Greetings, everyone, and welcome to the Plug Power First Quarter Earnings Call. [Operator Instructions] As a reminder please note, today's conference is being recorded Tuesday, May 9, 2023. It is now with pleasure that I turn today's conference over to Teal Hoyos, Senior Director of Marketing and Communications. Please go ahead. Greetings, everyone, and welcome to the Plug Power first quarter earnings call. [Operator instructions] As a reminder, please note, today's conference is being recorded Tuesday, May 9th, 2023. It is now with pleasure that I turn today's conference over to Teal Hoyos, senior director of marketing and communications. Please go ahead.

Thank you. Welcome to the 2023 first quarter earnings call. This call will include forward-looking statements. These forward-looking statements contain projections of future results of operations or 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 statements 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 Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2022, quarterly reports on Form 10-Q and other reports we file from time to time with the SEC. These forward-looking statements speak only as of the date 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.

Good morning. Thank you, everyone, for joining the call, and thank you, Teal. Before I begin the conference call, I want to talk about two items. One is that we had a filing this morning where we made a mistake with the date. It certainly got us excited here. We put 2024 instead of 2023. So if you're reacting to a Plug changed the guidance for 2023 from $1.4 billion is our expected results we have. So sorry for any confusion that may have caused. The second, I really like to share a video. Participants on the phone, you'll hear kind of a brief three minutes of 30-second periods of silence, while those on the webcast can sit back and enjoy the video. If you're on the phone, I suggest, click into the webcast. It's really worth watching. So if you miss it, it will be included in our archives for leader viewing. So Teal, let it roll. [Video Presentation] Thank you. I hope you enjoyed the video. Really, it showcases our Georgia plant, and you can find more detailed information on the status in the investor letter. Really to summarize, our plant's already producing gaseous hydrogen for our customers, and we expect to achieve full production by the end of June. Although we always strive for greater speed, it's really worth noting, we accomplished what we've accomplished since issuing full notice to proceed under our EPC contract, full production in just 48 weeks. This is a remarkable feat considering that conventional gas companies. And I was sitting at CERAWeek, we've listening to one CEO talking about six years. They usually estimate four years of a project of this scale. Additionally, by the end of June, our Georgia plant, will be the largest green hydrogen play in the world that…

Thank you. [Operator instructions] And our first question comes from the line of Andrew Percoco of Morgan Stanley. Please proceed with your question.

Great. Thanks so much for taking my question here. So just first, I want to ask a question around the IRA and some of the treasury interpretations around hourly matching and deliverability, and additionality. What might that mean for some of your first few plants that you're bringing online? Or do you still think you'll qualify for the whole $3 per kilogram? And what might that mean for your 2025 and 2028 green hydrogen ecosystem targets?

So I'll go ahead, take a step back further than that. I've spent a lot of time, especially in the last two months in D.C., talking to folks in the administration. And remember, the primary purpose of the IRA is jobs, climate, and that really and national security. And that really is driving the thinking of the folks in the administration. From my discussions, I believe that when you look at the European renewable energy directive that, that certainly has had a great deal of influence on those in DC, which interpret -- if you interpret that, you can see it's very, very favorable to the approach Plug takes in support. The way I look at it, I'll give you two examples where I think that resonates with administrators. In my house in Saratoga Springs, I buy power from Vermont Power. Vermont Power, every time I buy electricity is generating more renewable energy. It doesn't matter that the electrons that comes through my house come from NYSERDA -- that comes from national grid. That's really what's going on. Fundamentally, Plug supports generating more renewables, Plug supports generating electrolyzers. And I believe from my discussions, that's in line ultimately what the administration will do.

Great. That's some helpful context. And maybe just switching over to the OpEx trends in the quarter. I think, Paul, you had mentioned $125 million of OpEx per quarter is the right run rate for 2023. You came in a little bit above that in the first quarter. How should we think about that trending through the rest of the year? And do you still feel comfortable with your operating income guidance for 2023.

Yes. So I think what we have been talking about was like in that $125 million, $130 million. But the biggest delta in the quarter had to do with our acquisitions. I mean they continue to do better than we expected. And as you can see, we had to accrue more of consideration in terms of the earn-out structures that we set up. Should they be successful that they would we'd only pay when and if that happens. So that's a high-class problem, and it was the primary delta for the quarter. But I think in the balance of the year, if you look at it, the $125 million to $130 million is the right run rate.

Great thank you for that.

Thank you.

Thank you. One moment, please, for the next question. Our next question comes from the line of James West of Evercore ISI.

Good morning James.

Hey, good morning, how are you doing?

Okay.

So Andy, I wanted to talk about hydrogen hubs for a minute. Given that we're really close to the commission that's going to buy the DOE or make recommendations to the DOE on what's been submitted so far and the DOE should start allocating capital. I believe at some point in the fourth -late third or fourth quarter, and there'll be a big build-out, and we've got, of course, applications from Texas, California, from Los Angeles and then obviously, the Northeast, as you know as well. What role does plug play in that process? I know we have to establish production of green hydrogen and end market for hydrogen. I'd love to hear your thoughts on that.

So James -- and I have to watch because everybody keeps on reminding me, I'm covered by NDAs on the hydrogen. Every site that you mentioned every hub Plug has been engaged in at different levels. And some of them, such as the New York hub, our name has been mentioned publicly, West Virginia, the activity going on there with Senator Manchin. I would tell you that things like expansion of our hydrogen plants are engaged in many hubs. Leveraging our hydrogen plants or engaged in hubs. Our products, both our stationary, especially our stationery for peaker plants are involved in many hubs. So like you, I expect some money to start filtering out in November, December time frame. I really don't think real dollars start ramping till late '25, early '26. And my government affairs person sitting with me here, James, and he's shaking his head, yes. So that's the…

Understood. Okay. Good. But as long as you'll be involved there. And then maybe a follow-up for me, not related to the hubs part. But the start of Georgia is -- it got pushed, now it's going extremely well. What are the kind of key learnings that you guys have achieved from that startup that you think will make the start-ups of the additional facilities more efficient, faster to keep the time line in check?

We probably have 100 learnings, James. I think the most important one, and you see that it's going on in Texas. In Texas, we've been able to sign an EPC contract where the EPC contractor won't sign up ahead of time for praise and performance. And that's, I think, a statement that what people have seen you know you can repeat. I think that when we look at scaling, this plant itself, we'll expand it to 30 tons. I don't think we'll be doing too much. It will be less than 50 tons per day just from the costs, it kind of follows a typical cost curve that going from 15 tons to 30 tons probably only increases your construction cost by 40% and your overall cost by 40%. So I think we're much more focused on plants like Texas and New York that are large. There could be some smaller plants like Golan where the infrastructure is really kind of much simpler. But I think that's really one of the key learnings we've had. But I probably could go on and on, but that's really the heart, I think, of what we found important. Sanjay, you want to add anything?

No, I agree with that. James, that's really it. I think we understood that scale has a tremendous benefit. And all the components you got to manage and think through it, right? And learnings of Georgia, as Andy said, is now allowing us to really go into a [indiscernible] rather than time and material.

Okay, got it. Thanks Sanjay, thanks Andy.

Our next question comes from the line of Manav Gupta of UBS.

Guys, I have two questions and they're kind of related. So I'm going to ask them right upfront.

Okay, good morning.

Good morning, sir. So your press release states something very interesting. It says that you are in final stages of negotiating large-scale project opportunities in U.S., Europe and Asia Pacific, representing potential backlogs of 1 gigawatt. So if we can get some more details on that? And second is on March announcement, you won a contract to build a 100-megawatt electrolyzer with Uniper. As I understand, this was a competitive bidding process and you were selected versus your competitors. It kind of indicates you have a very good product out there. So if you could talk a little bit about the March 7 announcement with Uniper.

Go ahead, Sanjay.

Yes. Again, thank you for that question. First off, when we talk about this over a gigawatt of booking opportunity on the electrolyzer side of the house here in the near term, we're looking at 500-plus megawatt opportunity in Asia Pacific. We're looking at 500-plus megawatt opportunity here in North America. We're looking at another 100 megawatts of opportunity in Europe. So please stay tuned. Obviously, in some cases, we're in the contract negotiation. In some cases, we're actually having a lot of discussion about it. We certainly plan to actually close on 1, 2 or all 3 of them here over the course of the next 90 days. And that's really what we're referring to when we talk about that gigawatt plus of bookings outlook in the near term in our electrolyzer business.

Any details on the Uniper contract?

Go ahead, Sanjay.

Yes. Again, I think -- look, one of the key things --

Let me -- I am going to start. One of the key items Plug is really focused on customers, not competitors. And that when you look -- I think when people look and see that Plug knows how to scale, Plug knows how to engage with customers, Plug knows how to do projects. I think that separates us from our competition. And when we take customers, and we have been taking many customers through our Georgia plant to show them, it really provides us a significant differential advantage versus any of the other competitors. When you walk our factory in Rochester, you actually see people making electrolyzer stacks and MEAs. You can't really see that scale anywhere else. That's really why we win deals. But we're focused on -- well, this big market. We're focused on what we can provide, what we can offer. We don't get too worried about competition at the moment. We worry about us and our customers.

Thank you, guys.

Okay, thank you.

And our next question comes from the line of Greg Lewis of BTIG. Please proceed with your question.

Good morning, Greg.

Yes. Hi, thank you. Hey, good morning. Thank you for taking the time, squeeze -- get me in here. So Andy, I guess, recently, you made that announcement around the Korean JV with SK with start-up in 2025. I was hoping maybe for a little bit of color around the CapEx build of that. And then really kind of -- is this -- could we see incremental projects from this initial joint venture?

Sure. Greg, we've been working with SK now for over two years and the JV was finalized last year at this time with the final IP agreement done on December 31 of 2022. And we're focused on our stationery products. And in the investor letter, I highlight the fact that there will be a good deal of activity for the stationery products for areas where the grid doesn't exist today. In Korea because of the high electrical cost, our plans with SK, starting in '25, '26 is to build 400 megawatts of stationary products and then every year to 2040, 200 megawatts. That in itself, this factory, which between the both of us will probably be in the $150 million type range, $150 million to $200 million, which will be jointly split is really just the beginning of the deployment of the JV. We're already doing with the JV. We're shipping cryogenic trailers this year from Plug. We're shipping ProGen modules for uses in buses in Korea, which we think ramps to over 1,000 units shortly. We're engaged in electrolyzer projects, and our first electrolyzer projects are being shipped. So on a wide range of basis, this is going to be a very, very powerful JV. Take a little bit of time, but we're together really accelerating. I think that if you went to the event, look, I was in Australia working on deals and our Chairman was nice enough to go for me, but our Chairman was with the President of South Korea. I think that says a lot about the relationship.

Okay. Great. And then I did want to touch a little on the green hydrogen, the network. Last week was the Advanced Clean Transportation Conference. Clearly, it seems not surprisingly, California is going to be really the epicenter of hydrogen demand in the U.S. It seems like for the foreseeable future. It just seems like a lot of money is going in there. A lot of vehicles on hydro going to be going there. As you think about the network and realizing that green electricity or green renewable power is key to servicing that. Should we be thinking about more hydrogen production plants in and around the California area versus where -- I get we have a diversified footprint in New York, Southeast, Texas, but just as it seems like there's just coming more demand from California or is really we're just going to be shipping a lot of product there?

I'm going to let Sanjay answer that, but I'm going to make one comment. It should not be overlooked Greg. The demand for hydrogen itself in applications like creating e-fuels like mixing with natural gas in the pipeline, with industrial applications like ammonia, probably it will be nationwide and probably the ramp will be much larger than California. That being said, I'll let Sanjay talk about our California plan as well as other activities we have going on.

I mean, Greg, you're spot on, right? That is going to be where a lot of demand is going to come for some of the mobility applications and things like that. So this is how we're looking at it. One, we already do have a location that we have identified that we're going through all the permitting process going through PG&E, going through Calia SO [ph], to move that project. And one of the dynamics as you think about California is, while it's a demand center. You also have a very high price of electricity, and you also have a situation where the permitting actually ends up taking longer than many other states. So that's a bit of a dichotomy that you've got to deal with when you think about how many plants and how do you really build in California. But having said that, we actually are looking at multiple projects. Now I mean, multiple, okay, in the neighboring state to be able to support California. We're even looking at some of the opportunity that eventually might even end up making it all the way to California, even in the West Texas area because we've done that before. It really comes down to what is that lowest possible renewable electron we can get? What is that peaker cost of the hydrogen? And does it make sense to build a plant even look at delivery distance and ends up making it a lower cost as it gets into the California market, right? So neighboring states, even our projects in California and other locations is really how we plan to actually support as you rightfully pointed out, the meaningful demand that we see coming from the State of California.

Okay, thanks. Super helpful Andy. Sanjay, thanks for the time.

Thanks Greg.

And our next question comes from the line of Bill Peterson of JPMorgan. Please proceed with your question.

Good morning, Bill.

Hi, good morning, guys. Good morning, Andy and team, nice to speak with you on. I wanted to go to the guidance for the year, just to make sure I understand. I think you said it was largely Energy Solutions. But in the last quarter, you talked about 55% kind of mature business. I think 30%-plus electrolyzer, $100 million stationery. I think the rest you call it fuel cryo and so forth with that 15%, which I think is around $200 million. So what is the difference? Where does it come in at $1.2 billion and where does it come in $1.4 billion? Is it electrolyzers primarily or fuel? If you could help us understand kind of what's changed in the guidance.

So Bill, what I've tried to -- I want to be really clear. What I tried to say is, look, our ability to predict obviously hasn't been perfect. So we spent lots and lots of time after last quarter, working through to make sure we enunciate to the Street where the risk is in the $1.4 billion. And if you look at -- and it's been filed, I think it's going to be refiled with 2023 guide. If you look at the chart, I wrote Bill with the team here, kind of four key items. So one of it is we're shipping 27, 5-megawatt electrolyzers containers this year. That's probably around, call that circa $100 million. Look, we have the orders for it. It's making sure if we spent a lot of time on execution there. And that's a big part of it. If you look at another big difference, Bill, is associated with our electrolyzer plants and the electrolyzer plant, you probably can circle another $30 million in revenue. So between those two, you 30 to 50, you're probably talking three quarters of the difference. And then Sanjay has a lot of liquefiers, he's looking to ship, he's looking to sell in late negotiations and that will get us to the 770. And also on this slide, I did highlight the fact that there's other opportunities in the works that -- but that's really where it will all resides. If you look, for example, in the application business, our traditional business, the variation is really about $20 million from expected to the lower case. And that lower case, it really has to do with the timing of a couple of projects, whether they happen in the fourth quarter or first quarter. I wanted to do this chart because I wanted to make sure investors knew how all the numbers lined up. I hope that was helpful, Bill. Bill?

Yes. Sorry about that. Sorry, you talked about -- sorry about that. You talked about raising additional -- potentially raising additional financing. You talked about the DOE loans and ABL and probably you mentioned more to come in the second half of the year. Is there a preferred means of raising, I guess, presuming you're looking at the most non-dilutive capital as possible. But what is the preferred means at doing this as you look at the second half of the year or into next year?

I'm going to take a step back. I'm going to hand it to the expert, Paul, and Sanjay here. We also may have people invest in the plants themselves, Bill. And we have lots of people who want to take a share, for example, in Georgia. Go ahead, Paul.

Yes. And I think you touched on it. I mean, obviously, first and foremost, it's non-dilutive. Second is cost of capital, third is flexible capital. But again, as Andy said, there's a lot of parties that are interested. And when you look at the breadth of what we're doing and the pace and the ambition we have to grow and invest in scale, it will probably be a combination of solutions as we continue to move forward. But the good news is we have an incredibly strong balance sheet that's basically unlevered and we've got this portfolio of plants unfolding that are a profitable portfolio to leverage up and recirculate that capital. It puts us in a great position of optionality, and that's when Andy referred to, we're working toward the second half, you're going to hear more and see more as we work through that in the next few months to come.

Okay, thank you.

Thanks Bill.

Thank you. Our next question comes from the line of Alex Kania of Wolfe Research. Please proceed with your question.

Great, thanks. Good morning.

Good morning, Alex.

Good morning. Maybe I could take another run at the kind of the IRA guidance and maybe what that means. Do you think that -- or would you be able to characterize there a bit of a decent amount of pent-up demand or anything like that once you get the kind of guidance either way in terms of matching or additionality or something like that. So I'm just wondering if as you've talked about these incremental opportunities you're seeing over the next 90 days, how much of that would play into just getting resolution on the IRA rules. And even more beyond that, could you see kind of a ramp up in any kind of announcements just once we have that clarity.

So Alex, I think clarity probably comes August, September, just to kind of frame it. And any time you have uncertainty, you have folks waiting. And if the policy is defined very similar to the European directive, I think they'll be up for [indiscernible]. And I think that will be important because it will create more and more jobs and allow United States of scale, allow companies to export. I think that will be the outcome. If they're very, very restrictive, I still think there will be more activity but I think a lot of the focus for many companies will be more European focus than U.S. focus. So I think if the regulations are too tight, quite honestly, IRA would defeat its purpose. I don't think that's going to be the outcome. I know of a good deal. I have fortunate enough to know people in D.C. People are concerned about job. People are concerned about the economy. People are concerned about the climate. There's concern about America growing this industry and not handing it over to the Chinese, which quite honestly, is a big hot button. And I think when the regulation comes in, we're going to -- everybody is going to be -- who's sitting here at the table with me is going to be quite happy.

Great. Thanks. And then maybe just thinking about margins for the balance of the year, I guess. Certainly, gas prices have come down incrementally even since the previous earnings report. Is that kind of a decent incremental tailwind for numbers as kind of a kind of upside? Or have you seen any kind of offsets to maybe the momentum that we've seen on the gas side?

I'm going to let Sanjay take that one.

Yes, Alex, you're right. I mean, I think, look, there is a quarter lag as we've always said, right? So you will start to see that benefit as we go into Q2, Q3 and Q4 this year. There is going to be some incremental benefit. And obviously, we're taking a lot of time to ensure that the gas price being used by our supplier actually matches that with how we're looking at it as well, right? So the short answer to your question is, yes, that's an incremental benefit.

Great, thanks very much.

Thanks Alex.

And our next question comes from the line of Ameet Thakkar of BMO Capital Markets. Please proceed with your question.

Good morning, Ameet. Good morning.

Good morning. Can you hear me?

Yes, we can.

Okay. Great. Just real quick, I just wanted to kind of level set on CapEx since you will be bringing on a lot more production online. I think you guys had said about $1 billion for the year. It looks like the first quarter was a little bit less than that from a ratable standpoint. I just wanted to make sure that $1 billion number was kind of still the right number to think about for CapEx for the year?

Yes, that's our target. I think the good news is the big manufacturing plants are pretty close to done in terms of the spend. So the balance of it is predominantly, if not all, around the green hydrogen platforms. So the answer is yes, that's our target and continue to invest to advance that agenda.

Okay. Great. And then I think Andy had mentioned earlier that like the -- I guess, the big dollars under the DOE program wouldn't start flowing through until '25 or '26. So should we think about like some of the other options you're looking at in terms of kind of the ABLs or selling down equity in the individual plants is kind of like kind of a bridge until we get there? Or is that something you always contemplated.

Yes. I don't think -- and I'll let Paul comment. I don't equate the Hodgin hubs to our own plant being built out. They're really separate activities. And our view is that we want as much hydrogen as available as rapidly as possible as green as possible. And so having investors in plants like people who deal in big oil wells, they do that, who are in that industry. Our business model is that we're going to be really, really big. We're going to do some of it with folks. We're going to do some of it independently. And we want to make sure we get the most attractive financial finance deals we can. But there's really no correlation meet between the hubs and the loans. You want to add, Paul?

Just to clarify, there's multiple things going on at the same time, right? So we're working the hub conversation processes with industry partners as well as the DOE. But apart from that and separate from that and specific to Plug, we're also working a conversation around a specific DOE loan that could very well fund this year. We talk about all of our capital options in the past that we're working. And you mentioned ABL and the DOE is two of them. There's multiple different capital sources. And with the strength of our balance sheet and the portfolio we're building, we've got lots of parties that are interested that will be this year activities, not '25 '26. So I just want to make sure that's truly clear.

Understood. Thank you so much.

Thanks Ameet.

Thank you. [Operator Instructions]. Our next question comes from the line of Eric Stine of Craig Hallum. Please proceed with your question.

Good morning, Eric. Eric? Hello?

Mr. Stine, your line is open. Please verify your mute function, lift your handset, please. Mr. Stine, your line is open. Please verify your mute function, lift your handset. We will proceed with the question-and-answer session. Our next question comes from the line of Colin Rusch of Oppenheimer. Please proceed with your question.

Good morning, Colin

Hey, Andy. As you guys are working through the potential ABL finance providers, can you talk a little bit about what sort of feedback you're getting on the operational metrics you need to meet and the duration you need to run these facilities before folks will close on one of these deals.

Yes. The good news is scale matters. And when you look at how big our balance sheet is, it affords us that opportunity to leverage that up without meeting necessarily traditional metrics. Having said that, as we've publicly talked about, given the path that we're on, the trajectory on, we're strongly very confident that early next year, we're moving into positive operating cash flows, given the growth in margin trajectory. So we haven't had a lot of constraints put on us in terms of those traditional metrics because we have such a big balance sheet and such a big green hydrogen portfolio for step back. And I think the real key for us is as we bridge that, leverage it into that next year, and then move into the operating cash flow, that opens up, as you know, traditionally more -- significantly more institutional opportunities as we move. So, so far, so good and lots of lots of opportunities without having to worry too much about that in the short term.

Okay. Okay. And then just from a working capital perspective, as you guys ramp up manufacturing, I just want to get a sense of what the working capital needs are going to be and how much finished goods are in that inventory number that you posted this quarter.

Yes. So as we've talked publicly, we've specifically been ramping very quickly our electrolyzer. And our stationery product platform. So the delta this quarter was specifically associated with that. We've talked about the fact that we're going to be doubling the production of our electrolyzer program in second quarter from the first quarter. And we're starting to ship our first stationary product, large-scale station products this quarter. So I think you're going to -- we will see that level out. And as we move to the balance of the year with the leverage we anticipate, we expect it actually to go down. So for the balance of the year, we don't actually expect on a whole that we're going to be relatively flat year-over-year, but not slightly down from a working capital standpoint.

That's incredibly helpful. Thanks guys.

Thank you. Our next question comes from the line of Chris Dendrinos of RBC Capital Markets. Please proceed with your question.

Good morning, guys. Paul, you kind of just mentioned -- good morning. Paul, you just mentioned some positive free cash flow beginning maybe early next year, and I think you all have a target for ops breakeven later this year, maybe fourth quarter. So can you maybe talk about kind of the drivers of what takes you there, I guess, versus where you are today? I guess just pointing out some of the margins and maybe the PPA area looked kind of particularly soft this quarter. So what gets you from where you are today to ops breakeven end of the year and then positive free cash flow next year.

Yes. I guess really, there's a number of things. But first and foremost, we do -- we make positive margin on equipment. And when you look at Q1 as an example, it's accretive. So every incremental dollar I sell of equipment is positive. The majority if not 90% of that growth is coming from equipment sales. So that, coupled with the fact that we're going to be ramping the leverage of those plants and those investments and scaling those new products will drive margin profile. So of the balance of the year at $1.2 billion, roughly $1 billion or so is going to be product and equipment sales. And when you look at the scaling margin, which we've traditionally hit in that 25% to 30% plus range, that gets you a pretty substantial step function change in margin and accretion. Second piece is fuel. We've talked a lot about the things that we're doing there in terms of turning on these green hydrogen plants, the abatement of the natural gas, working with our partners on the distribution networks and field logistics to drive efficiency. And we've talked publicly about ending the year on a breakeven run rate on fuel and moving into next year, quickly changing the paradigm. So those two are the sole biggest drivers. And then last -- second -- I guess, third to that, I would just say we continue to make big strides on service and reliability investments, and they have a very concentrated effort. However, that will be more and more smaller PPA and service will be a smaller percentage of what we do as we scale the growth and the curve that we're talking about. It's predominantly going to be product and fuel and more so product in that equation as we move forward for the balance of this year.

Got it. And I guess maybe as my follow-up here…

Paul, maybe you should mention PPA is down just because of the warrant charges.

Yes, we have a lot of noncash charges. And so that's up year-over-year. It was $2 million or so in Q1 of '22 and was $14 million this year in Q1. So that's a noncash charge. It particularly affects PPA and fuel in terms of the association with the customer associated with it. And then on the whole, just so everybody has some context, we run at about $60 million to $70 million a quarter of noncash charges holistically. So that's why I feel I'm incredibly excited and confident about the growth, the margin leverage back with that noncash run rate that gives me confidence to get to those numbers as we move on into next year.

Got it. Okay. Thank you. And then I guess just as my follow-up here, reading kind of the front page of the shareholder letter here, it looks like you maybe added a qualified on the 200 TPD of build-out to maybe include under construction. So can you maybe talk about, A, I guess, is that true? Are you kind of delaying that a little bit? And then what are the drivers? I think you mentioned some ABL loan, the DOE loan coming in later this year. There's some treasury clarity coming, the hub announcements earlier this year. So is that a function of just, I guess, timing? Or are you maybe slowing things down just to see how these, I guess, announcements coming that are coming that might impact your plans?

So Andy, let me. Yes. So Chris, no, we're not changing anything at all, right? I mean, if anything, we just wanted to actually try to provide more granularity after what we've learned from Georgia in terms of how long it takes to go from construction commissioning to full production, right? There was no change in plans where -- as Andy said, right, we're not waiting for any particular things to materialize for us to continue down the path of getting to that 200 tons number. But all we try to do was look try to actually provide you guys with more granularity based on what we learned from Georgia, what does it take, construction, commissioning, full production, and that's really the tweak that we made there. Nothing more than that.

Got it. Okay, thank you.

Thank you. Our next question comes from the line of Kashy Harrison of Piper Sandler. Please proceed with your question.

Good morning everybody. Thanks for taking the questions.

Good morning Kashy.

Good morning, Andy. So I want to go back to the multiple financing options. Can you give us a sense of what milestones, if any, need to be met from a project perspective before you can get financing? And then should we be thinking about a transaction as a 2023 or 2024 catalyst?

Want to go for it, Sanjay.

Yes. Maybe Paul, I can take this on the project side on hydrogen plant. So a couple of things, right? So as Paul talked about, our loan guarantee program, as Paul talked about, our ABL opportunity. And as we talked about project level financing, but here is really what we're looking at Kashy? First off, I think once our plant is running let's say for 12 months, then there is a stable cash flow that we can highlight to an underwriter, right? And once we can do that -- that allows us to really go even down the path of the debt market, thinking about what is that right debt service coverage ratio is going to be piece number one. Piece number two, now that these plants are coming online, we are also looking at how can you really sort of like ring fence the plant, if you were thinking about it from a PPA perspective to either a way to think about floor pricing on the hydrogen, which will also open up a lot of different kinds of financing solution to really support this plant, right? And I think that we -- I encourage everybody to think about this is really what happened in the solar and the wind space, right? When you actually had beginning of the solar in the wind industry, it was 100% equity financed. Then we have PTC and we had IPC. That really led the financing market to open up in conjunction with also driving the cost of that capital down. So I think you're going to see something like that here in the hydrogen space as well. We're having, as Paul said, multiple different discussions with one of the sole purpose in mind what is the best and the lowest cost of capital to continue to drive the growth that we have ahead of us and substantial growth that's coming down the road. So that's how we're looking at it.

Thanks for that Sanjay. And then maybe a question for Paul. Can you refresh us on what's the driver behind the high restricted cash balance on the balance sheet and whether you would expect a release to unrestricted cash in coming quarters or years? Thank you.

Yes. So a lot of long-term -- I remember, but for a lot of the equipment deals that we do in the material island space, we monetize the benefits of the banks for those programs. And so a lot of times, we have to post cash to back those deals. We've actually been successful in getting customers -- the biggest customer we have, as an example, who signs into commitments, and we get 70%, 80% of the cash upfront. And so what you're looking at now is the layers that are adding are kind of the balance of that residual. The good news is we are starting to see the benefits of the new RA on the ITC front. So we've actually closed our first 40% deal this quarter. We're targeting our first 50% ITC deal. That really yields 2 benefits. One, that we get more value on the project. And then secondly, we paid the bank less, right, because they give us the majority of those tax benefits and the deal structure. So we're moving from $0.70 to $0.80 on the dollar, in some cases, $0.50 on the dollar of a payback on the deal structures. And now that we don't have any debt, all of that cash releases to us. And we probably about 20%, 25% per year that released in to us, that we can use to fund our current operations as well as our near-term operations. I expect that to change. As we just talked earlier, as we continue to work through and move towards positive cash flows. I think you'll see more and more of that scale down and get released and move towards more traditional institutional financing in the near term.

Okay.

Thank you. Our next question comes from the line of Sam Burwell of Jefferies & Company. Please proceed with your question.

Good morning, Sam. How are you?

Doing good. Thanks for squeezing me in at the end. Wanted to unpack something on Slide 4, the financial projections on the expected case and a lower case. It looks like there's a $200 million delta on the revenue line, $90 million delta on the gross margin line. So that implies like a 45% incremental margin, let's say. Is that the margin that's associated with the key items that you call out on the right, namely the electrolyzer containers, the liquefiers and then, I guess, the larger electrolyzer plant? Or am I thinking about that incorrectly?

I would think about those on the right on a variable basis, somewhere around 40% gross margin. And the rest of it is associated with the same inefficiencies in our operations.

Okay. Understood. That's certainly helpful. And then one last one on financing. I mean, is there any way you can quantify like the difference in cost of capital between the DOE project financing and maybe the ABLs. I know -- I think you guys at least had called out low single digits, but that was a few Fed rate hikes to go. So is the DOE loan going to be something that costs the overnight risk-free rate? Is it a spread to that? Is it below that because the DOE wants to subsidize green hydrogen?

Yes. So I mean, nothing is done until it's done. And so it's hard to give you an exact answer, but I would tell you, high single digit is not out of the question, if not mid-single digit in that range.

I would also add, Paul, the ABL and the project financing are really two separate act, right?

Yes. And they're not necessarily exclusive, right? And it could be -- certainly could be both.

Got it. Thanks for the color, gents.

Okay.

Thank you. And our final question comes from the line of Brett Caselli of MorningStar. Please proceed with your question.

Good morning, Brett. Last but not least.

Thanks, Andy. I'll leave it at one just in the interest of time. With respect to the 2023 guidance and the 60 tons per day of liquefaction in there, is that all third-party sales? Or is any of that for Plug's sort of internal use? I just wanted to clarify.

It's all third party. Sanjay, do you want to add to that?

No, absolutely. And it's all third-party Brett, and we have multiple live discussions as we speak right now.

Anything else, Brett?

No. I am all set. Thank you.

All right. So I do appreciate everyone joining our call this morning. I would like to take a step back and remind everybody that we expect to do $1.4 billion in 2023. And I hope you clearly see the roadmaps and where we have challenges and opportunities. Also I hope folks watch that video and what's the Baker plant manager again to talk about what we've built in Georgia. There's a reason that Wall Street Journal has gone to Georgia to see that plant because they had nowhere else to go. There's a reason the economist went to Georgia to see that plant because there's nowhere else to go. We are doing real things today, whether its building electrolyzers, whether it's building large-scale stationary projects. Let me tell you, that's an amazing project and product and we only talked about briefly. We've built factories, we scale. We're ready for this explosion in the hydrogen economy. So I want to thank you for listening today. And this year is our execution year and a huge inflection point for the company. Thank you, everyone.

And that does conclude today's presentation. We do thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.