Hyzon Motors Inc.

Thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the HIAZON first quarter 2024 earnings conference call. 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 that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star 1. I will now turn the conference over to Tom Cook, Managing Director with ICR. Tom, you may begin your conference.

Thank you, Operator, and good afternoon, everyone. Welcome to Hyzon's first quarter 2024 earnings call. With me on the call today are Parker Meeks, Chief Executive Officer, and Steve Weiland, Chief Financial Officer. As a reminder, you can find a press release detailing our financial results and the presentation accompanying today's call in the investor relations section of our website. Today's discussions include forward-looking statements regarding future plans and expectations. Actual results might differ materially from those stated, and factors that could cause actual results to differ are explained in the forward-looking statements at the end of the press release and page two of our earnings presentation. Forward-looking statements speak only as of the date on which they are made. You are cautioned not to put undue reliance on forward-looking statements. With that, I'll turn the call over to our CEO, Parker Meeks.

Good afternoon, everyone, and thank you for joining our first quarter 2024 earnings call. I am pleased to share our financial results and progress made during the quarter with you, a quarter in which Hyzon is proud to have built upon the commercial and technology inflection points we initiated in 2023 as a leader in the hydrogen mobility ecosystem. I'll start with a brief recap of our results before providing more color on our commercial updates, technology manufacturing, and demand environment. Steve will then review our financials in more detail. We recognized first quarter 2024 revenue of $10 million, compared to no revenue in the comparable prior year period. This revenue was primarily driven by customer acceptance of 10 coach buses deployed to Fortescue Metals Group in Australia last year, completing the commercial cycle we have described on previous calls, trial, contract, deliver, and accept, with scale as the targeted next phase of the commercial cycle with our customers. We do want to remind investors that we expect lumpiness in our revenue recognition in the near term, as the majority of our commercial agreements have some form of risk share, such as a buyback guarantee, which impacts timing and treatment of revenue recognition. From a balance sheet and capital perspective, we delivered another quarter of improved net cash burn, excluding the impacts of our first SEC settlement payment and the proceeds from the sale of our Rochester facility, similar to prior guidance for the quarter. This reflects our continued focus on cost control, which Steve will comment on further. Additionally, we have continued to advance our capital raise, working with a financial advisor on potential investment and strategic alternatives to support our commercialization. with a focus on strategic investors, as we have previously discussed. Importantly, Hyzone continues to progress as a technology leader in the global transition to clean energy. Our proprietary, high-power, zero-emission fuel cell technology is reducing emissions from heavy-duty trucking today. As the hydrogen ecosystem grows, we see opportunities to deploy our existing and future-generation fuel cell technology to decarbonize heavy-duty industrial applications, such as rail, mining, aviation, and stationary power in the future. We believe 2024 will show Hyzon continues to lead in the commercialization of our technology, which our progress this quarter supports.

I would like to take a few minutes to describe that now.

