HYPRF (HYPRF) Q2 2026 Earnings Report, Transcript and Summary

Good morning. I am Jarle Dragvik, and I will present an update on highlights, technology, and market. Today, I'm accompanied by CFO, Martin Holtet, who will present the financials. But first, a general presentation of HydrogenPro. HydrogenPro's core business is the development of technology, manufacturing, and delivery of key components to a green hydrogen factory. That is the electrolyzer for splitting water, what we call cell stacks, and separation skid for the 2 gases, hydrogen and oxygen. As customers are looking for an end-to-end delivery, we are teamed up with strategic EPC partners for full-scope turnkey solutions. Our technology is well suited for renewable energy sources with variations in energy load such as solar and wind. We address markets for decarbonization of selected large-scale industry, segments already using gray hydrogen or where decarbonization is hard to achieve through electrification, such as refinery, fertilizer and ammonia, and steel production. Synthetic fuels are also now coming up as a major market potential with EU regulations on reducing emissions from road and air transportation. I will not go in details on all the pros and cons between the most common technologies, but highlight HydrogenPro's focus on the technology driving down the total levelized cost of hydrogen, which I will come back to later in my presentation. The projects we have installed are among the largest green hydrogen projects in the world. Very few OEMs have similar type of references, which is one of the first things prospect customers are asking. We have a partnership strategy where our partners enable a broader reach and wider offering projects in addition to bankability on large-scale projects. Through these partnerships, we have a full-scope offering at local presence. Common for all partners is that they are committed to energy transition and hydrogen. They represent a broader delivery scope and gives bankability towards the customers and having strong technical and engineering resources. Then to the quarterly update, which is recognized through 4 major milestones: 1, technology improvements on optimized stack design and electrode improvements. Launch of a strategic review and completed a capital raise in July, although the strategic review process continues. Restructuring in China, where we made an OEM agreement with LONGi and are now adapting organization and asset base to a much leaner structure, and pipeline conversion. As earlier announced, there are projects where HydrogenPro is selected as supplier where the final contract award is now pending on a regulatory approval and a technical review. 2026 has demonstrated a slower market than we expected. And overall, few FIDs have been taken up to now. Despite the sluggishness, we are seeing a pipeline which is growing in absolute terms and fed with new requests. Projects are maturing and continued development through the funnel. At the same time, we do see delays in expected FIDs as originally communicated by the customers. Although delays, we do not see much cancellations, especially by projects in the mature part of the funnel. We do maintain our outlook as stated earlier, based on a pool of projects currently under negotiation of commercial and technical terms and target FID, again, given by the customers throughout 2026 and 2027, where some are in competition with 1 to 3 competitors and some are on a pure exclusive basis. Of the near-term projects where we are selected as a supplier, we have progressed towards finalization during this quarter. But final contracts are being subject to a regulatory approval and some technical reviews. We do remain confident on these projects and ready to execute based on the customer's final goal. I will now give the word over to Martin.

Thank you, Jarle. Then I will walk you through the Q2 2026 financials. So we are continuing to deliver on the SALCOS order and also doing some on-site work at the ACES site in Utah, U.S. And in the second quarter, we generated revenues of NOK 15 million related to those 2 projects, the main part being on the SALCOS project. The direct materials are negative with NOK 9 million in the quarter, driven by a reversal of some NOK 12 million that had been recognized in the previous year. Payroll came in at NOK 25 million in the quarter versus NOK 30 million in the first quarter, and this reflects downsizing mainly in our Chinese operations. And then let's look at other operating expenses. So the accounted costs increased from NOK 11 million in the first quarter to NOK 15 million in the second quarter. But then bear in mind, in the first quarter, that included a reversal of prior year provisions. And in addition, we incurred approximately NOK 2 million related to the capital raise in the quarter. So this means that the underlying trend is a continued reduction in other operating costs. So the totality here is that the EBITDA then came in at minus NOK 16 million. Following the decision to outsource production to LONGi, we are now in the process of divesting equipment and machinery in Tianjin. So the accounting impact in the second quarter is a NOK 32 million impairment, mainly on our intangible assets related to Tianjin operations. Depreciation amounted to approximately NOK 5 million. So we have also now started depreciating our investment in Denmark in the second quarter. And the bottom line, the net result was then minus NOK 51 million. Then let's look into the development in the liquidity position in the quarter. Net cash increased with NOK 3 million from NOK 56 million at end of the first quarter to NOK 59 million at end of the second quarter, driven by positive working capital movements. That was mainly then some payments received by our customers. And we also then executed the private placement in June. So the changes in the cash position were as follows: EBITDA of minus NOK 16 million, changes in net working capital were plus NOK 10 million (sic) [ NOK 8 million ] and the financing cash flow with NOK 14 million positive impact, where this private placement then was at NOK 15 million, deducted with some leasing costs of around NOK 1 million. And then further in July, we completed a subsequent offering, bringing in approximately NOK 6 million on top of this. NOK 3 million were invested in the quarter, and the manufacturing line is now, of course, fully operational. And finally, the backlog stood at NOK 262 million at the end of the quarter, up from NOK 252 million in the previous quarter. So with our business model with strong partners, we have a very lean cost base, and we try to adapt the size and overall cost side of the company to the activity level in the industry. We have a lot of very, very valuable competence in our organization, but we need to make sure that we show cost discipline, and we're always assessing our cost level and potential further measures will then be implemented in line with the development in the market. I will now give the word back to Jarle to give an update on the technology and market developments.

During this quarter and also as previous, we have continued to develop our stack design and electrode technology based on what our customers wish for, a light, efficient, and cost-effective electrolyzer, driving down the cost on both the CAPEX side as well as in operation. The stack is lighter with less steel in it and thereby substantially lower stack weight with also a lighter separation skid. We are cutting down the transport and installation cost. This is all part of our delivery model for our modular system that are easy to install on the ground. The efficiency is optimized by both improved electrodes, which I will come back to, and a new design for [ life flow ] or energy going through the electrolyzer by producing heat instead of hydrogen, what we call shunt currents that can cause loss of efficiency if present. With both better efficiency of the electrodes and reduced shunt currents, there is less need of cooling, leading to even additional energy savings. While our products are already among the best in the market, we keep chasing each percentage point for improvement because it will make us stand out with lower CAPEX and better efficiency. It is resulting in more cost-effective project operation and bringing down the cost per kilo hydrogen for customers. The next step on the stack development journey is to complete a pilot electrolyzer for 30 bar pressure, which we are doing in partnership with Thermax in India. As mentioned, there are 2 forces impacting the energy efficiency. 1, the energy loss to shunt currents; and 2, the electrode efficiency, which is a result of sophisticated metallurgical know-how. But there is a third element, which is degradation, which is the natural wear and tear of the electrodes that will, over the years, influence the performance. Therefore, in addition to initial energy efficiency at beginning of life, it is also important to test the electrode over time. In our R&D center in Aarhus, Denmark, we have, therefore, set up an extensive test facility that runs 24/7 with test programs for our coatings that are developed in-house. We run these programs to simulate continuous and dynamic operations to verify a reduced degradation. And this has been running for more than a year and modeled into full-scale operation. The degradation equation matters commercially because it underpins the lifetime and performance guarantees that we can offer. The electrode efficiency determines the cell voltage and is measured through the stack. The lower cell voltage, the better within, obviously, the boundary of physics. By continuing optimizing the electrode coating, we are now reaching energy consumption below 4.5 kilowatt-hour per normal cubic meter. And understanding the underlying physics and material science help us design more durable coatings with low degradation over its lifetime, a number which moves customer economics. The real breakthrough here though is that we are now producing this, our latest generation stably at full scale in our new production line. In June, I was visiting the Salzgitter plant together with colleagues from ANDRITZ to observe the installation of our electrolyzer. It is always impressive to see the real life and assuring to see a plant progress. The last stacks currently in production will be equipped with our latest electrode technology, which will demonstrate the further improvements, as I just talked about, in efficiency in real production setup. The green hydrogen market is currently dependent on regulatory incentive regimes. These frameworks are continuing to take shape with 6 policies approved by EU, which are targeting the largest emission sectors with a need of transitioning to greener solutions and driving demand where green hydrogen is a significant part of the solution. Looking at one of these sectors, the ReFuelEU Aviation to illustrate how these policies are driving demand for green hydrogen. The European ReFuelEU Aviation policy is mandated and enforced. Airlines have no way out of the e-SAF, and the e-SAF cannot be made without hydrogen electrolysis. Typically, an e-SAF plant needs 100 to 500 megawatts of electrolysis. And for the relatively modest blend of 1.2% in 2030 translates into 3 gigawatts, which again equals to the capacity of 600 of HydrogenPro electrolyzers. And in order to comply to these requirements, ordering of electrolyzers will have to be placed in 2027, 2028. Airlines can choose not to comply, but then it will trigger penalties of twice the cost of green premium. For the continuation of 2026, we maintain focus on 3 main priorities: convert the pipeline to orders and build backlog, deliver and hand over the reference projects, including electrode development, and as Martin was pointing out, maintaining financial discipline. We remain optimistic and maintain our outlook. Now I would like to invite also Martin to join me in the Q&A session.

