Hyzon Motors Inc. (HYZN) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to the Hyzon Motors' Fourth Quarter and Full-Year 2021 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. At this time, for opening remarks and introductions, I would like turn the call over to Darla Rivera, Investor Relations Manager of Hyzon.
Darla Rivera: Good morning and welcome to Hyzon's fourth quarter and full-year 2021 earnings call. I'm Darla Rivera, Senior Manager of Investor Relations. On today's call are Craig Knight, our Chief Executive Officer; Pat Griffin, President of Vehicle Operations; and Mark Gordon, our Chief Financial Officer. Hyzon issued our results today in a press release and presentation that can be found on our Web site, at hyzonmotors.com, in the Investors section. As a reminder, our comments within this call may contain forward-looking statements which may include expectations and assumptions regarding the Company's future operations, and financial performance, including the impact of supply chain disruptions and global uncertainties and our customers' performance under product orders and existing and future contracts, and are subject to various risks and uncertainties. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to our filings with the SEC, including the press release issued this morning, which was furnished on Form 8-K with the SEC. Except as required by law, we assume no responsibility for updating forward-looking statements. During this call, we also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. More detailed information about these measures and a reconciliation to the nearest U.S. GAAP measures is contained in the press release issued this morning, which is available in the Investors section of our Web site and was furnished on Form 8-K with the SEC. And with that, I am pleased to turn the call over to Craig Knight, Chief Executive Officer of Hyzon.
Craig Knight: Thanks, Darla, for that, and thank you to everyone for joining us this morning. 2021 was truly a transformational year for Hyzon. The reality of hydrogen-powered heavy mobility has come to the fore through Hyzon's proprietary fuel cell technology. It's remarkable to think that just eight months ago we made our public debut. During that time, we battled supply chain challenges like anyone else in manufacturing, but we are proud of this first chapter. We delivered 87 Hyzon fuel cell electric trucks to customers in Asia and Europe with a total contract value of $19 million, put another eight trucks into the trial in the city of Foshan, China, and kicked off fuel cell validation activities in both Australia and the United States. Additionally, we expect to commission our fully integrated U.S. fuel cell system manufacturing facility in the coming months. And Hyzon is proud to be the first company in the United States commencing serious production of fuel cell stacks that power a Class 8 truck. And we are gradually ramping up vehicle production in Europe and China, as well as doing initial local builds in the U.S. and Australia. During the year, Hyzon executed to play, laying a solid foundation for the creation of long-term shareholder value, and we are pleased to observe an increasing consensus that hydrogen will be the solution for high-utilization commercial vehicles in the quest to decouple them from fossil fuels. Hyzon continues to work on accelerating the adoption of hydrogen by supporting the build-out of low-cost low carbon intensity hydrogen production and dispensing infrastructure, designed to ensure commercial transport can be decarbonized at scale, and at pace. We believe the energy transition is paramount as oil prices continue to be volatile and reaching historic highs at some points, the need for energy independence is at the forefront of the global economy. We see hydrogen as the solution to decarbonize the commercial transport industry and have positioned ourselves as the key to the hydrogen economy through our leading fuel cell technology, first mover status in zero emission heavy trucks, and pathway to securing low-cost clean hydrogen through partnerships with leading hydrogen proponents around the world. While electric vehicle adoption is accelerating, so too is the demand and dependency on the grid which creates new challenges not only with overall demand but, more importantly, with consumption patterns, that is why we remain committed to hydrogen as the long-term solution for commercial mobility, especially in those heavy-duty high utilization use cases. Hydrogen offers fleet owners the most comparable replacement to their diesel trucks today, enabling them to achieve zero emissions with zero compromise. Achieving a total cost of ownership approaching diesel parity is crucial for fleet owners, and we can get there today through various subsidy programs that are being implemented in European countries and in the U.S., with California leading the way and more states and jurisdictions to follow. We are seeing increasing demand as evident in our growing backlog, which now stands at $287 million, an increase of well over 200% since our last backlog update was provided, as of July 2021. We define our backlog as vehicles with a purchase order or an MOU where we have clear indication of commercial terms. We have a significant number of vehicles under MOU that are pending confirmation of specifications and commercial terms, and therefore are not counted in our backlog. Further proof is on hand through a recently received order to supply 18 Hyzon trucks in Europe for daily operations with a leading global logistics company as the end user. And more details will be shared in a press release in the coming weeks. As well as the successful startup of another of our European customer's first green hydrogen production this week, which will be combined with truck fueling capability in the coming months to fuel their first batch of Hyzon fuel cell trucks. Our near-term focus is getting our vehicles on the road and into customers' hands, letting them experience for themselves the advantages of fuel cell electric vehicles that are available today, with Hyzon gaining highly valuable real-world experience and performance data. After a slow start due to the delays in procuring equipment for our operations, North America is progressing at pace. Our first customer demo Class 8 fuel cell truck was recently delivered to TTSI at the port of Long Beach, in California. The truck is being tested in daily over about two months, and we look forward to providing more updates on the performance of the truck as it faces the challenges of long days and long routes within the TTSI operation. TTSI is just the start of our North America trials. There is incredible enthusiasm for hydrogen-powered trucks, and we expect to have 10 to 15 Hyzon fuel cell demonstration vehicles deployed to major fleet trial customers by year-end. And we will share information on those trials as appropriate in due course. Efforts to decarbonize trucking are experiencing significant tailwinds as government mandates and attractive subsidies enable faster adoption of zero emission vehicles by fleet operators. Additionally, we are making excellent progress scaling up our U.S. operations. I'm particularly excited by the recent commissioning work occurring on Hyzon's Membrane Electrode Assembly production line, and we look forward to producing the first made-in-the-USA Hyzon fuel cell system before the end of 2022. Just to remind everyone, the MEA is the most important element of a fuel cell, having an outsized impact on both performance and cost when building what we affectionately call the heart of zero-emission trucks, the fuel cell itself. To support demand as it evolves, we continue to focus on expanding capabilities around the globe, with a particular focus on Europe to support the well publicized building wave of hydrogen investment and adoption there. The Hyzon family continues to grow at a rapid rate. Our global team has grown to over 200 employees. I'm excited for the years ahead and know we are well-positioned for success as we build out our team with top global talent, many of whom turned down many other opportunities to come to work at Hyzon because they sense the dawn of something incredible and feel good working towards something so meaningful, not for ourselves, but for our children and grandchildren. While 2022 continues to bring macro economic challenges, and the recent COVID lockdowns in China is just one more example of supply chain difficulties. And the terrible Ukraine situation adds further uncertainty in Europe, in particular, we remain optimistic and energized for our journey as we enable the adoption of zero emission commercial vehicles and broaden our partnerships with like minded companies to accelerate the transition to hydrogen even further. As some of you may recall, during our last earnings call, we introduced Parker Meeks, Hyzon's Chief Strategy Officer who is leading our strategy around fueling and hydrogen infrastructure. Parker provided a deep dive into how we are growing the fuel supply side of the equation to make it easy for fleets to convert to zero emission operations with zero compromise. In this quarter, I'd like to introduce Pat Griffin, President of Vehicle Operations who joined Hyzon last October. Pat brings a wealth of knowledge in track assembly operations, and has been able to leverage that experience from day one to help us scale Hyzon Global Operations. Pat will provide some details on our path to commercial production, and an update on our U.S. operations.
