HYLN - Hyliion Holdings: Decent Cash Position But Ambitious Near-Term Targets - Avoid

2023-08-24 22:29:34 ET

Summary

• Electrified powertrain solutions developer Hyliion Holdings reported another quarter with immaterial revenue and sizeable cash burn.
• Despite field trial delays and certifications not yet complete, management guided for a meaningful number of Hypertruck sales until the end of the year, which might prove aggressive.
• The company ended the quarter with $354 million in cash. At the current rate of cash usage, Hyliion would have runway until the end of 2025.
• While I remain skeptical on the commercial viability of the company's product offerings, Hyliion's still decent cash position is keeping me from assigning an outright "Sell" rating for now.
• That said, investors should abstain from initiating or adding to existing positions until the company has shown its ability to execute on management's ambitious targets.

Two weeks ago, electrified powertrain solutions developer Hyliion Holdings Corp. or "Hyliion" ( HYLN ) reported another quarter with immaterial revenue and sizeable cash burn:

In the press release, the company affirmed previously issued guidance for full-year cash consumption of $150 million and operating expenses of $130 million and stated expectations for approximately $10 million in revenue from sales of trucks with retrofit Hyliion Hybrid and Hypertruck ERX powertrain systems.

At the same time, management warned investors of mounting challenges (emphasis added by author):

As Hyliion nears the commercial launch of the Hypertruck ERX, we face similar challenges as our peers in the path to electrify the commercial vehicle space. Component cost, market shifts and a changing regulatory landscape will affect adoption rates. However, Hyliion has a favorable cash position and management will continue to assess our business model and strategic priorities to ensure we are using our capital most effectively (...).

On the conference call , management pointed to further price increases by suppliers and recent delays in receiving certain components required to build pre-production vehicles.

As a result, fleet trials have been pushed out to the current quarter but management nevertheless remained confident of selling 30 trucks until the end of this year.

We're presently working with fleets to confirm orders and delivery timing for their initial production trucks. With the extended fleet trials as the final stage for many fleets and their decision process of procuring our solution, we are presently completely booked through Q4 with trials with various fleets. With the discussions we have ongoing and the interest we have received from fleets, we are confident in our ability to deliver 30 trucks by the end of this year.

As we get feedback from these fleet trials and initial adoption, we will assess our ramp up plans for 2024 and come back with further clarity on our projected volume ramp.

Quite frankly, with field trials being delayed and required certifications not yet fully in place, I consider this an aggressive target.

Based on current consensus estimates, analysts are expecting Hyliion to sell approximately 280 trucks in 2024. With the market still in its infancy, at least in my opinion, it is difficult to envision the company coming anywhere close to this number next year.

On the conference call, management also disclosed plans to develop a powertrain for a day cab truck based on regulatory mandates and customer input with an expected launch in 2025:

As fleet to begun adopting plug-in electric trucks, they are finding that the range is much more limited than they expected, and the charging infrastructure either doesn't exist or is difficult and costly to install.

Thus, over the last couple of quarters, we have seen increasing interest from fleets in a Hypertruck ERX powertrain on a daycab vehicle. We are therefore moving forward with initial development and are planning to have the powertrain ready in 2025.

As we embark on this development, we also plan to incorporate design improvements to help with cost and weight. We've heard from fleets that the additional weight of the Hypertruck ERX sleeper variant will hinder its ability to operate in weighed out hauling applications. Thus, for the daycab, we are exploring ways to reduce battery and tank sizes to remove weight in addition to the savings of moving to a daycab.

(...) ACF first regulates the adoption of daycab vehicles and then later covers sleeper trucks starting in 2030. This is an additional reason why we plan to add a daycab variant of the Hypertruck ERX powertrain to our product portfolio.

In addition, the company disclosed the requirement to shift from the Cummins (CMI) 12-liter natural gas engine to the new 15-liter engine due to a lack of 2024 CARB certification for the existing solution. Integration of the new engine is expected by late 2024.

Management also provided an update on its recently-acquired KARNO fuel-agnostic power generator solution with commercialization in the stationary power market expected over the next 12 to 18 months:

Integration of KARNO into the company's Hypertruck offerings will take much longer with early fleet trials not anticipated before 2026:

Lastly, management elaborated on its recently announced collaboration with Hyzon Motors ( HYZN ) but with efforts largely limited to constructing a prototype vehicle, there won't be any near-term financial benefits to neither Hyliion nor Hyzon Motors.

We are pleased to share that this development has been going very well and this vehicle is up and running now and completed its initial test drive around a test track just a few weeks ago. This project remains on track and will be complete by the end of this year.

The company ended the quarter with $354 million in cash. At the current rate of cash usage, Hyliion would have runway until the end of 2025 but ramping up production is likely to result in much higher working capital requirements going forward.

On the conference call, management stated its intent to opportunistically raise additional equity starting next year.

Bottom Line

Hyliion Holdings Corp. reported another quarter with immaterial revenue and substantial cash burn. Despite certifications not yet fully achieved and field trials having been delayed, management guided for a meaningful number of Hypertruck sales until the end of the year which might prove aggressive.

With the market for the company's products still in its infancy and the recent decision to switch to Cummins' new 15-liter natural gas engine, consensus expectations for 2024 look at least equally ambitious.

However, with the company trading at an almost 25% discount to its projected $275 million year-end cash position, market participants are already discounting the risk of further delays and limited initial commercialization success.

While I remain skeptical on the commercial viability of the company's product offerings, Hyliion's still decent cash position is keeping me from assigning an outright " Sell " rating for now.

That said, investors should abstain from initiating or adding to existing positions until the company has shown its ability to execute on management's ambitious targets.

Risks

Upside Risks:

Should management deliver on its ambitious near-term sales targets and provide decent guidance for next year, a meaningful rally in the beaten-down shares could be in the cards.

Downside Risks:

Substantial downside revisions to sales expectations and increased cash usage would undoubtedly result in further selling pressure.

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