HYLIION HOLDINGS CORP. References to the "Company," "Hyliion ," "we," or "us" in this report refer toHyliion Holdings Corp. and its wholly-owned subsidiaryHyliion Inc. , unless expressly indicated or the context otherwise requires. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and our audited consolidated financial statements and related notes thereto in our 2021 Annual Report. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Our forward-looking statements include, but are not limited to, statements regarding our or our management team's expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, our status as an early stage company with a history of losses, and our expectation of incurring significant expenses and continuing losses for the foreseeable future; our ability to develop key commercial relationships with suppliers and customers; our ability to retain the services ofThomas Healy , our Chief Executive Officer; our ability to disrupt the powertrain market; the effects of our dynamic and proprietary solutions on commercial truck customers; our ability to incorporate existing and new technologies into products; the ability to accelerate the commercialization of the Hypertruck ERXTM; our ability to meet 2022 and future product milestones; the impact of an inflationary environment and COVID-19 on long-term objectives; the ability of our solutions to reducecarbon intensity and greenhouse gas emissions, the expected performance and integration of the KARNO generator and system, and the other risks and uncertainties described under the heading "Risk Factors" in our otherSEC filings including in our 2021 Annual Report (See Item 1A. Risk Factors). Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Overview
Our mission is to be the leading provider of electrified powertrain solutions for the commercial vehicle industry. Our goal is to reduce thecarbon intensity and the greenhouse gas ("GHG") emissions of the transportation sector by providing hybrid and range-extending electric powertrain solutions for Class 8 semi-trucks at the lowest total cost of ownership ("TCO"). Throughout our product offerings, we utilize our battery systems, control software and data analytics, combined with fully integrated electric motors and power electronics, to produce electrified powertrain systems. We currently offer two different product lines: a Hybrid system which is designed as an add-on to electric powertrains on trucks which can augment power needs or potentially save on fuel costs, and the Hypertruck ERX which is a complete powertrain option that is fully electric and leverages an onboard generator to recharge the batteries as the vehicle is in operation. By reducing both GHG emissions and TCO, our environmentally conscious solutions support our customers' pursuit of their sustainability and financial objectives. We are currently selling the Hybrid system and are developing our Hypertruck ERX electrified powertrain system for Class 8 semi-trucks. Our Hybrid systems have been installed in low volumes on our initial customers' commercial vehicles. Across these customer installations and over the entireHyliion fleet, we have accumulated millions of real-world road miles on Class 8 semi-trucks. Our Hybrid system can either be installed on a new vehicle prior to entering fleet service or retrofit to an existing in-service vehicle. The Hypertruck ERX system leverages the experience and operating data from our Hybrid systems to offer a solution to replace the traditional diesel or compressed natural gas ("CNG") powertrain installed in new vehicles. The Hypertruck ERX powertrain, which functions as an electric range-extender, is addressing the market needs of having a fully electric drive truck that can travel long distance between refuels and can leverage existing natural gas infrastructure. Our Hypertruck ERX systems are designed to have their batteries recharged by an onboard CNG generator. Our Hypertruck ERX system can offer commercial vehicle owners and operators a netcarbon negative capable electrified powertrain option, when 13
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using renewable natural gas ("RNG"). We believe CNG/RNG is the correct fuel
source to begin with, but there are other fuels that will become available to
address the climate change initiative, including hydrogen. We have showcased a
multistage roadmap that starts with utilizing a CNG/RNG generator and evolves
into offering hydrogen-based solutions as well. The Hypertruck platform is
designed to be fuel agnostic while the rest of the electric powertrain can
remain the same. We plan to initially release the Hypertruck ERX CNG solution,
following with the release of a fuel agnostic capable generator ("KARNO"
generator) and a hydrogen fuel cell generator for the Hypertruck platform in the
future.
CNG fueled battery recharging is preferable today due to both the current
comparable cost of fuels and existing availability of CNG infrastructure. Class
8 semi-trucks can currently be refueled with CNG through existing,
geographically diverse and third-party accessible natural gas refueling stations
established across North America . Globally, RNG, CNG and liquified natural gas
("LNG") are used widely for land-based transport and trucking and we believe
there are established, geographically diverse and third-party accessible
stations available in certain areas that may be leveraged in connection with the
use of our electrified powertrain solutions in the future. We believe there is
opportunity for adoption of our electrified powertrain solutions across Europe
and other countries around the globe. This existing and accessible
infrastructure will significantly reduce the buildout time and cost required to
utilize our Hypertruck ERX system as compared to other proposed potential
electrified solutions.
Our Hybrid and Hypertruck ERX systems are designed to be able to be installed on
most major Class 8 semi-trucks in the long term, which will give our customers
the flexibility to continue using their preferred vehicle brands and maintain
their existing fleet maintenance and operations strategies. Our early Hybrid
system deployments include leaders in the transportation and logistics sector.
We are focusing our initial marketing efforts on large fleet operators as well
as companies committed to reducing the overall environmental impact and fuel
costs of their owned and operated trucking fleets.
In September 2022 we acquired assets including new hydrogen and fuel agnostic
capable generator technology from General Electric Company's GE Additive
business. The KARNO generator emerged out of GE's long-running R&D investments
in metal additive manufacturing across multiple industries and in areas such as
generator thermal and performance design. Initial testing indicates the KARNO
generator is expected to comply with all current and foreseeable emissions
standards, specifically from the California Air Resources Board ("CARB") and the
Environment Protection Agency ("EPA "), even when utilizing conventional fuels.
The technology is expected to achieve a meaningful efficiency improvement over
today's conventional generators and could be more efficient than most available
fuel cells. These efficiency improvements should, in turn, enable fuel cost
reductions and improved vehicle range. The technology should also provide for
significant reductions in noise, vibration, moving parts and maintenance as
compared to current combustion engines. The KARNO power system is expected to be
capable of operating on over 20 different fuels including hydrogen, natural gas,
propane, ammonia and conventional fuels. The technology uses heat to drive a
sealed linear generator to produce electricity. The heat is produced by reacting
fuels through flameless oxidation or other heat sources including renewables.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed below and referenced in Item 1A "Risk Factors."
Successful Commercialization of Our Drivetrain Solutions
Our Hybrid system officially launched, and our first early development Hypertruck ERX showcase unit was unveiled, onAugust 31, 2021 at the ACT Expo inLong Beach, California . Compared to previousHyliion systems, the Hybrid system offers fleets a lighter solution that is easier to install, service and operate. The Hybrid system draws upon the real-world feedback we have received from customers and the millions of miles logged with the previous system. Due to shortages of various components caused by global supply chain disruptions, we are experiencing longer delivery times for a portion of the orders we have received on new Hybrid systems. In addition, we continually assess the potential demand impact for the Hybrid system offering in light of recent changes within the competitive landscape. InNovember 2021 , we began our Hypertruck ERX roadshow, which consists of numerous technology fleet experiences focused on demonstrating the features and benefits of the electric powertrain firsthand. The roadshow consists of "Ride and Drive" events and in-depth product education of the Hypertruck ERX's features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership. Our development timeline has been extended to allow for design verification and testing inclusive of critical summer and winter seasons, as well as the accumulation of up to one million miles prior to production. We expect to complete design verification and begin initial controlled fleet trials by the end of 2022. There have been ongoing shortages in the transportation industry supply chain including semiconductors as well as several other key components. These supply chain challenges have been especially prominent in the trucking industry, and one of the impacts has been significantly extended lead times for ordering new trucks. Fleets are experiencing lead times on new truck purchases that extend out for delivery into 2023. We placed orders withPeterbilt for all chassis needed in 2022 earlier this year and are securing build slots for the 2023 calendar year in an effort to mitigate future potential supply chain impacts to our Hypertruck ERX development schedule. We continue to work closely with our current supply base to improve delivery of 14
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components for the quarters ahead and are diligently seeking alternative sources of supply for components that meet our technical specifications with shorter lead times. In late 2023, we plan to first release the Hypertruck ERX powertrain, leveraging a natural gas engine as the onboard generator. In the years following, we plan to release the Hypertruck KARNO, our fuel agnostic variant, as phase two in theHyliion journey to a hydrogen-based future. We will also explore other adjacent markets to leverage the KARNO technology for cost savings and emissions reductions. We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on the continued development and commercialization of our drivetrain solutions. The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, as well as factors that are outside of our control.
Customer Demand
We have deployed demonstration Hybrid systems to certain early adopters who we expect to become customers in the future, including leaders in the transportation and logistics sector as well as companies committed to reducing the overall environmental impact and fuel costs of their owned and operated trucking fleets. Further, we began selling the Hybrid system in the fourth quarter of 2021. In 2021, we announced ourHypertruck Innovation Council , which consists of some of the largest fleets who will be assisting us along the development journey and will have been among the first to experience the Hypertruck ERX through our "Ride and Drive" events. The successful launch program and deployment of the Hypertruck ERX met with positive feedback from customer operations teams and drivers and generated further interest in the Hypertruck ERX solution and longer-term commercial relationships with us. The Inflation Reduction Act of 2022 was signed into law inAugust 2022 , under which the Hypertruck ERX will qualify fleets to receive a 30% tax credit up to$40,000 per vehicle adopted. We expect this to drive further interest in and demand for the Hypertruck ERX.
Key Components of Statements of Operations
Revenue
We currently generate revenues from sales of Hybrid systems for Class 8 semi-trucks and limited quantities of Class 8 semi-trucks outfitted with the Hybrid system.
Cost of Revenue
Cost of revenue includes all direct costs such as labor and materials, overhead costs, warranty costs and any write-down of inventory to net realizable value.
Research and Development Expense
Research and development expenses consist primarily of costs incurred for the discovery and development of our electrified powertrain solutions, which include:
•personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities;
•fees paid to third parties such as consultants and contractors for outsourced engineering services;
•expenses related to materials, supplies and third-party services;
•depreciation for equipment used in research and development activities;
•acquired in-process research and development from asset acquisition; and
•allocation of general overhead costs.
We expect to continue to invest in research and development activities to achieve operational and commercial goals.
Selling, General and Administrative Expense
Selling, general and administrative expenses consist of personnel-related
expenses for our corporate, executive, finance, sales, marketing and other
administrative functions, expenses for outside professional services, including
legal, audit and accounting services, as well as expenses for facilities,
depreciation, amortization, travel, sales and marketing costs. Personnel-related
expenses consist of salaries, benefits and share-based compensation.
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We expect our selling, general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of theU.S. Securities and Exchange Commission , legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
Other Income
Other income currently consists primarily of interest income earned on our investments. As a result of our acquisition of the KARNO generator technology, we plan to assume a government contract with theUnited States Office of Naval Research that is not expected to have a material impact on our business.
Results of Operations
Comparison of Three Months Ended
Our results of operations for the three months endedSeptember 30, 2022 (the "current quarter") and 2021 on a consolidated basis are summarized as follows (in thousands, except share and per share data): Three Months Ended September 30, 2022 2021 $ Change % Change Revenues Product sales and other $ 499 $ -$ 499 N/A Total revenues 499 - 499 N/A Cost of revenues Product sales and other 2,916 - 2,916 N/A Total cost of revenues 2,916 - 2,916 N/A Gross loss (2,417) - (2,417) N/A Operating expenses Research and development (52,678) (18,150) (34,528) 190.2 % Selling, general and administrative expenses (10,264) (8,660) (1,604) 18.5 % Total operating expenses (62,942) (26,810) (36,132) 134.8 % Loss from operations (65,359) (26,810) (38,549) 143.8 % Interest income 1,926 195 1,731 887.7 % Gain on disposal of assets 46 - 46 N/A Net loss $ (63,387)$ (26,615) $ (36,772) 138.2 % Net loss per share, basic and diluted $ (0.36)$ (0.15) $ (0.21) 140.0 % Weighted-average shares outstanding, basic and diluted 174,345,022 172,987,672 1,357 0.8 % Revenue Sales increased$0.5 million in the current quarter, driven by sales associated with our Hybrid products. We continue to pursue the sale of both Hybrid systems as well as complete vehicles installed with our Hybrid system.
Cost of Revenues
Cost of revenues increased$2.9 million in the current quarter, driven by costs associated with sales of Hybrid systems. We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales. The increase in cost of revenues includes:
•Inventory write-downs of
•Class 8 semi-truck cost of
•Warranty costs of
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Research and Development
Research and development expenses increased
•$28.8 million related to hydrogen and fuel agnostic capable generator
technology ("KARNO") acquired in September 2022 from General Electric Company's
GE Additive business to develop and commercialize the fuel agnostic Hypertruck
KARNO; and
•An increase of $5.5 million for the design and testing of our Hypertruck system
including an increase in expenses related to components, services and personnel
as we build out our engineering, operations and supply chain teams and
associated capabilities.
Selling, General and Administrative
Selling, general and administrative expenses increased
•An increase in personnel and benefits of$2.4 million and software costs of$0.3 million as we continue to grow our sales and other functions, including impacts from the departure of our prior Chief Financial Officer; partially offset by
•A decrease of
•A decrease of
Other Income
Total other income increased
Comparison of Nine Months Ended
The following table summarizes our results of operations on a consolidated basis for the nine months endedSeptember 30, 2022 (the "current nine months") and 2021 (in thousands, except share and per share data): Nine Months Ended September 30, 2022 2021 $ Change % Change Revenues Product sales and other $ 1,011 $ -$ 1,011 N/A Total revenues 1,011 - 1,011 N/A Cost of revenues Product sales and other 7,160 - 7,160 N/A Total cost of revenues 7,160 - 7,160 N/A Gross loss (6,149) - (6,149) N/A Operating expenses Research and development (88,543) (40,871) (47,672) 116.6 % Selling, general and administrative expenses (32,255) (26,111) (6,144) 23.5 % Total operating expenses (120,798) (66,982) (53,816) 80.3 % Loss from operations (126,947) (66,982) (59,965) 89.5 % Interest income 3,066 561 2,505 446.5 % Loss on disposal of assets (89) - (89) N/A Net loss$ (123,970) $ (66,421) $ (57,549) 86.6 % Net loss per share, basic and diluted $ (0.71)$ (0.39) $ (0.32) 82.1 % Weighted-average shares outstanding, basic and diluted 173,945,156 171,842,664 2,102 1.2 % Revenue
Sales increased
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Cost of Revenues
Cost of revenues increased$7.2 million in the current nine months, driven by costs associated with sales of Hybrid systems. We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales. The increase in cost of revenues includes:
•Inventory write-downs of
•Class 8 semi-truck cost of
•Warranty costs of
Research and Development
Research and development expenses increased
•$28.8 million related to hydrogen and fuel agnostic capable generator
technology ("KARNO") acquired in September 2022 from General Electric Company's
GE Additive business to develop and commercialize the fuel agnostic Hypertruck
KARNO; and
•An increase of $17.9 million for the design and testing of our Hypertruck
system including an increase in expenses related to components, services and
personnel as we build out our engineering, operations and supply chain teams and
associated capabilities.
Selling, General and Administrative
Selling, general, and administrative expenses increased
•An increase in personnel and benefits of$4.4 million and software costs of$1.6 million as we continue to grow our sales and other functions, including impacts from the departure of our prior Chief Financial Officer; and
•An increase of
•A decrease of
Other Income
Total other income increased
Liquidity and Capital Resources
AtSeptember 30, 2022 , our current assets were$394.0 million , consisting primarily of cash and cash equivalents of$154.2 million , short-term investments of$232.9 million and prepaid expenses of$5.9 million . Our current liabilities were$16.8 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities. We believe the credit quality and liquidity of our investment portfolio atSeptember 30, 2022 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives. The unrealized gains and losses of the portfolio may remain volatile as changes in the general interest environment and supply and demand fluctuations of the securities within our portfolio impact daily market valuations. To mitigate the risk associated with this market volatility, we deploy a relatively conservative investment strategy focused on capital preservation and liquidity whereby no investment security may have a final maturity of more than 36 months from the date of acquisition or a weighted average maturity exceeding 18 months. Eligible investments under the Company's investment policy bearing a minimum credit rating of A1, A-1, F1 or higher for short-term investments and A2, A, or higher for longer-term investments include money market funds, commercial paper, certificates of deposit and municipal securities. Additionally, all of our debt securities are classified as held-to-maturity as we have the intent and ability to hold these investment securities to maturity, which minimizes any realized losses that we would recognize prior to maturity. However, even with this approach we may incur investment losses as a result of unusual or unpredictable market developments, and we may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline further due to unpredictable market developments. In addition, these unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio. Based on our past performance, we believe our current assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months. Our primary short-term cash needs are Hypertruck ERX product development costs and components purchased to support the stated of production, operating expenses and production and related costs of Hybrid systems. We plan to stay asset-light and utilize third parties to perform assembly and manufacturing at scale. 18
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We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by (i) completing the development and commercialization of the electrified drive systems for Class 8 semi-trucks, (ii) scaling the Company's operations to meet anticipated demand and (iii) hiring personnel. Further, we plan to develop and commercialize the fuel agnostic Hypertruck KARNO with an anticipated commercial launch a few years after the Hypertruck ERX. However, actual results could vary materially and negatively as a result of a number of factors including, but not limited to, those discussed in Part II, Item 1A. "Risk Factors."
During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Cash Flows
Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the nine months endedSeptember 30, 2022 and 2021 is summarized as follows (in thousands): Nine Months Ended September 30, 2022 2021 Cash from operating activities $ (83,442) $
(49,822)
Cash from investing activities (20,750)
(65,601)
Cash from financing activities (92) 15,902
$ (104,284) $ (99,521) Cash from Operating Activities
For the nine months endedSeptember 30, 2022 , cash flows used in operating activities were$83.4 million . Cash used primarily related to a net loss of$124.0 million , adjusted for changes in working capital accounts and certain non-cash expenses of$40.5 million (including$28.8 million related to acquired in-process research and development$5.3 million related to share-based compensation,$3.1 million related to prepaid expenses and other assets,$3.0 million related to depreciation, amortization and accretion charges and$2.0 million related to accounts payable, accrued expenses and other liabilities). For the nine months endedSeptember 30, 2021 , cash flows used in operating activities were$49.8 million . Cash used primarily related to net loss of$66.4 million , adjusted for changes in working capital accounts and certain non-cash expenses of$16.6 million (including$6.9 million related to accounts payable, accrued expenses and other liabilities,$4.0 million related to share-based compensation,$3.6 million related to prepaid expenses and other assets and$2.7 million related to depreciation, amortization and accretion charges).
Cash from Investing Activities
For the nine months endedSeptember 30, 2022 , cash flows used in investing activities were$20.8 million . Cash used related to the purchase of investments of$160.1 million , acquired in-process research and development of$14.4 million and property and equipment of$2.6 million , offset by the sale or maturity of investments of$156.4 million .
For the nine months ended
Cash from Financing Activities
For the nine months ended
For the nine months endedSeptember 30, 2021 , cash flows provided by financing activities were$15.9 million . Cash flows were primarily due to net proceeds from the exercise of warrants of$16.3 million and proceeds from exercise of common stock options of$0.6 million , partially offset by repayments of$0.9 million for a Paycheck Protection Program loan.
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements, we applied the
same critical accounting policies as described in our 2021 Annual Report,
supplemented with those below, that affect judgments and estimates of amounts
recorded for certain assets, liabilities, revenues and expenses.
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Acquisitions
To determine whether acquisitions should be accounted for as a business
combination or as an asset acquisition, we make certain judgments which include
assessing whether the acquired set of activities and assets meet the definition
of a business. If the acquired set of activities and assets meets the definition
of a business, assets acquired and liabilities assumed are required to be
recorded at their respective fair values as of the acquisition date with the
excess of the purchase price over the fair value of the acquired net assets
recorded as goodwill. If the acquired set of activities and assets does not meet
the definition of a business, the transaction is recorded as an acquisition of
assets and, therefore, any acquired in-process research and development
("IPR&D") that does not have an alternative future use is charged to expense at
the acquisition date, and no goodwill is recorded.
The judgments made in determining estimated fair values of assets acquired and
liabilities assumed in a business combination or asset acquisition, as well as
estimated asset lives, can materially affect our consolidated results of
operations. All assets acquired in 2022 were valued using level 3 inputs with
property and equipment valued using a cost approach and IPR&D valued using an
income approach based on management's projections. The fair values of assets,
including acquired IPR&D, are determined using information available near the
acquisition date based on estimates and assumptions that are deemed reasonable
by management. Significant estimates and assumptions include, but are not
limited to, probability of technical success, revenue growth, future revenues
and expenses and discount rate.
Revenue Recognition
When a Class 8 semi-truck outfitted with a Hybrid system is resold to a customer, judgment is required to determine if we are the principal or agent in the arrangement. We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service. We have determined that we are the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system. We are in early stages of development, continue to refine our business plans and consider the resale of Class 8 semi-trucks outfitted with Hybrid systems to constitute ordinary activities from our ongoing major or central operations.
Should our business plans, estimates or assumptions change, we may record receipts from sales of Class 8 semi-trucks as non-operating income in future periods.
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