Good morning, everyone. Welcome to Day 1 of the Sidoti Small Cap Conference. My name is Aashi Shah, and I'm an analyst here at Sidoti. With me today, I have Hyliion, it trades under the ticker HYLN. I'm happy to welcome Thomas Healy, CEO and founder, and Jon Panzer, CFO of the company. We have about 30 minutes today, including the Q&A. If you have any questions, please submit them at the Q&A section at the bottom of your screen. With that, I will let you take over, Thomas. Thank you.
Thank you very much, and thanks everyone for joining us today. Excited to share a little background on Hyliion and our focus. For anyone new to the story, we're a company focused on making modular power plant technology. This concept of make your own power behind your facility at an EV charging site, at a data center. We'll get into more of the use cases here, but it's really a technology that enables distributed power generation. You can see our base product here on the slide. That's that enclosure on the right-hand side. The thought here is this is really going to be your personalized power plant. You put it outside the facility, run it 24/7, and it will sit there, make electricity with the goal of being lower cost than grid electricity, being cleaner than most grid electricity, and having low noise, high reliability.
Let's jump into kind of the market opportunity of what we're going after. If you think about the grid today, and I'm sure many of you have heard this specifically in the investment space, we're going into a time that's thought to be kind of like a crisis almost of not having enough power available through the conventional grid. The question is, like, what's driving this? Just to give you a few examples, if you plug in 10 electric semi-trucks into the grid, those 10 trucks are going to consume more electricity than the Super Bowl during game time. Ten trucks is nothing, right? There's a couple of million trucks here in the U.S. That alone is going to be a tremendous draw on the grid.
Probably the one that's even going to be much bigger than that is the data center space. We're working with numerous of the data center providers. One of the larger groups shared with us that right now they consume about 6GW of electricity. They're anticipating that by 2030, just five years from now, they're going to consume upwards of 40 gigawatts of electricity. To put that into comparison, that amount of growth, going from 6 to 40GW in a five-year period, that amount of growth is the same as, I believe it's 10 times as much power as all of London consumes today. This is a massive amount of electricity that's going to be needed, and that's just for one of the hyperscalers. You couple all this with an aging infrastructure.
In the U.S. here, we are at a time where about 60% of the transmission lines are already at or past their life expectancy. You couple all this together, and we believe we are going to move to a model where it's distributed power generation, and you make your own power on site. To share a little bit of background on the company, I founded the company back in 2015, and we are listed on the New York Stock Exchange American. The headquarters is in Austin, Texas, and our R&D facility, which is where I'm sitting today, is in Cincinnati, Ohio. Jon Panzer, our CFO, who joins me today, is actually sitting at our headquarters in Austin. Let's now talk about what target markets we're going after. I mentioned a couple of these EV charging data centers.
The focus there is really the grid does not have the capacity available or needed in order to scale at the pace and rate that these markets are planning to. The next bucket, which is very unique to Hyliion, is the ability to leverage waste gas. If you think about emissions coming off of a landfill or flare gas at an oil and gas site, as opposed to just wasting it through flaring, we can actually take that gas that has impurities and run it through the KARNO generator to produce the positive byproduct of electricity. That is due to the fuel-agnostic characteristics of the KARNO, which I'll get into in a second. Prime power , this is really powering commercial buildings, warehouses where it is lower cost. You can produce lower cost electricity yourself at the facility.
The last bucket, which is one we're extremely excited about, is marine applications. On this one, we have been awarded a U.S. military, specifically the Office of Naval Research contract, where we are working on being the future power plant of choice for autonomous unmanned vessels. The reason for this is if you think about these ships are conventionally powered off of diesel engines, there is no one on board the ships anymore to do the maintenance of the diesel. From that standpoint, with the KARNO generator, it offers an expected lower maintenance solution than what is conventionally being used. Now let's talk about what is this technology, what is the actual product. You saw the full enclosure on the first slide. This is the core of the system. What's actually on the inside? It's this four-shaft linear generator.
The whole premise of this is it's powered off of heat. We actually are using heat as our fuel source to produce electricity. Now, I'll talk about how do we derive heat and everything, but those are, you know, it's a linear generator, uses heat to make power. The benefits of this are it's truly fuel-agnostic. We can produce heat by reacting various fuels. We can react hydrogen, natural gas, ammonia, propane, diesel. There are over 20 different fuels that we can use, even JP-8 for military applications. That allows us to have a system that you could start with using one fuel and seamlessly switch to other fuels as you're in operation in order to use whatever is lowest cost or potentially in military applications, you might have a varying supply of what's available to you. We also achieve ultra-low emissions.
The numbers here are what we're achieving on natural gas. Even these levels are surpassing the most strict of California's emissions regulations. Superior efficiency. We'll be able to achieve up to 50% fuel-to-electric efficiency. To put this into comparison, this is exceeding average grid electricity efficiency. In the U.S. here, we're at a 36% efficient grid. What this enables is you can now be more efficient with actually just making your own electricity on site. There's a low maintenance aspect, which is within those shafts, there's only one moving part per shaft. Even that part is gliding back and forth on an air bearing. Think of almost like an air hockey table where you've got your puck that's levitating. We have a shaft that's levitating and oscillating back and forth.
This allows it to have very low maintenance and no oils, no lubricants. If you think about us compared to a conventional engine where you need to do oil changes, that's now eliminated with the KARNO generator. Lastly is just low noise. Our noise levels are more comparable to like an air conditioning system that you would find at a facility as opposed to a conventional generator. We then take that four-shaft system and we package it inside the enclosure that you saw on the first slide. The rest of the enclosure is all the balance of plant, like fans, radiators, pumps that help the system operate. We also have a version that we're working on, which would be a 2 MW version. Inside of that is actually 10 of those four-shaft systems that'll be stacked together.
That is able to provide 2 MW of power in about the same footprint as a 20-foot shipping container. Comparing that to other solutions, this is extremely power dense in the tune of like one half to maybe even one third the size of conventional generators. When you compare it to some of the other new technologies that are out there, it can be one fifth to one tenth the size. As you think about an EV charging deployment where real estate is important, having a very power dense solution is key. That 2-MW solution, we really kicked off the development of that specifically for the data center market. When you think about data centers, a small data center could be upwards of like 10 MW, medium size could be in the 50 MW, and then larger ones are 100-plus MW of power.
With our 2-MW system and even the 200-kW as well, you just stack those systems together to give you the amount of power that you need. All right, now let's shift into talking about how the system actually operates. As I mentioned a few slides ago, this is a linear heat generator. The way it works is in the orange areas, you bring fuel in, you react that fuel through a proprietary process called flameless oxidation that then allows us to produce heat. Heat is then what is actually used to power the system. In those red areas on the linear generator is where we actually have a trapped gas. What we're doing is we heat up that trapped gas, which causes it to expand. That's what pushes the piston one way.
You do the opposite reaction on the other side and push it back. Hopefully this animation is going to work, but you can see that piston is just gliding back and forth. All of that is driven by the expansion and compression of gas. Now the animation is going slow to show you how it works, but that's actually happening at about 20 times a second that shaft is moving back and forth. On the last slide, you may have noticed that we referenced Stirling technology. A heat engine, like I was mentioning, is a Stirling generator. That's the premise of what we're doing. We did not invent Stirlings. Stirlings have been around for a couple of hundred years, but they've always been extremely difficult to manufacture and, or in many instances, almost impossible to manufacture.
The unlock for Hyliion has been what we're doing is we are 3D printing some of the very key heat exchanger components or the key components of the generator, which is a lot of it. That's enabling us to really get the performance and benefits that are needed out of the Stirling engine, or as we like to call it, the KARNO generator. You can see one of the parts on the slide there, but I actually brought one here today to share as well. You can see just how complex some of the geometries are of the part, which that's what's allowing us to get the performance out of a very small and compact footprint. 3D printing has really been the unlock to allow us to bring this product to market.
On the right-hand side of the slide, you can see the actual machines we're using to 3D print some of the components. Before turning it over to Jon to give a little financial update, I just wanted to cover the competitive landscape and the pros and cons of the KARNO generator. You can see that the key things that customers are focused on, which is what's the cost of the electricity, maintenance, emissions, the size of it, and the upfront capital costs. Maybe let's start with the downside, actually. The downside of our solution is it is more expensive than a conventional generator. However, it is less expensive than some of the other new energy solutions like fuel cells. It comes in more in the similar price as a micro turbine.
Customers are actually less focused on what's the upfront cost and more focused on what's the long-term payback ROI of the solution and is this going to save us money compared to buying from the grid or deploying other solutions. That is where this technology can really shine because due to its low expected maintenance as well as the high efficiency, that allows us to have lower cost electricity, which in return then means that you're going to have positive economics compared to a conventional engine or in many areas even compared to the grid itself. That is true due to the next line there, maintenance. We talked about emissions already and talked about footprint where in all these categories, we're either leading or towards the top end of performance characteristics.
I'll now turn the call over to Jon to share a little bit of an update on where we are from a financial standpoint.
Great.
Thank you, Thomas. And good morning, everybody. I'm going to just talk to this one slide and give you some financial highlights that were presented at our recent fourth quarter earnings release and also just highlight some of the guidance that we gave for this year. One thing I want to point out just to emphasize that Thomas mentioned, we are on the verge of delivering the first of our 200-kW units to our deployment customers. We're in the process, as Thomas mentioned, of developing the 2-MW system. This is a product that's just starting to come to market today. Looking back at our financial results for 2024, I'm highlighting here some of our cash uses.
We had some unusual items that won't be carrying over into this year or into the future. We had some costs associated with shutting down our former powertrain business. Also we did a small share repurchase program last year for $14 million. I think the main points to highlight here is the base business used about $41.5 million of cash last year. We invested $16.5 million in CapEx, mostly related to additive printers that Thomas mentioned earlier. Looking at this year, we're expecting a small increase in that spend to about $45 million and then a similar level of capital investments net of some financing that we have planned. Also, I'll mention that we are well capitalized. We finished last year with around $220 million of cash and investments. We have cash, short-term and long-term investments on our balance sheet.
We are well funded to bring these products to market and do not expect to need to raise capital to get them and get our first products out there. Guidance for this year, we are expecting $10-$15 million of revenue. Thomas mentioned the Navy contract. We started recognizing revenue for that contract last year. Right now, it is in a research and development state, but we are providing research and development services to the Navy and we expect that we will be providing similar services to other customers in the future or at least other parts of the military in the future. We did start to recognize revenue for that business last year. Again, we have some initial deployments this year, which we expect will ultimately result in revenue.
We're expecting to commercialize this product sometime late in 2025 after we've got feedback from our early deployment customers and are able to incorporate that feedback in any necessary design changes and software updates for the system. Overall, we'll end up deploying somewhere, we'll end up producing somewhere around two dozen units for the year and somewhere between $10 million and $15 million of revenue. We haven't provided specific guidance for 2026 other than saying we do expect a significant ramp-up in business and deliveries in next year and in future years. Again, total cash use of around $60 million, including capital investments, net of about $10 million of planned financings for some of those investments. Just looking at margins and cost, we're just starting to produce the 200-kW system. As you could expect, our costs for the initial units will be higher initially.
We do expect that we should be able to get those production costs down quite rapidly as we start to ramp up production volume. We're looking at cash maybe reaching approximately cash-neutral margins late in 2026 for our 200-kW product. Overall, that's a look at our financial expectations and results for last year. I think we're ready to turn it over to Q&A.
Thank you so much for the presentation. I request the audience, if you have any questions, please submit them at the Q&A function at the bottom of your screen. With that, I would take the first question. What challenges has Hyliion faced in bringing KARNO to early adopters?
