Q2 2023 Hyzon Motors Inc Earnings Call
Good morning, welcome to the highs on Motors second quarter 2023 earnings Conference call. Please note that this call is being recorded.
All lines have been placed on listen only mode at this time.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question at this time. Please press star followed by the number one on your telephone keypad to withdraw your question again press Star one.
I would now like to turn today's call over to Henry Guan head of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to horizontal Motors Q2, 2023 earnings call with me on the call today are <unk> chief.
Chief Executive Officer, Bob <unk>, Chief operating officer, and Joseph <unk>.
Interim Chief Financial Officer.
This release detailing our financial results was distributed this morning. The release can be found on the Investor Relations section.
Presentation slides accompany todays call.
Today's discussions.
The non-GAAP measures. These measures are reconciled to the most comparable GAAP measures can be found at the end of the Q2 earnings press release, we issued this.
This morning's discussion also include forward looking statements about our future plans and expectations actual results may differ materially from those stated the factors that could cause actual results to differ are also explained in the forward looking statements at the end of today's earnings press release and the forward looking statements on page two of our <unk>.
Earnings presentation forward looking statements speak only as of the date on which they are made you're cautioned not to put undue reliance on forward looking statements.
Before I turn over the call I would just like to provide an update on an upcoming IR event. This week in New York on Thursday August 10 market will be doing a fireside chat at the Jpmorgan automotive conference with analyst Bill Peterson at 11, a M eastern with that I will turn the discussion over to partner.
Good morning, everyone and thank you for taking the time to join our call today.
Hi, Ron remains steadfast in its mission to accelerate the global clean energy transition by developing and commercializing our zero emission fuel cell technology as quickly as possible.
I am excited by the significant strides we have made to date.
The advancement of our 200 kilowatt fuel cell technology and in the commercialization of our heavy duty fuel cell electric truck buttons.
As I mentioned on our Q1 earnings call I thought had been hard at work streamlining our vehicle offerings operations and geographies support this fuel cell commercialization focus through our app.
Light vehicle Assembly model today, we are progressing toward commercialization of our fuel cell EV truck lessens the conventional platform developed in the U S.
Caliber platform developed in Europe , and they're ready platform developed in Australia.
We are grateful to our customers for continued commercial progress on these platforms over the past quarter.
We have made significant progress against our previous guidance of 10 to 20 vehicles deployed on our commercial agreements in 2023.
As of end Q2, 2023, we had already deployed seven vehicles on our commercial agreements to customers in 2023 and have deployed an additional three vehicles between July one and August seven for a total of 10 vehicles today.
Now those vehicles three were deployed to customers in Europe , while seven coach buses were deployed to a customer in Australia and are currently in the process of completing final site acceptance steps.
We have also collected $2 $9 million in cash received year to date against those vehicles deployed commercially in 2023.
We are pleased that already met the bottom end of our guidance range and are increasingly confident about our potential to meet the upper end of the previous guidance range, although risks remain including our customers ability to permit install and commission on <unk> fueling prior to vehicles being delivered.
Ongoing supply chain risks.
As we discussed in our Q1 earnings call. We are focused on large fleet customers in each region working collaboratively with Easter framing multiyear commercial delivery structure post trial and tailoring the commercial framework the balanced risk sharing.
Particularly in the first use of allotment of Python trucks deployed under that agreement.
These collaborative first year commercial structures vary between direct sales.
Buyback divisions sales conditional successful trials unpaid trials paid trials and others.
To provide transparency as we move forward, we will refer to all cash generating contracts as commercial orders commercial trials or commercial deployments in line with those variations.
We will also focus equally on cash received along with revenue recognition as the timing and nature of that revenue recognition will vary depending on the nature of the first year vehicle supply risk sharing arrangements.
Diving into specific regions in the U S. We announced the commercial agreement with performance food group or PSG.
Largest food and foodservice distribution companies in North America.
If all tranches and options are executed. This agreement is a potential for up to 50 vehicles.
First our trucks powered by Hyphens class eight 110 kilowatt fuel cell system are still on track to be delivered by year end.
Our trial program in North America has also continued to expand and progress our focus potential fleet customers through our development pipeline.
As we recently updated we have now completed 15 trials in North America since March of 2022.
We have accumulated over 40000 miles on a conventional truck platform and customer trial and track testing, providing us with important experience and learnings from real world operations across a broad range of use cases and fleet operators maturing our fuel cell EV platform, even further future deployments as we move into production as discussed on our Q1 earnings call.
In Europe , we recently deployed our first cat over 120 kilowatt hour by two vehicles under full commercial agreements into trials to start.
Activating our commercial relationships with highlight in Germany, and Uva in Austria.
In Q2, we reported one additional vehicle as part of these commercial trials for a total of three highs on Sce's and European commercial trials at end of Q2, and we anticipate deploying up to another six fuel cell Evs in second half 2023 in Europe as we transition toward the next generation 200 kilowatt fuel cell EV cap.
<unk>.
Additionally, our Cabo virtuoso evs have accumulated a total of over 20000 miles and customer operations and truck testing since February 2000, 23 billion experienced across our expanding customer deployed an insurer internal testing vehicle fleet shifting from a vehicle progress to our core fuel cell technology focus.
