Q4 2024 Hyliion Holdings Corp Earnings Call
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Kate: Thank you for standing by. My name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyliion Holdings 4Q 2024 earnings release.
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.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Greg Standley, Chief Accounting Officer. Please go ahead.
Greg Standley: Thank you and good morning everyone. Welcome to Hyliion Holdings fourth quarter.
Speaker Change: 2024 Earnings Conference Call. On the call today are Thomas Healy.
at Investors.Hylian.com
Speaker Change: 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 risk and uncertainties.
Speaker Change: 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.
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.
Thomas Healy: Thank you. I will now turn the call over to Thomas.
Speaker Change: Hello, and thank you for joining us for Hyliion's fourth quarter and full year 2024 earnings call. Today, I am joined by our CFO, John Panzer.
Speaker Change: This is an exciting time for Hylion, and we have a number of significant updates to share.
Speaker Change: Most notably, we are pleased to announce that we have delivered our first early adopter customer unit.
Speaker Change: While we initially aimed to complete this milestone late last year, it did shift into 2025, due primarily to a couple of challenges we faced.
Speaker Change: that we'll cover on today's call. We continue to make progress with generator testing and validation and customer interest in our generator technology is growing.
Speaker Change: We have executed contracts and non-binding LOIs with customers for more than 100 Karno units.
Speaker Change: and opportunity for up to an additional 70 megawatts or 350 of our Carnot 4 shaft systems of deployments in the years ahead.
Speaker Change: On our last earnings call, we showcased the Carnot four-shaft system. Now, we are pleased to present what the genset enclosure looks like, as shown in the accompanying slide presentation.
Speaker Change: One of the most impressive characteristics of the Carnot generator is its compact footprint for a system designed to provide 200 kilowatts of power.
Speaker Change: On the front of the enclosure is the user interface that allows users to select operating modes, set power output levels, and enable load following functionality.
Speaker Change: Since the Carnot generator is designed to be fuel agnostic, users can enable a learning mode where the generator detects the type of fuel or fuel mixture being used and adjusts accordingly.
Speaker Change: The system is also designed to seamlessly transition to new fuel sources during operation without requiring user input.
Speaker Change: The four-shaft Carnot generator is positioned at the base of the enclosure with the balance of plant support system, such as radiators, fans, air handling, and controls arranged above it.
Speaker Change: The Carnot generator is equipped with cellular connectivity, allowing it to continuously communicate with the cloud. This enables customers to monitor and control the generator remotely.
Speaker Change: The rear of the enclosure is where the interconnects for fuel and electricity are located. The enclosure offers customers the ability to have an above-ground or below-ground connection.
Speaker Change: The Carnot generator provides DC power, similar to a battery, which is ideal for applications like EV charging. For AC power needs, an inverter is used to convert the output to 40 volts AC, which is then tied into a facility's standard electrical system.
Speaker Change: Each generator will be configured to meet customer needs for the intended application.
Speaker Change: For initial deliveries, some features, functions, and performance characteristics will not be available at launch.
Speaker Change: We will be making further enhancements to the system as we continue with product testing and validation, field trials, and as we receive customer feedback.
Speaker Change: One added benefit is that, since we have cellular connection with the generator, many system enhancements can be delivered via over-the-air software updates.
Speaker Change: Now I'd like to provide an update on our plans for 2025. As we shared last quarter, early adopter units are our first deployments with customers.
Speaker Change: Some units will initially be deployed at our facility for further testing and validation, including customer-specific application criteria, while others will be deployed at their final locations.
Speaker Change: As I mentioned earlier, we encountered some challenges related to supply chain sourcing and part processing that impacted our initial customer deployment and set back our testing and validation timeline.
Speaker Change: One of our primary production activities has been standing up a contract manufacturer for assembling the linear electric motor component of the Carnot generator.
Speaker Change: We produced the initial components in-house after finalizing the motor's design and developing prototype assembly processes for this part.
Speaker Change: Transferring our learnings to the contract manufacturer took longer than anticipated, but production is now underway and we are working on improving throughput.
Speaker Change: Additionally, while operating the generator, we identified traces of residual metal powder that were slowly being released within the system.
Speaker Change: The powder was traced to parts that weren't sufficiently cleaned following printing. Parts for initial generators have undergone additional cleaning and are being used as we work on further enhancements to facilitate improvements in performance and metal powder removal.
Speaker Change: This plan also leaves time in the schedule to address other unanticipated issues if they arise.
Speaker Change: Later in the year, we expect customer deployments to continue, including delivery of units associated with R&D services.
Speaker Change: By the end of the year, we plan to have produced a couple of dozen generators with the number and pace of deliveries to customers determined by learnings from earlier deployment and the ramp up of our production supply chain.
Speaker Change: We anticipate commercializing the Carnot generator sometime in the second half of the year, at which point we may recognize revenue for the early adopter customer units and begin recognizing revenue for ongoing generator system sales.
Speaker Change: Overall, we expect to generate revenues between 10 and 15 million dollars for the year from generator sales and R&D activities. This estimate includes the sale of early adopter customer units.
Speaker Change: In parallel, we are actively building our manufacturing capacity and strengthening our supply base to support higher production volumes in 2026.
Speaker Change: This includes taking delivery of new additive printing machines at our Austin facility, which will continue throughout the year.
I'd now like to shift to some exciting commercial updates.
Speaker Change: We continue to see increasing demand for the Carnot generator, and we are pleased to share that we have now secured customer contracts and LOIs for over 100 Carnot units.
Speaker Change: This level of interest well exceeds our planned deployments for 2025 and establishes a strong foundation for 2026.
Speaker Change: These LOI span a variety of market segments, including EV charging, waste gas applications, oil and gas, and now data centers.
Speaker Change: We are also deploying units with the U.S. Navy and Office of Naval Research with a plan to have the Carnot Generator as the power system onboard marine vessels.
Speaker Change: This past quarter, I'm excited to share that we executed an LOI with one of the leading data center developers.
Speaker Change: The agreement plans for a deployment of two of our two megawatt systems that we unveiled last quarter and are now developing.
Speaker Change: Each 2-megawatt enclosure is expected to house 10 Karno units, accounting for 20 of the more than 100 units we currently have under LOIs.
Speaker Change: This data center LOI also includes a multi-year opportunity that targets up to 70 megawatts of Carnot generator deployments in the 2 megawatt configuration.
Speaker Change: This opportunity equates to approximately 350 of our four-shaft Carnot units.
Speaker Change: We are working closely with this customer as we develop the two megawatt system and plan the first deployment in 2026.
Speaker Change: The Carnot Generator's high efficiency, low maintenance requirements, low emissions, and noise levels are critical needs for data center customers.
Speaker Change: The compact 2-megawatt configuration and fuel-agnostic capability are added benefits in data center applications where space constraints and redundancy are key considerations.
Speaker Change: We are excited to have a strong launch partner for the 2 megawatt product and firmly believe the Carnot generator is a strong solution for powering data centers in the future.
Speaker Change: Late last year, we were awarded a $6 million Department of Energy methane emissions reduction grant to support the deployment of up to 2 megawatts of Carnot generators with a goal of reducing methane emissions in the oil and gas sector.
Speaker Change: We are excited to be working with Electrogen as the customer for these units and the facilitator of the deployments.
Speaker Change: The customer LOIs that we've discussed are non-binding letters of intent and are subject to performance criteria and execution of binding agreements with customers.
Speaker Change: Similarly, the data center opportunity we discussed is contingent on successful performance and early deployment of the Carnot generator.
Shifting now to some further updates on our manufacturing growth.
Speaker Change: Scaling our manufacturing capacity remains a priority and additive manufacturing advancements play a key role in this effort.
Speaker Change: Last quarter, we took delivery of our first collibrium additive M-line printer manufactured by GE Aerospace. We are proud to be the first customer outside of GE to receive one of these machines in the U.S.
Speaker Change: This next generation additive manufacturing system significantly enhances our production capabilities, allowing us to print two to four times as many parts simultaneously compared to our existing machines.
Speaker Change: Lastly, I am pleased to share that we have begun recognizing revenue for R&D services related to the Carnot Generator in the fourth quarter of 2024, totaling $1.5 million.
Speaker Change: This revenue is associated with the development work under our contracts with the U.S. Office of Naval Research.
Speaker Change: We closed out 2024 with $220 million in capital, and as John will cover in more detail, we anticipate cash use of approximately $60 million for 2025.
Speaker Change: This positions us with a strong balance sheet that will sustain us through the commercial launch of the Carnot generator product. Now I'll turn the call over to John for our financial update.
John Panzer: Thank you, Thomas, and good morning, everyone. Starting with 2024 fourth quarter results, we recorded revenue of $1.5 million for research and development services related to our previously announced contracts with the Office of Naval Research.
John Panzer: Cost of sales was $1.4 million, resulting in operating income of $100,000. In the fourth quarter of 2023, we recorded no revenue, along with cost of sales and a gross loss of $41,000.
John Panzer: Operating expenses for the fourth quarter were $17.2 million compared to $32.6 million in the fourth quarter of 2023.
John Panzer: This decrease in expenses was driven by lower powertrain exit and termination costs, which were $61,000 in 2024 and $11.5 million in 2023.
John Panzer: As well as $6.5 million of lower SG&A expenses, partly offset by $2.5 million of higher R&D spending in 2024.
John Panzer: Included in the $61,000 of powertrain exit and termination expenses during the fourth quarter was a $900,000 write-down of assets of the discontinued powertrain business that are recorded as assets held for sale on our balance sheet.
John Panzer: This adjustment was mostly offset by gains from the sale of other powertrain assets during the quarter.
John Panzer: Our total net loss for the fourth quarter was $14.4 million, down from $29.1 million in the fourth quarter of 2023.
John Panzer: Full year operating expenses totaled $64.4 million compared to $136.3 million in 2023.
John Panzer: Expenses in 2024 include $3 million of powertrain exit and termination costs, net of asset sale gains, compared to $11.5 million in 2023.
John Panzer: As we close 2024, the wind down of powertrain is largely complete, except for the ongoing sale of assets, which we expect to continue into 2025.
John Panzer: Also, to close out the year, we repurchased 10.6 million shares for an aggregate cost of $14 million, or $1.33 per share in 2024.
John Panzer: We suspended our repurchase program in early May and do not expect to execute upon further repurchases, but may resume repurchasing activity at a later date if and as deemed appropriate.
John Panzer: Turning to our cash and investment position, we spent $17.8 million during the fourth quarter of 2024 net of receipts from asset sales and interest income.
John Panzer: For the full year, we used $79.6 million of cash, including previously restricted cash, and finished the year with $219.7 million of cash and investments on our balance sheet.
Thank you for joining us. Have a great day.
John Panzer: Breaking down uses of cash and investments for the full year. Spending on core carnal development activities totaled 41.5 million dollars net of interest income.
John Panzer: Capital investments of $16.5 million were directed mostly towards the purchase of additive printing machines and related equipment. As noted earlier, we spent $14 million on share repurchases.
John Panzer: Finally, we spent $13 million on powertrain shutdown activities, which was partially offset by $5.4 million of cash generated from powertrain asset sales.
John Panzer: Implicit in this assumption is our expectation of commercializing the Carnot generator in the second half of the year when we would also expect to recognize revenue from customer early adopter units.
John Panzer: The recognition of payments as revenue will be subject to the terms of sale and the actual timing of Carnot generator commercialization. These terms include certification and permitting of the generator as well as achievement of operating performance criteria.
John Panzer: Our reported gross margin for R&D services in 2025 is expected to be positive. We may also report positive gross margin for Carnot product sales, depending on the timing of commercialization, due to the current expensing of purchase components during the R&D phase of development.
John Panzer: We continue to expect that we will quickly drive down production costs as we scale manufacturing volume and as we roll out the 2 megawatt Carnot generating system.
John Panzer: Therefore, our current outlook for achieving breakeven gross margins on a cash basis is near the end of 2026.
John Panzer: We expect that capital expenditures for 2025 will be approximately $25 million, or $10 million higher than 2024, as we continue to take delivery of new additive printing machines and other assets needed to ramp up Carnot generator production.
John Panzer: We plan to offset that increase with around $10 million of equipment financing.
John Panzer: With these assumptions, our total cash outlays for 2025 net of equipment financing are expected to be similar to 2024. As a reminder, we spent $58 million in 2024 for Carnot generator development and capital expenditures net of interest income.
John Panzer: We expect to end 2025 with around $160 million of cash and investments on our balance sheet.
John Panzer: Finally, we continue to expect that the capital we have on hand today will be sufficient for the foreseeable future, including commercialization of the Carnot generator sales. Now we'll turn the call back over to Thomas.
Thomas Healy: The past few months have been an exciting time at Hyliion, marked by the official launch of our Early Adopter Customer Units program. We are encouraged by the strong and growing interest from customers and are excited to have secured a key partner for deploying our initial units in the data center space.
Thomas Healy: We look forward to sharing further updates on additional deployments of early adopter units and the progress of the program on our next earnings call. With that, we'll now turn the call back over to the operator for Q&A.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad.
It appears that there are no questions. I'll hand over.
I'll hand over the call to Thomas.
Please go ahead.
Thank you for joining us. Have a great day.
Speaker Change: Thank you. So we had a couple of questions that came in prior to the call. Greg will read the first one for us.
Speaker Change: Can you tell us more about this first early adopter unit?
Speaker Change: and who is it going to and where is it located.
Speaker Change: Absolutely. So this first early adopter unit is actually going to the US Navy. As you may recall, last quarter, we had announced that we extended our Navy contract for another 16 million. So we've been working with the
Speaker Change: The Navy for multiple years now and it got extended and then this first unit is is going to the Navy.
Speaker Change: For a little bit of background, the long term goal of our relationship with the Navy is to use the Carnot generator.
both in military vessels as well as in stationary applications.
Speaker Change: Actually pretty exciting, we just recently received first photos of the ship.
Speaker Change: that will actually be putting the Carnot generator into. It's being built presently. So, a great opportunity here. That initial unit will be staying in Ohio initially for further testing, validation, going through test protocols that the Navy has outlined. And then from there, we'll be producing further units and then it will be going into both ship and stationary applications.
Thank you. Bye bye. Bye bye.
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Speaker Change: Our question comes from the line of Sean Milligan with Jenny. Please go ahead.
Hey, Thomas, good morning.
Thomas Healy: Good morning. I think in the past, you've made some comments about
you know, Karno's
I guess the ability for Karno to compete against
Thomas Healy: fuel cells, hydrogen fuel cells. We've seen, you know, Bloom announced kind of larger deals in the data center space. So I was just curious if you could remind us like how Carnot fits in the competitive landscape against fuel cells, and then also what we're seeing out of some of these kind of larger prime power NAG gas gen sets.
Thomas Healy: that are being announced in data centers also. That's my first question.
Thomas Healy: Absolutely. So I think you're touching on the thread of data centers. We're seeing this shift to make your own power, right? And in the past, it's been tap into the grid and just have backup on-site power supply. Now it's moving to make your own power, prime power application.
Craig Bower, InsideFACOLH, Dr. Tom Healy Page 10 of 10
Thomas Healy: And then we have the added benefits of the fuel flexibility, the ultra-low maintenance, and then as I mentioned before, the low emissions.
Thomas Healy: So when you tie all those together, we're seeing a lot of interest coming forward from the data center space, which is highlighted by this LOI that we announced on today's call, which is we've established a partner to be the first data center customer to deploy with that two megawatt system. And then in that same LOI, we've outlined a multi-year opportunity that could get to up to 70 megawatts of deployed Carnot generators.
Thank you for joining us.
Speaker Change: Okay great. Is there a way to think about kind of pricing for Carnot versus some of the traditional nat gas gen sets in the data center space or like what maybe where the crossover happens where it might be more beneficial to have a Carnot than the nat gas gen set?
Speaker Change: Yeah, so just to put some numbers to it, so a conventional NATGAS engine that's for prime power could be between 1,000 to 1,500 per kilowatt.
Speaker Change: What we've said is we're somewhere kind of in the in between in the middle of the two of those on our pricing. So we are at a premium to a conventional engine, but less than the fuel cell players.
and
Speaker Change: In terms of the ROI, though, I think that's where, you know, we see
Speaker Change: where we shine and frankly what customers really care about, right? They're less worried about the upfront capital cost, more about is this going to be economical in the long run.
Speaker Change: And so since we're able to provide a superior efficiency compared to a conventional natural gas engine, as well as we expect to have lower maintenance in addition to that, that drives that the ROI usually looks pretty compelling, especially for some of these programs, which are looking at
Speaker Change: 10 plus years, 15 plus years where they would be having these assets deployed.
Thank you for watching.
Speaker Change: Okay, thank you. And just kind of to stay on that.
Speaker Change: You mentioned the new GEV printer prints at like a multiple of what you're using currently. I mean, the pathway to drive down your costs, can you talk about the visibility you have there in terms of
You know, the additive printing.
Speaker Change: Just the scale, as you scale up and as you move to new printers, one, like, how can that impact your costs? And then two, the ability to ramp quickly, like, so you mentioned 70 megawatts, potentially, with that data center customer. I mean,
How quickly can you order printers and get them operable?
Speaker Change: Yeah, so a couple of layers there. So in terms of the answer to the last part first, so we already have more of these M line printers on order throughout 2025, which will help us with scaling capacity for 2026. And then, you know, the best way to think about it is probably in that
Speaker Change: Unknown Speaker 6 to 12 months as to from when you ordered to when you'd be getting additional assets in for more printing capacity. Obviously, the more visibility we can give to GE our supplier on that the better off we are on on lead times.
Speaker Change: Now, in terms of cost down, I would break it into two different buckets. So the first is what you touched on, which is how fast can these printers produce units.
Speaker Change: So the great thing with this M line is compared to past printer technology that we are still operating and it's still great, but the M line can now print anywhere from two to four times as many parts at once as compared to the past generations of technology. So that allows us to increase throughput.
Speaker Change: Unknown Speaker But then the other nice thing is we already have a roadmap from GE of how that same printer, that M-Line, will be able to be improved and modified over time to continue to increase its throughput. So we see that as a benefit.
Speaker Change: Great platform for scaling up manufacturing for us because not only is it faster today, but then it has capabilities as we go forward.
Okay, position on on printer throughput.
Speaker Change: Okay, great. I'll turn it back. And if there's not any more questions, I have a couple more.
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Thank you for joining us.
Sure, so we've got another question that came in beforehand.
Speaker Change: You announced an LOI with Al Koryab. Can you share more about the Middle East opportunity?
and we'll just be your first international deployment.
Speaker Change: Yeah, so we're excited to have announced this. Al-Khuriyef is a leading provider of generators in the Middle East, as well as a dominant player in the agricultural space. And so these initial gensets will be being used in farm applications, as well as other applications to provide prime power.
Speaker Change: Now what's exciting about this is I recently just did a trip over to the Middle East and what was
Very different compared to the U.S.
Speaker Change: Most facilities already have diesel engines, generators connected to them. And then in some instances, we heard a story of, you know, a warehouse where they were operating the entire facility off of diesel engines for 10 years before that customer was able to get a grid interconnect.
And so that's also very different. And so the
Unknown Executive, Greg Standley
Sean Milligan: And then we'll hand the call back over to Sean. I think you said you had some additional questions.
You all, you know, operating and maintaining the Karnas?
Speaker Change: Solaris signed a prime power deal recently where they formed a JV with the data center customer and they're kind of capturing economics more on the power gen side.
Speaker Change: So, in the beginning, it's going to be us maintaining these generators that are out in the field. Long term, though, we would want to partner with others who already are established in that space and have them take on the maintenance and or some of the end customers that we're working with have expressed interest that they would potentially want to take on the maintenance as well. So, in the short term, it will be us doing that, but long term, we'd want to work with
Speaker Change: and other American mortar facilities all across the U.S. or globally as well.
Speaker Change: Okay and then just confidence in terms of you mentioned some supply chain issues ramping up the contract manufacturer and then the
Speaker Change: The metal powder issue, just confidence that you've kind of worked through those. You know, how long did you have that early adopter system like operating at your facilities and working through issues before they go out into the field?
Speaker Change: You know, any kind of thought process there would be great.
Speaker Change: Yeah, absolutely. So maybe just to add color to both of the
Speaker Change: The challenges that we faced this past quarter. So on the linear electric motor, just for clarity for anyone on the call, so this is the coils, the magnets, in the center of the Carnot generator that actually produce electricity. Now this is a Hylion designed, Hylion's IP solution, and actually the initial generators that we made, we used components that we produced in-house for the linear electric motor. We decided to shift that process
Speaker Change: Unknown Manufacturer. And unfortunately, that process just took longer than anticipated. And you know, there were some things we needed to work through. And so that's what shifted us and not getting initial deliveries of limbs from the contract manufacturer until early 25, which was a push out in the the delivery of the first early adopter unit.
Speaker Change: And then, and so from that end, you know, we've started production, we've started getting units from them. And so I think we're in a good shape there. The goal over the quarters and months ahead here is going to be scaling up the throughput.
Speaker Change: And then on the de-powder side of things, so a little bit more color. For anyone who's not familiar with additive,
Speaker Change: printing. So you're taking basically metal powder and welding it and that's what's producing the parts. But what that means is there's a lot of residual metal powder in the part, around the part that you need to remove before using it.
Speaker Change: Unknown Speaker And what we found was we were getting some metal powder trapped that we weren't able to extract out of the process sufficiently. So we changed our cleaning process, but then even still we see opportunities where we can do some part enhancements, changes, improve the cleaning even further as we go forward. So that's something that will continue to happen, but we have gotten to a point where we've been able to clean the parts sufficiently enough to start shipping these units.
Speaker Change: So hopefully that's some helpful background on kind of what we encountered as we were getting these early units ready. We believe we're in a good position now, but we'll continue to work on refining them as we go forward.
Great. Thank you for all the time, Thomas.
Speaker Change: Great, I believe that concludes the questions we had. So I appreciate everyone joining today's call. A lot of progress over the past quarter, extremely excited to get this initial early adopter unit out there, excited to, over the months and quarters ahead here, to continue to deliver additional early adopter units, and then to continue to update you on the next earnings
Speaker Change: and the performance of the systems. Thank you all for joining.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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