Earnings Call Transcript - PLUG Q4 2020

Teal Hoyos, Director of Marketing Communications

Thank you. Welcome to the 2020 fourth quarter and year-end update call. This call will include forward-looking statements. The forward-looking statements contain projections of our future results of operations or our financial position or state other forward-looking information. We intend for these forward-looking statements to be covered by the safe harbor provision 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 regarded as guarantees 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, 2019, or quarterly report filed on Form 10-Q for the quarter end March 31, June 30 and September 30, 2020, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as 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 with new information. At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh.

Andy Marsh, CEO

Thank you, Teal. Good morning everyone and thank you for joining Plug Power's end of the year conference call. 2020, as everyone knows, was a very challenging year. We have been fortunate at Plug Power as we participate and witness globally the acceptance of hydrogen, especially green hydrogen, as critical to help lead the world off fossil fuels. Estimates have been made by experts that hydrogen can represent 18% to 23% of the world's energy by 2050 and is ramping today. We at Plug Power have been building our technology set for decades, waiting for this moment. Our work was more than technology; it was about building the first commercial market for fuel cells. Our first application was material handling which built the company, proved our technology set, and watched the full suite of products and new capabilities grow. Our turnkey solutions provide end-to-end support including selling hydrogen, building fueling stations, and providing aftermarket service, which really positions us today. Our relationships with Amazon and Walmart gave us insight into how to improve our offering, but also helped us identify the missing links in our portfolios. One of these insights was that large corporations' sustainability goals are real, and that’s where the market to expand green hydrogen was necessary. Green hydrogen also became practical over the last couple of years, closely linked to the declining costs of renewable electricity. This insight drove us to make three significant decisions in 2020. First, we purchased a leading electrolyzer technology company, Giner ELX, which has the electrolyzer technology to convert electricity to green hydrogen. Second, we purchased United Hydrogen, the first private company that built a large-scale liquid hydrogen plant. Finally, we made a commitment to build the first U.S. nationwide green hydrogen generation network, achieving 500 tons a day of capacity by 2025 and 1,000 tons per day globally by 2028. The macro trends toward a more sustainable world and the recognition of hydrogen's vital role in meeting these goals opened many relationships for us in the past year. Let me name a few: Brookfield and Apex both partnered with Plug Power to provide sources of low-cost renewable electricity to generate green hydrogen. By the end of 2022, we will have over 70 to 100 tons per day of green hydrogen available in the U.S. from Plug Power. Renault, a leading global auto manufacturer, recognized Plug Power's unique ability to offer full turnkey solutions to the light commercial vehicle market. They recognized from their experience in EVs that they need to offer more than just the vehicles, and a joint venture will formalize vehicle and fueling station sales by late second quarter or early third quarter. SK, the second largest Korean conglomerate, recognized that Plug Power was the only company able to offer a complete solution in the hydrogen industry. We will build everything from large-scale stationary products to hydrogen plants, electrolyzers, and other applications. We will also build a second gigafactory in Korea. The timeline for this joint venture has been accelerated and will be formally closed by mid-third quarter. Also, as you may have seen, SK finalized a $1.6 billion investment into Plug Power last night. Another step in our global green hydrogen story, Plug Power announced a deal with Spain's second largest renewable electricity supplier, Acciona, to create joint venture plans to build 100 tons of green hydrogen generation capacity on the Iberian Peninsula. We'll be announcing more partnerships in 2021. Now back to 2020. In 2020, we experienced a 42% increase in gross billings, achieving $337 million. We're now generating cash from operations, excluding the need for working capital, which is essential for growth. In 2021, we expect $475 million in gross billings with over 93% already accounted for in our plan. We've never been afraid of tough decisions. We accelerated warrants at the end of 2020. This decision will have the side benefit of aligning our GAAP financials with how we operate our business, because of large one-time non-cash charges that clear the deck for the future. With $5 billion in the bank, a thoughtful expansion plan, and a unique market opportunity, now is the right time for Plug Power to invest. Our goals for 2021 are clear: gross billings of $475 million, annual gross margins in the high teens, achieving 20% by the fourth quarter. We view gross margin expansion as a critical indicator that our investments are paying off. We also aim to successfully launch our two joint ventures with Renault and SK; to continue expanding our business through partnerships, acquisitions, and other relationships; and to position the Company to achieve $750 million in gross billings in 2022, setting the stage for our goal of $1.7 billion by 2024. Paul and I are now available for any questions you may have.

