Plug Power - Q3 2023
November 9, 2023
Transcript
Operator (participant)
Greetings, and welcome to the Plug Power Q3 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Teal Hoyos, Director of Marketing Communications. Thank you, Teal. You may begin.
Teal Vivacqua Hoyos (Senior Director of Marketing and Communications)
Thank you. Welcome to the 2023 Q3 Earnings Call. This call will include forward-looking statements. These forward-looking statements contain projections of 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 based upon current expectations, estimates, forecasts, and projections, as well as the current beliefs and assumptions of management, and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those as discussed as a result of various factors, including, but not limited to, the risks and uncertainties discussed under Item 1A, Risk Factors in our annual report or Form 10-K for the fiscal year ended December 31, 2022, quarterly reports on Form 10-Q for the quarters ending March 31, 2023, and June 30, 2023, and other reports we file from time to time with the SEC.
These forward-looking statements speak only of the day in which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information.
At this point, I would like to turn the call over to Plug Power's CEO, Andy Marsh.
Andy Marsh (CEO)
Thank you, Teal, and thank you for joining the Q3 conference call. This is a difficult quarter, driven primarily by the availability of hydrogen. Over the past several months, there has been enormous challenges associated with the availability of hydrogen, primarily due to down plants, including our Tennessee facility and temporary plant outages across the entire hydrogen network. For many days, demand outstripped supply.
For example, many of the California fueling stations have been without fuel or have had limited fuel on a regular basis over the past several months. Additionally, the price of these stations for hydrogen has been over $30 per kilogram at the pump, about twice the normal price. To service our customers, Plug has been moving hydrogen from the West Coast to the East Coast.
This has been a yeoman's effort, and it's been accomplished while reducing the cost of hydrogen compared to the Q2. Good news is, the network is now stabilized and many of the plant outages have subsided, plus additional capacity will be coming online. We expect our Tennessee plant will be back online producing hydrogen by the end of the year. This plant, when fully operational, provides about 20% of our production needs.
One of our major suppliers is upgrading one of their facilities to allow the plant to operate at full nameplate capacity in the coming months. The plant output has been producing between 0%-25% of capacity. We are continuing to see progress at our Georgia plant, and we are finishing the last step in the construction process, commissioning the liquefier. We expect the plant to be online by year-end. A few other points.
Stressed hydrogen network also caused a delay at deployment of some of our North American material handling customers. These sites will be commissioned as the hydrogen issue is resolved. It's just a timing issue. Many of those facilities, actually, the fuel cells and hydrogen plant or infrastructure are already available. We believe, though, that this experience reaffirms the criticality of building our nationwide hydrogen network to support our fuel cell business, as well as the financial benefits that this network could accrue to the company for both that business and the additional applications that are beginning to be realized.
Furthermore, this experience underscores the wisdom of our business diversification model. In the Q4, we anticipate that revenue from our new ventures will surpass revenue from our traditional business for the first time, as our electrolyzers and cryogenic businesses continue to grow.
Finally, you know, I'd like just like to reflect on a conversation I had yesterday morning with a European customer, supplier, and partner. He just toured our facilities and reminded me that no one has built our hydrogen infrastructure on the scale we have. No one has our product set, no one has the technical talent, no one has our customer relationships, and no one has our real-life experiences. It remains our belief, and his, that as the market for hydrogen fuel cells grows, no one is in a better, better position than Plug to take advantage of this opportunity. This is just a bump on the road. Paul, Sanjay, and I are now available for questions.
Operator (participant)
Great, thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 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 poll for questions. Thank you. Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch (Managing Director, Senior Research Analyst, and Head of Oppenheimer)
You know, I want to start off with the balance sheet. You know, you've got a fair amount of restricted cash. You offered a, you know, a fairly reasonable update in the letter around your process with, you know, potential funding sources. I guess the real question is around timing and, you know, how you see your ability to free up some of that restricted cash and start to bring on some of those, or close one or more of those deals that you're talking about in the shareholder letter?
Andy Marsh (CEO)
Yeah. Sure, Colin, I'm going to let, I'm going to let Paul take that question.
Paul Middleton (CFO)
Yeah. Good afternoon, Colin, and thanks for the question. You know, we continue to pursue a number of initiatives. You know, we've had many inbound expressions of interest with different terms, and we continue to work through what we think is the best and most prudent solution. It's not for lack of options. It's really just continue to be picky around which ones that we've had to act on, and we haven't felt the compulsion to act quickly. You know, we're taking our time to be thoughtful about which choices that we have. I'll tell you on the DOE process, many people ask about that. That's... We're progressing very well.
We continue to have great effort and collaboration with them, and we expect that that will get through the 100-page long form term sheet that they need to get through to submit for contingent approval here by the end of November. And we still expect there's a good chance we can announce that program by the end of the year. That'll be very meaningful and we continue to pursue a range of other options, and so I expect something in the near term.
Colin Rusch (Managing Director, Senior Research Analyst, and Head of Oppenheimer)
Okay. Then on the operations side, you know, with the impact around the hydrogen availability, can you talk about the cadence of deployments for Material Handling and how that's impacting some of the equipment sales that you guys-
Andy Marsh (CEO)
Yeah
Colin Rusch (Managing Director, Senior Research Analyst, and Head of Oppenheimer)
are working through for the balance of the year and into the early part of 2024?
Andy Marsh (CEO)
Yeah. So Colin, we had, we left the quarter with seven sites which we couldn't bring online, which would have represented well over $50 million in revenue, because we couldn't put more stress on the network. And so we expect that we will have a good quarter for material handling. I'm just going to caveat it by saying that, you know, first and foremost, we have to make sure, especially during this holiday season, during peak, that our key customers have hydrogen. And as I mentioned, we've done a really good job in moving hydrogen. Without our fleet of over 40 trucks, we would have never been able to do what we were able to do. So I, you know, in my opening comments, I said it was a timing issue.
You know, I think if the network continues to improve, it probably will happen this quarter, but I think there probably could be a, you know, when I think about our material handling business, you know, it was swing of, you know, between, you know, up to about $50 million, I think is possible. That being said, I think the letter highlighted this, some of those customers that we've gone through this with have actually increased the number of systems and the number of material handling sites they want. We've added new customers, Tyson. We've added new customers, Ryder, and others. So it's, you know, it's pretty remarkable how well we've done so far in keeping hydrogen available for our customers.
Colin Rusch (Managing Director, Senior Research Analyst, and Head of Oppenheimer)
Excellent. Appreciate it, Andy.
Andy Marsh (CEO)
Yeah, sure, Colin.
Operator (participant)
Thank you. Our next question comes from the line of Manav Gupta with UBS. Please proceed with your question.
Manav Gupta (Executive Director and Senior Research Analyst)
Hey, guys. Help us understand the path to positive gross margin here. I think that's the number one question we are getting. How do you get to positive gross margin, and by when?
Andy Marsh (CEO)
Sure. Paul, do you want to take that? And I may have some—I may add on some items, but do you want to take it, explain how we get there?
Paul Middleton (CFO)
Yeah, sure, Andy, and, thanks for the question. I, I would tell you, a couple of, fundamental things. One, Andy mentioned this quarter, you know, the revenue from these new platforms are gonna be greater than our, our legacy business. You know, most of those platforms, and, and really all of them are, are equipment platforms. And, and if you, if you-- I don't know if you've seen our new facility up in, in Vista or Rochester, but, you know, we're poised as we start scaling all these new platforms up for substantial volume leverage. And so, and if you look at, sales in Q4 and on into Q... and, and into next year, the, the really, the bulk of the growth is coming from these equipment platforms.
And we've shown historically, with Material Handling, as we scale that business, that every time we double the installed fleet, we've been able to reduce the cost by 25%. And you're gonna see the same trends, as we get volume leverage, you get supply chain leverage, you, you drive greater automation, you know. So, so equipment sales is really key, and, and that's one thing you're gonna see, as we move past launching these new platforms and through the pilot programs into really scaling them. Second thing you'll see is, is on the fuel margin. You already see some abatement in the prices. We expect some additional abatement, in Q4, but the real step function change in fuel happens, as we turn on our own facilities. And so Georgia is coming online this quarter.
Tennessee will be, we'll be reinstating and turning that back up. And then we're looking to turn on the new facility in Louisiana towards the end of Q1. And so those will be very accretive events as we start to turn those facilities up and start to be able to, you know, source a lot of that hydrogen from ourself, which in many cases is at least 30% cheaper, or I'm sorry, is 30% of the market cost that we're paying today. In some cases, only 10% when you factor in the PTC credits. So those are the most two massive effects that are gonna have on margin in the near term, and we expect that to start to see that in Q4 and start to really ramp as we, as we move through, move through 2024.
Andy, you have other comments you want to share?
Andy Marsh (CEO)
Well, you know, I think, I think you're right, Paul. I mean, I think the equation's really right. We have to deploy more equipment, and we'll be deploying more in the Q4. We have to get the plants up and operating. That helps a great deal. And look, we have a clear plan on service margins, and I think the best plan we've ever had, and I think all those factors will come into play.
Manav Gupta (Executive Director and Senior Research Analyst)
My quick follow-up here is: we are waiting clarity on the PTC. When do you think we can get something, and what do you think would be reasonable at this point to assume some level of, you know, push? I mean, what do you think would be reasonably good outcome for you in the PTC guidance that does come out?
Andy Marsh (CEO)
So, you know, the administration has shared this week has been that they will have the PTC announcement out before year's end. I suspect that that's probably about right. When I think about the PTC, we think that really the key item is how regionality is defined. And, you know, if regionality is defined to be the balancing authorities, where there's 69 in the U.S., probably most of our future activities would go on in Texas. If the regionality comes out to be the ISO regions, we've looked at that and have concluded that it's, you know, that would work for Plug almost regardless of where they come out with additionality. We think you probably need three years.
We also think that, if you think about time matching, it's pretty clear that Treasury has realized that hourly time matching doesn't work because the, the REC market for that really doesn't exist. You know, I think that's actually something that looks like that will be the final outcome. It won't be the perfect outcome. A broader regionality, East, West, and ERCOT would be the, I think, best solution for the growth of the hydrogen industry. And would coincide, and I think this is where I think a lot of people would, would miss. It really needs to be broad for the hydrogen hubs to work. And certainly, I can tell you, I've spoken with high-level leadership at the DOE, and they understand that. So I think Plug's gonna be fine when the guidance comes out. I think the industry will be fine.
I hope that it's done in a way that all regions of the United States are winners.
Manav Gupta (Executive Director and Senior Research Analyst)
Thank you so much.
Andy Marsh (CEO)
You're welcome.
Operator (participant)
Thank you. Our next question comes from the line of Bill Peterson with JP Morgan. Please proceed with your question.
Bill Peterson (Senior Equity Research Analyst)
Yeah. Hi, good afternoon, everyone.
Paul Middleton (CFO)
Good afternoon, Bill.
Bill Peterson (Senior Equity Research Analyst)
... I'd like to dig a little bit deeper into Colin's questions on the cash raise and shoring up the balance sheet. So you talked about corporate debt solutions. Can you provide more color on what kind of options, what kind of facilities you're talking about here? On the DOE loan, you're hoping to announce something later this year, but it talks about conditional. What is it conditional on? And then, you know, what-- when could the dollars actually flow? You know, I guess, can you confirm that this is milestone-based? And then finally, I think for these project financing sources, I guess, when could these be solidified in order to shore up the position?
Really, just overall, how should we think about your ability to shore up your kind of cash position in the near term?
Andy Marsh (CEO)
Paul, do you want to take that?
Paul Middleton (CFO)
Sure. There's a lot of questions in there, Bill. I'll do my best. First, on the DOE, one, you know, it's a good news, bad news. The fact that they require a very detailed long-form term sheet is actually, although it takes time to work through, is extremely helpful. Because the way the process works is, you know, you, they effectively put the package together and all of their diligence reports and submit it for the final approval. Which, once it gets approved, you then have to go and actually put the agreements in place. But because it's, you know, 100 pages of long-form term sheets, in effect, they've already kind of worked through all those key things. So that should be a much faster process.
The framework that we're working on with them is a $1.5 billion, you know, platform that would fund our green plants and would fund from construction phase onwards. So... And, and it could be as up as upwards as 80%, $0.80 on the dollar. That's the framework that we're working on, and, and we're working very diligently to get that in place. In addition to that, you know, we, we've had some expressions of offers for ABL-like facilities. We've had some expressions of offers for restricted cash advance facilities like we used to have with Generate. So there are then some, a number of parties that have expressed interest for project equity on some of our initial plants.
So we have a range, and there's been a number of other ones in different forms. And so we have a range of solutions that, you know, we continue to work through, and we just are wrestling through what we think is the best, the best choices and the best options, given the dynamics and what we're trying to accomplish here. So, you know, I think the DOE could be, you know, even as early as late as end of Q1, potentially, more likely early Q2. It starts funding where and it could actually go back and back lever some of the existing plants like Texas and maybe even New York.
I think some of these other facilities is what we'd probably leverage into is to complement that structure for general working capital and, you know, other project and capital that we would be advancing on. So hopefully that helps, Bill.
Bill Peterson (Senior Equity Research Analyst)
Yeah. No, that's, that's, that's a good additional context. Just how to think about the Q4. You, at the time of the symposium, you took down your numbers through the bottom end, but presumably, the headwinds you talked about with hydrogen is impacting your ability to provide, you know, fuel cell systems for the Q4. So I guess walk us through, if you could, revenue assumptions, maybe by product type and how we should think about how the Q4 could evolve, given all the puts and takes you talked about with all the issues in hydrogen.
Andy Marsh (CEO)
I'll take that one, Bill, because we you know we've spent a lot of time thinking about this. So, you know, I think that, if you think about as a base of $1.2 billion, where are the risks in the $1.2 billion for the year? Because of hydrogen, you know, and I think I mentioned earlier in this call, we think there's a risk of, you know, circa $50 million in our traditional business. And, we also, when we look at, our cryogenics business, which has really been one of the strengths this year, and, you know, there's a-- some timing on some deals where we think $50 million could flash and, you know, go into the Q1 instead of the Q4.
They're really the two items we're looking at and really watching closely. I think we're feeling good about our electrolyzer business. We feel good about, you know, the revenue, all other revenues in our, you know, our trailer business, our, you know, our cryo other activities in our cryo business, but that's really kind of the breakdown we see. So if you think about that, we think, you know, 60% of the business, when I outlined those numbers, are for, for electrolyzers, for, for, you know, for cryogenic equipment, and 40% is our traditional material handling business. So that's kind of the give and take from 1-1 to 1-2, Bill. Did that answer your question?
Bill Peterson (Senior Equity Research Analyst)
Yeah. No, that's kind of describes, yeah, some of the risks associated with the, the rest of the year. It sounds like electrolyzers are still... You feel good about that, if I can paraphrase?
Andy Marsh (CEO)
Yeah. Yeah. I mean, I feel. Look, I feel really good about material handling. I just got to make sure that we feel real good about electrolyzers. We feel real good about some of the expansion activities with our cryogenic trailers. You know, we have this liquid refueler, which is, you know, for buses and others. It's really sold, and we can't make enough of them. You know, so we really do feel good about those things. And, you know, I have the parts built for material handling. It's just a question of making sure that we can bring them online in a way that meets our customers' needs.
Bill Peterson (Senior Equity Research Analyst)
Thanks, Andy.
Andy Marsh (CEO)
You're welcome, Bill.
Operator (participant)
Thank you. Our next question comes from the line of Chris Dendrinos with RBC Capital Markets. Please proceed with your question.
Chris Dendrinos (VP of Equity Research)
Yeah, thank you. I guess I just wanted to discuss the hydrogen availability situation. You know, obviously, the force majeure events are, they've been reoccurring kind of throughout the year. You know, when you think about that business and sort of your suppliers, is there anything you can do, I guess, more that could be done to, you know, ensure stable supply? Is there, like, the ability to have some backup suppliers or anything like that that you can speak to? Thanks.
Andy Marsh (CEO)
So, Chris, I think what we're doing, you know, let you know, I mentioned three items. There isn't additional hydrogen available. You know, I was talking to someone today who told me they couldn't get any hydrogen. When we look at it, though, our plants coming online help a great deal. Having Tennessee and Georgia, that provides us 25 tons of hydrogen. Bring St. Gabriel up in the Q2, brings another 15 tons of hydrogen. That's 40 tons. I met with one of the major, one of the other major hydrogen suppliers in this industry, the president of their American operations on Tuesday.
We sat down and, you know, they're bringing online, you know, what, 30 tons by, by putting SMRs in to replace some waste stream stock that hasn't been coming. So I do see that, by the end of January, you know, there is, you know, an additional 55 tons. And just to give you a feel, 55 tons is probably approximately another 20%-25% of hydrogen availability. Now, we're going to use more hydrogen next year. We are projecting that our hydrogen needs and demands will grow by 40 tons by year's end, and that's why Texas is so important to us to bring that online.
And that'll, you know, we're working through that one, but that one is really, really will be critical for the second half of next year to make sure that by the late Q4, that's able to produce to support the customers. So the good news, Chris, is, you know, this is not going to be an issue on January one. We just got to work through the final stages here.
Chris Dendrinos (VP of Equity Research)
Got it. Okay, understood. And I guess maybe just as, as a follow-up, maybe on a slightly different topic here, is it's just the, you know, the, the equipment sales margin in the quarter, it looks like it was negative. Can you just walk us through the, the dynamics of what, what's going on there? It sounded like it might have been mix related, but, I guess any, any just additional color on, what's, what's happening in that segment? Thanks.
Andy Marsh (CEO)
Paul, do you want to take that one?
Paul Middleton (CFO)
Sure. So, you know, Andy mentioned about some of the programs that pushed, you know, scale matters for us. You know, when you think about these manufacturing facilities we have and driving volume leverage, that's important. So that's part of the driver. Another part of the driver is some of the cost associated with launching these new programs, especially some of the early pilot programs. You know, I always say it's hard to make money when you build one of something, but as we start scaling this up to hundreds and then thousands, you really start to drive not just volume leverage, but supply chain leverage and, you know, you can drive improvements in your manufacturing processes.
And so, you know, those were really the key drivers this quarter, and we certainly expect that to be, you know, meaningfully better in Q4, given the ramp of these equipment sales. And then on, you'll see that ramp even more so in 2024.
Chris Dendrinos (VP of Equity Research)
Got it. Thank you.
Andy Marsh (CEO)
Paul, Paul, I think it'd be fair to say also that that $50 million material handling revenue would have flipped it the other way.
Paul Middleton (CFO)
It certainly would have been super helpful in moving it in that right direction, Andy. Yep.
Operator (participant)
Thank you. Our next question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question.
Jordan Levy (VP of Equity Research)
Afternoon, all, and appreciate all the color. Maybe just, you know, a high-level kind of strategic sort of question here. If we kind of look out to 2024 and, recognizing you're starting to get some of your own volumes online, but if some of these other issues in the network, you know, persist on the supply side, I'm just curious how you think about sort of balancing growth on the materials handling side versus, timing of your own plants ramping and, you know, whether it makes sense to throttle the materials handling down a bit as you kind of bring on your own supply and that sort of thing?
Andy Marsh (CEO)
... Jordan, thank you for the question, and I think that is a good question. As I mentioned, we feel that we'll be in a much better position come January one. And, you know, one of the reasons I've gone around and spoke to leadership and with other big suppliers in the industry, and we've talked about making sure there's, you know, we talked about what their plans are, which are public, so there's nothing that's being hidden here. We feel that we can continue to grow and expand that business. And that's, you know, you know, I think I did some math for you, which, you know, combination of St. Gabriel's, combination of our 25-ton coming back online, that's 40 tons.
I talked about an additional 30 tons coming online from another supplier. I do know that other folks are beginning to look at putting some hydrogen in the market. You know, for us, it really needs to be liquid. But we're really, we really don't see the need, Jordan, to throttle back.
Jordan Levy (VP of Equity Research)
Thanks for that, Andy. And then maybe just a follow-up on the stationary side of the business. I know these are kind of bulkier, bulkier shipments, but it seems like from the shareholder letter, you've made some good traction there going into the Q4. Just an update there, if we could.
Andy Marsh (CEO)
Yeah. So, we will be shipping products. First, let me- and, and I don't know, because it was at the symposium, actually, it was one of the first days, the first product that we deployed was fully operational and working. You know, that product is in many ways so much more challenging than our material handling products, but so much more simpler once you get it going. I say it's more challenging because it's a complicated system. I mean, one megawatt of power, how to manage all that hydrogen and water, all those, all those items are really, really critical. The fact it runs at almost constant power, the fact that, you know, you're not, you're not moving it around, the product has worked remarkably well, the first deployments.
To the point, Jordan, about two weeks ago, I, you know, I wasn't hearing anything about the performance of the product when it first went in the field, which, you know, in my 40 years working engineering products, is incredibly unusual. So I picked up the phone and called the customer and asked them how it was going. And, you know, it's been working remarkably well. So we're really upbeat about that product. And we'll be doing a good deal of deployments. A lot of the extra hydrogen for next year will be associated with that product. So, we're really pleased. It's probably one of the more challenging, but one of the best product launches I've ever seen in my career.
Jordan Levy (VP of Equity Research)
I'd appreciate that, and thanks for all the details.
Andy Marsh (CEO)
Yeah.
Operator (participant)
Thank you. Our next question comes from the line of George Gianarikas with Canaccord Genuity. Please proceed with your question.
George Gianarikas (Managing Director and Senior Analyst)
Hi, everyone, and thank you for taking my question.
Andy Marsh (CEO)
Hi, George.
George Gianarikas (Managing Director and Senior Analyst)
How are you?
Andy Marsh (CEO)
Good.
George Gianarikas (Managing Director and Senior Analyst)
I wanted to ask about an early glimpse, if you can, and someone may have alluded to this earlier, to 2024 and 2025, just sort of gross margin, high level, particularly in light of the fact that you, you know, the updates you've made to your green hydrogen generator. Thank you.
Andy Marsh (CEO)
Paul, do you want to take that question?
Paul Middleton (CFO)
Yeah, we, I guess, you know, we have our January business update scheduled, you know, most likely towards the end of January, where we'll give, as we always do every year, more specific numbers, you know, for 2024. As we, you know, as we kind of center in around our finalizing our plans and forecast. But I guess what I would tell you is directionally, we absolutely expect it to go north.
You know, when you think about the equipment programs and those starting to scale up, you know, and you think about the fuel sites and how meaningful, impactful those are, you know, I think, you know, next year, I mean, it, I think we could not only be positive, I think it could be in the low double digits, you know, directionally, and then scale up from there. And I think there'll be another big step function in 2025, because we're turning on Texas and targeted to turn on New York. I mean, that's 125 tons per day of capacity between those two facilities.
So that's a substantially meaningful revenue and margin accretion of those programs, if you know, as those given those forecasts of what we're planning to do and turn those on. So I think directionally, that's kind of how it will play.
George Gianarikas (Managing Director and Senior Analyst)
... Thank you. And as a follow-up type of question, I know we're waiting for Washington to make a final determination as to, you know, how it views PTC. And so I'm curious if you can help us compartmentalize, you know, based on the different outcomes, how do those, like, impact the numbers? In other words, you know, you've given some long-term guidance, and when you think about, you know, outcome X in Washington means this to our forecast, or outcome Y means that, like, how could we think about your long-term forecast when we hear the final outcome from Washington? Thank you.
Andy Marsh (CEO)
That's a good question, George, and we've always taken a very, very conservative view of the outcome. We built the models and our plans not based on the PTC being available. We know that the PTC will unlock additional opportunity, but, you know, and, and further guidance on other elements of the IRA. So, I would just say that, you know, if, if you think about it, it probably has minimum impact, whatever gets said, for 2024. Just, you know, even though people are waiting, it still takes time to, you know, get to FID, especially on electrolyzers. I would think that, our forecast may be different in the 2025, 2026 time frame, with a, PTC outcome that's, I'll call it, middle of the road. That's how I would think about it.
Sanjay, I know you've been thinking about this too, but that's kind of my view. But since you're deeply involved in the electrolyzer sales funnel as well as the sale of hydrogen, do you have any additional comments?
Sanjay Shrestha (CSO)
No, I think, Andy, you, you sort of summarized it pretty well. But the only thing I might add here is I think we are obviously been working on multiple large-scale electrolyzer opportunity here in the U.S. And as the guidance becomes clear, and as we hear more about that, I think some of these opportunity that we've been working on start to unlock. And even on the electrolyzer side, even before some of this PTC guidance, we had talked about working on three mega deals. We've already announced 100 MW in Europe. We've already announced another 280 MW in Europe, and we have talked about, you know, being a preferred supplier for a 550 MW opportunity in Australia.
With this PTC, we certainly see meaningful growth for electrolyzer business, as you said, Andy, especially in 2025 and 2026 timeframe. But there'll be a very meaningful growth as well in 2024, given the mix of the business, diversity of the market, and then existing backlog.
Andy Marsh (CEO)
Look, I mean, there are more products that need hydrogen coming online. There are folks who are going to want green hydrogen, you know, to meet their corporate goals, regardless of the status of the PTC. You know, so I think the PTC, a middle-of-the-road decision will be really beneficial for Plug. Thanks, George.
George Gianarikas (Managing Director and Senior Analyst)
Thank you.
Operator (participant)
Thank you. As a reminder, press star one to ask a question at this time. Our next question is from Eric Stein with Craig-Hallum. Please proceed with your question.
Eric Stine (Senior Research Analyst)
Thanks for taking the questions.
Andy Marsh (CEO)
Hey. Hi, Eric.
Eric Stine (Senior Research Analyst)
Hey, so I've been jumping around on calls today, so I hope that I don't ask something that's already been asked. I did hear the end of the last one. I'll just stick with the IRA just for a second.
Andy Marsh (CEO)
Okay.
Eric Stine (Senior Research Analyst)
Hearing some talk of regionality, you know, in terms of where power needs to be sourced from. You know, just curious if you could expand on that a little bit and, you know, what would you see that doing for your business?
Andy Marsh (CEO)
Yeah. And I think, Eric, if regionality is really tight at the balancing authorities, and there's 69 balancing authorities, I think it drives most of the business activity into ERCOT. I don't think it's going to end up there. When we think about a middle-of-the-road solution that would work for Plug, and we think work for most people in the industry, that would be, you know, use the ISO regions would, we think, work. You know, there's REC markets which work there. The regions are big enough that the additionality issue should be much more minor. Ultimately, you could phase in time matching, and it probably would work. Probably what's best for the nation and what's probably best for, you know, the U.S. leadership in hydrogen, it would be having just three regions.
That would also make sure that most of the hydrogen hubs could be successful. So that's, you know, I think from a Plug perspective, it probably will end up where we're operating more and probably, quite honestly, probably many of our customers. I think from a nationwide rollout perspective, more regions. Many regions is not helpful.
Paul Middleton (CFO)
Mm-hmm.
Andy Marsh (CEO)
So the bigger the region, the quicker the deployments will happen, the better it'll be for our business. But if it's the ISO regions, we'll be, we'll be in good shape.
Paul Middleton (CFO)
Okay, that's helpful color. I guess we'll stay tuned on that. And then maybe, so it sounds like you did, for 2023, you know, provide a little color around, I think the previous outlook had been $1.2 billion, and that there is some, you know, $50 million or so variability in that number. I'm curious, if you discussed any of the out year targets. I mean, I know, you know, 2024, in the past, you'd had a $2 billion-plus revenue target, and, you know, at the symposium, you had 2027, you had 2030. So just curious, I mean, are you, did you address that? Are you making any changes, or is that something that's more for the January update?
Andy Marsh (CEO)
We, Paul explained, Eric, to people it was the January update call.
Paul Middleton (CFO)
Okay.
Andy Marsh (CEO)
We did not make-
Paul Middleton (CFO)
Didn't make changes. Okay. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Andrew Percoco with Morgan Stanley. Please proceed with your question.
Andrew Percoco (Senior Equity Analyst of Clean Energy)
Good evening. Thanks for taking the question. I did want to come back-
Andy Marsh (CEO)
Hi, Andrew.
Andrew Percoco (Senior Equity Analyst of Clean Energy)
Hey, Andy, how are you? I did want to just come back to the balance sheet and financing line of questioning, because I do think it's important here. So in the quarter, it looks like you burned $400 million of free cash flow, which leaves you with about $550 million of unrestricted cash and available for sale securities on the balance sheet. Paul, I know you laid out DOE timing late this year, but it sounds like that's a per-project milestone based. You also announced, you know, the Fortescue potential financing at the project level, but it still sounds like that's early stages. So it's leading me to think that you'll probably need to do something at the parent level to manage working capital within the next few weeks. One, is that correct?
Two, are you still confident that you can do it with debt? Is there a potential need for a convert or, or equity here? And three, you know, can you just give us a sense for size in terms of what you'll need to manage working capital and, and the profitability drag over the next few quarters? Thank you.
Andy Marsh (CEO)
Paul, do you want to take that one?
Paul Middleton (CFO)
Sure. So, a couple of things. You know, fortunately, we're kind of in this period where we've spent largely what we need to, for Georgia to turn that on. We've also, you know, the balance for that's left for the Louisiana plant is not in all, you know, in context, is not very big. So, you know, and we're Texas is really kind of more middle of the year on into the back of the year when the big chunks of money get spent. So, I think we have a little bit of latitude on CapEx, you know, this quarter, next quarter, in that regard. And so...
And then on top of that, given the scale of sales that we have this quarter, that obviously, as we convert that into cash, that helps. And then thirdly, we're laser focused on reducing our inventory levels. We've built that up substantially to kind of help launch these broad platforms, but there's a substantial amount of capacity there that we can tap into that we'll see—you'll start to see some of those benefits happen in Q4 and on into Q1 as we start leveraging that, you know, liquidity pool. So, but, you know, you're right. We, you know, I look at it as fungible, right, to fund our plans, and we've talked about what we're, what our focus is.
You know, we're certainly focused on a range of solutions, and some of the more near-term ones could include things like the ABL or, you know, restricted cash advance facility like we had with Generate before or some of those other structures. But I think, you know, we're in a good position given the positive effect that has working capital between receivable conversions and inventory, as well as that lull period of CapEx, that allows us to be a little bit more thoughtful as we move through this quarter and in the next quarter about what we do and when we do it, and picking the best solutions for Plug. Hopefully, that helps, Andrew.
Andrew Percoco (Senior Equity Analyst of Clean Energy)
Yeah. Yeah, that's helpful. And, and maybe as a follow-up question, just related to your electrolyzer business. I think you guys have cited over a 2 gigawatt backlog. Can you maybe just help us think about how many of those projects have reached FID? Just trying to get a sense of, of how we should underwrite that 2 GW. We've seen, obviously, across wind, solar, battery storage, some, some issues as it relates to financing and supply chain. I'm sure it's the same for hydrogen, so I'm just wondering how many of those projects have, have reached FID at this point. Thank you.
Andy Marsh (CEO)
Sanjay, do you want to take that one?
Sanjay Shrestha (CSO)
Yeah, happy, happy to do that, Andy. So, Andrew, it's a very good question, so let me give you some context on that, right? In that backlog, we have a lot of 5-megawatt systems, right? And these are for a lot of different customers, so they obviously have all gone to FID, and that represents at least about 30 of those 5 MW systems. Second, we talked about a big project with a customer in Europe that's already gone through FID, and that's a 100, 100-plus-megawatt opportunity. And this preferred supplier deal that we've talked about, that project is expected to go to FID before the year is over. Then we have another project that is actually looking for an offtake that is for the sustainable aviation fuel, expected to go to FID sometime next year, right?
So keep in mind, though, the way the revenue works for us in our electrolyzer business is we have a standard stack sale. That's a direct sale, right? Then we have 5-megawatt product system. That's a direct sale. And with the project business, we end up doing it on a percentage of completion basis, which actually really builds that base of business for us as you start to think about Q4, as you start to think about 2024 and also 2025. And there are some other pretty substantial projects here, Andrew, that we're actually that we have been working on for six to nine months. I mean, they have funding in place, and some of this project, they're really looking for some clarity from the guidance standpoint.
And we do expect that, look, by either by the end of this year or early next year, you will start to actually see some of this project also move ahead and become a pretty meaningful contributor to revenue. Again, these are mega projects. They'll be multiyear and really start to build that base of business. And one other thing that I think is worthwhile highlighting here as well is, both on our product side as well as on our project side of the business, in all the new bookings, as Andy and Paul alluded to, we've been very focused on cost down, margin expansion, and that's the trend.
It's not just the top line. We will also start to see that margin progression as you go into 2024 as well as into 2025, and that's how we're looking to plan all these things.
Andrew Percoco (Senior Equity Analyst of Clean Energy)
Great. Thank you. I'll take the rest offline.
Andy Marsh (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Ameet Thakkar with BMO Capital Markets. Please proceed with your question.
Ameet Thakkar (Director and Equity Research Analyst)
Hi, good evening. Thanks for taking my question. [crosstalk]I just wanted to follow up. Thank you. I just wanted to follow up, Paul. I guess I'm not as familiar with the restricted cash facility you had before. One, like, will any of the $1.05 billion in restricted cash you have right now kind of basically work its way into the unrestricted bucket? And then how does that facility work? And I've got one follow-up.
Paul Middleton (CFO)
Sure, Andy, I assume you want me to take that.
Andy Marsh (CEO)
Yep.
Paul Middleton (CFO)
So, as we've done in the ten years I've been here, probably $2 billion worth of, you know, sale leaseback transactions to monetize tax credits on our, on some of our programs with some, some of our customers. Some of our customers like to own the assets. They like a CapEx model, and buy. Some like to access our solutions and effectively lease it from us, and so what we do is we package it and sell it to a bank. And, in those cases, the best place to monetize those credits, the most efficient place, is, is in the, is in the traditional bank market, like, like a Wells Fargo or, you know, those kind of institutions, but they're the most regulated as well.
And so they often make us capital, collateralize some of the tax, investment tax credit, in there. So that's what that most, a lot of that represents. And so it does get released to us about 20% per year. So out of that, balance, that $900 million, $950 million number that we have, you know, probably around $200 million gets released to me, including $50 million in Q1. Well, there'll be $50 million this quarter. There'll be $50 million in Q1. That's kind of, it's up to about a $50 million dollar per quarter release rate.
Ameet Thakkar (Director and Equity Research Analyst)
Okay. And then, you know, you guys have, I think, said this a couple of times, in this call, maybe some of the other calls, that you, you guys have sort of you're working through kind of several options for financing and trying to pick the best one. But it, it looks like you guys added some going concern language in the, in the 10-Q, and I was just wondering if that like, kind of maybe narrows the options that you were exploring previously.
Paul Middleton (CFO)
Not really. I mean, we have... So the language that we've included is, you know, oftentimes driven by accounting standards and what you have, how you have to evaluate it and manage it. And, you know, it's, it's a lot more conservative, obviously, than what we feel like. But, you know, I have a $5 billion balance sheet that's unlevered. I mean, I really don't have any debt. So, you know, we still are extremely confident about the range of parties and solutions that we're working with, and we haven't seen any tempering of interest, you know, given... I mean, it's not news where we sit with our liquidity position and where we're at. We've been pretty clear about that all year, and what we're doing and where we're going.
So, you know, I think most people certainly understand that and appreciate where we're at and what's to come, which is all this growth and this margin accretion and where it's going. So that's what people are betting on when they want to play work with us, and so we don't really see it as limiting our options.
Ameet Thakkar (Director and Equity Research Analyst)
Thank you for the time.
Operator (participant)
Thank you. Our next question comes from the line of Sherif Elmaghrabi with BTIG. Please proceed with your question.
Sherif Elmaghrabi (Equity Research Associate)
Hey, everyone. Thanks for taking my question.
Andy Marsh (CEO)
Hi, Sherif.
Sherif Elmaghrabi (Equity Research Associate)
So hey, Andy. So first, I'd just like a little bit more clarity on the service accrual charge. It makes sense, of course, that the hydrogen shortage affects cost of service, but how have these unplanned outages delayed fleet upgrades for customers?
Andy Marsh (CEO)
Oh, well, that's, I'm going to give you an answer. I hope you underst- I hope it's understandable. So let me... I'm going to separate into different issues, Sharif. It does slow down upgrade because, you know, we have a fleet of 20+ rolling hydrogen generators. Our service folks, you know, now are out on the hydrogen pad almost every day, often connecting and reconnecting and, you know, getting our products positioned that one can connect a high-pressure tube trailer to. It also, when you have- when you start running hydrogen down to very low pressures, which, which happens often when you're running with these kind of issues, you end up, cavitating, the liquid hydrogen pumps. So therefore, you're doing a lot more maintenance on the hydrogen pad. So it has a ramification to that.
But let me take it further. So it does impact, it does impact the how fast you're implementing, because your staff is doing things to keep the customer alive today. So that's why. Now, when I think about the service accrual, you know, I believe that, you know, if I take a look, and I'm going to talk about our traditional material handling business. Our confidence level that the... And we see it, the newer products we put out in the field perform much better, or the latest design, you know, do not have issues.
Our legacy units, you know, take a lot of time and effort and, you know, quite, you know, when I look at it, I would not be surprised if over the coming next two quarters, we have maybe an additional service accrual. You know, and I think that, but I believe that we're in a place where that business, once we get through the legacy issue, unit issues, which I think the accrual helps us with, we'll be in a place, you know, in the second half of next year where that line could go in the other direction, could go gross margin positive. But that, and then I look at our new businesses, and I made references on the call earlier. It's much more interesting.
It's much more simpler to, for our electrolyzer business and for our stationary business, to essentially monitor those systems remotely, dispatch people if they need to make repairs. All those things actually help. We think those businesses will start off with positive service margins to start. So that's kind of how I... I know that's a long answer, Sherif, but that's why there's a connection.
Sherif Elmaghrabi (Equity Research Associate)
A long answer, but really good window into nuts and bolts of the business, so I, I appreciate it. And then, a little bit, a little bit shorter of a question, I guess. When it comes to converting from-
Andy Marsh (CEO)
I'll try and make it a shorter answer, Sherif.
Sherif Elmaghrabi (Equity Research Associate)
When it comes from converting the 15 tons per day in Georgia from gaseous to liquid, is it just a matter of adding a liquefier, or is there more of a retooling process involved? Really, I'm trying to drill down into what's driving the decision to have 15 tons gaseous and then the other 15 tons liquid.
Andy Marsh (CEO)
Well, that's it, the gas is what feeds the liquid. So there's not two plants. We are looking at the possibilities of expanding Georgia, but Georgia's a liquid plant. There is a 2.5-ton gaseous, 2-ton gaseous plant that we have there, which is filling these high-pressure tube trailers I talked about, which are kind of like generators on high-pressure generators on wheels. And the hydrogen that's produced primarily at the Georgia plant feeds the liquefiers. Does that make sense?
Sherif Elmaghrabi (Equity Research Associate)
Makes total sense. Andy, thanks very much.
Andy Marsh (CEO)
You're welcome.
Operator (participant)
Thank you. Our next question comes from Vikram Bagri with Citi. Please proceed with your question.
Vikram Bagri (Senior Analyst of Renewables and Refining)
Good evening, everyone. To start off-
Andy Marsh (CEO)
Good evening, Vikram.
Vikram Bagri (Senior Analyst of Renewables and Refining)
To start off on Georgia facility, can you provide some risks that could delay the startup beyond 2023? And if any of the funding options that you talked about are contingent on Georgia up and running. And then, you know, staying on the same topic, inventory is now over $1 billion. Can it be a source of liquidity as you go into next year? How do you see that trending? And then finally, the quarterly filing has, as you talked about, some cautionary statement about funding being insufficient for operations next year. Any chance you can quantify how much minimum funding is required, assuming tighter controls to go through next year, assuming, you know, funding environment is not as supportive? Thank you.
Andy Marsh (CEO)
You know, let me take the Georgia question, and then I'll let Paul deal with all the financial questions. So when we look at Georgia, we're at the final steps of drying the cold box, the liquefier out, and you have to dry it out to bring it down. So we heat the whole liquefier up to 400-450 degrees, and essentially dry it out to ensure that when you start running at 25 degrees Kelvin, which is almost absolute zero, you don't have anything in the liquefier that would impede its performance. There are eight kind of elements that need to be dried out. And so last night, we dried out the first of eight, which took only 24 hours.
I don't expect the others to go as rapidly, but, that's really kind of, making sure that liquefier is completely dry before we, before we turn it on, is, is one of the risks. You know, the liquefier's been tested before it's left the supplier, but, you know, there is always a, you know, it's a big difference bringing it up in the field. You know, there's a lot of confidence it'll come up cleanly, but that's probably where the risks reside. So that's how I think about it. I'll let Paul answer the rest of your question, so when it comes from a, from the finance point of view.
Paul Middleton (CFO)
Yeah, and there, there was a lot in your questions, but let me try and do my best. A couple things. You know, anymore with the, with the filings, I mean, the way the rules have progressed and the, and the regulations, you know, feels like 80% of what's in my filings anymore is risk factors and, you know, caveats, right? So, there we follow the rules, we're compliant, and we want to make sure we're disclosing and doing everything according to the rules. But, so, you know, that's what we do. And, but in terms of, you know, the financings themselves, you know, they're not—it's not like they're contingent on Georgia being turned on. That's not a caveat to us making the decisions on which ones we're going to pick. It's not...
There's a whole range of options that we have available to us, and it's really, again, back to just us being prudent and thoughtful about what choices we're going to make. In terms of the amount of cash that we need next year, you know, really, we're in a great position because, I mean, a good position, I would say, because, you know, you look at the fact that we've largely spent what we need for Georgia. We're by and large, you know, we don't have much left, relatively speaking, on Louisiana. You know, we can pace Texas and Georgia and New York, the big facilities, kind of commensurate with the right solutions and trying to figure out which of those are the right solutions.
When you look at our growth, you know, we'll talk more about it in the January business update, but, you know, given our forecast for next year, both in terms of top line and margin, you know, we should be in a good position to middle to latter part of next year. You know, we could be crossing into the operating, positive operating cash flows. And so, really, you know, in the big scheme of things, it's, it's not a lot to kind of get to that, through that bridge, you know, to where we need to be. And, and life changes for us dramatically when, as we, as we cross that threshold and we, and we, you know, in terms of access to institutional money and, and funding the next round of projects and things that we're doing.
So, you know, we'll certainly talk more as in the January business update and as we get through our year-end filing. But, you know, we feel good about the range of options that we have and the position that we're in and where we're poised to fund our business plan in the near term.
Vikram Bagri (Senior Analyst of Renewables and Refining)
Thank you. And in terms of inventory, is that sort of like a sort of source of liquidity for you guys in the near term? Can you bring that number down meaningfully from $1 billion now?
Paul Middleton (CFO)
Yeah, we absolutely can and are focused on it. So, you know, as I... You know, when you're scaling a bunch of new things at the same time, and you're kind of focused on speed to market and scaling up the breadth of platforms, you know, it's hard to focus on efficiency and automation and optimization as much. But now that we're really starting to scale those products up, you know, we're able to kind of, you know, think more and ramp more from an optimization and efficiency standpoint, and also time things better and work with the vendors better on deliveries and consignment and other tools that we use that can drive that down.
But it is a substantial source of liquidity, and obviously, it means we can spend a lot less as we ramp that down in the near term.
Vikram Bagri (Senior Analyst of Renewables and Refining)
Thanks a lot. Appreciate it.
Operator (participant)
Thank you. Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed with your question.
Martin Malloy (Director of Research)
Thank you for taking my question.
Paul Middleton (CFO)
Good evening, Martin.
Martin Malloy (Director of Research)
Good evening. I was wondering if you could maybe talk about nuclear operators as potential customers for electrolyzers?
Andy Marsh (CEO)
Sure. Do you want to take that one, Sanjay?
Sanjay Shrestha (CSO)
Sure, Andy.
... Again, Martin, it just makes a lot of sense, right? In terms of when we think about all sorts of clean energy and how some of those clean energy can be used to produce green hydrogen. So, look, I mean, we have some effort going on along those lines, so there are some activities happening. So, we certainly see that as a part of our electrolyzer business opportunity, whether it's just a direct electrolyzer sale or does that also expand into potentially even building a liquid plant there. But it's a very fair question, and short answer to that question is, we have some of those activities going on and look forward to sharing a lot more with you all.
And again, some of these areas, whether it's nuclear or some of the other opportunity here in the U.S., this bigger opportunity, I think, are going to get unlocked here as we get further guidance surrounding what exactly is going to be the language from the Treasury on the PTC and IRA.
Martin Malloy (Director of Research)
Great. And for my follow-up question, just wanted to try to get a sense of level of interest that you all have in maybe monetizing some of these green hydrogen plants as you bring them on, in terms of selling down interest in them. I, you know, saw the Fortescue news that you shared with us, but maybe if you could give us your thoughts around that.
Andy Marsh (CEO)
Paul, do you want to take that one?
Paul Middleton (CFO)
Yeah. I guess, you know, our my bias selfishly is to not sell equity out of those plants because that obviously is, you know, the most expensive, you know, capital. So it's better for Plug, but, you know, we have to think more broadly than that, given the breadth of agenda that we have and the, and the, and the capital needs and the solutions that we have and the timing and, and also, you know, the partners that we're working with. I mean, in the case of Fortescue, the fact that they've got interesting investment alternatives and platforms that we can co-invest in their, their platforms, that can be a meaningful opportunity for us. And so we've not necessarily acted on some of those, opportunities.
We're, we've continued to nurture them, and we continue to see more expressions of interest with multiple parties that would like to take equity stakes in our plants. And so we, you know, we're gonna continue to nurture those concepts and in context with other alternatives and work towards what we think is the best answer. Hopefully, that helps, Martin.
Martin Malloy (Director of Research)
Yes, it does. Very helpful. Thank you.
Operator (participant)
Thank you.
Andy Marsh (CEO)
That is our last question for the day. I appreciate everyone attending the call and asking the questions, asking your questions. As Paul mentioned, we will be having our January update call, as we do every year, to provide you insights into our strategies for 2024. Thank you very much, and look forward to talking to everyone in the near future. Bye now.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
