Hyliion Holdings Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS HYLIION HOLDINGS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands, except share data) March 31, 2023 December 31, 2022 (Unaudited) Assets Current assets Cash and cash equivalents $ 85,206 $ 119,468 Accounts receivable 837 1,136 Inventory 869 74 Prepaid expenses and other current assets 15,282 9,795 Short-term investments 196,768 193,740 Total current assets 298,962 324,213 Property and equipment, net 8,303 5,606 Operating lease right-of-use assets 6,168 6,470 Intangible assets, net 222 200 Other assets 1,674 1,686 Long-term investments 103,433 108,568 Total assets $ 418,762 $ 446,743 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 3,028 $ 2,800 Current portion of operating lease liabilities 454 347 Accrued expenses and other current liabilities 10,567 11,535 Total current liabilities 14,049 14,682 Operating lease liabilities, net of current portion 6,525 6,972 Other liabilities 1,581 1,515 Total liabilities 22,155 23,169 Commitments and contingencies (Note 10) Stockholders’ equity Common stock, $ 0.0001 par value; 250,000,000 shares authorized; 180,695,572 and 179,826,309 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 18 18 Additional paid-in capital 399,674 397,810 (Accumulated deficit) retained earnings ( 3,085 ) 25,746 Total stockholders’ equity 396,607 423,574 Total liabilities and stockholders’ equity $ 418,762 $ 446,743 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 March 31, 2023 2022 Revenues Product sales and other $ 310 $ 340 Total revenues 310 340 Cost of revenues Product sales and other 691 2,099 Total cost of revenues 691 2,099 Gross loss ( 381 ) ( 1,759 ) Operating expenses Research and development 20,918 15,808 Selling, general and administrative 10,981 9,824 Total operating expenses 31,899 25,632 Loss from operations ( 32,280 ) ( 27,391 ) Interest income 3,462 285 Gain (loss) on disposal of assets 2 ( 2 ) Other expense, net ( 15 ) — Net loss $ ( 28,831 ) $ ( 27,108 ) Net loss per share, basic and diluted $ ( 0.16 ) $ ( 0.16 ) Weighted-average shares outstanding, basic and diluted 180,118,044 173,584,573 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) Three Months Ended March 31, 2023 Common Stock Additional Paid-In Capital (Accumulated Deficit) Retained Earnings Total Stockholders’ Equity Shares Amount Balance at December 31, 2022 179,826,309 $ 18 $ 397,810 $ 25,746 $ 423,574 Exercise of common stock options and vesting of restricted stock units, net 869,263 — ( 176 ) — ( 176 ) Share-based compensation — — 2,040 — 2,040 Net loss — — — ( 28,831 ) ( 28,831 ) Balance at March 31, 2023 180,695,572 $ 18 $ 399,674 $ ( 3,085 ) $ 396,607 Three Months Ended March 31, 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 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) Three Months Ended March 31, 2023 2022 Cash flows from operating activities Net loss $ ( 28,831 ) $ ( 27,108 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 524 270 Amortization and accretion of investments, net ( 194 ) 578 Noncash lease expense 302 303 Inventory write-down 231 1,325 (Gain) loss on disposal of assets ( 2 ) 2 Share-based compensation 2,040 1,563 Changes in operating assets and liabilities: Accounts receivable 299 ( 695 ) Inventory ( 1,026 ) ( 1,397 ) Prepaid expenses and other assets ( 5,313 ) 98 Accounts payable 215 ( 4,249 ) Accrued expenses and other liabilities ( 1,144 ) 219 Operating lease liabilities ( 340 ) ( 212 ) Net cash used in operating activities ( 33,239 ) ( 29,303 ) Cash flows from investing activities Purchase of property and equipment and other ( 2,988 ) ( 209 ) Proceeds from sale of property and equipment 2 — Purchase of investments ( 31,394 ) ( 59,234 ) Proceeds from sale and maturity of investments 33,533 57,500 Net cash used in investing activities ( 847 ) ( 1,943 ) Cash flows from financing activities Proceeds from exercise of common stock options 19 28 Taxes paid related to net share settlement of equity awards ( 195 ) ( 120 ) Net cash used in financing activities ( 176 ) ( 92 ) Net decrease in cash and cash equivalents and restricted cash ( 34,262 ) ( 31,338 ) Cash and cash equivalents and restricted cash, beginning of period 120,133 259,110 Cash and cash equivalents and restricted cash, end of period $ 85,871 $ 227,772 Supplemental disclosure of noncash investing and financing activities: Acquisitions of property and equipment included in accounts payable and other $ 255 $ 282 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 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 (“Hybrid”). 