Q4 2023 Hyliion Holdings Corp Earnings Call
Operator: Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Please wait.
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed on music hold thank you for your patience.
Please wait the conference will begin shortly.
Operator: The conference will begin shortly. The conference will begin shortly. Good morning.
[music].
Krista: My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hyliion fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise.
Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the highly on fourth quarter earnings release Conference call.
All lines have been placed on mute to prevent any background noise. After.
Krista: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Greg Stanley, chief accounting officer. Greg, you may begin your presentation. Thank you, and good afternoon, everyone.
The Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question again Press Star one. Thank you I will now turn the conference over to Greg Stanley Chief.
Officer, Greg you May begin your conference.
Thank you and good afternoon, everyone welcome to highly on holdings fourth quarter and full year 2023 earnings conference call on the call today are Thomas Healy, our Chief Executive Officer, and John <unk>, Our Chief Financial Officer, a slide presentation accompanies this conference call and is it.
Greg Stanley: Welcome to Hyliion Holdings' fourth quarter and full year 2023 earnings conference call. On the call today are Thomas Healy, our Chief Executive Officer, and John Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hyliion's Investor Relations website at InvestorsHyliion.com. Please note that during today's call, we will make certain 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 risk and uncertainty.
Available on highly on Investor Relations website at investors highly on Dot com.
Please note that during today's call, we will make certain 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.
As such are subject to risks and uncertainties. Many factors could cause actual results to differ materially from forward looking statements made on this call.
Greg Stanley: Many factors could cause actual results to differ materially from forward-looking statements made on this call. For more information on both factors that may cause the company's results to differ materially from such forward-looking statements, please refer to our presentation and press release as well as our filings with the Securities and Exchange Commission. You are cautioned not to put undue reliance on forward-looking statements, and we undertake no duty to update this information unless required by applicable law. Thank you, and now I will turn the call over to Thomas.
For more information on both factors that may cause the company's results to differ materially from such forward looking statements. Please refer to our presentation and the press release as well as our filings with the Securities and Exchange Commission.
You are cautioned not to put undue reliance on forward looking statements and we undertake no duty to update this information unless required by applicable law.
Thank you and now I'll turn the call over to Thomas.
Thomas Healy: Hello, and welcome to Hyliion's fourth quarter and full year 2023 earnings call. On today's call, I am joined by our Chief Financial Officer, Jon Panzer. Over this past quarter, we have been primarily focused on and have made great progress towards our shift to the Carnot generator. I am pleased to share that we were able to achieve some critical milestones over the past few months and that keep us on track with our previously shared timeline. I'll cover this in more detail on today's call, as well as share highlights around our product development, sales efforts, and an update on our operational plan. On our last earnings call, we announced the difficult, yet necessary, decision to wind down our electric powertrain operations and preserve the technology for potential later use or sale. While this was a challenging decision, we continue to believe, and we have seen more examples in the market of, how this was the correct strategic move for the company and our shareholders.
Hello, and welcome to highly <unk> fourth quarter and full year 2023 earnings call on today's call I'm joined by our Chief Financial Officer, John Panzer.
Over this past quarter, we have been primarily focused on and have made great progress towards our shift to the carnal generator I am pleased to share that we were able to achieve some critical milestones over the past few months and that keep us on track with our previously shared timeline I'll cover this in more detail on today's call as well as share.
Our highlights around our product development sales efforts and an update on our operational plans.
On our last earnings call, we announced the difficult yet necessary decision to wind down our electric powertrain operations and preserve the technology for potential later use or sale. While this was a challenging decision. We continue to believe and we have seen more examples in the market of how this was the correct strategic move.
For the company and our shareholders at a high level the wind down of the powertrain is proceeding as expected and we continue to look for opportunities to monetize the assets and technology that we developed as we mentioned last year, we expect that the reduction in expenses associated with the wind down of our <unk>.
Thomas Healy: At a high level, the wind-down of the powertrain is proceeding as expected, and we continue to look for opportunities to monetize the assets and technology that we develop. As we mentioned last year, we expect that the reduction in expenses associated with the wind-down of our powertrain segment will result in approximately a 70% reduction in cash burn this year compared to last. This leaves us in a strong financial position as we start 2024 with $291 million of capital and expect to utilize about $40 to $50 million worth of this capital this year for our Carnot development. Because of this strong financial position, last quarter, we announced a $20 million stock repurchase program. While repurchasing shares is certainly unusual for a pre-revenue company, we thought it was important.
Our train segment will result in approximately a 70% reduction in cash burn this year compared to last.
Leaves us in a strong financial position as we start 2024 with $291 million of capital and expect to utilize about $40 million to $50 million worth of this capital this year for our cargo development.
Because of this strong financial position last quarter, we announced a $20 million stock repurchase program.
While repurchasing shares is certainly unusual for a pre revenue company. We thought it was important the initiation of this program underscores our confidence in the potential of the carnal generators innovative technology and in our ability to complete development and delivery of initial units later this year and begin scaling deploy.
Thomas Healy: The initiation of this program underscores our confidence in the potential of the Carnot Generator's innovative technology and in our ability to develop and deliver initial units later this year and begin scaling deployments with the capital we have on hand. Our strong capital position affords us the opportunity to further enhance value for our shareholders, particularly at a time when we believe the market has yet to fully value the company's potential. At the time of the share repurchase announcement, our stock was trading at nearly a 3X discount to the value of our cash and investments alone. Therefore, we believe that a share repurchase program was in the best long-term interest of our shareholders.
