Hyliion Holdings (NYSE:HYLN) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.
The full earnings call is available at https://events.q4inc.com/analyst/954135636?pwd=U3P78Fhs
Summary
HYLN reported a significant increase in revenue, achieving $2.8 million this quarter, a fourfold increase from the previous quarter, primarily driven by military contracts.
The company successfully completed the UL certification non-recurring test for the Karno Power Module, paving the way for early adopter unit deployment.
HYLN signed a strategic partnership with VFG Holdings to deploy up to 250 Karno cores over the next five years, enhancing its presence in the data center market.
The company anticipates signing additional military contracts worth $40 to $50 million by the end of the year, expanding its engagement with various branches of the US Military.
HYLN demonstrated dynamic fuel switching capabilities for the Karno reactor, enhancing its appeal for both commercial and military applications.
The company is on track to achieve its full 200-kilowatt design power rating by year-end, with plans to scale production in 2027.
HYLN plans to execute equipment financing for up to $10 million later this year, with an expected year-end cash and investment balance of approximately $100 million.
Full Transcript
OPERATOR
Hello everyone. Thank you for joining us and welcome to Hyliion Holdings first quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Greg Standley, Chief Accounting Officer. Please go ahead.
Greg Standley (Chief Accounting Officer)
Thank you and good morning everyone. Welcome to Hyliion Holdings first quarter 2026 earnings conference call. Joining us today are Thomas Healy, Chief Executive Officer and John Panzer, Chief Financial Officer. A slide presentation accompanying today's call is available on Hyliion 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 risks and uncertainties. Many factors could cause actual results to differ materially from forward looking statements made on this call. Factors that may cause such differences are discussed in our presentation and press release as well as our filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on forward looking statements and we undertake no duty to update this information except as required by applicable law. With that, I'll turn the call over to Thomas.
Thomas Healy (Chief Executive Officer)
Hello and thank you for joining us for Hyliion's first quarter 2026 earnings call. On our last call we had said 2026 would be the year we shifted from development to deployment of the Karno Power Module. The first quarter delivered tangible progress. Against that plan. We successfully completed the UL certification non recurring tests milestone for the Karno Power Module. We signed a new data center partnership with VFG Holdings, broadened our military engagement and further demonstrated multi-fuel flexibility. We also saw a significant increase in revenue growth, recording $2.8 million this quarter, a fourfold increase from the prior quarter. This growth reflects the accelerating pace of work with the military. Today I'll walk through each of these areas in more detail then turn the call over to John for the financial update. Starting with UL certification, this was a high priority milestone for us and I am pleased to share that we successfully passed the UL certification non recurring test for the Karno Power Module. This is the gating item we discussed last quarter and clearing it now enables us to begin delivering early adopter units to customer sites. To frame what this means going forward, each individual power module will still undergo a final operating test prior to receiving its nameplate certification, but the foundational testing we have completed does not need to be repeated. As a reminder, this testing covers the electric motor battery system and the complete power module with each subsystem undergoing separate UL certification. As we continue working towards our full 200 kilowatt design power rating, we expect to move to facility level certification and after which we will no longer need to certify each unit independently. That progression is an important step towards enabling production at scale. Turning to Deployments we continue to operate Karno units at our Cincinnati facility while building additional systems. We remain on track to complete the approximately 10 early adopter units this year ahead of commercialization which we expect around year end depending on the timing of the early deployments. With UL non recurring testing now complete, we are beginning to work with customers to move these systems to their sites. This is an important transition. Until now, customer units have been operating at our facility under controlled conditions. Over the next couple of quarters we expect these same units to begin operating in real world customer environments. We continue to see strong interest from the military in deploying our Karno technology. We are now in active discussions not only with the Navy and Air Force, but with additional branches of the U.S. Military as well. This interest is being driven by the platform's differentiated capabilities including true fuel agnostic operation, low maintenance requirements and low acoustic and thermal signature which are particularly important for applications such as autonomous operation and mobile power generation. We continue to expect to sign 40 to 50 million dollars of additional military contracts this year on top of the approximately $20 million in ONR contracts we are currently executing. We are also seeing strong and growing demand from data center customers. The need for on site fuel flexible power generation is becoming increasingly important and we are actively engaging with the leading players in the market. In that context, I am pleased to announce a new strategic partnership with VFG Holdings. Hyliion and VFG Holdings have executed a non binding letter of intent to deploy up to 250karno cores or approximately 50 megawatts of