Earnings Call Transcript - HYLN Q4 2025

Operator, Operator

Hello, everyone. Thank you for joining us and welcome to the Hyliion Holdings Fourth Quarter 2025 Earnings Call. I will now hand the call over to Greg Standley, Chief Accounting Officer. Please go ahead.

Greg Standley, Chief Accounting Officer

Thank you, and good morning, everyone. Welcome to Hyliion Holdings Fourth Quarter 2025 Earnings Conference Call. On today's call are Thomas Healy, our Chief Executive Officer; and Jon Panzer, our Chief Financial Officer. A slide presentation accompanying today's call is 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. Forward-looking statements are predictions, projections and other statements about anticipated events that are based on current expectations and assumptions. As such, these are subject to risks and uncertainties. Many factors could cause actual results to differ materially from forward-looking statements made on this call. For more information on both factors that may cause the company's results to differ materially from such forward-looking statements, please refer to our presentation and press release as well as our filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on forward-looking statements and we undertake no duty to update this information unless required by applicable law. With that, I will now turn the call over to Thomas.

Thomas Healy, CEO

Hello, and thank you for joining us for Hyliion's Fourth Quarter and Full Year 2025 earnings call. Heading into 2026, we are positioned strongly to deploy more early adopter units and move towards commercialization. As we shared on our last call, the KARNO power module is now performing at a level that meets our initial customer needs. On today's call, we'll provide more details on our early customer deployment plans and cover the current status of UL certification and product performance, demand we're seeing across commercial and military markets, and how we are preparing to scale production to support growth. Turning first to UL certification. We made significant progress during the quarter and are now nearing completion of this important milestone. To provide additional context, UL certification for the KARNO power module occurs at 3 levels: the linear electric motor, the battery pack, and the full power module. I'm pleased to share that we have successfully completed UL testing for both the linear electric motor and the battery pack, meaning we have completed 2 of the 3 certifications we need. We have completed our initial round of testing on the full power module. Through that process, we identified several small refinements, including gasket updates to further strengthen water ingress protection and the opportunity to incorporate recent power output improvements. With those enhancements now underway, we plan to begin our next round of UL testing shortly and expect to complete the certification in the second quarter. Overall, we are very encouraged by the progress and view UL certification for early adopter units as a near-term gating item towards delivering units to customer sites. Beyond certification progress, we now have 5 KARNO units at our facility, 2 development units and 3 early adopter customer units. These systems are being continuously exercised through a range of load profiles, extended duration testing, customer-specific operating scenarios, and military-representative applications. As we shared last quarter, we achieved over 150 kilowatts of power generation, which is sufficient for initial customer deployments. We have since demonstrated 175 kilowatts of power production and testing following recent upgrades, and we expect to reach the full 200-kilowatt design power rating by year-end as we transition into commercialization. These improvements include refinements to the piston design and updates to the cylinder liner material to enhance heat retention within the system. Importantly, we do not believe reaching the full rating will require any fundamental architecture changes, but rather a series of incremental optimizations across the platform. The steady progress we have made in the past couple of quarters reinforces our confidence in achieving the final 200-kilowatt design specifications this year. Fuel flexibility continues to be a key differentiator of the KARNO system, and we have made meaningful progress in this area during the quarter. We successfully demonstrated dynamic fuel switching with the KARNO power module transitioning between natural gas and propane. The system can automatically switch between fuels without shutting down and without any user input to indicate which type of fuel is being utilized. We simply changed the incoming fuel supply and the unit continues to operate as designed, truly highlighting our unique fuel-agnostic capability. Another recent accomplishment was successfully running a KARNO core on diesel fuel and being able to export power to the grid while meeting Tier 4 final emissions requirements without the use of exhaust after-treatment systems. We expect to begin incorporating diesel capability into customer-deployed systems this year. Diesel capability is particularly important for