Hyliion Holdings Corp. Q3 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Hyliion Holdings third quarter 2021 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. Please be advised that today's conference is being recorded. If you require any further assistance, I would now like to hand the conference over to your speaker, Louis Baltimore. Please go ahead.

Thank you. And good morning, everyone. Welcome to the Hyliion Holdings Third Quarter 2021 Earnings Conference Call. With us today, we have Thomas Healy, our Chief Executive Officer; and Sherri Baker, our Chief Financial Officer. During today's call, we will make certain forward-looking statements regarding our future business expectations, which involve risks and uncertainties. Forward-looking statements are predictions, projections, and other statements about future events based on current expectations and assumptions, and as a result, are subject to risk and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements on this call. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the press release we issued yesterday after the market close, as well as our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. You are cautioned not to put undue reliance on forward-looking statements. We undertake no duty to update this information unless required by law. Before turning the call over to our CEO, Thomas Healy, we'd like to share with you a short video about Hyliion and some of the great progress we have been making. Over the past few months we've seen significant progress in the development of both our hybrid and Hyper truck ERX solutions, as we continue to work towards our product milestones. The improved version of our hybrid solution, the hybrid ERX, came to market with system improvements aimed at increasing efficiency and payload and enhancing the overall driver experience. We recently delivered our first hybrid ERX unit to the market, marking a major milestone for our Company. Continuous progress is also being made on the Hyper truck ERX. From giving the Secretary of Energy a ride in the truck, to debuting the first showcase unit at the ACT Expo, where we saw it being viewed by thousands who are invested in clean energy technology. But before taking the show on the road, we did an All-Employee Appreciation Day, where everyone at our headquarters here in Austin, Texas was able to experience their hard work firsthand and go for rides in the ERX. The excitement and experience were unforgettable. And now it's off to start our Hyper truck roadshow, where the valuable feedback we received from our fleet council members will not only help us continue along our path to commercialization, but towards our goal of changing the world.

Good morning, everyone and welcome to Hyliion's Third Quarter 2021 Earnings Call. I hope you enjoyed that short video. During the third quarter, we continued to make important progress to advance our mission of bringing electrified Powertrain solutions to the commercial vehicle space. Throughout today's call, I will highlight some of the major milestones and accomplishments that the team achieved in Q3, as well as some of the challenges and hurdles we faced, including around supply chain. Before we begin, I'd like to highlight two very impressive achievements. First, we recently unveiled our new iteration of the Hyper truck ERX and have begun showcasing the product with customers on the road. And secondly, we launched the hybrid EX product. In today's call, I'm also going to share a little about a special customer event that we have happening today at Wegmans headquarters with our Hyper truck ERX. Looking back on the past year, it was one of the most transformative years for the Hyliion team as we unveiled and launched multiple product iterations and we've had significant growth in our exceptionally talented team. We laid out an updated commercialization plan for our hybrid Powertrain back in February of this year and since then, we have been executing on that roadmap as we outlined. The end result is our improved hybrid ERX Powertrain product that was unveiled at the ACT Expo in Long Beach, California at the end of August. We also shared on our last earnings call that we expected to begin recognizing revenue once we began to ship this latest version of our hybrid solution, and I am very proud to announce that we delivered our first Hybrid EX unit in October, which we expect will start our recognition of revenue before the end of the year. In the video that we just watched, you'll see that we captured Hyliion turning over the keys to Werner, one of the leading fleets in the industry, who operate thousands of trucks across the country, marking a critical milestone for our Company. On the Hyper truck ERX, our flagship product, which is in the product development phase, we put together the Hyper truck innovation council, a collaborative group of 11 future-focused fleets and technology leaders to work with us to assist in bringing the product to market. We are working closely with Peterbilt to utilize their vehicles for the launch of our Powertrain solution and collaborating with them to establish the best chassis specifications that are ideal for the Hyper truck ERX Powertrain. This all culminated in Hyliion unveiling a Hyper truck ERX unit at the Act Expo, which was the first time that we publicly showcased this vehicle. The feedback we received from fleets, suppliers, and the investor community was incredibly positive and generated a significant amount of interest in the product. This brings us to today. Since the unveiling, we have been planning our customer showcase events to let fleets experience the vehicle in its current configuration firsthand. I'm very excited to share that we are kicking this journey off today in Rochester, New York at Wegmans headquarters, where we will have many of their drivers and executives getting in the truck for the first time to experience it. Stay tuned for media, pictures, and videos that we'll be sharing. Wegmans is both a current Hybrid customer and a Hyper truck innovation council member, and a Company that exemplifies the mission of moving to more sustainable transportation methods. Later this year, we plan to host more fleet council events at our Austin, Texas headquarters to allow innovation council members and others to experience the Hyper truck firsthand. Now, I'd like to take a few minutes to go into greater detail on the Hyper truck ERX. I'm pleased to start off by sharing that we have secured a 40-unit reservation for the Hyper truck ERX from Mone Transport. Mone is a Texas-based carrier Company that has been an early adopter of the Hyliion Hybrid solution, as some of you may remember. Mone Transport believes that the future of trucking is sustainable. But in part of their business model, their trucks need to travel hundreds of miles every day, which is where the Hyper truck ERX can operate as a low-cost, low-emission, and long-range electric solution. The purchase and sale of the 40 Hyper truck ERX units are subject to the execution of a final agreement between Hyliion and Monet Transport. We are thrilled to be continuing and expanding our relationship with the Monet team. I'd also like to share some exciting updates around successes that we have had from early ride-and-drive events with the Hyper truck ERX. Over the past few weeks, we executed on a select number of ride-and-drives, one of which was with Green Path Logistics, a current Hyliion Hyper truck innovation council member. Green Path has a very unique business model in the trucking industry where they operate 100% alternative fuel vehicles. They've leveraged this unique value proposition and are shipping for some of the major players in this space, including Amazon, UPS, and the U.S. Postal Service, to name a few. Green Path's CEO went for a ride in the truck and had fantastic things to say about his experience. I'd like to share a quote from him. He said, 'After driving the vehicle at Hyliion's headquarters and going for a ride on the highway, I immediately knew this vehicle would change the landscape of trucking as we know it. The vehicle was smooth, quiet, and drove like a passenger car as opposed to the way we know semi trucks today.' After experiencing the vehicle, Green Path Logistics requested to be a leading participant in initial deployments of controlled fleet trials in their operations. With Green Path located in Dallas, Texas, it will allow Hyliion's team to closely monitor these trucks to ensure strong vehicle performance as fleet trials begin. The feedback from their drivers, technicians, and management team, as well as the lessons we gain in these early trials, will be invaluable as we continue down the path to production. Over the past few quarters, we have had numerous meetings with our Hyper truck innovation council members and others to truly garner their feedback as we engineer this product. These discussions have already proven to be very valuable as some of their feedback has educated us to alter some of our product specifications. One great example of this is the announcement that we made a few months ago around having a longer-range BEV version of the product that can achieve 75 miles of full electric drive before the range extender needs to turn on. This now allows a vehicle to qualify for zero-emission vehicle credits. As we move forward through the development process, we will continue to make additional alterations to the product specs. This can include features being added to best meet the needs of our fleets, and modifications to work within the bounds of our current supply chain base to achieve a safe and reliable product launch. Post-production, we will continue to iterate the product with further enhancements to ensure that we maintain a best-in-class solution. While we recently achieved a critical milestone of beginning customer showcased events by year-end, we have faced challenges within our supply chain that are impacting our development, testing, and validation plans. Similar to others in the automotive industry, shortages of semiconductors as well as several other key components are extending our timelines longer than we expected. In addition to supply issues, we have extended our development program to provide for adequate time to design, test, and validate the system to ensure a reliable launch of the product. This issue of supply shortages and long lead times has been especially prominent in the trucking industry, and one of the impacts has been significantly extended lead times for ordering new trucks. If a truck is ordered from the OEM today, the currently planned delivery date is not until 2023. These types of supply delays have a direct impact on our timing. As one example of how the supply chain hurdles have impacted us, we planned on beginning winter testing of our production-intent designed ERX in Q1 of 2022, leveraging the last few months of winter. Unfortunately, the delayed delivery of components prohibits us from being able to start our previously planned winter testing. Thus, pushing out the start of testing to the beginning months of the following winter. In order to best mitigate these issues going forward, we currently have on order all of the development trucks and long lead time components that we need for 2022 and are working to secure supply for the 2023 calendar year. Despite supply shortages and delays extending our development schedule, we will not sacrifice on bringing a reliable system to market. As we learned with our hybrid product, it is critical to test the product through all seasons, especially given the extreme winter conditions many of our potential fleet customers face on a day-to-day basis. With that said, we want to share a 12 month breakdown of what is ahead for the ERX development, as well as other critical milestones that follow. From the many discussions we've had with our supply base, we're confident that this 12 month look forward will be achievable. First, our initial demonstration units, one of which is at Wegmans today, will be used to showcase our products in ride-along events with fleet council members and other interested parties beginning now through the first half of 2022. Our next set of vehicles, which we will start building in early 2022, will serve two primary purposes. First, we'll use the majority of these vehicles for design verification and rigorous over-the-road product testing, inclusive of summer and winter testing. We'll also use a number of these vehicles for a controlled deployment into fleet operations in the second half of 2022, as we highlighted earlier with Green Path Logistics. These vehicles will still be owned by Hyliion, but will allow us to gather real-world feedback from fleets. Our target is to achieve up to 1 million miles of testing and validation on ERX trucks prior to the start of production. After 2022, we will still have a few important milestones remaining prior to the start of production. The first is that we will take any of the learnings from the testing and validation or on-road miles and incorporate them into one further design iteration of the product. Next, we will obtain the final certification needed from CARB, the EPA, and NHTSA. While completing these, we will continue to deploy trials and low volumes of units into fleet operations as we gear up for the start of production and beginning to recognize revenue on these systems. As we get more clarity on the status of our supply base and we get closer to these milestones, we will provide greater detail on anticipated timing. Turning now to our Hybrid EX Powertrain solution. As mentioned before, we have begun shipping our Hybrid EX system. Although the product is launched, we are still facing supply shortages and we are seeing this impact on a daily basis. We currently have trucks at our headquarters, which have incomplete systems installed on them because we are awaiting some components. We've also experienced challenges with some fleets who have placed orders with us and are unable to obtain their new trucks from the OEMs due to long lead times, and this too has pushed our installed timing for some of these trucks out until next year. As we head into 2022, we plan on providing details on our next earnings call as to our Hybrid product expectations for the following 12 months. In light of recent changes within the competitive landscape, we are assessing the potential demand impact for our Hybrid ERX product offerings. As some of you may be aware, Cummins recently announced a new natural gas engine for trucks that will improve the power deficit that was typically experienced with previous natural gas engines. This will directly compete with our power assist functionality of the Hybrid EX solution. As we've been meeting with more and more potential customers, we've heard two consistent messages regarding a strong interest toward the ERX. Fleets like how the success of the ERX is not based on terrain, whereas the Hybrid product only delivers the best benefits to fleets in specific terrain conditions. We increasingly see fleets gravitating toward the Hyper truck ERX solution as it offers the benefits of being a fully electric drive truck, especially with all of the climate change initiatives and the current political environment toward fully electric vehicles. However, some fleets still see the Hybrid as a great way to start their electrification journey. As Hyliion works to deliver its products to market and navigate the supply chain challenges in today's world, we have been adding experienced talent to all levels of our organization. During the third quarter, we welcomed a total of 49 new employees to the Hyliion team. Last month, we announced that we hired Shiva Duraiswamy as our Vice President of Engineering. Shiva brings nearly 20 years of diverse global experience at companies like General Electric, Daimler Trucks, and Cummins. He has a track record of successfully leading large technology-focused teams in product development, life cycle, and project management. Here at Hyliion, he will oversee our engineering teams focused across the development spectrum from Powertrain and battery innovation to controls and software systems implementation. With shippers primarily focused on commercialization, this frees up Patrick Sexton, our Chief Technology Officer, to continue to develop Hyliion's forward-looking product strategies. In addition, we have recently added Joshua Robbins as our Vice President of Fleet Sales to further accelerate our commercialization efforts. Joshua comes to us with nearly 10 years of sales experience at RYDEN, where he was a key contributor to their natural gas initiative. Joshua will spearhead our fleet engagements and discussions as we move the Hybrid product into commercialization and embark on the Hyper truck ERX roadshow to garner interest and commitments from fleets. In addition to all these talented new employees, we have added over the past year, we also recently added two impressive individuals to our Board of Directors: Former U.S. Secretary of Transportation and Secretary of Labor, Elaine Chao, brings us her extensive knowledge of transportation and infrastructure. After a career spanning nearly four decades in the ever-evolving automotive industry, most recently as the CTO of Delphi Technologies, Mary Gustanski brings valuable experience in developing and commercializing innovative solutions. I want to give these two, along with all the new members of the Hyliion family, a warm welcome. We often receive questions from the financial community surrounding what we call the customer journey. I'd like to take a moment to share with you the feedback that we've received from fleets and the discussions we've had surrounding the purchase decision process. We believe the most effective way to generate interest in and orders of our product is to show it to fleets and ultimately let them experience the benefit themselves. We did this with our Hybrid product, getting dozens of these vehicles on the road in a pre-revenue stage and logging millions of miles. With the Hyper truck ERX, we hear similar feedback, as most fleets want the chance to experience the positive features of the Powertrain before committing to a binding order of any significance. Most fleets will choose to test with single units running through multiple applications and terrains to better understand how our solutions will work within their fleets. With all these factors in mind, we believe the product roadshow we are doing right now, providing fleets with in-depth demonstrations of our powertrain, is a critically important initial step on this customer journey. We expect demand and product orders to increase as we get more fleets additional hands-on exposure to our powertrains. As potential fleet customers evaluate all of the various trucking decarbonization options in development now, it is our goal to provide a powertrain that will grow and evolve as infrastructure and fueling solutions become more readily available. As a reminder, while our initial focus for the Hyper truck ERX is powered through natural gas, we have laid out a path towards both a fuel-agnostic solution as well as a path towards a hydrogen fuel cell solution. With this product roadmap, we believe this allows fleets to expand their electrification adoption as the infrastructure is being built over time. However, it remains our goal to get our products on the road as quickly and safely as possible to begin this customer journey and adoption life cycle. With that, I'd like to turn it over to Sherri to discuss some updates on the financial side along with an update on our headquarters expansion project.

Thank you, Thomas. And good morning, everyone. Let's start with our results for the third quarter of 2021. Our team continues to invest in R&D as we execute against our product development roadmap. R&D spending was $18.2 million, an increase of $4.8 million sequentially, and $15.2 million year-over-year. SG&A spending was centered around the continued build-out of necessary infrastructure to advance our commercialization initiatives, operational capabilities, and the addition of talent to accomplish these goals. For the quarter, SG&A spent was $8.7 million, a decrease of $1.4 million sequentially, and an increase of $6.5 million year-over-year. This sequential decrease is driven by a reduction in incentive compensation expense, partially offset by the increase in our employee base. Overall, Hyliion reported a net loss of $26.6 million compared to a net loss of $23.2 million in Q2 and a net loss of $9.1 million from a year ago. We now expect our total operating expenses for 2021 to be approximately $110 to $120 million compared to the $130 to $140 million guidance we provided on our second quarter conference call back in August. The reduction is driven primarily by the timing delay of truck purchases highlighted earlier in the call and a reduction of people-related expenses. Turning to our capital structure and Balance Sheet, we ended the third quarter 2021 with over $588 million available to fund our current commercialization plans. This is divided into $289.5 million in cash and cash equivalents on our Balance Sheet, short-term investments of $144.5 million, and long-term investments of $155 million. Our short-term and long-term investments are high-quality credit instruments with no maturities beyond 36 months and a weighted average maturity of 14 months across our portfolio. We expect to begin generating revenue on the Hybrid EX units we will deliver in the fourth quarter, but as previously mentioned, do not expect the results to be material for the fiscal year. With respect to the previously announced expansion of our headquarters, we are underway with the facility remodel. We decided to eliminate the previously planned terrace in our 120,000 square foot facility and instead plan to rent an additional 25,000 square feet for our testing and validation labs in a building adjacent to our headquarters. This allows us to better accomplish our goals of expanding our installation capacity and battery production capability, all while supporting our growing employee base. Lastly, as we move forward into 2022, we expect to begin providing updates on both the key commercialization milestones and timelines we laid out earlier on the call, as well as our expectations around spend and capital allocation for the fiscal year. We look forward to sharing our plans with you on our next call in February. This now concludes our prepared remarks. And now I would like to turn the call back over to the Operator to open the line up for questions.

