Greetings, and welcome to the Plug Power Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Teal Hoyos, Director of Marketing and Communications. Thank you, Teal. You may begin..

Thank you. Welcome to the 2023 third 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 ended December 31, 2022, quarterly reports on Form 10-Q for the quarters ending March 31, 2023 and June 30, 2023 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 Power’s CEO, Andy Marsh..

Thank you, Teal, and thank you for joining the third quarter conference call. It's a difficult quarter, driven primarily by the availability of hydrogen.

Over the past several months, there has been enormous challenges associated with the availability of hydrogen, primarily due to down plants, including our Tennessee facility and temporary plant outages across the entire hydrogen network. For many days, demand outstripped supply.

For example, many of the California fueling stations have been without fuel or had limited fuel on a regular basis over the past several months. Additionally, the price of these stations for hydrogen has been over $30 per kilogram at the pump, about twice the normal price.

To service our customers, Plug has been moving hydrogen from the West Coast to the East Coast. This has been a yeoman's effort and has been accomplished while reducing the core cost of hydrogen compared to the second quarter.

Good news is the network has now stabilized and many of these planned outages have subsided, plus additional capacity will be coming online. We expect our Tennessee plant will be back online producing hydrogen by the end of the year. This plant when fully operational provides about 20% of our production needs.

One of our major suppliers is upgrading one of their facilities to allow the plant to operate at full nameplate capacity in the coming months. The planned output has been producing between 0% to 25% of capacity.

We are continuing to see progress at our Georgia plant, and we are finishing the last step in the construction process, commissioning the liquefier. We expect the plant to be online by year-end. A few other points, Plug’s hydrogen network also caused the delay of deployment of some of our North American material handling customers.

These sites will be commissioned as the hydrogen issues resolved. It's just a timing issue. Many of those facilities actually the fuel cells in hydrogen plant or infra fueling structure are already available.

We believe though that this experience reaffirms the criticality of building our nationwide hydrogen network to support our fuel cell business as well as the financial benefits that this network could accrue to the company for both that business and the additional applications that are beginning to be realized.

Furthermore, this experience underscores the wisdom of our business diversification model. In the fourth quarter, we anticipate the revenue from our new ventures will surpass revenue from our traditional business for the first time as our electrolyzers and cryogenic businesses continue to grow.

Finally, I'd like to just like to reflect on the conversation I had yesterday morning with a European customer supplier and partner. He gets toward our facilities and remind me that no one has built hydrogen infrastructure on the scale we have.

No one has our product set, no one has technical talent, no one has our customer relationships and no one has our real life experiences. It remains our belief and his there is the market for hydrogen fuel cell grows, no one is in a better position than Plug to take advantage of this opportunity. This is just a bump on the road.

Paul, Sanjay and I are now available for questions..

Great. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question..

I want to start off with the balance sheet. You've got a fair amount of restricted cash. You offered a fairly reasonable update in the letter on your process with potential funding sources.

I guess the real question is around timing and how you see your ability to free up some of that restricted cash and start to bring on some of those closed one or more of those deals that you're talking about in the shareholder letter?.

Hi. Sure, Colin. I'm going to let Paul take that question..

Good afternoon, Colin. Thanks for the question. We continue to pursue a number of initiatives. We've had many inbound expressions of interest with different terms, and we continue to work through what we think is the best and most prudent solution. It's not for lack of options.

It's really just continue to be picky around which ones that we've had to act on, and we haven't felt the compulsion to act quickly. To be -- we're taking our time to be thoughtful about which choices that we have. I'll tell you on the DOE process, many, many people will ask about that. That's -- we're progressing very well.

We continue to have great effort in collaboration with them. And we expect that, that will get through the 100-page long-form term sheet that they need to get through to submit for contingent approval here by the end of November.

And we still expect there's a good chance we can announce that program by the end of the year, that will be very meaningful. And we continue to pursue a range of other options. And so I expect something in the near term..

Okay.

And then on the operations side, with the impact around the hydrogen availability, can you talk about the cadence of deployments for material handling and how that's impacting some of the equipment sales that you guys are working through for the balance of the year and into the early part of 2024?.

Yeah. So Colin, we had -- we left the quarter with seven sites which we couldn't bring online, which would have represented well over $50 million in revenue because of, we couldn't put more stress on the network. And so we expect that we will have a good quarter for material handling.

I'm just going to caveat it by saying that first and foremost, we have to make sure, especially during this holiday season, going peak that our key customers have hydrogen. And as I mentioned, we've done a really good job in moving hydrogen. Without our fleet of over 40 trucks, we would have never been able to do what we were able to do.

So I -- in my opening comments, I said it was a timing issue. I think if the network continues to improve, it probably will happen this quarter. But I think there probably could be -- when I think about our material handling business, it will swing of between up to about $50 million, I think, is possible.

That being said, and I think the letter highlighted this. Some of those customers that we've gone through this with have actually increased their number of system -- a number of material handling sites they want. We've added new customers, Tyson. We've added new customers, Rider and others.

So it's -- it has not -- it certainly has been a challenging time, but it's pretty remarkable how well we've done so far in keeping hydrogen available for our customers..

Thanks and appreciate it, Andy..

Yes. You’re welcome..

Thank you. Our next question comes from the line of Manav Gupta with UBS. Please proceed with your question..

Hey, guys. So help us understand the path to positive gross margin here. I think that's the number one question we are getting.

How do you get to positive gross margin and by when?.

Sure.

Paul, do you want to take that? And I may have some -- I may add on some items, but do you want to take it, explain how we get there?.

Yeah. Sure, Andy, and thanks for the question. I would tell you a couple of fundamental things. One, Andy mentioned this quarter, the revenue from these new platforms are going to be greater than our legacy business. Most of those platforms and really all of them are equipment platforms.

And I don't know, if you've seen our new facility up in Vista or Rochester, but we're poised as we start scaling all these new platforms up for substantial volume leverage. And so -- and if you look at sales in Q4 and on into -- and into next year, really, the bulk of the growth is coming from these equipment platforms.

And we've shown historically with material handling as we scale that business, that every time we double the installed fleet, we've been able to reduce the cost by 25%, and you're going to see the same trends. As we get volume leverage, you get supply chain leverage, you drive greater automation.

So equipment sales is really key, and that's one thing you're going to see as we move past launching these new platforms and through the pilot programs and to really scaling them. Second thing you'll see is on the fuel margin. You already see some abatement in the prices.

We expect some additional abatement in Q4, but the real step function change in fuel happens as we turn on our own facilities. And so Georgia is coming online this quarter. Tennessee will be reinstating and turn that back up. And then we're looking to turn on the new facility in Louisiana towards the end of Q1.

And so those will be very accretive events as we start to turn those facilities up and start to be able to source a lot of that hydrogen from ourselves, which, in many cases, is at least 30% cheaper -- or I'm sorry, is 30% of the market cost that we're paying today. In some cases, only 10% when you factor in the PTC credit.

So those are the most two massive effects that are going to have on margin in the near term. And we expect that to start to see that in Q4 and start to really ramp as we move through 2024.

Andy, you have other comments you want to share?.

No. I think you're right, Paul. I mean, I think the equation is really right. We have to deploy more equipment and we'll be deploying more in the fourth quarter. We have to get the plants up and operating, that helps a great deal. And look, we have a clear plan on service margins. And I think the best plan we've ever had.

And I think all those factors will come into play..

My quick follow-up here is we are waiting clarity on the PTC.

When do you think we can get something? And what do you think would be reasonable at this point to assume some level of -- I mean, what do you think would be reasonably good outcome for you in the PTC guidance that does come out?.

So the administration has shared this week has been that they will have the PTC announcement after four years end. I suspect that that's probably about right. When I think about the PTC, we think that really the key item is how regionalities defined.

And if regionalities defined to be the balancing authorities where there are 69 in the U.S., probably most of our future activities would go on in Texas.

If the balance -- if the regionality comes out to be the ISO regions, we've looked at that and have concluded that it's -- that would be -- that would work for Plug almost regardless of where they come out with additionality, we think you probably need three years.

We also think that if you think about time matching, it’s pretty clear that treasury has realized that hourly time matching doesn’t work because of direct market for that really doesn’t exist. I think that’s actually something that looks like that will be the final outcome. It won’t be the perfect outcome.

A broader regionality East West and ERCOT would be the, I think, best solution for the growth of the hydrogen industry. And we coincide – and I think this is where I think a lot of people would miss. It really needs to be broad for the hydrogen hubs to work.

And certainly, I can tell you, I’ve spoken with high-level leadership at the DOE and they understand that. So I think Plug is going to be fine when the guidance comes out. I think the industry will be fine. I hope that it’s done in a way that all regions of the United States are winners..

Thank you so much..

You’re welcome..

Thank you. Our next question comes from the line of Bill Peterson with JPMorgan. Please proceed with your question..

Yeah. Hi. Good afternoon, everyone..

Good afternoon, Bill..

So I'd like to dig a little bit deeper into Colin's questions on the cash raise and short up the balance sheet. So you talked about corporate debt solutions.

Can you provide more color on what kind of options, what kind of facilities you're talking about here? On the DOE loan, you're hoping to announce something later this year, but you talked about conditional.

What is the conditional on? And then what -- when could the dollars actually flow? I guess, can you confirm that this is milestone-based? And then finally, I think for these project finance, I guess, of course, when could -- I guess when could these be solidified in order to show the position? Really just overall, how should we think about your ability to shore up your kind of cash position in the near term?.

Paul, do you want to take that?.

Sure. There's a lot of questions in there, Bill, I'll do my best. First, on the DOE, one, it's a good news, bad news.

The fact that they require very detailed long-form term sheet is actually -- although it takes time to work through is extremely helpful because the way the process works is, they effectively put the package together and all of their diligence reports have been submitted for the final approval, which once it gets approved, you then have to go and actually put the agreements in place.

But because it's 100-pages of long-form term sheets, and in fact, they've already kind of worked through all those key things. So that should be a much faster process. The framework that we're working on with them is a $1.5 billion platform that would fund our green plants and would fund from construction phase onwards.

So -- and it could be as upwards as 80% -- $0.80 on the dollar. That's the framework that we're working on, and we're working very diligently to get that in place. In addition to that, we've had some expressions of offers for ABL like facilities.

We've had some expressions of offers for restricted cash advanced facilities like we used to have with Generate. So there are -- and there's been some -- a number of parties that have expressed interest for project equity on some of our initial plans. So we have a range -- and there's been a number of other ones in different forms.

And so we have a range of solutions that we continue to work through, and we just are wrestling through what we think is the best choices and the best options, given the dynamics and what we're trying to accomplish here. So I think the DOE could be even as early as late as end of Q1 potentially.

More likely early Q2, it starts funding and it could actually go back and back lever some of the existing plants like Texas and maybe even New York. And I think some of these other facilities is what we probably levered into is to complement that structure for general working capital and other project capital that we would be advancing on.

So hopefully, that helps, Bill..

Yeah. No, that's a good additional context. Just how to think about the fourth quarter, you -- at the time of the symposium, you took down your numbers through the bottom end. But presumably, the headwinds you talked about with hydrogen is impacting your ability to provide fuel cell systems for the fourth quarter.

So I guess, walk us through, if you could, revenue assumptions maybe by product type and how we should think about how the fourth quarter could evolve, given all the puts and takes you talked about with all the issues in hydrogen?.

I'll take that one, Bill, because we spent a lot of time thinking about this. So I think that if you think about as a base of $1.2 billion, where are the risks in the $1.2 billion for the year? Because of hydrogen, -- and I think I mentioned earlier in this call, we think there's a risk of circle $50 million in our traditional business.

And we also -- when we look at our cryogenics business, which has really been one of the strength this year, and there's some timing on some deals where we think $50 million could flash and go into the first quarter instead of the fourth quarter, they're really the two items we're looking at and really watching closely.

I think we're feeling good about our electrolyzer business. We feel good about the revenue, all other revenues in our trailer business, our other activities in our cryo business, but that's really kind of the breakdown we see.

So if you think about that, we think 60% of the business when I outlined those numbers are for electrolyzers, for cryogenic equipment and 40% is our traditional material handling business. So that's kind of the give and take from 1.1 to 1.2 (ph), Bill.

Does that answer your question?.

Yeah. No, that kind of disguise some of the risks associated with the rest of the year. It sounds like electrolyzer is still -- you feel good about that if I can paraphrase..

Yeah. I mean, look, I feel really good about material handling. I just got to make sure that we feel real good about electrolyzers. We feel really good about some of the expansion activities with our cryogenic trailers. We have this liquid refueler, which is for buses and others.

It’s really sold, and we can’t make enough of them So we really do feel good about those things. And I have the parts built for material handling. It’s just a question of making sure that we can bring them online in a way that meets our customers’ needs..

Thanks, Andy..

You’re welcome, Bill..

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

Yeah. Thank you. I guess I just wanted to discuss the hydrogen availability situation. Obviously, the force majeure events are -- they've been recurring kind of throughout the year.

When you think about that business and sort of your suppliers, is there anything you can do, I guess, more that could be done to ensure stable supply? Is there like the ability to have some backup suppliers or anything like that, that you can speak to? Thanks..

Yeah. So Chris, I think what we're doing, I mentioned three items. There isn't -- there is an additional hydrogen available. I was talking to someone today who told me they couldn't get any hydrogen. When I -- when we look at it though, our plants coming online, help a great deal. Having Tennessee and Georgia that provides us 25 tons of hydrogen.

Bring St. Gabriel's up in the second quarter brings another 15 tons of hydrogen, that's 40 tons. I met with one of the major -- one of the other major hydrogen suppliers in this industry, the President of their Americans operations on Tuesday.

We sat down and they're bringing online at 30 tons by putting SMRs in to replace some waste stream stock that hasn't been coming. So I do see that by the end of January, there is additional 55 tons. And just to give you a feel, 55 tons is probably approximately another 20%, 25% of hydrogen availability. Now we're going to use more hydrogen next year.

We are projecting that our hydrogen needs and demands will grow by 40 tons by year's end. And that's why Texas is so important to us to bring that online.

And that will -- we're working through that one, but that one is really, really will be critical for the second half of next year to make sure that by the late fourth quarter that's able to produce to support the customers. So the good news, Chris, is that this is not going to be an issue on January 1.

we just got to work through the final stages here..

Got it. Okay. Understood. And I guess maybe just as a follow-up, maybe on a slightly different topic here. It's just the equipment sales margin in the quarter, it looks like it was negative. Can you just walk us through the dynamics of what's going on there? It sounded like it might have been mix related.

But I guess, any just additional color on what's happening in that segment? Thanks..

Paul, do you want to take that one?.

Sure. So any missions about some of the programs that pushed, scale matters for us. When you think about these manufacturing facilities we have and driving volume leverage, that's important. So that's part of the driver.

Other part of the driver is some of the costs associated with launching these new programs, especially some of the early pilot programs. I always say it's hard to make money when you build one of something.

But as we start scaling this up to hundreds and in thousands, you really start to drive not just volume leverage but supply chain leverage and you can drive improvements in your manufacturing processes.

And so those were really the key drivers this quarter, and we certainly expect that to be meaningfully better in Q4, given the ramp of these equipment sales. And then you'll see that ramp even more so in 2024..

Got it. Thank you..

Paul, I think it'd be fair to say also that $50 million material handling revenue would have flipped it the other way..

It certainly would have been super helpful in moving that right direction, Andy, yeah..

Thank you. Our next question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question..

Good afternoon, all and appreciate all the color. Maybe just a high-level kind of strategic sort of question here. If we kind of look out to 2024 and recognizing you're starting to get in some of your own volumes online. But some of these other issues in the network persist on the supply side.

I'm just curious how you think about sort of balancing growth in the materials handling side versus timing of your own plants ramping and whether it makes sense to materials handling down a bit as you kind of bring on your own supply and that sort of thing?.

Jordan, thank you for the question. And I think that is a good question. As I mentioned, we feel that we'll be in a much better position come January 1. And one of the reasons I've gone around and spoke to leadership with other big suppliers in the industry, and we've talked about making sure there's talked about what their plans are, which are public.

So there's nothing that's being hidden here. We feel that we can continue to grow and expand that business. And that's -- I think I did some math for you, which combination of St. Gabriel's combination of our 25-ton coming back online, that's 40 tons. I talked about an additional 30 tons coming online from another supplier.

I do know that other folks are beginning to look at putting some hydrogen in the market. For us, it really needs to be liquid. But we're really -- we really don't see the need, Jordan, to throttle back..

Thanks for that Andy. And then maybe just a follow-up on the stationary side of the business. I know these are kind of bulkier shipments. But it seems like from the shareholder letter, you've made some good traction there going into the fourth quarter. Just an update there, if we could..

Yeah. So we will be shipping products. First, Linde, and I don't know because it was at the symposium actually was one of the first days the first product that we deployed was fully operational and working. That product is in many ways so much more challenging than our material handling products, but so much more simpler once you get it going.

I say it's more challenging because it's a complicated system. I mean 1-megawatt of power, how to manage all that, hydrogen and water. All those items are really, really critical. The fact it runs at almost constant power, the fact that you're not moving it around. The product has worked remarkably well the first deployments.

To the point, Jordan, about two weeks ago, I wasn’t hearing anything about the performance of the product when it first went in the field. But in my 40 years, working engineering products is incredibly unusual. So I picked up the phone and called the customer and asked them how it was going. It’s been working remarkably well.

So we’re really upbeat about that product. We’ll be doing good deal deployments. A lot of the extra hydrogen for next year will be associated with that product. So we’re really pleased. It’s probably one of the more challenging, but one of the best product launches I’ve ever seen in my career..

I appreciate that. Thanks for all the details..

Yeah..

Thank you. Our next question comes from the line of George Gianarikas with Canaccord Genuity. Please proceed with your question..

Hi, everyone. Thank you for taking my question..

Hi, George..

I wanted to ask about an early glimpse you can, and someone may have alluded to this earlier to 2024. In '25, just sort of gross margin high level, particularly in light of the fact that you have the updates that you've made to your green hydrogen generation. Thank you..

Paul, do you want to take that question?.

Yes. We -- I guess we have our January business update scheduled most likely towards the end of January, where we'll give, as we always do every year, more specific numbers for 2024 as we kind of center in around or finalize our plans and forecast. But I guess what I would tell you is, directionally, we absolutely expect it to go north.

And when you think about the equipment programs and those starting to scale up, and you think about the fuel sites and how meaningful impactful those are, I think, next year -- I mean, I think it could not only be positive, I think it could be in the low double digits directionally and then scale up from there.

And I think there'll be another big step function in 2025 because we're turning on Texas and targeted to turn on New York. I mean that's 115 tons per day of capacity between those two facilities. So that's a substantially meaningful revenue and margin accretion of those programs, given those forecasts and what we're planning to do and turn those on.

So I think, directionally, that's kind of how it will fly..

Thank you. And as a follow-up, just a question. I know we're waiting for Washington to make a final as to how it used PTC? And so I'm curious if you can help us compartmentalize based on the different outcomes, how do those impact the numbers? In other words, you've given some long-term guidance.

And when you think about outcome x in Washington, I mean, this to our forecast outcome y means that, like how can we think about your long-term forecast when we hear the final outcome from Washington? Thank you..

That's a good question, George. And we've always taken a very, very conservative view of the outcome. We built the models and our plants not based on the PTC being available. We know that the PTC will unlock additional opportunities. But -- and further guidance on other elements of the IRA.

So I would just say that if you think about it, it probably has a minimum impact whatever gets said for 2024. Just even though people are waiting it still takes time to get to FID, especially on electrolyzers. I would think that our forecast may be different in the '25-'26 time frame with a PTC outcome that, I'll call it, middle of the road.

That's how I would think about it. Sanjay, I know you've been thinking about this, too, but that's kind of my view.

But since you're deeply involved in the electrolyzer sales funnel as well as sale of hydrogen, do you have any additional comments?.

No. I think, Andy, you sort of summarized it pretty well. But the only thing I might add here is, I think we are obviously been working on multiple large-scale electrolyzer opportunity here in the U.S. And as the guidance becomes clear and as we hear more about that, I think some of this opportunity that we've been working on start to unlock.

And even on the electrolyzer side, even before some of this PTC guidance we have talked about working on three mega deals, we've already announced 100-megawatt in Europe, we've already announced another 280-megawatt in Europe, and we have talked about being a preferred supplier for a 550-megawatt opportunity in Australia.

With this PTC, we certainly see meaningful growth for electrolyzer business, as you said, Andy, especially in 2025 and 2026 time frame, but there will be a very meaningful growth as well in 2024, given the mix of the business, diversity of the market and then existing backlog..

I mean there are more products that need hydrogen coming online. There are folks who are going to green hydrogen to meet their corporate goals, regardless of the status of the PTC. So I think the PTC middle of the road decision will be really beneficial for Plug. Thanks, George..

Thank you..

Thank you. [Operator Instructions] Our next question is from Eric Stine with Craig-Hallum. Please proceed with your question..

Thanks for taking the questions..

Hi, Eric..

So I've been jumping around on calls today, so I hope that I don't ask something that's already been asked. I did hear the end of the last one. I'll just stick with the IRA just for a second.

Hearing some talk of regionality in terms of where power needs to be sourced from, just curious if you could expand on that a little bit? And what would you see that doing for your business?.

Yeah. So -- and I think, Eric, if regionality is really tight at the balancing authorities and there's 69 balancing authorities, I think it drives most of the business activity into ERCOT. I don't think it's going to end up there.

When we think about middle-of-the-road solution that would work for Plug and we think work for most people in the industry, that would be -- the ISO regions would we think work. There's markets which work there. You can -- the regions are big enough that the additionality issue should be much more minor.

Ultimately, you could phase in time matching and it probably would work, probably what's best for the nation and what's probably best for the U.S. leadership in hydrogen, it would be having just three regions. That would also make sure that most of the hydrogen hubs could be successful.

That's -- I think from a Plug perspective, it probably will end up where we're operating more and probably -- quite honestly, probably many of our customers. I think from a nationwide rollout perspective, more regions -- many regions is not helpful.

So the quicker the region, the quicker the deployments will happen, the better it will be for our business. But if it's the ISO regions, we'll be in good shape..

Okay. That's helpful color. I guess we'll stay tuned on that. And then maybe -- so it sounds like you did for 2023 provide a little color around, I think, the previous outlook had been $1.2 billion.

And if there is some $50 million or so variability in that number, I'm curious if you discussed any of the out-year targets? I mean I know '24 in the past, you'd had a $2 billion-plus revenue target. At the symposium, you had '27, you had 2030.

So just curious, I mean, are you -- did you address that? Are you making any changes or is that something that's more for the January update?.

Paul explained, Eric, the people the January update call. We did not make any changes..

Didn't make changes. Okay. Thank you..

Thank you. Our next question comes from the line of Andrew Percoco with Morgan Stanley. Please proceed with your question..

Good evening. Thanks for taking the question. Heym, Andy. How are you? I did want to just come back to the balance sheet and financing line of questioning because I do think it's important here.

So in the quarter, it looks like you burned $400 million of free cash flow, which leaves you with about $550 million of unrestricted cash and available-for-sale securities on the balance sheet.

And Paul, I know you laid out DOE timing late this year, but it sounds like that project milestone based, and you also announced the Fortescue potential financing at the project level, but it still sounds like that's early stages.

So it's leading me to think that you'll probably need to do something at the parent level to manage working capital within the next few weeks.

One, is that correct? Two, are you still confident that you can do it with debt? Is there a potential need for a convert or equity here? And three, can you just give us a sense for size in terms of what you'll need to manage working capital and the profitability drag over the next few quarters? Thank you.

Paul, do you want to take that one?.

Sure. So a couple of things. Fortunately, we're kind of in this period where we've spent largely what we need to for Georgia to turn that on. We've also -- the balance for that's left for the Louisiana plant is not all in context, is not very big.

So -- and we're -- Texas is really kind of more middle of the year and on into the back of the year when the big chunks of money gets spent. So I think we have a little bit of latitude on CapEx this quarter, next quarter in that regard.

And so -- and then on top of that, given the scale of sales that we have this quarter, that obviously, as we convert that into cash, that helps. And then thirdly, we're laser-focused on reducing our inventory levels.

We've built that up substantially to kind of help launch these broad platforms, but there's a substantial amount of capacity there that we can tap into that we'll see. You'll start to see some of those benefits happen in Q4 and on into Q1 as we start leveraging that liquidity pool. So -- but you're right.

I look at it as fungible, right, to fund our plans, and we've talked about what our focus is. And we're certainly focused on a range of solutions and some of the more near-term ones could include things like the ABL or restricted cash advance facility like we had with Generate before or some of those other structures.

But I think we're in a good position given the positive effect of that working capital between receivable conversions and inventory as well as that low period of CapEx that allows us to be a little bit more thoughtful as we move through this quarter and into next quarter about what we do and when we do it and picking the best solutions for Plug.

Hopefully, that helps, Andrew..

Yeah, it is helpful. And maybe as a follow-up question, just related to your electrolyzer business. I think you guys have said over a 2-gigawatt backlog.

Can you maybe just help us think about how many of those projects have reached FID? Just trying to get a sense of how we should underwrite that 2 gigawatts we've seen, obviously, across wind, solar, battery storage some issues as it relates to financing and supply chain. I'm sure it's the same for hydrogen.

So I'm just wondering how many of these projects have reached FID at this point? Thank you..

Sanjay, do you want to take that one?.

Yeah. Happy to do that, Andy. So Andrew, it's a very good question. So let me give you some context on that, right? In that backlog, we have a lot of 5-megawatt system, right? And these are for a lot of different customers. So they obviously have all gone to FID and that represents at least about 30 of those 5-megawatt system.

Second, we talked about a big project with a customer in Europe that's already gone through FID, and that's 100-plus megawatt opportunity. And this preferred supplier deal that we've talked about, that project is expected to go to FID before the year is over.

Then we have another project that is actually looking for an offtake that is for the sustainable aviation fuel expected to go to FID sometime next year, right? So keep in mind though, the way the revenue works for us in our electrolyzer business is we have a standard stack sale, that's a direct sale, right? Then we have 5-megawatt product system, that's a direct sale.

And with the project business, we end up doing it on a percent of completion basis, which actually really builds that base of business for us as you start to think about Q4, as you start to think about '24 and also 2025.

And there are some other pretty substantial projects here, Andrew, that were actually -- that we have been working on for six months to nine months. I mean we have funding in place and some of these projects are really looking for some clarity from the guidance standpoint.

And we do expect that look by either by the end of this year or early next year, you will start to actually see some of this project also move ahead and becomes a pretty meaningful contributor to revenue. Again, these are mega projects that will be multiyear and really start to build that base of business.

And one other thing that I think is worthwhile highlighting here as well is both on our product side as well as on our project side of the business in all the new bookings as Andy and Paul alluded to, we've been very focused on cost down, margin expansion, and that's the trend. It's not just the top line.

We will also start to see that margin progression as you go into '24 as well as into 2025, and that's how we're looking to plan all those things..

Great. Thank you. I'll take the rest offline..

Thank you..

Thank you. Our next question comes from Ameet Thakkar with BMO Capital Markets. Please proceed with your question..

Hi. Good evening. Thanks for taking my question. I just wanted to follow up, Paul, I guess I'm not as familiar with the restricted cash facility you had before.

One, like for any of the $1.15 billion restricted cash you have right now kind of basically work its way into unrestricted bucket? And then how does that facility work? And I've got one follow-up..

Andy, I assume you want me to take that..

Yes..

So as we've done in the 10 years I've been here, probably $2 billion worth of sale-leaseback transactions to monetize tax credits on our -- on some of our programs with some of our customers. Some of our customers like to own the assets, so like a CapEx model and buy. Some like to access our solutions and effectively lease it from us.

And so what we do is we package it and sell it to a bank. And in those cases, the best place to monetize those credits is the most efficient place as in the traditional bank market like a Wells Fargo or those kind of institutions. But they're the most regulated as well.

And so they often make us collateralize some of the tax -- investment tax credit in there. So that's what that most -- a lot of that represents. And so it does get release to us about 20% per year. So out of that, balance that $900 million, $950 million number that we have, probably around $200 million gets released, including $50 million in Q1.

Well, it'll be $50 million this quarter, it will be $50 million in Q1, that's kind of -- it's up to about a $50 million per quarter release rate..

Okay. And then you guys have, I think, said this a couple of times in this call, maybe some of the other calls that you guys have kind of a -- you're working through kind of several options for financing and trying to pick the best one.

But it looks like you guys added concern language in the 10-Q, and I was just wondering if that like kind of maybe narrows the options that you were exploring previously?.

Not really. I mean we have -- so the language that we've included is oftentimes driven by accounting standards and what you have to evaluate it and manage it. And it's a lot more conservative, obviously, than what we feel like. But I have a $5 billion balance sheet that's unlevered. I mean I really don't have any debt.

So there's -- we still are extremely confident about the range of parties and solutions that we're working with. And we haven't seen any tempering of interest given -- I mean it's not news where we sit with our liquidity position and where we're at. We've been pretty clear about that all year in what we're doing and where we're going.

So I think most people certainly understand that and appreciate where we're at and what's to come, which is all this growth and this margin accretion and where it's going. So that's what people are betting on when they want to play -- work with us. And so we don't really see it as limiting our options..

Thank you for the time..

Thank you. Our next question comes from the line of Sherif Elmaghrabi with BMO -- with BTIG. Please proceed with your question..

Hey, everyone. Thanks for taking my question..

Hi, Sherif..

Hey, Andy. So first, I just like a little bit more clarity on the service accrual charge.

It makes sense, of course, that the hydrogen shortage affects cost of service, but how have these unplanned outages delayed fleet upgrades for customers?.

Well, that's -- I'm going to give you an answer. I hope you -- I hope it's understandable. So let me -- I'm going to separate into different issues, Sherif. It does slow down upgrade because we have a fleet of 20-plus rolling hydrogen generators.

Our service folks now the hydrogen pad almost every day, often connecting and reconnecting and getting our products position that one can connect a high-pressure tube trail or two.

And also when you have -- when you start running hydrogen down to very low pressures, which happens often when you're running with these kind of issues, you end up cavitating the liquid hydrogen pumps. So therefore, you're doing a lot more maintenance on the hydrogen pad. So it has a ramification to that. But let me take it further.

So it does impact the -- how fast you're implementing because your staff is doing things to keep the customer alive today. So that's why.

Now when I think about the service accrual, I believe that -- the -- if I take a look, and I'm going to talk about our traditional material handling business, our confidence level that and we see it, the newer products we put out in the field, perform much better or the latest design, do not have issues.

Our legacy units take a lot of time and effort. And I quite -- when I look at it, I would not be surprised if over the coming next two quarters, we have maybe an additional service accrual.

And I think that -- but I believe that we're in a place where that business -- once we get through the legacy issue unit issues, which I think the accrual helps us with, we'll be in a place in the second half of next year, where that line could go in the other direction, could go gross margin positive.

But that -- and then I look at our new businesses, and I made references on the call earlier, it's much more interesting. It's much more simpler to for our electrolyzer business and for our stationary business to essentially monitor those systems remotely, dispatch people if they need to make repairs, all those things actually help.

We think those businesses will start off with positive service margins to start. So that's kind of how -- I know that's a long answer, Sherif, but that's why there's a connection..

Long answer, but really good window into nuts and bolts of the business, so I appreciate it. And then a little bit shorter of a question, I guess. When it comes to….

Shorter answer, Sherif.

When it comes from converting the 15 tons per day in Georgia from gaseous to liquid, is it just a matter of adding a liquefier? Or is there more of a retooling process involved? Really, I'm trying to drill down into what's driving the decision to have 15 tons gaseous and then the other 15 tons liquid..

Well, that's -- the gas is, Sherif, feeds the liquid. So there's not two plants. We are looking at the possibilities of expanding Georgia. But George is a liquid plant.

There is a 2.5 ton gaseous -- 2-ton gaseous plant that we have there, which is filling these high-pressure two trailers I talked about, which are kind of like generators or high-pressure generators on wheels. And -- but the hydrogen that's produced primarily at the Georgia plant the liquefiers.

Does that make sense?.

Makes total sense..

Thank you. Our next question comes from Vikram Bagri with Citi. Please proceed with your question.

Good evening, everyone. To start off the -- on Georgia facility, can you provide some risks that could be maybe start up beyond '23? And if any of the funding options that you talked about are contingent on Georgia up and running? And then staying on the same topic, inventory is now over $1 billion.

Can it be a source of liquidity as you go into next year? How do you see that trending? And then finally, the quarterly filing has, as you talked about, some cautionary statement about funding being insufficient for operations next year.

Any chance you can quantify how much minimum funding is required, assuming tighter controls to go through next year as you mean funding environment is not as supportive? Thank you..

So let me take the Georgia question, and then I'll let Paul deal with all the financial questions. So we when we look at Georgia, we're at the final steps of drying the box to liquefier out. And you have to dry it out to bring it down.

So we heat the whole liquefier up to 400, 450 degrees and essentially dry it out to ensure that when you start running at 25 degrees, Kelvin, which is almost absolute zero, you don't have anything in the liquefier that would impede its performance. There are eight kind of elements that need to be dried out.

And so last night, we dried out the first debate, which took only 24 hours. I don't expect the others to go as rapidly. But that's really kind of making sure that liquefier is completely dry before we turn it on is one of the risks.

The liquefier has been tested before it's left the supplier, but there is always a big difference bringing up in the field. There's a lot of confidence it will come up cleanly. But that's probably where the risks reside. So that's how I think about it. I'll let Paul answer the rest of your questions.

So when it comes from a -- from the finance point of view..

Yeah. There was a lot in your questions, but let me try and do my best. A couple of things. Anymore with the filings, I mean, the way the rules have progressed and the regulations feels like 80% of what's in my filings anymore is risk factors and caveats, right? So we follow the rules.

We're compliant, and we want to make sure we're disclosing and doing everything according to the rules. But -- so that's what we do. And -- but in terms of the financing themselves, they're not -- it's not like they're contingent on Georgia being turned on. That's not a caveat to us making the decisions on which ones we're going to pick.

It's not -- there's a whole range of options that we have available to us, and it's really, again, back to just us being prudent and thoughtful about what choices we're going to make.

In terms of the amount of cash that we need next year, really, we're in a great position because -- I mean a good position, I would say, because -- you look at the fact that we've largely spent what we need for Georgia, we're by and large, we don't have much left relatively speaking on Louisiana.

We can pace Texas in New York, the big facilities kind of commensurate with the right solutions and trying to figure out which of those are the right solutions. And when you look at our growth, we'll talk more about it in the January business update.

But given our forecast for next year, both in terms of top line and margin, we should be in a good position to middle to latter part of next year. We could be crossing into the positive operating cash flows. And so really, in the big scheme of things, it's not a lot to kind of get to that bridge to where we need to be.

And life changes for us dramatically as we cross that threshold and in terms of access to institutional money and funding the next round of projects and things that we're doing. So we'll certainly talk more as in the January business update and as we get through our year-end filing.

But we feel good about the range of options that we have and the position that we're in and where we're poised to fund our business plan in the near term..

Thank you.

And in terms of inventory, is that sort of like – sort of source of liquidity for you guys in the near term? Can you bring that number down meaningfully from $1 billion now?.

Yeah. We absolutely can and are focused on it. So as – when you’re scaling a bunch of new things at the same time and you’re kind of focused on speed to market and scaling up the breadth of platforms, it’s hard to focus on efficiency and optimization as much.

But now that we’re really starting to scale those products up, we’re able to kind of think more and ramp more from an optimization and efficiency standpoint and also time things better and work with the vendors better on deliveries and consignment and other tools that we use that can drive that down. But it is a substantial source of liquidity.

And obviously, it means we can spend a lot less as we ramp that down in the near term..

Thanks a lot. Appreciate it..

Thank you. Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your question..

Hello. Thank you for taking my question..

Good evening, Martin..

Good evening.

I was wondering if you could maybe talk about nuclear operators as potential customers for electrolyzers?.

Sure.

Do you want to take that one, Sanjay?.

Sure, Andy. Again Martin, it just makes a lot of sense, right, in terms of when we think about all sorts of clean energy and how some of those clean energy can be used to produce green hydrogen. So look, I mean, we have some effort going on along those lines. So there are some activities happening.

So we certainly see that as a part of our electrolyzer business opportunity, whether it's just a direct electrolyzer sale? Or does that also expand into potentially even building a liquid plant there. But the -- it's a very fair question.

And short answer to that question is we have some of those activities going on and look forward to sharing a lot more with you all.

And again, some of these areas, whether it's nuclear or some of the other opportunity here in the U.S., this bigger opportunity, I think, are going to get unlocked here as we get further guidance surrounding what exactly is going to be the language from the treasury on the PTC and IRA..

Great. And for my follow-up question. I just wanted to try to get a sense of level of interest that you all have and maybe monetizing some of these green hydrogen plants as you bring them on in terms of selling down interest in them? I saw the Fortescue news that you shared with us.

But maybe if you could give us your thoughts around that?.

Paul, do you want to take that one?.

Yeah. I guess, my bias selfishly is to not sell equity out of those plants because that obviously is the most expensive capital.

So it's better for Plug, but we have to think more broadly than that, given the breadth of agenda that we have and the capital needs and the solutions that we have and the timing and also the partners that we're working with.

I mean in the case of Fortescue, the fact that they've got interesting investment alternatives and platforms that we can co-invest in their platforms, that can be a meaningful opportunity for us. And so we've not necessarily acted on some of those opportunities.

We continue to nurture them, and we continue to see more expressions of interest with multiple parties that would like to take equity stakes in our plants. And so we're going to continue to nurture those concepts and discussions in context with other alternatives and work towards what we think is the best answer. Hopefully, that helps, Martin..

Yeah, it does. Very helpful. Thank you..

Thank you..

That is our last question for the day. I appreciate everyone attending the call and asking the questions -- asking your questions. And as Paul mentioned, we will be having our January update call as we do every year to provide you insights into our strategies for 2024. So thank you very much, and look forward to talking to everyone in the near future.

Bye now..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..