Q2 2024 Hyliion Holdings Corp Earnings Call

August 7, 2024

Unknown Executive: And I will be your conference operator today.

Operator: I will be your conference operator today. At this time, I would like to welcome everyone to the Hyliion Holdings second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Emma: Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyliion Holdings second quarter 2024 earnings conference call.

Greg Standley: At this time, I would like to welcome everyone to the Hyliion Holdings 2nd quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Jon Panzer: Yes, so as you would expect when you have a new product in the marketplace, your initial production costs are going to be relatively high as they transition from the prototype scale to higher production scale. So we're experiencing that right now.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. At this time, I'd like to turn the conference over to Greg Standley, Chief Accounting Officer.

Greg Standley: After the speakers are marked, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.

Jon Panzer: Our first units are going to cost a little bit more than we expect over time, but we do expect costs to come down quite rapidly and ultimately get to the point over the next 12 to 18 months where, on a cash basis, we're getting close to break even between the price that we're charging and the cost of producing the product. And again, what I mean by cash basis is that it would exclude our overhead costs and warranty costs. So it's, again, kind of a normal trajectory that you would expect in manufacturing where costs are initially high, and they come down rather quickly with production efficiencies and purchasing efficiencies.

Greg Standley: If you would turn the conference over to Greg Stanley, Chief Accounting Officer, you may begin. Thank you and good morning, everyone. Welcome to Hyliion Holdings 2nd quarter 2024 earnings conference call.

Speaker Change: At this time, I'd like to turn the conference over to Greg Standley, Chief Accounting Officer.

Greg Standley: Thank you and good morning, everyone. Welcome to Hyliion Holdings' second quarter 2024 earnings conference call. On the call today are Thomas Healy, our Chief Executive Officer, and Jon Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hyliion's investor relations website at investors.hyliion.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.

Thomas Healy: Can you further explain why the completion of beta development was not completed in the first half of the year? And will this impact customer deliveries?

Greg Standley: You may begin.

Greg Standley: Thank you and good morning everyone. Welcome to Hyliion Holdings second quarter 2024 earnings conference call.

Greg Standley: On the call today, our Thomas Healy, our Chief Executive Officer, and Jon Panzer, our Chief Financial Officer. A slide presentation of companies this conference call and is available on Hyliion Investor Relations website at investors.hylion.com. Please note that during today's call, we will make certain forward-looking statements regarding the company's business outlook, forward-looking statements or predictions, suggestions, and other statements about anticipated events that are based on current expectations and assumptions. As such, our subject to risk and uncertainties. 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.

Speaker Change: On the call today are Thomas Healy, our Chief Executive Officer, and Jon Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hyliion's Investor Relations website.

Speaker Change: at Investors.Hylian.com

Greg Standley: As such, they are subject to risk and uncertainties. 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. I will now turn the call over to Thomas.

Speaker Change: Please note that during today's call, we will make certain forward-looking statements regarding the company's business outlook.

Speaker Change: Forward-looking statements are predictions, projections, and other statements.

Speaker Change: about anticipated events that are based on current expectations and assumptions.

Speaker Change: As such, are subject to risk and uncertainties. Many factors could cause actual results to differ materially from forward-looking statements made on this call.

Speaker Change: 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.

Greg Standley: 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.

Speaker Change: 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. I will now turn the call over to Thomas.

Greg Standley: Thank you.

Thomas Healy: I will now turn the call over to Thomas. Hello, and thank you for joining us for Hyliion 2nd quarter 2024 earnings call. Today, I am joined by Jon Panzer, our CFO. Over the past quarter, we've continued to make great progress with the commercialization of the Carnot generator and are continuing to build strong customer interests. This progress includes building a backlog for 2025 shipments, exploring applications in new target markets, and receiving positive customer feedback highlighting their growing need for more power. We believe the Carnot generator can provide transformative power generation technology to address these ever-growing needs.

Thomas Healy: Hello, and thank you for joining us for Hyliion's second quarter 2024 earnings call. Today, I am joined by Jon Panzer, our CFO.

Thomas Healy: Sure, so as we previously shared, we had released the beta design, and we've been moving that into production and testing out those components. And the reason we didn't check the box on the beta development is that as we moved some of the components from the design phase into production, we saw that there were some areas where we needed to iterate and change the design, improve the design. And so that's some of the work we've been doing over the last couple of months.

Thomas Healy: Hello, and thank you for joining us for Hyliion's second quarter 2024 earnings call. Today, I am joined by Jon Panzer, our CFO .

Thomas Healy: Over the past quarter, we've continued to make great progress with the commercialization of the Carnot Generator and are continuing to build strong customer interest. This progress includes building a backlog for 2025 shipments, exploring applications in new target markets, and receiving positive customer feedback, highlighting their growing need for more power. We believe the Carnot generator can provide transformative power generation technology to address these ever-growing needs. I'd like to start the call-off with an update on our planned deployments for the quarters ahead.

Thomas Healy: Over the past quarter, we've continued to make great progress with the commercialization of the Carnot generator and are continuing to build strong customer interest.

Thomas Healy: This progress includes building a backlog for 2025 shipments, exploring applications in new target markets, and receiving positive customer feedback highlighting their growing need for more power.

Thomas Healy: We believe the Carnot generator can provide transformative power generation technology to address these ever-growing needs.

Thomas Healy: I'd like to start the call-off with an update around our planned deployments for the quarters ahead. We have signed letters of intent with customers for all of the units we plan to deploy this year. These early units will be deployed into various target markets, and some would select Fortune 200 companies. As we look ahead at 2025, I am pleased to share that we already have letters of intent with customers for over 50 percent of the units that we plan to deploy next year. We plan to disperse these units across a diverse set of customers that operate in many of the markets that we are targeting.

Thomas Healy: We have signed letters of intent with customers for all of the units we plan to deploy this year. These early units will be deployed in various target markets and some with select Fortune 200 companies. As we look ahead to 2025, I am pleased to share that we already have letters of intent with customers for over 50% of the units that we plan to deploy next year. We plan to disperse these units across a diverse set of customers that operate in many of the markets that we are targeting. As we shared on our last earnings call, we anticipate these shipments to generate revenue in the low double-digit millions of dollars.

Thomas Healy: I think the key thing to note here is even though the beta production development is not done, we are still on track for having units in customers' hands later this year. And one of the things that we've actually done to mitigate risk is some of the major design changes or improvements as you go from alpha to beta; we've actually made those changes in the alpha variant of the generator. We've tested them, we've proven the design works, and that's going to de-risk the launch of the beta product.

Thomas Healy: I'd like to start the call off with an update around our planned deployments for the quarters ahead.

Thomas Healy: So we're not comfortable yet checking the box on having beta development complete just because a few of those parts we did kind of take them back through making design improvements from learnings that we saw from the productionization of the units, but we don't see that impacting our overall goal of getting units out to customers this year.

Thomas Healy: We have signed letters of intent with customers for all of the units we plan to deploy this year. These early units will be deployed into various target markets and some with select Fortune 200 companies.

Jon Panzer: And finally, can you further explain what an LOI from a customer is and what the difference is between it and a definitive agreement and at what stage with these deployments do you plan on starting to recognize revenue?

Thomas Healy: As we look ahead at 2025, I am pleased to share that we already have letters of intent with customers for over 50% of the units that we plan to deploy next year.

Thomas Healy: We plan to disperse these units across a diverse set of customers that operate in many of the markets that we are targeting. As we shared on our last earnings call, we anticipate these shipments to generate revenue in the low double-digit millions of dollars.

Thomas Healy: As we shared on our last earnings call, we anticipate these shipments to generate revenue in the low double-digit millions of dollars. Included in this growing backlog for next year are two customers that we recently announced, US Energy and Flex Note. US Energy, a division of US Ventures Inc., is a leading provider of refined products, alternative fuels, and environmental credits. Within their portfolio of companies, they own and operate natural gas and RNG fueling stations across the US. The LOI that we executed outlines plans to deploy a carno generator at one of their fueling stations to provide electricity to operate the station and in salary equipment, such as pumps and compressors.

Jon Panzer: I'll take that one. So an LOI, a letter of intent with customers, is really based on the conversations that our commercial team has had with customers and what is included when we sell them a Carnot unit. So it has expectations about the performance of the units. It also includes pricing and other things that have to be that are ultimately part of what is ultimately delivered to the customers. Over time, we will be creating definitive agreements or more contractual agreements with customers for the sale of these units.

Jon Panzer: And then regarding revenue recognition, once those performance obligations and definitive agreements are achieved, then you can start to recognize revenue from the customers. And ultimately, we'll be achieving that revenue recognition milestone that we expect next year sometime as we finally get past all the beta development and get to our commercialization milestone. So that will likely be next year.

Thomas Healy: Included in this growing backlog for next year are two customers that we recently announced, US Energy and Flexnode. US Energy, a division of U.S. Ventures, Inc., is a leading provider of refined products, alternative fuels, and environmental credits. Within their portfolio of companies, they own and operate natural gas and R&G fueling stations across the U.S. The LOI that we executed outlines plans to deploy a Carnot generator at one of their fueling stations to provide electricity to operate the station and ancillary equipment, such as pumps and compressors.

Thomas Healy: Included in this growing backlog for next year are two customers that we recently announced, U.S. Energy and Flexnode.

Speaker Change: U.S. Energy, a division of U.S. Ventures, Inc., is a leading provider of refined products, alternative fuels, and environmental credits. Within their portfolio of companies, they own and operate natural gas and R&G fueling stations across the U.S.

Speaker Change: The LOI that we executed outlines plans to deploy a Carnot generator at one of their fueling stations to provide electricity to operate the station and ancillary equipment, such as pumps and compressors.

Thomas Healy: We also executed an LOI with Flex Note, a digital infrastructure company that specializes in building cutting-edge, high-performance data centers that simplifies the design and deployment. Flex Note has created a scalable data center solution that can be deployed at existing facilities or leverage existing infrastructure. One of the challenges faced by their customers and the industry broadly is finding reliable sources of clean power for these megawatt-scale data center solutions. Flex Note plans to integrate up to 10 carno generators starting next year to help solve this problem. By coupling a scalable data center with scalable power generation, we are enabling a solution that can be easily deployed and tailored to customers' needs.

Thomas Healy: We also executed an LOI with Flexnode, a digital infrastructure company that specializes in building cutting-edge, high-performance data centers that simplify the design and deployment. Flexnode has created a scalable data center solution that can be deployed at existing facilities or leverage existing infrastructure.

Speaker Change: We also executed an LOI with Flexnode, a digital infrastructure company that specializes in building cutting-edge, high-performance data centers that simplifies the design and deployment.

Speaker Change: Flexnode has created a scalable data center solution that can be deployed at existing facilities or leverage existing infrastructure.

Thomas Healy: One of the challenges faced by their customers and the industry broadly is finding reliable sources of clean power for these megawatt-scale data center solutions. Flexnode plans to integrate up to 10 Carnot generators starting next year to help solve this problem. By coupling a scalable data center with scalable power generation, we are enabling a solution that can be easily deployed and tailored to customers' needs. Please note that the letters of intent that have been executed with customers are non-binding, and these deployments are subject to the execution of definitive sales agreements.

Speaker Change: One of the challenges faced by their customers and the industry broadly is finding reliable sources of clean power for these megawatt-scale data center solutions.

Speaker Change: Flexnode plans to integrate up to 10 Carnot generators starting next year to help solve this problem.

Speaker Change: By coupling a scalable data center with scalable power generation, we are enabling a solution that can be easily deployed and tailored to customers' needs.

Thomas Healy: Please note that the letters of intent that have been executed with customers are non-binding, and these deployments are subject to the execution of definitive sales agreements.

Greg Standley: So, that concludes the questions that we had fielded prior to the call. So, just in closing, I wanted to thank everyone for joining our Q2 earnings call.

Speaker Change: Please note that the letters of intent that have been executed with customers are non-binding and these deployments are subject to the execution of definitive sales agreements.

Thomas Healy: I'd now like to provide an update on the power generation market landscape. Over the past couple of quarters, we've had dozens of customer discussions and have continued to learn more about potential market opportunities for the Carno generator. We have received overwhelmingly positive feedback from these potential customers. They see the Carno generator as a revolutionary generator that is poised to overcome many of the conventional hurdles of on-site power generation. Key attributes included the carno generators' expected high efficiency, which equates to a low cost of electricity, low maintenance requirements, lower emissions footprint, and versatility of being able to operate on many fuels.

Greg Standley: I think this past quarter we had a lot of success, especially on the market adoption side of things, as mentioned. You know, having all the units committed for this year, and having more than half of the backlog already identified for next year, that puts us in a very strong position as we go into the commercialization of this solution. And we look forward to getting these units out into the field later this year. So, thank you again for joining us on the call, and we look forward to talking again next quarter.

Operator: This concludes today's conference call; you may now disconnect. Please wait; the next conference will begin shortly.

Speaker Change: I'd now like to provide an update on the power generation market landscape.

Speaker Change: Over the past couple of quarters, we've had dozens of customer discussions and have continued to learn more about potential market opportunities for the Carnot Generator.

Speaker Change: We have received overwhelmingly positive feedback from these potential customers. They see the Carnot generator as a revolutionary generator that is poised to overcome many of the conventional hurdles of on-site power generation.

Thomas Healy: They see the Carnot generator as a revolutionary generator that is poised to overcome many of the conventional hurdles of on-site power generation. Key attributes include the Carnot generator's expected high efficiency, which equates to a low cost of electricity, low maintenance requirements, lower emissions footprint, and versatility of being able to operate on many fuels. Based on customer feedback, we've made a couple of updates to our target markets infographic that we shared a few months ago. The first is with regard to data centers.

Speaker Change: Key attributes include the Carnot generator's expected high efficiency, which equates to a low cost of electricity, low maintenance requirements, lower emissions footprint, and versatility of being able to operate on many fuels.

Thomas Healy: Based on customer feedback, we've made a couple of updates to our target markets infographic that we shared a few months ago.

Speaker Change: Based on customer feedback, we've made a couple of updates to our target markets infographic that we shared a few months ago.

Thomas Healy: The first is with regard to data centers. As we've met with numerous companies in this space, it has become apparent that this market can become a key focus vertical for us. We've heard strong feedback that the AI boom is demanding significantly more data centers, which in return requires significantly more power. Arno generators, with their expected fuel flexibility, high efficiency, and modularity, can enable data center operators to generate their own power using pipeline natural gas or other low carbon fuels and then seamlessly switch to on-site fuel storage such as diesel or propane in case of emergency or pipeline failure.

Thomas Healy: As we've met with numerous companies in this space, it has become apparent that this market can become a key focus vertical for us. We've heard strong feedback that the AI boom is demanding significantly more data centers, which in turn requires significantly more power. Arno generators, with their expected fuel flexibility, high efficiency, and modularity, can enable data center operators to generate their own power using pipeline natural gas or other low carbon fuels and then seamlessly switch to onsite fuel storage, such as diesel or propane, in case of emergency or pipeline failure.

Speaker Change: The first is with regard to data centers. As we've met with numerous companies in this space, it has become apparent that this market can become a key focus vertical for us.

Speaker Change: We've heard strong feedback that the AI boom is demanding significantly more data centers, which in return requires significantly more power.

Speaker Change: Arno generators, with their expected fuel flexibility, high efficiency, and modularity, can enable data center operators to generate their own power using pipeline natural gas or other low-carbon fuels, and then seamlessly switch to on-site fuel storage, such as diesel or propane, in case of emergency or pipeline failure.

Thomas Healy: Such flexibility will enable these customers to use the carno generators for meeting both space load generation and resiliency needs at a facility.

Thomas Healy: Such flexibility will enable these customers to use the Carnot generators for meeting both baseload generation and resiliency needs at a facility. Another vertical we have added is waste heat utilization. Manufacturing operations for steel, aluminum, glass, and many other products generate a significant amount of heat that is released into the atmosphere as waste.

Speaker Change: Such flexibility will enable these customers to use the Carnot generators for meeting both baseload generation and resiliency needs at a facility.