Please limit yourself to one question and one follow-up question. Your first question is from the line of Andreas Shepherd with Cantor Fitzgerald.

Hi. Good morning. Can you guys hear me?

Yes. Good morning, Andreas.

Hi, good morning. Congrats on the quarter. Just a couple of questions from me. First, I know this one's a bit tricky but do you have any visibility to when the supply chain disruptions might improve?

Yes, that's a great question. I think you saw us highlight that throughout today's call is there's a lot of uncertainties with the supply base. If you order a new truck right now, it's not going to be out till 2023. We're working, frankly, on a daily basis with our suppliers. We are ensuring that we have the supply we need to get through the validation processes we laid out and we are hopeful that we're going to start to see improvements here. But what we did today is we laid out a 12-month timeline that even with the supply hurdles that we're seeing right now, we're confident that we can achieve those because we've already got those components on order and we're working with those suppliers. So fingers crossed, we are going to see improvements, but that's why we've limited to a 12-month view right now.

That's very helpful, thank you. Lastly, regarding the 40-unit new reservation you mentioned, I'm trying to understand it better. It appears that it is still pending a final agreement, so do you have any idea when that might be finalized and when we could expect to see it reflected in revenues?

Yes. I would equate this to very similar to the previous reservation that they placed for 300 units not too long ago, where these fleets really want to go and they can actually be able to experience the truck before they move into a firm binding commitment. So that's why it's structured as a reservation. Now with that said, today marks a pretty important day in that journey because it's the kickoff of our roadshow, where over the weeks and months ahead, our goal is to really have fleets be able to experience the Hyper truck. We've got a truck up in Rochester, New York right now with Wegmans kicking that journey off. We see it as the feedback from fleets is they want to get in the truck and see how it performs, see the benefits that they're going to be able to receive from it, before they move into binding commitments. And so that's why we've structured it as a reservation.

Got it. That's very helpful. Thanks very much.

Your next question is from the line of Brian Johnson with Barclays.

Hello. Can you just clarify what you said about the Hybrid EX? Yes you are getting some early sales, but you kind of hinted that, and look, it's not a big change in the bases. We knew the Hyper truck was the long-term future, but could you maybe clarify what you are seeing there, and if it is because of a new Cummins engine, why doesn't that detract from the attractiveness of the Hyper truck as well?

Thank you for the question. I'll address the Hybrid first and then discuss the Hyper truck. Regarding the Hybrid, recent announcements have changed the market dynamics. For instance, Cummins announced a new natural gas engine that aims to resolve some of the usual power limitations associated with natural gas. However, there are still many unknowns regarding the engine, as it's an initial announcement and not yet available on the market. Therefore, we believe it's important to reassess how this development may influence our volume growth for the Hybrid product. As for the second part, our discussions with fleets about the ERX have produced a very positive reaction. Fleets appreciate that the ERX is not dependent on terrain, unlike the Hybrid. This model transitions them to a fully battery electric vehicle with an onboard range extender. We are currently engaging with fleets to understand their adoption plans and future strategies.

Okay. So why does a Cummins RNG truck engine, as we've seen, impact the Hybrid?

Sure. One of the value propositions of hybrid is being able to take that product and put it on a conventional natural gas truck and it adds extra horsepower to the vehicle, and then it was basically taking a natural gas truck and making it perform more like a diesel truck does. With the announcement of Cummins doing a larger natural gas engine, their goal behind that was to offset that deficit of power between a diesel and a conventional natural gas truck, which is one of the value propositions we were going after with our hybrid. Now, the reason we haven't added more specificity to it is because it is still just an early announcement. Fleets are assessing it, they're looking at the details around it which are still very unknown, but we wanted to address it because we know it is a new product that's going to be coming to market at some point.

Okay. And then a final question, which is coming up a lot for the SPAC class of 2020-2021. It looks like your cash balance and the burn rate set you into '23, if not beyond. Could you share maybe comment on how are you thinking about that?

Absolutely. So just to reiterate, as we were talking earlier on the call. So our total liquidity is sitting really close to $600 million, which is a very, very strong position to be in. So we are currently very confident in our ability and our cash position to hit our milestones that we outlined today. And right now we're actually doing our 2022 budget build. So once we come back on our call in February, I'll be able to give you a little bit better insight into what that burn rate is going to look like for '22 as well as what we expect our volume ramp to look like on the Hybrid product.

Okay, thanks.

The next question is from the line of Bill Peterson, with JP Morgan.

Good morning, and thank you for taking my questions. Given the current supply constraints that many are facing, it seems like the opportunity to establish a presence in 2022 has passed. Looking ahead to 2023, what do you believe your key differentiators will be compared to other fleets? Larger competitors appear to be managing supply chain issues more effectively and might resolve them in the first half of the year, while you mentioned not having trucks available until 2023. Therefore, if we consider the timeframe from 2023 to 2024, what are some compelling reasons for fleets to choose Hyliion? What advantages do you offer in terms of cost of ownership and other benefits compared to your competitors?

That's a great question. First, I want to clarify that when placing a new truck order right now, deliveries won't happen until 2023. We have been ordering trucks for a while and secured the necessary build slots for 2022. While we anticipated some delays, the supply chain issues are still affecting those slots. Now, addressing your question about our competitive advantage and how we can get ahead of others in the market, I believe infrastructure is key. Unlike some competitors who need to invest in building infrastructure for hydrogen fuel cell or battery electric vehicles, Hyliion benefits from the existing natural gas infrastructure. Once production starts, there are already over 700 public natural gas stations in North America that fleets can utilize. Additionally, the low cost of ownership due to affordable fuel and the vehicle's impressive range are significant advantages. Fleets consistently share that battery electric vehicles have limited ranges, and for solving trucking challenges, a vehicle needs to cover hundreds of miles daily. With the Hyper truck, fleets can achieve over 1,000 miles of range per refuel, providing us with a substantial competitive edge.

Okay, fair enough. I was going to say that natural gas pricing in those wells, that's going to look like in a year. That could be maybe a concern on your side. But point taken. I guess, obviously we have some new policy within the infrastructure bill and sort of some cases favors hydrogen and electric. But I think in Europe, you actually have several countries with favorable policy support. Realizing that your hand is full with U.S. customers. I think you've talked about maybe the potential in the past for Europe. What is your latest thoughts there? Is this something that's going to wait and tell beyond 2023?

Interesting perspective on Europe. There is a very strong push towards moving to cleaner fuel solutions in Europe, like there is in the U.S., but I would argue it's potentially even stronger over in Europe. The fleets' interest in adopting it is very heavy on the European side, but one of the things that we're staying very focused on and we don't want to sway from is we need to launch this product in the U.S. first, that's our backyard. It's a market that we know in-depth and really well, and we already have all those fleet relations built out that we need to get started. Then once we have that in place, we would look to expand overseas and it's definitely something that we're excited about. We just want to make sure that we go execute properly and efficiently and address the U.S. market first and then look to an overseas market. And one thing, just because you brought up an interesting point about natural gas pricing, we're still seeing fleets are getting really positive pricing with natural gas across the U.S. and they are even able to lock in multiyear contracts with the fuel provider for fuel pricing. I was just on a call recently where we were talking about how fuel pricing in certain parts of the country can be less than or equal to a dollar per gallon equivalent for fuel. So that is far stronger than where diesel is today and even stronger than where hydrogen is.

Thanks for that additional color. That's pretty interesting. Thank you.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

Good morning, and thanks for taking the questions. First on the ERX. Just curious if you could share a little bit more insights on what you're hearing from the fleets around how they are weighing some of the various alternatives, and with a longer-range variant, with a larger battery? You talked about that opening up some additional credits. I'm curious what that may mean for some of the payload benefits that the Company has talked about, weighing less than traditional BEVs. I mean are there still payload gains and are some customers considering shorter-range variants and maybe still having some more payload benefits?

That's a great point. Just to remind everyone, a few months ago we announced a 75-mile electric range version of the Hyper truck. This version qualifies for 75% of a ZEV credit, which is a significant advantage since it competes for the same credits as battery electric and fuel cell trucks. Regarding your question about fleet management, our plan includes offering multiple sizes of the battery pack. This means if a fleet doesn't require the longer ZEV range or the associated credits, they can opt for a smaller, lighter, and more affordable battery solution. Conversely, if the fleet wants to pursue those ZEV credits, that option is available as well. We've structured it to achieve the best of both worlds.

Okay. That's helpful. And then a follow-up on the Hybrid product, especially with some of the additional comments today. Maybe you could talk about how much incremental expense from here that may be for Hyliion to continue to offer that product. Now that you're at a point where you can recognize revenue, I imagine a lot of investment has gone into it. I'm not sure how much of the expenses, in terms of R&D and sales and things like that will be shared across the ERX and the Hybrid, maybe you can continue to do both? Or is this one that requires a lot of standalone investment, even from here, and maybe we need to recalibrate our expectations around the Hybrid going forward. Thanks.

On the Hybrid, with us actually putting our new version of the Hybrid into the market, we have essentially covered the bulk of the R&D expense to get that product commercially viable, so it would be I would say minimal additional investment on the R&D side. The bulk of what you'll see going forward on the R&D is really going to be more Hyper truck driven. All that said, we will still be in the very early stages of Hybrid shipments. So as with any product launch, when you are in lower volumes, you're going to see higher costs. But that is something that we are working very diligently with our supply base as we're getting into a higher ramp up from a volume perspective that we should be seeing better pricing from a component perspective and also better improvement in the margin. So that will be something we would expect going forward.

Thank you.

The next question comes from the line of Noel Parks with Tuohy Brothers.

Hi, can you hear me now?

Yes, we can.

Sorry about that. I was wondering, as you're interacting with customers over time, I'm just curious how mindful are the upcoming Hybrid customers of the Hyper truck being on the horizon? And I guess I'm wondering in particular, as you talk of it, and I'm sure you'll have some that they're interested in; first the Hybrid and then the Hyper truck. If somebody is then later a Hyper truck customer, are we talking about a reduced piloting period likely for their adoption of the Hyper truck? Is this a head start that they get or are they really two entirely separate adoption piloting products?

No, I think there's definitely overlap there. And just to put some examples to it, like we mentioned, we were up at Wegmans today. Wegmans was a very early adopter of Hybrid, but the event that we're putting on at Wegmans today is around the Hyper truck. We mentioned Mone's reservation, I brought up Green Path's reservation, both of them are Hybrid customers, as well as they're putting in reservations for the Hyper truck. I see the Hybrid as a very strong way for Hyliion to start building relationships with these fleets and let them actually start experiencing some of our solutions in their operations. Let them see the benefit of it, and then the Hyper truck is an additional product offering that we see that fleets are already working with us would also move into. It also goes the other way though, with Werner who we just showcased handing over the keys to them on the Hybrid solution. They started as Hyper truck innovation council member first and then it moved into, well, why don't we adopt the Hybrid solution into your operations? So it goes both ways. And while we're on that, I do want to just take an opportunity on the call today to just share a little of the experience thus far of some of the fleets driving the Hyper truck. I mentioned Purvis' quote earlier about how it is a surreal experience going from a conventional vehicle to jumping into the Hyper truck. It's quiet, it's smooth, and the acceleration is powerful. I think we're going to see that drivers are going to gravitate to really wanting to be behind the wheel of our Hyper truck solution, an electric vehicle, because it's just a game changer in terms of how the vehicle actually operates.

Got it. I'm just curious on the supply chain front; obviously, it's an issue that's been up for the entire industry. As far as looking ahead to manufacturing capacity, when you experience some of the creep in availability of components and so forth, does it materially impact your ability to get access to third-party resources, MOD centers and so forth? Is that potentially very sensitive to what's happening to you on the supply chain or is it just sort of ongoing revision processes and people just basically roll with the progress as it happens?

Yes, I have not seen the impact on the MOD centers or suppliers or vendors working with us. We have not really run into issues in that regard. The main concern is when the components we need will arrive. For example, we were looking for one component that had nearly a year-long lead time. When we realized this, our supply team began searching for alternative solutions to avoid such a long wait. These challenges are not unique to us; the entire industry is facing constraints in the supply network, resulting in incredibly long lead times for components, which directly affect our development timing. We mentioned today that we planned to start winter testing this year, but unfortunately, that will need to be postponed until next winter due to the unavailability of necessary components. This is disappointing but reflects the current reality of the supply chain situation.

Fair enough. Thanks a lot.

If there are no further questions at this time, I will now turn the call back over to Thomas for closing remarks.

Well, thank you, everyone. I appreciate you joining our third quarter earnings call. Lots of exciting developments happening at Hyliion. We're thrilled that the roadshow is getting kicked off and we now actually have people experiencing the Hyper truck. I hope everyone has a wonderful rest of the year and we'll talk again on our next earnings call.

That concludes today's conference call. You may now disconnect.