Good morning, and welcome to Hexagon Purus' Q3 2021 presentation. My name is Eva Geary, and I am the VP Investor Relations at Hexagon. I will be moderating today's broadcast from the studio in Oslo. Joining me from the studio is company CEO Morten Holum, and joining via Teams is company CFO Dilip Warrier. The agenda of today includes the highlights of the quarter, the financials, and we'll end with the outlook. We will also have a Q&A session, so please feel free to enter your questions via the function on your screen, or alternatively, send your questions to ir@hexagonpurus.com. With that, I will pass the word to Morten, who will take us through the highlights of the quarter.
All right. Thank you, Eva, and good morning, everyone. I'm happy to say that we have put another good quarter behind us. Three key highlights. Number one, we had another quarter where we roughly doubled revenue from the same quarter last year, and our year-to-date revenue is up almost 70% from last year. Second, we announced the acquisition of Wystrach in Germany, which represents a step change in our development in one of the segments that's expected to scale first. Third, we continue to see high commercial activity and strong commercial momentum in our own business and for the hydrogen industry overall. Revenue increased by NOK 51 million in the third quarter, almost twice the revenue in the third quarter last year.
As we expected going into the quarter, the key driver was strong demand for distribution modules and transit systems. I think it's both satisfactory and encouraging to see the continued traction in the demand for distribution solutions. This is not just because it brings good business to us today, but I think more importantly because it signals that the adoption of hydrogen is growing. With higher adoption, the need for transporting hydrogen from point to point will grow to feed industrial users and the growing refueling infrastructure that's being built across Europe, North America, and Asia. I'll have some more on that later in the presentation. Transit is also an early adoption segment. With low mileage routes, predictable duty cycles, and return to base operations, it's an ideal application for hydrogen electric propulsion.
Because they typically operate in densely populated areas, the zero emission logic is not just about decarbonization to fight climate change, it's also about air quality, clean inner city air. Because of this, we expect to see transit volumes continue to go up in the coming years. We'd like to spend some time today on the Wystrach acquisition. We believe that this is transformative for us and for the industry. Wystrach is a great company with strong leadership and best-in-class systems capabilities. Combining the leading European hydrogen systems company with the leading hydrogen cylinder company creates the undisputed leader for hydrogen systems in Europe. It enables us to significantly accelerate our business plan, adding capacity and expertise that would have taken us several years to build up organically. It gives us a stronger platform and a much higher starting point for further growth.
Wystrach comes from the industrial gas business side, stationary storage solutions for industrial use of air gases, such as oxygen and nitrogen. This was the basic building block for their expansion into hydrogen storage solutions. The industrial gas bundles can not only be used for stationary storage of hydrogen, being Power-to-X solutions, hydrogen refueling stations, residential power, and so forth. It's the exact same competence, materials, and expertise that's required for mobility systems applications that sits on, you know, rail, bus, truck, and distribution module. Operationally, the industrial gas bundles provide scale for hydrogen mobility applications, particularly in the early stages of growth. Wystrach also has a long history of satisfying the demanding needs of high-quality customers, many that are also customers of ours.
Looking at an overall system, there's a lot of value-added activity and content when you go from cylinders to a hydrogen storage system. It's the metal storage structure, high-pressure piping, and assembly. To put together systems to store and transport large amounts of compressed hydrogen in a very demanding operating environment, that requires a significant amount of engineering and know-how. This is where Wystrach has a lot of experience and expertise. With this acquisition, we vertically integrate and expand our presence in the overall hydrogen systems value chain, controlling 90% of the total system cost using in-house manufacturing processes and competence. We in Hexagon Purus have historically outsourced the metal structure and high pressure piping. At this stage of industry development, it makes a lot of sense to actually have this in-house.
The increased control of the total value chain will also enable us to systematically drive down the cost of the systems. To the acceleration part of things, the acquisition roughly doubles the size of the company with respect to revenue and the number of people. It represents a sevenfold increase in our hydrogen systems assembly capacity, and as such, it really accelerates our forward development by giving us a stronger and higher base from which to grow. It gives us a much stronger position and higher capacity within the applications that are expected to scale first, distribution and transit. Looking at the expected market development, systems capabilities are relevant for around 70% of the total addressable market. We see hydrogen storage as a massive long-term opportunity, but it's gonna take some time to get there.