Beginning on the commercial side, earlier this year, Performance Food Group, or PFG, put into operation their first four Hyzon fuel cell electric vehicles and marked a significant step toward decarbonization goals shared by PFG, Hyzon, and the state of California. Now with several months completed, we continue to expand our on-road experience through real-world commercial operations. Since the last week of January, the PFG fleet has made more than 1,575 deliveries and traveled nearly 23,000 miles with approximately 2,900 total operating hours. Their trucks have been able to travel further and refuel quicker than other zero emission alternatives by reducing harmful emissions and bringing value to their operations. This intelligence will help us optimize our technology while working simultaneously to develop the next generation 200 kilowatt fuel cell system. We expect to continue to work with PFG on an agreement for 15 200 kilowatt fuel cell trucks following a successful upcoming 200 kilowatt truck trial. and a possible option to purchase an additional 30 fuel cell electric trucks. BFG represents exactly the kind of large fleet customer profile and commercial agreement structure, scaling over multiple years, that we are focused on in 2024. As we have described before, this approach starts with a customer trial, which, if successful, leads to a pilot order of typically 5 to 10 vehicles, with the option for larger orders in the future over 3 to 4 tranches, targeting 100 trucks per year from each large fleet over time. The vehicles are deployed to the customer, which formally accepts them into operations, at which point Hyzon begins to recognize revenue, depending on the commercial terms, completing that commercial cycle and assuming success with scale to follow. This approach also applies to our refuse truck platform. Last week at Waste Expo, we launched the first fuel cell electric refuse truck for the U.S. market with New Way Truck. the largest private refuse equipment manufacturer in North America. We also announced our customer trial program, which will launch with Recology this summer. Hyzon accelerated this vehicle development because of the strong operational performance demonstrated by our Australian refuse truck of our four-month customer trial near Sydney in challenging route conditions, including up to 18% grades. The Australian vehicle delivered full-day route performance in line with its combustion engine equivalent without needing to refuel. In some cases, even double the daily work rate of a comparable battery electric refuse truck. That significant performance gap proves, in our view, that only fuel cell electric powertrains can effectively decarbonize refuse collection. We are excited to bring this global zero emission platform to North America. The response from customers so far has been overwhelmingly positive, highlighting the market demand for the product, with a nearly full trial schedule starting this summer. Looking to the balance of the year, we currently have nine refuse truck trials, either scheduled or in final scheduling, beginning in the summer, including with many of the largest refuse fleets in North America. Subject to successful trials, we expect to enter into initial definitive commercial agreements in the second half of 2024 and commercial deliveries to begin in 2025. During the first quarter, Heisen Australia successfully concluded the four-month refuse truck trial with Remondis, which I just mentioned. The vehicle met its performance targets, and so, as previously discussed, the commercial trial converted to a full vehicle purchase. We were in discussions with Remondis about potential additional vehicle orders. Finally, during the quarter, we delivered one truck to a Dredge customer at the ports of Los Angeles and Long Beach. our second truck delivered into drayage at the largest port drayage fleet in the U.S. Supporting our success are strong tailwinds worldwide for hydrogen and zero-emission vehicles. In the U.S., for instance, support continues to expand. In addition to the administration's $7 billion hydrogen hub program, the Inflation Reduction Act earmarks $2.6 billion for the EPA's Clean Ports program. As initial examples, we are actively supporting two of the top 10 ports in the country and their applications under the Clean Ports Program, which have the ambition to deploy up to 100 trucks. In the first quarter, the Department of Energy also awarded $750 million to companies advancing clean hydrogen technologies, including to a project in which Hyzon is a partner. Hyzon has also recently submitted a concept paper under another DOE funding program as lead applicant. which, if selected, may provide up to $14 million to help fund future expansions of our bowling book fuel cell facility. Additionally, the U.S. Department of Treasury recently released final regulations regarding federal tax credits for purchasing clean vehicles, which makes clear that upfitters like Hyzon can be qualified manufacturers. This means that once our registration is complete, Fuel cell trucks upfitted by Hyzon can be eligible for the up to $40,000 federal tax credit per vehicle claimed by the customer. California remains a well-funded, zero-emission, Class 8 truck subsidy market, with $700 million available as of the beginning of 2024, including over $300 million available through CARB's HVIP program, over $70 million from the Volkswagen Environmental Mitigation Trust, and funding specifically for drainage trucks for the ports of LA and Long Beach, through the Clean Truck Fund. On the refuse side, California state and federal subsidies could bring the net vehicle cost to the customer equivalent with diesel for qualifying customers. In short, we are excited to build on our momentum in what we consider our very well-funded ecosystem. Turning now to our fuel cell technology manufacturing based out of our Bullingbrook, Illinois facility. During the first quarter of 2024, we continue to progress in priority areas. keeping us on track for SOP of our single-stack 200-kilowatt fuel cell system in the second half of 2024. As a reminder, Hyzon's fuel cell system generates 200 kilowatts from a single fuel cell stack, which offers a 30% lighter, 30% smaller, more cost-effective, and more fuel-efficient option when compared to the conventional approach of combining two systems or stacks to reach equivalent power. We progressed toward SOP by completing five C-sample systems using production tooling in the first quarter, with another five completed in April. We continued to advance rigorous durability testing to remain on track for SOP. We also advanced our building book facility capabilities by commissioning a dedicated full stack test station and putting it into operation, expanding our complete MEA and single cell through full system lab testing capabilities even further. Currently, we've been working diligently to drive greater efficiency in manufacturing in preparation for SOP. For instance, we increased our daily single-cell production rate by over 2.5 times in the first quarter. Further, our team has been working to strengthen our supply chain through a broader supply base. We have identified additional suppliers across the value chain and are qualifying their components to fit seamlessly into our production process. Upon SOP, we expect annual capacity to be 700, 200-kilowatt fuel cell systems on three shifts, with less than $3 million of capex remaining to achieve that SOP and capacity. While we are working to streamline our operations as much as possible ahead of SOP, we do expect to recognize additional efficiencies in future quarters and have planned capacity expansions in line with demand. We expect this approach to maintain the benefits of our asset-light business model with fuel cell assembly capacity additions efficiently taken in line with anticipated demand increases from our customers over multi-year commercial agreements. Finally, during the first quarter, we launched the first Hyzon manufactured single-cell 200-kilowatt fuel cell system and powertrain in a vehicle in our heavy-duty caliber truck platform down in Melbourne, Australia. We are collecting data on that system and vehicle at the test track, and so far we are pleased with the result. Both the system and vehicle are operating as expected, with kilometers now being accumulated pulling fully loaded trailers. Before handing the call over to Steve, I wanted to reiterate the goals and anticipated milestones for 2024, which we discussed last quarter. First, we expect to reach SOP for a single-stack 200-kilowatt fuel cell system and our first 200-kilowatt vehicle platform in the second half of 2024. If accomplished, these would be major technology and commercial achievements. clearing the path for commercial scale-up of our leading fields of technology to large fleet customers globally. Second, we are progressing well in our trial-based large fleet customer pipeline. We are concentrating on signing new large fleet multi-year customer agreements in 2024. Additionally, we anticipate advancing multiple fleets to the second tranche of their multi-stage commercial agreement, which, if accomplished, will show significant proof of customer adoption and the scaling potential for our technology with large fleet customers. Third, we expect to launch US refuse truck trials in the summer of 2024, which, if successful, will be followed by initial definitive commercial agreements expected in the second half of 2024 and commercial deployments planned for 2025. We look forward to providing additional color to the market as these trials kick off. And as mentioned earlier in my remarks, we are excited by the response and engagement from major refuse customers domestically. We are targeting 20 to 40 global fuel cell truck deployments under commercial agreements to customers in 2024, purposely focusing our deployments to large fleet customers to activate their multi-year commercial agreements or to advance to the second delivery of their agreements. By deploying a smaller number of trucks per fleet to priority large fleets, we are purposely managing working capital and associated net cash burn while maximizing the commercial foundation we have in place to enable scaling in 2025 and 2026. noting that this guidance is tied to progress in our strategic capital raise and may be adjusted depending on outcomes this year. Lastly, we are focused on strengthening our balance sheet and securing additional capital to fund our business.

Now, I would like to pass it over to our Chief Financial Officer, Steve Weiland.

Steve? Thank you, Parker. It is great to hear about these proof points of our continued progress. The customer testimonials, refuse truck market traction, and fuel cell SOP advancement all speak to our team's execution across the business. In accounting and finance, we continue to make progress as well, driving improvements to our processes, control environment, and systems. Now turning to our results, we are pleased to have recorded our first quarter 2024 revenue of $10 million compared to no revenue comparable prior to your period. We believe that this reflects a financial milestone for the company and amounts this quarter approximately equal to the total revenue recorded prior to this quarter and since the company's inception. As Parker mentioned, revenue was primarily driven by the customer acceptance of 10 coach buses deployed to Fortescue Metals Group in Australia last year. Also in Australia, we recorded the sale of our first refuse truck to Remondis following what we consider a very successful trial. Other significant components of revenue included the sale of a truck to a U.S. dry-aged customer in the first quarter, recognized revenue from trucks delivered to PFG last year that are treated as an operating lease for accounting purposes, and final cash collections in China for legacy truck sales. While a first quarter revenue is certainly an important validator and reflection of customer acceptance, we expect continued lumpiness with revenue recognition going forward. First quarter revenue should not simply be extrapolated forward for the reasons discussed by Parker. Cost of revenue came to $7.8 million in the first quarter of 2024 versus $0.8 million in the comparable prior year period. Cost of revenue for this quarter was primarily related to direct materials, labor costs, and estimated warranty costs associated with FCEV sales in Australia and the U.S. Costs associated with China FCEV sales were recognized in prior periods. In addition, the cash collections in China resulted in the reversal of the prior standard warranty accruals this quarter and cost of revenue this quarter was also partially offset by proceeds from inventory sales. Cost of revenue for the comparable prior year period primarily related to cost provisions accrued for customer contract activities and inventory write-downs in Europe. Please note in this quarter that given certain of these items, such as no associated cost for the China sales, warranty reversal, and inventory sales, the potential implied relationship between our revenue and cost of revenue this quarter should also not be extrapolated for the reasons previously discussed. We are pleased to share that R&D, SG&A, and net cash burn, excluding the first SEC settlement payment and the proceeds from the sale of our Rochester facility, all came in at or below the low end of our guidance ranges. R&D expenses came to $10.8 million for the first quarter of 2024 versus $9.3 million in the prior year period. This increase was primarily driven by higher personnel costs supporting continued enhancements in vehicle design, vehicle software, fuel cell systems, and electric powertrain. This came in below our quarterly guidance of 12 to 14 million, largely due to the timing of certain development activities in support of our fuel cell SOP. SG&A came in at 21.5 million in the first quarter of 2024 versus 30.9 million in the prior period, just below the bottom end of our 22 to 24 million guidance range. The primary reason for the decrease in SG&A is approximately $12 million in lower legal, accounting, and consulting fees related to prior litigation and the now-resolved SEC investigation. We ended the first quarter with $82.6 million in cash and equivalents, representing a net cash burn of $29.6 million in Q1, which is the quarterly change in cash and equivalents in short-term investments. Excluding the 8.5 million first SEC settlement payment and approximately 2.9 million in proceeds received from the sale of our Rochester facility, and in line with how we provided the guidance range for this quarter, this came to 24 million. This was at the bottom of our guidance range of 24 to 27 million, reflecting continued focus on cost control. This net cash burn, excluding these items, represents our lowest quarterly net cash burn over the last 10 quarters, fifth consecutive quarter of declining burns, and an average monthly net cash burn of approximately $8 million. We continue to believe that we can operate our business below a $10 million average monthly net cash burn, reflective of how we are operating at the moment by remaining focused on managing our costs while prioritizing investments in our development. Turning to guidance, and similar to last quarter, we are not providing full year guidance given the dynamic nature of our business and current capital raising efforts. As stated previously, we believe that we have opportunities to significantly reduce burn if needed, while preserving the core IP and strategic value of Hyzon, such as keeping our fuel cell SOP on track for the second half of this year. We are providing guidance for the second quarter, noting that it reflects our current business operating model, which is subject to change based on our capital raise outcomes. We estimate that R&D will be in the range of 11 to 13 million, SG&A in the range of 26 to 30 million, and net cash firm in the range of 27 to 30 million. While second quarter R&D and SG&A guidance ranges are roughly in line with the first quarter, the net cash firm guidance does reflect an uptick from the first quarter. This is largely driven by the timing of working capital, annual bonus payments, and pay period timing. Thank you, and I will now hand the call back over to Parker.

Thank you, Steve. Our start to 2024 strengthens our belief that this year is building upon the inflection point and the commercialization of our technology that we achieved in 2023. We completed the commercial cycle on vehicles deployed in the transition from 2023 to 2024, as demonstrated by our quarterly revenue progression. We are encouraged by the data and feedback from the first vehicles deployed with PFG. We also announced the launch of our first U.S. fuel cell refuse vehicle with Newey last week and are excited to begin trials of both the U.S. refuse truck and the 200-kilowatt Class 8 fuel cell truck this summer. As mentioned earlier on the call, we remain on track for SOP of our single-stack 200-kilowatt fuel cell system in the second half of this year while improving our manufacturing efficiencies and expanding our facility capabilities. We expect our production facility in Bullingbrook, Illinois, to become fully operational in the second half of this year with minimal remaining CapEx requirements. Overall, we are pleased with our progress, and I would like to thank the whole team here at Hyzon for their continued dedication and execution. which started the year with a strong foundation. Finally, I would like to thank our customers and stakeholders for the continued partnership and for sharing our mission to reduce emissions across the heavy duty industry through hydrogen fuel cell technology. With that, operator, we are now ready for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question, again, press star one. Your first question comes from the line of Craig Irwin with Roth Capital Partners. Please go ahead.

Good evening, and thanks for taking my questions. So, Parker, a lot of progress this quarter. So many different things we can hone in on. But I guess the future business plan, right, the growth really benefits from your introduction of this 200-kilowatt fuel cell stack. Can you maybe give us a little bit more color on what you've learned from the sea samples that were made, the five in the quarter and then the five in April? I guess the 30% lower volume and weight is kind of an engineering solution. We know that's going to be on target or better. But the target's a 25% lower cost and 20% improved miles per kilogram of hydrogen. Can you just confirm for us that this is being validated by the sea samples? And can you maybe just explain a little bit about the testing you're doing with these before you move to on-road testing and, you know, the start of production in just a few months?

That's cool. First, Craig, great that you're here. Thanks so much for the question. And we love digging into our technology. So, I'm happy to go deep there. So, just take a step back for a moment. You know, we are at the C-sample stage on our 200-kilowatt fuel cell system SOP. You know, this system has been in development. It stands on the back of, you know, 20 years of overall technology development and IP. At Hyzome, we're quite proud to have now over 160 total patents between granted and pending applied underpinned IP, right, going all the way from the MEA and the catalyst on the the MEA, the membrane electrode assembly through a single cell, you know, the bipolar plate stack and system. And, you know, when you're going from a 110 kilowatt fuel cell system, you know, to our 200 kilowatt fuel cell system, which is actually, you know, a 250 kilowatt stack, you know, the durability testing and the SOP process that we go through is really validating at every element where it's worth measuring the durability, the performance, and to your point, the implication for cost and for performance, right? So it starts with MEA and single-cell testing, right, measuring performance, measuring how we're doing in terms of stress testing, durability testing at that level, short-stack testing, which is anywhere from 5 to 10 kilowatts worth of cells stacked up, stack testing, and then full system testing. And I go to those links to describe the deeper elements of our SOP to give everyone a sense. The learnings that we achieve at the C-sample stage, we build on all the learnings we've achieved throughout the process from A sample to B sample from 22 and 23 into the C-sample phase that we are in now. So with that as the backdrop, We are learning quite a bit in the C-sample phase on the back of all the learnings that we had last year at the B-sample stage. You know, some of the learnings do apply to elements like the MEA, like the catalyst and the design of the MEA itself. You know, when we see different performance in testing and durability, it allows us to identify at the cell level because we do have RFID and other tagging systems to identify performance within a short stack, where do we see variation? Where do we see better performance? And how do we replicate that more consistently across the production process, which is unique to Hyzon in some ways versus competitors, because we do go all the way back to the MEA, right? Additionally, in stack testing and in full system testing, we get a sense of the full stack performance. and how that varies from stack to stack. And additionally, at the system level, we get an opportunity to test BOP. Because when you look at what's different and what are we trying to achieve in this step change, which we've been able to achieve differentially from others, at least in a, you know, ex-China on-road mobility space of 200 kilowatts plus in a single stack, single system, it is about going from a smaller single cell to a 25% larger active area. right, and making sure that we're getting that consistent performance across that cell level. It's about evaluating the full stack level of hundreds of those cells stacked up and getting that consistent, you know, power generation, that consistent water diffusion performance. And at the BOP level, you know, the 200 kilowatt system that the BOP we've developed with our suppliers over time, and it's getting to things like injectors and humidifiers and how the BOP is performing. And supplier evaluation, as our supply chain group under our COO of UpUp Energy has been driving in collaboration with Dr. Mordick, our CTO, how we enhance and advance our BOP supply chain. So, you know, all of these different elements and facets are tested. We have seen tens of improvements in design, I'll say, over our entire development process on the 200 kilowatt to a date. And all of that gives me and our team tremendous confidence that we are properly developing this technology, that we're finding the things that we need to find, to your point, to improve performance and durability, and to identify the cost reduction opportunities as well as we look forward to the post-SOP performance advancement. We're given that we do believe that based on where we are, at least most publicly known at least, that we are significantly ahead of others in this scale of a fuel cell system technology in mobility. You know, our goal is by the time others have a 200-kilowatt-plus system coming to market that we're a couple years potentially, you know, improved on the cost and the performance curve, which a lot of those leading indicators of initiatives start even now. So we're quite excited about completing the C-sample phase, moving to pre-production, you know, relatively soon and being on track for our SOP in the second half of this year.