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 when fueled by renewable natural gas, and operate fully electric when needed. The Company is currently selling its commercial Hybrid system, and the Hypertruck ERX system is in the design verification phase. Additionally, in 2022 the Company acquired new fuel agnostic capable generator technology with which it plans to develop and commercialize as the Hypertruck KARNO. Finally, the Company recently announced an agreement with Hyzon Motors USA Inc. (“Hyzon”) to jointly develop a prototype fuel cell powered vehicle, with limited research and development in the first phase. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Hyliion Holdings Corp. and its wholly-owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation. The condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. The condensed consolidated balance sheet at December 31, 2022 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 2022 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 March 31, 2023, the Company had total equity of $ 396.6 million, inclusive of cash and cash equivalents of $ 85.2 million and total investments of $ 300.2 million. Based on this, the Company has sufficient funds to continue to execute its business strategy for the next twelve months from the issuance date of the financial statements included in this Quarterly Report on Form 10-Q. Use of Estimates 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, acquisitions, income taxes and valuation of share-based compensation. Management 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 condensed consolidated financial statements. 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 5 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 the Company's 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 as presented in the condensed consolidated statements of cash flows is summarized as follows: March 31, 2023 December 31, 2022 March 31, 2022 December 31, 2021 Cash and cash equivalents $ 85,206 $ 119,468 $ 227,107 $ 258,445 Restricted cash included in other assets 665 665 665 665 $ 85,871 $ 120,133 $ 227,772 $ 259,110 Accounts Receivable Accounts receivable are stated at a 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 March 31, 2023 and December 31, 2022, accounts receivable included amounts receivable from customers of $ 0.4 million and $ 1.1 million, respectively. At March 31, 2023 and December 31, 2022, allowance for doubtful accounts on customer receivables was $ 0.1 million and $ 0.1 million, respectively. The portion of our net accounts receivable from significant customers is summarized as follows: March 31, 2023 December 31, 2022 Customer A 87 % 82 % Customer C — 12 Customer F 13 — 100 % 94 % 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 (expense) and a new cost basis in the investment is established. 6 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 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 need to 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. The carrying value of cash and cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term nature of those 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, Class 8 semi-trucks outfitted with Hybrid systems 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. We recognize revenue on Hybrid system sales and Class 8 semi-trucks outfitted with Hybrid systems upon delivery to, and acceptance of the vehicle by, 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 7 taking deposits to secure future Hypertruck ERX production slots. Such deposits were immaterial at March 31, 2023 and December 31, 2022. When a Class 8 semi-truck with a Hybrid system upfit 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. The disaggregation of our revenue sources is summarized as follows and is attributable to the U.S.: Three Months Ended March 31, 2023 2022 Hybrid systems and other $ 54 $ 340 Class 8 semi-truck prepared for Hybrid system upfit 256 — Total product sales and other $ 310 $ 340 The portion of our revenues from significant customers is summarized as follows: Three Months Ended March 31, 2023 2022 Customer A 87 % 26 % Customer B — 22 Customer D — 26 Customer E — 17 Customer F 13 — 100 % 91 % 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 solely relates 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. 8 Note 3. Investments The amortized cost, unrealized gains and losses, fair value and maturities of our held-to-maturity investments at March 31, 2023 and December 31, 2022 are summarized as follows: Fair Value Measurements at March 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Commercial paper $ 38,636 $ — $ ( 100 ) $ 38,536 U.S. government agency bonds 12,442 17 ( 254 ) 12,205 State and municipal bonds 35,663 69 ( 347 ) 35,385 Corporate bonds and notes 213,460 96 ( 2,272 ) 211,284 $ 300,201 $ 182 $ ( 2,973 ) $ 297,410 Fair Value Measurements at December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Commercial paper $ 36,675 $ 2 $ ( 161 ) $ 36,516 U.S. government agency bonds 12,441 6 ( 328 ) 12,119 State and municipal bonds 40,104 28 ( 628 ) 39,504 Corporate bonds and notes 213,088 76 ( 3,344 ) 209,820 $ 302,308 $ 112 $ ( 4,461 ) $ 297,959 March 31, 2023 December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 196,768 $ 194,405 $ 193,740 $ 191,094 Due after one year through five years 103,433 103,005 108,568 106,865 $ 300,201 $ 297,410 $ 302,308 $ 297,959 Note 4. Fair Value Measurements The fair value measurements of our financial assets at March 31, 2023 and December 31, 2022 are summarized as follows: Fair Value Measurements at March 31, 2023 Level I Level II Level III Total Cash and cash equivalents $ 85,206 $ — $ — $ 85,206 Restricted cash 665 — — 665 Held-to-maturity investments: Commercial paper — 38,536 — 38,536 U.S. government agency bonds — 12,205 — 12,205 State and municipal bonds — 35,385 — 35,385 Corporate bonds and notes — 211,284 — 211,284 $ 85,871 $ 297,410 $ — $ 383,281 9 Fair Value Measurements at December 31, 2022 Level I Level II Level III Total Cash and cash equivalents $ 119,468 $ — $ — $ 119,468 Restricted cash 665 — — 665 Held-to-maturity investments: Commercial paper — 36,516 — 36,516 U.S. government agency bonds — 12,119 — 12,119 State and municipal bonds — 39,504 — 39,504 Corporate bonds and notes — 209,820 — 209,820 $ 120,133 $ 297,959 $ — $ 418,092 Note 5. Inventory The carrying value of our inventory at March 31, 2023 and December 31, 2022 is summarized as follows: March 31, 2023 December 31, 2022 Raw materials $ 761 $ — Work in process — — Finished goods 108 74 $ 869 $ 74 During the three months ended March 31, 2023 and 2022, we recorded inventory write-downs of $ 0.2 million and $ 1.3 million, respectively, included in cost of revenues. Note 6. Property and Equipment, Net Property and equipment, net at March 31, 2023 and December 31, 2022 is summarized as follows: March 31, 2023 December 31, 2022 Production machinery and equipment $ 7,632 $ 5,897 Vehicles 1,906 817 Leasehold improvements 1,143 1,002 Office furniture and fixtures 199 162 Computers and related equipment 1,530 1,367 12,410 9,245 Less: accumulated depreciation ( 4,107 ) ( 3,639 ) Total property and equipment, net $ 8,303 $ 5,606 Note 7. Share-Based Compensation During the three months ended March 31, 2023 and 2022, the Company granted 2.1 million and 2.0 million, respectively, restricted stock units which will vest over a period of one to three years , some of which include performance criteria based on the achievement of key Company milestones. During the three months ended March 31, 2023 and 2022, 0.2 million and 0.4 million , respectively, restricted stock units and options were forfeited. Share-based compensation expense for the three months ended March 31, 2023 and 2022 was $ 2.0 million and $ 1.6 million, respectively. 10 Note 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities at March 31, 2023 and December 31, 2022 are summarized as follows: March 31, 2023 December 31, 2022 Accrued professional services and other $ 6,490 $ 5,834 Accrued compensation and related benefits 3,183 4,773 Other accrued liabilities 894 928 $ 10,567 $ 11,535 Note 9. Warranties The change in warranty liability for the three months ended March 31, 2023 and 2022 is summarized as follows and included within accrued expenses and other current liabilities and other liabilities in the condensed consolidated balance sheets: Three Months Ended March 31, 2023 2022 Balance at beginning of period $ 527 $ 44 Accrual for warranties issued 33 207 Net changes in accrual related to pre-existing warranties — ( 9 ) Warranty charges ( 25 ) ( 4 ) Balance at end of period $ 535 $ 238 Note 10. 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 11. Net Loss Per Share The computation of basic and diluted net loss per share for the three months ended March 31, 2023 and 2022 is summarized as follows (in thousands, except share and per share data): Three Months Ended March 31, 2023 2022 Numerator: Net loss attributable to common stockholders $ ( 28,831 ) $ ( 27,108 ) Denominator: Weighted average shares outstanding, basic and diluted 180,118,044 173,584,573 Net loss per share, basic and diluted $ ( 0.16 ) $ ( 0.16 ) 11 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 months ended March 31, 2023 and 2022 are summarized as follows: Three Months Ended March 31, 2023 2022 Unexercised stock options 2,444,263 2,928,756 Unvested restricted stock units* 4,563,859 4,260,994 7,008,122 7,189,750 * Potential common shares from unvested restricted stock units for the periods ended March 31, 2023 and 2022 include 687,084 and 1,345,000 shares, respectively, where no accounting grant date has been established. 12 Table of Contents