Thank you. That concludes our quarterly update. With that, we would like to open the floor for questions. So first question, where does the strategic review stand today? And should shareholders expect the outcome to be a financing transaction, strategic partnership, sale of assets, or potentially broader strategic transaction involving the company?

We are not communicating details on the strategic review other than what implies in our review. This is still ongoing. We have made 1 transaction, and we will come back with further information in due course.

And a follow-up on that question. What is the preference of HydrogenPro? Would HydrogenPro prefer to bring in a strategic industrial investor who can contribute to both capital and commercial and technology capabilities or relying solely on our conversion or equity financing? Please?

I'll shoot first. I think what we've seen in this industry, it's all about sort of building now up an industry, and that requires some patience. I think we have seen that. Things take a bit of time. And we believe sort of to combine sort of the funding side with the strategic or commercial part of it makes sense. So, but again, it's a combination, right? We want to invite all types of investors, but to take on a more long-term view, it could make more sense with, call it, a type of a strategic investor.

And another question is about the manufacturing in China. So HydrogenPro has exited equipment manufacturing in China and moved to an OEM model with LONGi as a pure middleman selling stacks from China with HydrogenPro on electrodes, what is your gross margin? And is it sufficient to cover the cost base of the company?

Yes. So looking at our business model with strong partners and a lean setup, I think what we did now with the OEM agreement with LONGi is that we further accelerate that business model, meaning that we want to keep our cost base at a minimum level while maintaining delivery capabilities. And also with that change, we see that we have lower fixed cost and even lower variable costs through that partnership with LONGi compared to producing the electrolyzers at our own factory in Tianjin. And you can call it this is, I would say, more of a commodity type of production with the stacks. What we really bring to the table is, of course, our high technology with our electrode technology in Denmark, which we then keep 100% ownership of. So that's the route we are heading, right, with partnering up with partners doing a lot of work on the field and also on the manufacturing of the stacks, and then we're focusing on our high technology with higher margins in Europe.

Not to make it too long, but just to add that and emphasize that although the manufacturing of the steel parts is made by, through our partnership, we maintain the technology and the technology development. That is both on the technology in the electrolyzer. It's the electrode technology, and it's the gas separation technology. So we control all those elements, which is the real value of the company.

Okay. Thank you. So that's all from Q&A session this time. It's a short session. And thank you all for joining us today, and we appreciate your continued interest in HydrogenPro. If you have any follow-up questions, so feel free to contact us. And we are looking forward to updating you again next quarter. Have a good day.