Pat Griffin: Thanks, Craig, and thanks to everyone on the call. As we scale our operations, from prototyping to commercial production, I'd like to provide some color around our path forward. We're keenly focused on development and completion of our core differentiating technologies. And when coupled with our modularized designs for assembly, we expect it will provide rapid and synergistic vehicle commercialization across our global locations. A key enabler to this initiative is the Hyzon Innovation Center located in the Chicago land area comprised of approximately 100,000 square feet. It will produce our domestic proprietary fuel cell systems. Just this past month, we achieved a significant milestone and validated important stages in the membrane electrode assembly line, which is the heart of our fuel cell stack. We expect to be producing Hyzon fuel cell systems in the United States by the end of 2022 supporting our global vehicle build. Our Rochester facility is also progressing to plan. Having already completed prototype and demonstration vehicle builds, it will continue to scale and provide various sub assembly modules, such as the vehicles hydrogen storage system, as example. Utilizing both U.S. facilities allows us to support selected sub assembly modules for both U.S. and European production. As we ramped production in the U.S., final Vehicle assembly will initially be performed via third party upfitters such as Fontein Modification, which has the capacity to build 10s of 1000s of vehicles per year. Our vehicle production in China follows a similar model, in which we utilize OE Vehicle Assembly partners during early stages. Until vehicle volume supports dedicated Hyzon facilities, this approach to scale production allows us to be nimble while aligning with our capital light model. Once vehicle demand reaches a tipping point, we plan to build dedicated production lines by region, strategically position to meet the increasing demand. For trucks in Europe and Australia, we currently have our own facilities to assemble vehicles through our ventures and our partnerships to meet early of growing demand in those regions. Due to strong interest in Australia, we already have plans to increase our production capacity there. Based on Europe's demand for hydrogen-powered vehicles, we've established a path forward, taking advantage of existing facilities and reconfiguring our operation to provide production capacity of 1,000 vehicles per year on a two shift basis. We believe our global footprint and multi region platform offerings will enable us to meet customer demand where the adoption of hydrogen fuel cell vehicles is accelerating, to get our trucks on the road, gaining real use case experience. We are pleased with the progress our teams have made in just a few short months and look forward to providing updates as we begin scale production. Now, I'd like to hand the call over to Hyzon's Chief Financial Officer, Mark Gordon.
Mark Gordon: Thanks, Pat, and thanks everyone who joined the call today. Since our last quarterly call, the security of energy supply has become a paramount issue. It is imperative that this unfolding crisis be addressed immediately with a viable path towards a long-term sustainable solution. Before the Ukraine conflict, oil, natural gas and coal prices had all steadily increased, driven by compounded years of low investment. Climate change concerns forced the energy industry to cut capital spending, lowering supply before the energy transition can lower demand, the Ukraine conflict has now exposed the fragility of the global energy system in a way that will not be forgotten. While the IAEA has called for emergency measures to curb energy demand, a comprehensive and revolutionary energy solution is called for. The global rollout of waste to hydrogen has the potential to replace a large portion of oil demand by converting municipal waste to clean green hydrogen. This has been an important additional benefit as solving the overflowing landfill issue. Even plastics and biohazard waste can be used as a feedstock. The conversion process advocated by Hyzon is non-combustion, so it avoids adding pollutants to the atmosphere. According to calculations based on the Raven system, converting all municipal waste to hydrogen could theoretically offset 25% of oil demand. This percentage could be substantially increased with agricultural waste were included as a feedstock. Most importantly, the process can generate its own electricity using a fuel cell or micro turbine. This means the hydrogen production process can be completely grid independent. Already in Europe, electricity prices have made a grid-based solution to the energy transition impossible and misguided. With coal and natural gas making up the majority of electricity generation globally, grid independence is a problem for the energy transition from both the security of supply and the decarbonisation perspective, it is imperative that the energy transition have a grid independent path forward. Hydrogen has multiple infrastructure advantages. Most importantly, hydrogen can be produced off grid. A large scale expansion of the grid is still considered given the massive infrastructure investment required and the unknown availability of natural resources such as copper. More specific to Hyzon the charging or fueling infrastructure needed for long haul heavy trucks could be eight times greater for battery electric vehicles versus fuel cell vehicles as estimated by the Clean Air Task Force. Finally, hydrogen will be produced locally. This avoids dependency on important energy that allows virtually any region of the world to be energy independent. When looked at from the perspective of a complete transition away from fossil fuels, hydrogen is the only viable path forward. We believe mass conversion of vehicles to battery electric will not work. Cobalt, nickel, copper and lithium are scarce resources, with prices already increasing despite minimal bed penetration. All of these resources have their own security of supply issues. For fuel cell electric vehicles, platinum is a modest percentage of the total vehicle cost and platinum resources will free up as fewer catalytic converters are built for internal combustion engines. From an infrastructure perspective, that requires a much greater investment than fuel cell and that investment is often not included in the total cost of ownership calculations. The frequently cited efficiency argument for does not take into account energy economics. For example, at $0.22 a kilowatt hour, electricity prices in California are currently trading at $360 per barrel of oil equivalent when the BTU basis of the energy is considered. In Western Europe today, where electricity prices are now double California, electricity is more than $700 per barrel of oil equivalents. It does not matter if that vehicle is two-and-a-half to three times more energy efficient, if the input energy is three to seven times more expensive. Never before has the need for a hydrogen economy inflator and only now as a possible thanks to advancements in fuel cell technology. Hyzon's market leading fuel cell and our thought leadership makes us the key to the hydrogen economy. A rapid transition is critical not only to meet decarbonization goals, but also to provide energy security in an increasingly unpredictable world. Turning to the financials, I will discuss our 2021 full-year results in 2022 business outlook. Hyzon finished the year with $445 million in cash on the balance sheet as the company continues to manage its expenses prudently with an