defense applications where it remains the dominant fuel source. More broadly, the majority of installed generators worldwide operate on diesel, which significantly expands the KARNO power modules' addressable market in mission-critical and prime power applications. For example, many data centers prefer pipeline natural gas for prime power, but still require on-site diesel for resiliency. We believe our ability to operate on both fuels will allow customers to avoid purchasing separate natural gas and diesel generators, instead relying on a single flexible platform for both primary and backup operations. Next, I'd like to share our outlook for 2026, including our deployment plans, product development priorities, business development activity, and manufacturing capability. We are entering 2026 with strong demand across commercial, data center, and military markets. As previously shared, we have nearly 500 units under non-binding letters of intent, in addition to a broader set of customers actively evaluating the platform. The primary focus now is transitioning from development into real-world, field deployments and moving towards commercialization and scaling. From a development perspective, our overall plan remains consistent with what we have previously communicated. We expect to deploy approximately 10 early adopter units prior to commercialization, including the 2 units delivered to the Navy last year and a third unit that we have recently completed and that will go to a customer site following UL certification and product validation. Throughout 2026, we plan to deploy these systems into customers' environments with commercialization to follow late in the year. One area where we are seeing particularly strong long-term interest is the data center market, with recent industry announcements pointing towards a shift to 800-volt DC architectures for next-generation AI facilities. We believe our KARNO technology is uniquely well positioned. Our platform already operates at 800 volts DC, which aligns directly with this emerging standard and has the potential to reduce conversion stages, lower equipment requirements, improve overall system reliability and efficiency, and simplify site electrical architecture. In 2026, we plan to demonstrate this capability in live environments to showcase the potential. Early this year, we successfully demonstrated a mission-representative Navy load profile on a Navy-owned KARNO asset. The system managed rapid load changes and sustained performance under high-stress operating conditions, reinforcing its suitability for shipboard and defense use. This is an important validation milestone and has accelerated discussions around additional defense platforms and with NASA, who is exploring coupling our KARNO technology with nuclear power generation. We have identified several near-term opportunities across multiple branches of the military that are moving towards potential contract awards, which we expect to finalize this year. We believe these opportunities could represent $40 million to $50 million worth of new revenue opportunities on top of the approximately $20 million of contracts with O&R that we are currently executing on today. As part of our current Navy program, we plan to deliver additional KARNO power modules and cores in 2026 for specialized shipboard testing. Once completed, these deliveries will represent about half of our early adopter units. One deliverable will be a multi-KARNO power module for the ship, demonstrating our ability to create higher-power systems through coupling our 200-kilowatt cores. Building on our work with the Navy, I'd like to provide an update on plans for a previously discussed 2-megawatt KARNO power module, which we believe aligns well with the needs of data centers and other high-power applications. In 2025, we spent significant time developing a multi-KARNO power module configuration for shipboard use. Through that effort, we identified substantial overlap between the Navy architecture and what is required for higher power commercial deployments. As a result, we have leveraged that design foundation to advance a modular, scalable configuration suitable for data center applications. Our initial concept was a 2-megawatt system comprised of 10 200-kilowatt KARNO cores integrated into a compact footprint, roughly the size of a 20-foot shipping container. Recent customer discussions have led us to evolve the configuration into a more flexible architecture. The system is designed to scale in approximately 800-kilowatt increments, allowing configurations such as 800 kilowatts, 1.6 megawatts, 2.4 megawatts, 3.2 megawatts, and so on. This modular approach aligns closely with feedback from data center customers where power requirements vary depending on site electrical architectures. By enabling expansion through the addition of core sets, we can tailor output to specific customer needs while maintaining high power density and resiliency. Moving on to our commercial customer deployments. We recently entered into a strategic partnership with ABM Industries to support the deployment of integrated distributed energy solutions. This collaboration combines KARNO