Hyster-Yale, Inc. Q1 FY2023 Earnings Call

Ladies and gentlemen, welcome to the Hyster-Yale Materials Handling 2023 First Quarter's Earnings Call. My name is Glen, and I will be moderating today's call. I will now hand you over to your host, Christina Kmetko, to begin. Christi, please proceed.

Thank you. Good morning, everyone and thanks for joining us today. Welcome to our 2023 first quarter earnings call. I'm Christina Kmetko, and I'm responsible for Investor Relations at Hyster-Yale. Joining me on today's call are Al Rankin, Chairman and Chief Executive Officer; Rajiv Prasad, President; and Scott Minder, our Senior Vice President, Chief Financial Officer and Treasurer. Yesterday evening, we published our first quarter 2023 results and filed our 10-Q, both of which are available on our website. Today's call is being recorded and webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, contain forward-looking statements. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we've described in our earnings release issued last night and in our 10-Q and other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. With the formalities out of the way, I'll turn the call over to Rajiv.

Thanks, Christi, and good morning, everyone. I'll start by discussing our operations and market situation. Scott will follow with financial results and forecasts, and I will conclude with a strategic overview before we move to Q&A. We had a very strong first quarter. I noted in our last quarterly call that we expected to continue the momentum from Q4 2022, and we exceeded our expectations in the first quarter. While Scott will cover the financial specifics, I want to highlight a few key points from my perspective. Revenue and consolidated operating profit saw significant increases over the first quarter of 2022. Our profits were boosted by improved product margins due to favorable material costs and a strong product mix. These gains more than offset the negative effects of adverse currency fluctuations and ongoing supply chain challenges. Third-party component shortages and their production implications remain a challenge, but they have eased compared to the previous year. During Q1, our unit shipments rose by more than 5% compared to the same period in 2022, primarily due to fewer component shortages. However, we faced multiple production setbacks due to ongoing issues with skilled labor availability, especially in the Americas, in addition to shortages of certain components in Europe. As a result, our plants did not meet the planned increase in production rates. Looking forward, we plan for an improved production schedule in the Americas, though labor issues may disrupt those plans. In Europe, we anticipate that specific component supply issues and, to a lesser extent, labor challenges will likely hamper production rates in Q2. As these problems diminish, we expect production and shipment rates to rise quickly. For the entirety of 2023, we predict robust production and shipment volumes, expecting to surpass 2022 levels despite ongoing production hurdles. In the first quarter, material and labor costs continued to climb compared to last year, mainly in EMEA, but the rate of increase has significantly slowed. Economic indicators point to more moderate cost inflation trends for 2023. As previously mentioned, we've raised prices multiple times over the past two years to counter persistent inflation. We've made progress in the Americas, and we believe that easing cost inflation will help enhance margins, particularly in EMEA. We will keep a close watch on our material and labor costs, including potential tariff impacts, and will adjust pricing as necessary to maintain momentum toward our long-term margin goals. Now, regarding our global market outlook, demand for lift trucks remains strong. The latest data shows that fourth quarter 2022 market volumes were notably lower than the peak levels achieved in Q1 2022. Our internal estimates suggest that the decline seen in the last three quarters of 2022 continued into Q1 2023 across