Earnings Call Transcript - PLUG Q2 2025

Teal Vivacqua Hoyos, Vice President, Marketing and Communications

Thank you. Welcome to the 2025 Second Quarter Earnings 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 of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements, and such statements should not be read or understood as a guarantee of future performance or results. Such statements are subject to risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including, but not limited to, risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2024, our quarterly report on Form 10-Q for the quarter ending March 31, 2025, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the date 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.

Andrew J. Marsh, CEO

Good afternoon, and thank you for joining us. As we begin, I want to reaffirm the business priorities we set forth under Project Quantum Leap. Priorities that continue to guide every decision we make. Item one, drive gross margin improvements through operational efficiencies, cost reductions, and improved pricing discipline. Two, streamline our operations by consolidating facilities, optimizing our manufacturing footprint, and accelerating productivity gains. Three, strengthening the reliability and performance of our service business, combining unit-level improvements with better pricing models. Four, expand our hydrogen generation network while improving the cost structure of hydrogen supply. Five, advance our electrolyzer business by building a robust sales funnel and securing early-stage agreements ahead of customers' final investment decisions. And six, maintain strict cash discipline to bridge to positive EBITDAS in the fourth quarter of 2026. This quarter marks another important step forward in delivering on these commitments, both operationally and financially. Our team continues to execute with discipline, and the results we're sharing today reflect meaningful progress towards the long-term goals we've outlined. We closed the second quarter with $174 million in revenue, up 21% year-over-year, driven by strong demand across our GenDrive, GenFuel, and GenEco platforms. Electrolyzer sales more than tripled from a year ago, reaching roughly $45 million in the quarter, underscoring the growing role of GenEco as the preferred choice for industrial-scale applications. Gross margins improved dramatically, moving from negative 92% in Q2 of last year to negative 31% this quarter. The improvement is a result of deliberate action, better service execution, competitive hydrogen pricing, and product cost reductions. Service performance is being driven by a combination of unit-level improvements and pricing adjustments, and we see a clear path for continued progress in the quarters ahead. Project Quantum Leap remains central to these gains as we streamline our operations, consolidate facilities, and drive efficiencies across the business. We remain on track for gross margin neutrality by Q4 with tangible steps in place to get there. Our hydrogen plants in Georgia and Louisiana are performing well and the recently executed hydrogen supply agreement will deliver substantial and certain cost savings in the second half of the year. Pricing adjustments, particularly in service, are adding resilience to our margin profile while maintaining strong customer relationships. On the sales front, we are on pace for approximately $700 million in revenue this year. Looking further ahead, our electrolyzer pipeline is robust. Some additional deals are expected to close this year, while several major contracts are moving towards final investment decisions in 2026. We are also actively pursuing pre-FID agreements to secure value earlier in the process. In material handling, we added new customer sites this quarter, and our refreshed value proposition is more compelling than ever. A little-known fact, we have already removed the equivalent of a medium-sized power plant from the grid as customers have transitioned to hydrogen. Many applications today require significant electrical power, such as a large-scale refrigeration system, and our solution succeeds in either removing that demand from the grid entirely or time-shifting it to periods when the grid is less stressed. This not only lowers operational costs for customers but also enhances energy reliability and sustainability. From a policy standpoint, recent congressional legislation has provided long-term clarity on the 45V production tax credit and the 48E investment tax credit. This is a meaningful tailwind that aligns perfectly with our strategy to expand hydrogen production and leverage tax credit monetization to improve capital efficiencies. On the DOE loan, we continue to work constructively with the loan program office to align with evolving priorities. We remain confident in our ability to begin construction on DOE-supported projects before the end of the year, accelerating the expansion of our hydrogen generation network. We've also maintained strong cash discipline in the quarter. Net cash in operating and investing activities declined over 40% year-over-year. We ended the quarter with over $140 million in cash and have access to more than $300 million in additional debt capacity. Stepping back, Plug today is executing with focus, delivering measurable results and building the foundation for profitable growth. Our product portfolio from electrolyzers to fuel cells to our hydrogen network position us as a leader in a hydrogen economy that is gaining real momentum. The work we're doing now isn't just about meeting quarterly targets. It's about ensuring Plug is the premier hydrogen solution provider for years to come. I have with me Paul, Sanjay, and Jose, and we're now open to take questions.