Operator, Operator

Thanks. We'll now be conducting a question-and-answer session. Our first question today is from Eric Stein from Craig-Hallum. Your line is now live.

Eric Stein, Analyst

So you have mentioned in the prepared remarks, the SK partnership obviously the investment closed overnight, but maybe there's some clarity into how it's accelerated since that announcement. How do you view the opportunity and maybe which areas do you think move faster than others?

Andy Marsh, CEO

Sure. So, Eric, when we made the announcement, I think I started out by saying I felt we were being conservative. We have developed actually six work streams in the development of this joint venture with teams meeting two to three times a week. We've identified certain business opportunities, quite honestly, that are much larger than we initially thought. I think the first three opportunities will be in large-scale power generation. I would expect we'll be shipping products later this year or early next year, which is not included in the $75 million plan. The second is SK’s real commitment to sustainability. I think you'll soon see electrolyzer products being moved over to SK for use again early next year. Finally, there's extensive ongoing work with hydrogen generation and fueling stations.

Eric Stein, Analyst

Got it. And just to clarify what I think, I heard that that's not in the $475 million, on the large scale.

Andy Marsh, CEO

Yes, that's not in the $475 million. As I mentioned in the prepared remarks, we have about 93% locked in at the moment. Usually, we're at the 75% level at this time.

Eric Stein, Analyst

Got it and maybe sticking with that topic. Can you get the four pedestal customers and materials handling, curious what type of mix you see from those four, the one recently added, but those four in 2021? And then, you typically don't give the four-year outlook this early in the year at least, I don't remember that you have. So I'd love to hear what visibility you have from the four customers you've got, and potentially some others that you add into that 2022 goal that you've given today.

Andy Marsh, CEO

Sure, so we have between those four customers and others, and Eric, those four customers probably represent 80% of our deployments here in 2020 and 2021. I would estimate that there’s already $400 million in-house that's available for shipment this year. I think one of those four will represent about 30%, and the rest will be split a little more evenly.

Eric Stein, Analyst

Got it. And just in terms of a little bit on 2022. I mean, maybe you have given the forward year and not the current year, but the forward year guide or outlook if early. But just curious you've got better visibility than you typically do in 2021, but what type of visibility do you have into 2022 based on their plans? And how does that compare to historical?

Andy Marsh, CEO

Yes, I mean, I think there are three items at play here that provide insight into 2022. Obviously, after all these years with many of these material handling customers—and I’ve talked about it before—we're not doing short term planning; we're doing three to five year planning. Therefore, there's considerable insight into their activities. The electrolyzer sales funnel is strong. This year, we’ll take that business and like we've been in material handling, increase it by a factor of seven or eight this year, ending in the $40 million plus range. We have a funnel that's close to $1 billion already built up for the electrolyzer business. Lastly, when I review especially with SK and some of the initial deployments, as well as with Renault, we feel confident about achieving our 2021 goals.

Operator, Operator

Our next question today is coming from Colin Rusch from Oppenheimer. Your line is now live.

Colin Rusch, Analyst

Can you provide an update on where you're at regarding specific projects and identifying sites on the renewable side for supporting the hydrogen rollout? And how thick is the queue in terms of the size that you could grow into as you start to see demand emerge?

Andy Marsh, CEO

So very clear, Colin. We have four sites, three of which are moving into the development stage. Two are in the Northeast, one in the Southeast, and one in California. As you know, permitting can take longer in California, but we actually own the land in California for the green hydrogen plant, in the valley around the area. We have over 15 to 17 renewable sites we're evaluating for generating green hydrogen, which are spread across the country. I think you'll see one in the Northeast, one in the Southwest, and one in Texas.

Colin Rusch, Analyst

Okay, as you look at those opportunities, is there an opportunity for you guys to also build some sort of regulation or storage-type applications adjacent to those sites that help stabilize the grid? Certainly, that's one of the opportunities for hydrogen in being the connective tissue for some intermittent renewables and the larger power grid, but are those sites being chosen with multiple purposes in mind?

Andy Marsh, CEO

I'm going to give you a wishy-washy answer: Yes, but not nearly as clearly defined as the generation mission. All these sites are grid connected. There will be opportunities based on wholesale prices. We have been thinking extensively about the issues surrounding that. First and foremost, we are committed to green hydrogen and providing our customers with green hydrogen. I can tell you we are considering the wind farm activities we're looking into in Texas. Interestingly, the wind farm we work with actually performed very well during the recent Texas storm. We are certainly looking at how to reintegrate wind back onto the grid at the right time. We’re also considering storage and generation, especially in light of recent events around the world.