all geographic regions. These declines appear to be less severe than expected, reflecting more resilient global demand across various sectors. Looking ahead, we anticipate that the overall lift truck market will decline in each of the remaining quarters of 2023 compared to the same quarter of the prior year. Despite these decreases, the market is expected to remain robust in comparison to pre-pandemic levels across most regions, apart from EMEA. Lift truck bookings dropped significantly in Q1 from the strong prior year levels, influenced by several factors. First, the global market comparison to last year's record levels. Second, we are prioritizing bookings of orders that provide solid margins. Finally, our inventory lead time is affected by our high backlog. Sequentially, bookings did see a modest increase compared to Q4, mainly driven by the Americas. Looking ahead, we expect the downward trend in year-over-year bookings to persist due to slowing global economic activity in 2023 and a return to more normalized market conditions. We will focus on securing higher-margin orders. Throughout the year, we aim to balance our booking rates and production lead times on an individual line basis to maximize profitable growth. The combination of rising production and lower bookings allowed us to decrease our backlog by another 3% from Q4 2022, although it remains substantially above historical levels. Our commitment to maintaining booking margins, along with the shipment of older lower-margin units, has resulted in increased average unit margins in our remaining backlog. Our efforts are yielding results. In Q1, the average sales price for our backlog units rose by nearly 34% year-over-year and approximately 2% sequentially. We expect these positive margin trends to continue throughout 2023 and into 2024 as we address the remaining aged backlog units in the coming quarters. While global economic indicators suggest potential recession risks, our current backlog of high-margin trucks extends through our 2023 production schedules and into 2024. This serves as a buffer should bookings decline more sharply than anticipated this year. In summary, we expect increased production and shipment rates over the coming quarters, largely due to improving availability of components and labor. We are committed to mitigating the impact of ongoing supply chain and manufacturing challenges. Our teams are actively working with suppliers to ensure we have the necessary resources for production in a timely manner. As our planned production rates rise through 2023, we believe the high unit prices and margin built into our backlog will support improved financial results. Continued discipline regarding bookings, margins, and cost structures will foster long-term profitability. We anticipate a reduction in our unit backlog and extended lead times throughout 2023, but it will continue to exceed our preferred levels. While we strive for ideal backlog levels and lead times, our focus remains on profitability and cash generation. Before handing the call over to Scott, I want to mention a significant recent development. In March, we introduced a new brand identity for our Yale business. The Yale brand has a strong presence in the warehouse segment, while our Hyster brand excels in industrial and port areas. This change reflects a clear marketplace differentiation between the brands, which is now being bolstered by new technology. We have rebranded Yale as Yale Lift Truck Technologies. This new identity and logo underscore our commitment to addressing the most pressing labor, safety, and productivity challenges in the rapidly growing warehouse markets. Yale Lift Truck Technologies will integrate technology with a customer-focused approach tailored to meet customer application needs. I want to express my gratitude to the team that guided this project from concept to launch, particularly during the recent ProMat trade show. They did an excellent job. Now, I will turn the call over to Scott for an update on our financial results and outlook. Scott?

