Hyliion Holdings Corp.
Q4 2020 Earnings Call Transcript

Published: 24 Feb 2021

[Operator:]

Good morning. My name is Mike, and I will be your conference operator today. Thank you for standing by, and welcome to the Hyliion Holdings Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would like to hand the conference over to your speaker today, Greg Standley, Vice President of Financial Planning & Analysis. Thank you. Please go ahead.

[Greg Standley:]

Thank you, and good morning, everyone. Welcome to Hyliion Holdings fourth quarter and full year 2020 earnings conference call. With me today is Thomas Healy, our Chief Executive Officer; and Sherri Baker, our Chief Financial Officer.

[Thomas Healy:]

Good morning, everyone, and welcome to Hyliion’s fourth quarter and full year 2020 earnings call. During the quarter, we continue to make significant steps forward to advance our mission of bringing electrified powertrain solutions to the commercial vehicle space. I will start off today's call with an update on our key product in commercialization milestones and partnerships that we have developing, touch on some of the key executive hires in this quarter and close with a discussion on our go-forward strategy. First, I'd like to acknowledge our outstanding team at Hyliion and thank our employees for all the progress that we've made while dealing with these challenges of the pandemic. 2020 brought unforeseeable disruption to the world, but I'm grateful for our team's dedication as we work to revolutionizing the powertrain market. Turning to Slide 4, I would like to begin with our hybrid powertrain solution and the progress we have made in the fourth quarter. As a reminder, our hybrid powertrain can be installed on new trucks at the OEM or be retrofitted onto existing vehicles. Over the long-term, we expect installations to be done at the OEM or mod center with new trucks coming equipped with our systems from the outset. And we are making headway in developing important relationships to further our commercialization strategy. Fleet utilization of our hybrid solution in the fourth quarter was strong and I'm pleased to report that we achieved our goal of installing 20 hybrid units on trucks in 2020, with seven of those units installed in the fourth quarter. We continue to target large fleets that are innovative thought leaders and look for us to help them enter the world of electrification. Response to our hybrid solution has been extremely encouraging. And right now, we are focused on letting fleets experience our game-changing product and making sure we are partnering with early adopters that are strong candidates for conversions into larger customers over time.

[Sherri Baker:]

Thank you, Thomas for the kind introduction, and good morning, everyone. I am thrilled to be joining the Hyliion team at a very exciting time for the company as it revolutionizes the transportation industry. The opportunity to join this high functioning mission-based team is incredibly compelling. And I’ll look forward to working with all of you, our investors and analysts, as we transform the Class 8 market in the months and years ahead. Let’s now turn to our results for both the fourth quarter and full year 2020. After that, I’ll discuss our capital structure and outlook ahead. Starting on Slide 17 with the fourth quarter results. Our team continued to invest in R&D as we continue executing against our product development roadmap. R&D spending was $4.5 million, an increase of $1.6 million sequentially and $1.9 million year-over-year. G&A spending was centered around implementing the necessary infrastructure to advance our commercialization activities and the ongoing influx of talent to further enhance and operationalize the necessary public reporting framework. For the quarter, G&A spend was $5.9 million, an increase of $3.7 million sequentially and $5.1 million year-over-year. Non-operating expense was $10.2 million, up from $4.1 million in Q3 due to a loss on extinguishment of debt of $10.2 million in connection with the business combination offset by a decrease in interest expense of $2.2 million and change in fair value of the convertible notes payable, derivative liabilities of $1.8 million. Overall, Hyliion reported a net loss of $20.5 million compared to a net loss of $9.1 million in Q3 and $4.1 million from a year ago. Turning to our full-year results. While the pandemic presented unforeseen challenges, the Hyliion team continued to press forward with its mission by completing the business combination and becoming a publicly traded company, setting the stage to disrupt the transportation industry. For the full year, R&D expenses were $12.6 million driven by increased expenditures for external consultancy and components utilized in the development process and our efforts to finalize the design of our Hybrid system and continue the design and testing ever Hypertruck ERX systems during 2020. G&A expenses were $9.6 million driven by additional costs incurred to operate as a public company, which includes increased expenditures for personnel and benefits, increased expenditures for directors and officers insurance, increased expenditures for legal and professional fees, and other corporate related expenses. Non-operating expense was $17 million driven by a loss on extinguishment of debt in connection with the business combination and other expenses associated with the convertible debt. As a result, our net operating loss for 2020 was $39.2 million. Turning to our capital structure and balance sheet. On October 1, we completed our business combination with Tortoise, yielding approximately $520 million of proceeds net of transaction expenses. And in early January, we announced the results of our public warrant redemption, which helped its raise an additional $141 million. The sum of its capital provides the company with a strong foundation to execute and deliver against our product development and commercialization goals. We are focused on developing a scale infrastructure, led by an innovative and industry leading team, that will help us capture the robust and growing opportunity within the Class 8 market. As of year-end 2020, we held cash and cash equivalent of $390 million. And turning to Slide 18. While we are not providing formal financial guidance at this time, our previously communicated SG&A estimate of approximately $140 million for 2021 remains largely unchanged. As we continue building out our detailed commercialization strategy, we’ll provide any appropriate updates to our expense estimates and progress against the key commercialization milestones Thomas referred to throughout today’s call. Once we began to deploy these demo tracks later this year and going into next year, and we will look to begin commercialization of the product in 2022 for larger quantity deliveries to fleet. This concludes our prepared remarks. And now, I would like to turn the call back over to the operator to open the line for questions.