power over the next five years. VFG Holdings is a developer of advanced next generation data centers and offers turnkey solutions including power infrastructure, compute and financing. The team at VFG Holdings is comprised of industry veterans from some of the largest data center companies and is planning multiple gigawatts of power production in the years ahead. Under this partnership, the parties plan to deploy Karno Power modules at VFG data center sites to demonstrate the unique benefits of the Karno platform, including lower than grid electricity production costs, true fuel agnostic operation and direct 800-volt DC integration. We plan to share more details on the partnership in the periods ahead. The LOI between HYLIION and VFG Holdings is subject to the execution of a definitive purchase agreement. Building on our partnership with ABM Industries, which we announced in early 2026, we have been engaging prospective customers alongside ABM. The opportunities span light and heavy commercial applications, from single unit 200 kilowatt deployments to multi megawatt installations. ABM brings deep capabilities in site engineering, integration, construction and ongoing site management, which complements our focus on advancing and commercializing the Karno Power Module. Now shifting to updates on our product development, we continue to make progress towards our full 200 kilowatt design power rating. During the quarter, the team conducted isolated testing on new software and component improvements that yielded additional power and efficiency gains. We plan to incorporate these and other advancements into the product over the coming quarters and remain on track to reach the full design power rating by year end. Beyond the broader fuel flexibility we have previously demonstrated, the first quarter included a particularly meaningful product development milestone. We successfully demonstrated dynamic fuel switching within the Karno reactor across diesel, natural gas and hydrogen without shutting the system down. Said differently, the system can operate on both gaseous and liquid fuels with very different characteristics. This achievement validates true fuel flexibility on the platform, not just dual fuel, but the ability to operate on liquid fuel, pipeline gas and zero carbon fuel through a single architecture with the ability to transition seamlessly between them during operation. The strategic significance of this capability is meaningful as many of our target applications desire this kind of flexibility. For example, data center operators often prefer pipeline natural gas as their primary fuel source while maintaining diesel fuel on site as a backup in the event of a disruption in natural gas supply. The Karno Power module enables both within a single platform, eliminating the need for separate primary and backup generation systems. This capability also expands our addressable market in defense applications where mission requirements frequently depend on fuel availability and the ability to adapt in real time. With diesel fuel operation now demonstrated, we have commenced building an 800 kilowatt Karno power module for the US Navy. This system will be deployed on an unmanned Navy vessel as part of our existing ONR program. We expect to complete this build during 2026 alongside other Navy product performance and reliability milestones. Importantly, the 800 kilowatt system we are building for the Navy serves as the same architectural building block for our data center offering. By combining multiple 800 kilowatt units, we can scale to 1.6 megawatts, 2.4 megawatts, 3.2 megawatts and higher, aligning with the modular power configurations required by data center customers. On manufacturing capacity Our focus today remains on building systems, establishing the supply chain to meet our quality requirements and continuing to scale print capacity. We are continuing to make meaningful progress with our additive printers, particularly in improving part production speeds. We expect to install a few additional printers this year and with those additions our existing fleet is expected to support our planned production needs for 2026, 27 and into 2028. We remain on track to take delivery of and begin testing one or more printers equipped with the latest laser technology from GE Colibrium later this year. We believe that technology has the potential to further improve print speed and throughput on supply chain. We noted last quarter that magnet supply was a potential risk given export constraints from China. I'm pleased to share that during the first quarter we began to see progress with alternate sourcing options for the high strength magnet magnets. We require increasing our confidence in our ability to support planned production. To recap our 2026 milestones, at the start of the year we outlined a clear set of objectives. With 1/4 complete, we are making solid progress. We have completed UL non recurring testing on the Karno power module. We have demonstrated multi fuel switching including liquid fuel operation and have begun building the 800 kilowatt Navy system. Looking ahead, we remain on track to achieve our full 200 kilowatt design power rating complete. Our remaining early adopter unit deployments secure 40 to $50 million in additional military contracts and deliver approximately $10 million of revenue for this year. Looking beyond this year, our three year outlook remains unchanged. In 2027, we expect to ramp commercial deliveries and expand the range of Karno deployments, specifically with the military and data center customers. We view 2027 as the year we transition from initial commercialization into meaningful production scale. By 2028 and beyond, we expect to accelerate commercial growth as production capacity enables us to serve a broader portion of customer demand, including expansion into multi megawatt configurations for data center customers. With that, I'll turn the call over to John to walk through the financial results for the quarter.
