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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 243 added, 177 removed, 118 unchanged (78% of the section changed)

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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.

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, this Quarterly Report on Form 10-Q, 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.

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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 aim to reduce the cost of operation while utilizing existing fueling infrastructure and allowing for the use of a variety of fuels.

Our solutions help support our customers’ pursuit of sustainability and financial goals by reducing GHG emissions and operating costs.

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.

Hypertruck ERX System

Late in 2023 we plan to begin selling the Hypertruck ERX powertrain platform (“Hypertruck ERX system”), with estimated sales in the year of 30 units.

The Hypertruck ERX system 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”).

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 as there is not yet a national reliable electric recharging network for battery electric vehicles (“BEV”) 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 reduction in their GHG emissions and potentially 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 fuel-agnostic and hydrogen-based solutions.

The control software driving the Hypertruck system is designed to be 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 widely used for land-based transport and trucking.

We believe there is a greater opportunity for more rapid adoption of our electrified powertrain solutions 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.

We plan to begin delivering trucks with the Hypertruck ERX system to customers in late 2023 and our first application will be deployed on a Class 8 Peterbilt 579 sleeper semi-truck utilizing a 12-liter generator.

The Cummins 12-liter California Air Resources Board (“CARB”) certification will expire at the end of 2023.

As a result, we have begun work on integrating a Cummins 15-liter generator, expected to be released in 2024, on the next variant of the Hypertruck ERX system, which also includes cost-and-weight-saving design changes.

We expect the Hypertruck ERX system with the 15-liter generator to be available in late 2024 or early 2025.

We expect that the 12-liter variant of the Hypertruck ERX system will be able to be sold in all states except California in 2024.

We also announced during the second quarter that the next version of the Hypertruck ERX platform will be a day cab model which is expected to be ready for commercialization in 2025.

We have received broad customer interest in a day cab variant due to the challenges fleets have experienced with plug-in electric day cab trucks, including cost, limited battery range, and difficulty obtaining vehicle charging infrastructure.

We have heard from fleets that the additional weight of the Hypertruck ERX sleeper variant will hinder its ability to operate in heavy-haul applications.

Therefore, for the day cab variant, we are exploring ways to reduce battery and tank sizes to remove weight in addition to the weight savings of moving to a day cab.

Additionally, the CARB's recently-enacted Advanced Clean Fleets Regulation (“ACF”) includes earlier mandates as soon as 2027 for converting day cab trucks to cleaner alternatives including the Hypertruck ERX system.

Hyliion is committed to creating innovative solutions that enable clean, flexible and affordable electricity production.

The Company’s primary focus is to provide distributed power generators that can operate on various fuel sources to future-proof against an ever-changing energy economy.

Headquartered in Austin, Texas, and with research and development in Cincinnati, OH, Hyliion is addressing the commercial space first with a locally deployable generator that can offer prime power, peak shaving, and renewables matching.

As the Company goes forward, it plans to scale its generator solution to also address household applications.

This approach enables consumers to produce their own electricity while utilizing the grid as a backup source.

Beyond stationary power, Hyliion will address mobile applications such as vehicles and marine.

The KARNO generator is a fuel-agnostic solution, enabled by additive manufacturing, that leverages a linear heat generator architecture.

The Company aims to offer innovative, yet practical solutions that contribute positively to the environment in the energy economy.

Strategic Business Developments

During the quarter, Hyliion offered the Hyliion Hybrid system (“Hybrid”), an electrified powertrain system that augments existing Class 8 semi-trucks to improve vehicle performance or reduce fuel usage, depending on application.

The Hybrid system can be installed on new vehicles prior to entering service, or retrofit onto existing in-service vehicles, allowing customers to use their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies.

The Company began selling the Hybrid system in late 2021, with deployments to fleets in the transportation and logistics sector in a variety of duty cycles, use cases, and geographical regions.

The Company also continued development of its Hypertruck ERX

powertrain platform (“Hypertruck ERX”), a complete electrified powertrain system leveraging an onboard compact-natural-gas-fueled generator to supplement battery range to transform an OEM platform into a range extended electric vehicle.

Companies in the truck electrification space (including Hyliion) have continued to face a number of challenges and headwinds as they develop and scale the production of new clean vehicles, and as customers employ these vehicles in their fleets.

For Hyliion, these challenges have included, among others, a slower-than-anticipated market transition to electric commercial truck fleets, escalating component and production costs and delays, new California Air Resources Board (“CARB”) mandates for fleet adoption of electric trucks, the need to reduce the cost and weight of the Hypertruck ERX platform, continued work by OEMs to de-content Tier 1 components that their Tier 1 suppliers are providing, and the expectation that the Company would be required to raise substantial additional capital to address and overcome these challenges.

In light of these challenges to the business and other considerations, the Company’s board of directors, with the support of its expert advisors, explored a range of strategic alternatives for its electrified powertrain systems business.

At the conclusion of that strategic review following the end of the quarter, the board of directors determined that discontinuing operating the electrified powertrain systems business and focusing exclusively on the development and commercialization of the Company’s fuel-agnostic KARNO generator technology would be the most effective use of the Company’s capital and in the best interests of the Company’s shareholders.

Hyliion intends to retain the powertrain technology enabling the Company to explore a sale or future use of the technology and the tangible assets from the powertrain division.

Tangible assets include the first 30 Hypertruck ERX production trucks which Hyliion no longer plans to recognize revenue on and the Hypertruck Fuel Cell prototype truck that Hyliion successfully completed in the third quarter of this year in collaboration with Hyzon Motors.

KARNO Generator System

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

The KARNO generator emerged out of GE’s long-running research and development 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 expected to comply with emissions standards of 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 maintenance costs, noise and vibration compared to conventional ICE generators due to its unique design and single moving part per generator shaft.

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 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, with early fleet trials expected in 2026.

We are currently completing assembly of an operational Hypertruck KARNO system prototype, which we expect to demonstrate with potential customers in the second half of 2023.

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

We expect deployments of KARNO generator stationary units in 2024 in initial revenue generating operations.

We anticipate that the KARNO generator used in the Hypertruck KARNO system and in stationary applications will be nearly identical.

Hypertruck Fuel Cell System

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”).

Completion of the prototype vehicle is expected in the fourth quarter of 2023.

Hybrid System

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.

As we continue our journey of developing and delivering electrified Class 8 semi-truck powertrain solutions, we have seen a market shift and greater demand from fleets toward fully-electrified powertrain solutions, such as the Hypertruck ERX, as opposed to hybrid solutions.

We are continuing to deliver our Hybrid system at low volumes to fleets that are requesting it, however are directing development and fleet discussions toward the Hypertruck ERX powertrain portfolio.

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

We initially envisioned utilizing the KARNO generator as new range-extending power source for the Hypertruck powertrain system, given its ability to operate on a wide range of fuel sources, including natural gas and hydrogen.

We now believe that the unique capabilities of the KARNO generator will also make it competitive in the stationary power market, competing favorably against conventional electrical generating systems and opening up potential new markets to enhance grid power availability and reliability.

The KARNO generator technology, including the technology that was acquired from GE and the technology developed by Hyliion subsequent to the acquisition, is protected by numerous patents and trademarks which we believe provide Hyliion extensive and lasting protection for its intellectual property.

Benefits of the KARNO Generator Versus Conventional Competitors

We believe the versatility and operating characteristics of the KARNO generator make it an ideal system for a variety of conventional and emerging electrical generating applications.

Key attributes of the KARNO generator distinguish it from its conventional generator counterparts, which may open new market opportunities:

• Generator Efficiency :

The anticipated operating efficiency of the KARNO generator results in lower cost of electricity versus conventional generating systems and, in many markets, grid power.

• Low Maintenance :

With only a single moving part per shaft, the simplicity of the KARNO generator is expected to reduce both periodic maintenance expenses and expected overhaul costs.

• Fuel Agnostic :

While many traditional generators operate on a single fuel source or require system modification to achieve fuel flexibility, the KARNO generator is truly fuel-agnostic, and can switch between fuel choices during operation.

• Low Noise and Vibration :

Unlike conventional generators, the KARNO generator operates without internal combustion, resulting in a significantly lower noise level of approximately 67 decibels at six feet, which is approximately equivalent to a typical conversation.

• Higher Power Density :

The unique architecture and features of the KARNO generator that are enabled by advances in additive manufacturing, enable the generator to achieve a high level of power density.

For example, a 200kW generator occupies less than a cubic meter of volume.

• Modularity :

The power output of a KARNO generator can be modulated by changing the level of heat applied to the system.

For larger power applications above 200kW, systems with six or more shafts can be utilized or, multiple

KARNO generators can be assembled to operate as a single unit.

For megawatt applications, individual generators can be turned on or off to adjust the total power output of the system.

• Fast Startup Time :

It is anticipated that the KARNO generator will be able to begin generating electricity from a cold start in approximately 30 to 60 seconds.

Additionally, full power can be achieved in a matter of minutes.

Conversely, some generating systems, such as solid oxide fuel cells, require a warm-up period of up to 30 minutes.

KARNO Generator Development

Our ongoing efforts with the KARNO generator encompass activities such as its design, development and rigorous testing, along with the development of essential balance-of-plant systems including cooling and controls systems.

Notably, we have reached a significant milestone by constructing the 125 kW ALPHA generator which we are currently testing in our development facility.

Simultaneously, we are in the final stages of designing a 200kW BETA generator, which is poised to serve as our initial production design for initial commercial deployments.

We have also showcased the KARNO generator with potential powertrain and stationary power customers.

Moreover, we successfully demonstrated the KARNO generator’s capability to feed power back to the electric grid from our Cincinnati, Ohio facility, using an ALPHA KARNO generator unit.

As we progress toward our anticipated initial stationary generator deployments, scheduled for late 2024, pivotal development activities are underway, including enhancements to the linear generator system and its controls, rigorous validation of essential operating parameters, including efficiency, emissions and reliability, and build-out of balance-of-plant systems and controls.

These initial generator deployments, coupled with our ongoing testing and development endeavors, will play a vital role in the validation of other critical design specifications, including the generator’s projected operating life, maintenance requirements and durability.

We expect to achieve efficiencies over time, leading to a reduction in the manufacturing and assembly costs associated with the KARNO generator.

These efficiencies will predominantly stem from advancements in the speed and capacity of additive manufacturing machines offered by GE and other vendors.

The pace of advancements in additive technology is rapid, with the output of machines we intend to acquire over the next three to four years projected to increase by nearly a factor of ten compared to machines available today.

Additionally, we are actively pursuing design modifications that will enable specific components to be produced through conventional manufacturing processes.

Moreover, for less critical components, we are exploring utilization of lower-cost and lightweight materials like aluminum.

Lastly, we anticipate that economies of scale will play a pivotal role in reducing system component costs as manufacturing output scales up progressively.

We plan to initiate the printing and assembly of the first production units of the KARNO generator at our facilities in Austin, Texas and Cincinnati, Ohio.

As production volumes rise, we will also consider outsourcing the printing, manufacturing and assembly of specific components or the entire generator to third parties.

We will also design and manufacture or purchase components for balance-of-plant and electrical systems for the initial production units while considering outsourcing options over time.

In our initial deployment phase, we intend to collaborate closely with customers, overseeing the installation, monitoring and maintenance of KARNO generator systems.

Additionally, we will consider options for integrating our products into existing sales and distribution channels and forging partnerships with established manufacturers, vendors, developers and distributors as we continue to grow and evolve.

KARNO Generator Applications

electrical grid is facing a multitude of challenges as it strives to manage the escalating demand for electricity while adapting to evolving generating resources.

The electrification of transportation, particularly the growing adoption of electric vehicles, is adding substantial load to the grid.

Additionally, the integration of renewable energy sources such as solar and wind power introduces variability and necessitates grid modernization and storage solutions for stability.

Hyliion believes that localized grid generation will become an increasing part of the solution to these challenges and that the KARNO generator can address many concerns that inhibit consumers from adopting onsite generating systems today, including cost, maintenance needs, noise, versatility and emissions.

Hyliion believes that the KARNO generator is suitable for wide range of electrical power generating applications and that it can penetrate the market for these applications due to its highly differentiated characteristics versus conventional generators.

Key differentiating attributes include low maintenance, lower operating costs due to efficiency, low noise and emissions, and fuel versatility.

Planned initial KARNO generators that are both power dense and mobile, are expected to include an approximate three cubic meter, single four-shaft 200kW generating unit, including balance-of-plant components.

Later planned developments include an over-2 megawatt system with multiple KARNO generators inside the footprint of a 20 foot shipping container.

Over time, we expect larger and smaller capacity versions of the KARNO generator will be offered with power levels varying based on the number of generator shafts included or the size of component parts.

Consequently, we expect the KARNO generator to initially

compete effectively in the market for power applications between 200kW to 5MW and later extending to smaller power configurations.

We are currently working with potential customers for initial generator deployments.

The primary purpose of these deployments is to further test and validate KARNO generator product attributes including efficiency, emissions, maintenance requirements, durability, control systems and other parameters.

We expect to receive compensation for these initial deployments as we believe the generator will provide tangible benefits to customers.

We also expect that early deployments will demonstrate the effectiveness of the KARNO generator in a wide range of electrical generating applications.

Target markets include:

• Waste Gas Power Generation:

Natural gas sourced from waste sites like landfills, water treatment plants and dairy farms is a growing market as producers seek to capture sources of methane emissions that would otherwise be released into the atmosphere or flared.

Also known as renewable natural gas, most sources are typically treated to remove impurities such as carbon dioxide, hydrogen sulfide and moisture before the gas can be utilized or injected into natural gas pipelines.

We believe the KARNO generator will compete effectively as a power generator using waste gas sources.

Its modularity, coupled with its capability to oxidize a variety of fuel sources and mixtures without the need for prior gas processing, positions it as an efficient and adaptable power generator for waste gas sources.

Similarly, natural gas extracted from gas or oil wells frequently requires processing to remove natural gas liquids and impurities.

At remote well sites, gas may be flared, or burned, due to insufficient pipeline capacity for transmission to consuming markets.

The KARNO generator creates a new opportunity – to transform flare gas into valuable electricity, destined either for integration into the electric grid or for localized consumption.

As with RNG, the KARNO generator is anticipated to use flare gas without the need for pre-treatment by a gas processing facility.

• Vehicle Charging:

The rapid growth of electric vehicles is increasingly straining grid capacity and reliability, both domestically and internationally.

The introduction of commercial EVs, such as buses, delivery vans and large trucks is expected to intensify this challenge given their substantial power requirements during charging.

Many commercial operators cite the lack of generating capacity as the primary obstacle to expanding their electric vehicle fleets.

Here, the KARNO generator is a unique solution compared to conventional generators, offering a localized and versatile source of electrical power for vehicle charging.

In addition to its flexibility in fuel sources, including the capacity to utilize hydrogen, and its superior environmental performance with lower emissions and noise levels compared to internal combustion generators, the KARNO generator’s ability to modulate power without efficiency loss is a pivotal advantage.

Power out can be adjusted by activating or deactivating individual generators and by regulating the heat input to each generator.

Finally, KARNO’s high power density allows it to be deployed as a localized power source for vehicle charging without consuming valuable parking space.

• Prime Power:

Most consumers prefer to use grid power over localized generator source due to its inherent advantages in terms of simplicity, convenience, scalability and cost effectiveness.

For critical applications such as hospitals, data centers and refrigerated warehouses, the availability of local generators in case of a grid power failure is indispensable.

The advent of the KARNO generator introduces the opportunity for certain power consumers to rethink their primary and secondary power sources.

Due to its unique attributes in comparison to conventional generators, which include consistently high efficiency across all power levels, minimal maintenance requirements, and reduced level of noise and emissions, the KARNO generator stands as a potentially more cost-effective base load power source for consumers, who would then utilize the electric grid as a backup source of power.

This arrangement holds particular appeal for consumers facing high grid electrical costs and low fuel costs, such as for natural gas.

• Peak Shaving:

“Peaking charges” also referred to as “demand charges” are fees imposed by utilities on consumers based on their highest recorded electricity usage during a billing cycle, often measured over a short interval, such as 15 minutes.

These charges serve to recuperate the expenses associated with maintaining grid capacity during periods of peak demand.

For consumers with substantial peak demand, such as large industrial facilities and data centers, peaking charges can significantly inflate their electric bills.

Additionally, time-based electricity rates are now very common to reduce demand on the grid during peak times.

Peak rates can be two to three times higher than base rates, increasing electricity charges even further for consumers.

In this context, distributed generation sources like the KARNO generator can play a pivotal role in mitigating the financial impact of peaking charges and rates by supplementing grid power during peak consumption periods.

• Backup Power:

The market for local backup power generators is well established but also poised for growth due to reduced reliability of the power grid, a greater share of intermittent renewable sources of electricity, the frequency and severity of extreme weather events and the need for continuous power supply in critical applications.

Generator emissions are a growing concern in the backup power market due to increased focus on the health impacts of harmful compounds such as nitrogen oxides (“NOx”), carbon monoxide and volatile organic compounds (“VOCs”).

To address these concerns, emissions control technologies are incorporated for conventional generators and alternative sources of

fuel like natural gas are replacing diesel, which is also a source of particulate matter (“PM”) emissions if exhaust gases are untreated.

The backup power market is another opportunity for the KARNO generator which is particularly attractive for its low level of emissions and low noise level while in operation.

The KARNO generator is expected to reduce CO and NOx emissions by over 95% compared to diesel generators, and potentially without the need for exhaust aftertreatment.

Following initial deployments, we expect to ramp up commercialization of the KARNO generator including expansion of production capacity and establishment of sales and distribution channels, potentially including market collaborations and extending our reach outside of the U.S.

In the future we intend to develop KARNO generators of different sizes and configurations to capitalize on KARNO’s unique advantages and extend these advantages across a broader range of market opportunities.

The Science of KARNO

The KARNO generator is distinguished from conventional generating systems that rely on reciprocating internal combustion engines or gas turbines to drive a rotating shaft.

In contrast, the KARNO generator harnesses the power of a heat engine to propel a linear generating system.

This innovative generator derives its linear motion from temperature differences inside the engine.

The generation of heat within the system occurs through flameless oxidation of fuels, like natural gas, hydrogen, or propane.

This thermal energy causes helium gas enclosed within a sealed cylinder to expand, thereby propelling linear motion in a connected piston-shaft system which includes a sequence of permanent magnets situated on the shaft passing through electrical coils.

Subsequently, the counter-motion generated by a piston at the opposite end of the shaft flows the helium gas to the cold side of a piston in an adjacent shaft, where excess heat is efficiently dissipated.

This cyclical process continues, resulting in a continuous source of electrical power for so long as heat is supplied to the generator.

Linear generators present several advantages over conventional generators, with key benefits including reduced maintenance, attributable to their simplified design with few moving parts.

Additionally, they exhibit high power density and higher efficiency by circumventing the mechanical losses linked to rotating components such as bearings and gears while producing less noise and vibration.

In the case of KARNO, each shaft of the generator relies on a single moving part and utilizes a pressurized helium bearing system in place of oil-based lubricants.

Heat engines offer the advantages of fuel flexibility and high operating efficiency.

The KARNO generator stands out for its ability to achieve exceptional efficiency by maximizing heat transfer between components and working fluids.

Enabled by advances in additive manufacturing systems, parts are designed with a large number of intricate flow channels for the movement of heat, cooling water, helium and exhaust gases such that contact surface areas for heat transfer are maximized.

This enables the KARNO generator to achieve exceptional levels of efficiency.

The KARNO generator is expected to surpass the efficiency of conventional generating systems when employing various fuel sources and even outperform fuel cells when using hydrogen.

Notably, its high efficiency remains consistent across a broad range of output power levels.

In contrast, fuel cells reach peak efficiency at low power levels but experience diminishing efficiency as output increase towards full power.

Internal combustion engines typically achieve peak efficiency within a limited operational output range and may suffer increased wear at low power levels.

The KARNO generator offers a distinct advantage in power adjustment by modulating the rate of heat introduction, enabling seamless power adjustments without compromising the generator’s efficiency.

We anticipate that the KARNO generator will achieve an electrical generating efficiency of nearly 50%, calculated by considering the usable output power in relation to the energy from the fuel source.

High efficiency is expected to remain consistent across a wide range of output power levels, spanning from tens of kilowatts to multiple megawatts.

In contrast, internal combustion diesel generators typically operate within an efficiency range of 25% to 40% over a similar power spectrum, while the U.S.

electrical power grid is estimated to operate at an efficiency between 33% and 40%.

Notably, best-in-class grid-level gas turbine powerplants can obtain efficiencies ranging between 45% to 55%.

However, they incur transmission and distribution losses between 5% and 10% which the KARNO generator can circumvent by being strategically located near the point of power consumption.

Conventional generators emit pollutants as a result of incomplete combustion of fuel-air mixtures, with the formation of nitrous-oxide compounds being particularly prominent.

Unlike conventional generators, which often employ internal combustion engines operating at high temperatures with rapid and incomplete fuel combustion, the KARNO generator is designed for continuous fuel oxidation at lower temperatures than internal combustion engines and extended burn times.

This is achieved partly through the recirculation of exhaust gases, which serves to prolong combustion duration and by pre-heating incoming air.

As a result, the KARNO generator is anticipated to achieve remarkably low levels of emissions, with CO and

NOx emissions expected to be reduced by over 95% compared to best-in-class diesel engines and targeting CARB 2027 standards without the need for aftertreatment.

One of the notable advantages of the KARNO generator, in comparison to traditional generating units, is the expected significant reduction in maintenance requirements and cost.

Conventional generators typically incur periodic and usage-based maintenance expense that can range between 5% to 20% of their total operating cost throughout their lifespan, influenced by factors such as utilization and operating parameters.

KARNO’s primary advantage arises from having only a single moving linear actuator per shaft (4 shafts per 200kW generator), which glides linearly on low friction helium bearings.

This innovative design significantly mitigates efficiency losses attributed to friction, enhances the system’s operational longevity and eliminates the need for oil-based lubricants commonly found in conventional generators.

Furthermore, internal combustion engines require extensive overhauls after specific operating periods which are costly, require specialized expertise, and result in prolonged downtime.

Conversely, the KARNO generator is projected to require less costly and simplified maintenance service than internal combustion engines, translating into both cost savings and reduced downtime.

The KARNO generator, functioning as a heat engine, derives significant advantages from its expected capability to operate across a diverse spectrum of over 20 available fuel sources and fuel mixtures.

These include natural gas, propane, gasoline, jet fuel, and alternative fuels like bio-diesel, hydrogen and ammonia.

Moreover, the generator can seamlessly transition between these fuels or fuel blends, requiring no physical modifications to its flameless oxidation system.

This versatility enables a single generator to adapt to different use cases.

For example, the generator may operate on natural gas for prime power generation when a pipeline connection is available and on waste gas near a landfill or dairy.

Furthermore, as hydrogen becomes more widely available, the KARNO generator can seamlessly adapt to this cleaner fuel.

As the energy landscape evolves, the KARNO generator’s fuel-agnostic nature positions it as a future-proof solution to electricity generation needs.

Key Factors Affecting Operating Results

1 unchanged sentence

“Risk Factors.”

Successful Commercialization of Our Drivetrain Solutions

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 system's features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership.

Our development timeline will continue through 2023 as we place verification trucks into extended fleet trials with potential customers, seek certification of our powertrain from regulators, and as we approach first customer deliveries late in the year.

We have been tracking key development milestones on a 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 fleet trials with customers.

We successfully completed summer testing of the Hypertruck ERX system with rigorous operations in high temperature conditions.

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

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

Supply chain constraints in 2022 were widespread in the trucking industry, causing shortages or longer-lead times for key components needed for truck production and delays in our originally anticipated timeline.

While such constraints have lessened in recent quarters, we continue to experience unexpected delays receiving critical components needed for assembly of our latest verification vehicle model, including wiring harnesses.

As a result, we had fewer verification vehicles available during the second quarter than we anticipated and are requiring additional time to confirm operational reliability.

Consequently, we delayed the start of extended customer fleet trials from the second quarter of 2023 to the third quarter.

We have worked with Peterbilt to secure build slots for this calendar year to mitigate the risk of supply chain impacts to our Hypertruck ERX development and production schedule.

We also continue to work closely with our extended supply base to ensure the delivery of components needed for the quarters ahead and are diligently seeking alternative sources of supply for components that meet our technical specifications with shorter lead times.

We plan to release the Hypertruck ERX system into commercial production for delivery to customers in late 2023 leveraging a 12-liter natural gas engine as the onboard generator.

At the end of the second quarter of 2023, we began assembly of the first production truck by installing our Hypertruck ERX powertrain system into a de-contented chassis from Peterbilt.

Prior to delivering production trucks to customers, we plan to complete extended fleet trials with customers and finalize powertrain certifications with CARB, the EPA and the National Highway Traffic Safety Administration.

Companies, including Hyliion, in the truck electrification space face a number of challenges as they develop and scale the production of new clean vehicles and as customers employ these vehicles in their fleets.

We continue to assess our business model and strategic priorities to ensure we are utilizing capital as effectively as possible.

Our initial plan was to quickly ramp up Hypertruck ERX powertrain production and full truck sales.

However, after assessing the costs and growth in working capital that we would incur by executing this plan, we have begun to shift to more capital-efficient ways to achieve growth in customer demand over the long-term while consuming less cash in the short-term.

Our new goal is to continue the installation of production powertrain systems into trucks that we began late in the second quarter of 2023 while slowing the growth rate of production and sales that we originally anticipated.

At the same time, we are investing in powertrain cost and weight reduction enhancements, which customers will demand, and planning a more rapid shift to selling powertrains versus full trucks.

Our new strategy was developed in light of market conditions in order to remain conservative with our existing cash and investment balances.

We expect to delivery 30 Hypertruck ERX systems by the end of 2023.

We plan to begin by selling the entire vehicle directly to customers but then begin shifting to become a powertrain company and to sell our solutions directly to the OEMs for them to integrate into their production facilities.

OEM industry trends indicate that vehicle manufacturers will work to de-content components that their Tier 1 suppliers are providing as they work to vertically integrate.

We plan to continually improve and differentiate our product offerings in an effort to offer the OEMs differentiated solutions and reduce the ability to de-content.

In 2024, we plan to complete our fuel agnostic Hypertruck KARNO system integration design, on our journey to a hydrogen-based future.

We will also explore other adjacent markets to leverage the KARNO generator 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, the development of the KARNO generator, 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

In 2022, we announced our Founders Program, which comprised a group of initial customers that committed to purchase the first 210 Hypertruck ERX units.

Delivery of these units was expected to occur between the fourth quarter of 2023 and the end of the first quarter of 2024.

Recently, we began revisiting these initial 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.

Sales negotiations are ongoing, with the likely outcome that the first 30 production trucks will be delivered to customers by year end.

We also believe that the successful completion of testing, validation, and certification work that is ongoing will be an inflection point for orders as some customers are waiting for final development and powertrain 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 will assess our production plans for 2024 as we receive feedback from fleet trials and initial deliveries.

We continue to target leaders in the trucking industry with aggressive sustainability initiatives for inclusion in our 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 $576 thousand in Hybrid sales in the six months ended June 30, 2023, which included a full truck with a Hybrid system installed and other Hybrid systems.

Successful Commercialization of KARNO Generator

Our focus in the remainder of 2023 will be on continuing development and testing of our fuel-agnostic KARNO stationary generator and deploying initial revenue-generating units with customers in 2024.

We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused these activities.

The amount and timing of our future funding requirements, if any, will depend on many factors, including but not limited to the pace of completing initial KARNO generator design, testing and validation, the pace at which we introduce initial generator units to the market, our strategies for manufacturing KARNO generator components (whether in-house or through outsourcing to third parties), the range of product offerings we plan to bring to market and external market factors beyond our control.

Wind-down of Powertrain Business

We no longer expect to recognize revenue on products not related to KARNO, including the Hypertruck ERX and Hybrid.

The Company is evaluating opportunities to monetize certain of the assets and technology relating to the Business, but no assurances can be provided that any such opportunities will be realized.

The Company expects the wind-down to be completed by the end of the Company’s first quarter of fiscal year 2024 and will include a reduction of the Company’s workforce by approximately 175 people, or 67%, with some expected to be provided transition packages that will provide for continued services through various dates of the Company’s fiscal year 2024.

Key Components of Statements of Operations

We currently generate revenues from sales of Hybrid systems for Class 8 semi-trucks and limited quantities of Class 8 semi-trucks outfitted with the Hybrid system.

We historically generated revenues from sales of Hybrid systems for Class 8 semi-trucks and limited quantities of Class 8 semi-trucks outfitted with the Hybrid system.

As a result of the strategic review and decision to discontinue the powertrain business, we do not anticipate generating future revenues until we begin commercialization of our KARNO generators.

Cost of Revenue

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Research and Development Expense

Research and development expenses consist primarily of costs incurred for the discovery and development of our electrified powertrain solutions, which include:

Research and development expenses consist primarily of costs incurred for the discovery and development of our KARNO stationary generator and electrified powertrain solutions, which include:

• 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 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;

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

• depreciation for equipment used in research and development activities;

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• allocation of general overhead costs.

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.

We expect to continue to invest in research and development activities to achieve operational and commercial goals, though we expect a reduction in research and development expenses on a go-forward basis as a result of discontinuing our powertrain business.

Selling, General and Administrative Expense

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

We expect a reduction in selling, general and administrative expenses on a go-forward basis as a result of discontinuing our powertrain business.

Other Income (Expense)

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As a result of our acquisition of the KARNO generator technology, we plan to assume a government contract with the United States Office of Naval Research that is not expected to have a material impact on our business.

We plan to seek additional government contracts in the future and may reassess the classification of such contracts as revenue based on business strategy.

Results of Operations

Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022

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

Comparison of Three Months Ended September 30, 2023 to Three Months Ended September 30, 2022

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

2023 2022 $ Change % Change

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Interest income 3,534 1,926 1,608 83.5 %

Loss on disposal of assets (1) (133) 132 (99.2) %

Gain on disposal of assets — 46 (46) (100.0) %

Other income, net 26 — 26 N/A

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Weighted-average shares outstanding, basic and diluted 181,641,060 174,345,022 7,296 4.2 %

Sales associated with our Hybrid products increased $0.1 million.

While we continue to expect additional Hybrid system sales for the remainder of 2023, we anticipate reduced sales of the Hybrid product following the start of Hypertruck ERX system deliveries late in 2023.

See Part I, Item 1.

Subsequent Events” and Part II, Item 5.

for discussion of estimated charges and pro forma financial statements.

Sales associated with our Hybrid products decreased $0.4 million.

As a result of our strategic review and decision to discontinue our powertrain business, we do not anticipate further revenue until we begin commercialization of our KARNO generator.

Cost of Revenues

Cost of revenues associated with our Hybrid products decreased $2.2 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 $1.5 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;

partially offset by

• An increase in costs associated with sales of Hybrid systems of $0.1 million.

• A decrease in costs associated with sales of Hybrid systems of $0.4 million;

• A decrease in warranty costs of $0.3 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors as we sold fewer Hybrid systems in the current nine months.

Research and Development

Research and development expenses increased $7.4 million due to:

• An increase of $3.7 million for the design and testing of our Hypertruck KARNO system which was acquired in September 2022;

• An increase of $3.7 million for the design and testing of our Hypertruck ERX system variants, excluding Hypertruck KARNO system, including an increase of production truck components which were expensed to Research and Development as they were received before the beginning of Hypertruck ERX system commercialization and a decrease

in expenses related to validation vehicle components, services and personnel as we approach commercialization of the Hypertruck ERX powertrain system.

Research and development expenses decreased $27.6 million due to:

• A decrease of $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 KARNO generator;

• A decrease of $1.4 million for the design and testing of our Hypertruck ERX system;

• An increase of $2.6 million for the design and testing of our KARNO stationary generator.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $2.1 million primarily due to:

• A decrease of $1.1 million in professional services;

• A decrease of $1.6 million in personnel and benefits primarily due to the prior year departure of our previous Chief Financial Officer;

• A decrease of $0.6 million for insurance costs;

• A decrease of $0.2 million in marketing and advertising;

partially offset by

• An increase of $0.6 million in personnel and benefits due to workforce growth over the past year and inflation;

• An increase of $0.3 million in marketing and advertising as we exhibited our Hypertruck KARNO system.

Other Income (Expense)

• An increase of $0.2 million in professional services;

Total other income increased $1.6 million primarily due to an increase in interest income on investments.

Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2023 (the “current six months”) and 2022 (in thousands, except share and per share data):

Six Months Ended June 30,

Comparison of Nine Months Ended September 30, 2023 to Nine Months Ended September 30, 2022

The following table summarizes our results of operations on a consolidated basis for the nine months ended September 30, 2023 (the “current nine months”) and 2022 (in thousands, except share and per share data):

Nine Months Ended September 30,

2023 2022 $ Change % Change

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Gain (loss) on disposal of assets 1 (89) 90 N/A

Other expense, net (12) — (12) N/A

Other income, net 14 — 14 N/A

Net loss $ (94,380) $ (123,970) $ 29,590 (23.9) %

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Weighted-average shares outstanding, basic and diluted 180,914,250 173,945,156 6,969 4.0 %

See Part I, Item 1.

Subsequent Events” and Part II, Item 5.

for discussion of estimated charges and pro forma financial statements.

Sales associated with our Hybrid products increased $0.3 million.

As a result of our strategic review and decision to discontinue our powertrain business, we do not anticipate further revenue until we begin commercialization of our KARNO generator.

Cost of Revenues

Cost of revenues associated with our Hybrid products decreased $5.5 million.

The decrease in cost of revenues includes:

• A decrease in inventory write-downs of $3.1 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 six months;

• 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 vendors as we sold fewer Hybrid systems in the current six months.

• A decrease in inventory write-downs of $4.6 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 nine months;

• An decrease in costs associated with sales of Hybrid systems of $0.4 million;

• A decrease in 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 as we sold fewer Hybrid systems in the current nine months.

Research and Development

Research and development expenses increased $12.5 million due to:

• An increase of $7.1 million for the design and testing of our Hypertruck KARNO system which was acquired in September 2022;

• An increase of $5.4 million for the design and testing of our Hypertruck ERX system variants, excluding Hypertruck KARNO system, including an increase of production truck components which were expensed to Research and Development as they were received before the beginning of Hypertruck ERX system commercialization and a decrease in expenses related to validation vehicle components, services and personnel as we approach commercialization of the Hypertruck ERX powertrain system.

Research and development expenses decreased $15.1 million due to:

• A decrease of $28.8 million related to KARNO technology acquired in September 2022 from General Electric Company’s GE Additive business to develop and commercialize the fuel agnostic KARNO generator;

• An increase of $9.3 million for the design and testing of our KARNO stationary generator;

• An increase of $4.4 million for the design and testing of our Hypertruck ERX system.

Selling, General and Administrative

Selling, general, and administrative expenses increased $0.1 million primarily due to:

• An increase of $2.3 million in personnel and benefits due to workforce growth over the past year and inflation;

• An increase of $0.3 million in marketing and advertising as we exhibited our Hypertruck KARNO system;

partially offset by

Selling, general, and administrative expenses decreased $2.0 million primarily due to:

• A decrease of $2.0 million for insurance costs;

• A decrease of $0.9 million in professional services;

partially offset by

• An increase of $0.9 million in personnel and benefits due to workforce growth over the past year and inflation, offset by the prior year departure of our previous Chief Financial Officer.

Other Income (Expense)

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Liquidity and Capital Resources

At June 30, 2023, our current assets were $249.2 million, consisting primarily of cash and cash equivalents of $48.2 million, short-term investments of $183.4 million and prepaid expenses of $15.9 million.

At September 30, 2023, our curren t assets were $194.0 million, consisting primarily of cash and cash equivalents of $28.6 million, short-term investments of $153.6 million and prepaid expenses of $11.5 million.

Our current liabilities were $13.2 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We believe the credit quality and liquidity of our investment portfolio at June 30, 2023 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives.

We also had $141.3 million of investments in longer-term liquid securities which we maintain to generate higher income on capital that we do not expect to spend in the next 12 months.

We believe the credit quality and liquidity of our investment portfolio at September 30, 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.

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In addition, these unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.

Based on our past performance, we believe our current assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months.

We have no plans to raise additional capital in 2023 and have flexibility into 2025, although we may opportunistically raise additional capital in 2024 or later if market conditions strengthen to fund our planned development roadmap.

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

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

Finally, based on current projections of operating expenses, capital spending and working capital growth, we expect to have approximately $275 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2023.

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 system with anticipated fleet trials in 2026 and (ii) a fuel cell powered vehicle using Hyliion’s electric powertrain system.

Based on our past performance, we believe our current and long-term assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months.

We do not expect to need to raise additional capital for the foreseeable future.

Our primary short-term cash needs are costs associated with the exit of our powertrain business and KARNO generator development costs.

Longer term, our capital needs will be determined by our go-to-market strategy, which may include development of our own KARNO generator manufacturing capacity or outsourcing this work to third parties or business partners.

Finally, based on current projections of operating expenses, capital spending and working

capital growth, we expect to have approximately $285 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2023.

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 KARNO generator with anticipated initial customer deployments in late 2024.

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.

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 our long-term plan manufacturing plan for the KARNO generator, 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 six months ended June 30, 2023 and 2022 is summarized as follows (in thousands):

Six Months Ended June 30,

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

Nine Months Ended September 30,

Cash from operating activities $ (92,427) $ (83,442)

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Cash from Operating Activities

For the six months ended June 30, 2023, cash flows used in operating activities were $63.6 million.

Cash used primarily related to a net loss of $64.1 million, adjusted for a $4.5 million change in working capital accounts and $5.0 million in certain non-cash expenses (including $2.7 million related to accounts payable, accrued expenses and other liabilities and $3.8 million related to share-based compensation, partially offset by $5.8 million related to prepaid expenses and other assets and $0.8 million related to inventory purchases).

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

Cash used primarily related to a net loss of $60.6 million, adjusted for a $4.1 million change in working capital accounts and $9.1 million in certain non-cash expenses (including $3.5 million related to share-based compensation, $1.6 million related to depreciation, amortization and accretion charges and $0.6 million related to prepaid expenses and other assets, partially offset by $0.8 million related to accounts payable, accrued expenses and other liabilities).

For the nine months ended September 30, 2023, cash flows used in operating activities were $92.4 million.

Cash used primarily related to a net loss of $94.4 million, adjusted for a $5.3 million change in working capital accounts and $7.2 million in certain non-cash expenses (including $5.2 million related to share-based compensation, partially offset by $2.7 million related to accounts payable, accrued expenses and other liabilities and $1.2 million related to prepaid expenses and other assets).

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 a $2.3 million change in working capital accounts and $42.8 million in certain non-cash expenses (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).

Cash from Investing Activities

For the six months ended June 30, 2023, cash flows used in investing activities were $7.5 million.

Cash used related to the purchase of investments of $99.2 million and acquired property and equipment of $4.0 million, partially offset by the sale or maturity of investments of $95.6 million.

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

Cash used primarily related to the purchase of investments totaling $106.8 million, partially offset by the sale or maturity of investments of $104.5 million.

For the nine months ended September 30, 2023, cash flows provided by investing activities were $1.6 million.

Cash provided related to the sale or maturity of investments of $178.6 million, partially offset by the purchase of investments of $170.2 million and acquired property and equipment of $6.8 million.

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

Cash used primarily related to the purchase of investments totaling $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.

Cash from Financing Activities

For the six months ended June 30, 2023, 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 $0.2 million.

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

For the nine months ended September 30, 2023, cash flows used in financing activities were nil.

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

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis