Greetings, and welcome to the Plug Power Third Quarter Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Teal Hoyos, Director of Marketing Communications. Thank you. You may begin.

Thank you. Good morning, and welcome to the Plug Power 2019 Third Quarter Earnings Call. This call will include forward-looking statements. 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 because they involve risks and uncertainties, and actual results may 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 and our annual report on Form 10-K for the fiscal year ending December 31, 2018 as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the date on which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call. At this point, I would like to turn the call over to Plug Power's CEO.

Good morning, everyone. We're pleased with the quarter, and a detailed description was provided in our shareholder letter released earlier in the day. I'd like to go over some highlights. We achieved over $61 million in gross billings. We had adjusted EBITDA of $2.5 million. I'd like to highlight the EBITDA would have been $7.1 billion, without the higher than normal warrant charges. I believe this is an indicator that our operating performance continues to improve as we scale. Few highlights for the quarter include, and this one really excites me. Our first order for Fiat Chrysler for over 240 units, another validation of our value proposition for material handling in automotive applications. Today, we have BMW, Daimler, Honda, VW, GM and now Fiat Chrysler's customers. European expansion continues leveraging some of our new channel partners with an order for nearly 100 units at the BMW Leipzig factory in Germany. This deal was part of a German funding activity and Plug Power product support app programs that were supported in the recent announcement. Three, the sales funnel for non-material handling applications for our ProGen engines and stacks are continuing. We have many OEMs and integrators testing our systems and stacks. This includes a wide range of activities that we are pursuing. Including a variety of on-road and off-road applications, large-scale stationary projects and aerial projects. We also, in the quarter, closed the supply agreement with United Hydrogen for liquid hydrogen, which will positively impact our gross margins in future quarters. Hydrogen and vertically integrating into generation with partners is a key part of our strategy. Fourth quarter will be a record for Plug Power as we are on track to achieve $235 million to $245 million in revenue and breakeven adjusted EBITDA for the year, a major accomplishment for the…

[Operator Instructions]. Our first question comes from Chris Van Horn with B. Riley FBR.

I just wanted to -- could you guys probably provide some additional detail on the Fiat Chrysler award, maybe the timing of the rollout, where from a geographical perspective, that is? And just maybe a little bit more detail how it came about?

Sure. I think the positive item is the sales cycle was relatively short. It was in the range of 6 to 7 months. The deployment will occur in Detroit, Michigan. There was a press release yesterday, where Chrysler talked about this activity. It'll be for approximately 240 units. And overall, it'll be over -- worth over $10 million to Plug Power. And of course, we're looking to expand that relationship.

Okay, thanks for that detail. When I think about -- you set out the 2024 plans. When I think about 2020, is there anything you can tell us kind of directionally on how you see that year playing out? Is it more back half weighted? Or how do you see 2020 looking right now?

Good question, Chris. And overall, I think at the symposium, we laid out that revenue growth will be in the 30% range. I would expect that the first quarter will be lighter, but I think you'll see a strong ramp and much stronger second and third quarter than this year. We have a great deal of visibility to 2020 already, more than we've ever had in the business. So we know about where 85% of everything we plan to ship will go, which is extraordinary for us. I think it shows that the business is really maturing.

Okay, got it. And last one for me. When you think about the R&D, how do we think about that spend going forward? And what specifically are you working on in that area?

Sure. I'll talk about what we're working on. And I will let Paul talk about where he sees the spend going. But on the R&D front, the key items to us are increasing power capacity of our products for a variety of applications. And we probably have about 15 to 20 applications in the funnel -- 15 or 20 opportunities in our funnel, and there's about 5 that, quite honestly, I really, really want. And when you look at it, a lot of that starts with higher power stacks. So we're looking to achieve -- we're looking to have products by mid second quarter, which will be in the 125-kilowatt range for our ProGen engine. We already have customers wanting to start testing them as soon as possible. And that, by going to ProGen, our vision of products is that they should be as easy to use as batteries. And ProGens are designed at someone who is not an expert, fuel cells can pick one up, plug it in and it works as well as a battery. And when I think about that, Chris, that's why people start with battery sometimes. We want them to start with fuel cells so that would start with fuel cells without a lot of additional support from Plug Power. So our design philosophy has made it easy, put in a box, add 2 or 3 connections, and you're ready-to-use the fuel cell. Paul, on the spend rate?

Yes, I think -- I guess piggybacking off on what Andy shared, one of the most exciting aspects for me is that leverageability into these other applications in other markets. We don't have to double and triple resources in order to take advantage of those opportunities. It's -- we're building a platform and building a technology base in a way that makes it very easy to translate that into these other applications. And so there'll be some nominal increase over time, but it's probably in that 5%, 7% on the upper end range. And the only anomalies to that will be some of the things that we've talked about in terms of incremental opportunities in other strategic areas that we might get involved in, like hydrogen strategies, other areas, those are to be determined as we continue to nurture and evaluate those spaces.

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

I was hoping we could just start with ENGIE. You mentioned the 1 award that you already had and 1 that it sounds like it's pretty near-term. And I know that's a pretty broad-ranging agreement, maybe just any specifics you can share on both of those, but then would also kind of love to hear, I mean, you're a quarter in, just how you see that playing out? What that means in other areas? Any color there would be helpful.

Sure. So I expect Eric, we will -- so let me take a step back. You're correct. The opportunity with ENGIE is fairly widespread. And it includes both our ability to provide fueling solutions, fueling systems as well as them positioning our material handling equipment and other applications around the world. This first deal is actually -- that will be announced is for a fueling station that will support deployments of vehicles in a country to be named later. And we have a second one, which should close this quarter. And that one is actually for material handling equipment, again, in a region of the world that Plug has never participated in. I think the combination of those two will be well over $12 million to $13 million. And it's a combination for Plug of our expertise in products and capabilities and leveraging ENGIE's broad service capability. Is that helpful?

Yes. No, that is helpful. I guess I'll stay tuned going forward. Maybe next question just...

And by the way Eric, both of them will be early -- or will be in the first half of next year.

Okay. For deployments?

Yes.

Okay. And then just -- you laid out the two major announcements left that you're targeting. And maybe this is my misunderstanding, but I guess I had kind of thought that the next one was more in stationary applications. And it sounds like you described that a little bit differently, so just curious on that whether I had read it wrong in the past or something has changed to some extent?

Eric, I would say, I must have explained it wrong to you in the past. But it is more along the way of our traditional material handling with obviously a large retail customer.

Got it. Okay. And -- all right. That -- I guess I'll leave that alone. Maybe that's your -- maybe that's the official announcement of the third -- or the third mega customer that you have discussed.

You got it, Eric. And the fourth quarter, as I mentioned, is associated with hydrogen.

Got it. All right. Maybe last one for me. Just United Hydrogen, clearly part of the strategy. I mean, is that something that you think -- I mean I know that your fourth targeted announcement has to do that strategy as well. But aside from that United Hydrogen, is that something that you potentially can replicate so that you have greater geographic coverage as you roll this out to more customers?

So the answer to your question, Eric, if you -- you were at the Plug Power Symposium and one of the items that Tim highlighted was looking for -- one of the items in the path is production agreements with the hydrogen providers as well as, as we've talked about more extensive partnerships on the generation side together. So we are -- I think you can name every hydrogen provider in North America, we are in negotiations for similar type deals. But we won't be limited to just that. I think that there is a big push for renewable hydrogen and we are in discussions with what we would call nontraditional players in this market to work with leveraging both electrolyzers and renewable natural gas to expand our green footprint with hydrogen. And as I mentioned before, our plans in that generation front is really to be part of a partnership in ownership position, not just a customer of the product.

Our next question comes from Christopher Souther with Cowen & Company.

My first question, I was hoping I could just get a little bit more details on the new subscription program that you guys talked about in the letter. As far as kind of what percent of the GenDrive shipments in the quarter were recognized? And how the subscription gets recognized and flow through the P&L kind of overtime? If you could kind of give some examples of that.

Paul, do you want to take that?

Yes. So I guess, to try and give you a simple answer on how it works, when we -- when a customer access our solution with the subscription, it's really like they're doing vendor financing and they're paying us to access the solution over time. So there'll be a recurring amount of revenue that goes into our P&L over that duration of that period. But when we deploy those projects, we finance them. And today, we're financing them with traditional commercial banks and basically doing a sale leaseback. And because of the operating accounting lease rules, it qualifies for sale recognition. So we basically are monetizing the project day 1 and recognizing the equipment revenue associated with selling off that project. And so those revenues will show up in our financials as we monetize those programs for the equipment portion of that. And then again, over duration of 5, 6, 7-year term of the subscription program, we'd have a recurring revenue in for -- from the customer.

Chris, let me kind of add to that. We've been looking at the way wind and solar were able to grow so rapidly. And in 2020, we expect about 20% of our revenue will fall under the subscription program. And like wind and solar, we expect the interest rates to rapidly decline over time as Plug becomes more and more competitive. We have been engaging with many banks and with many institutions over the -- how to roll out this program at a larger scale. We believe we are very aggressive about how to grow this revenue more rapidly because growing revenue more rapidly will increase our margin position. It will generate more cash for Plug Power, and that's how we're really thinking about the market.

Okay. And then to kind of follow-up on that, with FDA or are there any other pending customers that were waiting for this type of solution? And do you see them kind of joining the program over the next quarter or so? Is that kind of how we should see it?

Who was that? I didn't hear what company you were referencing, Chris.

The Fiat Chrysler.

That is not a subscription model.

Okay, got it. And then, to touch on the ENGIE and StreetScooter and Hamburg, it seems to be a lot of focus on international. Could you talk a little bit about longer term, looking at that 2024 billing guidance of $1 billion? In broad strokes, what do you think Europe and other international markets make-up of that? Do you have kind of a good sense of that?

Sure. I would put in the $200 million range, Chris, would primarily be in Europe.

Got it. Okay. And then just the last one. With Amazon and Walmart, can you give us...

And if you think about what we have already with StreetScooter, that could represent 1/4 of it.

Okay. And then just year-to-date, with Amazon and Walmart, could you give us a sense of what the percent of revenue thus far is versus kind of the other customers that have grown?

Probably in the 50% to 60% range, Chris. And it will be lower next year.

[Operator Instructions]. Our next question comes from Colin Arch with Oppenheimer Company.

It's actually Colin Rusch. Guys, as you look at the potential to reduce the cost of capital on that subscription business, and in general, particularly as you get to sustainable EBITDA positive situation, can you talk about your pricing strategy with customers and how that may evolve? And then enhance your addressable market?

Well, Colin, let me give you an example that there is opportunities long-term to own certain assets. And there's assets like hydrogen infrastructure, which are very, very valuable. And in round 1, we may have the ability to own those assets at the end of the subscription period. And those assets are extremely valuable to Plug Power. Those assets could be revenue generators here just like hydrogen generation assets are available for -- generating cash for industrial gas company for years. So I think a lot of our thought process is associated with especially the value of those hydrogen infrastructure long-term. I think on pricing, we have goals for the business that allow us to get to 20% EBITDA and that, in 2024, and our pricing strategy as we work our numbers today is to support that kind of performance.

Okay. I have a couple of follow-ups. I'll take offline. And then just in terms of what you're seeing in terms of hydrogen fuel cost reduction. Obviously, there's an element of scale at this in purchasing power for you guys as now the largest consumer of hydrogen. But then also, what are you seeing on the technology side in terms of the industry's ability to drive costs lower and the evolution and in the cadence of that sort of cost reduction?

So let me give you a reference point, Colin. So yesterday, McKinsey rolled out the U.S. hydrogen roadmap, which 20 companies participated in developing and Plug Power was one of those companies. And the number I'm about to give you is also what was presented to the previous day, where -- I'm a member of HTAC, which is the Hydrogen Technical Advisory Committee to the Department of Energy. And in both of those presentations, scale they felt would drive the total cost of hydrogen including infrastructure in the $4 to $5 range. So if you take a step back, when you think about the fact, especially if you're comparing against gasoline, that's about $250 of effective gallon per gallon. And if you think about $4 for hydrogen, that puts you about in the 6 -- $0.06 or $0.07 per kilowatt hour range. Hey, it's a great report. So if you google, U.S. hydrogen roadmap McKinsey, there'll be a website that will link you to in the executive summaries up there today. And I know a forward description will be up there in the coming days. And I think it really will give people a broad view what the companies are thinking this market can be.

Our next question comes from Craig Irwin with Roth Capital Partners.

So Andy, one of the most interesting pieces of the shareholder data that you had in Albany was the presentation by demand from Deutsche Post, right? Where he showed the chart range versus payload and how things pencil out for economics of fuel cells versus battery electric vehicles. Now we've talked a lot about the different things you're pursuing to grow on-road, right, and the opportunities over the next couple of years. But the same basic analysis also translates into the UAV and aviation environment, right, where weight is extremely important. You would never have bought EnergyOR unless you believe in the future in that market. But we don't hear a whole lot about it on a regular basis. Is there anything that you can maybe share with us as far as an update or progress plans for this business and a vision for where this fits in the future at Plug Power?

So Craig, that is more -- I think you -- your description was perfect. The same issue and I'm going to start talking about vertical taxis, aerial taxis, that we see that application almost identical to on-road vehicle because of the power density and weight of fuel cells. Those are programs in which you were engaging with people where it's quite long-term. That's not going to be overnight. We're in discussions with people, programs for 2024, 2025. That being said, I think the learnings will be extremely valuable for on-road applications. And we have 2 applications in the aerial space, where our team is deeply engaged with customers and I think one of them will be a real surprise.

Okay. We look forward to learning about that. Is there an approximate time line for us to see that publicly?

Yes. So I would tell you months, Craig, but months usually turn into months. So I would say, in the next 6 months.

Fantastic, fantastic. So my next question is about the delivered cost of hydrogen, right? Obviously, as the largest buyer of hydrogen. This is an intense focus for you guys. Over the next number of years, looking to buy hydrogen at the best possible prices for your customers and produce it at the best possible prices. There were some fairly exotic ideas tossed around several years ago, ranging even to purpose-built nuclear reactors for hydrogen production, right? So there's a whole spectrum out there. Do you see any particular technologies coming on to the horizon that are ready for adoption within the next 5 years that can maybe have the production cost of hydrogen today? And give us a real major tailwind above and beyond what we're seeing in the fuel cell market?

I can say this, Craig -- that's a good -- do I -- you put in the time frame of 5-year. And as you mentioned there is a great deal of activity going on how to use nuclear energy, heat or electricity, because of so much strain electricity to generate hydrogen. I listened to presentation of companies like the Southern company on Monday and Tuesday this week at HTAC. I would say about 30% of the presentations were associated to hydrogen. I think that's probably more than 5 years out. That being said, I think there's a good deal of activity going on in 3 areas, but I think nontraditional players. You see some of the utilities really focusing on RNG to hydrogen, which I don't know if be at scale, but I think it could be beneficial in helping pricing. I think there's a lot of interest with solar companies to leverage it with electrolyzers to drive down costs. For that to work best, though, I think you need to have sites tiered in within a 150 miles. You need that generation facility within a 150 miles of customers. And third, the way -- the practical way we're negotiating near term is that we're much focused on this bigger cost of the site and then managing with our customers in negotiation, what that bigger cost is, and then keeping transportation as a variable. There's also, Craig, and work on on-site generation. I think you'll see us doing more of that next year to eliminate the transportation cost. But I don't see, as I mentioned, I think the roadmap that was rolled out yesterday with that $4 to $5 all in a kilogram range is probably realistic. Today, on a variable basis, we're probably in the -- we're probably between $5 to $6 in most cases, depending upon where the site is. It can be a little lower, it can be a little higher depending on range. I see buying power impacting that more for us as well as ownership of some of the assets. Does that help?

Thank you, ladies and gentlemen. This concludes our question-and-answer session. I'll now turn the floor back over to Mr. Marsh.

Thank you, everyone. And for those who did not attend the Plug Power Symposium, we have a few minute video, which provides some snippets, I hope you enjoy it. So thank you, and looking forward to talking to you for the fourth quarter conference call, we got a big quarter coming.