Q4 2022 Hyliion Holdings Corp Earnings Call

Speaker 1: To to the to.

Speaker 2: Good day and thank you for standing by. Welcome to the highly on holdings 4th quarter and full year 2022 earnings conference call. At this time all participants are in listen only mode. After the management for prayer remarks there will be a question and answer session.

Speaker 2: I would now like to turn the conference over to Kellyn Ferris, Hylian's Director of Investor Relations. Kellyn, please go ahead.

Speaker 3: Good morning everyone. Welcome to Hylian Holdings' fourth quarter and full year 2022 earnings conference call. On the call today are Thomas Healy, our Chief Executive Officer, and Jon Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hylian's Investor Relations website at investors.hylian.com.

Speaker 3: Please know that during today's call we will make forward-looking statements regarding the company's business outlook. Forward-looking statements are predictions, projections, and other statements about anticipated events that are based on current expectations and assumptions, and as such are subject to risks and uncertainties. Many factors could cause actual results at different materially.

Speaker 3: from the forward-looking statements on this call. For more information about the factors that may cause the company's results to differ materially from such forward-looking statements, please refer to our earnings press release as well as our filings with the Securities and Exchange Commission.

Speaker 3: For a liquid statement, speak only as of the date they are made. You are cautioned not to put undue reliance on forward-looking statements and we undertake no duty to update this information unless required by a applicable law. Now I will turn the call over to Thomas.

Speaker 3: Good morning everyone and thank you for joining us today for our fourth quarter and full year 2022 earnings cup. We have a lot of exciting news to share with you about the progress we've made over the past year and our plans for 2023.

Speaker 3: First, let's review the key milestones that we achieved in the fourth quarter of 2022 and for the full year. We had another milestone on the path to commercialization of our hyper-truck ERX powertrain by starting winter testing. We also completed the first full year of revenue generation.

Speaker 3: and achieved our latest revenue guidance for the year. We added another 10 orders for initial hyper-truck ERX production slots, bringing the total up to 210 units. In addition, we acquired the Carnot generator technology, which will give us a competitive advantage by having a high efficiency fuel agnostic generator.

Speaker 3: We've increased our workforce by over 50 employees during the year, including our CFO , John Panzer, and our Chief Strategy Officer, Sherry Lance. We also added J. Craig, the former CEO of Maritor, to our Board of Directors and he recently took over the Chairman role.

Speaker 3: We also expanded our relationships with both PACR Peterbilt and Cummins, which will help us scale our solutions and bring them to market more quickly. We made great progress on the regulatory front as well. Our technology will be included in the Inflation Reduction Act and is expected to qualify for CARBS Advanced Clean Truck.

Speaker 3: and advanced clean fleet medics.

Speaker 3: which define clean truck production and adoption requirements for OEMs and fleets.

Speaker 3: These are all significant achievements and we are proud with what we have accomplished.

Speaker 3: Shifting back to the Hyper Truck ERX powertrain milestones, as a reminder, we initially shared this commercialization timeline back in 2021, and for five consecutive quarters, we have hit every milestone on schedule since then.

Speaker 3: During the quarter, we checked another box on our commercialization roadmap by initiating winter testing, which includes putting our powertrain through its paces in northern environments where most battery electric vehicles really struggle due to cold weather.

Speaker 3: Because our powertrain has a CNG range extender, it can operate more reliably and over greater distances than a pure plug-in vehicle. We've been pleased with the results thus far, and while we've encountered some opportunities to strengthen components, we do not expect anything we've experienced to date to adversely impact our plans to start commercial production of the powertrain.

Speaker 3: trials throughout 2023.

Speaker 3: As we head toward the start of commercial production late in the year, I'm also pleased to share that we are on track for obtaining carb, EPA, and NITSA certifications in the second half of the year, which we expect to be our final milestones before delivering units to fleets.

Speaker 3: Late in 2022, we received an order from DSV for 10 HyperTruck ERX units with an option to buy 10 more.

Speaker 3: DSV is one of the largest third-party logistics companies in the world and is focused on expanding its US business with these trucks deployed out of the Dallas region.

Speaker 3: DSV shared with us that they are seeing growing demand for their customers to offer a mission-reducing solutions, such as class 8 trucks with the hyper-truck ERX powertrain system.

Speaker 3: We are excited to work with DSV and to continue growing our customer base while we help them grow theirs.

