What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-09 · 152 added, 180 removed, 69 unchanged (83% of the section changed)

4 unchanged sentences

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act.

Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future.

In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us.

There can be no assurance that future developments affecting us will be those that we have anticipated.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

Factors that might cause or contribute to such a discrepancy include, but are not limited to, our status as an early stage company with a history of losses, and our expectation of incurring significant expenses and continuing losses for the foreseeable future;

our ability to develop key commercial relationships with suppliers and customers;

our ability to retain the services 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;

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 an inflationary environment and COVID-19 on long-term objectives;

the ability of our solutions to reduce carbon intensity and greenhouse gas emissions, the expected performance and integration of the KARNO generator and system, and the other risks and uncertainties described under the heading “Risk Factors” in our other SEC filings including in our 2021 Annual Report (See Item 1A.

Risk Factors).

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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 range-extending electric powertrain solutions for Class 8 semi-trucks at the lowest total cost of ownership (“TCO”).

Throughout our product offerings, we utilize our battery systems, control software and data analytics, combined with fully integrated electric motors and power electronics, to produce electrified powertrain systems.

We currently offer two different product lines:

a Hybrid system which is designed as an add-on to electric powertrains on trucks which can augment power needs or potentially save on fuel costs, and the Hypertruck ERX which is a complete powertrain option that is fully electric and leverages an onboard generator to recharge the batteries as the vehicle is in operation.

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

We are currently selling the Hybrid system and are developing our Hypertruck ERX electrified powertrain system for Class 8 semi-trucks.

Our Hybrid systems have been installed in low volumes on our initial customers’ commercial vehicles.

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, but not limited to, statements regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability.

The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” variations of such words and similar expressions or the negatives thereof are intended to identify forward-looking statements.

However, not all forward-looking statements contain these identifying words.

These forward-looking statements represent our management’s expectations as of the date of this filing and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, those described in the section entitled “Risk Factors” included in our 2022 Annual Report on Form 10-K and in other documents we file from time to time with the U.S.

Securities and Exchange Commission (the “Commission” or the “SEC”) that disclose risks and uncertainties that may affect our business.

Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Commission.

Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.

Except as required by law, we do not undertake, and expressly disclaim any duty, to publicly update or revise these statements, whether as a result of new information, new developments, or otherwise and even if experience or future changes make it clear that any projected results expressed in this Quarterly Report on Form 10-Q or future quarterly reports, press releases or company statements will not be realized.

Unless specifically indicated otherwise, the forward-looking statements in this Quarterly Report on Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions or other business combinations that have not been completed as of the date of this filing.

In addition, the inclusion of any statement in this Quarterly Report on Form 10-Q does not constitute an admission by us that the events or circumstances described in such statement are material.

We qualify all of our forward-looking statements by these cautionary statements.

In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors” included in our 2022 Annual Report on Form 10-K.

These and other factors could cause our results to differ materially from those expressed in this Quarterly Report on Form 10-Q.

Our mission is to be the leading provider of electrified solutions for the commercial vehicle industry as well as other industries.

Our goal is to reduce the carbon intensity and greenhouse gas (“GHG”) emissions in the transportation sector by providing electrified solutions for Class 8 vehicles that both aim to reduce the cost of operation and promote the usage of existing fueling infrastructure.

Our current products and products under development utilize control software, data analytics, battery systems, fully integrated electric motors, and power electronics to produce our electrified powertrain systems.

We currently offer the Hyliion Hybrid (“Hybrid”) system, which is an electrified powertrain system that augments existing Class 8 semi-trucks and aims to improve vehicle performance or reduce fuel usage, depending on application.

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

This feature gives our customers the flexibility to continue using their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.

We began selling the Hybrid system in late 2021 and it has been installed on a variety of our customers’ commercial vehicles, utilizing multiple original equipment manufacturer (“OEM”) platforms.

Our Hybrid system deployments are with innovative fleets in the transportation and logistics sector and include a variety of duty cycles, use cases and geographical regions.

A common application is to install the Hybrid system on a compressed natural gas (“CNG”) powered truck with a conventional drivetrain.

The Hybrid system aims to improve performance by giving a power boost to the CNG drivetrain when needed, along with regenerative braking and an optional fully electric auxiliary power system.

