Hexagon Purus ASA

OSE:HPUR

Earnings Call Transcript 2023-Q3

[Mathias Meidell, executive]

Hello, and welcome to Hexagon Purus' Q3 [Foreign Language] presentation. My name is Mathias Meidell, and I am the IR Director in Hexagon Purus. Today, I will be moderating from the studio in Oslo, and from the studio, I'm also joined by Group CEO, Morten Holum; and Group CFO, Salman Alam. The agenda for today includes as usual highlights from the quarter, a company update, and the financials, and the outlook. We will end the presentation with a Q&A session. So please feel free to enter your questions via the function on your screen or alternatively, send your questions to [e-mail] with that, I will pass the word over to you Morten, who will take us through the highlights of the quarter.

[Morten Holum, executive]

Thank you, Mathias, and good morning, everyone. Thanks for joining us this morning. We're well into the busy second half of the year and are moving steadily ahead with the execution of our business plan. Q3 has been another good quarter. So I look forward to sharing the highlights with you. The highlights are similar to what we have reported for the last few quarters. It's business as usual. #1, we continue the strong growth trend. #2, we continue to experience strong commercial momentum, particularly for our hydrogen infrastructure solutions. And #3, we continue to execute our capacity expansion program with the opening of the brand new state-of-the-art highly automated cylinder manufacturing hub in Kassel, Germany. This is next level in terms of cylinder manufacturing technology. And we expect this to be a super competitive hydrogen cylinder manufacturing facility. So I'll come back to that a bit later in the presentation.Year-over-year, revenue growth in Q3 was 71% compared to last year with NOK 380 million of revenue in the third quarter. LTM revenue increased to NOK 1.3 billion to NOK 6 billion which represents a growth rate of 56% over last year. Our hydrogen business pretty much fired on all cylinders in the third quarter. So I'm really pleased with the performance. And I'm really happy that we're about to get more manufacturing capacity online to support the rapidly expanding hydrogen distribution business. Our order book stood at NOK 1.1 billion at quarter end, which is a bit lower than Q2, but not something I'm particularly concerned about. We're fully booked for this year, and we'd likely struggle to get everything out the door before year end. We've had some meaningful delays in equipment deliveries to Kassel. So we are behind on overall ramp-up curve compared to plan but we're running as fast as we can to get as many units out to customers before the end of the year.We also keep growing our order book for 2024 which stood at around NOK 700 million at quarter end, and we've added another NOK 130 million or so since quarter end. So our comfort on next year is steadily increasing. We have a good dialogue with our key customers on build slot scheduling. So things are looking pretty good. I don't expect us to be demand-constrained next year either. So the amount of revenue we will book in 2024 is more likely to be a function of our capacity ramp-up curve and the supply chain rather than customer demand. So overall, I'm satisfied with the Q3 performance, and the demand side for next year is looking good.The main growth driver continues to be hydrogen infrastructure. The demand for industrial hydrogen continues to grow strongly, and our distribution module is the most cost-effective way to transport hydrogen. I'll come back to that also in a minute. Outside of hydrogen infrastructure, mobility overall was slightly down driven by lower deliveries to the rail sector. Within the mobility segment, though, on-road hydrogen mobility was actually up in the third quarter driven by both transit bus and deliveries to Nikola which started their serial production at the end of the third quarter. We also had a good quarter in the aerospace business which was responsible for most of the growth in the other category.So similar to previous quarters, the main growth engine is hydrogen infrastructure, which has already reached commercial stage and is already EBITDA positive. The mobility sectors have not yet reached maturity though. So revenue there will be lumpy until the larger serial volume starts to kick in. As I mentioned several times before, there is a growing demand for hydrogen used for industrial purposes. Hydrogen is not something new. It's a large existing market, almost 100 million tonnes per year. And several industries use hydrogen today in their manufacturing processes, pharmaceuticals, semiconductors, and food processing to name a few. And today, this hydrogen is grey. In the future, it will be green. But even if it's grey today, it still needs to be transported. And our Type 4 hydrogen distribution modules are colorblind. And more importantly, they have a much lower total cost of ownership for the merchant and industrial gas companies than the steel-based distribution technologies they have used so far.In distribution, it's all about payload. And our Type 4 based distribution modules have 2x to 3x the payload compared to steel tube trailers. And that drives down the unit cost in a way that more than offsets the higher cost of our technology, making this an in the money product for our customers. They make more money buying our modules than those they've been using up until now. So in the large existing market, we are taking market share away from incumbent solutions. And on top of this, there is a growing market for green hydrogen. This is both from sectors not using much hydrogen today, but that will use a lot of it in the future like mobility for example, and also from existing industrial users to replace the grey hydrogen that they use today. And the new green hydrogen players are bypassing old transportation technology altogether, and moving directly to our Type 4 based distribution modules.So we're growing in 2 directions, eating into a large existing market with superior technology and capturing new demand from the green hydrogen players. We've been operating at full capacity in this business for a while now with positive EBITDA margins. And at the end of this quarter, we will have the new expansion in Weeze completed which will double our capacity for distribution modules when we get it fully ramped up next year. On the mobility side, we got a large fuel system order from Solaris in the third quarter. So they won a large tender to deploy a fleet of hydrogen buses in Bologna, Italy next year. This is an order under the existing long-term supply agreement we have with them, which is yet another demonstration of the value of all the LTAs we have signed with customers.Transit bus is likely the next hydrogen segment to reach commercial maturity. There are already several 1,000 hydrogen buses in operation, and many bus operators, particularly public ones, are planning to transition their fleets to hydrogen, which has several advantages over their pure battery electric relatives. This is particularly true for buses operating in cold climates where batteries are less effective and when there is a significant onboard energy need in addition to propulsion like heat for the cabin or in hot climates where there is a need for continuous air conditioning. It's also easier to set up the required fueling infrastructure to support operations since these fleets typically use captive in depot, fueling solutions and don't rely on the widespread public refueling infrastructure. So we believe transit will grow strongly in the coming years.In September, we opened our brand new state-of-the-art cylinder engineering and manufacturing hub in Kassel, Germany. And as I said earlier, this is next level cylinder manufacturing technology, where we utilize all the latest innovations in automation. And where we have integrated all the learnings in operating design and process technology that we've acquired through experience over the past decades. And when we get this fully ramped up, I expect this to be the most competitive hydrogen cylinder manufacturing facility in the world. This will be our main cylinder production hub in Europe and will support both our infrastructure business and our mobility business.We've put a lot of thought into the design and the sizing of this facility. So it's been prepared to enable a fairly rapid increase in further capacity when the time is right for that. But for now, we will focus on getting the existing capacity fully ramped up and profitable. One of the main benefits of our setup is the high level of vertical integration we have in both our infrastructure business and in our fuel systems business for mobility applications. So the scale we are building now, supported by an already mature and strongly growing infrastructure business will enable us to be all the more competitive on the mobility side once those applications hit the inflection point.On the battery electric side, we've built a solid foundation based on best-in-class technology, long and deep practical experience integrating alternative fuel systems onto heavy-duty trucks, and long-term customer relationships with major North American truck OEMs as a trusted development partner. We've been awarded 2 major contracts this year, one with Hino and one with Daimler Truck North America, which is a customer for the utility truck program we were awarded in the summer. And Daimler publicly announced this partnership with us yesterday. And we're, of course, super excited to continue deepening our relationship with them. And the size of these contracts, it's significant, totaling more than NOK 20 billion. So for us, this validates the customer demand and the competitiveness of our technology.Then we've secured a high-quality and competitive battery cell sourcing relationship with Panasonic Energy, which is no small feat in the current environment. And now, we're in the process of scaling up our production capacity to deliver on customer demand, with the first vehicles expected to come off the line next year. Following the award of the Hino and Daimler contracts, we needed to reassess our North American footprint. It was obvious to us that our current integration facility in Ontario, California, would not be sufficient to serve customer demand, which will be significant in size already from 2025. So we needed to select a new site for a new integration facility. And after an intense site selection study, we chose Dallas, Texas as our new location. This is an ideal location from a supply chain perspective, considering where materials and components will come from and where the vehicles in the end will go.And Texas also has a friendly and supportive environment for establishing businesses, favorable tax regime, good labor availability. And we were also able to find a suitable existing building which is a much faster and more capital-efficient way than going greenfield. So we will be ready to ship vehicles from this facility already in the second half of next year. We also have the option to add manufacturing capacity for battery systems at this site later on, which would qualify for additional IRA subsidies. This is something we will assess further down the road though. So for now, the first priority is to ramp up our current capacity, get the efficiency where it needs to be, and ensure profitability.And speaking of the IRA, the U.S. is turning into a hotspot for zero-emission transportation driven by strong emission requirements in several states, like California, combined with favorable incentives that equalizes the additional cost of the technology compared to the diesel. And with the IRA, the U.S. is taking the lead also on hydrogen moving forward with attractive support packages to establish 7 hydrogen hubs. The U.S. government have allocated $7 billion in funding for these hubs and these public funds will also unlock many multiples of that amount in private funding. We like the idea of concentrating the efforts around a few hubs, establishing a hydrogen ecosystem. Yes, it's quite complex. You need to balance the supply and demand for energy to meet the requirements from power, from heat industry, mobility. And concentrating these efforts around the few key hubs where market players can share technology and infrastructure makes it possible to generate efficient scale much faster. It makes it easier to interconnect production, storage, distribution, and end use of hydrogen. And by that, jumpstart the establishment of the required ecosystem.So those were the main points I wanted to address from Q3. And with that, I will hand the word over to our CFO and master of coin, Salman Alam.

[Salman Alam, executive]

Thank you, Morten. Good morning, everyone. As usual, we will start off with the profit and loss statement. All numbers unless otherwise specified are stated in Norwegian kroner. Revenue-wise, this was yet another very strong quarter for us. We delivered all-time high quarterly revenue in the third quarter of 2023. Revenue ended at NOK 380 million, up 71% from NOK 222 million in the same quarter last year. The main driver of growth this quarter as Morten already mentioned, was our solutions for hydrogen infrastructure applications, such as hydrogen distribution modules. Additionally, we saw higher activity for hydrogen storage solutions for on-road mobility, especially within the heavy-duty vehicle and the transit bus vertical. Finally, our aerospace activities also contributed positively to revenue growth at solid margins.Looking at the first 9 months of 2023, we recorded revenue of NOK 954 million which is close to what we delivered for the full-year in 2022 and 61% higher compared to the same period last year. Total operating expenses ended at NOK 496 million, up NOK 315 million compared to the same quarter last year. Our cost of materials ratio was 62% in the quarter compared to 54% in the third quarter of 2022 and 61% for the full-year of 2022. The variability in materials cost is mainly driven by product mix and inventory movements from -- to and from the balance sheet and is expected to fluctuate somewhat between quarters. Payroll expenses were up approximately 40% year-over-year in the third quarter, reflecting the continued investments we are taking in our organizational scale-up and to deliver on our growth plans and customer commitments.Subtracting total operating expenses from total revenue, EBITDA in the third quarter ended at minus NOK 116 million, equal to an EBITDA margin of negative 30%. This compares to an EBITDA of minus NOK 92 million in the same quarter last year and an EBITDA margin of negative 41%. Similarly, EBITDA margin for the first 9 months of 2023 was negative 33% versus negative 50% in the same period last year. That's a lot of numbers, but the point of those numbers is it's encouraging to see that higher volume and scale is driving the relative improvement in EBITDA margin, in line with our own expectations and what we communicated earlier this year. Depreciation ended at NOK 39 million in the quarter compared to NOK 24 million in the same quarter last year. The increase is primarily driven by our larger base of property, plant, and equipment and the right-of-use assets given our ongoing capacity expansion program.EBIT for the quarter ended at minus NOK 154 million versus minus NOK 116 million in the same quarter last year. Moving further down on the P&L. Losses from investments in associates, which reflects our minority shareholdings in Cryoshelter, Norwegian Hydrogen, and the systems joint venture company in China ended at minus NOK 3 million in the quarter versus NOK 62 million in the same quarter last year. Remember, however, that last year's numbers were influenced by a positive revaluation of our investment in Norwegian Hydrogen. Net financial items in the quarter was minus NOK 42 million versus minus NOK 11 million in the same quarter last year. Currency movements has had a non-cash impact on financial items in the quarter. But beyond that, finance income is mainly stemming from interest received on bank deposits, and finance expenses are mainly related to the non-cash interest that we recognized on the convertible bond we issued earlier this year as well as interest on certain other debt and lease obligations.At the group level, we are not in a taxable position, and tax expense in the quarter was minus NOK 2.4 million versus NOK 1.4 million in the same quarter last year. Losses after tax ended at minus NOK 197 million versus minus NOK 66 million in the same quarter of last year.Moving on to the revenue split, which we've already touched on a bit, but looking at the third quarter of 2023, sales to hydrogen infrastructure applications made up close to 60% of the revenue in the quarter, not to this similar from the revenue trend that we've seen year-to-date. The majority of the hydrogen infrastructure revenue in the third quarter came from sales of hydrogen distribution systems and hydrogen cylinders for distribution purposes. Customers in the quarter for hydrogen infrastructure vertical included Linde, Air Liquide, and Lhyfe. In the mobility segment, we saw growth in activity for heavy-duty vehicles and transit bus driven by continued deliveries to Nikola for their fuel cell electric heavy-duty vehicle and also deliveries of hydrogen storage systems to Solaris for their fuel cell electric transit buses.Another important customer in the quarter was the Polish company Ze Pak SA, who is a customer of ours both for hydrogen distribution modules and for fuel cell electric transit bus applications. In the other application segment, we continue to see robust activity in the aerospace segment. This is a niche yet highly profitable application for us where we serve several privately held space exploration companies in North America with storage technology for their spaceflight programs. Industrial gas revenue which mainly consists of space [ stationary ] storage solutions for storage of air gases, so oxygen, nitrogen, helium, et cetera, kept stable in the quarter year-over-year.Moving on to the balance sheet. Total assets at quarter end was approximately NOK 3.8 billion. On the asset side, really the main change can be seen in the property, plant, and equipment and the right-of-use assets connected with our ongoing capacity expansion program. Despite the high revenue quarter, in the third quarter, inventory kept stable as we continue to expect sequential revenue growth in the fourth quarter of this year. Our cash position at the end of the third quarter stood at NOK 566 million.Moving on to the equity and liability side of the balance sheet, the main change is really a mirror of what we saw on the asset side where the main increase is related to lease liabilities as our new Kassel facility came online as part of our capacity expansion program this quarter. Equity ratio at the end of the third quarter of 2023 was a solid 56%.Finally, looking at the cash flow statement, which reflects the movements in the balance sheet and P&L. Our operating cash flow in the quarter was minutes NOK 284 million. Operating losses makes up the bulk of this at minus NOK 199 million, and we had a buildup of net working capital of NOK 152 million in the quarter. The working capital development in the quarter is driven by, on the one hand, stable inventory levels and increased accounts receivables after a strong quarter of revenue growth, and on the other hand, a decrease in accounts payables and customer prepayments, which is mainly a timing effect. The main item under cash flow from investing in the third quarter was the NOK 102 million we invested in property, plant, and equipment related to our ongoing capacity expansion program.This is somewhat lower than expected due to some delays on the equipment supplier side, but we do expect to catch up on this spend in the fourth quarter of this year and also as we finish the current investment program next year.Finally, cash flow from financing and net FX movements was minus NOK 7 million in the quarter. The majority of the outflow from financing is related to lease payments which in the third quarter was NOK 16 million.I think with this, we'll conclude the financial section, and I'll hand the word back to Morten.

[Morten Holum, executive]

All right. Thank you, Salman. We get a lot of questions. Sorry, this is a business slide. We get a lot of questions about when we can expect the different applications to come into maturity and reach the inflection point. And I think it's clear that the transition to zero-emission mobility and the overall energy transition will take longer than what we thought a few years ago. Establishing new ecosystems are complex and time-consuming. And rising inflation and interest costs have made green energy projects more costly to execute. Having said that, there is still a very powerful momentum behind the energy transition. The project portfolio of green hydrogen projects is continuously growing and that also includes the number of projects that have gone to FEED and to final investment stage -- final investment decision stage.So the preparations to clean up the energy sector and introduce new zero-emission technologies are definitely moving forward. And for us, the only customer segment that has reached commercial maturity is distribution. This is an established, profitable segment today. And then there are a few applications that are right around the corner, so to speak, segments where the technology is already proven and already on the road. These are segments like transit bus, battery electric trucks, and mobile refueling. These applications are expected to grow significantly in the coming years because they don't require a widespread established refueling network, which is the major bottleneck. They can be deployed from fleet depots and hubs where a captive refueling infrastructure is much quicker to establish.And then there are the segments that are a few blocks further down the road to continue with the city navigation analogy. Fuel cell electric, heavy-duty trucks, rail, and maritime. These are applications where the logic for hydrogen is the strongest. Segments where batteries alone are not sufficient to serve the duty cycle. And this is also where the market potential is the largest. The technology for these applications is already here. Nikola has started to put fuel cell electric heavy-duty trucks on the road and hydrogen trains are already running on the tracks. However, these applications will not reach the inflection point until the supply of green hydrogen molecules become available at much higher volume.This puts them a few years out in time, but they will come. All major truck OEMs are working on their fuel cell platforms, preparing for launch sometime in the second half of this decade. And the common denominator along this timeline is that we have built solid positions with customers across all of these applications. So we're very well-positioned to capitalize on both current and future market opportunities. And the nice thing is we don't need to wait for future markets to grow. We have an existing market for distribution modules, which is here today, that is growing incredibly fast. And this enables us to continue growing while we are waiting for the future market segments to come to maturity. And this also enables us to build the company, to generate scale, and to work on improving the cost structure so that when these other applications reach the inflection point, we will already have a super competitive setup that can secure a profitable growth track in mobility segments right from the start.We see this in our numbers already. At the current development rate, we expect our wholly-owned hydrogen business to be EBITDA positive already next year. We're still on track with our capacity expansion program. With the opening of the new Kassel facility in September, we have completed 3 of the 5 expansions for this year, not counting the planned Dallas facility that will open next year. I'm super impressed by the purist teams that have executed strongly on this capacity expansion program so far, bearing in mind that this has happened in parallel with delivering strong commercial traction and strong revenue growth and operational execution. The construction of the last 2 facilities on this page, the distribution module, capacity expansion in Weeze, Germany, and the new combined cylinder and systems facility in China is on schedule to be completed by year-end.And so far, all the civil engineering and construction work has been completed on schedule. The only area where we have experienced delays is in the delivery of production equipment to the new Kassel facility plant, which came in a few months behind schedule and this is also impacting our China facility. However, in the grand scheme of things, we are on track, 3 down, 2 to go, and then we have Dallas for next year. We're also on track to deliver on our 2025 targets. We've been fully booked for this year. SO the revenue target for '23 is well within reach from a demand perspective. For 2024, our order book stood at NOK 700 million at quarter end. Adding order intake in October, we're now at approximately NOK 830 million to NOK 850 million for next year. We still have a couple of months to go before year-end and with the usual 3 to 6 to 9 months visibility on firm orders before delivery, 2024 is looking good.We're doubling our revenue capacity for hydrogen distribution modules in '24 and we're currently in customer dialogues that makes us confident in filling this capacity. Looking further ahead, there is a big leap to 2025. But we have good line of sight to the NOK 45 billion when summing up expected demand from all of our contracts, LTAs, and our recurring customer base. And with the completion of the capacity expansion program, we will have sufficient capacity to deliver on the larger serial contracts that will now start to ramp up in '24 and in '25. So we're confident in our ability to deliver on the 2025 targets.Our overall guidance is largely unchanged. For '23, we've made a minor adjustment to the revenue guidance from at least 50% growth to approximately 50% growth. The reason for that is not lack of demand. We've had more than enough orders to deliver on the 2023 target. It's simply a result of challenges in the supply chain and the late equipment deliveries to Kassel. Since we are already operating at full capacity in our hydrogen business, there is just no way we can securely compensate for a few months of equipment delays. So we've had to revise our production plans and push some customer deliveries originally scheduled for Q4 into next year. Other than that, targets are unchanged. We remain confident that we will meet our 2025 revenue target, and we're growing increasingly confident that we will reach EBITDA breakeven for the group at that revenue level.So that concludes our presentation for today. We continue to execute our business plan and we're still on track.So we will now open it up for Q&A. Mathias?

[Mathias Meidell, executive]

Yes. Thank you, Morten and Salman. So let's kick off with the first question from Helene Brondbo. Maybe this goes for you, Morten. When do you expect the value chain delays to ease? And should we expect the catch up in revenues once this happens?

[Morten Holum, executive]

So I think as you build up a new business with the partly new technologies such as we are building, we will continuously face challenges with the supply chain, developing new suppliers, finding new ways of doing things, finding new ways to lower the cost. And so I think there is no getting around from the fact that we will have supply chain challenges. And then in isolated quarters, there might be some specific issue that hits you. And again, we will continue to see this, I think, in the future without that being a dramatic or defining characteristic of our performance.

[Mathias Meidell, executive]

Thank you, Morten. And I think the next question can go to you as well. It's from Khalil Kazi. What's the growth trajectory of Hexagon that you expect in terms of deliverables over the next half in terms of cylinder and hydrogen infrastructure capacity?

[Morten Holum, executive]

Well, as you know, we are doubling our capacity in Weeze for distribution modules. And I think that there is a little bit of a ramp-up time for that capacity, but we expect significantly more volume out of that business next year compared to what we have for this year naturally. And I think it's been -- having been restricted in capacity up to now, it's been a continuous pull -- tug and pull with customers to try to fit in necessary volume and try to squeeze as much as possible into all of the build slots. And now, it's opened up the landscape a little bit for next year because we have a lot more build slots. But according to the discussions that we're now having, they are filling up quite quickly, and I'm quite confident that we will fill the majority of that capacity next year.

[Mathias Meidell, executive]

Thanks, Morten. And then Salman, one question from Helene Brondbo here as well. Can you explain the increase in working capital in the quarter? How much is related to value chain delays versus higher activity?

[Salman Alam, executive]

Yes. So I think as we touched on also during the presentation, I think we're seeing continued high inventory levels, and that's really because we're expecting a strong finish to the end of the year with continued sequential revenue growth. And then also looking into 2024, we're seeing the start of that year being solid as well. So I think the current inventory and working capital position is reflective of that. And then we put behind us a Q3 with significant revenue growth, so you naturally have a buildup of the -- of AR balances in that regard. And on the flip side, I think there's timing effects related to payments to suppliers and also somewhat lower customer prepayments, which is tied to customer orders and the order book as Morten touched on as well was lower in Q3. So I think it's a combination of several factors.And then I think looking ahead, it's important also to recognize that in 2024, we'll have -- we expect to start the production on the Hino and Daimler contracts. And then that will also have an effect on our working capital position and inventory position. So last year, we did see a reversal somewhat of the working capital position, but we're not expecting that necessarily to the same extent this year.

[Mathias Meidell, executive]

Thanks, Salman. And then a question from Ole Soberg. Good morning. Can you please give a bit more light on why gross margin declined from second quarter '23? Also of the increase in OpEx to NOK 260 million, up 20% from second quarter, how much is related to changes in currency, and how much is related to capacity ramp-up costs?

[Salman Alam, executive]

So I think on the -- I think the gross margin, maybe that's being referred to as the materials cost margin, and that is -- and I think continue to -- will continue to be volatile and fluctuate from quarter-to-quarter. I think it's mainly driven by the product mix that we touched on. So differences -- slight differences in what we produce and also inventory movements to and from the balance sheet. I think if you look at gross margin, including more costs, so direct labor, indirect costs, et cetera, you'll see that there is a positive trend for that figure so far this year compared to last year.I think on the increase in OpEx, I think most of that is related to growth and capacity ramp-up. Remember that we are, from an operational standpoint, fairly naturally hedged from an FX perspective because a lot of the materials that we purchase and a lot of the labor that we have is paid in the same currency as we're also getting revenue. And so from that perspective, we're at the entity level fairly well hedged. And then there is an FX effect when converting euro and dollar into NOK when we consolidate the figures in Norway.

[Mathias Meidell, executive]

Thanks, Salman. And then a question for you, Morten from [ Bernard Rotter ]. How do you see the Asia market in the next 2 years, which is also developing very fast at the moment?

[Morten Holum, executive]

Yes. So the Asia market is focused on China, in particular, where we, of course, have a footprint. I think China, we have always expected that to be one of the largest and one of the fastest markets for hydrogen mobility. And it's also good traction in the market in terms of the number of vehicles that are deployed in terms of the ecosystem that's been built up around all of the usages of hydrogen. So we're confident on a very steep growth path also in the Chinese market.

[Mathias Meidell, executive]

Thanks, Morten. And a question from Fabian Jorgensen. I think it goes to you as well, Morten. As per third quarter '23, your backlog for execution in '24 is lower than your backlog for execution for 2023 as per Q3 '23. Do you expect to grow revenues next year?

[Morten Holum, executive]

Absolutely. No, I think this is fair, right? We have struggled with capacity this year. And like I've said many times, we aren't at the core of it, demand constrained in our business. It's more about our ability to execute. And so next year, we have on the hydrogen distribution side, we will have much higher volume than we had today. I mean our capacity is doubled, then I think, we're going to, as I mentioned a short while ago, I think we're going to be able to more or less fill that capacity. We have on the heavy-duty side, we have things happening with Nikola, with Hino, with Daimler. It's not reflected in our order book. We have good things happening on the transit side.And remember, when we talk about order book, right, we talk about firm purchase orders. And if you look at our portfolio of LTAs that we have, call offs from these will come in 3, 6, 9 months ahead of actual delivery. So I think we're fairly comfortable looking at our overall pipeline for next year that we will continue to grow significantly also next year.

[Mathias Meidell, executive]

Thanks, Morten. And then a question from Jens. Given the cash you spent in Q3, your existing cash position will only last one more quarter. Will you raise the cash in the near future? How do you plan to finance your path to profitability?

[Morten Holum, executive]

Yes. I think it's clear that the balance sheet is important, working on liquidity availability is naturally important for us. We have good dialogues with the board, we have good dialogues with our stakeholders in terms of liquidity, and I am confident in our funding outlook ahead.

[Mathias Meidell, executive]

Thanks, Morten. And then 3 questions from Austin. So Austin Earl. So I'll start with the first one. Could you please explain the reason for the slight reduction to your revenue guidance for '23? I think that goes to Morten.

[Morten Holum, executive]

Yes. And I think I alluded to that in the overall presentation. So we have had more orders and more customer demand than we could deliver in Q4. Then we've had a couple of things happening on the supply chain. The most significant of that being delay in equipment from our Kassel facility which means that we don't -- we get the capacity later. And I think there are very little we can do given that we're operating at full capacity in our business. So there is no way we can compensate for that. So I think the adjustment in guidance is to account for the fact that we might not get up to the at least 50%. There's a slight chance that we will come in under 50% growth, but approximately 50%. And so we have adjusted that wording to be predictable and open.

[Mathias Meidell, executive]

Thanks, Morten. And then the second question from Austin goes to you, Salman. I think you've touched upon it already. But regarding the larger than usual working capital outflow in the third quarter, do you expect this can be reversed in the fourth quarter this year?

[Salman Alam, executive]

Yes. I think we touched on that in the -- earlier in the session. But I think just to reiterate, we continue to see strong growth in the fourth quarter and then going into 2024. And so inventory levels will reflect that. And also, we are preparing for more and more long-term agreements to come online in '24. So all in all, I think we are not expecting a reversal of the working capital position to the same tune that we did last year. But this will fluctuate from quarter-to-quarter.

[Mathias Meidell, executive]

Thanks. And then a third question, which I guess we've already slightly commented on, but a different angle. But the balance sheet, your gross cash position has declined significantly. What level of gross cash do you believe is required to meet your 2025 revenue targets?

[Salman Alam, executive]

Yes. So we haven't specifically commented on that, but I think we -- it shouldn't be a secret that there will be more cash needed to get to the revenue target that we have, which is NOK 45 billion in 2025.

[Mathias Meidell, executive]

Yes. Thanks. And then another question for you, Salman from Elliott [ Nissebet ]. Is Nikola paying its bills?

[Salman Alam, executive]

So we have continued shipping cylinders to Nikola in the third quarter, and they are currently all within the payment terms that we have with Nikola. So there is no concern from a payment perspective there.

[Mathias Meidell, executive]

Thanks, Salman. And then a question from Elliot Jones. Working capital/ receivables, do you expect a reversal of the negative working capital movement through Q4? I guess we've already answered that question. And then a question from Thomas Downling Naess. What CapEx should we expect in Q4?

[Salman Alam, executive]

Yes. So I think we mentioned that CapEx in this quarter was somewhat lower than expected, connected to the final deliveries of some of the equipment related to the capacity expansion program. I think we do expect to catch up on that in the fourth quarter. So I think we're still expecting CapEx for the full-year to be in line with what we communicated earlier this year. So about 60% of the NOK 1 billion investment program is still expected to be taken this year. And then we'll complete the remaining next year.

[Mathias Meidell, executive]

Thank you. And then there is a question from Elliot Jones here. How should we think about CapEx levels for '24 now versus 2023 levels?

[Salman Alam, executive]

Yes. I think we'll have to come back to the specifics around the CapEx for 2024 when we report our Q4 numbers in February.

[Mathias Meidell, executive]

Yes. Thank you. And I think the last question of today. So thank you, Morten and Salman. So that wraps up the questions. And on behalf of the whole Hexagon Purus team, I would like to thank you all for spending the time with us this morning. And we look forward to seeing you soon again. Thank you very much from Oslo.