Speaker 3: We've also continued to execute additional control sleep trials, recent completing one with Ruan, moving goods for one of their largest shippers.

Speaker 3: Ruan is not only a hyper-truck innovation council member, but they also place an order for 10 production slots. Ruan is committed to climate change initiatives and has a vision to transition to more sustainable movements of freight.

Speaker 3: As we go through additional fleet trials, we expect to continue to grow our backlog of orders for production slots.

Speaker 3: Various other fleets have told us they are interested in the Hyper Truck ERX powertrain, but would like to see us reach additional development milestones prior to participating in fleet trials or placing orders. We therefore believe that we will see more firm orders from customers as we approach our commercialization goal late in the year.

Speaker 3: I next want to provide an update on our Founders program. As mentioned on our last call, we are calling our initial deployments of trucks our Founders program. We'll provide white glove service and we'll have a launch facility in the Dallas region to support and service these trucks to ensure a positive customer experience. We are researching the best facility location for our needs in Dallas.

Speaker 3: and we'll look to share more later in 2023 as we make progress. We also anticipate that the launch facility will be the location where we deliver new trucks to customers as they go through end-of-line certification at the Peter-Build Plant in Denton, Texas.

Speaker 3: Shifting to a regulatory update, as a reminder, there are three main incentives or initiatives that we are pursuing. The Inflation Reduction Act

Speaker 3: CARB Advance Clean trucks and CARB Advance Clean fleets.

Speaker 3: The IRA provides a $40,000 tax credit per vehicle and a truck with a hyper-truck ERX powertrain qualifies for the same incentive as a plug-in electric truck. ACT is a car mandate on OEMs to drive the production and sale of vehicles that qualify for zero-mission vehicle credits in the years ahead.

Speaker 3: According to this regulation, our hypertruck ERX system qualifies for 75% of the ZEV credit that a plug-in electric truck or fuel cell truck will qualify for.

Speaker 3: ACF is similar to ACT, but is a mandate on the fleets to purchase zero or near zero emission trucks. ACF is still in the drafting stage, but as it stands today, the Hyper Truck ERX product will qualify for 100% of a ZEV credit or the same value

Speaker 3: as a BEV or fuel cell truck.

Speaker 3: CARB has recently proposed some changes to ACF where fleets can seek exemptions to delay compliance with the policy if either clean trucks are not available for purchase or if there are documented delays associated with installation of onsite charging infrastructure.

Speaker 3: In a recent meeting, CARB confirmed that exemptions will not be offered to fleet if a near-zero mission vehicle, like a truck with the Hyper Truck ERX powertrain, is available to be purchased.

Speaker 3: We are pleased with how ACF is shaping up as we believe CARV's policy recognizes the value that our range extending electric power train system plays in the transition to cleaner operating vehicles electrification of trucking and meeting broader sustainability goals.

Speaker 3: Shifting gears, as we kick off 2023, we are excited to announce that we are undertaking the development of a fuel cell truck under a collaboration agreement.

Speaker 3: As you know, we've showcased a three-stage development roadmap for our hyper truck power train that starts with a CNG engine as the range extender generator. We then replace the CNG generator with the more efficient Carnot fuel agnostic generator. And finally, transition to a fuel cell powered truck.

Speaker 3: In 2022, we announced Cummins is our supplier for the CNG engine, and we also unveiled the Carnot as our fuel-agnostic solution.

Speaker 3: We believe that our roadmap aligns with the need to transition to electric powertrain solutions in a manner that evolves over time, along with availability of clean fuel sources and charging infrastructure.

Speaker 3: It also leverages the ability to retain most of the same powertrain components across our vehicle platforms, including the axles, batteries, electric accessories, and most importantly, the software that controls the entire system.

Speaker 3: While we believe CNG will be the fuel most prominently used in the near term for range extender electric vehicles, we also see the market evolving towards greater electrification based on hydrogen as a fuel source.

Speaker 3: Initial adoption of hydrogen vehicles will likely occur in a regional fashion around new fueling locations designed to support trucks.

Speaker 3: As more stations are built out and the cost of hydrogen comes down, we expect to see adoption grow in applications shipped from regional to include long haul.

Speaker 3: Therefore, we are pleased to announce that HISON Motors is our collaboration partner in the development of this fuel cell powered vehicle. Together we will integrate the highly on electric power train system and the HISON fuel cell into a Peterville chassis.

Speaker 3: Hizen is an industry leader in the production of fuel cells and Hyliion is an industry leader in developing electric powertrain solutions. We are excited to have our teams working together to develop a prototype hydrogen fuel cell powered vehicle that we expect to be the predecessor of a commercial version of a truck in the future.

Speaker 3: fueling become available at lower cost in strategic markets. We are excited about this collaboration and the opportunity to work with the HISON team and its fuel cell technology. More to come later this year.

Speaker 3: Before handing it over to John , I'd like to take a moment to acknowledge the passing of our former chairman, Ed Okula, who is not only our chairman but also an initial investor in Hylian.

Speaker 3: He passed away on December 15 after a long fought battle with leukemia.

Speaker 3: He was a mentor to our team and his contributions to our success will always be remembered.

Speaker 3: I am extremely grateful for everything I did for me personally and for Highland.

Speaker 3: With his passing, Jay Craig has taken over as the chairman of the board and we're excited to have him in this role.

Speaker 3: Jack Craig has taken over as the chairman of the board and we're excited to have him in this role. And with that, I will turn the call over to John .

Speaker 3: Thank you, Thomas, and good morning, everyone. Turning to our financial results for the fourth quarter, we reported revenue of $1.1 million related to hybrid sales, including three trucks outfitted with hybrid systems, compared to $500,000 in the third quarter of this year and $200,000 in the fourth quarter of a year ago.

Speaker 3: Operating expenses totaled 31.6 million for the quarter, up from the 26.6 million re-recorded a year ago in the fourth quarter, but sequentially lower than the 34.1 million re-recorded in the third quarter of 2022, after excluding the $28.8 million

Speaker 3: counting impact from the carnal acquisition we closed in September . I want to also know that this is the first time we are recording a full quarter of normalized expenses for the carnal operation and our financial results.

Speaker 3: R&D expenses totaled $21.8 million, up $4.4 million from 2021, but down about $2 million from the prior quarter, again after excluding the impact of the Carnot Purchase Accounting.

Speaker 3: SG&A expenses for the quarter were $9.7 million, up $500,000 from 2021, but down $500,000 from the third quarter as we are starting to level out the growth in spending on overhead costs.

Speaker 3: In total, Hyliion reported a net loss of $29.4 million for the fourth quarter, which is nearly flat compared to the net loss of $29.6 million reported in the fourth quarter of 2021. Comparing the two periods, operating expenses were about $5 million higher in 2022 than 2021.

Speaker 3: but were mostly offset by smaller gross loss and higher interest income on our investments. Sequentially, our operating loss of $29.4 million was $5.2 million lower than the loss we reported in the third quarter of 2022, excluding Carno accounting.

Speaker 3: with improvements in all areas, including lower gross loss, lower R&D and SGNA expenses, and higher interest income.

Speaker 4: Turning now to the full year, revenue was 2.1 million on sales of hybrid systems and full trucks. Thomas mentioned this is in line with our most recent guidance of approximately 2 million in hybrid revenue for the year.

Speaker 4: looking at the expense side and excluding the carnal acquisition adjustment in all results. Total full-year operating expenses were $123.6 million, $30 million more than were reported in 2021, and driven mostly by higher R&D expenses.

Speaker 4: which were 81.6 million in 2022 compared to 58.3 million in 2021.

Speaker 4: The increase in R&D expense was driven by a full year of development and testing work on our hyper truck ERX powertrain system as well as component purchases for development trucks we built in 2022 and additional units we plan to build in 2023.

Speaker 4: Four-year SGNA expenses total 42 million, up $6.7 million from a year ago. And net loss for 2022 was $124.6 million compared to 96 million in 2021.

Speaker 4: I want to note that full year operating expenses of 123.6 million that I mentioned earlier were about 6 million lower than our most recent full year forecast of 130 million, primarily due to delays in R&D services and components that were pushed into 2023.

Speaker 4: We ended the quarter with total cash, short-term and long-term investments of $422 million, compared to about $455 million at the end of the third quarter, with the $33 million of cash used during the period, accounted for almost entirely by our net loss in the period, and also increased prepaid insurance expense.

Speaker 4: Looking forward into 2023, we expect to continue to deliver hybrid systems and full trucks with hybrid systems installed at about the same quarterly rate as we averaged in 2022, or about a half a million dollars of revenue per quarter as we move towards commercial launch of the hyper truck ERX system.

Speaker 4: We plan to start delivering production versions of the trucks with our HyperTruck ERX system in the fourth quarter of this year. Initially, we do expect these sales to be recorded at a negative gross margin due to the start-up nature of our commercialization activities, including component procurement and truck assembly.

Speaker 4: Over time, we expect our cost of sales to be reduced driving positive margins.

Speaker 4: We expect our full year 2023 operating expenses to be in the $130 to $140 million range. This estimate reflects our continued focus on delivering the HyperTrux ERX system in late 2023, but also transitioning from largely research and development activities more towards testing and commercialization support.

Speaker 4: Also, as noted earlier, we are beginning to level off growth in SG&A expenses, a trend which we expect to continue in 2023.

Speaker 4: We plan to continue to grow our in-house engineering and development resources in 2023, while simultaneously reducing spending on outsourcing of these services. Included in our projections for 2023 spending is additional development work for our Carnot Generator, the Fuel Cell Truck Collaboration Program with Hizon.

Speaker 4: and other platform development projects that leverage the HyperTrack ERX system. We continue to believe that we have sufficient financial resources to fund current commercialization activities for our HyperTrack ERX powertrain as well as for initial development activities for the Carnal product and the High Zong Collaboration Project.

Speaker 4: We noted last quarter that we expect to see increases in working capital for 2023, primarily as we acquire components needed for assembly of production trucks later this year. By beginning to acquire some parts in the coming months, we will reduce the risk that supply chain issues delay our plan start of truck deliveries. Finally, we expect to see an increase in capital spending for the year as we build out Sundrault autopsy at the end of today's collection

Speaker 4: build to be less than 200 million compared to 135 million that we used in 2022. With that, I will turn it back over to Thomas for closing remarks.

Speaker 3: For our closing remarks, we have a few exciting updates and events to share with you.

Speaker 3: First, we want to highlight that we will be exhibiting at the ACT Expo in Anaheim, California in early May. We'll be showcasing both our HyperTruck ERX and Carnot Technology.

Speaker 3: We'll have a Carnot generator in our booth as well as the initial proof of concept semi-truck utilizing a Carnot generator.

Speaker 3: This will be the first time ever that the Carnot technology has been publicly displayed.

Speaker 3: At the show, you'll also have the opportunity to see Hizons fuel cell that will be integrating into a hyper truck. We are excited to share our progress with the industry and connect with other leaders in the space. In early January , I participated in a panel at the World Economic Forum in Davos where we spoke about how the grid is or is not able to support EV charging.

Speaker 3: and how solutions like the Carnot generator can produce electricity locally in a distributed grid model to help ease the charging infrastructure issues.

Speaker 3: We also spoke about how range extender vehicles like the hyper truck can help avoid many of the infrastructure problems. We encourage you to watch the panel discussion on our YouTube channel as well as our recently released educational video on what size batteries are truly needed for EV trucking. Lastly, we are pleased to announce-

Speaker 3: that we will be hosting an investor conference at our headquarters in Austin, Texas on June 27th. We'll be showcasing our existing technology in some of the future advancements we are working on. We encourage all of our investors and interested parties to attend and learn more about our vision for the future of electrification.

Speaker 3: In conclusion, we are very pleased with the progress we have made over the past year. We have achieved significant milestones, expanded our customer base, and made important regulatory strides.

Speaker 3: With our continued focus on innovation and collaboration, we are confident in our ability to lead the industry towards a more sustainable and efficient future. Thank you for your ongoing support, and we look forward to updating you on our progress in the months ahead.

Speaker 3: With that, I will open the call to questions. Please go ahead operator.

Speaker 2: At this time, in order to ask a question, press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker 2: And your first question comes to the line of Bill Peterson from J.P. Morgan. Your line is open.

Speaker 5: Good morning. This is Lima, Cacani, on for Bill Peterson.

Speaker 5: Thanks to take more questions. Can you, I was a little bit more, hi there. Could you please tell us a little bit more about if the high zone collaboration could potentially change the timing between the car no and the fuel cell launches and or the key markets address?

Speaker 3: Sure, absolutely. So, you know, first coming to market is going to be the HyperTruck ERX, which is the CNG range extender solution. In parallel, as you know, we're already working on the Carnot development vehicle that will be first showcased out at the ACT Expo here in just a couple of months.

Speaker 3: And then as we announced today, we're going to start working on a fuel cell development vehicle as well. So in terms of timing of those solutions, the one advantage that a fuel cell solution does have is just less regulatory compliance is that we need to go through in order to bring that to market. So there is some acceleration of the development schedule there.

Speaker 3: In terms of actual timing of one, we'd be ready to bring that to market. We're not ready to share yet just because the agreement with Hizon is really around this initial development vehicle. Proving that out showing to the market that our powertrain is able to incorporate a fuel cell, just like it can incorporate the range extender CNG, the Carnot J.

Speaker 3: out there are you know easier or less barriers to bring a fuel cell solution to market just because of the regulatory side of things and the zero tailpipe emissions but by all means the team's focused on ERX is the first one we're bringing to market and that'll be

Speaker 5: Thank you for that color. And then maybe as a follow up to that is the Huyzon collaboration, I'll let you let the proof of concept kind of use your expectations. Will that be the primary fuel cell strategy forward or is it part of a larger hydrogen strategy from Hylian?

Speaker 3: Yeah, so I think we've probably been pretty bullish on is we see hydrogen as being a fuel of the future, but the biggest question is just what, right? And even where we sit here today, hydrogen costs are so much more tire than diesel even. There's only a few stations out there where you can actually refuel.

Speaker 3: majority of the country over the road trucking, we definitely see natural gas and renewable natural gas especially as being the fuel of choice. So we've got in, you know, as a company, we've got in some question marks or maybe even criticism in the past of like, are we going to be ready when, you know, hydrogen is available? Are we going to be a true contender at that point?

Speaker 3: that is piggybacking on a powertrain that by that time we expect we'll already have millions and millions of miles proven out with the CNG range extender. And so we want to showcase that we're going to be a strong contender in the hydrogen space as well.

Speaker 5: Thank you. I really appreciate it.

Speaker 2: Your next question comes from the line of Andres Shepherd from Cantor Fitzgerald. Your line is open.

Speaker 6: Thank you. Hey, Thomas. Congrats on the quarter and thanks for taking our questions. Quick question on our end, a bit on the quantitative side. As you approach start of production second half of this year, you have the 210 orders which was increased from

Speaker 6: envisioning 2024 as a more feasible timeline. Thank you.

Speaker 4: Hi, Andres. This is John Panzer. I'll take that question. So we mentioned that we're going to be commercializing the truck later this year, so we're going to start making deliveries sometime in the fourth quarter. We don't know exactly what date or how many. So I wouldn't assume in 2023 that we would see positive margins.

Speaker 4: As we mentioned, there's some of the inefficiencies with starting out and component costs are higher when you're purchasing them in lower volumes, but we're actively working to turn those positive, and that's going to be from more efficient assembly, better procurement, and also just engineering changes to the truck. So it's a little bit too early to predict, but you can be sure that's our...

Speaker 6: besides delivering a reliable truck that's our number one priority for the future. So it's a little bit hard to predict exactly when that will be. I understand. Thank you, John . That's helpful. Maybe as I follow up, I'm curious, maybe Thomas, maybe this one a little bit more for you is, what kind of trends have you been seeing on the supply side? Right? Obviously supply chain disruptions has been...

Speaker 3: definitely seeing those easing some. We're not seeing suppliers continue to extend their lead times. If anything, it's starting to go the other way of they're achieving the lead times they told us and in some instances, moving in the lead time. So I think everything's heading in the right direction of the supply chain markets. The next thing that we hope to see, and we're gonna obviously push on this with our supply base is,

Speaker 3: to start to see the pricing reduce back to where it was or start to head towards the levels it was pre this you know kind of shake up in the supply market. So that will be one of our big pushes here. You know one of the things maybe just to parlay this question into another topic is just

Speaker 3: We're starting to see BEV vehicles get out into the market, get out into customers' hands, and the question is where is the customer demand going to lie? And what's been interesting, and we've kind of forecasted this a little bit in the past, is we're seeing that fleets are really struggling with these BEV vehicles. They're seeing charging as being a massive issue.

Speaker 3: great. And just to put an actual story to that, we were with a fleet not too long ago, who did adopt some Bev vehicles, some plug-in vehicles. And the very senior executive there came back to us, and their comment was, after their experience with Bev's.

Speaker 3: While he's at the company, they will never adopt another BEV vehicle again into their operations, just because of how many hurdles and headaches they had with trying to adopt a BEV, but they see our solution as being very practical. So, that's some positive news for the path we're on most definitely. I appreciate that contact, Thomas, very helpful. Maybe one last one, if I could squeeze it in, is just remind us again on your...

Speaker 4: She's so capital that will be available to us when we need it. And we spent, I think, was roughly 135 million last year. We also guided to spending somewhere under 200 million this year. The unknowns there is just our working capital build and how many trucks we sell by the end of the year. So.

Speaker 4: somewhere south of 200 million. So we're going to leave us over 200 million by the end of this year is our projection. So that leaves us in good shape. So we have no plans to raise any capital all this year. And it puts us in a great position to even start 2024 as we start to ramp up sales.

Speaker 2: Excellent. Thank you very much. Congrats again on the quarter. I'll pass it on. Thank you. Thank you. Your next question comes from a line of Donovan Schaffer from Northland Capital Markets. Your line is open.

Speaker 7: Hey guys, thanks for taking the questions.

Speaker 7: I do want to start off just actually by offering my condolences around Ed's passing.

Speaker 7: I know he was an early investor in the firm and he even had sort of like a COO role for some stretch of time and I think he I think it goes back like 2016 or something. I know he was there for long time so

Speaker 7: No doubt, I'm sure that he will be missed. So, I just wanted to pause. I appreciate that, Donovan. Thank you.

Speaker 7: So, to turn into questions for the HyperTrack ERX ramp.

Speaker 7: you know you guys hinted on some of the talked about some of this with like working capital and supply chain and sourcing and all that but of course I think we would all love to know and have a crystal ball for exactly what the hyper truck erx ramp

Speaker 7: will look like in 2024, following the initial 200 or 210 units, thinking about second quarter, third quarter, fourth quarter of 2024. I'm guessing it's far too early for you guys to give us anything on that. Of course, if you can.

Speaker 7: view in place for the number of units you would need to be able to produce in Q2, Q3, and so forth? What's the gating point or the point this year where you would need to start making some of those decisions? What's the gating point for the number of units you would need to be able to produce in Q3? What's the gating point for the number of units you would need to be able to produce in Q4?

Speaker 3: Sure, so as you let in with the question, it kind of hinted to, we're not ready to share just volume expectations for 2024 at this point. We are confident and are going to work very hard to make sure we achieve what we set out of delivering all those 200 vehicles by the end of Q1 of 24, which is going to be a great ramp up for the team.

Speaker 3: But in terms of the procurement part of it that you mentioned, it's a great question because as we shared in past earnings calls, we were starting to pre-buy some of the things for these initial 200 trucks just to make sure that we had them in plenty of time. Supply chain markets vary based on components but usually probably a six month is a fair bet. Some components are longer than that. Some are much shorter.

Speaker 3: the availability of trucks and we feel confident for those initial 200 bills were in good shape there. And you know one thing to highlight on that and just the Peterville relationship is going well. We continue to make great progress with them. And actually one of the big milestones for the team internally here was

Speaker 3: Just recently we did the first build of a decontented truck off of Peterbilt's line that was spec'd specifically for Hylian. So as we've talked about in the past, in the early stages here we were kind of taking full trucks and we were taking components off of them and then having to discard those or sell those components. Now we're moving forward with being able to source chassis and trucks.

Speaker 3: directly from Peter Belt that are built how we need them to be, which is a huge milestone. And we expect that to, you know, relationship to continue to grow as we move forward here. Okay. Thank you. That's very helpful. And then for the winter testing.

Speaker 7: Given that you've already begun the winter testing, I'm sure it's not complete or you would have said it was finished. I'm sure that some amount of assessment has to have this full start to finish scope for an assessment. I'm curious if there are various.

Speaker 7: incremental phases for the winter testing or any, you know, discrete points where, you know, it allows you to give us some color or some updates on how the vehicles have been performing so far in the winter testing. And also maybe any new insights from that versus the summer testing. You know, I know, like you talked about frustrations with the EEVs, you know, in cold weather.

Speaker 7: Do you consume a lot of energy with heating, you know, the cab, but with something like a natural gas generator, you get a waste heat from that. So that's why heating isn't really a problem in an internal combustion engine. So curious, you know, comparing and contrasting what your summer testing benefits and just any incremental updates from what you're seeing so far. Absolutely. So a few different parts of that question.

