Hyliion Holdings Corp. 2026 Q2 Earnings Call

Greg, please go ahead. Thank you, and good morning, everyone.

Welcome to Hyliion Holdings' second quarter 2026 earnings conference call. Joining us today are Thomas Healy, Chief Executive Officer, and Jon Panzer, 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, are subject to risk and uncertainties. Many factors could cause actual results to differ materially from forward-looking statements made on this call. Factors that may cause such differences are discussed in 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, except as required by applicable law. With that, I'll turn the call over to Thomas.

Hello, and thank you for joining us for Hyliion's second quarter 2026 earnings call. This was a strong quarter for Hyliion, and we have a lot to cover on today's call. I'll organize my remarks around three topics: military progress, product progression towards initial customer site deployments, along with customer demand, and speed improvements in additive manufacturing. First, a few highlights. We were awarded a $41.7 million contract with the U.S. Navy, our largest military contract to date, and we still expect to secure additional military contracts before year-end. We are raising our full-year revenue guidance from $10 million to $15 million. Finally, we have identified additive manufacturing speed improvements that we believe have the potential to increase print speed and throughput by up to three times.

I will cover our progress against the 2026 milestones we laid out at the start of the year, update our three-year outlook, and then turn the call over to Jon for the financial results. Starting with the military. Last month, we announced a $41.7 million contract with the U.S. Navy to scale the KARNO Power Module into multi-megawatt systems. Under the contract, we expect to deliver two power modules, one rated above 2 megawatts and the other rated above 3 megawatts. Both are built on the same modular 800-kilowatt architecture we are developing today for data centers and the USV Defiant autonomous Navy ship, which means we are scaling an existing building block rather than creating a new system. These larger modules expand the range of Navy applications from larger vessels to powering military bases. The contract also includes funding to further advance our additive manufacturing capabilities.

Coming into the year, we set a goal of securing $40 million to $50 million in new military contracts. This Navy award, on its own, achieves that goal. However, we expect to close additional military awards this year, including one from a different service branch for approximately $7 million. We expect these additional awards to bring us close to $50 million in new military contracts for 2026. The performance periods on these contracts run two to three years, depending on the specific contract and our pace of execution. We expect additional military contracts next year and in the years to follow. Some will be cost-plus development contracts, similar to what we are executing on today, and increasingly, others will be for delivery of complete commercial power systems. The result is a steadily growing base of military and government contracts that support revenue growth in future years.

This quarter, we engaged Abdul Subhani as a strategic advisor for military opportunities. Abdul serves as civilian aide to the Secretary of the Army for Texas, distinguished chair of innovation and senior advisor to the superintendent of the United States Military Academy at West Point, and U.S. technology advisor to the British Military Academy. Abdul is assisting us with building relationships with new contacts throughout the military, particularly within the U.S. Army, to broaden awareness of our KARNO technology and build on our contract pipeline. Our engagements across all branches of the military increased significantly this past quarter. We held numerous meetings with senior-level officers to discuss the potential of our power system. We were also invited to participate in Senator McCormick's Pennsylvania Defense and Innovation Summit, where President Trump, Energy Secretary Chris Wright, and Secretary of War Pete Hegseth all participated.

Overall, it was a terrific quarter for defense progress, with more engagements and business opportunities expected in the quarters ahead. Shifting to product development, I will cover where we stand with our development work and deployment of early adopter units. Overall, commercial interest remains strong as we near initial customer site deployments. Ahead of moving units to customer sites, we are completing a block of design enhancements that capture improvements from what we have learned from initial operation. The block consists of changes spanning airflow and cooling improvements, upgraded insulation blankets, an improved piston, and software and controls enhancements. Together, we are expecting to increase system durability, performance, and power. We have recently completed updating our first commercial customer unit with these upgrades, and that will be the first system deployed to a customer site.

We are building a number of power modules in parallel, including the 800 kilowatt Navy system, which is now in assembly. We are accumulating run hours across multiple systems simultaneously and performing extended duration runs to build operating hours and validate durability. We are also expanding our manufacturing capacity, including moving key assembly operations from Cincinnati to Austin. We continue to expect to complete the remaining early adopter units, approximately 10 KARNO cores in total, this year. We expect our first customer site deployment to begin over the next quarter with multiple units going to that initial site. We are planning a data center deployment to follow, and the balance of units are Navy assets, including the 800 kilowatt system for the USV Defiant autonomous Navy ship. We also recently announced the successful operation of multiple KARNO Power Modules functioning together as a single scalable power unit.

This matters for customers who will run more than one system at a site, and it completes another of the 2026 milestones we set out at the start of this year. We also continue to make progress towards our 200 kilowatt target and expect to reach that power level by year-end. We are testing improvements across several components with our primary focus on continuing to iterate the design of the regenerator, which we believe is the remaining key enabler to achieve full power. Shifting to customers, our two largest segments of opportunities are data centers and the military, in that order. Data centers represent our largest area of customer interest, driven by AI-related power demands and the sheer size of the market. Over time, we expect a significant portion of our production capacity to be directed towards this segment.

We have quantified part of that interest through non-binding LOIs representing approximately 750 KARNO cores, which are subject to the execution of definitive purchase agreements. Most of the interest we are hearing from customers is not yet reflected in LOIs or purchase contracts. While we have not announced new data center LOIs since our last update, we are engaged with a growing number of companies discussing interest in deployments ranging from tens to hundreds of megawatts. We are seeing three buckets of data center projects, low tens of megawatts, around 100 megawatts, and gigawatt scale. For the small and medium sites, our discussions center on the KARNO Power Module as the primary power solution given its efficiency, scalability, and compact footprint.

For gigawatt scale builds, a combined-cycle gas turbine will likely provide base load power, and we are being considered to handle 10%-20% of the overall need, specifically to handle transient loads. Across all three, there is a strong interest in our system's native 800 volt DC capability, which is the architecture data centers are moving towards. On the military side, interest spans autonomous vessels, base power, and forward operating installations driven by mobility, fuel flexibility, and low maintenance requirements. These opportunities include both R&D programs like our current Navy work, and over time, deliveries of production systems. Turning to 2027 deployments, we will focus on military deliveries against contracts we already hold, which generates near-term revenue.

For data center customers, we plan to deploy 200 kilowatt power modules at their AI test facilities so they can experience the technology firsthand, which we believe is the fastest path to larger volume orders of our multi-megawatt system that we plan to have initially ready in 2028. These early deployments may be structured as outright sales, loaned units, or power purchase agreements. With this sequencing, we believe it will enable greater revenue in the near term. It will move commercialization of the 200 kilowatt power module into 2027, but we believe it allows us to start deploying units sooner in the data center space and to build a substantially larger long-term customer pipeline. Now switching to scaling and manufacturing. As we discussed previously, one of the key milestones we set for 2026 was to work on improving the speed and throughput of the additive manufacturing process.