Hexagon Purus ASA (HPUR) Earnings Call Transcript & Summary

Welcome to Hexagon Purus Q2 2026 presentation. My name is Mathias Meidell, and I will be moderating from the studio in Oslo. As usual, I'm also joined by Group CEO, Morten Holum; and Group CFO, Salman Alam. The agenda for today includes highlights from the quarter, a company update, 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. With that, I'll pass the word over to you, Morten, who will take us through the highlights of the quarter.

Thank you, Mathias, and good morning, everyone. Thanks for joining our webcast this morning. The key developments in the second quarter were: number one, revenue and other income was NOK 146 million, roughly in line with last year when excluding the divested revenue of NOK 38 million following the sale of the U.S. Aerospace business unit in Q1. Number two, we had good order intake, both on the Hydrogen Infrastructure side and the BVI side, and we have good visibility for the second half of the year. Finally, number three, we executed further workforce reductions in Germany, and we are now into the final stages of the operational restructuring to align the cost base to the current market environment. Let's go into the details. Starting with revenue. On the left, we recorded NOK 146 million in revenue in Q2, which is 25% lower than the same quarter in 2025. But Q2 '25 included NOK 38 million in revenue from the U.S. business unit that we divested earlier in the year. Adjusting for that, revenue in Q2 was down only 6% versus last year. On the right, EBITDA was minus NOK 102 million in Q2, which is significantly better than the minus NOK 161 million in Q2 last year, but still negative. This is driven by lower revenue in the quarter, partly offset by the lower fixed cost base that we now have after the cost reductions that we have executed since Q2 last year. Also note that EBITDA for this quarter includes NOK 17 million of restructuring costs related to the latest workforce reductions. The overall revenue mix continues to shift towards distribution. Revenue from Hydrogen Infrastructure made up more than half the total revenue in Q2. This is up from only 8% in Q2 last year, driven by higher volume of distribution units. On the opposite side, we had lower revenue from Hydrogen Mobility this year compared to last year, driven by softer activity for transit bus applications. The low revenue share from other applications compared to last year is a result of a combination of lower volume in the Industrial Gas segment and the absence of U.S. Aerospace revenue following the divestment of that business unit. Looking at the year-over-year revenue bridge when adjusting Q2 last year for the divested revenue, the revenue comparison is mainly impacted by 2 key movements. We had significantly higher Hydrogen Infrastructure revenue in Q2 this year, but also lower transit bus revenue compared to last year. This is similar to Q1 and consistent with what I said at the time that this is a pattern that is likely to continue in the coming quarters. On the battery electric mobility side, we had lower volume in Q2 compared to last year. The volume in this product area is still on a low level, but expected to pick up in the second half of the year. We have 12 Hino trucks in the order book for the second half and also a number of hydrogen systems and battery packs to Toyota North America. Finally, other applications is now mainly the industrial gas product area and volumes there were also somewhat lower than last year. This is a business that moves a bit up and down depending on general economic conditions. The order book at the end of Q2 was NOK 523 million, which is 13% higher than last quarter. Most of the order intake in the quarter was in Hydrogen Infrastructure and in BVI. Around 83% of the order book is for execution this year, around 15% for '27 and the remainder in 2028. As you also see, the split by application where the Hydrogen Infrastructure is the largest component, followed by Hydrogen Mobility, which again is a mix of transit bus, rail and heavy-duty truck. With the current order book, we have good revenue visibility for the second half of the year and gaining increased comfort for 2026. We also have an active pipeline with many ongoing customer dialogues that hopefully will be converted to orders in the coming months and improve the visibility for 2027. Since the end of 2024, we have gained a material positive impact from restructuring actions, taking out capacity costs to align the overall cost base with the market environment. In Q2, we implemented further workforce reductions in Germany. Since '24, we have taken out more than 50% of the total workforce through reorganizations, capacity reductions and structural changes. We're moving into the final stages of the operational restructuring and the overall process of aligning the cost with the current market environment has reached an advanced stage, and we expect to see the impact of these actions increasingly materializing in the numbers over the coming quarters. Those were the main points for Q2. With that, I will hand the word over to our CFO to go through the financials. Salman?

