Sean Milligan

Sean Milligan followed up on the WPA model, asking about the volume of customer discussions, the pricing strategy against alternative water suppliers, and details regarding the scope, timing, and expected outcomes of the Net Zero Innovation Project.

Answer

CEO Matt Jore and Chief Commercialization Officer Bryan Barton stated that WPA discussions are ongoing with 'many dozens' of interested customers, with positive reception, and AirJoule plans to be selective for initial deployments. Bryan Barton explained WPA pricing competes favorably against expensive water trucking options ($0.50-$0.75 per gallon). He also detailed the Net Zero Innovation Project as a testbed in Denmark, showcasing AirJoule's waste heat reuse for data centers, providing visibility and a catalyst for global projects.

Sean Milligan asked for an order of magnitude on the number of Water Purchase Agreement (WPA) discussions in the total pipeline and how AirJoule's WPA pricing compares to other water suppliers. He also sought details on the timing, scope, and expected outcomes of the Net Zero Innovation Project.

Answer

CFO Stephen Pang and Chief Commercialization Officer Bryan Barton stated that WPA offers are being made across the board, with many dozens of positive discussions underway, allowing AirJoule to be selective in initial deployments for 2026 and 2027. Barton explained that WPA pricing is competitive against expensive alternatives like trucking water (often $0.50-$0.75 per gallon) for customers needing distilled water without reliable municipal access. Regarding the Net Zero Innovation Project, Barton described it as an exciting recognition from a consortium of key data center players (Google, Microsoft, etc.), involving a testbed data center in Denmark where AirJoule will showcase waste heat reuse for water generation, serving as a catalyst for global operational projects and circularity discussions.

Sean Milligan asked about the margin progression, specifically how the weaker back-half adjusted EBITDA margins, combined with residential performance, energy tech headwinds, and data center growth, would impact future EBITDA margins.

Answer

CFO York Ragen explained that the updated 2025 EBITDA margin guidance of approximately 17% (a 1.5% reduction) was due to unfavorable sales mix (less high-margin home standby), operating expense deleverage, and transitory costs. He anticipated a 'nice recovery' in 2026 EBITDA margins, driven by mix improvement from a return to normal outage levels, operating leverage, and the absence of these transitory costs.

Sean Milligan inquired about the margin progression framework for next year, considering the weaker back-half Adjusted EBITDA margins in 2025, and the interplay of residential, energy tech, and data center segments.

Answer

CFO York Ragen explained that the updated 2025 EBITDA margin guidance of approximately 17% (down from 18-19%) was due to unfavorable sales mix (less high-margin home standby), operating expense deleverage, and transitory costs. For 2026, he anticipates a 'nice recovery' in EBITDA margins from the 17% level, driven by mix improvement (reversion to mean for outages), operating leverage from growth in residential and C&I, and the non-recurrence of transitory costs, along with pricing benefits.

Sean Milligan of Janney Montgomery Scott asked about the expected margin profile for the data center business and whether it would be accretive to the C&I segment's gross and EBITDA margins.

Answer

Chairman, President & CEO Aaron Jagdfeld explained that due to the structural supply deficit, pricing has been stronger than in the initial business case. As a result, gross margins for data center products are expected to be similar to traditional C&I products, not dilutive as once feared. He stated that due to strong operating leverage, the business will be accretive to the C&I segment's EBITDA margin. CFO York Ragen added that on a consolidated basis, it might be slightly dilutive to gross margin but will be 'absolutely accretive' to the consolidated EBITDA margin.

Sean Milligan requested a breakdown of how the $125 million tariff impact would be offset between price increases and cost-out initiatives, and asked for an update on the total price increase expected for residential home standby generators this year.

Answer

CFO York Ragen stated the goal is to use pricing and supply chain initiatives to hold the EBITDA margin percentage flat. President and CEO Aaron P. Jagdfeld specified that a 7-8% price increase is already in the guide. A second price adjustment will accompany the new product launch in H2, reflecting its added value and a more diversified, less tariff-exposed supply chain. Further tariff-related price hikes depend on trade negotiations.

Sean Milligan asked about the uptake of trackers in international markets, specifically how much additional market share trackers have gained over the past couple of years, and where Nextracker sees that trend heading over time.

Answer

President Howard Wenger confirmed that trackers are the predominant structure for utility-scale and larger distributed generation solar projects globally. He highlighted increased energy yield over time due to innovation, noting a gain of 18-20% over fixed tilt in regions like southern Germany today, compared to 12% twenty years ago. This 'virtuous cycle' of energy yield and lower cost has made trackers dominant, with fixed tilt now only suitable for niche, incredibly difficult applications.

Sean Milligan asked about the uptake of trackers in international markets, specifically how much additional market share trackers have gained over the past few years, and the future trajectory of this trend.

Answer

Howard Wenger, President, confirmed that trackers are the predominant structure for utility-scale solar globally, including larger distributed generation projects. He explained that Nextracker's innovations have significantly increased energy yield gains (18-20% over fixed tilt today, up from 12% two decades ago), establishing trackers as the dominant platform in nearly every region.

Sean Milligan of Janney Montgomery Scott LLC asked for guidance on expected produced water volume growth in 2025 and sought clarification on solar project prepayments, distinguishing the new DESRI deal from a previously discussed opportunity.

Answer

Executive Scott McNeely projected low-to-mid-double-digit growth in produced water volumes during 2025, driven by new projects coming online in Q2 and Q3. He clarified that the DESRI deal is a new, additive agreement. For the separate, previously discussed solar opportunity, he confirmed they still expect to receive upfront payments of around $8-10 million in 2025 but will prioritize the proposal with the best overall long-term value, not necessarily the largest upfront payment.

Sean Milligan of Janney Montgomery Scott LLC inquired about Hyliion's competitive positioning, business model, and production status. He specifically asked how the KARNO generator competes with fuel cells and natural gas gensets in the data center market, its pricing and ROI, the company's ability to scale manufacturing and reduce costs, the long-term service and revenue model, and for an update on resolving recent supply chain and production challenges.

Answer

CEO Thomas Healy and CFO Jon Panzer addressed the questions by positioning the KARNO generator as a premium product with a superior long-term ROI due to high efficiency and low maintenance. Jon Panzer stated pricing is between traditional natural gas gensets ($1,000-$1,500/kW) and fuel cells ($3,000-$3,500/kW). He also explained that cost reductions will come from scaling production with new GE M Line printers and, more significantly, from negotiating volume-based pricing with suppliers. Thomas Healy clarified that while Hyliion will initially service the units, the long-term plan is to partner with established service providers. He also confirmed that production challenges with a contract manufacturer and metal powder residue have been sufficiently resolved to begin shipping the first Early Adopter units.

Sean Milligan of Janney Montgomery Scott LLC inquired about the KARNO generator's competitive landscape against fuel cells and natural gas gensets, particularly in the data center sector. He asked for details on pricing, cost-reduction visibility from new additive manufacturing technology, the business model for service and maintenance, and management's confidence in overcoming recent supply chain and production challenges.

Answer

CEO Thomas Healy and CFO Jon Panzer explained that the KARNO generator is priced between conventional natural gas engines and more expensive fuel cells, offering a compelling ROI through superior efficiency and lower maintenance. Healy highlighted KARNO's advantages for data centers, such as its compact footprint and fuel flexibility, and confirmed that recent production issues with a contract manufacturer and metal powder residue have been sufficiently resolved for initial deployments. Panzer noted that cost reductions will primarily come from scaling supplier agreements rather than just printer efficiency. Regarding the business model, Healy stated Hyliion will handle initial maintenance but plans to partner with service providers long-term.

Sean Milligan from Gen inquired about the manufacturing supply chain, specifically the lead times for additive manufacturing printers and how quickly Hyliion can scale production capacity to meet the significant demand anticipated from the data center market in 2026.

Answer

CEO Thomas Healy acknowledged a 'multiple quarter lag' between ordering and receiving printers but expects this lead time to decrease as their supplier, GE's Calibrium Additive, ramps up its own production. Healy expressed confidence in their ability to scale with GE or other suppliers if necessary. He also highlighted a key internal effort for 2025: increasing the throughput of the existing printer fleet by optimizing manufacturing parameters like laser power and powder depth to maximize productivity.

Asked about the 2025 CapEx outlook, the expected performance of the second production line, visibility into smartphone program sizes, and for a detailed explanation of the cell phone sales and qualification cycle.

Answer

The 2025 CapEx budget is $30-$40 million. The next production line (Line 2) is expected to meet the target of 1,650 UPH for a standard cell size. While they have visibility into a lead customer's cell, the exact models and volumes are not yet clear, as one cell can go into many regional variants. The sales cycle is a continuous process of sampling, testing, receiving final dimensions, and qualifying for production, with a single cell design potentially serving models across multiple years.

Sean Milligan inquired about the 2025 CapEx outlook, the expected economics of Line 2, visibility into smartphone program volumes, and the cadence of the cell phone sales cycle for future design wins.

Answer

CAO Kristina Truong provided a 2025 CapEx budget of $30 million to $40 million. COO Ajay Marathe confirmed the 1,650 UPH target for Line 2. CEO Raj Talluri explained that it's too early for specific model volume visibility but described the sales cycle as a continuum, where a cell designed for 2025 could extend into 2026 models, while new 2026 designs are developed in parallel.

Sean Milligan asked for details on the remaining capital expenditures required to complete the first high-volume production line and the expected spending cadence. He also inquired about the payment structure for ordering additional lines in the future.

Answer

CFO Farhan Ahmad clarified that the majority of the fiscal year's $80-$90 million in CapEx is for the first line and will be spent this year, with minimal carryover. Executive Ajay Marathe added that the second line is not yet on order, as the team is focused on cost-reduction proofs-of-concept. He anticipates ordering long-lead items in early 2025, with the remainder ordered around Q3 2025, contingent on demand.