. You will absolutely see a reduction in the burn, which sets the stage for finding better solutions as we move forward.

Okay, I understand. Andy or Sanjay, regarding the new pricing with your customers, I know I asked this during your last call when it was still early. The discussions are always challenging, but how have they progressed? At this stage, have the pricing increases been effective? Are you experiencing any benefits from them? How is everything developing in the market?

So, James, as you mentioned quoting me from the January call, it's never an easy discussion. But when we look at our customer base, we're through about half those discussions. We've made good progress, and I think you'll see the main benefits starting to flow through our financials in the second quarter. I want to point to two press releases from last week, where we announced new deals. Both of those deals, we were able to achieve our newer higher price structure, actually after the initial negotiations with those customers. It's never a panacea. I would also say that we have seen some support on the supply side. Our partners in the industrial gas market, like Linde, have been helpful in resolving some challenges. I think you are seeing support on both pricing and supply sides. I had one of our largest suppliers tell me the success of the hydrogen market really depends on what Plug has done. So, there are folks looking to find ways to help us. I think the second quarter will make this apparent.

Well, maybe following up on that, Andy, the comment period for the guidance on 45V is here. Curious what you're hearing from the U.S. government and representatives that you're obviously close to, particularly in New York State and West Virginia, on how that IRS guidance may change?

So, James, there were over 29,000 comments on the guidance. If I were to highlight one key comment from all seven hydrogen hubs, it's that these hubs are crucial to the Department of Energy and the Biden Administration. It's impressive that all these hubs have come together to express that the current guidance will significantly hinder growth if it remains unchanged. I have engaged in conversations with union leaders, including one union that has 500,000 members, and with new CEOs from the nuclear power sector. As we assess the situation, we can anticipate that nuclear and hydro energy will face fewer restrictions. It seems likely that the grandfathering clause, which could eliminate many financing options, will be removed. I also expect developments regarding time matching; the wind and solar sectors have been quite proactive. While some may cite initial responses from the treasury as rigid, they have actually become more flexible. A clear example is the initial restrictions on natural gas stoves, which have now been relaxed. I believe we will see positive changes for the industry, even if they are not perfect.

Got it. All right, thanks, Andy. Thanks, Paul.

Okay. Thanks, James.

Thank you. Next question is coming from Manav Gupta from UBS. Your line is now live.

Good morning, guys. One growth area...

Good morning.

One growth area where we're seeing a lot of exciting news and I think you can leverage and was kind of missing from the earlier comments was this entire AI-driven data centers, backup power. Obviously, you have contracts with Microsoft over there. Can you talk about how you can leverage your system and what you're seeing out there to attack that market and grow in this backup power market or even off-grid solutions for data centers and stuff?

When you look at the three major data center operators, Plug is engaged and planning. I'm going to call them initial deployments and tests with all. This won't be rapid during the next year or two. But certainly, all of them, because of the restrictions of diesel engines and the need for continuous uptime, see Plug developing the premier product. The big challenge, which we're working through, is managing hydrogen. We're working with these customers to use the product not just as a backup power system, but also for peak low shaving. I think that combination will really allow this market to grow. It won't be a 2024 event. I think it could be a late 2025 event where you start seeing some deployments. It's a level of scale, but we've spent a lot of time developing a comprehensive marketing approach with one of the leading consulting firms in the world that knows more about hydrogen than anyone else. They have told me this market will become our dominant market. But it will take some time.

Perfect, Andy. And just a quick clarification here. On multiple calls in the last two times, you have indicated that there are a whole bunch of unplanned outages within the hydrogen industry, which were restricting supply. Those were the headwinds to your third-quarter margins. Those were also the headwinds to your fourth-quarter margins, but you also indicated that things are improving as we get into January. So, should we assume that at least some of those unplanned downtimes are gone and then your own supply is ramping up, so some of those shortfalls would be better addressed as we enter 2024?

The answer is yes. If you look at the network at the moment, it has been stable throughout 2024. Our increased production and the rest of the network has been relatively stable. I have not spent a minute in 2024 worrying about customers not receiving hydrogen, which is dramatically different from what it was like in October and November of 2023.

Thank you, Andy. That's very positive to hear. Thank you.

You're welcome.

Thank you. Next question is coming from Craig Erwin from ROTH MKM. Your line is now live.