technology with ABM's site engineering, integration, and operational capabilities, helping simplify deployment and broaden customer access across commercial, industrial, data center, and mission-critical applications. ABM is also equipped to offer energy-as-a-service contracts with their customers. This partnership allows us to remain focused on advancing and commercializing the KARNO platform while leveraging an experienced partner to support end-to-end customer solutions. Next, I will provide a brief update on our manufacturing readiness. Today, we operate more than 30 additive manufacturing machines, the majority of which are located at our Austin facility. These printers span 3 different machine models with configurations that are able to produce 1, 2, or 4 parts at once. We expect to take delivery of several additional printers this year that we've had on order from last year. With these additions, we believe our additive manufacturing capability will be well positioned to meet planned production needs for 2026 and 2027 while providing a strong foundation for scaling further into 2028. Our current focus is on maximizing the speed, power, and productivity of each machine. During the first quarter of 2026, we initiated efforts to improve printer throughput and we'll be dedicating both printer time and engineering resources to these optimization initiatives throughout the year. In parallel, we plan to take delivery of and begin testing one or more printers equipped with the latest laser technology from GE Colibrium, which we believe has the potential to further improve print speed and efficiency. On our last earnings call, we discussed the potential risk related to magnet supply, particularly given the export constraints from China. We are pleased to share that we have made meaningful progress in mitigating that risk and have already begun receiving components. While this does not fully eliminate supply chain risk, it substantially reduces our exposure and improves our confidence in supporting planned production. To wrap up, I'd like to share our key milestones for 2026, which are summarized on this slide and highlight the achievements we expect to deliver over the course of the year. We began the year with an early win by successfully operating the KARNO core on liquid fuel and meeting emissions requirements. Looking ahead, we expect to achieve UL certification for the early adopter KARNO power modules during the second quarter of this year, which will enable broader customer site deployments. In parallel, we expect to achieve the full 200-kilowatt design power by the end of 2026. We also plan to complete the remaining early adopter units during the year. These deployments are an important step towards validating system performance across real-world applications, and will support our plan to commercialize the 200-kilowatt KARNO power module in late 2026, which will then allow us to begin scaling production. In addition, we expect to complete a multi-KARNO core platform featuring the systems and controls required to coordinate multiple units operating in tandem. This configuration will serve as a stepping stone towards a larger multi-megawatt KARNO system designed to support data centers and other customers with high power requirements. We expect to secure additional U.S. military contracts with a total revenue opportunity of $40 million to $50 million, further advancing the development work underway to support autonomous navy vessels and other mission-critical defense applications. Taken together, these milestones support our expectation of generating approximately $10 million of revenue during 2026 from a combination of commercial customer activity and R&D service contracts. Looking ahead over the next 3 years, we plan to build on the progress to achieve in 2026 as the KARNO power module transitions from early deployment into scaled commercialization. In 2027, we expect to ramp commercial deliveries and expand the range of applications where KARNO is deployed. We view 2027 as the year where we transition from initial commercialization into meaningful production scale. In parallel, we plan to expand our additive manufacturing capability in preparation for anticipated growth in 2028. By 2028 and beyond, we expect to accelerate commercial growth as increased production capacity enables us to address a broader portion of customer demand. This includes fulfilling interest in multi-megawatt systems for data centers as well as continued expansion within military applications. To wrap up, 2025 was a year focused on resolving product and production challenges, strengthening the core architecture of the KARNO power module, expanding its operating capabilities across fuel and mission profiles, and improving performance. In 2026, our focus shifts from development to deployment and commercialization. With UL certification nearing completion, early adopter units moving into the field, growing military engagement, and strong data center interest, we believe we are well positioned to transition from validation to scaled execution over the coming years. With that, I'll turn the call over to Jon to walk through the financial update.

