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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-10 · 113 added, 147 removed, 58 unchanged (82% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to “we,” “us,” “our,” the “Company,” or "Hyliion" are to Hyliion Holdings Corp., together with its wholly-owned subsidiary, except where the context requires otherwise.

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 2020 Amended Annual Report.

References to the “Company,” "Hyliion," "we," or "us" in this report refer to Hyliion Holdings Corp.

and its wholly-owned subsidiary after the Business Combination, unless expressly indicated or the context otherwise requires.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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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 ability to disrupt the powertrain market, our focus in 2021 and beyond;

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 of Thomas Healy, our Chief Executive Officer;

our ability to disrupt the powertrain market;

the effects of our dynamic and proprietary solutions on commercial truck customers;

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the impact of COVID-19 on long-term objectives;

the ability of our solutions to reduce carbon intensity and greenhouse gas emissions, and the other risks and uncertainties described under the heading “Risk Factors” in our other SEC filings including in our 2020 Amended Annual Report (See Item 1A.

Risk Factors).

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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.

Hyliion is a Delaware corporation headquartered in Cedar Park, Texas.

On October 1, 2020, Tortoise Acquisition Corp.

(“Tortoise”) entered into a Business Combination with each of the shareholders of Hyliion Inc.

(“Legacy Hyliion”), and consummated the merger contemplated by the Business Combination, with Legacy Hyliion surviving the merger as a wholly-owned subsidiary of Tortoise, which was renamed “Hyliion Holdings Corp.” As a result of the Business Combination, we became an NYSE listed company.

Our mission is to be the leading provider of electrified powertrain solutions for the commercial vehicle industry.

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").

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 eX system, or fully replace, in the case of the Hypertruck ERX system, traditional diesel or natural gas fueled powertrains and improve their performance.

Our goal is to reduce the carbon intensity and the Greenhouse Gas ("GHG") emissions of the transportation sector by providing hybrid and electrified 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 powertrain to trucks which can augment power needs, and the Hypertruck ERX which is a complete powertrain option that is fully electric drive 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 our Hybrid eX and developing our Hypertruck ERX electrified powertrain systems for long-haul Class 8 commercial vehicles.

Our Hybrid eX system has been installed in low volumes on our initial customers’ commercial vehicles.

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 eX 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’s design and technology leverages the experience and operating data from our Hybrid eX system to replace the traditional diesel powertrain installed in new vehicles.

Our Hypertruck ERX system will offer commercial vehicle owners and operators a net carbon negative electrified powertrain option for Class 8 commercial vehicles, when using certain Renewable Natural Gas (“RNG”).

Our initial expected deliveries of our Hypertruck ERX systems to customers are designed to have their batteries recharged with Compressed Natural Gas (“CNG”).

CNG fueled recharging is preferable due to both the current comparable cost of fuels and existing availability of CNG refueling infrastructure.

Class 8 commercial vehicles 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 liquefied natural gas (“LNG”) are used widely for land-based transport and trucking and Hyliion believes there are established, geographically diverse, and third-party accessible refueling stations available in certain areas in which Hyliion expects it may sell its electrified powertrain solutions in the future.

We are currently selling the Hybrid system and are developing our Hypertruck ERX electrified powertrain systems 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 entire Hyliion 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 is a range-extender vehicle, 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 initial expected deliveries of our Hypertruck ERX systems to customers are designed to have their batteries recharged by a CNG generator.

Our Hypertruck ERX system can offer commercial vehicle owners and operators a net carbon negative electrified powertrain option, when 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.

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 natural gas solution, and then expect to release a Fuel Agnostic generator and a Hydrogen Fuel Cell generator for the Hypertruck platform.

CNG fueled recharging is preferable today due to both the current comparable cost of fuels and existing availability of CNG refueling 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 liquefied natural gas (“LNG”) are used widely for land-based transport and trucking and we believe there are established, geographically diverse and third-party accessible refueling stations available in certain areas in which we expect 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.

This existing and accessible refueling infrastructure will significantly reduce the buildout time and cost required to utilize our Hypertruck ERX system as compared to other proposed potential electrified solutions.

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 eX 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 eX system deployments include leaders in the transportation and logistics sector.

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.

Recent Developments

Comparability of Financial Information

Our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the Business Combination and becoming a public company.

Business Combination and Public Company Costs

On October 1, 2020, we consummated the merger contemplated by the Business Combination, with Legacy Hyliion surviving the merger as a wholly-owned subsidiary of Tortoise, which was renamed Hyliion Holdings Corp.

Immediately prior to the closing of the Business Combination, all shares of issued and outstanding redeemable convertible preferred stock converted into shares of Legacy Hyliion common stock and all outstanding convertible notes payable plus accrued interest converted into shares of Legacy Hyliion common stock at the discount rates set forth in the original agreements.

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 a business arrangement 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.

In connection with the Business Combination, a number of investors purchased from the Company an aggregate of 30,750,000 shares of common stock, for a purchase price of $10.00 per share and an aggregate purchase price of $307.5 million pursuant to separate subscription agreements entered into effective June 18, 2020 (the “PIPE”).

The PIPE investment closed simultaneously with the consummation of the Business Combination.

Additionally, a purchaser purchased 1,750,000 Tortoise units (each unit consisting of one share of common stock and one half of one warrant, consisting of 1,750,000 shares of common stock and warrants to purchase 875,000 shares of common stock) for an aggregate purchase price of $17.5 million pursuant to a forward purchase agreement entered into effective February 6, 2019, as amended by the First Amendment to Amended and Restated Forward Purchase Agreement, dated June 18, 2020.

On November 30, 2020, the Company issued a notice of redemption of all of its outstanding Public Warrants and Forward Purchase Warrants which was completed in December 2020.

Legacy Hyliion was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in ASC 805.

The determination was primarily based on Legacy Hyliion’s stockholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy Hyliion’s board of directors comprising a majority of the board of directors of the combined company, Legacy Hyliion’s existing shareholders’ control over decisions regarding the election and removal of directors and officers of the combined company’s board of directors, and Legacy Hyliion’s senior management comprising the senior management of the combined company.

Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Hyliion issuing stock for the net assets of Tortoise, accompanied by a recapitalization.

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 an 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.

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 in Item 1A “Risk Factors” in our 2020 Amended Annual Report.

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 in Item 1A “Risk Factors.”

Successful Commercialization of Our Drivetrain Solutions

Our Hybrid eX system officially launched, and our first Hypertruck ERX showcase unit was unveiled, on August 31, 2021 at the ACT Expo in Long Beach, CA.

Compared to previous Hyliion Hybrid systems, the Hybrid eX offers fleets a lighter solution that is easier to install, service and operate.

The Hybrid eX draws upon the real-world feedback Hyliion has 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 because of supply delays for a portion of the orders we have received on new Hybrid eX units.

We expect to begin recognizing revenue on Hybrid eX units in the fourth quarter of 2021.

In addition, we are assessing the potential demand impact for the Hybrid eX product offering in light of recent changes within the competitive landscape.

We began our Hypertruck ERX roadshow in November 2021 with a two-day showcase event focused on demonstrating the features and benefits of the powertrain firsthand.

The roadshow consists of ride-alongs and in-depth product education to provide in-depth education on the Hypertruck ERX’s features and benefits, including how it enables fleets’ decarbonization goals while also reducing total cost of ownership.

Our Hybrid system officially launched, and our first Hypertruck ERX showcase unit was unveiled, on August 31, 2021 at the ACT Expo in Long Beach, California.

Compared to previous Hyliion 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.

In addition, we continually assess the potential demand impact for the Hybrid system offering in light of recent changes within the competitive landscape.

We began our Hypertruck ERX roadshow in November 2021 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 fleets’ 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 initial controlled fleet trials by the end of 2022.

While we have recently achieved critical product milestones, shortages in the supply chain and changes to the development program have led to an extension in the go-forward development timeline.

Similar to others in the automotive industry, the semiconductor shortage, as well as several other key components, is extending our timelines longer than expected.

We expect to complete design verification and begin initial controlled fleet trials by the end of 2022.

There have recently been shortages in the automotive 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 have already placed orders with Peterbilt for all chassis needed in 2022 and are working to secure build slots for the 2023 calendar year in an effort to mitigate future supply chain impacts to our Hypertruck ERX development schedule.

We have already placed orders with Peterbilt for all chassis needed in 2022 and are working to secure 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 components for the quarters ahead and are diligently seeking alternative sources of supply for components that meet our technical specifications with shorter lead times.

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Customer Demand

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 as well as potential new customers.

We recently announced a reservation for 300 Hypertruck ERX units from Detmar Logistics, a leading oilfield logistics company.

An early adopter of electrification solutions in the industry, Detmar placed an initial order for 10 Hybrid systems earlier this spring.

The successful program and deployment met with positive feedback from Detmar’s operations team, drivers, and customers, and generated further interest in the Hypertruck ERX solution and a longer-term commercial relationship with Hyliion.

The purchase and sale of the 300 Hypertruck ERX units is subject to the execution of a final agreement between Hyliion and Detmar.

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 commercialized and began selling the Hybrid system in the fourth quarter of 2021.

In 2021, we announced our Hypertruck 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.

Key Components of Statements of Operations

We currently generate revenues from sales of Hybrid systems for Class 8 semi-trucks.

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 expense consists primarily of costs incurred for the discovery and development of our electrified powertrain solutions, which include:

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;

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• allocation of general overhead costs.

We expect research and development costs to increase for the foreseeable future as we continue to invest in research and development activities to achieve operational and commercial goals.

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 expense consists 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.

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.

We expect our selling, general and administrative expenses, including legal, audit, and additional insurance expenses, investor relations activities and other administrative and professional services, to increase for the foreseeable future as we scale headcount with the growth of our business and operate as a public company in compliance with the rules and regulations of the SEC.

Other Income (Expense)

Other income and expense consists 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.

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 the U.S.

Securities and Exchange Commission, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.

Other income currently consists primarily of interest income earned on our investments.

Results of Operations

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

The following table summarizes our results of operations on a consolidated basis for the three months ended September 30, 2021 and 2020 (in thousands, except share data):

Three Months Ended September 30,

Comparison of Three Months Ended March 31, 2022 to Three Months Ended March 31, 2021

Our results of operations for the three months ended March 31, 2022 and 2021 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended March 31,

2022 2021 $ Change % Change

Product sales and other $ 340 $ — $ 340 N/A

Total revenues 340 — 340 N/A

Cost of revenues

Product sales and other 2,099 — 2,099 N/A

Total cost of revenues 2,099 — 2,099 N/A

Gross loss (1,759) — (1,759) N/A

Operating expenses

Research and development (15,808) (9,332) (6,476) 69.4 %

Selling, general and administrative (8,660) (2,140) (6,520) 304.7 %

Selling, general and administrative expenses (9,824) (7,399) (2,425) 32.8 %

Total operating expenses (25,632) (16,731) (8,901) 53.2 %

Loss from operations (27,391) (16,731) (10,660) 63.7 %

Other income (expense):

Interest expense — (2,230) 2,230 (100.0) %

Interest income 285 169 116 68.6 %

Change in fair value of convertible notes payable derivative liabilities — (1,813) 1,813 (100.0) %

Other income (expense) — (12) 12 (100.0) %

Total other income (expense) 195 (4,055) 4,250 (104.8) %

Loss on disposal of assets (2) — (2) N/A

Net loss $ (27,108) $ (16,562) $ (10,546) 63.7 %

Weighted-average shares outstanding, basic and diluted 172,987,672 87,398,704 85,588,968 97.9 %

Net loss per share, basic and diluted $ (0.16) $ (0.10) $ (0.06) 60.0 %

Research and Development

Research and development expenses increased by $15.2 million from $2.9 million for the three months ended September 30, 2020 to $18.2 million for the three months ended September 30, 2021 primarily as a result of increased expenditures by $11.9 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 $2.6 million as we build out our engineering, operations, and supply chain teams and associated capabilities, and increased other expenditures by $0.7 million.

Selling, General and Administrative

Selling, general, and administrative expenses increased by $6.5 million from $2.1 million for the three months ended September 30, 2020 to $8.7 million for the three months ended September 30, 2021, primarily due to additional costs incurred to operate as

a public company which includes increased expenses for personnel and benefits by $2.3 million, increased expenditures for legal and professional fees by $0.9 million, increased expenditures for insurance primarily relating to directors' and officers' liability insurance policy by $1.2 million, and increased other expenditures by $2.1 million.

Other Income (Expense)

Total other income increased by $4.3 million from $4.1 million of other expense for the three months ended September 30, 2020 to $0.2 million of other income for the three months ended September 30, 2021.

The increase was primarily due to the following:

• Interest expense for the three months ended September 30, 2020 of $2.2 million was primarily related to our convertible notes payable, which were 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 September 30, 2021;

• A loss from the change in fair value of convertible notes payable derivative liabilities of $1.8 million for the three months ended September 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 September 30, 2021;

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

Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020

The following table summarizes our results of operations on a consolidated basis for the nine months ended September 30, 2021 and 2020 (in thousands, except share data):

Nine Months Ended September 30,

2021 2020 $ Change % Change

Operating expenses

Research and development $ (40,871) $ (8,134) $ (32,737) 402.5 %

Selling, general and administrative (26,111) (3,705) (22,406) 604.8 %

Loss from operations (66,982) (11,839) (55,143) 465.8 %

Other income (expense):

Interest expense — (5,458) 5,458 (100.0) %

Interest income 561 — 561 — %

Change in fair value of convertible notes payable derivative liabilities — (1,358) 1,358 (100.0) %

Other expense — (12) 12 (100.0) %

Total other income (expense) 561 (6,828) 7,389 (108.2) %

Net loss $ (66,421) $ (18,667) $ (47,754) 255.8 %

Weighted-average shares outstanding, basic and diluted 173,584,573 170,249,708 3,335 2.0 %

Net loss per share, basic and diluted $ (0.39) $ (0.21) $ (0.18) 85.7 %

Sales increased by $0.3 million for the quarter ended March 31, 2022, driven by sales of Hybrid systems.

Cost of Revenues

Cost of revenues increased by $2.1 million for the quarter ended March 31, 2022, driven by 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 $1.3 million attributable to inventory on hand that had a cost higher than its net realizable value;

• Warranty costs of $0.2 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors.

Research and Development

Research and development expenses increased by $32.7 million from $8.1 million for the nine months ended September 30, 2020 to $40.9 million for the nine months ended September 30, 2021 primarily as a result of increased expenditures for components utilized in the development process by $18.9 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 $6.5 million as we build out our engineering, operations, and supply chain teams and associated capabilities, increased costs by $2.0 million associated with the purchase of vehicles and equipment to be used in testing of our products, and increased other expenditures by $0.7 million.

Research and development expenses increased by $6.5 million for the quarter ended March 31, 2022 primarily due to an increase of $6.1 million primarily for the design and testing of our Hypertruck ERX system including an increase in personnel and benefits as we build out our engineering, operations and supply chain teams and associated capabilities.

Selling, General and Administrative

Selling, general, and administrative expenses increased by $22.4 million from $3.7 million for the nine months ended September 30, 2020 to $26.1 million for the nine months ended September 30, 2021, primarily due to additional costs incurred to operate as a public company which includes increased expenses for personnel and benefits by $9.0 million, increased

expenditures for legal and professional fees by $5.7 million, increased expenditures for insurance primarily relating to our directors' and officers' liability insurance policy by $3.5 million, increased marketing and promotional expenses by $1.1 million, increased information technology expenses associated with additional resources and computer system upgrades of $1.0 million, and increased other expenditures by $2.1 million.

Other Income (Expense)

Total other income increased by $7.4 million from $6.8 million of other expense for the nine months ended September 30, 2020 to $0.6 million of other income for the nine months ended September 30, 2021.

The increase was primarily due to the following:

• Interest expense for the nine months ended September 30, 2020 of $5.5 million was primarily related to our convertible notes payable, which were converted to shares of common stock as part of the Business Combination in October 2020.

As such, there was no interest expense during the nine months ended September 30, 2021;

• A loss from the change in fair value of convertible notes payable derivative liabilities of $1.4 million for the nine months ended September 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 nine months ended September 30, 2021;

• Interest income of $0.6 million on investments owned during the nine months ended September 30, 2021 that were not owned during the comparative period.

Selling, general, and administrative expenses increased by $2.4 million for the quarter ended March 31, 2022 primarily due to:

• An increase in personnel and benefits of $1.5 million as we continue to grow our sales and other functions;

• An increase of $0.9 million for legal and professional services and other.

Total other income increased by $0.1 million for the quarter ended March 31, 2022 primarily due to interest income on investments.

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 payab le.

As of September 30, 2021, our principal sources of liquidity were our cash and cash equivalents in the amount of $289.5 million, w hich 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 of the outstanding warrants, on a cash basis, or in the case of the private placem ent warrants issued in connection with Tortoise’s initial public offering in March 2019 on a cashless basis.

As a result, we raised gross proceeds of $140.8 million, $16.3 million of which was received during the first quarter of 2021.

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 September 30, 2021, our current assets were $439.8 million, consisting primarily of cash and cash equivalents of $289.5 million, short-term investments of $144.5 million, and prepaid expenses and other current assets of $5.5 million.

At March 31, 2022, our current assets were $371.1 million, consisting primarily of cash and cash equivalents of $227.1 million, short-term investments of $134.2 million and prepaid expenses of $8.9 million.

Our current liabilities were $11.3 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 September 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.

We believe the credit quality and liquidity of our investment portfolio at March 31, 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 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.

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 to execute on our business strategy and meet our capital requirements for the next twelve months.

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.

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 in our 2020 Amended Annual Report.

Cash Flows Used in Operating Activities

For the nine months ended September 30, 2021, cash flows used in operating activities were $49.8 million.

The cash used related to Hyliion’s net loss of $66.4 million, adjusted for changes in Hyliion’s working capital accounts of $9.9 million and certain non-cash expense of $6.7 million (including $0.7 million related to non-cash lease expense, $0.7 million related to depreciation and amortization, $1.3 million related to amortization of investment premiums and discounts, and $4.0 million related to share-based compensation).

For the nine months ended September 30, 2020, cash flows used in operating activities were $11.0 million.

The cash used related to Hyliion’s net loss of $18.7 million, adjusted for changes in Hyliion’s working capital accounts of $0.5 million and certain non-cash expense of $8.2 million (including $0.7 million related to non-cash lease expenses, $0.7 million related to depreciation and amortization, $1.4 million related to a loss from the change in fair value of the convertible notes payable derivative liabilities, $4.2 million related to amortization of the debt discount and $1.1 million related to paid-in-kind interest on convertible notes payable).

Cash Flows Used in Investing Activities

For the nine months ended September 30, 2021, cash used in investing activities primarily related to the purchase of investments of $268.7 million and capital expenditures of $2.2 million, offset by the proceeds from the sale and maturity of investments of $205.4 million.

For the nine months ended September 30, 2020, cash used in investing activities primarily related to net capital expenditures and totaled $0.1 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 scale manufacturing operations to meet anticipated demand.

Cash Flows Provided by Financing Activities

For the nine months ended September 30, 2021, cash provided by financing activities was $15.9 million, which was primarily generated from proceeds from the exercise of warrants of $16.3 million and proceeds from the exercise of stock options of $0.6 million, offset by repayment of the PPP loan of $0.9 million.

For the nine months ended September 30, 2020, cash provided by financing activities was $12.3 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 a term loan of $10.1 million and PPP loan of $0.9 million, partially offset by the repayment on finance lease obligations and payment for deferred transaction and financing costs of $2.0 million.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our 2020 Amended Annual Report that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.

Off-Balance Sheet Arrangements

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 paying operating expenses and production and related costs of Hybrid systems.

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 of 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 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.

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the three months ended March 31, 2022 and 2021 is summarized as follows (in thousands):

Three Months Ended March 31,

Cash from operating activities $ (29,303) $ (10,757)

Cash from investing activities (1,943) (59,817)

Cash from financing activities (92) 15,587

$ (31,338) $ (54,987)

Cash from Operating Activities

For the three months ended March 31, 2022, cash flows used in operating activities were $29.3 million.

Cash used primarily related to a net loss of $27.1 million, adjusted for changes in working capital accounts and certain non-cash expenses of $2.2

million (including $4.0 million related to accounts payable, accrued expenses and other liabilities, partially offset by $1.6 million related to share-based compensation).

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

Cash used primarily related to net loss of $16.6 million, adjusted for changes in working capital accounts and certain non-cash expenses of $5.8 million (including $3.2 million related to accounts payable, accrued expenses and other liabilities and $1.5 million related to share-based compensation).

Cash from Investing Activities

For the three months ended March 31, 2022, cash flows used in investing activities were $1.9 million.

Cash used primarily related to the purchase of investments totaling $59.2 million, partially offset by the sale or maturity of investments of $57.5 million.

For the three months ended March 31, 2021, cash flows used in inv esting activities were $59.8 million.

Cash used primarily related to the purchase of investments totaling $219.5 million, partially offset by the sale or maturity of investments of $160.0 million.

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

Cash from Financing Activities

For the three months ended March 31, 2022, cash flows used in financing activities were $0.1 million.

Cash flows were primarily due to payment of taxes related to net share settlement of equity awards of $0.1 million.

For the three months ended March 31, 2021, cash flows provided by financing activities were $15.6 million.

Cash flows were primarily due net proceeds from the exercise of warrants of $16.3 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 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues and expenses.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required by this item.

A description of the market risks associated with our business is contained in the “Quantitative and Qualitative Disclosures About Market Risk” section of our 2021 Annual Report.

There have been no material changes to our market risks as therein previously reported.

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