Hyliion Holdings Corp.

Good day, and thank you for standing by. Welcome to the Hyliion Holdings third quarter 2023 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 Farris, Hyliion's Director of Investor Relations. Kellen, please go ahead.

Thank you, and good afternoon, everyone. Welcome to Hyliion Holdings' third 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 Hylion's Investor Relations website at investors.hylion.com. Please note 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. As such, are subject to risks and uncertainties. Many factors could cause actual results to differ materially from forward-looking statements made on this call. For more information on both factors that may cause the company's results to differ materially from such forward-looking statements, please refer to our presentation and press release, as well as our filings with the Securities and Exchange Commission. You are cautioned not to put undue reliance on forward-looking statements, and we undertake no duty to update this information unless required by applicable law. Thank you, and now I will turn the call over to Thomas.

Hello, and welcome to Hyliion's third quarter 2023 earnings call. I appreciate everyone joining us today for a business update and third quarter financial report. Last month, we announced that, with the support of strategic expert advisors, we were exploring a range of strategic options for our powertrain business. including engaging with a number of strategic and private equity partners regarding a possible sale or industry merger. In parallel, we also engaged industry experts to help us evaluate the market opportunity and competitiveness of the Carnot generator. As a result, today we are announcing that we have decided, with the support of our board of directors, to wind down the powertrain business while preserving the technology for potential later use or sale. Going forward, we will focus the company's capital resources and efforts on our Carno generator business, an innovative new generator solution. Although this is a difficult decision to make, it is a decision we believe to be in the best interest of the company and its shareholders. We are proud of the progress we've made with the development of our HyperTruck ERX powertrain, as we have regularly publicized we've made consistent progress achieving the development milestones that we laid out almost two years ago. In fact, with the recent receipt of CARB certification, the beginning of extended fleet trials with customers, and building of production trucks, we have completed all the prerequisite steps on our path to commercializing our HyperTruck ERX powertrain. Since I founded the company, Hyliion's mission has been to provide innovative solutions that reduce emissions, from semi-trucks, which was in line with the interest from fleet in adopting electrified trucks and with the development we've accomplished to date. Despite this progress, the environment for companies in the electrified commercial vehicle space has become challenging. Slower than initially expected fleet adoption of electrified vehicles, higher component costs, and evolving regulatory frameworks have put significant pressure on companies like Hyliion. As an example, I was recently speaking with a fleet owner who shared that the cost to buy a conventional natural gas truck has increased by around 45% in the past few years. We have seen increases for nearly all powertrain parts, some by more than $10,000 each. While this is partly due to inflation, it is also driven by the limited number of suppliers and low production volumes for key components, as a result of the immature nature of the electrified powertrain market. last june at our investor event we described additional development work that was necessary to align with changes to the regulatory environment this included integrating and obtaining carb certification for the new cummins 15 liter natural gas engine developing a day cab variant of the hyper truck erx powertrain and reducing the cost and weight of our powertrain while we believe our electric powertrain is the right solution for long-haul trucking and avoid some of the hurdles associated with other electric solutions, such as charging infrastructure, range anxiety, and the high cost of hydrogen. We are now faced with an adoption cycle that is longer than we expected, as fleets are delaying orders until mandates force the adoption of electric trucks. The primary one being CARB ACF, which starts in 2027 and requires additional investment and expense, such as integrating into a day cab, and a new engine. Given these various reasons, it is clear that further development of our powertrain business would require us to raise additional capital at some point. Partly driven by higher interest rates, but also due to the recognition of the industry challenges I have described, our third-party experts have advised that the capital markets are not currently supportive of additional fundraising by companies developing electric commercial vehicles. This has caused financial difficulties for many companies, and some, including Proterra, Lordstown, ELMS, and recently Volta Trucks, have entered bankruptcy. Therefore, we believe it is important to act now, while we are in a position of financial strength, to discontinue spending on the powertrain segment of our business. John will discuss the impact of the wind down of powertrain later in the presentation, but I want to shift to discussion now on our Carno generator business and the go-forward plan. Our goal with Carno has been to develop and commercialize the generator to address the growing demand for electricity with a distributed generator solution that offers clean, efficient, and cost-effective electricity. Carno is an innovative new solution that is powered by a linear heat generator and enabled by recent advancements in additive manufacturing. When we initially acquired the Carnot technology, we saw it as a strong solution for both our hyper truck powertrain as well as the stationary market. Our team has successfully showcased both the vehicle integration and the Carnot's ability to work in a stationary application by providing power back to the grid. As we look at the opportunities ahead, the Carnot generator in the stationary market has become even more compelling. due to its standalone nature and ability to address customers' ever-increasing electricity needs. Commercial fleets that have expressed interest in BEV vehicles are discovering that they are not able to secure sufficient electric power for their recharging infrastructure, and when they do, they are faced with significant capital investments, long lead times, and often encounter above-market electricity rates and incremental demand charges. our Carnot generator is currently being configured to solve each of these issues. It is important to highlight that the Carnot generator is unlike conventional internal combustion or gas turbine driven generators. Powered by a heat engine, the Carnot generator has distinct benefits compared to its conventional counterparts. These benefits include greater efficiency across a broad range of power output levels, lower maintenance costs, high power density, less noise and vibration, and the ability to operate on a broad range of fuel sources, including hydrogen, natural gas, ammonia, propane, and conventional fuels. Carno utilizes a proprietary flameless oxidation technology that results in significantly lower emissions compared to conventional generators. We expect its efficiency to surpass conventional generating systems when employing various fuel sources and even outperforming fuel cell efficiency when operating on hydrogen while generating no carbon emissions. We believe the Carnot generator can compete across a broad range of prime power applications, operating as a substitute for or as a supplement to grid power. We also believe it can compete in markets providing supplemental or backup power, such as peak shaving, electric vehicle charging, or renewables matching. Its ability to operate on a range of fuels, fuel mixtures, or even fuels with impurities is another advantage that enables it to convert waste gases such as flare gas or landfill gas into usable electricity. Over the past couple of years, we have made significant advancements in its development as we prepare for initial commercial deployments later next year. Recently, we highlighted a major achievement of successfully returning power back into the electric grid from our facility in Ohio using a Carno generator unit. In recent months, we have been showcasing Carno technology to potential customers. Through these discussions, we are garnering valuable insights on how the Carno generator can address many of the pain points customers face with grid power. One example is maintenance costs. Internal combustion generators require frequent maintenance, like oil changes, that require downtime and technician support. In contrast, the Carno generator has no oil or lubricants, and with only one moving part per shaft, we expect maintenance to be significantly reduced. As we continue these customer showcases, we expect to announce soon that several of these companies will take deliveries of initial Carno units next year. As we wind down the powertrain business and preserve the technology for potential later use, we have an opportunity to shift certain employees and technology to Carnot development. As an example, the cloud and infrastructure we have developed to capture and analyze vehicle data is readily adaptable for use in systems supporting Carnot generator controls and monitoring. The Hyliion drive processor, which is used on the vehicle for connectivity and advanced algorithms, can similarly be adapted to the Carnot technology. We also see significant overlap in electric architectures and battery systems. We plan to maintain operations in Austin, Texas and Cincinnati, Ohio. Austin will remain our headquarters and will assume more activities related to the industrialization of the Carnot generator and software development. The Ohio team will maintain its focus on R&D technology. As we transition the focus on Carno, we will be able to significantly reduce the amount of cash spent on the business. John will provide financial details, but I want to highlight our initial expectations. We continue to have a strong balance sheet with $324 million of available capital at the close of the third quarter. Our projection for the full year is to have spent $137 million in 2023. leaving us approximately $285 million at year end. For 2024, we expect our cash burn to be reduced to approximately $40 million, or a 70% reduction. Our strong capital position gives us financial flexibility well into the future as we begin commercial deployments of our Carno generator technology next year. I will now turn the call over to John to provide a financial update.