Greetings and welcome to Plug's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Teal Hoyos, Senior Director, Marketing and Communications. Thank you. You may begin. Thank you. Welcome to the 2022 second quarter update call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or of our financial position or other forward-looking information. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A 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 subject to risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under Item 1A, Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2021, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug's CEO, Andy Marsh. Thank you, Teal, and thank you everyone for attending Plug's second quarter conference call. The last week has been a monumental week for the world, the U.S., the fuel cell and hydrogen industry, and Plug with the passing of the Inflation Reduction Act through the Senate. The recently passed bill would enact a clean hydrogen production tax credit, the PTC, to incentivize the production of clean hydrogen, providing a major inflection for the world to achieve net zero by 2050 and for hydrogen, especially green hydrogen, to provide 20% of the world's energy. This bill provides a trifecta effect. It's good for climate, it's good for jobs, and it's good for national security. Our electrolyzer business has benefited from the push in Europe to become energy independent from corrupt regimes. We are seeing the benefit as our orders already have exceeded by 50% our projection for the year, with most of that coming from Europe. Now, the momentum will grow rapidly here in the States with the PTC, as demonstrated by our deal with New Fortress Energy, a 120 MW order which was announced last week, which can grow to 500 MW. With the passage of the Act, we expect a boom for our electrolyzer and green hydrogen business. All applications that use grey hydrogen today, such as fertilizer manufacturing, will now be able to buy green hydrogen at a competitive price with grey. Applications that are looking to move to hydrogen, like steel and concrete manufacturing and natural gas heating, will have a path to dramatically reduce their carbon footprint cost competitively. Everyone wants green hydrogen. Now there is a path that always makes it competitive. We believe the first big markets for green hydrogen will be these industrial applications where it's simpler to substitute green hydrogen for other feedstocks. Remember, these applications represent 26% of the world's CO₂ footprint. Cost-effective green hydrogen will also help us to expand our application business more rapidly. As hydrogen becomes more plentiful and cost-effective, all of our applications, like our Microsoft stationary product offering, HYVIA vans, and of course, powering material handling equipment becomes more attractive. This bill is good for all our stakeholders, including customers, shareholders, our employees, and the communities. For our shareholders, as mentioned in our investor letter, will move up our path to profitability by six months. Finally, before Q&A, I'd like to highlight Plug's priorities beyond our revenue goals of $900 million-$925 million in 2022 and $3 billion in 2025. First and foremost, our path to profitability in 2024. This includes the following key initiatives. One, commissioning 70 tons of green hydrogen in 2022 and 500 tons by 2025 in the US, and 1,000 tons globally by 2028. Our hydrogen business will reach more than 30%+ gross margins in 2024. The math is quite simple via combination of vertical integration and the PTC. Obviously, we're reviewing the possibilities of building more plants sooner than later to leverage our leadership position. Two, you can see it, our service business will be gross margin breakeven by year's end and growing to 30% gross margin by the start of 2024. We are already experiencing significant improvements with the latest versions of our products. Look, scale matters. Our goal is sell more electrolyzers, sell more green hydrogen, sell more fuel cells, especially for our stationary products, HYVIA, and of course, our material handling business. Four, full deployment of our highly optimized and automated gigafactory and Vista site that will drive down our costs of our manufacturing and improve our quality. These are showcase manufacturing sites, not just for the fuel cell industries, but across all industries. Finally, success with our four JVs, SK, HYVIA, ACCIONA and Fortescue. Executing on these strategies alone will allow us to continue and expand upon our industry leadership position. Of course, we won't stop here, but my team knows executing the above is our top priority. Paul, Sanjay, and I are now open for your questions. Thank you. Ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation code will indicate that your line is in the question queue. You may press the star key followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Colin Rusch with Oppenheimer. Please state your question. Thanks so much, guys. Yeah, I guess this is maybe a question for Sanjay. You know, looking at the green hydrogen opportunity in the U.S., I'm curious about the maturity of the conversations with potential industrial users, and you know, a sense of volume that you could start converting relatively quickly, as well as your land position for incremental facilities, and maturity of conversations with power sourcing, which, you know, looks like could get pretty competitive fairly quickly. Yeah. Hey, Colin, how are you? Great questions. Let me take the second part of the question first, right? One of the things we've been spending a lot of time doing, and you've heard us say this before as well, you know, one of our biggest focus is, sourcing right location so that we can get the right price of power, which is renewable power. The level of activity on that, both internally as well as working with a third party, if anything, has picked up quite a bit. You guys, as Andy mentioned in his prepared remarks, we're actually looking to build more plants faster, not the other way around, number one. Number two, what we're really looking to do is, and we've taken this approach, right, where, you know, when the hydro is the best solution, we go for that hydro, and then we think about how can we expand our facility even with that hydropower electricity. Second, we then look at wind source. What are the right location for that? How do you get the complementary power there? There's a lot of activity going on beyond some of the things we've talked to you all about in Texas. There are other locations that are pretty far along. Please stay tuned. We'll be able to talk about that even more. In terms of solar, obviously, we're looking at multiple location in the regions that you can think about. One of the things we're really doing is that how do you not only look at the land, but how can you expand that? How can you think about larger solar plant? How do you really think about approach like net energy metering? How do you really drive the cost of that, electricity down? We're even evaluating some of the options surrounding nuclear if the price of power is right. The discussion, both internal work as well as with the third party, is very, very robust. Colin, as you can imagine, we are focused on one goal and only one goal, and that is how do you drive that cost of renewable electricity down so that we can continue to drive the cost of green hydrogen down. On the industrial front, as you saw in our shareholder letter, you know, and as Andy touched on it with this PTC, it really opens all markets for us. Green hydrogen is now economical versus gray hydrogen in every single one of those applications. You have seen some of the announcements here even before the PTC was enacted, as Andy talked about this 120 MW electrolyzer opportunity. When you really think about the amount of the hydrogen that is a gray hydrogen being used in industrial application today, you know, that really creates a very, very substantial opportunity for us. Now, again, this is a recent event here. There's gonna be a lot of activity. We fully anticipate that. Even if only 20% of those application goes with on-site electrolyzer, you're talking about 10+ GW of electrolyzer opportunity in this industrial opportunity for us as well. Would you like to add anything? No. Perfect. Anything else, Colin? Yeah, yeah. No, I'd like to talk a little bit about supply chain for both the electrolyzer and the fuel cells. I mean, obviously, you know, this is a, you know, kind of a watershed moment for the industry, and you guys have, you know, you kind of stretched out in front of a lot of competitors in terms of scaling up. But I'm curious about your supply chain and their preparedness to really respond to how big this could get and how fast you guys wanna move. You know, I'm sure that you've kind of bounced those ideas around, but those conversations are gonna get more concrete here, but I'm just curious what you can say about that at this point. Yeah. Colin, I would kinda first take a step back and say there's actually three ingredients to that supply chain. One actually has to do with design. When I think about our PEM electrolyzer design, you know, we envision that sooner rather than later, a stack today will actually have about double the power, which actually simplifies really our supply chain. A lot of that happens with, you know, can you design the product simpler? That's continuing to go through our business. Probably the more important one is, you know, are we adding the right people? I think the reasons that we don't not foresee supply issues this year is because the leadership we've put in place. As you know, I've hired David Mindnich from Tesla, who drove their Reno facility to make sure Tesla vehicles could be delivered. That same sort of mentality about how to develop those strategic relationships with suppliers we've been working on for a long time. Third, look, a lot about this whole integrated supply chain is your own manufacturing capability. The facility we built in Rochester, the facility we built in Vista, which now we can occupy, you know, I think dramatically changes everything. We have sophisticated people who've been driving our supply chain for the past years. We have designs which we're looking to reduce the number of parts, which help us with cost and supply chain. Third, we have the facilities. Look, our goal is to continue to have that leadership position. I don't wanna downplay that, and I'm not trying on this call to downplay that we don't fight supply chain issues every day. We do. That is, you know, the first item I get in the morning is, "What's going on, and do they need me to make a call?" It is a every day effort, it is more complicated, but I would say that it's less intense than it was. Perfect. Thanks so much, Andy. Thanks, Colin. Our next question comes from James West with Evercore ISI. Please go ahead. Hey, good afternoon, guys. Good afternoon, James. Andy, clearly a lot of game-changing action here recently. One of the things I wanted to hone in on, this is before we even talk about the PTC, is the data center, the successful test that you had with Microsoft and the opening up of that market. Could you maybe talk through what the next steps are and how that will evolve and how you get to that, I think you put out a $40 billion market opportunity number? Yeah. Colin, I'm sorry, James, you know, first, it was a big step. I mean, you know, that activity with Microsoft to design that product was a combined 2.5-year effort. Right. Already we have developed the next generation product, which will be rolling out to Microsoft and others, in the fourth quarter here. I think in our letter, we really outlined numbers for this market. I think the numbers were in the next 12 months, Sanjay. You know, I think in over the next 18 months, about 200 MW- That's right. of activity. The numbers are, you know, just starting, James. You know- Right. It's that application and we're talking, you know, we're engaged with all the data center operators, but it also is very applicable, you know. I was down in the city of Albany talking about this today, about the challenges many people are having with powering EVs. I think our first big deployments, believe it or not, will be powering electric vehicles, where hydrogen will be generated outside of town and brought in, to power stationary products, believe it or not. That's one that's not as obvious, but it's actually probably will be the first biggest market for that opportunity. Third, this same product scaled, as we scale it, and there'll be different continuous generation is what we plan for SK. For SK, by the end of 2024, we'll be deploying 200 MW worth of product. This is a huge opportunity for us and really just beginning. It's not only a huge and you know, when you think about it, these are really the beginning of the future peaker plants that combine with the work Sanjay is doing with pipelines as well as green hydrogen generation. That's really the bigger vision. The $40 billion really only represents what's going on at data centers. Right. Okay. Okay, got it. That's very helpful, Andy. Then the other thing you announced earlier in the quarter was the port in Antwerp, and that you'll be building a large-scale facility there. That seems like a you know another big deal, but also probably the first in maybe a series of port applications that you might look to you know execute on. Is that fair? Yeah. I would say absolutely. I think, James, if you look at that port, it is the second largest chemical port in the world. We're looking to add, you know, they're looking to add a green hydrogen pipeline at that port to feed all the chemical plants, and we certainly are looking to scale it. What was it? 300 miles, there's like 60% of the population of Europe. That's right. is close enough to that port. Boy, what ideal situation for Plug to really be building our HYVIA business, material handling business and stationary. Here in the States, James, I actually believe the best opportunities for these hydrogen hubs, you know, I was meeting with Senator Ossoff in Georgia, and we talked a lot about the hydrogen hub possibilities in Georgia. One of the biggest focus is the Port of Savannah. You know, you think about the Port of Savannah, I guess the Port of New York, New Jersey. Even I know in West Virginia when we met with Senator Manchin, you know, there's an opportunity to bring hydrogen from West Virginia into the Great Lakes. Ports and moving hydrogen is really a huge opportunity. Great. Thanks, Andy. Thanks, James. Our next question comes from Alex Kania with Wolfe Research. Please state your question. Good afternoon, Alex. Hi there. How's it going? Okay. Great. Maybe like a philosophical question about how to think about the PTC with respect to pricing. I guess in the near term, if you've got fixed price contracts, maybe the PTC is something that you're able to kind of pocket, but then maybe over time, and obviously that would help out with the, you know, the near term kind of margin headwinds. Over time, is it fair to assume or I'm just curious about how you're thinking about what the PTC means for how you negotiate, you know, green hydrogen deals moving forward. Yeah, I think, you know, really good question, Alex. Look, I think that when you think about the near term and contracts we have, you know, the company will be able to capture most of that PTC. I think that, you know, like other industries, you know, I think there'll be some sharing along the line. Obviously, those who invest the most, which is us, will capture the majority. I think that's how it'll evolve. Great. Thanks for that. Maybe a follow-up just on, you know, thinking about. I don't. Oh, sorry. I don't think it's much different than what you see with other credits. I think, you know, I think what shouldn't be forgotten, though, is a more competitive hydrogen price makes all our applications, and quite honestly, everybody's applications more interesting. So it's a great opportunity for our apps, and it's a great opportunity for us to provide green hydrogen to others. That makes sense. Thanks. Maybe just thinking about, you know, now the fact that the U.S. has a you know is looking to have a pretty supportive policy environment, and it looks like, you know, Europe is aiming for something with REPowerEU. I mean, how do you think about kind of balancing your focus? Do you think you can kind of scale, you know, kind of both of those continents and kind of the way that you hope? Or, you know, now does this kind of maybe divert a little bit more attention towards the U.S.? That's actually a real interesting question, Alex, and you must have heard my testimony in front of the Energy Committee, because I mentioned without policy, our focus would move more rapidly to Europe. You know, at the moment, we believe, you know, for Plug, the two best market opportunities are the US and Europe. You know, I think we will be leveraging our partnerships more in Europe, while most what we'll do here in the States, we'll do it by ourselves. You know, in Spain, you know, when you think about how to leverage solar, you couldn't have a better partner than Acciona. You know, our activity in the Wind Belt up in Denmark with H2 Energy and with other activities we're looking at, I think that's where we'll be focused, with obviously with Renault JV, we're focusing on leveraging their capabilities. In Europe, I think it'll be much more partnership-oriented and people who can help lead us in Europe. Here in the States, we will take a leadership position. Quite honestly, without this bill, more and more of our focus would have turned to Europe. Now I think it'll be a much more balanced approach. I always like to remind people of the pure play hydrogen players. No one in the past two years have invested more in Europe than Plug. Plug is both an American company and a European company. Great. Thanks. Good to hear. Take care. Thanks, Alex. Our next question comes from Bill Peterson with JP Morgan. Please go ahead. Hi, Bill. It's good to see the Inflation Reduction Act pass after a couple head fakes. I wanted to actually follow up on that last question on Europe. You know, we saw the IPCEI Hy2Tech come to EUR 5.4 billion in funding. We see a lot of, you know, logos on there, but not Plug directly. We see a lot of your partners. I guess, is there a path for Plug to directly benefit? And if so, does it entail, you know, local manufacturing? I just kind of dovetail off that last question, like how does Plug benefit from that and what does Plug need to do to benefit more? No, I think that, first, our focus was our partnerships. If you look at HYVIA, and I know the numbers haven't been announced, but the level of support, HYVIA has received is significant. You know, that has been, that was our major initiative for on-road vehicles. We obviously have activities as Plug, alone, going on in Belgium, with support from the Belgian government. You know, I think as we get viewed, as more and more European and, you know, I take a look at the fact that, you know, I was invited to France, I was at a dinner with Macron, you know, Plug, you know, Plug is beginning to be recognized more and more throughout Europe. I think as our presence becomes clearer, we'll be able to participate more directly. At the moment, we felt that to maximize the amount of cash to support our activities in line with our business goal, that HYVIA certainly was the best vehicle. I can just tell you, Bill, that has really paid off. Terrific. The other side of the coin, you did kind of mention earlier about electric cars and stationaries being the first big market. I believe you're actually seeing some of that later this year as part of the sort of back half weighted. I hope you can size that opportunity, I guess, as a run rate actually this year, but more importantly, how does that business look over the next few years, given that it looks like it's not the biggest stationary opportunity in the near term, but certainly one of the bigger ones. Yeah. If I was going to talk about from a Plug perspective, the stationary market will be. You know, beyond electrolyzers, we see the stationary market as really going to grow more rapidly than on-road vehicles in the next 2 to 3 years. It's really because, you know, there's 2 big applications. One is, as I mentioned earlier in the call, powering electric vehicles. The second one is this data center market, which when you have people like Microsoft, you know, and obviously, if anyone's read the blog, we've developed a very, very close relationship that and really demonstrated a, I think, what did they call it? A moon? Moon. Yeah, it was equivalent to man's walking on the moon. Yeah. You know, they're looking to eliminate all diesel by 2025 or 2030. We think, you know, that's gonna be an incredible opportunity for Plug. You know, if you think about 2024, for example, I, you know, I think that portion of our business could be, you know, more than 20-25% of our business. Then when I think about on-road, you know, HYVIA is looking to have, you know, 100,000 vehicles on the road by 2030. There's a real good roadmap for us with HYVIA. The fact that we have 20 customers who are going to be piloting our products over the next six months, I think, which is double the number that we expected when we talked to you at the beginning of the year, I think that's a real sure, clear sign that, those business opportunities are large. Thanks for that. Lots of good activities and traction. Yes. Thanks, Bill. Thank you. Our next question comes from P.J. Juvekar with Citi. Please go ahead. Hi, P.J. Yes, good afternoon. Good afternoon. Great news with PTC. Just a question on sort of levelized cost of hydrogen. Where do you think that cost is today on the U.S. Gulf Coast, which is the biggest market for hydrogen in the U.S., and where do you think it goes post PTC? I'm just trying to gauge how quickly will the heavy-duty industry like refining and steel would start converting to green hydrogen. I'm gonna turn that over to Sanjay here, P.J. Hey, P.J., how are you? P.J., as you know it very well, right, when we talk about gray hydrogen, we gotta kind of put that in context with on-site, you know, gaseous gray hydrogen versus liquid hydrogen as well. You know, I mean, despite the you know, sort of commodity price volatility and all that, if you're just talking about on-site gray hydrogen supporting things like refining industry or the you know, ammonia and things like that, the number would be probably around, what, $50 a kilogram, give or take. Okay? If you're looking at that $25-$50 kind of a number, now take a step back, right? Think about on-site electrolyzer, $0.04 a kilowatt hour electricity, right, connected to that electrolyzer. You know, then you take into consideration 55 kWh of electricity, then you got some capital cost there, then you layer on PTC. All of a sudden, right, there is not a single application where the green hydrogen is not economical anymore. Obviously, it will take some time for the industry to evolve and grow as we move ahead, but that's what happens. Now, take that into the liquid hydrogen market and think about long, you know, sort of transportation application, mobility application. When you start to think about the diesel parity, our view always had been, it's not about thinking about, can we charge, you know, more than diesel because it's our, you know, system is more efficient. We want it to be at diesel parity, right? When you look at those numbers, you know, all of a sudden, even from a liquid hydrogen perspective, you know, the market can comfortably be in that $4-$5 range delivered. With PTC, that path becomes even that much more clear. For folks like us, it actually allows us to provide that kind of a pricing, make return on our plant. PJ, I hope that folks do appreciate one point, which is, we've been at it now for some time, and the fact that we've been building this green hydrogen plant, the work we have done, the learnings we have had, I think really, really stands out as a big force mover and a competitive advantage for Plug. Great. Thank you. Clearly, you guys have been ahead in terms of building out this green hydrogen infrastructure. Congrats to you guys. I guess my second question is, you know, with this PTC, if demand for green hydrogen takes off, which it will, you know, your electrolyzer orders could also go up just like what you've seen with H2 Energy Europe and New Fortress Energy. You know, do you have enough capacity at Rochester? Was Rochester built with PTC in mind, or do you need to expand more, you know, even more? I think that's a real good question, P.J., and I hope the answer is I have to expand more. Let me kind of give a picture where I think, you know, I mentioned earlier that we do think there's possibilities that, you know, we'll be at, you know, a rate of about 1 MW a month in 100 MW a month by October in Rochester. I think there's a way to optimize that facility and push that probably up to 150, 160. I think there's an opportunity to make design improvements, but I do think, especially in Europe, we'll be looking at opportunities to expand our manufacturing footprint to support that market. You know, we've already had, I'll say, some additional, some initial discussion. I think that's an opportunity. One of the items I think we did really well was that we designed that plant that we can take that design and duplicate it. That the footprint and design we put together, you know, it probably would take us 15 months to build another plant. You know, I think when you look at that, you know, I think that we will be probably giving that a lot more serious thought, especially for Europe, so that we're in a great position to capitalize on this opportunity. You know, having built a plant and then just having to duplicate it is a lot simpler than doing it for the first time. I used to have a full head of hair, P.J., before we started building the plant. All right. Well, thank you. I appreciate it. Okay. Thanks. Our next question comes from Eric Stine with Craig-Hallum. Please go ahead. Hi, everyone. Hello, Eric. How are you today? Hello. Doing well. All the talk of the PTC and cost of hydrogen coming down, I know something that you've talked about for years is. Sure potentially expanding to small, smaller locations for materials handling. Just wondering, you know- Yeah What your thoughts are. Is that still an objective, and would that or how would that expand the market opportunity? You know, I don't talk about this much, Eric, but the acquisition of ACT and the trailers, having control over our trailers actually makes smaller hydrogen facilities simpler. It reduces the cost of infrastructure. We have done smaller sites, and we're beginning to do more. We do see that the combination of lower hydrogen costs, simpler on-site hydrogen infrastructure, where it becomes much easier just to do swap outs of trailers, and you then think about a regional activity. Jose and his team actually have quietly implemented a few of those. We do think that's a great opportunity. The fact that the fuel which has dominated the cost now will be significantly lower is a real benefit. Any thoughts on how that expands the market opportunity? Might be a tough question. Yeah. I think at the Plug Symposium, Jose pointed out the path to how that business could be a $3-$4 billion business opportunity with smaller scale. You know, we really had that beginning to ramp in the 2025-2026 timeframe. We haven't done any new projections, but obviously, when you can think about what Jose was pointing at and with the lower cost of hydrogen, you could see that being pulled in. That's a real good question. Got it. That's helpful. Maybe just last one for me. In the release, you mentioned two Pedestal customers in Europe that you are targeting. Just wondering if you can give me any details there, whether it's, you know, potential timing, size, et cetera. Yeah. We're in the final stages. I was hoping I've actually been watching my phone to see if I could say anything. But we do have, you know, we've targeted three Pedestal customers for this year. I would expect all those will be announced before we speak in the fourth quarter. Okay. Thank you. 2 in Europe, 1 in the United States, Eric. Perfect. Yeah. I think that the comment I made about us really looking more European, in fact, we have, you know, probably in Europe today, over 300 people, has really made a big difference in being able to convince customers we're serious. Thank you. Our next question comes from Chris Souther with B. Riley. Please state your question. Hey, thanks for taking my question here. Can you maybe talk a little bit about the $15 billion electrolyzer sales funnel? I'm curious if you could frame the activity by geography and maybe the timelines customers are you know looking for potential deliveries. Curious, does the PTC potentially change your strategy within the U.S. around electrolyzer sales versus, you know, owning the infrastructure yourselves? Really good question. You know, Chris, probably 70%, 80% of that funnel today is Europe and the Middle East. You know, that is the heart of the funnel. Just to give you a feel, there is about, you know, just for our smaller 5 MW system, there's over 350 opportunities in our funnel. Everything from bottle manufacturing, which you wouldn't think a lot about, but, you know, folks are looking to run their furnaces with a% of hydrogen to concrete manufacturing, to steel manufacturing. There's a lot of smaller projects that, quite honestly are easier to deploy rapidly, because you don't have. You know, essentially, they're self-contained systems. Most of our shipments, which will be about $140 million of electrolyzers the second half, will be 5 MW containers. I think at this time next year when we report the third quarter, I suspect about 30%-45% of our revenue will be coming from our electrolyzer business. I think by 2025, it could be as much as half. You know, does the PTC potentially change your strategy within the U.S., maybe around, you know, selling versus, you know, building out the infrastructure yourselves? Or would you kind of just take the potential growth of a market as the opportunity to do both? Really good question, Chris. I mean, this management team has been thinking about that question a good deal. I think you could end up in circumstances where you could build a hydrogen plant to support a fertilizer facility, own a portion of that plant, and be able to generate liquid hydrogen to support our customers. Without going to great detail, we actually see that, with the proliferation of our electrolyzer business, we may develop a different model for partnerships and building some of the plants, which, you know, as we mentioned in the letter, could help us expand much more rapidly with partners. You know, I was in a meeting today with someone looking to build a 1 GW electrolyzer plant here in Texas, and one of the discussions we had was you know, could we own a portion of that plant so we could use as part of our offtake? It would reduce, obviously, our capital costs and provide us an opportunity to really expand and grow more rapidly. The answer to your question is we have been giving that a lot of thought. Okay. Appreciate the color. I'll hop in the queue. Thank you. Just a reminder to everyone, to ask a question, press star one on your telephone keypad. To remove yourself from the queue, press star two. Our next question comes from Sameer Joshi with H.C. Wainwright. Please state your question. Hey, good afternoon, everyone. Thanks for taking my questions. The chart that you have in your letter on page 3 does that take into account a delivered cost of hydrogen or does it assume localized production? I'll let Sanjay take that. I'm just gonna add, it doesn't really matter if you're delivering gray hydrogen or green hydrogen, the delivery costs are gonna be the same. Go ahead, Sanjay. That's right, Andy. Samir, that is really on-site, right? That does not take into consideration the delivery cost, that chart itself. Got it. Okay. Then maybe this one for Paul. Can you just let us know what is happening with the inventory buildup over the last two quarters? Is that like planned inventory buildup, or is that some delay in sales? Yeah. It's really anticipation for the second half. I mean, if you look at the sales, as we've seen historically, you know, we do about one-third in the first half, and we do, you know, two-thirds in the second half. It's gonna be, you know. We're gonna do more sales in the second half than we did almost, well, all of last year. You know, it's a big push. We're ramping up new facilities and production to support that, as well as what we anticipate happening in the first quarter of next year. That's. I don't see that build continuing on in the second half. I think it'll temper. Well, I know it will temper, but it's really driven towards all that growth that we're building for to deliver in the second half. Understood. Last one, also maybe for Paul. On the SG&A, sequential increase has been almost $15-$16 million. Should we see this level over the next few quarters? Or do you expect further increases in SG&A? No, it's you know there was some. You know, I think I gave a number for the beginning of the year of 100 to 110 per quarter. I think this quarter was a little heavier just because of the Microsoft programs and some other you know new product launches. I think that 100 to 110 is a good proxy for this as we move forward. Got it. Thanks. Thanks, Paul. Thanks for taking my question. Thanks, Sameer. Our next question comes from Ameet Thakkar with BMO. Please state your question. Hi, Ameet. Hey. Hi, Andy. Thanks for squeezing me in. Hey, just real quick on the production outlook, you know, of 500 tons per day kind of exit rate in 2025. Should we think about all of that as being kind of in the U.S., or is that gonna be kind of global? Just kind of thinking about how the PTCs might kind of flow to the bottom line. I'm gonna let Sanjay take that one. Thank you, Andy. I mean, as we've mentioned this in the prior calls as well, that 500 ton is really the number in North America. You know, by 2028, we said we wanna be 1,000 tons, and that actually includes Europe as well. You do bring up a good point. You know, is there any opportunity for that 500 ton to be, you know, potentially higher given some of the activity we have going on in Europe? The answer to that is yes, but that 500 ton number is strictly referring to North American production by end of 2025. Okay. Super. Then just, you know, now that you have, you know, a kind of line of sight on the PTC, I think you guys had talked about, you know, kind of, looking for offtakers for about 70% of your green hydrogen production. The PTC kind of helps to, I guess, seemingly kind of de-risk some of this as well. Are you guys still thinking about that 70% level or would you be kind of willing to kind of keep more production for yourselves, or are you looking to maybe do kind of the opposite and actually ramp up the percentage of offtakers? Yeah. Isn't that a great question, Ameet? A couple of points to highlight on that, right? One, I think, you know, I just thought it's an important point to note here, which is with PTC, one another thing that it also does is capital formation, right? That's another big benefit that we will get from source of financing type of capital that comes in, structural capital. You know, right now, most of our investment has been largely focused on all equity investment. That's another added benefit that you will see as you go forward. Look, and I think, that's what we're going through right now, but I think our focus is really, we want to make sure that first and foremost priority, it hasn't changed for us, right? We want to make sure that our customers are taken care of. You know, obviously our Pedestal customer, we wanna make sure that they never run out of hydrogen. We wanna make sure that we're adding more customers to that mix. We really haven't changed the view on that 70% loading of the plant at this point in time. As Andy touched on some of the opportunity that we're starting to see in the stationary market, that can really, really drive the demand for our hydrogen for some of our customers, and that could make that, do we only load some of these plants for 50% instead of 70%, but that's TBD at this point in time. We really haven't changed that view, but that number certainly is not gonna go from being 70% to trying to sell out the entire plant given what we're seeing here. Great. Thank you so much. Sure. Next question comes from Kashy Harrison with Piper Sandler. Please state your question. Hi, Kashy. Hi. Good afternoon, and thank you for taking the questions. I was hoping. Good afternoon. Good afternoon. I was hoping if you'd maybe just walk us through your margin expectations for the rest of the year? Go ahead, Paul. Growth margins, please. Yeah. Well, the good news is it's gonna be heavily concentrated with equipment if you look at the mix of sales and the growth that we're experiencing. You know, I would say we're definitely gonna see margin progression. I think it'll, you know, even in the fourth quarter, it'll move into positive range and could even hit double digits, depending on final mix. There's a couple of big things happening. We're ramping, as Andy mentioned, we're moving quickly to ramp electrolyzer sales, you know, going from a kind of scaling the plant this first half to max production, you know, in the short term. You know, that's a big step function change. The other two things, the fuel and the service, we continue to make big progress. You know, those in fact in service in particular, today I was working with the teams. It's really impressive, some of the things we've been doing, including some of the enhancements to the field. We've seen, in some cases, 70% part reductions. We're starting to see that benefits really pay off. We think that'll start paying off more in the second half, but you'll see even a bigger step function as we move into next year. The fuel, as we talked about, really kind of kicking in first part of next year as we start launching those facilities, you know, we play out the PTC. Progression through the year, but big step function changes in 2023 as some of those big events start to play out. That's great color. Thank you. You know, it sounds like you have some new pedestal customers coming, which is great. I was curious what you're hearing from your customers surrounding you know, the slowdown in the global economy. Do you think that might temper demand for on the material handling side? Are you still getting positive indication from your pedestal customers that, you know, they're ready to you know continue to grow as you think about you know, 2023? Yeah. Good question, Kashy. I would say this, you know, we have two advantages. One is that we are adding new customers that can help mitigate any slowdown that could occur. I think the second item too is that we haven't really seen. We may have seen slowdown at one customers and upticks at other customers. You know, sometimes during these times where it's difficult to acquire labor, it's difficult to find ways to reduce costs, you know, you actually have an advantage in the selling process. So I can tell you one of our big customers who I've worked with for years, you know, is making the commitment to really dramatically change over their remnants of the older technology of batteries to move to fuel cells. So we haven't seen. What I've seen is some sloshing around but I have not seen a reduction. I think that, you know, having lived through these tough times before, I've always noticed that, you know, you're actually in a much better position if you're in a business that has a smaller market share of the overall opportunity, plus you're selling cost savings. That's a pretty powerful message when things are slowing down and labor is tough to acquire. Thank you for that color. Appreciate it. If I could just sneak one last one in. Sure. I was wondering if you could maybe just give us a refresh on your CapEx outlook moving forward as you think about the U.S.-European hydrogen build-out. Wondering if you have any good rule of thumb for, you know, maybe thinking about CapEx on a per unit basis just for modeling purposes. Yeah. Well, the bulk of our CapEx is in the green hydrogen platform. You know, we do have, as Andy mentioned, a couple different facilities we're building out for production capacity expansions. As Andy mentioned, hopefully the PTC drives the need for even more. We'll see how that plays. What we've talked about is kind of $1 billion a year is a good proxy. You know, these plants are large scale and to get to the 500 tons, you know, it's in that range of about $1 billion a year on in terms of a run rate. I think, you know, Sanjay, you, Paul, and I had a great conversation about why the PTC is gonna make it easier to get capital too. Absolutely. You wanna comment? Happy to do that, Kashy. Right. I think, Paul, just to add to what you just said here, right? I think, you know, with the PTC, it will probably likely follow what happened to the capital formation in the solar and wind industry, right? In the beginning, it was all about, you know, folks who are thinking about 10 MW solar project, equity financing. All of a sudden, with the ITC in solar and PTC in wind, capital structure changed in a way where equity was really only 20% of the capital stack, number one. Number two, return expectation on that equity went from mid-teens to single-digit, thereby reducing the cost of renewable electricity, levelized cost of that electricity. We see exactly the same pattern unfolding here with this PTC for green hydrogen as well. One source of capital, type of capital, availability of capital will dramatically go up, and we will actually be in a position where we have to fund all this just with our equity capital. It can be back leverage, it can be tax equity. All forms of capital will really help us, one, accelerate our build-out, and two, keep driving the cost of green hydrogen down, very similar to what happened to the solar and wind industry in the last decade. All right. Thank you. Excellent. Thank you, Kashy. Our next question comes from Sherif Elmaghrabi with BTIG. Please state your question. Hi, Sherif. Hi. How are you? Thank you for taking my question. I'm doing fine. Great. Under the Inflation Reduction Act, PTC aside, is Plug able to take advantage of domestic content requirements for U.S. steel for additional subsidies? Just to make it two parts, if so, does that equipment need to be tied to a project like the 120 MW plant you just announced in Texas? You know, Sherif, there's a lot of work. You know, I would say this, you know, one, the PTC will be able to capture the $3 a kilogram tax credit. Plug has a great deal of domestic content in our products today. Like most folks, not only to meet these kind of requirements, but also to shorten our supply chains. We're doing more and more domestically. You know, we continue to take steps to make sure. Look, this is not unique to the United States. We spent a lot of time with HYVIA looking at European content and substituting European content. We are looking at ways to maximize our domestic content, to make sure we can, where it makes sense for our shareholders, take maximum advantage of, what's most profitable to Plug. Great. Thank you for taking my question. Yeah. Great. Thank you. Next question comes from Tom Curran with Seaport Research Partners. Please go ahead. Good evening. Hi, Tom. Andy, across the Atlantic, you know, we've recently heard some prominent industry voices, seasoned utility and energy executives express alarm that the European Commission isn't being realistic on the demand side for green hydrogen. You know, either with regards to which applications will prove economically viable and scalable, or about how urgently, you know, they're doing enough to ensure announced projects actually make it to FID. You've just shared some encouraging updates on the HYVIA JV and hydrogen mobility, the stationary power TAM progress on these two hoped-for incremental pedestal customers for MH. Could you just take a step back and speak to these concerns at a broader, higher level? What is your view on the pace at which key infrastructure projects for adoption and usage in Europe are reaching FID? Tom, first and foremost, they're going, you know, there are going to be projects that make it to the finish line and projects that don't, no doubt about it. I mean, that's. Right. That's just the reality. You know, I'll take a look at Denmark, where I've spent some time with leadership there. You know, they are serious about building 30 gigawatts of wind power, with the majority of that really headed towards generating of green hydrogen to support Europe. You know, they are serious. You know, I've met with the former head of parliament in Denmark, who's deeply involved in building the pipeline from northern Denmark into Germany. That's serious. You know, there are projects which, you know, I sit there and say, "That's not real." There's others which have a combination of government support, industry support, application support, like HYVIA. You know, not to be controversial, I also would suggest that maybe some which are part of the old energy world may not want this to move as rapid. Right. You know, I thought you'd appreciate an opportunity to respond directly to some of those doubts and worries. Then, Paul, when it comes to the remainder of, you know, the territory that services needs to cover to reach break even by year-end, what should be the key drivers from a, you know, a negative 32% gross margin for 2Q to break even as we exit this year? Yeah. Labor leverage definitely will help, but to be honest with you, the biggest impact we're seeing is reducing the touch points, and that's with the reliability improvements. We've launched different iterations of different components and stacks and other configurations, new software upgrades, a whole lot of different solutions that both are going out into the new units that are getting deployed. We're already seeing out of the gate better performance. More importantly, we're able to retrofit and apply to the installed fleet. Some of those improvements, as I mentioned earlier, you know, we're seeing dramatic reduction in parts. I think it's the combination of that and the labor leverage. I mean, we're you know, next year could be 150 sites. Plus more hardware. Yeah. You know, it. What's that? Plus more hardware. Yeah. You know, we're gonna see that continue to progress, but you're gonna see some pretty good traction here very shortly as those start to play out. As well as the accruing benefits of that ever-expanding, newly installed base of the latest generation stacks, right? Yes, exactly. Leverage on supply chain to leverage on the labor across the board. Absolutely. Great. Thank you for taking my questions. Thanks, Tom. Our next question comes from Joseph Spak with RBC Capital Markets. Please go ahead. Hi, Joseph. Hey, thanks. Andy, you mentioned a couple times, you know, you think Plug will be able to hold on to the PTC. I just wanna clarify, do you mean eventually or even initially? 'Cause if you're not passing the PTC through, how do you get to sort of initial competitiveness on green hydrogen? I think when you take a step back. Good question, Joe. There's, you know, the electrolyzer business, obviously, our customers take advantage of it. As I'd mentioned, I already have contracts with customers for hydrogen, Joe, that we can take full advantage of. The third item, I did mention in my comments that we would be in a position where we'd be sharing some of the PTC with other customers. I think that's how the mix comes out. Okay. Okay. So that- Yeah. I just wanted to clarify. Yeah. That's how. I thought that's what I said, but, you know, it's been a long call. Yeah. No, it has. I guess maybe secondarily, and I don't wanna, I know this is very early days and preliminary, but like, functionally, how. Like, I get the math on this $500 million of incremental cash flow, right? But like, how does it actually work? Because you're not a taxpayer right now, so I think you need to set up some sort of entity to actually get that cash and maybe do some tax equity financing. Joe, I'd like to cut you off really quick. For the first five years. It's direct pay. It's direct pay. It is? Okay. Is that actually so that $500 million would actually be revenue, not just sort of a cash inflow from selling credits or whatnot? I actually think, correct me if I'm wrong, it's a reduction of cost. It's a reduction of cost. Okay. Then lastly, I guess, you know, maybe the big elephant in the room, but permitting, right? Which can obviously be very difficult and take longer. Is that the biggest risk to timing that you see? Maybe if you could provide any sort of color and, you know, how you see that progressing. I'll let the guy who deals with permitting every day answer that. Sanjay? Again, it's like any development business, Joe, right? As you can imagine. Look, I mean, there are areas where, you know, we're able to do things faster than expected, right? There are situations where things can actually take a bit longer than expected. But what I would like to highlight here, though, is when you sort of think about when we're talking about 500 tons a day, it's not just a 500 tons opportunity, right? The opportunity is much larger than that. Look, and I think we also try to think about if plan A doesn't happen, how is our plan B and potentially plan C is going to get implemented here for us to get to that goal. Needless to say, in light of this, some of the permitting dynamics, which is not gonna go away, it's gonna be real, it's gonna be there. In some cases, it's better than we thought. In some cases, it might not be as good as we thought, but our funnel to get to that 500 ton is obviously much larger than that. Okay. Thank you very much, everyone. Our next question comes from Praneeth Satish with Wells Fargo. Please state your question. Hi, Praneeth. Hi. Hi, Andy. Two quick questions from me. The PTC will certainly help with green hydrogen adoption and cost, but I guess the other key variable for pricing is electrolyzer cost. I'm just trying to understand the trajectory for electrolyzer prices. Do you think they'll fall as you improve manufacturing efficiencies? Or do you think the PTC has created so much demand that electrolyzer prices could hold steady? I can tell you with our plants today, 75% of it's the electrical feedstock. I mean, I think that tells it all. Will electrolyzer pricing come down, costs come down? Absolutely. But it's so dominated by feedstock, the cost, that the key item is, you know, the output, you know, the PTC itself will dominate. Got it. You've talked about, you know, small green hydrogen facilities, and the success there. I guess I'm kind of wondering if you could talk through the puts and takes of going the other way, and building large scale green hydrogen facilities. Now with the PTC making hydrogen prices lower, the market's a lot bigger. I guess, does it make sense at some point to concentrate electrolyzer capacity and then start gasifying the hydrogen and moving it through pipe versus liquefying it? There's a lot of industrial demand in the Gulf Coast. There's a lot of pipeline capacity there. It seems like a good fit, curious for your thoughts. I'm gonna give you a, you know, I'm an engineer, so you're gonna get a yes and yes answer. I think that, you know, I'll give you an example. We're dealing with one bottle manufacturer who has 80 bottling plants throughout the world. A 5 MW electrolyzer on site is ideal for him to be able to produce green bottles to satisfy his end customers, which are, you know, the beverage makers. You know, then that case, and there's lots of applications like that, concrete manufacturing, where you can see small scale. I'm a real believer in pipelines for hydrogen. I believe that the infrastructure bill for building out the hydrogen hubs. The best investments that can be made are building pipelines for hydrogen, which come off large-scale green hydrogen plants. The cost of those, that hydrogen will be lower, just because the scale of running and operating a plant doesn't change that dramatically. All those costs are increased by going smaller. In those cases, pipelines are ideal. I think today, you know, if you take a look at what we're doing with H2 Energy in Denmark, you know, perfect opportunity where green hydrogen will be feeding a pipeline, which will be a public access pipeline for green hydrogen. No better way to do it. I think it really depends upon the application, the location, and quite honestly, the timing. Thank you. Really good question. I am a big believer in pipelines, so. Thank you. Our next question comes from Greg Wasikowski with Webber Research. Please state your question. Hi, Greg. Yeah. Hey, guys. How you doing? Okay. I'll keep it short, I'll keep it to one. Okay. It's kind of a piggyback off of the last one here. Can you speak a little bit more on what you're seeing on the development of the hydrogen midstream as a whole? You just talked about pipelines, which we've spoken about in the past being a little bit more of a future conversation, at least in scale. Does the PTC change your thoughts on that and/or other means of transporting larger amounts of hydrogen over longer distances? Thanks. I'm gonna turn it over to Sanjay. I'll just add the lowest cost way to move hydrogen is pipelines. Absolutely, Andy. Again, Greg, we have a lot of activity going on in that front. Let me just give you a scenario, right? Think about a optimal wind location where you can actually really build a very large scale wind farm with a very high capacity factor and really get a optimal levelized cost of that wind electricity, which can actually be very, very low number. Then you have a large scale electrolyzer plant, which is what we're doing for our customers, and we can do that for ourselves as well. We are talking to some of the major midstream companies to think through what is that right volume, what makes the economics work, because you don't wanna do a pipeline for a small amount of hydrogen, then the economics doesn't work. The way this is probably gonna unfold is no different than the existing energy infrastructure, right? Large-scale renewable facility, large-scale electrolyzer, gaseous hydrogen fed via the pipeline so the economics gets really, really optimized. You can really take very large distances. For the last mile delivery to get to various customers, you probably would have liquid plants to supplement that network. That's how it is going to unfold. We got a lot of work going on there. We're even thinking through how do you do large-scale storage in caverns and things like that. Stay tuned. Hopefully, we'll have more to talk about it going forward. Got it. Thanks, Sanjay. Thanks, Greg. Thank you. There are no further questions at this time. I'll hand the floor back to Andrew Marsh for closing remarks. Thank you everyone for hanging in there for 1 hour, 15 minutes, and I look forward to seeing you at the Plug Power Symposium. Our fourth symposium will be October eighteenth and nineteenth from our Rochester, New York Gigafactory. This will be a hybrid event, so stay tuned for further event and registration details over the coming months. Thanks, everyone. Thank you. This concludes today's conference. All parties may disconnect. Have a good day.