<unk> with the capital we have on hand.
Our strong capital position affords us the opportunity to further enhance value for our shareholders, particularly at a time when we believe the market has yet to fully value the company's potential at the time of the share repurchase announcement, our stock was trading at nearly a three X discount to the value of.
Our cash and investments alone. Therefore, we believe that a share repurchase program was in the best long term interest of our shareholders.
Thomas Healy: On our last earnings call, we showcased the key milestones that remain as we work towards initial deployments of beta design generators with customers later this year. I am pleased to share that we remain on track with these milestones and have made great progress towards them. As a reminder, the Carnot Generator is a fuel-agnostic electric generator that is expected to offer significant benefits and advantages over conventional generators in the areas of efficiency, operating costs, emissions, versatility, power density, and many other characteristics. It is enabled by advanced additive manufacturing technology and leverages a linear heat motor to produce electricity.
On our last earnings call, we showcase the key milestones that remain as we work towards initial deployments of beta design generators with customers later this year.
I am pleased to share that we remain on track with these milestones and have made great progress towards them.
As a reminder, the carnal generator is a fuel agnostic electric generator that is expected to offer significant benefits and advantages over conventional generators in the areas of <unk>.
Efficiency operating cost emissions versatility power density and many other characteristics. It is enabled by advanced additive manufacturing technology and Leverages, a linear heat motor to produce electricity. Our primary focus is providing distributed power generation that can operate on various.
Thomas Healy: Our primary focus is providing distributed power generation that can operate on various fuel sources, including hydrogen, to address the many challenges facing the electric grid and power consumers today and in the future. I'll start with some updates on our product development. As a reminder, the Carno technology has been in development for over five years. The development version of the generator that we started showcasing in 2023 was a 125 kilowatt-capable design of the generator that we call Alpha. This design has been in testing, and we've been making design changes and improvements to it.
Fuel sources, including hydrogen to address the many challenges facing the electric grid empower consumers today and in the future.
I'll first start with some updates on our product development as a reminder, the cargo technology has been in development for over five years.
The development version of the generator that we started showcasing in 2023 was 125 kilowatt capable design of the generator that we called Alpha.
This design has been in testing and we've been making design changes and improvements to it.
Thomas Healy: We then have our next iteration of the design, Beta, which is intended to be our production intent design of the generator that will be capable of producing 200 kilowatts of power, although it will be very similar in size to Alpha. It is the Beta version of the generator that we expect to deploy with customers later this year. A few months ago, we shared how we successfully started supplying power back to the Ohio grid with the Alpha generator while running on natural gas. In the fourth quarter, we also successfully tested flare gas that was collected in the Permian Basin as we ran it through the Carnot Generator's reactor, and we were able to produce the heat levels we need to produce electricity. This test highlights the Carnot technology's unique ability to operate on various fuels, which is an advantage compared to conventional generators.
We then have our next iteration of the design data, which is intended to be our production intent design of the generator that will be capable of producing 200 kilowatts of power, although it will be very similar in size to alpha it.
It is the beta version of the generator that we expect to deploy with customers later this year.
A few months ago, we shared how we successfully started supplying power back to the Ohio grid with the alpha generator, while running on natural gas.
In the fourth quarter. We also successfully tested flare gas that was collected in the Permian basin as we ran it through the Carno generators reactor and we're able to produce heat levels, we need to produce electricity. This test highlights the cargo technologies unique ability to operate on various fuels, which is an advantage versus.
Conventional generators.
Thomas Healy: Since this announcement, we have further analyzed the emissions results of this test and are pleased to share that we expect emissions levels to be below the EPA Tier 4 emission standards by approximately 98% for CO and 76% for NOx when running on this flare gap. One key callout is that these expected emissions levels are achieved with no aftertreatment and no exhaust catalyst, which would conventionally be needed with internal combustion engines.
Since this announcement, we have further analyzed the emissions results of this test and are pleased to share that we expect emissions levels to be below the EPA tier four emission standards by approximately 98% for C O and 76% for Nox one running on this flare gas.
One key callout is these expected emissions levels are achieved with no after treatment and no exhaust catalyst, which would conventionally be needed with internal combustion engines and through additional testing, we expect to further improve nox emissions.
Thomas Healy: And through additional testing, we expect to further improve NOx emissions. More recently, we have also begun printing beta design parts of the Carnot generator. Over the coming months, we will begin validating the beta generator design at our facility and then plan to have generators ready to deploy with customers by the end of this year. Our plan is to produce a high single-digit quantity of units for customers this year, and then we will begin to scale customer deployments in 2025. I'd now like to shift gears and share some updates on the markets we are targeting with the Carnot Generator and some customer updates. We are targeting three key markets that we believe the Carnot Generator will be able to provide the most benefit to. EV charging, the utilization of waste gas, and prime power applications. I'm pleased to share that we secured an LOI with GTL Leasing to be a part of our Early Adopters Program. GTL Leasing plans to offer a mobile EV charging solution that can be deployed in areas where adequate grid power is not currently available.
More recently, we have also begun printing beta design parts of the cargo generator over the coming months, we will begin validating the beta generator design at our facility and then plan to have generators ready to deploy with customers by the end of this year. Our plan is to produce a high single digit quantity of units for customers. This year and then.
We will begin to scale customer deployments in 2025.
I'd now like to shift and share some updates on the markets, we are targeting with the carnal generator and some customer updates.
We are targeting three key market that we believe the carner generator will be able to provide the most benefit.
Charging the utilization of waste gas and prime power applications.