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 functions as an electric range-extender, is addressing the market needs of having a fully electric drive truck that can travel long distance between refuels and can leverage existing natural gas infrastructure.

Our Hypertruck ERX systems are designed to have their batteries recharged by an onboard CNG generator.

Our Hypertruck ERX system can offer commercial vehicle owners and operators a 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 is designed to be fuel agnostic while the rest of the electric powertrain can remain the same.

We plan to initially release the Hypertruck ERX CNG solution, following with the release of a fuel agnostic capable generator (“KARNO” generator) and a hydrogen fuel cell generator for the Hypertruck platform in the future.

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

Class 8 semi-trucks can currently be refueled with CNG through existing, geographically diverse and third-party accessible natural gas refueling stations established across North America.

Globally, RNG, CNG and liquified natural gas (“LNG”) are used widely for land-based transport and trucking and we believe there are established, geographically diverse and third-party accessible stations available in certain areas that may be leveraged in connection with the use of our electrified powertrain solutions in the future.

We believe there is opportunity for adoption of our electrified powertrain solutions across Europe and other countries around the globe.

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

Our Hybrid and Hypertruck ERX systems are designed to be able to be installed on most major Class 8 semi-trucks in the long term, which will give our customers the flexibility to continue using their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.

Our early Hybrid system deployments include leaders in the transportation and logistics sector.

We are focusing our initial marketing efforts on large fleet operators as well as companies committed to reducing the overall environmental impact and fuel costs of their owned and operated trucking fleets.

In September 2022 we acquired assets including new hydrogen and fuel agnostic capable generator technology from General Electric Company's GE Additive business .

We also plan to offer the Hypertruck ERX powertrain platform (“Hypertruck ERX system”), which is a complete electrified powertrain system leveraging an onboard CNG-fueled generator to supplement battery range to transform an OEM platform into a range-extended electric vehicle (“REEV”).

Both solutions aim to support our customers’ pursuit of sustainability and financial goals by reducing GHG emissions and operating costs while utilizing existing fueling infrastructure.

We plan to begin commercialization of the Hypertruck ERX system in the second half of 2023 and our first application will be deployed on a Class 8 Peterbilt 579 sleeper semi-truck.

The Hypertruck ERX system leverages the experience and operating data from our Hybrid system to offer a solution to replace the traditional diesel or CNG powertrain installed in new vehicles.

Its onboard CNG generator functions as an electric range-extender, addressing the market need of having a fully electric drive truck that can travel long distance between refuels without relying on a broadly-distributed and reliable electric recharging network, as battery electric vehicles (“BEVs”) do.

The system’s batteries are recharged by the onboard CNG generator, which when fueled by renewable natural gas (“RNG”), can offer commercial vehicle owners a net-carbon-negative-capable electrified powertrain option.

We believe CNG/RNG is the appropriate fuel source today, as it is cleaner and less expensive than diesel and broadly available.

Over time, other fuels are expected to become available to reduce emissions, including hydrogen.

Therefore, we have showcased a multistage roadmap that starts with utilizing a CNG/RNG generator and evolves into offering hydrogen-based solutions.

The control software driving the Hypertruck system is designed to be easily adaptable to different fuel and generator types in accordance with customer and regulatory requirements, thereby reducing future capital investment and time to market.

For long-haul trucking, an electric powertrain with a CNG-fueled range extender generator is preferable today to a pure BEV due to both the comparable cost of fuels and existing availability of CNG fueling infrastructure compared to electric battery charging infrastructure.

Class 8 semi-trucks can currently be refueled with CNG through an existing, geographically diverse, public and truck-accessible network of natural gas refueling stations established across North America.

Globally, RNG, CNG and liquified natural gas (“LNG”) are also used widely used for land-based transport and trucking.

We believe there is a greater opportunity for more rapid adoption of our electrified powertrain solutions across the U.S., Europe, and other countries compared to pure electric solutions, because of the extended range available between refueling events and due to the greater availability of refueling infrastructure compared to other electrified solutions.

In September 2022 we acquired assets including new hydrogen and fuel-agnostic-capable generator technology from General Electric Company's GE Additive business (“KARNO”).

The KARNO generator emerged out of GE’s long-running R&D investments in metal additive manufacturing across multiple industries and in areas such as generator thermal and performance design.

Initial testing indicates the KARNO generator is ex pected to comply with all current and foreseeable emissions standards, specifically from the California Air Resources Board ( “ CARB ” ) and the Environment Protection Agency ( “ EPA ” ), even when utilizing conventional fuels.

The technology is expected to achieve a meaningful efficiency improvement over today’s conventional generators and could be more efficient than most available fuel cells.

These efficiency improvements should, in turn, enable fuel cost reductions and improved vehicle range.

The technology should also provide for significant reductions in noise, vibration, moving parts and maintenance as compared to current combustion engines.

The KARNO power system is expected to be capable of operating on over 20 different fuels including hydrogen, natural gas, propane, ammonia and conventional fuels.

Initial testing indicates the KARNO generator is expected to comply with emissions standards of the California Air Resources Board (“CARB”) and the U.S.

Environmental Protection Agency (“EPA”), even when utilizing conventional fuels.

The technology is also expected to achieve a meaningful efficiency improvement over today’s conventional internal combustion engine (“ICE”) generators and could be more efficient than most available fuel cells.

We expect these efficiency improvements to in turn enable fuel cost reductions and improved vehicle range while reducing operating costs.

The technology should also provide for significant reductions in noise, vibration, moving parts and maintenance compared to conventional ICE generators.

The KARNO generator is expected to be capable of operating with over 20 different fuel types including hydrogen, natural gas, propane, ammonia and conventional fossil fuels.

The technology uses heat to drive a sealed linear generator to produce electricity.

The heat is produced by reacting fuels through flameless oxidation or other heat sources including renewables.

The heat is produced by reacting fuels through a flameless oxidation process.

We are currently advancing development of the KARNO generator technology and plan for it to be the primary power source for the Hypertruck KARNO powertrain system (“Hypertruck KARNO system”) which we expect to commercialize in the coming years.

We have begun building a Hypertruck KARNO system prototype that we expect to be operational in the second quarter of 2023.

Finally, we are pursuing the commercialization of the KARNO generator for stationary power generation applications as well, particularly for electric vehicle charging, and for primary or backup power in buildings, data centers and other applications that could benefit from a low-cost, low-emissions, micro-grid.

In March 2023, we announced a new agreement with Hyzon Motors USA Inc.

(“Hyzon”) to develop a fuel cell powered vehicle.

This development is part of the third step in our multi-stage product roadmap towards a hydrogen future.

The vehicle will use Hyliion’s electric powertrain system and Hyzon’s fuel cell technology as the generator.

The powertrain will be integrated into a Peterbilt chassis and may be the predecessor of a future production truck (“Hypertruck Fuel Cell”).

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to those discussed below and referenced in Item 1A “Risk Factors.”

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 current economic uncertainties, supply chain disruptions, inflation and rising interest rates as well as those discussed below and referenced in Item 1A.

“Risk Factors.”

Successful Commercialization of Our Drivetrain Solutions

Our Hybrid system officially launched, and our first early development Hypertruck ERX showcase unit was unveiled, 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.

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.

We began selling our Hybrid system in the fourth quarter of 2021.

Our first early development Hypertruck ERX showcase unit was unveiled on August 31, 2021 at the ACT Expo in Long Beach, California and we’ve offered potential customers the opportunity to experience its operation in demonstration events and in real-world applications hauling freight for shippers.

The Hybrid system offers fleets a solution that is easy to install, service and operate.

It draws upon the real-world feedback we have received from customers and the millions of miles logged with the system.

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

In November 2021, we began our Hypertruck ERX roadshow, which consists of numerous technology fleet experiences focused on demonstrating the features and benefits of the electric powertrain firsthand.

The roadshow consists of “Ride and Drive” events and in-depth product education of the Hypertruck ERX’s features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership.

Our development timeline has been extended to allow for design verification and testing inclusive of critical summer and winter seasons, as well as the accumulation of up to one million miles prior to production.

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

There have been ongoing shortages in the transportation industry supply chain including semiconductors as well as several other key components.

These supply chain challenges have been especially prominent in the trucking industry, and one of the impacts has been significantly extended lead times for ordering new trucks.

Fleets are experiencing lead times on new truck purchases that extend out for delivery into 2023.

We placed orders with Peterbilt for all chassis needed in 2022 earlier this year and are securing build slots for the 2023 calendar year in an effort to mitigate future potential supply chain impacts to our Hypertruck ERX development schedule.

We continue to work closely with our current supply base to improve delivery of

components for the quarters ahead and are diligently seeking alternative sources of supply for components that meet our technical specifications with shorter lead times.

In late 2023, we plan to first release the Hypertruck ERX powertrain, leveraging a natural gas engine as the onboard generator.

In the years following, we plan to release the Hypertruck KARNO, our fuel agnostic variant, as phase two in the Hyliion journey to a hydrogen-based future.

We will also explore other adjacent markets to leverage the KARNO technology for cost savings and emissions reductions.

We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on the continued development and commercialization of our drivetrain solutions.

The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, as well as factors that are outside of our control.

The roadshow consists of “Ride and Drive” events and in-depth product education of the Hypertruck ERX system's features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership.

Our development timeline is expected to extend into late 2023 to allow for design verification and testing inclusive of critical summer and winter seasons, fleet trials with customers, as well as the accumulation of up to one million miles of operation prior to production.

We continue to make significant progress achieving a series of milestones on a development roadmap that we first laid out in late 2021.

We completed assembly of the first verification vehicles in early 2022 that we subsequently used for design validation, on-road testing, customer Ride and Drive events and controlled fleet trials with customers.

We successfully completed summer testing of the Hypertruck ERX system by taking four vehicles to Davis Dam in Arizona where they were subjected to rigorous operation, hauling heavy loads up steep grades and over long distances in temperatures of up to 110 degrees Fahrenheit.

All trucks successfully completed testing, and critical design opportunities that were identified have been incorporated into current production plans.

We also deployed verification vehicles into controlled fleet trials with customers, where the trucks are used in standard freight hauling operations with the fleets’ customers.

Fleet trials provide the opportunity for Hyliion engineers and technicians to closely monitor vehicles operations and obtain feedback from drivers on how well the powertrain functions.

Late in 2022, we began subjecting verification vehicles to winter testing where we observed system operation in extremely cold conditions.

Prior to beginning commercialization of the Hypertruck ERX system, which is expected in the second half of 2023, we will complete extended fleet trials with more trucks and more customers and obtain required certifications with CARB, the EPA, and the National Highway Traffic Safety Administration.

Supply chain constraints in 2022 were widespread in the trucking industry, causing continued shortages or longer-lead times of semiconductors and other key components needed for truck production and extending delivery times for new trucks.

We are working with Peterbilt to secure build slots for this calendar year to mitigate potential supply chain impacts to our Hypertruck ERX development and production 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.

In the second half of 2023, we plan to first release the Hypertruck ERX system into commercial production leveraging a natural gas engine as the onboard generator.

We plan to begin production in the third quarter of 2023 by installing our Hypertruck ERX powertrain system into de-contented chassis from Peterbilt.

Our strategy is to begin shifting to become a powertrain company and to sell our solutions directly to the OEMs for them to integrate into their production facilities.

We also plan to begin by selling the entire vehicle directly to customers but then transition over time to a business model where OEMs also assume this role.

In future years, we plan to release the Hypertruck KARNO system, our fuel agnostic variant on our journey to a hydrogen-based future.

We will also explore other adjacent markets to leverage the KARNO technology for cost savings and emissions reductions including stationary power generation.

Ultimately, we plan to release a fuel cell powered vehicle that also uses Hyliion’s electric powertrain system.

We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on the continued development and commercialization of our drivetrain solutions and for working capital purposes as we ramp up production volumes of the Hypertruck ERX system.

The amount and timing of our future funding requirements, if any, will depend on many factors, including but not limited to, the pace at which we shift to selling powertrains versus trucks, the scope and results

of our research and development efforts, the breadth of product offerings we plan to commercialize, as well as factors that are outside of our control.

Customer Demand

We have deployed demonstration Hybrid systems to certain early adopters who we expect to become customers in the future, including leaders in the transportation and logistics sector as well as companies committed to reducing the overall environmental impact and fuel costs of their owned and operated trucking fleets.

Further, we began selling the Hybrid system in the fourth quarter of 2021.

In 2021, we announced 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.

The Inflation Reduction Act of 2022 was signed into law in August 2022, under which the Hypertruck ERX will qualify fleets to receive a 30% tax credit up to $40,000 per vehicle adopted.

We expect this to drive further interest in and demand for the Hypertruck ERX.

In 2022, we announced our Founders Program, which enables customers who have committed to our first 210 Hypertruck ERX units to receive an expanded level of service, fueling, maintenance, and operating support as the trucks become available late in 2023.

We believe the Founders Program will give customers a greater level of confidence as they shift from diesel-powered trucks to trucks with an electrified powertrain.

Recently, we began revisiting existing agreements with customers, which are non-binding and subject to finalization of terms, with a goal of restructuring and simplifying the Founders program.

Specifically, we are seeking to improve economic terms for Hyliion, including having fleets absorb more of the component cost inflation we’ve experienced over the past year.

The likely outcome of these changes is a shift in the mix of participants, the number of trucks purchased by each company and the resulting size of the Founders Program.

As we adjust terms and the mix of customers, we expect to see sales directed to a broader range of initial customers which will positively expand the experience base of our customers and drive future sales growth.

We also believe that the successful completion of testing, validation, and certification work we are doing ahead of the Hypertruck launch will be an inflection point for orders as some customers are waiting for final development and certification before placing orders.

As these milestones are achieved, we expect to continue to grow our order backlog for additional truck deliveries in 2024 and beyond.

We continue to assess leaders in industry and sustainability initiatives for inclusion in other early adopter programs.

The Inflation Reduction Act of 2022 was signed into law in August 2022, under which the Hypertruck ERX system will qualify fleets to receive a 30% tax credit up to $40,000 per vehicle adopted.

We expect this incentive to drive further interest in and demand for the Hypertruck ERX system.

We began selling the Hybrid system in the fourth quarter of 2021 and generated $2.1 million in revenue in 2022 from selling Hybrid systems, where our powertrain technology is retrofitted onto existing trucks, and full trucks with the Hybrid system pre-installed.

We recorded $310 thousand in Hybrid sales in the first quarter of 2023, which included a full truck with a Hybrid system installed and other Hybrid systems.

Key Components of Statements of Operations

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• personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities;

• fees paid to third parties such as consultants and contractors for outsourced engineering services;

• expenses related to materials, supplies and third-party services;

• fees paid to third parties such as contractors for outsourced engineering services and to consultants;

• expenses related to truck components for development and test vehicles, materials, supplies and other third-party services;

• depreciation for equipment used in research and development activities;

1 unchanged sentence

• allocation of general overhead costs.

We expect to 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 and as we develop new platforms that incorporate our Hypertruck ERX system.

Selling, General and Administrative Expense

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Personnel-related expenses consist of salaries, benefits and share-based compensation.

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.

Factors that also affect SG&A expense include the total number of employees, costs incurred 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, insurance, investor relations activities and other administrative and professional services.

Other Income (Expense)

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

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Results of Operations

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

Our results of operations for the three months ended September 30, 2022 (the “current quarter”) and 2021 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended September 30,

2022 2021 $ Change % Change

Product sales and other $ 499 $ — $ 499 N/A

Total revenues 499 — 499 N/A

Cost of revenues

Product sales and other 2,916 — 2,916 N/A

Total cost of revenues 2,916 — 2,916 N/A

Gross loss (2,417) — (2,417) N/A

Operating expenses

Research and development (52,678) (18,150) (34,528) 190.2 %

Selling, general and administrative expenses (10,264) (8,660) (1,604) 18.5 %

Total operating expenses (62,942) (26,810) (36,132) 134.8 %

Loss from operations (65,359) (26,810) (38,549) 143.8 %

Interest income 1,926 195 1,731 887.7 %

Gain on disposal of assets 46 — 46 N/A

Net loss $ (63,387) $ (26,615) $ (36,772) 138.2 %

Net loss per share, basic and diluted $ (0.36) $ (0.15) $ (0.21) 140.0 %

Weighted-average shares outstanding, basic and diluted 174,345,022 172,987,672 1,357 0.8 %

Sales increased $0.5 million in the current quarter, driven by sales associated with our Hybrid products.

We continue to pursue the sale of both Hybrid systems as well as complete vehicles installed with our Hybrid system.

Cost of Revenues

Cost of revenues increased $2.9 million in the current quarter, driven by costs associated with sales of Hybrid systems.

We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales.

The increase in cost of revenues includes:

• Inventory write-downs of $2.3 million attributable to inventory on hand that had a cost higher than its net realizable value;

• Class 8 semi-truck cost of $0.2 million;

• 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 $34.5 million in the current quarter primarily due to:

• $28.8 million related to hydrogen and fuel agnostic capable generator technology (“KARNO”) acquired in September 2022 from General Electric Company's GE Additive business to develop and commercialize the fuel agnostic Hypertruck KARNO;

• An increase of $5.5 million for the design and testing of our Hypertruck system including an increase in expenses related to components, services and personnel as we build out our engineering, operations and supply chain teams and associated capabilities.

Selling, General and Administrative

Selling, general and administrative expenses increased $1.6 million in the current quarter primarily due to:

• An increase in personnel and benefits of $2.4 million and software costs of $0.3 million as we continue to grow our sales and other functions, including impacts from the departure of our prior Chief Financial Officer;

partially offset by

• A decrease of $0.6 million for legal and professional services and other;

• A decrease of $0.2 million for marketing and advertising.

Total other income increased $1.8 million in the current quarter primarily due to interest income on investments.

Comparison of Nine Months Ended September 30, 2022 to Nine Months Ended September 30, 2021

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

Nine Months Ended September 30,

Comparison of Three Months Ended March 31, 2023 to Three Months Ended March 31, 2022

Our results of operations for the three months ended March 31, 2023 (the “current quarter”) and 2022 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended March 31,

2023 2022 $ Change % Change

Product sales and other $ 1,011 $ — $ 1,011 N/A

Total revenues 1,011 — 1,011 N/A

Product sales and other $ 310 $ 340 $ (30) (8.8) %

Total revenues 310 340 (30) (8.8) %

Cost of revenues

Product sales and other 7,160 — 7,160 N/A

Total cost of revenues 7,160 — 7,160 N/A

Gross loss (6,149) — (6,149) N/A

Product sales and other 691 2,099 (1,408) (67.1) %

Total cost of revenues 691 2,099 (1,408) (67.1) %

Gross loss (381) (1,759) 1,378 (78.3) %

Operating expenses

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Interest income 3,462 285 3,177 1,114.7 %

Loss on disposal of assets (89) — (89) N/A

Gain (loss) on disposal of assets 2 (2) 4 N/A

Other expense, net (15) — (15) N/A

Net loss $ (28,831) $ (27,108) $ (1,723) 6.4 %

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Weighted-average shares outstanding, basic and diluted 180,118,044 173,584,573 6,533 3.8 %

Sales increased $1.0 million in the current nine months, driven by sales associated with our Hybrid products.

Sales associated with our Hybrid products were fla t.

We continue to pursue the sale of both Hybrid systems as well as complete vehicles installed with our Hybrid system.

Cost of Revenues

Cost of revenues increased $7.2 million in the current nine months, driven by costs associated with sales of Hybrid systems.

We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales.

The increase in cost of revenues includes:

• Inventory write-downs of $5.5 million attributable to inventory on hand that had a cost higher than its net realizable value;

• Class 8 semi-truck cost of $0.2 million;

• Warranty costs of $0.5 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors.

Cost of revenues associated with our Hybrid products decreased $1.4 million.

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 generally when the components are received, which may not coincide with the period in which sales of systems with those components installed are realized.

The decrease in cost of revenues includes:

• A decrease in inventory write-downs of $1.1 million attributable to inventory on hand that had a cost higher than its expected net realizable value as we purchased less inventory in the current quarter;

• A decrease in costs associated with sales of Hybrid systems and class 8 semi-trucks of $0.1 million;

• A decrease in 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 vendo rs as we sold fewer Hybrid systems in the current quarter.

Research and Development

Research and development expenses increased $47.7 million in the current nine months primarily due to:

• An increase of $17.9 million for the design and testing of our Hypertruck system including an increase in expenses related to components, services and personnel as we build out our engineering, operations and supply chain teams and associated capabilities.