We are proud of the progress we have already made at our U S fuel cell system production facility in Bolingbrook, Illinois.
Which is advancing well and to prototype production today.
And on track for startup production or Sop of.
Of our 200 kilowatt fuel cell system in 2024.
When we last spoke I mentioned, a major priority of ours was to assemble and test nine fuel cell systems at our beef April stage by end of Q2.
I am incredibly proud that we recently announced the successful completion and factory acceptance testing of these nine single stack 200 kilowatt fuel cell system <unk>.
This achievement show the growth and the Companys prototype assembly rates as we produced three rigs in Q1 16.
Six units in Q2 and are on track to produce 16 additional units in the second half of this year, bringing the full year total to 25% in 2023.
In part we were able to achieve this production efficiency improvement are successfully commissioning heightens proprietary automated roll to roll membrane electrode Assembly production lines to semi automated single cell manufacturing line and a fully automated fuel cell stack manufacturing line.
Progression of the 200 kilowatt fuel cell system, or FCS b samples validates the design equipment and operating procedures, which are all critical to the final tooling and production of <unk> samples and the eventual commercialization of the Fcs.
Pivoting to events announced after quarter end, we achieved several additional important updates and milestones and governance and commercialization of our vehicle platforms.
Last week, we achieved another major milestone.
We completed our first U S 110 kilowatt truck that was production tool components.
Vehicle is now progressing to the test track in Michigan for durability testing.
With this vehicle or U S 110 kilowatt truck program moved from prototype to production.
This achievement completed in collaboration with Hy Bons Third Party Assembly partner Fonteyn modification.
Launches high large truck production for customers in North America and starts to transition to add scale Assembly with Bon pain.
By working to commercialize the <unk> 10 kilowatt vehicle in the near term, we are building experience and Knowhow with Fontaine and our customers.
And internally, we are creating a foundation from which to accelerate our 200 kilowatt legal commercialization and deployments.
As a reminder, our 200 kilowatt fuel cell. The program is currently in prototype truck testing on track for commercial Sop in 2024.
We also continued to strengthen our governance finance and accounting operations with the appointment of Matthew Foulston to our board of directors.
He served as chair of the audit Committee as a member of the compensation Committee.
Matthew is a seasoned financial executive having served as CFO for three publicly listed companies throughout his career.
He also brings extensive international expertise with more than 30 years of experience working globally across the automotive and commercial truck mining and other sectors.
We believe this financial experience in the heavy duty trucking industry provide invaluable guidance as we further strengthened our governance finance and accounting operations.
I don't intend to be an integral player as the world pivots to clean energy.
We are excited by our progress thus far and milestones we have achieved and the upcoming milestones we are closing in on.
As we sit here today, we are working towards several exciting milestones to drive high is on single stack 200 kilowatt SaaS technology to commercialization for the rest of 2023, including delivering our first commercial class eight highs on fuel cell EV to a major U S fleet customer.
Reducing invalidating $25 200 kilowatt fuel cell samples.
Currency sample the 200 kilowatt fuel cell system.
And executing additional commercial agreements with major fleet customers in the U S and Europe .
As we mentioned last quarter, we are focused on efficiency cash preservation and expense control.
We must ensure we are taking a balanced prudent approach to cash management, while continuing to develop and commercialize our proprietary single stack 200 kilowatt fuel cell system, which we see as a true technology product performance and economic advantage and driving commercialization of our heavy duty fuel cell truck platforms.
I'd like to spend a moment discussing our outlook for expenses, how much of a buffer and Georgia will go into greater detail.
As you look to the second half of the year, we expect to minimize headcount additions and see lower expenses related to legal consulting and accounting fees.
So while the ultimate timing and outcome of the ongoing SEC investigations remain unclear on a normalized recurring basis, we should expect to see a clear improvement in the SG&A and R&D expenses in the first half 2023 and second half 2022.
And 224, we will target, bringing down our annual net cash outflow to a range of $110 million to $120 million for the full year and the additional cost efficiencies. We are now driving under the additional simplification and restructuring efforts Bob will outline in more detail today.
We will come back to you with a more detailed guidance for fiscal year 2024, as we close 2023.
In the meantime market conditions remain volatile, but as always we remain opportunistic and proactive.
We further continue to review all options available to us to raise additional capital, including full merger and acquisition, while seeking to minimize dilution and to maximize value for our shareholders.
We're focusing our efforts on strategic investors and partners, who are interested in our technology.
We are pleased with the progress we've made throughout this process. We will keep you posted on important updates when appropriate.
In closing, we have and continue to make significant progress in advancing our proprietary <unk> technology, we remain on track so Pete and commercialization of our single stack 200 kilowatt fuel cell system in the second half of 2024.
Additionally, we are excited by the continued advancement of our commercial pipeline across our focused fuel cell EV platforms with commercial deployments ongoing toward our 10% to 20 vehicle goal. This year of which we have already achieved 10, so far with $2 9 million of cash received against those vehicles.
I am confident that our differentiated technology strong IP and in House U S state fuel cell production combined with a significantly streamlined organization and meaningfully reduced expenses positions us well in this fast growing market now I am pleased to introduce and turn things over to Dr. Bob of energy.
As previously announced buffer joined us as high as <unk> first Chief operating officer earlier this year.
Bob is leading the operations team to ensure delivery of high quality products to customers and provide strategic direction for items continued growth for the company develops and delivers hydrogen powered fuel cell vehicles throughout its target markets.
In his first few months onboard Bob has been conducting a complete review of our operations portfolio and footprint.
And we're pleased that he has already developed a revised operational efficiency plan to reduce expenses. The first steps of which are already in active implementation.
I'll now turn it over to buffer to discuss these updates.
No.
Thank you Parker with <unk>.
Morning, everyone.
It is my privilege to lead high farm's operations with focus and discipline as we work to reduce our expenses, while serving our global customers.
In my three months with ISI and the spirit of the Japanese philosophies gamba or <unk>.
I've been to every single highest on facility across the world, including our warehouses and have been meeting and learning from our employees and partners are global customers and suppliers.
Python is making great progress in advancing our technology and competitive edge.
To execute highs on station, we are looking to push forward with clarity and alignment by simplifying focusing and improvement of our information platform.
Our work with the highest onboard and our strong bench of leaders to identify waste and complexity across the business and find opportunities to reduce our costs.
With the board's approval, we have put in place a plan to accomplish these goals and I am pleased to provide you with the initial decisions and actions we have taken.
First we will focus on our future product offering by transitioning from three options too wide.
Instead of offering the 110 kilowatt 120 kilowatt and 200 kilowatt fuel cell systems will shift our production focused solely to the single stack 200 kilowatt fuel cell system, which is a core differentiator for ISR.
As you would expect the standardization is anticipated to drive efficiencies of scale and commonality throughout our operations driving down our expenses and lowering execution desk.
We expect improved quality to reduce variation and reduce costs through volume increases on fewer part numbers to key suppliers.
Our production cycle times are expected to improve because of requirement assembly introduced changeover guidance.
Second.
We will go from having the conventional bakery backbones for the U S. The Cabo for Europe , and the related platform for Australia, and New Zealand.
Only the conventional vehicles back serving the U S and the Cabo per vehicle platform, serving both Europe , and Australia and New Zealand.
We will meet our current customer commitments for the region, but will not develop exploit that internally at this time and we'll work instead to outsource the richest platform fully to a third party.
The opportunity to use only two platforms to serve treat Egypt was developed based on feedback from key customers and their immediate needs.
Core elements of the product will remain identical across the two vacant back farms and the required variations and the product will be confined to the interfaces.
This court interface product development strategy will bring with it the efficiencies of modularity and standardization.
The <unk> platform strategy will allow us to improve our production planning.
As Mark described we are pursuing multiyear commercial structures with customers beginning with trials in small orders and ramping up to hundreds of acres over the next three to four years.
By streamlining our platforms, we can more accurately predict and control costs as we scale by our third party assemblers such as Linkedin.
And this will allow us to explore organizational efficiencies to reduce our expenses, while serving our markets and customers.
These two major product and platform simplification will lead to multiple benefits and efficiencies across the organization, providing a simpler lower cost and lower working capital business model without sacrificing commercial market and near term revenue opportunities. For example, it will allow us to control.
By limiting head count growth this year to only critically important positions across the organization.
We had a head count of 380 people at the end of Q2.
And we will target to marginally increase through the end of the year.
The head count efficiencies will come in through 2024.
That is down from the double digit percentage budgeted at the beginning of the year.
It will allow us to further consolidate our geographical footprint.
In the U S. For instance, we will exit our location in Rochester, New York, where we currently have sub system Assembly ranking prototyping and finance support teams.
<unk> has already been lifted for SaaS, but as with any large asset sale timing et cetera.
Exiting our Rochester facility is just the first step in what we envision as a multiphase longer term opportunity to drive efficiencies in our global operation.
We are looking for additional opportunities to consolidate in other regions and trying to find additional levers over time. For example, we are actively engaging with third party assemblers in Europe to replicate our asset light manufacturing model that has been developed in the U S fed funds rate.
This focus will simplify our integrated global supply chain and simplify requirements for a third party assembly partners lowering expenses and improving cycle times.
It will also allow us to monetize excess and obsolete inventory across our global operations and to help us work more efficiently by eliminating the waste of duplication of effort across regions by improving knowledge sharing across teams and fostering practical continuous improvement.
We will improve communication across our functions by implementing emmis dynamics and ERP software to drive consistent and stable processes across our finance HR and procurement functions.
We are driving clarity and alignment across regions by developing shared learning posting zettler, all employee meeting and aligning goals and objectives through target setting and our program management discipline fashion planning and follow up.
While we have made great progress there are still a lot of work to be done.
Our teams need to be aligned better coordinated and avoid duplicate efforts.
We're working to build a culture of one high stock driving results with clarity and speed up execution.
In summary <unk>.
To improve our operating expenses and create a more efficient streamlined and agile company.
We'll develop only one fuel cell system, rather than chase and develop only two baker platforms drive entry, allowing us to limit our head count growth and consolidate our global footprint to drive organizational simplification and efficiency leading to lower costs.
