What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-12 compared with 2025-05-13 · 100 added, 38 removed, 279 unchanged (33% of the section changed)

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We believe that this modular and scalable approach enables seamless power expansion while maintaining high efficiency and reliability.

Scheduled for commercialization in 2026, the 2 MW solution will target key market segments such as data centers and industrial prime power applications.

The 2 MW solution will target key market segments such as data centers and industrial prime power applications.

By utilizing multiple 200 kW generating blocks, the system offers built-in redundancy and the flexibility for customers to customize capacity to match their power needs.

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Furthermore, the KARNO Power Module maintains high efficiency across broad range of load factors.

• Prime Power & Microgrids:

As electricity demand increases and grid infrastructure struggles, microgrids and prime power solutions are becoming essential for industries facing high consumption charges, peak demand pricing, and grid reliability concerns.

Businesses, industrial sites, and remote facilities increasingly seek localized power generation to mitigate rising energy costs, monetize assets, and improve operational resilience.

With relatively high efficiency, fuel adaptability and low maintenance needs, KARNO Power Modules provide a cost-effective alternative to grid electricity, allowing businesses to optimize energy costs while ensuring uninterrupted operations.

Its ability to seamlessly integrate with energy storage and renewable sources enables installation of effective hybrid energy solutions.

Additionally, the KARNO Power Module’s cogeneration capabilities allow industries to utilize both electricity and thermal energy, improving overall system efficiency and recovering usable waste heat.

Defense organizations around the world are pursuing advanced energy solutions to support modern, rapidly evolving, distributed operations across land, sea, air, and autonomous platforms.

Hyliion’s fuel-agnostic KARNO platform is engineered to meet these changing mission profiles with a combination of versatility, efficiency, and durability.

Designed to operate on over 20 fuels, including JP-8 and its variants, diesel, ammonia, and hydrogen, the KARNO system enhances logistical adaptability across diverse applications.

Its low acoustic and thermal signatures support stealth and operational security, while its high fuel efficiency enables longer runtimes and reduced refueling needs.

Built with minimal moving parts and robust architecture, the KARNO technology delivers extended maintenance intervals and high system uptime under challenging conditions.

Whether deployed in forward operating bases, shipboard power systems, microgrids, or unmanned autonomous platforms, the scalable KARNO Power Module and KARNO Core aim to deliver reliable, next-generation power for the strategic and tactical demands of global defense operations.

• Vehicle Charging:

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Additionally, the KARNO Power Module’s compact footprint and quiet operation make it ideal for deployment in space-constrained locations, such as urban charging hubs, fleet depots, and remote charging stations where grid access is limited or expensive.

When paired with onsite energy storage systems and renewable energy sources like solar or wind, KARNO Power Modules can enable resilient and sustainable microgrids for EV charging.

When paired with

onsite energy storage systems and renewable energy sources like solar or wind, KARNO Power Modules can enable resilient and sustainable microgrids for EV charging.

• Biogas (Landfill, Waste Water & Digester Gas):

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Additionally, the KARNO Power Module’s fuel-agnostic capability allows it to generate clean electricity from hydrogen-rich syngas, a valuable byproduct of gasification or industrial processes.

• Prime Power & Microgrids:

Businesses, industrial sites, and remote facilities increasingly seek localized power generation to mitigate rising energy costs, monetize assets, and improve operational resilience.

With relatively high efficiency, fuel

adaptability and low maintenance needs, KARNO Power Modules provide a cost-effective alternative to grid electricity, allowing businesses to optimize energy costs while ensuring uninterrupted operations.

Its ability to seamlessly integrate with energy storage and renewable sources enables installation of effective hybrid energy solutions.

The KARNO Power Module is particularly suitable for applications that require a source of electric power in mobile applications such as electric vehicles, railroad locomotives, remote power generation and marine vessels.

Compared to conventional power sources the KARNO Power Module is expected to offer higher efficiency, lower emissions, quieter operation, reduced maintenance needs and the flexibility to operate on a wider range of fuel sources.

Additionally, the KARNO Power Module’s high power density, modularity and native DC power output offers an added advantage where space constraints and integration are considerations.

• Backup Power:

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With growing concerns over emissions from internal combustion engine-powered generators in the backup power market we believe the KARNO Power Module presents an opportunity to provide solutions for end users that desire a lower emissions profile and in the event emissions regulations are further tightened.

Additionally, the KARNO Power Module’s high power density, modularity and native DC power output offers an added advantage where space constraints and integration are considerations.

• Waste Heat:

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• alternative products for existing and in-development components and technology.

Since acquiring the KARNO technology from GE in September 2022, Hyliion has made significant R&D investments to support an expected commercial launch of the 200 kW product in 2025.

Since acquiring the KARNO technology from GE in September 2022, Hyliion has made significant R&D investments to support an expected commercial launch of the 200 kW KARNO Power Module.

Early efforts focused on the development of a 125 kW KARNO Core, which has been successfully operated in our Ohio facility and utilized for extensive testing and further advancements.

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These advancements include improved helium gas bearings for greater durability, a magnetic encoder for precise shaft position detection and optimized printed components to increase KARNO Core efficiency and manufacturing speed.

The higher powered 200 kW KARNO Core also incorporates a larger

Hyliion-designed linear electric motor.

Development activities in 2024 and early 2025 included developing production processes for this new motor as well as testing and validation of design parameters.

During 2024, we completed the design and sourcing of components for the balance-of-plant systems that support linear KARNO Core operation for the 200 kW system, including the system enclosure.

The higher powered 200 kW KARNO Core also incorporates a larger Hyliion-designed linear electric motor.

Development activities in 2024 and 2025 included developing production processes for this new motor as well as testing and validation of design parameters.

We have completed the design and sourcing of components for the balance-of-plant systems that support KARNO Core operation for the 200 kW system, including the system enclosure.

The balance of plant includes cooling, pressure control, fuel and air, battery, high and low voltage, inlet air and exhaust systems.

Development work also includes control software, safety systems, the human-to-machine interface and the physical integration of systems.

Validation of essential operating parameters, including efficiency, emissions and reliability, were also part of R&D activities.

Initial KARNO Power Module deployments, coupled with our ongoing testing and development efforts, will continue to help validate other critical design specifications, including the KARNO Power Module’s projected operating life, maintenance requirements and durability.

Validation of essential operating parameters, including efficiency, emissions and reliability, are also part of R&D activities.

To date in 2025, we have delivered two of the ten early adopter customer units planned for the year.

These initial units are undergoing testing under our R&D contract with the ONR and are performing well mechanically, while we address minor software and test equipment issues.

Initial KARNO Power Module deployments, along with our ongoing testing and development efforts, will continue to validate critical design specifications, including projected operating life, maintenance requirements and durability.

Earlier in 2025, we announced that delivery of early deployment customer units and validation of generator design parameters were delayed due to design and production problems related to a key printed component − the regenerator − as well as delays in ramping up production of linear electric motors by a contract manufacturer.

The regenerator functions as a heat capacitor, storing thermal energy within the system as helium gas cycles between hot and cold temperature regions.

It is a critical component for achieving the generator’s target power levels and overall system efficiency.

An early regenerator design was found to have insufficient heat storage and transfer capability.

Additionally, residual powder from the additive manufacturing process could not easily be removed after printing due to the small passageways in the regenerator’s flow channels.

The regenerator part has since been redesigned to increase heat storage and transfer capabilities.

Bench testing of this updated design indicates that it will address the performance shortfalls seen with the earlier configuration.

We are now printing the components needed to upfit a full KARNO Core for validation at full-power operation.

Furthermore, new post-processing techniques have been implemented and verified to effectively remove residual powder after printing.

The updated regenerator can be easily retrofitted into existing KARNO Cores once available.

We recently insourced linear electric motor production after earlier efforts to outsource this work to a contract manufacturer.

This transition will accelerate the ramp-up in motor production capacity and give Hyliion greater control over manufacturing

While production challenges and the shift in operations delayed early deployment unit deliveries, output has since increased and is now expected to meet ongoing production needs.

Research and Development Services

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In the first quarter of 2025 we delivered the first early deployment generator unit under this contract which we have been testing at our R&D facility in Cincinnati.

We expect to deliver additional KARNO Cores and Power Modules during 2025 and will expand testing to include long duration operation, simulation of ship motion and the ability of the system to operate in extreme temperature environments.

We will continue to provide R&D services to third parties under existing contracts and, based on interest from current and prospective customers, anticipate entering into additional R&D agreements in the future.

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Our focus is on continuing development and testing of our fuel-agnostic KARNO Power Module and the deployment of initial units with customers through 2025.

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

We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on 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 Power Module testing and validation, the pace at which we invest in KARNO Core additive printing capacity, our plans for manufacturing KARNO Power Module 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.

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Results of Operations

Comparison of Three Months Ended March 31, 2025 to Three Months Ended March 31, 2024

Our results of operations for the three months ended March 31, 2025 (the “current quarter”) and 2024 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, 2025 to Three Months Ended June 30, 2024

Our results of operations for the three months ended June 30, 2025 (the “current quarter”) and 2024 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended June 30,

2025 2024 $ Change % Change

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Selling, general and administrative expenses 5,963 6,262 (299) (4.8) %

Exit and termination costs (benefits) (346) (556) 210 (37.8) %

Total operating expenses 15,754 14,017 1,737 12.4 %

Loss from operations (15,623) (14,017) (1,606) 11.5 %

Interest income 2,209 3,129 (920) (29.4) %

Other income, net — 32 (32) (100.0) %

Net loss $ (13,414) $ (10,856) $ (2,558) 23.6 %

Net loss per share, basic and diluted $ (0.08) $ (0.06) $ (0.02) 33.3 %

Weighted-average shares outstanding, basic and diluted 175,308,965 173,829,107 1,480 0.9 %

Revenue and Cost of Revenues

In the fourth quarter of 2024, we began recognizing revenue for R&D services performed as both a prime and subcontractor to the United States government.

Revenue for R&D services increased $1.5 million and associated cost of revenues increased $1.4 million.

Research and Development

R&D expenses increased $1.8 million due to higher spending related to the design and testing of our KARNO Power Module, growth in the production of additive components, and the procurement of parts for our initial KARNO Power Module deployments later in 2025.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $0.3 million primarily due to:

• a decrease of $0.3 million in insurance;

• a decrease of $0.1 million in facilities costs;

• a decrease of $0.1 million in professional services;

partially offset by

• an increase of $0.3 million in personnel and benefits.

Exit and Termination Costs (Benefits)

Exit and termination benefits decreased by $0.2 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the condensed consolidated financial statements, including recoveries from assets sold.

Interest Income

Interest income decreased $0.9 million primarily due to the decline in our investment balance.

Comparison of Six Months Ended June 30, 2025 to Six Months Ended June 30, 2024

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2025 (the “current six months”) and 2024 (in thousands, except share and per share data):

Six Months Ended June 30,

2025 2024 $ Change % Change

Product sales and other $ 2,004 $ — $ 2,004 N/A

Total revenues 2,004 — 2,004 N/A

Cost of revenues

Product sales and other 1,861 — 1,861 N/A

Total cost of revenues 1,861 — 1,861 N/A

Gross profit 143 — 143 N/A

Operating expenses

Research and development 22,367 16,279 6,088 37.4 %

Selling, general and administrative expenses 12,044 12,854 (810) (6.3) %

Exit and termination costs 1,077 3,875 (2,798) (72.2) %

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Gain on disposal of assets — 3 (3) (100.0) %

Other income, net — 32 (32) (100.0) %

Net loss $ (30,668) $ (26,448) $ (4,220) 16.0 %

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• a decrease of $0.5 million in insurance;

• a decrease of $0.2 million in professional services;

partially offset by

• an increase of $0.5 million in personnel and benefits.

Exit and Termination Costs

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Liquidity and Capital Resources

At March 31, 2025, our current assets were $128.0 million, consisting primarily of cash and cash equivalents of $12.3 million, short-term investments of $108.8 million and prepaid expenses of $4.9 million.

At June 30, 2025, our current assets were $114.5 million, consisting primarily of cash and cash equivalents of $15.6 million, short-term investments of $93.0 million and prepaid expenses of $4.8 million.

Our current liabilities were $10.3 million and were primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We also had $76.7 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 March 31, 2025 is strong and will provide sufficient liquidity to satisfy operating requirements , working capital purposes and strategic initiatives.

We believe the credit quality and liquidity of our investment portfolio at June 30, 2025 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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Based on current projections of operating expenses, capital spending, working capital growth and historical share repurchases, we expect to have approximately $155 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2025.

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 Power Module with anticipated initial customer deployments in 2025.

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 Power Module with anticipated initial customer deployments throughout 2025.

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 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 three months ended March 31, 2025 and 2024 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, 2025 and 2024 is summarized as follows (in thousands):

Six Months Ended June 30,

Cash from operating activities $ (23,999) $ (33,396)

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Cash from Operating Activities

For the three months ended March 31, 2025, cash flows used in operating activities were $14.0 million.

Cash used primarily related to a net loss of $17.3 million, adjusted for a $0.4 million change in working capital accounts and $3.7 million in non-cash expenses (including $1.6 million related to prepaid expenses and other current assets, $1.6 million in assets held for sale carrying value adjustments, and $1.3 million related to share-based compensation, partially offset by $1.5 million related to accounts payable, accrued expenses and other liabilities and $0.3 million related to gain on asset sales).

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

For the six months ended June 30, 2025, cash flows used in operating activities were $24.0 million.

Cash used primarily related to a net loss of $30.7 million, adjusted for a $0.6 million change in working capital accounts and $6.1 million in non-cash expenses (including $2.7 million related to share-based compensation, $2.4 million related to depreciation and amortization, $1.9 million related to prepaid expenses and other current assets, and $1.6 million in assets held for sale carrying value adjustments, partially offset by $0.9 million related to accounts payable, accrued expenses and other liabilities and $0.6 million related to gain on asset sales).

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).

Cas h from Investing Activities

For the three months ended March 31, 2025, cash flows provided by investing activities were $17.6 million.

Cash provided related to the sale or maturity of investments of $24.6 million and the proceeds from sale of assets of $0.2 million, offset by acquired property and equipment of $7.3 million.

For the three months ended March 31, 2024, cash flows provided by investing activities w ere $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.

Cash from Investing Activities

For the six months ended June 30, 2025, cash flows provided by investing activities were $30.9 million.

Cash provided related to the sale or maturity of investments of $60.0 million and the proceeds from sale of assets of $0.8 million, offset by the purchase of investments of $18.4 million and acquired property and equipment of $11.6 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.

Cash from Financing Activities

For the three months ended March 31, 2025, cash flows used in financing activities were $0.4 million, primarily due to taxes paid related to the net share settlement of equity awards.

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 six months ended June 30, 2025, cash flows used in financing activities were $0.5 million, primarily due to taxes paid related to the net share settlement of equity awards.

For the six months ended June 30, 2024, cash flows used in financing activities were $14.3 million, primarily due to treasury stock repurchases.

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