Colin Rusch, Analyst

Thanks, Andy.

Andy Marsh, CEO

By the way, Colin, I think that’s the case which is going to help us a great deal regarding those learnings.

Colin Rusch, Analyst

Yes, that makes sense. Appreciate it. We'll take the rest offline.

Andy Marsh, CEO

Okay.

Operator, Operator

Thank you. Our next question is coming from Jeff Osborne from Cowen. Your line is now live.

Jeff Osborne, Analyst

Hey, good morning, guys. Congratulations on all the success so far. You've got a lot of irons in the fire for 2021. And I was just wondering if you could give us a sense of the operating expense trends and CapEx for modeling purposes as you gear up for the very heavy growth you've got for '22 through '24 that you talked about, Andy.

Andy Marsh, CEO

Sure. So Jeff, I would gauge CapEx at around $750 million with most directed to support the expansion of the hydrogen plants. We've done CapEx modeling for the next five years, and we still see a significant surplus on our balance sheet even with our aggressive plans to build out these hydrogen plants. To achieve our goal of 500 tons a day will require approximately $2 billion to $2.5 billion long term. As for OpEx, Paul, do you want to comment on that? Jeff, I would anticipate OpEx expenses may be up to 30% higher this year.

Paul Middleton, CFO

Yes, I think that’s right. I’m sorry, Andy, can you hear me?

Andy Marsh, CEO

Yes.

Paul Middleton, CFO

The signals are not so great, I apologize, but I think that’s right. In that 30% to low 30 range per quarter is a good number. I think one of the key focuses this year is that we will see growth in sales and gross margins. As Andy alluded, we're going to be investing in CapEx and some OpEx to support all these growth platforms. There are a lot of irons in the fire, and we see the opportunity to accelerate growth even further, so you will see some of that this year.

Jeff Osborne, Analyst

Got it. And then, the 30% comment, is that off the fourth quarter run rate or the aggregate number for all 2020?

Andy Marsh, CEO

Yes, I would use this. Go ahead, Paul. Jeff, can you hear me?

Jeff Osborne, Analyst

I can hear you, Andy. Just fourth quarter was up quite sharply. I just want to ensure I'm using this correctly.

Andy Marsh, CEO

No, I would use it on an annual basis.

Jeff Osborne, Analyst

Got it. And then, how are we proceeding along just given the heavy CapEx over the year as well as the upcoming years for these facilities? Are we at a point in time now where these sites can use leverage, or is this all going to be straight out of the cash balance?

Andy Marsh, CEO

I'll let Paul answer your question. Yes. Paul, are you there? Okay, I guess I'm going to have to take it. No, I think you're going to see leverage coming into play. You’ve made a good point. We've done modeling to ensure we have sufficient cash balances for our operations, but I think you will see some leverage in the second half of the year as we begin our buildup. There’s been considerable work on that, and we’re in a position where, conservatively, we’ve modeled equity funding, which we can do, but we don’t expect that to be the path forward.

Jeff Osborne, Analyst

And my last one for you, Andy. Just the two joint ventures, are we at a point in time now where you can confirm that the results of those JVs will be consolidated in terms of revenue, or will these all be below the line? That might be more of a question for Paul, but just in terms of the accounting treatment of the joint ventures themselves?

Andy Marsh, CEO

I know we’re working through negotiations to ensure consolidation, and I believe we are getting closer. Both partners understand its significance for Plug Power, as you know, Jeff, there’s a lot of accounting and legal work that goes into that.

Operator, Operator

Thank you. Our next question today is coming from Craig Irwin from ROTH Capital Partners. Your line is now live.

Craig Irwin, Analyst

Good morning and thanks for taking my question. I'll also say congratulations!

Andy Marsh, CEO

Good morning, Craig. How are you?

Craig Irwin, Analyst

Okay. I need to say congratulations to you. You had a phenomenal 2020 and let’s keep that momentum going in 2021. So congrats.

Andy Marsh, CEO

My Board agrees with you, Craig.

Craig Irwin, Analyst

Good. They should. Andy, one of the things we haven't discussed much is fuel cell trucks. Investors really want to see companies succeed in this market, given the potential to move away from oil and the potential for long-term economics, even on green hydrogen to be really interesting. Can you provide an update on what's happening with fuel cell trucks right now? Are there new partnerships developing? What's the status with the different customers you've disclosed to date?