Operator, Operator

Our first question is coming from Colin Rusch from Oppenheimer.

Colin William Rusch, Analyst

Now can you talk about the electrolyzer pipeline? Certainly, there's been a lot of interest around green hydrogen. But I'm curious how quickly projects are moving forward and how those sales are moving through your pipeline and how we should think about that cadence going forward?

Andrew J. Marsh, CEO

Colin, I'm going to let Jose take that question.

Jose Luis Crespo, Executive

Colin, thank you for your question. We have a very strong pipeline for electrolyzers, primarily due to opportunities in regions like Europe. We talked about this in our last earnings call. We have some projects that have closed and others that are expected to reach final investment decision in 2026. Andy mentioned that we are collaborating with some of these projects to secure agreements before the investment decision to enhance our position when these projects proceed in 2026. Additionally, we are working on several of these projects to establish them for revenue recognition over time, which will help us accelerate revenue after bookings. So, we have a very strong sales pipeline, with some opportunities closing in 2025 and others moving towards investment decision in 2026.

Colin William Rusch, Analyst

Excellent. Can you provide information about the hydrogen production at your facilities, including uptime and yield, and how they are performing compared to design expectations? Additionally, how is the ramp-up benefiting your ability to secure other customers, particularly in terms of material handling related to supply security or electrolyzers?

Andrew J. Marsh, CEO

Yes. So let me take those questions probably in reverse order, Colin. Security of supply, we feel really, really good about. As you know, that was a big problem in 2023. Our ability to have hydrogen available, the network was having 40 tons of plug capacity available, it really has dramatically changed the availability questions and challenges we faced in previous years. And it is important that we bring Texas online over the next 2 years to continue to make sure that there is a robust network. From a performance point of view, when I look at Georgia, what I'm really pleased with is that we can bring it up and bring it down when we like based on electricity prices. We’ve done a really, really good job at the operation in Georgia. We're a year into Georgia, and it's operating and performing as we request. And so we're really, really pleased with Georgia. Louisiana is just beginning to ramp. So far, the performance and the cost out of Louisiana, when we look at the relationship we have with Olin is really our lowest cost site to support our business. So we're quite honestly, quite pleased with how both sites are performing and expect both to improve during the coming quarters.

Operator, Operator

Next question today is coming from Craig Irwin from ROTH Capital Partners.

Craig Irwin, Analyst

I was hoping tonight, we could discuss what's changed for you guys in the last couple of weeks, right? It was a couple of weeks ago, we had the really nice surprise in One Big Beautiful Bill, right? 45E, 48E, a lot longer life, and they're in healthy shape for a while, right? Your customers would have been surprised too. I'm guessing maybe some of them lobbied for that, but most of your customers would have been surprised. Can you talk about the conversation with customers, how this has maybe shaped things or impacted plans over the last couple of weeks?

Andrew J. Marsh, CEO

Craig, I am going to turn that over to Jose since he talks to customers every day, might give a shot, Jose?

Jose Luis Crespo, Executive

Thank you, Craig. And very good question. It is fairly recent. As you said, it's only a couple of weeks ago. But we have already had many conversations with customers. They are excited about it. It opens up in the case of electrolyzers with PTC, a big opportunity for customers to, number one, have more time to take advantage of the PTC; and number two, make the business cases feasible. So lots of conversations early-stage, but this has definitely reignited a lot of the conversations, obviously, mainly in the U.S. As you know, we already discussed in the prior earnings call, the opportunities that we have in Europe, and those continue to be exciting, and we continue talking to customers in Europe about opportunities for ELX. In the case of ITC, the Investment Tax Credit, which, as a reminder, will give our customers the opportunity to take advantage of a 30% tax credit starting in January 2026. We are talking to many customers in the material handling business. We were already trying to make the business case for our customers stronger even without the ITC. So now that we're adding the ITC, we see many of our customers quite excited about this. They see the business case even stronger than ever. And I believe that we're going to see a healthy growth in material handling in 2026 because of that.

Craig Irwin, Analyst

Excellent. Excellent. So my second question is about inventory liquidation, right? This quarter, you had another $35 million cash contribution from inventory. And with 45V, 48E, ITC, all these things starting to chip in your direction. And I guess, Texas, you'll be making more progress on Texas pretty soon. Can you talk about the contribution to cash flows from inventory this year? Is there anything we should specifically watch for or any large items that might move tranches bigger than $30 million, $50 million that could impact the cash flows?

Andrew J. Marsh, CEO

Do you want to take that, Paul?

Paul B. Middleton, CFO

Sure. We're aiming for at least another $100 million reduction in inventory this year. We see this as a great opportunity to utilize that working capital. As volumes increase in the second quarter, we expect to achieve more in line with the full year guidance shared by Andy. We're confident in our inventory position, which we believe is sufficient to meet our needs. This target is quite achievable, and there's even potential for further reductions as we move into next year. Consider this as our benchmark for this year, with additional opportunities anticipated for the next year.

Craig Irwin, Analyst

Excellent. And then just another cash flow question to slip in before I hop back in the queue. You've done a good job bringing down the PPA cash over the last couple of years. Do we continue with a similar tempo, roughly $200 million a year? Or is there any reason that this could maybe accelerate or decelerate from there?

Paul B. Middleton, CFO

Yes. We have made a strategic change and are no longer offering that program. Customers are now purchasing directly from us, which is more beneficial for our cash flow. We are not increasing that portfolio, and it is set to gradually decline over the next three years. So, the $200 million a year is a reasonable estimate. Moving into next year, after completing the five-year amortization cycle, there may be opportunities to buy out early. Since this would be advantageous for us in relation to our obligations, we will actively pursue it. Thus, it will be at least $200 million and potentially more.

Operator, Operator

Next question today is coming from Manav Gupta from UBS.

Manav Gupta, Analyst

My first question is to you about your confidence level in getting to breakeven gross margins by year-end, if you could talk about that.

Andrew J. Marsh, CEO

Paul, do you want to take a shot at that?

Paul B. Middleton, CFO

Certainly. I believe we are making progress on margins thanks to our hard work. In the second half of the year, we will see continued benefits. The restructuring efforts from Quantum Leap began to yield results in the second quarter, and we will experience the full advantages of these initiatives as they continue to unfold. Additionally, we have improved the pricing for our fuel contract starting July 1, which will significantly impact our monthly expenses. The increased sales from our programs will provide notable leverage. We are also pleased with the reduction in service costs, which has two major benefits: it reduces cash outflow for servicing units and allows us to offer new programs at more profitable rates. Overall, these combined efforts will enhance our service and help improve our margins. We anticipate further commercial developments and opportunities to collaborate with customers for optimization.

Manav Gupta, Analyst

That's all very encouraging. My quick follow-up is about the benefits of ITC for the material handling business. Can these benefits be utilized by Plug to pursue the backup power market, offering fuel cells for backup power while allowing customers to receive ITCs? Could you discuss the advantages of this approach?

Andrew J. Marsh, CEO

First, Manav, I've been focused on ensuring we pay attention to markets that are currently relevant for Plug, such as hydrogen generation, material handling, and electrolyzers. We've deployed over 8 megawatts in California, which is likely the largest stationary hydrogen deployment to date, capable of utilizing the ITC. I want to emphasize that we will be selective and careful because we don't want anything to hinder our goal of achieving EBITDA breakeven in 2026, along with near-term gross margin breakeven. There is an opportunity ahead. We expect to continue growing our business next year. While some near-term opportunities might not be high profile, we are involved in several interesting energy transition projects where companies are looking to utilize fuels with blue hydrogen and liquid fuels. About 25% of our staff, particularly in our liquefier business, possesses unique skills in these areas, which we are actively pursuing. Don’t be surprised if we close deals that are gross margin positive and profitable, comparable to a large 100-megawatt electrolyzer project in the coming months. When considering upside opportunities in the near term that are low-risk and align with the current business climate, this is where Plug is focusing to build the industry.

Operator, Operator

Next question is coming from David Arcaro from Morgan Stanley.

David Keith Arcaro, Analyst

Could you maybe give an update on what you're seeing in terms of tariff impacts on the business and your efforts to offset them? Where do those stand?

Andrew J. Marsh, CEO

Yes. Let me address the question first, and then I'll pass it to you, Paul. It's important to distinguish between our three businesses. Currently, our hydrogen generation business is unaffected by tariffs. The electrolyzer business sees only a minimal impact from tariffs, primarily because we source most materials locally through a network of integrators worldwide. When we evaluate the effect of tariffs on our electrolyzer business, it falls within a range of 2% to 3%. For our material handling business, tariffs are mainly influenced by China. Five years ago, a significant portion of our bill of materials came from China, but now it's less than 15% and continues to decrease. We do experience tariff impacts over 10% in material handling costs, which we need to counterbalance with pricing adjustments. However, our competitors, particularly those employing lithium battery technologies in material handling, face a greater challenge regarding tariff impacts. Fortunately, our development of the supply chain for electrolyzers, along with the enhancements we've made over the years to reduce reliance on China, positions us well to address these issues. Paul, would you like to add anything?

Paul B. Middleton, CFO

Yes. I would add that having a substantial inventory has been helpful. It has allowed us to manage some impacts by leveraging the inventory we had already paid for and procured. This not only generates cash but also postpones some tariff impacts, giving us more time to explore options like co-sourcing and other locations that are not affected by the tariffs. This situation has actually proven to be beneficial.

David Keith Arcaro, Analyst

Got it. That makes sense. That's helpful. It sounds like this won't affect your gross margin target for the year. Did I understand correctly that you can offset this more through pricing?

Andrew J. Marsh, CEO

Yes. And David, on the material handling side, it's really not problematic for either electrolyzers or hydrogen production.

David Keith Arcaro, Analyst

Yes. Got it. And then would you be able to give an update on your plans for the Texas facility? And also what timing would be natural to consider bringing in a partner as you start to build that out?

Andrew J. Marsh, CEO

We plan to start construction in Texas by the end of this year. We have secured competitive electricity prices through our 310 megawatt agreement with NextEra. The water supply for the site is already arranged, thanks to our collaboration with the local community. We also have the necessary equipment for Texas and are collaborating closely with the Department of Energy. I was very impressed with Greg Beard, who leads the DOE loan program, as he demonstrated a strong understanding of the energy market and our objectives. We aim to finalize the DOE's support for our project with the new Trump administration, which has been very encouraging. Additionally, we expect to bring in a partner by the middle of the fourth quarter. Does that answer your question, David?

David Keith Arcaro, Analyst

Yes. Perfect. Appreciate it.

Operator, Operator

Next question today is coming from Eric Stine from Craig-Hallum.

Eric Stine, Analyst

Can you discuss your expectations for margin improvement as we approach the end of the year, particularly over the next two quarters? You mentioned three key areas, including Quantum Leap, the significance of the hydrogen supply agreement, and the service side. Do you anticipate a gradual increase in margins leading up to that goal, or could we see a more substantial improvement in Q4?

Paul B. Middleton, CFO

Yes, I would describe it as a gradual process. We anticipate that in Q3 it will be sequentially better than the previous year and also an improvement over last quarter. We expect to see a significant turning point in Q4.

Andrew J. Marsh, CEO

The equation is actually quite simple. We need to increase sales, which helps cover fixed costs. The contribution margins exceed 35% when we boost sales. The improvements in hydrogen, along with the supply agreements that ensure the performance of the plants, are crucial. Additionally, ongoing enhancements in our service area are important, although I've always approached that with some caution. However, due to the price increases we've experienced and the better performance of the units from our enhanced focus, I believe we are on a path that makes gross margin neutrality attainable and relatively straightforward as we run the business day-to-day.

Eric Stine, Analyst

Got it. That is helpful and a good segue to my second question, which would just be it looks like there are no specifics being guided for revenue in Q3, but I assume that with the improvement in gross margin expected between now and the end of the year, you anticipate sequential growth during that period.

Andrew J. Marsh, CEO

We expect that the second half, and I've been real cautious just in case a program falls one way or another. We're very confident about our revenue targets for the second half. As you know, in previous quarters, we've run into some quarterly issues, and we want to avoid that, but we're feeling really good about the second half.

Operator, Operator

Our next question is coming from Jefferies.

Unidentified Participant, Analyst

My first one is just on the cash burn for the year. I know that you guys have talked about inventory unwinding and some of the tailwinds. But how do you think about just the need for cash? Do you think you'll have to tap into the credit facility or the ATM? Or are we good there?

Paul B. Middleton, CFO

Yes. Just for context, the first half is down over 40% from the previous year. We anticipated this would be the heavier part of the year since the volume is larger in the second half, as Andy mentioned, along with the progress of the Quantum Leap. As we approach the second half, you will see not only reductions year-over-year but also we expect a significant decrease in the burn rate from the first half. This positions us well as we expect to end with $140 million in cash, along with an additional $100 million in restricted cash being released in the second half. We also have access to a credit facility to support the business. Additionally, we are exploring further initiatives related to asset monetization. We've performed well in the first half of the year, and we expect this to continue in the second half. With our cash, credit facility, and other available resources, we feel confident about our standing.

Unidentified Participant, Analyst

Got it. And then my second one is on with the 48E kind of coming back starting 2026, are you hearing any of your customers kind of delay or push out any orders so that they can take advantage of that ITC in '26, or not really?

Andrew J. Marsh, CEO

You want to talk about that, Paul, because it's really a question of when it's commissioned.

Paul B. Middleton, CFO

Yes. We have participated in billions of dollars' worth of programs during my time here, and I've gained extensive knowledge about ITC and qualification. We're currently collaborating with many customers who prefer to mobilize early, obtain equipment, and prepare for success in advance. Many of them are investing in equipment purchases towards the end of this year for deployments in the first quarter. The ITC is crucial when it comes to commissioning the equipment, which allows them to acquire the equipment early. This early procurement is beneficial for us as we recognize revenue upon shipping. Customers are strategizing over the next three to six months based on their timelines for getting things operational. This approach also suits them well, as they prefer to activate equipment after the busy periods. Therefore, they are likely to make significant investments towards the end of the year, anticipating deployment typically around Christmas or early in the following year. This timing works favorably for everyone, enabling them to leverage the ITC and allow us to generate revenue from some of those programs in the latter half of the year.

Operator, Operator

Next question is coming from Sameer Joshi from H.C. Wainwright.

Sameer S. Joshi, Analyst

Congrats on the good progress on the gross margin. My first question is just about that. It seems your equipment revenues sort of are flat or rather have increased, but the gross margin has not increased as much. I know your service is driving the gross margin improvement, but should we expect any improvement in the equipment costs?

Andrew J. Marsh, CEO

Do you want to take that, Paul? Go ahead, Paul.

Paul B. Middleton, CFO

Yes, the short answer is yes. Service is certainly contributing to the improvement, but other factors like PPA, fuel, and price hikes are also playing a role. As mentioned in the guidance, you can infer what this means for volumes and sales in the second half. Growth significantly helps in managing fixed overhead and equipment costs. Additionally, many of the cost reductions from our Quantum Leap initiative are starting to show benefits in Q2, with more substantial impacts expected in the third and fourth quarters now that those programs have been implemented. For example, while we might have just completed some rooftop consolidations, we haven't fully realized the benefits for an entire quarter yet. These advantages will begin to accumulate. As we enter the second half, the mix of our offerings will further assist, and we are continually exploring ways to reduce equipment costs. So, volume, supply chain leverage, and Quantum Leap benefits will all contribute to margin improvement for equipment in the second half.

Andrew J. Marsh, CEO

When considering the activities involved, there is equipment utilized in what can be referred to as a blue hydrogen plant. We possess skills from our liquefier business that can be applied here, and our previous experience in these areas allows us to capitalize on significant deployments that could be beneficial for our revenue and gross margin at Plug. There are specific tools such as hydrotreaters and other capabilities that are integral to our operations, making it logical for us to support blue hydrogen projects, as this aligns with our expertise.

Operator, Operator

The next question is coming from Ameet Thakkar from BMO Capital Markets.

Ameet Ishwar Thakkar, Analyst

On the $300, I guess, million of kind of the credit facilities that's still available to you. My understanding is that that's kind of structured in kind of 2 tranches for the remaining balance. For the second tranche, is there any sort of kind of, I guess, requirement for you to have authorization to increase your share count?

Paul B. Middleton, CFO

There's no requirement to decrease our share count... increase our share count. As far as the Yorkville deal.

Andrew J. Marsh, CEO

As far as the Yorkville deal.

Paul B. Middleton, CFO

Yes, I apologize for misunderstanding your question. There is no trigger effect on amortization unless we decide to take action, but there is no requirement for us to access the additional committed portion.

Ameet Ishwar Thakkar, Analyst

Okay. And so you could access the full $105 million under that tranche might tomorrow if you wanted to?

Paul B. Middleton, CFO

If and when it makes sense and is prudent for us to access it, and it is available to us.

Ameet Ishwar Thakkar, Analyst

Great. And then the $80 million of restructuring charges for, I guess, to become under restructuring efforts. Was any of that accounted for in your COGS, and which may have kind of, I guess, kind of artificially kind of depressed your gross margins for the quarter?

Paul B. Middleton, CFO

Our gross margins improved significantly both sequentially and year-over-year. However, these improvements are reflected in restructuring and other line items in our profit and loss statement, rather than in cost of goods sold. I want to emphasize that these actions are part of a larger set of initiatives we are implementing to enhance gross margins. As a result, you can expect to see positive impacts in the third quarter, the fourth quarter, and beyond due to these actions that also involve some of those charges.

Operator, Operator

The next question is coming from Skye Landon from Rothschild & Co Redburn.

Skye Wreford Landon, Analyst

Regarding the electrolyzer division, I would like to know more about the European electrolyzer projects set to close in 2025 and 2026. Can you elaborate on what needs to happen for these projects to reach a final investment decision? Is it the release of subsidies, confirmation of funding, off-take contracts, or grid connections? It would be helpful to understand what must occur for these projects to move forward.

Andrew J. Marsh, CEO

Jose, do you want to take that?

Jose Luis Crespo, Executive

Yes, thank you for the question. For an electrolyzer project to proceed, several key elements are necessary. These include having access to power, land, water, and securing funding, which comes from both government support and private investments. Additionally, it's crucial to have offtakers in place. We currently have projects at various stages, and the ones we anticipate reaching Final Investment Decision (FID) next year are further along in meeting these requirements. For instance, we have some projects in the U.K. that already possess the necessary land, power, offtakers, and funding. We expect their FID to occur by the end of Q3 or Q4. Each project has its own timeline, but all must meet these criteria to reach FID.

Andrew J. Marsh, CEO

Jose, you want to talk about Spain, too?

Jose Luis Crespo, Executive

Specifically, any project specifically, Andy or in general...

Andrew J. Marsh, CEO

In general.

Jose Luis Crespo, Executive

Okay. So the Spanish market is a market where we're seeing a lot of activity. It's a market that the government is helping and putting a lot of effort within the market to push some of these projects ahead. And it's also a market where you're going to see several projects coming online based on offtake agreements and offtake requirements in that market. We have several gigawatts of projects that we have quoted in the Spanish market, and we expect that some of those are going to come to FID in 2026, and we're going to see some business in the Spanish market. As you know, we already have in that market a pretty large project with BP in Castellon. It's a 25-megawatt project. And also in the Iberian Peninsula, not necessarily in Spain, but also in the Iberian Peninsula in Portugal, we have another project for 100 megawatts with Galp. So those projects are anchored projects, and we are seeing a lot of traction in those markets for ELX projects and many of them meeting the criteria that I mentioned before.

Operator, Operator

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

Andrew J. Marsh, CEO

Thank you for joining the call today. We are focused on continuous progress in our gross margin for revenue generation and on improving the business for the future. I appreciate everyone taking the time today and look forward to speaking with many of you throughout the quarter. Goodbye.

Operator, Operator

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.