Jon Panzer, CFO

Thank you, Thomas, and good morning, everyone. In the fourth quarter, we recorded revenue of $700,000 from research and development services related to our contracts with the Office of Naval Research. Cost of sales was $600,000, resulting in a small gross margin gain. In the fourth quarter of 2024, we recorded $1.5 million of R&D revenue and a $100,000 gross margin gain. As a reminder, R&D services revenue reflects the sale of KARNO cores and related components to the U.S. Navy and the work we perform to test and validate these units. Total operating expenses for the fourth quarter were $15 million, down from $17.2 million in the fourth quarter of 2024. The decrease was driven by lower R&D and SG&A costs, as well as a $500,000 in gains from asset sales in connection with the powertrain exit and termination. R&D work continued at a strong pace in the quarter, but was lower than '24 when we were purchasing components at a faster pace. SG&A expenses were down about 6% compared to the fourth quarter of 2024, due primarily to lower facilities and insurance costs, partly offset by a small increase in labor costs. Our total net loss in the fourth quarter was $13.2 million, down from $14.4 million in the fourth quarter of 2024. For the full year 2025, we recorded revenue of $3.5 million, all from R&D services and a gross profit of $170,000. This compares with revenue of $1.5 million and a gross profit of $100,000 in 2024. Full year operating expenses were $65.7 million compared to $64.4 million for all of 2024. The small increase compared to 2024 is related to higher R&D expenses this year, partly offset by lower SG&A and powertrain exit and termination expenses. Our full year net loss was $57.2 million compared to $52 million in 2024. Turning to our cash and investment position, we spent $12.4 million during the fourth quarter and $67.4 million for all of 2025. Full year capital spending was $23.7 million and consisted primarily of additive printing machines and related equipment, along with facility investments to support printer operations. Cash generated from asset sales for the full year was $2.2 million. As a reminder, asset sales are related to the monetization of equipment previously used in our powertrain division and will continue into 2026. We finished the fourth quarter with $152.4 million of cash and short- and long-term investments on our balance sheet. While this outcome is a little lower than the $155 million we projected for year-end, we did end up deferring $10 million of planned equipment financing into 2026. Excluding that deferral, our year-end cash and investment balance would have been about $7.5 million higher than projected, mostly due to lower capital spending and lower operating expenses. Looking forward into 2026, as Thomas noted earlier, we expect to generate approximately $10 million in revenue this year from both R&D services and commercial customers. Commercialization of the KARNO power module is expected to occur late in the year. Also, as Thomas mentioned, we plan to slow capital spending in 2026 as we work to optimize the output of the printers that we have on hand today. We are planning to execute equipment financing for up to $10 million this year, although that amount may shift up or down based on actual capital expenditures and available lease capital. Overall, for 2026, higher revenue, thoughtful expense control, lower capital spending, and planned equipment financing are expected to result in a lower level of total spending compared to 2025. Our current forecast is for net spending of just over $50 million during the year, resulting in a year-end cash and investment balance of approximately $100 million. On past calls, we've consistently noted that we expect the capital we have on hand today to be sufficient to carry us through commercialization of the KARNO power module. Based on our current plans, that continues to be the case. Last quarter, we noted that we anticipate that additional capital will eventually be required to support production growth, particularly for the purchase of additional additive manufacturing equipment. In anticipation of that eventuality, we have filed a standard S3 shelf registration statement with the SEC to provide us with additional capital raising flexibility in the future. An S3 is a valuable tool commonly used by established public companies to efficiently and opportunistically raise funds from time to time through the issuance of debt or equity. Now I'll turn the call back over to Thomas.

Thomas Healy, CEO

As we look ahead, our focus for 2026 is clear. We'll be building units and getting them into the field, expanding real-world operating experience, and moving into commercialization. We believe this year will be defining for Hyliion as customers begin operating the platform in live environments, and we transition from development to scaled execution. Beyond initial deployments, we see significant opportunity in both data center infrastructure and military applications. The shift towards an 800-volt DC architecture in next-generation AI data centers aligns directly with KARNO's design and we believe our modular and fuel-flexible platform is well positioned to capitalize on this evolution. At the same time, resilient and mission-critical power remains a priority for the U.S. military. We are excited by the opportunity ahead and our focus on execution as we move into the next phase of growth. I will now hand it over to the moderator to open up for Q&A.

Operator, Operator

Our first question comes from Martin Malloy with Johnson Rice.

Martin Malloy, Analyst

Congratulations on all the progress you're making. Wanted to ask about the commercialization later this year. And you mentioned, I think, half the units will be going to the U.S. Navy. Could you talk maybe about the end markets for the other units and where you're seeing customer interest from? You mentioned data centers. Is that where the other half of the units are going?