Thomas Healy: Another vertical we have added is Waste Heat Utilization. Manufacturing operations for steel, aluminum, glass, and many other products generate a significant amount of heat that is released into the atmosphere as waste. We are presently in early discussions with a few manufacturers in these industries to explore the opportunity of utilizing their waste heat as a fuel source to power the Carnot generator. Unlike conventional generators that utilize fuels like natural gas or diesel to move the mechanical parts of the engine, the Carnot generator is powered by heat. In most applications, the Carnot generator will use fuels like hydrogen and natural gas to make the heat that will directly power the Carnot generator.

Speaker Change: Another vertical we have added is waste heat utilization. Manufacturing operations for steel, aluminum, glass, and many other products generate a significant amount of heat that is released into the atmosphere as waste.

Thomas Healy: We are presently in early discussions with a few manufacturers in these industries to explore the opportunity of utilizing their waste heat as a fuel source to power the Carnot generator. Unlike conventional generators that utilize fuels like natural gas or diesel to move the mechanical parts of the engine, the Carnot generator is powered by heat. In most applications, the Carnot generator will use fuels like hydrogen and natural gas to make the heat that will directly power the Carnot generator.

Speaker Change: We are presently in early discussions with a few manufacturers in these industries to explore the opportunity of utilizing their waste heat as a fuel source to power the Carnot generator.

Speaker Change: Unlike conventional generators that utilize fuels like natural gas or diesel to move the mechanical parts of the engine, the Carnot generator is powered by heat.

Speaker Change: In most applications, the Carnot generator will use fuels like hydrogen and natural gas to make the heat that will directly power the Carnot generator. However, if an application already generates heat, we are exploring redirecting that heat to power the Carnot generator.

Thomas Healy: However, if an application already generates heat, we are exploring redirecting that heat to power the Carnot generator. This would significantly reduce, if not eliminate, the need for conventional fuels like natural gas or hydrogen, which could dramatically lower operating costs.

Speaker Change: This would significantly reduce, if not eliminate, the need for conventional fuels like natural gas or hydrogen, which could dramatically lower operating costs.

Thomas Healy: In another recent development, we have been awarded a Small Business Innovation Research grant from the U.S. government. We are excited about this opportunity to focus on the development of a multi-megawatt package Carnot generator for U.S. Navy applications.

Thomas Healy: In another recent development, we have been awarded a Small Business Innovation Research Grant from the U.S. government. We are excited about this opportunity to focus on the development of a multi-megawatt package Carnot generator for U.S. Navy applications. We'll plan to share more on this opportunity in the near future. I'd now like to shift gears and share some more updates on the progress we've been making on the development of the generator and our production capability.

Speaker Change: In another recent development, we have been awarded a Small Business Innovation Research Grant from the U.S. government.

Speaker Change: We are excited about this opportunity to focus on the development of a multi-megawatt package Carnot generator for U.S. Navy applications. We'll plan to share more on this opportunity in the near future.

Thomas Healy: We'll plan to share more on this opportunity in the near future.

Thomas Healy: I'd now like to shift and share some more updates on the progress we've been making on the development of the generator and our production capabilities. Over the past quarter, we've continued to test the alpha version of the generator and are preparing the beta version for customer deliveries later this year. Over the past quarter, we focused on testing many of the improvements that we are making in the beta generator to ensure it operates and performs as we expect. We've also continued to refine and improve the production of beta components on our additive manufacturing machines. Because of this ongoing work, we are not yet checking off the box indicating full completion of beta development in the first half of this year, but we do expect to complete the final two milestones by the end of the year.

Speaker Change: I'd now like to shift and share some more updates on the progress we've been making on the development of the generator and our production capabilities.

Thomas Healy: Over the past quarter, we continued to test the alpha version of the generator and are preparing the beta version for customer deliveries later this year. During this quarter, we focused on testing many of the improvements that we are making in the beta generator to ensure that it operates and performs as we expect. We've also continued to refine and improve the production of beta components on our additive manufacturing machines. Because of this ongoing work, we are not yet checking off the box indicating full completion of beta development in the first half of this year, but we do expect to complete the final two milestones by the end of the year.

Speaker Change: Over the past quarter, we've continued to test the alpha version of the generator and are preparing the beta version for customer deliveries later this year.

Speaker Change: Over the past quarter, we focused on testing many of the improvements that we are making in the beta generator to ensure it operates and performs as we expect.

Speaker Change: We've also continued to refine and improve the production of beta components on our additive manufacturing machines.

Speaker Change: Because of this ongoing work, we are not yet checking off the box indicating full completion of beta development in the first half of this year, but we do expect to complete the final two milestones by the end of the year.

Thomas Healy: In Q2, we also focused on expanding our production capabilities in Austin. We now have additive manufacturing machines printing components around the clock. We also have more additive machines on order from General Electric that we are installing between now and early next year. These new machines will support the production ramp-up anticipated for next year. In conclusion, we continue to make great progress towards and remain on track with our key objective of getting initial early adopter customer units deployed by the end of this year.

Speaker Change: In Q2, we also focused on expanding our production capabilities in Austin.

Speaker Change: We now have additive manufacturing machines printing components around the clock. We also have more additive machines on order from General Electric that we are installing between now and early next year. These new machines will support the production ramp-up anticipated for next year.

Thomas Healy: In conclusion, we continue to make great progress towards and remain on track with our key objective of getting initial early adopter customer units deployed by the end of this year. We are also excited by the discussions we are having with customers and believe that the Carnot generator will address the key pain points they are facing as a search for additional sources of power generation. We believe this puts the company in a strong position for ramping up production as we head into 2025.

Speaker Change: In conclusion, we continue to make great progress towards and remain on track with our key objective of getting initial early adopter customer units deployed by end of this year.

Thomas Healy: We are also excited by the discussions we are having with customers and believe that the Carnot generator will address the key pain points they are facing as they search for additional sources of power generation. We believe this puts the company in a strong position for ramping up production as we head into 2025. I'd now like to hand the call over to Jon to cover some financial updates from the quarter.

Speaker Change: We are also excited by the discussions we are having with customers and believe that the Carnot generator will address the key pain points they are facing as they search for additional sources of power generation.

Speaker Change: We believe this puts the company in a strong position for ramping up production as we head into 2025.

Jon Panzer: I now like to hand the call over to John to cover some financial updates from the quarter. Thank you, Thomas, and good morning, everyone. Operating expenses for the second quarter were $14 million, compared to $38.5 million in the second quarter of 2023. This decrease in expenses is related to the wind down of our powertrain business, partly offset by an increase in Carnot spending this year. During the quarter, we recorded a $600,000 credit in powertrain exit and termination expenses, which was driven by the sale of certain assets of a discontinued powertrain business, partly offset by ongoing shutdown costs.

Speaker Change: I'd now like to hand the call over to Jon to cover some financial updates from the quarter.

Jon Panzer: Thank you, Thomas, and good morning, everyone. Operating expenses for the second quarter were $14 million compared to $38.5 million in the second quarter of 2023. This decrease in expenses is related to the winding down of our powertrain business, partly offset by an increase in carno spending this year. During the quarter, we recorded a $600,000 credit for powertrain exit and termination expenses, which was driven by the sale of certain assets of the discontinued powertrain business, partly offset by ongoing shutdown costs.

Speaker Change: During the quarter, we recorded a $600,000 credit in powertrain exit and termination expenses, which was driven by the sale of certain assets of a discontinued powertrain business, partly offset by ongoing shutdown costs.

Jon Panzer: Our total net loss in the second quarter was $10.9 million, down from $35.2 million in the second quarter of 2023, and down from the $15.6 million loss we recorded in the first quarter of this year. The sequential decrease in net loss this year was related to fewer charges for powertrain wind down activities. Year-to-date, operating expenses totaled $33 million, compared to $70.4 million in the first half of 2023. Expenses in 2024 include $3.9 million of powertrain exit and termination costs, net of asset sales. The wind down of powertrain has largely been completed, except for our ongoing efforts to monetize assets, which we expect will yield additional income and cash in the coming quarters.

Jon Panzer: Our total net loss in the second quarter was $10.9 million, down from $35.2 million in the second quarter of 2023 and down from the $15.6 million loss we recorded in the first quarter of this year. Year to date operating expenses totaled $33 million compared to $70.4 million in the first half of 2023. Expenses in 2024 include $3.9 million of powertrain exit and termination costs, net of asset sales. The wind-down of Powertrain has largely been completed, except for our ongoing efforts to monetize assets, which we expect will yield additional income and cash in the coming quarter.