We will find and deliver upon practical continuous improvement opportunities across the company, including monetizing excess and obsolete inventory and we will work with clarity and alignment by driving a simultaneous lift across all our functions as one high stock simplified aligned and coordinated by.
Enhancing global communication and removing the waste of duplicate effort.
In addition to all these operational elements of expense reduction, we expect reductions in our legal accounting and consulting expenses.
These measures, we expect to be well positioned to deliver a net cash outflow and a $110 million to $120 million range for 2024 as Parker mentioned.
Python is making milestone driven significant progress in bringing the single stack 200 kilowatt fuel cell system to production and in the commercialization of our heavy duty fuel cell electric truck with.
Focus discipline and the execution of our operational milestones and significant improvements to simplify and streamline our business. According to the plan we have an implementation.
We believe <unk> is well positioned for leadership in this evolving hydrogen ecosystem.
Now, let me invite <unk> to discuss the detailed financial outlook and the impact of this flat yes.
Gotcha.
Thank you Bob.
And good morning, everyone. There is a lot to cover this morning during last quarters call. We mentioned that by filing our Q1 2020 to a quarterly report with the concurrent in our periodic reporting obligations.
Additionally on July 26, we received a letter from NASDAQ notified us that we have successfully regained compliance with the listing requirements.
I along with the rest of hydro management team want to thank our dedicated employees.
Especially the high finance accounting teams across the globe for their continued hard work, which enabled next.
<unk> not be here without your contribution.
Moving to our second quarter financial results within our recognized revenue, but incurred cost of revenue of $2 4 million.
Similar to last quarter. This was related to cost provision accrued for customer contract activity and additional inventory RV write downs in Europe .
However, I would like to Echo two pockets earliest comments around commercial progress we have deployed 10 vehicles globally and collected $2 9 million year to day.
In addition.
As we will disclose in our revenue per node.
Current quarter 10-Q, we expect to recognize approximately $12 million as revenue over the next 12 months period.
Total revenue contracts include customer acceptance clauses.
Which in our case can depend on the sourcing of hydrogen for the readiness of refilling infrastructure at a customer location the.
The factor, which is outside of our control.
Our loss from operations amounted to $64 1 million as compared to $41 million in Q1, 2023, and $31 9 million in Q2 2022.
Primary driver of this increase in net loss from operations was related to increases in legal accounting and consulting fees.
This quarter's legal accounting and consulting fees were approximately 32 million.
Increasing by $16 3 million from Q1, 2023, and increasing by $26 2 million from Q2 2022.
Included in this quarter's results approximately $28 5 million in legal accounting consulting fees.
Each management view as non recurring.
Included in that figure is 22 million loss contingency accrued in light of management's assessment of the SEC investigation.
7 million is recorded.
Current accrued liability and $50 million in long term at the liabilities in our consolidated balance sheet.
As we will state in the commitment and contingency fund note 10-Q, we cannot predict the ultimate outcome or the timing of the SEC investigation or inquiry.
If any actions may be taken by the FCC.
<unk>.
Such actions may have on the business prospectus and operating results and financial condition.
The $28 5 million also included elevated accounting consulting expenses of $2 6 million continuing to June 2023 associated with the additional work to bring our SEC filing today.
Below the operating line the net loss attributable to high sulfur this quarter amounted to $16 2 million compared to a net loss attributable to <unk>.
$32 million in Q1, 2023, and the net income attributable to high of $42 million in Q2 2022.
Basic loss per share stood at negative 25% in Q2 2023 versus negative 12% in Q1 2023 in earnings per share of <unk> 17 in Q2 2022.
Noncash driven changes in mark to market valuation of private placement warrants and earn out liability as well as noncash changes to fair value of equity securities significantly contributed to this fluctuation.
This impact can be influenced quarter to quarter by a number of factors, including but not limited to <unk> quarter ended share price.
Moving to our now GAAP financial measures, our adjusted EBITDA for Q2, 2023 amounted to negative $33 million compared to negative $27 3 million in Q1, 2023 and negative $28 million in Q2 2022.
We believe adjusted EBITDA.
Right, a better deal of our recurring operational performance.
The noncash gains on the fair value private placement warrants liability and around liability the largest add back item was related to the regulatory and legal matters.
Recurrent portion of this expense increased.
$2 8 million in Q2, 2022 to $7 7 million in Q1, 2023, and $2 $25 9 million in Q2 2023.
Q1, 2023 earnings call, we had indicated that our board of Directors Special Committee investigation and concluded March 2023.
The significant jump in Q2 2023 was related to a potential SEC accrual of $22 million, we tried discussed earlier.
We will have limited visibility into the size of our legal expenses in the second half of between three due to the ongoing investigation. However, we have caught up with our bonding requirements and have concluded our engagement with a major consulting firm relating to our organizational restructuring therefore, we expect to.
See elevated consulting and accounting expense items significantly reduced in the second half of 2023, which should lead to overall reduction in core non vehicle SG&A expenses.
Andy expenses will remain relatively consistent over last year.
From a macro economic standpoint, our full year guidance assumes.
No material deterioration in the second half of the year compared to current conditions.
We expect operating expenses, excluding cost of revenue to be between $73 million and $81 million for the second half of 2023.
This range does not include legal settlement expenses in excess of our already recorded reserves.
Turning to the balance sheet as we have indicated in the previous calls our asset light approach to our manufacturing operations reduces the need for investments in facilities as compared to traditional Oems in our industry.
We still continue to make strategic capital investments to advance our technology and improved efficiencies as.
Capex for this quarter amounted to $1 2 million comparable with prior quarter.
Turning to cash we ended this quarter with $172 4 million in unrestricted cash cash equivalents and short term investments due to the actions we discussed in the first quarter earnings call such as reducing the number of vehicle platforms. We have seen improvements in our Q2 2023.
<unk> monthly cash burn to $12 million in March. We also reported the July month end cash balance of $258 million 14 million in July included our annual D&O insurance approximately $5 million excuse me our monthly cash burn was at $9 million.
After taking into account actions already implemented.
Our current net cash burn forecast for the second half of 2023 will be in the range of 65 million to $73 million.
The range includes the previously mentioned 7 million short term tool, we have already estimate related to the SEC investigation.
The current cash forecast is based on surgeon potentially volatile assumptions, which may battery.
Such as near term use hydrogen costs, while internal testing needs our ability to liquidate excess inventory in Europe and supply chain costs, which are subject to various factors that could be outside of our control.
We have provided additional details for the second half of 2023 expenses and cash guidance slide 17 of the earnings deck.
We're pleased with the significant amount of progress we have made at hand zone.
However, our work is not done as Katherine mentioned earlier, our 2020 initiatives outlined and led by Bob will reduce our cash burn.
Simplify the development and manufacturing focusing on 200 kilowatts.
And the further streamlining vehicle platform production by leveraging third party assemblers will help us to achieve annual net cash outflow target of 110 to 120 million without considering potential impact of the SEC settlement payment in 2020.
Parker mentioned earlier, we're also working with a financial adviser and capital raise options.
To conclude.
With the right team right strategy in place we have demonstrated this quarter that we can and have substantially improved our cash preservation.
We're working hard to show commercial progress across our key markets, while still controlling spend.
I alone with every hire employees are very confident in our technology and path forward to meet our targets.
With that.
I will turn the discussion back over to Parker. Thank you John .
We believe that we have differentiated technology, our strengthened team and a clear vision to commercialize in a hydrogen market that is only accelerating.
<unk> and our strong IP and in House U S based fuel cell production.
During and since the end of the second quarter Hasnt continued our focus on our core strengths fuel cell system technology.
As you heard from Barbour today, we have plans in place and already in action to hone that focus for.
Both to reduce our costs and to accelerate the commercialization of our technology and our vehicle platforms.
In Q2, we progressed, our commercialization through vehicle trials and initial deployments across the globe.
Progressing our commercial pipeline in each of our focus heavy duty fuel cell EV truck platforms.
As I said during our last earnings call. These initial trials allow both customers and highs on to collaboratively validate the technology performance building the foundation for multi year vehicle supply order programs, which we are actively shaping with our focused potential customers to help them begin or continue their crucial work of de carbonization.
We believe that with our differentiated technology active major truck fleet collaboration and strong financial management and governance, we can execute our streamline vision, two commercialized fuel cells and fuel cell electric vehicles, and our hydro market there's tremendous momentum.
Thank you for joining us today, and I look forward to taking your questions.
<unk>.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from Rob Wertheimer with Melius Research Your line is open.
Yes.
Yes.
No.
Thank you.
Thanks.
Mr. Rob Wertheimer. Please go ahead.
I am so sorry I'm embarrassed.
That's a good question, though.
No.
Yeah.
Sure. My question was if you could just first describe a little bit the trials that you have in the process you use to get there.
Qualify.
The seriousness.
How do your customers think about it is it just a task.
Or is there something they intend to do.
Selecting people do you have.
Competitors at those trials or is everybody playing a different ponds at this point and your customers.
Trial customers.
Selling strategies.
Okay.
Thanks, Thanks, Rob I think Thats a great area.
Dive.
Different view, because working collaboratively with our customers to shape up just the trial program or the entire experience to decarbonize. Their fleet will look like from trial into order program into delivery paired with fuel with our partners on hiring side, it's critical to starting this.
Mission for them so.
That in a few pieces first on the competitive landscape or auto fleets are trying a lot of solutions, but when we're engaging with the fleet, we've really already done the work to us.
Understand what's that fleets decomposition goal are they focused on true zero, which only hydrogen fuel cell technology and battery electric can provide versus others and what's their use case right is their use case, one where fuel cell should win the day, whereas the heavier weight longer range.
<unk> grid limited infrastructure.
The environment.
All that happened really early in the conversation right. So as we know that fleets.
We have diverse route trees diverse use cases, so they likely will have somebody electric in their fleet at some point, some hydrogen fuel cell and their fleet and we focused on the area where fuel cell will outcompete. Most are trying a lot of a lot of different so solutions.
In many cases fleets have made their choices based on the preferences for instance, having a conventional truck in the U S is very important to cab over trucks. There's a reason why those that wasn't the 10% market share today.
A lot of fleets in the U S. In particular prefer conventional milk truck over a cab over so many of the fleets. We work with tell us that they're not going to trial a cab over trucks. Some some will but once we get into that trial discussion. We're very clear that we're focused on fleet, where the trial is really the proving point taking into a commercial agreement over multiple.
<unk> steps right so.
Trials are only conducted at this stage once we have a customer that we've progressed and understood. What's the motivation from an ESG standpoint to Troy Decarbonize, what their vision of where fuel cell technology fits in their use case and in their fleet. We work very closely with them on things like TCR modeling route tree modeling shaping the trials right.
Test the technology proves them and us that our technology works really well with what they needed to do it in a shape with our fueling partners how's the fueling infrastructure going to come to life, specifically for them. So by the time, we get to a trial stage, we've always see that as that is the proof point for us to then complete the trial successfully and then to work on what is the scale up.
Pattern, what's the fuel answer for that for that fleet.
Okay perfect.
And then we're talking about more around the same topic. What is your sense on what customers are finding on the use cases and work ability for 110.
Versus the larger stack stack does the 200 to expand.
Uses dramatically.
And then.
<unk> trials.
With a 110 and then go into a 200 for your for your future technology plans does that pause in trialing or how do you kind of manage that with customers and I'll stop there for a while to get back to you Mark.
Thanks. Thanks, Thanks, Rob so when it comes to the <unk> to the 200 kilowatts avoid critical transition for us so.
The 200 kilowatt single stack as a system given the power that can provide paradigm.
Overall fuel cell powertrain, we see that as being able to do 80%, 90% of what any class eight truck needs to do across <unk> atypical.
Atypical rotary and the use cases and the use cases that we're focused on right. So early deployments over the next couple of years will be focused more on the back to base use cases, drayage food and beverage delivery point to point freight et cetera. When you look at the route trees for those use cases in most parts of the country. The 200 kilowatt, we think can do almost everything that <unk> needs to.
To do the one thing kilowatts, but our focus first against production because that technology is available and because of the cost efficiencies the volume efficiencies and wait a bit efficiencies, but a single stack 200 kilowatt that we daily.
Fairly uniquely has in the western World and trucks can provide we've used the 110 is really a transition year to vehicle one that we got into pro production now while it has been in trial for over a year and the early adopter fleets well below to that once <unk> kilowatt to get experience knowing that it is somewhat limited in what it can do with <unk>.
Tree, but our focus is the 200 kilowatt doing going forward. So the <unk>, we are delivering the early adopter fleet to find a place to use it where it can be used performance food group is a great example of that we havent contract in place with them to deliver 500, <unk> this year, which theyre going to take and put into place to get experience in that first tranche, but.
The focus for most of our customers is that to a kilowatt, which we're quite excited to have the off road truck and truck.
Testing now and to look to Sop that truck next next year.
Yeah.
Thank you.
Thanks, Rob.
Your next question comes from Bill Peterson with Jpmorgan. Your line is open.
Yes, hi, good morning, everyone I wanted to follow up on that point. So so just to be clear. So you have this 110 truck available for production and I guess, just looking at whatever trying to match it with the customer interest, but I guess similar you have some trials or 120 cab over in Europe that have been delivered to so.
I guess, how should we think about truck shipments in 2024, maybe based off the smaller fuel cell given your strategy and clear strategies to shift 200 kilowatts should we just assume.
I guess, we're fairly small volumes in 2024 before I guess 200 kilowatt platform is really ready to ramp in 2025 and beyond.
Yeah. Thanks, Thanks, Bill So I think that.
Basically the way I would think about it.
The Watson kilowatt trucks, and what's going to kilowatt over in Europe , we will deliver to customers with early adopters that want to take that truck as part of their first order, whether 200 kilowatts still being delivered as soon as Thats doing a kilowatt is available in <unk> that we'll be able to.
Service, both a full 200 kilowatt use case and we actually can limit the 200 kilowatt output if we need to to service a 110 kilowatt use cases that power not not be needed. So we are delivering one.
100000 kilowatt trucks. This year, we will likely look to deliver those in the early part of 2024, while the 200 kilowatts going through the Sop.
But the focus really is to deliver those where it makes sense to start a customer journey, where they want to get going but to focus on again at 200 kilowatt SLP as fast as we can.
Okay. Thanks for that and I guess, maybe this might be for Bob but trying to understand based off the findings of the operational view, maybe provide additional color on the cost reduction efforts.
And then kind of related but not maybe not exactly related but when you. When you provide sub assemblies that time, you're really focused on the fuel cell, but I guess can you remind us the other components of the powertrain that youre going to basically do internally versus buy externally.
Should we assume for the charter to a wildlife. These are going to be also the third party outside of the core fuel cell.
Thank you Beth.
So our effort towards our top process of having some core components as well as handling the variation through interfaces.
Our core components are the differentiated parts of our business the differentiated technology advantage that really keeps very very close to us.
Interface side of the business, we are happy to work with third parties to give you. Some examples of what <unk> means.
Our fuel cell for example is getting down to our EMEA.
We put together the plate, how we put together the stacks.
