Q2 2021 Hyliion Holdings Corp Earnings Call
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Yes.
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Ladies and gentlemen, thank you for standing by and welcome to the Holly Young Holdings second quarter 2021 earnings Conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
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We ask that you only ask one question with one follow up please be advised that today's conference is being recorded if you require further assistance. Please press star zero and went.
And I'd like to hand, the conference over to your Speaker today, Thomas He was I'm sorry.
Louis Baltimore. Please go ahead Sir.
Thank you and good morning, everyone and welcome to Honeywell and Holdings second quarter 2021 earnings conference call with US today, we have Thomas <unk>, Our Chief Executive Officer, and Sherri Baker and Chief Financial Officer.
During today's call, we will make certain forward looking statements regarding and future business expectations, which involve risks and uncertainties.
Forward looking statements are predictions projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward looking statements on this call for more information about factors that may cause actual results to materially differ.
From forward looking statements. Please refer to the press release, we issued yesterday after the market closed as well as our filings with the Securities and Exchange Commission forward looking statements speak only as of the date there and you are cautioned not to put undue reliance on forward looking statements. We undertake no duty to update this information unless required by law.
Before turning the call over to our CEO, Tom appealing, we'd like to share with you a short video about highway and our mission.
We live in and increasingly connected world one way or convenience is at the heart of every interaction one simple click and your orders on the way from across the world to your front door and record time.
While progress provides many benefits. It also comes at an unsustainable cost each year heavy duty truck and consumed over 38 billion gallons of diesel fuel and the United States alone, making the industry one of the fastest growing sources of greenhouse gas emissions and.
It creates a massive carbon footprint and imposes and every day tax on this planet we call home.
Okay.
We are highly on and innovative company with big ambitions born from the idea that real change is both necessary.
And possible.
A company built around a vision for a safe and sustainable future that improves the lives of people.
All while reducing their impact on the environment.
A company that recognize the urgent need to effectively reduce the amount of pollution caused by the most necessary of industry.
And at highly and we don't make travelers, we transform them to be part of the solution.
Yes.
With two powertrain systems designed to improve performance and lower the cost of ownership highly on is ready to jumpstart the trucking industry's path to electrification.
Our first solution the highly on hybrid powertrain uses and intelligently controlled electric axles and power of the trial immediately reducing fuel consumption and lowering emissions and.
Our second solution the highly on hyper Truckee Rx electric powertrain is charged by net carbon negative capable renewable natural gas and offers and industry, leading thousand plus mile range.
With state of the art proprietary software that maximizes fuel economy, while optimizing performance and offer and remote diagnostics and over the air updates and driving a highly and outfitted truck isn't just a net positive for the planet. It is also an enhanced experience for the driver the future is undoubtedly electric and.
Whichever option fleets choose highly on offers and the technology needed to unlock their electrification potential.
The demand for commercial transportation shows no sign of slowing down and creating sustainable trucking fleet is vital to reducing the industry's carbon footprint.
And at Haile and we're not just changing the industry.
We're changing the world.
One truck at a time.
Good morning, everyone.
I Hope you enjoyed that short video and I'd like to welcome you to highly on second quarter 2021 conference call.
It has been about a year since we announced that we'd be taking highly on public. So I'd like to start this call off with a little background on highly out and our mission for anyone who may be new to our company.
I founded highly on back in 2015 with one goal.
<unk>, the leading powertrain provider of electrified solution for the commercial vehicle industry.
This mission is underpinned by highly Aaron's core values, We act with integrity and we strive for excellence and all we do.
Take pride in delivering on our commitment and focus on the details to achieve the highest quality of products.
We will succeed as one team by empowering our employees to make decisions and to support each other.
It ties to our ultimate goal of changing the world one truck at a time.
With these core value solidly ingrained in our culture, we are starting to hit major inflection points here at Haile.
The first one is the completion of the first of our hyper truck ear ex demo units.
Which we plan to unveil and one of the industry leading trade shows.
<unk> Expo and long Beach, California in late August.
Second we will unveil our improved hybrid product, which will also be on display at the ATT ex though.
If you are thinking about attending it'll be the first chance to get up close and see our new hybrid product and a hyper truckee RF demo truck feel free to drop by our Booth next bolt peterbilt and Volvo.
And the set up a more formal discussion reach out to Louis and IR, and we'll schedule and made it.
If you are unable to make it out the long beach to see it live our marketing team is working on some exciting video content as part of this product launch too.
If you turn to page four and the presentation. These are the key topics, we'd like to cover today.
First we will provide an update on our improved hybrid commercial product launch and our continued progress towards the development and the commercialization of the hybrid truck <unk> ex.
And then we will give a brief status update around our supply chain, which we spoke about on our last call. We are also excited to announce that we have a new chief operating officer, joining us next week, which I'll cover in more detail later on this call.
We will also provide a regulatory update that is very favorable for our products. After discussing some positive developments and the renewable natural gas day I'll talk about the growth of our team and provide an update on our headquarter expansion project.
And then turn the call over to Sherri to go through some of our financial details and walk you through our expectations for the second half of 2021.
There've been so many major milestone and Thailand has accomplished since we founded the company back in 2015 from the completion of that dark Gray hyper truck E. Rx proof of concept model that many of you have seen to the consummation of our spec transaction that enabled us to raise over 700 million to fund commercial development.
So the formation of the hybrid truck innovation Council earlier this year.
It has been and exciting journey to get to where we are today and we see that we are well positioned to be the leading provider of electric powertrain solution to the class eight market for many years ahead.
If you turn to page five you'll see and update on our hybrid powertrain, we plan to unveil the improved hybrid powertrain later this month and began shipping and unit and the latter part of this year.
With this new design, we have significantly streamline the installation process by consolidating a significant amount of our component Intuit larger battery box.
We are also reducing the net system weight and has improved the overall systems efficiency. One of the main focuses has been on improved reliability and installation of the system.
And this new version, we also refined the software and cloud connectivity to deliver over the air updates more efficiently, giving us the ability to push out the latest version of our proprietary software and performance algorithms.
Included in these software improvement is a feature that enables automatic traction and assessed for drivers.
We've also designed it to accommodate future and mechanical upgrade and a more scalable manner.
Until launching our commercial revenue generating and crew hybrid powertrain and our goal has been to continue to ship low volume units of our hybrid system two industry leading fleet.
Seed the market and garner customer interest.
During the second quarter, we continued to deliver additional hybrid units.
And the latter part of this year, we will begin to deliver the improved hybrid version to customers. We will also begin to recognize revenue on these shipments after the product launch.
Now I'd like to shift the discussion to the hyper Truckee Rx. So please turn to page six before we go on I wanted to give a huge thank you to our hybrid truck innovation Council on behalf of everyone here at Haile and the amount of insight engagement and level of commitment to our cause they have demonstrated has been.
And valuable to our development process.
One of the most significant indicators towards future success as customer interest and demand.
To this point, we recently announced a product reservation agreement for the purchase of 300 hyper truck E. Rx units from Denmark logistics, a leading oilfield logistics company.
One of the exciting parts of this relationship is that debt Mark plans to use our technology to expand their operations by offering their customers a unique way to achieve their emission targets.
And the second quarter, we announced that that marketplace day binding order for 10 and hybrid units.
Their ultimate goal was to use the hybrid as a stepping stone to our hydro Truckee Rx product.
After seeing some early success with the hybrid product and strong driver feedback that Martin made the decision to extend their relationship with high and then by signing this reservation agreement for hypertrophic <unk>.
I'll begin showcasing our hyper truck demo units to the Denmark team later this year. Please.
Please note that this purchase and sale of the 300 hybrid truck here Eric units is subject to the execution of a final agreement between highly on and Denmark, but we.
We're very excited with the level of interest and commitments, we are seeing from Denmark, and others and wanted to share this exciting news with you.
Over this past quarter. We also held a significant number of meetings with fleets, who are part of the hyper truck innovation Council as well as others, who are interested in and being early adopters.
And I believe that the interest and our product is continuing to grow and please start viewing our solution as practical and being able to offer the greatest benefit to their fleet needs.
When looking at bolt payback and emissions improvements.
Now shifting to more details around the build out of initial Eric demo unit and the commercialization process, which you can see on page seven.
We recently completed the build of our first demo units with our engineering partner MTV and.
As we discussed and our last quarterly call and May. This is another stage in our multi phased product development approach, we are using to ultimately reach commercialization of the hybrid <unk>.
We will be sending one of these demo trucked out to the ADT Expo later this month.
Once that trade show is over it will travel to the TMT fall meeting and transportation technology debit and mid September.
