Hyliion Holdings Corp. Price & Performance (HYLN)

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. Hello, and thank you for joining us for Hylian's fourth quarter and full year twenty twenty four earnings call. Today, I'm joined by our CFO, John Panzer. This is an exciting time for Hylian Hyliion we have a number of Most notably, we are pleased to announce that we have delivered our first early adopter 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 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. We have executed contracts and non binding LOIs with customers for more than 100 Carno units. Are also pleased to share that we have signed our first LOI in the data center to supply prime power on-site for data centers.

An opportunity for up to an additional 70 megawatts or three fifty of our Carnot four shaft systems of deployments in the years ahead. On our last earnings call, we showcased the Carnot four Chef's [indiscernible] Now we are pleased to present what the genset enclosure looks like as shown in the accompanying slide presentation. One of the most impressive characteristics of the Carnot generator is its compact footprint for a system designed to provide 200 kilowatts of power.

On the front of the enclosure is the user interface that allows users to select operating modes that power output levels and enable load following functionality. Since the car note 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. The system is also designed to seamlessly transition to new fuel sources during operation without requiring user input. 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. The car note generator is equipped with cellular connectivity allowing it to continuously communicate with the cloud this enables customers to monitor and control the generator remotely. 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.

The carno 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. Each generator will be configured to meet customer needs for the intended application. For initial deliveries, some features, functions and performance characteristics will not be available at launch. 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. 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. 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.

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. Our plan is to deliver 10 of these early adopter customer units through approximately the middle of this year. Which will then be followed by additional deliveries As I mentioned earlier, we encountered some challenges related to supply chain sore sourcing and part processing that impacted our initial customer deployments and setback our testing and validation timeline. One of our primary production activities has been standing up a contract manufacturer for assembling a linear electric motor component of the Carnot generator. We produced the initial components in house after finalizing the motors design and developing prototype assembly processes for this part. Transferring our learnings to the contract manufacturer took longer than anticipated Additionally, while operating the generator, we identified traces of residual metal powder that were slowly being released within the system. 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. Looking ahead, as we deliver early adopter customer units through approximately the middle of the year, we will also use the time to continue testing and improving the generator and validating operating parameters. This plan also leaves time in the schedule to address other if they arise. Later in the year, we expect customer deployments to continue including delivery of units associated with R and D services. By the end of the year, plan to have produced a couple of dozen generators with the number and pace of deliveries to customers determined by learnings from earlier We anticipate commercializing the Karno generator sometime in the second for the year at which point we may recognize revenue for the early adopter customer unit and begin recognizing revenue for ongoing generator system sales.

Overall, we expect to generate revenues between $1,015,000,000 dollars for the year from generator sales and R and D activities. This estimate includes the sale of early adopter customer units. In parallel, we are actively building in 2026. This includes taking delivery of new additive printing machines at our Austin facility I'd now like to shift to some exciting commercial updates. We continue to see increasing demand for the car note generator and we are pleased to share that we have now secured customer contracts and LOIs for over 100 Carno units. This level of interest well exceeds our planned deployments for 2025 and establishes a strong foundation for 2026. These LOIs span a variety of market segments including EV charging, waste gas applications, oil and gas and now data centers. We are also deploying units with the U. S. Navy and Office of Naval Research With a plan to have the Karno generator as the power system onboard marine vessels. This past quarter, The agreement plans for a deployment of two of our two megawatt systems that we unveiled last quarter Each two megawatt enclosure is expected to house 10 Karno units, accounting for 20 of the more than 100 units we currently have under LOI.

This data center LOI also includes a multiyear opportunity that targets up to 70 megawatts of Carno generator deployment in the two megawatt configuration. This opportunity equates to approximately three fifty of our four shaft Carnot units. We are working closely with this customer as we develop the two megawatt system and plan the first deployment in 2026. The Karno generator's high efficiency low maintenance requirements low emissions and noise levels are critical needs for data center customers. The compact two megawatt configuration and fuel agnostic capability are added benefits in data center applications where space constraints and redundancy are key considerations. We are excited to have a strong launch partner for the two megawatt product and firmly believe the Karno generator is a strong solution for powering data centers in the future. Late last year, we were awarded a $6,000,000 Department of Energy Methane Emissions Reduction Grant To support the deployment of up to two megawatts of Karno generators with a goal of reducing methane emissions in the oil and gas sector. We are excited to be working with ElectroGen as the customer for these units. And the facilitator of the deployments, Finally, we've recently signed an LOI with Al Khouri F for the deployment of up to 12 Karno generators in Saudi Arabia.

Alkuri F is a leading provider in the generator market and a key player in the ag Initial deployments will focus on powering agricultural farms offering higher efficiency, with lower emissions and maintenance requirements. 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. Similarly, the data center opportunity we discussed is contingent on successful performance and early deployments of the Karno generator. Shifting now to some further updates on our manufacturing growth. Scaling our manufacturing capacity remains a priority and additive manufacturing advancements play a key role in this effort. Last quarter, we took delivery of our first equilibrium additive MLine 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, 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. We have additional MLine printers on order which we will be taking delivery of throughout 2025 to further scale our production Lastly, I am pleased to share that we have begun recognizing revenue for R and D services related to the Carneux generator the fourth quarter of twenty twenty four, totaling $1,500,000 This revenue is associated with the development work under our contracts with the U. S. Office of Naval Research.

We closed out 2024 with $220,000,000 in cash As John will cover in more detail, we anticipate cash use of approximately 60,000,000 This positions us with a strong balance sheet that will sustain us through the commercial launch of the Carneo generator product. Now, I will turn the call over to John for our financial update. Thank you, Thomas, and good morning, everyone.

Starting with twenty twenty four fourth quarter results, recorded revenue of $1,500,000 for research and development services related to our previously announced contracts with the Office of Naval Research.

Cost of sales was $1,400,000 resulting in operating income of $100,000 In the fourth quarter of twenty twenty three, we recorded no revenue along with cost of sales and a gross loss of $41,000 Operating expenses for the fourth quarter were $17,200,000 compared to $32,600,000 in the fourth quarter of twenty twenty three. This decrease in expenses was driven by lower powertrain exit and termination [indiscernible] which were $61,000 in 2024 and $11,500,000 in 2023 Hyliion, as well as $6,500,000 of lower SG and A expenses partly offset by $2,500,000 of higher R and D spending in 2020 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. This adjustment was mostly offset by gains from the sale of other powertrain assets during the quarter. Our total net loss for the fourth quarter was $14,400,000 down from $29,100,000 in the fourth quarter of twenty twenty three.

Full year operating expenses totaled $64,400,000 compared to $136,300,000 in 2023 Hyliion. Expenses in 2024 include $3,000,000 of power train exit and termination costs net of asset sale gains compared to $11,500,000 in '23 As we close 2024, the wind down of Powertrain is largely complete except for the ongoing sale of assets Also to close out the year, we repurchased 10,600,000.0 shares or $1.33 per share in 2024.

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 day if and is deemed appropriate. Turning to our cash and investment position. We spent $17,800,000 during the fourth quarter of twenty twenty four net of receipts from asset sales and interest income. For the full year, we used $79,600,000 of cash including previously restricted cash and finished the year with $219,700,000 of cash and investments on our balance sheet. Breaking down uses of cash and investments for the full year, spending on core kernel development activities totaled $41,500,000 net of interest income, capital investments of $16,500,000 were directed mostly towards the purchase of additive printing machines and related equipment. As noted earlier, we spent $14,000,000 on share repurchases. Finally, we spent $13,000,000 on powertrain shutdown activities, of cash generated from Powertrain asset sales. Turning to 2025, as Thomas mentioned earlier, we expect to generate between $10,000,000 and $15,000,000 in revenue, including both R and D services and sales of 200 kilowatt systems to customers. Implicit in this assumption is our the second half of the year, when we would also expect to recognize revenue from customer early adopter units.

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. Our reported gross margin for R and D services in 2025 is expected to be positive we may also report positive gross margin for KARNO product sales depending on the timing of commercialization, due to the current expensing of purchased components, We continue to expect that we will quickly drive down production cost as we scale manufacturing volume and as we roll out two megawatt Cardinal generating system. Therefore, our current outlook for achieving breakeven gross margins on a cash basis is near the end of twenty twenty six. We expect that capital expenditures for 2025 will be approximately $25,000,000 or $10,000,000 higher than 2024 as we continue to take delivery of new additive printing machines and other assets needed to ramp up Carno generator production. We plan to offset that increase with around $10,000,000 of equipment [indiscernible] 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 $58,000,000 in 2024 for Karno generator development and capital expenditures, net of interest income, We expect to end 2025 with around $160,000,000 Hyliion cash and investments on our balance sheet.

Finally, we continue to expect that the capital we have on hand today will be sufficient for the foreseeable future including commercialization of the Karno generator sales. Now I'll turn the call back over to Thomas.

The past few months have been an exciting time at Hylian. 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.

Looking ahead, 2025 will be a pivotal year as we focus on executing successful early deployments refining our technology, and scaling manufacturing in preparation for 2026. We look forward to sharing further updates on additional deployments of early adopt 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 and A. At this time, It appears that there are no questions. I'll hand over hand over the call to Thomas. Please go ahead.

Thank you. So we had a couple of questions that came in prior to the call.

Greg will read the first one for us.

Can you tell us more about this first early adopter you're going to add? And who is it going to where is it located? Absolutely. So this first early adopter unit is actually going to the U. S. Navy.

As you may recall, last quarter, we had announced that we extended our Navy contract for another 16,000,000 we've been working with the Navy for multiple years now and got extended and then this first unit is going to the Navy. For a little bit of background, the long term goal of our relation [indiscernible] both in military vessels as well as in stationary applications Actually pretty exciting. We just recently received first photos of the ship that we'll actually be putting the car note generator into. It's being built presently. So 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.

Our question comes from the line of Sean Milligan with Janney. Please go ahead. Hey, Thomas. Good morning.

Good morning. I think in the past, you've made some comments about Carnot's I guess the ability for Karno to compete against fuel cells, hydrogen fuel cells, I'm seeing Bloom announced kind of larger deals in the data center space. So I was just curious if you could remind us like how Carneux fits in the competitive landscape against fuel cells and then also what we're seeing out of some of these larger prime power nat gas gensets that are being announced in data centers also. That's my first question.

Absolutely. So I think you're touching on threat 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. Is extremely exciting for us because that's where the Karno generator really shines. Now to your point, we have seen companies like Bloom have made announcements that they're working with data centers. I think recently they announced up to a gigawatts of deployments with one customer. So what's exciting for us is we see that we bring forward those all alternative new energy benefits like the low emissions aspect, but but also bring forward a lot more as well. So very compact footprint with the car note generator, which is critical for the data center space. Even more compact than conventional natural gas or diesel engines we'd maybe be competing with as well. And then we have the added benefits of the fuel flexibility, the ultra low maintenance, and then as I mentioned before, the low emissions. 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 multiyear opportunity that could get to up to 70 megawatt of deployed Carnot generators. Okay, great. Is there a way to think about kind of pricing for Carnot versus some of the traditional MAC SG and SaaS gensets in the data center space or like what maybe where the crossover happens it might be more beneficial to have a car note than it the gas genset?

Yes. So just to put some numbers to it. So a conventional nat gas engine could be that's for prime power could be between 1,000 to 1,500 per kilowatt. Then when you look at fuel cells, we're seeing those are usually around 3,000 to 3,500 per kilowatt. What we've said is, we're somewhere kind of 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 in terms of the ROI though, I think that's where We see 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 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 like ten plus years, fifteen plus years where they would be having these assets [indiscernible] Okay. Thank you. And just kind of to stay on that A lot of thought. You mentioned that new GE printer prints at like a multiple of what you're using currently. I mean, is the pathway to drive down your cost can you talk about the visibility you have there in terms of the additive printing just the scale as you scale up and as you move to new printers, one, like how can that impact your cost? 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.

Yes. So a couple of layers there. So in terms I'll answer the last part first. So we already have more of these MLINE printers on order. Throughout 2025, which will help us with scaling capacity for 2026. And then then the best way to think about it is probably in that six to twelve months as to from when you order 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 lead times. 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. 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 the past generations of technology. So that allows us to increase throughput 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 great platform for scaling up manufacturing for us because not only is it faster today, then it has capabilities as we go forward. The second aspect of cost down though is just working with our supply base. And I would actually say that is probably where the the greater focus is presently on our end of right now we've been buying components at kind of that initial R and D sort of cost levels we need to move into having agreements with our suppliers, volume commitments, driving costs down. And I actually think that's where we're going to see more of our cost saving coming from then the printer side just because we're actually already in an okay position on on printer throughput.

Okay, great. I'll turn it back and if there's not any more questions, I have a couple more.

Sure. So we've got another question that came in beforehand. You announced an LOI with AlcoYette.

You share more about the Middle East opportunity?

And will this be your first international deployment?

Yes. So we're excited to have announced this. Alkora F 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 Now what's exciting about this is recently just did a trip over to The Middle East and what was very different compared to The U. S. Is most facilities already have diesel engines, generators, connected to them. And then in some instances, we heard a story of a warehouse where they were operating the entire facility off of diesel engines for ten years before that customer was able to get a grid interconnect. And so that's also very different. And so the region is already used to using engines, using generators, so as we think about deploying car note generators there, you're kind of bringing forward this modular power plant, the performance levels of a power plant, but doing it on a small scale and being able to use fuels like diesel or future fuels that the region is looking to move to like LPG or and so so that allows us to not only give them a solution that has lower operating costs lower maintenance, but also has this fuel flexibility to meet the the goals of the region.

So it's something we're excited about. In addition to that, we also have announced LOI with Jardine, which it would be for Hong Kong. We see international markets as being extremely promising for this technology. And then we'll hand the call back over to I think you said you had some additional questions. [indiscernible] [indiscernible] 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. [indiscernible] I guess thoughts about the business model moving forward with data centers Is it just for sales or is there some other kind of revenue stream that we should think about there?

So in the beginning, it's going to be us maintain [indiscernible] 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 others to take on that part of the business as opposed to us having to set up brick and mortar facilities all across The U. S. Or globally as well.

Okay. And then just confidence in terms of you mentioned some supply chain issues. Ramping up the contract manufacturer and then The metal powder issue just confidence that you've kind of worked through those 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? I'm just any kind of thought process there would be great.

Yes, absolutely. So maybe just to add color to both of the the challenges that we faced this past quarter. So on the linear elective electric motor, just for clarity for anyone on the call, so this is the coil, the magnets in the center of the car that actually produce electricity Now this is a Hyliion on design, highly on IP solution. [indiscernible] 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 to a contract manufacturer unfortunately, that process just took longer than anticipated. And there were some things we needed to work through. And so that's what shifted us and not getting initial deliveries of LEMS from the contract manufacturer until early twenty twenty five which was a push out in the delivery of the first early adopter unit. And then and so from that end, we've started production, we started getting units from them. And so think we're in a good shape there. The The goal over the quarters and months ahead here is going to be scaling up the throughput And then on the deep powder side of things, so a little bit more color.

For anyone who's not familiar with additive 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. And what we found was we were getting some metal powder traps that we weren't able to 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. So So hopefully, that's some helpful background on kind of what we encountered as we're getting these early units ready. We believe we're in a good position now, but we'll continue to work on refining them as go forward. Great. Thank you for all the time, Thomas. 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 call as to how those deployments are going and the performance of the systems. Thank you all for joining.

Ladies and gentlemen, that concludes today's call.