That all will be done in house that is absolutely core to us and that will continue to be identical across our vertical platforms. So as you can anticipate this simplifies our supply chain simplifies our number of part numbers and has all sorts of benefits not only for the production side, but also for our <unk>.
Third party assemblers, because their life becomes a little bit simpler.
When we provide them the kits that help them with their assembly, it's more structured more defined and they can get things done faster. So.
So thats how all of this comes together.
Sorry, if I can sneak in one more I wanted to kind of follow up on the.
Actually infrastructure structure side of your business.
Maybe you could get an update on <unk>, that's our the timing of that how that's progressing but then also as we think about the other.
Projects, you've talked about in the past transform TCE re carbon Woodside these projects likely to buyer I guess 2025 and beyond as your business ramps or are maybe you can remind us what <unk> contributions are for these projects.
No go ahead bill.
Important part of our of our business so to start with <unk>.
We remain quite excited by the first project with readiness or their plant in Richmond, California.
And that plant Chevron also has announced investment in that plant that flex those going through permitting.
Did secure its groundbreaking permit and we're looking forward to following that project through to its completion.
I don't believe Ravens, given an update on specific timing of.
First production from that plant, but we are actively planning potential deployments around that around that probe production.
The broad spectrum of production partnerships that you mentioned, we're quite excited to have those with US we still have a very active pipeline of potential projects that we curate with those partners were to remind everybody.
In most cases has the exclusive right to invest in many cases up to 50% of the equity in projects.
The partners, where theres projects thats going in and around heightened on trucks.
And those those partnerships, we will look to curate only to put capital to work, where it's critically tied to near term.
<unk> appointment. So we are actively looking at it socal.
Looking at projects there we are projects over in Europe , as well that we're looking at.
Southern California is an area that given the strong demand there and the existing infrastructure that does exist on the dispensing side.
A place it's more likely than not for us to potentially have a next project.
And it's as important that we have dispensing partners, which we haven't announced those in the U S. But we do have.
Companies that we work with closely to shape sensing solutions, where to have just come to life. Our firm belief is back to base. The use case focus to simplify also dispensing and infrastructure need and to get started it's going to be mobile fuel is tied to gross by production as more permanent installations are.
Sighted and install both behind the fence and with semi private.
Public access so we have great partners on the divesting side that we bring to customers, who have mobile access and who have.
Between $20 50 truck initial dispensing deployments that will compare with the production that is coming on the line and that's.
That's where you see customers that advanced through trials.
Not just that they want to try the truck it's that we've given them confidence that once they've made the decision to enter into a commercial agreement that may scale to 50 to 100 trucks over time that we've shown them the dispensing and their production partners that can help them scale fuel.
Okay.
Okay.
Your next question comes from Steven Fox with Fox Advisors. Your line is open.
Yeah.
First question just following up on everything you just talked about there on the dispensing side. You did also mention that sometimes installing and commissioning of onsite fueling kid.
It will be a timing issue like can you just sort of put everything you just said in perspective with how your how the customers are pursuing the fueling infrastructure at the same time, they're talking to you and how much of that.
Delay that could lead to or whether that's part of the planning process and I have a follow up.
Yeah, great. Thanks, Thanks, Steve It's obviously, a very important part of us shape shaping our journey together.
So the way that we do we pursue fueling to make sure that we're minimizing risk and ensuring that we have fuel available as much as possible.
Meaning in installing permanent dispensing is what has a lot of risk in it. So when you open a permit install permanent fueling, particularly on site behind warehouse that takes time. The early deployments will be paired with mobile pillars. Those we have partners that have those available windup access to capacity of jewelers.
It takes a long on the west coast.
The U S I'll talk about Europe and Asia.
And it really is about laying out the transition where if a first order is five to 10 trucks in the first year global fuel capacity is generally available for us to be able to.
To fuel that.
And it's all about basically planning timing of the second order and the commitment by the customer to permit install the behind the fence or semi private fueling station to meet their second order and beyond so theres certainly has risks there on the second order tranche, but we really try and minimize the first year delivery risk on the fuel side with <unk>.
<unk> mobile.
<unk> in Europe , and it is a bit easier because there is more hydrogen infrastructure over in Europe . So many of our customers in Europe have already been working on.
Fueling infrastructure for some time for instance through our partner <unk> in Austria, one of our end customers through them.
But installed significant electrical is a capacity in dispensing on on site. So.
<unk> already got fueling in place to scale up to a certain number of trucks. So it really is it's a focus in both Europe and the USA as well as <unk>.
Australia, but in the U S mobile fueling is.
Utmost importance to allow us to make sure that the first year's deliveries are delayed while we.
Work with the customer to ensure that their permitting and installing permanent infrastructure for the second and third years.
Great. That's very helpful perspective, and then just a day.
Your question, if we if we dial back and look at the.
Cash flow burn rates for second half Youre talking roughly $140 million annualized at the midpoint.
You are talking about 110 to 120 next year can you sort of bridge that gap in terms of what's assumed in what's maybe not assumed in other words I know you've talked about a lot of efficiencies that you're pulling pulling through the business as you restructure.