John Panzer (Chief Financial Officer)
Thank you Thomas and good morning everyone. In the first quarter we recorded revenue of $2.8 million from research and Development Services. This compares with revenue of about a half a million dollars in the first quarter of 2025 and $700,000 last quarter. The significant growth reflects an acceleration of work under our contracts with the Office of Naval Research. Cost of revenues was $2.6 million, resulting in a gross margin gain of 210,000. As a reminder, R and D services revenue with the Navy reflects the sale of Karno Cores and systems, including the 800 kilowatt power module we are building and the work we performed to test and validate these units. Operating expenses for the first quarter were $13.4 million, down from 19.7 million in the first quarter of 2025. The decrease was driven primarily by lower research and development spending. R and D spending in the first quarter was 7.7 million, down 37% from the 12.2 million we spent a year ago. While the absolute level of R and D spending was down compared to a year ago, most of the year over year decrease related to a shift to revenue generating services for the Navy versus other research and development work. This shift included approximately $1.9 million in lower R and D expenses this quarter as we capitalized inventory and utilized less labor and materials performing R and D activities. This inventory is primarily work in process components that we expect to utilize in future periods. For building Karno Systems for the Navy on the powertrain exit and termination expense line, we recorded a credit of $414,000 compared to an expense of 1.4 million in the first quarter last year. This credit reflects ongoing asset sales related to our former powertrain business to during the quarter and is not expected to be recurring. SG&A costs were relatively flat with an increase of $100,000 attributable to higher personnel expense, partly offset by lower spending in other areas. Our total net loss in the first quarter was $11.7 million, down 32% from the $17.3 million loss we recorded in the first quarter of 2025. Turning to our cash and investment position, we spent $13 million during the first quarter. Capital spending was 1.9 million and consisted primarily of payments for additive printing machines along with some facility investments to support printer operations. Cash generated from asset sales for the quarter was $1.6 million. Asset sales related to the monetization of equipment previously used in our powertrain division and are largely complete. We finished the first quarter with $139.3 million of cash and short and long term investments on our balance sheet. We are reaffirming our guidance for 2026, including approximately $10 million in revenue this year from both R and D services and possibly some commercial customer sales. Also, as Thomas noted, we plan to slow capital spending in 2026 compared to 2025 as we work to optimize the output of the printers that we have on hand Today we are planning to execute equipment financing for up to $10 million later this year, although that amount may shift up or down based on terms and availability of lease capital. Overall for 2026, higher revenue expense control, lower capital spending and planned equipment financing are expected to result in a lower level of total spending compared to 2025. Our current forecast is for net spending of just over $50 million during the year, resulting in a year end cash and investment balance of approximately $100 million. We continue to believe that the capital we have on hand today is sufficient to carry us through commercialization of the Karno Power Module. Also, we anticipate additional capital will eventually be required to support production growth, particularly for the purchase of additional additive manufacturing equipment to more rapidly ramp up production in future years. Now I'll turn the call back over
Thomas Healy (Chief Executive Officer)
to Thomas to wrap up the first quarter delivered against the deployment and commercialization plan we outlined at the start of the year. We completed UL non recurring testing, signed a meaningful data center partnership with VFG Holdings and generated four times the revenue of the prior quarter. We also broadened our engagement across the U.S. Military, demonstrated true multi fuel flexibility, and commenced the build of our first 800 kilowatt Navy system. The themes we identified last quarter, namely the shift toward 800 volt DC architecture in next generation AI data centers and the demand for resilient mission critical power across the U.S. Military became more tangible in the first quarter. The VFG Holdings partnership positions us within the next generation data center deployments where 800 volt DC native operation is a clear architectural advantage while expanding military engagements reflect strong demand for the platform's differentiated capabilities. For the remainder of 2026, our focus is execution, delivering the remaining early adopter units, completing the 800 kilowatt Navy system, securing 40 to 50 million dollars of additional military contracts, achieving full 200 kilowatt design power, and commercializing the Karno Power Module by year end. We are excited about the opportunity ahead and the position we are in to capitalize on it. I will now hand the call over to our moderator to open up for Q and A.
OPERATOR
We will now begin the question and answer session. If you would like to ask a question, please press Star one To raise your hand. To withdraw your question, press Star one 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 unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from Edward Jackson with Northland. Please go ahead.
Edward Jackson
Thanks. Good Morning, John. Good morning, Thomas. Good morning. Congratulations. Congratulations on all the progress towards commercialization. You really kind of change, if you would, down the field. I got a series of questions for you. I wanted to start out on, you know, some of the R and D and contracting stuff around the Navy. So you had $12 million. I mean, you have $20 million contract. You've got about 12 million of it left, and you had a pretty big number for it this quarter. How do we think about how that. It seems like it's, you know, from your own conversation, like, you know, the activity around that contract is accelerating. So can we expect similar kind of numbers in terms of progress, you know, as we go through the remainder of this year against that contract and then kind of tying in that into the 40 to 50 million of additional military opportunity in front of you? You know, what's the timing for you to, you know, maybe bring some of that home in terms of contract? And would it be fair to assume that, given the progress you had with the Navy, that the ability for you to, you know, kind of bring that revenue into the P and L would be a little quicker, you know, because you're. You're building on a foundation that's already been laid. That's my first question. Questions. Thanks.
John Panzer (Chief Financial Officer)
So, Ted, this is John.. I'll try and answer that. So the first part was just about the 20 million in contracts that we have today and the pace of that revenue. So last year, I think we. Last year and the year before, I think we booked somewhere around 5 million total. And so, you know, just under 3 million this quarter. It's a good. It's a really good start to the year, especially on our forecast of 10 million. We do expect that strength to continue. And it's really been a matter of us getting a lot of traction with that, with that contract and getting work done, particularly around the 800 kilowatt power module that we talked about. And then leading into later in the year, we do expect to sign additional contracts, as you mentioned, somewhere between 40 and 50 million. That would be a second half of the year expectation in terms of when those get signed. And so that will allow us to continue that momentum into the fourth quarter quarter and into 2027. So we, you know, we feel very good about our military opportunities. I think that's one thing Thomas was really trying to emphasize during his prepared remarks today, is we do see the military as a huge opportunity, and we are starting now get some big traction on the revenue side. So you should expect that to continue
Edward Jackson
to grow okay, and then my next question, and then I'll add more, but I'll step aside, you know, not be a hog, is on the efforts to get to, you know, the certification for 200 kilowatt. You know, I know it's, it's kind of like a whack-a-mole you kind of go through and make different changes. But maybe you can talk a bit about, you know, what you've accomplished towards that end during the first quarter and you know, where we, you know, stand in the current second quarter and what you need to finish to get to that 200 watt kilowatt rate and be able to certify.
Thomas Healy (Chief Executive Officer)
Yeah, happy to share more on that one. So maybe I'll start with where we were last quarter. We had shared that we have produced a gross of 175 kilowatts out of the dyno. And that was about three months ago. The focus over this quarter was around actually independently testing some advancements. And in great news, I mean we were seeing double digit kilowatts of improvement out of those independent tests that we were running. And so now what we'll work on over the next quarter as well as the quarters ahead by year end is rolling in those improvements. We've got other ones that we're working on as well that we'll be rolling in. But ultimately it's all pointing towards we should be at that 200kW of power rating by the year end. One nice thing is with the UL testing that we've done, the non recurring testing, even with improved power levels, we do not need to go back and redo any of that testing. So that's a big win. And it's just that isolated final test that happens on each system which will have the power rating of it. So it's not like as we increase power, we need to go back and redo all of ul. So, so that puts us on a good trajectory to be going into next year starting to scale production, get more units out there and have them be at that higher power level.
