Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hyliion Holdings Corp (HYLN, Financial) has made significant progress in the commercialization of the KARNO generator, with strong customer interest and a growing backlog for 2025 shipments.
- The company has signed letters of intent with customers for all units planned for deployment in 2024, including partnerships with notable companies like US Energy and Flexnode.
- Hyliion Holdings Corp (HYLN) has received positive feedback from potential customers, highlighting the KARNO generator's high efficiency, low maintenance, and fuel versatility.
- The company has been awarded a small business innovation research grant from the US government to develop a multi-megawatt package KARNO generator for US Navy applications.
- Operating expenses have decreased significantly, from $38.5 million in Q2 2023 to $14 million in Q2 2024, due to the wind-down of the powertrain business.
Negative Points
- The letters of intent signed with customers are nonbinding, which introduces uncertainty regarding the execution of definitive sales agreements.
- Hyliion Holdings Corp (HYLN) has not yet completed the beta development of the KARNO generator, which could impact the timeline for customer deliveries.
- The company expects initial gross margins to be negative, with breakeven not anticipated until late 2025 or early 2026.
- Cash expenditures for the KARNO generator business in 2024 are expected to be higher than previously estimated, at approximately $55 million.
- Revenue recognition for KARNO generator sales is expected to extend into 2025, depending on commercial terms and performance criteria.
Q & A Highlights
Q: Can you provide any numbers or quantification around the number of units for 2024 and 2025 capacity?
A: Thomas Healy, CEO: For 2024, we are looking at single-digit units, specifically complete gen sets of the 200-kilowatt beta design. These are initial units for customer feedback. For 2025, we are targeting revenue in the low double-digit millions but haven't correlated this to an exact number of units. We have secured more than half of the backlog needed for 2025.
Q: How does the footprint of the KARNO generator compare to conventional offerings for data centers? Are they looking for prime power or backup?
A: Thomas Healy, CEO: Traditionally, data centers use the grid for primary power and diesel engines for backup. With the AI boom, there's a need for more power, and utilities can't always meet this demand. KARNO offers fuel flexibility, serving as both prime and backup power solutions, which is advantageous for data centers.
Q: What is driving the increase in guided spending for 2024? Is it an acceleration versus prior plans?
A: Jon Panzer, CFO: The increase is driven by capital investments to build out the Texas facility, our primary production site. We are taking advantage of opportunities to purchase both new and used machines. This is an acceleration to ramp up production capacity for next year.
Q: Are there two versions of the KARNO generator, and what are the differences?
A: Thomas Healy, CEO: There aren't two versions; it's more of an evolution. The 200-kilowatt beta design is what will be deployed to customers. The 125-kilowatt alpha was for truck solutions and has been in testing. The beta design offers more power density in a similar footprint.
Q: What needs to happen over the next 12 to 18 months to achieve gross margin neutrality by late 2025 or early 2026?
A: Thomas Healy, CEO: Initial production costs are high as we transition from prototype to production scale. We expect costs to decrease rapidly, achieving near breakeven on a cash basis, excluding overhead and warranty costs, within 12 to 18 months.
Q: Why was the beta development not completed in the first half of the year, and will this impact customer deliveries?
A: Thomas Healy, CEO: Some components needed design improvements, which delayed beta development completion. However, we are still on track to deliver units to customers this year. We've tested major design changes in the alpha variant to de-risk the beta launch.
Q: Can you explain what an LOI from a customer is and when revenue recognition will start?
A: Jon Panzer, CFO: An LOI outlines expectations and pricing but is not a definitive agreement. Revenue recognition will start once performance obligations in definitive agreements are met, likely next year after commercialization milestones are achieved.
Q: What are the key updates on the commercialization of the KARNO generator?
A: Thomas Healy, CEO: We are on track for initial customer deployments this year and have secured LOIs for over half of the planned 2025 volume. The KARNO generator addresses key power generation needs, positioning us well for 2025 production ramp-up.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
