What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-11 compared with 2021-05-17 · 68 added, 35 removed, 125 unchanged (45% of the section changed)

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Our goal is to reduce the carbon intensity and the Greenhouse Gas ("GHG") emissions of the transportation sector by providing electrified powertrain solutions for Class 8 semi trucks at the lowest total cost of ownership ("TCO").

Our solutions utilize our proprietary battery systems, control software and data analytics, combined with fully integrated electric motors and power electronics, to produce electrified powertrain systems that either augment, in the case of our Hybrid system, or fully replace, in the case of the Hypertruck ERX system, traditional diesel or natural gas fueled powertrains and improve their performance.

Throughout our product offerings, we utilize proprietary battery systems, control software and data analytics, combined with fully integrated electric motors and power electronics, to produce electrified powertrain systems that either augment, in the case of our Hybrid system, or fully replace, in the case of the Hypertruck ERX system, traditional diesel or natural gas fueled powertrains and improve their performance.

By reducing both GHG emissions and TCO, our environmentally conscious solutions support our customers’ pursuit of their sustainability and financial objectives.

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Across the customer installations and over the entire Hyliion fleet we have accumulated millions of real world road miles on Class 8 commercial vehicles.

Our Hybrid system can either be installed on a new vehicle during assembly and prior to entering fleet service or retrofit to an existing in-service vehicle.

Our Hybrid system can either be installed on a new vehicle prior to entering fleet service or retrofit to an existing in-service vehicle.

Our Hypertruck ERX system is in the development stage with vehicles being built for testing and validation.

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See “Risk Factors — Our future growth is dependent upon the commercial trucking industry’s willingness to adopt alternative fuel, hybrid and electric vehicles” discussed in our 2020 Amended Annual Report.

Our Hybrid and Hypertruck ERX systems are designed to be installed on most major Class 8 commercial vehicles, which gives our customers the flexibility to continue using their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.

Our Hybrid and Hypertruck ERX systems are designed to be able to be installed on most major Class 8 commercial vehicles 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.

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Upon the consummation of the Business Combination, each share of Legacy Hyliion common stock issued and outstanding was cancelled and converted into the right to receive the per share merger consideration.

Additionally, Legacy Hyliion issued 1,000,000 shares of Legacy Hyliion common stock with a grant date fair value of $10.00 per share to one of the convertible noteholders in connection with the Commercial Matters Agreement entered into in June 2020.

Upon the closing of the Business Combination, Tortoise’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of capital stock to 260,000,000 shares, of which 250,000,000 shares were designated common stock, $.0001 par value per share, and of which 10,000,0000 shares were designated preferred stock, $0.0001 par value per share.

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The net assets of Tortoise are stated at historical cost, with no goodwill or intangible assets recorded.

As a result of the Business Combination, we became a NYSE listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

As a result of the Business Combination, we became a NYSE listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We have incurred, and expect to continue to incur, additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.

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We expect to derive future revenue from our Hybrid systems and Hypertruck ERX system.

Our Demonstrator Hybrid system is available today, offering customers the immediate ability to lower costs and improve environmental impact, and we intend to introduce our improved Hybrid system for customer deliveries in late 2021 and will continue to make improvements to this next iteration Hybrid system in 2022.

Demos of our Hypertruck ERX system is projected to be delivered to customers for evaluation and testing in beginning late 2021 with commercial availability projected for 2022.

Our Demonstrator Hybrid system is available today, offering customers the immediate ability to lower costs and improve environmental impact, and we intend to introduce our improved Hybrid system for customer deliveries in late 2021 and intend to continue to make rolling improvements to this next iteration Hybrid system going forward.

Demos of our Hypertruck ERX system are projected to be showcased with fleets in late 2021, followed by evaluation and testing throughout 2022.

The Hypertruck ERX is projected to be commercially available in late 2022.

To reach commercialization, we must purchase and integrate related property and equipment, as well as achieve several research and development milestones.

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Customer Demand

As discussed above in more detail, we have deployed demonstration Hybrid system units to a number of companies, and our Hypertruck ERX system is generating interest from companies who have received demonstration Hybrid system units and potential new customers.

As discussed above in more detail, we have deployed our Demonstrator Hybrid system units to a number of companies, and our Hypertruck ERX system is generating interest from companies who have received our Demonstrator Hybrid system units and potential new customers.

Key Components of Statements of Operations

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Other Income (Expense), Net

Other income and expenses consist primarily of interest expense incurred on our debt obligations, interest income earned on our investments and a remeasurement gain or loss associated with the change in the fair value on our convertible notes payable derivative liabilities and a loss on the extinguishment of our convertible notes payable.

Results of Operations

Comparison of Quarters Ended March 31, 2021 and 2020

The following table summarizes our results of operations on a consolidated basis for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, $ %

Comparison of Three Months Ended June 30, 2021 to Three Months Ended June 30, 2020

The following table summarizes our results of operations on a consolidated basis for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30, $ %

2021 2020 Change Change

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Net loss $ (23,244) $ (4,001) $ (19,243) 481.0 %

Weighted-average shares outstanding, basic and diluted 172,260,525 86,777,844 85,482,681 98.5 %

Net loss per share, basic and diluted $ (0.13) $ (0.05) $ (0.08) 160.0 %

Research and Development

Research and development expenses increased by $10.8 million from $2.6 million for the three months ended June 30, 2020 to $13.4 million for the three months ended June 30, 2021 primarily as a result of increased expenditures by $6.2 million for components utilized in the development process to commercialize our Hybrid system and continue the design and testing of our Hypertruck ERX system, increased labor by $2.3 million as we build out our engineering team and continue to build out our operations team and capabilities, increased expenditures for external consultancy by $1.6 million to bring in industry expertise to assist in achieving our commercialization milestones, and increase expenditures by $0.7 million for other expenses.

Selling, General and Administrative

Selling, general, and administrative expenses increased by $9.2 million from $0.9 million for the three months ended June 30, 2020 to $10.1 million for the three months ended June 30, 2021, primarily due to increased expenditures for legal fees and professional fees by $2.5 million, additional costs incurred to operate as a public company which includes increased expenses for personnel and benefits by $3.8 million, increased expenditures for directors and officers insurance by $1.1 million, increased marketing and promotional expenses by $0.5 million, increased information technology expenses associate with additional resource and computer system upgrades of $0.3 million, and increased expenditures for other expenses by $1.0 million.

Other Income (Expense)

Total other income increased by $0.8 million from $0.6 million of other expense for the three months ended June 30, 2020 to $0.2 million of other income for the three months ended June 30, 2021.

The increase was primarily due to the following:

• Interest expense for the three months ended June 30, 2020 of $1.7 million was primarily related to our convertible notes payable, which was converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no interest expense during the three months ended June 30, 2021.

• A loss from the change in fair value of convertible notes payable derivative liabilities of $1.1 million for the three months ended June 30, 2020.

The convertible notes payable were converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no change in fair value of convertible notes payable derivative liabilities during the three months ended June 30, 2021, and

• Interest income of $0.2 million on investments owned during the three months ended June 30, 2021 that were not owned during the comparative period.

Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30, $ %

2021 2020 Change Change

Operating expenses

Research and development $ (22,721) $ (5,225) $ (17,496) 334.9 %

Selling, general and administrative (17,451) (1,565) (15,886) 1015.1 %

Loss from operations (40,172) (6,790) (33,382) 491.6 %

Other income (expense):

Interest expense — (3,228) 3,228 (100.0) %

Interest income 366 — 366 — %

Change in fair value of convertible notes payable derivative liabilities — 455 (455) (100.0) %

Total other income (expense) 366 (2,773) 3,139 (113.2) %

Net loss $ (39,806) $ (9,563) $ (30,243) 316.3 %

Weighted-average shares outstanding, basic and diluted 171,260,671 86,762,463 84,498,208 97.4 %

Net loss per share, basic and diluted $ (0.23) $ (0.11) $ (0.12) 109.1 %

Research and Development

Research and development expenses increased by $6.7 million from $2.7 million for the three months ended March 31, 2020 to $9.3 million for the three months ended March 31, 2021 primarily as a result of increased expenditures for external consultancy by $2.5 million, increased research and development costs by $2.0 million which was associated with the purchase of vehicles and equipment to be used in testing of our products, increased labor by $1.2 million as we build out our engineering team and continue to build out our operations team and capabilities and increased expenditures for components utilized in the development process by $1.0 million in our efforts to finalize the design of our Hybrid system and continue the design and testing of our Hypertruck ERX system during three months ended March 31, 2021.

Research and development expenses increased by $17.5 million from $5.2 million for the six months ended June 30, 2020 to $22.7 million for the six months ended June 30, 2021 primarily as a result of increased expenditures for components utilized in

the development process by $7.0 million in our efforts to commercialize our Hybrid system and continue the design and testing of our Hypertruck ERX system, increased expenditures for external consultancy by $4.6 million to bring in industry expertise to assist in achieving our commercialization milestones, increased labor by $3.9 million as we build out our engineering team and continue to build out our operations team and capabilities, and increased costs by $2.0 million associated with the purchase of vehicles and equipment to be used in testing of our products.

Selling, General and Administrative

Selling, general, and administrative expenses increased by $6.7 million from $0.7 million for the three months ended March 31, 2020 to $7.4 million for the three months ended March 31, 2021, primarily due to additional costs incurred to operate as a public company which include increased expenses for personnel and benefits by $3.0 million, increased expenditures for directors and officers insurance by $1.1 million, increased expenditures for legal and professional fees by $1.9 million, and increased expenditures for other expenses by $0.7 million.

Selling, general, and administrative expenses increased by $15.9 million from $1.6 million for the six months ended June 30, 2020 to $17.5 million for the six months ended June 30, 2021, primarily due to additional costs incurred to operate as a public company which includes increased expenses for personnel and benefits by $6.7 million, increased expenditures for legal and professional fees by $4.8 million, increased expenditures for directors and officers insurance by $2.3 million, increased marketing and promotional expenses by $0.7 million, increased information technology expense associated with additional resources and computer system upgrades of $0.5 million, and increased expenditures for other expenses by $0.9 million.

Other Income (Expense)

Total other expense decreased by $2.4 million from $2.2 million of other expense for the three months ended March 31, 2020 to $0.2 million of other income for the three months ended March 31, 2021.

The decrease was primarily due to the following:

• Interest expense for the three months ended March 31, 2020 was primarily related to our convertible notes payable, which was converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no interest expense during the three months ended March 31, 2021.

• A loss from the change in fair value of convertible notes payable derivative liabilities of $0.6 million for the three months ended March 31, 2020,

• and interest income of $0.2 million on investments owned during the three months ended March 31, 2021 that were not owned during the comparative period.

Total other income increased by $3.2 million from $2.8 million of other expense for the six months ended June 30, 2020 to $0.4 million of other income for the six months ended June 30, 2021.

The increase was primarily due to the following:

• Interest expense for the six months ended June 30, 2020 of $3.2 million was primarily related to our convertible notes payable, which was converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no interest expense during the six months ended June 30, 2021.

• A gain from the change in fair value of convertible notes payable derivative liabilities of $0.5 million for the six months ended June 30, 2020.

The convertible notes payable were converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no change in fair value of convertible notes payable derivative liabilities during the six months ended June 30, 2021, and

• Interest income of $0.4 million on investments owned during the six months ended June 30, 2021 that were not owned during the comparative period.

Liquidity and Capital Resources

Prior to the Business Combination, the Company’s operations were financed through private placements of redeemable convertible preferred stock and the issuance of convertible notes payable.

As of March 31, 2021, our principal sources of liquidity were our cash and cash equivalents in the amount of $334.7 million, which are primarily invested in money market funds.

As of June 30, 2021, our principal sources of liquidity were our cash and cash equivalents in the amount of $317.7 million, which are primarily invested in money market funds.

On November 30, 2020, we issued a notice of redemption to the warrant holders for a redemption of all the outstanding warrants, on a cash basis, or in the case of the private placement warrants issued in connection with Tortoise’s initial public offering in March 2019 on a cashless basis.

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As of the date of this Quarterly Report on Form 10-Q, we have yet to generate revenue from our core business operations.

As of March 31, 2021, our current assets were $483.2 million, consisting primarily of cash and cash equivalents of $334.7 million, short-term investments of $144.8 million, and prepaid expenses of $3.6 million.

As of June 30, 2021, our current assets were $461.5 million, consisting primarily of cash and cash equivalents of $317.7 million, short-term investments of $140.0 million, and prepaid expenses and other current assets of $3.8 million.

Our current liabilities were $15.0 million primarily comprised of accounts payable, accrued expenses, and operating lease liabilities.

We believe the credit quality and liquidity of our investment portfolio as of March 31, 2021 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives.

We believe the credit quality and liquidity of our investment portfolio as of June 30, 2021 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/demand fluctuations of the securities within our portfolio impact daily market valuations.

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Additionally, all 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 the realized losses that we would recognize.

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.

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.

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Our primary short-term cash needs are paying operating expenses.

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 hybrid and electrified drive systems for long haul “Class 8” semi-tractors, (ii) scaling the Company’s operations to meet anticipated demand, and (iii) hiring personnel.

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 hybrid and electrified drive systems for long haul “Class 8” semi-tractors, (ii) scaling the Company’s operations to meet anticipated demand, and (iii) hiring personnel.

However, actual results could vary materially and negatively as a result of a number of factors including, but not limited to, those discussed in the section “Risk Factors” in Item 1A “Risk Factors” in our 2020 Amended Annual Report.

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Cash Flows Used in Operating Activities

For the three months ended March 31, 2021, cash flows used in operating activities were $10.8 million.

The cash used primarily related to Hyliion’s net loss of $16.6 million, adjusted for changes in Hyliion’s working capital accounts and certain non-cash expense of $1.9 million (including $0.2 million related to non-cash lease expense, $0.2 million related to depreciation and amortization, and $1.5 million related to share based compensation).

For the three months ended March 31, 2020, cash flows used in operating activities were $3.3 million.

The cash used primarily related to Hyliion’s net loss of $5.6 million, adjusted for changes in Hyliion’s working capital accounts and certain non-cash expense of $2.8 million (including $0.3 million related to non-cash lease expenses, $0.3 million related to depreciation and amortization, $0.6 million related to a loss from the change in fair value of the convertible notes payable derivative liabilities, $1.3 million related to amortization of the debt discount and $0.3 million related to paid-in-kind interest on convertible notes payable).

For the six months ended June 30, 2021, cash flows used in operating activities were $24.2 million.

The cash used primarily related to Hyliion’s net loss of $39.8 million, adjusted for changes in Hyliion’s working capital accounts of $10.4 million and certain non-cash expense of $5.2 million (including $0.5 million related to non-cash lease expense, $0.4 million related to depreciation and amortization, $0.8 million related to amortization of investment premiums and discounts, and $3.4 million related to share based compensation).

For the six months ended June 30, 2020, cash flows used in operating activities were $6.6 million.

The cash used primarily related to Hyliion’s net loss of $9.6 million, adjusted for changes in Hyliion’s working capital accounts of $0.9 million and certain non-cash expense of $3.9 million (including $0.5 million related to non-cash lease expenses, $0.5 million related to depreciation and amortization, $0.5 million related to a gain from the change in fair value of the convertible notes payable derivative liabilities, $2.5 million related to amortization of the debt discount and $0.7 million related to paid-in-kind interest on convertible notes payable).

Cash Flows Used in Investing Activities

Net cash used in investing activities primarily related to the purchase of investments during the three months ended March 31, 2021 totaling $219.5 million, offset by the proceeds from the sale of investments of $160.0 million.

Net cash used in investing primarily related to capital expenditures of $0.1 million for the three months ended March 31, 2020.

Net cash used in investing activities is expected to continue to increase substantially as we purchase additional property and equipment as we continue the development of our Hybrid and Hypertruck ERX systems and scale the manufacturing operations to meet anticipated demand.

For the six months ended June 30, 2021, cash used in investing activities primarily relates to the purchase of investments and totaled $239.0 million along with capital expenditures of $1.0 million, offset by the proceeds from the sale of investments and totaled $176.4 million.

For the six months ended June 30, 2020, cash used in investing primarily relates to net capital expenditures and totaled $0.7 million.

Net cash used in investing activities is expected to continue to increase substantially as we purchase additional property and equipment as we continue the development of our Hybrid and Hypertruck ERX systems and scales the manufacturing operations to meet anticipated demand.

Cash Flows Provided by Financing Activities

Cash provided by financing activities was $15.6 million for the three months ended March 31, 2021, which was primarily generated from proceeds from the exercise of warrants of $16.2 million and proceeds from the exercise of stock options of $0.3 million, partially offset by the repayment of PPP loan of $0.9 million.

Cash provided by financing activities was $3.1 million for the three months ended March 31, 2020, which was primarily due to $3.2 million of proceeds from the issuance of a convertible note payable, partially offset by the repayment on finance lease obligations of $0.1 million.

For the six months ended June 30, 2021, cash provided by financing activities was $15.9 million, which was primarily generated from proceeds from the exercise of warrants of $16.2 million and proceeds from the exercise of stock options of $0.5 million, partially offset by the repayment of the PPP loan of $0.9 million.

For the six months ended June 30, 2020, cash provided by financing activities was $3.6 million which was primarily due to $3.2 million of proceeds from the issuance of a convertible note payable and derivative liabilities and proceeds from the PPP loan of $0.9 million, partially offset by the repayment on finance lease obligations and payments for deferred transaction costs of $0.5 million.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis