Plug Power Inc. (PLUG) Earnings Call Transcript & Summary

Hopefully, everybody enjoyed this morning's keynote with Jim Coulter and David Crane. A lot of interesting material there. A lot of stuff going on, of course, with TPG Rise and certainly, a lot of stuff going on and about to go on with the DOE. So stay tuned for what's going to happen there. Up next, we have Andy Marsh, the President and CEO of Plug Power. Plug Power, we see as a company on a mission. This is certainly not the old fuel cell manufacturer. In fact, Plug is building an end-to-end green hydrogen ecosystem from producers' or production storage and delivery to energy generation. Plug Power created the first commercially viable market for hydrogen fuel cell technology. And as a result, the company has deployed over 60,000 fuel cell systems for e-mobility, more than anyone else in the world and has become the largest buyer of liquid hydrogen having built and operated a hydrogen highway across North America. And Plug has built a state-of-the-art gigafactory to reduce electrolyzers and fuel cells and multiple green hydrogen production plants that will yield some 500 tons of liquid green hydrogen daily by 2025. So lots of stuff going on with Plug, lots of stuff that Andy and his team -- and the impressive team that he's built around him working on. And so Andy, thanks for joining me today.

Well, pleasure to be here, James.

And so the world is going through a major transition, as we talked about in the keynote, the more sustainable and energy future. Andy, maybe you could just start off with the kind of the origin story of Plug since you've been there to where you are now, which is much more robust company, the missions, the goals and the key priorities over the next couple of years.

Sure. I've been doing this a long time, 15 years. I never thought I'd be doing it 15 years. And Plug's been around for 25 years. I was hired in 2008 when we had about $1 million of commercial revenue and no market. And I spent the first 90, 120 days of my time at Plug trying to find anybody who is interested in putting fuel cells anywhere. And I walked in a Walmart distribution center where there were 5 units and Walmart said to me, "This could help improve the productivity." And really interesting, when I think about -- I did not know this in 2008, but when I write my book, it will be a little bit different. I probably will say I had that insight. But it's kind of like how people think about mobility today. Fuel cells and forklift trucks allow them to fast fuel, longer range. But really, the most important item was they were able to move goods a lot faster, about 8% faster and more and more kind of thought through that. It's -- we ended up doing some deployments, and they finally said to me, "If you want to do this, you have to provide everything because we don't want to deal with the industrial gas companies. We don't want to deal with outside service groups. We want you to be responsible." So by necessity James, and a lot of what Plug has done, it's been by necessity than finding businesses elsewhere. I was kind of reading this morning how Tesla may be a $5 billion business for the charging stations annually, and Plug's a lot the same where we ended up learning how to build. We've built 200 fueling stations. We became the largest user of liquid hydrogen not only in the U.S. but the world. But along the way, we were forced to become vertically integrated. And so we ended up making our own stacks. We weren't in the business. We're an integrator, but the cost of stacks were too high, so we had to figure that out. And our whole business was -- eventually, we got to the point in 2020, where we took a gamble. We decided that we had to control our destiny in hydrogen because the United States -- and this is not to criticize these companies. There's 2 companies that control the price: Air Products and Linde. And we felt we had to control our own destiny on price. So we bought the first company that ever built an independent liquid hydrogen plant. And if you look at it today, then we said the world is going to be green. So we bought a company that the DOE said had the best tech stack technology. This wasn't really a company. It was a research facility. But we bought this research facility, and we paid like $40 million for it. And my Board thought I was crazy, and it took me 3 months to convince them. We got them in. We thought we could integrate. We thought -- we realized that the folks in the oil and gas industry actually knew better about how to develop scale products. So we went and bought an integrator in the Netherlands, which had locations in Pune in India. So today, we're building large hydrogen network. We're building the first real electrolyzer-based green hydrogen facility in the world. It comes online at the end of this month. We bought companies with cryogenic capabilities. We're building -- we're going to build over 2 gigawatts of hydrogen capability in Finland by 2030 and really starting in '26. We're -- a couple of years ago, 95% of our revenue was either U.S.-based or went into distribution centers. This year, 25% of our revenue will come from Europe, and 60% will come from other markets but material handling. So if you think about the whole hydrogen ecosystem, we had to build it because the one that doesn't exist. And I -- politicians like to talk to me because we're actually the only folks actually really doing things. I'll be up with my buddy, Chuck Schumer in Rochester, our gigafactory. And Monday, he called me and said, "You need to do a press conference with me. And I say, "Yes, sir. I'll be there at the press conference." And it's because we actually do real things, and that's really what separates Plug, I think, from everybody else, James.

I think so as well, you're actually executing here. So could you maybe talk to what you see as the market opportunity, the size of the market, both in the U.S. -- and now that you're getting so much bigger in Europe, what you think the ultimate market for -- maybe don't the market itself, but Plug in particular.

Oh, when -- I think that you heard folks talk about the energy transition. And you hear folks like Bloomberg talk about hydrogen will be 23% of world energy. You'll hear other people say 10% to 12% of world energy. That's really, what, broad span, what the market opportunity is. I don't know if it's 12% or 23% or...

It's multiple trillions.

It's multiple trillions. But from the real thing, and I talked about real items. So if you think about what's going to be deployed between now and 2030 in electrolyzers, for example, you probably add everything up, it's probably 60 to 80 gigawatts, James. And we're really the first folks that have a production line that can support it. We sized it for 2.5 gigawatts. We think today it's probably going to be 7.5 gigawatts of capacity annually. That's a huge market opportunity. So one of our great partners is SK. They own about 10% of Plug. We have a JV with them in South Korea. We expect that by 2025, '26, we'll deploy our first 200 megawatts of hydrogen stationery products. This year, we'll deploy in the States probably about 15 megawatts and about 100 next year. Those products are really meant for -- if you really think about today, we're actually -- my first products are actually going to Amazon to power Rivian vans. And you're trying to think yourself, why would they do that? And a lot has to do with people can't get transmission lines. But ultimately, these becomes -- these products become the future peaker plants of the world. And what's interesting, and a lot of the work we're doing with Amazon, Microsoft are more associated with how you almost make data centers peaker plants. And that's a kind of -- so when I look at our stationery product, we'll probably buy 20, 30 a ship to 1-gigawatt work. And I think what really differentiates us, James, is when you start looking at these markets, we actually have the manufacturing capacity today and the infrastructure today. We have 4,000 people around the world. We have products on 6 continents. We have great joint ventures with Renault for on-road vehicles in Europe; with SK -- in SK in Korea and doing some work in China for us; as well as ACCIONA, which is a large renewable player in Spain. So we've developed -- and we're going to do a lot of this with partnerships around the world. We're not going to try to do it all ourselves. And as you may guess, I'm an American, so probably don't play as well in certain places. So it's good to have great partners.

Well, I do want to come back to that. But first, the data center opportunity with the explosion in AI, which is not actually new, but generative AI is fairly new. And we're talking about data centers doubling by '27, '28. This was a market that I don't think you really were thinking about that much 2 years ago. But now Microsoft's come to you, you've done projects for them. Could you talk about that opportunity set? I just want to ... as your stock goes up.

