Hyliion Holdings Corp. (HYLN) Earnings Call Transcript

Thank you. Hello everyone. Thank you for joining us and welcome to the Highland Holdings Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Greg Stanley, Chief Accounting Officer. Greg, please go ahead.

Thank you and good morning everyone. Welcome to Hyliion Holdings' second quarter 2026 earnings conference call. Joining us today are Thomas Healy, Chief Executive Officer, and John Panzer, Chief Financial Officer. A slide presentation accompanying today's call available on Hyliion's investor relations website at investors.hyliion.com. Please note that during today's call, we will be making certain forward-looking statements regarding the company's business outlook. Thank you. 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. may cause such differences are discussed in our presentation and press release, as well as our filings with the Securities and Exchange Commission. your caution not to place undue reliance on forward-looking statements, and we undertake no duty to update this information except as required by applicable law. With that, I'll turn the call over to Thomas.

Hello and thank you for joining us for Hylion second quarter 2026 earnings call. This was a strong quarter for Hylion and we have a lot to cover on today's call. I'll organize my remarks around three topics military progress, product progression towards initial customer site deployments along with customer demand, and speed improvements in additive manufacturing. First, a few highlights. We were awarded a $41.7 million contract with the US Navy, our largest military contract to date, and we still expect to secure additional military contracts before year end. We are raising our full year revenue guidance from 10 million to 15 million. Finally, we have identified additive manufacturing speed improvements that we believe have the potential to increase print speed and throughput by up to three times. I will cover our progress against the 2026 milestones we laid out at the start of the year, update our three year outlook, and then turn the call over to John for the financial results. Starting with the military, last month we announced a $41.7 million contract with the U.S. Navy to scale the Carno power module into multi-megawatt systems. Under the contract, we expect to deliver two power modules, one rated above 2 megawatts and the other rated Both are built on the same modular 800 kilowatt architecture we are developing today for data centers and the USX-1 Defiant autonomous Navy ship, which means we are scaling an existing building block rather than creating a new system. These larger modules expand the range of Navy applications from larger vessels to powering military bases. The contract also includes funding to further advance our additive manufacturing capabilities. Coming into the year, we set a goal of securing $40 to $50 million in new military contracts. This Navy award on its own achieves that goal. However, we expect to close additional military awards this year, including one from a different service branch for approximately $7 million. We expect these additional awards to bring us close to $50 million in new military contracts for 2026. The performance periods on these contracts run two to three years, depending on the specific contract and our pace of execution. We expect additional military contracts next year and in the years to follow. Some will be cost plus development contracts similar to what we are executing on today, and increasingly others will be for delivery of complete commercial power systems. The result is a steadily growing base of military and government contracts that support revenue growth in future years. This quarter, we engaged Abdul Sabani as a strategic advisor for military opportunities. Abdul serves as civilian aid to the Secretary of the Army for Texas, distinguished chair of Innovation and Senior Advisor to the Superintendent of the United States Military Academy at West Point, and U.S. Technology Advisor to the British Military Academy. Abdul is assisting us with building relationships with new contacts throughout the military, particularly within the U.S. Army, to broaden awareness of our Carnot technology and build on our contract pipeline. Our engagements across all branches of the military increased significantly this past quarter. We held numerous meetings with senior level officers to discuss the potential of our power system. We were also invited to participate in Senator McCormick's Defense and Innovation Summit, where President Trump, Energy Secretary Chris and Secretary of War Pete Hegseth all participated. Overall, it was a terrific quarter for defense progress with more engagements and business opportunities expected in the quarters ahead. Shifting to product development, I I will cover where we stand with our development work and deployment of early adopter units. Overall, commercial interest remains strong as we near initial customer site deployments. Ahead of moving units to customer sites, we are completing a block of design enhancements that capture improvements from what we have learned from initial operations. The block consists of changes spanning airflow and cooling improvements, upgraded insulation blankets, an improved piston, and software and controls enhancements. Together, we are expecting to increase system durability, performance, and power. We have We have recently completed updating our first commercial customer unit with these upgrades, and that will be the first system deployed to a customer site. We are building a number of power modules in parallel, including the 800 kilowatt NAVY system, which is now in assembly. We are accumulating run hours across multiple systems simultaneously and performing extended duration runs to build operating hours and validate durability. We are also expanding our manufacturing capacity, including moving key assembly operations from Cincinnati to Austin. We continue to expect to complete the remaining early adopter units, approximately 10 Carno cores in total, this year. We expect our first customer site deployment to begin over the next quarter, with multiple units going to that initial site. We are planning a data center deployment to follow, and the balance of units are Navy assets, including the 800-kilowatt system for the USX-1 Defiant autonomous Navy ship. We also recently announced the successful operation of multiple Carno power modules functioning together as a single scalable power unit. This matters for customers who will run more than one system at a site, and it completes another of the 2026 milestones we set out at the start of this year. We also continue to make progress towards our 200 kilowatt target and expect to reach that power level by year end. We are testing improvements across several components with our primary focus on continuing to iterate the design of the regenerator, which we believe is the remaining key enabler to achieve full power. Shifting to customers, our two largest segments of opportunities are data centers and the military in that order. Data centers represent our largest area of customer interest, driven by AI-related power demand and the sheer size of the market. Over time, we expect a significant portion of our production capacity to be directed towards this segment. We have quantified part of that interest through non-binding LOIs representing approximately 70%. 750 Carno courts, which are subject to the execution of definitive purchase agreements. Most of the interest we are hearing from customers is not yet reflected in LOIs or purchase contracts. And while we have not announced new data center LOIs since our last update, we are engaged with a growing number of companies discussing interest in deployments ranging from tens to hundreds of megawatts. We are seeing three buckets of data center projects, low tens of megawatts, around 100 megawatts, and gigawatt scale. For the small and medium sites, our discussions center on the Carnot Power Module as the primary power solution, given its efficiency, scalability, and compact footprint. For gigawatt scale builds, a combined cycle gas turbine will likely provide baseload power, and we are being considered to handle 10 to 20% of the overall need, specifically to handle transient loads. Across all three, there is a strong interest in our system's native 800-volt DC capability, which is the architecture data centers are moving towards. On the military side, interest spans autonomous vessels, base power, and forward operating installations driven by mobility, fuel flexibility, and low maintenance requirements. These opportunities include both R&D programs like our current Navy work and over time deliveries of production systems. Turning to 2027 deployments, we will focus on military deliveries against contracts we already hold, which generates near-term revenue. For data center customers, we plan to deploy 200 kilowatt power modules at their AI test facilities so they can experience the technology firsthand, which we believe is the fastest path to larger volume orders of our multi-megawatt system that we plan to have initially ready in 2028. These early deployments may be structured as outright sales, loaned units, or power purchase agreements. With this sequencing, we believe it will enable greater revenue in the near term. It will move commercialization of the 200-kilowatt power module into 2027, but we believe it allows us to start deploying units sooner in the data center space and to build a substantially larger long-term customer pipeline. Now switching to scaling and manufacturing. As we discussed