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DATE
Wednesday, Nov. 11, 2026
CALL PARTICIPANTS
- Chief Accounting Officer – Greg Standley
- Chief Executive – Thomas J. Healy
- Chief Financial Officer – Jon T. Panzer
TAKEAWAYS
- Revenue — $7.5 million, representing a significant increase from $759,000 in the prior-year quarter due to accelerated progress on military development contracts.
- Full-Year Revenue Guidance — $18 million, increased from the previous forecast of $15 million reflecting stronger-than-anticipated research and development services.
- New Military Contract Awards Target — $50 million, the high end of the company’s annual goal for 2026 across multiple branches.
- Total Contract Backlog — $53.5 million, consisting of $45.5 million in authorized funding and approximately $8 million in anticipated new awards.
- Net Loss — $11.1 million, an improvement from a net loss of $13.3 million in the third quarter of 2025.
- Operating Expenses — $13 million, down 15% year over year as internal spending shifted toward revenue-generating military work.
- Gross Profit — $552,000, representing a positive margin shift from a $47,000 gross loss in the prior-year period.
- Cash and Investments — $121.4 million, which management stated is sufficient to carry the company through the commercialization of its power module.
- Remaining Authorized Funding — $45.5 million, the majority of which is expected to be recognized as revenue over the next two years.
- Net Loss Per Share — $0.06, an improvement from a $0.08 loss per share in the third quarter of 2025.
- Core Power Output Target — 200 kilowatts, which management remains on track to achieve by the end of 2026.
- Current Printer Capacity — 15 megawatts of annual production throughput, assuming the implementation of planned speed and hardware enhancements.
- Austin Facility Capacity — 250 megawatts per year, representing the total production potential of the Texas site at full build-out.
- Manufacturing Investment Metric — $1.5 million in equipment, required to support one megawatt of annual production capacity.
- Unit Revenue Potential — $2.5 million to $3.0 million, expected per megawatt of annual capacity based on current pricing models.
- Q3 Capital Expenditures — $300,000, significantly lower than the $22 million spent in the first nine months of 2025.
- Letter of Intent Volume — 750 units, reflecting nonbinding interest from various commercial and military customers.
- Additional Navy Funding — $3 million, allocated during the quarter to support the development of an 800-kilowatt power module.
- New Navy Contract Award — $1 million, anticipated by year-end for evaluating KARNO technology for a new application.
- New Branch Contract Award — $7 million, expected this quarter from a new branch of the U.S. military.
- Employee Count — 113, focused on manufacturing engineering, quality, and program management.
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RISKS
- Healy stated, “we could start getting some very small cracking that allowed some of the gas to transfer from 1 cavity over to another,” describing a thermal fatigue issue identified in a printed reactor component during extended operation.
- Panzer indicated that market conditions for secured debt currently appeared unfavorable, leading the company to defer a previously planned $10 million to $15 million equipment financing transaction.
SUMMARY
Hyliion Holdings Corp. (HYLN -7.02%) reported a revenue increase to $7.5 million for the third quarter and raised its full-year 2026 revenue guidance to approximately $18 million. Management indicated that the company is transitioning from research and development services toward commercial deliveries of its KARNO power modules, with a primary focus on data centers and military applications. The company reached the high end of its military award target for the year, expecting approximately $50 million in total new contracts. Management reported that current cash reserves are sufficient to support operations through commercialization, despite electing to defer a planned equipment financing transaction due to unfavorable market terms. Strategic focus remains on consolidating additive manufacturing operations in Austin, Texas, to support a production ramp-up scheduled for 2027.
- Hyliion is pursuing a threefold increase in printer speeds through a combination of higher laser power, software parameter changes, and new hardware modifications.
- Management noted that the KARNO technology handles the transient peaks and valleys of AI data center power consumption more effectively than traditional turbine systems.
- The company is relocating six additive manufacturing machines from its Ohio facility to Austin, Texas, to consolidate manufacturing under one roof.
- Healy stated that the first commercial field deployment is expected to be completed in the coming weeks with equipment already being moved to the customer site.
- Delivery of the 800-kilowatt system for the U.S. Navy’s USX DEFIANCE autonomous ship is now planned for early 2027 to align with the Navy’s integration schedule.
- The KARNO module’s native 800-volt DC architecture was highlighted as a strategic match for the evolving requirements of AI infrastructure.
- Healy noted, “we have taken the mixer component… [and] have been able to already get that to about, like, a 2.5x speed improvement,” as an early proof point of manufacturing efficiency gains.
INDUSTRY GLOSSARY
- KARNO Power Module: A fuel-agnostic power generation platform developed by Hyliion.
- Additive Manufacturing: An industrial production technique, commonly known as 3D printing, used to create components from digital files.
- USX DEFIANCE: An autonomous vessel operated by the U.S. Navy for which Hyliion is providing modular power systems.
