Hexagon Purus Asa

Hi and welcome to Hexagon PURES Q1 2024 presentation. My name is Mathias Meidel and I am the IR Director in Hexagon PURES. I will be moderating from the studio in Oslo and from the studio I'm also joined by Group CEO Morten Holum and Group CFO Salman Alam. The agenda for today includes, as usual, the highlights from the quarter, a company update, the financials and the outlook. We will also end the presentation with a Q&A session. So please feel free to enter your questions via the function on your screen. And with that, I will pass the word over to you, Morten, who will take us through the highlights of the quarter.

Thank you, Mattias, and good morning to everyone joining our webcast today. It's been another great quarter for Hexagon Purus, following a long string of quarters where we have delivered according to plan, keeping us well on track towards target. So let's go straight to the highlights. So three key highlights. Number one, we continue to deliver strong revenue growth, both on the quarterly and on an LTM basis, with all-time high Q1 revenue of $407 million NOC and all-time high LTM revenue of $1.483 billion NOC. Number two, we continue to see demand growth across several applications. And it's great to see that we are indeed getting an increasing number of call-offs from the many long-term agreements we have signed during the past year. And then number three, most importantly, we see that profitability is steadily improving as we grow volume and gain higher operating leverage. We continue to deliver revenue growth and improving profitability. So revenue in Q1 was 407 million NOC, which is 67% higher than Q1 last year. On the positive side, we had a spillover effect from last quarter, as you may remember, around 40 million NOC that technically didn't meet the revenue recognition criteria in Q4. So that was recorded now in Q1. And on the other side of the equation, we were output constrained in Q1, both due to the delayed ramp up in Kassel and due to component shortages in the supply chain. So we were not able to deliver all the planned volume to customers. Volume wise, the positives and negatives for the quarter were more or less equal in size. So overall, the financials give a good picture of the underlying activity in the quarter. With solid growth from last year, LTM revenue continues its upward trend, growing 41% to 1.483 billion NOK, as you can see in the middle chart. And on the right, we see that profitability is steadily improving with higher volume and operational scale. And with most of our business done at solid gross margins, we expect profitability to continue improving going forward as we grow volume and gain higher utilization of the newly installed capacity. Double-clicking on revenue growth, we see that hydrogen distribution systems continue to be a key revenue growth driver, up 38% from last year. But in Q1, hydrogen mobility was actually the largest contributor of revenue growth for the first time, up 68 million NOK from last year. Hydrogen mobility will continue to be a bit lumpy, but we now start to see growth in serial volume from existing long-term agreements. This is both in transit bus, where we expect higher volumes to Solaris, Caetano, and New Flyer, and heavy-duty truck volumes to Nikola. So we expect mobility to play an important role as a revenue growth driver this year. The growth in the battery electric mobility in Q1 was actually not related to product sales, but driven by an extraordinary payment from an OEM customer for design and engineering services to an ongoing program. You should not expect to see any meaningful growth in that segment until late in the year when the deliveries to Hino and Daimler is planned to start. and the growth in other applications was mainly driven by a strong quarter for the aerospace business. The order backlog has been pretty stable over the last few quarters and was 1.242 billion NOK at the end of Q1, of which approximately 90% is for execution now in 2024. We had a book-to-bill ratio of around 0.9x in Q1, so we were almost able to replenish the entire Q1 revenue in new orders. Looking at order composition, the book continues to be dominated by hydrogen business and mainly hydrogen infrastructure. Close to 90% of distribution system capacity in 24 is either already in the order book or in the final stages of being sold. So we feel pretty comfortable in that area. Hydrogen mobility is around 25% of the current order book, which consists of call-off orders from existing long-term agreements. The battery electric mobility volume to Hino and Daimler programs are not planned for delivery until Q4, so they will likely not enter the order book until sometime after the summer. In total, we are comfortable with the order situation. The current line of sight, based on the order book, the expected call-offs from long-term agreements and recurring customer business, provides strong comfort in our ability to reach our 2024 revenue target. And it's important to understand that the order dynamics differ between applications. So the lead time from when we receive a purchase order to when we have to deliver is different. For hydrogen distribution systems, we typically see purchase orders six to nine months ahead of delivery. This is the main reason why this has dominated the order book until now, besides it being the largest business at the moment. For bus and truck, the lead time is shorter, three to four months for bus, six to 10 weeks for truck. So mobility orders are typically call-offs from multi-year agreements or frame agreements. So we have less order visibility on those. But we do have close and frequent dialogues with these customers and have insight into what their forecasts look like. So we have a pretty good sense of what they plan to order and when they plan to order it. Overall, we're comfortable with the outlook for the business portfolio we have built during the past few years. I've said frequently that I don't really consider demand to be the constraint toward us meeting our revenue targets. It's more likely to depend on execution, succeeding in scaling up capacity and securing components from the supply chain, and then get sufficient volume off the production lines. We have built a strong customer portfolio across key applications that are now starting to yield meaningful volume. This gives comfort that we can achieve our targets. And don't forget their significant growth potential on top of our existing portfolio. The commercial activity is still increasing across applications, both the near-term on-road mobility applications and the emerging off-road mobility application, such as rail, maritime, and aviation. The latter will take some years, but we're involved in projects in all of them, and we don't need to see mass adoption in any of these segments to gain meaningful volume at the size company we are at the moment. As we announced before, the trucks we are building for Hino, they will not be sold under the Hino brand. The truck is based off a Hino chassis and will be sold exclusively through Hino dealers, but it will be branded separately under a brand developed and owned by us. And that brand is Tern. So this truck will be officially unveiled at the ACT Expo show in Las Vegas on the 20th of May. So we're super excited about that. ACT Expo is the largest alternative energy truck expedition in North America. And we'll be holding a press conference together with our partners Hino, Panasonic and Dana. We've started to release some teasers in social media. So if you're interested, please go to turntrucks.com and follow the Turntrucks account on LinkedIn, X, or Instagram. We're approaching the end of our investment and capacity expansion program. The global manufacturing footprint is now almost completed. The Dallas facility is the only one where we have yet to take occupancy. The tenant improvements are in process there and we'll start to move equipment into the building in June. I want to give you a quick status on where we stand with the different facilities. The battery module assembly line in Kelowna is now operational. We continue to produce battery modules and packs in Q1, and the first battery systems have been shipped to Ontario, where we're putting them on test and validation trucks so we can do further live on-road testing for the customer programs with Hino and Daimler. We'll continue to add some equipment in Kelowna now in Q2 to fully complete the line and achieve the desired level of line integration and automation. So we're ramping up for the larger volumes that are needed in the second half of the year as the truck builds will commence. The battery systems from Kelowna will later be shipped to Dallas for truck installation once the site has been prepared. And here's a picture of the building located a few miles east of Dallas. So I mentioned we're currently busy with the tenant improvements to tailor the building interior to our specific needs. And we'll start to move in equipment in June, preparing for an official opening sometime later in Q3. As we mentioned in the last quarterly presentation, the ramp up of the new Kustle facility has taken more time than expected due to delays in equipment deliveries and final acceptance testing. That led to somewhat reduced output in Q1, but we're on a good trajectory now and are currently meeting all customer volume requests. Overall, we expect to be caught up and back on track by the end of the second quarter. This is a picture inside the new distribution system assembly hall in Vetse. You can see several modules being built in the different installation base. So high activity in this area now to meet customer demand. The scale up is going well with increased capacity to support continued strong customer demand. So we're on track there. Still early days. We're only in the initial ramp up phase. So the monthly assembly capacity will continue to increase towards the end of the year. but we're tracking to plan. And this is a picture from the inside of the cylinder manufacturing plant in China, where construction is now completed and the majority of the equipment has been installed. And as you can see, the very first cylinders have also been produced. So we will now go through the official commissioning and factory approval stage, and will subsequently apply for product approval and licensing for the Chinese market. Depending on the timing for final approval, we're also exploring opportunities to manufacture cylinder volumes for international markets during the license approval period, Europe included, while we wait for cylinders to be approved for the local Chinese market. So that was a short run-through of where we stand on the facility side. Outside of the pictures I just showed, the Ontario site in California has been operational for a while, and the team there is currently building the test and validation trucks for the Hino and Daimler programs. The Westminster site has also been operational for more than a year and looking good. And we're also operational in Ålesund, where we are currently building the first large hydrogen systems for maritime vessels scheduled for delivery and installation later this year. So in general, considering the scale of the challenge that we have taken on, bringing on seven new facilities on three continents simultaneously, all within an 18-month timeframe, I consider us to be largely on track. In the grand scheme of things, there have been few hiccups and delays and almost no cost overruns. So I'm very happy with the work that the Hexagon Pura's teams around the world have done to pull this off. It's been a tremendous effort and it's an impressive achievement. So hats off to the teams. So those were the main points from Q4. And with that, I will hand the word over to our CFO, Salman, who will take you through the financials. Salman.

Thank you, Morten. Good morning, everyone. We'll start off with this picture today. As mentioned, last quarter, Q124 marks the first quarter of segment reporting for us. So we split our business into two main parts. First part being the hydrogen mobility and infrastructure part, which we abbreviate as HMI. This is our hydrogen cylinder and systems business in Europe and North America, and also includes our industrial gas business in Europe and our aerospace business in North America. The second segment on the right hand side is the battery systems and vehicle integration business in North America. So this is the business unit that will start to deliver on the Hino and Daimler contracts later this year. The China joint venture, our maritime activities and also corporate is reported under other eliminations, as you will see in the financial statements. We'll come back to the financial details at the segment level, but we'll start it off at the group level as usual. Revenue-wise, the first quarter was a record quarter for us. We delivered all-time high quarterly revenue of 407 million. This is 67% growth compared to the same period last year, and it's mainly driven by our hydrogen infrastructure and hydrogen mobility business. We also had strong contributions from our aerospace business in North America, which provides storage solutions to privately held space exploration companies in the US. In our battery systems and vehicle integration business, we received an extraordinary payment of approximately 17 million from an OEM customer related to an ongoing customer program. Total operating expenses ended at 504 million in the first quarter, up from 356 million in the same quarter last year. Our cost of materials ratio was 54% in the quarter compared to 64% in the same quarter last year and 59% for the full year of 2023. The cost of materials ratio in the quarter was better than expected, mainly due to the extraordinary OEM customer payment, which didn't have any costs associated to it in the quarter, combined with an overall favorable product mix. Payroll-related expenses was 191 million in the quarter, up from 139 million in the same quarter last year, but decreased in relative terms compared to revenue year over year. The organizational build-up of the company has been important, and it's continued in the first quarter, and it will help us deliver on the customer commitments that we have for this year and beyond. We're now actually counting close to 700 colleagues across three continents, which compares to around 200 employees when we went public back in December 2020. So we've had quite the growth since then. Subtracting total operating expenses from total revenue, EBITDA ended at minus 97 million in the first quarter of 2024, which is equal to an EBITDA margin of minus 24%. This is a significant improvement compared to the EBITDA margin we saw in the same quarter last year, which was minus 46%. It's consistent with our expectations of overall improved profitability in 2024 as scale and operating leverage increases. Moving below the EBITDA line, depreciation ended at 44 million in the quarter, compared to 28 million in the same quarter of last year. Generally, the increase in depreciation is caused by a higher balance of depreciable assets due to our capacity expansion program. Of the 44 million, about 28 million relates to depreciation of property, plant, and equipment, as well as amortization of intangibles, and about 16 million relates to the right-of-use assets depreciation. The resulting EBIT for the quarter was minus 141 million versus minus 140 million in the same quarter last year. Losses from investments in associates, which reflects our minority shareholdings in CryoShelter and the Systems Joint Venture Company in China, ended at minus 2 million, which is largely the same as last year. Finance income in the first quarter was 36 million, compared to 10 million in the same quarter last year. Approximately 30 million of the finance income relates to FX fluctuations, and approximately 6 million relates to interest income on bank deposits. Finance costs in the quarter was 60 million, where 41 million is related to non-cash interest on the two convertible bonds that we now have outstanding. And another 10 million of the 60 million is related to interest on lease liabilities and other interest bearing debt. And the remainder relates to foreign exchange fluctuations. At the group level, we are not yet in a taxable position, and tax expense in the quarter was minus 2 million versus minus 1 million in the same quarter last year. Therefore, loss after tax ended at minus 165 million versus minus 154 million in the same quarter last year. Moving on to the segments, we'll start off with the hydrogen mobility and infrastructure segment. This is the business unit that manufactures hydrogen cylinders and hydrogen systems for the storage of hydrogen onboard, either off-road or on-road vehicles, or for infrastructure purposes such as the distribution of hydrogen from the point of production to the point of consumption. It also includes our industrial gas business in Europe and aerospace business in the U.S. The main driver of growth for this business has been hydrogen infrastructure solutions, and in particular the sale of hydrogen distribution modules to industrial gas companies such as Air Liquide, Linde and Life. The business unit has production facilities in Kassel and Wetz in Germany, as well as Westminster in Maryland in the US. The business unit made up about 95% of the revenue in the first quarter of 2024, and it houses more than 550 of our employees. The business unit is led by executive vice president, Michel Klischinsky, who's based in Kassel, Germany. Michel has been with the company and our predecessor companies for more than 18 years and is a leading industry expert on type four high pressure hydrogen storage solutions. Looking at the financials for the segment, in the first quarter, the segment reported revenue of 388 million, up 66% compared to the same period last year. The largest revenue component was hydrogen infrastructure solutions, which made up 54% of the revenue in the quarter and showed 38% growth year over year. The largest absolute growth, however, came from the hydrogen mobility application space, which made up 26% of revenue and grew 213% year over year. Increased deliveries to our transit bus customers, such as Solaris and Kitano, combined with increasing deliveries to Nikola, were the main growth drivers. The other segment, which includes the industrial gas business and aerospace mainly, also grew strongly and by 61% year over year. Moving to the right-hand side of the page, EBITDA for the segment in the quarter was minus 16 million, which equals an EBITDA margin of minus 4%. This compares to an EBITDA margin of minus 15% in the same period last year and represents a significant improvement in profitability driven by operating leverage as scale increases. And we also had the positive product mix effects. It is definitely encouraging to see this profitability trend, and we remain confident in our ambitions of reaching EBITDA breakeven for the overall hydrogen mobility and infrastructure business during 2024. Moving on to the battery systems and vehicle integration segment, which we abbreviate as BVI. This is the business unit that engages in battery assistance production and complete vehicle integration of battery electric and fuel cell electric vehicles for the North American market. We also have a complete suite of proprietary key components required for electrification of heavy duty trucking, and many of these components are IP protected. Size and maturity-wise, this is a business that is earlier staged in our hydrogen business and makes up about 5% of group revenue and houses about 15% of our employees currently. However, significant growth is expected for this business unit going forward as we prepare for start of serial production on the Daimler and Hino programs towards the end of this year. The business unit is led by our executive vice president, Todd Sloan, who's based in Kelowna, Canada. Todd is an industry innovator with more than 20 years of experience in the clean mobility industry. As mentioned earlier today, revenue in the quarter for the BVI business unit was primarily influenced by the extraordinary payment of 17 million we received from one of our OEM customers. We aren't expecting any significant revenue recognition for this business unit until we have start of serial production on the Hino and Daimler programs in the fourth quarter of this year. EBITDA-wise, the quarter ended at minus 25 million, up from minus 32 million in the same period last year. The extraordinary payment that was received from the OEM customer didn't have any costs associated to it, and therefore the contribution towards EBITDA of this payment was high. Preparations for start production at both the Cologne and Dallas facility, combined with continued investments in organizational scale-up, will continue to impact EBITDA for this business unit in 2024. Zooming back out again to the group level and moving on to our balance sheet, total assets at quarter end was approximately 4.8 billion, which is a meaningful increase compared to the size of the balance sheet last quarter. On the asset side, the main meaningful changes can be seen in property, plant and equipment and right of use assets connected to our capacity expansion program. Networking capital also increased in the quarter, which is a reflection of the continuous growth we've had and also the growth expectations we have for 2024. The level of inventory in work in progress and as finished goods were higher than normal in the quarter, as certain supply chain challenges impacted customer shipments in the quarter, as Morten mentioned in his opening remarks. Our cash position at the end of the first quarter stood at 965 million. Looking at the equity and liability side of the balance sheet, the main increase are related to the convertible bond that was issued in February, as well as the increase in lease liabilities driven by our capacity expansion program. The convertible bonds are recognized as compound financial instruments, according to IFRS, and carries a debt component and an equity component due to the convertible nature of the bonds. The equity ratio at the end of the first quarter was 43%. Moving on to the cash flow statement, which reflects the movements in the balance sheet and P&L, our operating cash flow in the quarter was minus 211 million. Operating losses makes up the bulk of this at 167 million. An increase in working capital was 109 million. The main item under cash flow from investing in the first quarter was 130 million we invested in property, plant and equipment related to our ongoing capacity expansion program. As mentioned last quarter, we had some delays with some of our equipment suppliers, which delayed final acceptance testing and therefore also delayed the disbursement of funds to our suppliers. We expect the second quarter of 2024 to catch more of the spillover we saw from 2023 and also so far in 2024, leading to an increase in capex in the second quarter this year compared to the first quarter. Finally, net cash flow from financing was 985 million in the quarter, driven by the issuance of the convertible bond that we mentioned. With that, I'd like to pass it over to Morten to walk us through the outlook.