Greg Standley; Vice President of Finance and Accounting; Hyliion Holdings Corp

Thomas Healy; Chief Executive Officer, Founder, Director; Hyliion Holdings Corp

Jon Panzer; Chief Financial Officer; Hyliion Holdings Corp

Sean Milligan; Analyst; Janney Montgomery Scott LLC

Operator

Ladies and gentlemen, this is the operator. Today's call is scheduled to begin momentarily. Until that time, your lines will be again placed on music hall. Thank you for your patience.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyliion Holdings 4Q 2024 earnings release. All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Greg Stanley, Chief Accounting Officer. Please go ahead.

Greg Standley

Thank you and good morning, everyone. Welcome to High Leon Holdings fourth quarter 2024 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 Hon's investor relations website at investors.Hon.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 risk 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 present. 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. I will now turn the call over to Thomas.

Thomas Healy

Hello and thank you for joining us for Helion's fourth quarter and full year 2024 earnings call. Today I'm joined by our CFO John Panzer. This is an exciting time for Helion, and we have a number of significant updates to share. Most notably, we are pleased to announce that we have delivered our first early adopter customer unit.

While we initially aimed to complete this milestone late last year, it did shift into 2025 due primarily to a couple of challenges we faced that we'll cover on today's call. We continue to make progress with generator testing and validation, and customer interest in our generator technology is growing.

We have executed contracts and non-binding LOIs with customers for more than 100 Karno units. We are also pleased to share that we have signed our first LOI in the data center sector to supply prime power on site for data centers, an opportunity for up to an additional 70 megawatts, or 350 of our Karno four shaft systems of deployments in the years ahead.

On our last earnings call, we showcased the Karno four shaft system. Now we are pleased to present what the genset enclosure looks like as shown in the accompanying slide presentation. One of the most impressive characteristics of the KARNO generator is its compact footprint for a system designed to provide 200 kilowatts of power.

On the front of the enclosure is the user interface that allows users to select operating modes, set power output levels, and enable load following functionality. Since the KARNO generator is designed to be fuel agnostic, users can enable a learning mode where the generator detects the type of fuel or fuel mixture being used and adjusts accordingly.

The system is also designed to seamlessly transition to new fuel sources during operation without requiring user input. The four shaft KARNO generator is positioned at the base of the enclosure with the balance of plant support system such as radiators, fans, air handling, and controls arranged above it.

The Karno generator is equipped with cellular connectivity, allowing it to continuously communicate with the cloud. This enables customers to monitor and control the generator remotely. The rear of the enclosure is where the interconnects for fuel and electricity are located. The enclosure offers customers the ability to have an above ground or below ground connection.

The KARNO generator provides DC power similar to a battery, which is ideal for applications like E charging. For AC power needs, an inverter is used to convert the output to 40 volts AC, which is then tied into a facility's standard electrical system.

Each generator will be configured to meet customer needs for the intended application. For initial deliveries, some features, functions, and performance characteristics will not be available at launch. We will be making further enhancements to the system as we continue with the product testing and validation, field trials, and as we receive customer feedback.

One added benefit is that since we have cellular connection with the generator, many system enhancements can be delivered via over the air software updates. Now I'd like to provide an update on our plans for 2025. As we shared last quarter, early adopter units are our first deployments with customers.

Some units will initially be deployed at our facility for further testing and validation, including customers specific application criteria, while others will be deployed at their final locations. Our plan is to deliver 10 of these early adopter customer units through approximately the middle of this year. Which will then be followed by additional deliveries later in the year.

As I mentioned earlier, we encountered some challenges related to supply chain sourcing and part processing that impacted our initial customer deployments and set back our testing and validation timeline. One of our primary production activities has been standing up a contract manufacturer for assembling the linear electric motor component of the KARNO generator.

We produced the initial components in-house after finalizing the motor's design and developing prototype assembly processes for this part. Transferring our learnings to the contract manufacturer took longer than anticipated, but production is now underway, and we are working on improving throughput.

Additionally, while operating the generator, we identified traces of residual metal powder that were slowly being released within the system. The powder was traced to parts that weren't sufficiently cleaned following printing. Parts for initial generators have undergone additional cleaning and are being used as we work on further enhancements to facilitate improvements in performance and metal powder removal.

Looking ahead as we deliver early adopter customer units through approximately the middle of the year, we will also use the time to continue testing and improving the generator and validating operating parameters. This plan also leaves time in the schedule to address other unanticipated issues if they arise. Later in the year, we expect customer deployments to continue, including delivery of units associated with R&D services.

By the end of the year, we plan to have produced a couple of dozen generators with the number and pace of deliveries to customers determined by learnings from earlier deployment and the ramp up of our production supply chain. We anticipate commercializing the KARNO generator sometime in the second half of the year, at which point

we may recognize revenue for the early adopter customer units and begin recognizing revenue for ongoing generator system sales. Overall, we expect to generate revenues between $10 million and $15 million for the year from generator sales and R&D activities. This estimate includes the sale of early adopter customer units.

In parallel, we are actively building our manufacturing capacity and strengthening our supply base to support higher production volumes in 2026. This includes taking delivery of new additive printing machines at our Austin facility, which will continue throughout the year. I'd now like to shift to some exciting commercial updates.

We continue to see increasing demand for the Karno generator, and we are pleased to share that we have now secured customer contracts and LOIs for over 100arno units. This level of interest well exceeds our planned deployments for 2025 and establishes a strong foundation for 2026.

These LOIs span a variety of market segments including EV charging, waste gas applications, oil and gas, and now data centers. We are also deploying units with the US Navy and Office of Naval Research with a plan to have the KARNO generator as the power system on board marine vessels. This past quarter I'm excited to share that we executed an LOI with one of the leading data center developers.

The agreement plans for a deployment of two of our two megawatt systems that we unveiled last quarter and are now developing. Each two-megawatt enclosure is expected to house 10 KARNO units, accounting for 20 of the more than 100 units we currently have under LOIs.

This data centerer LOI also includes a multi-year opportunity that targets up to 70 megawatts of KARNO generator deployments in the two megawatt configuration. This opportunity equates to approximately 350 of our four shaft KARNO units. We are working closely with this customer as we develop the two-megawatt system and plan the first deployment in 2026.

The KARNO generators high efficiency, low maintenance requirements, low emissions, and noise levels are critical needs for data center customers. The compact two-megawatt configuration and fuel agnostic capability are added benefits in data center applications where space constraints and redundancy are key considerations.

We are excited to have a strong launch partner for the two-megawatt product and firmly believe the Karno generator is a strong solution for powering data centers in the future. Late last year we were awarded a $6 million Department of Energy methane emissions reduction grant to support the deployment of up to two- megawatts of KARNO generators with a goal of reducing methane emissions in the oil and gas sector.

We are excited to be working with Electrogen as a customer for these units and the facilitator of the deployments. Finally, we recently signed an LOI with Al korea for the deployment of up to 12 KARNO generators in Saudi Arabia.

Al korea is a leading provider in the generator market and a key player in the agricultural sector. Initial deployments will focus on powering agricultural farms, offering higher efficiency with lower emissions and maintenance requirements.

The customer LOIs that we've discussed are nonbinding letters of intent and are subject to performance criteria and execution of binding agreements with customers. Similarly, the data center opportunity we discussed is contingent on successful performance and early deployment of the KARNO generator. Shifting now to some further updates on our manufacturing growth.

Scaling our manufacturing capacity remains a priority, and additive manufacturing advancements play a key role in this effort. Last quarter we took delivery of our first equilibrium additive M-line printer manufactured by GE Aerospace. We are proud to be the first customer outside of GE to receive one of these machines in the US.

This next generation additive manufacturing system significantly enhances our production capabilities, allowing us to print two to four times as many parts simultaneously compared to our existing machines. We have additional M line printers on order which we will be taking delivery of throughout 2025 to further scale our production capacity.

Lastly, I am pleased to share that we have begun recognizing revenue for R&D services related to the KARNO generator in the fourth quarter of 2024, totaling $1.5 million. This revenue is associated with the development work under our contracts with the US Office of Naval Research.

We closed out 2024 with $220 million in capital, and as John will cover in more detail, we anticipate cash use of approximately $60 million for 2025. This positions us with a strong balance sheet that will sustain us through the commercial launch of the Karno Generator product. Now I will turn the call over to Jon for our financial update.