Thomas Healy, CEO

Sure. Appreciate the question. So military is a huge focus for us this year. We're at the point where we're actually starting to put the systems together that will go into those unmanned autonomous ships. So that's a very exciting one for us this year. Other applications include just prime power. So think about like powering facilities, providing power for EV charging, those sorts of opportunities. And then the last one is that data center side of things. Ultimately, data centers are looking for that larger platform that 2.4, 3.2-megawatt system. But one of the focuses for this year is we can really showcase and provide the benefits to data centers even on a 200-kilowatt system. So one of the things that we decided to do is take some of these early adopter units and actually use them as mobile units that we can showcase in various applications. One of the ones we do plan on showcasing this year is a data center opportunity.

Martin Malloy, Analyst

And just for a follow-up question. Could you maybe talk about the capacity that you'll have as you exit this year in terms of manufacturing on a megawatt annual basis or give us some measures of what it would cost to add additional megawatts per year in manufacturing capacity so we can get a feel for how '27 might look?

Thomas Healy, CEO

So at this stage, we haven't shared exact specifics around what you're asking. The reason being is we really want to showcase and improve this printer speed. That's going to be a big focus for this year. Just to give a little background, as you buy an additive machine and you start utilizing it, there are levers you can pull like how much power in the lasers, how many parts you're producing on a build plate, things like that to increase the throughput. That will give us stronger clarity on exactly how much capacity we have with the existing installed base. But all that being said, we are highly confident that we've got strong production capacity for '26 and '27. As we look at 2028, that's where we envision we'll really need to start adding additional printers to begin scaling capacity. I know that does not give you the exact color you were looking for, but hopefully, you understand why we want to focus on those printer speed improvements and proving that we can get to the throughput that we anticipate.

Operator, Operator

Our next question comes from Sean Milligan with Needham & Co.

Sean Milligan, Analyst

When you talk about the incremental $40 million to $50 million potential from the military, I'm trying to understand, do you consider that skilled deployments? Or is that like additional testing across different platforms and different agencies, things like that, that would then scale beyond that $40 million to $50 million range?

Thomas Healy, CEO

Yes. So it is really focused on additional applications and more unique development for the military. Right now, we have our Navy work we're doing, which is really focused around being the prime power on a fully unmanned autonomous ship platform. We are also looking at stationary power deployment, so think about like powering a base, doing that with the Navy. These additional contracts are both a continuation of that work plus adding actually new applications, new opportunities. Think about like different ship platforms, think about other branches of the military, how they need prime power solutions as well and starting to expand the use cases of the KARNO technology. It's not so much just placing a standard PO to just buy additional equipment, but obviously, all this work we're doing with the military is in an effort to go to that stage.

Sean Milligan, Analyst

Great. And then on this new 800-kilowatt module that you're talking about, I think historically, you gave some numbers around KPIs for the KARNO versus like fuel cells or traditional gas. I was curious if there's any update in terms of how this module might change that? Does it look more attractive for you as you scale up to the larger platforms here? And then what kind of risks are there scaling up from the 200 to the 800 and then the 3.2 ultimately, what do you need to work through on your side to prove that up and get that done?

Thomas Healy, CEO

All right. A few pieces to that question. First is around how it compares against other solutions in the market. We see customers looking at conventional internal combustion engines, looking at fuel cells and then looking at our technology. In terms of how it shapes up, with a normal internal combustion engine, cost per kilowatt, if you look at our 200-kilowatt system, if you bought a 200-kilowatt internal combustion engine really designed for prime power and natural gas solutions, you're probably going to be approaching that $250,000 to $300,000 for that actual solution. As you look at our system, we are more around $0.5 million. For fuel cells, you're up closer to around that $700,000. This places us in the middle of those two, which is where we are targeting to be, with our system having benefits over those other solutions that drive the payback and return on investment, including improved efficiency and lower maintenance. The modular platform allows customers to match the power they need with the capacity we're providing. Different data centers have different architectures, and the 800-kilowatt system allows that flexibility. In terms of the risk of going from 200 to 800 to then 3.2, the key thing is that the actual power generation unit, the 200-kilowatt KARNO core, remains the same in every size iteration. Once we validate and have confidence in the 200-kilowatt architecture, we are essentially replicating it. It’s like a modular approach where we put more of the same KARNO cores together to give you more capacity.

