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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File No. 001-38823
HYLIION HOLDINGS CORP.
(Exact Name of Registrant as Specified in Its Charter)
Delaware83-2538002
(State or Other Jurisdiction
of Incorporation)
(IRS Employer
Identification No.)
1202 BMC Drive, Suite 100,
Cedar Park, TX
78613
(Address of Principal Executive Offices)(Zip Code)
(833) 495-4466
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filerx
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareHYLNThe New York Stock Exchange
As of November 1, 2022, 179,714,124October 31, 2023, 182,789,454 shares of common stock, par value $0.0001 per share, were issued and outstanding.


Table of Contents
HYLIION HOLDINGS CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20222023
TABLE OF CONTENTS
INDEX
Page
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
Item 5.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYLIION HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share data)
September 30,
2022
December 31,
2021
September 30,
2023
December 31,
2022
(Unaudited)(Unaudited)
AssetsAssetsAssets
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$154,161 $258,445 Cash and cash equivalents$28,600 $119,468 
Accounts receivableAccounts receivable894 70 Accounts receivable140 1,136 
InventoryInventory140 114 Inventory139 74 
Prepaid expenses and other current assetsPrepaid expenses and other current assets5,876 9,068 Prepaid expenses and other current assets11,509 9,795 
Short-term investmentsShort-term investments232,917 118,787 Short-term investments153,625 193,740 
Total current assetsTotal current assets393,988 386,484 Total current assets194,013 324,213 
Property and equipment, netProperty and equipment, net5,772 2,235 Property and equipment, net11,076 5,606 
Operating lease right-of-use assetsOperating lease right-of-use assets6,792 7,734 Operating lease right-of-use assets7,494 6,470 
Intangible assets, netIntangible assets, net195 235 Intangible assets, net200 200 
Other assetsOther assets1,730 1,535 Other assets2,038 1,686 
Long-term investmentsLong-term investments68,422 180,217 Long-term investments141,324 108,568 
Total assetsTotal assets$476,899 $578,440 Total assets$356,145 $446,743 
Liabilities and stockholders’ equityLiabilities and stockholders’ equityLiabilities and stockholders’ equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payableAccounts payable$2,279 $7,455 Accounts payable$3,507 $2,800 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities325 21 Current portion of operating lease liabilities807 347 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities14,168 7,759 Accrued expenses and other current liabilities8,867 11,535 
Total current liabilitiesTotal current liabilities16,772 15,235 Total current liabilities13,181 14,682 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion7,399 8,623 Operating lease liabilities, net of current portion7,354 6,972 
Other liabilitiesOther liabilities1,492 667 Other liabilities1,248 1,515 
Total liabilitiesTotal liabilities25,663 24,525 Total liabilities21,783 23,169 
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)
Stockholders’ equityStockholders’ equityStockholders’ equity
Common stock, $0.0001 par value; 250,000,000 shares authorized; 179,645,873 and 173,468,979 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
18 17 
Common stock, $0.0001 par value; 250,000,000 shares authorized; 182,716,445 and 179,826,309 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectivelyCommon stock, $0.0001 par value; 250,000,000 shares authorized; 182,716,445 and 179,826,309 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively18 18 
Additional paid-in capitalAdditional paid-in capital396,085 374,795 Additional paid-in capital402,978 397,810 
Retained earnings55,133 179,103 
(Accumulated deficit) retained earnings(Accumulated deficit) retained earnings(68,634)25,746 
Total stockholders’ equityTotal stockholders’ equity451,236 553,915 Total stockholders’ equity334,362 423,574 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$476,899 $578,440 Total liabilities and stockholders’ equity$356,145 $446,743 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HYLIION HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
20222021202220212023202220232022
RevenuesRevenuesRevenues
Product sales and otherProduct sales and other$499 $— $1,011 $— Product sales and other$96 $499 $672 $1,011 
Total revenuesTotal revenues499 — 1,011 — Total revenues96 499 672 1,011 
Cost of revenuesCost of revenuesCost of revenues