The large volumes in the period towards 2030 are not expected to come until the second half of the decade, when many of the end use applications reach the mass adoption stage. However, at this point in our development, in the early years, it's all about gaining scale quickly so we can drive the cost down. This acquisition does precisely that. It gives us a much higher scale for hydrogen systems. Again, a sevenfold increase in capacity and a much higher base from which to grow. Then the inclusion of Wystrach also expands our product portfolio into the hydrogen refueling area. Rolling out refueling solutions, that's one of the keys to make this industry work. Wystrach's product portfolio includes both mobile and stationary refueling solutions.
The mobile ones are particularly interesting in the early stages of industry development because of its flexibility to serve users where stationary solutions become too expensive. We're expecting this to be a new growth area for us. Earlier in the year, Deutsche Bahn ordered a plug-and-play refueling solution from Wystrach. Last month, they received a EUR 3.6 million order for mobile and stationary refueling solutions in Europe to serve hydrogen buses and refuse trucks. It's obvious that mass adoption of hydrogen will require a solid refueling infrastructure. This is critical and almost goes without saying, nobody will buy a hydrogen vehicle if there is no place to get it fueled. The infrastructure needs to be there, and it needs to come first. We're now starting to see stronger momentum in the build-out of the hydrogen refueling networks.
The number of stations have grown by 50% in the past 18 months. Now, it's still a long time and a long way to go, but it's encouraging to see that this key part of the hydrogen value chain is starting to get traction. We also see it in our hydrogen distribution business, which has been a key growth area for us in 2021, representing for us a 5x increase compared to last year. All the sectors of society are these days trying to figure out how they can cut carbon emissions from their operations. One of the many focus areas in North America is the operation of the ports. This picture is the Port of Los Angeles, one of the largest ports in the world.
There are thousands of vehicles serving this port, operating both inside the port itself and transporting cargo between the port and the inland distribution centers, either railyards or truck terminals. In California, the Port of Long Beach and the Port of LA has more than 20,000 drayage trucks and yard haulers in service, and these are now targeted to become zero-emission. We are helping them to get there. In October, we received orders for two prototype hydrogen-powered yard haulers, like the little guy pictured on the left side of the screen, and a hydrogen-powered Class 8 drayage truck, as you see on the right side of the picture. Our vehicle integration team will provide the entire vehicle, including the energy storage system. It's yet another area where the small steps are taken in the right direction towards decarbonization.
When the ports go fully zero emission, that's gonna be a lot of trucks. We mentioned the maritime segment in the past few quarterly presentations. We continue to see high level of interest in hydrogen propulsion for maritime vessels. If Norway is to reach its emission reduction targets, several hundred zero-emission vessels will be needed, including ferries, bulk, and cargo ships. In October, we joined the ZeroCoaster study, which is coordinated by VARD, a major global ship designer and shipbuilding company. The study aims to evaluate how to achieve cost-competitive zero-emission shipping solutions, and we are contributing our hydrogen storage and distribution experience. One of the real hot topics of the past year has been the imbalances and the unrest in the global supply chains, and this is unfortunately also relevant for us. We've seen three main effects.
Higher prices for many materials and components, long lead times for certain components, particularly anything that includes electronics or a circuit board, and higher working capital. Early on, we secured the necessary volumes of key materials and components, and have been carrying higher than normal inventories for most of the year. Beyond that, it really has had limited operational impact on us. We have thankfully not had to shut down any of our facilities due to material or component shortages. Given the relatively low volume we have at this stage of development, the price increases have not had a major impact either. The decreased predictability of the supply chains is, of course, worrying, and it's hard to predict exactly when the supply situation will be normalized. We will obviously continue to manage the situation as best we can.
With that, I will hand the word over to Dilip, who will take us through the financials.
Thank you, Morten. You know, as Morten mentioned, we're very pleased with how the quarter shaped up. At NOK 103 million, we've almost doubled our revenue year-over-year, and also grew at 10% sequentially. As we have mentioned on previous calls, the Distribution business and Transit Bus business are driving the majority of this growth in this phase of our development. Q3 EBITDA loss was NOK 80 million and was in line with our expectations, given the investments we are making in the business, not only in the form of increased corporate and strategic costs, but also in the form of human resources and product development initiatives. Next slide, please. Thank you. Here you see the breakdown of revenue by segment in the current quarter and the year-to-date period. Again, Distribution and Transit Bus have led the way.