[Operator:]

Your first question comes from Brian Johnson from Barclays.

[Brian Johnson:]

Thank you. Just want to drill down into the battery pack announcement, which seem to get the market excited at least briefly, but could have just been in a press release triggered by. I think the more fundamental question is what does this due to the TCO for a fleet operator versus the prior battery? That’s one. And kind of two, when you put together the midterm outlook for commercialization and the sales numbers, where you see this battery got, obviously, didn’t come out of nowhere, but with those numbers include the expected benefits of this battery and kind of my first question, improving the TCO for fleets and therefore your sales.

[Thomas Healy:]

Absolutely. Thanks, Brian. So maybe the first touch on a little bit of the battery announcement. So, we see this new battery module is a continued evolution of the battery module, in fact, designs that we’ve been doing here at Hyliion, and in terms of how that’s going to affect the TCO numbers of our Hybrid and Hypertruck products, it doesn’t necessarily affect the payback numbers for fleet. It really just affects the performance of the product and allows us to get longer life, better performance out of the solution and make sure that our – as mentioned during the call, our goal is that these batteries can actually in some instances outlive the life of the vehicles here. So, we’re really seeing this as a technology that is an advancement of the existing systems that we have today, not necessarily changing the TCO numbers. But to the second part of your question, we do see this module as something that we can expand into other markets as well. And initially, it was designed specifically for our solutions, but going forward here, obviously having an eight-minute rechargeable battery, being able to really push the life of these cells that opens up some really unique opportunities into other markets. And that’s something that we are going to be pursuing and exploring as well, going forward here. But just to reiterate, the initial focus really is on integrating this into our own product. And then in out years, we see that being able to be applicable for other markets. I don’t believe that those were initially, kind of assumed in our business plan as we were bringing this to market is, it was something that we knew that there was an opportunity here to be able to sell our batteries into other markets. but it’s the first time that Hyliion is coming forward and announcing that we will be expanding that market opportunity.

[Brian Johnson:]

And by the markets, would those be other commercial vehicle markets or light vehicle or energy storage, and this is beyond our industrial uses?

[Thomas Healy:]

I think one of the initial areas here is definitely in the commercial vehicle space, because this space, which is very different than passenger car has a strong focus on just asset utilization. And so as we can look at really being able to recharge these vehicles fast, that allows us to keep the trucks or vehicles up and running for more hours of the day. One of the challenges with conventional BEV vehicles with conventional batteries is that you’ll have to down that vehicles in some instances for hours a day, just to be able to recharge it. And that has a cascading effect, right. That means that fleet today; I’m going to have to go buy more assets in order to be able to have vehicles for their drivers to be able to drive while other vehicles are getting recharged. So, it kind of has a cascading effect, if we can pull in our battery technology, have that fast recharge, as mentioned earlier, you can recharge that vehicle then when drive is on a break, grabbing a cup of coffee, which really opens up a lot of opportunities for fleet. So, I think we do see the initial market opportunity here really being in the commercial vehicle space.

[Operator:]

Your next question comes from Mark Delaney from Goldman Sachs.

[Mark Delaney:]

Yes. Thanks very much for taking the questions, and good morning. I was hoping to ask on the ERX, you talked about continuing your plan to bring that product to market and you articulated a plan to start to having some initial target fleet customers in mind for that product. Can you talk a little bit more about how long you think it may take to go through that process where customers have the ERX, how long based on your conversations with customers do you think they'll want to go through sampling before, and then maybe be ready to move into a volume purchasing?

[Thomas Healy:]

Thanks Mark. So one of the things that we had highlighted in the call is just that, over the past quarter here, we have actually selected the fleets that we're going to be working with to be able to roll out the Hypertruck ERX in the demo trucks here. And so, that's obviously a huge progression forward for us, because now we have the fleet base that we can really work with in order to deploy these vehicles. In the near future here, we will be sharing more about that to the market, who some of those fleets are that we're working with. But we're really excited about the group of individuals that we've been able to pull forward. And as mentioned before, it wasn't really just about what the fleet size was, while that was a factor in kind of joining with these fleet, it was also looked at as to, what are the sustainability goals that these fleets have and what's their goals in terms of moving towards electrification. So right after that, we’ve got a strong foundation here, fleets that we can be deploying these solutions with. And then also we see those fleets as being the ones that will be able to scale volumes with. In terms of the time it's going to take them, we'll be starting to do initial demo deliveries towards the end of this year and then rolling into next year. And I think for fleets, they really look at this as, it's probably a three to six months experience for them of actually taking delivery of the trucks, trying them out in their own operations, our goal is also to garner feedback from these fleets as well, right. We want to make sure that this product is meeting their use cases and applications and needs. And so, three to six months of going through that cycle and then being able to come back and starting to deliver more units into their operations.

[Mark Delaney:]

That's very helpful. Thanks for all the details. And follow-up question was on the hybrid product, you mentioned there has been some delay in commercialization of that, but I'll see you're working to develop a new – the next generation version with the new battery module. Maybe you could go into more depth on that. So what led to the delay in commercialization and as you introduced this new version, do you think that will be one that will allow you to recognize revenue? And if so, did you have any timeline you can provide on that?

[Thomas Healy:]

Yes, absolutely. So in terms of the hybrid development of the next generation, some of the delays just came from really expounding and making a more robust testing and validation plan before rolling this solution out to the market. We brought in some consultants over this past quarter that I'm been assisting us really looking at what are the industry best practices and protocols that we need to follow to make sure that these systems are fully validated and ready for this market. As I'm sure you get, you know, well, I mean, this is – the road conditions out there are tough, right. I mean, you got salt-spray, you have rain and snow, and there is a lot of elements that these products needs to be developed for. And so, one of the things that we've done is gone back and looked at that testing and validation plan, we've expanded the scope of that sum, as well as implemented new phase gates of when we're rolling the product out different stages that we're going to go through. And that's really what led to the delay of the development of it. It's really not a technology risk or material change to the product or anything like that, it was more just having a robust rollout plan here that follows the industry's best practices. Then, as we go forward with launching the next generation hybrid system, that is when we'll start recognizing revenue on those solutions. And one of the things that we're doing with the products we're shipping today is we're starting to build that strong foundation of fleets that have experienced the product, we're going through getting some repeat orders with those solutions, and then we'll be able to scale that over time with these fleets and adopt more of them into their operations. So we're really excited about the next generation hybrid system coming to market here, we see that there is some huge advancements in it, around the new battery module, having a new e-axle, some bruised software and data analytics, the one delay that we're just experiencing is the – the time it takes to get the product commercialized and ready for the market.

[Operator:]

And that was our last question. At this time, I will turn the call back over to Thomas Healy for closing remarks.

[Thomas Healy:]

I appreciate everyone joining us on our fourth quarter and year end 2020 review. 2020 was obviously a monumental year for us, as we took highly on public and have made some great advancements in the products that were announced, that we're going to be bringing to market here and some of the relationships that we've been able to build in this industry. I look forward to a very exciting year ahead for us here in 2021, and we'll be chatting again in the next quarter's earnings call. I hope everyone has a great day. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.