- Regenerator: A heat exchanger component in the KARNO system that recovers heat to improve thermal efficiency.
- DC Bus: A central connection path for power in a direct current system, aligning with data center and AI infrastructure requirements.
Full Conference Call Transcript
Operator: Hello everyone. Thank you for joining us and welcome to the Hyliion Holdings Third Quarter 2026 Earnings Conference Call. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Greg Standley. Chief accounting officer. Greg, please go ahead.
Greg Standley: Thank you, and good morning, everyone. Welcome to Hyliion Holdings Third Quarter 2026 Earnings Conference Call. Joining us today are Thomas J. Healy, Chief Executive and Jon T. 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 will turn the call over to Thomas.
Thomas J. Healy: Hello, and thank you for joining us for Hyliion’s third quarter 2026 Earnings Call. The third quarter was a very strong 1 for Hyliion. And once again, we have a lot to cover on today’s call. I will organize my remarks around 3 topics. Early adopter deliveries and system performance, our growing base of military contracts and customer demand, and the manufacturing throughput and capacity work that is positioning us for 2027. First, a few highlights. On the strength of a $7.5 million third quarter, we are once again raising our full year revenue outlook this time to $18 million.
That compares with prior forecast for 2026 of $10 million at the start of the year and $15 million last quarter. We are also nearing the signing of 2 additional military contracts that would bring our total new military awards for the year to approximately $50 million. At the high end of the range we set coming into the year. Those potential awards would be in addition to the $45.5 million of authorized funding remaining under our existing military, which we plan to execute against over the coming years.
During the quarter, we delivered another early adopter unit to the Navy, and are nearing deployment of our first commercial unit to a customer site in the coming weeks with some of the installation components having already been delivered to that site. Customer demand continues to grow across our target markets, and we are actively working to increase production throughput and expand capacity as we look ahead into 2027. I will walk through each of these areas, update you on our progress against the 2026 milestones we laid out at the start of the year, and then turn the call over to John for the financial results. Starting with our early adopter units.
During the quarter, we delivered another system to the Navy. That unit is now being used for extended duration runs to further out durability of the system while operating on diesel fuel. On the commercial side, we have started moving equipment to the site of our first commercial field deployment, and we expect to complete that deployment in the coming weeks. Additional early adopter units are in assembly today. 1 of those will go to a second commercial site and the balance are navy assets supporting the USX DEFIANCE autonomous ship.
We now expect to complete the 800-kilowatt system for the Navy ship early in the first quarter of 2027, which aligns with the Navy’s schedule for integrating it aboard the USX DEFIANCE before sea trials. Thus, we expect to complete delivery of all of the early adopter systems by the date of the fourth quarter earnings release in mid February. This progress drove third quarter revenue of $7.5 million supporting our increased full-year outlook of $18 million Shifting to the KARNO power module performance, continue to be pleased with the performance of the systems we have in operation and with the valuable learnings they are providing.
As with any new technology, we continue to identify opportunities for improvement The encouraging trend, though, is that those findings are becoming fewer in number and reflect the kind of experience that can only be gained through extended operation. For example, we identified a printed component that was susceptible to thermal fatigue following extended high power operation. We have temporarily reverted back to an earlier revision of that component we believe is not susceptible to this problem, which will keep systems moving forward. Meanwhile, we have completed a redesign of that part that we believe addresses the root cause.
That issue caused some delays in the schedule, but the first redesign components are now coming off the printers, and validation testing will soon commence. We are also making consistent progress on manufacturing quality. Each system built is becoming easier and more precise. And much of our current learnings is centered on the quality of incoming components and ensuring they consistently meet our specifications. On system power, we remain on track to achieve 200 kilowatts of 800-volt DC power production from the KARNO core by the end of this year. Over the past several quarters, we have implemented numerous improvements to increase system output.
1 of the remaining steps is further enhancements to the regenerator, the heat exchanger that retains heat within the system, throughout the power cycle. Our generator work earlier this year delivered a sizable power increase and we have since identified further opportunities to improve its internal mesh density. Those new parts are now being printed and we anticipate they will enable the 200 kilowatt rating by year end. Since we are talking about power output in more detail, it is worth noting how we measure power and efficiency. The 200-kilowatt figure is a standard a rating at sea level. A common reference condition for rating power generation equipment.
Just as with other technologies such as fuel cells, are measuring the amount of power and the efficiency the KARNO core provides to the DC bus. Components such as fans and blowers will consume a limited amount of this power and actual power output varies with customer configuration and ambient conditions and altitude. Rating to standard day conditions allows customers to compare the KARNO technology on an equal basis against alternative generation sources. Now shifting to our military contracts. In July, we announced a $41.7 million contract with the Navy to deliver 2 multi megawatt KARNO power modules. And we anticipate receiving 2 additional contracts before the end of the year.
The first is expected to be approximately $1 million with the US Navy to evaluate KARNO technology for a new application. The second is expected to be with a new branch of the military and is anticipated to be approximately $7 million. We are in the final stages of negotiating on each of these contracts, and we will make an announcement with additional details once contracts are executed. We also received confirmation this past quarter that we received an additional $3 million in funding under our existing Navy contract for development of the 800 kilowatt power module, that will be installed in the USX DEFIANCE early next year. This additional funding helps support the completion of that project.
Along with the $41.7 million contract we signed in July, these new awards would bring our military contracts for 2026, a total of approximately $50 million, which is at the high end of the $40 to $50 million range we set coming into the year. We have signed a number of contracts with the Navy over the past few years, let me give you a clearer snapshot of what that base means for our expected future revenue stream. Not counting the approximately $8 million in new contracts we expect to sign this quarter, We have existing contracts with $45.5 million of remaining authorized funding that we are executing on today.
To put that in perspective, that remaining authority alone is roughly 2.5x our full-year 2026 revenue outlook. We expect that the bulk of that work will be executed over the next couple of years. As we have discussed on earlier calls, we are also working to extend the pipeline of military opportunities into the future through the defense appropriations process, and we are actively seeking funding now in next year’s appropriations and contracting cycle. Finally, we see military opportunities ahead that go beyond the R&D work we perform today.
As the Carno power module is proven across the broad range of applications we are discussing with different branches of the armed forces, we expect those opportunities to shift increasingly toward deliveries of production power systems not just R&D services. Turning to customers, we continue to see growing demand for the KARNO power module, across both military and commercial markets. Alongside the military opportunities I just discussed, we continue to see strong interest from data centers, commercial and industrial facilities, and numerous prime power applications. Interest in our KARNO power modules among data center customers continues to increase. Despite growing concerns surrounding the rapid expansion of data center construction.
Some of our recent customers’ discussions have actually centered around our technology’s ability to address local concerns related to power generation and its environmental impact. Local power generation helps meet growing electricity needs while reducing strain on the grid. Low emissions and low noise levels address key considerations for customers and for the communities where they operate. And KARNO technology’s native 800-volt DC architecture aligns with the evolving power requirements of AI infrastructure. Offering opportunities to reduce costs and improve overall power system efficiency. Over the past quarter, we have had meaningful discussions with customers about scaling our manufacturing capabilities to support their demand including the printer investment required to do so.
These discussions build on the manufacturing investment framework we shared on our last call. As a reminder, we anticipate reaching a point where approximately $1.5 million invested in manufacturing equipment supports 1 megawatt of annual production capacity, which at our current pricing expectations represents approximately $2.5 to $3 million worth of annual revenue. We also see substantial opportunities beyond AI and data We believe military demand could support a significant portion of our future production capacity. Across commercial, industrial, and other prime power applications customers are seeking low cost, fuel flexible alternatives to the grid. This breath of interest is exactly why we are focused on increasing manufacturing throughput and expanding capacity brings me to our third topic.
Now switching to manufacturing. We are making good progress on the print speed enhancements we introduced during our August call. As a reminder, we believe these enhancements could increase speed throughputs by up to 3x. The improvements come from a combination of advancements, including taking advantage of higher laser power, software parameter changes that drive more efficient printing methods, and new hardware changes that have already begun in testing. These advancements are aided by the next generation machine agreement we signed earlier this year with Colibrium Additive, a GE aerospace company and the manufacturer of the printers we use at Hyliion. Through this collaboration, we are working together on the next generation of additive manufacturing systems.
As these improvements are validated, they feed directly into the capital efficiency framework I just described and into our planning for the restart of printer purchases next year. We are also consolidating our printer and manufacturing operations to our Texas facility. Moving about a half a dozen additive manufacturing machines from our Ohio facility to Texas to help gear up for the volume ramp up next year. We recently completed the move of our KARNO Core assembly to Austin which frees up space in Ohio for work on our multi megawatt systems. Ohio will remain an R&D facility and the location where we complete the initial work on our 800-kilowatt systems.
We continue to strengthen the Hyliion team and have recently filled several key leadership positions in program management, quality, and manufacturing engineering. These additions reflect our focus on building our capabilities needed to expand manufacturing and operation, improve production consistency, and support increasing delivery volumes next year. Before handing the call over to John, I want to highlight our progress against the 2026 milestones we laid out at the start of this year. We checked off another milestone this quarter by surpassing $10 million in revenue. We expect to complete our first commercial site deployment in the coming weeks and we continue to target 200-kilowatts of power output by year end.
By our next earnings call, we expect to have completed the 800 kilowatt Navy system and all of the remaining early adopter unit deliveries. We look forward to building on this progress as we close out the year. With that, I will turn the call over to John to walk through the financial results for the quarter.
Jon T. Panzer: Thank you, Thomas, and good morning, everyone. In the third quarter, we recorded revenue of $7.5 million from research and development services. This compares with revenue of $759,000 in the third quarter of 2025 and $4.9 million the second quarter of this year. Third quarter revenue came in well ahead of the outlook of just under $5 million provided last quarter, primarily reflecting accelerating progress on the 800 kilowatt power module for the Office of Naval Research and the availability of $3 million of additional funding for this work that we recently received from ONR on top of contract funds already allocated. Cost of revenues was $6.9 million resulting in gross profit of $552,000.
Operating expenses for the third quarter were $13 million down 15% compared with $15.3 million in the third quarter of 2025. The decrease primarily reflects a continued shift in spending away from research and development work toward revenue generating services for the Navy with the associated costs of that work reflected in cost of revenues. R and D spending in the quarter was down 14% to $8.7 million from $10.1 million a year ago. SG&A expenses were $4.3 million in the quarter, down approximately $900,000 or 17%, compared with the third quarter of 2025.
Our net loss for the third quarter was $11.1 million, a 17% improvement compared with a net loss of $13.3 million in the third quarter of 2025. Turning to our year to date results. Revenue for the first 9 months of 2026 was $15.2 million up significantly from $2.8 million in the first 9 months of 2025. Cost of revenues was $14.1 million, resulting in gross profit of $1.1 million compared with $96,000 in the same 9 month period of 2025. Operating expenses for the first 9 months were $42.1 million, down 17% compared with the same period of 2025, primarily reflecting the shift of spending from R&D to revenue generating services.
Our year to date net loss was $36.7 million, a 17% improvement compared with the $44 million net loss we recorded in the first 9 months of 2025. Turning to our cash and investment position, we spent $11 million during the third quarter, compared with $20.6 million in the third quarter of 2025. The decline in spending this year reflects primarily lower capital spending. Capital spending was approximately $300,000 in the third quarter and $2.4 million year to date. This compares with $22 million in the first 9 months of 2025, when we spent significantly more additive printing machines and related investments.
We finished the third quarter with $121.4 million of cash and short and long term investments on our balance sheet. Next, I would like to update our outlook for the remainder of the year. Our research and development services work with the Navy continued to ramp faster than we expected in the third quarter. Through the first 9 months of the year, we have recorded $15.2 million of revenue, which already exceeds the full year outlook we provided last quarter and is well above the approximately $10 million we projected at the start of the year. The fourth quarter should finish about as we expected back in August with another $3 million of revenue.
The decrease in revenue in the fourth quarter compared to what we saw in the 2 prior quarters is due to the wind down of work on the 800-kilowatt system for the Navy ahead of delivery of this system in the first quarter of 2027. As that work nears completion, we are ramping up work under the $41.7 million Navy contract we signed back in July, although most of the work under that contract is expected to be performed in 2027 and 2028. Consequently, we now expect total revenue for the year of approximately $18 million This compares with total revenue of $3.5 million in 2025.
We expect capital spending to remain low to finish the year as our focus continues to be on optimizing our existing printer fleet and increasing the speed and throughput of those machines. We continue to expect to finish the year with between $100 million and $120 million of cash and investments on our balance sheet, although we may be on the low end of that range as we no longer expect to close equipment financing transaction this year. We previously expected to borrow between $10 and $15 million with the loan secured by part of our fleet of assets, including additive printers and CNC machines.
At this time, the market for this kind of secured debt does not look favorable to us, but we continue to see debt as an opportunity to finance future growth in production assets. We expect to offset the absence of these financing proceeds through greater revenue lower expenses, and better working capital expectations. Finally, we did not record any activity during the third quarter using the at the market equity facility that we put in place back in August. We will continue to be opportunistic about the timing and sizing of a future capital raise.
As we have said in the past, we continue to believe that the capital we have on hand today is sufficient to carry us through commercialization of the KARNO power module. At the same time, additional capital will ultimately be required to support production growth including additional additive printing machines. Now I will turn the call back over to Thomas.
Thomas J. Healy: To wrap up, we made progress across all 3 of these areas highlighted at the beginning of the call. We delivered another early adopter unit and continue advancing towards our 200 kilowatt power target. We are approaching $50 million in new military contract awards for the year which would bring our total contract backlog to approximately $53.5 million Customer interest continues to grow across data center and prime power applications, and we are investing in the manufacturing capacity and talent needed to scale production in 2027.
Revenue of $7.5 million this quarter significantly exceeded the expectations we set at the start of the year, and we have raised our full-year revenue outlook to $18 million I will now hand the call over to the operator to start the Q&A portion of today’s call.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sean Milligan with Needham. Your line is open. Please go ahead.
Sean Milligan: Hey, Thomas and John. Thank you for taking the questions, and congrats on the progress. I guess, first off, can you talk about the reactor design and reliability? More specifically, can you quantify the scope of the thermal fatigue issues? And talk about the redesign what that resolves, and how confident you are that it fixes that without further issues.
Thomas J. Healy: Sure. Thanks for the question. question, Sean. So to lead in, it is a pretty contained issue that we saw with the component. So we had a new revision of the reactor that we were running on systems and going through multiple heat cycles, Start stops, and we saw that during that longer duration running, it was fatiguing and so what we actually did is we stepped back to the previous version of the reactor design. So that is allowed us to continue to build systems, get units out there, and run them It was really just a contained issue with this new reactor design.
And to provide a little bit more granularity there, so what we were seeing is inside the reactor, there are these heat exchangers that you have your exhaust gas, preheating your inlet air, your inlet fuel, And we found that within the part, we could start getting some very small cracking that allowed some of the gas to transfer from 1 cavity over to another. Our system detected that. And so what we have actually been able to root cause it back to is it was actually an issue in the printing of the part there was actually kind of a micro crack that was formed during printing.
And then through that thermal stress, thermal fatigue, that crack was able to grow and then allow gas to pass from 1 cavity to another within the part. So all that being said, you know, the initial. How do we solve it is we step back to the previous revision that did not have that component within it. And then going forward, we have actually changed the print file to eliminate the crack from ever even starting within the printing process.
Sean Milligan: Okay. And then on commercialization timing, with the early adopter unit shifting a little bit into February 2027, is it still reasonable to expect initial commercial orders next year? And then, what. once those units are out in the field, what specific operating hour, reliability, certification milestones, do we think customers need to see before progressing with broader commercialization plans?
Thomas J. Healy: Sure. So, yeah, so we do not think that the slight shift of going from planning to having the USX DEFIANCE system done by end of year That now being planned to be done by the next earnings call, so about 6 weeks later, from initially anticipated we do not envision that having a material impact on next year’s scale up, ramp up, and moving into commercialization. What customers want to see to go from kind of buying their initial systems to buying at higher volume It varies by customers. Some are in the couple of months to, you know, 6 months sort of range, maybe 9 months on the longer end.
But our goal of next year is to really be seeding the market with various customers. We think data centers are going to be a primary focus. Military will be another strong focus. And then a growth into kind of commercial, prime power, industrial applications as well. For next year, and then that will allow us to continue to ramp up in 2028 with follow on orders and continuing to grow and scale capacity. So that is the high level vision of how we see it growing, but this, you know, about 6-week shift, we do not see it having an impact on next year.
Sean Milligan: Greg. I will turn it back over. Thank you so much.
Operator: Your next question comes from the line of Edward Jackson with Northland. Your line is open. Please go ahead.
Edward Jackson: Hi, Thomas. Hi, John. Hey. Good morning. So I have heard you both say demand’s not the issue here, and you just kind of laid out what your plans are for 2027 and 2028. You know, just curious if you can apply that to what your printer plans might be. It sounds like, you are sticking with resuming that in 2027. But is that is that something that it– it is too early to dial in it is somewhat dependent on the conversations you are having with customers. In terms of manufacturing investments, or how should we think about that?
Thomas J. Healy: Sure. So maybe I will break that into 2 buckets, so the demand and then the printer side of it. So on the demand, we have signed LOIs for about 750 units worth of interest from customers and even the discussions we are having with customers, I mean, that is a– just a portion of the interest we are seeing. there is many customers that you know, we have not signed LOIs yet with, but, you know, we are in discussions of how they want to scale from, you know, initial units to tens of megawatts and to hundreds of megawatts and that is kind of the interest level we are seeing or demand we are seeing.
So that kind of points back to what you mentioned of demand is not the issue. This is really, you know, how fast we are going to be able to print these components and deliver systems. So on the printer side, our current installed printer capacity, we believe, with these speed improvements, once they are rolled in, we will be able to get it to about 15 megawatts a year of production capacity. But this whole Austin, Texas facility as we build it out, would be capable of about 250 megawatts of yearly production capacity.
And so that is where as we mentioned on today’s call, in 2027, we will start buying additional printers, but it is too– or to go directly to your question, it is too early to really lean in on how many printers we plan on adding next year and exact volumes for next year. That is something that as we go into the next earnings call, we will plan on sharing some more guidance for what we envision 2027 looking like.
Edward Jackson: Got it. that is helpful. And then just turning to data center, you know, you are. Obviously, you just detailed you know, discussions in-depth discussions with customers and scaling those. But step back and just look at the overall market. I mean, where do you feel like market awareness is of the KARNO? You know, maybe characterize the engagement, the types of companies or counterparties that you are talking to anything along those lines would be helpful.
Thomas J. Healy: Yeah. So overall, the interest level in the product is extremely high. People are really excited about the product attributes. So the efficiency, the modularity, the low emissions, the low noise, the fuel flexibility. So all these different characteristics we are seeing it being a strong interest from customers. The thing that customers are wanting to do next is actually get initial systems, deploy them at their site, and see how the system actually performs in their use case. And that is that is where our whole focus, you know, as we talked about today is on let’s get these initial systems out there to customer sites And as we mentioned, we are nearing that.
We are weeks away from that initial unit going out to a customer site, and then we have another 1 planned right after that. And so, you know, that– the focus is really proving the product works and then in customers’ applications and then looking to continue to grow and scale from there. In terms of the customers that we have been engaging with, it is everywhere from very large on the hyperscaler front. We are working with multiple hyperscalers and have units planned to deliver with them. To medium to smaller sized data centers. As well as outside of the data center space just kind of conventional applications that are looking for on-site power generation.
I will say over the last 6 months, though, the interest level has significantly grown on the data center side, and that is where we are spending a lot of our focus. Right now.
Edward Jackson: Okay. Thank you.
Operator: The next question comes from the line of Martin Malloy with Johnson Rice. Your line is open. Please go ahead.
Martin Malloy: Good morning. The first question I have is about the non navy military contract that you mentioned in the press release, 7 million. I am just kind of curious if maybe you could talk about how quickly that could ramp if these other branches of the military have had access to some of the data that you all have generated through the stress testing and reliability testing of the KARNO units for the Navy. And maybe the total addressable market when you look at these other branches of the military versus the Navy?
Thomas J. Healy: Sure. So to start with, so we have. You know, up till now, we have been doing primarily R&D work with the Navy. As we go forward, we do envision that shifting from R&D into just commercial sales of assets into different branches of the military. And as you mentioned, it has been a very positive thing that since the Navy contract has been R&D, there is been a lot of data developed through that, a lot of validation, and the Navy has been sharing that. In a lot of ways, been promoting the technology to other branches for them to get involved with it as well.
And so in terms of the opportunity with the military, it is tough to say exactly how many Gensets they have, but from research we have done, it is in the numerous tens of thousands of generators that are utilized across the US military. And what we are finding is different applications have different pain points that we are able to come in and solve. If you think about the army and think about forward operating bases, the ability to run on various types of fuel, that is a huge advantage for them because they are not then single source on fuel. The Navy, it actually all started with the low maintenance, high reliability. That was the initial focus.
And so the product attributes lend themselves to these various pain points that are experienced within the military. Even just this past quarter, we had a lot of discussion with 1 branch around the low detectability of the Genset. So if you think about low noise, low heat signature, that is important as well. So that is where, as we shared today, we do see that the military can be a pretty sizable portion of the volume going forward. Even outside of the data center demand we are seeing.
Martin Malloy: Greg. And just for my follow-up question, did wanna ask about UL certification and I believe you all have the UL certification for each of the key components. Of the KARNO generator, but there was still a final assembly or process type UL certification that I think you all were aiming to obtain. Can you maybe give us an update there?
Thomas J. Healy: Yeah. So you remember correctly, we have gone through all of the nonrecurring UL testing. We have passed that. So the final step is before a system actually goes out to customer site, we do go through an actual operation of the power module, and then from there, you know, get the UL certification, and then it will be able to be moved to the customer’s site. So all is tracking well on that front, and we even have line of sight to be able to, you know, eliminate that need for each gen stat having to go through a UL test, which will be great for going forward to just streamline the manufacturing process.
Martin Malloy: Greg. Thank you. I will turn it back.
Operator: The next question comes from the line of Ted Jackson with Northland. Your line is open. Please go ahead.
Edward Jackson: Thanks. Good morning, everybody. I think just 2 for me. First, Thomas, I think when we think about the medium term opportunity on the data center side and your. The applicability of your product into those markets. When you are talking to customers, what are the 2 or 3 things you think you need to really get them to sort of believe, or what hurdles do they need to get over to kind of move forward?
Thomas J. Healy: Yeah. So the first is just showing the product performance, which we have already. Actually, I will share an example. This past quarter, we had a very large data center company spend 3 days on-site. We let them run the actual genset, let them collect their own data on it, see the performance of it, and that testing and went very well with them and has allowed discussions to move to the next step.
So first is, you know, the performance, and then second is a big question around how can we scale manufacturing that is where the discussions quickly go to because they wanna make sure that if they invest in this type of technology that there is opportunities for this to become a sizable portion of their fleet and the Gensets that they are buying. And so the guidance we shared last quarter around if we wanna add a megawatt of production capacity to our facility it will cost about 1.5 million of capital into manufacturing equipment. that is actually been a huge part of discussion around would customers be interested in financing that scale up to have dedicated capacity?
Will customers be open to placing orders that would then allow us to go get various financing structures in order to build out the production capacity. So those are the types of discussions we are in, but I would say the scale up is becoming the current question around how do we get more than, you know, 15 megawatts production capacity, how do we get to that 250 and then even beyond the 250?
Edward Jackson: Right. Thank you. And then just to follow-up to that, and I know we have talked a little bit about this. The ability of your. Of the KARNO to react to load. I think there is some positive attributes there. Maybe you could just kind of give me a little more color around that.
Thomas J. Healy: Absolutely. So AI data centers are running into this I do not know if you call it an issue, but it is a new aspect where their power consumption is very spiky, and it is like the edge of a saw, right, where the power jumps up, jumps down, and it is not a very smooth consistent power draw. If you look at technologies like turbines, they love smooth, consistent power draw. They do not like peaks and valleys of power consumption. The KARNO technology handles those peaks and valleys very, very well.
And so some of the discussions we have actually been having are if you think about these very large data centers, which will likely be run off of combined cycle turbines, There is actually interest coming in where you would want to couple that with a set of KARNO power modules alongside it, that then our technology could handle those transient loads while then keeping the large combined cycle power plant at a steady power production. So those are some of the discussions we are engaging in. Or if you look at, you know, smaller data centers, you would just use KARNO.
The KARNO technology as the base load power and the power technology that can handle those transient loads, which really is another unique product attribute including the 800 volt DC native power output, which is where data centers are heading to.
Edward Jackson: Greg. Thank you for the details.
Operator: Your next question comes from the line of Ted Jackson with Northland. Your line is open. Please go ahead. Ted, you may be on mute.
Edward Jackson: No. I am not on mute. We can hear you now. Hello? Okay. We have got you. Good. I was about to start swearing. I am glad you turned on before that happened.
Thomas J. Healy: This call’s getting crowded.
Edward Jackson: So it is getting busier quarter over quarter. that is a good sign. that is a good– that is a very good sign, Thomas. I have just got a couple of questions that were not asked, and I wanted to start out on the commercial customer. You know, you have talked in the past with regards to some of the initial, you know, commercial deployments that it was not gonna necessarily be something where it was installed and left with the customer, that it was going to be, you know, brought in put in place, run for some time to kind of proof-of-concept things, and then you could redeploy it.
And so, you know, with regards to your first commercial deployment, is that what this is? And then the same question with regards to the 1 that is kind of coming around behind it or any of these ones that are guiding customers just gonna keep that unit in perpetuity?
Thomas J. Healy: Yep. Great question. So the initial 1 is just a deployment. That asset will stay there. You are exactly right that we do have this plan or strategy of we have some deployments that are just sold assets. Those they will live the rest of their life at that facility. Others that will be more like loaner units or field trial units where we will bring them out, we will operate them, and then we will move it to another customer site.
And then, you know, that will allow us to let more customers actually experience the technology And so we do have that plan, and we will be doing, like, road shows in 2027, moving a couple of assets from, you know, 1 site to another site and letting more customers experience it. As for that second commercial 1, that is structured where it is going to a very large data center’s AI test facility. And so there is still a question mark of will that remain there, or will that get moved to another data center location?
But we will actually be doing kind of work with that data center provider to really prove out all those product attributes that I just mentioned of the transient load capabilities, the 800 volt DC power out, That second asset will be going into that sort of test AI data center opportunity.
Edward Jackson: And, yeah, and I do want to understand just to make sure since we are having public call that I do understand that, you know, what you are doing with that is you know, be basically being able to, you know, because there is a limited number of units of really just being able to showcase the KARNO and what it can do with its feature set to drive what are actual orders. You know? So with these deployments, there are multiple deployments maybe with the same Carno unit, but it will drive actual commercial orders for you going forward. My second question is just kinda going into capacity.
So, you know, you are– If you kind of do the math, you know, you are saying that with the capacity you have in place, the improvements that you are gonna make, you know, without spending any more money, you know, you could make, you know, call it 75, you know, 200 kilowatt KARNO units annually. Is that capacity the capacity that you are in the process of putting up in Austin, or does it include what you are leaving behind in Cincinnati? And then how much of that capacity that you have talked about is based upon the improvements that you think you can get with regards to throughput?
What would it be without those improvements? that is my next question. I have 1 more on that.
Thomas J. Healy: Perfect. So that is really an Austin focus. And as we shared on today’s call, we are actually moving about a half dozen printers from the Cincinnati facility to Austin. And our goal there is I mean, you have seen these facilities that. I mean, Austin is a much larger facility much more square footage footprint to really start scaling manufacturing. So we are consolidating that ramp up under 1 roof. In terms of where we stand today, the printers at their existing speed improvements are in the 5 to 10 megawatts of production capacity.
And then as mentioned, we target getting to the up to 15 megawatts out of that existing installed base with hardware upgrades, some laser software parameter upgrades, things like that. 1 other thing to highlight is that we are making a lot of progress on these printer speed improvements. For instance, you know, we have taken the mixer component. And, you know, if we look at previous print speeds versus what we have been able to demonstrate, We have been able to already get that to about, like, a 2.5x speed improvement.
And know, what we really set out for 2027. being the, you know, back half of 2026, 2027 being, you know, our time to really work on getting more out of the equipment machines and faster print speeds, but just wanted to share a data point of, like, we already started to see some of these speed improvements come to life. And it is really on a component by component basis. And so, you know, you– yeah. Since you have to change the print files and, you know, the. How the laser power is structured and laser speed, things like that.
We are going component by component, but wanted to share an initial, you know, really positive, you know, proof point of speed improvement.
Edward Jackson: Okay. And then my last question is really of a little bit more asking you to flesh something out. You know, in the near term, a lot of the revenue. All your revenue really is coming from you know, these developmental contracts with the military. And I guess what I am curious about is, you know, maybe walk through sort of the. How that goes from being, you know, kind of granted, funded, rolls through your revenue. Sean, so you have got, you know, call it. Let’s just round it up and say $45 million worth of funding that is available to you right now.
And, you know, you are looking for, you know, the pickup event as we kinda roll through this year and to next year. Is that the kind of stuff where, you know, the funding’s in place? Does there have to be an appropriation to it? Does the Navy come to you and say, okay. We are gonna give you, you know, $5 or $10 million to do this, or do they say you do this, and then we will give you $5 or $10 million You see, I am going with this. Like, how much of it is driven by, you know, a need for appropriations and maybe that comes at a congressional level.
How much of it then is driven by you know, kinda demands from the navy? And then how much of that maybe comes from your ability to deliver on things and then unlock it? If that makes sense what I am asking. Just kinda give me. I just wanna understand how it all flows through better because you know, clearly, for 2027, for sure, you know, it is a pretty important part of the funding the rate of the company. Thanks.
Jon T. Panzer: Hey, Ted. This is John. I will take a crack at that. We have had we have had a number of contracts with the Navy that are really all mostly aligned with the R&D work and the delivery of the 800-kilowatt system for the USX DEFIANCE, the autonomous ship. So in that case, we are doing more and more. We are delivering, you know, more units to test to the 800-kilowatt system. Operating those units for durability and so forth. Proving out diesel fuel. And then we are also, you know, have a line of sight to other contracts, couple of which we mentioned on the call today. Including with another branch of the military.
That will be quite a bit different But, again, they are looking for power systems I think the way to think about it is they are there is a lot of different use cases. Both of them are probably gonna be around stationary power. In fact, the most recent contract that we have with the Navy transitions from the shipboard system into multi megawatt land based system. So we also mentioned, I think this is an important point, that these will not always be all R&D, that there is gonna be military. I will use the term commercial, but military commercial units where it is not r and d.
There will be more the revenue will be more based upon delivery of actual working units. We do expect that to come. And then, you know, there is a line of other R&D work that we are looking at different government agencies and different branches of the military. That we think is part of that appropriations process. Right now, most of that. Well, yeah, most of those contracts initiate with an appropriations process. Very actively involved with that. We have had a lot of success with it.
So, again, I think as military grows, it is gonna continue to be both R&D based on appropriations and then ultimately, there is other buckets of money that the military has to for just buying systems. You know? For. As Thomas mentioned, there is thousands of generators that the military has at bases all across the world. That. Those are different buckets of money that do not directly get appropriated but, are part of ongoing, you know, budgets for each branch. So, again, as we think it is it is not just data centers. Data centers are huge, but the military is a extremely interested in what we have and will be an enormous opportunity for us.
Edward Jackson: Okay. Well, those are my 2 questions. I just wanted to. Yeah, it is like, I know you had some slippage in timing and stuff, but with regards to the 6 weeks, but having, you know, been knocked around Hyliion for a long time, it is super exciting. Because, I mean, I feel like, you know, you can almost really just reach out and touch it. In terms of, like, how close you are to actually having that product out the door and you know, seeing all the work that you have done. And, I mean, it is– you know, it is– things are really. have really firmed up the last quarter or so, and it is exciting.
So congratulations, guys.
Thomas J. Healy: Much appreciated. Thanks, Ted.
Operator: As a friendly reminder, if you would like to ask a question, please press 1. We have reached the end of the Q&A session. I will now turn the call back to Thomas for closing remarks.
Thomas J. Healy: Thank you all for joining today’s call. As noted throughout the call, we saw this as a very strong quarter for us where we once again further increased our revenue guidance up to $18 million for the year. We anticipate being at the high end of the amount of military contracts that we anticipate closing this year. And over the last quarter, you know, another delivery of a system to the Navy plus initial customer site deployment here in the weeks ahead.
As Ted said very well, it is an exciting time. it is you know, we are right at the cusp of really getting this technology out there and the market and showing its product benefits and the opportunity with it. So with that, thank you all for joining, and we look forward to sharing another update again on the next earnings call.
Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