Thank you, Morten, and good morning, everyone. Taking a step back, the second quarter was, as we indicated at the time of our first quarter results, a relatively soft quarter in terms of activity. Revenue was NOK 146 million, reflecting continued weakness in transit bus and industrial gas as well as delivery timing that remains weighted towards the second half of the year. On the positive side, hydrogen distribution contributed strongly to revenue in the quarter, and we ended the quarter with NOK 308 million in cash. Order backlog was NOK 523 million, representing a 13% increase from the first quarter -- and following the recent workforce reductions in Germany, our group headcount will now be more than 50% below 2024 levels. As we move through the remainder of 2026, we expect these actions to become increasingly visible through a structurally lower operating cost base, materially reducing the revenue required to breakeven. Moving to the details of the quarter. Revenue was NOK 146 million, down 25% from the same quarter last year. This comparison includes the divested U.S. Aerospace business units. If we exclude that, the like-for-like comparison was more stable and revenue was 6% lower this quarter. The underlying picture is same as in recent quarters. Hydrogen Infrastructure is growing year-over-year, while transit bus and industrial gas remains on the weaker side. Year-to-date, reported revenue was NOK 551 million, which is up 30%. That figure includes the NOK 134 million that we had an extraordinary gain from the 2 structural transactions announced in the first quarter. If we exclude that gain, year-to-date revenue was NOK 417 million, which is more or less even with 2025, but delivered on a smaller structural footprint than last year. On costs, cost of materials was 56% of revenue, which is up from 52%. The increase is mix where we had a higher share of distribution units, some of them with below normal contribution margins and a lower share of revenue from the industrial gas business. Payroll was NOK 126 million, which includes NOK 17 million of restructuring costs related to workforce reductions. If you exclude those restructuring costs, payroll was NOK 109 million, which is down 28% year-over-year and down another further NOK 26 million from the underlying level in the first quarter of this year. Other operating expenses were NOK 41 million against NOK 101 million last year. The prior quarter included several nonrecurring items. But even against a clean base, this is a materially lower run rate, reflecting genuine reductions in professional fees, engineering, IT and facility costs. EBITDA was minus NOK 102 million against minus NOK 161 million last year, although still negative, it represents an improvement despite lower revenue. The EBITDA, as mentioned, this quarter also includes NOK 17 million in restructuring costs. Moving below the EBITDA line, depreciation and amortization was NOK 44 million, which is down from NOK 66 million in the same quarter last year and reflective of a lower asset base following the divestments that we completed earlier this year. The share of loss from associates was NOK 5 million, which represents our minority interest in the China joint venture. Finance income was NOK 20 million, which is mainly currency effects and interest on deposits. Finance costs were NOK 85 million, where the large majority is noncash payments on the 2 outstanding convertible bonds. Tax was immaterial as the group is not in a taxable position, leading to a net loss for the quarter of NOK 215 million against NOK 272 million in the same period last year. Turning to our segments. The Hydrogen Mobility and Infrastructure business is our European cylinder and systems business out of Kassel in Germany -- Kassel and Weeze, Germany, together with the industrial gas activity. Following the reductions implemented in Kassel earlier in the year and in Weeze now in June, the segment's capacity and cost base are now better aligned with the demand picture we're currently seeing. HMI revenue was NOK 129 million this quarter, down 21% as reported. But adjusting for the divested U.S. business, revenue grew 3% year-over-year. Hydrogen Infrastructure delivered revenue of NOK 80 million, which is 5x the level of last year, driven by deliveries of distribution systems to industrial gas and energy customers. Hydrogen Mobility was NOK 21 million against NOK 88 million last year, with transit bus accounting for essentially all of that decline and which has been consistent with the muted expectations that we've communicated for bus throughout the year. Other applications, including industrial gas came in at NOK 28 million, with industrial gas down about 30% year-over-year on continued weaker German industrial demand. EBITDA for the segment was minus NOK 52 million against minus NOK 76 million last year, and that includes NOK 15 million of restructuring charges. Year-to-date on reported numbers, EBITDA has improved from minus NOK 219 million to minus 116 million. The improvement is mainly cost driven and the full run rate effect of the recent workforce reductions in Weeze will come through from the fourth quarter and 2027. Order coverage in Hydrogen Infrastructure improved during the quarter, and the second half now is quite well covered by firm orders. The commercial priority for the segment is to convert ongoing dialogues into orders for late 2026 and 2027 delivery as well as executing on the current order book. Moving to North America and the Battery Systems and Vehicle Integration business. This is a business operated at Kelowna, Canada and Dallas, Texas. The operational focus for the business is similar to last quarter, executing on the 14-truck Hino order that we received earlier this year as well as hydrogen and battery systems deliveries to Toyota. At the same time, we continue to evaluate strategic options for the business. Revenue for the BVI segment was NOK 16 million this quarter, down 35% year-over-year. The quarter comprised delivery of 2 Class 8 battery-electric trucks to Hino together with sublease income from the Dallas facility. The remaining trucks under the Hino order received earlier this year are scheduled for delivery over the coming months and hydrogen and battery system deliveries are to Toyota are similarly weighted towards the second half. We've also added some temporary labor during the quarter to prepare for these deliveries, which impacts gross margins in the quarter. EBITDA was minus NOK 21 million against minus NOK 31 million last year and minus NOK 46 million year-to-date against minus NOK 85 million. That's mainly the cost reductions now also flowing through for this segment. Delivering on the Hino and Toyota commitments in the second half is the most important operational item for the segment in the remainder of 2026. Going to the group balance sheet. Total assets ended the quarter at around NOK 2.8 billion, and this is slightly down from the first quarter, primarily reflecting the net loss for the period, which was -- but which was partly offset by positive working capital development. Property, plant and equipment was NOK 629 million, which is broadly stable on normal depreciation and minimal additions. Inventory was NOK 382 million, down NOK 7 million from the prior quarter with deliveries in HMI partly offset by a build in BVI ahead of second half truck and battery system deliveries. Trade receivables were NOK 180 million, down NOK 58 million on strong collections and cash then ended at NOK 308 million at the end of the second quarter. On the other side of the balance sheet, the debt component of the convertible bonds stood at approximately NOK 1.9 billion and continues to grow mechanically with the payment in kind interest accrual. Total equity was NOK 41 million at quarter end, which is equal to an equity ratio of 1% versus 9% at the end of the first quarter and 33% a year ago. The development in equity reflects the loss for the period and the accrued interest on the convertible bonds. Our liquidity position supports continued operations on a going concern basis. Then we are, in parallel, actively pursuing measures to strengthen the company's equity and financing position. Moving to the cash flow statement. Net cash flow was minus NOK 56 million in the quarter. Operating cash flow was minus NOK 47 million and consists of the operating loss in the quarter, partly offset by the NOK 57 million working capital release and other noncash items. Cash flow from investing was again this quarter very limited at minus NOK 2 million, and that's deliberately being restrained as similar to what we saw in the first quarter. Financing effects absorbed around NOK 7 million, which is essentially lease payments of NOK 12 million, partly offset by positive currency effects. We'll end the financial section with a look at recent cash flow development. As this page illustrates average quarterly net cash flow when you exclude capital raises and the proceeds from the sale of the U.S. Aerospace business has improved consistently since 2023. In the first half of 2026, average quarterly cash outflow was NOK 56 million, representing a reduction of more than 80% compared with 2023. There are 3 main drivers behind this development. The first is a structurally leaner cost base resulting from the restructuring measures implemented over the past 18 months. The organization is now materially smaller and the business, therefore, requires significantly less revenue to reach breakeven. The second is a structurally lower capital expenditure profile. The major investment phase is behind us and ongoing capital requirements are now primarily related to maintenance or highly selected either customer or regulatory-driven investments. Then the third and final driver is working capital release, where we've converted inventory into sales, and we continue to have normal and good cash collections from customers. We'll continue to work to get closer to both EBITDA and cash breakeven going forward, but it's encouraging to see that we're on the right track and progressing roughly along the lines of expectations that we set out earlier. With that, I'll hand back the word back to Morten for the outlook.

Thank you, Salman. Let's move on to the outlook and talk about what we see ahead of us. The overall market situation has not changed significantly during the quarter. However, we do have better revenue visibility for '26, and we have several live customer opportunities that we're working on. Starting in HMI, in Hydrogen Mobility, we expect the transit bus activity to remain materially below last year. This is no change from Q1. That's mainly driven by customer capacity constraints. In Hydrogen Infrastructure, the increased order intake during the quarter has significantly improved the revenue visibility for the second half of '26. We're now mainly working on 2027 opportunities. On the right for BVI, we also have a good order book for the second half of the year. In addition to truck deliveries to Hino, we will produce hydrogen systems and battery packs for Toyota North America. We expect significantly higher revenue in BVI in the second half of the year compared to the first half. Taking a step back, we have largely executed according to the plan we made back in early 2025 to create a clear pathway to a more sustainable operational and financial profile. With a significant change in market environment, it's been important to align the capacity and the cost base with the -- at any time prevailing market conditions. Over the past 18 months, we have taken out more than 50% of the total workforce. Along with the other cost reductions and structural measures we have taken, that has significantly lowered the breakeven point for the group. We have also worked on the overall business portfolio to sharpen the strategic focus, divest non-core applications and prioritize capital allocation more strictly. This has put us in a much better position as we now shift focus more towards the fourth point in this picture, strengthening the balance sheet and capital structure. Our overall priorities remain unchanged. Number one, revenue. We need to execute the current orders that we have in our order book for '26 and build the order book for 2027, which is usual for this time of year. Number two, cost and liquidity. We've come a long way on cost, but we'll continue to work on our cost base to lower that further. We need to manage cash carefully to ensure that we maintain sufficient liquidity. On the current plan, we expect to have sufficient liquidity coverage for at least 12 months ahead. Finally, number three, capital structure. We're working on addressing the convertible debt and restructuring the balance sheet to obtain a stronger financial position for the years ahead. We're continuing to work our way through a demanding period, focusing on what we can control and taking the necessary steps to maintain sufficient liquidity while we restructure the operation and the balance sheet. Although we have taken a lot of necessary steps, we're not yet where we need to be, but every step brings us closer to the sustainable future that we target, and we're diligently working our way there. That concludes the presentation for today, and we'll now open it up for Q&A. Mathias?

Thank you, Morten and Salman. We've gotten one question from [ Knut ]. It is a 2-parter. So I'll start with the first part to you, Salman. Could you elaborate on the structural measures being considered for the convertible bonds? Should existing shareholders expect significant dilution?