Greetings, welcome to Plug's fourth quarter and year-end 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Teal Hoyos, Senior Director of Marketing and Communications. Thank you. You may begin.
Thank you. Welcome to the 2022 fourth quarter and year-end 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 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 Factor in the annual report on Form 10-K for the fiscal year ending December 31, 2021, subsequent quarterly reports on Form 10-Q, and other reports we file from time to time with the Securities and Exchange Commission. These forward-looking statements speak only as of the day in which the statements are made, we do not undertake or intend to update any forward-looking statements after this call or as a result of new information.
At this point, I would like to turn the call over to Plug's CEO, Andy Marsh.
Thank you, Teal, and all those who have joined us on the call today. Our shareholder letter was made public 30 minutes ago, and as previously discussed in January, our performance did not meet our expectations. We attribute this primarily to 3 factors: obstacles while encountered while introducing new products, delays in constructing our hydrogen plants, and macroeconomic conditions that affected the cost of natural gas, resulting in a significant increase in the cost of our hydrogen. Despite the difficulties we faced this past year, I firmly believe that our efforts in 2022 will serve as the foundation for Plug's success over the next 5 years. Allow me to take just a few minutes to explain how all the pieces fit together. Plug is actively pursuing every aspect of the hydrogen economy, including expanding the hydrogen ecosystem and establishing top-tier manufacturing and supply chain capabilities.
One of our major advantages is the distinguished list of customers, including Amazon, Walmart, New Fortress Energy, and great partners like SK and Renault. Moreover, our growth plans are supported by a policy environment that promotes renewables such as the U.S.A.'s IRA legislation and REPowerEU. We anticipate that our broad efforts across the hydrogen ecosystem will become apparent this year. Our hydrogen generation facilities, for instance, will play a crucial role in this effort. Our first green hydrogen plant in Georgia is set to begin hydrogen production early this year. However, this is just the start of our plan to expand our production of 500 tons per day across the United States by 2025. We're also building green plants in Europe, including projects in the Port of Antwerp, Bruges, and in collaboration with our partner, ACCIONA, in Spain.
Our plants will utilize Plug electrolyzers and cryogenic equipment to produce and deliver liquid hydrogen via Plug trailers. As part of our aggressive strategy, we also will provide products such as our electrolyzer platforms, stationary products for EV charging and peaker plants. We're also developing on-road vehicles through our JV partner, Renault. All of these products will be marketed and sold by our JV partner, SK. We believe that our manufacturing supply chain capabilities are crucial differentiators in our industry. The state-of-the-art facility we have in Rochester and Albany are unrivaled in the sector. Additionally, we have formed valuable partnership with partners such as Johnson Matthey, which grants us access to invaluable product development and manufacturing expertise, as well as essential elements that are crucial to scaling the industry.
At Plug, we place a high priority on the advantage of large-scale manufacturing, which we believe will accelerate our business growth and drive profitability. Well, some may doubt our capacity to achieve all these tasks simultaneously. We have confidence that our 4,000 global employees and partnerships can make it possible. The favorable business environment for sustainable solutions will benefit all Plug stakeholders. By the end of 2023, we aim to generate $1.4 billion in revenue, commission more than 200 tons of liquid green hydrogen plants and become the largest global player, exceed $400 million in electrolyzer sales, deploy 30 megawatts of stationary power products, which will serve as a substantial source of recurring revenue for Plug, finally, clearly demonstrate the path to profitability to all our investors.
I do want to ensure complete transparency by acknowledging the potential challenges that may arise during our business activities throughout the year. Scaling new product platforms and building first-of-a-kind hydrogen plants involves taking into account design and manufacturing learnings, especially for complex products like our electrolyzers and stationary products. Based on my experience, design issues that were not initially considered often arise within the first six months, and supply chain and manufacturing challenges tend to emerge during the first year. As someone who's been involved in introducing new platforms for many years, I can confidently say that it's unrealistic to expect flawless product launches. However, we believe that our plans are achievable and have built in some buffer in our projections for 2023. Finally, I believe at the end of 2023, no one will question Plug's ability to scale the hydrogen economy.
By 2026, we expect to generate $5 billion revenue and $20 billion by 2030. We are committed to achieving our vision of being the leader in the hydrogen economy and will continue to build and dream accordingly. Paul, Sanjay, and I are now open to take your questions.
Thank you. Ladies and gentlemen, at this time, we will conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from James West with Evercore ISI. Please state your question.
Hey, good afternoon, guys.
Good afternoon, James.
Andy, I like what you're doing in Europe here. You're getting more aggressive. I know you guys started kind of with the U.S. build-out, but now with Antwerp, and especially with the JV partner in Iberia, it seems like that could be, you know, could accelerate into many more plants in that area of the world. Is that a fair assumption to make?
That is a fair assumption to make, James. Our team has been particularly focused on the Nordic regions. When we think about hydrogen generation in Europe, those are really the two areas. You know, that southern portion of Europe, such as Spain as well as the Nordic region, where you have, you know, accessible hydropower and wind power, which we think makes a lot of sense.
