Hyzon Motors Inc (HYZN) 2022 Q1 法說會逐字稿

Good morning, and welcome to the Hyzon Motors First Quarter 2022 Conference Call. As a reminder, today's call is being recorded. (Operator Instructions) At this time, for opening remarks and introduction, I would like to turn the call over to Darla Rivera from Investor Relations, Manager at Hyzon. Please go ahead, Darla.

Good morning, and welcome to Hyzon's First Quarter 2022 Earnings Call. I'm Darla Rivera, Senior Manager of Investor Relations. On today's call are Craig Knight, our Chief Executive Officer; Sam Chong, our Chief Financial Officer; accompanied by Mark Gordon, Senior Adviser and former Hyzon CFO.

Hyzon issued our results today in a press release and presentation that can be found on our website, hyzonmotors.com in the Investors section. As a reminder, our comments within this call may contain forward-looking statements which may include expectations and assumptions regarding the company's future operations and financial performance, including the impact of supply chain disruptions and global uncertainty and our customers' performance under product orders and existing and future contracts and are subject to various risks and uncertainties.

For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to our filings with the SEC, including the press release issued this morning, which was furnished on Form 8-K with the SEC. Except required as by law, we assume no responsibility for updating forward-looking statements.

During this call, we also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. More detailed information about these measures and a reconciliation to the nearest U.S. GAAP measure is contained in the press release issued this morning, which is available on the Investors section of our website and was furnished on Form 8-K with the SEC.

And with that, I'm pleased to turn the call over to Craig Knight, Chief Executive Officer of Hyzon.

Thanks, Darla, and thank you to everyone for joining us this morning. Hyzon unlocks the potential of hydrogen through our proprietary fuel cell technology that positions us to win in the heavy mobility sector. With a first-mover advantage and a global footprint to support the ever-increasing mandate to decarbonize, Hyzon enables fleet operators to decouple from diesel.

I'm thrilled about the progress we're making and the significant achievement of building our first heavy-duty fuel cells for testing and validation at our Bolingbrook Innovation Center, utilizing our state-of-the-art membrane electrode assembly, or MEA, line ahead of our recently communicated schedule. This is a very important milestone in becoming the leading supplier of high-powered PEM fuel cells here in North America, and we expect to enter serious production this year.

Hyzon's vertical integration in this key zero-emission technology to replace fossil fuel engines opens up many opportunities in heavy vehicles and beyond as humanity seeks to decarbonize our activities. During the first quarter, we delivered fuel cell systems to ZeroAvia for aviation and to another confidential customer, both of which expand the total addressable market for our core fuel cell technology. In Europe, we deployed the first hydrogen-powered refuse collection truck in the United Kingdom and received the first commercial order for heavy-duty FCEVs in Sweden.

Additionally, we received a second order for 5 trucks from Hylane GmBH, a special-purpose subsidiary of major German motor vehicle insurer, DEVK Versicherung which is in addition to the order for 18 trucks announced a few weeks ago. Hylane has an exclusive focus on climate-friendly transport solutions and have already confirmed rental contracts for Hyzon vehicles with prominent transport companies. Having a strong partner like Hylane in the German market has the opportunity to fill significant long-term growth for Hyzon.

Moving to Asia, we recently won a contract to supply fuel cell municipal trucks to Hanjie Urban Environmental Management Co. in the city of Foshan, a UN hydrogen demonstration city. Last year, we signed an MOU with Foshan Dump Truck Association to deploy a significant number of dump trucks in the next 5 years, which commenced with the ongoing 8 truck trial, and more trucks are expected to deploy by end of this year.

These vehicles are expected to be leased at TCO parity to customers, TCO parity with diesel. Our commercialization model is advancing well in China, driven by the rising fossil fuel prices and increasing restrictions on diesel commercial vehicles for inner city use.

Now I'd like to give an update on our first North American trial at CTSI. It was incredible to see the blue Hyzon truck quest the Vincent Thomas Bridge at the Port of Long Beach with a full cargo load. Our truck is usually able to drive up the bridge with a trailer at speeds close to twice the diesel trucks, true highlight on our journey so far. The Class 8 fuel cell truck operated multiple full driver ships each day, hauling cargo from the Port of Long Beach to local customers or delivery points, replicating the performance and availability of diesel trucks. However, our trucks have significant advantages, which is highlighted in a recent CBS clip on our website, including footage from inside the cab, if you want to check that out. The driver feedback was incredible.

Naturally, we have learned a few things, and that's why early customer trials are so important. Overall, I'm pleased with the performance of our first trial plant in the U.S. and look forward to announcing our next U.S. trials in the coming days. Just a reminder that we aim to have 10 to 15 Hyzon fuel cell demonstration vehicles deployed to major fleet trial customers by the end of this year. Stay tuned for details as they emerge.

As a first mover in the industry, we are pioneering on both the technology side and the business model side. With those hydrogen vehicle fleets operating in the real world, we are able to collect large amounts of data on rapid technology development, establishing sustainable TCO parity business models and capturing derivative business opportunities in the hydrogen ecosystem, such as hydrogen sales and vehicle service and parts revenue. With sufficient data and proven business cases, we are pursuing lease financing options to support our long-term growth with recurring revenues.

Our work continues in accelerating the adoption of hydrogen by supporting the build-out of low-cost, low carbon intensity hydrogen production and dispensing infrastructure, where we will capture value across the ecosystem. There are multiple attractive future use cases for hydrogen, and Hyzon is well positioned to facilitate those with our early mover status on trucks and our strong core technology position enabling other fuel cell applications. One good example of this is their first sale to ZeroAvia.

We are enjoying significant traction in China, Europe and Australasia, and momentum is building in North America. Hyzon has laid the foundation to create viable zero-emission ecosystems based on affordable hydrogen. We use the best local feedstock and resources to do so.

California proves to be making great strides towards decarbonization. We are currently working with multiple partners in the site selection process for hydrogen hubs across California, located near accelerating customer demand. Additionally, we are working with partners on the first locations for hydrogen hubs in several countries in Europe, and we recently announced our plans to make and dispense green hydrogen at our facility in Melbourne, Australia, working with major motor insurance and renewable energy partner, RACV.

As we previously laid out, our 2022 truck deliveries are weighted towards the back half of the year. We are yet to understand the full impact of the most recent COVID lockdowns in China. However, we continue to monitor the situation. We are working alongside our customers to meet their needs. We have identified new ways to mitigate supply constraints and look forward to bringing our customer-led solution to convert customers' existing fleets to clean trucks with our fuel cell technology and integration capabilities. This is a fantastic option for fleet owners as it allows them to decarbonize without the long lead times of new chassis, which is now typically over, well for 16 months to acquire and enables rapid fleet adoption and lower cost of acquisition versus a new base strategy to achieve zero emissions. We look forward to launching this at the Advanced Clean Technology Expo next week.

When we set out on this journey to accelerate the rate at which heavy-duty trucking can decouple from diesel, we were confident then, and we are much more confident now, that hydrogen is the long-term solution for the energy transition and that 10 fuel cells are fundamentally the future of engine replacement. Hyzon has the solution today with our proprietary fuel cell technology.

With that, I'd like to turn the call over to Mark Gordon, who will cover some macro factors impacting the global (inaudible) and how Hyzon is positioned in the energy transition.

Thanks, Craig, and thanks again to everyone listening. I am now going to expand upon some of the macro comments I made on last quarter's call. What is clearly needed is a well-thought-out marshal plan to provide security of energy supply and to decarbonize the vehicle fleet. Governments need to understand that a rapid transition to the hydrogen economy is the principal solution for both issues, and we are now beginning to see just that.

As the unprovoked war in Ukraine has made clear, security of energy supply is paramount. The war has put both the global oil supply and, in particular, the European electricity supply at risk. This is the new reality and the consequences to this reality will echo for years to come. With this backdrop, the hydrogen economy is now advancing in a faster, more targeted and more consequential way. The electrical grid is even more unreliable than oil and reliance on both should be mitigated as soon as possible. European power prices are clearly signaling that a transition to battery electric is, to put it plainly, socially too risky.

Here in America, the energy transition is most advanced in California, which is the state with arguably the most significant challenges with the electricity grid. In Asia, coal has now begun to expand as a feedstock for electricity. Almost nowhere does it make sense for a full transition to BEV because that would put further strain on an unreliable grid or potentially add carbon to the atmosphere by increasing the use of dirty electricity. The transition to battery electric is being advanced because first-mover incumbency is effective until it isn't. An alternative green future has been difficult to imagine, but now the path forward is becoming clear: Hydrogen is the most abundant element in the universe and can be made in any region on earth. While our trucks are indifferent to the source or color of hydrogen, as the world races to embrace green, we celebrate that choice. Our waste to hydrogen solution can be built locally, anywhere in the world and independent of the grid. We believe waste to hydrogen will become, on average, the cheapest source of green hydrogen while simultaneously addressing one of the world's great environmental problems.

Unknown to most, the emissions profile of landfills are overwhelmingly methane based. According to the EPA, Methane is more than 25x as potent as carbon dioxide at trapping heat in the atmosphere. Waste to hydrogen solutions will eliminate destructive methane emissions while providing invaluable feedstock for hydrogen production. Furthermore, waste is everywhere, and accessibility to it is universal.

In America, not only will hydrogen be produced locally, but so will our fuel cells. Our Bolingbrook facility has already produced the first American-made fuel cell stacks with American-made MEA. American-made hydrogen with American-made fuel cells is the path to energy independence. Over time, we plan to roll out manufacturing facilities in other continents, creating energy independent ecosystems all over the world. The United States have spent several decades enjoying relative energy independence, thanks to the shale revolution. A large-scale shift towards BEV would undermine that achievement with over 85% of batteries manufactured in Asia today. Furthermore, the supply chain for the inputs to battery are even more problematic from a security supply perspective.

Beryllium, cobalt, nickel or lithium are produced in the United States. While lithium-ion phosphate batteries avoid cobalt and nickel, they are less energy dense in ways substantially more. Important advances in the total cost of ownership for fuel cell electric vehicle solutions are rapidly eliminating legacy advantages that incumbent battery solutions enjoy. Ultimately, the fuel cell will be cheaper than the battery electric solution.

According to industry estimates for Class A fuel cell vehicles a 160-kilowatt fuel cell, 110-kilowatt per hour battery pack and hydrogen storage together cost approximately 30% to 50% lower in the 750-kilowatt hour battery pack used for a Class A bed of truck with a similar range in payload. The rest of the materials are essentially the same, so at manufacturing scale, the hydrogen vehicle will be cheaper.

Furthermore, the BEV system weighs 5 to 6x more than our system. As we discussed on the last call, Hydrogen has a distinct infrastructure advantage when it comes to commercial vehicles with BEV needing to build 6 to 12x the refueling infrastructure along with a substantial expansion of the grid. Moreover, the marginal cost of hydrogen is dropping while the marginal cost of electricity and oil are increasing. While BEVs do have a substantial efficiency advantage over fuel cells, this advantage does not take into account the cost of electricity. Waste to hydrogen will be able to produce hydrogen and costs that offset the BEV efficiency advantage. On a TCO basis, at manufacturing scale, hydrogen will be the clear winner for large commercial vehicles.

Today, battery electric makes more sense than fuel cell electric for passenger cars. The BEV advantage comes from the minimal infrastructure needed and the lack of a competing hydrogen infrastructure. This BEV advantage does not exist for commercial vehicles. A significant charging of refueling infrastructure must be built. When the hydrogen infrastructure is ultimately built, BEV will lose its advantage even for passenger cars. Both the BEV and a fuel cell electric vehicle benefit from an electric drivetrain, so both have excellent acceleration, a silent ride and no vibrations. A BEV passenger car will be heavier because of the weight of the battery, so it will have slower acceleration than a fuel cell electric vehicle.

While BEVs have the potential advantage of charging at home, the fuel cell electric vehicles have very fast fueling times in longer range. Once the hydrogen infrastructure is built, fuel cell passenger cars will become a compelling alternative. At that point, Hyzon will be in a position to supply fuel cells to OEM manufacturers.

A battery future is not a green future. The end-of-life disposal of batteries creates a whole host of widely documented problems. Moreover, the carbon intensity of the battery electric vehicle depends on the carbon intensity of the grid. According to BCG, the lifetime carbon intensity of a BEV vehicle is greater than an ICE vehicle and the regimes were call is the dominant part of the electricity grid. For example, in China, India and Germany, BEVs are more carbon-intensive than ICE vehicles on a full life cycle basis.

While this is not true in countries like Norway or France -- on a sales-weighted basis, their vehicles as a whole increased carbon emissions given China's large market share. Now that coal has started to grow again in many jurisdictions around the world, a transition to a BEV future needs to be questioned. At Hyzon, we intend to be the leader in the energy transition. Our waste-to-hydrogen solution enables green hydrogen to be produced locally at competitive prices. As Craig alluded in his remarks, we will be offering a solution to refurbish current, on-the-road diesel fleets into fuel cell fleets. Our partner, Fontaine modification will be assisting in this endeavor.

Most importantly, refurbishing current fleets enables a substantially faster energy transition. It also alleviates supply chain issues with the chassis and it expands our TAM. We will be officially announcing our program next week at ACT, and we will provide much greater detail about the benefits for Hyzon and the world at our Analyst Day in early June.

While the world is now expanding coal generation to create energy security, Hyzon is offering a truly revolutionary vision. As those who have covered the company know, the CFO role for me was interim, and I remained in the position much longer than expected. This enabled us to interview dozens of candidates until we found the perfect fit. Sam brings to the company a wealth of experience, a deep appreciation of finance and a great understanding of the energy transition. His background in the battery space, in particular, makes him very aware of the pitfalls of that path. I am very proud of the team Hyzon has assembled, and I am proud to be associated with such a revolutionary company.

With that, I pass the mantle to our new CFO, Sam Chong.

Thank you very much, Mark, and thank you to everyone who is on the call today. It is a pleasure to join Hyzon as Chief Financial Officer, and I look forward to building relationships with our customers, shareholders and analysts, and as we gain momentum in the global energy transition. We announced a significant strategic step to increase the stake in our Hyzon Motors Europe joint venture from 50.5% and to 75%. Investing in Hyzon at today's market valuation is particularly compelling.