Thank you for that. So my second question is really one where I'd like a little bit of clarification, maybe if you could share it. The guidance for 20 to 40 deployment to commercial customers in 2024, how many of those units do you expect to use the new 200 versus the 120 that you've been supplying to customers to date? And I assume they're going to be sort of heavily back-end loaded, mostly fourth quarter, some third quarter. And can you maybe talk a little bit about geography or any other color, you know, maybe PFG as well to help us figure out how to set our models?

No, great. And happy to provide as much as we can there, Craig. So to start, you're right, this year, as I've said before, is a year of a transition, right, from the 110 kilowatt fuel cell system to the 200 kilowatt fuel cell system with its SOP and with the SOP in parallel of our 200-kilowatt heavy-duty fuel cell truck platform. You know, we did unveil the first 200-kilowatt fuel cell system in a heavy-duty truck in Australia last quarter, which was a big, big moment for us. That was, you know, the first Hyzon-produced 200-kilowatt fuel cell system unveiled in a truck, preparing to go into its commercial trials down there with our customer TR group. And we're quite excited to have that truck on the road. with the U.S. truck in development in parallel behind it. And we're also excited about our upcoming 200-kilowatt U.S. heavy-duty Class 8 truck, which, as we've stated before, is preparing for its trials to start this summer. And we're anticipating, you know, a few things on the back of that. As we've stated publicly before, the PFG agreement had the first five 110-kilowatt trucks. We've deployed the first four of those five, with the fifth coming relatively soon. The second tranche is 15 200-kilowatt trucks that are just pending a 200-kilowatt truck trial, which we're excited to conduct with PFG relatively soon. And assuming that trial's successful, we'll then move into negotiating the commercial definitive agreement on all or part of those 15 trucks as part of that second tranche, which will be a significant moment, not just for us. We think for this segment, for the fuel cell truck segment, Because I'm not aware of many, if any, others that have announced a second tranche delivery of a major fleet. And that's something, I may have missed something, but we would be at least among the few, if not the first, to announce a second deployment to a major fleet. So, you know, it certainly is, we are anticipating that 200 kilowatt driving through this U.S. trial program that we've commented on across the refuse truck and the Class 8. 200 kilowatt truck, 24 different fleet trials that are either scheduled or in final scheduling for essentially the second half of this year, waiting over into January a bit. And that assuming success, converting into initial multi-year commercial for new fleet customers, and then hopefully advancing PFG to their second order trucks, assuming success. And also that obviously deploying globally in Australia on the back of that vehicle that we unveiled and that capital platform being launched through through that. So specifically to the to the 20 to 40 deployment guidance that will be that is anticipated to be a mix of 110 kilowatt and 200 kilowatt fuel cell system vehicles. The the refuse truck platform that was launched first in Australia with our successful commercial trial that's converted to a sale with. From on this that is on a 110 kilowatt fuel cell and the refuse truck actually only needs 110 kilowatt fuel cell systems to perform the use case. That truck performed beautifully, as we noted in the prepared remarks, you know, doing all the work of combustion and up to 18% grades and not needing to refuel over the course of an entire combustion route day. And compared to many battery electric trucks, you know, performing twice the work rate in terms of cans lifted before those battery trucks have to go home and to recharge. So that's all with the 110 kilowatt. We do believe there's a future for the 200 kilowatt in a refuse truck application. The reason is fuel efficiency. You know, the fuel cell loves to be operated at 60% fuel efficiency, even though 120 kilowatts certainly can do the work and perform very well in a future generation, future development of that platform. We may advance to a 200 kilowatt truck and that we think could even be a better total cost of ownership. But for this year, what I can say at this point is it'll be a mix. We do have a mix of deployments planned geographically as well. And, you know, as we progress throughout the year, pending, you know, adjustments that may be made based on our capital raise progress, you know, we may be able to give a bit more detail going forward.

Thank you. So my last question, if I may, before I hop back in the queue, the $3 million in CapEx remaining for startup production and your initial targeted capacity. Can you maybe help us with the timing on that, CapEx? And is there any risk around supply chain for equipment delivery or other parts that you need there for SOP that you see at the moment?

Yes. Look, I mean, what I'll say, what I think all of us in this position would say is there's always risk, right? There's always supply chain risk, no matter what stage you're at. But the facts are, You know, with less than three million CapEx remaining, obviously the vast majority of equipment is already on site and either commissioned or in commissioning. You know, at this point, you know, we feel very comfortable with the $3 million number that it could be less than that. And, you know, the bulk of our focus in the SOP and the CapEx remaining is really final commissioning of equipment that ties either to sort of camera-based quality control or the automation in areas like the single cell and the stack area, right, to confirm our 700 units per year, 200 kilowatt fuel cell system capacity on three shifts that we are anticipating the facility to be capable of at SOP. So we haven't disclosed more detail than that in terms of the burn rate of that 3 million of CapEx, but, you know, the SOP we have said is on track for second half of this year, And what I'll say is, you know, we are comfortable with that number and with that timing where we are today. Of course, there is some risk, but I'd say the risk is less in supply chain. It's more in the progress and the completion of the required commission activities and the durability and other testing we have to do to validate our progression from C-sample to pre-production and to full SOP.

Great. Well, congrats again on all the progress this quarter. Impressive.

Thanks so much, Greg.

Your next question comes from the line of Stephen Fox with Fox Advisors. Please go ahead.