Right. Okay. Got it. Then on the EV charging front, as this has been emerging, could you characterize kind of where you're seeing that demand and maybe the level of demand that you're seeing?
Yeah. What we're seeing, and I think, James, you're well aware of the challenges that folks have in bringing transmission lines.
Right.
To support fleets of electric vehicles. As folks are aware, we have some large customers who are looking to deploy EV vehicles. On the EV side, the first deployments will be last mile delivery to charge EV vehicles because it's much easier to bring hydrogen in a facility 70 miles away to generate the fuel using our stationary power products to power the vehicles. We also see and our investors will see announcements over the coming month about, you know, first-generation peaker plants where we'll be deploying electrolyzers, say something, James, in the 8-10 megawatt scale at first.
Okay.
Supported by our stationary products. That's a real area of focus at the moment.
Okay. Very helpful.
The combination of those two activities support the 30 MW.
Gotcha. Okay. Perfect. Thanks, Andy.
You're welcome, James.
Our next question comes from Manav Gupta with UBS. Please state your question.
Guys, you recently announced a long-term strategic partnership with Johnson Matthey. Help us understand what they bring to the table, why this partnership is important to you. Does it kind of ensure that future supply chain issues do not arise? Just help us walk through that, please.
Sure, Manav. This. Thank you for the question. We really believe when we take a look at Johnson Matthey has great capabilities when it comes to being able to source precious metals, which is really critical in this industry, but also have been deeply involved in what we think are really interesting product development work in MEAs. We use their technology today. We believe that one combining Plug strength in applications as well as MEA developments with Johnson Matthey gives us a much stronger product development platform for both our electrolyzers and fuel cell business. We also believe that again, thinking of scale manufacturing, where we're looking up to putting a 10-gigawatt plant here in the U.S. with Johnson Matthey, much like in thinking about something that looks like the Tesla plant in Nevada.
We think that's an added strength. Obviously, when you start thinking about recycling precious metals, no one's better in the world in that than Johnson Matthey. I think this provides Plug a unique technical advantage, manufacturing advantage, as well as, addressing some of the larger concerns in the industry about the availability of precious metals.
Thank you. Very clear. My very quick follow-up is you sometimes-
Yeah.
-Don't get enough credit for your materials handling business, and we are looking at, you know, You're basically looking to add about 80 new material handling sites in 2023. If you could quickly talk about that?
Sure. You are right. It gets lost in the shuffle. What I really like about the mix is it's really, a lot of it is some of our traditional customers like Walmart, we have a fairly aggressive plan this year with them. Also, during the past year, we announced three new Pedestal customers. Those Pedestal customers, folks like Asda, are looking to start deploying at scale. That's a benefit not only here in North America, but building out our European capabilities. Yes, it does get lost in the mix, and it will represent about half of our... When you combine it with the hydrogen service that they'll use, it's almost half of our business in the coming year.
Thank you.
A big jump from last year. Thanks, Manav.
Yes. Very clear. Thank you for very detailed responses.
Yeah.
Our next question comes from Alex Kania with Wolfe Research. Please state your question.
Thanks. Good afternoon. I noticed on the discussion on the sales funnels for the electrolyzers that, you know, a substantial portion is related to, I guess green hydrogen/green ammonia. You know, we've certainly seen a lot of blue hydrogen announcements in the last even few weeks. I'm just kind of wondering, it sounds like there's a lot of demand for green ammonia, but just, what's your sense in terms of the timing of when we might be able to see, you know, larger type of announcements?
Yeah. I will let Sanjay take that because I know Sanjay's been deeply engaged in that activity over the past month. Sanjay, maybe you can give Alex some insight.
Sure. Happy to do that. Again, Alex, as you know, right, we've talked about it before. When you think about our funnel, again, I just wanna be clear, our funnel, it's well in excess of $30 billion. When you break down what's in that funnel, almost 50% of that is really related to e-fuels, including green ammonia type opportunities. Now, we have some real meaningful activities going on here in North America. In terms of the timing of when we might be able to talk about that, I, you know, I believe that we'll be able to share something incremental with you all during 2023. These are, you know, ranges from multiple sizes of projects, some being pretty substantial, you know, opportunity in, you know, sort of the Panhandle Texas area, if you really think about it.
Give us some time. There's a lot going on behind the scene and really looking forward to actually talking a lot more about it, even in North America, you know, as you actually really look at, you know, when 2023, sort of like in the second half of the year.
Great. Thanks. Just a follow-up on a discussion on SK and expectations of stationary power, which I think was like 400 megawatts by 2025. How do you characterize that? Is that, you know, fully kinda contracted, or is it kinda more just some understanding? I'm just kinda curious about how you see those deliveries playing out.
Yeah. That's a good question. View 2023 out. By the way, I'm gonna take another step back. We have a good deal of business activity which will occur with SK this year, including supporting electrolyzers in South Korea, bus fleets, and fueling stations, where we have quite a bit of business in fueling stations that will be seen as revenue this year as that business begins to grow.
This year is really a testing and verification of our stationary products. Once that is complete, we will lock in the 200 megawatts and 400 megawatts worth of products. Simultaneously, which should give investors a little more confidence, we are also working on the details of the MEA and manufacturing plant in South Korea, to support that 200 megawatts-400 megawatts per year size deployments between 2025 and 2040. Those efforts, there is a lot of development and manufacturing coordination going on between Plug and SK. I hope that's helpful.
Great. Thank you very much.
Okay.
The next question comes from PJ Juvekar with Citi. Please state your question.
Afternoon, PJ.
Yes. Hi. Hey, Andy, and everyone, good afternoon. You know, my question is that given the delays that you had in 2022 in building these hydrogen plants, you haven't changed the 200 tons per day number for 2023. Wondering what gives you confidence to keep that guidance the same? Maybe Sanjay, can you talk about that?
Sure. Happy to. Andy, I can jump in here. Happy to do that.
Yes. Well, well, well, PJ, if PJ asks to talk to you, Sanjay.
Absolutely. PJ, a couple of things, right? I think, you know, you guys must have seen that there is some update in the slide that we provided here in this shareholder letter, even more since the one that we had before. As you can see, there is a check mark in Georgia from a commissioning standpoint, right? You can see that in the slide. We are talking about getting Georgia starting to produce by the end of this quarter and in early Q2 from a full production standpoint. There's been a tremendous learning, PJ, that we have had with the plant in Georgia. Let's not forget, it's a first of the kind green hydrogen liquid plant in the world that has not been built in the past, right? We've learned a lot.
With that learning, what that has allowed us to do is when you then take that learning and know-how into our plants in Texas, into our plants in New York, you know, we actually are able to leverage a lot of that, right? As a matter of fact, in Texas, it's gonna be obviously our electrolyzer, our liquefier, but we're now able to do turnkey EPC contract, right? Put some of that, you know, execution capability even more on that turnkey EPC. When it comes to New York, we've actually spent a lot of time looking at the, you know, fatal flaw design analysis. You know, substation work is moving ahead. There's a lot of learnings that we've been able to leverage from Georgia.
You know, when you look at the list of all the projects, Georgia this year, Louisiana this year, Tennessee expansion, ongoing work, then we actually have bought about 45 tons of liquefier, one of the key long lead time item, which we can also leverage for some feed gas opportunity in terms of 2023 opportunity. Finally, Texas is a 45-ton plant. New York is a 75-ton plant. One point, PJ, maybe we could do a slightly better job than maybe what we've done in the past is there is about six -month lag, right? When we talk about commissioning to full production, no different than how solar and wind industry actually talk about commissioning to commercial operation date.
When you take all that into consideration and look at all the list of those projects, 200 tons of commission, we feel very good about by the end of the year. By the middle of 2024, that 200 plus tons will be producing at full capacity, and that's how we're looking at it.
Great. Thank you. Andy, I do wanna talk to you.
Okay.
The question is in, you know, talking to other hydrogen producers and industrial gas companies, everyone is struggling to figure out, you know, the IRA benefit that you get, how much of that the producers will keep and how much of that will they pass on to their customers. I think I get different answers.
Mm.
From different people. But just wondering, what are your sort of big picture views on that topic?
Yeah. PJ, I think it will be a... I think, let me take a step back. I think what it is in 2025 will be different in 2030, 2032. That initially the producer will be able to capture a higher percentage of the, of the Production Tax Credit. Let's, let's circle in the 70% range. I think as time goes on and there's more competition, that the ability for the producer to capture that level, I think, decline. If I was... crystal balls are tough, but I would think in 2028, 2029, you're probably talking 30%. During that whole time, you're, especially for plants you have already online, you've already had the payback for those plants and other items. That's how I think it'll play out, PJ.
I have real life data, at least initially, that probably is pretty fair estimate of the initial number I'm putting out there.
That's fair. You think there is an advantage to being the first mover in this space with the early years?
I know. I feel very strongly about that based on contracts we've already signed.
Great. Thank you. I'll pass it along.
Okay.
Our next question comes from Amit Dayal with H.C. Wainwright. Please state your question.
Thank you, guys. I appreciate you guys taking my questions.
Hi, Amit. Nice to talk to you
Hi, Andy. Thank you. Thank you. Same here. just with respect to, you know, the questions from the recent caller. The 200 tons that have been commissioned by the end of the year and then getting commercialized fully by mid-2024, you know, in that context, how do we bridge this $1.4 billion revenue target for 2023? If you could just break out the segments between material handling, fuel electrolyzers, I think that would be helpful to listeners.
Sure. Paul, do you want to take that question?
I think, first of all, you know, material handling will be a meaningful part of our sales, you know, somewhere between, you know, 50%-55%. Electrolyzers are gonna be a pretty meaningful part as we've been talking about that. That's probably roughly 30+%. Stationary is gonna be a meaningful part of our program this year. I think publicly, we've talked with a target of up to $100 million of sales in that product line. Then, you know, fuel, you know, is probably makes up most of the rest. You know, and I put in fuel, that fuel category, you know, other cryogenic equipment, and, you know, liquefiers and tankers and things like that. You know, the real.
What we're gonna see as we turn on those plants this year and ramp it on into next year, that fuel will become an increasingly more meaningful part of the mix, as we turn those facilities on and moving into 2024. For this year, that's kind of how that roughly breaks down.
