Q4 2021 Hyzon Motors Inc Earnings Call
Delivered 87 hydrogen powered fuel cell trucks built our team across six offices on four continents.
And listed on NASDAQ.
Python is laying the groundwork for our future success is built on the proven technology.
Just outside Chicago, our team of dedicated engineers has been building, helping United States fuel cell manufacturing facility.
It will feature our world class membrane electrode Assembly line, the heart of iphones to itself.
With every seller, we look for ways to do things smarter faster and cleaner.
[music], we will produce the United States most powerful help yourself here this year.
Good morning, and welcome.
Fourth quarter and full year 2021 conference call.
As a reminder, today's call is being recorded at this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
At this time for opening remarks, and introductions I would like to turn the call over to dollar Ribeiro Investor Relations manager of Python.
Good morning, and welcome to <unk> fourth quarter, and full year 2021 earnings call I'm dialogue Rivera senior manager of Investor Relations on today's call are Craig Knight, Our Chief Executive Officer, Pat Griffin President of vehicle operation and Mark Gordon, Our Chief Financial Officer.
I saw on issued our results today in our press release and presentation that can be found on our website at <unk> Dot motors dot com in the investors section.
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.
Including the impact of supply chain disruptions in global uncertainties, and our customers' performance under product orders and existing and future contracts.
Are subject to various risks and uncertainties.
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 web site and was furnished on form 8-K with the.
C C.
With that I'm pleased to turn the call over to Craig Knight, Chief Executive officer of highs on.
Thanks, Donald and thank you to everyone for joining us this morning.
2021 was truly a transformational year for hires on.
The reality of hydrogen powered.
He has come to the full through horizontal proprietary fuel cell technology.
It's remarkable to think that just eight months ago, we made a public debate.
During that time, we battled supply chain challenges like anyone else in manufacturing.
But we are proud of this first chapter.
We delivered.
Seven hours on fuel cell electric trucks to customers in Asia and Europe .
With a total contract value of $19 million.
Put another eight trucks into trial and the city of for Sun in China.
I kicked off field validation activities.
In both Australia, and the United States.
Additionally, we expect to commission a fully integrated.
<unk> fuel cell system manufacturing facility.
In the coming months.
<unk> is proud to be the first company in the United States commencing series production of fuel cell stacks that power our class eight truck.
And we are gradually ramping up.
Vehicle production in Europe , and China, as well as doing initial local builds in.
In the U S.
Yeah.
During the year.
<unk> executed the plan.
Laying a solid foundation for the creation of long term shareholder value.
And we are pleased to observe an increasing consensus.
That hydrogen will be the solution for high utilization commercial vehicles.
In the quest to decouple them from fossil fuels.
<unk> continues to work on accelerating the adoption of hydrogen.
By supporting the build out of low cost low carbon intensity hydrogen production and dispensing infrastructure.
Designed to ensure commercial transport can be decarbonize.
At scale and at pace.
We believe the energy transition is paramount as oil prices continue to be volatile and reaching historic highs at some points.
The need for energy independence is at the forefront of the global economy.
We see hydrogen as a solution to decarbonize the commercial transport industry.
And that positioning ourselves as the key to the hydrogen economy throughout leading fuel cell technology.
First mover status in zero emission heavy trucks.
And pathway to securing low cost clean hydrogen.
Through partnerships with leading Hodgkin proponents around the world.
While electric vehicle adoption is accelerating.
So too is the demand and dependency on the grid, which creates new challenges not only with overall demand, but more importantly with consumption patterns.
That is why we remain committed to hydrogen as the long term solution.
Commercial mobility.
Especially in those heavy Judy.
High utilization use cases.
Hydrogen office fleet owners, the most comparable replacement.
Two the diesel trucks today.
Enabling them to achieve zero emissions with zero compromise.
Achieving a total cost of ownership approaching diesel parity is crucial for fleet owners.
And we can get there today through various subsidy programs that are being implemented in European countries and in the U S with California, leading the way in most states and jurisdictions to follow.
We are seeing increasing demand as evident in our growing backlog, which now stands at $297 million.
An increase of well over 200%.
Lost backlog update was provided as of July 2021.
We define backlog as vehicles with a purchase order or an Mou, where we have clear indication of commercial times, we have a significant number of vehicles under Mou that are pending confirmation of specifications and commercial terms and therefore are not counted in our backlog.
Further proof is on hand through a recently received order to supply 18 horizontal trucks in Europe for daily operations with a leading global logistics company as the end user and.
And more details will be shared in our press release in the coming weeks.
As well as the successful startup of another of our European customers first green hydrogen production this week.
Which will be combined with truck fueling capability in the coming months to fuel their first batch of hires on fuel cell trucks.
Our near term focus is getting our vehicles on the road and into customers' hands letting them experience for themselves.
Vantages of fuel cell electric vehicles that are available today.
With hard on gaining highly valuable real world experience and performance data.
After a slow start due to the delays in procuring equipment equipment for our operations North America is progressing at pace.
Our first customer demo class eight fuel cell truck was recently delivered to.
T T S I at the Port of long Beach in California.
The truck is being tested in daily dry action over about two months and we look forward to providing more updates on the performance of the truck as it faces the challenges of long days.
Long routes within the Tsi operation.
P. J. So that's just the start of our North America trials, there is incredible enthusiasm for hydrogen powered trucks and.
And we expect to have 10 to 15 horizontal fuel cell demonstration vehicles deployed to major fleet trial customers.
By year end.
And we will share information on those trials as appropriate in due course.
Efforts to Decarbonize trucking are experiencing significant Taiwanese.
As government mandates and attractive subsidies enable faster adoption of zero emission vehicles.
By fleet operators.
Additionally, we are making excellent progress scaling up our U S operations.
I'm, particularly excited by the recent commissioning work occurring on horizontal membrane electrode Assembly production line.
And we look forward to producing the first made in the USA has on fuel cell system before the end of 2022.
Just to remind everyone. The EMEA is the most important element of our fuel cell, having an outsized impact on both performance and cost.
When building, what we affectionately call the heart of zero emission trucks.
The fuel cell itself.
To support demand as it evolves, we continue to focus on expanding capabilities around the globe with a particular focus on Europe to support the well publicized building wave of hydrogen investment had adoption there.
The Hudson family continues to grow at a rapid rate.
Global team has grown to over 200 employees.
I'm excited for the years ahead and now we are well positioned for success as we build out our team with top global talent.
Many of whom turned down and maybe other opportunities to.
To come to work at Hudson.
Since the dawn of something incredible and feel good working towards something so meaningful not for ourselves, but for our children and grandchildren.
Well 2022 continues to bring macro and economic challenges and the recent Covid Lockdowns in China is just one more example of supply chain difficulties.
And the terrible Ukraine situation adds further uncertainty in Europe in particular.
We remain optimistic and energized for our journey as we enable the adoption of zero emission commercial vehicles and broaden our partnerships with like minded companies to.
To accelerate the transition to hydrogen even further.
As some of you may recall during our last earnings call.
We introduced pocket makes <unk> chief strategy Officer.
Who is leading our strategy around fueling and hydrogen infrastructure.
Hock I provided a deep dive into how we are growing the fuel supply side of the equation.
To make it easy for fleets to convert to zero emission operations with zero compromise.
And this quarter I'd like to introduce Pat Griffin President of vehicle operations, who joined <unk> last October .
Pat brings a wealth of knowledge truck Assembly operations.