Hi, good morning. I had a couple questions as well. I guess, first of all, I know you don't want to, I know revenue recognition can be lumpy, et cetera, but can you give us a sense for where there's, you know, the sort of the number of trials underway that can lead to revenue recognition this year?

um and you know sort of the odds of what could play out versus what what follow-on steps could come with some of these trials and then i had a follow-up yeah that's great thanks first of all steve thanks so much for joining and for the engagement as always um so on our commercial pipeline and process a couple things to comment then i'll ask steve to talk about our revenue recognition timing um So we are quite excited, as stated on the prepared remarks, about the fullness of our trial program. And to take a step back for something that may be newer to the company's commercial strategy, you know, we are very focused, as you know, Steve, on large fleet back-to-base use cases like drainage and food and beverage delivery and now refuse. You know, those large fleets, we're typically doing months of work ahead of a potential trial, right? These are not you know, your drive-by stop in and take it out for a spin, right? We've spent months of time with executive teams and with fleet teams on fuel cell trucks, TCO, performance expectations, simulating routes, simulating performance, and collaboratively identifying not why fuel cell is the only answer, which is not our view, but where fuel cell should clearly outcompete. And that's an expanding part of the route tree we see today given the struggles of battery electric trucks and range and payload, but really honing in on Where should we run the trials? Because that is where the fleet's going to scale to start. And then what does that realistic scaling look like? Which is a factor in a few things. One is their appetite to take delivery and scale tied to their ESG or other board-driven goals and or regulations and or customer requirements. And I'll come back to that on refuse, which is a really tremendous market that's been developing rapidly. Second is the availability of fuel, which all fits together in the way that we're looking at scaling up a single customer and where we see the market developing in total. So all that said, the goal is to have a trial that then is the last step to really confirm and to negotiate and put in place a multi-step, typically three to four tranche commercial agreement, where the first tranche is typically binding and the tranches behind that are contingent. The example being our agreement with Performance Food Group, which is a 50-truck total potential with five trucks binding up front and the 15 and 30 truck tranches contingently behind it, the last being an option. So, with all that backdrop, you know, we have 24 fleet trials right now scheduled or in scheduling across the Class 8 and the refuse truck. You know, some of those are second trials like Performance Food Group where they've trialed and made the initial agreement with us based on the 110-kilowatt trial. The 200-kilowatt trial is to, assuming success, confirm the second tranche, which would be their first deployment of 200-kilowatt trucks, which could be up to 15. Some of them are fleets that have been with us for some time, may have trialed the 110-kilowatt truck, but then decided the 200-kilowatt was really what they needed for the use case, really heavy loads, really long distances. And those are going to be trialing, having already had a good experience with the 110 kilowatt truck, but wanting to confirm the 200 kilowatt can do everything that they need it to do. And some are fleets that are trialing for the first time, right, that did not trial on the 110 that waited for the 200 kilowatt. And what I'd say is, you know, for the fleets that have trialed previously and or that are already under contract for a 110, you know, trying the 200 and then taking, you know, delivery of a truck this year, if we're able to not have the same risk sharing mechanisms that we have on the first deliveries, the first deployments, excuse me, you know, that could lead to revenue recognition sooner. Today, not every contract, but most contracts that we have with large fleets, they want some kind of risk share on the first tranche, whether that's a buyback guarantee or some other risk sharing mechanism, which does delay revenue recognition, which you're seeing in some of our performance expectations for revenue in the future. and some of the way that we've been realizing revenue in small numbers before Q1, where that does show with the Fortescue buses, you know, the ability for revenue to be recognized in bunches, basically, if we hit a big performance obligation that we're able to successfully navigate. In this case, the customer accepted those 10 coach buses. So what I say is the trials, The outcome we're looking for from the trials is really contracts. It's new multi-year large fleet contracts with large fleets that we're announcing and showing the market. Our 200 kilowatt truck and or our refuse truck is performing. It's giving fleets competence to sign multi-year agreements with at least some binding provision in them. And then for some of them, it could trigger a second tranche delivery, which if there are no holdbacks on that second delivery, then that would lead to potentially immediate or faster revenue recognition. So a long-winded answer to say, what we would point you to for the trials that would be success for us is confirming a second tranche order where that is in play, and or more, I think more importantly, you know, confirming new largely multi-year contracts.

that we have slated for deployments either starting in 2024 or 2025 stevie if you want to add anything on the revenue rexa yeah uh thanks parker and i think you you covered a lot of it just a couple observations i'd make i think parker pointed out rightly really depends on on the contract terms you know for these trials how that how that moves forward from that activity right because um to be recognized as revenue can't just be a deployment, right? It has to be delivered and accepted. And that will really come down to, you know, each individual customer, each individual contract, sometimes on a truck by truck basis. Clearly in that global deployment range of 20 to 40, there are revenue vehicles in there. And I guess, you know, the best thing I can point you to or read to the financial statements would be when you pull up in the queue to go dive into note three on revenue. And you'll see there we talk about, you know, the transaction price associated with the remaining performance obligations on the revenue side. And it's about a $7 million balance that we expect to recognize as revenue from March 31st over the next 12 months. But aside from that, we can't really give more revenue guidance at this time.

No, I understand that. That's a good perspective to help us do our own math. Um, and then secondly, given the context and given everything you laid out with how intricate these trials are and the contracts, et cetera, I'm, I'm still struggling to understand how, um, you know, competitive, um, brands are rolling out or claiming to roll out like really large scale numbers with fleet over a relatively soon period. Um, Is there at what it seems like economically disadvantaged levels versus what you guys are targeting? Like, is this a good thing for the industry, a bad thing for the industry, something that we have to see how it plays out? I mean, I know it's not a company you're running, but you must be watching those closely.

No, certainly. I mean, we keep close tabs on what's happening in the market. You know, many of the same customers are competing us with others. And we're excited about any opportunity because we believe our technology and our business model, to your point, others are driving volume of fuel cell vehicles at significantly negative cash contribution margins, where we're proud to have delivered trucks, deployed trucks to large fleets last year in the U.S. at a positive cash contribution margin back to Hyzon, which is due to our in-house technology, due to our design choices. driving that truck-level cost structure to what we think is a scalable foundation. And so all I can say is we applaud hydrogen demand. That is good for all of us. That puts dispensing points on the map. That puts customers in play. This market, when you look at the ambition of the state of California alone, you are talking hundreds leading to thousands of heavy-duty fuel cell trucks in a relatively short period of time in the grand scheme of the truck market. So there's plenty of market, right? And so we're not overly concerned about others that are driving fuel cell truck demand in parallel to us. We actually think it benefits the market in a lot of ways, because again, we're confident that as the only competitor that we see outside of China with a 200 kilowatt plus single stack, single fuel cell system in trucks with our cost structure, and with the performance of our trucks. And then you come to the refuse vehicle where from what we see, there's no other fuel cell refuse truck coming to North America for at least a couple of years from what we've seen publicly. And it may be longer than that. In a use case where from what we've seen from our data and from our customers use it by electric refuse trucks, the performance gap is substantial, right? So all that tells us that know we're focused on a business model that makes sense it's scalable that allows us a a an ability to manage cash burn to manage our balance sheet really smartly also fuel right fuel we all know this year is quite challenging with the three uh heavy duty stations in california still shut down where we're all using mobile fuelers um in different cases to uh deliver fuel at prices that are higher than we would like so you know if you're fueling 150 trucks this year versus 150 trucks in 2026. It's going to be a lot cheaper and a lot less burden being carried by potentially the OEM to fuel those trucks, we believe, every year we get out from 2024. So for us, it's about, again, a scalable model for the ecosystem is large fleet back to base. That's what we're focused on. We think 10 large fleets, we can get to 1,000 trucks a year over time, right, as they scale up over three or four years to 100 truck a year goal that we have for each one of our large fleets that can, that has the ambition to do that. And we think this all lines up with production capacity and with fuel availability and with, frankly, the economics of fuel and TCO, where this measured scaling approach is going to lead to the highest success outcome.

Great. That's all super helpful.

I appreciate all the commentary.

Thank you. Thanks, Steve.

Your next question comes from the line of Rob Wertheimer with Malleus Research. Please go ahead.

Yeah, hi. Thanks for your continued comments on the refuse market, which is interesting. It's a market I just didn't guess would be a core one for hydrogen, and it's obvious the battery is struggling. A specific question there, and then to extend it to your other opportunities, have you seen companies try to pack more batteries in to kind of extend the duty cycle and do what you can do. Is there weight limits your refuse customers are sensitive to? I mean, any sense of whether that's a temporary roadblock on electric or whether you see any more fundamental limitations. And then just to extend that, so that's an obvious kind of attractive market for you guys. Are there similar needs that you see in other niches that just haven't been met or can't be met easily by competitive products? and, you know, in other parts of trucking. Thank you.

Absolutely. Thanks so much, Rob. Great questions, and we are getting deeper into refuse than we expected, honestly, given how fast it is moving and the performance gap that we've seen. So I'll take the first question on just to restate it. You know, what do we see as the real, you know, temporary versus permanent barrier between battery truck performance, and can they resolve it with additional battery capacity? The short answer, Rob, today, what we see, at least, from both our own view of the public data and our customers, which, you know, are in our schedule, are some of the largest refuse fleets in North America, along with, obviously, Remondis, who ran their successful trial to a sale in Australia. You know, we see battery trucks that are struggling. The primary reason is actually already weight. So your typical garbage truck, depending on the configuration, could hold, you know, somewhere up to 13 tons of trash. Some of these battery trucks are already loading up battery capacity so much that the weight limit, the weight penalty is up to four tons. So they're only carrying nine tons of trash. That causes a significantly higher number of trips, basically, to hold the same amount of trash to the landfill or whatever point they're going to. That's a big reason why that combined with hill climb, you know, why they're only seeing, in some cases, half a day's work before they're done. So adding more battery is only going to exacerbate the weight problem. It's not really going to solve it. You know, I'm not, you know, a deep battery designer, but I would assume solid state or something has to break through to really change the dynamic of storage capacity versus weight. So we see it as a structural issue with battery garbage trucks. Now, there are some that we know are coming out with more efficient electric bodies and things like that that certainly will help. But I would also put forward that any improvements they make to the battery truck and the body, we will outcompete with hydrogen attached to that. So the hydrogen fuel cell attached to a battery attached to an electric body will continue to out-compete an all-battery garbage truck, mainly because of weight. The other thing I'll say, which is interesting on the same point, refuse is now expanding to Class 8. So the same large fleets that run a lot of refuse collection vehicles run a lot of Class 8 vehicles to transfer 82,000 pounds of refuse from a a transfer station to another location. Some of our customers in California are testing these Class 8 battery trucks to do 200, 220-mile a day, and the battery trucks can't do it. Because anywhere you're going in Southern California, you're simply climbing hills, and you combine that weight penalty, that weight concern, with battery capacity on Class 8, and the range just can't do the work. So if you look at our Class 8 trial schedule for the 200 kilowatt, a lot of the same large fleets that you would think of as refuse, collection vehicle customers are in the Class 8 200-kilowatt trial schedule because they're starting with battery Class 8s. And this is all very exciting because it's one of the easiest, best use cases long-term to fuel. All these trucks come back to the same location. They're used to handling on-site fueling from gas, right? A lot of these fleets run CNG today. And a lot of the customers in the end are municipalities, cities, counties who have their own ambitions for zero-emission trucks, particularly in California. And it's now becoming a criteria for RFPs for some of these large waste cleats to be able to win contracts. So in that situation, you're not even comparing to the combustion alternative. You're comparing to bioelectric, where obviously if you're having to buy 20%, 30% more trucks to do the same work, it's really easy for us to beat that on a total cost of ownership standpoint before I get to the complications of putting 10 to 20 megawatts of power at a refuge site to try and charge battery trucks. So we see the structural, we see it as a huge advantage for Hyzon because we're the first refuse truck that's coming to market in North America. And we believe we'll be the only one on the market based on public announcements for multiple years, at least. And we don't see battery having really much of a shot to catch up. And it's a use case that now is opening up to both of our major platforms, the refuse truck and the class A truck. On the other niches, it's a similar theme of where do you have a lot of power used sitting still? It's part of why the refuse truck market is even more penalizing on battery trucks. They also, some of the newer bodies, they're driving and they're packing at the same time. They're packing, they're sitting still. They're using a lot of energy without moving where the regen brakes can't really help them all that much. And so there's other applications, which are probably more of a class six, class seven vehicle in gas, power and water utilities, for instance. Think about your boom trucks, your lift trucks, any EPTO, any power takeoff application. A lot of those, both DOT, Department of Transportation fleets, and utility fleets, up to 40% of the energy they use is sitting still, right? So that's tough for battery typically to deal with, you know, along with some of the axle limitations. So that's certainly a future market we see when we're ready once the Class 8 refuse trucks are commercialized to bring in a Class 6, 7, base-powered chassis that you can pick your back end, right, be that a, again, a lift or a boom or potentially a concrete back end or something else.

Okay, that's super interesting. Thank you. And a little bit of a non-related question. Your thoughts on testing and what you know now, what you will know on durability? on the 200 stack? And then where does durability come in on your list of customer concerns? You know, obviously there's a developing industry, so I don't know if that's number one or number 10, you know, on how people evaluate you. I'll stop there. Thanks.

Yeah, no, certainly. And this is a question that I know our customers would say is very top of mind for them and for us as well. So to answer your second question first, durability is on the short list, right? Because it's not just a question on, first it's a question on uptime. That's the number one question is, okay, I'm going to trial this truck. I'm going to trial it for anywhere typically from two to four weeks. That's great. That proves to me that it works. It does the work. It can fit in my use case, but I can't have it out there for three months and have it down for a significant period of time. I've got to have some level of reliability. Knowing that it's a new technology and our early customers certainly understand that, but at first it's early in life durability, and then it certainly is late in life durability for total cost of ownership. Right. And so when you think about durability, a diesel truck, you're talking, depending on the use case, you know, seven to 10 year useful life, you know, 700, 800,000 mile useful life. But there's typically an engine overhaul somewhere in that in that life. You know, what's the equivalent for fuel cell to reach 800,000 mile useful life? That's about that's about 20,000 hours of fuel cell runtime durability. Right. That is the end goal for us. You know, we will not have that proven at SOP. Just to be clear, it takes a long time to prove 20,000 hour durability on the same system, just factually. The first step goal is 15,000 hour durability, which would be about 600,000 miles in a 40 mile per hour average truck speed use case. And the goal at SOP is to have progress through accelerated simulation testing through that initial goal. and to be on track basically to prove both 15,000 and 20,000 hours. Now, our benefit is our same technology, the same base IP, going back to the MEA, has been in development for 20 years. We do have some good data, obviously, from the 110 kilowatt and prior generations. However, to be clear, and we're clear with our customers, we are starting over reproving durability on the 200 kilowatt, right? Because it is certainly on the shoulders of all that prior proof point, but it's something that, you know, is, is cutting edge and as such needs to be proven again. So to put it simply, it's critical to us, it's critical to our customers. It's a lifetime durability, both short-term and long-term. We're quite confident, I think you heard me describe in detail our SOP process. We're quite confident that the rigor is going in to durability testing, both in our own lab at multiple levels and in outsourced labs across the US and in the world. And we are on track to prove the durability that we need to prove, and we'll continue to do that in open communication with our fleet customers.

Thank you.

Thanks, Rob. That concludes our question and answer session. I will now turn it back to Parker Meeks for closing remarks.

Thank you very much, operator, and thank you all for joining us. Our work so far in 2024 really sets us up well. to achieve the milestones we described, and we look forward to continuing to update you as we drive toward our commercialization goals this year. Thank you again for joining us today. Take care.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.