Thank you, Paul. Appreciate it. Last one from me, guys. You know, with respect to the green hydrogen network coming up now, are the offtake agreements for this already in place, or are you working on those? What type of contracts is annual contracts that you might be setting up or monthly contracts? Any color on how this will play out?
Sanjay, do you wanna take that one for Amit?
Sure. Happy to do that. Hey, Amit. How are you? you know, Amit, as we briefly mentioned in the shareholder letter, right, we have almost 200 tons of offtake agreement in place right now, you know, between our Pedestal customer like Amazon, Walmart, and others. you know, again, these are all done from a portfolio perspective, if you would, right? There's some situation where maybe an offtake agreement is from one particular plant and a meaningful amount of that. In other situation, it's actually the network where they are actually allocated a certain amount of capacity from plant A, B, C, and D, if you would, right? Now, from a structuring standpoint, so there are situations where we have as long as a seven-year contract from a take or pay standpoint.
There are situations where we have a five-year contract, right? We also have a lot of negotiation and a discussion going on at this point in time, where we're looking at some of the swap agreements, right? We're also looking at, you know, some of the players in the industry that might have other types of specialty gas, but not hydrogen in a meaningful amount today. We're having discussion with folks like that. From a contracting standpoint, that's what you can see right now, Amit.
Understood. Thank you, Sanjay. Appreciate it. That's all I have for you. Thank you.
Okay. Thanks, Amit.
Our next question comes from Eric Stine with Craig-Hallum. Please state your question.
Hi, everyone.
Hey, Eric. How are you today?
Hey. I'm doing okay. Thanks.
Good.
Maybe just on gross margin. Thanks. Just on gross margin, obviously a pretty critical objective. Can you maybe just talk about some of the signposts that we should look for in 2023, you know, to kinda judge the progress towards some of your long-term goals? In 2023, can you just talk about the progression? I mean, obviously, you know, I would think the low natural gas prices here early in the year are what maybe impact the linearity throughout the year.
Yeah. Paul and Sanjay, do you wanna take that one?
Yeah. I think.
Paul, you can go first.
Sure. A couple things, Eric. There's some near-term events that are, for us, real important milestones. You know, Sanjay talked about turning on the Georgia plant and starting to scale that up. That's a real important milestone to show, and it'll start being accretive, you know, very quickly. As we move forward in the course of the year, the additional facilities will be incrementally accretive as well. That's an important one. Scaling up the electrolyzer, you know, production, as we talked about. You know, we've already seen a substantial improvement in output. As we talked about in the letter, you know, moving up to 100 megawatts per month, you know, in the next month or just, you know, 6 weeks, another major milestone.
Lastly, you know, the stationary, large-scale stationary product. You know, we're gonna be shipping the first large-scale systems in Q2. Those are near-term milestones that are very important for us because, you know, it's really gonna come from shipping more product, which is a big chunk of what we're gonna do this year, and that is already accretive to leveraging the facilities which we get through volume. The gas improvements that we already see with natural gas prices abating as well as turning on the green hydrogen facility. All those are important. In terms of cadence, you know, clearly, you know, we're gonna still have kind of the one-third, two-thirds phenomenon seasonality of our sales for a number of reasons.
Volume helps a lot. You're gonna see a bigger impact in the second half, both in terms of the volume as well as those cost down efforts. You will absolutely see progression and improvement in Q1, you know, sequentially and moving on through the course of the year, given those, you know, the improvements we're already seeing, and things like the natural gas, you know, cost abatements that we're already seeing benefits now. I think, you know, as the year progresses, you know, we get to Q4, it's gonna be a big quarter for us, and a big year in terms of profitability.
Got it. Thanks for the details there.
Sanjay, you wanna comment? Sanjay, do you wanna comment on natural gas at all? 'Cause I know there is a slight delay.
Right. Eric, as you recall, right? There's about a quarter delay before you see the benefit of the decline in the natural gas price starting to flow into our cost of molecule. Another thing which is and by the way, when we talked about our margin cadence for the fuel business, you know, we were thinking about natural gas maybe at around $4 in MMBTU by the end of the year. Clearly, the numbers are much lower than that. If this trend holds, that certainly would be very helpful. One final thing, I'll be remiss if I didn't mention this. As our plants come online, the cost actually is 1/3 for us versus what we're paying in the market today.
That will actually have a pretty meaningful impact to how the trajectory changes for our fuel margin business throughout 2023.
Yep. No, absolutely. Thanks for that. Maybe just to follow up on a previous question. When you think about the credit and the... You talked about a 70% capture rate. I mean, if I'm doing the math right, I mean, that would seem like, you know, roughly $350 million a year incremental. If I think about, well, you're planning to double green hydrogen production, you know, over the next, call it, three, four years beyond 2025, but your capture rate is, you know, a little bit more than cut in half. I mean, that's a, that's a number, that $350, correct me if I'm wrong, but that's a number that could be pretty constant as we look out on an annual basis.
Do you wanna comment on that, Sanjay? I guess I'll just make one comment, and then I'll hand it off to you.
Sounds good, Andy.