And it's been able to leverage that experience from day, one to help us scale our zone.
Global operations.
Pat will provide some details on our path to commercial production.
And an update on our U S operations.
Thanks, Craig and thanks to everyone on the call.
As we scale our operations from prototyping to commercial production.
I'd like to provide some color around our path forward.
We are keenly focused on development and completion of our core differentiating technologies.
And when coupled with our Modularized designs for assembly.
We expect that will provide rapid and synergistic vehicle commercialization across our global locations.
A key enabler to this initiative is the highs on innovation center located in the Chicago land area.
Comprised of approximately 100000 square feet it will produce our domestic proprietary fuel cell systems.
Just this past month, we achieved a significant milestone and validated important stages in the membrane electrode Assembly line.
Which is the heart of our fuel cell stack.
We expect to be producing highs on fuel cell systems in the United States by the end of 2022.
Supporting our global vehicle build.
Our Rochester facility is also progressing to plan.
Having already completed prototypes and demonstration vehicle builds it will continue to scale and provide various sub assembly module.
Such as the vehicles hydrogen storage system as example.
Utilizing both U S facilities allows us to support selected sub assembly module for both U S and European production.
As we ramp production in the U S.
Final vehicle Assembly will initially be performed via third party up theaters, such as Fonteyn modification, which has the capacity to build tens of thousands of vehicles per year.
Our vehicle production in China, followed a similar model.
We utilize O E vehicle Assembly partners during the early stages.
Until vehicle volume supports dedicated facilities.
This approach to scale production allows us to be nimble, while aligning with our capital light model.
Once vehicle demand reaches a tipping point, we plan to build dedicated production lines by region.
Strategically positioned to meet the increasing demand.
For trucks in Europe , and Australia, we currently have our own facilities to assemble vehicles through our ventures and our partnerships to meet early a growing demand in those regions.
Due to strong interest in Australia, we already have plans to increase our production capacity there.
Based on Europe's demand for hydrogen powered vehicles, we have established a path forward.
<unk> advantage of existing facilities.
And Reconfiguring, our operation to provide production capacity of 1000 vehicles per year on a two shift basis.
We believe our global footprint and multi region platform offerings will enable us to meet customer demand.
The adoption of hydrogen fuel cell vehicles is accelerating.
To get our trucks on the road, gaining real use case experience.
We are pleased with the progress our teams have made in just a few short months and look forward to providing updates as we begin to scale production.
Now I'd like to hand, the call over.
<unk> Chief Financial Officer, Mark Gordon.
Thanks, Pat and thanks, everyone for joining the call today sensor.
Since our last quarterly call the security of energy supply has become a paramount issue. It is imperative that this unfolding crisis be addressed immediately with a viable path towards a long term sustainable solution.
Before the Ukraine conflict oil natural gas and coal prices at all steadily increased driven by compounding years of low investment.
Climate change concerns forced the energy industry to cut capital spending lowering supply before the energy transition lowered demand Ukraine conflict is now exposed the fragility of the global energy system in a way that will not be forgotten, while the IEA has called for emergency measures to curb energy.
I had a call.
Comprehensive and revolutionary energy solution is called for.
The global rollout of waste to hydrogen has the potential to replace a large portion of oil demand by converting municipal waste to a clean green hydrogen.
This has been an important additional benefit of solving the overflowing landfill issue.
Even in plastics and biohazard waste can be used as a feedstock.
The conversion process advocated by Hysen is noncombustible sorta avoids adding pollutants to the atmosphere.
Into calculations based on the Ravens system, converting all municipal waste to hydrogen could theoretically offset 25% of oil demand.
This percentage could be substantially increased its agricultural waste were included as a feedstock.
Most importantly, the process can generate its own electricity using our fuel cell or micro turbine. This means the hydrogen production process can be completely grid independent.
Already in Europe electricity prices have made a grid based solutions to the energy transition impossible and misguided.
With coal and natural gas, making up the majority of electricity generation globally grid independence is a problem for the energy transition from both the security of supply and a decarbonization perspective.
It is imperative that the energy transition have a grid independent path forward.
Hydrogen has multiple infrastructure advantages.
Most importantly, hydrogen can be produced at grid, a large scale expansion of the grid is still considered given the massive infrastructure investment required in the us.
None of the availability of natural resources, such as copper.
More specific to highs on the chartering, our fueling infrastructure needed for long haul heavy trucks to be eight times greater for battery electric vehicles versus fuel cell vehicles.
Estimated by the clean Air Task Force.
Finally hydrogen will be produced locally.
This avoids dependency unimportant energy it allows virtually any region of the world to be energy independent.
When looked at from the perspective of the complete transition away from fossil fuels hydrogen is the only viable path forward.
We believe last conversion of vehicles to battery electric will not work cobalt nickel copper and lithium are scarce resources with prices already increasing despite minimal bad penetration.
All of these resources had their own security of supply issues for.
For fuel cell electric vehicles platinum is a modest percentage of the total vehicle cost and platinum resources will free up as fewer catalytic converters are built for internal combustion engines.
From an infrastructure perspective that requires a much greater investments in fuel cell and that investment is often not included in the total cost of ownership calculations.
The frequently cited efficiency argument for Bev does not take into account energy economics.
For example.
At 22 cents, a kilowatt hour electricity prices in California are currently trading at $360 per barrel of oil equivalent when the btu basis of the energy is considered.
In Western Europe today, where electricity prices are now double California electricity is more than $700 per barrel of oil equivalents.
It does not matter, if a bev vehicles, two and a half to three times more energy efficient.
The input energy is three to seven times more expensive.
Never before has the need for a hydrogen economy be greater and only now is it possible. Thanks to advancements in fuel cell technology.
Hi zones market, leading fuel cell and our thought leadership make us the key to the hydrogen economy.
A rapid transition is critical not only to meet decarbonization goals, but also to provide energy security and an increasingly unpredictable world.
Turning to the financials I will discuss our 2021 full year results and 2020 to business outlook.
<unk> finished the year with $445 million in cash on the balance sheet as the company continues to manage its expenses prudently with an atom, making every dollar count.
We are in line with the cash forecast, we laid out when we went public.
Full year revenues were $6 million total operating expenses were $107 million, we took the full charge to cost of sales for vehicles sold in China, which was only partially offset by the collected revenues for those sales in 2021.
We expect another large portion of cash for the vehicles delivered in China during 2021 to be collected in 2022.
Once the customer has a longer operating history, we anticipate booking more revenues upfront.
As we have discussed previously the end user of those vehicles is one of the largest steel companies in the world truly a great validation of heavy duty trucks.
Operating expenses for the year were comprised mainly of $16 million in research and development costs and 70 million for SG&A within SG&A, where charges totaling 33, and a half million, which were essentially one time in nature relating to foundational equity grants for senior executives.
It is an expense related to the retirement of our former CTO as well as transaction costs.
For the full year, we recorded a net loss attributable to <unk> of $14 million.
Hudson also reported a negative EBITDA of $13 million due to changes in the fair value of earn out in private placement warrant liabilities.
Adjusted EBITDA EBITDA for the full year was negative 64 million after backing out the one time charges as well as noncash items, primarily related to the change in fair value of the earn out and private placement warrant liabilities.
Horizon 2020 to business outlook, we expect to deliver 300 to 400 commercial vehicles with deliveries heavily weighted towards the back half of the year in.