Starting shortly after these major trade shows we have a full schedule of sales and marketing events planned for the showcase unit beginning in the fourth quarter. We plan to take some of these hybrid truck Eric units on the road traversing the country to showcase these vehicles with our hyper truck innovation Council members along with other prosper.
Active customers, we expect to release, some great content to our social media and traditional media channel along the way.
While these trucks travel the country, we plan to begin building. The next phase of demo units during the fourth quarter and other accomplishment and our multi phase development process.
These will be built on peterbilt, New model 579, and these units will go through extensive validation testing.
We will also utilize these trucks as the first and that will be deployed and fleet day to day operations.
These trucks will also be equipped with integrated drive axles provided by meritor.
A week ago Meritor announce that we have selected them to produce the electric axles for the launch version of our hyper Truckee Rx powertrain and will be the preferred supplier to highlight.
We chose meritorious product because it fits well with our customers vehicle performance requirements.
This is another milestone achieved and selecting suppliers, who can meet the needs for launching the hyper Truckee Rx.
We remain on track for showcasing trucks with fleet later this year.
And we will carry the day into 2022.
We will then provide initial units to fleet to operate and their operations followed by commercially available units ready and late 2022. This will then be followed by commercialization volume ramp up of the hyper Truckee Rx powertrain.
As I mentioned at the top of the call. We have good news on the regulatory front, Thailand's products, especially our upcoming hyper Truckee Rx present opportunities for fleets to reduce their total cost of ownership and reduced emissions.
And in the absence of tax credits that other de carbonization transportation technologies require to bring <unk> in line with diesel and yet.
And looking for ways to improve our product designed to capture the various tax credits opportunity and mandated qualifications at the state and federal levels.
Because regulations and incentives differ greatly from state to state and fleet needs also Barry we recently announced and enhanced configuration of our hyper truck <unk> that can travel over 75 miles and battery only and has plug in fast charging capabilities.
And enhancements will enable truck manufacturers that sell vehicles with highly on type of truck <unk> electric powertrain to generate zero emission vehicles sales credits that are required as part of California's advanced clean truck rule.
The ADT rule approved by California Air Resource Board in June of 2020 says that for class eight truck tractor manufacturers to sell vehicles in California, a minimum of 5% of their total, California sales must be zero emission vehicles by 2024.
This percentage increases year over year.
40% by 2032 and.
And near zero emission plug in hybrid electric vehicle can also earn partial DVD sales credit depending on it's all electric range based on this rule truck manufacturers will be able to achieve a 75% <unk> sales credit by selling a class eight truck with a hybrid truck <unk> long range elect.
Eric Powertrain.
While California was the first day to introduce the sales requirement for medium and heavy duty trucks bulk and New Jersey, and Washington, and have initiated formal regulatory processes to adopt the ACP rule, Massachusetts, Rhode Island, and New York and Connecticut have also begun consideration of the <unk>.
T regulation.
And product launch we plan to after the 75 mile Hypertrophic <unk> configuration.
Plants and later offer a shorter battery only range version for fleets with different products that application needs.
Now, we'll talk about the supply chain disruption. So many companies both large and small are facing and.
In past calls, we had mentioned how supply shortages have impacted some of our timing.
We are seeing tightness and the semiconductor supply like most of our major auto manufacturers are these days.
And most instances, we have been able to implement alternative solutions and workarounds. However, we still have a small percentage of parts that we are continually working to secure supply on a day to day basis.
Over the next several quarters, we expect the availability of these components will improve and cost pressure should ease and Fortunately for us this improvement and the supply chain should it coincide with our volume ramp expected to start later this year with our improved hybrid and continue over the years ahead with both the hybrid and <unk>.
<unk> ex.
Our procurement team has been doing a great job finding alternative sources for the same parts or identifying equivalent parts from other manufacturers that also meet our requirements.
One major differentiating factor between the highly on electrification solutions and most other solutions and the work is that our products work well with today's existing infrastructure and North America.
While highly and hybrid truck platform is designed to embrace and utilize hydrogen and the future as the world hydrogen production and distribution infrastructure improves our ability to help fleets decarbonize and the near term is underpinned by domestically produced natural gas ideally renewable natural gas or orange.
Jay.
We've got two major milestones come out of California, with regards to R&D and utilization in 2020.