I am pleased to share that we secured an LOI with G. T L leasing to be a part of our early adopters program GTO leasing plans to offer a mobile EV charging solution that can deployed in areas, where adequate grid power is not currently available.
Thomas Healy: Initial units will be deployed in California, and these generators are expected to be capable of operating on both hydrogen and natural gas, enabling customers to choose which fuel best fits their economic and environmental initiatives. In addition to GTL, we are in discussions with numerous other EV charging providers who are facing similar constraints on the available amount of electricity they can receive from the grid. The second market of focus for us is waste gas. This includes gas that would normally be flared at oil and gas sites or opportunities like using methane from landfills.
Initial units will be deployed in California, and these generators are expected to be capable of operating on both hydrogen and natural gas, enabling customers to choose which fuel best fits their economic and environmental initiatives.
In addition to <unk>, we are in discussions with numerous other EV charging providers, who are facing similar constraints on the available amount of electricity. They can receive from the grid.
The second market of focus for US is waste gas. This includes gas that would normally be flared at oil and gas sites or opportunities like using methane from landfills I am pleased to announce that we have signed non binding LOI with Debmar logistics, who is a customer of our powertrain solution to be an adopter.
Thomas Healy: I'm pleased to announce that we have signed a non-binding LOI with Deptmar Logistics, who is a customer of our powertrain solution, to be an adopter of the Carnot technology for the oil and gas space. DETMAR is committed to improving emissions in the Permian Basin, which they've accomplished through adopting cleaner trucks, and now plan to work with us to utilize flare gas to produce electricity. DETMAR has provided us with the flare gas for testing that I spoke about earlier, and after these positive test results, we are now excited to announce that DETMAR is committed to an initial CARNO unit and to be part of our Early Adopters Program. The third focus area is prime power applications. This includes use cases such as powering offices, warehouses, data centers, industrial applications, retail applications, and so on.
Of the cargo technology for the oil and gas space that.
<unk> is committed to improving emissions in the Permian basin, which they've accomplished through adopting cleaner trucks and now plan to work with us to utilize flare gas to produce electricity.
<unk> has provided us with the flare gas for testing that I spoke about earlier and after these positive test results. We are now excited to announce that <unk> committed to an initial cargo unit and to be part of our early adopter program.
The third focus area is prime power applications. This includes use cases, such as powering offices warehouses data centers industrial applications retail applications and so on.
Thomas Healy: One key benefit of the Carnot generator is not only being able to provide electricity to these facilities but also to be able to utilize the excess heat from the generator to provide heating to the facility. One customer application that we are pursuing will be to use the excess heat from the generator to preheat the water used in their washbasin. This combined heat and power process will increase the overall efficiency of the Carnot generator and assist with reducing the financial payback time for customers. In addition to these three key markets, we will continue to look for unique market opportunities for the Carnot generator. One promising application that we are pursuing is being able to use the generator on Navy vessels. The Office of Naval Research recently presented at the Workboat Show, and they showcased the promising benefits that the Carnot generator can offer, including its impressive efficiency, limited expected maintenance, and fuel flexibility. As we bring the Carnot generator to market, we plan to price it at a premium to conventional generator costs but not as expensive as other new energy technologies such as fuel cells. However, our plan is to initially target customers that are currently adopting more expensive new energy solutions.
One key benefit of the cargo generator is not only being able to provide electricity to these facilities, but also to be able to utilize the excess heat from the generator to provide heating to the facility.
One customer application that we are pursuing will be to utilize the excess heat from the generator to preheat the water used in their watch face.
This combined heat and power process will increase the overall efficiency of the coroner generator and assist with reducing the financial payback time for customers.
In addition to these three key markets. We will continue to look for unique market opportunities for the cargo generator. One promising application that we are pursuing is being able to use the generator and navy vessels. The office of Naval Research recently presented at the work boat show and they showcase the promising benefits that the carnal.
Generator can offer including its impressive efficiency limited expected maintenance and fuel flexibility.
As we bring the carno generator to market, we plan to price it at a premium to conventional generator costs, but not as expensive as other new energy technologies, such as fuel cells. However, our plan is we will initially target customers that are currently adopting more expensive new energy solutions, then as we scale volume.
Thomas Healy: Then, as we scale volume and lower our costs, we will plan to target more conventional applications that are seeking some of the unique benefits that the Carno generator can provide. As we target initial deployments, we are working closely with our customers to secure subsidies and funding in order to assist with lowering adoption costs. I am pleased to share that under the Inflation Reduction Act's Infrastructure Tax Credit, the Carnot generator is expected to be treated the same as a fuel cell, which means it will qualify for up to a 30% tax credit for some customers.
Lower our costs, we will plan to target more conventional applications that are seeking some of the unique benefits that the carnal generator can provide.
As we target initial deployments, we are working closely with our customers to secure subsidies and funding in order to assist with lowering adoption cost I am pleased to share that under the inflation reduction acts infrastructure tax credit. The carnal generator is expected to be treated the same as a fuel cell, which means it will qualify for.
We're up to a 30% tax credit for some customers. In addition to the base, 30% credit. We also expect to be able to qualify for a bonus 10% credit due to the generator being manufactured domestically, having an up to 40% tax credit will be a significant advantage for customers who are looking to adopt our solution.
Thomas Healy: In addition to the base 30% credit, we also expect to be able to qualify for a bonus 10% credit due to the generator being manufactured domestically. Having an up to 40% tax credit will be a significant advantage for customers who are looking to adopt our solution. These credits will go directly to the customer, not to Hyliion, and details on these credits are still being formulated by the IRS, so we will provide further updates and details on them at a later time. The credits can then be utilized by customers, or they can be sold or transferred to other organizations.
