Good day and thank you for standing by. Welcome to the Hyliion Holdings Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. I would now like to turn the conference call over to Kellen Ferris, Hyliion's Director of Investor Relations. Kellen, please go ahead.

Good morning, everyone. Welcome to Hyliion Holdings’ fourth quarter and full year 2022 earnings conference call. On the call today are Thomas Healy, our Chief Executive Officer; and Jon Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hyliion's Investor Relations website at investors.hyliion.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 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 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. And we undertake no duty to update this information unless required by applicable law. Now I will turn the call over to Thomas.

Good morning, everyone. And thank you for joining us today for our fourth quarter and full year 2022 earnings call. We have a lot of exciting news to share with you about the progress we've made over the past year and our plans for 2023. First, let's review the key milestones that we achieved in the fourth quarter of 2022 and for the full year. We hit another milestone on the path to commercialization of our Hypertruck ERX power train by starting winter testing. We also completed the first full year of revenue generation and achieved our latest revenue guidance for the year. We added another 10 orders for initial Hypertruck ERX production slots, bringing the total up to 210 units. In addition, we acquired the KARNO generator technology, which will give us a competitive advantage by having a high efficiency, fuel agnostic generator. We've increased our workforce by over 50 employees during the year including our CFO, Jon Panzer, and our Chief Strategy Officer, Cheri Lantz. We also added Jay Craig, the former CEO of Meritor, to our Board of Directors, and he recently took over the Chairman role. We also expanded our relationships with both PACCAR Peterbilt and Cummins, which will help us scale our solutions and bring them to market more quickly. We made great progress on the regulatory front as well. Our technology will be included in the Inflation Reduction Act and is expected to qualify for CARBs Advanced Clean Truck and Advanced Clean Fleet mandates, which define clean truck production and adoption requirements for OEMs and fleets. These are all significant achievements, and we are proud with what we have accomplished. Shifting back to the Hypertruck ERX powertrain milestones. As a reminder, we initially shared this commercialization timeline back in 2021, and for five consecutive…

Thank you, Thomas and good morning everyone. Turning to our financial results for the fourth quarter. We reported revenue of $1.1 million related to Hybrid sales, including three trucks outfitted with Hybrid systems, compared to $500,000 in the third quarter of this year and $200,000 in the fourth quarter of a year ago. Operating expenses totaled $31.6 million for the quarter, up from the $26.6 million we recorded a year ago in the fourth quarter but sequentially lower than the $34.1 million we reported in the third quarter of 2022, after excluding the $28.8 million accounting impact from the KARNO acquisition we closed in September. I want to also note that this is the first time we are recording a full quarter of normalized expenses for the KARNO operation in our financial results. R&D expenses totaled $21.8 million, up $4.4 million from 2021, but down about $2 million from the prior quarter, again after excluding the impact of the KARNO purchase accounting. SG&A expenses for the quarter were $9.7 million, up $500,000 from 2021 but down $500,000 from the third quarter, as we are starting to level out the growth in spending on overhead costs. In total, Hyliion reported a net loss of $29.4 million for the fourth quarter, which is nearly flat compared to the net loss of $29.6 million we reported in the fourth quarter of 2021. Comparing the two periods, operating expenses were about $5 million higher in 2022 than 2021 but were mostly offset by smaller gross loss and higher interest income on our investments. Sequentially, our operating loss of $29.4 million was $5.2 million lower than the loss we reported in the third quarter of 2022 excluding KARNO accounting with improvements in all areas including lower gross loss, lower R&D and SG&A expenses and higher…

For our closing remarks, we have a few exciting updates and events to share with you. First, we want to highlight that we will be exhibiting at the ACT Expo in Anaheim, California in early May. We will be showcasing both our Hypertruck ERX and KARNO technology. We'll have a KARNO generator in our booth as well as the initial proof-of-concept semi truck utilizing a KARNO generator. This will be the first time ever that the KARNO technology has been publicly displayed. At the show, you will also have the opportunity to see Hyzon’s fuel cell that we will be integrating into a hypertruck. We are excited to share our progress with the industry and connect with other leaders in the space. In early January, I participated in a panel at the World Economic Forum in Davos, where we spoke about how the grid is or is not able to support EV charging and how solutions like the KARNO generator can produce electricity locally in a distributed grid model, to help ease the charging infrastructure issues. We also spoke about how range extender vehicles like the hypertruck can help avoid many of the infrastructure problems. We encourage you to watch the panel discussion on our YouTube channel, as well as our recently released educational video on what size batteries are truly needed for EV trucking. Lastly, we are pleased to announce that we will be hosting an investor conference at our headquarters in Austin, Texas on June 27th. We will be showcasing our existing technology and some of the future advancements we are working on. We encourage all of our investors and interested parties to attend and learn more about our vision for the future of electrification. In conclusion, we are very pleased with the progress we have made over the past year. We have achieved significant milestones, expanded our customer base and made important regulatory strides. With our continued focus on innovation and collaboration, we are confident in our ability to lead the industry towards a more sustainable and efficient future. Thank you for your ongoing support, and we look forward to updating you on our progress in the months ahead. With that I will open the call to questions. Please go ahead, operator.

[Operator Instructions] And your first question comes from the line of Bill Peterson from JP Morgan.

Good morning. This is Mahima Kakani on Bill Peterson. Thanks for taking my questions. Could you please tell us a little bit more about if the Hyzon collaboration could potentially change the timing between the KARNO and the fuel cell launches and/or the key markets addressed?

Sure, absolutely. So first coming to market is going to be the Hypertruck ERX, which is the CNG range extender solution. In parallel, as you know, we're already working on the KARNO development vehicle. That will be first showcased at the ACT Expo here in just a couple of months. And then, as we've announced today, we're going to start working on a fuel cell development vehicle as well. So, in terms of timing of those solutions, the one advantage that a fuel cell solution does have is just it's less regulatory compliances that we need to go through in order to bring that to market. So, there is some acceleration of the development schedule there. In terms of actual timing of when we'd be ready to bring that to market, we're not ready to share yet just because the agreement with Hyzon is really around this initial development vehicle, proving that out, showing to the market that our powertrain is able to incorporate a fuel cell, just like it can incorporate the range extender CNG, the KARNO generator, and then from there, we'll showcase the solution with customers and we'll work with Hyzon to determine how we see best fit to potentially bring a solution to market and what the timing of that would be. So, more to come on that end. But as your question is pointing out, there are easier -- or I should say less barriers to bring a fuel cell solution to market just because of the regulatory side of things and the zero tailpipe emissions. But by all means, the team is focused on ERX is the first one we're bringing to market and that'll be in start of production later this year.

And then, maybe as a follow-up to that is the Hyzon collaboration, let’s say that the proof of concept kind of meets expectations. Will that be the primary fuel cell strategy forward, or is it part of a larger hydrogen strategy from Hyliion?

So, as I think we've probably been pretty bullish on is, we see hydrogen as being a fuel of the future, but the biggest question is just when, right? And even where we sit here today, hydrogen costs are still much, much higher than diesel, even there's only a few stations out there where you can actually refuel a hydrogen vehicle, a semi truck. So from that standpoint, we really see hydrogen as being kind of a localized delivery. And we expect there to be interest from fleets and demand from fleets in those areas. But for the real, like vast majority of the country over the road trucking, we definitely see natural gas and renewable natural gas, especially as being the fuel of choice. So, we've gotten -- as a company, we've gotten some question marks or maybe even criticism in the past of like, are we going to be ready when hydrogen is available? Are we going to be a true contender at that point? And that's one of the reasons why we wanted to make sure we fulfill the roadmap that we had the, three stage roadmap of including a fuel cell as well, because we want to show that in --whenever hydrogen is ready, when those costs come down, and infrastructure gets built out, we're going to be able to have a solution that is piggybacking on a powertrain -- that, by that time, we expect we’ll already have millions and millions of miles proven out with the CNG range extender. And so, we want to showcase that we're going to be a strong contender in the hydrogen space as well.

Your next question comes from the line of Andres Sheppard from Cantor Fitzgerald. Your line is open.

Thank you. Hey Thomas, congrats on the quarter, and thanks for taking our questions. Quick question on our end, a bit on the quantitative side. As you approach startup production, second half of this year, and you have the 210 orders, which was increased from last quarter, how should we be thinking about gross margins? Now, I know you don't guide those, but should we expect those margins to perhaps turn positive by the end of this year, or are we more realistically -- should we be envisioning 2024 as a as a more feasible timeline? Thank you.

Hi. Andres, this is Jon Panzer. I'll take that question. So, we mentioned that we're going to be commercializing the truck later this year. So, we're going to start making deliveries sometime in the fourth quarter, we don't know exactly what date or how many. So, I wouldn't assume in 2023 that we would see positive margins. As we mentioned, there's some of the inefficiencies with starting out, and component costs are higher when you're purchasing them in lower volumes. But we're actively working to turn those positive. And that's going to be from more efficient assembly, better procurement and also just engineering changes to the truck. So, it's a little bit too early to predict, but you can be sure that's our -- besides delivering a reliable truck, that's our number one priority for the future. So, it's a little bit hard to predict exactly when that will be.

Understood. Thank you, Jon. That’s helpful. Maybe as a follow-up, I'm curious. Maybe Thomas, maybe this one little bit more for you is, what kind of trends have you been seeing on the supply side? Right, obviously, supply chain disruptions have been a big problem for the entire industry. Just curious what you've been seeing and maybe any thoughts for 2023? Thank you.

So, we're definitely seeing the -- I guess, the hurdles that were in place of the supply chain markets over the past couple of years, we're definitely seeing those easing some. We're not seeing suppliers continue to extend their lead times. If anything, it's starting to go the other way. They're achieving the lead times they told us and in some instances, moving in the lead time. So, I think everything's heading in the right direction of the supply chain markets. The next thing that we hope to see and we're going to obviously push on this with our supply base is to start to see the pricing reduce back to where it was, or start to head towards the level it was pre this kind of shake-up in the supply market. So that'll be one of our big pushes here. One of the things, maybe just to parlay this question into another topic is just, we're starting to see BEV vehicles, get out into the market get out into customers’ hands, and the question is where the customer demand is going to lie. And what's been interesting -- and we've kind of forecasted this a little bit in the past is we're seeing that fleets are really struggling with these BEV vehicles that they're seeing charging as being a massive issue, the cost of infrastructure, the uptime of the vehicle, the amount of time that it spends having to be recharged, all these things are just factors that are really hurting fleet’s abilities to adopt the best solution which is then in return actually causing more demand and more focus on our solutions, which is great. And just to put an actual story to that, we were with the fleet, not too long ago, who did adopt some BEV vehicles, some plug-in vehicles. And the very senior executive there came back to us and their comment was, after their experience with BEV, while he's at the company, they will never adopt another BEV vehicle again into their operations, just because of how many hurdles and headaches they had with trying to adopt the BEV, but they see our solution as being very practical. So, that's some positive news for the path we are on most definitely.

Appreciate that context, Thomas, very helpful. Maybe one last one, if I squeeze it in. It's -- just remind us again on your capital needs, kind of what your expectation is there. Obviously, you funded through start of production, but any additional color there?

Yes. This is Jon again. I'll summarize that. So, we finished the year with $422 million of liquid assets on our balance sheet, so capital that will be available to us when we need it. And we spent, I think it was roughly $135 million last year. We also guided to spending somewhere under $200 million this year. The unknowns there is just our working capital build and how many trucks we sell by the end of the year. So, somewhere south of $200 million. So, we are going to -- that's going to leave us over $200 million by the end of this year is our projection. So that leaves us in good shape. So, we have no plans to raise any capital all this year and it puts us in a great position to even start 2024, as we start to ramp up sales.

Excellent. Thank you very much. Congrats again on the quarter. I'll pass it on. Thank you.

Your next question comes from the line of Donovan Schafer from Northland Capital Markets. Your line is open.

Hey, guys. Thanks for taking the questions. I do want to start off just actually by offering my condolences around Ed's passing. I know he was an early investor in the firm. I think he even had sort of like a COO role for some stretch of time. And I think it goes back to like 2016 or something, I know he was there for a long time. So no doubt, I'm sure that he will be missed. So I just wanted to pass.

Appreciate that. Thank you.

So turning to questions. For the Hypertruck ERX ramp, you guys hinted on some of it, talked about some of this with like working capital and supply chain and sourcing and all that. But, of course, I think we would all love to know and have a crystal ball for exactly what the Hypertruck ERX ramp looks like in 2024, following the initial 200 or 210 units, thinking about second quarter, third quarter, fourth quarter of 2024. I'm guessing, it's far too early for you guys -- for you guys to give us anything on that. Of course, if you can, please do. But if not, what I'd like to know is, at what point do you need to start making procurement decision? When -- procurement decisions and other things, like, when do you need to have your own internal view in place for the number of units you would need to be able to produce in Q2, Q3 and so forth. What's the gating points or the points this year where you would need to start making some of those decisions?

Sure. So, yes, as you led in with the question, it kind of hinted too, we are not ready to share just volume expectations for 2024 at this point. We are confident and are going to work very hard to make sure we achieve what we set out of delivering all those 200 vehicles by the end of Q1 of '24, which is going to be a great ramp up for the team. But in terms of the procurement part of it that you mentioned, it's a great question, because as we shared in past earnings calls, we were starting to pre buy some of the things for these initial 200 trucks just to make sure that we had them in plenty of time. Supply chain markets, it varies based on components, but usually probably a six-month is a fair bet. Some components are longer than that. Some are much shorter than that in terms of when we would need to be placing orders, so. But for kind of analysis purpose, I would use kind of that six-month mark of when we would need to be placing orders before actually making the deliveries with the customers. We're obviously working very closely with Peterbilt and working through the availability of trucks, and we feel confident for those initial 200 builds. We're in good shape there. And one thing to highlight on that end, just the Peterbilt relationship is going well. We continue to make great progress with them. And actually, one of the big milestones for the team internally here was just recently we did the first build of a de-contented truck off of Peterbilt's line that was specked specifically for Hyliion. So, as we've talked about in the past, in the early stages, here, we were kind of taking full trucks, and we were taking components off of them and then having to discard those or sell those components. Now, we're moving forward with being able to source chassis and trucks directly from Peterbilt that are built how we need them to be, which is a huge milestone. And we expect that to -- relationship to continue to grow as we move forward here.

And then, for the winter testing, given that you've already begun the winter testing, I'm sure it's not complete, or you would have said it was finished. And I'm sure that some amount of assessment has to have this full start to finish scope for an assessment. But yes, I'm curious if there are various incremental phases for the winter testing, or any just points where it allows you to give us some color or some updates on how the vehicles have been performing so far in the winter testing. And also, maybe any new insights from that versus the summer testing. I know like you talked about frustrations with the EVs. In cold weather, you consume a lot of energy with heating, the cab, but with something like a natural gas generator, you get waste heat from that. So, that's why heating isn't really a problem in an internal combustion engine. So curious, comparing and contrasting winter, summer testing, benefits and just any incremental updates from what you've seen so far?

Absolutely. So a few different parts of that question. So, I'll start off with is it still ongoing? So, yes, it is. Actually, we're still in the middle of winter testing right now, and we're going to continue it on. Actually, we just have made some design improvements to the vehicle. The next batch of vehicles are just starting to hit the road. Actually, as we were getting ready for this call, we noticed that there's already been some pictures of the truck out on the road, the new design, the updated design. So, we're excited to have that already underway. But testing will continue. In terms of what we've learned thus far, there have been learnings, right? The philosophy with testing is you want to push things to the point that you break them. So you figure out where the weak points are. So, we're doing just that. But what I will say is nothing that we've found in testing thus far has made us have to go back and rethink the timeline that we're on. So, that's a huge win. But the learnings have raised -- have been learning were from water ingress, areas, things like that to improve connectors to improve designs of sheet metal to improve, nothing that's major though. As well as we've even had learnings on some of the components that we're sourcing from, whether they're brand new or newer companies in the industry to well established been around for a bunch of years, but they're new into the electrification space. We've been able to give feedback to those suppliers as well and help them through continuing to iterate the designs of their components. But -- and then the last part of your question was kind of summer versus winter. I think winter is normally thought of as being very, very difficult for electric vehicles and it is because you need to use a lot of your battery capacity to actually heat the batteries because batteries don't like to be cold. One of the nice things that we have as an advantage, as you pointed out is we can actually use the natural gas generator during that time to be producing electricity to help with powering the vehicle. And thus, we don't see as much of the negative performance attributes of cold weather. It doesn't affect our powertrain as much as it does a BEV. So, overall, been very pleased with the testing though.

Okay. And then, if I could just squeeze one last question and about kind of, there's the two -- originally they're sort of the 200 production slots for the Founders Program, tied to the launch facility in Dallas. Now, you've got the incremental 10 units ordered by DSV, is that as we get incremental orders and things that come in, so we add on to that initial 200, are those going to be folded into that same idea of like a Founders Program, and they get that kind of white-glove treatment you talked about with additional servicing and monitoring and everything out of the Dallas facility? I think you kind of hinted at that in your prepared remarks, but just wanted to clarify how to think about incremental orders in relation to the initial 200 that were kind of highlighted as Founders Program?

Sure. So, we anticipate the founders to be those initial 200 and we worked with the fleets to make sure that those vehicles were going to be coming through Dallas and using the launch facility. Coincidentally, with DSV, the area that they're going to be operating these vehicles is out of Dallas as well. So, we're going to use the launch facility to assist with their vehicles, in addition. But as we go forward, we plan to loosen that constraint of wanting to make sure the fleets are going to be coming through Dallas and really just make it a solution that's available across the country. Obviously, if a fleet is coming through Dallas, then we're going to use that launch facility. And just to put some more color there, we are still in the process of identifying where that facility is exactly going to be located, where in Dallas, we're also exploring, fueling options, having fueling on site versus potentially just having a fueling station nearby that the trucks can fuel up at. So, we're on a good trajectory to have all of that complete by later this year, when we launch the vehicle, and we'll be supporting those initial ones or other fleets that are in the Dallas area out of that location.

Okay. So, when you talk about potentially doing that service elsewhere, as you expand in other markets, so then the idea is this type of white glove, talking about like a white-glove service, that's a service you would actually intend to have available. It's not something where it was just, oh, here's the first 200. We want to really make this a flawless perfect thing and all the learnings and everything involved. So, it's just white-glove for the first 200. You actually -- that's something you at least want to have available as an option going forward than in other markets. Is that correct?

So maybe just to try to put a little more color to it of how we were thinking about it. So for the first 200, we are approaching it where it's critical that we get as much learnings off of these initial vehicles as possible to make sure that the design is robust, there are no failure points that we see coming up. So, what we have asked the fleet is -- even if the vehicle is working perfectly fine, they aren't experiencing any issue. We still want to get eyes on the truck to make sure that it's working as we would expect it would and we don't visually see anything. Obviously, we are going to be tracking the data 24x7. So that's kind of the agreement we have with those initial 200 trucks. As we go past that, the goal would be that we are only going to be getting eyes on the vehicle, if there is a routine maintenance that's scheduled or if there was an issue on the vehicle. And so maybe that's more of the difference of kind of the white-glove is us kind of creating an arrangement with the fleet where we are maybe more involved than we normally would be once, it's into normal volume production versus after the 200, we want the fleets to use it like they would any other technology that's on the truck.

Okay. Thank you. That's very, very helpful. I'll take the rest of my questions offline.

[Operator Instructions] Your next question comes from the line of Avi Jaroslawicz from UBS. Your line is open.

Hey. Good morning, guys. Avi on for Steve Fisher. So, Jon, I think a couple of questions on OpEx for this year. So, one is just how should we be thinking about SG&A for this year? I know expected to be leveling off, but does that mean, kind of flat with last year or increasing for some part of the year and then flattening out from there? And then also in terms of the R&D expenses, can you maybe bucket how much of the R&D is geared towards commercialization this year versus development of future products?

Sure. So first of all, on the SG&A, the guidance there is really just to indicate that on the SG&A side, the administrative side of the Company, we are starting to kind of reach maturity and where we don't need to build a lot larger organization. And so, to your question, it's -- I don't want to split hairs here, but we just see it kind of leveling out. You might look at more fourth quarter and just say, hey, that's give or take a number like that. Of course, it grew a little bit. It looks like it grew a little bit less than 10% last year. So, that fourth quarter might be a good point to just look at. So, I don't want to overplay it, because we could see opportunities to expand or grow, but we just don't see that right now. And again, it's a way of just saying, hey, we are focused on R&D, we are focused on the product versus the administrative side. And then on R&D, we are shifting over from R&D to testing and certification and then into commercialization support, the activities that Thomas was talking about in terms of just making sure we have a good product that we can support in the field. We are shifting over, starting to shift some of that R&D into the high zone project, certainly over to KARNO. And some other things, other products and opportunities that we will talk more about when we get to our investor conference later in the year. So, yes, it's going to start to shift. There's not a lot of value in trying to parse it out too finely. But we are definitely starting to shift and do other things and exciting things as we get to the commercialization point on the truck.

And then, Thomas, so in terms of the strategy for the fuel cells, can you explain like why the fuel cells are better to use than the KARNO generator? I know that you mentioned in terms of the regulations, no tailpipe emissions, but the KARNO generators seems like it shouldn't really be emitting a whole lot. I know we discussed some of the tech behind it. So just trying to understand the advantages of fuel cell versus the KARNO generator?

Sure. So, on the fuel cell side, you hit the nail on the head, it's a zero tailpipe. It only runs on hydrogen versus KARNO brings forward this opportunity that it’s fuel agnostic. So it can run on natural gas, it can also run on hydrogen. When it is running on natural gas, you do have tailpipe emissions, but we're seeing that they are significantly, significantly better than the NOx emissions that a internal combustion engine would be producing. Similarly, on hydrogen, you are going to have a very, very micro amount of emissions, but you do still have a tailpipe coming out of it. So, in terms of efficiencies, though, we actually expect that the KARNO is going to pull forward better efficiencies than a fuel cell. So, I think what we're going to see is likely for some of these areas where the stations are already built out, we are going to see some fuel cell adoption. Hyzon already has a customer base that they're working with will work Hyzon and going and seeing customers presenting the solution. And we do expect that we will have interest on the fuel cell. But then, as we look at kind of more of the over the road long haul trucking, we think KARNO is what is going to be, chosen by fleets, because they could have a solution that's really future proof, right? You could use it for natural gas, you could also use it for hydrogen, and that the generator can go between those various fuels without a problem. So, we’re pretty bullish on the opportunities that KARNO has, but it is still a technology that's in development. And so, that's why we are including the fuel cell as well. One other thing just to highlight is around the…

And there are no further questions at this time. Mr. Thomas Healy, I turn the call back over to you for some final closing remarks.

Terrific. Well, we appreciate everyone joining the call today. A lot of exciting news. We're excited about the announcement today around the demo vehicle with Hyzon. And we encourage everyone to -- that is interested to please either attend the ACT Expo that's happening in early May. We're going to be showcasing a lot with the ERX as well as the KARNO. Or if you're interested in as well, please join us for our investor conference which will be happening at our headquarters on June 27th. We expect to be able to really showcase a lot of what we're doing live during that investor meeting. So, appreciate everyone taking the time and we look forward to chatting again next quarter.

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