Andy Marsh, CEO

So, Craig, I think the model we've used for Renault in Europe is one we're looking to replicate quickly. A good deal of our forward-thinking revolves around how to capitalize on this market. We’ve concluded we don’t want to just be first-tier auto parts suppliers, and the joint venture structure of jointly selling vehicles is key, as we’ve seen what happens when you’re just a parts supplier to the auto industry. We also have discussions underway in the U.S. and abroad, especially with a focus on heavy-duty vehicles. Two of our big customers will soon be participating in pilot programs. Furthermore, we’ve already collaborated with players such as Bussan. With Renault, we have an aggressive plan to begin rollouts in the fourth quarter or early first quarter with some initial deployments, particularly more in the light commercial vehicle space where applicable. As for green hydrogen, we believe that electricity under $0.04 per kilowatt-hour makes green hydrogen, particularly as a fuel, very competitive with grey hydrogen today. Sanjay has invested significant time contemplating how we can provide a better product and generate hydrogen with green hydrogen at similar pricing while ensuring margins for Plug Power. As you know, Craig, that’s precisely what our clients desire: being willing to pay a slight premium for green, but nobody wants to pay a massive premium to go green.

Craig Irwin, Analyst

Understood. That makes a lot of sense. My next question pertains to the infrastructure for fueling trials, particularly with potential small fleets of fuel cell trucks. Last year, you didn’t mention that Plug had retrofitted some of the fueling infrastructure for forklift fleets so they could potentially start with fuel cell truck trials in distribution centers. Can you provide an update on that? More importantly, Tesla generates $400 million quarterly, a significant portion of which comes from its supercharger network under California Incentive Programs. Can you talk about the potential to leverage those incentives by building out the network for your customers? Have applications been submitted? When do you expect this to be achievable?

Andy Marsh, CEO

If I were to address that, I'd reference two examples. When we consider the LCFS credits in California, we believe we can achieve competitive CI scores, particularly since we aim to move hydrogen with green hydrogen trucks at the pump. This validity allows us to provide credits potentially up to $4 per kilogram, which significantly cuts our costs. The hydrogen provided at this competitive price shifts in comparison to diesel energy. Additionally, in Congress, there are discussions surrounding the Biden Green Climate plan, suggesting up to a $2 credit per kilogram for green hydrogen, which reinforces the competitiveness of green hydrogen against grey hydrogen. We anticipate ample government support and credits, particularly once Sanjay has his first 100 tons operational, offering substantial long-term margin enhancement for Plug Power.

Craig Irwin, Analyst

Excellent, thank you, Andy, and thanks again for taking my questions.

Andy Marsh, CEO

Thank you, Craig. Take it easy.

Operator, Operator

Thank you. Our next question today is coming from Jed Dorsheimer from Canaccord Genuity. Your line is now live.

Jed Dorsheimer, Analyst

Hey, thanks, Andy. Thanks for taking my questions.

Andy Marsh, CEO

Good morning, Jed. How are you?

Jed Dorsheimer, Analyst

I'm doing well. Thanks.

Andy Marsh, CEO

So I’m going to do a quick check here. I just want to know if my partner is back on the line with me.

Paul Middleton, CFO

Yes, Andy. I am here. I don’t know why this message got cut off, but I'm back.

Andy Marsh, CEO

Okay, all right, Jed.

Jed Dorsheimer, Analyst

Perfect. I have a question related to the material handling side, which might be better served for Paul, as it pertains to warrant structure. If I look at two of your four major customers, I’ve never seen anything like this in 20 years. It’s a fantastic situation where your customers are literally getting paid to take the product based on the warrants from 2017 because your stocks have performed so strongly. With the expiration of Amazon’s warrants, I'm curious how this changes visibility in terms of, or how do you, Paul, think about the bookings when this starts to shift away since I’m assuming Walmart would also exercise the expiration here?

Andy Marsh, CEO

I’ll take that question before handing it off to Paul. So, Jed, the warrants have not been exercised by most of them. Both Walmart and Amazon have a vested interest in Plug Power’s financial success. They wouldn’t strike any basic price and they are likely pleased with our outcomes. They are committed to seeing both companies thrive, as hydrogen is essential for long-term climate goals, and as partners, they’ve proven we can deliver the necessary products. I can tell you that one of them has already introduced me to two of their other investments in the last three weeks to help us grow and propel this business beyond just direct involvement. With that said, Paul, I’ll turn it over to you.