Thanks, Rajiv. I'll start with high-level comments on our consolidated financial results and then add some additional perspective on our three businesses. In the first quarter, we reported consolidated revenues of nearly $1 billion. This was an increase of 21% or $172 million over the prior year. This growth was driven by a 22% increase in Lift Truck sales, significantly outpacing the 5% shipment growth rate over the same period. Compared to the fourth quarter, revenues increased modestly despite lower shipments. This increase was largely due to higher prices and added parts volumes. Bookings increased nearly 7% sequentially, topping 22,000 units, but were below the 25,200 units shipped in the first quarter of 2023. As a result, our backlog dropped by 13% to 99,200 units at the end of the first quarter 2023. This compared to historically high prior year levels, versus year-end 2022, our backlog decreased by 3%. Moving to earnings, the company reported a consolidated operating profit of roughly $43 million for the first quarter. This compares to an operating loss of $18 million in the first quarter of 2022. We earned a net income of $26.6 million for the first quarter versus a net loss of $25 million in the prior year. On a per share basis, first quarter 2023 earnings were $1.55 versus an earnings loss of $1.48 in the prior year. Now let's take a deeper look at the financial results by business. Lift Truck generated an operating profit of $47.8 million in the first quarter on sales of nearly $980 million. This better-than-expected performance resulted in a 5% operating profit margin. This compared to an operating loss of $10.7 million in the prior year. The substantial improvement was largely due to price increases that exceeded material and freight inflation in the quarter. This positive first quarter price-to-cost ratio helps to offset accumulated net inflation from 2020 and 2021. Improved sales mix, higher parts volumes, and increased fleet revenues also helped drive the favorable comparison. Lift Truck's first-quarter operating profit improved despite $5 million of unfavorable foreign currency effects and higher employee-related costs. The Lift Truck business remains vigilant over its cost, holding year-over-year cost increases to 12%, while revenues increased by almost 22%. As Rajiv mentioned, despite a steady clearing of lower-priced backlog units over the past several quarters, our first-quarter production included a large number of units booked prior to the 2021 and 2022 price increases. These units acted as a drag on our first-quarter margin expansion. We expect production of these lower margin units to decline significantly in the coming quarters as we work through the remaining aged backlog units. Turning to Bolzoni. The business reported an operating profit of $4.4 million in the first quarter, more than double the prior year's profit. This significant improvement was driven by price increase benefits combined with higher sales volumes and lower material, freight, and manufacturing costs. For Nuvera, the first quarter 2023's operating loss increased by $2 million year-over-year to approximately $10 million. Elevated product development costs, including those for the larger 125-kilowatt engine and higher employee-related costs accounted for the increased loss. As you can see, we've had a strong start to 2023. As we look ahead, we expect our robust backlog to support increased year-over-year revenues and a substantial operating profit for the full year. This aligns with the commentary from our last earnings call, and Rajiv offered support for this outlook earlier. In summary, we expect fewer components shortages and increased manufacturing efficiencies, leading to higher Lift Truck and attachment production and shipments, lower material and freight inflation rates and the ongoing benefits from our cost savings programs and pricing discipline to counter any additional inflation. Finally, our strategic programs, which Al will touch on in a moment, should further enhance margins as they mature. As Rajiv pointed out, our first quarter 2023 operating profit increased by more than we anticipated. As a result, we expect second quarter operating profit to decrease from the first quarter, but remain significantly above fourth quarter 2022 levels. The expected sequential decline is partly due to an anticipated mix shift toward lower margin sales channels. Looking across 2023, we expect second half operating profit to be comparable to the first half of the year. Moving to Bolzoni. We anticipate moderating supply chain challenges in 2023 and increased pricing to offset any additional input cost inflation. As a result, Bolzoni's margins should improve and the business will likely generate significantly higher operating profits in 2023 compared to 2022. Finally, Nuvera continues to ramp up product demonstrations and bookings. Sales are expected to increase in the second half of 2023 due to booked orders from current customers. Anticipated sales growth benefits are likely to be offset by higher costs. As a result, 2023's full year operating loss should be in line with 2022's level. Taking a longer-term view, these product demonstrations provide real-world testing opportunities and lay the foundation for future technology adoption and improved financial returns. Before I hand the call over to Al, I'll cover a few balance sheet items. As of March 31st, the company had net debt of $496 million, including $65 million of cash. This compared to net debt of $494 million, including $59 million of cash at the end of 2022. We finished the first quarter with available borrowing capacity of approximately $186 million, slightly above year-end 2022 levels. Financial leverage measured by debt to total capital reduced by 400 basis points versus the fourth quarter, mainly due to our robust first quarter profitability. I'll conclude my comments with a few thoughts on working capital, where we remain focused on improving inventory efficiency as our production rates increase. Last quarter, I discussed our efforts to use on-hand inventory to build trucks. As a result, our raw material and component parts inventory decreased by more than 9% in the first quarter compared with year-end 2022 levels. Despite that improvement, total inventories increased by 7% over the same time period, mainly due to increased finished goods inventory. This was a result of elevated production levels late in the quarter, leading to a high number of completed trucks left in shipping. Lastly, the assumptions underpinning our outlook, particularly production rates, are highly sensitive to events that impact global supply chains. We're focusing on the things that we can control, and we're prepared to manage the things that we can't control. We keep you updated as 2023 unfolds. Now I'll turn the call over to Al to give his strategic perspective. Al?

As you heard from Rajiv and Scott, we had a strong start to the year, and we're making progress operationally and financially. Our first quarter earnings reflect the improving profit quality of our robust backlog, and we continue to have solid bookings despite softening market conditions. Looking forward, we're nearing completion of the build-out of lower priced, lower margin backlog units held over from prior periods. We expect continued margin expansion, particularly in EMEA as we move through our backlog, and we expect substantial profitability in 2023. However, I would add a word of caution. While the year started strong and we've maintained our positive full year outlook, there continue to be uncertainties in some areas. Those include particularly fragile EMEA supply chains, the potential for more stubborn cost inflation than expected, especially for labor and the possibility of cost increases for some critical components. Overall, we're proceeding carefully for the remainder of 2023 and are thinking about our profitability expectations in that context. Scott mentioned our liquidity situation and I'd like to add my perspective on that as well. We're laser-focused on increasing our cash flows and maintaining adequate liquidity with ongoing action plans to improve future results. Our efforts to reduce inventory and generate cash are progressing, albeit at a slower pace than we'd like. However, they are expected to show substantial progress in the second half of this year as production rates increase. Inventory levels do remain elevated due to manufacturing inefficiencies caused by component shortages, largely in prior periods. We're making significant efforts to maximize the use of on-hand inventory, coupled with purchasing materials at rates below our expected production rates. Results from these actions are evident in the declining material and component inventory that Scott mentioned. However, as noted earlier, overall inventory levels are still up due to temporarily elevated finished goods inventory. We've got very capable people from around the world focused on how to make the most units in the shortest amount of time while maximizing the use of on-hand materials. We're collaborating with our suppliers to minimize disruptions and ensure an efficient and consistent flow of materials. Supply constraints continue to be an issue periodically, but we expect continued improvement as 2023 progresses. We're also working closely with our dealer partners to balance order delivery timing with their customer's delivery needs. It's a complex global challenge, but our teams are focused on it, and we're making progress. While we pursue these working capital reductions, particularly inventory, we're committed to enhancing our cash flows by maintaining discipline over our cash expenditures. We do anticipate higher full year 2023 capital expenditures compared to the significantly restrained 2022 levels. But these projected spending increases are necessary to adequately maintain our facilities and fund growth through our product development programs. Our planned spending is more heavily weighted toward the second half of the year. This was clearly evident in the fourth quarter since outlays or 5% of the anticipated full year spend. We'll continue to monitor our financial and cash progress and increase our capital funds accordingly. However, we do continue to expect a significant increase in cash flow before financing activities in 2023 compared to 2022. Executing our core strategies remains a key focus area. We're continuing to invest for long-term profitable growth over time, and we're seeing solid progress toward our 7% operating profit margin goals at both the Lift Truck and the Bolzoni businesses as we return to more normalized operating conditions. We expect this to continue in 2023 as we execute the projects underlying our core strategies. Hyster-Yale strategies remain generally as we have described them in the past, but I want to provide a few key updates for each business. The Lift Truck business's primary strategic focus continues to be on launching its new modular and scalable products globally as well as projects geared toward truck electrification and implementing advanced technology capabilities. We're transforming our sales process around an industry-focused approach that better meets our customer's needs, and we continue to work to enhance our independent dealer capabilities. We continue to make progress on these programs, which include the Yale rebranding effort Rajiv mentioned earlier. Our initial set of modular scalable lift trucks were introduced in the EMEA and Americas markets in 2022, and we expect to introduce them to the JAPIC markets in mid-2023. The hydrogen fuel cell powered container handler, which uses Nuvera fuel cell engines, is now being tested in the Port of Los Angeles and continues to perform well. The Lift Truck business is also developing an electrified fuel cell reach stacker, which is expected to be delivered to the Port of Valencia, Spain in the first half of 2023 for testing. The Lift Truck business in Nuvera are working jointly with a large German customer to provide two Hyster electric container handling vehicles. These vehicles include the first-ever empty container handler powered by Nuvera fuel cell technology and the first Hyster terminal tractor in Europe. The terminal tractor is expected to be delivered to that customer for testing in mid-2023. Our big truck group is also exploring options for other electrified products within the European Union. Beyond the Lift Truck business, Bolzoni continues to work on streamlining and strengthening its operations as a single integrated operating entity. Bolzoni is also focused on increasing its revenues in the Americas while enhancing its ability to serve key attachment industries and customers in all global markets. In conjunction with this, Bolzoni is working to expand its broad industry sales, marketing, and product support capabilities. Nuvera continues to focus on placing a 45-kilowatt and 60-kilowatt fuel cell engines in niche heavy-duty vehicle applications where battery-only products do not provide an adequate solution. These applications are expected to provide near-term fuel cell adoption potential. Nuvera is also focusing on developing a heavy-duty 125-kilowatt engine, which is capable of operating in more power demanding applications. In 2022, Nuvera announced several projects with third parties who are testing or planning to test Nuvera engines in heavy-duty applications. Additionally, Nuvera is ready to launch two new products, a 360-kilowatt and a 470-kilowatt fuel cell power generator, which offer a modular zero-emission power solution for commercial and industrial stationary applications. Finally, Nuvera is shifting its sales and marketing efforts to emphasize a more solution-based approach. In summary, our first-quarter results extended the momentum we generated in the fourth quarter of 2022. We expect the remainder of 2023 to continue this progress, but we have more work to do on our key strategic programs to achieve our longer-term goals. In summary, we believe we have in place the right business structure with the right core strategies to achieve our strategic and financial goals over time. We'll now turn to any questions you may have.

Thank you. We have our first question from Steve Ferazani from Sidoti.

Good morning everyone. Thank you for the detailed insights shared during the call. Clearly, it has been a strong quarter. As I consider this, given the significant portion of older priced backlog that was processed this quarter, and with supply chain constraints easing, leading to a potential increase in quarterly volumes and improved margins per unit, what is the reason for caution? Specifically, why wouldn't this quarter be the least profitable of the year, especially since there is still at least nine months of backlog remaining?

I believe the main point we highlighted in the release is the transition to lower margin channels, and we have different types of customer bases. We serve large customers, dealers, and others, and we need to consider the mix of business we're generating. Some of these larger customers bring in high volumes but lower margins, and that is an important consideration for us. Overall, we remain optimistic about our potential to increase volume throughout the year. It's important to acknowledge that the third quarter is typically a seasonally weaker period. Our outlook for the full year requires a cautious and thoughtful approach. Additionally, there are several projects we need to pursue that have been postponed, so we will carefully evaluate those investments in our strategic programs as the year progresses. This is not a straightforward calculation based solely on volume; multiple factors play a role in this. Rajiv, do you have anything to add?

Sure. Steve, I think the way to think about it is we're still having to prioritize what we build based on the components we can get. And as it happens this quarter, we were able to build a fairly rich mix, both from a channel point of view, but also geographically. I think that's going to moderate a little bit more to our normal situation in the second quarter. And so that's why we've given this guidance. Now, again, that's our plan. What we're actually executing again is this external factor of the components we can get. So...

I would like to point out that one aspect is definitely working in our favor. In the EMEA region, which includes Europe broadly, we have produced a significant amount of low-margin backlog units in the first quarter. We mentioned this in the earnings release, and as a result, we anticipate a positive trend in our margin structure in Europe. There are many factors influencing the situation you described, but overall, we believe it presents a solid outlook going forward.

Thank you for the insight. It’s understandable that the backlog is decreasing as you increase volume and considering current economic conditions. My concern is that while the numbers suggest this trend, the backlog seems to be resilient. That could pose a risk if customers begin to cancel older orders, but you haven't observed that happening yet, correct?

No, we're not seeing cancellations. In fact, there are very, very low rates of cancellation.

And then the... in Americas?

I'd just add that, I think we described pretty clearly that our bookings have been more robust than we were expecting a quarter ago. So our backlog has come down somewhat less. In addition, we probably shipped some number, fewer trucks, particularly those that were left in shipping that we described than we might have anticipated for the first quarter. So those are all factors that come to bear in the equation as well.

And how is pricing, it looks like overall backlog ASP is up sequentially, it was down a little bit, but it looks like you had at least one big order in the Americas?

I think pricing is steady. I think you can see sequentially we went up a little bit but I think we're where we want to be from a pricing point of view.

I would also add that some of our prices increased more quickly than those of some of our competitors in other regions. Now, our supply chain costs are starting to stabilize, which puts us in a favorable position. As our backlogs return to our target levels, we expect to be highly competitive in the market and regain the market share we previously held. We have been cautious about the orders we accept because we cannot meet our customers' demands completely. The current backlog situation is already challenging, and if we extend timelines further, it will not be well-received by our customers and dealers. Therefore, we are carefully managing the backlog. It is important for us to reduce the backlog, but we don't want it to decrease too quickly, especially as we navigate any market downturn. Currently, our backlogs are extending into 2024, with some lines reaching the second and even third quarters. This gives us time to manage any potential weaknesses in the marketplace, particularly in North America, and to emerge in a stronger position. We are considering all these factors as we book new units, and we will be ready to compete effectively once we reach our target backlog levels, especially with our anticipated lower costs.

Great, very helpful. If I could just squeeze one more in, Al, I know you provided useful detail on cash flow. Clearly, Scott, you mentioned the issue with inventory this quarter. Going forward, it's not hard even with higher capital expenditures to model cash conversion around 100% and significant cash flow, am I crazy thinking that? And then would the cash be used to repay debt?

Scott, why don't you take a crack at that?

Yes, sure. Yes, Steve, I think, generally speaking, you're heading in the right direction. We do see inventory coming down maybe not as fast as we like. So might want to temper that expectation just a little bit. And the second part of that question, what would we do with excess free cash flow? I think the first priority would be debt reduction. I think we've noted a fairly high debt balance that we'd like to reduce and Rajiv also mentioned about funding growth initiatives for the future to make sure we can get to those margins and maintain them with new products. I think those are the two priorities, and we maintain that pretty consistent shareholder return policy in there as well.

I want to emphasize that our manufacturing component inventory, including raw materials and components, decreased in the first quarter. This is crucial because we need to align our on-hand inventory with our production requirements for consistent daily output. While we saw an increase in certain finished goods inventory, these trucks are not unsold stock; they have been sold and are just awaiting shipment, installation, or involved in some mechanical process delaying their conversion into cash. Different customers have various payment terms, which plays a role in this process. However, our primary focus should be on ensuring consistent progress in managing our component parts inventory, as the other aspects will resolve over time. The risk associated with this inventory is quite low since, although there may be some excess, it is not problematic and is just awaiting conversion to cash.

Appreciate it, thanks.

Thank you Steve. We have our next question from Chip Moore from EF Hutton. Chip, your line is now open.

Good morning, thanks for taking the question. I wanted to ask about the 7% operating profit goal for the Lift Truck business. You hit 5% this quarter. So obviously it looks a lot closer than it did at this time last year. Just given your commentary around built-in demand and visibility and as well as the rollout of strategic initiatives underway, is there a way to think about maybe a potential timeline on that goal and stickiness when you get there, I don't know, maybe some type of scenario analysis depending on what we see happen to global demand here in the future?

We're optimistic that in the upcoming quarters, especially towards the end of the year, we'll make significant progress towards our 7% goal. However, as I've mentioned, we need to be cautious because we have some deferred expenses to address. A challenge in the short term in reaching the 7% target is that we are currently achieving somewhat lower gross profits than anticipated, which is offset by operating expenses being lower than expected. This has been a limitation we've experienced during the COVID period. However, these expenses will eventually need to be reconciled. As we've noted, the adjusted margins for our products are improving and will continue to do so throughout the year. Additionally, from our perspective regarding target economics, we need to increase our production volume. As we move into 2024 and even 2025, it's crucial for us to collaborate with our suppliers to scale production and ensure a steady stream of bookings. This presents our ongoing challenge. When considering the 7% target, it's important to keep these factors in mind. We are seeing progress, and the components are aligning, but we must continue to enhance production volume as we work with our supply chain and keep booking orders. Would you like to add anything to that, Rajiv?

Sure Chip, regarding the second part of your question about how to make it sticky, our strategic initiatives are essential. As Al mentioned, we prioritized crucial initiatives during the pandemic, but there are still key initiatives that are vital for us to sustain that 7%. We plan to implement these over the next three years. Therefore, a combination of what Al discussed and the execution of these projects will be critical for maintaining that 7%.

That’s very helpful Al and Rajiv, appreciate it. And maybe if I could ask one on electrification, fuel cell adoption. More so, I guess, customer-centric, what you're seeing out there, it feels like commercialization is getting much closer for some of those legacy internal combustion products, but just curious what you're seeing from the customer side?

Sure. We are seeing a high level of interest, especially in the segment that Al talked about, these heavy-duty applications where really battery by itself isn't going to be able to fulfill the application needs. A good example of that is port equipment, but there are others such as transit buses, kind of power generation, especially backup power generation. And we're also starting to see more traction in marine and locomotive, and Nuvera is engaged with customers globally in those segments. We feel those segments are going to be the early movers. I think we've laid out, we've got vehicles going into test programs with critical customers. And the ones that are running right now have had very positive feedback. So we're excited about the results that we're getting as well as the growing amount of interest from customers that Nuvera has seen.

Yes, I want to highlight that point because Nuvera is gaining much more visibility into its capabilities through demonstrations and outreach efforts to potential customers. In the last four to five months, we've observed a significant increase in inquiries across various market segments compared to the past. However, inquiry doesn't fully capture it; there are actual discussions about potential applications, demo developments, and a variety of other activities. Internally, we are noticing that Nuvera's efforts are starting to gain traction more consistently. We believe we have follow-on bookings on the horizon, and we're optimistic that this momentum will continue to grow throughout the year, establishing a strong foundation, especially in industries that require fuel cells to be electrified, as batteries alone won't suffice.

Great, that’s very helpful color. I will hop back in queue. Thanks.

Thank you. Our next question comes from Brett Kearney from Gabelli and Company. Brett, your line is now open.

Hi guys, good morning. Thanks for taking my question. I want to follow up on the Nuvera momentum. It sounds like you guys have identified a new market opportunity in this potentially stationary backup power application. I guess, can you just discuss the genesis of that, how that's kind of come about? And I noticed you also called out opportunities to expand Nuvera's presence in EMEA and China, just kind of what applications that is, is that the China bus market opportunity or specific applications you're seeing there?