Edward Jackson
Okay, I'll step out and get back in line for more questions. Thanks Thomas.
OPERATOR
Your next question comes from Martin Molloy with Johnson Rice. Please go ahead.
Martin Molloy
Good morning. Congratulations on your progress. Good morning, Marty.. Good morning. I want to talk about the military applications. And if you, if with respect to the stationary power military applications, if we could see those, the testing and, and the move in the orders, could that be quicker than what you're seeing with the Navy? And then also on that, are you Seeing any change in the interest from the US Military following the recent conflict in the Middle East?
Thomas Healy (Chief Executive Officer)
Yeah, let me start with the first one of stationary power. So this Office of Naval Research or Naval Research contract that we have, we often talk about the on ship platform in this 800 kilowatt. One thing that we probably underemphasize is that contract also has stationary deployments planned into it as well. And so that's something that, you know, as we go through this year into next year, we'll be working on those stationary deployments as well. We also, as you know, John, highlighted a little bit earlier the 40 to 50 million of additional military contracts that is both for on ship applications as well as stationary applications as well. So to your point, the stationary does have an accelerated factor to it where it really is just that commercial box that we've already been working on and developed that we'd be deploying. And then the military has plans to put it into hot weather environments, put it into very humid environments. They've got cold weather environments they're going to be operating it in. So they're really looking to run it through its paces in order to ensure that it's suitable for any type of operation that they might need to be able to be producing power in. So then going into the second part of your question. Yeah, so around the conflict and is that accelerating, you know, the demand? So what I would say is, I think I would kind of look at it outside of the conflict itself. I would say that the interest from the military is just growing overall. Just over the last quarter, I've had a handful of meetings with various generals of both, you know, in the military. I was up at West Point just recently, was up at Fort Hood recently. And we're seeing that, you know, this product just touches a lot of the pain points that have, whether it's not knowing what fuel is going to be available. And so our system can run on various fuels. Whether it be that they need a low heat signature, low noise profile, we deliver that also just even the low maintenance. One of the generals expressed that where the military often struggles is in logistics and moving parts around and getting assets to where they're needed. And so if you can move to a lower maintenance system, a system that requires less parts now you've improved the logistics of the military. So I think overall we're seeing very fast growth in interest and demand out of the military. And I suspect that next year the military will be where we actually focus a lot of our deployments with them.
Martin Molloy
That's Very helpful. And then for a follow up question, just wanted to focus on the commercial non military side and the placement of the Karno generators this year. Can you maybe help us in how to think about the timetable for testing with the customers, how much time that they'll need before those pilot tests turn into orders? Is it a, a three month testing process or six or nine months with these customers? And this is all, you know, assuming it works as, as expected.
Thomas Healy (Chief Executive Officer)
The numbers you threw out were spot on. So we've got some that have said it's in the three month. We've got some that have told us it's more than nine month time frame. But you know, as we highlighted in today's call, We've got nearly 750 units of interest in LOIs signed with various customers. And so what I envision happening is that this year we'll get some initial units out with various components, commercial customers and then we'll start deploying initial units with other customers as well. And then we'll start layering in repeat orders from those first customers. But we'll also be deploying new units with new customers as well. And so I don't think, you know, backlog interest. That's not our issue. Our issue right now is how do we get these units out into the field? How do we start scaling production and hopefully, you know, deliver more units to customers, customers next year, whether that be through repeat orders or through just a brand new opportunity. And I think next year we're going to be focusing heavily on both military, as I just mentioned, but then also the data center side of things. We've been engaging with many of the key players in the data center space and they're excited and eager to see our product and they're doing trips up to our Cincinnati facility. We've had one this week. We've got multiple this week. We've got more next week visits happening with various data center players. And so I think that's going to be a long term growth opportunity for us.