Paul Middleton, CFO

Thanks, Andy. The key comment I want to make is that the warrants are expiring for the one customer. This situation is accurately reflected in the entire financial scope. There won’t be additional charges in the future, making it simpler to interpret results as we move ahead. As we transition, we’ve been using gross billings to communicate revenue and sales activities without those charges. I expect that number to align much more closely with GAAP revenue numbers, making it easier in the future as we progress.

Jed Dorsheimer, Analyst

Got it. And just to be clear, I’m not challenging their commitment. However, if I look at it, if their strike price is lower than your stock price, there’s a significant amount of money involved there for them to take your product. So it changes the relationship somewhat once that expires. I guess that was the core of my question. I think you’ve answered it regarding Walmart, isn't?

Andy Marsh, CEO

To be clear, Jed, and I'm not naming specific customer names, many of these companies still possess a lot of unexercised warrants.

Jed Dorsheimer, Analyst

Got it, Amazon as well?

Andy Marsh, CEO

Yes, Amazon as well. The Amazon warrants from the last two years have also not been exercised.

Jed Dorsheimer, Analyst

Just pivoting a little bit to the upstream, I was wondering if we looked at the electrolyzer side of business, and by the way, congratulations on the SK deal. That looks like a fantastic deal. When we examine the difference between reclamation using methane versus green, one significant difference is that natural gas or chemical companies have expertise in the downstream for complex plumbing systems. How are conversations with windmill companies evolving? Are discussions underway for more partnerships that involve bringing in downstream or midstream refiners and how might that affect market dynamics?

Andy Marsh, CEO

I think you're pondering an interesting question about how hydrogen will be distributed or transported, particularly as hydrogen needs to meet quality and standards for fuel cell engines. There is a slight difference in generating hydrogen. However, initially, most hydrogen that is green will be transported in liquid form, much like it is today. In the future, you will observe more onsite storage being utilized for hydrogen generation, some of which will be in caverns for very long-term storage, like natural gas today. And finally, there have already been discussions happening with Europe about constructing facilities near pipelines to begin injecting hydrogen directly into the natural gas pipeline. We plan to start with only a few percentage points then gradually increase, so that’s already part of our thought development. However, as someone from Philadelphia, I can assure you there's no need to see the smoky emissions that used to characterize those industries.

Jed Dorsheimer, Analyst

One last question then back to the queue. Just as a reminder, if we look at this year, the vast majority will still be from material handling and selling the fuel cells as well as the equipment supporting that market. Can you remind us of the 2024 guide in terms of the breakdown of the business?

Andy Marsh, CEO

Sure. It’s an interesting point. We expect a transition to occur in 2023 where other businesses may surpass material handling. In 2023, we expect material handling to account for approximately $750 million, while hydrogen electrolyzers could reach around $500 million. The rest will involve large-scale stationary products and on-road vehicles.

Operator, Operator

Our next question is coming from Amit Dayal from H.C. Wainwright. Your line is now live.

Amit Dayal, Analyst

Andy, you secured solid partnerships on the downstream side concerning distribution with Brookfield, SK, Renault, etc. Do you need partnerships on the upstream side with renewable energy companies to complete this value chain?

Andy Marsh, CEO

Help me with that, Amit, because I'm perhaps not understanding completely. I think Brookfield is providing us renewable electricity, and I might be missing something.

Amit Dayal, Analyst

Okay, so do we need others like Brookfield or some of those types of partnerships?

Andy Marsh, CEO

I think you will see more of those partnerships. So to answer your question, there will be additional renewable partners, even here in the United States. I think you’ll likely see announcements in the foreseeable future.

Amit Dayal, Analyst

And then just moving on to the 4Q'20 results; perhaps this could be for Paul. It appears there could be some green one-time costs around $43 million to $44 million within the fourth quarter. Within this, you referenced hydrogen supplier issues; could you provide any insight into this and whether these were one-time costs that have been resolved? Or do you anticipate any other one-time costs potentially occurring in the upcoming quarters?

Paul Middleton, CFO

Certainly, Amit. We faced a force majeure situation close to year-end with one of our hydrogen producers, which we managed. Events like this occasionally incur certain costs, but they don’t happen frequently. So I would agree with you on that aspect. Additionally, similar to many companies, despite our successes and growing new platforms, we’ve encountered some challenges related to COVID in terms of operational navigation. We observed some events from this as well. However, it’s worth noting that there was extensive strategic joint venture and business development activities occurring in the last couple of months, which we’ve been actively preparing for.