These credits will go directly to the customer not to highly on and details on these credits are still being formulated by the IRS. So we will provide further updates and details on them at a later time.
The credits can then be utilized by customers.
Or they can be sold or transferred to other organizations we.
Thomas Healy: We are pleased with the customer interest we have been receiving and the ongoing discussions we are having with likely early adopters. For 2024, we expect to begin paid deployments with customers. However, the exact timing of payment may be subject to customers' acceptance of the generator, including meeting certain performance requirements.
We are pleased with the customer interest we have been receiving and the ongoing discussions we are having would likely early adopters for 2024, we expect to begin paid deployments with customers. However, the exact timing of payment may be subject to customer acceptance of the generator, including meeting certain performance requirements for <unk>.
Thomas Healy: For 2025, we expect to generate revenue in the low double-digit millions in sales from the Carnot generator, and we have already begun building a backlog of customers who we expect will purchase these units. Lastly, I'd like to share some operational updates on Hyliion so that you can have a greater understanding of how we are shaping the organization post this transition. Our headquarters will remain in Texas at our existing Cedar Park facility in the outskirts of Austin.
2025, we expect to generate revenue in the low double digit millions in sales from the carnal generator and we have already begun building a backlog of customers, who we expect will purchase these units.
Lastly, I'd like to share some operational updates on highly on so that you can have a greater understanding on how we are shaping the organization post this transition.
Our headquarters will remain in Texas at our existing Cedar Park facility.
In the outskirts of Austin long term, our plan will be to utilize the 120000 square foot facility for manufacturing and assembly of the cargo generator as we move into production we.
Thomas Healy: Long term, our plan will be to utilize this 120,000 square foot facility for manufacturing and assembly of the Carno generator as we move into production. We also have a significant presence in Cincinnati, Ohio, which is where most of the engineering development and testing of the generator are taking place. We now have around 100 people in the company, with a little over half of the team in Austin and the remainder in Cincinnati.
We also have a significant presence in Cincinnati, Ohio, which is where most of the engineering development and testing of the generator is taking place.
We now have around 100 people in the company with a little over half of the team in Austin and the remainder in Cincinnati.
Thomas Healy: In early April, we'll be hosting an event at our Cincinnati facility to showcase the Carnot generator and the production of beta generator parts that are underway. In the next few months, we will also plan to begin expanding our production capabilities by installing additive printing machines in our Austin facility. This will enable us to prepare for the growth of deployment in 2025. I also have a few personnel updates to share. I am pleased to welcome Govi Ramasamy as our new Chief Commercial Officer.
In early April we will be hosting an event at our Cincinnati facility to showcase the carnal generator and the production of beta generator parts that are underway.
In the next few months, we will also plan to begin expanding our production capabilities by installing additive printing machines in our Austin facility. This will enable us to prepare for scaling the growth of deployment in 2025.
I also have a few personnel updates to share.
I am pleased to welcome <unk> Ram Asami as our Chief commercial officer, Dolby joins us with a wealth of experience after being a comment for the past 17 years in their power generation business. Most recently Dolby was the leader of Cummins Global data Center business. He played a key role in positioning come in.
Thomas Healy: Govi joins us with a wealth of experience after being at Cummins for the past 17 years in their power generation business. Most recently, he was the leader of Cummins Global Data Center business. He played a key role in positioning Cummins as an industry leader in energy transition through focused customer partnering, prioritization of investment, and championing new next-generation technology. During his tenure, Govey held various leadership roles across China, the Middle East, and North America.
As an industry leader in energy transition through focused customer partnering prioritization of investments and championing New next generation technologies. During his tenure Gobi held various leadership roles across China, the Middle East and North America.
Thomas Healy: As part of our transition of our powertrain business, our Chief Operating Officer, Dennis Gallagher, who led our powertrain operations, will be transitioning on from the organization. I'd like to thank Dennis for his continued leadership and contributions to Hyliion, even as we have been winding down these operations. I would also like to share a couple of board updates as Secretary Andrew Card and Stephen Pang are stepping down from the board. Mr. Card is pursuing a new leadership role with the George and Barbara Bush Foundation, and Mr. Pang is resigning due to personal reasons.
As part of our transition of our powertrain business, our Chief operating Officer, Denis Gallagher, who led our powertrain operations will be transitioning on from the organization I'd like to thank Dennis for his continued leadership and contributions to highly on even as we have been winding down these operations.
I would also like to share a couple of board updates as Secretary Andrew card.
And Stephen Tang are stepping down from the board. Mr card is pursuing a new leadership role with the George and Barbara Bush Foundation and Mr. Peng is resigning due to personal reasons.
Thomas Healy: I would like to thank Andy and Stephen for their dedicated service on our board. They have both been on the Hyliion board since we went public in 2020 and have been instrumental in the growth of Hyliion and guiding us through this recent transition we undertook. With their departure, we will reduce the board from 10 directors to 18.
I would like to thank Andy and Stephen for their dedicated service on our board. They both have been on the highly on board. Since we went public in 2020 and have been instrumental in the growth of highly on in guiding us through this recent transition we undertook with their departure, we will reduce the board from 10 directors two eight.
Thomas Healy: In summary, we made great progress through the last quarter of 2023 and have a very exciting year ahead. For anyone who is interested in learning more about the technology and how it works, I'd encourage you to go to our YouTube channel and watch a technical overview fireside chat that our Chief Technology Officer, Josh Moog, and I recently hosted. I would now like to turn the call over to John for some further financial updates. Thank you, Thomas, and good morning.
