Greetings and welcome to PLUG's Fourth Quarter and Year-End 2022 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our hosts Teal Hoyos, Senior Director of Marketing and Communication. Thank you, you may begin.

Thank you. Welcome to the 2022 fourth quarter and year-ed 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 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

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 three factors. Obstacles we encountered while introducing new products, delays in constructing our hydrogen plant, 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 face this past year, I firmly believe our efforts in 2022 will serve as the foundation for PLUG's success over the next five 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 USA’s IRA Legislation, and REPower Europe. 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.…

Thank you. Ladies and gentlemen at this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from James West with Evercore ISI. Please state your question.

Hey, good afternoon, guys.

Good afternoon, James.

So Andy, I like what you're doing in Europe here. You're getting more aggressive. I know you guys started kind of the U.S. build-out but now with Antwerp, and especially with the JV partner in Iberia, it seems like that could be -- 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. And our team has been particularly focused on the Nordic regions. And when we think about hydrogen generation in Europe, those are really the two areas - that southern portion of Europe, such as Spain as well as the Nordic region where you have accessible hydropower and wind power, which we think makes a lot of sense.

Right. Okay. Got it. And then on the EV charging front, 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?

So what we're seeing -- I think, James, you're well aware of the challenges that folks have in bringing transmission lines to support fleets of electric vehicles. And as we -- as you -- as folks are aware, we have some large customers who are looking to deploy EV vehicles. And 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 its facility 70 miles away to generate the fuel and using our stationary power products to power the vehicles. We also see -- and our investors will see announcements over the coming months about first-generation peaker plants, where we'll be deploying electrolyzers, say something, James, in the 8 to 10-megawatt scale at first supported by our stationary products. So that's a real area of focus at the moment. And the combination of those two activities support the 30 megawatts.

Got you. 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 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. Thank you for the question. When -- we really believe when we take a look, 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, and 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 and think about something that looks like the Tesla plant in Nevada. We think that's an added strength. And obviously, when you start thinking about recycling precious metals, no one is better in the world 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. My very quick follow-up is you sometimes [don’t get] (ph) enough credit for your materials handling business and we're looking at -- just basically to add about 80 new material handling sites in 2023, so if you could quickly talk about that.

Sure. And you are right, it gets lost in the shuffle. And if you -- 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 but also during the past year, we announced 3 new pedestal customers. And those pedestal customers, folks like [Gastar] (ph) are looking to deploy -- start deploying at scale and that's a benefit not only here in North America, but building out our European capabilities. So yes, it does get lost in the mix, and it will represent about half of it when you combine it with the hydrogen service that they'll use. It's almost half of our business in the coming year. And a big jump from last year.

Thank you for very [eager] (ph) responses.

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 funnel for the electrolyzers at a pretty substantial proportion is related to, I guess, green hydrogen/green ammonia. We've certainly seen a lot of new 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 are going to see larger types of announcements?

I will let Sanjay take that because I know Sanjay has been deeply engaged in that activity over the past month. So Sanjay, maybe you can give out some insight.

Sure. Happy to do that. And again, Alex, as you know, right, we've talked about it before. When you think about our funnel, and again, I just want to be clear, our funnel, it's well in excess of $30 billion. And 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. And in terms of the timing of when we might be able to talk about that, i.e., I believe that we'll be able to share something incremental with you all during 2023. And these are ranges from multiple sizes of projects, some being fully substantial opportunity in sort of the Panhandle Texas area, if you really think about it. So 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, as you actually really look at when 2023 sort of like in the second half of the year.

Great. Thank you. And then just a follow-up on your discussion on SK and expectations of the stationary power, which I think was like 400 megawatts by 2025. How do you characterize that? Is that fully kind of contracted? Or is it kind of more just some understanding? Just kind of curious about how you see those deliveries.

That's a good question. So 2023 out -- by the way, we -- I'm going to 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 as 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. And 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 manufacturing plant in South Korea to support that 200-400 megawatts per year size deployments between '25 and 2040. So 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 P.J. Juvekar with Citi. Please state your question.

Good afternoon, PJ.

Hey, Andy. And everyone, good afternoon. 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. So Andy, I can jump in here. So happy to do that. PJ, so a couple of things, right? And I think you guys must have seen that there is some update in the slide that we provided here in this shareholder letter even versus the one that we had before. As you can see, there's a check mark in Georgia from a commissioning standpoint, right? So we -- and 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 a kind green hydrogen liquid plant in the world that has not been built in the past, right? So 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, we actually are able to leverage a lot of that, right? So as a matter of fact, in Texas, it's going to be obviously our electrolyzer, our liquefier but we're now able to do turnkey EPC contract, right, for some of that 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 [fatal flaw] (ph), design analysis, substation work is moving ahead. So there's a lot of learnings that we've been able to leverage from Georgia. And then 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 items, which we can also leverage for some feed gas opportunity in terms of 2023 opportunity. Now finally, Texas is a 45-ton plant. New York is a 75-ton plant. And one point, PJ, maybe we could do a slightly better job than maybe what we've done in the past is there is about a 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. So when you take all that into consideration and look at all the list of those projects, 200-ton commission, we feel very good about by the end of the year. And 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. And Andy, I do want to talk to you and the question is, in talking to other hydrogen producers and industrial gas companies, everyone is struggling to figure out 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? And I think I get different answers from different people. Just wondering what are your sort of big picture views on that topic.

So PJ, I think it will be -- 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 production tax credit. 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, declined. If I was in -- crystal balls are tough, but I would think in 2028-2029, you're probably talking 30%. But during that whole time, your -- especially for plants you have already online, you're already had the payback for those plants and other items. So that's how I think it will play out, PJ and I have real live data at least initially that probably is a pretty fair estimate of the initial number I'm putting out there.

That's fair. So you think there is an advantage to being the first mover in the space?

I feel very strongly about that based on contracts we've already signed.

Our next question comes from Amit Dayal with H.C. Wainwright. Please state your question.

Thank you, guys. Appreciate you guys taking questions.

Hi, Amit. Nice to talk to you.

Hi, Andy. Thank you. Same here. Just with respect to 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. 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 listen.

Sure. Paul, do you want to take that question?

Yeah. I think, first of all, material handling will be a meaningful part of our sales, somewhere between 55%. Electrolyzers is going to be a pretty meaningful part as we're talking about that. That's probably roughly 30%-plus. Stationary is going to 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. And then fuel probably makes up most of the rest. And I put in fuel, that fuel category, other cryogenic equipment and liquefiers and tank and tankers and things like that. The real -- where we're going to see as we turn on those plants this year and ramping on into next year, that fuel will become a more -- increasingly more meaningful part of the mix as we turn those facilities on and moving into '24 but for this year, that's kind of how that roughly breaks down.

Thank you, Paul, appreciate it. And last one for me, guys, on. 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? And then what type of contracts that you might be setting up, monthly contracts? Any color on how this will play out.

Sanjay, do you want to take that one for Amit.

Sure. Happy to do that. So -- and I mean, as we briefly mentioned in the shareholder letter, right, we have almost 200 tons of offtake agreement in place right now between our pedestal customer like Amazon, Walmart and others. So -- and again, these are all done from a portfolio perspective, if you would, right? So there's some situation where maybe an offtake agreement is from one particular plant and a meaningful amount of that. And in other situations, it's actually the network where they are actually allocated a certain amount of capacity from plant A, B, C and D, if you will, right? Now from a structuring standpoint, 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 5-year contract, right? And we also have a lot of negotiation and the discussion going on at this point in time where we're looking at some of the swap agreements, right? We're also looking at 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 discussions with folks like that. But from a contracting standpoint, that's what you can see right now.

Wonderful. Thank you, Sanjay, appreciate it. That's all I have, guys. 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?

I'm doing okay. Thanks. So maybe just on gross margin. 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 to kind of judge the progress towards some of your long-term goals? And then in '23, can you just talk about the progression? I mean, obviously, I would think the low natural gas prices here early in the year, what maybe impact the linearity throughout the year.

So Paul, and Sanjay, do you want to take that one? Paul, you can go first.

Sure. A couple of things, Eric. There are some near-term events that are, for us, real important milestones. Sanjay talked about turning on the Georgia plant and starting to scale that up. That's a real important milestone to show, and it will start being accretive very quickly. And as we move forward in the course of the year, additional facilities will be incrementally accretive as well. So that's an important one. Scaling up the electrolyzer production, as we talked about, we've already seen a substantial improvement in output. And as we talked about in the letter, moving up to the 100 megawatts per month in the next month or six weeks, another major milestone. And then lastly, the stationary -- large-scale stationary product, we're going to be shipping the first large-scale systems in Q2. So those are near-term milestones that are very important for us because it's really going to come from shipping more product, which is a big chunk of what we're going to do this year, and that is already accretive to leveraging the facilities, which we get through volume and then the gas improvements that we already see with natural gas prices abating as well as turning on the green hydrogen facility. So all those are important. And in terms of cadence, clearly, we're going to still have kind of the one third two thirds phenomenon seasonality of our sales for a number of reasons. Volume helps a lot. So you're going to see a bigger impact in the second half, both in terms of the volume as well as those cost down efforts. But you will absolutely see progression and improvement in Q1 sequentially and moving on through the course of the year given those -- the improvements we're already seeing and things like the natural gas, cost abatements that we're already seeing benefits now. So I think as the year progresses, we get to Q4, it's going to be a big quarter for us and a big year in terms of profitability.

Got it.

Sanjay, do you want to comment on natural gas at all? Because I know there is a slight delay.

Right. So Eric, as you recall, right, so there's about a quarter delay before we see the benefit of the decline in the natural gas price starting to flow into our cost molecule. And another thing which is -- and by the way, when we talked about our margin cadence for the fuel business, we were thinking about natural gas maybe at around $4 an MMBtu by the end of the year. Clearly, the numbers are much lower than that. And if this trend holds, that certainly would be very helpful. And one final thing, I'll be amiss if I didn't mention this, as our plans come online, the cost actually is one third 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.

Yeah. Absolutely. Thanks for that. And then maybe just a follow-up on a previous question. When you think about the credit and you talked about a 70% capture rate, I mean, if I'm doing the math right, I mean, that would seem like roughly $350 million a year, incremental. And if I think about what you're going to -- you're planning to double green hydrogen production over the next, call it, three-four years beyond 2025. What your capture rate is a little bit more than cut in half, I mean that's a number, that's $350 million. 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 want to comment on that, Sanjay? I guess I will -- I'll just make one comment, and then I'll hand it off to you Sanjay, that's assuming that our plans for what we build stays flat, which I think probably will continue to build more plants. But go ahead, Sanjay.

Yeah. And Eric, math-wise, you're absolutely right, right? That's 500 tons, 70% capture rate, that's the number. But as Andy mentioned, right, obviously, 500 tons is number at a point in time and given how big this hydrogen economy and hydrogen ecosystem is going to be as we get to that time frame and beyond that, obviously, those numbers are going to go up. And if the capture rate stays similar than that, steady cash flow number only goes up.

Yeah, okay. Thank you.

Thanks, Eric.

Our next question comes from Sam Burwell with Jefferies. Please state your question.

Hi, Sam. How are you today?

Doing well. On the top line in the quarter, came in a little bit light than what the guidance that you gave a month ago implied. And I think you guys explained that the guide down in back at the business update was due to operational hiccups related to the electrolyzer ramp in rollout. So curious what caused the number to come in light and if those issues have been resolved. And then just how to think about how electrolyzers should ramp up through the year and how that impacts top line gross margins?

There are actually two questions there, Sam, the first one, I will let Paul address by the quarter was a little light. And the second one, I'll let Sanjay talk about the ramp of the electrolyzer business. So Paul.

Yeah. I think a combination of some of the issues that we shared and talked about previously in addition to -- it was a meaningful chunk of activity associated with our acquisitions. And when you're moving what was effectively private companies into public company space and working through all their processes and accounting for new models, new structures, new programs, it felt -- in going through that, a little conservative to kind of error towards moving some of that into 2023 until we get all those processes finalized and finish. 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. So -- but as we continue to improve that, it will be -- a stronger process is more predictable, easier to manage moving forward. So 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. So in terms of the electrolyzer scope and the timing and cadence, do you want to talk about that, Sanjay?

Sure. Happy to do that. Again, I think the way we are managing and running our electrolyzer business, right, is essentially there's two pieces 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, given the scope and size of that, that ends up becoming more on a percent of the completion accounting and timing of how the project ramps and rolls out. Now from a product standpoint with our 1-megawatt architecture and 5-megawatt architecture, especially with our 5-megawatt turnkey product, 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 levels of product that's absolutely turnkey. And 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? Now 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, but as Paul mentioned, we're looking at electrolyzer being about 30% of our overall revenue in 2023. But 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 order 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 on all the nuances of the PTC and any other IR implications before converting their inbound to, say, a firm order?

So Sam, I'll take that one. Let me take a step back at a higher level, I think how businesses respond is what seems like to you and investors is slow, for some of these large companies is actually quite fast. So I do think there is a little bit of difference there. On the second item, I -- we do -- I think we mentioned in the shareholder letter, we probably booked 30 of these 5-megawatt systems in the last two-three months of last year. So there has been uptake. That being said, I think that treasury will be coming out in July with the guidance. I'm not going to use the final guidance because it will -- there's always an evolution but I think when treasury comes out with its guidance that it will help finalize business cases in some companies, which will allow there to be greater momentum. Look, when I look at Plug, $1.4 billion this year is a fairly good traction with the IRA but 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 three and half days. And I proudly -- in 40 hours of meetings already established mostly with folks who are looking at electrolyzers.

Got it. Thanks.

Okay, Sam.

[Operator Instructions] Our next question comes from Biju Perincheril with Susquehanna. Please state your question.

Hi, Biju.

Hi. 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 at 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 to start. I heard the rest of your question.

The cryo equipment?

Absolutely. So if I look at the cryo equipment, we've -- I would say when we look at the trailer business, Sanjay, how much -- how many trailers do we expect from a percentage-wise to grow this year, better external? It's a fairly significant number.

Absolutely. And every 15-ton plant needs a 7 trailer not to even include all the storeys that they're going to need, right?

But I know that there's probably 20 trailers that -- or hydrogen trailers that 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. And 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. And we believe that ultimately, the liquefiers also will be used off hydrogen pipeline to be able to deliver high-quality storage of people who are not on the pipeline. So we -- this year, we already, I know Sanjay have four contracts, four liquefiers we sold and that we're looking to continue to increase that number and there's a great deal of sales activity. So the cryo business is -- and I'm going to circle somewhere between $150 million to $200 million this year. Is that a fair number?

It's a fair number, Andy. Yeah.

Yeah. So Biju, yeah, it is an important part of our business model. But 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 those at cryogenic equipment actually more than pays for the acquisitions. So it's a combination that the acquisitions are working and for both our own use and external use.

Very, helpful. Thank you.

Thank you. And our next question comes from Kashy Harrison with Piper Sandler. Please state your question.

Hi, Kashy.

Hi. Andy, so I wanted to dig in a little bit to the Q4 results, just one more time. Looking at the fuel cell systems and infrastructure line, that's been a consistent 20% gross margin business and it dipped in 4Q. Could you just expand on what the drivers were there? And then a similar question for services and the loss provision line, they increased a bit in Q4. So just maybe walk us through what happened there and what drives the confidence that those should start to improve starting in Q1 and Q2?

Go ahead, Paul.

Yeah. So in the equipment line, it now reflects all equipment across the company. And what you see in Q4 was a fairly large investment in new product and new manufacturing facilities. So 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. So the combination of, we call it, unfavorable leverage at those initial phases of turning this on in conjunction with launching a number of new products, which you always have some new product experience as you scale those initial products off our line. Those are what you're seeing negatively draw down equipment margin. As we rolled into 2023, you're going to see a step function change and leverage on those facilities. And so it's a pretty big volume benefit that you're going to see in addition to working out the kinks on those products for now up to launching that first large-scale stationary and electrolyzers at scale. And so we've worked through a lot of those initial bumps and bruises and speed bumps that you have when you do that. And so this year, particularly as we progress through the year, you're going to 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, it's really -- last year was affected in part with supply chain and other issues that we talked about, we're 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. And 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 coming in, and we've got active collaboration with the customers to do that and roll that out at a much faster scale in '23. So we're more confident than ever in terms of the benefits that we're seeing in those reliability investments. And so as you see those start to play through, you'll definitely see a significant positive trajectory in that service margin. And to be honest, as we move forward, I'm hoping that we're even hopefully understand over deliver and on the service profile so that we're hopefully conservative in terms of where our position was in some of those loss positions that we accrued. But we'll see as the first -- there's some the first half will be important to really show that progress. And we're seeing that already in the first couple of months. And so I think we're going to have real good progression as of the year.

Thanks for the detail, Paul. Really, really appreciate it. Just had one quick follow-up on liquidity and cash. Just looking at cash, short-term securities, restricted cash on the balance sheet, just summing all of those up, it looks like you guys used about $1.4 billion of cash. I was just wondering if you could speak to your expectations on cash usage in 2023. And then maybe also discuss how we should be thinking about the timing and size of the DOE loan, if there's been any evolution in your expectations there? Thank you.

Yeah. I appreciate that. When I look at cash, I look at the total pool of the equity investments, the short-term securities. I mean they all are liquid short term in nature. We obviously try and maximize spread and leverage on those from an investment standpoint. Given the market rates, you're actually -- you see a big tick up in the interest rates, and you'll see more of that this year as we go forward. But collectively, I sit with close to $3 billion in total cash liquidity even the restricted cash, I mean that's basically releases to me at about 20%-25% a year. So it helps fund our business as we move forward as it does -- the equity investments and so forth as those turned. So I'm sitting with a great position, and you probably saw that we paid off generates. So I really don't have any debt currently, as I said, because the small -- very small portion of converts to have is like four times six times in the money. So that will convert out. And so I sit with a fairly basically unleveraged balance sheet and so we sit in a good position to fund the pipeline this year. And 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 due diligence as we speak, which is pretty vast. I mean, they use industrial engineers to look at our plants, they're looking to hire outside firms to do financial diligence. There's a lot of different processes they go through. But we've been talking about an outline of a $1 billion program. Things that are mutually we're working on a concept, a contract that we mutually aligned on and we're working diligently to bring that to fruition. And fortunately, I have other options available to me given the strength of the balance sheet and the positioning them in as we move through the year, including leveraging the Georgia facility and other facilities that we're going to turn 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. So I think in the second half, you'll see either something in the DOE space or other programs that we'll act on. But I feel really good about the DOE program, and I feel like that's a very real opportunity that has high probability coming to fruition. So we'll see as the months progress, what makes sense for Plug.

Thank you.

And our next question comes from Bill Peterson with JPMorgan. Please state your question.

Hi, good afternoon. Sorry, I am in the airport, might be loud. So I apologize if I've [indiscernible]. My first question is -- it's related to your production cost. In the February 3 presentation, you talked about near-term production costs about $4 per kilogram. Just want to make sure that's still the right way to think about it as we think about Georgia lighting up period the next month or so. Your confidence level around that. That's right -- and then how that would compare against comparable programs that may be coming online, I guess, through -- I guess probably later than '24 time frame from your competitors?

Sanjay, do you want to 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 the number we've talked about, and we feel pretty good about it. So when the first 15 ton comes online in Georgia. The number will be a little bit north of that. But we have other plants that are actually got even better rates at the electricity that actually, we have lower numbers than that, right? So I think from a portfolio perspective, when you think about our overall cost of green hydrogen, that's about the right number. So that's correct, number one. And number two, when you then think about -- and the goal here, right, is we just want to make sure that we keep driving the CapEx numbers down, which obviously impacts the depreciation cost and the overall cost of that hydrogen molecule. But more importantly, we're really thinking about where can you get the lowest possible cost of that renewable electrode, right? That has a much bigger impact in terms of driving that cost down. And directionally, you will actually see that as costs continue to go down.

Okay, great. My second one is, I guess, it's more related to potential offtake or strategy around heavy duty. We talked about how we're doing in the past and as last year, you did announce Nikola as an offtake and plus to be buying trucks. But I guess you have also at the same time, more experience with HYVIA. So wanted to get a feel for how you're thinking about your strategy for heavy-duty trucking. Partnerships, JVs, or just maybe just have offtake agreements with the likes of nickel or other players?

So Bill, that's -- 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. So 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. So if I was going to give you an order, Bill, we'll sell hydrogen to anyone in the heavy-duty vehicle industry. We'll look at JVs with a very thoughtful eye thinking about the long-term margin profile of that industry. Possibility we could just sell ProGen engines, which may be more attractive to us or even, I think, for real heavy volume stacks. And the third one is we're not going to do it all.

Okay. That's very clear. Thanks for the color and 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. 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 and how is that trending given you guys are targeting a handful of new Pentol customers this year?

Good question. I would think that -- when I look at the coming deployments over the next six to seven months because some of our large creditor customers are beginning to deploy at a faster rate again. It will probably be mixed. That mix is probably 75%, 80% for large sites in 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. And then to follow up, you said you were targeting 50 to 60 new pedestal customer sites. Are any of those with existing customers? Or is that more of a proxy for adding new pedestal?

Yeah. I -- so 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. So those pedestal customers could over the coming years deployed anywhere between five to 10 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.

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

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 1,800. I was just wondering that's lower than it was last year in 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. I think that -- and we -- and it's really related to what I talked about in January with the construction at our customer sites being slowed down because of the challenges in supply chain and so this year, the number of sites we will do will be 2x, and we know where they're going. So that's really -- it really was more -- it was more on the -- it was really on the customer side and their ability to -- so much of our products go into new facilities with some of our customers. That really -- that was really where the delay is.

Got it. And then just one quick housekeeping issue. Like you guys reaffirmed '23 revenue and gross margins, but the operating income margins. I think you guys are targeting minus 24% for '23, but that's still unchanged, right?

I will let Paul answer that, Ameet, to make sure you get the right answer. Paul?

Yeah. Let me just clarify. So it was $1.4 billion, 10% gross margins and what I've talked about is kind of a $125 million per quarter OpEx rate is roughly as a proxy. So that kind of gives you the math in terms of -- yes, the 24% being negative, yes, that was the number, and that's roughly directionally in that range.

Thanks so much for that.

Thank you. And our next question comes from Craig Shere with Tuohy Brothers. Please state your question.

Hi, Craig.

Hi, good afternoon or evening, Andy, Sanjay and Paul, so on the answer to Kash's question, I was a little confused, Paul. If you're successful with the DOE loan, do you not need to back lever and recycle the capital in the green hydrogen network?

Paul?

Yeah. No, I understand. The answer is it would probably be either/or. We could do one or the other. There is a chance that we could do both. When you have a $5 billion balance sheet by itself, you theoretically could leverage up that. It's in isolation as well as back lever those individual plant facilities. So I would say everything is in the mix, Craig, and I'm going to -- we're going to work through the best capital decision for Plug. So I'm excited about the DOE program. I think it's a very viable and exciting potential program for us. But the good news is the options continue to open up to us even unsolicited inbound opportunities from various lenders and people and banks that we want to 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 structure is. But I'm very optimistic about the DOE, I think that's a very viable and likely scenario. But likewise, we're going to certainly nurture different opportunities as well and make the best decision. So hopefully, that helps.

Certainly does. I guess this kind of segues a little on my second question, I don't know if this is kind of like completely off track. But if Sanjay, let's say, we fast forward nine months at the end of the year and your green hydrogen network and your Olin JV is doing better than it looked like the last 3 months and some of the delays we've seen. And 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 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 with that opportunity to ever present itself?

Craig, all I'll say is that it's a real interesting idea.

Okay. All right. Thank you both.

Okay.

And our next question comes from Michael Blum with Wells Fargo. Please state your question.

Thanks, good evening everyone. Just two quick. Just wanted to check in on the cost for hydrogen plant. Curious of that $8 million to $9 million per ton per day is still holding steady and how you expect that to trend over time? And then also just wanted to see what we should assume for CapEx in '23 and maybe '24. Thanks.

So Sanjay, do you want to take the first one? And Paul, the second part is that question?

Yeah. So Michael, no change to that view, right? Obviously, the integrated green hydrogen plant is higher. The feedstock hydrogen plant, the likes of JV with Olin, lower CapEx, right? But we really have no reason to change that number that you just stated about at this point in time. Paul?

Yeah. And I would say we're still targeting $1 billion in CapEx this year. As we go through the year, we'll have better visibility on timing of things. We're trying to accelerate the programs and I'm working behind the scenes, trying to defer the payments being a good CFO. So we'll see how the timing all that comes together in centers, but that's our focus.

Thank you.

And there are no further questions at this time. I'll hand the floor back to Andy Marsh for closing remarks.

Well, thank you, everyone. And 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 to rule always. Interested to talk to investors and analysts. So thank you, everyone. Talk to you soon. Bye now.

Thank you. And with that, we conclude today's conference. All parties may disconnect. Have a great evening.