Hyliion Holdings Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS HYLIION HOLDINGS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands, except share data) June 30, 2022 December 31, 2021 (Unaudited) Assets Current assets Cash and cash equivalents $ 199,933 $ 258,445 Accounts receivable 114 70 Inventory 176 114 Prepaid expenses and other current assets 8,364 9,068 Short-term investments 188,868 118,787 Total current assets 397,455 386,484 Property and equipment, net 2,220 2,235 Operating lease right-of-use assets 7,101 7,734 Intangible assets, net 186 235 Other assets 1,743 1,535 Long-term investments 111,299 180,217 Total assets $ 520,004 $ 578,440 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 2,705 $ 7,455 Current portion of operating lease liabilities 273 21 Accrued expenses and other current liabilities 11,177 7,759 Total current liabilities 14,155 15,235 Operating lease liabilities, net of current portion 7,814 8,623 Other liabilities 1,295 667 Total liabilities 23,264 24,525 Commitments and contingencies (Note 9) Stockholders’ equity Common stock, $ 0.0001 par value; 250,000,000 shares authorized; 173,998,968 and 173,468,979 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 17 17 Additional paid-in capital 378,203 374,795 Retained earnings 118,520 179,103 Total stockholders’ equity 496,740 553,915 Total liabilities and stockholders’ equity $ 520,004 $ 578,440 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 Table of Contents HYLIION HOLDINGS CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues Product sales and other $ 172 $ — $ 512 $ — Total revenues 172 — 512 — Cost of revenues Product sales and other 2,145 — 4,244 — Total cost of revenues 2,145 — 4,244 — Gross loss ( 1,973 ) — ( 3,732 ) — Operating expenses Research and development ( 20,057 ) ( 13,389 ) ( 35,865 ) ( 22,721 ) Selling, general and administrative ( 12,167 ) ( 10,052 ) ( 21,991 ) ( 17,451 ) Total operating expenses ( 32,224 ) ( 23,441 ) ( 57,856 ) ( 40,172 ) Loss from operations ( 34,197 ) ( 23,441 ) ( 61,588 ) ( 40,172 ) Interest income 855 197 1,140 366 Loss on disposal of assets ( 133 ) — ( 135 ) — Net loss $ ( 33,475 ) $ ( 23,244 ) $ ( 60,583 ) $ ( 39,806 ) Net loss per share, basic and diluted $ ( 0.19 ) $ ( 0.13 ) $ ( 0.35 ) $ ( 0.23 ) Weighted-average shares outstanding, basic and diluted 173,897,517 172,260,525 173,741,910 171,260,671 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Table of Contents HYLIION HOLDINGS CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollar amounts in thousands, except share data) Six Months Ended June 30, 2022 Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 173,468,979 $ 17 $ 374,795 $ 179,103 $ 553,915 Exercise of common stock options and vesting of restricted stock units, net 336,155 — ( 92 ) — ( 92 ) Share-based compensation — — 1,563 — 1,563 Net loss — — — ( 27,108 ) ( 27,108 ) Balance at March 31, 2022 173,805,134 17 376,266 151,995 528,278 Exercise of common stock options and vesting of restricted stock units, net 193,834 — 15 — 15 Share-based compensation — — 1,922 — 1,922 Net loss — — — ( 33,475 ) ( 33,475 ) Balance at June 30, 2022 173,998,968 $ 17 $ 378,203 $ 118,520 $ 496,740 Six Months Ended June 30, 2021 Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 169,316,421 $ 19 $ 364,998 $ 275,151 $ 640,168 Common stock issued for warrants exercised, net of issuance costs 371,535 — 4,282 — 4,282 Exercise of common stock options and vesting of restricted stock units, net 1,831,855 — 287 — 287 Share-based compensation — — 1,510 — 1,510 Net loss — — — ( 16,562 ) ( 16,562 ) Balance at March 31, 2021 171,519,811 19 371,077 258,589 629,685 Exercise of common stock options and vesting of restricted stock units, net 1,278,527 1 215 — 216 Share-based compensation — — 1,917 — 1,917 Net loss — — — ( 23,244 ) ( 23,244 ) Balance at June 30, 2021 172,798,338 $ 20 $ 373,209 $ 235,345 $ 608,574 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents HYLIION HOLDINGS CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net loss $ ( 60,583 ) $ ( 39,806 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 554 414 Amortization and accretion of investments 1,043 847 Noncash lease expense 613 518 Inventory write-down 3,313 — Loss on disposal of assets 135 — Share-based compensation 3,485 3,427 Changes in operating assets and liabilities: Accounts receivable ( 44 ) — Inventory ( 3,375 ) — Prepaid expenses and other assets 595 4,939 Accounts payable ( 4,794 ) 5,940 Accrued expenses and other liabilities 4,024 ( 182 ) Operating lease liabilities ( 537 ) ( 256 ) Net cash used in operating activities ( 55,571 ) ( 24,159 ) Cash flows from investing activities Purchase of property and equipment ( 559 ) ( 965 ) Payments for security deposit, net — ( 57 ) Purchase of investments ( 106,797 ) ( 239,021 ) Proceeds from sale and maturity of investments 104,492 176,358 Net cash used in investing activities ( 2,864 ) ( 63,685 ) Cash flows from financing activities Proceeds from exercise of stock warrants, net of issuance costs — 16,257 Payments for Paycheck Protection Program loan — ( 908 ) Proceeds from exercise of common stock options 54 502 Taxes paid related to net share settlement of equity awards ( 131 ) — Net cash (used in) provided by financing activities ( 77 ) 15,851 Net decrease in cash and cash equivalents and restricted cash ( 58,512 ) ( 71,993 ) Cash and cash equivalents and restricted cash, beginning of period 259,110 389,705 Cash and cash equivalents and restricted cash, end of period $ 200,598 $ 317,712 Supplemental disclosure of noncash investing information: Acquisitions of property and equipment included in accounts payable and other $ 66 $ 268 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents HYLIION HOLDINGS CORP. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except as separately indicated) Note 1. Overview Hyliion Holdings Corp. is a Delaware corporation headquartered in Cedar Park, Texas. References to the “Company,” Hyliion," "we," or "us" in this report refer to Hyliion Holdings Corp. and its wholly-owned subsidiary, unless expressly indicated or the context otherwise requires. The Company designs and develops hybrid and fully electric powertrain systems for Class 8 semi-trucks which modify semi-tractors into hybrid and range-extending electric vehicles, respectively. The Company’s hybrid ("Hybrid") system utilizes intelligent electric drive axles with advanced algorithms and battery technology to optimize vehicle performance, enabling fleets to access an easy, efficient way to decrease fuel expenses, lower emissions and/or improve vehicle performance. The Hypertruck ERX TM system utilizes an intelligent electric powertrain with advanced algorithms to optimize emissions performance and efficiency with no new infrastructure required. The Hypertruck ERX system enables fleets to reduce the cost of ownership while providing the ability to deliver net-negative carbon emissions and operate fully electric when needed. The Company recently launched its commercial Hybrid system, and the Hypertruck ERX system is in the design verification phase. Note 2. Summary of Significant Accounting Policies Basis of Presentation These condensed consolidated statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. All intercompany transactions and balances have been eliminated upon consolidation. The condensed consolidated balance sheet at December 31, 2021 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required with respect to annual financial statements. In the opinion of the Company, these condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s 2021 Annual Report. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period. These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company is an early-stage growth company and has generated negative cash flows from operating activities since inception. At June 30, 2022, the Company had total equity of $ 496.7 million, inclusive of cash and cash equivalents of $ 199.9 million and investments of $ 300.2 million. Based on this, the Company has sufficient funds to continue to execute its bus iness strategy for the next twelve months. Use of Estimates and Uncertainty of the Coronavirus Pandemic The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve revenue recognition, inventory, warranties, income taxes and valuation of share-based compensation. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s financial statements. On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared the coronavirus outbreak a pandemic. In mid-March 2020, U.S. State Governors, local officials and leaders outside of the U.S. began ordering various “shelter-in-place” orders, which have had various impacts on the U.S. and global economies. This has required greater use of estimates and assumptions in the preparation of the condensed consolidated financial statements. As the coronavirus pandemic continues to evolve, the Company believes the extent of the impact to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, that the coronavirus pandemic will have on its business, operating results, cash flows and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period. Although the Company has made its best estimates based 5 upon current information, actual results could materially differ from the estimates and assumptions. If so, the Company may be subject to future impairment charges as well as changes to recorded reserves and valuations. Concentration of Supplier Risk The Company is dependent on certain suppliers, the majority of which are single source suppliers, and the inability of these suppliers to deliver necessary components of the Company’s products in a timely manner at prices, quality levels and volumes that are acceptable, or the Company’s inability to efficiently manage these components from these suppliers, could have a material adverse effect on the Company’s business, prospects, financial condition and operating results. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity date of 90 days or less at the time of purchase to be cash and cash equivalents only if in checking, savings or money market accounts. Cash and cash equivalents include cash held in banks and money market accounts and are carried at cost, which approximates fair value. The Company maintains cash in excess of federally insured limits at financial institutions which it believes are of high credit quality and has not incurred any losses related to these balances to date. The Company believes its credit risk, with respect to these financial institutions to be minimal. Restricted Cash The Company has provided its corporate headquarters lessor with a letter of credit for $ 0.7 million to secure the performance of lease obligations, backed by a restricted cash deposit to pay any draws on the letter of credit by the lessor. Total cash and cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows is summarized as follows: June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020 Cash and cash equivalents $ 199,933 $ 258,445 $ 317,712 $ 389,705 Restricted cash included in other non-current assets 665 665 — — $ 200,598 $ 259,110 $ 317,712 $ 389,705 Accounts Receivable Accounts receivable are stated at gross invoice amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is maintained at a level considered adequate to provide for potential account losses on the balance based on the Company’s evaluation of the anticipated impact of current economic conditions, changes in the character and size of the balance, past and expected future loss experience and other pertinent factors. At June 30, 2022 and December 31, 2021, accounts receivable included amounts receivable from customers of $ 0.1 million and $ 45.0 thousand, respectively. At June 30, 2022 and December 31, 2021, there was no allowance for doubtful accounts required based on the Company's evaluation. Investments The Company’s investments consist of corporate bonds, U.S. treasury and agency securities, state and local municipal bonds and commercial paper, all of which are classified as held-to-maturity, with a maturity date of 36 -months or less at the time of purchase. The Company determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Investments are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, along with interest, is included in interest income. The Company uses the specific identification method to determine the cost basis of securities sold. Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates investments for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income and a new cost basis in the investment is established. Fair Value Measurements ASC 820, Fair Value Measurements , clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or 6 liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level I : Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access at the measurement date; Level II : Significant other observable inputs other than level I prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level III : Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. The Company believes its valuation methods are appropriate and consistent with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s financial instruments consist of cash and cash equivalents and restricted cash, accounts receivable, investments, accounts payable and accrued expenses for which the carrying value approximates fair value, exclusive of any interim unrealized gains or losses, because of the short-term nature of the instruments. The fair value of investments are based on quoted prices for identical or similar instruments in markets that are not active. As a result, investments are classified within Level II of the fair value hierarchy. Revenue The Company follows five steps to recognize revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers , which are: Step 1 : Identify the contract(s) with a customer; Step 2 : Identify the performance obligations in the contract; Step 3 : Determine the transaction price; Step 4 : Allocate the transaction price to the performance obligations in the contract; and Step 5 : Recognize revenue when (or as) a performance obligation is satisfied. Revenue is comprised of sales of Hybrid systems for Class 8 semi-trucks and specific other features and services that meet the definition of a performance obligation, including internet connectivity and data processing. We provide installation services for the Hybrid system onto the customers’ vehicle. The Company’s products are marketed and sold to end-user fleet customers in North America. When our contracts with customers contain multiple performance obligations and where material, the contract transaction price is allocated on a relative standalone selling price basis to each performance obligation. There is no meaningful basis on which to disaggregate revenue in the current period. We recognize revenue on Hybrid system sales upon delivery and acceptance of the vehicle to the customer, which is when control transfers. Contracts are reviewed for significant financing components and payments are typically received within 30 days of delivery. The sale of a Hybrid system to an end-use fleet customer consists of a completed modification to the customer vehicle and the installation services involve significant integration of the Hybrid system with the customer’s vehicle. Installation services are not distinct within the context of the contract and together with the sale of the Hybrid system represent a single performance obligation. We do not offer any sales returns. Amounts billed to customers related to shipping and handling are classified as revenue, and we have elected to recognize the cost for freight and shipping when control has transferred to the customer as a cost of revenue. Our policy is to exclude taxes collected from customers from the transaction price of contracts. In the fourth quarter of fiscal 2021, we began taking deposits to secure future Hypertruck ERX production slots. Warranties We provide limited assurance-type warranties under our contracts and do not offer extended warranties or maintenance contracts. The warranty period typically extends for the lesser of two years or 200,000 miles following transfer of control and 7 solely relate to correction of product defects during the warranty period. We recognize the cost of the warranty upon transfer of control based on estimated and historical claims rates and fulfillment costs, which are variable. Should product failure rates and fulfillment costs differ from these estimates, material revisions to the estimated warranty liability would be required. Warranty expense is recorded as a component of cost of revenue. Note 3. Investments The amortized cost, unrealized gains and losses, fair value and maturities of our held-to-maturity investments at June 30, 2022 and December 31, 2021 are summarized as follows: Fair Value Measurements at June 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Commercial paper $ 62,127 $ — $ ( 313 ) $ 61,814 U.S. government agency bonds 4,450 — ( 222 ) 4,228 State and municipal bonds 27,962 — ( 570 ) 27,392 Corporate bonds and notes 205,628 — ( 3,672 ) 201,956 $ 300,167 $ — $ ( 4,777 ) $ 295,390 Fair Value Measurements at December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Commercial paper $ 73,908 $ 2 $ ( 31 ) $ 73,879 U.S. government agency bonds 4,450 — ( 7 ) 4,443 State and municipal bonds 17,797 — ( 115 ) 17,682 Corporate bonds and notes 202,849 3 ( 953 ) 201,899 $ 299,004 $ 5 $ ( 1,106 ) $ 297,903 June 30, 2022 December 31, 2021 Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 188,868 $ 187,223 $ 118,787 $ 118,714 Due after one year through five years 111,299 108,167 180,217 179,189 $ 300,167 $ 295,390 $ 299,004 $ 297,903 Note 4. Fair Value Measurements The fair value measurements of our financial assets at June 30, 2022 and December 31, 2021 are summarized as follows: Fair Value Measurements at June 30, 2022 Level I Level II Level III Total Cash and cash equivalents $ 199,933 $ — $ — $ 199,933 Restricted cash 665 — — 665 Held-to-maturity investments: Commercial paper — 61,814 — 61,814 U.S. government agency bonds — 4,228 — 4,228 State and municipal bonds — 27,392 — 27,392 Corporate bonds and notes — 201,956 — 201,956 $ 200,598 $ 295,390 $ — $ 495,988 8 Fair Value Measurements at December 31, 2021 Level I Level II Level III Total Cash and cash equivalents $ 258,445 $ — $ — $ 258,445 Restricted cash 665 — — 665 Held-to-maturity investments: Commercial paper — 73,879 — 73,879 U.S. government agency bonds — 4,443 — 4,443 State and municipal bonds — 17,682 — 17,682 Corporate bonds and notes — 201,899 — 201,899 $ 259,110 $ 297,903 $ — $ 557,013 Note 5. Inventory The carrying value of our inventory at June 30, 2022 and December 31, 2021 is summarized as follows: June 30, 2022 December 31, 2021 Raw materials $ — $ — Work in process 9 4 Finished goods 167 110 $ 176 $ 114 During the three and six months ended June 30, 2022, we recorded inventory write-downs of $ 2.0 million and $ 3.3 million, respectively. During the three and six months ended June 30, 2021, we recorded no inventory write-downs. These write-downs are included in cost of revenues. Note 6. Share-Based Compensation During the six months ended June 30, 2022 and 2021, the Company granted 2.1 million and 3.3 million, respectively, restricted stock units which will vest over a period of one to four years , some of which include performance criteria based on the achievement of key Company milestones. During the six months ended June 30, 2022 and 2021, 0.5 million and 0.3 million , respectively, restricted stock units and options were forfeited. Share-based compensation expense for the three and six months ended June 30, 2022 was $ 1.9 million and $ 3.5 million, respectively. Share-based compensation expense for the three and six months ended June 30, 2021 was $ 1.9 million and $ 3.4 million, respectively. Note 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities at June 30, 2022 and December 31, 2021 are summarized as follows: June 30, 2022 December 31, 2021 Accrued professional services and other $ 7,259 $ 3,681 Accrued compensation and related benefits 3,246 3,460 Other accrued liabilities 672 618 $ 11,177 $ 7,759 9 Note 8. Warranties The change in warranty liability for the three and six months ended June 30, 2022 and 2021 is summarized as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Balance at beginning of period $ 238 $ — $ 44 $ — Provision for new warranties 124 — 331 — Net changes in accrual related to pre-existing warranties 9 — — — Warranty costs incurred ( 23 ) — ( 27 ) — Balance at end of period $ 348 $ — $ 348 $ — Note 9. Commitments and Contingencies Legal Proceedings The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product liability, intellectual property, safety and health, employment and other matters. The Company believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows. Note 10. Net Loss Per Share The computation of basic and diluted net loss per share for the three and six months ended June 30, 2022 and 2021 is summarized as follows (in thousands, except share and per share data): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator: Net loss attributable to common stockholders $ ( 33,475 ) $ ( 23,244 ) $ ( 60,583 ) $ ( 39,806 ) Denominator: Weighted average shares outstanding, basic and diluted 173,897,517 172,260,525 173,741,910 171,260,671 Net loss per share, basic and diluted $ ( 0.19 ) $ ( 0.13 ) $ ( 0.35 ) $ ( 0.23 ) Potential common shares excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect for the three and six months ended June 30, 2022 and 2021 are summarized as follows: Three and Six Months Ended June 30, 2022 2021 Unexercised stock options 2,761,006 3,852,897 Unvested restricted stock units* 4,154,423 3,194,865 6,915,429 7,047,762 * Potential common shares from unvested restricted stock units for the periods ended June 30, 2022 and 2021 include 1,361,667 and 1,743,750 shares, respectively, where no accounting grant date has been established. 10 Table of Contents