Our European ownership increase positions us well to meet increasing demand with investments in hydrogen infrastructure accelerate to meet e-carbonization goals and embeds the energy transition. We are focused and committed on capturing the European demand for zero emissions.

As Craig and Mark have already mentioned, the increase in global awareness, demand and efficacy of hydrogen technology can be seen in each of our distinctive markets. We are continuing to see growth in our backlog, and we'll continue to provide periodic updates. In addition, we are also actively working on expanding our total addressable market by being agile and setting new technological standards and accelerating paths to markets. The aforementioned customer-led solution was a great example of a nimble market disruptor that is able to formulate solutions with potential customers whose demand for hydrogen fuel cell trucks continues to grow despite macro supply chain constraints.

Turning to the financials. I will discuss our first quarter 2022 results. We finished the quarter with $407 million in cash and cash equivalents on the balance sheet. We are focused on cash management which actively balances growth, investments and expenses as we accelerate our R&D, production capabilities and hydrogen infrastructure. We remain on plan with the cash forecast laid out when the company went public.

First quarter revenues were $356,000 in the sale of fuel cell systems. Total operating expenses for the quarter were $27.1 million, which were comprised mainly of: $6.2 million in research and development costs; and $20.5 million of selling, general and administrative costs. Within SG&A were expenses totaling $4.8 million related to stock-based compensation expense, legal fees incurred in connection with the short seller report.

Other income and expenses included noncash gains from a change in fair value from an earn-out liability of $3.2 million and private placement warrant liability of $1.5 million. In addition, we recognized a noncash gain of $12.5 million due to a fair value change in equity securities related to our Raven investments. For the first quarter, we recorded a net loss attributable to Hyzon of $8.5 million.

Hyzon also reported a negative EBITDA of $9.6 million. Adjusted EBITDA for the quarter was negative $22 million. After backing out the onetime charges as well as noncash items primarily related to the change in fair value of the earnout liability, equity securities, private placement warrant liabilities as well as stock-based compensation and legal fees incurred in connection with the short seller report. For Hyzon's 2022 business outlook, we are actively monitoring impacts due to the Shanghai COVID lockdown, geopolitical uncertainties, disrupting supply chains globally. We will provide an update in the second half of the year as we gain more visibility as it relates to deliveries.

And with that, I would like to turn the call back to Craig for closing remarks.

Thanks, Mark, and thanks, Sam. Hyzon continues to execute to plan, laying a solid foundation for the creation of long-term shareholder value. We are laser focused on our role as a key player in building out a hydrogen economy through e-mobility. Thank you all again for your time and attention. And with that, let's open up the call for questions.

(Operator Instructions) Our first question comes from Rob Wertheimer from Melius Research.

Thanks for the overview. A question just on the outlook. I mean, you referenced it a couple of times at the end. Did you not reiterate backlog or delivery guidance because of Shanghai and you're just not sure if you'd be able to produce? Is it perhaps a change in focus and messaging on what you want to emphasize quarter-to-quarter? Is it -- is it availability of chassis and so forth? Maybe just talk through your messaging there.

So, I'll take that one. So we provided guidance in the Q4 call and expecting to deliver 300 to 400 vehicles globally in 2022. As you know, we don't specifically break out by region, but we do expect the deliveries to be weighted towards China.

China is a very important market to in. The adoption of hydrogen there is much further ahead than most countries. And while margins there are so glamorous, the deployment of our trucks in many real-world settings provides really, really useful operating data, and that enables us to continue to improve our technology and our vehicles. And that type of experience is invaluable for proponents of any new technology.

So we do see from '22 into '23 being less dependent on deliveries to China, so a growing uptake in Europe and Australia, in particular, and the U.S. gathering stems from there. So none of that has really changed both.

Certainly, at the moment, the market's been disrupted by all sorts of things from supply chain challenges to the war in Ukraine to unexpected additional lockdowns on COVID in China. We do still expect to have substantial deliveries in China in the second half of the year, and will show an increasing ramp of deliveries in Europe from next quarter. We do hope that our shareholders are committed to this energy transition journey with us. It's not something that happens overnight, as we all know. But as we said in the prepared remarks, we do believe we're laying the foundations, the very important groundwork, for the future success, and we will grow according to the uptake of the decarbonized solutions in the market.

And it's definitely -- we're definitely not happy with not being able to recognize revenue for vehicles for Q1, but we certainly are very proud to have put vehicles on the road for validation testing in several countries, proud to have recorded sales into non-vehicle applications that grow our plan. And I'm Very happy to have homologated coaches -- coach buses in Australia to Australian standards.

Very happy to have seen our Q4 shipment of our F truck into the U.K. going to service in Q1. There's a lot of good things happening. Obviously, disappointing that the revenue number for this quarter wasn't glamorous, but the actions are being taken and the progress has been made.

Let me just add, Rob -- you asked specifically about backlog, and backlog is up. Nothing has fallen to the backlog. And obviously, this morning, we announced more orders.

Perfect. Okay, that's helpful. And then just in general, Craig, could you update on how -- I don't know, marketing and sales are going? You mentioned the test peaks, which should be exciting to hear from next week. And then just your general -- as you start producing fuel cells in North America, what that opens up for your ability to do test fleets or to accelerate the sales process or to help customers evaluate? And the same question in Europe, just how your marketing efforts are going and how the order book is built mechanically with how you approach it?

Sure. So as Mark just mentioned, the backlog is growing. Sales agreements are -- the list of sales agreements is growing. And the list of trial agreements for the U.S. market is also growing, which is feeding sales. Obviously, we are a little later on the curve in the U.S. But I think Europe is a very good indicator of what we can expect to see in the next 1 to 2 years in North America also.

The decarbonization mandate in Europe is gathering steam in a phenomenal fashion. And we see, for example, the rebate program in Germany as an incredible enabler of increase in sales. So you will hear us talk more about our activities in Europe and anybody that can make it to the Analyst Day in June, in [Birmingham] with Will, get to see some of that up close.

It's always a different feel to get to see the fuel cell trucks being assembled and you get to drive a fuel cell truck, that's always exciting. But very importantly, that mandate in Europe is gathering steam in a major way. Hyzon is definitely in the box seat to capture some of this growing demand. It's why we're increasing our commitment to Europe. It's why we increased our equity holding in our European JV, and we will continue to invest in the capability to capture that, that upswing in Europe.

Now you mentioned about starting up the fuel cell line in the U.S. This is important for several reasons: the first being certainty and security of supply of the fuel cells themselves. We don't expect to see any challenges making and delivering our own fuel cells within our own facility here in the Chicago area. It gives us great capability to make fuel cells to meet.

The second thing is it improves our cost structure compared to buying the fuel cells from the horizon. So it's definitely a positive for us.

And third thing about that is that it does give us a little more leeway. You kind of alluded to what other opportunities might open up because we're making the fuel cells here in the U.S. Obviously, some of those other applications outside the trucks, are also dedicated to, if we have the ability, to build, engineer and innovate the fuel cells and the systems right here in the U.S. market.

So we feel very, very happy about the way the market is developing. And it's just simply a slow process to get out of the blocks, but we're very happy with the way the market is developing. And order momentum is building very nicely in Europe, and we'll share more, as I said, in June at the Analyst Day. But certainly, we see fantastic opportunities in many countries in Europe.

Our next question comes from Mike Shlisky from D.A. Davidson.

I guess, first, I wanted to discuss your increase in your stake in the European JV. I was wondering why like why you did that? I guess do you have a contractual right to do it when the price is at a certain level? Or do the other probably want to stop being involved in such a large way? Just some more color on how that came to be.

Mike, yes, we increased the stake from 50.5% to 75%. It is compelling to invest in our own business at the valuations we have at the moment. Hyzon is definitely looking to aggressively grow the business in Europe, and we have more capability to fund that than our joint venture partners. So we went into a good faith negotiation to talk about how we can increase our commitment to Europe and from the European operations but capture more of the upside.

And so it's a fair outcome for both parties there. The local partners definitely stayed and invested in the business. And the new structure, they benefit from the scaling up we can drive in that market, which, as I said, is gaining some phenomenal momentum, but also with the higher state that Hyzon now has. It justifies our increased commitment to the market by capturing a larger portion of the upside.

We do believe that, as I said before, the subsidy environment in Germany and other countries is providing a very compelling commercial proposition, and that's why you're seeing this increasing traction with, for example, Hylane and their clean vehicle solutions. And we're really looking forward to putting some more color around the European efforts in June at the Analyst Day. There are some other things in process we won't be talking about until then. But we definitely look forward to sharing more about what this increased commitment to Europe looks like going forward.

Thanks for that color. Speaking about just the -- on the sub-piece subject here in the U.S., there's some awfully large subsidies available in California for the HP program. I was wondering if you could share whether your plan to work with (inaudible) on the repower initiative, could that allow you to capture any of the HF subsidies in this year's pool of cash?

Yes. So a couple of things there. Obviously, we're seeing an increased level of interest from the government authorities here in the U.S. Just in the last couple of days, I had the opportunity to meet with Secretary Buttigieg. We were talking about the potential for zero emissions mobility and what industry needs for us to be able to drive that transition.

And you asked about the California situation with the HP. We've been in some pretty continual dialogue with CARB of late, and we believe that we will imminently get the approval for our heavy-duty fuel cell trucks. We believe we may be the first Class A fuel cell trucks going into series production with a card certification. So let's see -- let's see how quickly that can come to bear.

The HP provides incentive for either new vehicles or upfitted vehicles. So there are some differences in the way that it works. But definitely, our customers will enjoy HP actually vouchers, HP vouchers, for any of the on vehicles we are assembling or contemplated.

Our next question comes from Bill Peterson from JPMorgan.

This is Bill Peterson from JPMorgan. I'd like to ask first about PTSI. Just basically, if you can share some more detail on how the feedback has been? Things like reliability and uptime thus far? And maybe more importantly, what are the next steps? What can this lead to over the next months and quarters and so forth?

Thank you, Bill. So most people will be aware that TTSI has been an early adopter of alternative fuel vehicles and zero emission vehicles over recent years, and they are a great partner with whom to validate your offering.

So we recently finished our 6-week trial there at TTSI. We've had strong positive feedback from Tony Williamson and the drivers and his team. And the next steps are that obviously, like other customers, TTSI, our team, to understand the economics and time lines to use more of these trucks. I mean I think it's no secret that in California, there is a lot of support for decarbonizing freights, which is very -- uses a lot of trucks and very much a high priority for CARB in improving air quality around the ports, in the disadvantaged communities nearby the ports, et cetera. So there's a huge amount of support for this.

Now the advantage of the fuel cell trucks in the daily operation is that you can do 2 full driver shifts a day, for example, without being challenged by operating range or charge times because the trucks function very much like the diesel trucks, availability is the same. Build time's very, very similar. We definitely had strong feedback on the performance of the truck and the driver acceptance for the trucks.

And on our website, you can see a clip, a recent clip that was recorded by CBS -- posted by CBS through some of their affiliated networks. And there's footage from inside the cab that the driver was talking about the truck and just the fact that you're sitting in the truck, having a casual conversation while following a container is an indication of the comfort and quiet environment of that car compared to a diesel truck.

So there's absolutely no question that driver acceptance and customer acceptance is very high once the structure is in customer hands. So we are not at all worried about that customer acceptance and the subsequent demand side.

The challenges for us, and a lot of people try to work on these kind of solutions is really managing all of the moving parts around supply chains, assembly processes, qualifications, homologations, all of these sorts of things. But those are all -- they are all things that are manageable. And once we get to kind of steady state around assembly and supply, we're very, very confident that we'll see extremely strong uptick.

Okay, thanks for the color there. In light of the supply constrained environment, which is obviously pretty well understood. You're showing the ability to pivot and look this refurbished opportunity, sales or third parties. I know you're going to deal more about the retrofit opportunity.

But I guess when could this start? Presumably, you've had discussions already fast discussion with fleets. And so probably, I'm guessing the feedback is positive. And I guess on the third-party sales or third part -- sales of fuel cells to third parties, you mentioned aviation not, not sure what the second application is for the second customer. This was in the past not being a primary focus. But it might have despite -- again, like makes sense to explore this.

But trying to understand, again, the timing of these opportunities and what this can do for expanding your market opportunities are, again, especially with this constrained environment we have here.

Yes. Thanks, Bill. Obviously, everyone needs to be able to build their models, and we understand the challenge of needing to feed the model this data.

Coming back to your comments around overcoming supply chain challenges. Naturally, we're all dealing with challenges, and our job as a management team is to overcome them. So we have to find the way that we can most appropriately and wisely use our precious shareholder funds to develop and grow our business. So we are indeed focusing in areas where we can control our own destiny a little more, the supply chains on new chassis are horrible and some of the other passing clients that go into that have been horrible.

You mentioned that the sales of fuel cell powertrains, if you want to call them that, was not kind of a primary focus for us earlier, and that's absolutely right. But we have always highlighted the 3 different commercial models under which Hyzon expects to grow. The first being the supply of Hyzon-branded trucks on a kind of straight sales basis. The second being have more holistic provision of mobility as a service, even including hydrogen fuel in some cases. And we've talked quite substantially about our work ground hydrogen ecosystems. And Michael was talking about our waste to hydrogen efforts on that front.

And then the third model has always been fuel cell powertrain supply into various applications. And yes, it is a good way to increase our TAM. We don't want to take our eye off the ball with the focus on heavy-duty trucks, but it is compelling when we have such strong fuel cell technology that customers in different verticals want to use our fuel cell technology.

So we will continue to facilitate moves into a few of those different areas. Aviation is a very interesting future market. We don't believe -- that's your question on timing. We don't believe that results in the sale of thousands of fuel cells next year. It takes a long time to qualify and validate aerospace applications. But some of the other applications can, in fact, come to market a little quicker.

Now we've not revealed the second application for the fuel cell, but we will over time. And there are additional verticals that we will enter with fuel cells, and we'll announce as they come too late in the coming 3 to 6 months, there's a couple more on the boil.

So it's very difficult for me to help you fill in your model because the timing of some of these things is a little unpredictable. I will say aviation takes longer than most. Some of the other applications will in fact be validated over a shorter time frame, 6 to 12 months, 12 to 18 months, that kind of thing.

And as for the refurbishment of existing trucks in fleet, I should comment one more on that. We will add color to that next week at the Ad Expo. Hopefully, you'll be down there to visit us, Bill, and we'll actually be talking about that program, and you'll see some extra color around that in terms of timing next week when we make that announcement.

Our next question is from Jerry Revich from Goldman Sachs.

Craig, I'm wondering if you could just talk about the expectations for the supply base to ramp for you folks in North America and Europe within the context of the delivery expectations that you've laid out for the company this year? Just wondering if you could just expand on how the supply chain is tracking for you folks, including from machinery that you're adding for fuel cells.

Sure. Thanks, Jerry. So there's a couple of different elements there. You mentioned about North America versus Europe and you mentioned in terms of supply base for the fuel cell component of our assembly needs as well as the broader supply chain, if I characterize that correctly. Yes. That's right, Jerry?

That's exactly right, Craig.

Okay. Thanks, Jerry. So we definitely had some major challenges in Europe in 2021. And we were hoping to have made more deliveries by the end of the year. and into the beginning of the year than we were able to do because we just sold get our hands on the chassis and parts of the motor we needed for those deliveries.

Thankfully, Q1 has seen a lot of deliveries coming to bear. So we are -- we will now start to see this ramping up of deliveries in Europe because we have on hand in Europe, fuel cells, electric motors, chassis and so on, so that we can show this steady progress from next -- from second quarter in European deliveries.

We don't want to provide too much breakdown on quarterly guidance by country and all this sort of stuff, because things are still a little unpredictable. And frankly, the market is still in a very early stage, so it tends to be lumpy for now.

Now as I said before, we're definitely not concerned about the demand side. So we are able to move as quickly as we're having to assemble that. So I do want to mention that this commissioning of our MEA line and the start-up of fuel cell build in North America does help the company greatly. As I said before, it helps us in terms of supply, certainty and timing, and it also helps us in terms of cost structure.

So as we seek to find positive margins in our business in the not-too-distant future, having that in-house production of the fuel cells is super important. So it's not only about convenience, timing and so on, on the supply chain, Jerry, it also goes back to the viability at best. So we're very excited to have commission that -- in North America and started building fuel cells. This is really the core of our future viability. It's the core of the barrier to entry for others in the market, frankly.

So now back to North American supply chain, it has definitely been nearly possible to buy new chassis. I think a lot of articles are aware that there's typically kind of 12- to 16-month lead times on chassis. And it is not acceptable for us to -- just burdened by this lead time without taking remedial actions. So that's why we are working with customers on this customer-led solution of converting their fleets so that they don't need to wait and we don't need to wait.

So we will, as I said before, we'll put a bit more color around how we kicked that off at the Ad Expo next week And that will include getting into some of these refurbishment activities here in the coming couple of quarters. So you won't see a big delay there for us to get started. It's not like we need to think long and hard about it. The customers are ready, and we are ready to pursue that.

So I hope that helps put some color around it. We're definitely ready to start ramping production in Europe. We'll show that in June at the Analyst Day, and we're definitely ready to be building and refitting trucks in North America.

Okay. Super. And Craig, just in terms of the cadence, so you spoke about back-half-weighted deliveries this year on last quarter's earnings call. Any updated thoughts on what 2Q and 3Q look like versus 4Q? In other words, how heavy of a 4Q do you expect within that guidance compared to last year?

Yes. It keeps stepping up. So Q4 is definitely -- it still steps up into Q4. It's a progression upwards. The China deliveries are always weighted towards the end of the year, and that will be Q3 and Q4. But we do expect more Q4 delivery. So it steps up towards the end of the year.

Got it. And sorry if I missed it, what was the consideration paid for the joint venture ownership step up? And what's the timing?

Definitely, we've revealed the transaction cost on that, but we will when we file next quarter's numbers right, Sam?

That's correct.

And the second part of the question?

Just wondering in terms of the equity -- closing it was an equity stake or cash buyout.

It's a cash and equity combination closing early next quarter. And Sam, do you want to add any flavor to that?

No, I just think it's just overall, it is like we relied given where our valuation is, we feel that it's a compelling story for all shareholders involved. And it's a means that for us to be able to expand into Europe and take advantage of the opportunities in the market.

Okay. Super. And Craig, this is front center on Slide 15.

Was that the one with the -- Okay. Yes. Unfortunately, they told me I didn't need to wear a tie, but I was the only person there who had a tie actually.

The next question comes from Steven Fox from Fox Advisory.

