Hyzon Motors Inc. (NASDAQ:HYZN) Q3 2023 Earnings Call Transcript November 14, 2023
Hyzon Motors Inc. beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.16.
Operator: Good morning, and welcome to the Hyzon Motors Second Quarter 2023 Earnings Conference Call. Please note, that this call is being recorded. [Operator Instructions] I’ll now turn the call over to Henry Kwon, Head of Investor Relations. Please go ahead. Mr. Kwon, please go ahead.
Henry Kwon: Thank you, operator, and good morning, everyone. Welcome to Hyzon’s Q3 2023 Earnings Call. With me on the call today are Parker Meeks, Chief Executive Officer, Stephen Weiland, Chief Financial Officer and JiaJia Wu, Senior Vice President of Finance and Accounting. As a reminder, you find the press release detailing our financial results and the presentation accompanying today’s in the Investor Relations section of our website. Today’s discussions include references to non-GAAP measures. These measures are reconciled to the most comparable U.S. GAAP measures and can be found at the end of the Q3 earnings press release. This morning’s discussions include forward-looking statements regarding future plans and expectations.
Actual results might differ materially from those stated and factors that could cause actual results to differ are explained in the forward-looking statements at the end of the press release and Page 2 of our earnings presentation. Forward-looking statements speak only as of the date on which they are made. You are cautioned not to put undue reliance on forward-looking statements. With that, I will hand the discussion over to Parker.
Parker Meeks: Thank you, Henry. Good morning, everyone. And thank you for joining today’s call. This was a remarkable quarter. Hyzon continues to accelerate the global transition to clean energy by developing and commercializing our proprietary leading zero-emission fuel cell technology. Our company is at an inflection point as we made our first commercial delivery in the U.S. this month. We expect to have less than $5 million of capital spend left to reach start-up production in 2024, and with that, we’ll start the transition to ramping production. The Hyzon economy also gained significant tailwinds from recently progressed government programs and policies, further supporting Hyzon’s technology and business model advantages.
Those advantages are leading 200kW fuel cell technology, our state-of-the-art fuel cell production facility, and our asset-light business model are being sharpened and deployed by a strengthened leadership team and supported by industry leading partners. Hyzon’s fuel cell technology is the foundation of our company and is being monetized over two investment horizons. Our core commercialization and heavy-duty fuel cell trucks today and substantial option value over time and deploying the same technology, the additional fuel cell advantage end markets. We have an early mover advantage and a scalable business model that we expect to generate a positive cash contribution margin at the truck level on the trucks we deliver to large fleets in the fourth quarter of 2023.
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This is made possible by five key advantages. Our in-house fuel cell technology and manufacturing leadership driving expected lower cost and higher fuel efficiency fuel cell power, an asset light business model with relatively low cost third-party truck assembly, an accelerating hydrogen market powered by customer and government tailwinds, a series of additional fuel cell advantage end markets with substantial option value and a proven and driven leadership team that continues to strengthen. Bolstered by a powerful combination of near-term government supported subsidies and government mandated emissions reduction regulations, we believe Hyzon is on a pathway to corporate cashflow breakeven focusing on those most attractive zero-emission truck markets first.
To put that into perspective, California’s current mandates and funding structures estimate the conversion of 24,000 heavy-duty port drayage trucks to zero-emission alone by 2030 along with 10% to 25% of the higher emission portion of the California heavy-duty truck fleet. Hyzon believes 50% of those conversions will be to fuel cell trucks. As one of only two companies with fuel cell trucks and commercial delivery to customers in the U.S. if Hyzon achieves 25% share of those projected fuel cell truck deployments, we anticipate Hyzon will be on track to our corporate cash breakeven goals by 2030 with California deliveries alone. That breakeven move forward, of course, when adding the potential for the rest of the U.S., Europe, and Australia, and New Zealand.
Our single-stack 200kW fuel cell technology is a key differentiator which we expect will be in operation ahead of the competition demonstrating its durability, performance, weight, and cost advantages. This early mover advantage we believe will secure our place with large fleets who are acting on the available subsidy programs and approaching mandates now and who desire to scale assuming successful initial fuel cell truck deployments. Beyond trucks, we see significant opportunity for deploying our fuel cell technology and other use cases with high power density requirements such as rail, aviation, mining, and stationary power. Several of which we are already shaping with leading partners. In each of these ecosystems, we see fuel cell products that are well positioned to decarbonize which we plan to action once the fuel cell truck platforms are commercially stable continuing to expand our addressable markets and unlocking option value for our technology.
As a whole, the market for zero-emission heavy-duty power continues to grow as governments incentivize the transition to hydrogen, benefiting both our core fuel cell truck commercialization and additional end market applications. For example, the Biden administration recently allocated $7 billion to seven hydrogen hubs, several of which Hyzon directly supported. The Inflation Reduction Act earmarks $2.6 billion to decarbonize coastal and inland ports nationwide, including drainage trucks and fueling infrastructure. And California’s HVIP program has over $250 million for heavy-duty zero-emission trucks and another $147 million set aside for a drainage truck specifically, totaling close to $400 million available to heavy-duty trucks today. These are all major long-term investments in the hydrogen economy at both the federal and state level, which we estimate could stimulate thousands of fuel cell trucks in the US this decade.
And as these funding programs scale, Hyzon and our customers will also have the opportunity to scale with them. Beyond the increasing government support, customer interest in fuel cell trucks is expanding, as our large fleet customers are seeing the limitations of heavy-duty battery electric trucks through in many cases, months of attempting to utilize them in their operations. Our customers are confirming to us their reality in many cases, shows even shorter than expected usable range, long charging times, and the need for substantial charging infrastructure, which in many cases is years away at any real scale. Our large fleet customers have described the need in some cases to deploy two battery electric trucks to complete the work of one of their regular diesel trucks primarily due to weight and charge time, where fuel cell trucks are much closer to diesel in their expected operating performance.
Fuel cell trucks offer a potential solution thanks to their range, quick refueling time, and payload performance. And customers are recognizing that, increasing the addressable market for fuel cell trucks. The market support for fuel cell trucks continues to increase as we have made significant strides this quarter in parallel. We have seen continued commercial deployments of our fuel cell technology to truck customers, open additional future markets for our fuel cell technology and hydrogen investment rights, and then all of this while managing our cash and capital in line with prior guidance. Our commercial progress reflects this momentum, and we believe we are approaching an inflection point in customer pipeline conversion with our large fleet trial customers.
We also continue to drive our commercial deployments, including a significant recent milestone moment for the company, completing our first revenue delivery in the U.S. Earlier this month, we saw our first delivery of a fuel cell truck in the U.S. to a customer through a sale, for which we expect to record revenue in the fourth quarter of 2023. We believe this is the industry’s first publicly announced commercial delivery of a heavy-duty fuel cell truck to a customer in North America. What’s more, we delivered it into operations at the Port of LA and Long Beach, where 20,000 drayage trucks operate, and where the advanced clean fleet rule requires drayage trucks to begin decarbonizing in their operations in January 2024. This is a major market, which Hyzon has now commercially entered, which we believe provides significant opportunity due to its concentrated back-to-base operations, conversion mandates, subsidy availability, and multiple layers of funding opportunities via the previously mentioned existing CARB HVIP drayage set-aside funding, IRA, and DOE Hydrogen Hub awards.
By the end of the third quarter, we had deployed 13 vehicles under commercial agreements to customers in 2023. Since quarter end, we deployed an additional truck under commercial agreements. With that, we are raising the low end of our 2023 vehicle guidance to 15 to 20 vehicles deployed by year end up from 10 to 20. Our model for commercial agreements envisions the potential for up to 50 trucks over multiple years with the five contingencies and/or customer options. These agreements typically start with a few trucks, which allows the fleet to validate performance, secure additional subsidies, and stand up fueling as a precedent to confirming the next tranches. The company’s North American Trial Program continued to expand, with 18 trials completed since March 2022, of which 10 trials were completed in 2023.
