What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-09 · 85 added, 50 removed, 121 unchanged (53% of the section changed)

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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.

and its wholly-owned subsidiary, 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.

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

the ability to accelerate the commercialization of the Hypertruck ERX;

our ability to incorporate existing and new technologies into products;

the ability to accelerate the commercialization of the Hypertruck ERX TM ;

our ability to meet 2022 and future product milestones;

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

the impact of an inflationary environment and 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 2021 Annual Report (See Item 1A.

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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 hybrid and electrified powertrain solutions for Class 8 semi-trucks at the lowest total cost of ownership ("TCO").

Our goal is to reduce the carbon 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 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.

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 systems for Class 8 semi-trucks.

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.

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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.

The Hypertruck ERX powertrain, which is a range-extending electric 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 an onboard CNG generator.

Our Hypertruck ERX system can offer commercial vehicle owners and operators a net carbon negative capable 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.

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 will be 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 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 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.

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.

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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.”

Successful Commercialization of Our Drivetrain Solutions

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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 because of supply delays for a portion of the orders we have received on new Hybrid systems.

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.

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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.

There have been ongoing 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 potential supply chain impacts to our Hypertruck ERX development schedule.

We placed orders with Peterbilt for all chassis needed in 2022 earlier this year 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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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.

Further, we 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.

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Results of Operations

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,

Comparison of Three Months Ended June 30, 2022 to Three Months Ended June 30, 2021

Our results of operations for the three months ended June 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 June 30,

2022 2021 $ Change % Change

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Weighted-average shares outstanding, basic and diluted 173,897,517 172,260,525 1,637 1.0 %

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

Sales increased $0.2 million in the current quarter, 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.

Cost of revenues increased $2.1 million in the current quarter, driven by sales of Hybrid systems.

We expect a difference in timi ng 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 $2.0 million attributable to inventory on hand that had a cost higher than its net realizable value;

• Warranty costs of $0.1 mil lion 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 $6.7 million in the current quarter primarily due to an increase of $6.3 million for the design and testing of our Hypertruck 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 $2.1 million in the current quarter primarily due to:

• An increase in personnel and benefits of $0.5 million and software costs of $0.6 million as we continue to grow our sales and other functions;

• An increase of $0.7 million for legal and professional services and other.

Total other income increased $0.5 million in the current quarter primarily due to interest income on investments.

Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2022 (the "current six months") and 2021 (in thousands, except share and per share data):

Six Months Ended June 30,

2022 2021 $ Change % Change

Product sales and other $ 512 $ — $ 512 N/A

Total revenues 512 — 512 N/A

Cost of revenues

Product sales and other 4,244 — 4,244 N/A

Total cost of revenues 4,244 — 4,244 N/A

Gross loss (3,732) — (3,732) N/A

Operating expenses

Research and development (35,865) (22,721) (13,144) 57.8 %

Selling, general and administrative expenses (21,991) (17,451) (4,540) 26.0 %

Total operating expenses (57,856) (40,172) (17,684) 44.0 %

Loss from operations (61,588) (40,172) (21,416) 53.3 %

Interest income 1,140 366 774 211.5 %

Loss on disposal of assets (135) — (135) N/A

Net loss $ (60,583) $ (39,806) $ (20,777) 52.2 %

Net loss per share, basic and diluted $ (0.35) $ (0.23) $ (0.12) 52.2 %

Weighted-average shares outstanding, basic and diluted 173,741,910 171,260,671 2,481 1.4 %

Sales increased $0.5 million in the current six months, driven by sales of Hybrid systems.

Cost of Revenues

Cost of revenues increased $4.2 million in the current six months, driven by sales of Hybrid systems.

We expect a difference in timing bet ween 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 $3.3 million attributable to inventory on hand that had a cost higher than its net realizable value;

• Warranty costs of $0.3 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 $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.

Research and development expenses increased $13.1 million in the current six months primarily due to an increase of $12.4 million for the design and testing of our Hypertruck 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 $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;

Selling, general, and administrative expenses increased $4.5 million in the current six months primarily due to:

• An increase in personnel and benefits of $2.0 million and software costs of $1.3 million as we continue to grow our sales and other functions;

• An increase of $1.6 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.

Total other income increased $0.6 million in the current six months primarily due to interest income on investments.

Liquidity and Capital Resources

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.

At June 30, 2022, our current assets were $397.5 million, consisting primarily of cash and cash equivalents of $199.9 million, short-term investments of $188.9 million and prepaid expenses of $8.4 million.

Our current liabilities were $14.2 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

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.

We believe the credit quality and liquidity of our investment portfolio at June 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.

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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.

Our primary short-term cash needs are Hypertruck ERX product development costs, 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.

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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,

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the six months ended June 30, 2022 and 2021 is summarized as follows (in thousands):

Six Months Ended June 30,

Cash from operating activities $ (55,571) $ (24,159)

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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).

For the six months ended June 30, 2022, cash flows used in operating activities were $55.6 million.

Cash used primarily related to a net loss of $60.6 million, adjusted for changes in working capital accounts and certain non-cash expenses of $5.0 million (including $3.5 million related to share-based compensation and $2.2 million related to depreciation, amortization and accretion charges, partially offset by $0.8 million related to accounts payable, accrued expenses and other liabilities).

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

Cash used primarily related to net loss of $39.8 million, adjusted for changes in working capital accounts and certain non-cash expenses of $15.6 million (including $3.4 million related to share-based compensation, $1.8 million related to depreciation, amortization and accretion charges, $5.8 million related to accounts payable, accrued expenses and other liabilities and $4.9 million related to prepaid expenses and other assets).

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.

For the six months ended June 30, 2022, cash flows used in investing activities were $2.9 million.

Cash used related to the purchase of investments of $106.8 million and property and equipment of $0.6 million, offset by the sale or maturity of investments of $104.5 million.

For the six months ended June 30, 2021, cash flows used in investing activities were $63.7 million.

Cash used primarily related to the purchase of investments of $239.0 million and property and equipment of $1.0 million, partially offset by the sale or maturity of investments of $176.4 million.

Net cash used in investing activities is expected to increase 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.

For the six months ended June 30, 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.

For the six months ended June 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, partially offset by repayments of $0.9 million for a Paycheck Protection Program loan.

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