Good morning, Craig.

Good morning, Andrew. And I'm from ROTH MKM.

I thought I hired you, Craig.

No. We've been friends a long time, Andy, but no.

I don't know how to take that, Craig.

No way. Let's stay friends.

Yeah, okay.

So, Andy, there's intense interest out there about your ability to take your third-party hydrogen procurement cost and make it a direct customer cost while you bring online green hydrogen, which is obviously a much more compelling product to your customers and Plug Power. Can you give us a little bit more color on the underlying mix of contracts? You said you started roughly half the conversations. What's the average duration of the contracts that govern the pricing for your hydrogen supply agreements with these third-party customers? Do these come up annually? Do they typically mix every three years? How much flexibility do you have in there from the contractual position we have with people? If we estimate simplistically that there was a burn of a couple hundred million last year from these underwater contracts, do you get through half of it? Do we see half of that burn eliminated? How should we look at it?

Craig, I'm going to turn that over to Sanjay. But I'll add that there's been a recognition, and I mentioned this in my remarks, with some of our long-term industrial gas partners, like Linde, who have been helpful. Let Sanjay go into more detail here on how we see this playing out during the next 12 to 18 months.

Great. Thanks, Andy. Hey, Craig, how are you? A couple of comments here, Craig. First, there’s been a lot of constructive collaboration with our hydrogen third-party suppliers. When you think about our contracting structure with them, there are several contracts that come to an end by '26, several that end by '27. If you consider that with our internal production that will be running by the end of the third quarter, that will cover as much as 85%. Our plan is to continue to work with our industrial gas partners to get better pricing. Our pricing improvements will be a three-way situation between us, industrial gas suppliers, and our customers. As we go into the second half of the year, you will see a step change in our fuel cost and our overall margin profile driven by better pricing, potentially lower costs from our third-party suppliers, and our internal facility production. You'll see a step change as you think about Q3 and Q4 this year in fuel margin, and cash burn associated with that business.

Excellent. So, that's a large piece of the equation that I wanted to discuss. Last call, you mentioned that you have plans for a 70% reduction in cash needs in '24 versus what you saw in 2023. Right-sizing the hydrogen pricing and bringing online green hydrogen is an important piece of that. Can you give us color on working capital and how that contributes, as well as the relative contribution from price increases, and I know it's painful, but the headcount reductions that you put in place?

A couple of big numbers that help illustrate the math. If you look at last year's CapEx, it was north of $650 million. This year, we're cutting that number. Right now, the tentative plan is $250 million. If you look at inventory, last year, we grew it by roughly $400 million. Obviously, we're not planning for that this year, so that's a $400 million improvement on its own. We think we can reduce inventory, so that could provide an additional $200 million to $300 million. That's about $700 million plus $400 million, which equals $1.1 billion in just those two events alone. We expect results to improve. The price increases and cost reductions, facility consolidations, streamlining processes will help the operating burn. Better fuel dynamics will also help our working capital and cash management. But the biggest contributors are the CapEx reduction and inventory leverage. We're already seeing benefits from this in Q1, and we'll see it grow quickly moving into the following quarters.

Okay. Excellent. There have been conversations about the NEPA environmental compliance on the hydrogen plants you're building. These are embedded in the DOE loan process. Can you update everyone on the overall loan process and how NEPA is included for qualification of sites to receive funding?

I'm going to let Sanjay take the NEPA process. As I mentioned in my opening remarks, we expect conditional approval by the end of this month if not sooner. Sanjay, can you address the NEPA process?

Sure. The most focused project right now is in Texas. We've done extensive work with the developer to get the project where it is now, and there's significant past work we can leverage. We plan to get that process restarted, which is key for the loan guarantee program and getting that environmental permit done. We have a dedicated team focused on that. We believe this will be a relatively faster process compared to the multi-year process of getting NEPA approval. We should complete this work in Q2, leveraging work that's been done, and given the timing for our loan guarantee program, we feel good about our collaboration with the Department of Energy on projects like Texas, where we are using wind power. It will be one of the largest liquid green hydrogen plants, and we're matching that with renewable energy credits.

Excellent. A question I'm not sure you can answer, but I'll try anyway. This DOE loan can fund up to 80% of a project's costs. Can you give us color on how close to this 80% number you think is rational for you to receive as total project costs? There's discussion about retroactive spending, with some expenses for development costs also seeing funding eligibility in these other loan packages. Is that a potential opportunity for Plug as you finalize terms with the Department of Energy?