previously, one of the key milestones we set for 2026 was to work on improving the speed and throughput of the additive manufacturing process. I am pleased to report that we are making significant progress. We have determined how to take advantage of the full laser power and capabilities available in the printers. software enhancements that optimize how parts are printed and are continuing to refine part design, including evaluating material changes where appropriate. Together, we believe these initiatives have the potential to increase overall printer speed and manufacturing throughput by up to three times, depending on the We have already begun demonstrating some of these speed improvements in print we are making today. Separately, we recently signed a beta machine agreement with Calibrium Additive, a GE Aerospace company and the manufacturer of the additive printers we use at Hyland. Through this collaboration, we are working together on the next generation of additive manufacturing systems. Up to this point, we have not yet sized our production capacity expectations because we were still assessing the capabilities of our fleet of 30 printers spanning different generations, sizes, and capabilities. Now that we have a better assessment of print speed capabilities, we have determined that our existing base of installed print printers will be able to produce up to 15 megawatts per year of Carno core capacity. With the optimization work I described, we are now in a better position to share high-level expectations on the relationship between Carnot output and printer investment for printers we plan to purchase going forward. Based on our current manufacturing roadmap, we believe the advancements we are working on will significantly improve the capital efficiency of scaling Carnot production once fully implemented. We currently estimate that approximately $1.5 million worth of investment in printers and related manufacturing equipment can support approximately 1 megawatt of annual Carno Power Module production capacity. Based on our current pricing expectations, that one megawatt of annual capacity represents approximately $2.5 to $3 million worth of annual revenue. We believe this ratio of investment to output will provide an attractive return on investment once we reach efficient production volumes. It is still too early to determine exactly when we will achieve that level of production volume, but we now have an additive platform capable of throughput that justifies further investment. As a note of caution, the approximately three times improvement in printer speed that I discussed earlier is still being validated and will require additional testing. However, we have gained enough confidence in the improvements we are seeing that we now believe there is an opportunity to accelerate additional printer investment in to 2027 that we had previously expected to make in 2028. We look forward to providing additional updates on printer throughput improvements and our manufacturing investment plan in the coming quarters. Finally, I would like to remind everyone that buyers of the Carno Power Module are eligible for a 30% investment tax credit on both the purchase price of the system and qualifying investments required for its installation. Under current law, that credit is available to customers through 2036. Turning to the 2026 performance milestones that we laid out for the year, we checked off three more this quarter. New military contracts, printer speed enhancements, and demonstrating multi-power module operations. We are just over halfway through the year and have completed half of the milestones we set. By our next earnings call, we expect to check off at least two more, including surpassing our $10 million revenue milestone and completing our initial customer site deployment, with two additional milestones expected by year end. As I mentioned before, we will be prioritizing military opportunities and delivering 200 kilowatt systems to data center test facilities, which will move commercialization of the 200 kilowatt system into 2027. We believe this plan will drive higher near term revenue and larger long term volume opportunities. On our three-year outlook, the overall trajectory remains the same, although the sequencing of our deployments has changed some. Our 2027 expectations include commercialization and ramp-up of 200-kilowatt deliveries, the development of a multi-megawatt Carnot system for the U.S. Navy, and the assumption of printer acquisitions that will drive future production growth. For In 2028, we plan to accelerate system deliveries and capital investment in growth assets while delivering our first multi-megawatt Carnot system to data center customers. With that, I'll turn the call over to John to walk through the financial results for the quarter.

Thank you, Thomas, and good morning, everyone. In the second quarter, we recorded revenue of $4.9 million from research and development services. This compares with revenue of 1.5 million in the second quarter of 2025 and 2.8 million in the first quarter of this year. Revenue growth this year is primarily attributable to increased production of components for the 800 kilowatt power module we are building for the Office of Naval Research, including the four Karna cores that will power the system and other power module components. Cost of revenue was $4.6 million resulting and gross profit of $366,000. Operating expenses for the second quarter were $15.7 million, approximately flat, compared to the second quarter of 2025. R&D spending in the quarter was $9.5 million, down 6% from $10.1 million a year ago. year-over-year decrease primarily reflects a shift in spending towards revenue-generating services for the Navy, with the associated costs of that work reflected in cost of revenue. SG&A expenses were $6.4 million in the quarter, up approximately half a million dollars, or 8%, compared to the second quarter of 2025. On the powertrain exit and termination expense line, we recorded a credit of $258,000 related to asset sales. Our net loss for the second quarter was $13.9 million, compared with a net loss of $13.4 million in the second quarter of 2025. Turning to our year-to-date results, revenue for the first half of 26 was $7.8 million, up significantly from $2 million in the first half of 2025. Cost of revenues was $7.2 million, resulting in gross profit of $576,000, compared with $143,000 in the same period of 2025. Operating expenses for the first half were $29.1 million, down 18% compared with the first half of 2025, primarily reflecting a 23% reduction in R&D expenses. Year to date net loss was 25.7 million, a 16% improvement compared with the 30.7 million net loss we recorded in the first half of 2025. Turning to our cash and investment position, we spent $6.9 million during the second quarter compared with 13.5 million in the second quarter of 2025 and 13.1 million in the first quarter of this year. The key drivers of the lower cash spend compared with last year were a lower net loss and lower capital spending. Capital spending was approximately $200,000 in the second quarter and $2.1 million year to date. This compares with $11.6 million in the first half of 2025 when we had significantly higher spending on additive printing machines and related investments. Cash generated from asset sales was $1.9 million year to date. We finished the second quarter with $132.4 million of cash and short and long-term investments on our balance sheet. Next, I'd like to update our outlook for the remainder of the year. Our research and development services work with the Navy has ramped up more quickly this year than we initially expected. We began the year projecting approximately 10 million of R&D services revenue for this year, but in the first half alone, we have recorded nearly $8 million of revenue. The work scope and funding under our existing Navy Navy contracts will begin to wind down during the second half of the year, with a significant milestone being the expected completion of the 800 kilowatt Carnal Power Module around the end of the year. As that work nears completion, we will begin ramping up activity under the new $41.7 million Navy contract. contract we signed a few weeks ago, although most of the work under that contract is expected to be performed in 2027 and 2028. Consequently, we now expect third quarter revenue to be approximately in line with the second quarter at just under $5 million and total revenue for the year to be approximately $15 million. As Thomas noted earlier, this represents a 50% increase from our previous 2026 revenue and compares with total revenue of $3.5 million in 2025. Turning to capital spending, over the last couple of years, our investments have been directed primarily toward additive printing machines, related facility investments, and CNC machining equipment. As Thomas noted, this year our focus has shifted towards optimizing our existing printer fleet and increasing the speed and throughput of those machines. As a result, we expect capital spending in the second half of this year to be approximately in line with the 2 million spent during the first half. This represents a significant decrease from total spending of nearly $24 million in 2025. We have also previously discussed our expectation to enter into an equipment financing arrangement to monetize a portion of the value of our printer assets through either a sale, lease back, or secured debt financing. We continue to expect this to close this year and generate between $10 million and $15 million of cash proceeds. The combination of higher revenue, lower expected capital spending, and the anticipated equipment financing has resulted in a meaningful improvement in our cash outlook for the year. We previously expected to spend approximately $50 million during 2026 net of the equipment financing and to finish the year with approximately $100 million of cash and investments on our balance sheet. We now expect to finish the year with between 115 million and 120 million, reflecting net cash spending during the year, including equipment financing of approximately 30 million to 35 million. This improved outlook highlights the strength of our balance sheet and our continued focus on the careful deployment of capital as we begin deliveries of Carnot Power module systems and continue to grow revenue. Next, as Thomas discussed earlier, we are gaining confidence in the ability of advancements in additive printing technology to deliver greater speed and throughput. This is the outcome we were targeting and a reason we slow printer acquisitions this year. Previously we expected the next phase of the capital build out of our additive to begin in 2028. Based on the progress we are seeing, we now see an opportunity to restart printer purchases sometime next year, enabling a faster ramp up in production capacity. We expect to be able to finance these growth investments with some combination of leases, debt, and cash. As we have stated in the past, we continue to believe the capital we have on hand today is sufficient to carry us through commercialization of the Carnal Power Module. At the same time, additional capital will ultimately be required to support production growth. Finally, as part of our ongoing capital planning process, we are establishing an at the market equity program to provide additional financial flexibility. The program will allow us to raise capital opportunistically when market conditions are favorable and when we believe doing so supports our strategic priorities and long term shareholder value. We intend to be disciplined in our use of the program, carefully considering both our capital requirements and the potential dilution to shareholders. Now we'll turn the call back over to Thomas.

To wrap up, the second quarter advanced all three of the areas I opened with. We signed our largest military contract to date at $41.7 million and expect to close very near $50 million worth in new military awards this year. We increased our revenue guidance for 2026 by 50% from $10 million to about $15 million. And we unlocked additive manufacturing improvements that we believe support up to a threefold increase in throughput, which will enable us to begin scaling faster to meet the demand we are seeing. For the remainder of 2026, we will continue to increase our revenue guidance by 50%. In 2026, our focus is on completing the early adopter units, deploying the first systems to customer sites, closing the remaining military contracts, and building the 800-kilowatt Navy system for the USX-1 Defiant autonomous Navy ship. are excited about the opportunity ahead and about the position we are in to capture it. I will now hand the call over to the moderator to open up for Q&A.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. withdraw your question press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally please remember to unmute your device. Please Please stand by. Your first question comes from the line of Sean Milligan with Needham and Company. Sean, your line is open. Please go ahead.

Hey Thomas and John, good morning. Thanks for taking the questions. I guess just real quick on the the current capacity of the 30 printers. Just want to clarify, did you say 15 megawatts a year or 50 megawatts per year?.

Good morning, Sean. So it was 1.5, 15 megawatts per year. We see that the existing install base and the printers that we already have on order and expected to come in, that will be able to produce up to 15 megawatts a year. Now with that, that's a rolling in all the advancements that we discussed throughout today's call.

Okay, great. And then on the data center side, I think You said like roughly half of your LOIs or data centers today, but you're engaged with a growing number of customers. Just curious, like how you see that progressing with the customers in your pipeline? Do you see, the opportunity to sign additional LOIs or MOUs, or are you going to move more to like test orders? Just trying to think through potential catalysts for the rest of the pipeline there.

Sure. So maybe just to start, so we have about 750 Carno cores worth of LOIs that are executed that represents around 400 million of potential revenue opportunity at current pricing. What I'll say though is that is only a fraction of the customer engagements and customer interests that we are seeing and engaging in. As we announced on today's call, we're working with multiple hyperscalers as well as numerous additional data center builders. And we're in discussions with them and some of the questions we've been getting getting from them are like, how do you get to 100 megawatts a year of production capacity just for me? Or one of them's even at the 400 megawatts of production capacity just for me. So they want to understand really, how are we going to scale the additive manufacturing side of things? That's one of the big reasons why we were excited today to be able to do this. be able to share more about what that scaling journey looks like and the capital efficient path that we have ahead of us. But the demand we're seeing from the data center sector, the military sector, as well as the base commercial customers that we've been working with is phenomenal, frankly. And the big focus right now.

is how are we going to be able to scale to meet that demand? Okay, that's really helpful. And kind of along those lines, you gave the, the numbers, the 1.5 million for printers and manufacturing equipment to support one megawatt of Carnot per year, cores per year. I was curious about the supply chain there. So on the, especially on the printer side, I guess like how quickly can you order printers? Can you bring printers in? Is there any constraints on like in terms of the number of printers you could bring in in a year? Because to your point, like it seems like the bringer in power space is accelerating the demand from data centers is accelerating. So just curious about the ability to accelerate your supply chain, especially on the additive.

manufacturing side? Sure, so maybe let's start with the infrastructure that we have in place. So in our Austin, Texas facility, the existing square footage that we already have under lease that has the capability of adding hundreds of additional printers to it. So we have plenty of space there. That's not going to be our issue. The next question is, what What does the supply chain look like in order to be able to source these and get them in? As you're aware, we procure the systems from Calibri Remattative, which is a GE company. The great thing is, is these are the same printers that they use in aerospace. They're selling into the health care industry and even are being brought in. brought into other industries as well. And so these are not unique printers that are just for Hyliion. These are standard printers that they're scaling for other customers as well. Now, in terms of their ability to deliver on those, they have been in production of additive machines for over a decade. And and so it's something that they have confidence and we've had discussions with them that as our capacity is scaling up, they'll be able to deliver towards them. We do anticipate that, you know, it's in the we anticipate lead times on printers getting into the low number of quarters, even potentially months of lead time as we go forward. But that's obviously something we'll work closely with GE on.

Okay, great. I'll hand it back over. Thank you so much.