Martin Molloy
That's great. Thank you. I'll turn it back.
OPERATOR
Your next question comes from Sean Milligan with Needham and company. Please go ahead.
Thomas Healy (Chief Executive Officer)
Hey Thomas, great update today. You hit on the printer side and just the capacity you have for this year, next year. Curious about the human element in terms of the assembly kind of what the plans are to scale up there and do you see any headwinds on the assembly side? You know, I guess personnel and then also maybe like changes you're making to the system to make it easier and quicker to assemble. Great question. So we're working on all the above. So maybe just walking you through the journey. Initially, all the very first assemblies were happening and all the very first printing was all happening out of our Cincinnati R&D facility. The first thing that we started to scale was printing, and that's where we set up. We probably got about 3x of print capacity in Texas that we do in Cincinnati now, and we moved that to our larger facility here and built up the team around it over the last handful of months. We also then moved power module assembly to Texas. So that was happening in Ohio, now it's happening here in Texas. The next stage of the journey will be moving the actual Karno core assembly to Texas. That's something that we've already started building out. The team, they're actually traveling to Cincinnati learning how to build the system properly and then we'll move that operation here. So I think we have a very good setup where we kind of go through the learnings, the hurdles, the development in our Cincinnati facility that allows the engineers to be alongside the assembly line and kind of educating and iterating that process. And then once it's more stable, then we move it to Texas and it's more of a focus of let's start scaling and growing it. And to that point, as I mentioned, we've already started building out team to work on that. So, you know, do feel confident the facility, you know, has the space and the infrastructure we need in order to scale. And you know, we'll be hiring the team as we need it appropriately. And then we'll also be, you know, adding in parallel assembly lines as well, which is something we've already started exploring.
Sean Milligan
Awesome. And then on that you mentioned you're having like a lot of conversations with data center customers today. Curious, kind of what they see as the most unique or like in demand piece. Is it the 800 volt architecture? Is it the fuel agnostic? Like, just curious about what do you think they view as like the differentiator for hyliion?
Thomas Healy (Chief Executive Officer)
Yeah, so first is they just need power. So I think any data center provider you talk to, if you had even an old used turbine sitting around, they would buy it right now. It is unbelievable the need for power that they have. And then outside of that, I mean, that's actually one of the things that they wish we had more of. They would love to have more capacity out of us. Obviously we're just scaling up, as we've talked about. So what they're seeing as unique about the Karno power module is one it truly enables behind the meter or on site power generation. It's got very high efficiency for its form factor as well as it's got very low maintenance. So those are exciting factors. And then the other things that you touched on, let's talk about fuel agnostic at first. So pipeline natural gas is going to be what data centers run on 99% of the time. But the reliability standards that the data centers are held to, pipeline natural gas doesn't actually meet those reliability metrics. So that then forces the data center to have fuel stored on site as well. And normally in most data centers the on site fuel storage is diesel. And so what data centers are being forced to do right now is not only buy a set of natural gas generators, they also then have to go buy a set of diesel generators to be able to handle both those requirements. With the Karno power modules, you can run both of those fuels off of the same power module and have redundancy built in. So that's a big win. And then the last one that you highlighted, the 800 volt architecture, so just coincidentally had the opportunity to meet both Jensen Huang from Nvidia this past weekend as well as Lit Bhutan, the CEO of Intel. And that was discussions I had with both of them. They see 800 volt architecture as where the industry is heading. Nvidia has been probably the most kind of progressive on that end of saying that this is where data centers are going to head. And so right now you would normally have to convert the 480 volt AC power from the grid, convert that into DC to go into the racks, versus with the Karno power module, you can go straight 800 volt DC power out straight into the actual rack. So that's going to reduce your need for transformers, it's going to reduce your need for copper lines in the facility. And so it's just all around a better solution, more efficient solution.
Sean Milligan
That's great. Thank you. Thank you for the update today.
OPERATOR
Your next question comes from Edward Jackson with Northland. Please go ahead.
Edward Jackson
Thank you very much. Thomas. One way to talk about your pipeline and your growth prospects is you know that a year ago your LOI covered 100 car notes and now it's at 750. So that's in 12 months. Just you might have missed yourself. My follow up question there, I got that out there for you. My follow up question for you is, you know, when you're moving towards commercialization and the data center opportunity and you know we're talking roughly 10 units, you know, you had indicated earlier in the year that because of the data center opportunity and the evaluations and trials, that you were really going to hold back, you know, call it two or three units, and just maybe be able to use them for demonstration. You know, with regards to this data center opportunity, you assigned a contract with the VFG or an LOI with dfge, which really expanded your pipeline in terms of. Or backlog or whatever you want to call it. In terms of Karno units that are under loi, is there any tie in between those two or are they mutually exclusive? And I guess, you know, where I'm going with it is, you know, given the relationship with VFG and what they do, I mean, is that, you know, where you are looking at perhaps putting, you know, some of these units where you're wanting to have them for data center, potential data center customers to, you know, kind of kick around. That's my first question.
Thomas Healy (Chief Executive Officer)
Yeah, so I do see some overlap with those. You know, what we're envisioning with these couple of demonstration units, we're actually already in the process of. You know, one of them is going to be mounted on a trailer. It can be moved around from location to location. What we've seen is when people actually get a chance to see the product, I'll kind of try to put a story to it. Like up in our Cincinnati facility, you walk out of the building, you can see the Karnos there. You're maybe 30ft away. You can't tell whether the product is on or off because of how quiet it is. It's not until you actually get closer to the system that then you can actually, here are some of the fans running. And that's not the experience that people normally have with an internal combustion engine or a turbine. Data centers are actually running into problems of neighbors complaining about how loud systems are. And so when people get to experience the product, see it firsthand, see how easy it is to operate and how simple it is, you truly just feed fuel in and you're going to get electrons out. The product in a lot of ways sells itself. And so from that end, whether it's with VFG Holdings or other data centers, just yesterday another data center provider was in and they were talking about, let's take a system, put it in their AI test facility. All these data center providers have not only the true data centers they're building, they also have facilities where they're testing new technologies, new architecture architectures like the 800 Volt. And so they want to get systems deployed and really Prove out the use cases we're talking about. So as we go into 27, you know, as mentioned, whether it's with VFG Holdings and or others, the plan will be to be showcasing some of those demonstrations.
Edward Jackson
Well, and I, having been to your facilities, I mean, I stood and had a full conversation with you, not like, I mean, literally right next to a unit and we didn't have to yell. So I mean, they are definitely. They aren't that loud. The next question is, you know, you're talking about 27 being the year of kind of ramp in 28 and that you have capacity to handle, you know, what you view as your needs until you kind of get through 28. Can you perhaps, you know, give us some kind of sense with regards to what you think your, you know, your current capacity level is or, you know, some kind of range in terms of you kind of what you, your capacity level will be in 27? I mean, I assume we're talking units and, you know, just, just, it doesn't have to be exact. I mean, maybe kind of like a low and a high and just kind of, you know, frame out what we could, we could think of in terms of your ability to produce Sukarno.
Thomas Healy (Chief Executive Officer)
Yeah. So I'll start with apologizing. We're not ready to share that just yet. We do anticipate later this year we'll, we'll start leaning, sharing more on what we expect capacity for next year and the year after to be. But we obviously are expecting growth behind it. The reason that we don't want to lean in just yet and share those expected numbers is because we want to see how these initial units go when we get them out to customer sites. I mean, just being transparent, it would be naive for us to think that there won't be any learnings and it will just be full steam ahead. Right. I mean, they're definitely will be learnings. Every new technology has it. And the question is going to be what are they and how fast can we respond and adapt and fix them? So our focus right now, let's get these approximately 10 early adopter units out there, depending on how those are performing. That's what will then set what we expect production to be next year. But obviously our goal is to accelerate it and get a good bit more units out there next year and so on in 2028. We're just not ready to actually put numbers to that yet.