I'm very confident and optimistic. We've worked extensively with the DOE over the last year and a half, looking at projects we've deployed as proxies to understand how this will work. I feel good about being able to utilize the full 80% and the understanding we have with the DOE of how these programs work and apply. I feel really good about that.

We're going through final details here at this time, and while I can’t go into detail, we feel good about our position. A lot of capital has already been spent getting this project to its current state. We're in good shape regarding our equity contribution for that project in Texas.

Great. Thanks, guys. Congrats on the progress here.

Thanks, Craig.

Thank you. Next question is coming from Bill Peterson from JPMorgan. Your line is now live.

Hi. Good morning, team. Thanks for taking the questions.

Good morning, Bill.

Thinking about 2024, revenue growth in the context of a focus on cash preservation, improving your equipment margins, and service margins, typically, you guys have discussed a one-third first half, two-thirds second half. But thinking about cost reduction efforts, shifting away some PPAs, revenue from '23 shifting to '24, how should we think about the revenue trajectories through the year, starting with the first quarter? If you can discuss at a higher level, like the breakouts in the larger buckets, materials handling, electrolyzers, which presumably would be back-half weighted, especially in light of more certainty around the IRA?

Both in terms of normal seasonality with material handling, as well as the scaling of follow-on and new projects, those factors will keep us in that one-third, two-thirds scenario for the year. We do expect overall growth year-over-year. It'll probably be slightly tempered from years past, given some dynamics of pricing and PPA transactions. But overall, I think using traditional trends is a good proxy for first and second half revenue. In terms of sales mix, energy technology will represent about 60% of our sales.

Thanks for that. It's nice to see that Georgia is up and running and Tennessee, but what is the average output per day? I believe you talked about achieving 15 tons per day out of Georgia, but just trying to get a sense for how the operations are running and what the trajectory looks like looking ahead?

So, Bill, we've produced 11 tons of the 15 out of Georgia. Tennessee is almost back to full production of 10 tons or 11 tons per day. I expect by mid-second quarter, we'll be putting out all 15 tons out of Georgia.

Thanks for that. Just one final housekeeping. In the last January update, you talked about your current near-term unrestricted cash of above $100 million. What is the near-term cash position today, if you're able to say?

It's probably north of $300 million, something in that range, plus or minus. The first couple of months are encouraging in terms of curtailing the spend. We're focused on narrowing CapEx even further and deferring when we can and doing all the things we can to drive that down.

Great. Thanks for all the color and insights. Thank you.

Thanks, Bill.

Thank you. Next question is coming from George Gianarikas from Canaccord Genuity. Your line is now live.

Hey, good morning, and thank you for taking my question.

Good morning, George.

I have sort of an existential question. As you recover in 2024 and digest some of the new rules from Treasury, what sort of focus should we expect from Plug Power long-term? Which areas of the hydrogen market or geographies probably offer the best returns on capital as we focus beyond 2024?

That's a good question, George. We've been spending a lot of time on this, and I think you will see that during this decade, the energy business with electrolyzers and hydrogen generation will probably represent two-thirds of our revenue. By 2030, you can expect accelerated growth in our application business, particularly our stationary products. By 2032 or 2033, applications will begin to dominate again as hydrogen becomes more available. In the next two to three years, Europe will lead our electrolyzer sales, but ultimately, the U.S. and Europe will start to balance out. This is our internal view as we look toward 2035. It's the energy sector for Europe regarding electrolyzers and the U.S. for applications. Hope that helps.

Thank you. As a follow-up, you announced a contract to support a major U.S. auto OEM in material handling. I'm curious if you can share any more detail. I think you mentioned the first quarter of '25; that it will be operational. Any additional detail?

It's a new customer, based in the U.S. This opportunity includes a campus with suppliers using hydrogen-based products, allowing us to continue growing. I hope to provide more details in the coming quarters, but it's a big deal. There are almost a dozen hydrogen fueling stations inside. This is typical for new buildings. For instance, at BMW in Spartanburg, we started with about 75 products, and there is an initial run of those products towards the end of the year, which duplicates what we've seen elsewhere. Eventually, it could grow rapidly. At BMW, we have over 600 fuel cells today. I believe this campus may ultimately become bigger than BMW due to all the supplier integration.