They account for more than 70% of revenue in the quarter and the nine-month period. While contribution from the Heavy Duty business is down in 2021, we do expect this segment will drive more meaningful revenue in the coming years as vehicle platforms transition to start of production. Next slide, please. Our balance sheet remains strong. We ended the quarter with just over 700 million NOK of cash. As you can see, working capital levels have increased substantially from prior year-end, just generally speaking, higher levels of receivables and inventory. This is in line with the uptick in business activity and, as Morten mentioned, longer lead times we are seeing across the supply chain. Next slide.
Finally, on cash flow, you know, the majority of cash burn year to date has been to fund ongoing operations. Working capital was NOK 143 million use of cash over this nine-month period. We have seen a slight uptick in CapEx from prior quarters, but we do expect to see a significant increase over the coming quarters. The discontinued CNG LCV business accounted for 43 million NOK of cash outflow over the course of these nine months. With that, why don't I turn it back to you, Morten?
All right. Thank you, Dilip. Before going to the outlook, I wanna spend a few moments on the overall drivers behind our business. As we watch and listen to what's going on around us, it's becoming increasingly clear that we have a major problem. You hear it from an increasing number of different sources, and the volume is increasing, and the severity of the message is expanding. The Intergovernmental Panel on Climate Change in the UN, the IPCC, has flagged code red for humanity unless radical action is taken now. This is quite dramatic. We are not moving fast enough. With our current path, we will have spent our entire carbon emissions budget, that's the amount of CO2 that we can release into the atmosphere, to prevent the 1.5-degree increase in global temperature.
We will have spent that entire budget already by 2030 at the rate we're going, not 2050. It's really hard to take all of this in. The more it becomes clear that we are not moving in the right direction fast enough, the higher the will and determination to course correct. We see it demonstrated in higher targets and ambitions, but also increasingly in action. That is really the driver for the increased hydrogen momentum. Hydrogen is not gonna solve everything, but on the other hand, there is no credible path to the net zero society without widespread hydrogen deployment.
Finally, a few words on the outlook. The demand outlook remains strong for the rest of the year. We expect Q4 revenue to develop at least in line with what we saw in Q3. This would imply roughly NOK 350 million in organic revenue for the full year, which is exceeding our target to grow revenue in 2021 by at least 50%. Wystrach estimates their full year revenue to reach around EUR 35 million. If we were to add Wystrach on a pro forma basis from the beginning of this year, we would then expect to see a full year revenue of at least NOK 600 million for the combined company. This is more than 3 x higher revenue than Purus had alone in 2020, and it clearly represents a step change for Purus in this very exciting and high growth market space.
This concludes our presentation this morning, and we will now open it up for Q&A.
Yeah. Great, Morten. We have received some questions from our audience, and I'll start with there is a bunch of Wystrach related questions, and the first goes: how much of the current capacity of Wystrach will be used in Purus deliveries, and how much will be used to serve Wystrach old customers?
Well, I think for the starting point, the acquisition hasn't really closed yet, so we haven't got into the, you know, super detailed planning of integration. It's pretty clear that with the growth that we are seeing and the growth that Wystrach itself is seeing, there will be significant increases in volumes going forward. It's likely that some of the things that we have been doing on our own also will be done at Wystrach. I think they have at least capacity to deliver what we see in the plans for 2022. There is going to be some increases in capacity both in Hexagon Purus and in Wystrach needed going forward, I think, to deliver on these very exciting trajectories we see on the demand side.
Thank you. Next one is, you previously guided around NOK 500 million in investments over the next two-year period. Is this including the acquisition of Wystrach?
You wanna take that, Dilip?
That initial guidance of NOK 500 million over two years was focused on North America and Europe capacity expansion. It did not include Wystrach. Wystrach is a systems business. It is a relatively CapEx-like business as compared to the cylinder business. That said, they have the capacity to achieve their 2021 and 2022 outlook. No doubt that we see growth for that business, and there will be additional CapEx needs for Wystrach in 2022. Not to mention also some CapEx in China as well.
Thanks, Dilip. This is for you as well. The current EBITDA margin for Wystrach is 9%. Is that representative for the future?
Yeah. You know, Wystrach's historical financials would point to a relatively stable, you know, 8%-9% EBITDA margins over the last two-three years. We don't see any reason to think it's gonna be substantially different. You know, that said, the business, along with just about every other business in the manufacturing industry, is seeing cost inflation, right, on materials. The ability to maintain that margin is also gonna be dependent on the ability to pass on increased cost to customers. There is precedent for that. We've done that in the past, and we expect that we will be successful in passing those costs on to customers.
Right. Thank you. A CapEx related question. I'm gonna shoot it over to you again, Dilip. Do you have any guidance on CapEx budgets for Wystrach?
Not at this time. Why don't we take that as something we revisit here when we report Q4?
Thank you. Morten, you only announced one order of EUR 2 million during Q3. We are very soon in 2022. When can we expect an uptick in order announcements?
Well, I think the order announcements, they vary obviously. You have to think that a lot of the orders that we have already received are things that we are going to be delivering in 2022 and a lot of the, some, you know, also in the years ahead. I think if you look between quarters, sometimes there are big things coming in, sometimes there are not that many big things going on. What we see is a continuously growing pipeline of things we're working on, and then things we have in our delivery pipeline for next year.
Thanks. Dilip, do you expect a significant increase in working capital also in Q4?
Yeah. Good, that's a good question. I have to say that working capital is something that is notoriously difficult to predict because it so often is just based on a snapshot in time. You know, I think it's fair to say that in Q3 there was some letup in the pressure from working capital. We have built up fair amounts of inventory and receivables, as you can see. I think that, you know, if there is an uptick in cash burn in Q4, it's going to be less from working capital than it is from capital expenditure and the cash consideration for the Wystrach acquisition, the 35% cash consideration.
Thanks. We have somebody who wants to congratulate us on yet another good quarter. The question following that is how much can we grow revenue organically in 2022 with the current capacity? Morten?
Yeah. First of all, I think we haven't gotten to the stage yet where we are sharp on the guidance and the thoughts for 2022. We have to complete the Wystrach acquisition, and you know, put all of our plans together in detail and then look at you know, what sort of things we can deliver. Dilip, any thoughts on the rough size?
Yeah. Look, I think, you know, we are starting from a point of relatively little capacity, right, and we are building capacity. I think the final numbers for 2022 are kind of going to depend on the timing of startup production of certain programs, including the light-duty vehicle customer that we've talked about in prior quarters. For now, I'm just gonna leave it there.
Yeah. Let's come back to that when we get to the fourth quarter. We will have worked through our plans. We would have looked at our investment tracks and h ow that is going, and then we'll be in a better position to be more specific.
Thank you. How is the Wystrach closing process going? Are you still expecting the acquisition to close in Q4?
Yes, we're still expecting that to close in Q4. There are the customary things that you have to go through, and all of the practicalities to get it closed. Yes, we expect this to happen in Q4.
Thank you. Another question. Can you tell us a little bit more about your customers in the hydrogen distribution segment, who they are?
Even in this quarterly presentation here, there were some logos on one of the Wystrach pages, and it's for us, it's kind of, you know, it's the large industrial gas companies are major clients, and that would be the, you know, Air Liquide, it would be Linde, Air Products. Then there are companies that are starting up in the, you know, refueling station and distribution business, kind of the, you know, the Everfuel, as we know here from Scandinavia, y ou have companies like FirstElement Fuel in the U.S., Certarus. Most of the names that we have announced. We see also an increasing interest, not that we have that much revenue precisely from that, but we see of course interest from others going into the overall refueling space, which will drive also demand for modules going forward. Right now it's, you know, by far, it's the larger industrial gas companies.
Thank you. One last question from the audience is, can you say something about what the order reserve looks like as of Q3 2021?
You want to answer that, Dilip?
Yeah. Look, I think, you know, I think this question has come up in the past as well, right? What is backlog? I think frankly at this stage of development of the company, backlog is not really a useful metric, because you know, we have visibility. The backlog is as good as it has been over the last few quarters. You know, we've been able to drive revenue growth, right? The order intake, I mean, you see it, right? It's coming from distribution, it's coming from Transit Bus right now. You know, over time, we expect we will see contribution significantly higher from Heavy Duty. Yeah, backlog is just not a meaningful metric for us right now.
Yeah. It's hard because a lot of the business that we have is done on frame contracts and other things, and I think it would be easy to paint the picture where you stack all of what we have received of LOIs and frame contracts and so forth on top of each other and create a gigantic number. I think we choose to be a bit conservative, and order for us is when we have received the purchase order. It's not really representative of the backlog of what the business looks like going forward, which is why we don't talk about it. We will get POs continuously through the year calling off on agreements, and it's not until we have received that purchase order until we register it as backlog.
Thank you, both of you. That actually looks like the last question, and that wraps up the Q&A for today. On behalf of Hexagon Purus, I'd like to thank you so much for spending this time with us this morning, and we look forward to seeing you all very soon again. Thank you so much from Oslo.
Thank you very much.