Amit Dayal, Analyst

And then just from a margin perspective, as we move into '22 and '23, as Andy mentioned, if material handling is going to begin to become a smaller portion of revenues, how should we expect margin impacts from this shift in revenue mix?

Andy Marsh, CEO

Paul, do you want to take that?

Paul Middleton, CFO

Yes, can you hear me?

Andy Marsh, CEO

Yes.

Paul Middleton, CFO

One thing we’ve learned is that scale is crucial. As Andy mentioned, we are utilizing our core technologies and resources to enter these new markets, which won’t rely wholly on independent operations. Therefore, we foresee a significant growth trajectory, and our projections indicate margins should be in the high teens this year and potentially approaching 20% or more on a run rate basis by year-end. Expect to see these margins advance as we continue to grow and scale.

Amit Dayal, Analyst

Got it, Paul. Thank you for that.

Andy Marsh, CEO

Okay. Take it easy, Amit.

Paul Middleton, CFO

Thank you.

Operator, Operator

Our next question is coming from Tristan Richardson from Truist Securities. Your line is now live.

Tristan Richardson, Analyst

Just a quick question on the data side. I believe during the last call, you mentioned a possible data customer this year. Do you still see that as a case? Can you talk about the scale here, either with this customer opportunity? Is it possible you could see a data customer elevate to a pedestal customer level, or is this still an early pilot type deployment for now?

Andy Marsh, CEO

Good question, Tristan. We will be conducting our first large-scale stationary backup deployment with one of the largest data center customers, and those shipments are in progress as we speak. This customer could potentially evolve into one of our largest pedestal customers, with plans to roll out over the next few years. The customer has concluded that fuel cells and hydrogen will prove to be very cost-competitive compared to large-scale onsite diesel generation in the coming years. Moreover, sustainability is a significant topic for them.

Tristan Richardson, Analyst

And then, going back to the margin question, talking about accelerating margins through the year, kind of exiting at the high teens for instead of a flat run rate. Is this merely a result of scale, or is there the expectation that fuel supply will also be margin-accretive in the future as a driver or is that more seen further out into '22 and beyond?

Andy Marsh, CEO

I’ll quickly answer and then hand it over to Paul. It won't be until late 2022 that the hydrogen margins will significantly increase until we have our larger sites operational. There will be improvements this year; we're expanding our site in Tennessee, and we're acquiring approximately 15 to 20 traditional sites in Tennessee, which will boost our margins. However, the real growth for margins will primarily materialize in 2023. Paul, do you want to respond?

Paul Middleton, CFO

That’s correct, Andy. Across all the businesses, we're experiencing similar positive trends. Overheads are being optimized, supply chains are improving, we're making design enhancements, and there are vertical integration opportunities being leveraged. These factors collectively boost margins across all categories, which we expect to see even in our current field business as we expand. So, we’ll see margin growth mainly from scaling, but as Andy mentioned, substantial contributions from the fuel side will occur mid-2022 into 2023.

Tristan Richardson, Analyst

And just one last question; I think on the update call, you cited that the auto industry with regard to materials handling may actually involve a more intense unit basis per site. Is the 500 to 700 units per site still appropriate for high-level estimations? And is it anticipated that the four sites will remain the immediate potential for your pedestal customer?

Andy Marsh, CEO

Generally, that figure is an accurate projection, although individual sites can vary. For example, our BMW facility in Spartanburg has over 700 units. Some may not automatically include 700 fuel cells depending on how the factory is structured; there can be gradual deployments there. However, that estimation does hold, and I believe there are opportunities with the new pedestal customer that could lead to more rapid expansion.

Operator, Operator

Your next question is coming from Moses Sutton from Barclays. Your line is now live.

Moses Sutton, Analyst

In the 2024 guidance, which mentions $1.7 billion, could you provide a breakdown, particularly regarding third-party hydrogen? I know you group them both with electrolyzers, but how do you foresee long-term off-take from those contracts? As you complete your plans, will you experience rolling contracts, or do you anticipate more spot price exposure?