Great. Thank you so much.

You're welcome, George.

Thank you. Next question is coming from Skye Landon from Redburn Atlantic. Your line is now live.

Hi. Thanks for taking my questions.

Good morning, Skye.

In the base case, my first question is about the 70% cash burn reduction guidance. Does this assume any CapEx for new hydrogen projects in Texas or New York during 2024, or are these projects now in the base case of 2025 start? Secondly, regarding the electrolyzer business, when do you now expect to start seeing major projects reaching contract-ready stages? When do you expect to see order flow coming in?

I will let Sanjay take the electrolyzer question and then turn it over to Paul for capital usage.

On the electrolyzer side, we announced multiple basic engineering design packages with some large customers in Europe in 2024. Our book of business includes substantial capacity with nearly 4 gigawatts through those packages. Some projects need to reach FID, but we're working with our customers on design and optimal plant build-out. For 2024, we have a solid backlog, with many 5-megawatt projects already secured. We expect to deliver on this backlog, driving cash generation and top-line growth. While margins may be lower in Q1, they should improve in Q2. Revenue will increase and provide cash generation as we execute on our backlog. New bookings will come in for our 5-megawatt product line, supporting growth in 2025. Strong visibility in cash generation will provide a base of predictable margin.

Regarding hydrogen investments, our current plan focuses primarily on retention and finalization of the Georgia plant and funding for the Louisiana program with Olin. We’ve already spent much on Texas and New York projects. As we launch those, new solutions will cover the incremental spend. It has set us up to fund those as we turn on the second half or into next year.

Perfect. That's great color. Thank you.

Okay.

Our next question is coming from Eric Stine from Craig-Hallum. Your line is now live.

Good morning, everyone. I'll just stick with one question toward the end of the call.

Good morning, Eric.

For '24, I appreciate not guiding given the focus more on cash and the expense side. But just curious, longer term, when you balance that versus so many commercial opportunities, what's going on with green hydrogen? When do you think that specific year, is it '25, '26, when you get back on that more traditional growth path?

I'll let Paul address that, Eric. We mentioned we don't expect zero growth this year; we will grow, but the growth will be on a few of our energy projects, which will also help the application side of the business. We expect things to solidify in '25.

I certainly hope and believe there are a lot of upside opportunities as we position ourselves for 2025, but we don't want to over-promise anything this year.

If we consider the electrolyzer business, no one has a facility like we have. Our ability to build plants and the talent we have in this activity is well respected. I believe we've invested in the infrastructure to support large-scale build-outs, putting us in a unique strategic position versus our competition.

Okay. That's helpful. Thanks.

All right. Thanks, Eric.

Next question is coming from Jordan Levy from Truist Securities. Your line is now live.

I appreciate all the details. To go back to that last comment on electrolyzers, I recognize you've built up the scale for the long term, but I'm curious, as we think about this year, how do you optimize volumes coming out of that plant while reducing inventories?

Great question. We're focused on executing the backlog. There’s a lot of inventory already in-house. Our goal is to work through that. We have many 5-megawatt products in the backlog. Q1 will be similar to Q4, but we'll see a step change in revenue as we move into Q2, Q3, and Q4, generating cash flow and improving margins. It's about using existing inventory rather than needing to find more business.

That's really helpful. Appreciate that. As a quick follow-up, not to belabor the timing on the DOE here, but I just want to get a sense of where we are in the process.

We expect conditional approval by the end of this month. There'll be negotiations after that, and by the end of the third quarter, those negotiations should be finalized.

Thanks for all the details.

Okay, Jordan.

Thank you. Next question is coming from Sherif Elmaghrabi from BTIG. Your line is now live.

Hey, thanks for squeezing me in.

Good morning, Sherif.

So, I noticed the average price for a fuel cell was significantly higher in Q4. Are we already seeing an impact from pricing efforts, or is that more of a '24 story and this quarter may have just been a mixed shift to bigger fuel cells?

In Q4, it was probably more mixed. We tend to sell more class 1s in Q4. You should expect to see more pricing impacts in '24, mostly in Q2.

Okay. That's helpful color. Thank you.

Thank you. Next question is coming from Amit Dayal from H.C. Wainwright. Your line is now live.

Thank you. Good morning, everyone.

Good morning, Amit.

Just one quick one from me on the DOE loan. Given the focus on operational and margin improvements versus aggressive sales growth for 2024, and based on your earlier comments, should we assume that the 2024 execution plan is not dependent on this coming through?

So, Amit, operationally, we're not dependent upon the DOE loan for '24. We will, once it's finalized, move ahead more aggressively, especially in Texas, because we've already made significant investments there. We see opportunities for capital to come in to support those activities.

Understood. That's all I have. Thank you.

Okay. Thanks, Amit.

Thank you. Next question is coming from Ameet Thakkar from BMO Capital Markets. Your line is now live.

Hi, good morning. Thanks for taking my question.

Good morning, Ameet.

Thank you for the detail on cash burn. I guess just from a starting point, what kind of revenue in '24 and gross margin is that premised on?

We haven't provided specific numbers. What we've said is we expect growth off of 2023 and significant improvement on margins.

Is there any impact to your fuel margins in '24 from off-takers that won't be getting fuel from those plants?

No, Ameet, we don't have any of that impact in '24.

Thank you.

Thank you, Ameet.

Thank you. Next question is coming from Dushyant Ailani from Jefferies. Your line is now live.

Thanks for squeezing me in. I have one quick question on the electrolysis stacks. Can you talk about where you're seeing those cost cuts?

We mentioned cost cuts due to manufacturing process changes to produce stacks in a simpler fashion. We've improved assembly techniques and materials needed, leading to notable cost reductions on our stacks.

Thank you.

You're welcome.

Thank you. Next question is coming from Andrew Percoco from Morgan Stanley. Your line is now live.

Great. Thanks so much for taking the question and squeezing me in.

Good morning, Andrew.

Could you provide a brief overview of the product gross margins in the fourth quarter? Was there any non-cash impact embedded in that number?

There was roughly $60 million in non-cash evaluation adjustments on a GAAP basis. We still have those assets and intend to leverage them into cash this year. There was also lower absorption, affecting equipment margins, as restructuring targeted labor and overhead in production activities. We expect benefits in '24.

Got it. That's helpful. Shifting to the PPA environment, given demand for clean electricity in various sectors, what does that mean for your unit economics beyond 2024? Does the green hydrogen in the U.S. work if PPA prices don’t fall?

We're glad to have secured PPA pricing in Texas and Georgia. The PPA pricing is favorable, and we're seeing power pricing play out well in our favor. We only need power prices to stay between $30 and $40 per megawatt hour for green hydrogen economics to work. Directionally, we believe power prices will continue to decrease.

Great. Thanks so much for taking my question.

Thank you.

Thank you. Next question is coming from Kashy Harrison from Piper Sandler. Your line is now live.

Good morning, everyone, and appreciate you getting me on the call here.

Good morning, Kashy.

You're highlighting $75 million of expected savings in 2024. Why aren't you cutting something more aggressive? Why aren’t you targeting a larger cut? Your OpEx is 42% of revenues, up from 22% in 2019. Why not cut OpEx in half this year?

Because while it may look good short-term, it could be a huge mistake long-term. Those same team members are critical for achieving gross margin targets, improving customer experience, and building out plants. We modeled this to become cash flow positive in '25. We don’t want to simply take an axe to the team.

Fair enough. My follow-up question is on how the change from sale leasebacks to direct purchases work with customers. Could you help us think through how the sales process works today versus before?

Historically, we offered both options: customers buying equipment and leasing. Leasing is challenging to monetize benefits when we offer that. Moving forward, customers will still lease but will work directly with banks while we facilitate the process. We now have strong portfolios with banks that make it easier for customers to position the programs. We're focusing on being the facilitator, treating it as a CapEx sale, whether customers are buying or their bank is leasing it to them.

Appreciate it. Thank you.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Andy for any further closing comments.

Thank you, Kevin. I just want to reiterate a sentence or two from my opening statement. As the company moves into 2024, we're focused on fortifying our financial foundation but also sustaining continual expansion. We are resolved to propel the hydrogen economy, matched by our strategic shift towards capitalizing on existing investments and a cautious approach to cash management. This sets the stage for persistent growth and innovation. Thank you for your time today, and I look forward to talking to many of you over the next months. Have a good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.