Edward Jackson
Well, I had to ask my last question is when you think about your revenue, you know, there's kind of, you know, Right now, the revenue that you're putting out there is, you know, really coming. It's coming, you know, really from, you know, like development work for the military at what point? And I know that there's, you know, there's actually KANO units kind of within that. Is there like, will that always be. Will your revenue from the military, as you move forward always kind of be in that sort of other revenue bucket or as you hit commercialization, will we see another revenue line that will have revenue for your commercial customers? And will your military revenue, or at least some portion of it, shift into that line?
John Panzer (Chief Financial Officer)
John. I'll take a shot at that. So I think it's more of the latter. Our initial contract with the Navy is more R and D. And if you can imagine a new ship platform, they're going to do a lot of R and D work before they put a new power source in that. But then as Thomas was talking about, there's a lot of interest for mobile power, for example, in the army and the Air Force and those types of systems, they could initially be R and D, but those will certainly turn into some kind of commercial, commercial unit. So it won't all be R and D. You know, I think from our standpoint, at least now we're happy to have revenue on both lines. It is beneficial both ways and is a good signal of interest in the system and also us making progress and offering these types of R and D services to the military. So it should continue to grow in both areas.
Thomas Healy (Chief Executive Officer)
And Ted, just to add to that one, so last week we had a gentleman in from the military and it's still on our whiteboard here in the conference room that we're all sitting in. He walked us through the how do you move from the R and D phase with the military into actually just being purchase orders that are being placed and how to effectively do that? So it's obviously something we're thinking about and do expect that it's long term. This isn't just R and D. This is just we want it to be a product that they just purchase.
Edward Jackson
Yeah, that would be ideal. So. Okay, well, thanks for taking all the questions and congrats again on the progress in the quarter.
Thomas Healy (Chief Executive Officer)
Thank you.
OPERATOR
If you would like to ask a question, please press star one to raise your hand to withdraw your question, Press star one again. And we ask that you pick up your handset when asking a question to allow for optimum sound quality as well. If you are muted locally, please remember to unmute your device, Your Next question comes from Martin Molloy with Johnson Rice. Please go ahead.
Martin Molloy
Thank you. I just had one quick follow up question just regarding the UL testing. Does that clear the way for what you've done so far? Does that clear the way for placing the Karno units at the customer sites or is there some final certification that is needed?
Thomas Healy (Chief Executive Officer)
Yeah, so we've done all the non recurring tests in just a little more detail. It's both on the linear electric motor,, the battery pack as well as then the full power module.. The last thing that we need to do in order to put it at a customer's site is just go through a final run of the system and and then that will then put the nameplate on it for UL certification. So the way that UL structures this is until you get facility level certification, every unit you produce still needs to go through a final end of line run. It does not need to redo all those reoccurring tests I mentioned. It's just a final end of line run and then that will get the nameplate once later this year we move into the facility level certificate. Then we no longer have to independently run every single system prior to nameplate being put on it. So the way for you to really look at this is we've hit those UL tests that were needed in order we've successfully passed those UL tests that were needed in order to move to the next phase of customer sites. And then each one that we build will just go through a final run prior to to that nameplate being put on them.
Martin Molloy
Got it. Great. Thank you very much. Appreciate it.
OPERATOR
We have reached the end of the Q and A session. I will now turn the call back to Thomas for closing remarks.
Thomas Healy (Chief Executive Officer)
Thank you all for joining today's call. Hopefully you can see a lot of excitement on our end. A huge milestone for us to get through that UL certification. Certification testing. It's been something we've been talking about for a few quarters now. Obviously excited about the collaboration with VFG and moving the signed LOIs non binding LOIs to potential of about 400 million of revenue at today's current pricing. And then you know, we talked about a lot as well the opportunities ahead of us with the U.S. military and excited to get those 40 to 50 million of contracts signed and executed and then be able to share a little bit more of what some of those opportunities are with all of you. So once again thanks for joining for this quarter and we look forward to sharing more on the next earnings call.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment