Hyliion Holdings Corp.

Good day and thank you for standing by. Welcome to the Hyliion Holdings First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the conference over to Kellen Ferris, Hyliion's Director of Investor Relations. Kellen, please go ahead.

Thank you and good morning, everyone. Welcome to Hyliion Holdings' first quarter earnings conference call. On the call today are Thomas Healy, our chief executive officer, and John Panzer, our chief financial officer. A slide presentation accompanies this conference call and is available on Hyliion's investor relations website at investors.hylion.com. Please know that during today's call, we will make certain forward-looking statements regarding the company's business outlook. Forward-looking statements are predictions, projections, and other statements about anticipated events that are based on current expectations and assumptions and as such are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the forward-looking statements on this call. For more information about factors that may cause the company's results to differ materially from such forward-looking statements, please refer to our earnings press release as well as to our filings with the Securities and Exchange Commission. Forward-looking statements speak only of the date as 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 applicable law. Now I will turn the call over to Thomas.

Thank you for joining us for our first quarter 2023 earnings call, as we have a lot of important information to share with you this morning. We'll be providing updates on the Advanced Clean Transportation Expo in Anaheim, California that we participated in last week, news of the issuance of the final Advanced Clean Fleet Rule, known as ACF, by CARB two weeks ago, and some strategic shifts that we are making in our HyperTruck ERX commercialization plans in order to best maintain our strong cash position. I'd first like to start off with an update on our HyperTruck ERX powertrain development and commercialization work. For those of you who are new to the story, the HyperTruck ERX system is a fully electric powertrain for Class 8 semi trucks that includes a natural gas fuel range extender to recharge the batteries as needed. When fueled with renewable natural gas, the HyperTruck ERX powertrain offers commercial vehicle owners a net carbon negative capable alternative to battery only trucks, which have limited range and rely on expensive recharging systems that are not yet widely available. I'm pleased to report once again that we remain on schedule with plans to begin commercialization in the second half of this year. There are no new milestones to check off for the first quarter, but the product validation phase remains on track as we will begin extended fleet trials later in the second quarter. We are happy to inform that we submitted the required material to CARB in order to obtain our dual executive order with Cummins to certify the powertrain. We expect to complete certification from CARB, the EPA, and the National Highway Safety Administration sometime in the third quarter. We have previously shared that we'd start production of the HyperTruck ERX system in late 2023, but with the progress just mentioned, we now plan to begin production assembly of trucks equipped with the HyperTruck ERX powertrain in the third quarter ahead of schedule. We've made some other great strides to assist with pulling in the start of production timing. The team has been working diligently on building out our next batch of sea sample trucks, which we expect will be the final version of the powertrain design prior to starting production. These trucks are going through continued validation testing, and they will be deployed in extended fleet trials starting this quarter. We've also recently obtained ISO 14001, which is an environmental certification. as well as ISO 9001, which is a quality process certification. These ISO standards are expected of and common across the conventional suppliers and OEMs in the space, but are often not obtained by early-stage companies or new market entrants like Hyland. This achievement continues to build confidence and operational excellence as we move into production. Next, I'd like to provide an update on our HyperTruck ERX system commercialization plans and some strategic shifts we are undertaking that I mentioned earlier. As I'm sure everyone on this call is well aware, the past quarter has been an exceptionally challenging time for electrification and technology companies in the public markets. Unfortunately, Hyliion stock has similarly seen a recent decline, and it's prompted us to re-look at what is the best strategic path forward for the company. One very clear advantage that Hyliion has is our balance sheet with nearly $400 million in cash. What is also clear is that the ability to raise additional capital in the stock market has become severely limited without incurring excessive dilution for existing shareholders. Consequently, we need to make sure that we utilize the cash we have in a focused manner and as wisely as possible. During our last earnings call in March, we shared that we expected to incur gross margin losses on the sale of the initial trucks that are part of our inaugural Founders program due to startup inefficiencies that we expect to encounter as we go through assembly and delivery of the first powertrain systems. We also share that we expect to see an increased use of cash this year compared to 2022 as we purchase production powertrain components for the Founders trucks and for additional trucks that we plan to begin building in the first half of 2024 following Founders deliveries. In total, full-year operating expenses, capital spending, gross losses on sales of powertrain systems, and working capital increases were expected to consume up to $200 million in cash in 2023, or said differently, about half of our current capital position. If we look back in time, electrification startup companies were encouraged and rewarded by investors for rapidly growing market share and revenue. However, today, the market is rewarding quicker paths to profitability and conservation of cash, driven by greater investor skepticism for unprofitable business models. In light of recent capital markets developments and experiences of peer companies, we are taking steps now to better align with today's market expectations. We will continue to scale and grow the company, but we will do so with a keen eye for opportunities to reduce the rate of cash burn. The first area we are going to address is the losses we were anticipating on initial founders' deliveries, which are still subject to finalization in definitive terms. Our initial plan was to ship all 210 founders' trucks by the end of Q1 of 2024. However, as we assess the costs we'd incur by executing this plan, we believe there are more capital-efficient ways to achieve similar customer demand in the long term while consuming less cash in the short term. As we've begun procuring the powertrain and truck components, the costs have come in higher than we initially anticipated due to suppliers passing through their surcharges onto us. Thus, we need to pass these price increases along to our customers as well. We are working with the founders' fleet on restructuring initial truck orders as well as simplifying the agreements. We will see changes to the fleets participating in the program as we go through this process. However, we are confident that we can pull forward other fleets as replacements if needed. One other objective is to place the initial units with a greater number of customers, as this will allow more fleets to test and validate our powertrain and give them the confidence to place more orders in the near future. We are also planning to scale the ramp-up of production volume at a slower pace than we initially expressed. This will allow more time to procure components which will reduce surcharges we are now experiencing, and it will give the engineering team an opportunity to implement some cost-saving measures in the system design. Our new goal is to begin installing production powertrain systems into trucks in the third quarter and to complete and sell 30 trucks before the end of the year. We will then continue to evaluate our future truck assembly and delivery plan for 2024 based on modified and simplified founders agreements. We are also pulling back on our facility renovation that we were planning in connection with a fast buildup of our founders program trucks. We also anticipate adjusting our rate of hiring and shifting more quickly to being a powertrain provider to the OEMs as opposed to tying up working capital, assembling and selling complete trucks. All of these actions will conserve cash while allowing us to continue our path to commercialization and profitability. Shifting now to an exciting update from the ACT Expo this past week. ACT is the largest trade show that focuses on new emission reducing technology for the transportation space. In addition to showcasing our HyperTruck ERX powertrain with over 100 ride and drive events, we also unveiled the HyperTruck Carno solution. We were very pleased with the level of interest and excitement we received from OEMs, partners, and fleet customers. With respect to the Carno solution, it was the first time we've publicly showcased the generator and provided an in-depth opportunity to show how the technology works. In our booth, we had a 200 kilowatt size generator mounted onto a truck equipped with our HyperTruck electric powertrain system. I'd like to share with you some of the highlights that we discussed about CARNA. First, it is a fuel-agnostic generator that is expected to be able to operate on over 20 different fuels. The vehicle we had in the booth is equipped to run on both hydrogen and natural gas. The generator brings forward significant efficiency improvements while also reducing emissions and will emit no carbon dioxide when fueled by hydrogen. It is also expected to have almost no routine maintenance as there is only a single moving part per shaft and no oil or other lubricants in the system. Lastly, the generator operates at about 65 decibels, which is quieter than an average conversation between two people. During our press conference at the show, we also highlighted how we will expand our business focus to also offer the Carno generator solution for stationary power applications. With its high efficiency, low emissions, low noise, and minimal maintenance requirements, we see this as a strong solution for powering EV chargers, buildings, hotels, data centers, and many other applications that could benefit from a scalable microgrid. We expect to be able to produce electricity at a cost of around $0.07 per kilowatt hour. which is far lower than the cost of grid electricity in the U.S., which ranges from $0.11 to $0.22. We also expect to host ride-and-drive events with our Hypertruck Carno system later this year and begin to establish stationary charging demonstrations in 2024. Shifting to an update on our Hypertruck fuel cell demonstration truck. The development is well underway in partnership with Hyzon, and I am pleased to share that we are still on track to having the first vehicle complete by end of year. At the ACT Expo, Hyzon unveiled their new 200 kilowatt fuel cell, which is the solution that we are integrating into this demo vehicle. I have just one further update to share, which is around CARB vehicle credits. We've previously showcased that vehicles with our HyperTruck ERX system will qualify for 75% of the ZEV credits that OEMs need under the ACT ruling starting in 2024. About two weeks ago, CARB passed their latest clean truck rule called Advanced Clean Fleet, or ACF, which is a direct mandate on fleets to begin adopting trucks with electrified powertrains. I am very pleased to share that vehicles with our hyper truck ERX system will qualify for 100% of the ZEV credits under this ruling, the same as a pure battery electric or fuel cell truck. Passage of ACF will likely produce strong tailwinds for us as fleets look to comply with this new mandate. I will now turn the call over to John so that he can share more on our financial and strategic update.