Speaker 3: truck out on the road, the new design, the updated design. So we're excited to have that already underway. But testing will continue in terms of what we've learned thus far. There have been learning, right? The philosophy of testing is you want to push things to the point that you break them so you figure out where the weak points are. So we're doing just that. But.

Speaker 3: What I will say is nothing that we found in testing thus far has made us have to go back and rethink the timeline that we're on. So, that's a huge win. But the learning separates have been learned anywhere from, you know, water ingress, you know, areas, things like that to improve, connectors to improve.

Speaker 3: designs of sheet metal to improve, you know, nothing that's major though, as well as we've even had learnings on some of the components that we're sourcing from whether they're brand new or newer companies in the industry to well established, been around for a bunch of years, but they're new into the electrification space. We've been able to give feedback to those suppliers as well and help them through continuing to iterate the designs of their components.

Speaker 3: as you pointed out is we can actually use the natural gas generator during that time to be producing electricity to help with power in the vehicle. And thus, you know, we don't see as much of the perform negative performance attributes of cold weather. It doesn't affect our powertrain as much as it does of the EVA. So overall, I've been very pleased with the testing though.

Speaker 7: Okay, and then if I could just squeeze one last question in about kind of, you know, there's the two originally, there's sort of the 200 production slots for the founders program tied to the launch facility in Dallas.

Speaker 7: Now you've got the incremental 10 units ordered by DSV. Is that as we get incremental orders and things that come in, so we add on to that initial 200, are those going to be folded into that same idea of like a founder's program and they get that kind of white glove treatment that you talked about with?

Speaker 7: additional servicing and monitoring and everything out of the Dallas facility. I think you kind of handed that in your prepared remarks, but just wanting to clarify how to think about incremental orders in relation to the initial 200 that were kind of highlighted as the founders program. Sure, so we anticipate the founders.

Speaker 3: with their vehicles in addition. But as we go forward, we plan to loosen that constraint of wanting to make sure the fleets are going to be coming through Dallas and really just make it a solution that's available across the country. Obviously, if a fleets coming through Dallas then we're going to use that launch facility and just to put some more color there. We are still in the process of identifying what we're doing.

Speaker 3: when we launch the vehicle and we'll be supporting those initial ones or other fleets that are in the Dallas area out of that location. Okay, so when you talk about potentially doing that service elsewhere as you expand in other markets.

Speaker 7: So then the idea is this type of white glove, you know, talking about like a white glove service. That's a service you would actually intend to have available. It's not something where it was just, oh here's the first 200, you know, we want to really make this a flawless, perfect thing and all the learnings and everything involved.

Speaker 7: So it's just white gloves for the first 200. You're actually, that's something you at least want to have available as an option going forward in another market. Is that correct? So maybe just to try to put a little more color to it of how we were thinking about it. So for the first 200, we're approaching it where...

Speaker 3: It's critical that we get as much learnings off of these initial vehicles as possible to make sure that the design is robust. There are no failure points that we see coming up. So, you know, well, we've asked the fleet says, even if the vehicle is working perfectly fine, they aren't experiencing any issue. We still want to get eyes on the truck to make sure that it's working as we would expect it was, and we don't visualize.

was an issue on the vehicle. And so maybe that's more the difference of kind of the white glove is us kind of creating an arrangement with the fleet where we're maybe more involved than we normally would be once it's into normal volume production versus after the 200, we want the fleets to use it like they would any other technology that's on the truck.

Okay, thank you. That's very, very helpful. I'll take the rest of my questions offline.

Thank you, that's very, very helpful. I'll take the rest of my questions offline. Thanks, Emma.

And again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from a line up, Abby Jaraslowitz from UBS. Your line is open.

Good morning guys, I'll be on for Steve Fisher. So John , I think a couple of questions on OPEX for this year. So one is just how should we be thinking about SG&A for this year? You know, I know.

I expected to be leveling off, but does that mean kind of flat with last year or increasing for some part of the year and then flattening out from there? And then also in terms of the R&D expenses, you may be bucket, how much of the R&D is geared towards commercialization this year versus development of future products?