In 2022, we expect the geographic mix will continue to be weighted to regions with lower margins. We expect the geographic mixture to shift towards regions with more favorable margins in 2023.
While demand for our trucks is stronger than ever as our backlog increased testifies, we anticipate the supply chain issues to persist through 2022.
We expect to commence assembling vehicles using our high powered high power density proprietary fuel cell made in our U S facilities during the second half of 2022.
We have made solid progress on this front and we anticipate showcasing our facilities later in the year.
We also expect an increasing number of north American trials or a class eight trucks as our facilities ramp.
[noise] trials continue to increase in the rest of the world.
We expect our backlog to grow as we progress towards commercial discussion ongoing commercial discussions.
The man of zero emission vehicles grows exponentially.
By year end, we expect the first highs on Raven gastro hydrogen hub and waste hydrogen hub to be online.
We intend to drive innovation and increase the highs and content within our vehicles.
Bringing the manufacturing of our fuel cells in house is just one step in this direction. Our continuous innovation efforts are expected to deliver both vehicle capex and fuel operating savings, which lowers the total cost of ownership even further.
We reaffirm our medium term EBITDA margins.
Excess of 15% by 2025.
With that I'd now like to turn the call back to Craig for closing remarks.
Yes.
Thanks, Mark and Pat.
In closing I'd like to reinforce our role as the key to the hydrogen economy.
As it pertains to commercial vehicles.
The Hudson Technology company that decoupled heavy mobility from fossil fuels.
And facilitates energy independence in the process.
The World is at an inflection point and a new energy infrastructure is needed hydrogen is emerging as a highly versatile clean solution for high utilization commercial vehicles.
The advances in horizontal technology and the visible momentum in hydrogen adoption through government mandates expanding subsidy availability and significant investment in green hydrogen production.
Underscore the phenomenal opportunity for our company in the coming years.
Our purpose is clear.
We won't rest until we have made a significant positive impact in this world.
As underscored by our recent announcement that Hasan joined the climate pledge.
Which commit so I have a 300, leading corporations to reaching net zero by 2040, a full decade ahead of the Paris agreement on climate change.
Thank you all again for your time and attention and with that let's open up the line for questions.
Ladies and gentlemen, if you like to ask a question at this time, you will need to press the star agenda, one key on your touched on telephone.
You May press, the pound or ask you to join question and our first question is coming from the lineup.
<unk> <unk> with Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone.
Congratulations on the strong deliveries this quarter.
Thank you Jerry.
Craig I'm wondering if you could talk about your anticipated vehicle mix over the course of 2022, what proportion do you expect to come from China versus Europe , and Australia, just to help us understand the picture from a high level standpoint and touch on.
The Asps that you expect.
Result, as well if you don't mind.
Sure.
Obviously, we were all very keen to see the geography and product mix moved to a more favorable balance.
Frankly, 2021 was somewhat disappointing in that regard supply change, but just so challenging, especially in Europe , where we had expected to build more momentum.
We're very focused on validating the only vehicles, we've got out in the field and we aim to.
Work hard towards a stronger Europe delivery in Australia in delivery mix within the next 12 to 18 months and to really ramp U S activities as well once now various customer trials.
Proven successful so.
It would also however be you know overly.
Overly ambitious or irresponsible of us to pretend that the business at the moment is highly predictable and that's why we prefer not to give too granular guidance around vehicle part veeco.
<unk>.
Vehicles specification vehicle, ISP and end markets and end customers end markets.
The business is still lumpy and it's still driven by activities such as customers successfully accessing.
Rebates.
Rebates and policy support et cetera.
Therefore, we remain cautious and say that we expect that mix to be a lot more favorable once we're into 2023 and the rate at which becomes more favorable is still a little unpredictable, but we see very encouraging signs in Europe , and we mentioned in the prepared remarks about a.
New order for another 18 trucks in Europe . We also mentioned that one of our customers that we've you know we've got vehicle supply agreements with successfully started the commission. They greenhouse production this week, which will in the coming months turned into a dispensing capability that can be used to deploy their first house on trucks and it's these activities that we.
We'll see that geography mix shift over the next 12 to 18 months dramatically in the favor of higher margin markets.
So I'm sorry to disappoint, you with a lack of very specific details, but the business is still lumpy and somewhat unpredictable. So the exact timing of some of these things are difficult to predict.
I appreciate that and in terms of the.
The free cash flow outlook over the course of 'twenty two Mark I Wonder if you just update us on your Capex outlook and given the moving pieces there Craig spoke about how should we think about.
Free cash use over over the course of 'twenty two as you folks ramp up.
So I.
As I said in my prepared remarks, where we ended the year with cash is where we had anticipated to be when.
When we went public and that is how.
We feel that 2022 will unfold as well.
Sorry, Mark just so I'm on the same page with you. So the outlook that you folks have previously laid out for cash for year end 'twenty two states still holds as your point.
Correct.
Okay Super Thanks.
Yeah.
Thank you Jerry.
Our next question coming from the line of Courtney <unk> with Morgan Stanley . Your line is open.
Hi, good morning, guys can.
Can you give us an update on where you know the Boeing broken Rochester facilities are I think originally.
You were anticipating them to me on my body and ended the first half of 2020 and now it sounds like that target has moved towards the second half of 2022, but I think you were awaiting some equipment because the supply chain issues is that in place and you know are we now just I'm just just give us an update on what kind of deal.
The hurdle is to get those facilities online and what's your expectation for the timeline is.
Sure. Thanks, Courtney Thanks for the question.
I'll take that one falling brook.
<unk> is definitely making some great leaps in in being.
<unk> built out we've been testing out some of our EMEA facilities, it's a multi stage process to make a fuel cell system.
But that first and very important part of it making the multilayered EMEA the membrane electrode Assembly.
This is being commissioned at the moment. So we've been running some tests on EMEA equipment in the last four to six weeks, we will start making fuel cell stacks here in the next four to six weeks and we will be able to make complete systems.
During the second half probably much closer to the middle of the year than the end of the year to be honest, but just during the second half of the year and as for system build the sub systems for the vehicle include hydrogen storage.
Electric propulsion.
Fuel cell system itself et cetera, some of these sub systems.
Have some capability already being set up in Rochester for example, and there is also a vehicle private swapping going on in Rochester, now as well.
We also have some vehicle prototyping activities in inbound books as well.
But we expect to see that.
Internal hydrogen fuel cell production in house, how do you feel so production feeding the highs on vehicle assembly requirements before the end of the year.
And that's the most important thing because that back integrate just right back through that feels so production and improves the gross margins as Mike was alluding before.
However, we have to buy fuel cells from horizon with web.
Buying from the market at a commercial right.
Greatly improves our margins when the most expensive part of the vehicle is made in house.
Great. Thanks, and then just on the on the back to the earlier question about the next understanding that it's tough to predict can you at least give us some.
Your thoughts on the hung on contract and do you anticipate a higher production for them next year relative to this year because I think.
You know mark related to the forecast will be flowing through but you should start to get some incremental sale flow through from the order or from the deliveries from this year. So I'm just trying to understand how much more of the P&L will be labeled labor cost associated with that next year and then what is the timeline until.
You would start to see those revenues full flow through at a at a full rate you kind of mentioned they need to have a long enough operating history that two or three years.
Six or seven.
Okay. So if I can touch on the first part of that question.
Just in relation to the business, we have we expect the business in China to materialize and then Mark can speak a little bit about some of the efforts to them and some of the expectations around improving the revenue recognition treatment of those deployments in China.