I'm going to start off by saying that what really differentiates Plug is that we actually listen to customers. This was not -- I don't think anything we do has really been our original idea. It's been people's ideas like Microsoft and Walmart and others who've come to us, Uniper who've come to us and say, "Do this." And in that market space, what -- when I think about data centers, there's really 2 drivers. And one of those drivers is these companies want to be sustainable, right? Microsoft wants to eliminate its carbon footprint all the way back to 1976. They also want to migrate from diesel because it's hard to site diesel generators. But that's not really where the value is, and I touched on it earlier. It really doesn't -- is there -- what is the real economic model? And the real economic model comes to the point that you need to use it as a peaker plant itself in the data center. When electricity rates are high, you leverage the assets. You can also put power back on the grid. If you're just putting this big asset there and you're not using it, in my mind, that's a waste of money. And that's really what we work with Amazon and Walmart -- Amazon and Google and others about is how you actually leverage these assets to create greater value for their operations. And that's really where the key work is there. I mean, I think it's fair to say that 1 gigawatt we have deployed, I think probably 250 megs probably in data centers over the next 3 or 4 years. But I think our thought process is to work with customers and be honest with customers when they come to you with the ideas. Over 15 years, over 25 years, Plug really has a good sense of where things work and where things don't work. There's some places where PEM electrolyzers make sense. There's places where alkaline electrolyzers made sense. We don't try to kid people on trying to sell and push hydrogen when it doesn't meet their needs. But there's a lot of applications, everything from green ammonia to green steel where we're looking to deploy over 2 gigawatts worth of electrolyzers and plants in Finland by 2030. There's applications like green methanol. There's applications for mobility that -- where it works and there's lots of applications where it doesn't work today. And we're pretty measured in thinking about what works in this industry and what doesn't work. And we're pretty measured about -- we've done a lot of acquisitions, probably about 4. But none of those acquisitions we didn't know people for 5 or 6 years have work worked with me. And we try to understand where things work and what companies actually are thinking the same way we're thinking. And I think that really differentiates us is we listen. And probably not as creative as we appear on paper, but it's other people who are really creative, we've learned.

Andy, you've gotten yourselves into a lot of new markets, a lot of new business lines in the last 3 years or so since I've known you. And what I first talked to you, you were a $400 million year business, you'll do $1.4 billion or so this year.

I think it was less than that, James.

You were -- you might have been less today -- might have been less than that. And we're looking at [ $20 billion ] by 2030, somewhere in that range. Could you talk about your views on scaling, what you've done with the organization to prepare for this scaling, what partners you brought in to help you along the way?

Yes. So I'm going to start out by saying some of our businesses already work like a established business. I can -- today, we'll take orders for fuel cells and stations for distribution centers. I don't have to worry about that being shipped. I don't have to worry about the cost. I have a cryogenic trailer business. Orders come in, products get delivered. I don't have to think about it. And that's really where we want to get every day. And we're beginning to get there with our electrolyzer business. In our electrolyzer business, we've had a lot of headaches learning how to make electrolyzer stacks. But we actually exceeded our goal in the month of April -- May, can I get my months right, when we were able to put out 100 megawatts of stacks. And my people turn to me and say, "We think we can do 200 megawatts per month by the end of the year." So that business is becoming more routine. But -- so one of the things we've done is, today, we've looked at the oil and gas industry. And if -- how you execute on big projects and our plant in Georgia, if you really look at who's building our plants in Georgia, guys who worked for BP and Shell, big companies who know how to build plants. And that plant, I was at there Monday. And it took 500,000 hours of construction time to build that first plant. And that's something Plug never has done before. So we went out. If you look at the team we brought in the Netherlands and India, they all were from the oil and gas industry. You go down to [ Houston ] and they're all already in oil and gas industry. So from the big infrastructure projects, even the projects associated with, James, the electrolyzer deals we're doing, we got oil and gas people that we're transitioning to the new economy who have skill sets that completely match or what we do today. And what Plug brings to the table is all this technology, which allows them to integrate these products appropriately. I'm really proud and -- I was with SMB. They've been been around for 50 years. They told me it was the first project in this scale they've ever done that they had no recordable injuries. So we kind of -- how we're thinking about the kind of people, we -- I mean, it's really kind of a statement, the kind of people we brought in. And from a management-level point of view, a lot of this business is associated with how you do big -- finance big projects. Sanjay Shrestha, who is a lead analyst of Lazard, he spent time in the solar industry, has really been trying to figure out how you build out this industry from scale. Jose Crespo, someone I knew but didn't really work with in the wireless industry, who knew how to do -- sell big projects, runs our application business. We have a full breadth of talent and capabilities around me. I was at dinner last night, and I was talking to Tim, your CFO. And he asked me the same -- he asked the same question. And I think I said to him that

Smart guys think alike.

I said to him -- what I did was -- I'm really good at technology and products and sales. I made sure we're building around me, people who are real good at marketing and execution. My head of operation built the [ Tesla -- half the Tesla gigafactory ] in Nevada. My head of supply chain comes from Tesla. I've been surrounding myself of people who know a whole lot about whole lot of subjects that I'm not great in. And I let them, with my great guidance, do their job and execute and work together as a team.

So how are you thinking about the -- what's imminent, which is the hydrogen hubs programs in the United States? DOE will make their decisions here very shortly. You've been heavily involved, I know, in several of the projects. I'm sure the Northeast is one that you're much involved in.

Which I have an NDA with, which makes a press conference with Schumer about it, really difficult.

Well, I don't want to imagine. And then you're obviously closed with Mansion in so West Virginia is up for one, but there's -- we'll see how this all plays out, what DOE decides. But what's Plug's role going to be in these hub projects? And how do you see yourself capitalizing on what will be big -- a major federal plus private capital investment?

We're involved in about 12 or 13 of the hubs, James. And I didn't listen -- I had to go off to work on some things. I didn't hear David. David's complete talk. I think they'll probably be 6 to 8 hubs. And I think we're probably in the right places, in California, in New York, in West Virginia. I think that at various hubs, we're providing electrolyzers, and some are stationery products. I personally think the hubs are a nice building block for the future to build off of. It seems like I'm a lot of money, but they're really not, not compared to the IRA. I think the IRA is a much bigger driver in bringing both government money in through to tax credits and quite honestly, enticing Wall Street and project finance folks. And so I think the hubs are great to start and kind of the building blocks off of it. I think the IRA will drive deployment.

Well, let's talk about the IRA because there's a huge hydrogen -- green hydrogen, the production tax credit for 5 years and the tax -- additional tax incentives in the next 5 years. Could you talk about how -- one, how that's really accelerated the demand and the interest in hydrogen, but two, how you think about sharing a little bit of that with your customers and how you're contracting now for that green hydrogen? And then three, how that gets you away from the dominant oligarchy of the 2 gas providers?

We're heading towards a state velocity for oligarchs. I think we -- when you kind of look at the mix, even though I'll be buying some, I think you'll see us scaling, not because I need to, because of contracts. I think you'll see us go into swapping agreements so that it makes -- so that kind of manages all that for us. Look, I'll have more -- by this time next year, I will be generating more capacity than which -- but in an interim, I am selling to other people hydrogen already today. When I think about the IRA, the key item is the PTC for green hydrogen, $3 tax traded per kilogram for hydrogen. The Georgia plant, we've been pretty public about it, $0.04 a kilowatt hour with all everything in, labor, load depreciation, it probably cost us $4 a kilogram to generate that green hydrogen. So obviously, my customers based on their scale are going to want a piece of the action. Think about selling price around $6 and think about sharing of the IRA with large customers. I have people who've done 50-ton deals per day with me. They'll probably capture 40%. We'll capture 60% smaller customers, James. It'll probably be more 80-20-ish-type rule. Look, as the market grows, that split probably changes a bit, but that's really where we sit today.

So that would -- if I'm doing my math correctly, that would put your margin then, which is very negative right now, but it would be 30-ish percent, similar to your [indiscernible] business?

So if you think about you think about $6 a kilogram, my effective cost is $1, pretty...

Pretty juicy margins.

Pretty juicy margins, yes.

So you need to give some of that, right? Okay.

Yes, Some of that.

Okay. Got you. Okay. And then what about the early contours of the Green Industrial deal in the EU. We don't know all the facts yet. It's still being worked out. But do you think something similar could happen with hydrogen in the EU?

So I don't think...

How do get the [indiscernible] whatever you've got.

Yes. we have a JV with Renault for HYVIA. Where we're putting hybrid fuel cell battery cars on the road. And we've gotten $200 million in subsidies to developers -- EUR 200 million. And if you look at the underlying EU, my European employees are always highlighting this, it's about $850 billion. It's more than the price tag closely for the IRA.

The original IRA price is going to be a lot higher.

It's going to be lot higher. The challenge in Europe is making sure you have the right partners to know how to access the fund. I mean, I think -- and it's going to be, while the U.S., it doesn't make sense if you have access to capital that you just don't use the PTC because you can actually use a tax. You actually can get the tax credit rebate. But the PTC is much more richer long term if you take it for what you produce. In Europe, I think that you can think about reducing the cost of plant -- capital cost by 50%, 60%, if you get the -- look, you got to work through all the government regulations and there's time frames. It's -- quite honestly, while like the U.S., there's things I like about the European system as the rules are well established and there -- they'll be written before parliament votes on it, which is really odd to me. But the U.S. actually leveraged the strength of the Wall Street for us and investors. And that's a real differential advantage when it comes to speed. Europe will get there, but it will be slower. There will be lots of government support, but it's slower.

Right. All right. We have a few minutes left with Andy. I want to make sure I open it up to the room if there's any questions from the audience. Sure.

So you're talking about $1 kind of cost for clean hydrogen. But the transportation cost for -- are $10 to $15. And so if you get down from 2 to 1 or whatever, why does that make any difference? I was wondering, is Plug Power -- do you have efforts working on the transportation issues to bring that down?

I have more hydrogen trailers on the road than anyone else. We have 40 hydrogen trailers on the road today. And it cost -- so a kilogram of hydrogen is how we kind of measure things. It's a kind of equivalent to 2 gallons of gasoline when you think about wells to wheels. It costs about $0.20 to move liquid hydrogen 100 miles. So that's kind of -- in most sites, we're within 250 miles. So transportation cost for liquid adds -- good question, adds about $0.50 or $0.60 based on average distance. If you do it in gases form, and this is why you really need to move in a liquid, it's probably 5 to 6x higher. So liquid is really critical not only for moving, but also for local storage because you don't want to be making milk runs continuously. And with liquid, you can put -- you can move 4 to 5x the level of hydrogen. You only have to make 2 milk runs a week. It makes it a big difference.

Maybe a last one for me, path to profitability?

Yes. So we'll be gross margin-positive this year. It has a lot to do with today scaling -- of the year. James, and actually, I think people are missing this, too, because I don't think we're explaining it well. As we ramp the facilities and do more hardware, we make a lot of money. We do well on hardware. And so we will be gross margin-positive for the year. At the Investor Day, we said we'd generate at the low end, $40 million of gross margin dollars. At the high end, I think we had out there, I probably should check the chart, I want to say, $120 million-plus. It's a little higher than that, but I don't want to -- I took the lowball numbers not be misquoted. And so -- and somewhere, fourth quarter, first quarter, second quarter, we turned EBITDA-positive. The green hydrogen helps a lot here.

Any final thoughts for our audience before we let you go?

I don't know if I conveyed this, but if you think about -- I actually had met with David before the event today, and we were talking about the first movers and how the first movers are really creating this hydrogen economy. I mean -- We're building plants. We're moving hydrogen. We're building fuel cells. We're building the infrastructure to support it. I read one of your competitors' analyst report, and the headline was...

I have a competitor?

You have a competitor, yes. And the headline was who's going to come in second. So we're going to come in first, and we're driven to come in first. I mean I was just reading my message that our Head of Operations sent to the -- his employees today about how great pressure is because it makes us do more and more and more. We live in a -- we are playing this game to win. We have no intentions of losing. And if you look at what we've done, taking this to $1 million to $1.4 billion, to taking it to a R&D technology shop to a business shop, we're just beginning the journey, James. I mean this is -- we're in high gear now. So I am -- this is at an inflection point. IRA, all the work in Europe, all that's helping us. But not playing to be second or folks worried we're going to -- I would say this, I'm trying to make sure we do the big things right and not get to -- we're going to do a lot of little things wrong. And the big thing about the little things doing wrong is raising our hand, knowing they're wrong, moving really quick. So we're going to win. That's why I want them -- everybody to know.

Andy, thanks so much.

Okay. Thanks.

Great to see you today.

All right.