Sure. In terms of Nuvera's traction in stationary power, the initial inquiries mostly came from data centers. Many data center operators want to move away from internal combustion engines as backup solutions and shift towards zero-emission alternatives, which we believe is a viable path. Additionally, there is notable interest in charging electric vehicles. This includes both static and mobile chargers that can support electric fleets. When electricity supply limits fast charging, stationary power can help address that by providing the necessary charge for electric vehicles. A fuel cell is essentially being utilized as a charger for these electric vehicles. These are the two main areas of interest. Regarding China and Europe, Europe shows widespread interest, particularly due to the Ukraine-Russia conflict, which has increased focus on developing alternative energy solutions for the medium to long term. Various projects are being explored for fuel cell applications across major segments, and Nuvera is involved in numerous such initiatives. In China, the focus is primarily on buses and trucks.

Yes. I'd like to make a comment about electric generators. When considering their use in vehicles, especially those with internal combustion engines, transitioning to an electric drivetrain is a complicated and lengthy process, followed by testing fuel cell vehicles and applications as we are doing in locations like Los Angeles, Valencia, and parts of Europe. The development time for a generator is significantly shorter. This product doesn't need to be integrated with the drivetrain. Rajiv highlighted the most common applications, but there's a significant interest in hydrogen alongside the understanding that while we want to speed up progress, many applications are time-consuming and challenging. Moreover, there are numerous technologies involved beyond just fuel cells. The generator differs in this regard. Companies looking to show their commitment to sustainability and compare costs for hydrogen generation and fuel cells can proceed, provided they are in areas with sufficient hydrogen supply. This is especially relevant for large companies in data center backup, which often want to appear environmentally friendly. This distinction is important because we aim to identify applications with immediate potential, which is why we are focusing on heavy-duty applications since batteries alone cannot suffice. From our perspective, the automobile sector is still a long way from widespread adoption because batteries cannot fulfill the requirements alone. Many factors influence battery recharge and functionality. This provides a broader perspective on our efforts to discover significant near-term volume opportunities in the market if possible.

Yes, this is very helpful. I have a follow-up question regarding China. I understand that your exposure to the domestic market there is minimal. Could you please explain your joint venture in Japan and the impact of the Maximal acquisition on your presence in the China Lift Truck market, as well as your outlook for demand in that region?

We are a very small part of that market, and our focus will shift towards larger electrified trucks. Our team is concentrating on assisting the heavy industries in China with the transition to electrified Lift Truck solutions.

I think the other factor that lies behind Rajiv's comments is that a very large portion of the existing large China market is really a very, very low-cost, low-performance vehicle. It's not an area where we think we can be competitive in the long term. It's not a focus of our efforts. We want to add more value for the customer’s application and productivity. We want to be there as the Chinese market matures for sure, but there are large portions of it where, frankly, we don't think a lot of money is being made on those vehicles by anybody.

Yes. I mean we want to stay really focused on our brand promises, which is to really understand the customers' application and give them an optimal solution. But most customers in China are not ready for that. They just want a truck at the lowest possible cost. But now we're starting to see these heavy industries such as paper, steel, lumber, automotive, who are now increasingly focused on productivity and emissions. So those are the customers that we're starting to heavily interact with.

And keep in mind, too, that Bolzoni is very much involved in the Chinese market. Bolzoni has two plants in China and they are able to offer their attachments, and I think we hope increasingly in conjunction with our vehicles over time so that we're in a good position to provide customer solutions. I mean, that's the ultimate customer solution; it is not just a forklift truck, but a forklift truck and an attachment that gets a very specialized job done. And so we think there's a lot of potential there in these applications that are sort of moving toward world-class sophistication or at least higher sophistication than they're currently at.

Excellent, that’s very helpful. Thank you so much.

Thank you Brett. We have no more further questions on the line.

Okay. With that, we'll conclude our Q&A session, and we'll close with a few final reminders. A replay of our call will be available online later this morning. We'll also post a transcript on the Investor Relations website when it becomes available. And if you have any questions, please reach out to me. You can reach me at the phone number on the press release. I hope you enjoy the rest of your day, and I'll turn the call back to Glen to conclude the call.

Thank you. If you have missed any part of this call or would like to hear again, a recording will be ready shortly. Thank you for joining today's call. Have a lovely day.