Sean Milligan, Analyst

And then on the ABM deal or partnership, can you just give us a little more background on ABM and maybe like their expertise in terms of power deployment and what end markets they are stronger in?

Thomas Healy, CEO

Absolutely. ABM has a lot of breadth and experience in this space in power generation. Their skills are widespread, everything from having a strong customer base. Customers are already working with them that are coming to them saying, 'Hey, we need additional power. We need to scale and expand.' They can look at how to integrate the actual power unit, do the deployment, and then provide long-term service and upkeep of that site as well. They also offer energy-as-a-service solutions to their customers, meaning ABM would procure and buy the technology, then charge the end customer based on a cost per kilowatt agreement, making it easier for customers to adopt power generation solutions. ABM is a large player with a focus ranging from airports to data centers to mission-critical applications. We've started discussions with ABM and end customers together, and we're excited to see where that will take us in 2026 and beyond.

Operator, Operator

Our next question comes from Ted Jackson with Northland.

Edward Jackson, Analyst

So I've got a few questions for you. Let's start with just making sure I understand kind of CapEx and capacity. So right now, exiting, say, 2025 with 30 printers. If I understand, you're going to add 1 or 2 more during 2026, and rather than expand the fleet, the effort is really focused on using it better. But when we exit this year, roughly speaking, you'll be at 32 units, but you'll be running them at a much higher throughput rate. Is that the message?

Jon Panzer, CFO

Yes, Ted, I think you've got it summarized accurately. We don't know exactly how many we'll add; maybe a handful this year. So I wouldn't say exactly 2, it might be a little more than that. But those are units we had on order from last year. But you're thinking about it correctly. We've got a certain amount of capacity, and that capacity rate has been growing as we get more of these printers commissioned and operating at their optimum state. As Thomas mentioned earlier, some of these are the latest generation printers, which have higher laser power than what we're used to. The work that we're going to do to increase print speed this year will be related to taking advantage of that higher power and opportunities that make the printers run faster. This is a great increase in output with not a lot of investment in terms of dollars. We'll end in 2026 with a handful more printers and increased throughput from the ones that we have.

Edward Jackson, Analyst

And then the range of your printers includes everything from the older ones with one laser, and then you have some with 2 and then some with 4. The ones we would be purchasing will be more of these four-laser printers. Is that correct?

Jon Panzer, CFO

Actually, it's a mix. Thomas also mentioned that GE is working on new laser technology, and we're excited to help them out on development or testing that. It will actually be one of the printers with the smaller number of plates. We have opportunities across the range of our printer fleet.

Edward Jackson, Analyst

And then, I know you probably won't tell me this, but just to gauge understanding as you roll through this, and then start your capacity expansion and the CapEx. Roughly speaking, for an ideal printer, whatever that may be, what's the outlay for a singular unit?

Jon Panzer, CFO

These are commercially available printers. So our exact cost we can't share, but as for additive printing machines, that information is readily available.

Thomas Healy, CEO

Maybe, Ted, just to add slightly more, some machines can actually come in less than $1 million and others can be in the low single-digit millions.

Edward Jackson, Analyst

And then going over to the kind of your revenue forecast and the development work you do. You're guiding to $10 million of revenue, mix between development work and I assume some unit revenue recognition. Starting with the development work, you had $20 million of revenue with the U.S. Navy. If you go through it, you rolled through about $5 million of that so far. So you've got about $15 million left to work through. You got another, let's call it $40 million or $50 million across other things that you think you can bring in. When we look at – starting with the older stuff, will you recognize a significant piece of that remaining $15 million in '26? How do we think about that? And then what would be the timeline for the new revenue related to getting these contracts and where you would start seeing it happen? What are the milestones that you have to do to recognize that and get paid?