First is that 92% of all natural gas used and transportation was R&D. So almost all the natural gas used was from renewable sources.
<unk> was that the average carbon intensity of Orange a fuel used was net carbon negative. The reason that this is so significant is because it means that California has achieved RMG production that is actually creating a negative and mission score for users.
And you hear about more and more companies setting net zero carbon emission goals by 2030 or beyond and <unk>.
Net carbon negative transportation emissions profile can enable companies to get to net zero across their organization, even if other parts of their business, how they positive carbon intensity.
Shifting to slide eight we previously announced the expansion of our headquarters facility in Austin, Texas, and we broke ground on this project and early July.
The goals here are to meet both our head count and anticipated customer demand growth.
We are expanding our installation footprint along with the number of trucks able to undergo simultaneous installation while our long term goal is for our powertrain and installed on the OEM Assembly line. We will continue our R&D efforts at our facility and we are increasing the size of our battery technology development area, and our powertrain and battery.
Testing area to enable us to assess and validate next generation solutions. This expansion will also accommodate our growing base of employees.
We have recently moved our work force to temporary administrative and operations facilities in order to support the renovation process.
The renovation work, including structural remediation is expected to last several months, but given construction delays and the Austin area. The project may take longer to complete.
We do not anticipate significant disruption to our business operations as a result of all this work.
Now shifting to some exciting updates around our team as I mentioned, we have a new CMO starting at Haile and next week Denis Gallagher comes to US after having spent over 20 years at Danaher owned companies. Most recently as the president of Jacobs vehicle systems and industry, leading supplier to the heavy.
Duty commercial vehicle market.
And it has a proven track record of delivering excellent results and.
Highly on increases its focus on the commercialization element. In addition to product research and development Dennis will lead all efforts and the organization that are focused on the commercialization and delivery of our products to the market.
Lastly, and this past quarter, we exceeded our hiring goals during the second quarter with and addition of 59 employees and roles spanning from automotive engineering advanced software algorithms and controls and engineering to supply chain operations and other important business functions we.
We will continue to hire great talent that will help us achieve our goals.
With that I'd like to turn it over to Sherri to discuss some updates on the financial side.
Thank you permits and good morning, everyone, Let's now turn to our results from the second quarter at 2020 one.
On slide nine our team continued to invest in R&D as we execute against our product development from that.
R&D spending was $13.4 million and increase of $4.1 million sequentially and $10.8 million year over year.
SG&A spending was centered around the continued build out and necessary infrastructure to advance our commercialization initiatives and operational capability and the.
The addition of talent to accomplish the goal.
And for the quarter SG&A spend was $10.1 million and increase of $2.7 million sequentially and $9.8 million year over year.
Overall, <unk> reported a net loss of $23.2 million compared to a net loss of $16.6 million and Q1, and a net loss of $4 million from a year ago.
Turning to our capital structure and balance sheet, we ended the quarter with approximately $318 million and cash and cash equivalents, including our short term and long term investments we had over $617 million.
Our short term and long term investments are high quality credit instrument.
Maturities beyond 36 months, and and average maturity and 18 months across the portfolio.
We are very pleased with this large liquidity position and believe and some of this capital is more than sufficient to fund our business and so we begin generating sufficient cash flow internally.
We previously said that we expect to begin generating revenue on the improved hybrid product. After launch later this year we.
We are on track to accomplish this goal and initial revenue recognition on our improved hybrid and a major milestone for highly and however, we do not expect the revenue generated in 2021 to be material.
For the full year of 2021, we are lowering our total operating expense guidance to the range of $130 million to $140 million, consisting primarily of R&D and SG&A expenses.
We are looking forward to executing against our product development roadmap and look forward to sharing our progress with you and feature.
This now concludes our prepared remarks, and now I would like to turn the call back over to the operator to open the lineup for questions.
If you would like to ask and audio question. Please press star one on your telephone keypad.
Please be advised to ask one question with one follow up.
First question comes from the line of Steven Fisher with UBS.
Hey, guys. Good morning. This is obviously rough Louis on for Steven Fisher.
Just kind of curious.
So, what's causing opex or run a little lower than expected for this year is that kind of related to sales or.
Just the progression in terms of the supply chain disruption.
Yes, and good morning, and thanks for the question. So the lower Opex is really because of our.