But do we think about for example, the ramp 200 kilowatt stacks as being.
Our cash flow drag initially or how is that factored in and maybe onetime cost might be in the 110 to 120 like the sale of the Rochester facility et cetera.
Yes.
Yes, I'll pass that over to Jud.
Good morning, Steve. Thank you for the question.
I would say it would not happen overnight.
We've made significant progress as I said earlier in the call I'll spend if you look at the trend and also having the in the slide deck in the appendix right. If you look at the trend our spend reduced from 55 million in Q4, and 2020 tail down to 46 in Q1 now Q2.
At $36 six.
The journey approved right I'll action Kid work.
As our legal expense accounting expense continue getting normalized in the second half of 2023 and as Bob mentioned right with his 2024 initiatives.
Such as a monetize excess inventory in Europe .
And we do see a path forward to achieve that target in 2024, particularly I think you mentioned about our 200 kilowatts in field cell and the production and we did make significant investment already in the raw material around the 200 kilowatts.
If you look at our inventory balance so you'll have to see our inventory balance has grown in this quarter. So thats kind of relate to those so we don't expect a significant impact from inventory procurement side for 2024, yes, I'd just add to that.
Yes.
So your question about basically what does it take to make that leap happening from 140 to $1 10 to 120.
Really as we have continuing potential reduction of legal finance and accounting as Joe John mentioned in the call that there's been a decent part of the trend over over time.
And we have inventory that we have available to monetize from the cleanup of the platform simplification right inventory, we no longer need because of our focus going forward along with the benefit of the actions that we're driving now under the reshape of our operational efficient program with buffered, leading us through that.
You'll see as we progress through the rest of 2023.
The continued trend in that direction and we're comfortable that.
By Q1 of 'twenty four it will be at the run rate to hit that 1% to $120 million cash guidance.
Great. That's helpful. Just one clarifying point the potential sale of the Rochester facility is that in your estimates or not in your estimates.
Okay.
For that particular, one I would say the timing of liquidating a third key real estate assets out there again.
Our answer at this moment great.
Great. Thank you very much.
Thanks, Dave.
Your next question comes from Rob Wertheimer with Melius Research Your line is open.
Pardon me I just wanted to have one follow up on the 200 and how your your trial customers are seeing that evolution are you kind of starting from zero again.
That's not the right way to say it but on durability and on kind of proof of how the system works is there a ton of carryover from the previous technologies that readily predictable from from how Youre doing it and how do people think about durability. In general is that currently a major selling point or is that something people know evolve.
Over time thanks.
Great Great question to Robin <unk>.
Variability is a point, we really love to dive deeper because it is so critical to us coming to market and our customers are very very focused on it. So I'll take it in two parts the fuel cell durability and the vehicle itself right. So start with the fuel cell. While there is good durability data historically on the once in a 20 kilowatt generation, we are starting from scratch so to speak.
200 kilowatt to Reapprove durability on that technology, No 200 kilowatts single stack is a very.
Advanced technology because of the ability to get that consistent power performance across a larger active area and the number of cells that have been that in that stack and that and that.
Compressed box so while we do think in our customers do look at the ones in <unk> 'twenty cogeneration is instructive, we want to be clear that we go through the Sop.
The durability testing is going to be all from the 200 kilowatt itself re proving it over again, so it's both they give us credit, but we also want to prove it to them in this technology, because it's so advanced and so different from what from the other 100 ish kilowatt generation inside of Python in the.
The end market.
On the truck side, most of our customers that Indiana really want to scale with the 200 kilowatt trucks are getting their first experience on the 110 120 kilowatt generation and that is a significant benefit to them, where where they have a successful trial and archrock without just trialing. The fuel so theyre trying to entire truck experience not only how the truck perform.
But if and when there are issues, how we react how our service providers.
All of those how the fueling is going to work training their drivers and frankly, putting a lot of excitement. So what we've seen in our pathways with some of our early customers, where we have progressed from trial to order is they're willing to actually sign up for an order pattern just on the one thing about 20 kilowatt trial that has committed orders for the once in 120 and contingent orders.
For the 200 pending the 200 kilowatt truck trial that they'll do later, where does that show up we expect to be in trial relatively soon.
But that 110 is very.
Very helpful. In building not just confidence in the technology, but also excitement training fuel experience et cetera.
It goes a long way so I guess, what I'm trying to say is.
Doing once a kilowatt trials.
Our even more beneficial than you might think given it does get customers a long way toward the 200 kilowatt, where most of them at the MSA I just want to try but wanted to make sure that it does what it's supposed to do and the increased weight in a range that they can provide and.
We sort of tick the boxes on.
The arrest.
Okay. Thank you.
Thanks, Rob.
There are no further questions at this time with that I will now turn the call back over to Parker for closing remarks.
Thank you operator again I want to thank everyone for joining us on this call today at <unk> Zone. We are quite excited by the progress we've made over the past quarter and driving the commercialization of our fuel cell electric vehicle platforms and then the continued progress towards <unk> fuel cell technology.
Well they have all of you following our journey, we're excited to provide more detail on our next call. Thank you very much.
This will conclude today's conference call. Thank you for your participation you may now disconnect.
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