Q3 2021 Hyzon Motors Inc Earnings Call
It is a purpose driven company.
The world drastically neat decarbonization efforts and the core technology that's been developed.
The parent company's activities since 2003, just what commercial vehicles really need to go to zero emissions.
There are compromised.
Building, a stellar team around the world from Australia.
China, Singapore and here in Europe to several locations in the United States.
<unk> team that will deliver solutions for customers around the world.
World cannot wait for these solutions is not optional anymore to think about decarbonising.
Corporations and governments must act now.
The amount is it here to accelerate the rate at which that can be done.
Q1 conference call as a reminder, today's call is being recorded at this time all participants are in a listen only mode. A question answer session will follow the formal presence.
Patient.
At this time for opening remarks, and introductions I would like to turn the call over to Don was at their Investor Relations manager of Horizon.
Good morning, and welcome to <unk> third quarter 2021 earnings call and dialogue Rivera Senior manager of Investor Relations on today's call are Craig Knight, Our Chief Executive Officer, Parker, Meek, Chief strategy Officer, and Mark Gordon, Our Chief Financial Officer Hayden issued our results today in a press release that can be.
<unk> found on our website I don't motors Dot com in the investors section as a reminder, our comments within this call may contain forward looking statements, which may include expectations and assumptions regarding the company's future operations and financial performance.
The impact of COVID-19 pandemic.
And are subject to various risks and uncertainties. Please refer to our forward looking statement posted on our website under the investors section.
For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements. Please refer to our filings with the SEC, including the press release issued this morning, which was furnished on form 8-K with the SEC.
Except as required by law, we assume no responsibility for updating forward looking statements.
During this call. We also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA.
More detailed information about these measures and a reconciliation to the nearest U S. GAAP measures is contained in the press release issued this morning, which is available on the investors section of our website and was furnished on form 8-K with the SEC.
And with that I am pleased to turn the call over to Craig Knight, Chief Executive Officer of Hy Bon.
Thank you Darla and thanks to everyone for joining us this morning just.
Just a quick sound check dollar.
You bet.
I sort of third quarter was a very successful one from both an operational and financial perspective during.
During the quarter.
<unk> executed to plan.
The strategy, we have been communicating.
<unk> continued to build out and tell all the time.
We achieved several milestones in terms of vehicle deployment.
Revenue receiving additional orders significant advances in our hydrogen infrastructure partnerships.
And ongoing investment in.
And extending our technology advantage.
Hi, John has made solid progress.
Even in the face of well documented supply chain challenges that have deeply affected the manufacturing industry globally.
Today, we are again reaffirming our guidance of expecting to ship 85 vehicles by the end of 2021.
We continue to expect to meet this target due to the strength of the global footprint of hot zones business with facilities and operations in Asia, North America and Europe a.
A feature which is showing enormous benefits during the current dislocations and which we expect will underpin our competitive advantage well into the future.
I wouldn't believe the progress we have made within a few short months of becoming a public company.
He is testament to our technology.
Hardworking operations and technical personnel.
And an experienced management team that is working hard to protect shareholder interests.
<unk> is a purpose driven company.
Determined to play an important role.
Accelerating the energy transition.
As a result of that global footprint.
Deep historical relationships within Asia.
And global supply chain challenges worsened, especially in the last few months, we were able to make a conscious decision to shift the mix of delivery locations from predominantly European to predominantly Asian customers.
China specifically.
We did that because we could.
Arizona near term focus is getting out vehicles on the road and into customers' hands.
And wherever we can do that.
Letting customers see for themselves.
Vantages of fuel cell electric vehicles that are available today.
We will do it.
And we have done exactly that.
During the third quarter.
Delivered two vehicles to customers in Europe.
I want to the municipality of running and wanted the municipality of Rotterdam in the Netherlands, and Italy of communications.
Had flagged several government agencies in Europe as early adopters invalidating fuel cell trucks for their needs.
And we highlighted that the commercial sector was following closely behind.
These first two lit two deliveries not trials.
They were deliveries of vehicles to be used by these customers in real world everyday applications.
This resulted in higher zones, first legal revenues, which totaled $1 million in the third quarter.
In our previous earnings call. We noted our expectation was to have first vehicle deliveries and revenue recorded in the third quarter.
That is exactly what we accomplished.
We are proud to reach their small son, but these sales are obviously just the beginning.
The seed sales that many of you have heard me talk about for some time.
We are currently engaged in discussions to expand our relationships with many repeat customers who have previously placed orders, including some who have not yet received their first deliveries.
With one example of the recently announced agreement with a subsidiary of Schuff Steel group the world's largest private steel company for a 60 day trial at Schuff steel group's operating base in China.
Well those new to the highs on story, we have always articulated a view.
The market for Al use cases would develop through a series of seed or pilot sales.
Then batch orders there.
And then fleet conversions.
And we are seeing the market progress.
As we have articulated and believed it would.
Importantly.
Given the pivot we were able to make in our near term focus from Europe to Asia, We haven't had a slowdown in the pace of that road as well.
As we announced this morning.
John has received the first two purchase orders from Shanghai hydrogen hung in automotive.
China.
A total of 62 trucks.
The end user of these trucks is a large industrial conglomerate.
Along with the milestones in Europe and Asia. We also continue our push into the North American market, where the build out of our facilities in Rochester, New York.
Bolingbrook, Illinois are anticipated to be online by mid 2022.
While the commencement of U S operations is slightly delayed due to availability of manufacturing equipment.
The Hudson model is designed to ensure that we limit the damage.
We continue to source fuel cell systems from the parent company in the interim.
Well, we obviously benefit from the parent company's installed base of fuel cell manufacturing in these early stages. We are eager to get these two additional U S manufacturing facilities up and running.
To complement our existing R&D facility in Detroit.
The North American market has seen enthusiasm for hydrogen powered commercial transport and grow quickly even since the beginning of the year.
Awesome plans to be among the first to deliver hydrogen fuel cell electric trucks to customers in the U S.
If the fleet interest shown during the ride and drive event.
About two halves on class eight fuel cell electric trucks at the September ICT claim fleet Expo in long Beach, California.
Is anything to go by.
We have plenty to look forward to.
The soon to be son U S 1.2 trillion dollar infrastructure Bill.
Supporting the energy transition.
$8 billion for hydrogen hubs, which closely aligns with the hydrogen supply strategy already being pursued by horizon.
To support back to base fleet operations, Yeah actively shaping items participation in submissions under the hydrogen hub program amongst other granite activities.
Along with the entire leadership team at highs on I'm incredibly proud of what we have been able to accomplish since.
It's becoming a public company in the second half of July 2021.
We believe that commercial and operational progress has been consistent with the plans, we outlined and we continue to do everything we can to maintain our leading position.
<unk> the expansion of our portfolio of intellectual property and continued robust spend on R&D.
You can expect us to.
Tahira speak of the increasing content within our fuel cell electric vehicles over time, we expect these hubs on content to account for the majority of the specialized parts and components.
The vehicle.
Expected to account for around 70% of the vehicles cost of production.
This ensures the opportunity to consistently and robust margins on sales.
To summarize our priorities.
[noise] puzzle has sharpened our focus into three value pools.
Vehicles.
Fuel.
And service.
I've spoken a lot about the success of their vehicle operations and commercial efforts.
Now to discuss our strategy around fueling and hydrogen infrastructure.
Like to turn the call over to our Chief strategy Officer Parker makes.
Yeah.
Thanks, Craig and thanks again to everyone on the call.
It's Craig just laid out horizontal business have made significant strides in putting vehicles on the road.
At the same time Heartland has been working to expand the supply side of the equation.
Supporting the build out of hydrogen production and dispensing infrastructure to ensure commercial transport is able to continue to decarbonize that scaling that pace of adoption of fuel cell electric vehicles.
We often hear from investors looking to us for guidance to frame the question of hydrogen supply and infrastructure build out necessary.
To support the downstream adoption of fuel cell electric trucks and.
We thought we'd spend some time with you. This morning to talk you through a bit more detail on our growing conviction on this topic.
The conclusion is that we are.
We're more confident than ever before that.
Not only is the required infrastructure build out more modest than many might assume to support our growth targets.
Wave of build out in our four key geographies North America, Asia, Australia, and Europe is well underway.
The transition to zero emission commercial transport.
Require many different partners working together to create a sustainable ecosystem of feedstocks.
Production and dispensing facilities and financing structures, they reinforce each other and provide a seamless and efficient user experience as possible.
As it is committed to being a large part of meeting these challenges along with our partners.
Recently I wouldn't have done this through a series of agreements with both innovative early stage as well as large established global companies.
In particular Hudson has made significant strides in our partnership with Raymond ESR.
Earlier this year Raven S R announced a strategic investment for Chevron It told you and heightened.
Ravens technology is capable of converting municipal solid waste are many forms of renewable methane emissions free heightened supply Institute, where supply of decentralized hubs toward reported depots supporting fleets of trucks complementing our back to base model.
The first of these waste the hydro hubs is slated to come online in the San Francisco Bay area in the second half of 2022.
Second waste the hydrant hub instead to be operational and sort of just 12 months thereafter.
Additionally, the first Raven blue renewable natural gas or Orange you. The hydrogen hub is inciting now.
Expenses have also come online in 2022.
These raven blue hubs and wastewater and pilots can be brought to market and between six and 12 months, what siting and permitting are complete.
To produce five tons of hydrogen per day or more.
As we will discuss in a moment just one single hub at five tons of hydrogen per day could support approximately 75 to 100 hydrogen fuel cell electric class eight trucks, assuming average utilization.
We're very excited about the progress we have made with wave and that's our plan to expand well bore well beyond the initial three hubs in the coming years.
I've got announced earlier this week, our partnership with TC Energy, formerly trends Canada.
To build operate and own hydrogen production facilities across North America.
We are extremely excited to be working with a company, whose deep infrastructure feedstock and technical expertise.
I can tell and high value to the scale up.
Together, we have ambitious goals for this new collaboration protein delivery of hydrogen fuel to commercial vehicles as soon as 2022 with production at each hub of up to 22 tons of hydrogen per day.
In connection with our merger, we articulated projections of just over 17000 trucks sold in 2025.
We think it is useful to frame what is required on the supply side to support those vehicles sales and the opportunity that presents.
In fact of the 17000 vehicles, roughly 9800 of those forecasted vehicles on the heavy duty medium duty and bus categories, which require more hydrogen fuel than class III trucks and vans.
Based on average use cases 17000 highest on trucks and buses would require just 650 tons of hydrogen per day to operate.
So obviously the consumption needs will differ based on usage long haul versus heavy duty or vehicle type class eight versus class III, but that roughly 35 kilograms per day on average per truck across the portfolio, it's a fairly widely quarter consumption metrics.
We also have some actual data from fuel cell Evs on the road today to give us real time information.
So what does one need to believe to see supply of 650 tons of hydrogen per day, and Asia, Europe, Australia, and North America.
Would be able to support 17000 vehicles to be honest not very much.
What's the set aside for a moment our stated strategy of highs on zero carbon through our partnerships with TC energy Raven and many others, we expect to announce in the coming quarters, which makes it hard to all play an instrumental role in providing hydrogen to our customers. Instead, let's just looking externally to the third party heightened supply marketplace.
Market is telling us that the buildup of heightened supply is happening now.
As more than sufficient to meet our volume case in 2025.
Just a representative sampling of supply build outs underway today inquiry.
Plug power has publicly stated in finance plans for its network to supply 500 tonnes of greenhouse origin by 2025.
Shell's construction now underway, a 10 megawatt Pam electrolyze her to produce a remarkable 1300 tons per day of green hydrogen in Germany.
Air products hydrogen plant construction currently underway in China planned $5 billion Green hydrogen plant in Saudi Arabia, I planned $4 5 billion dollar blue hydrogen complex in Louisiana and.
And Mitsubishi has plans to develop nearly 1000 tons per day of hydrogen in North Dakota.
The conclusion is straightforward from the Gulf coast of the U S. Heartland from the provinces of Canada to Continental Europe.
From Australia to Asia. The heightened industry has moved beyond signaling interests or intention is now on the mobilization and scale up phase many of the most sophisticated well capitalized and global industrial companies with very public plans are being joined by startups and modern technology platforms to deliver these projects.
Fitch estimates that China is already the world's largest hydrogen producer with 22 million tons already produced in 2019.
Here in the U S.
Congress just passed my President Biden is expected to signs of bipartisan infrastructure build in the next few days.
As Craig mentioned $8 billion with dedicated Quinhydrone hubs, and additional $5 billion to zero and low emission buses and <unk>.
$73 billion to rebuilding the electric grid with renewable energy and a central feedstock for green hydrogen.
If past the build back better plan with an additional $500 billion included energy tax credits.
Would represent the largest ever federal investment in clean energy with specific incentives for green hydrogen as well as the clean power feedstocks that we believe we can further galvanize the acceleration in cost down of green hydrogen even more rapidly than we are already see.
In summary, we are seeing the precise intersection of aggressive top down policy architecture formulations, and multiple OECD economies simultaneous with bottoms up industrial investment decisions.
The resulting trajectory has not been clear since the day, we announced our merger and attention to be in the public markets, but the heightened support infrastructure build out is underway yet.
Yet as we deploy our trucks buses and coaches globally, we won't play a waiting game or the other market entrants to provide solutions for our customers. We can do it ourselves on the back of our proprietary relationships in technology, we intend to be an active part in developing the hydrogen supply infrastructure in all the markets, where our vehicles operate.
Many of the large project I just mentioned are slated for 2025 or later online dates and we have the opportunity to meet significant vehicle demand much sooner.
Zero to negative carbon intensity hydrogen available in 2022 diesel parity to support hydrogen fuel cell E V fleet.
We could not be more pleased with where we are headed and helping enable the broad conversion of commercial vehicles to clean hydrogen fuel and broadening our partnerships with like minded companies to accelerate the transition even further.
Now I'd like to hand, the call over to highest CFO Mark Gordon.
Thanks, Parker and thanks again to everyone on the call Hi, son finished the third quarter with $498 million in cash from the balance sheet.
As the company continues to manage its expense prudently with an eye to making every dollar count.
Third quarter revenues were $1 million total operating expenses were $56 million and net income was $32 $4 million.
Operating expenses for the third quarter were comprised mainly of $4.8 million of R&D costs, and $44 8 million of SG&A costs within SG&A, where charges totaling $34 1 million, which were essentially one time in nature relating to foundational equity grants for senior executives.
<unk> and expense related to the retirement of our former CTO at the deal expenses.
Hi, son also reported a positive EBITDA of $31 $7 million due to changes in the fair value of earn out in private placement warrant liabilities.
Adjusted EBITDA for the third quarter was negative $15 2 million after backing out the one time items related to the fair value of the earn out and private placement warrant liabilities and other onetime charges.
How does one remains on track to meet our forecasted full year 2021, EBITDA and to have more cash on the balance sheet than our original plan.
We reiterate our plan to ship 85 vehicles by year end.
Looking over the medium to longer term, we have become more optimistic about our margin outlook. This was a direct consequence of the energy crisis, which has begun to unfold globally as.
As the price of oil increases the total cost of ownership of hydrogen vehicles becomes more competitive and the selling price of our vehicles and needed to drive widespread adoption will be higher.
So it is a technology company, which also command higher margins.
We already have a leading fuel cell and we are innovating with E axles batteries and other components of the vehicle powertrain.
The energy crisis has actually shown up in the grid before it has shown up in the oil.
A lack of investment in natural gas and coal driven by climate change concerns as call caused record commodity prices for natural gas outside of North America and for coal globally.
The high commodity prices are leading to higher electricity prices and this trend is only set to become worse.
Black hats blackouts are becoming more common from China to Lebanon to California.
Many European countries are now, making electricity price records with electricity prices in the U S. A decade highs.
A widespread rollout of battery electric vehicles will only exacerbate the situation with the grid and cause a regressive tax on the consumer.
The energy transition needs, a solution, which is not grid dependent.
Zone with the help of our partners will produce hydrogen off grid.
Widespread local hydrogen production has the potential to create energy security, while avoiding a regressive tax P.
Fuel cells are not fool cells. They are the answer to the current crisis.
Widespread adoption of battery electric will add to the problem.
And with that I'd like to turn the call back to Craig for closing remarks.
Thank you Mark.
As you've all heard Hudson continues to make strides across our three value pools of vehicles fuel and service.
We have delivered trucks in Europe that are operating today.
We have received orders that we are on target to fulfill by the end of the year.
If you're in Europe.
We are building at Hudson supply infrastructure without partners.
And we are making progress on our U S facility capabilities.
In short we are executing.
We are executing to the plan we laid out.
The ability to pivot when needed.
We aren't here to make excuses for challenges.
We have to be careful and thoughtful stewards of shareholders money and to become the clear category leader in <unk>.
Zero emission commercial vehicles.
In addition to our financial and operational progress.
Like to highlight two other important events of the last quarter.
Hiring of Patrick Griffin President.
The ratio of operation.
As well as Judd will as Chief Accounting Officer.
Both bring deep experience in their respective fields and further strengthen the team at Hudson.
To achieve our corporate vision.
Zero emissions zero compromise.
Thank you all again for your time and attention and with that I'm excited to share a video we captured wiling running in about how is it horizontal fuel cell electric truck racing a diesel truck before we open up the call for questions.
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And I just want to ask a question. Please press Star then one on you touched on the phone and to remove yourself from the queue just price to pay.
Okay. Once again, that's two questions.
Our first question will come flying around.
Ireland.
Nevertheless research you may begin.
Oh, hi, thanks, everybody.
You've got a lot going on.
So congratulations on that.
Craig I don't know how much you're willing to talk about this but you mentioned in a recent update that you are still working with a lot of the customers you've.
<unk> been Trialing your product or are looking at it or whatever across the last several months. So I Wonder do you track you know number number of potential.
You're working with a number of potential orders and maybe you could just expand to the extent you're willing on the process there on the backlog, but on the book of business that you're working on the funnel of sales and how that's developing thank you.
Sure Rob Thanks for the question.
Obviously.
This.
One is on motors selling processes is a typical kind of prospecting sales funnel. If you like with the added complexity that we're promoting a new technology that most of our customers haven't haven't really had any experience with any prior experience with.
So definitely they tend to be some drone.
Drawn out processes.
Coming familiar with the technology and accepting it.
And that's why we sometimes talk about those kind of three phases of how the business will develop from the sea well pilot sales of ones and twos through these batch sales of fives and tens before we get to a real serious.
Fleet scale adoption, what we are saying, though is it kind of compression of the process and the timing involved.
While the earliest sales to two custom.
Customers to evaluate this technology.
Could take 12 to 18 months to go from initial compromise.
Confirmation of our seats I'll throw to getting some commitments for decent volumes were saying that compressed. So I don't want to speculate exactly how much that compresses, but there's two real.
Two real drivers there one is the increasing urgency with which corporations and governments are moving to address climate change as we've seen through that.
Announcements in the wake of Oh, there's a lot of the meetings in the last two weeks.
Governments and corporations are really becoming more urgent about all this and then the second factor is the increasing acceptance of hydrogen as a part of the solution.
So it's no longer really a theme that we sit in front of customers talking about why hydrogen. So typically today were sitting in front of customers have already evaluated their options and already considered how to decarbonize their activities and we're typically talking to fleet operators with trucks that have payload imperative very high daily uptime.
Yes.
And back to base operating characteristics and they've already decided they wanted hydrogen so all that accelerates the rate at which this happens now of course, yes, we do monitor our pipeline and try and kind of maximize our chance of success, but I wouldn't say, it's an utterly mature process, yet because there's still a degree of education and.
Degree of that kind of journey, we get along with the customers.
But I just do want to comment that the process is compressing because of those two tailwind and I think that that's a really important implications for our business and the rate at which we can scale up in the next two to three years.
That's an interesting response, thank you and at the level of activity is as high as it has been in recent months or higher.
Yes.
No continue.
Continual interest.
The industry events, we participate in you know we were at a clean fleet event in the Netherlands few weeks back and great interest there we had a trucking in the booth, we were at the act clean slate Expo that that some of the analysts kind of to say it.
And we had to ride and drive event I mentioned in the Nicole huge interest there from played up right isn't it's just increasing all the time and as I said the acceptance of hydrogen as a part of the solution is growing and that's the most important thing.
Perfect and then just one small one and I'll get back in line, you mentioned sort of the nimbleness of whats your you've shifted in and taken advantage of some of the rising demand I suppose in China did anything slip out of them out of backlog or slipped I guess some of the north American or European must have slipped a little bit into 'twenty, two but is there anything that sort of fell out.
And I'll stop there. Thank you.
Backlog might be the wrong word timing is definitely a factor we're not seeing customers lose faith, but we are seeing some deliveries delayed for a few different reasons, we've had some customer scenarios where we're.
The hydrogen infrastructure rollout is a little delayed so therefore, there's not really much point delivering vehicles without hydrogen being available. That's one factor and then the other factor of course is access to two vehicle platforms and our electronic equipment and so on to assemble the finished products finished vehicles. So.
Some delays from the customer side, some delays from outside of course, so some of the deliveries we expect it to make in 2020. One we will now make in 2022.
However, with the pivot you mentioned towards a much more liquid and fast moving market, namely, China, we were able to continue to deliver and gain that real world on road experience and valuable customer interaction that we crave.
That's why we will continue taking orders and making deliveries at a pace consistent with them with our business plan.
And just to be clear nothing has fallen out of backlog. There's some deliveries that have slipped but backlog continues to grow strongly and we will update the market on that in the fourth quarter or on the fourth quarter call.
Thank you.
Yeah.
Thank you.
Our next question comes from the line of Jerry Revich from Goldman Sachs You may begin.
Yes, hi, good morning, everyone I apologize my video was not on but I think I know who won that race Craig.
Yeah.
You talk.
Talk about you know yourself what.
To drive these trucks.
Yes, absolutely.
Craig can you talk about the you know the.
82 units that you folks are planning to ship it.
In the fourth quarter.
Obviously, we don't expect to folks who provide month by month updates, but considering we're halfway through the quarter just to help us build comfort with.
What's left to deliver out of those.
82 units.
What's the progress been quarter to date, because obviously, that's a pretty significant step up.
So Jerry we're going to have an update on that.
Some point in the next few weeks with.
Videos and photographs for people to see so.
So for now we'll just.
Tell you that we're on track to make the forecast.
And obviously that that implies Jerry that there are quite a few vehicles that are in build and approaching being finished and tested.
And.
Much point in the next couple of weeks, we'll be able to to show some.
So it doesn't videos of mis deliveries that you know that convey that very clearly.
Okay and can you folks talk about your <unk>.
You'll build plan.
The fourth quarter or should we think about it.
Production coming down seasonally in the first quarter in.
China, just flesh that out for us in terms of what the cadence looks like over the next couple of quarters given the lumpiness.
And deliveries in China in particular.
We still expect 600 to 700 vehicles to be delivered next year, and we expect it to grow through the year.
On the quarterly basis.
So mark just to make sure. We're on the same page youre anticipating production to be up sequentially first quarter 'twenty two versus fourth quarter of 'twenty one.
Correct.
Okay.
Okay.
In terms of.
The types of orders.
That you folks are seeing.
Interest, but you're you've described though over the course of the call can you talk about what are the specifications that are that you are seeing increasing interest.
Sounds like it's at the heavy end of your product range based on what you described but maybe you could just give us some more color on.
What product mix Youre seeing in terms of orders that are coming out.
Yeah, So I can take that Jerry.
Really the heavier trucks havent automatically kind of enthusiastic response.
From the customers that are starting to try this technology and the potential customers there.
It really isn't.
A broad acceptance that for heavy duty trucks with that I used driven many hours a day that people just don't see any other option. Besides hydrogen so we kind of naturally.
<unk> had a very receptive audience for me speak to customers about about our.
Heavy truck offerings, I will say, though that its not only heavy trucks that that had a lot of promise here and we do expect to be supplying quite a few of the kind of medium Judy rigid trucks as well.
In the next couple of EPS and we've also got in our plan.
<unk> III a lot of trucks in the next couple of is becoming a significant feature in becoming a volume driver overtime and Theres a good very good reason for that Gerry as we as we penetrate the really low hanging fruit kind of sweet spot market of the heavy trucks high daily use case back device as we penetrate the market.
What we're doing is we are justifying and even sponsoring the investment in the hydrogen infrastructure, which comes with very compelling economics. When you have substantial demand right next door. So with those local hydrogen hubs that Parker was speaking about before close to the strong demand centers for heavy.
Trucks, driving a whole new set of economics around the Hudson and then that will be.
Will.
Immediately translate to adjacent facial applications on adjacency ups all of a sudden becoming very compelling on how does it because they are driven mile and hydrogen will be cheaper than driven mile on either data or electricity.
I appreciate the discussion thanks.
Thanks Jay.
Our next question comes from the line of Bill Peterson from JP Morgan you may begin.
Yeah, Hi, good morning, Thanks for taking the questions first just housekeeping when you when you say deliveries of 83 that also your expected revenue recognition on those are some of these for some sort of trials.
And I guess more importantly, when you look at your 2022 plans it seems like you're mitigating the supply constraints are.
30, well.
Do you guys executing no take or pay much earlier on that other people like what what gives you the confidence in your vehicle delivery.
Expectations for next year and are there any areas of supply that you still need to overcome as it relates to your build plan for next year.
You want me to take that Craig Yeah.
So uh huh.
Well our revenues are we absolutely expect to recognize on those on those trucks.
The 85 trucks, we anticipate being delivered by year end, what I will point out though is that the reason we're able to do this as Craig mentioned in his opening remarks is that.
This is a pivot towards China, the supply chain constraints in China, obviously, a lot less because everything's made there so it's easier for us to execute there.
But you know as we've said in the past.
The asp's vehicles in China are substantially below.
What they are in Europe.
So.
Our backlog continues to grow and it's mostly European vehicles, which have gotten sort of caught in the in the pipe like the pig in the Python or whatever analogy you want to use but.
But we are confident that we can see large deliveries and its really thankful, thanks to us being a global company.
Yes.
And let me come back Bill to the question on the.
<unk> and whether or not there's any differentiation there versus others.
I mean, partly it.
You look at the.
The physical numbers forecasts, you know you might want to look at comparable group groups of recently dates back new energy vehicle.
The players you know if you look at forecast numbers.
When we ranked we had to look at these kind of peer group of 16 companies. We were the fourth most conservative on margin forecast and our second most conservative in terms of number of vehicles expecting to ship here in the next few years. So probably the volumes themselves are a little smaller and so access to the parts and components may not be as much.
That challenge with the smaller physical numbers and the second thing on that is that part of what happens in the first half of 2022 is that is that we finally have in our hands a lot of the inventory that we ordered back around the middle of the year, which we were anticipating would have enabled us to deploy.
Dozens of vehicles in Europe for example.
So these vehicles are all of a sudden.
Delivered in the first half of next year, So we actually do have.
Backlog of of inventory that was ordered earlier that didnt get here in time for assembly and deployment facility as we would've liked but it's still coming in the other thing. We did is we ordered substantial inventories for 2022 production.
Some months back them with the worsening.
Lead times, particularly in Europe.
We pulled the trigger on a lot of.
Board is well ahead of when you would normally order that actually will.
Have a detrimental effect on some some cash.
Cash position numbers before the end of this year, but it will have a beneficial effect on our ability to assemble vehicles and deliver them in revenues recognized revenue in 2022.
Yeah. Thanks, Thanks for that color.
The way of interpreting some of your prepared remarks.
You know when you say focus on vehicles and hydrogen and service.
That.
That means youre not looking to sell fuel cells and I think you shipped a fuel cell to an aviation cut.
Customer if I'm not mistaken or were going to so just wanted to understand is this is this a pivot and when you say you're more focused on hydrogen is that to say and I think we'd like to go through some of the economics.
You look at the the are the announcements from <unk> and T C.
Can you help us understand.
Are you going to see more upside in the fueling over the coming years and what are your contributions in terms of no capital expenditures or opex or whatever for the hydrogen.
Infrastructure enable mill.
So two parts to that question I'll, just make a brief comment on the first part of your question around focus on fuel cells or otherwise.
Supply of fuel cells for off road applications for example, mining chips train aircrafts or whatever.
It hasn't been a core focus, but it's always been.
It's always been part of the business model and that capability, because we own that core technology right. So we've always acknowledged that we will sell fuel cells into other applications. Besides the on road trucks.
But in terms of where we invest their money and resources in building our teams and execution capabilities. That's really around the vehicle applications that we've continued to focus in on and highlight so it's not like we won't sell fuel cells, but it definitely is not where we're investing in the facilities and the teams that we've been speaking about.
As we spoke about building out capabilities. So that's one thing because the the ability to sell fuel cells goes back more to the core technology itself.
And of course, we continue to invest in that core technology.
We don't invest heavily in the applications beyond our trucking in heavy vehicle applications.
So I'm, assuming that's reasonably clear I'll hand over to Parker for some comments on the Hudson hub strategy partnering model and what we expect to see.
For the highs on business in terms of.
Investments, we have luckily to Mike and the value that those investments are likely to bring to the company.
Yeah. Thanks, so much Greg. Thanks, Thanks, Bill for the question so as we elaborated in the commentary.
We do have our first hub coming online.
And second half 2022, and two more hubs lined up behind that in terms of the model Bill.
We are building partnerships across the whole ecosystem from feedstock through production through a short haul distribution from our <unk>.
Centralized hubs to very near very near dispensing points, if not onsite and dispensing the model for heightened as we mentioned before is to invest in the production steps to lock in a very attractive cost structure and examples our announced partnership with Raven.
We have the right to invest a significant amount of equity in each hub.
And we have right 200 of the FERC 200, waster hydro hubs and 150 of the renewable methane.
Hubs in terms of the opportunity the economics.
I can tell you is.
We're fine tuning designing in final stages of the hub, that's coming online first in the San Francisco Bay area. The when you have.
A very very low to zero to negative carbon intensity hydrogen production in a state like California, where a low carbon fuel subsidies in place in Oregon has one as well Washington's right behind it other states like New York are progressing well.
When you're a zero carbon intensity, where the California credit trading today I don't know conservatively that can easily be a $4 per kilogram subsidy as you go to significantly negative on carbon intensity. Once you achieve by sources like biomass, where you're mitigating methane release.
Uh huh.
In other other renewable gases.
Negative carbon intensity can actually in some of these processes go very negative and that subsidy grows even even further so the subsidy combined with a very economic.
Capex and efficiency in the process.
Like Raven and many of other production partners Huh.
Enables us to have very attractive economics, while still providing a net cost of hydrogen dispensed in the vehicles that were very comfortable will be at or below diesel parity.
As soon as that first time comes online and the opportunity it really isn't that decentralized model is speed to market right. So when you think about.
The differentiation between our strategy and the scale of how we're planning to build close to fleets and some of the large scale announcements that I mentioned before.
No the capital cost for a five ton per day hydrogen production hub is likely a 10th or less of some of these massive projects that you're saying put out there many of whom can climb into the hundreds of millions of dollars of capital and you wanted to study a couple of projects in those big significant risk that comes with a.
200 million 500 million billion dollars capital project not many of those come in on time and on schedule, whereas we can build our scale of projects right close to demand in lockstep with fleets.
In that six to 12 month time frame post permitting and siting pure construction time dry I mentioned before so it fits with our back to base model fits with our speed to market model and we're quite excited to bring the first hub online second half of 2022 to show real produced you know low to negative carbon intensity hydrogen disappeared.
So I'll just add to what Parker said, we have $150 million of Capex in our five year plan of.
Which is slated for for hydrogen hubs, we have been in conversations with a number of different banks and the appetite to debt finance these hubs as extreme.
The interest.
It's actually very low so after the first couple of hubs, we are we plan to.
Work out debt financing for them in a in an off balance sheet SPV type vehicle and we're excited about the ability to make that happen as you're I'm sure aware there are a lot of people who want to invest in green infrastructure.
And then also I pointed out that you know in Parkers remarks, he talked about our Raven blew that will be sited in come online. This year. So that's actually another hub, we're not we haven't determined.
Which where we'll go exactly it's and that's because there's a number of different sites that are sort of competing for it but what I would point out is that the capex for the Raven blues as he is.
Very very low and it can produce a five five tons of hydrogen per day, each raven blue and we have the right to 150 of those hubs. So that that's effectively a another hub.
And the last quarter, we're not talking about which is new and we anticipate coming on line.
Next year.
Okay. Thanks for that kind of somewhat dovetails in you know these are U S based hydrogen so.
The first one being in California, I'm really trying to understand.
It seems like you have some supply constraints may be shipping some some of your trucks from let's say Europe or the U S into 2022, and you're making up for China, that's reasonable, but I guess my question is as is.
Is it supply constraints, that's maybe holding back is it's truly supply constraints are you seeing any slowdowns from Europe or U S based off of.
Maybe concerns around these short reports I guess really what I'm getting at I think you were supposed to have some sort of trial, especially in the U S. For one of these port customers is that still on track or is that going to ship into next year and I'm just trying to understand some of the ramifications of some of the well.
Sort of supply and demand statements.
Trials are the first trial will still start this quarter in California.
And.
Of course, nothing has happened as fast as we would like in 2021, it's definitely a thing.
A year in terms of supply changes everybody knows very well so.
So yes, some things have slipped as I said earlier some of that relates to some slippage you ran their own capacity to bypass a materials, but it also sometimes you're left with a capacity of of the infrastructure to be built because they also have parts and materials late time issues.
Yeah, I don't believe that there's really any meaningful slowdown in the.
A.
End user interest and commitment in and buy in to what we're doing.
It's just.
It's just a mixture of those those factors around some delays on some supply chain factors and all the rest of it.
And to back up what Mark said earlier.
<unk> hasn't.
No no parts of that backlog have evaporated.
Timeframe in which we deliver against some of the backlog has changed a little.
But we didn't see we didn't see any.
Reduction in interest of commitment from customers, it's just continuing to increase over time.
We're we're definitely very inspired by carrying them.
Around of conversations we're having with the customers in in North America, and Europe and in Asia Pac.
And I'll just you mentioned that specifically the short report basically wasted three weeks of managements time, but it has not changed our reception in the marketplace and we have a whole host of agreements and partnerships and sales that we anticipate to announce over the coming weeks and months.
That's great. Thank you guys I'll jump back.
Our next question from Glenn and then maintenance from Wedbush may begin.
So can you just talk about Craig with your conversations or Margaret Keane Chairman.
How key is it to.
To have an actual truck on the road, obviously versus competitors that talk about it in the Powerpoint can you just talk about that in terms of like in your customer conversations how big that is driving pipeline demand.
Why don't we hi, Dan It's Craig why don't we turn the question around and ask yourself and some of the other folks on the line how their perception of this stuff changes when they get in and drive a fuel cell truck.
Well I think that maybe.
Maybe I'll answer.
[laughter], but you cannot replace the <unk>.
Personal experience of of driving in these trucks.
<unk> seen them work et cetera.
And that's one of the reasons why we continually host customers to our facility in the Netherlands, and we had the <unk>.
Talks from the UK visiting the Netherlands earlier this week for a person drives and also some walking around to see what goes into a fuel cell electric truck for example.
So we've had a lot of major fleet operators and some hydrogen infrastructure partners come visit us from the U K as I said, just this weekend and the reaction is it's very consistent.
You saw for yourself then the reaction of professional drivers in these vehicles to you.
You can put basically any professional driver that's linked with diesel trucks into one of these trucks and and without any kind of coaching or.
Any kind of yeah.
Training and they just get out and they they they say how great. It is I mean, it's quiet right. It doesn't smell it got better acceleration that feels more comfortable more powerful and therefore, more safe and emerging and traffic and all the rest of it.
Nothing like getting your hands on a vehicle and frankly, so that's one of the reasons why.
We are determined to be the first mover in many different markets because what it will do is it will dramatically facilitate.
The uptake so that's why it's really important when we get these trials started in different corners of the world and those seed sales have been talking about and then we can move on to two substituting diesel trucks and fleets and volume and that's really the goal here really the goal is to accelerate the rate at which.
Diesel trucks can be replaced with zero emission trucks, but zero emission trucks that don't come with compromises.
Okay.
As a follow up I mean, now that you're on track to deliver the 83 to 85 by the end of the year do you view that.
And from your conversations it just going to enable you to go back to perspective customers.
We delivered them do you want to have the Congress does it feel like that's going to be another cascading positive event.
Looked in we find that the markets are quite localized. So for example, the customers and you might want to come and see us putting trucks together in Europe.
You know the customers and trying to learn from the other customers in China, what's going on there.
Customers in Australia are starting to get interested because now that we've been driving 100 and coach around down there and demonstrating interest in people there theyre starting to relate more to it.
And demonstrating trucks and the clean plate Expo in early September was also a great experience in North America for people to see and feel the trucks, we find that's quite localized.
We don't see a lot of translation when someone in Europe.
And with the truck and.
And saying how great. It is we don't see that translating easily across the Atlantic people Wanna say stuff in their own backyard and they want to relate to it.
And it helps them, believing it when it's operating down the road or in the next state.
Great. Thanks.
Thanks, Dana next question.
Oh, Mike Smolinski D. A davidson your.
Your line is open.
Oh, Yeah, Hey, guys good morning.
I wanted to ask quickly on the TC energy announcement.
One of your competitors also having to deal with TC energy to make hydrogen hubs of their own.
And if I read them correctly, you have smaller hubs plan.
And then that might be because you want to get too close to your fleet customers closer and maybe keep the transportation costs to a minimum.
I'm just curious.
How is this going to work are you guys are going to have.
And he shared infrastructure with your competitors are also working with Tc.
Or anything we should be thinking about as to they own the offtake to the heightened announced that they're going to build and you will own all the offtake.
Yours are there plans to maybe sell that to the grid just some of the things you know that might be different between what your deal is and what they're jealous.
Okay.
I'm going to hand over to Parker in one second but.
By way of background obviously.
Hydrogen is not yet a common field, but it's increasingly will be a common field.
And we feel inevitably.
Distribution in local supply.
And you need a lot of.
Relationships in interconnections, and swap deals and all that sort of stuff to be able to supply.
Everywhere it's needed.
I will just say that while hydrogen doesn't travel easily there's absolutely no reason why muddles around around.
In leveraging known exclusive supply of fuel them, where it makes sense. There's no reason why that doesn't work just as willing hydrogen is it doesn't anything else that's a fuel.
But I want to hand over to Parker because there are some very specific.
Very specific rationale for the way that we go about our hydrogen infrastructure efforts and some some differences with what some other proponents of hydrogen infrastructure are doing.
Yeah, Thanks, Craig and thanks, Mike for the question, So I won't comment on Tcs relationship with other parties, but I will say to answer your question on our strategy versus other large scale projects I think you see the difference between what you are referencing in the announcement and the scale of our hubs as I mentioned in my commentary.
Our view is clear on the lowest TCR lowest carbon intensity approach to provide fuel for our fleet is as close to the fleet as possible.
The issue is when you start moving hydrogen around even with the most efficient liquefy ours today.
You Liquefy and you ship it long distances, what's when you're talking about a scale of hydrogen production. If it scales more very large hubs that others are thinking about we see a liquefaction cost distribution cost to get it to the same pressurized endpoint, which is not yet to dispensing that we will have at our production site easily can add $2 a kilogram if not more.
Before you even get into the cost of actually production actually producing and dispensing and given that diesel parody needs to be in our view conservatively $4, a kilo delivered into the into the vehicle if diesel stays where it is which it may or may not.
We find it very challenging to think about large scale projects and moving molecules over a very very long distance. So we're very excited about the collaboration and the partnership with T. C. We think their backbone of <unk>.
Feedstock supply to their RMG, interconnects and other assets and their appetite to drive into low to negative carbon hydrogen.
With us and vision of how that model fits very nicely with the transportation market and the tcl needs to make use case work.
Along with just the Bill times I mentioned before you know what.
A large part of my career has been in design and construction and any capital project that goes over $100 million of Capex on a single location.
Chances of success and cost and schedule and the risks of that project go up significantly, particularly when you're talking about projects that have production and then long large distribution was couldn't cause could include pipelines or other other supply chain assets to manage so for lots of reasons you know, we see the smaller scale modular centralized model as.
Absolutely the best answer for them.
Both for <unk> and cost and also ability to leverage local feedstocks and the last thing I'll say is what's also exciting about that approach is it's amazing how many customers we talked to the conversion starts about trucks and then we get into their operation and we realized they are actually producing tens of tons of waste per day.
And we can actually point to their waste and say you know what that is that's fuel and we can build it right here for you right with us your waste in your operation.
Only again stage cost in terms of the total delivered cost of the vehicle plus fuel also helps customers with their and sustainability story, so hope that answers.
Question Mike.
Yeah got it might apply to our color line, Mike one other point just kind of a holistic.
Clearly.
Increasing announcements by some of our partners who are also working with other groups around collaboration models and there was a announcement recently between fulfillment Daimler.
An auction supply as well, obviously, we have relationships with total none of this is exclusive because we're all trying to create a market here we're trying to grow this this.
We wanted to.
This momentum I should say towards this this energy transition this tipping point and its only at scale that we will see that happen. So as far as I'm concerned every announcement I read about one of our direct competitors are one of the competitors about hydrogen production partners or any of these guys doing more projects throwing more capital at the same angle the happier I am.
The more I know, we're in the right place.
<unk>, our energy on the right things and that we will make this happen we will be able to facilitate this energy transition. If there are enough people pulling on the same rope in the same direction, but it takes a lot of people to make it happen, it's a very big change.
I like to say to people. We've got 100 years of incumbency that we're trying to unwind and 15 years. This requires not one successful fuel cell vehicle company. This requires a concerted effort by hundreds of successful companies with technologies hundreds of successful companies with hydrogen infrastructure hundreds of successful companies with fleets operating on.
Zero emission I mean, it requires very very big shift.
Got it.
Thanks for that color.
Also asked I wanted to ask about the EBIT comedians you've got planned for the fourth quarter here can you help us characterize what vehicles are in the build plan.
Do you need to have an additional order from Shanghai to build a fully three.
Or are there other can you tell us maybe what the other people that have been announced and there's going to be delivered in the corner like Korea zinc ore.
Other customers.
So can you tell us whether those folks are in the plan.
There are there is some there is some revenue recognition events that are going to happen with some of the partnerships. We've announced if you kind of look back through some of their press releases you would've remember probably some.
European retailer in European <unk>.
Industrial customers and some other European customers it that some of which would probably have liked to have their hands on trucks by the end of this year, but it didn't quite happen things didn't go away.
Plan in some ways as we've spoken about but some.
Some of those.
Definitely kind of a care and in food in fourth quarter, but some will move into next year or so.
So there are more orders expected in Asia as well.
But you asked do we need another order to make the.
The sales forecast and the answer to that is no we do not need another order.
What are they going elsewhere and yacht deployments right yeah yeah.
We have the orders we need to make the forecast there is no.
The issue with that.
No I was just a matter of execution.
Okay got it wasn't very clear I'm, sorry, Mike, it's all about deliveries yet.
Gotcha perfect I'll pass it along guys. Thank you.
Thank you Mike.
And our next question on the top line of Steven Fox from Fox Advisors, you may begin.
Hi, Good morning, two questions if I could first of all just getting back to the infrastructure Bill Craig what what do you think the rough timeline is for some of these funds to one inspire companies to maybe invest.
Investigate one.
Hum side of it and also trucks and two how quickly that could turn into orders and then three when one would it sort of generate revenues for you guys what would be the reasonable timeline for that and then as a follow up can you you mentioned you know the.
We'll have having specialized.
Specialized parts being 70% of cost of production can you just give us a sense, where you're at now and from now that 70% what is what does that do to margins. Thanks.
Okay.
Excellent question. So the first one you know it's funny on you.
How quickly we could make some of that stuff happened, but the good news is Stephen in terms of.
Of major corporations, and big fleet operators looking at the option to.
Zero emission with hydrogen.
Obviously, they've already been some very interesting conversations that but.
But now are accelerated or enabled by some of the infrastructure Bill initiatives.
We don't need to start from from square one with those conversations there already some very interesting conversations underway naturally.
So that's one thing it's really an accelerator of the conversations that are already happening.
How quickly does that materialize into.
Fancy orders and lots of deliveries and lots of hydrogen hubs on the ground checking on hydrogen.
That's a little less a little harder to anticipate of course, we would.
Hope.
Yep.
I was just going to say Craig.
Well one thing we expect those as soon as the first.
Raven waste hydrogen hub is up and running as soon as the first Raven Blue was up and running we expect to.
Be able to raise large amounts of debt finance, so that will be sort of an inflection point and we think we will accelerate as soon quickly after those events happen.
So that that would be like late next year.
And probably important to note as well Stephen on top of Mike's comment about how quickly we can make some of that happen.
Towards the end of 2022.
Obviously, the Hudson offering of the.
Vehicle with the service.
Zero emission mobility as a service if you like the ability to offer fleet operators, the flexibility and the kind of low risk option of.
But the vehicle that they don't necessarily need to pay for it on day, one, but they can subscribe to on a monthly basis for instance, combined with our long term future of.
Locked in fuel price is very attractive to a lot of customers. So I don't know anybody who can tell you what the price of electricity will be in three to five years from now, but I can tell you what the price of your hydrogen will be three to five years from now as we sit down in middle of the project will do for you if you're a big fleet out Friday. So this is something that I believe is very attractive.
So the fleet operators and I do feel that as Mark says as soon as we've got these first raven hubs running and we are able to.
I'm just.
And a lot of confidence in buying from the market when people physically see that happening.
Dan I believe that we'll get some rapid uptake from probably the first half of 2023.
And I'll just add.
Great.
So I'll just add to what you said, Craig which is looking at it the electricity price a couple of years out in the hydrogen priced a couple of years out what we think is most likely use the hydrogen price will be a lot lower in the electricity and oil price will be will be higher that's the way it looks right now.
So our marginal.
Or eat or economics.
We are improving and the economics for our competitors not hydrogen competitors, but other.
Competitors are getting worse.
And the second question related to the HUD on content. If you like so how much was on content in a vehicle. So today I think it's probably fair to say that we operate in a 35% to 40% of the kind of the O&M cost of the vehicle range.
It would be typical which is high is on content.
We're looking at getting that up towards the 70% Mark and that essentially means that you are replacing a lot of those kind of specialist specialized parts and components we've spoken about.
And the commodity parts of it of the vehicle like the chassis in doors and windows in wheels, and brakes and so on these are sourced from obviously from third parties.
It just happens debate at the Commoditized parts of the vehicles are also those that usually require a lot of capital.
To set up manufacturing for those are in fact getting into the production and supply of the most specialized components within these fuel cell electric vehicles.
He is not as burdensome on the capital front as people might think so we believe we can get to a higher content.
In the vehicle.
Very with very attractive capital efficiency.
And just like we are able to build at fuel cell manufacturing, which has a very large barrier to entry.
Technology wise.
We're able to build that out with a modest capital commitment and that's why we don't need billions of dollars to build this.
This model in this company.
We're very happy with the working capital we've got on hand at the moment and we believe that we can get up to this.
70 odd percent awesome content over the course of the next two or three years and what that means for margins, but to your question.
We believe that it sustains better than average vehicle margin for a larger portion of the vehicles. So obviously anything you're doing in the vehicle. That's got a large barrier to entry or is well differentiated as going to enjoy a better margin than the more commoditized parts of the vehicle.
If we're doing the majority of the vehicle and our margins are higher than average for our whole vehicle and the margins for the commodity parts are lower than the average for the whole vehicle. I think you can see that we are playing towards enjoying sustained margin substantially better.
And then the overall vehicle margins in a non differentiated.
Space.
Yeah.
As you point.
I wanted to sort of highlight something on this margin point. If you look at our long term forecast, we have a 15, 4% EBITDA margin in 2025, I mean, we we think that's a relatively conservative forecast. If you look at the 16 other new vehicle new energy vehicle Sparks.
The went public we had the fourth lowest margin forecast out there and you know we actually have a whole bunch of proprietary technology. So.
We think that the market is not recognizing how conservative our forecast is on a relative basis.
When you have a proprietary technology as Craig has pointed out you should have a higher margin than we do.
But we we modeled the forecast in a way to to leave upside there.
Thank you very much I'll first say, they're trying to win an outsized margin.
In an EV car business, it's very challenging if you're buying batteries buying electric motors in Europe, you really just kind of a designer.
The vehicle platform, that's pretty hard to win an outsized margin unless you have a great degree of internal integration and you've seen from Tesla. It took them years and years and years to build up the competitive advantage that enables them to enjoy nordson differentiated margins, but you can get there, but look how well integrated they are everything from the batteries to almost every part of the.
Vehicle, it's difficult to get too outsized margins unless you've got the very differentiated technology.
It makes sense to me thank you.
Thanks, Thank you.
And I'm not showing any further questions in the queue I'd like to turn the call back over to the speakers for any closing remarks.
Thank you very much we appreciate your attention and we look forward to taking questions on a one on one basis over the coming weeks, we're always open and available to talk to people. Thank you.
Thank you very much everybody. We appreciate your time.
And this will conclude our conference call for today, Thank you for participating.
May now disconnect.
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