In summary, we made great progress through the last quarter of 2023 and have a very exciting year ahead for anyone who is interested in learning more about the technology and how it works I would encourage you to go to our Youtube channel and watch a technical overview fireside chat that our Chief Technology Officer, Josh MOOC and I recently.
Hosted.
I would now like to turn the call over to John for some further financial updates.
Thank you Thomas and good morning, I'll start with a quick update regarding the impact of the shutdown of powertrain on our financial results. We expect total shutdown cost to be approximately 24 million exclusive of any proceeds we may receive from the sale of assets and technology. This includes payments for powertrain assets. We previously.
John: I will start with a quick update regarding the impact of the shutdown of powertrain on our financial results. We expect total shutdown costs to be approximately $20.4 million, exclusive of any proceeds we may receive from the sale of assets and technology. This includes payments for powertrain assets we previously purchased, including Founders Trucks, contract cancellation costs, accelerated depreciation of certain assets, and employee severance. Of this amount, we will recognize $11.5 million of charges in the fourth quarter of 2023, and the remaining $9 million will be recognized in the first quarter of this year. More detail on our powertrain shutdown costs can be found in our 2023 Form 10-K. In the fourth quarter, operating expenses totaled $32.6 million, including $11.5 million of shutdown costs and approximately $4.5 million in R&D costs related exclusively to our Carnot generator business. This compares to $31.6 million in the prior year. Total cash consumed in the fourth quarter was about $33 million, which included about $8 million of cash that was reclassified as restricted.
We purchased including founders trucks contract cancellation costs accelerated depreciation of certain assets and employee severance costs of this amount we recognized $11 5 million of charges in the fourth quarter of 2023, and the remaining $90 million will be recognized in the first quarter of this year.
More detail on our powertrain shutdown costs can be found in our 2023 Form 10-K.
In the fourth quarter operating expenses totaled $32 6 million, including the $11 5 million of shutdown costs and approximately $4 5 million in R&D cost related exclusively to our carnal generator business.
This compares to $31 6 million in the prior year quarter total cash consumed in the fourth quarter was about $33 million, which includes about $8 million of cash that was reclassified as restricted this restricted cash is related to the $9 million of first quarter powertrain shutdown expenses that I previously mentioned.
John: This restricted cash is related to the $9 million of first quarter powertrain shutdown expenses that I previously mentioned. Excluding this reclassification of cash, we spent about $24 million of our capital during the four. We earned $3.5 million of interest income for the quarter compared to $2.7 million in 2022. Net loss for the quarter was $29 million, which was flat compared to last year.
<unk>. This reclassification of cash we spent about $24 million of our capital during the fourth quarter.
We earned $3 5 million of interest income for the quarter compared to $2 7 million in 2022 net loss for the quarter was $29 million, which was flat compared to last year.
John: For the full year, our total operating expenses were $136 million, including $11.5 million in powertrain shutdown costs and $15.3 million in R&D expenses related to the Carno generator. In 2022, full-year operating expenses were $152 million and included $28.8 million of one-time expenses associated with our purchase of the Carnot Generator business from GE. Full year 2023 interest income was $13.8 million compared to $5.7 million in 2022.
For the full year, our total operating expenses were $136 million, including the $11 5 million in powertrain shutdown costs and $15 3 million in R&D expenses related to the carnal generator business in 2022 full year operating expenses were 152 million and <unk>.
$28 8 million of one time expenses associated with our purchase of the carnal generator business from GE.
Full year 2023 interest income was $13 8 million compared to $5 7 million in 2022, our total net loss in 2023 was $124 million compared to $153 million in 2022.
John: Our total net loss in 2023 was $124 million compared to $153 million in 2022. We finished the year with $291 million of unrestricted cash and short and long-term investments on our balance. I want to again remind everyone that we maintain a significant share of our capital in longer-term investments. Our year-end cash balance of $291 million is somewhat better than our previous forecast of $285 million. This difference relates primarily to the timing of some shutdown expenses, which were accrued in the fourth quarter of 2023 but will be paid out in the first quarter of this year. Overall, the shutdown of Powertrain is proceeding as we expected. Next, I'll give a quick update on the $20 million dollar share repurchase program that Thomas referenced. We started the program very late in December, and we repurchased 37,000 shares for the quarter.
We finished the year with $291 million of unrestricted cash and short and long term investments on our balance sheet I want to again remind everyone that we maintain a significant share of our capital and longer term investments our year end cash balance of $291 million is somewhat better than our previous forecast of 208.
$5 million. This difference relates primarily to the timing of some shutdown expenses, which were accrued in the fourth quarter of 2023, but will be paid out in the first quarter of this year overall the shutdown of powertrain is proceeding as we expected.
Next I'll give a quick update on the $20 million share repurchase program that Thomas referenced we started the program very late in December and we repurchased 37000 shares for the quarter.
John: We've been very active in the market since then, with repurchases continuing on a regular basis. Beyond that, we'll provide another update during our first quarter earnings call. Looking forward to 2024, as Thomas mentioned, we expect to begin deploying Carnot generator units to customers late in the year. While these are expected to be paid deployments, the timing of the payments remains uncertain due to the varying nature of the initial deployment agreements and performance criteria.
<unk> been very active in the market since then with repurchase continuing on a regular basis beyond that we'll provide another update during our first quarter earnings call.
