Plug Power (PLUG) Q1 2023 Earnings Call Transcript

Plug Power (PLUG 4.02%)
Q1 2023 Earnings Call
May 09, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, everyone, and welcome to the Plug Power first-quarter earnings call. [Operator instructions] As a reminder, please note, today's conference is being recorded Tuesday, May 9th, 2023. It is now with pleasure that I turn today's conference over to Teal Hoyos, senior director of marketing and communications. Please go ahead.

Teal Hoyos -- Senior Director, Marketing and Communications

Thank you. Welcome to the 2023 first-quarter 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 the current expectations, estimates, forecasts, and projections as well as the current beliefs and assumptions of management and are subject to significant risks and uncertainties and that could cause actual results or performance to differ materially from those discussed as various -- as a result of various factors, including, but not limited to the risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31st, 2022 -- quarterly reports on Form 10-Q and other reports we file from time to time with the SEC.

These forward-looking statements speak only as of the date which the statements are made, and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug's CEO, Andy Marsh.

Andy Marsh -- Chief Executive Officer

Good morning. Thank you, everyone, for joining the call, and thank you, Teal. Before I begin the conference call, I want to talk about two items. One is that we had a filing this morning where we made a mistake with the date.

It certainly got us excited here. We put 2024 instead of 2023. So if you're reacting to a plug change the guidance for 2023 from $1.4 billion as our expected results we have. So sorry for any confusion that may have caused.

The second, I really like to share a video. Participants on the phone, you'll hear kind of a brief three mines of 30-second periods of silence, while those on the webcast can sit back and enjoy the video. If you're on the phone, I suggest, click into the webcast. It's really worth watching.

So if you can't -- if you miss it, it will be included in our archives for leader viewing. So Teal, let it roll. Thank you. I hope you enjoyed the video.

Really, it showcases our Georgia plant, and you can find more detailed information on the status in the investor letter, really to summarize, our plants already producing gases hydrogen for our customers, and we expect to achieve full production by the end of June. Although we always strive for greater speed, it's really worth noting, we accomplished what we've accomplished since issuing full notice to proceed under our EPC contract full production in just 48 weeks. This is a remarkable feat considering that conventional gas companies, and I was sitting at CERAWeek, we've listening to one CEO talking about six years, they usually estimate four years of a project of this scale. Additionally, by the end of June, our Georgia plant, with the largest green hydrogen play in the world that utilizes electrolyzers.

That's a significant achievement. We plan to commission more plants, Texas, New York and Louisiana this year. This year, our focus is really to execute. Our primary goal is to achieve revenue of $1.4 billion, and that's in 2023, which is supported by several activities, including learning the scale or 5-megawatt electrolyzer systems in partnerships with our fabricators, scaling our stationary products to facilitate 20 megawatts in shipments.

One of the real competitive advantage is the infrastructure we've established in Rochester and Vista, which enables us to support our business growth. And our customers really do recognize our ability to deliver our promises, thanks to the tools and facilities we possess. Our ability to construct green hydrogen plants is evident in Georgia, and we plan to further demonstrate this in Texas and New York, which will eliminate any doubts about our capabilities. I'm going to be walking Georgia today, I'm excited.

These plans have garnered interest from both equity and debt investors. Moreover, Plug has a range of non-dilutive solutions that can eliminate the necessity for future equity investments at the present level based on the current business plan. And look, this year, we remain focused on government policies. This is an energy company, an energy and government policy go hand in hand, including the IRA and the European Renewable Energy Directive.

Although these policies have been helpful, Plug has the opportunity to shape their development further. We have built this chart to show the lower and expected case for plug-in 2023. In the expected case, Plug achieved $1.4 billion in revenue and $140 million in gross margin dollars. Look, there's really just a couple of key ingredients in meeting that goal.

It's shipping our 275-megawatt electrolyzer systems, which we have orders for, as we learn to build them more efficiently in coordination with our three fabricators around the world. We're close to closing out 50 -- about 500 megawatts of a large electrolyzer plant system order, and there's many more behind that. And those opportunities, we recognize revenue on an ongoing basis. And selling 60 times of liquefiers in the next three months.

I'm sure Sanjay will be happy when the Q&A comes around and talk about that. also should add, we have the opportunities beyond those listed above to achieve $1.4 billion. And all of these items do not come to pass, revenue would be about $1.2 billion and gross margin to be approximately $50 million, still an 80% increase in revenue for the year. Finally, I'd like to highlight, this is really important.

The application business, when you look at that slide has very little variability since it's more established. During the early years of our application business, we did experience some of those challenges of predictabilities -- in some years, we exceeded and others, we missed our projections. The methodology we just share gives us a high level -- very high level of confidence in the range of outcomes in the next seven months. be clear, it is really important because it sometimes gets lost in the chatter.

Plug is a leading the way in terms of building actual products, real things every day and constructing plants. So the company is doing what we're doing in the field. Our Georgia plant is exceptional, and we're excited to showcase it to analysts in the coming months. The feedback we received from our customers have been overwhelmingly positive.

When it comes to the application business, we have a remarkable stable business model compared to other companies in the fuel cell industry. This is due to our focus on pedestal customers. Lastly, a range of energy products is unparalleled in the industry, and we're rapidly learning how to scale more efficiently than any of our competitors. But more important, our customers really like our products.

Finally, I don't want to shy away from the facts. Once again, no one is building real products and building plants like Plug. It really separates us. Paul, Sanjay, and I are now available for your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question comes from the line of Andrew Percoco of Morgan Stanley. Please proceed with your question.

Andrew Percoco -- Morgan Stanley -- Analyst

Great. Thanks so much for taking my question here. So just first, I want to ask a question around the IRA and some of the treasury interpretations around hourly matching and deliverability, and additionality. What might that mean for some of your first few plans that you're bringing online? But do you still think you'll qualify for the whole $3 per kilogram? And what might that mean for your 2025 and 2028 green hydrogen ecosystem targets?

Andy Marsh -- Chief Executive Officer

We drew up, go ahead, take a step back further than that. I've spent a lot of time, especially in the last two months in D.C., talking to folks in the administration. And remember, the primary purpose of the IRA is jobs, climate, and that really and national security. And that really is driving the thinking of the folks in the administration.

From my discussions, I believe that when you look at the European renewable energy directive that, that certainly has had a great deal of influence on those in DC, which interpret if you interpret that, you can see it's very, very favorable to the approach plug things since imported. Now when I look at it, I'll give you two examples where I think that resonates with administrators. In my house in Saratoga Springs, I buy power from Vermont Power. -- for mine power, every time I buy electricity is generating more renewable energy.

It doesn't matter that the electrons that comes through my house come from NYSERDA that comes from national grid. That's really what's going on. That's -- fundamentally, plug supports generating more renewables, plug supports generating electrolyzers. And I believe from my discussions, that's in line ultimately, what the administration will do.

Andrew Percoco -- Morgan Stanley -- Analyst

Great. That's some helpful context. And maybe just switching over to the opex trends in the quarter. I think, Paul, you had mentioned $125 million of opex per quarter is the right run rate for 2023.

You came in a little bit above that in the first quarter. How should we think about that trending through the rest of the year? And do you still feel comfortable with your operating income guidance for 2023.

Paul Middleton -- Chief Financial Officer

Yes. So I think what we have been talking about was like in that 125, 130. But the biggest delta in the quarter had to do with our acquisitions. I mean they continue to do better than we expected.

And as you can see, we had to accrue more of consideration in terms of the earn-out structures that we set up. Should they be successful that they would we'd only pay when and if that happens. So that's a high-class problem, and it was the primary delta for the quarter. But I think in the balance of the year, if you look at it, the $125 million to $130 million is the right run rate.

Andrew Percoco -- Morgan Stanley -- Analyst

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

Andy Marsh -- Chief Executive Officer

Thank you.

Operator

Thank you. One moment please for the next question. Sorry, our next question comes from the line of James West of Evercore ISI. Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Morning, James.

James West -- Evercore ISI -- Analyst

Hey, Andy. Good morning. How are you doing?

Andy Marsh -- Chief Executive Officer

OK.

James West -- Evercore ISI -- Analyst

So, Andy, I wanted to talk about hydrogen hubs for a minute. Given that we're really close to the commission that's going to buy the DOE on -- or make recommendations to the DOE and what's been submitted so far and the DOE should start allocating capital. I believe at some point in the fourth -late third or fourth quarter, and there'll be a big build-out, and we've got, of course, applications from Texas, California, from Los Angeles, and then obviously, the Northeast, as you know full well, what role does this plug play in that process? I know we have to establish production of green hydrogen and in marking. I'd love to hear your thoughts on that.

Andy Marsh -- Chief Executive Officer

So James -- and I have to watch because everybody keeps on reminding me, I'm covered by NDAs on the hydrogen hub. I can say that every site that you mentioned, every hub plug has been engaged in at different levels. And some of them, such as the New York Hub, our name has been mentioned publicly, West Virginia, the activity going on there with Senator Manchin. I would tell you that things like expansion of our hydrogen plants are engaged in many hubs.

Leveraging our hydrogen plants or engaged in hubs. Our products, both our stationary, especially our stationery for peaker plants are involved in many hubs. So like you, I expect some money to start filtering out in November, December time frame. I really don't think real dollars start ramping to late '25 early '26.

And my government affairs person sitting with me here, James, and he's shaking his head yes. So that's a --

James West -- Evercore ISI -- Analyst

Understood. OK. Good. But as long as you'll be involved there.

And then maybe a follow-up for me, not related to the hubs part. But your -- the start of Georgia is -- it got pushed now with is going extremely well. What are the kind of key learnings that you guys have achieved from that start-up that you think will make the start-ups of the additional facilities more efficient, faster to keep the timeline in check?

Andy Marsh -- Chief Executive Officer

We probably have 100 learnings, James.

James West -- Evercore ISI -- Analyst

OK.

Andy Marsh -- Chief Executive Officer

I think the most important one, and you see that it's going on in Texas. In Texas, we've been able to sign an EPC contract where the EPC contractor is willing to sign up ahead of time for pricing performance. And that's, I think, a statement that what people have seen you know you can repeat. I think that when we look at scaling, we also -- this plant itself, we'll expand it to 30 tons.

I don't think we'll be doing too much. It will be less than 50 tons per day just from the cost. It kind of follows a typical cost curve that going from 15 to 30 probably only increases your construction cost by 40% and your overall cost by 40%. So I think we're much more focused on planted Texas and New York that are large.

There could be some smaller plants that go on where the infrastructure is really kind of much simpler. But I think that's really one of the key learnings we've had. That's -- but I probably could go on and on, but that's really the heart, I think, of what we found important. Sanjay, do you want to add anything?

Sanjay Shrestha -- Chief Strategy Officer

No. I agree with that. James, that's really it. I think we understood that scale has a tremendous benefit.

And all the components you got to manage and think through it, right? And learnings of Georgia, as Andy said, is now allowing us to really go into a PC rather than time and material.

James West -- Evercore ISI -- Analyst

OK. Got it. Got it. Thanks, Sanjay.

Thanks, Andy.

Andy Marsh -- Chief Executive Officer

Thanks.

Operator

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

Manav Gupta -- UBS -- Analyst

Guys, I have two questions and they're kind of related. So I'm going to ask them right up front.

Andy Marsh -- Chief Executive Officer

Good morning.

Manav Gupta -- UBS -- Analyst

Good morning, sir. So your press release states something very interesting. It says that you are in final stages of negotiating large-scale project opportunities in U.S., Europe, and Asia Pacific, representing potential backlogs of 1 gigawatt. So if we can get some more details on that? And second is on a March announcement, you won a contract to build a 100-megawatt electrolyzer with Uniper.

As I understand, this was a competitive bidding process and you were selected versus your competitors. It kind of indicates you have a very good product out there. So if you could talk a little bit about the March 7th announcement with Uniper. Thank you.

Andy Marsh -- Chief Executive Officer

Go ahead, Sanjay.

Sanjay Shrestha -- Chief Strategy Officer

Yes. Again, thank you for that question. First off, when we talk about this over a gigawatt of booking opportunity on the electrolyzer side of the house here in the near term, we're looking at 500-plus megawatt opportunity in Asia Pacific. We're looking at 500-plus megawatt opportunity here in North America.

We're looking at another 100 megawatts of opportunity in Europe. So please stay tuned. Obviously, in some cases, we're in the contract negotiation. In some cases, we're actually having a lot of discussion about it.

We certainly plan to actually close on one, two, or all three of them here over the course of the next 90 days. And that's really what we're referring to when we talk about that kilowatt plus bookings outlook in the near term in our electrolyzer business.

Manav Gupta -- UBS -- Analyst

Any details on the Uniper contract?

Andy Marsh -- Chief Executive Officer

Go ahead, Sanjay.

Sanjay Shrestha -- Chief Strategy Officer

Yes. Again, I think -- look, one of the key things -- one of the key items plug is really focused on customers, not competitors. And that when you look -- I think when people look and see that Plug knows how to scale, Plug knows how to engage with customers, Plug knows how to do projects, I think that separates us from our competition. And when we take customers, and we have been taking many customers to our Georgia plant to show them, it really provides us a significant differential advantage versus any of the other competitors.

When you walk our factory in Rochester, you actually see people making electrolyzer stacks and MEAs. You can't really see that scale anywhere else. That's really why we win deals. But we're focused on -- well, this is a big market.

We're focused on what we can provide, what we can offer. We don't get too worried about competition at the moment. We worry about us and our customers.

Manav Gupta -- UBS -- Analyst

Thank you, guys.

Operator

And our next question comes from the line of Greg Lewis of BTIG. Please proceed with your question.

Greg Lewis -- BTIG -- Analyst

Yeah. Hi. Thank you.

Andy Marsh -- Chief Executive Officer

Hi, Greg.

Greg Lewis -- BTIG -- Analyst

And hey, good morning. Thank you for taking the time. Squeeze get me in here. So, Andy, I guess, recently, you made that announcement around the Korean JV with SK with start-up in 2025.

I was hoping maybe for some -- maybe for a little bit of color around the capex build of that. And then really kind of -- is this -- could we see incremental projects from this initial joint venture?

Andy Marsh -- Chief Executive Officer

Sure. So let -- Greg, we've been working with SK now for over two years and the JV was finalized last year at this time with the final IP agreement done on December 31st, 2022. And we're focused on our stationery products. And in the investor letter, I highlighted the fact that there will be a good deal of activity for the stationery products for areas where the grid doesn't exist today.

But Korea because of the high electrical cost, our plans with SK, starting in '25, '26 is to build 400 megawatts of stationary products and then every year to 2040, 200 megawatts. That in itself this factory, which between the both of us will probably be in the $150 million type range, $150 million to $200 million. which will be jointly split is really just the beginning of the deployment of the JV. We're already doing with the JV.

We're shipping cryogenic trailers this year from Plug. We're shipping ProGen modules for uses and buses in Korea, which we think is ramped to over 1,000 units shortly. We're engaged in electrolyzer projects, and our first electrolyzer projects are being shipped. So on a wide range of basis, this is going to be a very, very powerful JV.

Take a little bit of time, but we're together really accelerating. I think that if you went to the event, look, I was in Australia working on deals and our chairman was nice enough to go for me. But our chairman was with the president of South Korea. I think that says a lot about the relationship.

Greg Lewis -- BTIG -- Analyst

OK. Great. And then I did want to touch a little on the green hydrogen, the network. Last week was the Advanced Clean Transportation Conference, clearly, it seems not surprisingly, California is going to be really the epicenter of hydrogen demand in the U.S.

It seems like for the foreseeable future. It just seems like a lot of money is going in there. A lot of vehicles on hydro going to be going there. As you think about the network and realizing that green electricity or green renewable power is key to servicing that.

Should we be thinking about more hydrogen production plants in and around the California area versus where -- I get we have a diversified footprint in New York, Southeast, Texas, but just as it seems like there's just coming more demand from California, or is it really we're just going to be shipping a lot of product there?

Andy Marsh -- Chief Executive Officer

I'm going to let Sanjay answer that, but I'm going to make one comment. It should not be overlooked, Greg. The demand for hydrogen itself in applications like creating e-fuels like mixing with natural gas in the pipeline with industrial applications like ammonia, probably it will be nationwide and probably ramp and be much larger than California. That being said, I'll let Sanjay talk about our California plan as well as other activities we have going on.

Sanjay Shrestha -- Chief Strategy Officer

I mean, Greg, you're spot on, right? That is going to be where a lot of demand is going to come for some of the mobility application and things like that. So this is how we're looking at it. One, we already do have a location that we have identified that we're going through all the permitting process going through PG&E going through Calio to move that project -- and one of the dynamics as you think about California is, while it's a demand center, but you also have a very high price of electricity, and you also have a situation where the permitting actually ends up taking longer than many other states. So that's a bit of a dichotomy that you've got to deal with when you think about how many plants and how do you really build in California.

But having said that, we actually are looking at multiple projects, now I mean multiple, OK, in the neighboring state to be able to support California. We're even looking at some of the opportunity that eventually might even end up making it all the way to California even in the West Texas area because we've done that before. It really comes down to what is that lowest possible renewable electron we can get. What is that speaker cost of the hydrogen.

And does it make sense to build a plant even look at delivery distance and ends up making it a lower cost as it gets into the California market, right? So neighboring states, even our projects in California and other locations is really how we plan to actually support as you rightfully pointed out, the meaningful demand that we see coming from the state of California.

Greg Lewis -- BTIG -- Analyst

OK. Super helpful, Andy, and Sanjay. Thanks for the time.

Andy Marsh -- Chief Executive Officer

Thanks, Greg.

Operator

And our next question comes from the line of Bill Peterson of J.P. Morgan. Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Good morning, Bill.

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Yeah, hi, good morning guys. Good morning, Andy and team. Nice to nice to speak with you this morning. I wanted to go to the guidance for the year, just to make sure I understand.

I think you said it was largely Energy Solutions. But in the last quarter, you talked about 55% kind of current business. I think 30-plus percent electrolyzer is $100 million in stationery. I think the rest you call this fuel cryo and so forth with that 15%, which I think is around $200 million.

So what is the difference? Where does it come in at $1.2 billion and where does it come in $1.4 billion? Is it electrolyzes primarily or fuel? If you could help us understand kind of what's changed in the guidance.

Andy Marsh -- Chief Executive Officer

So Bill, I -- what I've tried to -- I want to be really clear -- what I tried to say is, look, our ability to predict obviously hasn't been perfect. So we spent lots and lots of time after last quarter, working through to make sure we enunciate to -- the Street where the risk is in the $1.4 billion. And if you look at -- and it's been filed, refiled with 2023. If you look at the chart, I wrote Bill with the team here, kind of four key items.

So one of it is we're shipping 275-megawatt electrolyzers containers this year. That's probably around, call that circa $100 million Look, we have the orders for it. It's making sure if we spent a lot of time on execution there. And that's a big part of it.

If you look at another big difference, Bill, is associated with our electrolyzer plant and the electrolyzer plant, you probably can circle another $30 million in revenue. So between those two, you 30 to 50, you're probably talking three quarters of the difference -- and then Sanjay has a lot of liquefiers -- he's looking to ship -- they're looking to sell in late negotiations and that will get us to the $770 million. And also on this slide, I did highlight the fact that there's other opportunities in the works that -- but that's really where it will all resides. If you look, for example, in the application business, our traditional business, the variation is really about $20 million from expected to the lower case.

And that lower case, it really has to do with the timing of a couple of projects, whether they happen in the fourth quarter or first quarter. I wanted to do this chart because I wanted to make sure investors knew how all the numbers lined up. I hope that was helpful, Bill. Bill?

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Yes. Sorry about that. Sorry, you talked about -- or sorry about that. You talked about raising additional potential -- potentially raising additional financing.

You talked about the DOE loans and ABL and probably you mentioned more to come in the second half of the year. Is there a preferred means of raising, I guess, presuming you're looking at the most non-dilutive capital as possible. But what is the preferred means at doing this as you look at the second half of the year or into next year?

Andy Marsh -- Chief Executive Officer

I'm going to take a step back. I'm going to hand it to the experts Sanjay here. We also may have people invest in the plants themselves, Bill. And we have lots of people who want to take a share, for example, in Georgia.

Go ahead, Paul.

Paul Middleton -- Chief Financial Officer

Yeah. And I think you touched on it. I mean, obviously, first and foremost, it's nondilutive, second is cost of capital, third is flexible capital. But again, as Andy said, there's a lot of parties that are interested.

And when you look at the breadth of what we're doing and the pace and the ambition we have to grow and invest in scale, it will probably be a combination of solutions as we continue to move forward. But the good news is we have an incredibly strong balance sheet that's basically unlevered and we've got this portfolio of plants unfolding that are a profitable portfolio to leverage up and recirculate that capital. It puts us in a great position of optionality, and that's when Andy occurred, we're working toward the second half, you're going to hear more and see more as we work through that in the months to come.

Bill Peterson -- JPMorgan Chase and Company -- Analyst

OK. Thank you.

Andy Marsh -- Chief Executive Officer

Thanks, Bill.

Operator

Thank you. Our next question comes from the line of Alex Kania of Wolfe Research. Please proceed with your question.

Alex Kania -- Wolfe Research -- Analyst

Great. Thanks. Good morning.

Andy Marsh -- Chief Executive Officer

Good morning, Alex.

Alex Kania -- Wolfe Research -- Analyst

Good morning. Maybe I could take another run at the kind of the IRA guidance and maybe what that means. Do you think that -- or would you be able to characterize there a bit of a decent amount of pent-up demand or anything like that once you get the kind of guidance either way in terms of matching or additionality or something like that. So I'm just wondering if -- as you've talked about these incremental opportunities that you're seeing over the next 90 days, how much of that would play into just getting resolution on the IRA rules? And even more beyond that, could you see kind of a ramp up in any kind of announcements just once we have that clarity.

Andy Marsh -- Chief Executive Officer

So, Alex, I think clarity probably comes August, September, just to kind of frame it. And any time you have uncertainty, you have folks waiting. And if the policy is defined very similar to the European directive, I think they'll be able to live. And I think that food will be important because it will create more and more jobs and allow United States of scale, allow companies to export.

I think that will be the outcome. If they're very, very restrictive, I still think there will be more activity -- but I think a lot of the focus for many companies will be more European focused than U.S. focused. So I think if the regulations are too tight, quite honestly, IRA would defeat its purpose.

I don't think that's going to be the outcome. I know of a good deal. I have fortunate enough to know people in D.C. People are concerned about job.

People are concerned about the economy. People are concerned about the climate. -- there's concern about America growing this industry and not handing it over to the Chinese, which quite honestly, is a big hot button. And I think when the regulation comes in, we're going to -- everybody is going to be -- who's sitting here at the table with me is going to be quite happy.

Alex Kania -- Wolfe Research -- Analyst

Great. Thanks. And then maybe just thinking about margins for the balance of the year, I guess. Certainly, gas prices have come down incrementally even since the previous earnings report.

Is that kind of a decent incremental tailwind for numbers as kind of a kind of upside? Or have you seen any kind of offsets to maybe the momentum that we've seen on the gas side?

Andy Marsh -- Chief Executive Officer

I'm going to let Sanjay take that one.

Sanjay Shrestha -- Chief Strategy Officer

Yeah. Alex, you're right. I mean, I think, look, there is a quarter lag as we've always said, right? So you will start to see that benefit as we go into Q2, Q3 and Q4 this year. There is going to be some incremental benefit.

And obviously, we're taking a lot of time ensure that the gas price being used by our supplier actually matches that with how we're looking at it as well, right? So the short answer to your question is, yes, that's an incremental benefit.

Alex Kania -- Wolfe Research -- Analyst

Great. Thanks very much.

Andy Marsh -- Chief Executive Officer

Thanks, Alex.

Operator

Thank you. And our next question comes from the line of Ameet Thakkar of BMO Capital Markets. Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Good morning, Ameet. Good morning.

Ameet Thakkar -- BMO Capital Markets -- Analyst

Good morning. Can you hear me?

Andy Marsh -- Chief Executive Officer

Yes, we can.

Ameet Thakkar -- BMO Capital Markets -- Analyst

OK. Great. Just real quick, I just wanted to kind of level set on capex since you will be bringing on a lot more production online. I think you guys had said about $1 billion for the year.

It looks like the first quarter was a little bit less than that from a ratable standpoint. I just wanted to make sure that $1 billion number was kind of still the right number to think about for capex for the year?

Paul Middleton -- Chief Financial Officer

Yes, that's our target. I think the good news is the big manufacturing plants are pretty close to done in terms of the spend. So the balance of it is predominantly, if not all, around the green hydrogen platforms. And as we -- so the answer is yes, that's our target and continue to advance that agenda.

Ameet Thakkar -- BMO Capital Markets -- Analyst

OK. Great. And then I think Sanjay had mentioned earlier that like the -- I guess, the big dollars under the DOE program wouldn't start flowing through until '25 or '26. So should we think about like some of the other options you're looking at in terms of kind of the ABLs or selling down equity in the individual plants is kind of like kind of a bridge until we get there? Or is that something you always contemplated...

Sanjay Shrestha -- Chief Strategy Officer

Yeah. I don't think -- and I'll let Paul comment. I don't equate the Hodgin clubs to our own plants being built out. They're really separate activities.

And our view is that we want as much hydrogen is available as rapidly as possible as green as possible. And so having investors in plants like people who deal big oil wells, they do that. who are in that industry, our business model is that we're going to be really, really big. We're going to do some of it with folks.

We're going to do some of it independently. And we want to make sure we get the most attractive financial finance deals we can. But the -- there's really no correlation me between the hubs and the loans. Do you want to add, Paul?

Paul Middleton -- Chief Financial Officer

Just to clarify, there's multiple things going on at the same time, right? So we're working the hub conversation processes with industry partners as well as the DOE. But apart from that and separate from that and specific to plug, we're also working a conversation around a specific DOE loan that could very well fund this year. We talk about all of our capital options in the past that we're working. And you mentioned ABL and DOE is two of them.

There's multiple different capital sources. And with the strength of our balance sheet and the portfolio we're building, we've got lots of parties that are interested that will be this year activities, not 2526. So I just want to make sure that's truly clear.

Ameet Thakkar -- BMO Capital Markets -- Analyst

Understood. Thank you so much.

Andy Marsh -- Chief Executive Officer

Thanks, Ameet.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Eric Stine of Craig-Hallum. Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Good morning, Eric. Eric? Hello?

Operator

Pardon me, Mr. Stine, your line is open. Please verify your mute function lift your handset please. Mr.

Stine, your line is open. Please verify your mute function lift your handset. We will proceed with the question-and-answer session. Our next question comes from the line of Colin Rusch of Oppenheimer.

Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Good morning, Colin.

Colin Rusch -- Oppenheimer and Company -- Analyst

Good morning, Andy. As you guys are working through the potential ABL finance providers, can you talk a little bit about what sort of feedback you're getting on the operational metrics you need to meet and the duration you need to run these facilities before folks will close on one of these deals.

Paul Middleton -- Chief Financial Officer

Yeah. The good news is scale matters. And when you look at how big our balance sheet is, it affords us that opportunity to leverage that up without meeting necessarily traditional metrics. Having said that, as we've publicly talked about, given the path that we're on, the trajectory on, we're strongly very confident that early next year, we're moving into positive operating cash flows, given the growth in margin trajectory.

So we haven't had a lot of constraints put on us in terms of those traditional metrics because we have such a big balance sheet and such a big green hydrogen portfolio that for that back. And I think the real key for us is as we bridge that, leveraging into that next year, and then move into the post operating cash flows, that opens up, as you know, traditionally more -- significantly more institutional opportunities as we move. So, so far, so good and lots of lots of opportunities without having to worry too much about that in the short term.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. And then just from a working capital perspective, as you guys ramp up manufacturing, I just want to get a sense of what the working capital needs are going to be and how much finished goods are in that inventory number that you posted this quarter.

Paul Middleton -- Chief Financial Officer

Yes. So as we've talked publicly, we've specifically been ramping very quickly our electrolyzer in our stationery product platform. So the delta this quarter was specifically associated with that. We've talked about the fact that we're going to be doubling the production of our electrolyzer program in second quarter from the first quarter.

And we're starting to ship our first stationary products, large-scale station of prod this quarter. So I think you're going to -- we will see that level out. And as we move to the balance of the year with the leverage we anticipate, we expect it actually to go down. So for the balance of the year, we don't actually expect on a hole that we're going to be relatively flat year over year, but not slightly down from a working capital standpoint.

Colin Rusch -- Oppenheimer and Company -- Analyst

That's incredibly helpful. Thanks, guys.

Andy Marsh -- Chief Executive Officer

Thanks, Colin.

Operator

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

Chris Dendrinos -- RBC Capital Markets -- Analyst

Good morning, guys. Paul, you kind of -- just mentioned Paul, you just mentioned some positive free cash flow beginning maybe early next year, and I think you all have a target for ops breakeven later this year, maybe fourth quarter. So can you maybe talk about kind of the drivers of what takes you there? I guess, versus where you are today? I guess just pointing out some of the margins and maybe the PPA area looked kind of particularly soft this quarter. So what gets you from where you are today to ops breakeven end of the year and then positive free cash flow next year?

Paul Middleton -- Chief Financial Officer

Yes. I guess really, there's a number of things. But first and foremost, we do -- we make positive margin on equipment. And when you look at Q1 as an example, it's accretive.

So every incremental dollar I sell of equipment is positive. -- the majority, if not 90% of that growth is coming from equipment sales. So that, coupled with the fact that we're going to be ramping the leverage of those plants and those investments and scaling those new products will drive margin profile. So of the balance of the year at $1.2 billion, roughly $1 billion or so is going to be product and equipment sales.

And when you look at the scaling margin, which we've traditionally hit in that 25% to 30% plus range, that gets you a pretty substantial step function change in margin and accretion. Second piece is fuel. We've talked a lot about the things that we're doing there in terms of turning on these green hydrogen plants, the abatement of the natural gas, working with our partners on the distribution networks and field logistics to drive efficiency we've talked publicly about ending the year on a breakeven run rate on fuel and moving into next year, quickly changing the paradigm. So those two are the sole biggest drivers.

And then last -- second -- I guess, third to that, I would just say we continue to make big strides on service and reliability investments, and they have a very concentrated effort. However, that will be more and more smaller PPA and service will be a smaller percentage of what we do as we scale the growth and the curve that we're talking about. It's predominantly going to be product and fuel and more so product in that equation as we move forward for the balance of this year.

Chris Dendrinos -- RBC Capital Markets -- Analyst

Got it. Thanks. And I guess maybe as my follow-up here.

Andy Marsh -- Chief Executive Officer

Paul, maybe you should mention PPA is down just because of the warrant charges.

Paul Middleton -- Chief Financial Officer

Yeah. We have a lot of noncash charges. And so that's up year over year. It was $2 million or so in Q1 of $22 and was $14 million this year in Q1.

So that's a noncash charge. It particularly affects PPA and fuel in terms of the association with the customer associated with it. And then on the whole, just so everybody has some context, we run at about $60 million to $70 million a quarter of noncash charges holistically. So that's why I feel I'm incredibly excited and confident about the growth, the margin leverage back with that noncash run rate that gives me confidence to get to those numbers as we move on into next year.

Chris Dendrinos -- RBC Capital Markets -- Analyst

Got it. OK. Thank you. And then I guess just as my follow-up here, reading kind of the front page of the shareholder letter here, it looks like you maybe added a qualified on the 200 tpd of build-out to maybe include under construction.

So can you maybe talk about, a, I guess, is that true? Are you kind of delaying that a little bit? And then what are the drivers? I think you mentioned some ABL loan, the DOE loan coming in later this year. There's some treasury clarity coming the hub announcements earlier this year. So is that a function of just, I guess, timing? Or are you maybe slowing things down just to see how these, I guess, announcements coming later might impact your plans?

Paul Middleton -- Chief Financial Officer

Andy, let me -- so, Chris, no, we're not changing anything at all, right? I mean, if anything, we just wanted to actually try to provide more granularity after what we've learned from Georgia in terms of how long it takes to go from construction commissioning to full production, right? So there was no change in plans where -- as Andy said, right, we're not waiting for any particular things to materialize for us to continue down the path of getting to that 200 tons number. But all we try to do was look try to actually provide you guys with more granularity based on what we learned from Georgia, what does it take, construction, commissioning, full production, and that's really the tweak that we made there. Nothing more than that.

Chris Dendrinos -- RBC Capital Markets -- Analyst

Got it. OK. Thank you.

Operator

Thank you. Our next question comes from the line of Kashy Harrison of Piper Sandler. Please proceed with your question.

Kashy Harrison -- Piper Sandler -- Analyst

Good morning, everybody. Thanks for taking the questions.

Andy Marsh -- Chief Executive Officer

Morning, Kashy.

Kashy Harrison -- Piper Sandler -- Analyst

Good morning, Andy. So I want to go back to the multiple financing options. Can you give us a sense of what milestones, if any, need to be met from a project perspective before you can get financing? And then should we be thinking about a transaction as a 2023 or 2024 catalyst?

Andy Marsh -- Chief Executive Officer

Well, go, Sanjay.

Sanjay Shrestha -- Chief Strategy Officer

Yeah. Maybe, Paul, I can take this on the product side on hydrogen plan. So a couple of things, right? So as Paul talked about, our loan guarantee program, as Paul talked about, our ABL opportunity. And as we talked about project level financing.

But here is really what we're looking at, Kashy. First off, I think once our plant is running, let's say, for 12 months, then there is a stable cash flow that we can highlight to any underwriter, right? And once we can do that, that allows us to really go even down the path of the debt market, thinking about what is that right debt service coverage ratio is going to be piece number one. Piece number two, now that these plants are coming online, we are also looking at how can you really sort of like ring fence the plant, if you were thinking about it from a PPA perspective to either a way to think about floor pricing on the hydrogen, which will also open up a lot of different kinds of financing solution to really support that of this plant, right? And I think that we -- I encourage everybody to think about this is really what happened in the solar and the wind space, right? When you actually had beginning of the solar in the wind industry, it was 100% equity financed. -- then we have PTC, then we had ITC that really led the financing market to open up in conjunction with also driving the cost of that capital down.

So I think you're going to see something like that. We're in the hydrogen space as well, we're having, as Paul said, multiple different discussions with one of the sole purpose in mind what is the best and the lowest cost of capital to continue to drive the growth that we have ahead of us and substantial growth that's coming down the road. So that's how we're looking at it.

Kashy Harrison -- Piper Sandler -- Analyst

Thanks for that Sanjay. And then maybe a question for Paul. Can you refresh us on what's the driver behind the high restricted cash balance on the balance sheet and whether you would expect a release to unrestricted cash in coming quarters or years? Thank you.

Paul Middleton -- Chief Financial Officer

Yeah. So a lot of long-term follow remember, but for a lot of the equipment deals that we do in the material island space, we do -- we monetize the benefits of the banks for those programs. And so a lot of times, we have to post cash to back those deals. We've actually been successful in getting customers -- the biggest customer we have, as an example, who signs into [Inaudible] commitments, and we get 70%, 80% of the cash upfront.

And so what you're looking at now is the layers that are adding are kind of the balance of that residual. The good news is we are starting to see the benefits of the new RA on the ITC front. So we've actually closed our first 40% deal. This quarter, we're targeting our first 50% ITC deal.

-- that really yields 2 benefits. One, that we get more value on the project. And then secondly, we paid the bank less, right, because they give us the majority of those tax benefits and the deal structure. So we're moving from $0.70 to $0.80 on the dollar.

In some cases, $0.50 on the dollar payback on the deal structures. And so -- and now that we don't have any debt, all of that cash releases to us. So -- and we probably about 20%, 25% per year that its release into us we can use to fund our current operations as well as our near-term operations. I expect that to change.

As we just talked earlier, as we continue to work through and move toward positive cash flows. I think you'll see more and more of that scale down and get released and move toward more traditional institutional financing in the near term.

Operator

Thank you. Our next question comes from the line of Sam Burwell of Jefferies and Company. Please proceed with your question.

Sam Burwell -- Jefferies -- Analyst

Morning.

Andy Marsh -- Chief Executive Officer

Good morning. How are you?

Sam Burwell -- Jefferies -- Analyst

Doing well. Next using at the end. We unpack something on Slide 4, the financial projections on the expected case and a lower case. It looks like there's a $300 million delta on the revenue line, $90 million delta on the gross margin line.

So that implies like a 45% incremental margin, let's say, is that the margin that's associated with the key items that you call out on the right, namely the electrolyzer containers, the liquefiers, and then, I guess, the larger electrolyzer plant? Or am I thinking about that incorrectly?

Andy Marsh -- Chief Executive Officer

I would think about those on the right on a variable basis, somewhere around 40% gross margin. And the rest of it is associated with the same inefficiencies in our operations.

Sam Burwell -- Jefferies -- Analyst

OK. Understood. That's certainly helpful. And then one last one on financing.

I mean, is there any way you can quantify like the difference in cost of capital between the DOE project financing and maybe the ABLs. I know -- I think you guys at least had called out low single digits, but that was a few Fed rate hikes to go. So is the DOE loan going to be something that costs the overnight risk-free rate? Is it a spread to that? Is it below that because the DOE wants to subsidize green hydrogen?

Paul Middleton -- Chief Financial Officer

Yeah. So I mean, nothing is done until it's done. And so it's hard to give you an exact answer, but I would tell you, high single digit is not out of the question, if not mid-single digit in that range.

Sanjay Shrestha -- Chief Strategy Officer

I would also add, Paul, the ABL and the project financing are really two separate acts, right?

Paul Middleton -- Chief Financial Officer

Yeah. And they're not necessarily exclusive, right? So -- and it could be -- certainly could be both.

Sam Burwell -- Jefferies -- Analyst

Got it. Thanks for the color.

Andy Marsh -- Chief Executive Officer

OK.

Operator

And our final question comes from the line of Brett Castelli of Morningstar. Please proceed with your question.

Andy Marsh -- Chief Executive Officer

Good morning, Brent. Last but not least.

Brett Castelli -- Morningstar -- Analyst

Thanks, Andy. I'll leave it at one just in the interest of time. With respect to the 2023 guidance and the 60 tons per day of liquefaction in there, is that all third-party sales? Or is any of that for Plug sort of internal use? I just wanted to clarify.

Paul Middleton -- Chief Financial Officer

It's all third party. Sanjay, do you want to add to that?

Sanjay Shrestha -- Chief Strategy Officer

No, absolutely. And it's all third-party breadth, and we have multiple live discussions as we speak right now

Andy Marsh -- Chief Executive Officer

Anything else, Brett?

Brett Castelli -- Morningstar -- Analyst

Nope, I'm all set. Thank you.

Andy Marsh -- Chief Executive Officer

All right. So I do appreciate everyone joining our call this morning. I would like to take a step back and remind everybody that we expect to do $1.4 billion in 2023. And I hope you clearly see the road maps and where we have challenges and opportunities.

I also -- I hope folks watch that video and what's the Baker plant manager again to talk about what we've built in Georgia. The reason that Wall Street Journal has gone to Georgia to see that plant because they had nowhere else to go. There's a reason the economist went to Georgia to see that plant because there's nowhere else to go. We are doing real things today, whether it's building electrolyzers, whether it's building large-scale stationary projects, let me tell you, that's an amazing project and product and we only talked about briefly.

We've built factories, we scale. We're ready for this explosion in the hydrogen economy. So I want to thank you for listening today. And this year is our execution year and a huge inflection point for the company.

Thank you, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Teal Hoyos -- Senior Director, Marketing and Communications

Andy Marsh -- Chief Executive Officer

Andrew Percoco -- Morgan Stanley -- Analyst

Paul Middleton -- Chief Financial Officer

James West -- Evercore ISI -- Analyst

Sanjay Shrestha -- Chief Strategy Officer

Manav Gupta -- UBS -- Analyst

Greg Lewis -- BTIG -- Analyst

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Alex Kania -- Wolfe Research -- Analyst

Ameet Thakkar -- BMO Capital Markets -- Analyst

Colin Rusch -- Oppenheimer and Company -- Analyst

Chris Dendrinos -- RBC Capital Markets -- Analyst

Kashy Harrison -- Piper Sandler -- Analyst

Sam Burwell -- Jefferies -- Analyst

Brett Castelli -- Morningstar -- Analyst

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