Speaker Change: Our total net loss in the second quarter was $10.9 million, down from $35.2 million in the second quarter of 2023, and down from the $15.6 million loss we recorded in the first quarter of this year.

Speaker Change: The sequential decrease in net loss this year was related to fewer charges for powertrain wind-down activities.

Speaker Change: Year-to-date operating expenses totaled $33 million compared to $70.4 million in the first half of 2023.

Speaker Change: expenses in two thousand and twenty four include three point nine million dollars of power trained exit termination costs net of asset sales

Speaker Change: The wind-down of Powertrain has largely been completed, except for our ongoing efforts to monetize assets, which we expect will yield additional income and cash in the coming quarters.

Jon Panzer: During the second quarter, we repurchased 1.9 million shares of common stock for $2.7 million as part of the $20 million share repurchase program we announced late in 2023. The average purchase price for share was $1.45. Since program inception, we repurchased 10.6 million shares for an aggregate cost of $14 million, resulting in an average purchase price of $1.32. As of early May, we suspended share repurchases due to the recent strengthening of our share price and do not expect to execute upon further repurchases, but may resume repurchasing activity at a later date if and as deemed appropriate.

Jon Panzer: During the second quarter, we repurchased 1.9 million shares of common stock for $2.7 million. This was as part of the $20 million share repurchase program we announced late in 2023. The average purchase price per share was $1.45.

Speaker Change: During the second quarter, we repurchased 1.9 million shares of common stock for $2.7 million as part of the $20 million share repurchase program we announced late in 2023. The average purchase price per share was $1.45.

Jon Panzer: Since program inception, we have repurchased 10.6 million shares for an aggregate cost of $14 million, resulting in an average purchase price of $1.32. As of early May, we have suspended share repurchases due to the recent strengthening of our share price and do not expect to execute upon further repurchases, but may resume repurchasing activity at a later date if and as deemed appropriate. Turning to our cash position, we finished the second quarter with $249 million of cash and investments on our balance.

Speaker Change: Since program inception, we repurchased 10.6 million shares for an aggregate cost of $14 million, resulting in an average purchase price of $1.32.

Speaker Change: As of early May, we suspended share repurchases due to the recent strengthening of our share price and do not expect to execute upon further repurchases, but may resume repurchasing activity at a later date if and as deemed appropriate.

Jon Panzer: Turning to our cash position, we finished the second quarter with $249 million of cash and investments on our balance sheet. We utilized $15.2 million of cash and investments, as well as previously restricted cash, in the second quarter of this year and $50.6 million year-to-date. Breaking down uses of cash for the year thus far, spending on core, carno development activities total $27 million, including capital investments of $8.1 million. Capital investments were directed mostly towards the purchase of additive printing machines and related equipment. In addition to the $14 million spent on share repurchases, we also spent approximately $10 million on powertrain shutdown activities net of asset sale proceeds.

Speaker Change: Turning to our cash position, we finished the second quarter with $249 million of cash and investments on our ballot sheet.

Jon Panzer: We utilized $15.2 million of cash and investments, as well as previously restricted cash, in the second quarter of this year and $50.6 million year to date. Breaking down uses of cash for the year thus far, spending on core Carnot development activities total $27 million, including capital investments of $8.1 million. Capital investments were directed mostly towards the purchase of additive printing machines and related equipment. In addition to the $14 million spent on share repurchases, we also spent approximately $10 million on powertrain shutdown activities net of asset sale proceeds.

Speaker Change: we utilized fifteen point two million of cash and investments as well as previously restricted cash in the second quarter of this year and fifty point six million dollars year-to-date

Speaker Change: Breaking down uses of cash for the year thus far, spending on core Carnot development activities totaled $27 million, including capital investments of $8.1 million.

Speaker Change: Capital investments were directed mostly towards the purchase of additive printing machines and related equipment. In addition to the $14 million spent on share repurchases, we also spent approximately $10 million on powertrain shutdown activities, net of asset sale proceeds.

Jon Panzer: Looking forward, we expect to begin deploying Carno generator units to customers late this year. While these are expected to be paid deployments, the timing of the payments to Haleon will likely extend into 2025, depending upon the commercial terms agreed to for the initial deployment agreements, the time required for certification and permitting of the generators, as well as achievement of operating performance criteria. We expect to grow deployments in 2025 and to begin recognizing revenue for sales to customers once our development work is complete and we reach the commercialization milestone for the carno generator units. We are maintaining previous guidance that we expect revenue in 2025 to be in the low double-digit millions of dollars.

Jon Panzer: Looking forward, we expect to begin deploying Carnot generator units to customers late this year. While these are expected to be paid deployments, the timing of the payments to Hyliion will likely extend into 2025, depending upon the commercial terms agreed to for the initial deployment agreements, the time required for certification and permitting of the generators, as well as the achievement of operating performance criteria. We expect to grow deployments in 2025 and to begin recognizing revenue for sales to customers once our development work is complete and we reach the commercialization milestone for the kernel generator.

Speaker Change: Looking forward, we expect to begin deploying Carnot generator units to customers late this year.

Speaker Change: While these are expected to be paid deployments, the timing of the payments to Hyliion will likely extend into 2025, depending upon the commercial terms agreed to for the initial deployment agreements.

Speaker Change: The time required for certification and permitting of the generators, as well as achievement of operating performance criteria.

Speaker Change: We expect to grow deployments in 2025 and to begin recognizing revenue for sales to customers once our development work is complete and we reach the commercialization milestone for the kernel generator.

Jon Panzer: We are maintaining previous guidance that we expect revenue in 2025 to be in the low double digit millions of dollars. As volume grows, we expect to realize production cost efficiencies, particularly for purchasing components and services needed to build the economy. Initially, we expect gross margins to be negative, but they also to improve quickly as we realize scale efficiencies in production and procurement. We are currently targeting gross margins to be approximately breakeven measured on a cash basis by late 2025 or early 2026.

Speaker Change: We are maintaining previous guidance that we expect revenue in 2025 to be in the low double-digit millions of dollars.

Jon Panzer: As volume grows, we expect to realize production cost efficiencies, particularly for purchase components and services needed to build the crime of generate. Initially, we expect gross margins to be negative, but also to improve quickly as we realize scale efficiencies in production and purchasing. We are currently targeting gross margins to be approximately break even measured on a cash basis by late 2025 or early 2026. Beyond that time frame, we haven't yet developed a firm forecast. We now expect that total cash expenditures for our carnal generator business in 2024 will be approximately $55 million, compared to our previous estimate of nearly $50 million.

Speaker Change: As volume grows, we expect to realize production cost efficiencies, particularly for purchase components and services needed to build the Chrono Generator.

Speaker Change: Initially, we expect gross margins to be negative, but also to improve quickly as we realize scale efficiencies in production and purchasing.

Speaker Change: We are currently targeting gross margins to be approximately break-even, measured on a cash basis, by late 2025 or early 2026. Beyond that timeframe, we haven't yet developed a firm forecast.

Jon Panzer: Beyond that timeframe, we haven't yet developed a firm forecast. However, we now expect that total cash expenditures for our Carnal Generator business in 2024 will be approximately $55 million, compared to our previous estimate of nearly $50 million. As a reminder, our cash forecast includes operating expenses, capital spending, and interest income, but excludes cash spent for share repurchases, powertrain shutdown activities, and the asset sale process. This higher estimate reflects a more rapid ramp-up in additive printer growth investments in Texas that Thomas referenced earlier in the call, and could fluctuate up or down based on the timing of printer deliveries that we currently have on order. Finally, we expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of Carnal Generator sales. Now, I'll turn the call back over to Tom. Thank you, Jon.

Speaker Change: We now expect that total cash expenditures for our Carnot Generator business in 2024 will be approximately $55 million.

Jon Panzer: As a reminder, our cash forecast includes operating expenses, capital spending, and interest income, but excludes cash spent for share repurchases, powertrain shutdown activities, and asset sale proceeds. This higher estimate reflux a more rapid ramp up in edited printer growth investments in Texas that Thomas referenced earlier in the call, and to fluctuate up or down based on the timing of printer deliveries that we currently have on over.

Speaker Change: As a reminder, our cash forecast includes operating expenses, capital spending, and interest income, but excludes cash spent for share repurchases, powertrain shutdown activities, and asset sale proceeds.

Speaker Change: This higher estimate reflects a more rapid ramp-up in additive printer growth investments in Texas that Thomas referenced earlier in the call, and could fluctuate up or down based on the timing of printer deliveries that we currently have on order.

Jon Panzer: Finally, we expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of carnal generator sales.

Speaker Change: Finally, we expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of Carnal Generators sales.

Thomas Healy: Now we'll turn the call back over to Thomas. Thank you, John. Before transitioning over to Q&A, I'd like to share a quick recap of the quarter. We've been making great progress with the commercialization of the carnal generator, which is keeping us on track for initial customer deployments this year. In parallel, we've been building our backlog of interest, expanding our target markets, and already have otherwise replaced with customers for half of the volume we plan to deploy next year.

Thomas Healy: Thank you, Jon. Before transitioning over to Q&A, I'd like to share a quick recap of the quarter. We've been making great progress with the commercialization of the Carnot Generator, which is keeping us on track for initial customer deployments this year. In parallel, we've been building our backlog of interest, expanding our target markets, and already have LOIs in place with customers for half of the volume we plan to deploy next year. Thank you for your ongoing support and interest in Hyliion, and I'd now like to open the call for Q&A.

Speaker Change: Now, I'll turn the call back over to Thomas.

Speaker Change: Thank you, Jon. Before transitioning over to Q&A, I'd like to share a quick recap of the quarter.

Speaker Change: We've been making great progress with the commercialization of the Carnot generator, which is keeping us on track for initial customer deployments this year.

Speaker Change: In parallel, we've been building our backlog of interest, expanding our target markets, and already have LOIs in place with customers for half of the volume we plan to deploy next year. Thank you for your ongoing support and interest in Hyliion, and I'd now like to open the call for Q&A.

Greg Standley: Thank you for your ongoing support in interest in Hylion, and I'd now like to open the call for Q&A. Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad.

Operator: Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question today comes from the line of Donovan Schafer. Your line is now open.

Speaker Change: Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question today comes from the line of Donovan Schafer.

Donovan Schafer: Your first question today comes from the line of Donovan Shaffer. Your line is now open. Thanks for taking the questions. So first, I just want to start off. I can't remember who covered this before, but can you give us any numbers or any kind of just quantification around the number of units? When you talk about 2024 capacity as fully booked and 2025, 50% of 2025 capacity, fully booked, is there any number or any point of students in the number of units that can help us orient what that means? And in terms of units, clarify whether you mean like generator we've got four cylinders or systems or whatever, or just so that there's not an ambiguity there either.

Donovan Schafer: Hey guys, thanks for taking the questions. So first, I just want to start off; I can't remember if we've covered this before, but Can you give us any numbers or any kind of quantification around, you know, the number of units when you talk about 2024 capacity as fully booked and 2025, you know, 50% of 2025 capacity, fully booked. Is there any number you can point us to in terms of the number of units that can help us orient ourselves to what that means? And in terms of units, you know, clarify whether you mean, like, generator; we've got, you know, four cylinders, or, you know, pistons, or whatever, or, you know, just so that there's not any ambiguity there either.

Speaker Change: Your line is now open.

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

Donovan Schaffer: So, first, I just want to start off, I can't remember if we've covered this before, but

Donovan Schaffer: Can you give us any numbers or any kind of quantification around the number of units when you talk about 2024 capacity as fully booked and 2025?

Speaker Change: You know, 50% of 2025 capacity.

Speaker Change: Fully booked

Speaker Change: You know, is there any number that you can point us to in terms of number of units that can help us orient, you know, what that means? And in terms of units, you know, clarify whether you mean like,

Speaker Change: Generator, we've got, you know, four cylinders or, you know, pistons or whatever, or, you know, just so that there's not an ambiguity there either.

Thomas Healy: Sure, so this year 2024, it will be in the single digit units, and to your point there, it is a full complete gen set. So it would be the 200 kilowatt, the beta design of the system. So it's getting them out into customers' hands. Donovan, as we've spoken about them in the goal, is we've got very collaborative agreements with these early adopters where they're signing up for working with us, providing feedback, giving us advice suggestions on how those systems are performing, and we have the ability to come back and, if any changes are needed, to be able to implement those, and that really teases us up for really hitting commercialization of this solution in 2025.

Thomas Healy: Sure, so this year 2024, it will be in the single digit units. And to your point there, it is full complete generation sets.

Speaker Change: Sure, so this year, 2024, it will be in the single-digit units, and to your point there, it is.

Thomas Healy: So it'd be the 200 kilowatt beta design of this system. So I mean, these are really just the initial units getting them out into customers' hands. Donovan, as we've spoken about, the goal is that we have very collaborative agreements with these early adopters where, as you know, they're signing up to work with us, providing feedback, giving us advice, suggestions on how the system's performing. And we have the ability to come back and, you know, if any changes are needed, to be able to implement those.

Speaker Change: Full Complete Gen Sets. So it would be the 200 kilowatt, the beta design of this system. So, I mean, these are really just the initial units, getting them out into customers' hands. Donovan, as we've spoken about, I mean, the goal is, is we've got very collaborative agreements with these early adopters where, as, you know, they're signing up for working with us, providing feedback, giving us advice, suggestions on how the system's performing. And we have the ability to come back and, you know, if any changes are needed, to be able to implement those. And that really tees us up for really hitting commercialization of this solution in 2025. Now, what we've, what we've said is,

Thomas Healy: And that really sets us up for really hitting commercialization of this solution in 2025. Now, what we've said is, in terms of volume for next year, we've really targeted more of a revenue number. And that's going to be in the low double digit millions in revenue for next year. But we haven't yet correlated that back to an actual number of units. But we're pleased to share on this call that to hit that milestone I mentioned, we've already secured more than half of the backlog that we would need in order to be able to achieve that.

Thomas Healy: Now what we've said is in terms of volume for next year, we've really targeted more of a revenue number, and that's going to be in the low double-digit millions in revenue for next year. We haven't yet correlated that back to an actual number of units, but we're pleased to share on this call that, to hit that milestone I mentioned, we've already secured more than half of the backlog that we would need in order to be able to achieve that for 2025. And just trying everything with low single digit, high single digit number of generators for more than five, less than five, four.

Speaker Change: In terms of volume for next year, we've really targeted more of a revenue number, and that's going to be in the low double-digit millions in revenue for next year. We haven't yet correlated that back to an actual number of units, but we're pleased to share on this call that to hit that milestone I mentioned, we've already secured more than half of the backlog that we would need in order to be able to achieve that for 2025.

Thomas Healy: I'm just, you know, trying everything with low single digit, high single digit numbers of generators for, you know, kind of more than five, less than five, four. For this year, and is that right where that corresponds to the logic would be, you know, if it's, something, you know, north of five, and the plot, you know, then that implies something in the teens or something for 2025 like capacity, or do those things not quite connect that way? Yeah, and again, high single digits.

Speaker Change: And just, you know, just trying everything, low single digit, high single digit number of generators for, you know, kind of more than five, less than five, four.

Thomas Healy: for this year. And is that right? Or that corresponds to the logic would be, you know, if it's something, you know, north of size and the, you know, then that implies, you know, something in the teens or something for 2025, like capacity. Or do those things not quite connect that way? Yeah, and again, I single digit or low single digit. Yeah, so for this year, I think it's in that mid-range of single digits. And then, you know, as we look at next year, you know, much more than in the teens, as you were expressing in terms of generators.

Speaker Change: for this year, and is that right where that corresponds? So the logic would be, you know, if it's.

Speaker Change: something you know north of five and the plot you know then that implies

Speaker Change: you know, something in the teens or something for 2025, like capacity, or, or do those things not quite connect that way? Yeah, and again, high single digit or low single digit.

Thomas Healy: Yeah, so for this year, I think it's in that mid range of single digits. And then, you know, as we look at next year, much more than in the teens, as you were expressing in terms of generators, we just haven't correlated that to an exact number of units. But, you know, 2025 is really about commercial starting, you know, getting volume out there, and, you know, by the end of 25, we have a very strong deployment of many generators out there and customers.

Speaker Change: Yeah, so for this year, I think it's in that that mid range of single digits. And then, you know, as we look at next year, you know, much more than in the teens, as you were expressing in terms of generators, we just haven't correlated that to an exact number of units. But, you know, 2025 is really that, you know, commercial starting, you know, getting volume out there. And, you know, by the end of 25, have a very strong deployment of many generators out there in customers hands.

Thomas Healy: We just haven't correlated that to an exact number of units, but, you know, 2025 is really that, you know, commercial starting, you know, getting volume out there. And, you know, to, by the end of 25, having a very strong deployment of many generators out there in customers' hands.

Thomas Healy: Okay, and then as a follow-up, talking about mostly data centers, but also, cryptocurrency at all. You know, it's kind of a heavy overlap there, but you know, data centers. Most people are talking about AI stuff right now. And talking to Generac and some other companies. You know, it sounds like footprint is a very important consideration and, in their case, a lot of times they're looking at offering just the backup generators, you know, so.

Thomas Healy: Okay. And then, as a follow-up, talking about, you know, mostly data centers, but also, you know, cryptocurrency at all, you know, is kind of heavy overlap there. But, you know, data centers, mostly people are talking about AI stuff right now. And talking to Generac and some other companies, you know, it sounds like footprint is a very important consideration. And, you know, in their case, a lot of times they're looking at offering just the backup generators, you know, so looking at data centers where there's going to be some kind of a grid tie, grid connection. And then, you have this backup functionality that kind of has a superfluous use. You know, you're kind of hoping you almost never have to use it.

Speaker Change: Okay and then as a follow-up talking about you know mostly data centers but also you know cryptocurrency at all you know it's kind of

Speaker Change: Heavy overlap there, but you know data centers. Mostly people are talking about the ai stuff right now and talking to generac and some other companies

Speaker Change: You know, it sounds like footprint is a very important consideration. And you know, in their case, a lot of times they're looking at offering just the backup generators, you know, so

Thomas Healy: Looking at data centers where there's going to be some kind of grid tie, grid connection, and then you have this backup functionality that kind of has a superfluous use, you know; you're kind of hoping you almost never have to use it. But with natural gas, conventional natural gas generators, I think they have a much larger footprint than you're able to pack in a lot more, like diesel generators and things like that.

Speaker Change: looking at data centers where there's going to be some kind of a grid tie, grid connection, and then you have this

Speaker Change: Backup functionality that kind of has a superfluous use, you know, you're kind of hoping you almost never have to use it, but with natural gas, conventional natural gas generators, I think they have a much larger footprint.

Thomas Healy: But, with natural gas generator, conventional natural gas generators, I think they have a much larger footprint than, you know, you're able to pack in a lot more like diesel generators and things like that. And so, it seems like that's become an important consideration. Them curious, you know, how does the footprint for the cariner generator compare to kind of those conventional offerings? And I'd say, on an all-in basis, right? So, you know, if you are talking about using gas or alternative fuels, you know, in a backup application, like, you're not going to have, they're not going to pay the money to have a large, like hydrogen storage tank plus a large, you know, propane storage tank plus all that stuff.

Speaker Change: Then

Speaker Change: you're able to pack in a lot more like diesel generators and things like that. And so it seems like that's become an important consideration. I'm curious, you know, how does the footprint for the Karner generator compare to kind of those conventional offerings?

Thomas Healy: And so it seems like that's become an important consideration. So I'm curious, you know, how does the footprint of the Karner generator compare to kind of those conventional offerings? And I'd say on an all-in basis, right? So, you know, if you are talking about using gas or alternative fuels, you know, in a backup application, like, you're not going to have to pay for the money to have a large hydrogen storage tank, plus a large, you know, propane storage tank, plus all that stuff. So, like, how do they look at it from a footprint standpoint? And are they mostly looking for prime power or backup?

Speaker Change: And I'd say on an all-in basis, right? So, you know, if you are talking about using gas or alternative fuels, you know, in a backup application, like you're not gonna have...

Speaker Change: They're not going to pay the money to have a large hydrogen storage tank, plus a large propane storage tank, plus all that stuff. How do they look at it from a footprint standpoint, and are they mostly looking for prime power or for backup?

Thomas Healy: So, like, how do they look at it from a footprint standpoint? And are they mostly looking for prime power or for backup? Yeah. So, great questions. A lot to unravel there. So, I mean, let me first start with what data centers have been doing in the past. And that is, conventionally, they use the grid as their primary power source. And then they deploy a bank of diesel engines there that are just there for emergency standby power. With this recent AI boom and also the improvements with kind of the processing power of computers, there's two new issues that are coming about.

Thomas Healy: Yeah, so great questions; there is a lot to unravel there. So, let me first start with what data centers have been doing in the past. And that is prevent conventionally; they use the grid as their primary power source, and then they deploy a bank of diesel engines there that are just there for emergency standby power. With this recent AI boom and also the improvements in the kind of processing power of computers, there are two new issues that are coming about.

Speaker Change: So great questions, a lot to unravel there. So let me first start with

Speaker Change: What data centers have been doing in the past, and that is Conventionally they use the grid as their primary power source And then they deploy a bank of diesel engines there that are just there for emergency standby power

Speaker Change: With this recent AI boom and also the improvements with kind of the processing power of computers

Thomas Healy: So the first thing they're finding is that the utilities just don't have the amount of power available that they need. And then the second is that as they go and upgrade data centers, and new processors are a lot faster, but they also consume a lot more power, they're finding that the grid used to be able to provide enough power, but with these new machines, now that same data center requires a lot more power, and the grid is not able to supply it. So now data centers are starting to look at actually using on-site power generation. And that's where natural gas engines, as you pointed out, come into play. So the footprint is a major issue.

Thomas Healy: So, the first is they're finding that the utilities just don't have the amount of power available that they need. And then the second is as they go and upgrade data centers and, you know, new processors are a lot faster, but they also consume a lot more power. They're finding that, you know, the grid used to be able to provide enough power, but with these new machines, now that same data center requires a lot more power consumption, and the grid is not able to supply it. So, now that's where data centers are starting to look at actually using on-site power generation.

Speaker Change: There's two new issues that are coming about. So the first is they're finding that the utilities just don't have the amount of power available that they need. And then the second is as they go and upgrade data centers, and you know new processors are a lot faster, but they also consume a lot more power,

Speaker Change: They're finding that, you know, the grid used to be able to provide enough power, but with these new machines, now that same data center requires a lot more power consumption, and the grid is not able to supply it.

Speaker Change: So now that's where data centers are starting to look at actually using on-site power generation, and that's where natural gas engines, as you pointed out, come into play.

Thomas Healy: And that's where natural gas engines, as you pointed out, come into play. So, footprint is a major issue. And even so, what we're now hearing from customers is we actually just had a customer a couple of weeks ago in and we were talking about how in Ireland, there's a new data center being built and they actually have natural gas engines deployed for prime power. And then they also have a bank of diesel engines deployed for backup power. So, that then even becomes a larger issue from a footprint standpoint because now you have two sets of engines for that data center.

Speaker Change: So, footprint is a major issue, and even so, what we're now hearing from customers is, we actually just had a customer a couple of weeks ago in, and we were talking about how

Thomas Healy: And even so, what we're now hearing from customers is that we actually just had a customer a couple of weeks ago in Ireland where we were talking about how in Ireland, there is a new data center being built, and they actually have natural gas engines deployed for prime power. And then they also have a bank of diesel engines deployed for backup power. So that then even becomes a larger issue from a footprint standpoint because now you have two sets of engines for that data center.

Speaker Change: There's a new data center being built, and they actually have natural gas engines deployed for prime power, and then they also have a bank of diesel engines deployed for backup power. So, that then even becomes a larger issue from a footprint standpoint, because now you have two sets of engines.

Thomas Healy: So where we see the Carnot really fitting in is since we offer that fuel flexibility, we can be your prime power solution running on natural gas or hydrogen, and we can also be your backup power solution, and you can have an onsite diesel storage or an onsite propane storage that that same generator solution could run on those various fuels. So that's where we see data centers becoming a really big play because we're enabling them to have a prime power solution that has low maintenance but also be that backup power solution as well.

Thomas Healy: So, where we see the Carno really fitting in is since we offer that fuel flexibility, we can be your prime power solution running on natural gas or hydrogen. And we can also be your backup power solution, and you can have an on-site diesel storage or an on-site propane storage that that same generator solution could run on those various fuels. So, that's where we see data centers becoming a really big play because we're enabling them to have a prime power solution that has low maintenance, but also be that backup power solution as well.

Speaker Change: for that data center. So, where we see the Carnot really fitting in is, since we offer that fuel flexibility, we can be your prime power solution running on natural gas or hydrogen and we can also be your backup power solution and you can have an on-site diesel storage or an on-site propane storage that that same generator solution could run on those various fuels.

Speaker Change: So, that's where we see data centers becoming a really big play, because we're enabling them to have a prime power solution that has low maintenance, but also be that backup power solution as well.

Donovan Schafer: Okay, and if I can just squeeze one more question then, with the increase in, you know, guided spending between 24, I guess the main question is just what the drivers are, so I guess first I'm interpreting it, you know, in the release to talk about it as a more rapid build of additive capacity, so I think of that as sort of an acceleration versus some prior existing plan. And so if there is this, if it is an acceleration versus what was prior plan previously, what the driver of that acceleration is, is it opportunism around pricing of equipment, you know, in some spaces like an EV manufacturing, other companies have talked about being able to, you know, scoop up equipment on the cheap. I don't know how much additive printing stuff is involved in, in that, so is it opportunistic with lower pricing for additive printing, or is it more, you know, getting feedback from customers, it gives you more confidence and makes you want to accelerate, just whatever the driver there is, and if you can confirm that it's an acceleration versus a prior plan.

Donovan Schafer: Okay, and if I can just squeeze one more question in, with the increase in guided spending for 2024, I guess the main question is just what the drivers are that so I guess, first, I'm interpreting it, you know, in the release, talk about it as a more, more rapid build out of additive capacity. So I think of that as sort of an acceleration versus some prior existing. And so if there is this, if it is an acceleration versus what was previously planned, what the driver of that acceleration is, is it opportunism around pricing of equipment?

Speaker Change: Okay, and if I can just squeeze one more question in. With the increase in, you know, guided spending for 2024,

Speaker Change: I guess the main question is just what the driver's effort, so I guess first I'm interpreting it.

Speaker Change: in the release talk about it as a more rapid build out of additive capacity. So I think of that as sort of an acceleration versus some prior existing plan.

Speaker Change: And so if there is this, if it is an acceleration versus what was.

Speaker Change: prior plan previously. What the driver of that acceleration is, is it opportunism around pricing of equipment, you know, in some spaces, like in EV manufacturing,

Donovan Schafer: You know, in some spaces, like in EV manufacturing, other companies have talked about being able to, you know, scoop up equipment on the cheap. But I don't know how much additive printing stuff is involved in that. So is it opportunistic with lower pricing for additive printing, or is it more, you know, getting feedback from customers that gives you more confidence and makes you want to accelerate? Just whatever the driver there is, and if you can confirm that it's an acceleration versus a prior.

Speaker Change: Other companies have talked about being able to, you know, scoop up equipment on the cheap.

Speaker Change: I don't know how much additive printing stuff is involved in that. So, is it opportunistic with...

Speaker Change: Lower pricing for additive printing or is it some is it more, you know Getting feedback from customers. It gives you more confidence and makes you want to accelerate Just whatever the driver there is and and if you can confirm that it's an acceleration versus a prior plan

Jon Panzer: Yeah, hi Donovan, this is John. I'll take that question. So, it's a little bit of all the above, I would say it's certainly driven by capital investments pretty much entirely, the increase in spending since our initial guidance, and it's really about trying to get the Texas facility built out, which is going to be our primary production facility over time. And so it, and it's also taking advantage of opportunities to buy both new and used machines that we found in the marketplace. So, as we are getting very close to our initial deployments, we really thought about our ability to ramp up production next year, and really taking advantage of all the opportunities to get capacity here. And so we're trying to make various decisions about used machines, new machines; in fact, all of that is playing into really the uncertainty about how many units and being more precise about our forecast for volume next year is because those are moving parts. Even our capital forecast this year could vary a little bit just depending on the timing of the deliveries and so forth between this year and next year. So, it's really, it really is about capital and just trying to ramp up the Texas facility more quickly.

Jon Panzer: Yeah, hi Donovan. This is Jon.

Jon Panzer: Hi Donovan, this is Jon. I'll take that question. So it's a little bit of all the above, I would say. It's certainly driven by capital investments.

Jon Panzer: pretty much entirely the increase in spending since our initial guidance.

Jon Panzer: And it's really about trying to get the Texas facility built out.

Jon Panzer: which is going to be our primary production facility over time. And it's also taking advantage of opportunities to buy both new and used machines that we found in the marketplace.

Jon Panzer: I'll take that question. So it's a little bit of all the above, and I would say it's certainly driven by capital investments, pretty much entirely the increase in spending since our initial guidance. And it's really about trying to get the Texas facility built out, which is going to be our primary production facility over time. And so it is, and it's also taking advantage of opportunities to buy both new and used machines that we find in the marketplace.

Jon Panzer: So as we

Jon Panzer: are getting very close to our initial deployments. We've really thought about our ability to ramp up production next year.

Jon Panzer: and really taking advantage of all the opportunities to get capacity here.

Jon Panzer: Don't make make various decisions about used machines, new machines. In fact, all of that is playing into really the uncertainty about how many units and being more precise about our forecast for for volume next year is because those are those are moving parts.

Jon Panzer: Even our capital forecast this year could vary a little bit just depending on the timing of the deliveries and so forth between this year and next year. So it's really, it really is about capital and just trying to ramp up the Texas facility more quickly.

Donovan Schafer: Okay, great, thank you.

Unknown Executive: I'll take the rest of my questions offline. Thanks, guys.

Speaker Change: Okay, great. Thank you. I'll take the rest of my questions offline. Thanks, guys.

Unknown Executive: Earlier to today, prior to today, the company fielded questions from investors.

Speaker Change: Prior to today, the company fielded questions from investors. I will now turn the call back to Greg to review those.

Greg Standley: I will now turn the call back to Greg to review those. Thank you.

Thomas Healy: First question. Are there two versions of the different differences between them if there are two versions? So I wouldn't look at it as having two different versions. It's more the evolution of the development of the generator. So, in terms of customer deployments, the only solution will be deploying with customers is that 200 kilowatt solution, the beta design that we'll be getting out in customers' hands later this year. Alpha was a version that we started working on back actually for the truck solution, which as noted is 125 kilowatt capable generator and that's the solution that we've had operating for more than a year now.

Greg Standley: Thank you. First question. Are there two versions of the Carnot generator, alpha at 125 kilowatts and beta at 200 kilowatts? And what are the differences between them if there are two versions?

Greg Standley: So I wouldn't look at it as having two different versions. It's more the evolution of the development of the generator. So in terms of customer deployments, the only solution we'll be deploying with customers is that 200 kilowatt solution, the beta design that we'll be getting out into customers' hands later this year.

Jon Panzer: So as we are getting very close to our initial deployments, we really think about our ability to ramp up production next year and really take advantage of all the opportunities to get capacity here. And so we're trying to, you know, make various decisions about used machines and new machines. In fact, all of that is playing into the uncertainty about how many units and being more precise about our forecast for volume next year because those are moving parts.

Donovan Schafer: Okay, great. Thank you. I'll take the rest of my questions offline. Thanks, guys.

Greg Standley: Alfa was a version that we started working on back actually for the truck solution, which as noted is a 125 kilowatt capable generator. And that's a solution that we've had operating for more than a year now. We've been going through the development, testing and iterating it.

Thomas Healy: We've been going through the development testing and iterating it, and the 200 is really just an evolution of that design. Actually, the size, the scale of the generator is the physical footprint is almost identical, but we've been able to engineer it to actually have more power density, get more power out of the same footprint, and as well as making other design changes and improvements as well. So, in terms of customers, though, it's that beta design that 200 kilowatt solution that's what we'll be selling.

Greg Standley: And the 200 is really just an evolution of that design. Actually, the size, the scale of the generator, the physical footprint is almost identical, but we've been able to engineer it to actually have more power density, get more power out of the same footprint, as well as making other design changes and improvements as well. In terms of customers, though, it's that beta design, that 200-kilowatt solution. That's what we'll be selling.