item making every dollar count. We are in line with the cash forecast we laid out when we went public. Full-year revenues were $6 million. Total operating expenses were $107 million. We took the full charge, the cost of sales for vehicles sold in China, which was only partially offset by the collected revenues for those sales in 2021. We expect another large portion of cash for the vehicles delivered in China during 2021 to be collected in 2022. Once this customer has a longer operating history, we anticipate booking more revenues up front. As we have discussed previously, the end user of those vehicles is one of the largest steel companies in the world, truly a great validation of Hyzon's heavy duty trucks. Operating expenses for the year were comprised mainly of $16 million in research and development costs and $70 million for SG&A. Within SG&A were charges totaling $33.5 million, which were essentially one time in nature relating to foundational equity grants for senior executives in expense related to retirement of our former CTO as well as transaction costs. For the full-year, we recorded a net loss attribute to Hyzon of $14 million. Hyzon also reported a negative EBITDA of $13 million due to changes in the fair value of earn-out and private placement for liabilities. Adjusted EBITDA for the full-year was negative $64 million after backing out the one-time charges as well as non-cash items primarily related to the change in fair value of the earn-out in private placement or liabilities. For Hyzon's 2022 business outlook, we expect to deliver 300 to 400 commercial vehicles, with deliveries, heavily weighted towards the back-half the year. In 2022, we expect the geographic mix will continue to be weighted to regions with lower margins. We expect the geographic mix to shift towards regions with more favorable margins in 2023. While demand for our trucks is stronger than ever, as our backlog increased testifies, we anticipate the supply chain issues to persist through 2022. We expect to commence assembling vehicles using our high power density proprietary fuel cell made in our U.S. facilities during the second-half of 2022. We have made solid progress on this front and we anticipate showcasing our facilities later in the year. We also expect an increasing number of North American trials or a Class A trucks as our facilities ramp. Trials continue to increase in the rest of the world. We expect your backlog to grow as we progress towards commercial discussion -- on ongoing commercial discussions and as demand of zero emission vehicles grows exponentially. By year-end, we expect the first Hyzon, Raven gas to hydrogen hub and waste to hydrogen hub to be online. We intend to drive innovations and increase the Hyzon content within vehicles. Bringing the manufacturing of our fuel cells in house is just one step in this direction. Our continuous innovation efforts are expected to deliver both vehicle CapEx and fuel operating savings, which lowers the total cost of ownerships even further. We reaffirm our medium-term EBITDA margins, in excess of 15%, by 2025. And with that, I'd now like to turn the call back to Craig for closing remarks.
Craig Knight: Thanks, Mark and Pat. In closing, I'd like to reinforce Hyzon's role as the key to the hydrogen economy as it pertains to commercial vehicles. We are the hydrogen technology company that decouples heavy mobility from fossil fuels, and facilitates energy independence in the process. The world is at an inflection point, and a new energy infrastructure is needed. Hydrogen is emerging as a highly versatile clean solution for high utilization commercial vehicles. The advances in Hyzon's technology and the visible momentum in hydrogen adoption through government mandates, expanding subsidy availability, and significant investment in green hydrogen production underscore the phenomenal opportunity for our company in the coming years. Our purpose is clear, we won't rest until we have made a significant positive impact in this world, as underscored by our recent announcement that Hyzon joined The Climate Pledge, which commits over 300 leading corporations to reaching net-zero by 2040, a full decade ahead of the Paris Agreement on climate change. Thank you all, again, for your time and attention. And with that, let's open up the line for questions.
Operator: And our first question is coming from the line of Jerry Revich with Goldman Sachs. Your line is open.
Jerry Revich: Yes, hi, good morning, everyone, and congratulations on the strong deliveries this quarter.
Craig Knight: Thank you, Jerry.
Jerry Revich: Craig, I'm wondering if you could talk about your anticipated vehicle mix over the course of 2022, what proportion do you expect to come from China versus Europe and Australia, just to help us understand the picture from a high-level standpoint and touch on the ASPs that you expect as a result as well, if you don't mind.
Craig Knight: Sure. And obviously, we're all very keen to see the geography and product mix move to a more favorable balance. Frankly, 2021 was somewhat disappointing in that regard, supply chains were just so challenging, especially in Europe where we had expected to build more momentum. We are very focused on validating the early vehicles we've got out in the field and we aim to work out towards a stronger Europe delivery and Australian delivery mix within the next 12 to 18 months, and to really ramp U.S. activities as well once our various customer trials are proven successful. So, it would also, however, be overly ambitious or irresponsible of us to pretend that the business at the moment is highly predictable. And that's why we prefer not to give too granular guidance around vehicle type, vehicle specification, vehicle ASP, and end markets -- end customers, end markets. The business is still lumpy. It's still driven by activities such as customers successfully accessing rebates and policy support, et cetera. And therefore, we remain cautious and say that we expect that mix to be a lot more favorable once we're into 2023. And the rate at which becomes more favorable is still a little unpredictable, but we see very encouraging signs in Europe. And we mentioned in the prepared remarks about a new order for another 18 trucks in Europe. We also mentioned that one of our customers that we've got vehicle supply agreements with has successfully started their -- commissioned their green hydrogen production this week which will, in the coming months, turn into a dispensing capability that can be used to deploy their first Hyzon trucks. And it's these activities that we'll see that geography mix shift over the next 12 to 18 months, dramatically, in the favor of higher margin markets. So, I'm sorry to disappoint you with a lack of very specific details, but the business is still lumpy and somewhat unpredictable, so the exact timing of some of these things are difficult to predict.
Jerry Revich: I appreciate that. And in terms of the free cash flow outlook over the course of '22, and Mark, I wonder if you'd just update us on your CapEx outlook and given the moving pieces that Craig spoke about, how should we think about free cash use over the course of '22 as you folks ramp up?
Mark Gordon: So, as I said in my prepared remarks, where we ended the year with cash is where we had anticipated it to be when we went public, and that is how we feel that 2022 will unfold as well.
Jerry Revich: Sorry, Mark, just so I'm on the same page with you, so the outlook that you folks have previously laid out for cash for year-end '22 still holds, is your point?
Mark Gordon: Correct.
Jerry Revich: Okay, super. And thanks.
Craig Knight: Thank you, Jerry.
Operator: Our next question is coming from the line of Courtney Yakavonis with Morgan Stanley. Your line is open.
Courtney Yakavonis: Hi, good morning, guys. Can you just give us an update on where the Bolingbrook and Rochester facilities are? I think, originally, you were anticipating them to be online by the end of the first-half of 2022. Now, it sounds like the target has moved towards the second-half of 2022. But I think you were awaiting some equipment because of supply chain issues. Is that in place? And are we now just -- just give us an update on what kind of the hurdle is to get those facilities online and what the expectation for the timeline is?
Craig Knight: Sure. Thanks, Courtney. Thanks for the question. I'll take that one. Bolingbrook is definitely making some great leaps in being built out. And we've been testing our MEA -- some of our MEA facilities, it's a multistage process to make a fuel cell system. But that first and very important part of it, making the multilayered MEA, the Membrane Electrode Assembly, this has been commissioned at the moment. So, we've been running some tests on MEA equipment in the last four to six weeks. We will start making fuel cell stacks here in the next four to six weeks. And we will be able to make complete systems some time during the second-half, probably much closer to the middle of the year than the end of the year, to be honest, but just during the second-half of the year. And as for system build, the subsystems for the vehicle include hydrogen storage, electric propulsion, the fuel cell system itself, et cetera. Some of these subsystems have some capability already being set up in Rochester, for example. And there's also vehicle prototyping going on Rochester now as well. We also have some vehicle prototyping activities in Bolingbrook as well, but we expect to see that internal hydrogen fuel cell production -- in-house hydrogen fuel cell production feeding the Hyzon vehicle assembly requirements before the end of the year. And that's the most important thing because that back -- integrates us right back through that fuel cell production and improves the gross margins, as Mark was alluding before, while although we have to buy fuel cells from Horizon, we're buying from the market at a commercial rate, and it greatly improves our margins when the most expensive part of the vehicle is made in-house.
Courtney Yakavonis: Great, thanks. And then, just on the back of the earlier question about the mix understanding that it's tough to predict. Can you at least give us some -- your thoughts on the HongYun contract? And do you anticipate a higher production for them next year relative to this year, because I think Mark alluded to the full cost will be flowing through, that you should start to get some incremental sales flow through from the order or from the deliveries from this year. So, I'm just trying to understand how much more the P&L will be labored by costs associated with that next year? And then what is the timeline until you would start to see those revenues flow through at a full rate? You kind of mentioned they need to have a long enough operating history, is that two or three years or just is it more like six or seven?
Craig Knight: Okay. So, if I can touch on the first part of that question, just in relation to the business we have. We expect the business in China to materialize. And then, Mark can speak a little bit about some of the efforts to, and some of the expectations around improving the revenue recognition treatment of those deployments in China. So, we have a number of significant project and vehicle deployment opportunities in China. It's not only the HongYun activities for the steel company end-users, but also we've announced initial trials with Foshan, which is one of the UN hydrogen demonstration cities in China and receiving a lot of support from federal government et cetera down there. And we expect to be able to share information on at least one or two interesting vehicle deployment opportunities beyond the Hongyun heavy duty truck deployments. Now, in terms of how that flows through to the bottom line to earnings, et cetera, I'll let Mark comment and just provide a bit of information about when we expect revenue recognition treatment to maybe change.
Mark Gordon: Sure. Thanks, Craig. So, Courtney, I think it's important to think through how we will be receiving revenues for the trucks delivered this year with no costs over the next few years, and the bulk of those revenues for the trucks delivered last year will come in 2022. So, that will effectively be pure margin. It's a little strange accounting treatment, but what we're waiting for is for Hongyun to have more operating history. And we plan to reevaluate this method of accounting for their revenues in the fourth quarter of this year, at which point, we hope that we will be able to account for their revenues more normally.
Courtney Yakavonis: Thank you.
Craig Knight: Thanks.
Operator: And our next question is coming from the line of Rob Wertheimer with Melius Research. Your line is open.
Craig Knight: Hi, Rob.
Rob Wertheimer: I'm so sorry, I'm so sorry. Good morning, everybody. Craig, I wonder if you could talk a bit about how your expectations for '22 have evolved over the last couple of months, I think we're still expecting a little bit higher number of truck deliveries. Maybe your backlog even implies you could do more. I don't know whether the 300 to 500 is production limited or whether orders have been percolating which we didn't expect, I wonder if you could just talk about the evolution there.
Craig Knight: Yes, thank you, Rob; great question. We would love to deliver more trucks, but you're absolutely right, the 300 to 400 vehicle range from our standpoint is a reflection of supply constraints in a couple other markets that are really starting to build momentum, that is Europe and Australia in particular, and we've been cautious in our outlook for how many vehicles we think we will deploy in those two markets, even though customer orders are building and customer interest is building. And we continue to sign vehicle supply agreements. We're tending to commit to only a very small portion of contracted quantities by the end of 2022 with a much larger portion of those contracts falling into 2023. We're not doing that to pump up 2023, we're simply doing that, because it's still a reality that that supply chains are still very constrained and unpredictable, if things improved dramatically by the middle of this year, say in the next three to four months, we will be able to do better on deliveries. They're kind of more conservative estimations. But at the moment, we're still very much tempering the forecast and expected deliveries with those supply chain factors which continue to be quite challenging.
Rob Wertheimer: Okay, I think that's clear. Could you walk through what makes the outlook so back-end loaded, you talked a little bit about U.S. production, what is the similar kind of story in Europe and what kind of gets better in order to drive those deliveries in back-half kind of what needs to happen in order to hit as opposed to even rising?
Craig Knight: Sure, sure. So, there's two factors that play into the delivery timing, one is all of those supply considerations coupled with our own ability to get the vehicles assembled once we put, once we have all the necessary materials and parts and components and then have these vehicles prepared for and certified for on-road use et cetera. But the second thing is that, that deliveries in China, which will still make up a fair portion of deliveries for this year, deliveries in China will always inevitably be loaded towards Q4, because this is just the way the contract cycle works in that market, and we were able to take advantage of that last year by even though we were only really starting to work on the vehicle assembly towards the end of the year, we were still able to deploy dozens of vehicles even in December, for example, in China. So, there's a contract dynamic, contracting and delivery dynamic in the China market more generally, but also there's a dynamic there around supply of all the parts and components and what that means in terms of our ability to subsequently build the vehicles. As we take delivery of all the important stuff for the vehicles, we still obviously then need to go through the process of building testing and certifying.
Rob Wertheimer: And then, in Europe for this year, what is the source of the fuel cell stack and then I'm sorry, for the last one, I'm just trying to think about what gets you to the numbers this year, do your customers need, do they all have sources of hydrogen? Do they need to build out sources and could that be any kind of delay if they don't have their setup right, and I'll stop there. Thanks, Craig.
Craig Knight: Okay, Rob, a couple of questions in there, the first one in relation to the supply of the fuel cells, our plan is to substitute Horizon sourced Fuel Cells for in house Hyzon produced fuel cells out of the U.S. once that production is fully validated. So, I can't give you an exact date. But certainly before the end of this year, we would expect to be starting to substitute supplier fuel cells for European assembly, with in house production. And then, the second question around sources of hydrogen, we continue to have options for deploying trucks in Europe, but by the same token, the supply of hydrogen is still the rate determining step. So, there are some customer opportunities that still have hydrogen supply late factors associated with them. So, what we sometimes do is work with the customer on a certain scope for a project, and then define the Phase 1, as the place where the hydrogen is most imminently available, knowing that the Phase 2 is dependent on, for example, a new station to be built by TotalEnergies or somebody else, right. So, there are still timing factors involving availability of hydrogen. But Europe is improving all the time in terms of availability of heavy vehicle filling stations, and no doubt, you would have witnessed from some of the publicity and news flow around events in Europe, but many parties are active and engaged in building hydrogen infrastructure, which does include those very important filling stations.
Rob Wertheimer: Perfect, thanks, Craig.
Craig Knight: Thanks, Rob.
Operator: And our next question is coming from the line of Bill Peterson with J.P. Morgan. Your line is open.
Bill Peterson: Yes, hi. Good morning, and thanks for taking the questions. I have a few questions that first related to the U.S. market. You mentioned that TTSI just started, it feels that may have been delayed, kind of thought that like this should have been earlier in the year. I'm wondering if there's any reason for that. And then, maybe looking ahead, when could we expect to get a vehicle CARB-certified and I guess the last one related in North America, you said 10 to 15 fuel cells, I guess compared to three to six months ago, how many vehicles would you have thought you could get in North America at that time? Thanks.
Craig Knight: Thanks, Bill. So, three questions there, one around the U.S. market and whether the TTSI trial was in fact delayed, and yes, we had expected to put the truck into operation around the end of the year. Frankly, we ended up spending a lot more time with track validation and all that sort of thing than we had intended. And there were a few things with our first road validation, road certification activities that just took longer than planned. Not surprising that when you do something for the first time, you don't necessarily have all the answers right off the bat. So, that was in fact a little delayed. Happily, the trucks in the Long Beach Port now, as for CARB-certification, I'm going to let Pat comment on that in a moment. But I will make a comment on your third question around the number of trucks we're anticipating in the U.S. So, I believe that we had originally anticipated somewhere around 20 Class-8 trucks for 2022, I think that was kind of where we were looking to target. We said 10 to 15 is our expectation to be in trial by the end of this. So, we still feel quite good about that because we've been validating the vehicles and the performance pretty heavily. And we've had a number of customers come to witness track testing and some of this sort of thing. So, we're seeing increasing interesting engagement by major fleet operators in the U.S. for our trucks, and we kick it off those engagements with the trials, we were talking about. So, I'm just going to turn it over to Pat, so he can comment on CARB-certification. I think he's a little closer to it than I am.
Pat Griffin: Sure. Thank you, Craig. And thank you, Bill for the question. As Craig mentioned interest in testing and validation is strong relative to customer demonstrated trials. Of course, CARB certification, always that the key forefront of what we're working towards, for the support in California. And it takes generally four to six months to walk through the certification process. So, we've received the executive order through CARB, and so, once we had that, that allows us to go on trial in California and so things are progressing well through CARB.
Bill Peterson: Okay, thanks for that. You noted that you're developing power management deal to control the actual and so forth. So, I guess the current trucks, obviously, is your fuel cells. But what is the timing of that development? When will we see more of your proprietary content show up in vehicles, is this a 2023 thing or just really more longer term disperse and the time of these of these enhancements?
Craig Knight: Yes, you can pencil that down as the 2023 thing as you mentioned, there's a lot of work going on to validate some of these internal innovation and development activities. We expect that between now and the end of this year in first quarter next year a lot of that work is done. And so, some time during 2023, we expect we'll be able to report various elements of the increasing Hyzon content in the vehicles, which gets us to those higher gross margins that Mark is always looking for.
Bill Peterson: Okay, thanks for that. If I can sneak one more in, nice to see progress on the Raven STRATEGY, can you remind us I guess, what are the economics? What do you benefit from in terms of the sales and should we assume that sales in your fuel business starts to kick off I guess early next year. Anything on the economics will be helpful. Thanks.
Craig Knight: Okay. So, I'll just introduce our relationship in there and how it works with our early engagement with Raven giving us access to produce -- to their producer economics on outfield, which we take from them, which is up to half of the output for the hubs in which we participate together with Raven. So, it gives us nice access to the economics on the motion, and then, I'll let Mark speak more specifically on the economics coming out of those two, first two hubs in California.
Mark Gordon: So, I think firstly, it's good to point out that each of these hubs is going to produce about four and a half tons a day of hydrogen. So, when you think about that, that's enough. If all the hydrogen were going to our vehicles for heavy duty Class A trucks, that's enough for each hub to do 100 trucks. So, with those two hubs, there would be enough hydrogen for 200 trucks and they'll be on by year-end. The first hub is a gas to hydrogen hub, and I think Raven is still debating the actual location with Chevron, it's going to go on a Chevron field and it's between someplace in Bakersfield or a field in Colorado near Denver. Once that's determined, we'll look to have trials in those facilities. In the economics now, our low teens un-levered and we do anticipate being able to get finance the hubs in future after we've demonstrated that they work up to that, we'll get levered returns on them. And we also think that the costs for those hubs will come down over time. The first couple are expensive, but the nice thing is that Raven is manufacturing the majority of the equipment in house. And so, as they sort of streamline their process we can see some cost savings coming.
Bill Peterson: And importance of the economics of the hydrogen coming out, let's just talk about that.
Mark Gordon: So, the hydrogen when I gave us the low teens IRR, that's assuming that we're selling it around $5. Now there is a great subsidy program in California for the first hubs, and most likely, a large percentage of the hubs will be in California, or at least will be in states with the LCFS credit. And so, it's a little hard to answer what the exact economics are because the credit can range from between $3 and $9 a kilogram depending upon the feedstock. And so, you can imagine, my un-levered IRR calculation gets substantially better, if we move to dairy waste as a feedstock. But I'm just -- I'm just assuming municipal waste in my calculation.
Bill Peterson: All right, that's super helpful. Really exciting the progress in that front, thanks.
Mark Gordon: Thank you, Bill.
Operator: Our next question is coming from the line of Jed Dorsheimer with Canaccord. Your line is open.
Jed Dorsheimer: Hi, thanks. I guess first question on the electrolyzer, are you -- have you moved off platinum in? If not, what's the expectation from a supply chain procurement perspective?
Craig Knight: Well, we're going to assume you're talking about our MEAs rather than the electrolyzer. So, actually, the MEA, the MEA we make can be used in electrolyzers by the way, but we're using them in fuel cells, obviously, but the platinum is indeed the key past contaminant for the fuel cell. The nice thing is that we don't -- that the platinum doesn't degrade or get destroyed in the use of a fuel cell. So, at the end of life, the fuel cells kind of worn out like an engine eventually worns out after a lot of driving. We're very happy to take those fuel cells back and reuse the platinum and put refurbished fuel cells together over essentially rebuilt fuel cells after we strip out the platinum and put it into coat new membranes with it. So, fuel cells are very much a cradle to cradle technology on that basis. You don't throw anything away. Now, for comment on the platinum, expected platinum economics and how we see that kind of happening here in the next couple of years. I might defer to Mark, we've talked and talked a lot about the -- not only in the platinum issue, but the chemistries and the metals relating to batteries because we still use batteries in our vehicles. Now we use LFP batteries, so there's no nickel or cobalt in those batteries. But we still are very interested in concern for the supply of lithium, for example. So, Mark, you want to make a comment about platinum and how we see some of that playing out.
Mark Gordon: Yes. So, we don't give out the exact amount of platinum that we use per vehicle. But what I will say is it's modest, and while everyone focuses on platinum as the key material for fuel cells, we're talking low single let's say about $12,000 for vehicle, so and we expect that to drop the amount of platinum used as well over time in our new iteration of fuel cells. So, this is not something that is going to pose an ultimate constraint if you look at platinum prices. I mean, they're up from a year ago, but they're not exorbitant.
Jed Dorsheimer: Well, I guess, I was asking just given where most of the platinum is procured with respect to Russia and the Ukraine invasion war, whatever you want to call it right now, atrocity, I guess. And what your strategy is from procurement with a critical element that's going to be constrained, that's where I was coming at from that perspective?
Craig Knight: Yes, okay. I got you. Most platinum comes from South Africa. South Africa is the major source.
Jed Dorsheimer: Okay. So, you're not seeing any issues with that?
Craig Knight: No, we don't buy anything from Russia.
Jed Dorsheimer: Got it, great. And then, so if I think about sort of the relationship you have with different geographical locations, Tesla has done a really effective job of quite frankly making vehicles in Shanghai that are being shipped to Europe. And now they're starting up a localized manufacturing. Why the limitations I guess in terms of fuel cells, is it just a demand issue that the demand in Europe in the U.S. is not there? Or I guess, I'm just curious why you wouldn't follow a similar path there in terms of where you're manufacturing versus where you're selling?
Craig Knight: Yes, I'll take that one. So, for us, as a U.S. based company, it's important to us that we have a manufacturing base in North America, and that we have also operations base in Europe for example, because these are our two key markets we are focused in the coming say, five to 10 years. And we had always intended to have U.S. based production of fuel cells, as the core of our upstream operations, they're very IP Intensive part of our operations. And we believe that that'll serve us well over time. We've had concerns about geopolitical stability for a while, and we think that it's going to be very important to have this dependable domestic supplier within the U.S. of fuel cells. So, if you think about the heavy lift that's ahead of the whole industry to get from fossil fuels, to clean alternatives, with heavy vehicles, there's naturally going to hydrogen, and I think for the security of supply and for the benefit of the industry generally, transport industry, generally, I think domestic U.S. supply is very important. It's not a heavily labor intensive activity to make fuel cells. And if you come and see our MEA line, you see it's basically a lot of fancy machines, as opposed to a lot of humans. It's very different to building a complete car, which is a very involved process with lots and lots of robots and lots and lots of steps. And also quite a few people, the process of building fuel cells is not that people intense. And we feel local production is very good for long-term stability and surety of supply.
Jed Dorsheimer: Got it, great. And one last question just to sneak this in, but the first Raven hub and I recognized it, you spent a decent amount of time talking about our market, but the first Raven hubs working with Chevron is on a gas to hydrogen, is that a bio-waste to hydrogen or is that a methane to hydrogen conversion?
Craig Knight: It's actually going to be flare gas. I think is the most likely source of the gas. So, the nice thing -- yes, go ahead.
Jed Dorsheimer: I was going to say, so if it's flared gas, that would be curtailed energy, so is that going to be intermittent or is that continuous?
Craig Knight: No. So, these details are being worked out, and frankly, I'm not right in the thick of those conversations, but the Raven system can take flare gas, or it can take Casinghead gas, which means you don't have to strip out the NGLs and stuff. So, it's like a more robust system. And frankly, there's a number of large energy companies looking at it to solve the flare gas problem out there. But no, it would run consistently, the four tons a day would be consistent gas, so and this system can run on RNG. And it can on bio gas as well which an SMR cannot do.
Jed Dorsheimer: Got it, great. That's it for me. Really appreciate it.
Craig Knight: Yes, you can think of that Raven processes, just a more flexible version of a traditional SMR. So, traditional SMR, steam methane reforming process takes methane and then it's flared into hydrogen.
Jed Dorsheimer: Sorry, you just jogged in another question on that. So, Craig, will that be considered blue, so you're going to be capturing the carbon at the exhaust to sequester that or is that considered grey hydrogen?
Craig Knight: If that was to use just natural gas out of a pipe, it would be considered grey hydrogen. When you use gas that's being flared, or as otherwise off gas, et cetera, then it's got obviously all different treatment and it's got a, it's got a rating of green attached to it. If it was just using a natural gas pipe and it wasn't certified RNG, it would be great. If it's using certified RNG, it would be great. But I don't believe that it's got a carbon capture directly on that process, right.
Jed Dorsheimer: So, is it green, if you're emitting the carbon?
Craig Knight: No, if it's…
Pat Griffin: Yes, so, it's RNG. And it also rate methane, methane is like it's 25 times worse for the environment than CO2. So, if you capture RNG instead of letting that emit in while there's some CO2, that's comes out the process, your net carbon economics are positive and…
Jed Dorsheimer: Carbon accounting, yes.
Pat Griffin: Yes, while we're on the accounting obviously, we're doing a whole bunch of waste to hydrogen projects with Raven as well, in that scenario, this is you get a very large negative carbon intensity score. So, this would be more green in our opinion than doing solar with electrolysis, because you're actually offsetting methane that would be emitted from landfills here. So, you're cleaning up the environment, and you're putting less, it's not carbon, but less methane into the atmosphere.
Craig Knight: Not from carbon perspective though guys. I mean, I'm very familiar with the molecular structure of RNG, which is going to be a CH4; it's not going to change whether you're fracking or whether you're getting it from.
Pat Griffin: Carbon accounting, yes, carbon accounting.
Craig Knight: Yes, so this is kind of a criticality associated with blue or green. But if you're getting CH4, and we're using an SMR or some type of hybrid SMR process, if you're not capturing when you break the atomic bond, if you're not capturing the carbon, then that's being emitted. And I'm just wondering how that could potentially be considered green, so just seeing if there's some capture mechanism.
Pat Griffin: So, we'll take this offline, but the one thing I will say is just that when we sort of adjudicate how green something is, we go by the CARB methodology, because we think that they're the ones in the best place to understand this. And CARB sees the process as very carbon negative underscoring process. And we could probably have a two hour debate about how to think about.
Jed Dorsheimer: I'll take it offline. I appreciate it, guys. It is something I want to follow-up on that, thanks.
Pat Griffin: Yes, sure.
Craig Knight: Thanks, Jed.
Operator: And our next question is coming from the line of Mike Shlisky with D.A. Davidson. Your line is open.
Mike Shlisky: Hey, good morning, guys. Before get to my questions, I want to follow up on your comment just know more about waste to hydrogen, do you know Hyzon will be able to get a piece of the tipping fees that come into Raven on those?
Craig Knight: The answer is, yes, so if you look at anyone in these systems, we will share in our proportionate amount of the economics, so in every hub our share will be slightly different depending who the other partners are. It could be Raven, Chevron, it could be Raven Itochu, it could be Raven, and someone else. But for our percentage of the ownership in that hub, we will share in all the economics in the Raven systems. The first one in Richmond is not getting a tipping fee, but Republic Services or waste management or any other dump knows that Raven expects a tipping fee. So, that's just something that was negotiated on the very first one.
Mike Shlisky: Okay, got it. Now on to my question I had earlier, if the supply chain issues are resolved at some point during 2022, whether it's tomorrow or December, I just go to say that any amount that you've lowered your 2022 outlook by should be able to be made up for in 2023?
Mark Gordon: So, let me take that one, it's okay, Craig. So, the answer to that is unequivocally yes. When you look at our backlog, I mean part of the reason why it's sort of growing quickly is because we're having supply chain issues delivering and the backlog will continue to grow as we have, what's going to grow just because of sales, it's also going to grow because we're not delivering what we could be delivering because of the supply chain. So, there's absolutely no issue in sales and sales that aren't being met this year are being put into the following year. And so, we've said consistently since the beginning that we have no issue with sales. And frankly, that's the way, there's definite acceleration in momentum and excitement on the sales side. And this is all a matter of logistics and us working up the global supply chain, and us working with our suppliers to get various pieces of equipment to us as fast as quick as possible.
Mike Shlisky: All right, thank you for that. And another question I wanted to ask was about some of the performance track versions of the current product. So, as soon as you get Bolingbrook up and running and the full Hyzon own production system up and running, how different will dispatch be and the performance be of those trucks from that point onward than they are today? And also, what customers are testing today, is that does that include Mexico handbuilt version of what's going to look like at the end of this year or is it whatever you can get from Horizon, it is in those trucks today.
Craig Knight: I'll take that. So, Mike, the fuel cells that are currently going into the trucks are the same fuel cells that in Hyzon trucks in the U.S. and in Europe and Australia are the same as the fuel cells we put into the trucks for delivery for the steel customers in China, for example. Those fuel cells are the same designs. And that design of fuel cell is being updated slightly for the higher power applications, the higher power requirements, but it's very, very similar. And it's not made in a drastically different manner, whether it was to be built by Horizon and purchased by Hyzon or whether it was to be made by Hyzon with in-house production, the fuel cell itself won't be noticeably different.
Mike Shlisky: Okay, so just to clarify the difference then will only be on your margins and your ability to capture more of their value, that's all.
Craig Knight: Yes, we get cost of production price instead of a customer price.
Mike Shlisky: Got it. I'll leave it there guys. Thanks so much.
Craig Knight: Thanks, Mike.
Mark Gordon: Operator, are there any more questions?
Operator: Yes, sir. Our next question is coming from the line of Steven Fox from Fox Advisors. Your line is open.
Steven Fox: Hi, good morning. I'll try to stick to the standard two questions here. First of all, Craig 90 days ago, have you done anything or had any progress in terms of controlling your own destiny on the supply chain a little bit better or would you still describe it as sort of a fistfight every day? And then secondly, Mark, you made a lot of good arguments for why the secular benefits to hydrogenic especially given current events. I'm just curious, like versus say the beginning of February to now, you're not seeing much in terms of like public opinion from government leaders emphasize hydrogen as much. Are you seeing anything that's changed in your conversations either on the government front, or with corporate sets because of the Ukraine war? Thanks.
Craig Knight: So, thanks, Steven. So, I'll touch on the supply chain factors. Naturally, and I mentioned this, even in our prior Q3 call, we had moved fairly quickly to put as many things on order as we could around the middle of 2021 to be able to build as many vehicles as we could approaching the end of the year. But unfortunately, that wasn't even aggressive enough, because lead times are things that are normally a five or six week delivery schedule, those lead times went out to unknown numbers of months and typically nine months plus, I'm happy to say we've taken delivery of a lot more parts and components and vehicle chassis in Europe than we're able to get last year. So, this is definitely looking better whether or not we took a lot more actions in the last 90 days, I don't think we took a lot more in the last 90 days. I think we took a lot a little prior to that, a lot of actions to buy quite a bit of inventory for deliveries in 2022 but still the challenge for us is that the customer appetites growing much faster than the ability of the supply chain to catch up with it, as Mark kind of indicated before, the orders are coming in, but we simply can't get the vehicles out in at the rate that we would like, and at the rate the customers would like, but we are looking at a much better Q2, Q3, for example, in Europe, than what we have endured in the last 90 to 120 days, it's been pretty tough. So, I'd say Q2, and Q3 in Europe will be much, much better for us. And we look forward to making a lot of customers happy, because they've been waiting a while for trucks, frankly. Now, if you don't mind, I'll turn it over to Mark on the questions about some of the sectoral benefits, as you call them around hydrogen. I'll just make a comment about interactions with some of the customers and some of the government agencies and reflect on the burgeoning interest frankly in hydrogen as a solution for heavy vehicles. It's not just Hyzon's view anymore, but hydrogen is going to be so important for these heavy vehicles that operate many hours every day, it's not just our view, or our wish that hydrogen is important in those sectors, it's now become a well accepted mantra amongst government agencies, policy makers, and corporations generally. And so, we have a high level of confidence, a much higher level of confidence that we had going back 12 months when we were promoting the vision of what Hyzon could be and could do. And we feel extremely confident that the thesis we laid out around hydrogen, and the fact that hydrogen would prove to be the secret sauce to unlocking zero emissions for these hard to abate mobility sectors, that that thesis is definitely in very good shape. And in fact, it has far more of a tailwind now than we ever would have imagined 12 months ago. Do you want to comment on that at all, Mark?
Mark Gordon: Sure. I mean, Steven, you might have seen that yesterday. I mean Reuters is reporting that China set a target to produce 100,000 to 200,000 tons of green hydrogen by 2025. So, I mean obviously, they get it, they're very focused on security of supply. I didn't read his comments, but this morning Jamie Dimon was talking about how we need a new Marshall Plan for energy. And when I think about a Marshall Plan, or a way to sort of March the whole economy, there's something beyond oil and gas, it really only can apply to hydrogen, and that was sort of the point of my remarks on the call, we do need a Marshall Plan. And we need a massive revolution of the energy infrastructure. And it would be in our opinion, a sort of dead end to try to move it all to battery electric, because of course, that depends upon the grid. But if we rolled out massive waste of hydrogen, all across America, I mean there's garbage produced everywhere. I mean, it's a great local source of hydrogen. I mean, this would be something that would create energy independence, and it would be sustainable, it would clean up the environment. I mean, the landfill issue is a real issue. I mean, you might know that New York City ships its garbage to Rochester; Wyoming ships its garbage to Utah; Singapore ships it to Malaysia; and so forth, and so on. So, all that could get fixed and at the same time to create energy independence. So, part of the purpose to my comments in the call is to get this message out there that we do have a plan. And we do see a future here and we can if needed, if there's going to be well, it's going to go to 200 as many people are calling, we have a way to get the whole world to be energy independent and stop relying upon imported oil, whether it's imported from Russia or imported from the Middle East, this is a positive for everyone, because you get security of supply and at the same time, you clean up the garbage situation.
Steven Fox: Great, I appreciate all those comments. Thank you.
Craig Knight: Thank you, Steven.
Operator: And our next question is coming from the line of Donovan Schafer with Colliers Securities. Your line is open.
Donovan Schafer: Hey, guys, thanks for taking my questions. So, my first question is just for the unrecognized sort of portion of these seven vehicles that you sold this year because it's spread out over this kind of 5 year period. I'm just curious, just from like, just -- how you think through this and find this with your reporting on the backlog. So, I like to see how you broke out the backlog in terms of binding non-binding, you got about 16 million binding, is the remainder of the 19 million contract value. Is the unrecognized part of that counted in the binding backlog or the non-binding backlog? Are you leaving that out of backlog altogether?
Pat Griffin: Craig?
Craig Knight: That's a fair question.
Pat Griffin: Yes, so there's a slide in our presentation that was put out this morning in an 8k that actually addresses your comment exactly. So, the remaining Craig is actually not in backlog. We show the backlog in a bar chart and then beside that, we show the backlog, plus that remaining a bit some of the incremental. I think it's $14 million that --
Pat Griffin: 13.4, I think.
Craig Knight: Yes, sure, 13.4. Yes, it's right.
Pat Griffin: 13.4 of this is uncollected revenues, and it's a fair question because it is a payment obligation for the customer. So, we do expect to receive it, but it's some -- it doesn't quite fit backlog definition. So, we added it separately.
Donovan Schafer: Oh, I like that treatment. So, and then to follow-up on that same thing just for trying to understand the spreading it out over the five years this sort of -- for lack of a better word, you talk about it being tied to operating history. And I'm curious, if there's what the specific sort of gap provisions are maybe like, we might Google to find that because I can think of it as being like when I think about GAAP, and the public accounting oversight Standards Board or whatever the together, they can be kind of in the spirit of two lines of thinking, where one, you can talk about operating history, it makes me think of kind of a similar line of thinking to the sort of like allowance for doubtful accounts type of thing or bad debt, just in the spirit of it, or the other one being like the nature of the contract, almost like a year-to-year rental agreement or something. So, just what would you sort of Google in terms of keywords understanding what's the smallest thing --
Pat Griffin: So, we can do in a specific question.
Craig Knight:
Pat Griffin: Go ahead, Craig. I was just going to say, well, we can do…
Craig Knight: The main factor, he was the main treatment of collectability, the assessment of collectability by our auditors, they're saying, we just don't have enough kind of enforcement power to go out and make sure that money gets collected. Now that the end-user of the zero emission vehicle services is one of the largest steel companies in the world and we think it's highly unlikely before or stop using trucks anytime soon. So, we don't find that unacceptable business risk, but from an accounting treatment standpoint, because there's a new intermediary involved in the provision of the service for the vehicles, then it's considered collectability risk, but as that company has more operating history then the collectability would become clearer. And I'm sorry, I think we both tried to answer the question same time there Mark you want to add anything.
Mark Gordon: Well, outlook so, I think you did a good job answering their Craig. I'll just add now that if you want, we're happy to have you speak with our Chief Accounting Officer. She is far in the weeds and all this and can explain to you.
Donovan Schafer: Okay, great. And then, I'll ask another question.
Mark Gordon: So, I also just want to say, Donovan, Donovan I just also want to say that it's really a short-term issue. It's really doesn't affect the viability of the tracks. It doesn't affect the attractiveness of those deployments. An