Two questions, if I could. First of all, Craig, when you mentioned some of the uncertainties with the COVID lockdowns in China, are you referring to more supply chain issues or customers' ability to take previous orders in -- later on in the year?

And then secondly, in your prepared remarks, one of the first things you highlighted was your first mover advantage. I was wondering if maybe you could revisit that a little bit given some of the announcements we've seen out of traditional OEMs and start-ups, et cetera. Where do you think that's playing out the most?

Thank you, Steven. So the China issues, Horizon fuel cell is Shanghai based. So any of the work that's going on that is anything other than basic manufacturing it's definitely got some major constraints there at Shanghai. Now fortunately, Horizon has other facilities, and they have moved certain assembly activities to some other facilities that are not as constrained by this latest semi-lockdown in Chiba, for example.

But other companies are also Shanghai-based. And sometimes the manifestation of some of these things is not entirely obvious immediately. Now it is not affecting right now the activities with the Fosun UN Development -- Hydrogen Development City. That those activities are still happening, and the agreements are still being crafted and so on. And we don't see that this is in any way fatal, but we wanted to highlight that it's not inconsequential that there are these part shutdowns in Shanghai.

Obviously, again, bringing in-house and into the U.S. on domestic soil, the fuel cell production side will relieve us of some -- of any concern over that sort of stuff in the future.

And on the second question around being an early mover and the advantages from that, we believe that they are multifaceted, being an early mover and gathering a very important operating data boxed in real-world settings is irreplaceable in validating and improving any new technology. So the real-world truck deployments are of immense value. And the other thing is that we -- while we are bringing to market, in the very near term, 250-kilowatt stacks that are designed to power Class 8 trucks in almost any application, we don't see other companies with that kind of capability as yet. And as hydrogen is adopted at scale in heavy trucks, there will need to be these types of solutions. This type of a high-powered, single stack design solution for these heavy trucks. So far, Hyzon is the only one doing that.

So we believe that as hydrogen becomes de rigeur for heavier vehicles, that our core fuel cell technology will be of the normal value for those reasons. We feel that this technology enables us to play this pivotal with the adoption of PEM fuel cell technology in various engine replacement applications.

How are we on time, Darla? Are we still -- I know we've got 1 or 2 questions.

1 question.

We might hang in for a little longer if that's all right, with people on the call.

Our last question comes from Noel Parks from Tuohy Brothers.

I appreciate your discussion upfront about sort of a granular way some of the disadvantages challenges of battery EVs. And I was just wondering, is your emphasis on that, is that informed all by customers you see who are sort of trying to explore both working towards implementing Hyzon solution, but have also looked at EVs? I know we've talked in the past about some of those hurdles. But I just wondered if there's anything new or recent on the horizon that has sort of sharpened the debate, I suppose.

Look, for us, we tend not to engage in that debate very much. When we sit with customers, we rarely talk about battery versus fuel cell. Because back to your kind of the basis of your question there, whether or not some of this view around the hydrogen fuel cell solution being kind of the future proof zero emission versus battery electrification being kind of a stepping stone solution, that definitely has been informed by customer feedback all along. And there are just certain use cases that are a natural for hydrogen.

And that's where we focus. We don't focus in the areas where BEV has already got traction is a proven solution to work and the fleet operators are busy equipping there facilities with the relevant charging infrastructure and all the other stuff they need to do. That's not our area of focus. Our area of focus at Hyzon has always been heavier vehicles with very high daily uptimes, with factor-based operating characteristics. And this enables us to put vehicles into operation that get the customer to zero emissions right away but don't compromise the operating models from the diesel truck operating modes that they were accustomed to. So don't change the driver behaviors, don't change the routes, don't change the payloads, don't change any of that stuff. But that's always been the crux.

And by tapping the back-to-base models, the back to base truck utilization models first, we encourage the build-out of these hydrogen ecosystems where hydrogen is made approximate to truck usage and therefore, molecule demand, it makes that a highly viable fuel supply, highly viable total cost of ownership and it creates tipping points in the market.

And by creating those tipping points around local hydrogen ecosystems, and back to base tracking models, what we're doing is we're bringing low-cost fuel to market that can then be used to penetrate adjacent legal use cases, and can also act as the base kind of nodes in a future network of longer-haul trucking.

So it is totally consistent with the view we laid out a couple of years ago when we laid out the thesis around hydrogen. And I will say that our assertions around the importance of the future importance of hydrogen when we wind the clock back a couple of years, have been more than underscored by recent global events and by the increasing global mandate to decarbonize. And we believe that the next major proving point is having some of these hubs operating effectively and with strong economics for our customers.

Darla, I think we're about at the end? Thank you, everyone, for joining us, and we very much look forward to hosting many of you in the June Analyst Day in [Birmingham] in the Netherlands. And for now, we'll sign off, and we'll speak to you again soon.

This concludes today's call. Thank you for joining, and have a lovely day.