...Sanjay. That's assuming that our plans for what we build stays flat, which I...
Yep
...Think probably we'll continue to build more plans. Go ahead, Sanjay.
Yeah. Eric, math-wise, you're absolutely right? At 500 tons, 70% capture rate, that's the number. As Andy mentioned, right, obviously, 500 tons is a number at a point in time. Given how big this hydrogen economy and hydrogen ecosystem is going to be as we get to that timeframe and beyond that, obviously those numbers are gonna go up. If the capture rate stays similar, then that steady cash flow number only goes up.
Yep. Okay. Thank you.
Thanks, Eric.
Our next question comes from Sam Burwell with Jefferies. Please state your question.
Hi, Andy.
Hi, Sam. How are you today?
Doing well. Doing well.
That's good.
On the on the top line in in the quarter, came in a little bit light than what the guidance that you gave a month ago implied. I think you guys explained that the guide down back at the business update was due to kinda operational hiccups related to the electrolyzer ramp and rollout. Curious what caused the number to come in light, and if those issues have been resolved. Just how to think about how electrolyzers should ramp up through the year and how that impacts top line and gross margins.
There are actually two questions there, Sam. The first one I will let Paul address why the quarter was a little light, and the second one I'll let Sanjay talk about the ramp of the electrolyzer business. Paul?
Yeah. I think a combination of some of the issues that we shared and talked about previously, in addition to, you know, there was a meaningful chunk of activity associated with our acquisitions. You know, when you're moving, what was, you know, effectively private companies into public company space and working through all their processes and accounting for new models, new structures, new programs, you know, it felt in going through that, a little conservative to kind of err towards the, you know, moving some of that into 2023 until we get all those processes, you know, finalized and finished. The good news is, it's the volume and the sales are there, so it's really just a timing thing. It's not like the volume was not there.
You know, but as we continue to improve that, you know, it'll be stronger processes, more predictable, easier to manage, moving forward. That was kind of the final piece as we work through the numbers. And again, high-class problem, but it was fairly meaningful in terms of the volume, which is a good problem. In terms of the electrolyzer scope and the timing and cadence, you wanna talk about that, Sanjay?
Sure. Happy to do that. Again, Sam, I think, the way we are managing and running our electrolyzer business, right, is essentially there's two piece to that business. One, we have a project business, and we have a product business where we're really focusing on standardization turnkey products. Now, within our project business, there's a lot of synergies that we can draw from our internal project as well as things that we're doing for the external customer, like the work we have going on with New Fortress Energy.
That's our project business, which I think, you know, given the scope and size of that ends up becoming more on the % of the completion accounting and timing of how the project ramps and rolls out. From a product standpoint, you know, with our 1-megawatt architecture and 5-megawatt architecture, especially with our 5-megawatt turnkey product, you know, this is really making green hydrogen easy, if you would, for our customers, because all our customer need in that case is land and water and availability of power. We are providing them with a product that's absolutely turnkey. As you saw in some of our comments in our shareholder letter, since the launch of the product, we've seen tremendous traction there, right?
In terms of a meaningful revenue ramp, you will see that become very meaningful as you go towards the latter part of Q3 and really into Q4 from a timing of when the installation happens, how the revenue gets recognized. As Paul mentioned, you know, we're looking at electrolyzer being about 30% of our overall revenue in 2023. From a cadence standpoint, that's how you should think about it.
Okay, really helpful, especially delineating between project and product. I mean, this sort of begs the question of my follow-up. I mean, I'm trying to reconcile the sales funnel with the orders backlog. I mean, there's sentiment out there that the reaction to the IRA thus far has been underwhelming, but it is very new, and there's a lot to digest. Do you think that your customers are still digesting the details and all the nuances of the PTC and any other IRA implications before converting their inbound to, say, a firm order?
Sam, I'll take that one. Let me take a step back at a higher level. I think how businesses respond is, you know, what seems like to you and investors is slow for some of these large companies is actually quite fast. I, we do, I think we mentioned in the shareholder letter, we probably booked 30 of these 5-megawatt systems in the last two months, three months of the quarter of last year. There has been uptake. That being said, I think that Treasury will be coming out in July with the guidance. I'm not gonna use the final guidance because there's always an evolution.
I think when Treasury comes out with its guidance, that it will help finalize business cases at some companies, which will allow, you know, there to be greater momentum. Look, when I look at Plug, $1.4 billion this year is, you know, fairly good traction with the IRA. I do think that I do understand how investors may look at it and how large companies can look at it. I can tell you next week I'll be at CERAWeek for 3.5 days, and I probably in 40 hours of meetings already established, mostly with folks who are looking at electrolyzers.
Got it. Thanks, guys.
Okay, Sam.
Thank you. Just a reminder to the audience, to ask a question at this time, press star one on your telephone keypad. To remove yourself from the question queue, press the star key followed by two on your telephone keypad. Our next question comes from Biju Perincheril with Susquehanna. Please state your question.
Hi, Biju.
Hey, how are you?
Okay.
A quick question on the cryo equipment business. Just trying to understand the opportunity there. Can you talk about how big this could be for third-party sales? Are you looking this mostly to serve your internal needs or any color you can give there on the potential to ramp there?
I'm sorry, Biju, I missed the product that started. I heard the rest of your question.
The cryo equipment. The liquefier.
The cryo. Absolutely. If I look at the cryo equipment, we've all. I would say when we look at the trailer business, Sanjay, how many trailers do we expect from a percentage-wise to grow this year that are external? It's a fairly significant number.
Absolutely, Andy. Every 15-ton plant needs a 7 trailer, not to even include all the storage that they're going to need, right?
Yeah. During the... I know that there's probably 20 trailers or hydrogen trailers we're building or have been built that we're looking to ship, and that we can see that as we sell our liquefier and electrolyzer products, people are coming to us about our cryogenic trailers too. We're actually looking at to expand the facility that we have in Houston to be able to support the demand. On the liquefier, we are a real believer that during the next 10 years, liquid hydrogen is going to be the primary, most cost-effective means of transporting hydrogen any distances. We believe that ultimately, liquefiers also will be used off hydrogen pipelines to be able to deliver high quantity storage to people who are not on the pipeline.
We, you know, this year, I know Sanjay have four contracts, four liquefiers we sold. We're looking to continue to increase that number, and there's a great deal of sales activity. The cryo business is. I'm going to circle Sanjay somewhere between 150 - 200 this year. Is that a fair number?
It's a fair number, Andy, yes.
Yep. Biju, yes, it is an important part of our business model. I also think you hit on another key point, the internal use of those products. We bought those businesses primarily for security of supply as well as using the cost savings we have from that cryogenic equipment actually more than pays for the acquisitions.
It's a combination that the acquisitions are working, and for both our own use and external use. Long answer.
Got it.
I hope that was helpful, Biju.
That's very helpful. Thank you.
Thank you. Our next yuestion comes from Kashy Harrison with Piper Sandler. Please state your question.
Good evening, team, thank you for taking the questions.
Hi, Kashy.
Hey, Andy. You know, I wanted to dig in a little bit to the Q4 results just one more time. You know, looking at the fuel cell systems and infrastructure line, you know, that's been a consistent 20% gross margin business, and it dipped in 4Q. Could you just expand on what the drivers were there? You know, similar question for services and the loss provision line. They increased a bit in Q4. Just maybe walk us through what happened there and, you know, what drives the confidence that those should start to improve starting in Q1 and Q2.
Go ahead, Paul.
In the equipment line, it now reflects all equipment across the company. What you see in Q4 was a fairly large investment in new product and new manufacturing facilities. You, you probably have seen, we've talked extensively about launching two large-scale facilities, one here in Latham and one up in Rochester. Those are just coming online and starting to ramp. The combination of, we call it, you know, unfavorable leverage at those initial phases of turning those on in conjunction with launching a number of new products, which you always have some, a new product experience, as you scale those initial products off your line. Those are what you're seeing, you know, negatively draw down the equipment margin.
As we roll into 2023, you're gonna see a step-function change and leverage on those facilities. It's a pretty big volume benefit that you're gonna see in addition to, you know, working out the kinks on those products. We're now up to, you know, launching that first large-scale stationary and electrolyzers at scale. We've worked through a lot of those initial bumps and bruises and speed bumps that you have when you do that. This year, you know, particularly as we progress through the year, you're gonna continue to see not just the leverage, but the margin accretion as we continue to scale those products and work through those issues.
On the service line, you know, it's really, last year was affected in part with supply chain and other issues that we talked about with getting access to parts. We have a number of programs which we've seen tremendous benefits in the small population of sites and units that we've deployed them to, we just didn't get as far along as we'd hoped to into putting those programs in place. Having said that, we've now worked through a lot of those issues and got the parts, you know, coming in, and we've got active, you know, collaboration with the customers to do that and roll that out at a much faster scale in 2023. We're more confident than ever though in terms of the benefits that we're seeing in those reliability investments.
As you see those start to play through, you'll definitely see a significant, you know, positive trajectory in that service margin. To be honest.
Thank you.
Yeah. No, I appreciate that. When I look at cash, I look at the total pool of, you know, the equity investments, the short-term securities. I mean, they all are liquid short-term in nature. We obviously try and maximize, you know, spread and leverage on those from an investment standpoint. Given the market rates, you're actually, you know, you see a big tick up in the interest rates, and you'll see more of that this year as we go forward. Collectively, you know, I sit with, you know, close to $3 billion in total cash liquidity. Even the restricted cash, I mean, that's basically, you know, releases to me at about, you know, 20%-25% a year.
It helps fund our business as we move forward, you know, as does, you know, the other, the equity investments and so forth as those turn. I'm sitting with a great position. You probably saw that we paid off Generate Capital, so I really don't have any debt currently, as I said, you know, 'cause the small, very small portion of converts I have is, like, 4x , 6x in the money, so that will convert out. I sit with a fairly, basically unleveraged balance sheet. We sit in a good position to fund the pipeline this year. With the progression that we're showing in both sales and margin, it puts me in a much stronger position in terms of options.
Fortunately, we have a great relationship with the DOE, and they're actively working with us trying to close that program. It's a process, as probably you know and appreciate. They're really going through all of the diligence as we speak, you know, which is pretty vast. I mean, they're, you know, use industrial engineers to look at our plants. They're looking to hire, you know, outside firms to do financial diligence. There's a lot of different processes they go through. We, you know, we've been talking about an outline of a billion-dollar program. Seems they're mutually, you know, we're working on a concept and a construct that we've mutually aligned on. We're working diligently to bring that to fruition.
Fortunately, I have, you know, other options available to me given the strength of my balance sheet and the position that I'm in as we move through the year, including, you know, leveraging the Georgia facility and other facilities that we're gonna be turning on this year to circulate that capital. Those are very attractive programs given the PTC and the nature of those and the cash generation opportunities there. You know, I think in the second half you'll see either something in the DOE space or other programs that we'll act on. I feel really good about the DOE program, and I feel like that's a very real opportunity that will, you know, has a high probability of coming to fruition.
We'll see as the months progress what makes sense for Plug.
Thank you. Our next question comes from Bill Peterson with JP Morgan. Please state your question.
Hi, Bill.
Hi. Good afternoon. Hi. I'm sorry, I'm at an airport, it might be loud, so apologize in advance if I get caught. My first question is, it's related to your production cost. In a February 3rd presentation, you talked about near-term production costs around $4 per kilogram. Just wanna make sure that's still the right way to think about it as we think about Georgia, you know, lighting up here in the next month or so, your confidence level around that. That's my... Then how that would compare against, you know, comparable programs that may be coming online, I guess, through 2024 timeframe from your competitors.
Sanjay, do you wanna take that?
Yeah. Happy to do that. Again, Bill, from a portfolio perspective, right? That $4 number, we are absolutely very confident about that. That's a number we've talked about, and we feel pretty good about it. When you know, first 15 ton comes online in Georgia, the number will be a little bit north of that. We have other plants that are actually got even better rates of electricity that actually would have lower number than that, right? I think from a portfolio perspective, when you think about our overall cost of green hydrogen, that's about the right number. That's correct, number 1.
Number two, when you then think about, you know, and the goal here, Bill, right, is we just wanna make sure that we keep driving the CapEx numbers down, which obviously impacts the depreciation cost and the, you know, overall cost of that hydrogen molecule. More importantly, we're really thinking about where can you get the lowest possible cost of that renewable electron, right? That has a much bigger impact in terms of driving that cost down. Directionally, you will actually see that cost continue to go down.
Okay, great. Thank you. Okay, great. My second one is, I guess it's more related to, you know, potential offtake or strategy around heavy-duty. We've talked about heavy duty in the past and asked last year. You did announce Nikola as an offtake and potentially buying trucks, but I guess you have also, at the same time, more experience with HYVIA. Wanna get a feel for how you're thinking about your strategy for heavy-duty trucking? You know, partnerships, JVs, or just maybe just have offtake agreements with the likes of Nikola or other players.
Yeah. Bill, we have lots of discussions at the board level about the potentials of the heavy-duty vehicle market. I think first and foremost, we are quite interested in offtake agreements like the one we did with Nikola. I think that, the question we struggle with is, does the margin associated with being a heavy-duty vehicle provider in the long term align with the margin goal of our company? We can. I would say this, I can tell you what we're not going to do. We're not going to independently build a heavy-duty trucking company. We do look at and we continue to explore potential JVs. If I was gonna give you an order, Bill, we'll sell you hydrogen to anyone in the heavy-duty vehicle industry.
We'll look at JVs, but with a very thoughtful eye, thinking about the long-term margin profile of that industry. A possibility we could just sell ProGen engines, which may be more attractive to us, or even, I think, for real heavy volume stacks. The third one is we're not gonna do it alone.
Okay. That's very clear. Thanks for the color and guidance. Good luck on the execution on all these projects.
Thanks, Bill.
Thank you. The next question comes from, Sherif Elmaghrabi with BTIG. Please state your question. Mr. Elmaghrabi, your line is open. Go ahead.
Hi, can you hear me now?
Yes, we can hear you.
All right. Sorry about that. Thanks for taking my question.
Oh, no problem. Sure.
I wanted to ask a couple of quick ones following up on Manav at the top of the call about material handling. Last quarter, I think you said about 35% of the material handling business was small and midsize. How is that trending given, you know, you guys are targeting a handful of new Pedestal customers this year?
Good question. I would think that, when I look at the coming deployments over the next six months-seven months, because some of our large Pedestal customers are beginning to deploy at a faster rate again, it'll probably be mixed. That mix is probably 75%-80% for large sites the first half of the year, and then probably settling back into the medium, the 35% number we shared previously in the second half of the year.
That's helpful. Then to follow up, you said you were targeting 50- 60 new Pedestal customer sites. Are any of those with existing customers...
Mm-hmm.
Is that more of a proxy for adding new Pedestal customers?
Yeah. Let me make sure I'm clear about the numbers, Sherif. We'll do 80 deployments in material handling this year. We will add three new Pedestal customers this year. Those Pedestal customers could, over the coming years, deploy anywhere between 5 -1 0 sites per year. Just to kind of make sure that the numbers are clear to you.
