Greetings, and welcome to the Plug Power Incorporated Third Quarter 2021 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, November 9th, 2021. I would now like to turn the conference over to Teal Hoyos, Director of Marketing and Communications. Please go ahead.

Thank you. Welcome to the 2021 third quarter update call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or financial position, or state of forward-looking information. We intend that these forward-looking statements to be covered by the Safe Harbor provision 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 future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements, and such statements should not be read as a guarantee of future performance or results. As such statements are subject to risks and uncertainties that could cause actual results or performance to differ materially from those disclosed as a result of various factors, including, but not limited to risks and uncertainties discussed under item 1A-Risk Factors and our Annual Report on Form 10-K for the fiscal year ending December 31, 2020 as well as other reports we file from time-to-time with the SEC. These forward-looking statements speak only as of THE day in which the statements are made, and we do not intend or undertake to - 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.

Well, thank you, Teal, and welcome, everyone, to Plug’s third quarter conference call. My opening will be brief since details are provided in our investor letter. I was at COP26 last week in Glasgow, and hydrogen was front and center at the event. It really reiterates Plug's belief that our first-mover advantage will be a definite benefit as we advance our business. We plan to remain the leader in building out of the global hydrogen economy. We're aggressive on all fronts and have the vision of building apps to hydrogen ecosystem today. Let me emphasize today. And this is one of the reasons we were building out the first green hydrogen network in the United States. We view green hydrogen as a great accelerator of all fuel cell applications, many of which will be provided by Plug Power. We don't believe we can do this alone. We've done this via successful acquisitions such as American fuel cell to provide us with leading-edge MEA technology. We're doing this for joint ventures with leaders such as SK, Renault, Fortescue and Acciona, also through partnerships with companies such as Airbus and Lhyfe. Acquisitions and partnerships can provide us both technology and access to market. You'll continue to see Plug travel down this path as we aggressively stake our claim in the potential market of $10 trillion. The acquisition of Frames provides Plug multiple benefits. Let me just name a few. Frames is used to executing on large projects and has worked with Plug for a number of years. They provide us with integration capabilities to address large-scale gigawatt electrolyzer plants. This matches with their global supply chain reach, provides us a unique capability when we matches with Plug's leading-edge stack in electrolyzer technology. Now let me just divert a second. I mean, just yesterday, I was in London working on a 750-megawatt deal. Being able to do large-scale plants is really, really critical. On the technology front, Frames brings in expertise in water management, which is critical in the electrolyzer industry. We are now in a better position to address waste and ocean water to provide ourselves and our customers a better, more cost-effective, environmentally friendly solution. We're thinking a great deal about offshore electrolyzers and between Frames’ water management expertise and offshore platforms expertise, this is real value. Additionally, their ability to manage gases such as drying hydrogen is a critical capability that Frames brings to the table. Also, it makes us very European. Of the pure-play hydrogen fuel cell companies, we will have one of the largest employee footprints in the industry, with operations in France, the Netherlands, and Germany. They also provide us 150 employees in India to provide back-office engineering support for both our electrolyzers and stationary products. Finally, they have a long-term relationships throughout the world with companies that have net-zero carbon goals. We believe this acquisitions provides us the strongest technical and operational team in the electrolyzer industry. Also finally, I’d like to comment on Applied Cryo Technology announcement that may have been lost in all the activities around the Plug Power Symposium. Today, liquid hydrogen is the only practical means for storing and delivering hydrogen to most customers based on the high volume metric density versus gases hydrogen. We believe the future storage and delivery hydrogen will be a mixture of gases hydrogen delivered by pipeline, salt caverns, and liquid hydrogen. We believe liquid hydrogen will be a necessity in storage for mobility and stationary application even when hydrogen is delivered to a depot via pipelines. We believe Applied Cryo Tech provides us with the following: a liquid hydrogen delivery network and fleet; liquid hydrogen storage and a real cool one, hydrogen mobility fueling, which is particularly important for ports. And as you know, that hydrogen will be exclusively green. Again, Applied Cryo Tech was a Company known by Plug. When we analyzed our need for hydrogen trailers for the coming four years, and recognize the cash saving associated with this transaction paid for the acquisitions. They also bring us market and technologies. We're also aggressively pursuing increasing the sales for Applied Cryo Tech, especially when some of--- with some of our announced partners. These acquisitions allows us to increase our guidance to $900 million to $925 million in 2022. Finally, I'd like to discuss gross margins, especially hydrogen service. We are the largest user of liquid hydrogen in the world and are building a green hydrogen network as resilient and is not burdened by fluctuating commodity pricing. We've taken the burden managing the hydrogen network, so our customers always have hydrogen. Our competition is electricity, and for large customers, as electricity is always there and with long-term contracts, pricing is consistent. With our green hydrogen network across the U.S., we can be the same. Our green hydrogen network will eliminate price variability and simplify logistics. In the short-term, we're taking the burden, so that green hydrogen is viewed as a dependable source of energy. This activity, as our network comes online, will become quite profitable for Plug Power. In the service business, Plug has demonstrated over 50 sites that we have the right equation to have a cost-effective service offering. We'll now roll these changes out across our network. In our shareholder letter, we said we expect a 30% savings by the end of 2022 and 45% by the end of 2023 in our service business. We also see even more advances with our next-generation product. So now let me turn the phone over to questions. I have three members of our team with me today: Paul Middleton, our CFO; Sanjay Shrestha, who is the GM of our Hydrogen Energy business; as well as Jose Crespo, GM ever Material Handling business. We're now ready to take your questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, guys. Andy, just talking about -- how you doing?

