What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-01 · 91 added, 49 removed, 245 unchanged (36% of the section changed)

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

Hyliion is addressing the commercial space first with a locally deployable generator that can offer prime power, backup power, peak demand reduction, renewables matching and power generation from waste fuels such as landfill and flare gas.

Hyliion is initially targeting the commercial sector with a locally-deployable generator designed to meet a wide range of power generation needs.

This versatile generator can operate on both conventional fuels and waste fuels such as landfill and flare gas.

In the future, the Company plans to scale up its generator solution to address larger utility-scale power needs and to develop variants for household use and mobile applications such as vehicles and marine vessels.

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We expect the KARNO generator to initially compete effectively in the market for power applications between 200 kW to 5 MW and later extend to larger and smaller power configurations.

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

We are currently working with potential customers for initial generator deployments in late 2024.

These deployments will test and validate KARNO generator product attributes including efficiency, emissions, maintenance requirements, durability, control systems and other parameters.

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Its flexibility in fuel sources, including the ability to use hydrogen, along with its superior environmental performance and low emissions and noise levels offer advantages over internal combustion generators.

A KARNO generator can also modulate power without efficiency loss by activating or deactivating individual generators and by regulating the heat input to each generator.

A KARNO generator can also modulate power with minimal efficiency loss 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 displacing a large amount of parking space.

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Also known as renewable natural gas (“RNG”), 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 with no or limited prior gas processing, positions it as an efficient and adaptable power generator for waste gas sources.

We believe the KARNO generator can compete effectively as a power generator fueled by waste gases.

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

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

For customers 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 common to reduce demand on the grid during peak times.

For customers 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 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.

In this context, distributed generation sources like the KARNO generator can help to mitigate 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 often 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.

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Longer-term, we also believe KARNO can be a viable solution for on-highway applications.

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.

Following initial deployments in late 2024, 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.

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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 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.

After the previously announced wind down of our powertrain operations, we shifted our focus exclusively to the development and commercialization of the KARNO generator.

We believe that the unique capabilities of the KARNO generator will 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.

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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 200 kW BETA generator, which is expected to serve as our design for initial commercial deployments.

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

We have also showcased KARNO integrated as an on-board generator for our Hypertruck ERX powertrain system and with potential stationary power customers.

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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 are expected to improve over time, with the output of machines we intend to acquire over the next three to four years projected to increase

compared to machines available today.

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

The pace of advancements in additive technology are expected to improve over time, with the output of machines we intend to acquire over the next three to four years projected to increase 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.

Lastly, we anticipate that economies of scale will reduce system component costs.

The Science of KARNO

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

We believe the KARNO generator stands out for its ability to maximize heat transfer between components and working fluids.

The KARNO generator stands out for its ability to maximize 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.

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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.

High efficiency is expected to remain relatively 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.

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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.

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 farm.

Furthermore, as hydrogen becomes more widely available, the KARNO generator will be able to adapt to this cleaner fuel.

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

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

Benefits of the KARNO Generator Versus Conventional Competitors

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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 200 kW generator occupies less than a cubic meter of volume, excluding the balance-of-plant.

For example, a 200 kW generator occupies less than a cubic meter of volume, excluding balance-of-plant systems.

• Modularity :

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Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to economic uncertainties, supply chain disruptions, inflation and high interest rates as well as those discussed below and referenced in Item 1A “Risk Factors”.

Commercialization of KARNO Generator

Our focus in the first quarter of 2024 was on continuing development and testing of our fuel-agnostic KARNO stationary generator and planning for the deployment of initial revenue-generating units with customers in 2024.

Our focus in the first half of 2024 was on continuing development and testing of our fuel-agnostic KARNO stationary generator and planning for the deployment of initial revenue-generating units with customers in late 2024.

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

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Results of Operations

Comparison of Three Months Ended March 31, 2024 to Three Months Ended March 31, 2023

Our results of operations for the three months ended March 31, 2024 (the “current quarter”) and 2023 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended March 31,

Comparison of Three Months Ended June 30, 2024 to Three Months Ended June 30, 2023

Our results of operations for the three months ended June 30, 2024 (the “current quarter”) and 2023 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended June 30,

2024 2023 $ Change % Change

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Interest income 3,129 3,349 (220) (6.6) %

Gain on disposal of assets 3 2 1 50.0 %

Other expense, net — (15) 15 (100.0) %

Loss on disposal of assets — (1) 1 (100.0) %

Other income, net 32 3 29 966.7 %

Net loss $ (10,856) $ (35,227) $ 24,371 (69.2) %

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Selling, General and Administrative

Selling, general, and administrative expenses decreased $4.4 million primarily due to:

• A decrease of $3.1 million in personnel and benefits and $1.1 million in professional services as a result of the wind down of our powertrain business.

Selling, general, and administrative expenses decreased $4.8 million primarily due to wind down of our powertrain business:

• A decrease of $2.8 million in personnel and benefits;

• A decrease of $0.8 million in marketing;

• A decrease of $0.6 million in professional services;

• A decrease of $0.3 million in insurance.

Exit and Termination Costs

Exit and termination costs increased by $4.4 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the consolidated financial statements.

Exit and termination benefit was $0.6 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the consolidated financial statements, including recoveries from assets sold.

Comparison of Six Months Ended June 30, 2024 to Six Months Ended June 30, 2023

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2024 (the “current six months”) and 2023 (in thousands, except share and per share data):

Six Months Ended June 30,

2024 2023 $ Change % Change

Product sales and other $ — $ 576 $ (576) (100.0) %

Total revenues — 576 (576) (100.0) %

Cost of revenues

Product sales and other — 998 (998) (100.0) %

Total cost of revenues — 998 (998) (100.0) %

Gross loss — (422) 422 (100.0) %

Operating expenses

Research and development 16,279 48,357 (32,078) (66.3) %

Selling, general and administrative expenses 12,854 22,079 (9,225) (41.8) %

Exit and termination costs 3,875 — 3,875 N/A

Total operating expenses 33,008 70,436 (37,428) (53.1) %

Loss from operations (33,008) (70,858) 37,850 (53.4) %

Interest income 6,525 6,811 (286) (4.2) %

Gain on disposal of assets 3 1 2 200.0 %

Other income (expense), net 32 (12) 44 N/A

Net loss $ (26,448) $ (64,058) $ 37,610 (58.7) %

Net loss per share, basic and diluted $ (0.15) $ (0.35) $ 0.20 (57.1) %

Weighted-average shares outstanding, basic and diluted 176,156,001 180,544,821 (4,389) (2.4) %

Revenue and Cost of Revenues

Revenue associated with our Hybrid products decreased $0.6 million and associated cost of revenues decreased $1.0 million .

As a result of our strategic review and decision to wind down our powertrain business, we do not anticipate further revenue or cost o f revenues until we begin commercialization of our KARNO generator.

Research and Development

Research and development expenses decreased $32.1 million due to:

• A decrease of $41.2 million for the design and testing of our Hypertruck ERX system;

• An increase of 9.1 million for the design and testing of our KARNO stationary generator.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $9.2 million primarily due to wind down of our powertrain business:

• A decrease of $5.9 million in personnel and benefits;

• A decrease of $1.7 million in professional services;

• A decrease of $0.8 million in marketing;

• A decrease of $0.3 million in insurance.

Exit and Termination Costs

Exit and termination costs increased by $3.9 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the consolidated financial statements, including recoveries from assets sold.

Liquidity and Capital Resources

At March 31, 2024, our current assets were $154.1 million, consisting primarily of cash and cash equivalents of $14.7 million, short-term investments of $126.7 million and prepaid expenses of $6.6 million.

At June 30, 2024, our current assets were $164.6 million, consisting primarily of cash and cash equivalents of $19.1 million, short-term investments of $136.1 million and prepaid expenses of $5.4 million.

Our current liabilities were $7.5 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We also had $93.5 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 o f our investment portfolio at March 31, 2024 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives.

We believe the credit quality and liquidity o f our investment portfolio at June 30, 2024 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 December 2023, we announced an authorized share repurchase program to repurchase up to $20 million of our outstanding common stock.

We repurchased $11.3 million in common stock during the three months ended March 31, 2024 and $11.4 million since the inception of the repurchase program .

Based on current projections of operating expenses, capital spending, working capital growth and share repurchases, we expect to have betwee n $220 and $230 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2024.

We expect to continue to incur net losses in the short term, as we continue to execute on our str ategic initiatives by completing the development and commercialization of the KARNO generator with anticipated initial customer deployments in late 2024.

We repurchased $14.0 million in common stock during the six months ended June 30, 2024 but have currently paused any additional repurchases under this program.

Based on current projections of operating expenses, capital spending, working capital growth and historical share repurchases, we expect to have between $220 and $230 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2024.

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 adversely as a result of a number of factors including, but not limited to, those discussed in Part II, Item 1A.

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During the periods presented, we did not have any relat ionships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the three months ended March 31, 2024 and 2023 is summarized as follows (in thousands):

Three Months Ended March 31,

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the six months ended June 30, 2024 and 2023 is summarized as follows (in thousands):

Six Months Ended June 30,

Cash from operating activities $ (33,396) $ (63,589)

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Cash from Operating Activities

For the three months ended March 31, 2024, cash flows used in operating activities were $22.7 million.

For the six months ended June 30, 2024, cash flows used in operating activities were $33.4 million.

Cash used primarily related to a net loss of $26.4 million, adjusted for a $14.2 million change in working capital accounts and $7.2 million in non-cash expenses (including $7.7 million related to accounts payable, accrued expenses and other liabilities and $5.1 million related to prepaid expenses and other current assets, partially offset by $5.6 million in assets held for sale carrying value adjustments and $2.4 million related to share-based compensation).

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

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

For the 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).

Cash from Investing Activities

For the three months ended March 31, 2024, cash flows provided by investing activities were $27.9 million.

Cash provided related to the sale or maturity of investments of $53.9 million, partially offset by the purchase of investments of $23.7 million and acquired property and equipment of $2.8 million.

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

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

For the six months ended June 30, 2024, cash flows provided by investing activities were $46.0 million.

Cash provided related to the sale or maturity of investments of $83.2 million and the proceeds from sale of assets of $3.5 million, partially offset by the purchase of investments of $32.6 million and acquired property and equipment of $8.1 million.

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.

Cash from Financing Activities

For the three months ended March 31, 2024, cash flows used in financing activities were $11.3 million, primarily due to treasury stock repurchases.

For the three months ended March 31, 2023, cash flows used in financing activities were $0.2 million, 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, 2024, cash flows used in financing activities were $14.3 million, primarily due to treasury stock repurchases.

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.

Critical Accounting Policies and Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis