Hyliion Holdings Corp.

Thank you, and good morning, everyone. Welcome to the Hyliion Holdings Third Quarter 2021 Earnings Conference Call. With us today, we have Thomas Healy, our Chief Executive Officer, and Sherry Baker, our Chief Financial Officer. During today's call, we will make certain forward-looking statements regarding our future business expectations, which involve risks and uncertainties. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and as a result, are subject to risk and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements on this call. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the press release we issued yesterday after the market closed, as well as our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. you are cautioned not to put undue reliance on forward-looking statements. We undertake no duty to update this information unless required by law. Before turning the call over to our CEO, Thomas Healy, we'd like to share with you a short video about Hyliion and some of the great progress we have been making.

Over the past few months, we've seen significant progress in the development of both our hybrid and hyper truck ERX solutions as we continue to work towards our product milestones. The improved version of our hybrid solution, the hybrid EX, came to market with system improvements aimed at increasing efficiency and payload. and enhancing the overall driver experience. We recently delivered our first hybrid EX unit to the market, marking a major milestone for our company. Continuous progress is also being made on the HyperTruck ERX, from giving the Secretary of Energy a ride in the truck to debuting the first showcase unit at the ACT Expo where it was seen by thousands who are invested in clean energy technology. But before taking the show on the road, we did an all employee appreciation day where everyone at our headquarters here in Austin, Texas was able to experience their hard work firsthand and go for rides in the ERX. The excitement and the experience was unforgettable. And now, it's off to start our HyperTruck Roadshow, where the valuable feedback we receive from our Fleet Council members will not only help us continue along our path to commercialization, but towards our goal of changing the world. Good morning, everyone, and welcome to Hyliion's third quarter 2021 earnings call. I hope you enjoyed that short video. During the third quarter, we continued to make important progress to advance our mission of bringing electrified powertrain solutions to the commercial vehicle space. Throughout today's call, I will highlight some of the major milestones and accomplishments that the team achieved in Q3, as well as some of the challenges and hurdles we faced, including around supply chain. Before we begin, I'd like to highlight two very impressive achievements. First, we recently unveiled our new iteration of the HyperTruck ERX. and have begun showcasing the product with customers on the road. And secondly, we launched the hybrid EX product. In today's call, I'm also going to share a little about a special customer event that we have happening today at Wegmans headquarters with our HyperTruck ERX. Looking back on the past year, it was one of the most transformative years for the Hyliion team as we unveiled and launched multiple product iterations, and we've had significant growth in our exceptionally talented team. We laid out an updated commercialization plan for our hybrid powertrain back in February of this year, and since then, we have been executing on that roadmap as we outlined. The end result is our improved hybrid EX powertrain product, that was unveiled at the ACT Expo in Long Beach, California at the end of August. We also shared on our last earnings call that we expected to begin recognizing revenue once we began to ship this latest version of our hybrid solution, and I am very proud to announce that we delivered our first hybrid EX unit in October, which we expect will start our recognition of revenue before the end of the year. In the video that we just watched, you'll see that we captured Hyliion turning over the keys to Werner, one of the leading fleets in the industry who operates thousands of trucks across the country, marking a very critical milestone for our company. On the HyperTruck ERX, our flagship product, which is in the product development phase, we put together the HyperTruck Innovation Council, a collaborative group of 11 future-focused fleets and technology leaders to work with us to assist in bringing the product to market. We are working closely with Peterbilt to utilize their vehicles for the launch of our powertrain solution and collaborated with them to establish the best chassis specifications that are ideal for the HyperTruck ERX powertrain. This all culminated in Hyliion unveiling a HyperTruck ERX unit at the ACT Expo, which was the first time that we publicly showcased this vehicle. The feedback we received from fleets, suppliers, and the investor community was incredibly positive and generated a significant amount of interest in the product. This then brings us to today. Since the unveiling, we have been planning our customer showcase events to let fleets experience the vehicle in its current configuration firsthand. I'm very excited to share that we are kicking this journey off today in Rochester, New York, at Wegmans Headquarters, where we will have many of their drivers and executives getting in the truck for the first time to experience it. Stay tuned for media, pictures, and videos that we'll be sharing. Wegmans is both a current hybrid customer and a HyperTruck Innovation Council member and is a company that exemplifies the mission of moving to more sustainable transportation methods. Later this year, we plan to host more Fleet Council events at our Austin, Texas headquarters to allow Innovation Council members and others to experience the HyperTruck firsthand. Now, I'd like to take a few minutes to go into greater detail on the HyperTruck ERX. I'm pleased to start off by sharing that we have secured a 40-unit reservation for the HyperTruck ERX from Monet Transport. Monet is a Texas-based carrier company that has been an early adopter of the Hyliion Hybrid solution, as some of you may remember. Monet Transport believes the future of trucking is sustainable. But in a part of their business model, their trucks need to travel hundreds of miles every day, which is where the HyperTruck ERX can offer a low-cost, low-emission, and long-range electric solution. The purchase and sale of the 40 HyperTruck ERX units are subject to the execution of a final agreement between Hyliion and Monet Transport. We are thrilled to be continuing and expanding our relationship with the Monet team. I'd also like to share some exciting updates around successes that we have had from early ride and drive events with the HyperTruck ERX. Over the past few weeks, we executed on a select number of ride and drives, one of which was with Greenpath Logistics, a current Hyliion HyperTruck Innovation Council member. Greenpath has a very unique business model in the trucking industry where they operate 100% alternative fuel vehicles. They've leveraged this unique value proposition and are shipping for some of the major players in the space, including Amazon, UPS, and the United States Postal Service, to name a few. Green Pass CEO, Fury Zotti, went for a ride in the truck and had fantastic things to say about his experience. I'd like to share a quote from him. Fury said, after driving the vehicle at Heinlein's headquarters, and going for a ride on the highway. I immediately knew this vehicle would change the landscape of trucking as we know it. The vehicle was smooth, quiet, and drove like a passenger car as opposed to the way we know semi-trucks today. After experiencing the vehicle, Greenpath Logistics requested to be a leading participant of initial deployments of controlled fleet trials in their operations. With Greenpath located in Dallas, Texas, it will allow Hyliion's team to closely monitor these trucks to ensure strong vehicle performance as fleet trials begin. The feedback from their drivers, technicians, and management team, as well as the learnings we garner in these early trials, will be invaluable as we continue down the path to production. Over the past few quarters, we have had numerous meetings with our HyperTruck Innovation Council members and others to truly garner their feedback as we are engineering this product. These discussions have already proven to be very valuable as some of their feedback has educated us to alter some of our product specifications. One great example of this is the announcement that we made a few months ago around having a longer range BEV version of the product that can achieve 75 miles of full electric drive before the range extender needs to turn on. This now allows the vehicle to qualify for zero emission vehicle credits. As we move forward through the development process, we will continue to make additional alterations to the product specs. This can include features being added to best meet the needs of our fleets and modifications to work within the bounds of our current supply chain base to achieve a safe and reliable product launch. Post-production, we will continue to iterate the product with further enhancements to ensure that we maintain a best-in-class solution. While we recently achieved the critical milestone of beginning customer showcase events by year end, we have faced challenges within our supply chain that are impacting our development, testing, and validation plans. Similar to others in the automotive industry, shortages of semiconductors as well as several other key components are extending our timelines longer than we expected. In addition to supply, we have extended our development program to provide for adequate time to design, test, and validate the system to ensure a reliable launch of the product. This issue of supply shortages and long lead times has been especially prominent in the trucking industry. And one of the impacts has been significantly extended lead times for ordering new trucks. If a truck is ordered through an OEM today, the currently planned delivery date is not until 2023. These types of supply delays have a direct impact on our timing. As one example of how the supply chain hurdles have impacted us, we planned on beginning winter testing of our production intent designed ERX in Q1 of 2022, leveraging the last few months of winter. Unfortunately, the delayed delivery of components prohibits us from being able to start our previously planned winter testing, thus pushing out the start of testing to the beginning months of the following winter. In order to best mitigate these issues going forward, we currently have on order all of the development trucks and long lead time components that we need for 2022 and are working to secure supply for the 2023 calendar year. Despite supply shortages and delays extending our development schedule, we will not sacrifice on bringing a reliable system to market. As we learned with our hybrid product, it is critical to test the product through all seasons, especially given the extreme winter conditions many of our potential fleet customers face on a day-to-day basis. With that said, we wanna share today a 12-month breakdown of what is ahead for the ERX development, as well as other critical milestones that follow. From the many discussions we've had with our supply base, we are confident that this 12-month look forward will be achievable. First, our initial demonstration units, one of which is at Wegmans today, will be used to showcase our products in ride along events with fleet council members and other interested parties beginning now through the first half of 2022. Our next set of vehicles, which we will start building in early 2022, will serve two primary purposes. First, we'll use the majority of these vehicles for design verification and rigorous over the road product testing, inclusive of summer and winter testing. We'll also use a number of these vehicles for a controlled deployment into fleet operations in the second half of 2022, as we highlighted earlier with Greenpath Logistics. These vehicles will still be owned by Hyliion, but will allow us to garner real-world feedback from fleets. Our target is to achieve up to a million miles of testing and validation on ERX trucks prior to the start of production. After 2022, we will still have a few important milestones remaining prior to the start of production. The first is that we will take any of the learnings from the testing and validation or on-road miles and incorporate them into one further design iteration of the product. Next, we will obtain final certification needed from CARB, the EPA, and NHTSA. While completing these, we will continue to deploy trials and low volumes of units into fleet operations as we gear up for the start of production and the beginning to recognize revenue on these systems. As we get more clarity on the status of our supply base and we get closer to these milestones, we will provide greater clarity on anticipated timing. Turning now to our hybrid EX powertrain solution. As mentioned before, we have begun shipping our hybrid EX system. Although the product is launched, we are still facing supply shortages and we are seeing this impact on a daily basis. We currently have trucks at our headquarters which have incomplete systems installed on them because we are waiting some components. We've also experienced some fleets who have placed orders with us are not able to obtain the new trucks from the OEMs due to long lead times and this too has pushed our install timing for some of these trucks out until next year. As we head into 2022, we plan on providing details on our next earnings call as to our hybrid product expectations for the following 12 months. In light of recent changes within the competitive landscape, we are assessing the potential demand impact for our hybrid EX product offering. As some of you may be aware, Cummins recently announced a new natural gas engine for trucks which will improve the power deficit that was typically experienced with previous natural gas engines. This will directly compete with our power assist functionality of the hybrid EX solution. As we've been meeting with more and more potential customers, we've heard two consistent messages around a strong interest towards the ERX. First, fleets like Howell, the success of the ERX is not based on terrain, whereas the hybrid product only delivers the best benefits to fleets in specific terrain conditions. Second, we increasingly see fleets gravitate towards the hyper truck ERX solution as it offers the benefits of being a fully electric drive truck, especially with all of the climate change initiatives and the current political environment towards full electric vehicles. However, some fleets still see the hybrid as a great way to start their electrification journey. As Hyliion works to deliver its products to market and navigate the supply chain challenges in today's world, we have been adding experienced talent to all levels of our organization. During the third quarter, we welcomed a total of 49 new employees to the Hyliion team. Last month, we announced that we hired Shiva Dureswamy as our Vice President of Engineering. Shiva brings nearly 20 years of diverse global experience at companies like General Electric, Daimler Trucks, and Cummins. He has a track record of successfully leading large technology-focused teams in product development, lifecycle, and project management. Here at Hyliion, He will oversee our engineering teams focused across the development spectrum from powertrain and battery innovation to controls and software systems implementation. With Shiva's primary focus on commercialization, this frees up Patrick Sexton, our Chief Technology Officer, to continue to develop Hyliion's forward-looking product strategies. In addition, we have recently added Joshua Robbins as our Vice President of Fleet Sales to further accelerate our commercialization efforts. Joshua comes to us with nearly 10 years of sales experience at Ryder, where he was a key contributor to their natural gas initiative. Joshua will spearhead our fleet engagements and discussions as we are now moving the hybrid product into commercialization and we are embarking on the HyperTruck ERX Roadshow to garner interest and commitments from fleets. In addition to all these talented new employees we have added over the past year, We also recently added two impressive and accomplished individuals to our board of directors. Former U.S. Secretary of Transportation and Secretary of Labor Helene Chao brings us her extensive knowledge of transportation and infrastructure. And after a career spanning nearly four decades in the ever-evolving automotive industry, and most recently as the CTO of Delphi Technologies, Mary Gostanski brings experience in development and commercialization of innovative solutions. I want to give these two, along with all the new members of the Hyliion family, a warm welcome. We often receive questions from the financial community surrounding what we call the customer journey. I'd like to take a moment to share with you the feedback that we've received from Fleet and the discussions we've had surrounding the purchase decision process. We believe the most effective way to generate interest in and orders of our product is to show it to fleets and ultimately let them experience the benefits themselves. We did this with our hybrid product, getting dozens of these vehicles on the road in pre-revenue stage and logging millions of miles. With the HyperTruck ERX, we hear similar feedback as most fleets want the chance to experience the positive features of the powertrain before committing to a binding order of any real significance. Most fleets will choose to test with single units, running through multiple applications and terrains to better understand how our solutions will work within their fleets. With all these factors in mind, we believe the product roadshow we are doing right now, providing fleets with in-depth demonstrations of our powertrain, is a critically important initial step on this customer journey. We expect demand and product orders to increase as we get more fleets' additional hands-on exposure to our powertrains. As potential fleet customers evaluate all of the various trucking decarbonization options in development now, it is our goal to provide a powertrain that will grow and evolve as infrastructure and fueling solutions become more readily available. As a reminder, while our initial focus for the HyperTruck ERX is powered through natural gas, we have laid out a path towards both a fuel-agnostic solution as well as a path towards a hydrogen fuel cell solution. With this product roadmap, we believe this allows fleets to expand their electrification adoption as the infrastructure is being built over time. However, it remains our goal to get our products on the road as quickly and safely as possible to begin this customer journey and adoption lifecycle. With that, I'd like to turn it over to Sherry to discuss some updates on the financial side, along with an update on our headquarters expansion project.

Thank you, Thomas, and good morning, everyone. Let's start with our results for the third quarter of 2021. Our team continues to invest in R&D as we execute against our product development roadmap. R&D spending was $18.2 million, an increase of $4.8 million sequentially, and $15.2 million year-over-year. SG&A spending was centered around the continued build-out of necessary infrastructure to advance our commercialization initiatives, operational capabilities, and the addition of talent to accomplish these goals. For the quarter, SG&A spend was $8.7 million, a decrease of $1.4 million sequentially, and an increase of $6.5 million year-over-year. The sequential decrease is driven by a reduction in incentive compensation expense, partially offset by the increase in our employee base. Overall, Hylium reported a net loss of $26.6 million compared to a net loss of $23.2 million in Q2 and a net loss of $9.1 million from a year ago. We now expect our total operating expenses for 2021 to be approximately $110 to $120 million as compared to the 130 to 140 million guidance we provided on our second quarter conference call back in August. The reduction is driven primarily by the timing delay of truck purchases highlighted earlier in the call and a reduction of people-related expense. Turning to our capital structure and balance sheet, we ended the third quarter 2021 with over $588 million available to fund our current commercialization plans. This is divided into $289.5 million in cash and cash equivalents on our balance sheet, short-term investments of $144.5 million, and long-term investments of $155 million. Our short-term and long-term investments are high-quality credit instruments with no maturities beyond 36 months and a weighted average maturity of 14 months across our portfolio. We expect to begin generating revenue on the hybrid EX units we will deliver in the fourth quarter, but as previously mentioned, do not expect the results to be material for the fiscal year. With respect to the previously announced expansion of our headquarters, we are underway with the facility remodel. We decided to eliminate the previously planned terrace in our 120,000 square foot facility, and instead we plan to rent an additional 25,000 square feet for our testing and validation labs in a building adjacent to our headquarters. This allows us to better accomplish our goals of expanding our install capacity and battery production capability, all while supporting our growing employee base. Lastly, as we move forward into 2022, we expect to begin providing updates on both the key commercialization milestones and timelines we laid out earlier on the call as well as our expectations around spend and capital allocation for the fiscal year. We look forward to sharing our plans with you on our next call in February. This now concludes our prepared remarks. And now I would like to turn the call back over to the operator to open the lineup for questions.