I'd say the biggest thing has just been this is a new product, a new technology.
With any new technology, as you go through testing and validation, as you go through bringing the system up, there are learnings, right? You find that some things that you designed are great, other things continue to need more iteration. Even as you go ahead and you install the core, those four-shaft system into the genset box, there are learnings of how you can do things better and improve it. That is where what we have laid out for this year is through about the middle of this year, we will be rolling out early adopter units with customers. These are great organizations that we are doing with. Multiple Fortune 200 companies are in that list. The Navy is in that as well.
The goal of this is to get feedback, to get real-world operation on these to see how they're performing and then to be able to go back and make any changes that are needed based on that feedback. We've laid it out systematically where initially some of these units are going to be just staying at our facility, going through customer-specific testing. From there, we'll be transitioned to a customer site. Others will go directly to the customer site. With all that being said, as Jon mentioned, the goal is that tees us up to be ready for moving it over into a commercial product by late this year. Right.
What would you say are the plans for scaling KARNO's production?
Yeah.
The big kind of area of focus for how do we scale production is 3D printing, as I was mentioning before. Now there's great aspects of 3D printing, which is as you need more capacity, you just add more printers that make more parts, right? It's very different than if you think about how a conventional engine company makes a product. They'll go invest hundreds of millions, if not billions or billion-plus dollars into a manufacturing facility in order to make engine number one. At that point, they are ready to ramp up and scale production. Ours is different where we buy these 3D printing machines and then that adds to our capacity. As we have been in 2024, in 2025 already, and we foresee in the years ahead as well, we will keep adding to our production capacity.
We already have printers on order through GE, which is our partner and who makes the actual printing machines. We have machines that will be being delivered throughout 2025, which will help us with continuing to scale up and ramp capacity. That is really the key area of focus for scaling. However, not to undermine or miss that there is still general supply chain. Working with machine shops and getting components, working with suppliers and getting components in, making sure that they meet specs and are ready for scaling.
Right. As a follow-up, I have another question from the audience. How many years away is the company from producing 1,000 KARNOs in a one production year, whether it's through facilities or contractors?
Yeah, we have not added that level of clarity into earnings calls at this point. It is not something that we've publicly shared.
What we have shared is this year, we plan on producing about 20 engines' worth of systems. As we go into 2026 and beyond, we'll continue to scale. At this point, we haven't set a target or set a number of 1,000 units at what time.
Okay. Can you give us a cost comparison, like pricing comparison, rather? What is the pricing for your systems compared to the other existing technologies?
Absolutely. I'm actually going to shift back a couple of slides. You could see a little bit of color of this on the bottom of the slide here. If you look at an internal combustion engine, usually the cost there for a Prime power system, natural gas Prime power , will be about $1,000-$1,500 per kW.
When you compare that to a fuel cell, fuel cells are usually in the $3,000-$3,500 per kW. To put those to kind of the end product, if it was a 200-kW system, internal combustion engine would be around $200,000-$300,000 versus fuel cells will be upwards of $600,000-$700,000. We are going to be sitting in between those two costs.
Got it. Do you forecast any dramatic increase in the AI data centers and EV market in the next 5 to 10 years? What are your product forecasts?
Yeah. We definitely are seeing a massive increase in interest from that area.
I don't have exact kind of market forecast data to share on this call here, but I shared the initial example of one data center provider is planning over the next five years to go from 6 GW of power today to 40 GW in just five years. We're hearing that across the board from hyperscalers or even new companies that are entering the space are projecting pretty substantial growth. I think this market has gotten to a point where they're kind of realizing in most instances, the grid is not going to have the power available or needed in order to support these massive data centers that are being built. It is shifting to a concept of make your own power.