Okay.

Just so I understand, you're talking about developing electrolyzer assets offshore and piping hydrogen back on land. Did I hear that right or did I misunderstand something?

Yeah. That is yeah. Yeah, let me be clear, Colin. They bring that capability to the table. I don't see that is critical for the next three to four years. We'll have demonstration projects in the coming years at a small scale of doing that. I see a couple advantages to that. So the advantage is moving hydrogen versus electricity. For the same price in a pipe, you can deliver 15 times more energy. It just makes a lot of sense if you can do it in the ocean. And if you look at the build-outs, for example, in Long Island, it's a large opportunity. Frames though, and let me be clear, Colin. In the next three to four years, we have plans that we're working on customers with -- which are more than a gigawatt in size. They're used to executing on large projects. They've been working with us and have been developing over -- have been working with us on the system with over 30%, 35% of our system integration. I thought it was time to make them part of the Plug team. They additionally, when you look at some of these large bids and proposals, just to give you a feel, one bid in proposal was over 750 pages long. It's really detail and the capability in India really adds that to the equation, so that we can respond to customers rapidly. The level of activity in electrolyzers can't be understated. You see a lot of activity going on with green ammonia, with methodizationwith green hydrogen of course. And quite honestly, I've been beginning to think about, we have our grand opening of the gigafactory on Friday. I've actually began to think about I need to expand really quick because the opportunity set is so large.

That's super helpful, Andy. And then I guess maybe the second question is for Sanjay. It's really about preparation of the supply chain to support the build-out of electrolyzers capacity. With all of the consumables, not just the CapEx here, but just all of the different elements that go into the full process. And the preparation of those folks to kind of march locks up with you guys in the scale up.

Yeah. So again, Colin, how are you?

Good to hear from you, Sanjay.

Indeed. So look, I think this is something we spend a lot of time thinking about, right, and not just that. This, if anything, is one of the key competitive advantage and the differentiation that we have because we're the Company that actually is controlling how, where, and how do you electrolyzer stack? How do you take the cost down? How do you think about the balance of plant, right? And that's one aspect of it, which I think really makes us very unique, puts us in a very, very strong position to be able to really execute on all these green hydrogen generation plant that we're building. And second thing, right, as Andy talked about all the bids and activity that's happening in the electrolyzer space also puts us in a position where we are our own customer, becomes a huge reference for the third-party customers as well, right? And obviously, look, from a supply chain perspective, we have a gigafactory, we've been adding a lot of resources, a lot of talent to make sure that we have all the components that we need and we have a detailed timeline, Colin, right? When we think about exactly when they electrolyzer niches show up, for example, in our plant in Georgia, for example, for our plant in New York you know and we have actually mapped that out. We know exactly when the manufacturing is going to happen in our gigafactory. When do we get the electrolyzers sorting out at the site? When do we get the liquefier and the cold box showing up at the site? So we obviously, there's a lot of planning and the detailed work that has gone on, that gives us the level of confidence -- when we talk about, for example, Georgia, the plant is being up and running in the summer of next year, which by the way is almost like 12 months, and less than even 12 months since we broke the ground, right? So we feel pretty good about what we're doing, how we're managing the supply chain, being able to control it ourselves really puts us in a position to be able to execute on this strategy. Anything you want to add Andy?

I think you hit it, Sanjay.

Thanks, guys.

Okay.

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

Hey, Craig..

Hey, Andy. Hey, everybody. Andy, I should say congratulations. I've known you and Sanjay and George McNamee For - your Chairman for 20 years and -- for more than 20 years. And I would say this last year, I think, there has been more progress and more changes at Plug than the prior two decades and that is tremendous. But I have a confession, right? My head is spinning, right? I have followed this Company forever. I know a lot of your partners, a lot of the key people in the supply chain. And when I talk to investors, there's a lot of different directions they're looking and they're -- people are sometimes just a little bit confused. So with that context, when I step back, I see green hydrogen as the most important strategic initiative at Plug power right now because that's what allows the carbon footprint that everybody wants to achieve by adopting fuel cell technology. And with that fundamental baseline, I look at the shareholder letter and the fact that you're looking at margins improving by 5 percentage points per hydrogen in the first quarter to as much as 20% exiting the fourth quarter. There's clearly something seismic going on, right, something really fundamental. Can you maybe bridge the gross margin improvement for us as far as what's going on with this hydrogen strategy, what's really working, and how the benefit rolls on over the next four quarters?

Craig, I am going to let to Sanjay answer that. But let me just add that I agree with you. I kind of view green hydrogen as kind of the iPhone that enables all these apps with fuel cells, as well as for chemical processes to allow people to turn green. But Sanjay, once you talk about the gross margin growth.

Sure. Happy to do that, Andy, and hey, Craig, good to hear from you. So look, I think you picked on something really interesting, right? So and as Andy mentioned during his prepared remarks, what has been our big focus in 2021, even though we're paying more for the hydrogen, we're trying to make sure that none of our customer ever run into any challenge from the availability of hydrogen to run their mission-critical application. And that is by far the most important thing for us and our primary focus. But as you go into 2022 and when you go from Q4 to Q1, right, first thing, we will actually have our Tennessee plant that is now instead of being 6.4 tons, it's going to be at 10 tons, right? So that expansion has happened that will contribute to reduction in the cost. Number one, from a blended cost perspective. Second thing that will happen as you go into the second quarter of 2022, we also have some additional supply from other industrial gas customer that we're able to secure. That is also going to reduce the blended cost of hydrogen as well when you go into the second quarter. But more importantly, what really happens Craig, as you talked about that seismic shift is -- in the second half of 2022, as some of our green hydrogen plants come online in the summer of that year, towards the end of that year, that's really what dramatically drives the cost of that blended hydrogen when you go into the second half of the year. And that's the reason why not just 2022. We talked about what happens in 2023. This fuel business goes from being a negative margin business to starting to approach break-even. And as you start to think about 2024, now you're talking about 30% of kind of gross margin numbers. That is all driven by what we expect, the cost of our green hydrogen production is going to be, which we have shared with you all and you've actually also seen it in the shareholder letter. That number is below $4 a kilogram and you all know you all getting back into what the ASP is to our end customers and that's why we feel quite good about 2021 has been tough. Margins will improve in 2022. Specialty, as you look at the second half of the year, it's going to continue to improve as you go into 23 and dramatically even improves as you go into 2024. As we build this first-of-a-kind force majeure resilient green hydrogen generation network in North America. And Craig, I think one of the things that really important to note here, right? -- Is when we build this green hydrogen generation network, it -- of course, helps our margin, right? It of course, helps from a sustainability perspective, it is a must as you highlighted in the energy transition, right? But what this also does is this helps take entire hydrogen economy. This actually creates a situation where our customer gets more comfortable, but even other hydrogen players in this industry will also get that resilient supply that allows them to even mitigate and manage through some of the force majeure that they've seen in the past. That's how we see it unfolding, so couldn't agree more with you with your assessment here.

Thank you for that, Sanjay and Andy. My next question is obviously the big one is guidance. You are clearly seeing acceleration across-the-board funded initiatives that are being incredibly well-received by your customer base, where you're adding new vertical almost every month. Aviation is going to be really exciting to watch. What can you say is surprisingly you the most or is -- has made them much faster progress than you would have expected maybe at this time last year.

Craig, I think without a doubt it's the electrolyzer business. I am -- I'd say this in a good way. I am consume, buy meetings with Chairman and Chief Executive Officers. I will give you example. I was in Scotland on Friday and Chairman of a Company -- in their ammonia space asked me to come and stay in London for the weekend to discuss huge opportunities. And that happened, I had that meeting, I ended up leaving London last night around 9 o'clock or 6 o'clock. That's really come in place. I had another worldwide large utility leadership grab me on the phone today this morning, they wanted to talk me for an hour. It is constant where the inflow for electrolyzers never stops and it's why we made the Frames acquisition. It's also I think one of the real advances will I have is we're going to be the few people -- we're going to be the person with capacity. They can actually build electrolyzer plants. And I think folks are recognized it. Company I was with Monday, highlight the fact that they've been looking at this space for 2 years and they've concluded we have the best technology, the best products, and the best manufacturing capabilities when it came to PEM technologies. And really, we're the only ones who could execute and help them meet their needs, and help them meet their net 0 goals. I didn't expect that a year ago. I think somewhere in 2023, electrolyzers will be bigger than Material Handling. And I think sometime in 2024, green hydrogen will be bigger than Material Handling.

Love it. Thank you. I'll hop back [Indiscernible]

Okay.

All right. Thank you very much. Our next question comes from the line of PJ Juvekar with Citi, please go ahead.

Good morning, Andy and Sanjay. All good.

Good Morning PJ, where are you?

It's been a long day. Good evening.

Where are you?

I'm based in New York, here.

Got you. Good evening.

Clearly, your margins and business has been heard within hydrogen, with purchase hydrogen costs going up, it started going up in second quarter, and what was the impact in third quarter? And then we look at your gross margins go up 30% in fuels by 2024, What are the main risks in achieving that number in your mind? Is it good outline some of your prices, electrolyzer cost, transportation cost? Can you just walk us through that?

I'll let side Sanjay, talk about that PJ.

Yes. Hey, PJ. How are you good to hear from you. Again, look, I think PJ you obviously know the industrial gas market quite well, and you know what kind of pricing you're seeing in this market. So if anything, if we were to just extrapolate and say the green hydrogen pricing should be very similar to what the gray hydrogen pricing in the market is right now based on what you see we're paying for it today, if anything, I think that 30% margin ends up being conservative. But our goal here is to really make sure that we're providing our customer with green hydrogen at prices that are arguably better than what we have to pay for green hydrogen in the market today. Our goal, as you know, is to grow the size of this pie, not trying to go after existing pie and take a small piece of the pie. We want to make sure green hydrogen is economical, [Indiscernible] so that there is more and more application that becomes available. More specifically to your question on what are the risks? Look, there's always things that can happen that is not anticipated. But as you know, from a renewable pricing perspective, we buy renewable prices on a long-term basis, right? That's something we can control. We know what that is. In some areas where we got to manage the demand charge and things like that. What we know how to do that and we know how to contain the cost of renewable electricity. And that's an area where we've spent a tremendous amount of time. Second electrolyzer, look, this is something we control. That again, is a huge differentiation and competitive advantage, we as Plug Power have. And another thing as you notice from a liquefaction perspective, I just touched on how we've already expanded our facility in Tennessee to 10 tons per day, we know how to run liquefiers. Now one other thing that we're doing that I think is going to be tremendously helpful if anything, going to help both the logistics cost as well as the delivery network for us and for the entire industry, is once this North America network is build-out, if anything, you can actually optimize. How do you transport hydrogen to various and customers, right? There are always things that can happen that are unanticipated, but look, as we sit here right now, given that renewable costs is the biggest chunk of the variable cost in terms of producing green hydrogen, we control the electrolyzer. So we're sitting here feeling pretty good about heads-down, execute and get this plans build.

Great. Sanjay, thank you. And my 2nd question is, on the Giga Factory that if that ramps up, you have the order book in front of you with electrolyzers needed for your own hydrogen plants, your fuel still stacking capability needed for materials handling business. So as the Giga Factory runs up, that operating leverage should translate into significant incremental margins. I would just wondering if you can just has that been taken into account in your guidance and when does the real inflection point come.

I'll let Paul take that PJ.

Yeah and good afternoon PJ. Good to hear from me again. So it's going to have a significant effect next year. I mean, it's turning on as we speak, we're going to be ramping production out of that facility. And I would just broaden your comment by saying, when you looked at the next 12 months, it really is amazing what's going to happen in that time period. So we're turning on the green hydrogen platform we're just going to have a substantial impact. We're scaling the Giga Factory and turning it on and going to have a full-year production out of that. We're scaling the new products, Andy talked about the growth of electrolyzer with our internal use as well as external sales, that's going to grow 10 fold for next year. We've got other new products in EV and stationary scaling next year, we've got the joint venture scaling next year. We've got 2 acquisitions we've just made that are meaningful both in terms of sales and margin and synergies on our existing spend of products and capex. We've got all the service improvements that we've been talking about. It's really and we are scaling the Material Handling business and it's going to be growing over 30% to 40% next year. So the next 12 months are going to be another -- Craig mentioned a few minutes ago how big last year it was. I think the next 12 months are going to be incredibly -- equally exciting and big in terms of the growth of the Company. We're guiding over 80% growth over this year and then you tap -- on all of these margin initiatives. They're going to have meaningful impact. That those are all baked into our guidance and why we're extremely excited about the projections and how we're going to get to that 30% run rate in mid-term strategic planning horizon.

Great. Thank you and I'll pass along.

Great, thanks PJ.

Our next question comes from the line of Eric Stine with Craig-Hallum, please go ahead.

Hi, everyone.

Good evening, Eric.

Good evening. So just as we think about the 2022 guidance, obviously I characterize your business as accelerating. Just curious if you're able to break down maybe the impact of the frames acquisition. How much of it is just ongoing acceleration in your business. And then as we think about frames, how do you prioritize that internal initiatives versus going after what is arguably a very sizable market opportunity.

Sure. So if you look at it, the internal business, organic growth is 50825 next year, Craig, we're looking at frames in Applied crowd tech to move it up into the 925 range. That's kind of how I think about it. What was the second part of the question? So I'm sorry, Craig, I was just jotting -- what was that Sanj? What was the second part of your question Craig.

It was simply just prioritizing, Obviously, You're acquiring this because of what it means for your internal business. But you've also got pipeline, I mean, if somebody prioritize those too.

Well, it's actually why? One of the biggest challenges, as you know for companies that are growing is employees and having the right staff and the right number of people by year end will have 2500 people. [Indiscernible] - COVID I was under 700, so you know, I had this massive increase. And look, we've been hiring skilled individuals. We've been acquiring companies to help us really ramp and reach needs. When we look at prioritization, Sanjay has a self, his whole organization. I was reviewing over the weekend with the team the layout of the plate New York that was developed by his team exclusively. He has his the skill set integrated into his business unit. And this was a key decision I made -- we made as an organization that, we're going to make the business units very, very self-sufficient. And Sanjay has the team, and really Sanjay, I don't think need additional resources to execute on our present plans. All these team and electrolyzers, frames will primarily support that activity. Obviously will help when we can with Sanjay, but that's really how we really have these business units. Be it Jose's Material Handling business or [Indiscernible] new markets business. We tried to keep them as self-sufficient as possible. Obviously, areas like there are certain areas of platform development for technology which is centralized, finance and legal government affairs. But that's really how we go about managing the business. These GMs we put in place. Quite honestly, all of them are very, very strong. And [Indiscernible], our goal is that they will be the drivers to make sure these businesses are successful. Paul, would you like to add to that?

I think that covers the end.

Yeah.

Okay, and maybe just last one for me, just on the stack upgrades. I know you mentioned that you're going to do those if the 10 largest users, and just thoughts on what the cost of that may be? And then thoughts of this is something that we should view as it's an ongoing initiative and to do that more broadly across your customer footprint.

Sure. I'm going to let Paul take that one.

I didn't get the context of the question.

We're talking about, Paul the service -- we talked the service costs associated with the upgraded products.

Yeah. Sorry, I missed that. Yeah. I think we launched a new stack system. We launched last year. We've seen how that's performed. And the new units that we've launched since that time. We put a number of new units into the field, is tracking credibly wells. It's actually tracking better than what we anticipated. So as we continue to roll that back into our existing fleets, which we can fairly easily retrofit, it has a meaningful step function change in stack life, which is one of ii it's obviously the biggest cost -- an impact on our service costs. So, we're really -- and along the way this year, we've actually added a number of new resources and then people to help focus go-forward reliability, and improve that curve unit faster. And that's paying dividends and what we're doing. So I think you're going to see those benefits roll out fairly quickly.

And Paul, we have lot of that cost already accrued for it.

Yes. Exactly. We have [Indiscernible] into our cost accruals of the incremental, the overall portfolio of what it takes to get there.

As a reminder, everyone [Operator instructions]. Our next question comes from the line of James West with Evercore ISI. Please go ahead.

Hi, James.

Hey, Andy, how are you?

How are doing? Okay.

Andy, you've been a busy man? I'm glad you have Sanjay and the rest of your thing and fall to help you out given that you are the top segment.

Yes. You know James, I was up 45 hours straight that's not meant for -- that meant for young people but I'm still energize. I'm up 45 hours now.

That's good. Good. Glad to hear it. Maybe a question probably for Paul as we think about the F-35 guidance and any thoughts on some of this -- the moving towards, where do you think -- your electrolyzers get better bigger than materials handling and green hydrogen eventually gets bigger as well. What should the revenue mix of that? $3 billion or so look like, when we get 25, how are you guys thinking about that?

Yeah, I don't have the exact numbers in front of me, but in terms of the $3 billion, I think, as Andy said, electrolyzer is big if not slightly bigger than material handling, and so those -- that coupled with the green hydrogen or the big 3 chunks of the revenue. We're certainly seeing growth in the new markets on stationary and EV as well. But the majority of revenue will come from those 3 pillars.

Okay that

James, no one's asked me this on the phones. I'm going to editing talking about new markets. One of our goals with Reno is that we do roll out of 10 essentially -- 10 customers with roll outs next week -- year determine straight technology. They won't be big roll out we already have 7 customers lined up. So I think you may have seen me driving the van that the Plug Power symposium, but that to me -- know if -- Craig asked a question earlier -- what surprised me -- I think from last year, I think next year at this time, I will be talking about what we're doing with that [Indiscernible]

Right. Okay. Okay. Good. And then maybe just a last I could sneak it in here. The green hydrogen sales that's you're anticipated and as these facilities come online, do you believe that you'll have pre -sold most of your capacity?

I am going to let Mr. Sanjay take that.

Hey, James good to hear from you. So look, today we have not done your traditional way of how I think the industry is down. You pre -sold the plan then you decided to build it. So as we sit here right now, is the plan completely sold out? No, it's not. But frankly, that's somewhat intentional on our part right now because of all the new applications, all the new opportunity that we see unfolding here. So we want to make sure that we're actually really reserving that capacity, which is also why we've gone down the path of essentially making sure that making sure that we're actually building this plans with our own capital. So that way you're not having to go down the path of project financing and having to have that long-term off-take and things like that. Again, but this is something we'll obviously shift focus on, make sure that the plans to load it up as they come online. But today, that's the approach we're taking to make sure that we have that reserve capacity to support all the new apps that we anticipate unfolding over the next several years.

Okay, got it. Thanks, guys.

Thanks, James.

Alright. Thank you. Our next question comes from the line of Greg Lewis with BTIG. Please go ahead.

Yes. Thank you and good afternoon, everybody.

Hi, Greg.

Yeah. I was hoping to dive in a little bit more into how we should think about the buckets of what's driving the margin improvement in terms of, as we think about maybe it's pricing, maybe it's an improvement in the supply chain, maybe it's economies of scale. I mean, you touched on the France Frames and the ASP acquisition. Maybe some of that's internal savings and any kind of broader strokes we can think about and how we're achieving that 2022 and 2023 improvements?

I think we've been [Indiscernible].

We will let Sanjay do hydrogen before you can answer the rest. And maybe you can run through hydrogen

Sure, happy to do that, Andy. So Greg, again, I think as I briefly mentioned to one of Craig's question on hydrogen. So today we are obviously buying hydrogen other than our plant in Tennessee. So we're paying what we're paying., that's the market price obviously impacted by the risk commodity place, price fluctuation, and things along those lines. With the goal that make sure customers have hydrogen available all the time, so their mission-critical work and application is not impacted. And as we look into 2022, we see couple of things that are going to have a meaningful impact of this margin profile. First, the Tennessee plant is no longer 6.4, it will be 10 tons a day. That will have an effect in the first half of the year. We're obviously working with our strategic suppliers and adding few more supply options, that is going to help us from a pricing perspective, in the first half of the year. But when you go to the second half of 2022, as some of these green hydrogen plants come online, that will obviously help quite a bit from the blended price perspective and that's why we said you should expect to see that meaningful margin improvement from Q4 of this year to Q4 of 2022. As you then go into 2023, where by the end of 2022, we plan to have about 4 of these hydrogen plants basically being commissioned. So by the end of 2023, we're looking at having about 6 hydrogen plants up and running. So when you look at '23 with all that contribution of new plants being built in the second-half of 2022, you're looking at a break even margin performance, then you shift into 2024 and beyond where, we're targeting and we're looking at -- which we've shared with you on multiple times that we expect green hydrogen cost to be below $4 in kilogram. You guys can back into what our ASP is today, obviously that's a function of various different end markets, plus and minus depending on which application it is. But it gives us a very good confidence and visibility based on where we see the cost going, to talk about this 30% margin that we referred to, especially in 2024 for our Hydrogen business. Paul.

In the letter, we included the chart there that shows Sanjay 's point, we're reducing it by 50%. I mean that's fundamentally a step change function. And I would just add to Sanjay 's comments that not only are we going to be able to produce it and sell it to our customers at a cheaper cost. Having, as Sanjay alluded to earlier, getting gaining greater control over the logistics and the network is incredibly impactful on the efficiencies of the systems. We have become the world expert on distributing hydrogen and managing the networks for our customers. And so one of the incredible things that we've learned is an importance of managing that logistics network and how that can be impactful to the efficiency of the system. So just to step back to answer your question, it really stems from kind of 3 things really. one is hydrogen, which Sanjay talked about. Second is service, which we've talked about tonight in terms of a lot of things we're doing and we expanded on the latter and improving that profile. And the third is scaling the equipment programs. We've already shown routinely margins on our equipment profile at 30% to 35% as we scale further material handling, as well as scale these new products like electrolyzers. I mean 10 fold increase next year in volume, and that business is substantial and at a scale where as we start leveraging the Giga Factory and other things that we're doing, it's going to allow us to achieve that margin profile on all the equipment programs that we have. And is that holistic business grows and we're talking about total growth next year of 85%. That's very meaningful in terms of the mix and the margin impact for equipment. So it's really those 3 fundamental things, and the acquisitions and the JVs and all those things help on a global basis grow the scale of equipment sales, which allow us to drive that curve even faster.

That was super helpful. Thank you for that. And then just I wanted to talk a little bit more about ACT. And in thinking about, I mean, this was a good Company, good technology, maybe a little bit under size, prior to the acquisition. But I guess now that it's inside the Plug umbrella, what are the -- what's the thought process? And Andy, you mentioned that it's the hard -- one of the harder issues is getting the right people in place to do this. But as we think about the opportunity for ACT in '22 and '23, as you look at how Plug is going to grow, I mean, you guys are growing like a weed. Is ACT in and of itself where it needs to be to meet your growth or should we be thinking about things like hydrogen trailers and everything else that ACT does, we're going to cap to continue to rely on third-party providers as well?

Greg, I expect to buy most of my trailers from ACT, [Indiscernible] Technology's. I also expect that we will -- the hydrogen trailers are much more complicated than stationary hydrogen tanks. This year, I probably purchased 65 stationary hydrogen tanks. I see this is a huge margin opportunity for Plug Power, as well as a potential sales opportunity. And with their technology, we're going to be able to move in to even further vertically integrate the businesses. We look at what we have down there. We're working one shift at the moment. There's no reason we can't expand the number of shifts and expand the capability. We have the land, I've already been staring and looking to see where we could add additional capability on the site. We've had a lot of outreach from some of the - there are customers already now that Plug with our stronger balance sheet and the ability to support the effort, the business is much more interesting. So we're -- we view that as very complementary to our vertical integration strategy, but also see that we could double or triple the size of that business in the coming years.

Okay great. Thank you all very much for the time.

Okay. Thanks, Greg.

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

Hi. Good afternoon.

Hi, Bill.

Andy and the team. Hope all is well there it sounds like you might be jet lagged. Hopefully feel better soon.

How well I feel good -- I feel good Bill. Just talking to you guys, get me going.

Okay. Well, you certainly sounds exciting -- excited about the electrolyzer business. Talking about how it could be even larger than current businesses. I'm actually wondering about 2022, the recent symposium you mentioned a 100 megawatts in external sales and reenter megawatts for your internal use. And can you be more upside to this or is this capacity limited? I guess are you fully booked through 22? Are you starting to you can get booked in the 2023 now?

I believe that we will blow out to 2022 electrolyzer numbers that I suggested at the symposium. We are not over-focus because we've built a big factory. And knowing the deal flow in the activities, we have going on. I could see us during our update call in January for 2022. I think there's a high probability will be increasing that number.

That's terrific. Thanks for an update. I want to talk about EV a little bit. We didn't spend too much time on this. I guess, if know -- you have obviously some light commercial duty. This is an area of [Indiscernible] well-suited for [Indiscernible]. So I guess I'm curious to what you see as advantages for this fuel on maybe switching the more heavy -- medium or heavy-duty. I believe a few quarters ago, you had talked about you're being in negotiations for maybe some partnerships in heavy-duty. I'm wondering where this stand, I think you expect to maybe make some announcements, but just still on track, would you take an OEM approach here or you just see direct sales. I'm curious what your activities are more medium and heavy-duty side.

So there are some real good negotiations going on, Bill. Let me say that I'm not eager to be an OEM parts supplier. Ultimately, that is a low margin business. We're looking for and we're engaged in discussions to have relationships that look very similar to the Reno model where Plug jointly owns the vehicle. I probably agree with you that obviously heavy-duty, medium-duty vehicles or very interesting. But when you look at work that's been done by people like DHL, and you look at the European goals for delivery bands, DHL always points out if you go over 200 kilometers. Which is often needed. At fuel cell vehicles, they're essentially carrying batteries around instead of packaging. I also think that fuel cell vehicles, and I think this is understated, gives operators a great deal more flexibility to keep vehicles on the road and to use vehicles for multiple purposes. As I say in this call that if this year electrolyzers surprised me, I think next year I'll be talking a lot about vehicles.

Okay, great. Thanks for that.

Thank you. Our next question comes from the line of Jed Dorsheimer with Canaccord Genuity. Please go ahead.

Hi, Jed. Are you there Jed?

Jed, you may muted [Indiscernible].

Yeah. I'm muted. Sorry guys. Andy, hope you get some rest. It sounds like an incredible couple of days, so look forward to hearing about it. I guess -- What's that?

Yeah, I look forward to talking to Jed.

Thanks. I guess first question. I just have a couple of here, but with the updated guidance and maybe Paul gave this already or you gave us Andy. What's the breakdown of revenues in terms of material handling in the near-term here. So of the 925, what would that be in terms of the different end markets,

You want to take it Paul?

Yeah, I don't think we've given that out specifically, but I think Andy just said, 8-25 as our core businesses and move into the 9-25 is with the acquisitions. So I think what we have given has been a number I think we quoted with Electrolyzer next year being around 150. I think looking at Material Handling growing at 30% plus range next year, if not higher. That's the guidance and insights that we've given so far.

So it'd be about Material Handling about 600, 150 from electrolyzers and I've already probably said could be more new markets 75 acquisitions are 100. I think that gets us there, Paul.

That's about right.

That's helpful guys. And then just over on that, I was wondering if you could help me a little bit just on the math because it sounds like there's a variable that I'm missing in terms of maybe a big step function on costs down on the electrolyzer, or the efficiency. But if I look at getting a kilo of green hydrogen, it's about 65 kilowatt hours of electricity, get that kilo in liquefied form. So is that a fairly constant number to use or do you See that dramatically changing? I guess that's my first question. The second is, then if we apply a $0.05 cost of behind the meter electricity, I still struggle to get to under the $450 of cost.

So Jed, I'm not paying -- I'm paying below $0.031 pretty much everywhere.

Okay.

And almost approaching $0.025 in some of the places. I think your analysis is right. Here, you can say kind of thing about the electrolyzers is 52 kilowatt hours. You can probably think of 11 to 12 kilowatt hours for the liquefied today. I think you probably can start thinking about liquefies getting down at the 8-8.5 kilowatt hour range. And probably electrolyzers you probably can see 7, 8% of improvement over the coming 2 years or so.

Got it. That's helpful.

But I think that Jed, you hit it on the head. It's the cost of how you negotiate the cost of electricity is the key to providing low cost green hydrogen. And as you know, Sanjay's really an expert at that.

Well, Sanjay is master negotiator, I guess, but I guess, [Indiscernible] yours or Sanjay. I guess the question on that low level of electricity pricing, particularly from renewables is have you figured out -- is that really a mechanism of curtailment that you're taking into account to get those prices? Or is there anything you might be able to add other than Sanjay negotiating skills?

I'll let Sanjay answer that question.

It's not the curtailed power, but do you do bring up an interesting point. And as you know today, to be able to really access that curtail electricity given whether it's ITC or PTC, there's a lot more negotiation that has to go on. So I think it becomes more challenging from that perspective. But going forward, that would be an interesting area where you put in fact, see even a benefit from a cost of renewable electricity. But today, these are new plans, and you've lived this Jed in the past and also still now. Every time you've seen the new generation of whether it's solar or wind, or new capacity is being built. LCOE has gone down, right? Because driven by the capex, given by the cost of capital. And look, and I think Andy has given you some sense of what the numbers are. I don't want to go too much more detailed than that. I mean, I think we do want to preserve some of that from a competitive standpoint, but these are the numbers, and that's why we have said what we said about what do we think is going to be the cost of our green hydrogen.

Got it. Well, listen that super-helpful. I will jump back in the queue. Thanks, guys.

Got it.

Next question comes from the line of Tom Curran with Seaport Research. Please go ahead.

Andy, I'm still picturing you in a conference room and sold and almost said good morning. Returning to the North America Green Hydrogen Generation build-out. So you're expecting to exit in 2022 with 4 plants that collectively will be producing 70 tons per day. And then as you turn to 2023, you expect to exit there with 6 representing 200 tons per day. At this point, just for the exit points of 2022 to 2023, Sanjay, could you share with us the percentage of that output that you expect to be looking for third-party off-take. In other words, do you already had the visibility and whether it's a percentage or it's a range for how much of that 70 tons per day you'll be looking to contract by the end of '22? And then how much of the incremental 130 by the end of 2023?

So that's a really good question. So let's take them first on 2022 and look, as you know, we are obviously the largest user of liquid hydrogen in North America. And we have many new applications, that we're seeing a lot of traction on that is going to create. And some of these numbers you guys might not necessarily put together if you would, for that incremental demand that materializes. But the typical rule of thumb, the way we want to think about it, as this plans come online, we want to make sure that the 80% or so of that capacity is called for. We want to make sure that there is about 20% buffer. Why is that important. Maybe even 25% buffer, given what we've seen here so far. Because there's always an event that happens in the industry. We want to make sure that we have that excess capacity to be able to support our customer and frankly the entire hydrogen industry. But we'll be talking to you guys a lot more as we go into the second half of next year, how we have loaded this plants for that are coming online and we'll talk to you a lot more about it. And again, 2023. Well, one thing that I think is really important to keep in mind right? When you think about Material Handling industry, it's 1kg per day of consumption, right? Then you go to light commercial vehicle that 6 kilogram, you go to stationary power. And if it's 24/7, it's more than a ton per day, right? So the multiplier effect that you see for this hydrogen demand, given all the application we're working on is pretty substantially. Frankly, as we sit here right now, we're not super concerned about loading the plans, we want to make sure that we're balancing how we load this plant. So there is some buffer to be able to mitigate and deal with any type of situation or curtailment or force majority, not the industry might face so that we can really support the entire hydrogen economy. Our costs. Frankly, you in some of the other players in this market.

Great. That's helpful. And then turning to new markets, and one of the new markets that hasn't gotten much love yet, thus far in the call stationery power, data center backup power. Andy, you mentioned that you're expecting 2022 to be the inflection year for fuel-cell mobility, and in particular, there were no JV. What year does it look like could be the inflection year for stationary power.

Great question. I think actually, I haven't thought about that. I would now you've given me a new model that talk about, I think it's -- I do think as 2023 between what we're doing with SK, what we're doing with data centers. The word Keith and his team were doing to get products out the door now, I think 2020 -- I think next year is a big testing year. I think 2023 is where this starts taking off.

Thanks for taking my questions.

Thanks.

Our next question comes from the line of Pearce Hammond with Piper Sandler. Please go ahead.

Good afternoon and thanks for taking my questions.

Your patient Pearce. [Indiscernible].

While I'll try to be quick. This is my first question, just following up on all the questions on how hydrogen is probably more of a housekeeping question. So with the customers in hydrogen delivery, do you simply pass along your hydrogen cost to the customers or do you have to wear the hydrogen price risk or is that the customers?

So Pearce, with our new network when we control everything, that issue goes away. At the moment as Sanjay talked about, we're buffering some of this because we want the hydrogen to be successful. That's what we're doing. And look, let me tell you the difference between the network Plug’s running and the network that you may see in California, that one of the large industrial gas companies providing. We actually make sure hydrogens at this site every day on time to keep operations going. And in the end, we strongly believe our approach of having share and then being able to substitute with our green hydrogen. And I can tell you the fact that we're dependable, reliable, and providing stable pricing is going to be a great incentive in the future. And I can tell you in some discussions to displace some of the incumbents.

Thanks, Andy. I appreciate the answer. And that's it for me.

Okay. Thanks, Pearce

Alright. Thank you. Our next question comes from the line of Joseph Spak with RBC Capital Markets. Please go ahead.

Hello Joseph.

Hey Andy. So look, I know you guys are building this business to be profitable and to sort of stand on its own. But going back to sort of the, the green hydrogen and bringing molecule costs down by 10% by the end of next year. I want to confirm that that doesn't include any PTC. Then if we were to consider that, what would the cost go down to and do you have like an internal sensitivity is what that could do to demand and profitability.

Absolutely. You want to take that, Sanjay?

Sure. Happy to do that, Andy. Hey, Joe. Good to hear from you as well. Look, I think first part of your question, no, we have not baked the PTC into that. And look, obviously, I think it's a very important policy, not just for the U.S., but also for the entire hydrogen economy. And as a part of the energy transition efforts. Hydrogen has to be a part of that mix. And green hydrogen has to be a part of that mix. But as we've told you that, we gave you a number of 30% gross margin rate, and that is based on what the ASP in the market today and what we expect to cost of our green hydrogen could be by 2024 time frame. And if you were to have $2 or $3 of production tax credit depending on the structure of is it PTC, is it cash grant. You could certainly see substantial cash generation potential out of that, right? But look, things like this are supercritical though. This is exactly what got the wind energy and LCOE to where it is right now, investment tax credit in solar got the solar industry to be where it is right now. So we see similar benefit for the green hydrogen as well from PTC. But to your question, for 2022, that margin expansion does not take that into consideration.

But if we did, it sounds like your '24, '25 targets can be maybe pulled forward by a couple of years?

I think that will probably be a fair characterization, yes.

Okay. And then the 2nd question is just -- it has been pointed out numerous times -- A lot going on here. And Plug itself is doing a lot of organic investment, a bunch of JVs, a bunch of partnerships, a bunch of M&A. I think it's sometimes it gets a little bit hard to judge the efficiency of maybe how huge uses for the spend your capital. I think Andy, your comments earlier that it doesn't make sense for you to be go you makes some sense, but you can just shed a little bit more light on like how you approach a given situation within the hydrogen economy as to sort of whether you do that organically. The venture or via an acquisition.

I think that's a -- so I think when you think about -- how we think about centures. I think a lot about sales channels. And if you think about the Reno JV, it provided us -- when theory I could have gone into the vehicle business. You know, Reno has 2 distinct advantages that we could not develop over the next 3 to 4 years and even longer. One is their electric vehicle capability. The other is their long customer reach and reputation in Europe? They provide as instantaneous credibility. We have the same -- what we bring to table obviously there is we actually know how hydrogen ecosystems work. And so I wasn't going to walk into Europe and be European tomorrow. I wasn't going to walk into Korea and be Korean tomorrow. But let's talk about SK. Why would we do with SK. Not only is it a partnership, it's a market. They have the hydrogen, they have the policy in Korea that allow us to put stationary products at scale. We could not do that alone. When I think about the acquisitions we have made, many of them have been technology-oriented to fill in the hydrogen ecosystem. You take -- think about everyone we've done. Ones that many in the audience may not remember here, Cellex, which allowed us to get into material handling. AFC, which got us into membrane to business. Energy Ore, which is the aviation platform business that we have. What we've done with Frames is really strengthen our electrolyzers technology, gain or broad electrolyzers to stack to the equation. If I look at, I would say that the partnerships and ventures are probably more sales channel oriented, while the acquisitions are more technology oriented. So that we can serve every element the hydrogen ecosystem. Hope that was helpful, Joseph.

Yeah, thanks. I appreciate that color.

On that note, I think we're done here -- as far as questions go. I appreciate everyone's patience. Who got that called into this call? Look, we're building something really special here. We are the Company. I was a Cop and I I've been invite -- I was invited to meetings which I've never would've been invited in the past. Sitting there with John Currie side-by-side talking about the hydrogen ecosystem. Plug is invited to these meetings because not only are we talking about it. You can see we're doing it and we are the Company that if you want to build an electrolyzer system at scale no one else it has the manufacturing capability to do that. If you to full range of fuel cell solutions from stationary on road vehicle, Plug actually makes systems that are complete, not just components. This is a unique Company. And I shouldn't forget the hydrogen -- green hydrogen network we're building out. We're doing it, we've broken ground. Plans will be online third, fourth-quarter. This isn't a pipe dream and Power Points. This is real engineering, real people. 2500 are now who are making this business real. So thank you all for listening and I look forward to talking to you in January for our business update call.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.