Greetings and welcome to the Plug Power First Quarter 2022 Earnings Call. At this time, all participants are in a listening only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this call is being recorded. I will now turn the conference over to our host Teal Hoyos, Director of Marketing and Communications. Thank you. You may begin.

Thank you. Welcome to the 2022 first quarter update 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 -- and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements and such statements should not be read or understood as a guarantee of future 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, 2021, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug's CEO, Andy Marsh.

Well, thank you, Teal, and thank you for joining Plug's first quarter earnings call. You can find a detailed review of the quarter in our shareholder letter. But let me give a few thoughts to start this call. I recognize that macroeconomic conditions are challenging. Like everyone, we have seen some of the challenges in the supply chain and the price of natural gas. Plug's future is not based on the economy today, but the future. But let me highlight, the present is very bright. In the present, how many companies will increase by well over 80% this coming year in revenue. In the future for hydrogen fuel cells, as outlined by Bloomberg and others, there’s a unique $10 trillion opportunity. All of our activities are tied to this opportunity and tied to a world that is energy independent and green. I'll intend that ultimately green and energy independence are synonymous. And as an indicator of our present is our sales funnel for electrolyzers. The funnel is approximately $50 million. We've committed to book one gigawatt this year in electrolyzers, we will most likely be increasing this goal soon. How about the futures? I'm sometimes asked, can this business scale? Let me give you a simple example based on Q1 financials by telling our gross margin improvement story. Let's start with products. Our GenDrive product gross margin is over 30%. The cost of our new products will continue to come down, as we experience our traditional 25% learning curve for fuel cells and electrolyzers. All our present proxy at today's volumes will have a minimum of 30% gross margins. Our service and learnings are being implemented and demonstrate now and will cut our service costs ultimately by 45%. With deployment of our green hydrogen network 70 tons which will be available by year's end, our cost will be one-third today's cost. And our PPA, which includes assets we can ultimately own, will be net positive. These numbers align with our 2025 goal of $3 billion in revenue, 20% EBITDA, 17% operating income. This is the equation for success. We're building the category king, with a clear strategic and tactical plans, great customers' employees that's unmatched in the industry. I've never been more positive about the fit between our strategic and tactical plans as I feel today. Paul, Sanjay and I are now ready to take your questions.

Thank you. [Operator Instructions] Our first question comes from Chris Souther with B. Riley. Please state your question.

Yes. Thanks for taking my question here. Nice to see some of the non-material handling stuff really take off here. Could you give us a sense of how that $45 million breaks down between electrolyzer on-road and any other end markets there?

I'm going to let -- I'm going to let Paul answer that question.

Yes. I would say it's -- and there will be more detail in the queue Chris. But it's about -- probably roughly one-third of electrolyzers, but that pipeline is growing and scaling. That business will be a lot bigger in the second half given the ramp of the pipeline and the production capacity. The other stuff is mainly the acquisitions.

Okay. Got it. And then just another one on the fuel margin improvements. It seems like you're continuing to be very positive on the long-term trajectory there. And if we're looking at kind of one-third of the cost for green hydrogen versus kind of what we're paying today how should we kind of feather that in as the capacity ramps up? Do you think that's kind of an immediate when capacity comes online we should kind of assume that lower pricing, or is during kind of the ramp-up? Is it going to be take some time to kind of hit that type of rate?

Chris I'm going to let Sanjay take this one.

Chris -- good question, right? So obviously, the cost will go down as the plant ramps up. That's how it plays out. But having said that we've said by the end of 2023, we're looking at breakeven getting to cash flow positive from operations stand by 2024. So you can kind of think about as the 17 tons come online that will really reduce our blended cost in 2023. That cost will further improve in 2024. And as you go to 2025 we feel very confident that we get to that corporate gross margin target of 30%. That's really how it plays out from a cadence standpoint. And one more thing if I may add right? I think like in the month of April our plant in Tennessee actually operated at 93% since the expanded capacity and that is going to help with our overall blended cost of molecule as well. So that's what you will see happen. As the plants come online we will gradually ramp up. And once the plants are at that 90% of the capacity from the utilization standpoint you'll see the full benefit of the reduction in the fuel cost.

Appreciate. Thanks a lot, Samjay.

Thanks, Chris. Thank you. Our next question comes from James West of Evercore ISI. Please go ahead.

Good afternoon, Andy.

Good afternoon, James.

I'm curious about the recent MOU you signed with Olin Corporation to take away some of their byproduct hydrogen. I know the initial JV looks to be relatively small, but they produce if I'm correct a lot more hydrogen than the initial JV suggests. It seems like this could be game changing. Could you talk a little bit about kind of your strategic thinking here the rationale and how it came about?

Yes. James we do think it's an important step in building out our network. Olin has a waste stream which is probably over 350 tons of hydrogen per day. That's significant.

Yes.

And this relationship is really just the beginning. And when you start looking at the cost it is equivalent to under $0.02 a kilowatt hour for electricity plus on top of that the complexity of the plant is much, much simpler. We think the relationship with Olin will become a critical element in building out our hydrogen network across the US which will position us to expand even rapidly. This is I think Sanjay I think we feel we can get these plants up by the first quarter of next year which is a real which will be really beneficial for our costs. Sanjay, what have I missed?

No I think you've pretty much summed it up Andy. But James as you said we're obviously pretty pleased with this partnership. More to come. And as Andy said, there's a pretty big substantial volume. And again, this is one of those opportunities where which will be a pretty critical part of building this North American green hydrogen network together with a partner like Olin here.

Right. Okay. And then maybe Sanjay, if I can just ask why you chose – or they – or you guys chose the St. Gabriel Louisiana plant to start the project? Was there something unique about that, or is that just there's available capacity?

Well, first off this will be a 15-ton plant, right given the stage of where it is availability of feed gas potential to actually make that feed gas also green and so that's the rationale in terms of why we decided to work on that one there. This is a discussion we've been having for a long time James as you can imagine. It materialized here just recently but it's the first one and hopefully many more to come going forward.

Okay. Got it. Great. Thanks, guys.

Thanks, James.

Our next question comes from Colin Rusch with Oppenheimer & Company. Please go ahead.

Thanks so much, guys. Could you talk a little bit about how you're…

Good afternoon, Colin.

Good afternoon, Andy. Could you talk a little bit about the evolution of your pricing strategy relative to adoption rates? And any sort of cost management that you're doing obviously inflation is impacting a lot of folks. And certainly, you guys can't be fully immune. But just trying to think about how you guys are approaching this with your customers to kind of throw the needle.

Yes. That's a good question, Colin. So if I take a step we are in a – always hesitant to talk too much about pricing. But I would say that we look at the steps we're taking in hydrogen, we are more focused on managing our own cost to support our customers. We find that product pricing for – and fuel cell are reflective of the increase in costs in the marketplace. And there was so much of our service is associated with reducing our cost that I think our service model is evolving to the point where Chris Soriana, who runs our service group, we clearly see the 45%, we're really looking to drive it down even further. So customers are – I'm not going to say like price increases but a more understanding and open price increasing.

Excellent. And then just thinking about the new facility and the ramp there. I guess obviously, it looks like there's an awful lot of new automation in and I'm wondering if you can talk about kind of initial yields with that automation and what you're seeing so far as you to start to map that up and get prepared.

Yes. I think that's – and I don't know if we kept it in the letter. But when we look at the stack cost for electrolyzers the automation will allow that cost to be reduced by 70%. So it is significant. And that Colin really makes our electrolyzers extremely competitive. It's why during the letter – during the – my opening statement I expressed such confidence in the 1 gigawatt which will be quite profitable for Plug. And on top of that I really do expect that number to increase as the year goes on. We're looking at projects alone that are 1 gigawatt in size. And quite honestly, it's a nice market because people really aren't in a position in the free world to produce at this level.

That’s incredibly helpful. Thank you so much.

You’re welcome, Colin.

Thank you. Our next question comes from Bill Peterson with JPMorgan. Please go ahead.

Yes, hi.

Hi, Bill

Hey, how are you doing?

Okay. Good.

My first question is on policy. And I guess, specifically in Europe, you probably saw last week the Repowering EU the commissioner as well as a lot of industry CEOs signed a declaration to basically massively increase the electrolyzer capacity even within the next call it three, four years. I guess my question is, is that something that Plug feels need to be a part of in terms of having local manufacturing in Europe? And I guess, what does Plug need to do specifically in Europe to, I guess, obtain its fair share of the 30 drilling opportunity in Europe?

So, one of the hidden secrets Bill is, that I probably invested more in fuel cells and electrolyzers in the past year, than anyone else. I think that uniquely positions us. We do have discussions. And if you think about our brand launch the other week, we were well represented by Belgium and the Port of Antwerp as well as many other entities. We have relationships with Lhyfe, which are experts in sourcing [Technical Difficulty] to support the activity. I would not be light about the U.S. either Bill. Last week I met with three senators from fossil fuel states, here in the United States. All of them are thinking about, how they can move their economies to hydrogen economies in the future. And I can tell you one of those senators who has been getting a lot of press time is very, very bullish on, making sure that part of the climate bill includes substantial extension of the ITC, for fuel cells and hydrogen as well as the production tax credit. So for my time in D.C., I'm probably much more bullish than other folks, because quite honestly we were meeting with the folks who probably are the moderates and the debate and all of them are strong, strong supporters of hydrogen and fuel cells.

Yeah. Thanks for that color. And I guess maybe sticking closer to home. I'm actually here in Long Beach [indiscernible] I know Plug has a decent presence here. But as there's a number of your sort of peers in the hydrogen space pretty clearly the hydrogen is very much of interest here at the show. I know you're talking in your shareholder letter to share more on your potential strategy in the second half. But I guess in light of the clear interest what is -- I guess -- you said in the past I think two quarters ago you don't really want to be providing to an OEM to somebody else to monetize it. But what can Plug do uniquely in a partnership? Would it be also not only provided the fuel cell but also the fuel itself? I'm just kind of curious, what is Plug looking to do in the heavy-duty space.

Bill I think if you look at the model we've used with Hyvia [Technical Difficulty] technology combining them together to offer a product rapidly to the market. And I also want somebody who has sales channels. And I think that's really important for the future also. So, we have people we're working with. We spent a lot of time on this issue. I've always been maybe not first in making deals in certain areas. But we've always made I think smart deals when it comes to how we entered Europe, how we entered Asia, how we entered Australia, and I think that, I think patience will pay off for Plug. And I think I think you'll be hearing more quite in the second half of the year, as said in the earnings letter. And I can tell you, we meet every week on our progress in this area.

Thanks. Look forward to see more progress.

Great. Thanks Bill.

Thank you. [Operator Instructions] Our next question comes from Leo Mariani with KeyBanc. Please state your question.

Hi, Leo, hey, how are you?

Okay. Great. I was hoping you could expand a little bit. And I think if I heard you right you made a comment that you're looking at projects currently on the electrolyzer side that are one gigawatt in size. Did I hear that, right?

You did hear that right Leo. And PEM is ideal for that. Let me take a step back. Do you realize that – if you did a gigawatt project like that it's probably 6.5 football fields alkaline. And with PEM it's about 40 yards of a football field. That's one of the distinct advantages of PEM. When you start really looking at the total cost of ownership headwinds PEM hands down.

Right. Okay. I guess that was - so it sounds like it would be a large-scale potential power project that you're in negotiations on.

Okay. It is. And we have more than one negotiations on.

Okay.

And let me just mention Leo negotiations and discussions it's not an over – some of the discussions none of the discussions we're having in this area is overnight. I personally have been in discussions on this for 14 months.

Okay. And I also just wanted to touch base on margins. So certainly just kind of noticing that your total gross margin was a little weaker here in first quarter versus fourth quarter. Could you maybe just give a little color on sort of what the main drivers were there? And then additionally, how do you expect to see margins progress during 2022? Do you think you'll see margins turn back positive by the end of the year?

Paul, you want to take that one?

Sure. So the first thing is, if you look at the sales volume it was down sequentially and that's because of the seasonality of our business. So we always do about one-third of the volume in the first half. Q1 is always the lowest version of that. It's just a natural phenomenon in the material handling business. It's also a phenomenon of scaling rapidly the way we are with some of these new markets and products. And so they – right now they're going to be quite heavier in the second half just because of the passage of time and scaling up that pipeline. So with that my equipment revenues is down sequentially against Q4. So just on an apples-and-apples basis you have a lower mix of higher-margin business there. Having said that, we've got more positive activities going on in eight years that, I've been with this company. We're scaling a number of new products which takes time to ramp and scale them up. As they ramp and scale as Andy alluded to, they'll certainly be in that 30% gross margin profile. We've got the fuel activities which we've talked about extensively, including on this call. I don't think people really appreciate the fact that, it's a step function change when you could generate that molecule at 40% of the costs were paid today. That's just dramatic, right? So that's really exciting and the progress that we're making there in programs like we're doing with Olin really allow us to even accelerate that. And then – not only are we shipping products out with a substantially improved reliability profile. We have extensive capabilities to go back and retrofit the units inside an application and get those benefits. So we've got a tremendous amount of resources more than we've ever…

All right. Thank you very much.

Thanks, Leo.

Thank you. The next question comes from Eric Stine with Craig Hallum. Please go ahead.

Hi, everyone. Thanks for taking the questions.

How you doing today, Eric?

Doing well, doing well. Thanks for taking the questions here. Well maybe just to start you announced the offtake with Walmart as part of the green hydrogen strategy. That was great to see. But if we think longer term and I know by 2028 the 1000 tons per day goal. What is the right amount that you think you should have under offtake agreements? I mean, is there a certain percentage you want to have to be able to sell at spot I guess for lack of a better way to say it. Or do you really want to maximize that amount that's under contract?

So Craig let me – let Sanjay take that one.

Great, Eric. Good question. Look I think we touched on it a little bit on our last call as well. We don't want to sell out the entire capacity right? Because the way we're thinking about building this green hydrogen generation network is it's going to be a force majeure resilient network that is going to make sure that green hydrogen is economical ubiquitous. So, nobody should ever really worry about where the hydrogen comes from as they plan to adopt more and more fuel cell applications, right? So the number that we have been targeting and we've been internally discussing and thinking about is between 70% to 80% of that capacity we do want to have under long-term contracts, but we absolutely want to have that 20% to 30% of that capacity as a flex capacity can help other players in the industry or the potential customer in the industry so that the hydrogen really ends up being viewed as being very ubiquitous and the green hydrogen keeps on getting more and more economical. That's how we think about it.

Okay.

And Eric one another point is an important one to note here as well right? Because when we think about this whole green hydrogen offtake strategy on a long-term basis is, and I think you know this but it's probably important for others to keep in mind so the demand multipliers that comes from new application is a very important one as well that we all need to keep in mind, like forklift consumes one kilogram of hydrogen a day. You have your light commercial vehicle at about six to eight kilograms a day Class 8 truck 50 to 60 kilograms a day. And if you have a 24/7 stationary power that's almost 1.4 tons a day that's how the demand multiplies for hydrogen and which is another reason why we're very strategic and thoughtful in terms of entering into these long-term contracts to make sure that there is enough hydrogen available for our pedestal core customers as they embrace and adopt new application that hydrogen availability is never a concern and never an issue.

Yes. No that makes perfect sense. Good color there. Maybe just last one for me. Materials Handling a strong quarter here. I think in the past you've said you're targeting three additional pedestal customers in 2022. Just maybe thoughts on how you're trending there? And can you remind me I mean are you counting on those three for your guidance I guess they probably wouldn't have much of an impact even if you secure them today on 2022 it'd be more 2023?

That's correct, Eric. So our guidance of $925 million in revenue does not include that. Just got our call with their head of that business who's a Crespo. He's feeling very good about the two potential customers in Europe. I think in our earnings letter we mentioned the relationship with Lidl, which is developing and really feel good about the US customer. So we feel like we're trending well. Quite honestly that's the easy business for us. That's the one that after these years it's very, very systematic.

Got it. Okay. Thanks.

Next question comes from P.J. Juvekar with Citi. Please state your question.

Yes. Good afternoon, Andy, Sanjay and Paul.

Good afternoon, PJ.

Andy with cost of natural gas going up in Europe green hydrogen is at par or even cheaper than gray hydrogen in Europe. So, your timing in Europe is great. Can you talk a little bit about your Duisburg Germany facility? Would that be a hub like Rochester? And what are the plans there? You said water connection to different ports, what are the plans for that facility?

Yes, I would say P.J. that fill facility is hub today for light manufacturing and distribution. But the plans for -- I think the plans for Europe I think you'll see a couple of items. We announced a small deal for 10 megawatts in Hungary. I can tell you that in Europe alone there are probably -- with David tell us today 300 opportunities Paul, in Europe alone for electrolyzers and so there is an incredible push. And between that and our activities with -- in France where there is strong financial support that we will probably get for putting a facility in Europe that -- I think the opportunities in Europe for electrolyzers with this issue of energy independence is enormous and we see it. And so you're right. And Plug is uniquely positioned because we can actually build products today and ship which puts us in a much different position than I think others in the marketplace.

Great. And my second question is for Sanjay. Sanjay you mentioned here that the molecule cost to get could get cut in half next year as you start these green hydrogen plants. Can you give us a little bit more color on how does the cost go down by half with green hydrogen? Just curious. Thank you.

Sure. P.J. I think -- by the way looking forward to being at your conference tomorrow. So, again on the -- so let's take a step back, right? I mean I think you guys see it in our P&L as to how negative the fuel business margin is. That's a function of what has happened to price of natural gas and how that price of natural gas has gotten passed on to us. And we obviously don't pass that on to our end customers, right? So, our margins are negatively impacted here. When you can almost extrapolate that those numbers are pretty substantial in high single-digit to in some cases low double-digits, right? Now we've told you all that in every single one of our green hydrogen plant, we have looked at securing low-cost reliable electricity. We've told you how much electricity is needed to produce one kilogram of liquid hydrogen. And the CapEx is not the biggest component in that particular case, right? So, if you're looking at a scenario where green hydrogen spigot cost is closer to $4 per kilogram that number is getting cut in half. Now, from a consolidated number perspective, you would not see that entire pickup in the gross margin right away, you see that continue to get better as we go forward because we still have some legacy contracts that will roll over in 2023, 2024, and 2025 timeframe, but you will continue to see the margin pick up. And one other thing right as this plan keeps getting ramped up as the utilization keeps going up in the month of April, we actually had even more than 90% utilization in our plant in Tennessee. And despite everything that's happening in natural gas world right now that is going to actually be a big contributor and will help us with the molecule cost even in Q2 versus Q1 of this year.

Great. Thank you for that color.

Absolutely.

Thanks P.J.

Thank you. Our next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

Good evening. Thanks for taking--

Hi Craig.

Hey Andy. Thanks for taking my question. Definitely appreciate this. So, Andy most of the things I wanted to talk about have been thoroughly covered at this point. So, big picture right? Plug is one of the very few companies that's really executing in the broader fuel cells hydrogen space. And a key part of that is green hydrogen you're working with the right partners, you're meeting major milestones on a frequent basis. What would you do possibly to go faster? I mean is that $100 million -- $100 million more a year. What could you do?

Well, Craig I can tell you, I give a lot of thought to how to really scale this electrolyzer business quicker. That means, that duplicating our facility in Rochester sooner rather than later could have a big benefit to our business. Item 2, Craig is that the work we're doing on digging through Class eight vehicles over the next six months. That's an area, that we're fully committed to making a move and making a smart move. I think there are two big ones. I think the electrolyzer business, a lot's going to be whoever has the capacity will win. And I think, during these times when people are getting nervous, we have the balance sheet to do it and to get aggressively ahead. And it's not off the table that we would think through additional consolidation of this industry at the right time, at the right price to even grow Plug bigger faster. So this is, one sheet gives us strength that I think sometimes is hidden by other items.

So just as a follow-up then it sounds like electrolyzers and Class eight trucks, are really key markets that you're prioritizing for potential acceleration and that you're happy with the targets you have for green hydrogen, over the next couple of years. As the other side, of that you just signed this excellent agreement with Olin, I guess 350 400 tons a day, available sort of at their facilities. What would you say the right number? What would make you say the right number, is 2,000? Do we need market development to move faster, to allow you to service into that, or are you scaled appropriately for how this is developing?

That's a real good question. I think that -- we are building a new 300,000 square foot facility -- in New York. That provides us the infrastructure to be bigger than we are today for equipment. It's the MEA capacity of 2.5 gigawatts, that we have to give a lot of thought to scaling even quicker. You hit on one of the main premises, I have the greater the availability of green hydrogen, the greater the availability. It's a flywheel effect, as my buddy Sanjay always says, which will drive these apps. And to us having that hydrogen on, is critical to our success. So we're laser-focused on that. The electrolyzer business, I can't tell you how big it could be because it's -- Sanjay you throw around a number to me that they think there's...

Like 150 gigawatt of potential pending opportunities...

In the near term.

Yes.

And nobody has a capacity or a capability to build it. That's why, I hired these folks from Tesla. If you look at my ops team, Greg, I got the guy who built the Reno factory I have the folks who did ran a supply chain for Musk in Reno. I have the folks, who automated those factories that work for Plug today. We're bringing the talent and capability and to scale this business quick.

You definitely have the reputation for treating your staff a lot better. So, I hope they're happy at Plug, for walking your success.

Touché Craig.

Thank you, guys.

Thanks, Craig.

Thanks, Craig.

[Operator Instructions] Our next question comes from Jeff Osborne with Cowen and Company. Please state your question.

Hi, Jeff

Hi, good afternoon. Two quick ones clarifications, and one more strategic question. On the clarification side, just wanted to better appreciate on the nat-gas pricing moves how quickly that flows through your P&L. So hypothetically are your contracts three, six, 12 months in duration of today was the peak of the market and you're buying -- locking in a contract today? When would that flow through on a P&L basis on a price per kilogram basis?

Yeah. So let Sanjay take that Jeff

So Jeff there's about a quarter lag in terms of the natural gas price being adjusted, right? So you could almost see what happened to our fuel cost, which -- so fuel costs that we buy today from our suppliers natural gas represents about 40% of the cost of that. And as we can see what happened to the price of natural gas in Q4, right? And that's the impact you saw in Q1. So you can also track what happened to the price of natural gas in Q1. You will actually see that impacting Q2. That actually gets reset in the beginning of the quarter. That's typically how it happens Jeff. It's on a quarterly basis.

Got it. That's very helpful. I appreciate it Sanjay. And just a lot of moving pieces in your business, a lot of hiring, international expansion, multiple JVs. Could you give us either formal or informal OpEx and CapEx guidance for the year just things that you can control in life? It would be helpful to understand where your head's at especially relative to the Q1 run rate?

For Plug overall? Yeah, I think…

Exactly.

Yeah. That $100 million is probably a good proxy, Jeff. I think -- so a lot of it is non-cash as we worked through the acquisition accounting. There's some amortization of intangibles and things like that. It was probably a little bit higher than I expected as we worked through those early -- we did the three deals in the last -- over December and January. Well, I think as we said today, $100 million to $105 million per quarter is probably a good proxy on OpEx. On CapEx I expect it to ramp quite frankly. We've talked about getting up to $1 billion this year. So I expect as we go through the balance of the year with the plants that were the green hydrogen facilities as well as the new buildings that we're building that that pace will accelerate.

Got it. That's helpful Paul. And then Andy maybe for you. You said you spent a lot of time thinking about how to scale the electrolyzer business. A two-part question for you if you don't mind. One, is could you articulate why you're winning, A. And then B, I'd love to understand some of the acquisitions that you've made that your competitors don't have in particular on frames on the EPC side and anything on the tanks and distribution side. What I'm trying to get at is when you're chasing this business you're looking at the pipeline, could you give us a sense of what the attach rate or stickiness would be of EPC and storage and distribution. And then what that does on a revenue per megawatt basis for say you folks versus other people that are maybe just providing an equipment solution?

That's a good question. I'm going to let Sanjay take the second part of it. But let me talk -- take the winning part of it. And I think the equation comes down to that PEM -- there's always a technology aspect, Jeff. And you don't get to the next stage unless you have technology that can meet cut. And I can tell you that with our deal with the Orascom, it came down to the fact that they did the two-year study of who had what they thought was the best PEM electrolyzer technology and they concluded that Plug had the best offering. I think the second item that folks look at is that who can put all the parts together and actually support the build-out of the plant. And you mentioned frames, and if you look atomization, we're really deeply involved in the transition from fossil fuel to hydrogen. And so many of our people come from the oil and gas industry and know how to do big products -- projects. And when you start talking about one gigawatt plant, how you manage the water, how you manage the drying of the hydrogen. I think the capability that we bring to the table especially with the Frames acquisition and all the back office support activity we have in India, because you really need for these kind of opportunities lots and lots of documentation, lots and lots of support. And I think the third item it's -- I'd give you a fourth item too. Third is we have manufacturing capability and we know how to make the products. That may seem basic. But the fact of the matter is Plug has been doing this for a long time in one industry and the fact you actually know how to buy components, do drilling, build things, make things that work, understand those issues uniquely qualify us. And I can tell you the fourth one that Orascom said to me, they conclude that Plug was going to be the leader in this industry and they want to be with the leader. Sanjay, I think now you can kind of talk about the stickiness and opportunities for liquefiers and travelers and other opportunities.

Absolutely. So Jeff, one of the sort of recent example here with one of the potential customer was. So there was an electrolyzer team, right? Then we had our team that were actually talking about why we have the -- potentially one of the most energy-efficient liquefiers. We didn't stop there. We said we can actually build you on-site storage. We can actually build you tankers, right liquid hydrogen tankers as well. So when you really look at it from that perspective, as Andy talks about it, right? This really gives us that really, really unique opportunity of portfolio sale. So it's a one-stop shop. We can manage our supply chain better. We can give you better pricing. We can really give you a turnkey end-to-end solution. And that's where one, it's sticky; two, it's obviously a higher dollar per customer opportunity even thinking about are a liquid hydrogen perspective, right? So that's where it becomes a pretty substantial opportunity for us. And Jeff, from the numbers perspective, just for your sort of the modeling of the benefit as well. This is how we run it. When you think about a 15 tons per day liquid hydrogen plant, you need about seven or so liquid tankers, right? That's the math you want to think about. You will at least have about two to three, 60,000 a gallon storage on site as well. But once you go to 45-ton plant then that's where you would actually be a large space to actually do the storage on site and that's not where on-site storage would actually be as applicable from an application perspective.

Got it. That's helpful. I appreciate it, Sanjay.

Of course.

Thank you. Next question comes from Andrew Percoco with Morgan Stanley. Please state your question.

Great. Thank you for the time. I appreciate the question.

How are you doing, Andrew?

Good. How are you, Andy?

Okay.

Just one quick one on site selection for renewables. Just hoping you can give an update in terms of what you're seeing on supply cost inflation your ability to source PPAs for additional green hydrogen production facilities. And if there's any risk to that 500 ton per day goal by 2025 in North America given this recent Department of Commerce anti-circumvention case on the solar industry?

Go ahead, Sanjay.

Hey, Andrew, how are you? So very good question. So look I think first thing, we've been very thoughtful about diversity of that power source. We have hydro PPAs. We have wind PPAs and we have solar number one, right. And number two, when you really look at our funnel here between 2022, 2023 and even into 2024 there are some PPAs that have already been signed which puts us if anything in probably more of a competitive position versus the other way around. Now even for one of -- opportunity in the West Coast, we've actually locked -- we locked in the module price when we actually entered into the development agreement. So that really puts us in a very unique position versus what you've seen to the solar module prices here in the market. And you're absolutely right. Here in the near term, we've seen an escalation in the solar and the wind PPAs. But as you know when you see this increase in the module prices, fast forward 18 months there is typically a very large capacity that gets added. We've seen that again and again happen in this PV and the solar industry prices do tend to come down. And we've been very thoughtful about, not really sort of jumping into this very highly module prices and therefore high solar PPA. We've been strategic about that. We've been looking at opportunities that's already secured. That gets us to where we need to get to. And Andy also touched on it, right? This all-in partnership really also puts us in a very unique position, not just to get to that 500 tons per day number, but potentially even exceed that. So that's the approach we're taking. We're being very thoughtful about it and not just jumping into wanting to sign a solar PPA given what has happened to the module prices here in the near term as well as what has happened to the PPA for the new greenfield site if you would.

Great. That's super helpful. And then just one last one for me. I think Andy before you alluded to some potential additional M&A. Is there anything left like to vertically integrate, or would it be more of a -- potentially more of a strategic acquisition to expand into a new geography that you don't currently operate in?

I would say Andrew that -- we obviously are thinking a great deal about class 8 trucks and that's probably an opportunity for additional vertical integrations. I think we're also and I think probably more in the partnership side thinking a lot about large-scale storage and pipelines nothing -- I don't think we would do either without partners, but that's certainly an area we're giving a lot of attention to. And quite -- and really kind of also those kind of activities are kind of tagged to the broader infrastructure bill that is law and the broader hubs, for example in New York, where we think those type of offerings could be really beneficial in supercharging the hydrogen economy.

Awesome. Okay. I’ll it there. Thank you.

Okay. Thanks, Andrew.

Our next question comes from Ameet Thakkar with BMO Capital Markets. Please state your question.

Hello, Ameet.

Hey, thank you for taking my question, Andy. Hope you’re well? Just a real quick, the acquisitions added $40 million of revenue in this quarter. And I was just wondering on a gross margin basis like how did that kind of fare relative to say your core material handling business and your other products business?

It's lower. I mean, when you -- these are businesses that we're scaling with new products right out of the gate, if you look at our electrolyzer business as an example, it's probably going to be six, seven times the volume we did last year. So it's scaling quickly and rapidly. And I expect the margin on that particularly in the second half as that starts to really scale the size to really be in the start to approximating that 30% target. So it's -- on a mix basis, I mean, there's a lot of different components in that. So it's hard to probably get in detail on this phone call. But I would just say in general think about it as new products that we're quickly scaling and rapidly growing and it's anywhere from low double digits to in some cases up north of 20%, but we'll scale all of them up to that 30% as we move to the second half of the year and onward.

Great. And I think Sanjay has kind of touched on a couple of times on the call. But like I think you guys had talked about being able to kind of get PPAs in the $0.025 to $0.03 kilowatt power range. But kind of given higher prevailing power prices and the DOC investigation the PPA prices have come up. But just to kind of be clear like are we to kind of understand the kind of all of the kind of power capacity you need for the 70 ton per day exit rate in 2022 is largely kind of in place and you kind of be kind of opportunistic and layering kind of additional power capacity to get to the 500 tons per day after this kind of settled down. Is that the right way of looking at it?

Yes. I mean, short answer is, yes. But let me add even some more to that, right? It's actually beyond that 70 tons per day where we've actually secured power pricing to see you know, right? And so again look I think we'll obviously be thoughtful about it in terms of when do we think is the right time. It's obviously seeing a pretty meaningful impact on the PP module prices as well as the solar PPAs. So we're not going to jump into entering into a PPA that we have to live with for the next 15 years given short-term dynamics here in the market, but it actually gets us well beyond that 70 ton numbers in terms of the already signed PPA with wind and even some of the solar deals and also some of the other hydro deals that we have.

Great. thank you for taking my question guys.

Thank you.

Our next question comes from Alex Kania with Wolfe Research. Please state your question.

Hi, Alex.

Hey. Hi, there. How are you?

Okay.

Great. So two questions. First one is just I know that we're expecting maybe a little bit more detail from the EU on their repower proposal, I guess, in the next couple of weeks. From your perspective, what are the most important things that you're looking for from that if anything? That's -- that would be the first question. Maybe the second one is one of your renewable PPA providers is also talking or has announced kind of a broad integrated sort of hydrogen project down on the Gulf Coast involving midstream and renewables and that. I'm just kind of conceptually kind of what role and what things are you looking for the perspective of maybe either participating in that, or similar types of projects and maybe how midstream kind of, assets things like that might getting be integrated in that over time.

Yes. Sanjay, you want to talk about the support and the relationship with our PPA provider?

Yeah. So Alex, on this right. I mean I think the way we look at it is, this is such a massive market. There are times when we're going to be working together. It's almost like the coopetition kind of an approach if you would right, where you're cooperating at times and maybe there are times where you might be competing. But we have a really, really attractive PPA with this particular partner, especially in the Texas area, and we're pretty pleased with that. Look, hydrogen is a massive market. And again, we also do have additional components that we can provide to some of these partners as well. So please don't read into this but we're certainly in a position to be able to provide them with additional solutions if you like Andy just talked about it there's not a lot of players with the kind of electrolyzer capacity like we are. There's another a lot of folks that can provide liquefiers like we can or the liquid hydrogen tankers or the on-site storage. So, nothing to share on this call at this point in time. But look, we're not surprised that there are others that are coming into this production of the green hydrogen from a liquid -- you should -- we'll probably expect to see more and more of that and that's only a positive for the industry, because it will help grow more apps which is the business we're in as well. So, that's how we think about that particular situation.

Great. Thanks. Maybe just on the European side.

Yeah. On the European side, I think the key to us is the support for low-cost renewables. And quite honestly, this is what we've been working with the European governments on, is low cost renewables to support deployment of green hydrogen. That to me Alex is kind of a key to success. And the reason is really kind of clear about with 75% of the cost for generating green hydrogen really tied to the cost of renewable power. So anything that supports renewable electricity that can be used for generation of green hydrogen we believe is critical, Alex.

Great. Thanks so much.

Okay.

Thank you. Our next question comes from Biju Perincheril with Susquehanna. Please state your question.

Hi, Biju. How are you Biju?

Hi, good afternoon. How are you, Andy?

Very good.

Pretty good. Hey, a quick question. Thanks for breaking out the revenue contribution from the recent acquisition. So -- the question is, as you sort of ramp your hydrogen production capacity, is there still going to be an opportunity for third party sales from the equipment from Joule and ACT, et cetera? And also, can you give us a sense of how much that could be like in your $3 billion target for 2025, how much is that could come from sort of B sources?

So the answer to the question is absolutely yes. And I'm going to let Sanjay who overlooks those activities give you his thoughts about how we see that as part of our 2025 revenue.

Yes. So, Biju, short answer is we absolutely expect a lot of third party sales from both of those business. Look we're here to support the energy transition, right? And we're here to help and work many companies out there, because it's a massive opportunity number one. Number two with what we could do from our Applied Cryo now Plug Cryo business, we can certainly provide liquid hydrogen tankers on-site storage as well. And there is also additional business for liquid oxygen and liquid nitrogen as well as a part of that business that we do. So look, I mean I think we have not obviously given what that could be as a part of that $3 billion number. We just do have similar growth rate like kind of the growth that we're talking about for the blood parent as a whole. So, that's one. Second on the liquefier side, so since we acquired Jewel Processing, now Plug Process System, we believe we have one of the most efficient energy consumption for the liquefier. We also have partnerships with the likes of Atlas Copco and Fives, that allows us to control supply chain better both for our own internal consumption as well as a third party sale. Now when you think about could those business be between $400 million to $500 million in 2025 that should -- that does not sound like a stretch to us at all.

Got it. That's helpful. And then, just a quick clarification. The 500 tons per day of capacity you talked about for 2025, is that inclusive of all in volumes, or is that going to be separate?

Yes, is the answer. But look we're very happy obviously with this partnership and we're just getting started in one location here. Hopefully, more to come. But obviously very like-minded companies we're thinking about hydrogen economy in a very similar way. So this certainly gives us a lot of flexibility and a lot of diversity if you would in terms of how we expand and get to that 500 tons but it certainly could get us to a number higher than that as well.

And gives you a lot of leverage in your PPA discussions as well as...

I'm going to take your word on that and you and I think I'm going to use that going forward as we're negotiating PPA. I agree with you.

Thank you. Appreciate it.

Thanks, Biju.

Thank you. Our next question comes from Craig Shere with Tuohy Brothers. Please go ahead.

Hi, Craig. How are you today?

Good. Thank you. Thanks for taking the question. I've got a multipart on fuel but some of the answers might be very brief. So, if we're looking at 70 tons per day green hydrogen at the end of the year and you want to keep 30% flex capacity that sounds like you're roughly balanced to meet maybe 50 tons per day internal need. And maybe that means that you're not under pressure to find pure-play just fuel offtakers like at refiners utilities and others or maybe next year. So that's kind of the second part of the question. The third part of the question are you prepared to share anything about proportional roll off on your industrial gas supply agreements from 2023 to 2025. And then I noticed your Walmart announcement and it sounds good but I'm a little confused. Do you need formal agreements, or can you just naturally swap in your own green hydrogen in lieu of third-party industrial gas supply? And my final part to the question is at what point can you think about starting your very low-cost project debt on these completed green hydrogen plants?

Well a lot of questions there Craig. You're the last one of the day but not the least. I'm going to take the Walmart one, and then I'll let Sanjay take a few of the others and we'll figure out what we've left open. So when I look at the Walmart one, it reminds me of 2008 when we started with 63 forklift trucks, which eventually became call it $9500 a day, call it $10000. And that's really just the start. The focus is on material handling. The focus is on providing stationary power. The focus is for auto vehicles. This is just to get started in their distribution centers. And it is an expansion of what we're using today. If you think about 20 tons, that probably supports call it 80, 90 distribution centers. We're at 45 today. So there is an expansion there. I think what's really more important is it's just a start on Walmart's journey to reduce their suppliers' carbon footprint and their carbon footprint by 1 gigaton by 2030. So Sanjay you want to talk about some of the other items that Craig brought up?

Sure. So Craig on the first one question about our demand versus what our capacity is going to be and not needing to necessarily defer a lot more offtake, you're right. But having said that, keep in mind, right like very similar to the traditional energy industry. There is always going to be some sort of a swap agreement. And look we want to be continue to be buying from some of our hydrogen suppliers right now on a long-term basis pricing has to be right. We might be selling them some green hydrogen and they might be selling us some -- they might continue to sell us some of this gray hydrogen here in the near term right? So I wouldn't say that we will stop buying hydrogen from some of our existing supplier. One caveat is the price has to be right. That's the key because we've got to keep focusing on driving the hydrogen economy forward. Now on the second piece of when do these contracts roll over and I hope you can appreciate the fact that we do not want to get into that level of granularity. But we will share with you that typically these contracts are for about five years. That's typically how they're structured. And our view on that I think at this point in time we probably don't want to get into too much granularity. So what part of the question did I miss?

You hit it almost all of it. The last question was at what point can we start securing very low-cost project debt on completed plants?

Sure. I say as you know it's going to be very similar to any other renewable assets if you would. I mean I think today you know the cap structure for solar the cap structure for wind and if there is a production tax credit for this green hydrogen facilities you could expect that there will be similar cap structure like that depending on the structure of that production tax credit, right? Now having said that fast-forward a year when we are fully -- the plant is fully ramped it's generating cash flow we feel quite confident that you could do back leverage we can probably use some sort of a green bond against these plants and that's certainly a part of the calculus for us in terms of how we plan to recycle capital as we continue to build out this green hydrogen generation network both in North America as well as on a global basis.

Right. Thank you so much.

Thank you.

There are no further questions at this time. I'll turn the floor back to Andrew Marsh for closing remarks.

Sure. Well, thank you everyone for joining the call today. When I look at -- we are building out the hydrogen ecosystem. We're doing it. We're building the plants. We have the trailers to deliver the products. We have the customers which is critical. We have the electrolyzers. We have the fuel cells. No one is in a better position to take advantage of this trend for the hydrogen economy for the coming years. So we're excited. We're going to deliver our $925 million this year and I look forward to talking to everyone on the second quarter call. Thanks everyone.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.