Pull back on installation and waiting for the launch of R&D and hybrid products. Later this year as our Opex is coming and a little bit lighter. So once we launch that product will start to see that ramp up but also keep in mind that a bulk of the R&D and SG&A is also related to our hybrid truck development as we're getting into future phases of that development.
And I would expect to see about the R&D increase as we move throughout the year and and SG&A really as we continue to add talent to support its commercialization.
Got it so even at this point, it's still be more Q4 weighted than evenly split and the.
And second half.
I think you could probably expect it to ramp up and at a higher pace and what you saw in Q2 as we get into Q3 more related to that that hybrid launch and then we're equally weighted as we're moving throughout the rest of the year.
Got you, Okay and then.
And I can ask another one.
How are you guys thinking about production capacity for 2022.
Yeah, absolutely so just to kind of start with our kind of high level plan of how we're going to produce systems. So initially we are going to start with being able to build systems that are owned facility and Austin and then from there and we will move the install of the product into mud centers and that's something we've spoken about in past calls where.
And we partnered up with some facilities like Lonestar truck centers as well as Bon pain, and Berkshire Hathaway company to be able to utilize their facilities right next to many of the major truck Oems to be able to actually do the installs now at their facilities. They are capable of doing one thousands of units a year.
And so really we don't see any limits there in terms of being able to ramp up volumes and then from and assembly standpoint, as we start to hit capacity of what we can build in house that highly on and once again, it's really more of the early units that we plan on doing at our own facility will then move to contract manufacturers to do the assembly for us so really sticking.
With that asset light approach here, where we don't need to go set up our own hundreds of thousands or hundreds of millions of dollar manufacturing facilities in order to be able to produce these products.
Got it okay cool.
And I'll hop back in the queue. Thanks, guys. Thank.
Thank you.
Your next question comes from the line of Brian Johnson with Barclays.
Hi, a couple of sets of questions.
And the innovation Council and the hybrid.
In terms of managing the sales.
<unk> can you just kind of expense.
And how about when you would we started looking for orders for the hybrid truck and as well of course, it could be later and for the hybrid tuck in and how much evaluation kick. The tires are there things before orders in terms of staffing has vehicles in custer and potential.
With Eskom and fleets that are revenue, creating but sort of.
Point, the window and sales funnel.
And so what we found and the discussions as leases, we're really kind of volume into their normal technology evaluation adoption cycle, and so just a little background and kind of how fleets approach it and firstly I want to get their hands on and technology.
And it live and then from there they want to start deploying and in their operations and low volume per unit to be able to experience and improve it out firsthand and then from there the goal would be to be slotted into their normal truck purchasing that theyre doing so for fleet, that's keeping trucks for four years five years.
Every year, there will be turning over about 20% to 25% of their operations of their trucks and our goal would be that we can be spawning into that new truck purchase bill, but our fleet is not going to take a truck. That's only two years old and just get rid of it to replace with a new technology, they're going to be getting rid of the ones that are out there and of their life and then cycling.
In new technology from there. So we're working with both on the hybrid and on the hybrid truck discussions to really understand their adoption cycles.
With hybrid we've already got some fleets out running the solutions, we've already seen and some of those fleets come back and placed repeat orders with us and as we go into launching the improved version of the hybrid that'll be another process here we go through of.
Getting it rolled out with more and more fleets. So that they can experience. It and then with the hybrid truck the big thing with the innovation Council is that those fleets have committed to run these trucks in their operations to experience and we really see that as one of the early stages of that adoption cycle and then from there once they prove and our goal is prove to them that.
And we can hit those emissions numbers, we can hit those reduction and operating costs and then from there and get slotted into their new truck truck purchasing that theyre doing every year, but the great news for US is some of these large fleets that operate and thousands of vehicles. They can be turning over 1000 trucks a year and their operations.
Okay.
Second question.
Dana was and early equity back per view and that supported me and some manufacturing operations. So can you explain kind of the thinking in terms of.
Adding merit for Florida, hyper truck does that displace Dana and won't be the traditional axle choice that fleet tab between and Dana and Meritor sat with one standard and they have it available.
Yeah, absolutely so with Dana you are absolutely right, there and early investor and Highland and and we've recently decided to and our exclusive supply dealings with Dana, but we have we still have a and ongoing relationship with Dana where we're able to supply source components from them. It's really just the exclusive aspect of it.
And that as has been terminated and so with that.