One other area that I'll add as a benefit to the KARNO is if you think about a data center provider, they're usually contracted to have to provide five nines of reliability, which means just the system is going to be there when the power is needed. One of the benefits with the KARNO is because of its fuel-agnostic capabilities and the fact that it's designed to be modular. The fuel-agnostic means that it could run on natural gas Prime power , but then it could have diesel storage or propane stored on site that could be switched over to as a backup fuel, which is going to help with improving the reliability. The other is the fact that it's modular means that if you needed a 50-MW data center, maybe you deploy 60 MW worth of generation capacity.
If there are systems that are under maintenance or are being worked on, you still have the rest of the modular systems that are producing power.
Right. One more question on production is if and when you need to increase capacity, do you plan to increase it in your facility itself, or do you plan to outsource your manufacturing ever in the future?
At this stage, our focus has been increasing the production capacity ourselves, doing in-house manufacturing of the 3D printed parts. Now, other solutions such as the linear electric motor, we are using a contract manufacturer to scale that up. While it is Hyliion's design and our IP, we are actually using another group who is doing the assembly of that generator for us or the linear electric motor portion of it.
That's where we're trying to be strategic, where the things that there's a lot of knowledge-based core IP, a lot of knowledge and know-how, like 3D printing, that's something we're doing in-house. Others like bending sheet metal or creating an enclosure or assembling a linear electric motor, we'll use partners to produce those components.
Okay. What happens to the heat generated? Can it be captured and used to heat a pool or growing facility, or is it simply a waste byproduct of the process?
Yeah. Great question. It can be used for, it's called combined heat and power, where we'll take some of the heat to make electricity. The other heat, in most instances, would be expelled through a fan radiator system.
However, if you have, let's say we're powering a gym that has a pool that needs to be heated, or you want hot water, we can actually plumb that heat and deliver it to an end location. You can use that heat to have a positive byproduct, which the benefit of that is now your efficiency is much, much better.
Right. Can you talk a little bit about the HMI and the cloud system on KARNO?
Absolutely. If you look at the front of our generator, which I'm just going to jump back to a slide here, you can see that there is a display on the front of it. This allows the user to interface with the system. We do have cloud connectivity as well. That means there's cellular connections.
Not only are we monitoring the system, we as in Hyliion monitoring the system and seeing how it's performing and sending information up to the cloud, we also have the ability to send new information down to the system. Customers have the ability to look at that information as well and can even control the generator remotely. In the beginning, there'll be a subsegment of those features that are available. As we go forward, we'll continue to expand that. That's one of the great things with software and the ability to do over-the-air updates, that product and the functionality of that can continue to expand as we go forward. I do think that's a key differentiator compared to a conventional generator. Usually does not have cloud connectivity, does not allow a user to remotely control it.
Now, there are some products on the market that can be coupled into existing generators, but with the KARNO, we're combining it all with the original system.
Right. Just as my last question, and as we end our time, can you just tell us what are the near-term milestones investors should be looking at in 2025?
Yeah, absolutely. Jon, do you want to take that one since I've been answering all the questions?
Yeah, no, I'll take that one. That's a great one. Great question.
If I go back to the milestones we set out for this year, the big thing for us right now is continue to get deployments of these 200-kW generators out to customers, and then ultimately getting all of those out and then also getting to the commercialization of the product, which means we finish the validation, the performance of the generator meets customer specifications, and we're able to start recognizing revenue for sales. We expect, we hope that to be late this year. It is really about getting these first units deployed and delivered, and then, of course, getting our revenue that we projected for this year. As we get into later in the year, we'll start to be thinking about goals for 2026. Again, the expectations there would be ramp up in deliveries, additional revenue.
One thing we did not mention, we do expect that 2 MW system to be deployed sometime in 2026. Of course, later in that year, getting to our looking at gross margins and as we grow, getting towards gross, start generating positive gross margins. A lot of the things that I laid out on this financial slide and that we have talked about in our earnings are things that we should look at. I think beyond that, clearly, everybody is very interested in the ramp-up production, and we will give some more guidance on that as we proceed down this path. Great question.
Thank you so much. Thank you so much, team, for joining. I would like to thank everybody in the audience for your time today. Thank you.
Thank you.
Thank you.