Looking forward to 2024 as Thomas mentioned, we expect to begin deploying carnal generator units to customers late in the year.
While these are expected to be paid deployments the timing of the payments remains uncertain due to the very nature of the initial deployment agreements and performance criteria. In 2025, we expect to ramp up Parnell generator deliveries and revenue with total sales in the low double digit millions of dollars.
John: In 2025, we expect to ramp up Parno generator deliveries and revenue with total sales in the low double-digit millions of dollars. Gross margin is still somewhat uncertain as we ramp up production of printed parts and suppliers. We estimate that sales in 2025 will have a gross margin that is slightly negative to break even.
Gross margin is still somewhat uncertain as we ramp up production of printed parts and suppliers. We estimate that sales in 2025, we will have gross margin that is slightly negative to breakeven beyond 2025, we don't yet have estimates for sales our gross margin that we are ready to share.
John: Beyond 2025, we don't yet have estimates for sales or gross margin that we are ready to share. However, we expect to consume between $40 million and $50 million in cash for 2024. This estimate is a little higher than the $40 million we previously estimated, but it also reflects a more rapid ramp-up in additive printer growth. This estimate is inclusive of operating expenses, capital spending, and interest income, but excludes cash spent for share repurchases, cash expenditures for powertrain shutdown activities, and asset sale proceeds.
We expect to consume between $40 and $50 million in cash for 2024. This estimate is a little higher than the 40 million. We previously projected but also reflects a more rapid ramp up in additive printer growth investments.
This estimate is inclusive of operating expenses capital spending and interest income, but excludes cash spent for share repurchases cash expenditures for powertrain shutdown activities and asset sale proceeds regarding the latter two items, we believe that proceeds from asset sales should approximate.
John: Regarding these latter two items, we believe that proceeds from asset sales should approximately equal or exceed cash spent for powertrain shutdown activities during the year. To summarize this point further, we ended 2023 with $291 million of cash for investment. We expect to end 2024 with between $220 million and $230 million of cash and investments, with some uncertainty around the timing of Carnot generator sales and also capital expenditures for additive printer machines. As I previously mentioned, we expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of Carnot generator sales. Next, we will open up the call. Thank you.
Equal or exceed cash spent for powertrain shutdown activities during the year.
To summarize this point further we ended 2023 with $291 million of cash and investments. We expect to end 2024 with between 220 in $230 million of cash and investments with some uncertainty around the timing of carnal generator sales and also capital expenditures for additive printer machines.
As I previously noted.
We expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of carnal generator sales.
We will open up the call for questions.
Thank you if you like to ask a question. Please press star one on your telephone keypad will pause for a moment to compile the Q&A roster.
Operator: If you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause for a moment to compile the Q&A transcript. Your first question comes from the line of Donovan Schaefer from Northland Capital Markets. Please go ahead.
Your first question comes from the line of Jonathan Schaffer from Northland Capital markets. Please go ahead.
Donovan Schaefer: Hi guys. Thanks for taking the questions and thank you for the update on the buybacks. Just that you continue to take action on that so far into the year. My first question is about the increase in, you know, cash expenditures for 2024 versus what you said before, and that seeming to come mostly from CapEx for additive manufacturing. Can you give us a sense of, you know, how much of that is just regular operating expenses for overhead, employees, and stuff, and how much of that is the CapEx? Is the $10 million incremental increase just sort of the CapEx investment? And also, if you can give a sense of what kind of throughput that translates into, you know, for a given number of... you know, x number of generators to be able to be made in a year, you know, what's the capex that gets you that? Yeah. Hi Donovan, this is John.
Hi, guys. Thanks for taking the questions and thank you for the update on the buybacks.
<unk> continued to.
Take action on that so far into the year.
My first question.
As with the increase in.
Cash expenditures for 2024 versus what you'd said before and not seeming to come mostly from Capex for additive manufacturing can you give us a sense of.
How much of that is more just regular operating expense for overhead employees and stuff and how much of that.
Is the Capex is at the $10 million incremental increases is just sort of the capex investment and also if you can give us a sense of what kind of throughput that translates into for for a given number of.
X number of generators to be able to be made in a year, what's the capex that gets you that.
Yes, Hi, Donald this is John I think I can answer those questions and Thomas can jump in but first off I think we're still on the opex component of that $40 million of cash burn we are still looking at to be largely the same as what we saw before just in terms of.
John: I think I can answer those questions and Thomas can jump in. But first off, I think we're still on the OPEX component of that $40 million cash burn. We're still looking at it to be largely the same as what we saw before, just in terms of labor costs and R&D and so on. It really is that we just added a range to it because we are planning to get some additional additive capacity that will likely hit the capital spending side. And so we just gave ourselves a little upside there, but it is going to increase capacity for both this year and next year.
Labor costs in R&D and so on it's really it really is that we just added a range to it because we are planning to get some additional additive capacity that will a.
Likely hit the capital spending side and so we just gave ourselves a little upside there, but it is going to increase capacity for both this year and next year.
John: And then on the second question, I think I'll refer back to the guidance that we gave that we're going to be delivering a handful of units this year, and then the revenue guidance for next year kind of drives that volume. So it's all part of that capacity ramp-up plan, but we just saw an opportunity to start ramping it up a little bit. And then, as a follow-up question, I think it does seem like there's some interesting opportunities for using the generator for landfill gas or anaerobic digesters or somewhere like that where you can really come out ahead economically if you can cut out some of the processing equipment that would be typically used. So, I know by the end of the year you hope to line up someone for the initial beta deployment, but is that something you would consider doing, like you did with Permian gas, where you could deploy a unit out there even just on a temporary basis just to kind of prove the concept or demonstrate it even if it wasn't going to be a permanent deployment but just to show, you know, to test it, okay, you know, here' Is that something you'd consider doing? Yeah, absolutely, Donovan.
And then on the second question I think.
I'll refer back to the to the guidance that we gave that we're going to be delivering a handful of units. This year and then the revenue guidance for next year kind of drives that volume. So it's all part of that capacity ramp up plan, but we just saw an opportunity to start start ramping it up a little bit quicker.
And then as a follow up question.
I think it does seem like there's some interesting opportunity on the used and the generator for landfill gas or anaerobic digesters or somewhere like that were.
Being able to you can really come out ahead economically if you can cut out some of the processing equipment that.
That would be typically used so.
And I know by the end of the year you hope to lineup someone for the initial sort of beta deploying that.
That something where you would consider doing like you've done with Permian gas, where you could.
It's like deploy a unit out there even just on a temporary basis just to kind of prove the concept there demonstrated even if it wasn't going to be.
Yes.
Permanent deployment, but just to show you had a tested okay, here's a serious gas from a from a landfill.
It's running and you know we're getting the positive results we want to see is that something you can.
So they are doing.
Yes, absolutely dominant so this is thomas.
Thomas Healy: So, this is Thomas. You hit the nail on the head of what we're looking to do. So, I think our first showcase was with DETMAR Logistics. Now, that was an oil and gas-focused showcase, where DETMAR was able to provide us with gas from the Permian Basin.
You hit the nail on the head of what we're looking to do so I think our first showcase was with Debmar logistics now that wasn't oil and gas focused one where detmar was able to provide us with gas from the Permian basin on today's call is the first time that we actually shared some of the emissions results from that which came out very very positively as you heard on the call.
Thomas Healy: On today's call, it was the first time that we actually shared some of the emissions results from that, which came out very, very positively, as you heard on the call. And so, as we think about waste gas or even, as you mentioned, the anaerobic digester, we actually already have a partner in place on that one working through the exact same process, right? We're going to test the gas first, make sure that it works through the reactor as we would anticipate, and then, as you mentioned, we'll get a unit actually deployed at one of their locations and running on that gas. And, you know, I think while they're very similar at a high level from the standpoint of it's taking what would have been waste gas and being able to make electricity out of it, the value propositions are slightly different Because in the more landfill situation, you're taking what would have been just waste and making it electricity.
So as we think about the the waste gas or even as you mentioned the anaerobic digester, we actually already have a partner in place on that one.
Working through the exact same process right, we're going to test the gas first make sure that it works through the reactor as we would anticipate and then as you mentioned, we will get a unit actually deployed out in.
And al one of their locations and running on that gas and I think while they're very similar at a high level from the standpoint of taking what would've been waste gas and being able to make electricity out of it the value propositions are slightly different right because the more the landfill situation youre taking.
What would have been just a waste and making it electricity in the oil and gas space, there's actually an opportunity <unk> to <unk>.
Thomas Healy: In the oil and gas space, there's actually an opportunity to eliminate the need for a virtual pipeline. And for anyone who isn't familiar with that, that's basically where they need electricity at oil and gas sites. And what they actually do is they truck in purified natural gas in order to run generators and produce electricity. We see the Carnot as an opportunity where you can actually eliminate the need for trucking in purified natural gas and just use what's coming straight out of the wellhead. So, kind of similar segments, but a little bit different value opportunities in each one. And then just my last question would be, as you know, I think there's been a little bit of softness in the EV space, and with ramping up battery production and stuff, so you know there's a lot of speculation or potential movement in commodity prices. And I know, you know, cobalt is an important part of NMC batteries and lithium ion batteries. Your primary kind of additive material is the cobalt, chrome, and cobalt kind of mixture combination.
Eliminate the need for a virtual pipeline and for anyone who is familiar with that so that's basically where they need electricity at oil and gas sites and what they actually do as a truck in purified natural gas in order to run generators and produce electricity.
We see the cargo is an opportunity where you can actually eliminate that need for trucking in purified natural gas and just use what's coming straight out of the wellhead. So so kind of similar segments, but a little bit different value opportunities in each one.
And then just my last question would be.
As you know I think theres been a little bit of softness in the EV space.
And with ramping our battery production and stuff.
A lot of.
A lot of speculation or potential movement.
Commodity prices and I know cobalt is an important part of NMC battery lithium ion batteries.
Your.
Primary kind of additive material as the cobalt.
Chrome and cobalt kind of mixture of combination.
Thomas Healy: So is it, and those prices are actually quite certainly cobalt is very, very low right now. Going forward, you know, as you get to, you know, talking about like gross margins being maybe break even and 20, I believe you said, you know, how sensitive is that to these input prices? Or does a lot of the cost actually come through from the investment and the additive manufacturing equipment as opposed to, you know, material costs? Just trying to understand how much of an impact a movement from those prices can have.
So and those prices are sure quite certainly cobalt is very very low right now.
Going forward as you get to.
Yes talking about like gross margins.
Maybe breakeven in 'twenty.
25, I believe you said.
How sensitive is that to these input prices or does a lot of the costs actually come through from the investment in the additive manufacturing equipment as opposed to.
<unk> costs, just trying to understand how much of an impact of movements in those prices can have.
Thomas Healy: Yeah, so at least today, the buildup of the bill of materials into the generator, you know, there's kind of a spread between some of it is the actual powder cost. And as you're mentioning, there's cobalt chromium that we're using for some of the components, then you have the actual linear motor side of it, you have all the balance of plant components. And then there's a pretty sizable amount that's actually in the cost of running that additive machine. So, while you know, there is an aspect of if cobalt prices go up, then that will impact our powder costs. We're not in a situation, though, where it's like, you know, 90% of our bomb is based on one of these components or something like that.
Yes, so at least that today.
Buildup of the bill of material into the generator.
It's kind of a spread between some of it is the actual powder cost and as you were mentioning there is a cobalt chromium that we're using for some of the components. Then you have the actual linear motor side of it you have all the balance of plant components and then there's a pretty sizable amount that's actually in the cost of running that additive machine. So so.
So while there is an aspect of if if cobalt prices go up then that will impact our powder costs were not in a situation, though where its like 90% of our Bom is based on one of these components or something like that so so could have some impact, but we don't see it as a material amount with that being said, though.
Thomas Healy: So, it could have some impact, but we don't see it as a material amount. With that being said, though, even just for the very initial production units, these beta parts that we're producing, we've actually already started shifting, you know, some of the components off into other materials. So for instance, the chiller side of it, we're actually shifting that to using aluminum, which is a lower cost solution than some of the other powders out there. So we are, you know, being cost conscious in that way of making sure that we're selecting the right materials to meet performance, but also have a, you know, a solid bill of materials.
Even just for the very initial production units. These beta parts that were producing we've actually already started shifting.
Some of the components off into other materials. So for instance, the <unk>.
Chiller side of it we're actually shifting that to using aluminum, which is a lower cost solution than than some of the other powders out. There. So we are being cost conscious and that way of making sure that we're selecting the right materials to meet the performance, but also have a.
Solid bill of material cost.
Okay. That's helpful. Thank you guys I'll take the rest of my questions offline.
Donovan Schaefer: Okay, that's helpful. Thank you guys. I'll take the rest of my questions offline. Again, if you would like to ask a question, please press star 1 on your telephone keypad. We currently have, oh, we do. Your next question comes from the line of Bruce Gillickson. Please go ahead.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
We currently have with you. Your next question comes from the line of Bruce.
Galaxy.
Please go ahead.
Bruce Gillickson: Thank you very much. An old-time trucker here was really excited about the hybrid truck. Is the Carno Energy machine going to be incorporated into the truck, or is the truck line shelved for now, and why would we shelve it when there was so much potential for it? Yeah, so I appreciate the question.
Thank you very much.
All time structure here was really excited about the hybrid truck is.
The current low energy machine going to be incorporated in the truck or is the truck lines shelved for now and why would we shell when there was so much potential for it.
Yes. So I appreciate the question. So as we shared last quarter. We are taking the powertrain technology that we developed and stopping the development of putting that technology on the shelf as we mentioned on today's call. We are looking at are there still ways to potentially work with others sale of the asset sale of the sum.
Thomas Healy: So, as we shared last quarter, we are taking the powertrain technology that we developed and stopping the development, putting that technology on the shelf. As we mentioned on today's call, we are looking at whether there are still ways to potentially work with others, sale of the assets, sale of some of the technology or royalties, things like that to see if there is still a way to leverage that technology. But we do see, potentially, long term, that there is the ability that we could even bring that back. However, the reason really for driving that shift last quarter was because we saw a lot of challenging economics facing the EV trucking space. And, and even since last quarter, we've continued to see it probably even get worse, at least at least sustain kind of, but probably even get worse.
The technology of royalties things like that to see if there is still a way to to leverage that.
Technology, but we do see potentially long term that there is the ability that we could even bring that back.
However, the reason really for driving that shift last quarter was because we saw a lot of challenging economics facing the EV trucking space and.
Even since last quarter, we've continued to see it probably even get worse at least at least sustain kind of but probably even get worse and so from that standpoint, we are confident that the shift we made was the right shift for shareholders and and we're excited to get the Carno commercialized as we shared on today's call a lot of positive progress being made towards that.
Thomas Healy: And so from that standpoint, we are confident that the shift we made was the right shift for shareholders. And we're excited to get Carnot commercialized, as we shared on today's call, with a lot of positive progress being made toward that. And then we'll assess, as we go forward, if there is an opportunity to bring the powertrain solution back and, as you mentioned, potentially couple that with the Carnot as the range extender.
And and then we'll assess as we go forward. If there is an opportunity to bring the powertrain solution back and as you mentioned potentially coupled out with the carnival as the range extender.
Okay.
And we have no further questions in our queue at this time Thomas Kelly I'll turn the call back to you for closing remarks.
Thomas Healy: We have no further questions in our queue at this time. Thomas Healy, I'll turn the call back to you for closing remarks. Well, thank you everyone for joining today's call. As we highlighted today, we have a lot of exciting developments planned for 2024. Most notably, getting units out in the field, these early field units, and getting feedback from those customers and establishing those partnerships to really bring us into 2025 and start scaling the ramp-up of the delivery of Carnot generators.
Well. Thank you everyone for joining today's call as we highlighted today, we have a lot of exciting.
<unk> plan for 2024.
Notably is actually getting units out deployed these early field units and getting feedback from those customers and establishing those partnerships to really bring us into 2025 and start scaling the ramp up of the delivery of carnal generators. So thank you for joining today's call and we look forward to chatting with you again soon.
Operator: So, thank you for joining today's call, and we look forward to chatting with you again soon. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
Please wait the conference will begin shortly.
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