Sure. So first of all, the SG&A, the guidance there is really just to indicate that on the SG&A side, the administrative side of the company, we're starting to kind of reach maturity and where we don't need to build a lot larger organization.

to your question. It's, I don't want to split hairs here, but we just see it kind of leveling out. You might look at more of fourth quarter and just say, hey, that's...

give or take a number like that. Of course it grew a little bit. It looks like it grew a little bit less than 10 percent last year. So that fourth quarter might be a good point to just look at. So I don't want to overplay it because we could see opportunities to expand or grow, but we just don't see that right now. And again, it's a way of just saying, hey, we're focused.

in terms of just making sure we have a good product that we can support in the field. We are shifting over, starting to shift some of that R&D into the high zone project, certainly over to Carno and some other things, other...

products and opportunities that we'll talk more about when we get to our investor conference later in the year. So, yeah, it's going to start to shift. There's not a lot of value in trying to parse it out too finely, but we are definitely starting to shift into new things and exciting things as we get to the commercialization point on the truck. Got it. Appreciate those.

And then Thomas, so in terms of the strategy for the fuel cells, can you explain why the fuel cells are better to use than the Carnot generator? I know that you mentioned in terms of the regulations, no tailpipe emissions, but the Carnot generator seems like it.

shouldn't really be emitting a whole lot. We discussed some of the tech behind it. So just trying to understand the advantages of Pulse Elvers is the carno generator.

On the fuel cell side, you hit the nail on the head, it is a zero tailpipe and only runs on hydrogen versus Carnot brings forward this opportunity that is fuel agnostic. It can run on natural gas and also hydrogen. When it is running on natural gas, you do have tailpipe emissions, but we are seeing that they are significantly, significantly better.

than the NOx emissions that an internal combustion engine would be producing. Similarly, on hydrogen, you are going to have a very, very micro amount of emissions, but you do still have a tailpipe coming out of it.

In terms of efficiencies, though, we actually expect that the carno is going to pull forward better efficiencies than a fuel cell. So I think what we're going to see is likely for some of these areas where the stations are already built out, we are going to see some fuel cell adoption. Hieson already has a customer base that they're working with. We'll work with Hieson and going and seeing customers presenting this solution. So let's look how far you're going to actually think that the diesel ads are so that when we see the

And we do expect that we will have interest on the fuel cell. But then as we look at kind of more of the over the road, long haul trucking, we think Carnot is what is going to be we chose them by fleets because they could have a solution that's really future-proofed, right? You could use it for natural gas. You could also use it for hydrogen. And that's-

to highlight is around the certification. So one of the questions for a long time has been, even with the ERX, are we going to be pulled into the government mandates that are out there, ACF, ACT, IRA?

And we're seeing probably across all of our product portfolio, the ERX, the Carno, and the fuel cell, that all three of those are going to be pulled in. And one thing to highlight there is just recently there's been a lot of discussion around ACF, which is the mandate that's in draft format by CARB.

So, little color on ACF, fleets have been actually pushing back on CARB saying they're looking for exemptions from ACF and that they don't need to adopt vehicles until later on than what CARB is proposing. One of the exciting things for us is recently CARB had a call where they reiterated and expressed that......

If a near zero emission vehicle that has the correct performance characteristics is available, they're not going to grant fleet extensions for not being able to get infrastructure and not having a vehicle available because CARB is viewing it and saying that that near zero emission vehicle is good, that they should be adopting so they're not going to get an exemption.

So that's a huge one for us because now fleets will be kind of forced into adopting a near-zero emission vehicle, even if a bed vehicle isn't available. And obviously we're one of those vehicles and they could adopt us during that time or long-term and still get the same credit.

So long wanted answer there but wanted to touch on a couple of points for you. We've got it. That makes a lot of sense. Appreciate the time. Thanks. And there are no further questions at this time. Mr. Thomas Healy, I turn the call back over to you for some final closing remarks.

Terrific. Well, we appreciate everyone joining the call today. A lot of exciting news. We're excited about the announcement today around the demo vehicle with Hizon. And we encourage everyone to, you know, that is interested to please either attend the ACT Expo. That's happening in early May.

We're going to be showcasing a lot with the ERX as well as the Carnot. Or if you're interested in as well, please join us for our investor conference, which will be happening at our headquarters on June 27th. We expect to be able to really showcase a lot of what we're doing live during that investor meeting. So, appreciate everyone taking the time and we look forward to chatting again next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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