So.
We have a number of significant project in vehicle deployment opportunities in China, It's not only the homegrown activities for the for the steel company and users, but also we've announced.
Initial trials with with firsthand.
Which is one of the U N hydrogen demonstration cities in China, and receiving a lot of support from the federal government et cetera down there.
And we expect to be able to share information on at least one or two.
Interesting.
The deployment opportunities beyond the honeymoon.
Heavy duty truck deployments.
Now in terms of how that flows through to the bottom line to earnings et cetera, I'll, let Mike comment and just provide a bit of information about when we expect revenue recognition.
Treatment to maybe change.
Sure. Thanks, Craig So Courtney I think it's important to think through how we will be receiving revenues for the trucks delivered this year.
With no cost you know over the next few years and the bulk of those revenues.
For the trucks delivered last year will come in 2022, so that will effectively be.
Your margin, it's a little strange accounting treatment, but what we're waiting for is for Hogan to have more operating history.
And we plan to reevaluate this method of accounting for their revenues.
In the fourth quarter of this year at which point, we hope that.
We will be able to.
Cannot for their revenues more normally.
Thank you.
Thanks Glenn.
Yeah.
Yeah.
Our next question coming from the line of Rob Wertheimer with Melius Research. Your line is open.
Hi, Rob.
I'm, so sorry, I'm, so sorry, good morning, everybody.
Craig I Wonder if you could talk a bit about how your expectations for 'twenty two have evolved over the last couple of months I think we're still expecting a little bit higher number of truck deliveries.
Maybe you or your backlog, even applause you could do more I don't know whether the 300 to 500 is.
Production limited or whether orders have been percolating, but slower than expected I wonder if you could just talk about the evolution there.
Yeah. Thank you Rob Great question.
We would love to deliver more trucks, [laughter], but you're absolutely right the the.
Three to 400 vehicle range from AST standpoint is this a reflection of supply constraints.
And a couple of other markets that are really starting to build momentum that is Europe and Australia in particular.
And we've been cautious in.
Our outlook for how many vehicles, we think we will deploy it.
In those two markets, even though customer owed us building and customer interest is building.
And we continue to sign and vehicle supply agreements with tending to come.
To only a very small portion of our contracted quantities by the end of 2022 with a much larger portion of those contracts falling into 2023, we're not doing that to pump up 2023, we're simply doing that because it's still a reality that that supply chains are still very constrained.
And unpredictable.
If if things.
Improved dramatically by the Middle of this you say in the next three to four months.
We will be able to do better on deliveries, they're now kind of more conservative.
Estimations.
But at the moment, we're still very much tempering, the forecast and expected deliveries with those supply chain factors, which continue to be quite challenging.
Okay, I think I think that's clear could you walk through what what makes the outlook. So backend loaded you talked a little bit about U S production.
What.
Is it a similar kind of story in Europe , and what kind of gets better.
To drive those deliveries in the back half kind of what needs to happen in order to.
To hit as opposed to even the reason we got it.
Sure sure. So there's two factors that play into the delivery timing one is one of those.
Apply considerations.
Coupled with our ability to get the vehicles assembled once we once we have all the necessary materials and parts and components and then have these vehicles.
<unk> four and.
Certified for on road use et cetera, but the second thing is that that deliveries in China, which will still make up a fair portion of deliveries for this year deliveries in China will always inevitably be loaded towards Q4. Because this is just the way the contract cycle works in that market and we were able to take <unk>.
Vantage of that last year by even though we were.
<unk> only really starting to work on the vehicle assembly towards the end of the year, we were still able to to deploy dozens of vehicles.
December for example.
In China, So there's a contract dynamic contracting delivery dynamic in the China market more generally but also there's a dynamic there around supply of all the parts and components and what that means in terms of our ability to then subsequently build the vehicles.
As al.
We take delivery of all the important stuff for the vehicles.
We still obviously then need to go through the process of building testing and certifying.
And then in Europe for this year, what is the source of the fuel cell stack and then I'm sorry for the last one I'm just trying to think about what gets you to the numbers. This year do your customers need do they all have sources of hydrogen to the need.
To build out sources and could that be.
Kind of delay if they don't have they're set up right and I'll stop there. Thanks Craig.
Okay, Rob a couple of questions in there the first one in relation to the supply of the field sales our plan is to substitute.
Horizon's most fuel cells for in-house hasn't produced field sales out of the U S.
Once that production is fully validated so I can't give you an exact date, but certainly before the end of this year, we would expect to to be starting to substitute supply of fuel cells for European Assembly.
With in House production and then the second question around sources of hydrogen.
<unk> to have options for deploying trucks in Europe , but by the same token the supply of hydrogen is still the rate determining step.
So there are some customer opportunities that still have them.
And supply later on factors associated with them. So what were you sometimes do is work with the customer on.
And scope for a project and then define the phase one you know as the place where the Huntington's.
Imminently available knowing that the phase two is dependent on for example, a new station to be built by total energies or somebody else right. So.
There are still timing factors involving availability of hydrogen.
But Europe is improving all the time in terms of availability of heavy vehicle filling stations and know that you would have witnessed from some of the.
Publicity of news flow around around ER events in Europe .
Many parties that are.
Active in.
<unk> engaged in building hydrogen infrastructure, which does include those very important filling stations.
Thanks, Craig.
Thanks, Rob.
And our next question coming from the line of Bill Peterson with Jpmorgan. Your line is open.
Yes, hi, good morning, and thanks for taking my questions I have a few questions first related to the U S market.
Mentioned that TTS I just started.
It may have been delayed it kind of felt like they should've been and earlier in the year I'm wondering if there's any reason for that and then maybe looking ahead.
When would when could we expect.
To get a vehicle carb certified and I guess the last one related to North America, you said 10 to 15 fuel cells.
Yes, compared to three to six months ago. How many vehicles would you would you have thought you could get in North America at that time.
The Fayetteville, so that's great questions. They went around the U S market and whether the TTS side trial was in fact, a light and yes, we had expected to put the truck into operation around the end of the year and frankly, we ended up spending a lot more time with track validation and all that sort of thing than we had.
Intended.
And there were a few things with them first.
Road validation road.
Rudd certification.
Activities that just took longer than planned.
Not surprising that when you do something for the first time, you don't necessarily have all the answers.
Right off the bat so that was in fact, a little little delight.
Happily the trucks and in the long Beach Port now.
As the Cubs certification I'm going to let Pat comment on that in a moment, but I will make a comment on your third question around the number of trucks, we were anticipating in the U S. So I believe that we had originally anticipated somewhere around 20 class eight trucks for 2022, I think that was kind of way we were looking to target.
We said 10 to 15 is our expectation.
Being trial by the end of this year.
So.
We're still feel.
Quite good about that because we've.
Blaine.
Validating the vehicles and the performance.
Pretty heavily and we've had a number of customers come to witness track testing and some of this sort of thing. So we're seeing increasing interest and engagement by major fleet operators in the U S.
For our trucks and we kick it off those engagements with the trials we were talking about.
So I'm just going to turn it over to Pat So he can come in on Carb certification I think he's a little closer to it than I am.
Sure. Thank you Craig.
Thank you Bill for the question and as Craig mentioned.
Interest in the testing and validation is strong relative to customer demonstration trials.
Of course Carb certification always at the key forefront of what we're working towards for their support in California.
You know it takes generally four to six months to work through the certification process.
Received the executive order through Carb and.
So once we had that.
Allows us to go on trial in California, and so things are progressing well through card.
Okay, yeah, thanks for that.
You noted that.
You're developing power management deal can control your actual and so forth. So I guess the current trucks.
Obviously, using our fuel cells, but what is the timing of that development. When when will we see more of your proprietary content show up in vehicles is this is this a 2023 thing or just really more longer term just curious on the timing of these enhancements.
Yep you can.
Pencil that down as the 2020, Kuwait thing as you mentioned.
Theres a lot of work going on to validate some of these internal.
Innovation and development activities, we expect that between now and the end of this year and first quarter next year a lot of that.
Work is done and so some time during 2023, we expect we'll be able to report.
Various elements of the increasing HUD on content in the vehicles, which gets us to those higher <unk>.
Gross margins that market is always looking for.
Okay. Thanks for that if I could sneak in one more and nice to see progress on the Arabian ISR.
Can you remind us I guess what are the economics of it.
And what do you benefit from.
In terms of the sales in.
Should we assume that the sales of your fuel business starts to pick up I guess early next year.
Anything on the economics would be helpful. Thanks.
Okay. So I'll just introduce them.
Relationship in there and how it works with our early engagement with rave and giving us access to produce to their producer economics on Ashfield, which would take from them, which is up to half of the output for the hubs in which we participate together with horizon.
It gives us access to the economics on the Hudson and then I'll, let mark speak more specifically on the economics coming out of those two first two hubs in California.
So I.
I think.
It's good to point out that each of these hubs is going to produce about four and a half tons a day of hydrogen.
When you think about that that's enough.
All the hard work and we're going to our vehicles. The FERC heavy duty class eight trucks, that's enough for each hub to do 100 trucks. So.
With that those two hubs there would be enough hydrogen for for 200 trucks and that will be around.
By year end the first half.
As a gas to hydrogen hub and.
I think we're even still debating the actual location with with Chevron, it's going to go into a chevron field.
And it's between someplace in Bakersfield or a field and.
Colorado and your Denver.
Once that's determined.
We will look to.
Have trials in those facilities.
And the economics now are low teens, unlevered and we do anticipate.
Being able to.
Debt finance.
In the future after we've demonstrated that they work so that we'll get.
Levered returns on them and we also think that the cost for those hubs will come down over time. The first couple are expensive but.
The nice thing is that Raven is manufacturing the majority of the equipment in house.
And so you know as.
They sort of streamline their process, we can see.
Some of the cost savings come in.
Yeah.
And importantly, the economics of the hydrogen coming out Mark, let's just talk about that.
So so.
The hydrogen when I when I gave us the the low teens IRR, that's assuming that we're selling at around $5. Now there is a great subsidy program.
California.
For the first hubs and most likely a large percentage of the hubs will be in California or at least we'll be in states with the Lcs that's credits and so it's a little hard to answer what the exact economics are because the credit can range from between $3 and $9 a kilogram depending upon the feedstock.
So as you can imagine.
My Unlevered IRR calculation gets substantially better if we move to dairy waste as a feedstock, but I'm using.
Just I'm, just assuming municipal waste in my calculation there.
That's super helpful.
Really exciting progress on that front. Thanks.
Right.
Thank you Bill.
Okay.
And our next question coming from the line of Jed <unk> with Canaccord. Your line is open.
Hi, Thanks, I guess first question on the.
<unk>.
The electrolyze or.
Are you have you moved off platinum and if not what the expectation from a supply chain procurement perspective.
Well, we're going to assume you are talking about their emea's rather than the electrical Liza.
So actually the EMEA the EMEA, we might can be used in electrical as is by the way, but we're using them in field sales obviously, but.
The.
Platinum is indeed.
Key cost determinate for the fuel cell.
The nice thing is that we get the platinum doesn't degrade or get destroyed.
The use of a fuel cell so at the end of life.
With the field sales kind of worn out like a like an engine eventually wounds that after a lot of driving.
We're very happy to take those field sales back and reuse the platinum in and put refurbished fuel cells together essentially rebuilt field sales. After we strip out the platinum and put it into membranes with it. So fuel cells are very much a cradle to cradle technology on that basis.
Throw anything away now.
Now for a comment on the platinum expected platinum economics, and how we see that kind of happening here in the next couple of years I might defer to mark.
He thought and talked a lot about.
On the not only the platinum issue, but but the chemistries and the metals relating to batteries, because we still use batteries.
In our vehicles now we use L. F. P batteries, so theres no Nick a little cobalt in those batteries, but.
We still are very.
Interested and concerned for the supply of of lithium for example, so mark do you want to make a comment about platinum and how we see some of that playing out yes. So we don't give out the exact amount of platinum that we use per vehicle, but what I will say is it's a you know a.
Modest and while everyone focuses on platinum as you know the key.
Material for fuel cells.
Were talking yeah.
Low yes.
Low single.
Yeah.
Let's say about that.
$12000 for per vehicle, so and we expect that to drop Oh, the amount of platinum used as well over time.
Our new iteration of the fuel cells. So it's this is not a.
Something that is.
Its going to pose the ultimate constraint and if you look at platinum prices I mean.
They're they're up from a year ago, but they're not.
Orben it.
Well I guess I was asking that just given where most of the platinum is a is procured with respect to Russia and the Ukraine.
Invasion War, whatever you want to call it right now atrocity I guess.
And what your strategy is from a procurement with the critical element that's going to be constrained and that's where I was coming at from from that person I Hope I got your most platinum comes from South Africa.
South Africa is the major source.
Okay.
So you're not seeing any issues with that and no no. We don't find anything from Russia.
Got it great and then on the so if I think about sort of the relation the relationship you have with different.
Geographical location.
Tesla has done a really effective job of quite frankly, making vehicles in Shanghai that are being shipped to.
To Europe , and now, they're they're starting up a localized manufacturing.
What why the limitations I guess in terms of fuel cells is it just a demand issue that that the demand in Europe and the U S is not there or.
I guess I'm just curious why you wouldn't follow a similar path there in terms of.
Where you're manufacturing versus where you're selling.
Yeah, I'll take that one.
So jed.
For us as a U S based company, it's important to us that we have a manufacturing base in North America.
And then we have also operations base in Europe . For example, because these are the two key markets are focused in the coming say five to 10 years.
And we had always intended to have U S based production of fuel cells as the as the.
The core of our upstream operations, you know, they're very I pay intensive part of our operations and we believe that that will serve us well over time.
We have had concerns about geopolitical stability.
For a while and we think that it's going to be very important to have this dependable domestic supply within the U S of fuel cells. So if you think about the.
The heavy lift that's ahead of the whole industry to get from fossil fuels to clean alternatives we view.
Heavy vehicles, there's naturally going to hydrogen and I think for now.
For the security of supply and for the benefit of the industry generally transport industry generally I think domestic U S supply is very important.
Not a heavily labor intensive activity to make fuel cells, and if you come and see how EMEA line you say, it's basically a lot of fancy machines as opposed to a lot of humans.
It's very different to building, a complete chi, which as you know.
Very involved process with lots and lots of robots and lots and lots of steps and also have quite a few people.
The process of building fuel cells is not that people intense and we feel a local production is very good for long term stability and surety of supply.
Got it.
And one last question.
Just to sneak this in but.
The first Raven hub.
Recognize that you'd spent a decent amount of time talking about our market, but the FERC Raven hubs working with Chevron.
On a gas to hydrogen is that Ah biowaste to hydrogen worried that a methane to a hydrogen.
Conversion.
It's actually gonna be flared gas I think is the most likely source of gas.
The nice thing Yeah go ahead, I was going to say, so flared gas that would be curtailed energy. It so is that going to be intermittent or is that a continuous.
No.
So these details are being worked out and frankly I'm not right.
Right in the thick.
Are those conversations, but the Raven system can take flare gas, where it can take a case.
Casing had gas, which means you don't have to strip out the Ngls and stuff. So it's like Oh.
A more robust system and frankly, there is a.
<unk> large energy companies looking at it to solve the flared gas problems out there.
But no it would run consistently the four turns a day would be consistent gas so.
And this system could can run on RMG.
And it can run on bio gas as well, which MSR mark in the ICU.
Got it well great that's it for me.
Really appreciate it yeah, you can think of that Raven process is just a more flexible version of a traditional OSA mask. So traditional semi steam methane reforming process takes me say and then Oh, what's that into hydrogen so sorry, Josh and then one other question on that so Craig.
Will that be considered blue so are you going to be capturing that carbon.
At the exhaust to sequester that or is that considered great hydrogen.
If that was to use just natural gas out of a pipe it would be considered great Hudson. When you when you use gas that's being flared or as otherwise off gas et cetera. Then it's got obviously all different treatment and it's got a it's got a rating of.
Of green attached to it.
If it was just using natural gas pipe and it wasn't certified RMG it would be great. If it's using certified LNG it would be great.
But I don't believe that it's got a carbon capture directly on that process right Mark.
So how would you think about it.
Green, if you're meeting the carbon.
Now if it is.
Yeah, Yeah, so it's RMG and it also right methane.
Like its 25 times worse for the environment.
Yeah.
C O two so if you capture RMG instead of laying that.
While there are some <unk> that comes out of the process. Your your net carbon economics are a positive.
Well, we'll have an accounting yeah, Kevin Okay, Yeah, yeah, well, while we're on the subject you know obviously, we're doing a whole bunch of waste to hydrogen projects with Raven as well and in that scenario.
This is you get a very large negative.
Carbon intensity score. So this would be more green and in our opinion than doing solar.
With electrolysis, because you're actually you know offsetting.
And it would be emitted from landfills.
So you are cleaning up the environment and.
You're putting less you know.
It's not carbon but less methane into the into the atmosphere.
I'm not going to get harder in perspective, though guys.
I'm very familiar with the molecular structure of R&D, we are going to be a C. H four it's not going to change, whether youre fracking or whether youre getting your carbon accounting yeah Atlanta.
Yeah. So this is kind of an accounting <unk> associated with those blue or green.
But if you're getting CAH for and we're using an <unk> or some type of hybrid FMR process.
If you're not capturing when you break the atomic bond if youre not capturing the carbon than that's being admitted and I'm just wondering how that could potentially be considered green.
I'll just go ahead.
Theres some capture.
So we'll just take this offline but.
But the one thing I will say is just that.
When we sort of adjudicate, how green something as we go by the carb methodology, because we think that they're the ones with the best place to understand this and.
Carb sees the process is very carbon negative underscoring process and we could probably have a two hour debate about how to think about opex I'll take it offline I appreciate it.
I want to follow up on that.
Sure.
Thanks Jade.
Our next question coming from the line of Mike <unk> with D. A Davidson your line is open.
Hey, good morning, guys.
My question is I wanted to follow up on your comment just now about waste to hydrogen.
Do you know of hires that will be we'll be able to.
To get a piece of the tipping fees that come into Raven. The answers on those yes. So if you look at any one of these systems are you know when we will share in our proportionate amount.
None of the economics look like.
And every every hub you know our share will be slightly different depending on who the other partners or it could be raven chevron it could be Raven coach you. It could be you know raven and someone else.
For our percentage of your ownership in that hub, we will share at all the economics.
And the Raven systems. The first one in Richmond is not getting the tipping fee, but Republic services or waste management or any other dumped knows that raven expects a tipping fees. So that's just a.
That's just.
Something that was negotiated on the very first one.
Okay got it.
Now on to my question I had on familiar.
If the supply chain issues are resolved at some point during 2022, whether it's tomorrow December .
Is it fair to say that any amount that you've lowered your 2022 outlook by she'll be able to meet to be made up for in 2023.
Yes.
Let me let me let me take that one if that's okay. Chris So the answer that is unequivocally yes.
Well when you look at our backlog I mean part of the reason why it's sort of growing quickly is.
It is because we're having supply chain issues are delivering.
And you know.
The backlog will continue to grow as we have.
What's gonna grow just because of sales, but is also going to grow because we're not delivering what we could be delivering because of the supply chain. So there's absolutely no issue in sales and sales that arent being that this year are being put into the.
Following year.
And so we've said consistently since the beginning that we have no issue with sales and you know frankly.
That's the way it.
There is definite acceleration and momentum and excitement on the sell side and this is all a matter of logistics and us working up global supply chain.
Working with our suppliers to get you know.
Various pieces of equipment to us as fast as possible.
Alright, Thank you for that and the other question I wanted to ask was about.
About.
Some of the performance track versus the current products. So.
As soon as you get Bolling Brook, I'll come up and running in the full house on own government system up and running how different with respect to be in and the performance fee of the of those trucks from that point onward than they are today and also.
But customers are testing today.
Does that include maybe a hand built version of what's Gonna look like again this year or is it whatever you can get from horizon. That's in those trucks today.
I'll take that so Mike.
Fuel cells that are currently going into the trucks are.
The same fuel cells.
In in house on trucks in the U S and in Europe and Australia.
The same is the fuel cells, we've put into the trucks for delivery for the steel customers in China. For example, those fuel cells are the same design and that design a fuel cell.
He is.
Being updated slightly for the higher power applications to higher power requirements.
Requirements, but it's very very similar and it's not made in a drastically different manner, whether it was to be built by horizon and purchased by household or whether it was to be made by highs on with in house production the fuel cell itself won't be noticeably different.
Okay. So just to clarify the different thing will only be on your margins in Europe .
Really to capture more of the value. That's all cost of yeah, we get we get cost of production price instead of you know.
Instead of.
Yeah.
Our customer promise.
Got it I'll leave it there guys. Thanks, so much.
Yeah.
Thanks, Mike.
Okay.
Operator are there any more questions.
Yes, Sir our next question coming from the line of Steven Fox from Fox Advisors. Your line is open.
Hi, good morning, I'll try to stick to the standard two questions here.
First of all correct.
[laughter] versus 90 days ago have you done anything or had any progress in terms of controlling your own destiny on the supply chain, a little bit better or would you still describe it as sort of a fist fight every day and then secondly, Mark you.
Made a lot of good arguments for why.
The secular benefits to hydrogen, especially given current events I'm just curious like versus.
Say the beginning of February to now.
You're not seeing much in terms of like public opinion from government leaders emphasize high.
Hydrogen as much or you're seeing anything that's changed in your conversations either on the government front or with corporates, that's because of the Ukraine War. Thanks.
So.
Thanks, David So ill touch on the supply chain factors.
Naturally and I mentioned this even in our prior Q3 call we had moved fairly quickly to.
Put as many things on order as we could around the middle of 2021 to be able to build as many vehicles as we could approaching the end of the year.
And unfortunately that wasn't even aggressive enough because lead times are things that are normally.
Five or six week delivery schedule those lead times went out to you know unknown numbers of months and typically nine months plus.
I'm happy to say, we've taken delivery of a lot more.
Parts and components and vehicle chassis in Europe than we are able to get last year.
So this is definitely looking better whether or not we took a lot more actions in the last 90 days I don't think we took a lot more in the last 90 days I think we took a lot of little prior to that a lot of actions to buy quite a bit of inventory for deliveries in 2022.
But still the challenge for US is that the customer appetite is growing much faster than the ability of the supply chain to catch up with it.
I kind of indicated before the.
Or does it coming in but we simply can't get the vehicles that.
At the <unk>.
<unk> that we would like them at the right the customers would like but.
We are looking at a much better Q2 Q3 for example in Europe .
We have enjoyed in the last.
90 to 120 days, it's been pretty tough.
So I'd say Q2, and Q3 in Europe will be much much better for us and we look forward to.
To making a lot of customers happy.
Because they've been waiting a while for trucks frankly.
Now if you don't mind I'll turn it over to Mark on the questions about the some of the.
The secular benefits as you called them ran hydrogen.
I'll just make a comment about interactions with some of the customers and some of the government agencies and.
And reflect on.
Yeah.
Yes.
<unk> interest frankly in hydrogen as a solution for heavy vehicles, it's it's not.
Just horizontal view any.
Animal that.
Hydrogen is going to be so important for these <unk>.
Heavy vehicles that operate many hours every day, it's not just a view or a wish that.
Hydrogen is important in the sector as it is now.
Hum.
Well.
Accepted.
Mantra amongst government agencies policymakers and corporations generally.
And so we have.
High level of confidence a much higher level of confidence that we had going back 12 months. When we were promoting the vision of what <unk> could do.
We feel extremely confident.
Current debt that the thesis we laid out around hydrogen and the fact that Hudson would prove to be.
The.
The secret sauce to unlocking zero emissions for.
It's hard to abate and mobility sectors.
That that thesis is definitely in very good shape and in fact, it has far more of a tailwind now than we ever would have imagined 12 months ago do you want to comment on that at all Mark.
Sure I mean, Steven you might have seen that yesterday.
Orders is reporting that China set a target to produce 100000 to 200000 tons of green hydrogen by 2025, So I mean, obviously.
They get it they are very focused on security of supply I didn't read his comments, but this morning, Jamie Diamond was talking about how we need a new Marshall plan for energy and when I think about a Marshall plan or a way to sort of March the whole economy, there's something beyond oil and gas it really.
Only can apply to hydrogen that was sort of the point to my remarks on the call. We do need a Marshall plan and we need you know.
Massive revolution of the energy infrastructure.
It would be in our opinion.
I sort of get into.
Try to move it all to battery electric because of course that depends upon the grid, but if we rolled out you know massive waste to hydrogen you know all across America I mean, there's garbage produced everywhere.
Great local source of hydrogen I mean, this would be something that would create.
Energy independence, and it would be sustainable it would clean up the environment. I mean, you know the landfill issue is a real real issue I mean, you might know that New York City ships, it's garbage to Rochester, Wyoming ships, it's garbage to Utah, Singapore ships, it to Malaysia, and so forth and so on.
So all of that could get get fixed and at the same time, we can create energy independence. So part of the purpose to my comments from the call is to get this message out there that we do have a plan and we do see a future here and we can.
If needed if there's going to be well, it's going to go to 200 is as many people are calling.
We have a way to.
Get the whole world to be energy independent and stop relying upon.
Ported oil, whether it's imported from Russia or imported from the middle East.
That's a positive for everyone because it's you get security of supply and yet.
At the same time, you clean up the garbage situations.
Great I appreciate all those comments thank you.
Yeah.
Thank you.
And our next question coming from the line of Donovan Schafer with Colliers Securities. Your line is open.
Hey, guys. Thanks for taking my questions.
So my first question is just for the unrecognized sort of portion of the 87 vehicles.
You know that you sold this year.
Because it's spread over those kind of five year period.
I'm just curious just for Mike.
How you think through this and combine this with you reporting on the backlog so I like the I like to see how you broke out the backlog in terms of binding non binding and you've got about $60 million binding.
As the remainder of the 19 million kind of contract value.
The unrecognized part of that counted in the.
Binding backlog or the nonbinding backlog or are you, leaving that out of backlog altogether.
Craig That's a fair question, yeah, yeah, it's like that.
Yes, so there is a slide in our.
Presentation that was put out this morning in an 8-K that actually addresses your comment exactly so the Romania grade is actually not in backlog. We we we show the backlog in a bar chart and then besides that we show the back log plus that remaining debt.
So there's an incremental I think it's I think it's like two.
$14 million that debt.
That's a win for us.
$13 four.
Apiece.
Yeah uncollected revenue.
And it's a great question because it is it is a payment obligation for the customer. So we do expect to receive it but it's it doesn't quite fit backlog definition. So we added it separately.
Oh, that's right like that treatment so.
And then to follow up on that same thing just for trying to understand the spreading it out over the five years.
Sort of.
You know for lack of a better where you talk about it being tied to operating history and I'm curious.
If there's what the specific sort of GAAP provisions or maybe like what we might Google to find that because I can I could think of it as.
As being like when I think about gap and the public accounting oversight standards board or whatever that the puts it together it could be kind of in the spirit of two lines of thinking where one you're talking about operating history. It makes me think of kind of a similar line of thinking to the sort of like allowance for Dow.
For accounts type thing or a bad just in the spirit of it or the other one being like the nature of the contract almost like a year to year rental agreement or something so just what would you sort of Google in terms of keywords understand what the what we've done.
Yes, we can do in a specific question as it may affect them.
Go ahead Greg.
I was just going to say.
The main factor here was the was the treatment of Collectability the assessment of collectibility by our own them as they're saying, we just don't have enough kind of enforcement power to go out and make sure that money gets collected now.
End user of the of the zero emission vehicle services is one of the largest steel companies in the world and we think it's highly unlikely that all of the thoughtful well stop using trucks anytime soon so we don't find that.
Unacceptable industries, but from an accounting treatment standpoint.
Because there is a new intermediary involved in the provision of the service for the vehicles and it's considered.
Collectability risk, but as that company has more operating history, then the collectability would become clearer and I am sorry, I think we both tried to answer the question at the same time, there Mark do you want to add.
Well, so I think you did a good job answering it there Craig I'll just add now that if you want we're happy to have you speak with our Chief Accounting Officer and she is okay far in the weeds and all of this and can explain to you. Okay. Great and then a question I just wanted to say don't if it doesn't have it.
So I want to say that it's really a short term issue, it's really doesn't affect the viability of.
The tracks it doesn't affect the attractiveness of those deployments and the extent to which we learned from the operations and from all the data we get out of all the vehicle operations and it's getting us where we need to be which is in the market with a whole lot of trucks validated by a whole lot of customers right. So it's a short term issue whether we recognize the revenue next year over year after <unk>.
Frankly, it's not a huge deal it's unattractive to have shipped vehicles that you havent recognized the revenue wanted it doesn't make us feel good but at the end of the day, it's a very minor pain point.
Sure Okay, that's great.
And then just my last question.
Taking a stab at the Green Blue.
Blue versus green hydrogen and I don't know I'm actually not familiar with the specific breakouts, but.
I used to be a petroleum engineer and so you know the whole flaring process in Bakersfield and stuff and.
And Mike Correct me, if I'm wrong, but just kind of high level logic.
My understanding is something like that at least conceptually it would be seen as green because you know as an oil and gas producer you're required to flare those methane emissions. So youre, making the C. O two no matter what like it doesn't matter everything else aside the C. O two it's just happening because you're.
You're under laws, probably going back a couple of decades.
Being required to just just combust methane for absolutely no benefit well to convert methane to carbon dioxide. So the logic of the green would be well, it's happening no matter, what so if instead of just having that be waste heat going off into the ether like essentially a campfire with nobu.
Around it you might as well capture it and then if you're capturing that and it's creating a vehicle that is being powered vehicles displacing a vehicle that would otherwise be powered by fossil fuel that would also have carbon.
Tailpipe emissions.
Is that the logic.
Yeah, Yeah, exactly you hit on it and it's because it's an end to end carbon accounting consideration.
What is the feedstock on way did it come from as well as you know what happens through the process and what's the output of the process. So its end to end cabin accounting that Cabot looks at when they assess the carbon intensity and Youre absolutely right. Its also the reason why when you for example type dairy waste and make Hudson from it you get a really massive.
Negative carbon intensity score because what youre abating is strike methane and you just mentioned that the conversion of <unk> four to C. O. Two has been mandated for many years and a lot of countries because the the.
The ozone depletion effect of C. H four is so much waste in Seattle, that's why they're forced to buy in it. So if you're abating CH full you get a hugely negative to say high school if youre abating.
I see.
Two being released without displacing fuel than youre getting a negative benefit.
And if youre actually carbon capturing then that's blue even if it's just natural gas for example, but it would also be a negative C. Like green if they maintain was from renewable source sorry, Matt. Okay. Yes, I was just going to say, it's the same logic for for waste to hydrogen in the.
Ci score there mean flared gas would be going up into the environment.
No matter, what and same with the methane produced from our landfill and so what we really need is a color for this type of hydrogen a color to describe you know garbage to hydrogen, but what we would argue with the help of carb is that this is more green than electrolysis user.
Using solar or wind because that carb score or carbon intensity score as like close to zero and we're we're now dealing with negative scores and in some cases very negative scores.
Alright, Thank you guys.
Thanks, Tom.
And our last question coming from the line of Noel Parks from Tuohy Brothers. Your line is open.
Hi, good morning.
How are you.
Good thanks.
A couple of things.
I was.
Oh no no.
You talked earlier about your cash burn was essentially on track with your original projections for.
The end of 2021, and just looking at the expenses I.
Just noticed that it seems that your R&D run rate is.
Pretty far below or last year was pretty far below maybe the original projections you had I think which were five year projections. So just looking for a little insight as to maybe.
And then if so where you cut back on that and just what.
Where we might see the the ramp up on that expense line going forward.
This year more a more 2023.
Sure. So R&D I think what we had provided as a as an outlook for kind of major buckets of expenses, we're looking forward over several years.
And.
Our spend on Capex and R&D generally in 2021 have been on the lower side, because it's been very slow to procure equipment to do things like lab work et cetera. So in fact, we are a.
A little slower in investing in some of that.
Then, we probably would have preferred to be honest.
But it meant that we ended the year with a cash position fairly consistent with what the outlook had vein.
Even given.
Revenue recognition and cash collectability of some orders et cetera.
Cash collection of some orders et cetera.
But we do expect to continue a healthy spending on R&D and we do expect to be spending more on capital equipment in the coming one to two years simply because we break going from these low volume validation vehicle flap assemblies.
Two.
More trucks on the road doing more work and we are also expanding that pause on content in the vehicles and we go from the front end of the R&D processes.
And much.
More involved in slightly more expensive parts of.
Of the R&D stroke engineering, where we validate designs and validate R&D developments. So I do expect that we need to keep investing but that's consistent with everything we are trying to do right now which is laying a foundation for.
Five to 10 year outlook, which is going to be very wildly full of lots of hydrogen trucks going to lots of countries around the world.
We have to invest in this base, we have to invest in the core capabilities and we have to maximize the highs on content in the vehicles we deploy.
So that we realize.
Both.
The.
Hi, <unk>.
Stable margins, but also a business, which is more stable predictable and vehicles, which are more reliable dependable and have good long term service characteristics for our customers.
So we will.
<unk> to invest fairly heavily in R&D and yes. It is a little.
It is a little slow to get started especially given equipment purchases have been so.
Florida frankly.
Great. Thanks, and then.
I did mention earlier that you did have a customer I believe in Europe with successfully started their green hydrogen production Huntington.
And then and then delivery is.
Is gonna be underway. So just if we look at them as maybe sort of an earlier early ish adopter wondering if that if they're sort of useful as a case study what you might see another.
And other potential customers and if you happen to know I was just wondering if you have a sense whether there were significant.
Significant incentives involved in and they're achieving that or something they did more on their own.
Yes, that's a good question also.
If anyone.
Had kind of.
<unk> seen our original kind of investor materials, and you might have remembered that we characterize the early adopters kind of into buckets. They were the type of companies that were that had made a commitment and we're aggressively investing in their own green hydrogen capabilities.
Such as Fortescue in Australia, such as this company in Europe , that's built electrolyze from renewable to run off renewable electricity. It's these types of customers are early buyers of vehicles.
Because they are committed to hydrogen strategically.
And then there's another type of customer, which is more like the typical customers in Europe and a lot of customers in China, where they know they can access available hydrogen from.
From a public station or it might be from a chemical.
Plant, that's got waste hydrogen or whatever.
These.
We see the European customer as a bit of a case study as you say of one of these kind of behind the fence make my own hydrogen and displace diesel in my operation.
With that.
Any substantial subsidy support and we saw Fortescue something doing something similar in Australia, where they committed to purchase coaches in those countries are now in Australia and doing all the validation work and all the rest of it.
And these customer in in in Europe has just commission Theyre electrolysis and now that'll build that Theyre filling station and then in a couple of months and then they get the trucks there'll be there'll be able to tell the world about it and I think that those behind the fence green hydrogen projects.
Sure.
Underappreciated as as a.
Commercial weapon for some of these companies.
Becoming independent if diesel and removing that.
Volatile cost element in your operation, which is also very high kind of.
Variable cost element, it's not something that you don't get you don't get a lot of scale benefit of doing more trucks. Because you just got to find more diesel, whereas when you make green hydrogen and you put more trucks under the green hydrogen you get this fantastic scaling effect to get this improving marginal cost of adoption. So.
That youre paying customer and we're not talking about them yet in detail because they want to they want to talk about the project a little lighter.
But it is a good example of a behind the fence type of initiative.
And we believe that.
Over time, they will receive.
Government support simply because they've been so progressive and pursue these initiatives and it will ultimately result, oddly in support for example for them to scale vehicle deployments. So.
That's yet to be.
Yet to be revealed.
But you know I believe that that's an inevitable development.
Once they prove that they have this green hydrogen available at strong economics, there still will be I believe support for scaling vehicle adoption around that green hydrogen.
Great. Thanks, a lot.
Operator, do we have another question.
That was going to be the last question I think we're pretty much out of time I'm showing no further questions.
Great.
Yeah.
Thank you very much anyway, so yeah yeah.
Thank you very much we look forward to it.
With you on our next quarterly call and we'll leave it at that thanks operator.
Yeah.
Thanks, everyone.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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