Product sales and otherProduct sales and other2,916 — 7,160 — Product sales and other677 2,916 1,675 7,160 
Total cost of revenuesTotal cost of revenues2,916 — 7,160 — Total cost of revenues677 2,916 1,675 7,160 
Gross lossGross loss(2,417)— (6,149)— Gross loss(581)(2,417)(1,003)(6,149)
Operating expensesOperating expensesOperating expenses
Research and developmentResearch and development(52,678)(18,150)(88,543)(40,871)Research and development25,115 52,678 73,472 88,543 
Selling, general and administrativeSelling, general and administrative(10,264)(8,660)(32,255)(26,111)Selling, general and administrative8,186 10,264 30,265 32,255 
Total operating expensesTotal operating expenses(62,942)(26,810)(120,798)(66,982)Total operating expenses33,301 62,942 103,737 120,798 
Loss from operationsLoss from operations(65,359)(26,810)(126,947)(66,982)Loss from operations(33,882)(65,359)(104,740)(126,947)
Interest incomeInterest income1,926 195 3,066 561 Interest income3,534 1,926 10,345 3,066 
Gain (Loss) on disposal of assets46 — (89)— 
Gain (loss) on disposal of assetsGain (loss) on disposal of assets— 46 (89)
Other income, netOther income, net26 — 14 — 
Net lossNet loss$(63,387)$(26,615)$(123,970)$(66,421)Net loss$(30,322)$(63,387)$(94,380)$(123,970)
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.36)$(0.15)$(0.71)$(0.39)Net loss per share, basic and diluted$(0.17)$(0.36)$(0.52)$(0.71)
Weighted-average shares outstanding, basic and dilutedWeighted-average shares outstanding, basic and diluted174,345,022 172,987,672 173,945,156 171,842,664 Weighted-average shares outstanding, basic and diluted181,641,060 174,345,022 180,914,250 173,945,156 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HYLIION HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands, except share data)
Nine Months Ended September 30, 2023
Common StockAdditional
Paid-In
Capital
(Accumulated Deficit) Retained EarningsTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 2022Balance at December 31, 2022179,826,309 $18 $397,810 $25,746 $423,574 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net869,263 — (176)— (176)
Share-based compensationShare-based compensation— — 2,040 — 2,040 
Net lossNet loss— — — (28,831)(28,831)
Balance at March 31, 2023Balance at March 31, 2023180,695,572 18 399,674 (3,085)396,607 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net456,579 — 44 — 44 
Share-based compensationShare-based compensation— — 1,721 — 1,721 
Net lossNet loss— — — (35,227)(35,227)
Balance at June 30, 2023Balance at June 30, 2023181,152,151 18 401,439 (38,312)363,145 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net1,564,294 — 130 — 130 
Share-based compensationShare-based compensation— — 1,409 — 1,409 
Net lossNet loss— — — (30,322)(30,322)
Balance at September 30, 2023Balance at September 30, 2023182,716,445 $18 $402,978 $(68,634)$334,362 
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2022
Common StockAdditional
Paid-In
Capital
Retained EarningsTotal
Stockholders’
Equity
Common StockAdditional
Paid-In
Capital
Retained EarningsTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balance at December 31, 2021Balance at December 31, 2021173,468,979 $17 $374,795 $179,103 $553,915 Balance at December 31, 2021173,468,979 $17 $374,795 $179,103 $553,915 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net336,155 — (92)— (92)Exercise of common stock options and vesting of restricted stock units, net336,155 — (92)— (92)
Share-based compensationShare-based compensation— — 1,563 — 1,563 Share-based compensation— — 1,563 — 1,563 
Net lossNet loss— — — (27,108)(27,108)Net loss— — — (27,108)(27,108)
Balance at March 31, 2022Balance at March 31, 2022173,805,134 17 376,266 151,995 528,278 Balance at March 31, 2022173,805,134 17 376,266 151,995 528,278 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net193,834 — 15 — 15 Exercise of common stock options and vesting of restricted stock units, net193,834 — 15 — 15 
Share-based compensationShare-based compensation— — 1,922 — 1,922 Share-based compensation— — 1,922 — 1,922 
Net lossNet loss— — — (33,475)(33,475)Net loss— — — (33,475)(33,475)
Balance at June 30, 2022Balance at June 30, 2022173,998,968 17 378,203 118,520 496,740 Balance at June 30, 2022173,998,968 17 378,203 118,520 496,740 
Issuance of common stock for acquisitionIssuance of common stock for acquisition5,500,000 16,114 — 16,115 Issuance of common stock for acquisition5,500,000 16,114 — 16,115 
Exercise of common stock options and vesting of restricted stock units, netExercise of common stock options and vesting of restricted stock units, net146,905 — (15)— (15)Exercise of common stock options and vesting of restricted stock units, net146,905 — (15)— (15)
Share-based compensationShare-based compensation— — 1,783 — 1,783 Share-based compensation— — 1,783 — 1,783 
Net lossNet loss— — — (63,387)(63,387)Net loss— — — (63,387)(63,387)
Balance at September 30, 2022Balance at September 30, 2022179,645,873 $18 $396,085 $55,133 $451,236 Balance at September 30, 2022179,645,873 $18 $396,085 $55,133 $451,236 
Nine Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Retained EarningsTotal
Stockholders’
Equity
SharesAmount
Balance at December 31, 2020169,316,421 $19 $364,998 $275,151 $640,168 
Common stock issued for warrants exercised, net of issuance costs371,535 — 4,282 — 4,282 
Exercise of common stock options and vesting of restricted stock units, net1,831,855 — 287 — 287 
Share-based compensation— — 1,510 — 1,510 
Net loss— — — (16,562)(16,562)
Balance at March 31, 2021171,519,811 19 371,077 258,589 629,685 
Exercise of common stock options and vesting of restricted stock units, net1,278,527 215 — 216 
Share-based compensation— — 1,917 — 1,917 
Net loss— — — (23,244)(23,244)
Balance at June 30, 2021172,798,338 20 373,209 235,345 608,574 
Exercise of common stock options and vesting of restricted stock units, net322,650 — 50 — 50 
Share-based compensation— — 545 — 545 
Net loss— — — (26,615)(26,615)
Balance at September 30, 2021173,120,988 $20 $373,804 $208,730 $582,554 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HYLIION HOLDINGS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Nine Months Ended September 30,Nine Months Ended September 30,
2022202120232022
Cash flows from operating activitiesCash flows from operating activitiesCash flows from operating activities
Net lossNet loss$(123,970)$(66,421)Net loss$(94,380)$(123,970)
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortizationDepreciation and amortization823 657 Depreciation and amortization1,796 823 
Amortization and accretion of investments1,300 1,318 
Amortization and accretion of investments, netAmortization and accretion of investments, net(1,821)1,300 
Noncash lease expenseNoncash lease expense922 720 Noncash lease expense1,072 922 
Inventory write-downInventory write-down5,634 — Inventory write-down992 5,634 
Loss on disposal of assets89 — 
(Gain) loss on disposal of assets(Gain) loss on disposal of assets(1)89 
Share-based compensationShare-based compensation5,268 3,972 Share-based compensation5,170 5,268 
Acquired in-process research and development (Note 3)28,752 — 
Acquired in-process research and developmentAcquired in-process research and development— 28,752 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(824)(267)Accounts receivable996 (824)
InventoryInventory(5,660)— Inventory(1,057)(5,660)
Prepaid expenses and other assetsPrepaid expenses and other assets3,097 3,646 Prepaid expenses and other assets(1,200)3,097 
Accounts payableAccounts payable(5,201)5,617 Accounts payable555 (5,201)
Accrued expenses and other liabilitiesAccrued expenses and other liabilities7,228 1,309 Accrued expenses and other liabilities(3,295)7,228 
Operating lease liabilitiesOperating lease liabilities(900)(373)Operating lease liabilities(1,254)(900)
Net cash used in operating activitiesNet cash used in operating activities(83,442)(49,822)Net cash used in operating activities(92,427)(83,442)
Cash flows from investing activitiesCash flows from investing activitiesCash flows from investing activities
Purchase of property and equipment and otherPurchase of property and equipment and other(2,621)(2,213)Purchase of property and equipment and other(6,755)(2,621)
Proceeds from sale of property and equipmentProceeds from sale of property and equipment33 — Proceeds from sale of property and equipment33 
Purchase of in-process research and developmentPurchase of in-process research and development(14,428)— Purchase of in-process research and development— (14,428)
Payments for security deposit, netPayments for security deposit, net— (29)Payments for security deposit, net(45)— 
Purchase of investmentsPurchase of investments(160,116)(268,714)Purchase of investments(170,197)(160,116)
Proceeds from sale and maturity of investmentsProceeds from sale and maturity of investments156,382 205,355 Proceeds from sale and maturity of investments178,556 156,382 
Net cash used in investing activities(20,750)(65,601)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities1,561 (20,750)
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities
Proceeds from exercise of stock warrants, net of issuance costs— 16,257 
Payments for Paycheck Protection Program loan— (908)
Proceeds from exercise of common stock optionsProceeds from exercise of common stock options65 553 Proceeds from exercise of common stock options230 65 
Taxes paid related to net share settlement of equity awardsTaxes paid related to net share settlement of equity awards(157)— Taxes paid related to net share settlement of equity awards(232)(157)
Net cash (used in) provided by financing activities(92)15,902 
Net cash used in financing activitiesNet cash used in financing activities(2)(92)
Net decrease in cash and cash equivalents and restricted cashNet decrease in cash and cash equivalents and restricted cash(104,284)(99,521)Net decrease in cash and cash equivalents and restricted cash(90,868)(104,284)
Cash and cash equivalents and restricted cash, beginning of periodCash and cash equivalents and restricted cash, beginning of period259,110 389,705 Cash and cash equivalents and restricted cash, beginning of period120,133 259,110 
Cash and cash equivalents and restricted cash, end of periodCash and cash equivalents and restricted cash, end of period$154,826 $290,184 Cash and cash equivalents and restricted cash, end of period$29,265 $154,826 
Supplemental disclosure of noncash investing and financing activities:Supplemental disclosure of noncash investing and financing activities:Supplemental disclosure of noncash investing and financing activities:
Common stock issued for purchase of assetsCommon stock issued for purchase of assets$16,115 $— Common stock issued for purchase of assets$— $16,115 
Acquisitions of property and equipment included in accounts payable and otherAcquisitions of property and equipment included in accounts payable and other$66 $20 Acquisitions of property and equipment included in accounts payable and other$512 $66 
Right-of-use assets obtained in exchange for lease obligationsRight-of-use assets obtained in exchange for lease obligations$2,096 $— 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HYLIION HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except as separately indicated)


Note 1. Overview
Hyliion Holdings Corp. is a Delaware corporation headquartered in Cedar Park, Texas.Texas, that designs and develops stationary power applications and electric powertrain systems. References to the “Company,” “Hyliion,” “we,” or “us” in this report refer to Hyliion Holdings Corp. and its wholly-ownedwholly owned subsidiary, unless expressly indicated or the context otherwise requires.
The Company designs and develops hybrid and fully electric powertrain systems for Class 8 semi-trucks which modify semi-tractors into hybrid and range-extending electric vehicles, respectively. The Company’s hybrid system utilizes intelligent electric drive axles with advanced algorithms and battery technology to optimize vehicle performance, enabling fleets to access an easy, efficient way to decrease fuel expenses, lower emissions and/or improve vehicle performance (“Hybrid”). The Hypertruck ERXTM system utilizes an intelligent electric powertrain with advanced algorithms to optimize emissions performance and efficiency with no new infrastructure required. The Hypertruck ERX system enables fleets to reduce the cost of ownership while providing the ability to deliver net-negative carbon emissions and operate fully electric when needed. The Company recently launched its commercial Hybrid system, and the Hypertruck ERX system is in the design verification phase. The Company recently acquired new fuel agnostic capable generator technology with which it plans to develop and commercialize a fuel-agnostic generator (the “KARNO generator”) to be used in stationary power applications. The Company believes the KARNO generator is well positioned to address the rising strain on electrical infrastructure, notably from electric vehicles.
The Company announced a strategic review of alternatives for its electric powertrain business (the “Powertrain Business”) on October 10, 2023 citing lower than expected industry adoption of electric trucks, significant increases in component costs, changing regulatory requirements, and uncertainty about its ability to raise additional needed capital for ongoing investment in the business as reason for undertaking this strategic review. On November 7, 2023, our board of directors determined that the Company would discontinue operating the Powertrain Business. Hyliion intends to retain the technology of the Powertrain Business technology and will continue to explore potential sales or future use of both the technology and tangible assets from the Powertrain Business.
Note 2. Subsequent Events
On November 7, 2023, the board of directors (the “Board”) of the Company approved a strategic plan to wind down its Powertrain Business and preserve technology relating to the Powertrain Business, to better align its workforce with the Company’s future needs, and to reduce the Company’s operating costs (the “Plan”). As part of the Plan, the Company will continue to focus on commercialization of its KARNO generator technology. Following completion of the Plan, we no longer expect to recognize revenue on products not related to KARNO technology, including the Company’s Hypertruck KARNO.ERX system (“Hypertruck ERX”) and Hyliion Hybrid system (“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. In connection with the Plan, the Company expects to incur total charges and expenses of approximately $18.4 million.
The Plan includes 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. The Company expects the Plan will result in (i) charges consisting of approximately $1.4 million in employee severance and retention payments and $0.9 million in non-cash stock-based compensation expense related to vesting of share-based awards, and (ii) cash expenditures of approximately $13.9 million for contract terminations, with up to an additional $9.0 million depending on the outcome of supplier negotiations and other estimates and uncertainties.
The Company expects the majority of the charges and expenses related to the Plan to be incurred in the Company’s fourth quarter of fiscal year 2023.
The above estimates of the cash expenditures and charges that the Company expects to incur in connection with the Plan, and the timing thereof, are subject to a number of assumptions and actual amounts may differ materially from estimates. For example, potential employee reductions are subject to legal requirements, which may extend the reduction process beyond that expected in certain cases. In addition, the Company may incur other cash expenditures or charges not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Plan or otherwise.
Note 2.3. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
TheseThe accompanying condensed consolidated financial statements include the accounts of the CompanyHyliion Holdings Corp. and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation. The condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant toin accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. All intercompany transactions and balances have been eliminated upon consolidation. The condensed consolidated balance sheet at December 31, 20212022 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required with respect to annual financial statements. In the opinion of the Company, these condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the
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Company’s 20212022 Annual Report. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.
These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company is an early-stage growth company and has generated negative cash flows from operating activities since inception. At September 30, 2022,2023, the Company had total equity of $451.2$334.4 million, inclusive of cash and cash equivalents of $154.2$28.6 million and total investments of $301.3$294.9 million. Based on this, the Company has sufficient funds to continue to execute its business strategy for the next twelve months.months from the issuance date of the financial statements included in this Quarterly Report on Form 10-Q.
Use of Estimates and Uncertainty of the Coronavirus Pandemic
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve revenue recognition, inventory, warranties, acquisitions, income taxes and valuation of share-based compensation. The CompanyManagement bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s condensed consolidated financial statements.
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared the coronavirus outbreak a pandemic. In mid-March 2020, U.S. State Governors, local officials and leaders outside of the U.S. began ordering various “shelter-in-place” orders, which have had various impacts on the U.S. and global economies. The lingering impacts of the coronavirus pandemic primarily include ongoing shortages in the transportation industry supply chain.
Concentration of Supplier Risk
The Company is dependent on certain suppliers, the majority of which are single source suppliers, and the inability of these suppliers to deliver necessary components of the Company’s products in a timely manner at prices, quality levels and volumes
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that are acceptable, or the Company’s inability to efficiently manage these components from these suppliers, could have a material adverse effect on the Company’s business, prospects, financial condition and operating results.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity date of 90 days or less at the time of purchase to be cash and cash equivalents only if in checking, savings or money market accounts. Cash and cash equivalents include cash held in banks and money market accounts and are carried at cost, which approximates fair value. The Company maintains cash in excess of federally insured limits at financial institutions which it believes are of high credit quality and has not incurred any losses related to these balances to date. The Company believes its credit risk, with respect to these financial institutions to be minimal.
Restricted Cash
The Company has provided its corporate headquarters lessor with a letter of credit for $0.7 million to secure the performance of the Company'sCompany’s lease obligations, backed by a restricted cash deposit to pay any draws on the letter of credit by the lessor. Total cash and cash equivalents and restricted cash as presented in the condensed consolidated statements of cash flows is summarized as follows:
September 30, 2022December 31, 2021September 30, 2021December 31, 2020September 30, 2023December 31, 2022September 30, 2022December 31, 2021
Cash and cash equivalentsCash and cash equivalents$154,161 $258,445 $289,486 $389,705 Cash and cash equivalents$28,600 $119,468 $154,161 $258,445 
Restricted cash included in other non-current assets665 665 698 — 
Restricted cash included in other assetsRestricted cash included in other assets665 665 665 665 
$154,826 $259,110 $290,184 $389,705 $29,265 $120,133 $154,826 $259,110 
Accounts Receivable
Accounts receivable are stated at a gross invoice amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is maintained at a level considered adequate to provide for potential account losses on the balance based on the Company’s evaluation of the anticipated impact of current economic conditions, changes in the character and size of the balance, past and expected future loss experience and other pertinent factors. At September 30, 20222023 and December 31, 2021,2022, accounts receivable included amounts receivable from customers of $0.6$0.1 million and $45.0 thousand,$1.1 million, respectively. At September 30, 20222023 and December 31, 2021, there was no2022, allowance for doubtful accounts required based on the Company's evaluation.customer receivables was nil and $0.1 million, respectively.
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The portion of our net accounts receivable from significant customers is summarized as follows:
September 30, 2023December 31, 2022
Customer A100 %82 %
Customer C— 12 
100 %94 %
Investments
The Company’s investments consist of corporate bonds, U.S. treasury and agency securities, state and local municipal bonds and commercial paper, all of which are classified as held-to-maturity, with a maturity date of 36-months or less at the time of purchase. The Company determines the appropriate classification of investments at the time of purchase and re-evaluates such designation as of each balance sheet date. Investments are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, along with interest, is included in interest income. The Company uses the specific identification method to determine the cost basis of securities sold.
Investments are impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates investments for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.
Fair Value Measurements
ASC 820, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level I: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access at the measurement date;
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Level II: Significant other observable inputs other than level I prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and
Level III: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company believes its valuation methods are appropriate and consistent with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The Company’s financial instruments consist of cash and cash equivalents and restricted cash, accounts receivable, investments, accounts payable and accrued expenses for which theexpenses. The carrying value approximatesof cash and cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses approximate fair value exclusive of any interim unrealized gains or losses, because of the short-term nature of thethose instruments. The fair valuesvalue of investments areis based on quoted prices for identical or similar instruments in markets that are not active. As a result, investments are classified within Level II of the fair value hierarchy.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that an asset group’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analysis in accordance with ASC 360-10, Impairment or
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Disposal of Long-Lived Assets, which requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value.
The Company performed a test of recoverability of its long-lived assets and determined that all long-lived assets were recoverable as of September 30, 2023. As of September 30, 2023, long-lived assets associated with the powertrain business had a recorded amount of $4.2 million and associated probability-weighted estimated future cash flows of $4.4 million. If the Company is unable to sell long-lived assets associated with the powertrain business at a sufficient price, it will record associated impairment charges in future periods. Estimated future cash flows for all other long-lived assets substantially exceeded recorded amounts.
Revenue
The Company follows five steps to recognize revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers, which are:
Step 1: Identify the contract(s) with a customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) a performance obligation is satisfied.
Revenue is comprised of sales of Hybrid systems for Class 8 semi-trucks, Class 8 semi-trucks outfitted with Hybrid systems and specific other features and services that meet the definition of a performance obligation, including internet connectivity and data processing. We provide installation services for the Hybrid system onto the customers’ vehicle. The Company’s products are marketed and sold to end-user fleet customers in North America. When our contracts with customers contain multiple performance obligations and where material, the contract transaction price is allocated on a relative standalone selling price basis to each performance obligation. There is no meaningful basis on which to disaggregate revenue in the current period.
We recognize revenue on Hybrid system sales and Class 8 semi-trucks outfitted with Hybrid systems upon delivery to, and acceptance of the vehicle toby, the customer, which is when control transfers. Contracts are reviewed for significant financing components and payments are typically received within 30 days of delivery. The sale of a Hybrid system to an end-use fleet customer consists of a completed modification to the customer vehicle and the installation services involve significant integration of the Hybrid system with the customer’s vehicle. Installation services are not distinct within the context of the contract and together with the sale of the Hybrid system represent a single performance obligation. We do not offer any sales returns. Amounts billed to customers related to shipping and handling are classified as revenue, and we have elected to recognize the cost for freight and shipping when control has transferred to the customer as a cost of revenue. Our policy is to exclude taxes collected from customers from the transaction price of contracts. In the fourth quarter of fiscal 2021, we began taking deposits to secure future Hypertruck ERX production slots. Such deposits were immaterial at September 30, 2023 and December 31, 2022.