Research and development expenses increased $5.1 million primarily due to:

• An increase of $1.7 million for the design and testing of our Hypertruck ERX system including an increase in expenses related to components, services and personnel as we build out our engineering, operations and supply chain teams and associated capabilities;

• An increase of $3.4 million for the design and testing of our Hypertruck KARNO system which was acquired in September 2022.

Selling, General and Administrative

Selling, general, and administrative expenses increased $6.1 million in the current nine months primarily due to:

• An increase in personnel and benefits of $4.4 million and software costs of $1.6 million as we continue to grow our sales and other functions, including impacts from the departure of our prior Chief Financial Officer;

• An increase of $1.0 million for legal and professional services and other;

Selling, general, and administrative expenses increased $1.2 million primarily due to:

• An increase in personnel and benefits of $1.7 million due to workforce growth over the past year and inflation;

partially offset by

• A decrease of $0.2 million for marketing and advertising.

Total other income increased $2.4 million in the current nine months primarily due to interest income on investments.

• A decrease of $0.7 million for insurance costs.

Other Income (Expense)

Total other income increased $3.2 million primarily due to an increase in interest income on investments.

Liquidity and Capital Resources

At September 30, 2022, our current assets were $394.0 million, consisting primarily of cash and cash equivalents of $154.2 million, short-term investments of $232.9 million and prepaid expenses of $5.9 million.

At March 31, 2023, our current assets were $299.0 million, consisting primarily of cash and cash equivalents of $85.2 million, short-term investments of $196.8 million and prepaid expenses of $15.3 million.

Our current liabilities were $14.0 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

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

We believe the credit quality and liquidity of our investment portfolio at March 31, 2023 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 rate 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.

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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 Hypertruck ERX product development costs and components purchased to support the stated of production, operating expenses and production and related costs of Hybrid systems.

Our primary short-term cash needs are Hypertruck ERX product development costs and components purchased to support the start of production, operating expenses and production and related costs of Hybrid systems.

We plan to stay asset-light and utilize third parties to perform assembly and manufacturing at scale.

We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by (i) completing the development and commercialization of the electrified drive systems for Class 8 semi-trucks, (ii) scaling the Company’s operations to meet anticipated demand and (iii) hiring personnel.

Further, we plan to develop and commercialize the fuel agnostic Hypertruck KARNO with an anticipated commercial launch a few years after the Hypertruck ERX.

We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by completing the development and commercialization of the electrified drive systems for Class 8 semi-trucks and scaling the Company’s operations to meet anticipated demand.

Further, we plan to develop and commercialize (i) the fuel agnostic Hypertruck KARNO with an anticipated commercial launch a few years after the Hypertruck ERX and (ii) a fuel cell powered vehicle using Hyliion’s electric powertrain system.

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.”

We have begun taking actions to reduce the rate of spending as we continue to advance our solutions.

These actions include reducing capital spending, hiring and other expenses, renegotiating agreements with Founders program customers to improve financial terms for Hyliion, and scaling back the ramp up of truck production to reduce losses and the need for increased working capital.

These actions are expected to extend the timeline that existing capital resources can fund company operations prior to reaching profitability or needing to raise additional capital.

The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, the breadth of product offerings we plan to commercialize, the pace of sales and production growth, as well as factors that are outside of our control.

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 nine months ended September 30, 2022 and 2021 is summarized as follows (in thousands):

Nine Months Ended September 30,

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, 2023 and 2022 is summarized as follows (in thousands):

Three Months Ended March 31,

Cash from operating activities $ (33,239) $ (29,303)

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Cash from Operating Activities

For the nine months ended September 30, 2022, cash flows used in operating activities were $83.4 million.

Cash used primarily related to a net loss of $124.0 million, adjusted for changes in working capital accounts and certain non-cash expenses of $40.5 million (including $28.8 million related to acquired in-process research and development $5.3 million related to share-based compensation, $3.1 million related to prepaid expenses and other assets, $3.0 million related to depreciation, amortization and accretion charges and $2.0 million related to accounts payable, accrued expenses and other liabilities).

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

Cash used primarily related to net loss of $66.4 million, adjusted for changes in working capital accounts and certain non-cash expenses of $16.6 million (including $6.9 million related to accounts payable, accrued expenses and other liabilities, $4.0 million related to share-based compensation, $3.6 million related to prepaid expenses and other assets and $2.7 million related to depreciation, amortization and accretion charges).

For the three months ended March 31, 2023, cash flows used in operating activities were $33.2 million.

Cash used primarily related to a net loss of $28.8 million, adjusted for a $7.3 million change in working capital accounts and $2.9 million in certain non-cash expenses (including $5.3 million related to prepaid expenses and other assets and $0.9 million related to accounts payable, accrued expenses and other liabilities, partially offset by $2.0 million related to share-based compensation and $0.6 million related to depreciation, amortization and accretion charges).

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 a $6.2 million change in working capital accounts and $4.0 million in certain non-cash expenses (including $4.0 million related to accounts payable, accrued expenses and other liabilities and $0.7 million related to accounts receivable, partially offset by $1.6 million related to share-based compensation and $1.2 million related to depreciation, amortization and accretion charges).

Cash from Investing Activities

For the nine months ended September 30, 2022, cash flows used in investing activities were $20.8 million.

Cash used related to the purchase of investments of $160.1 million, acquired in-process research and development of $14.4 million and property and equipment of $2.6 million, offset by the sale or maturity of investments of $156.4 million.

For the nine months ended September 30, 2021, cash flows used in investing activities were $65.6 million .

Cash used primarily related to the purchase of investments of $268.7 million and property and equipment of $2.2 million, partially offset by the sale or maturity of investments of $205.4 million.

For the three months ended March 31, 2023, cash flows used in investing activities were $0.8 million.

Cash used related to the purchase of investments of $31.4 million and acquired property and equipment of $3.0 million, offset by the sale or maturity of investments of $33.5 million.

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.

Cash from Financing Activities

For the nine months ended September 30, 2022, cash flows used in financing activities were $0.1 million.

For the three months ended March 31, 2023, cash flows used in financing activities were $0.2 million.

Cash flows were primarily due to payment of taxes related to net share settlement of equity awards of $0.2 million.

For the nine months ended September 30, 2021, cash flows provided by financing activities were $15.9 million.

Cash flows were primarily due to net proceeds from the exercise of warrants of $16.3 million and proceeds from exercise of common stock options of $0.6 million, partially offset by repayments of $0.9 million for a Paycheck Protection Program loan.

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.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our 2021 Annual Report, supplemented with those below, that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues and expenses.

To determine whether acquisitions should be accounted for as a business combination or as an asset acquisition, we make certain judgments which include assessing whether the acquired set of activities and assets meet the definition of a business.

If the acquired set of activities and assets meets the definition of a business, assets acquired and liabilities assumed are required to be recorded at their respective fair values as of the acquisition date with the excess of the purchase price over the fair value of the acquired net assets recorded as goodwill.

If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an acquisition of assets and, therefore, any acquired in-process research and development ( “ IPR&D ” ) that does not have an alternative future use is charged to expense at the acquisition date, and no goodwill is recorded.

The judgments made in determining estimated fair values of assets acquired and liabilities assumed in a business combination or asset acquisition, as well as estimated asset lives, can materially affect our consolidated results of operations.

All assets acquired in 2022 were valued using level 3 inputs with property and equipment valued using a cost approach and IPR&D valued using an income approach based on management’s projections.

The fair values of assets, including acquired IPR&D, are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by management.

Significant estimates and assumptions include, but are not limited to, probability of technical success, revenue growth, future revenues and expenses and discount rate.

Revenue Recognition

When a Class 8 semi-truck outfitted with a Hybrid system is resold to a customer, judgment is required to determine if we are the principal or agent in the arrangement.

We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service.

We have determined that we are the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system.

We are in early stages of development, continue to refine our business plans and consider the resale of Class 8 semi-trucks outfitted with Hybrid systems to constitute ordinary activities from our ongoing major or central operations.

Should our business plans, estimates or assumptions change, we may record receipts from sales of Class 8 semi-trucks as non-operating income in future periods.

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our 2022 Annual Report that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues and expenses.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 2. Management’s Discussion and Analysis