Andy Marsh: So Bill I may have confused you on that writing. That activity with equity investors is separated completely from the activity with the DOE. It is activity we started as we think about making sure those projects are fully funded. Look, I remain really excited and I can tell you that the conditional commitment application is moving forward. The momentum is good. And boy, we really do hope to share more news soon.
Operator: Thank you. Our next questions come from the line of Colin Rusch with Oppenheimer. Please proceed with your questions.
Colin Rusch: Thanks so much guys. On the material handling side, could you talk about the trend lines on diversity of customers, how many more customers are you guys seeing? Are you seeing folks scale up within that business? Just trying to get a sense of what that opportunity set looks like now.
Andy Marsh: Yes. That’s a good question, Colin. I can tell you that, we are doing two customers for the first time this coming quarter. Both of them probably have distribution centers combined, which are in the 150 type distribution range — center range. Brand new, brand new activity. Our penetration in the auto market continues to be really good. And we have worked through, and as I said, I think our value proposition as we’ve gone through this price increases have really shown that there was more opportunity for Plug. And I would expect — I know what’s in Jose’s and Tim Terrill’s funnel. You’ll see continued customer expansion this year. And the next three quarters, you’ll see us back to normal operation in material handling.
Colin Rusch: Thanks so much. And then my follow-ups for Sanjay. As you guys are looking at the opportunity set for the electrolyzer business and doing site selection and looking at the underlying cost structure, can you talk a little bit about your strategy around procurement of power? Obviously, there’s a lot going on in the power markets right now with interconnection as well as data center demand electrification. Just want to understand where your thought process is right now on that procurement.
Andy Marsh: I’m going to hand that to Sanjay, but what you say is actually a big opportunity for our stationary business, Colin. That’s right. So go ahead as well as our hydrogen business, but go ahead, Sanjay.
Sanjay Shrestha: So, Colin, I think as it relates to our customer mix, right? I think majority of the opportunity if we were to think about this basic engineering design packet, right, that we talked about 4.5-gigawatt, a lot of that is really going and displacing gray hydrogen in the refining industry to make it green hydrogen. That’s some of the opportunity. Second set of the opportunity there that you’re seeing is really on sort of like sustainable aviation fuels, if you would, right, where they are really identifying a location where they can get access to low cost power in the European market, so you can imagine, right, where you have a lot of hydro, where you can actually tap into some of the wind electricity with the low cost.
That’s where we’re seeing some of this basic engineering design packet work. Another big opportunity in places like Australia, where you’re actually talking about big solar farms, low cost solar, and this is really more of a green ammonia opportunity to impact export into the Asia market, right? So one of the good things here, Colin, is as a company that now has the largest PEM electrolyzer running in the Western world, we’re actually able to also work with our customers on things we have learned, what challenges we went through, how we can help them with that. And then we’re looking at the customers win, who are the ones that actually have, as you rightfully pointed out, source of that power, the outlook for that offtake, whether it’s going into the refining industry or going into the green ammonia market, going into the sustainable aviation fuel, you got to have the power, you got to have the land.
You got to have the water. And that is what really gets you to that final investment decision, right. So and again, look, working hand-in-hand with them as a part of FEED study really puts us in a very unique and a strong position to be able to collaborate with them and that’s clearly the key criteria we use. At the end of the day, Colin, it’s really about selling value here for our customers, right. Bringing all that to the table and it’s not just about price versus cost. Are we bringing value that allows them to have that attractive levelized cost of hydrogen whereby a very attractive green ammonia as well as opportunity to be able to play in the refining industry.
Colin Rusch: Excellent. Thanks so much, guys.
Andy Marsh: Thanks, Bill.
Operator: Thank you. Our next questions come from the line of Chris Dendrinos with RBC Capital Markets. Please proceed with your questions.
Chris Dendrinos: Yes, good morning. Thank you.
Andy Marsh: Good morning, Chris.
Chris Dendrinos: Good morning. I guess I wanted to start out here just on the cash burn a little bit. And there is some decent sequential improvement as far as limiting the cash flow from ops out then. So any color you can give around the cadence for the rest of the year? Should we expect kind of continued improvement from where we sit today? Just how should we think about that? Thanks.
Paul Middleton: Yes. Yes, we’re obviously excited that we — it’s close to 40% reduction year-over-year in the first quarter. We’ve talked about the full year being in that 70% reduction. So — and the reason why — and that infers the second half is even bigger, right, in terms of that reduction. And the reason why that is, is for a couple of different reasons. One, the CapEx will be down year-over-year overall. But for the CapEx that we did plan for this year, it’s a little bit heavier concentrated in the first half, but that will dissipate a lot obviously in the second half. Second thing is that we anticipate — and you already see it with the working capital getting better in the first quarter, but we anticipate even substantially more leverage opportunity in inventory, in particular, in the coming quarters and even more so in the second half.
So that’s a big contributor. And then the third thing is improving the margins and improving the cash flows in the business. And so scale will make a difference as we — with two-thirds of sales happen in the second half. But the other factor that will make a big difference is the cost downs that we’re driving. So we’ll start to see more and more of the benefits and some of the actions we’ve taken in the first quarter and what we’re completing in the second quarter. And then the impact of the fuel is pretty impactful in terms of the price increases and turning on these facilities that we’re turning, which again will start to have benefit in Q2 and even more benefit in Q3 and Q4. So those are the drivers that we’re laser focused on to improve it.
And we’re still optimistic that we’re going to get to that 70% reduction year-over-year. So you should definitely see continued progression as we move through the year.
Chris Dendrinos: Got it. Thank you. And then I guess maybe just shifting gears here a little bit to the BEDP 4.5 gigawatts of opportunity. In the past, you guys have commented that the conversion rate on that type of activity is extremely high. I guess my question is how — what portion of those projects should we expect to kind of go forward? I guess, maybe historically, as you do the BEDP activity, what’s the conversion rate on just the project actually moving forward into development? Thanks.
Sanjay Shrestha: I think it’s — to put the precise number there, I think it’s – look we probably want to go through some more time here. But let me give you an explanation of how we’re thinking about it, right? So when we do a basic engineering design packet that really gets a customer to a point where they can actually now go and do a final investment decision. That’s the key thing here, right? They got to get to their FID. And the key for them to get to the FID is really going to come down to the entire facility. We’re doing a very significant piece of that FEED work related to the electrolyzer. We are obviously pretty much involved with the customer thinking about right design architecture, right? What it’s really going to come down to is, for them source of power.
For them, offtake in terms of what product are they actually in fact, making from a hydrogen derivative standpoint. As we look at our BEDP funnel, we feel very good about some of them getting into the final investment decision this year. Many will get into final investment decision in 2025. So it’s really all about building that base of business and that backlog throughout this year into next year, and really puts us in a position where it becomes a very substantial growth business for us, not just for one or two year but for many years to come and really a great visibility when you think about it for the — until even really the end of this decade, if you would, right? So that’s how we think about it rather than really trying to handicap 80% will move or 70% will move, we’re really working with the customer in terms of making sure that they can get to their final investment decision.
So we end up going from BEDP, in fact, new award bookings and, therefore, the backlog to really support our growth in the business.
Andy Marsh: One of the items, Sanjay, that why I see this so positive because it really is part of the sales cycle and you have the customer paying you to work with you, which shows a level of seriousness about their plans going forward. And that’s probably from a business point of view, is one of the real values, I think, we’re getting from these engagements.
Sanjay Shrestha: 100%. Yes, absolutely.
Chris Dendrinos: Understood. Thank you.
Operator: Thank you. Our next questions come from the line of Craig Irwin with ROTH. Please proceed with your questions.
Craig Irwin: Thank you. So most of my questions have actually been answered. So I want to step back into the bigger picture, right? You have some really exciting pedestal customers in the materials handling market, people using hydrogen forklifts. I guess more than 40% of the groceries in America move around on your hydrogen forklifts. And I assume that there’s several other companies of similar character to your pedestal customers that are evaluating the technology maybe have small implementations and represent interesting longer-term opportunities. Can you maybe sort of scope out for us what you’re saying to those customers now with your repositioning of this business? Do you feel that you will be adding pedestal customers over the next few years? And anything else that you think would be useful for us to understand the longer-term trajectory after we get through this short-term repositioning?
Andy Marsh: So Craig, this is Andy. Good morning. First and foremost, the answer to your question is, yes. But to take it to a higher level, I can tell you we are doing deployments with two customers this quarter who have 150 warehouses and distribution centers, who we have never done business before. So that is — and I can tell you, there is an active, active sales activity going on, and we expect material handling business to get back to normal starting in the second quarter and continuing throughout the year. I can tell you that at MODEX, which is the big material handling show, we probably had as much interest from new customers as we’ve seen any years. So we’re — especially here in the US, we’re pretty — we weren’t had to go through this readjustment.