And we've announced that we're going to be utilizing that meritor E axle solutions and and launch of the hybrid truck and so really when we went out and looked at is and what solutions are available on the market that would allow us to be able to really meet the demands and we're seeing and from our customers and we saw that that meritor axle solution, which.
Meritorious, but hundreds of thousands of miles of testing on that that axle and then we're actually going to be implementing it into our first demo truck that is going to be unveiled at the act Expo, that's what will be going to market with from an axle supply standpoint for that product.
Okay. Thank you.
Your next question comes from the line of Bill Peterson with Jpmorgan.
Yeah, Hi, good morning, and thanks for taking my questions I have two and I guess first on the hybrid side.
I understand and eliminate or immaterial revenue this year, but would you say and just for clarification. This is more the result of supply chain issues or would this be more of a result of just I guess not meeting all the milestones that your customers are looking for and time Im just curious from that point and then.
And what does the pipeline look for the hydro trucks as we look into next year and beyond.
And so on the Hyperscale and hybrid truck this year kind of the revenue generation not being material is really a factor of over past calls we had expressed and we've experienced some delays and the development of the hybrid as well as some supply chain issues. So it's kind of a combination of both of those and so from that standpoint, we are.
Still on track to launching that product this year and starting to recognize revenue on it which would be a huge milestone for the organization, but we just don't see it becoming a material amount of revenue.
And then your second part of the question was around hyper truck orders. So one.
And one of the things that we announced this past quarter was a 300 unit reservation with with Denmark, that's a huge indication towards fleet interest and and one of the thing and its pretty interesting about that bar here and they actually are looking at this technology as a way to expand the size of their fleet operations.
They see that they can offer their customers and unique benefit of significant.
Reduction for the oil and gas space and so we're seeing a lot of customer interest and the hybrid truck.
Discussions are frankly exceeding my expectations of what we envisioned from a fleet discussions and overall fleets are just viewing it as a really a practical way in order to be able to adopt electrified powertrains into their fleet operations. We breakdown many of the hurdles that they are often face with like having to set up infrastructure.
And having costs that are more extensive than diesel.
Those are things that we're not faced with.
And we're looking at the value proposition of the hybrid trial.
And I Might've missed spoke I was I was wondering the pipeline for the hybrid truck next year.
I'll go and ask my second question as well.
Related to the hyper truck I guess when you think about the trials that are going to be happening all throughout next year, what are the key criteria and what are the.
Sure.
What are they looking forward like what makes the I guess for example, even the Debmar unit go to full purchase agreements as opposed to just the reservations. So just clarification again and hybrid ramp next year and then and then what are the customers looking for for the.
Prove out next year.
And so first on the hybrid side. So we're in that phase right now where we've already started seeding the market with some early units as I mentioned, we are starting to see some customers coming back and placing repeat orders with the hybrid. So that's a big positive indicators. There and then we will continue to seed the market with the improved hybrid system.
In order to get ready for for next year, and starting to really hit stride with commercializing that solution.
And then with the hyper truck and so and some of the key things that the fleets are going to be looking for I would say, yes, I would say kind of come down to three things, it's going to be does it save the money does it have reliability and our drivers accepting the solution. So I'll walk through and logo with each and every one is the TCR side, we see that that's actually.
One of our biggest value propositions, we're bringing a fleet and probably there number one pain point.
Bleeds view these vehicles as.
A tool and asset for their operations and so theyre going to make buying decisions based on Tcl models, and Thats, where we can bring a lot of value by actually having a cost model that is less from diesel.
And then from a reliability standpoint, they want to make sure that this doesn't add.
And amount of maintenance headaches and hurdles and their operations because uptime is critical for them in order to be able to move assets around the country or move goods around the country and.
And third driver acceptance.
And do they want to make sure that the drivers of light driving the vehicle and that it's a drug that works for them and and we see are strong and believe that there's a huge shift and kind of driver experience from going from a diesel truck to our hybrid truck solution you have.
Very smooth acceleration and very fast acceleration with and electric drivetrain and.
And where we think drivers from the drivers that have driven our hyper truck proof of concept vehicle. They love it they love the experience and we actually think that's going to be a big selling point for fleets.
Your next question comes from the line of Noel Parks with Tuohy Brothers investment.
Hey, good morning.
Good morning.
Just a couple of questions.
You mentioned.
The modest centers and.
You'll be able to integrate them into the manufacturing process Im just wondering on the cost side our costs.
And.
Working through the mock centers are those highly visible or are they more sort of a work in progress.
You need to get up and running and and sort of see how if they settle out.
So we've actually already started using mud centers to do some of the installs for us actually the majority of the installed and that's taking place thus far this year.
Of the system have been updated by different mud centers and so we are getting some clarity on kind of early unit and then we're working on what that pricing is and then we're working with those those outfitters in order to look at what is going to be the long term installation cost now one of the reasons.
We haven't put it.
And as much clarity around it and on units we've been installing to date is really because as we go into the improved hybrid system. One of the biggest shifts and that product is a much easier installation process. We spent a lot of time looking at how can we reduce installation time and make it easier.
For a month and are in order to be able to install it and so we see that was rolling that product out we'll be in a position where as we ramp volumes, we'll be able to have a strong cost model set up with those mud centers.
Do the installs.
Great and.
Just wondering if you could talk about maybe over the last say six months or so how customer evaluation process per term.
Just wondering about the level of urgency that youre seeing among the fleet operators and curious as.
Are they are they at a point that they've done enough and investigation of different offerings out there.
There already and are actively ruling out vendors, who sort of want meet their requirements or should we think of this as being more still very much and in its infancy.
Sure. So maybe just speaking about the industry as a whole first because I think this is really important.
And there is so much attention being shifted towards electrification right now with and fleets from where we were a year ago two years ago. The level of interest is skyrocketing and fleet no that electrification is coming and it's happening and they are now at a phase where they're trying to figure out what electrified solution is going to make sense for them and to your car.
And the question they are really diving into those kind of nitpicky and like how much is it going to cost to set up a station recharges of our hydrogen station and.
Even getting down to examples like and the grid support and re charters, we had our fleet share and story with us.
Not too long ago, and they were saying that they went to their utility provider and they weren't even going to be able to operate 10 trucks offer the VEB trucks off of the grid because of the electric demand and that those would require so these are really diving into those nitpicky detail and thats, where were seeing our solution really shining, especially with the hypertrophic <unk>.
Lucian, where you can use that existing infrastructure of natural gas out there. The costs are there today to make and have it make sense, it's not something that we need drastic cost reductions and the years ahead of the fuel cost in order to make it hit at cost parity of diesel we are already at a point today, where you can achieve a cost plus and diesel so.
Those are the level of detailed fleets are diving into and I think every fleet is looking at this the same way they want to experience and technology firsthand and their operations for periods of time determine what makes the most sense per their fleet and then we'll move forward with cycling that technology and to the new vehicles that are adopting.
Great. Thanks, a lot.
Yes.
Your next question comes from the line of Mark Delaney with Goldman Sachs.
And I guess, thanks very much for taking the questions I was hoping to.
Better understand the long range variant of the <unk> and you guys talked about 75 miles of capability. What are you guys changing and thats, leading to the longer range and there's just a bigger battery or are there other changes youre, making to the design of the <unk>.
Allowing for that time and longer range.
Thanks, Mark So maybe just first one of the things that we've received a lot of feedback from yourself from other sell side analysts from the Oems and even fleet and then this focus around zeb credits and being able to really achieve the mandates that are coming out from carb and others.
And this was one of the main drivers behind.
Implementing this shift and the.
A variant of the product where with extending the range and the BBB only range of the trucks. We are now enabling the OEM to qualify for the <unk> credit for any truck they ship with our powertrain and so that means they are getting the same credits that a full electric plug and truck would be getting as those are being share.
And so we see that as a huge enabler for the Oems because.
As they are getting mandated as we mentioned and the call in 2024 five percentage of their fleets need to get the credit.
And then it's going to growth of 40% and the years ahead.
Our technology and go after those same credits and with that 75 miles.
BBB range, we're able to qualify for 75% of <unk>.
Credit and so that.
And that was the main driver to the other part of your question of how are we doing it it is increasing and kilowatt hours of the battery pack to enable us to have that longer range.
And so that's helpful. And then just in terms of the.
And the timeline for the long range version and maybe you can talk about that and a bit more depth or is it similar to what you were.
Already discussing and for the <unk> of raw or is there a different timeline for the long range version. Thank you.
So because of such a strong focus on the credit and wanting.
And with US wanting to make sure we're working with the government agencies to really achieve their targets and they are putting out there we've actually pulled that in as our initial product that we're going to be launching we'll have that larger battery pack and that will be when we go to market with first of all the timing that we've discussed that's actually coinciding with the timing or that is the timing of.
And the long range model and then we will be.
Leasing a shorter range model after the long range model is already out there.
Got it thank you.
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Ask that you. Please ask one question with one follow up.
Your next question is a follow up from Bill Peterson with Jpmorgan.
Yeah, Hi, this is somewhat more of a longer term question and I clearly understand the focus on hybrid and Hyperscale really with the R&D and so forth.
The infrastructure Bill and just passed the Senate obviously, there's more work to go and then the house, but if you think about there's clearly a lot of focus on hydrogen.
How would this potentially let's say change your longer term per year.
Let's say timeline on implementing hydrogen and go direct sales force or fuel cell version, and just kind of kicked off and the infrastructure Bill and general and I realize there are some.
Components related to gas and there, but just any thoughts on the instruction and sort of a long term longer term outlook.
And so first off just all the push and focus is coming from the Baidu and administration towards electrification is fantastic and we're seeing that help with that customer interest and demand and ability for fleets to be able to adopt some of these technologies are being subsidized. So that's all really positive but going back to your question.
One of the things we announced a couple earnings calls ago was our path to a hydrogen based future and evolving the hybrid truck powertrains to make sure that we evolve with the production and and build out of hydrogen fueling stations. So we're starting with natural gas today, because thats whats logical for today with renewable natural gas you can get to net.
Carbon negative you've got the costs that are there the stations that are there, but as hydrogen gets built out we will evolve the generator that we used on the truck to evolve to be able to use hydrogen so starting with natural gas then we're actually going to go to a fuel agnostic generator that can run on either natural gas or hydrogen and then eventually.
Moving to hydrogen fuel cell, which would only be able to run on hydrogen and so we see that as well.
We will have a hybrid truck out.
And it's not a monumental and massive shift in order to change out that generator to move to different solutions to accommodate different fuels. So we will have millions of miles already deployed on our powertrain using natural gas and then we'll be able to evolve that into a hydrogen generators. So we think we're positioned really well to take advantage of this shift.
Hi origin and whenever those stations are built out and the cost of hydrogen come down and the transportation of hydrogen is figured out we will be well positioned with our powertrain to be able to offer fleets and solution to run on hydrogen.
Yes, thanks for that and then.
And as more and more of this.
Housekeeping you gave the color on the on the operating expenses for the year, implying kind of a big step up here and a third and third quarter, but I guess conceptually how should we think about that into next year given that.
And what can you do to the hybrid truck.
Elevation and so forth.
And then the other part of the cash uses as Capex I know Youre, obviously and the new buildings, but how should we think about capex for the remainder of the year and into next year.
Yes, great question, and I actually take them in reverse order. So a really key differentiator for US is we're an asset light model for Capex for US is actually not a significant cash outlay. This year, we expect cash to east not likely and the $10 million to $20 million range, Thats really asking price monthly.
Operations, and our facility expansion and so depending on the speed at which we are able to complete and phases of that facility renovation that will depend on where we come up and that range.
Important to note that Capex for US is it's not a significant amount compared to maybe from some others in the space and then from an expense perspective, we're actually in the process right now.
And our 2022 planning cycle sales were being that we are doing is we and implementing various proportions of net fleet as and ERP and we're also tackling a forecasting and planning module.
That is an industry leader that will allow us to actually build API, driven and that will tie directly to our commercialization phase and so.
As we're moving throughout the year and completing that process, we'll be able to give you better visibility into what that expense looks like but as it sits right now and we feel like we're very well capitalized and we have ample liquidity to carry us through all of this commercialization phases and interests and and beyond.
Thank you.
Ladies and gentlemen, we have reached the allotted time for questions I would now like to turn the floor back to Mr. Healey for any additional or closing remarks.
Well. Thank you I appreciate everyone joining the call today hopefully you can see there is so much going on within highly I own a lot of exciting developments, taking place right now and a lot of big milestones that are coming up as we get towards the end of this year. So please be following the journey with us as we get hyper truck units out on the road and showcasing and vet tradeshows.
Here and.
A lot of exciting fun and exciting things coming up here, we look forward to chatting and next quarter and I Hope you have a great rest of your day. Thank you.
Thank you for participating in today's conference call. You May now disconnect your lines at this time.
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