Yeah. Thanks for clearing that up. That's it for me.
All right. Thank you.
Our next question comes from Ameet Thakkar with BMO Capital Markets. Please state your question.
Hi, Ameet.
Hi. How are you? Thanks for squeezing me in. Just real quick on the GenDrive units sold for the year. It looked like it was around 8,300. I was just wondering, and that's lower than it was last year and the prior year. I was just wondering if you could give a little bit of color on kind of what's driving kind of the, I guess maybe some of the smaller numbers than we expected for this year.
Yeah. Yeah. I think that it's really related to what I talked about in January, Amit, with the construction at our customer sites being slowed down because of the challenges in supply chain. This year, the number of sites we will do will be 2x, and we know where they're going. That's really, it really was more, it was really on the customer side and their ability to, you know. So much of our products go into new facilities with some of our customers, that was really where the delay is.
Got it. Just one quick housekeeping issue. Like, you guys reaffirmed 2023 revenue and gross margins, but, the operating income margins, I think you guys were targeting -24% for 2023. That's still unchanged, right?
I will let Paul answer that, Ameet. Make sure you get the right answer. Paul?
Yeah. let me just clarify. It was $1.4 billion, 10% gross margins, and what I've talked about is kind of a $125 million per quarter OpEx rate as roughly as a proxy. you know, that kinda gives you the math in terms. Yes, the 24% being negative, yes, that was the number and that's, you know, roughly, you know, directionally that, in that range.
Thanks so much for that.
Thank you. Our next question comes from Craig Shere with Tuohy Brothers. Please state your question.
Hi, Craig.
Hi. Good afternoon, early evening, Andy, Sanjay, and Paul. On, on the answer to Kashy's question, I was a little confused, Paul. If, if you're successful with the DOE loan, do you not need to back lever and recycle the capital in the green hydrogen network?
The answer is. That is for you, Paul.
I understand. The answer is it would probably be either/or. You know, we could do one or the other. There is a chance that we could do both. You know, when you have a $5 billion balance sheet by itself, you theoretically could leverage up that in its, in isolation as well as back lever those individual plant facilities. I would say everything's in the mix, Craig, and we're gonna work through the best capital decision for Plug. I'm excited about the DOE program. I think it's a very viable and exciting potential program for us.
You know, the good news is the options continue to open up to us, even unsolicited, inbound opportunities from various lenders and people and banks. You know, we wanna make sure we're best positioned to take advantage of the lowest cost of capital and most flexible capital opportunities, and we'll continue to think about what that best structure is. I'm very optimistic about the DOE. I think that's a very viable and likely scenario. Likewise, you know, we're gonna certainly nurture different opportunities as well and make the best decisions. Hopefully that helps.
Certainly does. I guess this kind of segues a little in my second question. I don't know if this is kind of like, you know, completely off track, but if Sanjay, let's say we fast-forward nine months, it's the end of the year and your green hydrogen network and your Olin JV is doing better than it looked like the last three months, you know, and some of the delays we've seen.
Perhaps you're in a position, particularly with lower gas prices if they sustain here, where maybe if you're doing better than expected on the pace of internal hydrogen generation, that it might make sense to just buy out some of these money-losing third-party industrial gas contracts, given, you know, how much liquidity you have and then just have a clean, simpler to understand, more attractive set of operations going forward after you bite the bullet. Could that ever make sense? Would that opportunity ever present itself?
Craig, all I'll say is that it's a real interesting idea. Okay. Okay.
All right. Thank you for that.
Okay.
Thank you. Our next question comes from Michael Blum with Wells Fargo. Please state your question.
Thanks. Good evening, everyone. Just two quick ones for me.
Hey, Michael.
Hi. just wanted to check in on the cost for a hydrogen plant. Curious if that $8 million-$9 million per ton per day is still holding steady and how you expect that to trend over time. Also just wanted to see what we should assume for CapEx in 2023 and maybe 2024. Thanks.
Sanjay, do you wanna take the first one, and Paul, the second part is that question?
Yeah. Michael, no change to that view, right? Obviously the, you know, integrated green hydrogen plant is higher. You know, the feedstock, you know, hydrogen plant, the, you know, the likes of JV with Olin, that's a lower CapEx, right? We really have no, you know, no reason to change that number that you just talked about at this point in time. Paul.
Yeah. I would say we're still targeting $1 billion in CapEx this year. you know, as we go through the year, we'll have better visibility on timing of things. You know, we're trying to accelerate the programs, and I'm, you know, working behind the scenes trying to defer the payments, being a good CFO. We'll see how the timing, all that comes together and centers, but that's our focus.
Thank you.
Thank you. There are no further questions at this time. I'll hand the floor back to Andy Marsh for closing remarks.
Well, thank you everyone, many of us from Plug will be in Houston for CERAWeek next week. Please come up and talk to us. I know Sanjay will be there, I'll be there, and many other members of the Plug team will be available, so we're always interested to talk to investors and analysts. Thank you, everyone. Talk to you soon. Bye now.
Thank you. With that, we conclude today's conference. All parties may disconnect. Have a great evening.