Andy Marsh, CEO

The reason for combining those figures is that there are opportunities in the electrolyzer space which contribute to both inputs and outputs, making it challenging to separate them entirely at this moment. Specifically, we’re evaluating one deal that could be huge and could favor us significantly in terms of off-take agreements for green hydrogen. That being said, there’s been considerable effort on input negotiations, which have been excellent as we focus on contract structure, how the pricing of renewable sources, and how third parties might bridge any inherent gaps. Although some customers, for instance, the big material handling customers, will operate with a set price, we also implemented a structured pricing approach for electricity to maintain control. While we anticipate spot market opportunities for selling at enhanced margins, our priority remains to ensure that customers—particularly commercial ones—can access competitive pricing for green hydrogen, comparable to gray hydrogen and diesel fuel, which will expedite their deployment decisions.

Moses Sutton, Analyst

That’s quite helpful, thanks. I noticed the letter lacks EBITDA guidance or reconciliation. Is that metric no longer going to be provided? What would a general range look like for 2021, and could you provide an update on the 2024 goals for the $1.7 billion?

Andy Marsh, CEO

Based on that, Paul, I would estimate 2021 revenue and gross billings almost equal, Moses, with the acceleration of the warrants. Therefore, we anticipate $475 million in revenue, gross margins in the high teens, with expenses projected to be approximately 30% higher than last year's run rate. Paul, could you elaborate?

Paul Middleton, CFO

Yes, okay.

Moses Sutton, Analyst

And lastly, regarding Walmart tender notices. I noted in the letter that you mention 9,500 or above 9,500 in operation. Recently, you noted approximately 10,000 or more operational units as of last May. Were any units taken out of operations, or am I overlooking key differences in the metrics?

Paul Middleton, CFO

I can ensure you that we've deployed more units. The number of Walmart’s operations has been growing this year, as noted; we're moving into other applications within their internet distribution centers. Currently, we have three sites operational with more coming soon. Moses, we can clarify this for you, but I can confirm our unit sales are increasing and the business is thriving.

Moses Sutton, Analyst

Got it, thanks. Okay, great. I’ll take that offline. Thank you.

Operator, Operator

Thank you. This question comes from Paul Coster from JP Morgan. Your line is now live.

Paul Coster, Analyst

Yes, thanks. Good morning. Thanks for taking my question.

Andy Marsh, CEO

Good morning, Paul. How are you?

Paul Coster, Analyst

I'm good. So, I noticed in the press release that you're planning to deploy $125 million of expense in New York State to develop the gigafactory, which I'm sure is very welcomed there. This cost seems high compared to my previous understanding of the gigafactory costing about $45 million to $50 million. Am I misreading this?

Andy Marsh, CEO

I think part of that dollar estimate pertains to anticipated expenses over the coming years, specifically for personnel.

Paul Coster, Analyst

Should we assume that gigafactory CapEx remains in that $50 million range with those expenses being complementary?

Andy Marsh, CEO

Yes, that would be correct, Paul.

Paul Coster, Analyst

It seems fairly modest for CapEx, which is great, especially as it suggests that barriers to entry for others are relatively low. Given that there’s IP and know-how involved, how do you respond to that thought, Andy?

Andy Marsh, CEO

That’s an interesting consideration. First, you have to have customers, and you need technology. We have the expertise that has been developed over 30 years, particularly in MEA development. Moreover, our teams have valuable experience in manufacturing fuel cell stacks and enhancing their processes over 25 years. Secondly, the location plays a role; we selected our facility due to its power potential, allowing us to build large-scale electrolyzer systems. It's important to note that we likely won't have such advantages with future facilities. As a result, you'll see costs rise by 25% to 30% higher.

Paul Coster, Analyst

What about the argument that it won’t be high barriers to entry for those with the expertise to enter the gigafactory business?

Andy Marsh, CEO

I would argue that first, you need to have customers; next, you need to have the right technology, and we have those individuals experienced in developing MEA processes. Furthermore, it’s important to have solid financial backing to make the necessary investments in building the facility and sustaining operations. If you take a moment to consider the site itself, we’ve secured incredibly low electricity rates, enabling us to support this activity. Lastly, demand serves as a critical factor in determining success, and Plug Power is already considering future gigafactory expansions to enhance production capabilities.

Operator, Operator

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Andy for any closing comments.

Andy Marsh, CEO

Thank you, everyone, for joining the call today. We look forward to speaking with everyone during our first quarter update. Thanks again, and talk soon. Bye now.

Operator, Operator

Thank you. This concludes today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. Thank you for your participation today.