Jon Panzer, CFO

There's a lot of pieces there. So remind me if I forget one of them. You're correct that most of the revenue we project to earn this year would be from R&D services, although there will be commercial revenue following commercialization of those initial units. That part that is R&D services revenue is from around $20 million of R&D contracts we have. Some was spent in 2024 and some last year, about $5 million spent so far. There is upside opportunity based on the pace of our work. Some of that could roll into 2027 as well. We plan to get those, hopefully under contract soon. Those will be more for the next fiscal year and really provide us runway and pathways into 2027 and beyond. The timeline for those new contracts, we expect to be late in the year. On commercialization, we must have units operational and have tested against customer requirements and completed UL certification as well as optimize our manufacturing processes. So we have many well-defined steps throughout the year that we expect to accomplish.

Edward Jackson, Analyst

Yes, but just to confirm. You will recognize some revenue, but when you talk about the 10 units, it's not 10 units that will flow through in terms of your P&L; it's 10 units that you'll actually ship, but they might not have been accepted and revenue recognized.

Jon Panzer, CFO

Yes, you're correct. Some early units that we expect to deploy initially, and some that are already built and operating. Once we have reached official commercialization, we would expect to recognize revenue for those. Some may still be in the acceptance process and slip outside of that. But yes, once we cross that commercialization threshold, the earliest ones will be prime candidates for immediate recognition.

Edward Jackson, Analyst

And my last question, you've reached 175 kilowatts with regards to the KARNO now. You've got more tweaks to complete to reach 200 kilowatts. Can you share where you think the issues are and how you are progressing in resolving those?

Thomas Healy, CEO

Perfect. Great progress getting to that 175. We don't see it as fundamental architecture changes to get to the full 200 kilowatts. It's really about refinement. To use an analogy, since this is a heat-powered solution, it's almost like squeezing a balloon; when you constrain the heat in one area, it wants to expand and leak out in other areas. We addressed issues noted earlier in the year of the thermal battery, a deficiency we identified. Once we solved that, it showcased other areas that needed work. We're focusing on a new cylinder wall sleeve with better thermal properties to keep heat from transferring too easily, a new piston design to minimize radiation, and improved thermal blankets to retain heat better. We expect to receive parts from the new cylinder wall sleeves soon and anticipate rolling all of these refinements in shortly. Importantly, the power levels produced now are sufficient for early units, while we continue to work on reaching that 200 kilowatt target. This remains our primary focus as we advance.

Operator, Operator

Our next question comes from Martin Malloy with Johnson Rice.

Martin Malloy, Analyst

Just wanted to ask about the control systems that you mentioned. Is that something you're developing internally? Or could we see some sort of partnership there?

Thomas Healy, CEO

We've really taken the approach of developing all the software in-house. It is Hyliion's IP, designed and developed in-house by Hyliion. We see this as a key part of our solution, and I didn't mention this in Ted's last question, but we see some software improvements that we can make that will indeed allow some additional kilowatts from the system. With our in-house solution, we will integrate with others for site integration, as we will not be the primary controller on a site. That is something we will integrate with other site systems or other EV charging pedestals. It is key to note we can integrate into other DC architectures. For example, a battery pack can be plugged into the KARNO power module, and we can communicate directly and even control the battery. Our software is developed to provide real-time information to users and showcase usage at the unit or through the cloud.

Jon Panzer, CFO

We have a strong software and controls team as many of them were top people from our powertrain division. We are able to leverage the skills of those people.

Operator, Operator

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

Thomas Healy, CEO

Thank you, everyone, for joining today's call. Apologies again for the technical difficulties at the start, but I'm glad we resolved that. Just to set the stage again for 2026, this year is focused on getting units into the field and showcasing their operation. We began deploying early adopter units last year and continue that now with units in the field. As for the years ahead, there are exciting opportunities not just in prime power but also with military contracts and growing interest in the data center space. We look forward to sharing further good news in these areas throughout the year. Thank you again for joining the call. We look forward to chatting again on our next earnings call.

Operator, Operator

This concludes today's call. Thank you for attending. You may now disconnect.