Jon Panzer: You mentioned that the company is targeting to be gross, margin neutral on a cash basis by late 25 or early 2026. Can you share what needs to happen over the next 12 to 18 months to achieve this? Yes, so as you would expect, when you have a new product in the marketplace, your initial production costs are going to be relatively high as they transition from prototype scale to more higher production scale. So we're experiencing that right now; our first units are going to be costing a little bit more than we expect over time, but we do expect costs to come down quite rapidly and ultimately get to the point of the next 12 to 18 months where, on a cash basis, that we're getting close to break even between the price that we're charging and the cost of producing the product.

Speaker Change: You mentioned that the company is targeting to be gross margin neutral on a cash basis by late 25 or early 2026. Can you share what needs to happen over the next 12 to 18 months to achieve this?

Speaker Change: Yes, so as you would expect when you have a new product in the marketplace, your initial production costs are going to be relatively high as they transition from prototype scale to more higher production scale. So we're experiencing that right now, our first units are going to be costing

Speaker Change: A little bit more than we expect over time, but we do expect costs to come down quite rapidly.

Speaker Change: and ultimately get to the point over the next 12 to 18 months where, on a cash basis,

Speaker Change: that we're getting close to to break even between the price that we're charging in the cost to producing the product and again what i mean by cash basis that would exclude ouror overhead costs and warranty costs so it's you know again kind of a normal trajectory that you'd expect in

Jon Panzer: And again, what I mean by cash basis, that would exclude overhead costs and warranty costs. So it's a, you know, again, it's kind of a normal trajectory that you would expect in manufacturing where costs are initially high and they come down rather quickly with production efficiencies and purchasing efficiencies.

Speaker Change: Manufacturing where costs are initially high and they come down rather quickly with production efficiencies and purchasing efficiencies.

Jon Panzer: Can you further explain why the completion of beta development was not completed in the first half of the year, and will this impact customer deliveries? Sure. So, as we previously shared, we had released the beta design, and we've been moving that into production and testing out those components. And the reason we didn't check the box on the beta development is as we moved some of the components from kind of design into production, we saw that there were some areas where we need to iterate and change the design and prove the design. And so that's some of the undertaking we've been doing over the last couple of months.

Speaker Change: Can you further explain why the completion of beta development was not completed in the first half of the year, and will this impact customer deliveries?

Speaker Change: Sure. So as we previously shared, we had released the beta design and we've been moving that into production and testing out those components. And the reason we didn't check the box on the beta development is as we moved some of the components from kind of design into production, we saw that there were some areas where we needed to iterate and change the design, improve the design. And so that's some of the undertaking we've been doing over the last couple of months. So I think the key thing to note here is...

Jon Panzer: Now I think the key thing to note here is, even though the beta production development is not done, we are still on track for having units out into customers' hands later this year. And one of the things that we've actually done to mitigate risk is some of the major design changes or improvements as you go from alpha to beta. We've actually made those changes in the alpha variant of the generator. We've tested them. We've proven the design works, and that's going to de-risk the launch of the beta product. So we're not comfortable yet checking the box on having beta development complete just because a few of those parts we did kind of take them back through making design improvements from learnings that we saw from the productionization of the units.

Speaker Change: Even though the beta production development is not done, we are still on track for having units out into customers' hands later this year. And one of the things that we've actually done to mitigate risk is

Speaker Change: Some of the major design changes or improvements as you go from alpha to beta, we've actually made those changes in the alpha variant of the generator. We've tested them, we've proven the design works.

Speaker Change: And that's going to de-risk the launch of the beta product. So, we're not comfortable yet checking the box on having beta development complete, just because a few of those parts we did kind of take them back through, making design improvements from learnings that we saw from the...

Jon Panzer: But we don't see that impacting our overall goal of getting units out to customers this year.

Speaker Change: productionization of the units, but we don't see that impacting our overall goal of getting units out to customers this year.

Jon Panzer: And finally, can you further explain what an LOI from a customer is and what the difference is between it and a definitive agreement, and at what stage with these deployments do you plan on starting to recognize revenue?

Speaker Change: And finally, can you further explain what an LOI from a customer is and what the difference between it and a definitive agreement, and at what stage with these deployments do you plan on starting to recognize revenue?

Jon Panzer: I'll take that one.

Jon Panzer: So an LOI, a letter of intent with customers, is really based upon the conversations that our commercial team has had with customers and what is included when we sell them a kernel unit. So it has expectations on the performance of the units. It also includes pricing and other things that have to be that are ultimately part of what is ultimately delivered to the customers.

Speaker Change: I'll take that one. So an LOI, a letter of intent with customers, is really based upon the conversations that our commercial team

Speaker Change: has had with customers.

Speaker Change: and what is included when we sell them a Carnot unit. So it has expectations on the performance of the units. It also includes pricing and other things that have to be, that are ultimately part of what is ultimately delivered to the customers. Over time, we will be

Jon Panzer: Over time, we will be creating definitive agreements of more contractual agreements with customers for the sale of these units. And then regarding the revenue recognition, once those performance obligations in definitive agreements are achieved, then you can start to recognize the revenue from the customers. And ultimately, we'll be achieving that revenue recognition milestone that we expect next year sometime as we finally get past all the beta development and get to our commercialization milestone. So that will likely be next year.

Speaker Change: creating definitive agreements or more contractual agreements with customers for the sale of these units.

Speaker Change: And then regarding the revenue recognition.

Speaker Change: Once those performance obligations and definitive agreements are achieved, then you can start to recognize the revenue from the customers.

Speaker Change: And ultimately we'll be achieving that revenue recognition milestone that we expect next year sometime as we finally get past all the beta development and get to our commercialization milestone. So that'll likely be next year.

Greg Standley: So that concludes the questions that we had fielded prior to the call.

Greg Standley: So just in closing, I wanted to thank everyone for joining our Q2 earnings call. I think this past quarter, we had a lot of success, especially on the market adoption side of things, as mentioned. You know, having all the units committed for this year, having more than half of the backlog already identified for next year. That puts us in a very strong position as we go into the commercialization of this solution. And we look forward to getting these units out into the field later this year.

Speaker Change: So that concludes the questions that we had fielded prior to the call. So just in closing, I wanted to thank everyone for joining our Q2 earnings call.

Speaker Change: I think this past quarter we had a lot of success, especially on the market adoption side of things, as mentioned, having all the units committed for this year, having more than half of the backlog already identified for next year, that puts us in a very strong position as we go into the commercialization of this solution.

Speaker Change: and we look forward to getting these units out into the field later this year so thank you again for joining the call and wewould look forward to talking again next quarter

Greg Standley: So thank you again for joining the call, and we look forward to talking again next quarter.

Unknown Executive: That concludes today's conference call. You may now disconnect.

Speaker Change: This concludes today's conference call. You may now disconnect.

Unknown Executive: Please wait; the conference will begin shortly. Thank you very much.

Operator: earlier today, prior to today, the company fielded questions from investors. I will now turn the call back to Greg to review those.

Greg Standley: Thank you. First question: Are there two versions of the Carnot generator, alpha at 125 kilowatts and beta at 200 kilowatts? And what are the different differences between them if there are two versions?

Thomas Healy: So I wouldn't look at it as having two different versions. It's more the evolution of the development of the generator. So in terms of customer deployments, the only solution we'll be deploying with customers is that 200 kilowatt solution, the beta design that we'll be getting out into customers' hands later this year. Alpha was a version that we started working on back actually for the truck solution, which as noted is a 125 kilowatt capable generator. And that's the solution that we've had operating for more than a year now. We've been going through the process of development, testing, and iterating it.

Thomas Healy: And the 200 is really just an evolution of that design. Actually, the size, the scale of the generator, the physical footprint is almost identical. But we've been able to engineer it to actually have more power density, get more power out of the same footprint, and as well as make other design changes and improvements as well. So in terms of customers, though, it's that beta design, that 200 kilowatt solution. That's what we'll be selling.

Jon Panzer: You mentioned that the company is targeting to be gross margin neutral on a cash basis by late 25 or early 2026. Can you share what needs to happen over the next 12 to 18 months to achieve this?

Q2 2024 Hyliion Holdings Corp Earnings Call

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