When a Class 8 semi-truck outfitted with a Hybrid system upfit is resoldsold to a customer, judgment is required to determine if we are the principal or agent in the arrangement. We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service. We have determined that we are the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system.
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The disaggregation of our revenue sources foris summarized as follows and is attributable to the three and nine months ended September 30, 2022 and 2021U.S.:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Hybrid systems and other$96 $243 $416 $755 
Class 8 semi-truck prepared for Hybrid system upfit— 256 256 256 
Total product sales and other$96 $499 $672 $1,011 
The portion of our revenues from significant customers is summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Hybrid systems and other$243 $— $755 $— 
Class 8 semi-truck prepared for Hybrid system upfit256 — 256 — 
Total product sales and other$499 $— $1,011 $— 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Customer A94 %69 %65 %43 %
Customer B— — 21 
Customer G— — 25 — 
94 %75 %90 %64 %
Warranties
We provide limited assurance-type warranties under our contracts and do not offer extended warranties or maintenance contracts. The warranty period typically extends for the lesser of two years or 200,000 miles following transfer of control and solely relaterelates to correction of product defects during the warranty period. We recognize the cost of the warranty upon transfer of control based on estimated and historical claims rates and fulfillment costs, which are variable. Should product failure rates and fulfillment costs differ from these estimates, material revisions to the estimated warranty liability would be required. Warranty expense is recorded as a component of cost of revenue.
Research and Development Expense
Note 3. Acquisition
In September 2022, we acquired certain assets (the "Acquired Assets") of General Electric Company's GE Additive business (the "Acquisition"). The Acquired Assets include new hydrogenResearch and fuel agnostic capable generator technology (“KARNO”). The Acquisitiondevelopment costs did not meet the definition of a business combination and was accounted forrequirements to be recognized as an asset acquisition. No goodwill was recognizedas the associated future benefits were at best uncertain and payments allocated to in-process research and development ("IPR&D") were recorded in research and development expense as there was no alternative future use. Total consideration foruse at the Acquisition was $32.3 million comprised of $15.0 milliontime the costs were incurred. Research and development costs include, but are not limited to, outsourced engineering services, allocated facilities costs, depreciation on equipment utilized in cash, 5,500,000 shares of common stock valued at $16.1 million on the closing date and $1.2 million in direct transaction costs. $3.6 million was recorded as property and equipment with expected useful lives of primarily five years and $28.8 million was recorded as research and development expense. All assets were valued using level 3 inputs, with propertyactivities, internal engineering and equipment valued using a market approachdevelopment expenses, materials, internally developed software and IPR&D valued using an income approach based on Company management’s projections. The cash componentemployee related expenses (including salaries, benefits, travel, and share-based compensation) related to development of the consideration was recorded in the statement of cash flowsCompany’s products and allocated between purchase of property and equipment and purchase of IPR&D under investing activities.services.
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Note 4. Investments
The amortized cost, unrealized gains and losses, fair value and maturities of our held-to-maturity investments at September 30, 20222023 and December 31, 20212022 are summarized as follows:
Fair Value Measurements at September 30, 2022Fair Value Measurements at September 30, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Commercial paperCommercial paper$80,215 $— $(290)$79,925 Commercial paper$51,420 $— $(74)$51,346 
U.S. government agency bondsU.S. government agency bonds4,450 — (315)4,135 U.S. government agency bonds22,606 — (356)22,250 
State and municipal bondsState and municipal bonds30,485 — (756)29,729 State and municipal bonds15,221 — (215)15,006 
Corporate bonds and notesCorporate bonds and notes186,189 — (4,016)182,173 Corporate bonds and notes205,702 (1,705)204,004 
$301,339 $— $(5,377)$295,962 $294,949 $$(2,350)$292,606 
Fair Value Measurements at December 31, 2021Fair Value Measurements at December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Commercial paperCommercial paper$73,908 $$(31)$73,879 Commercial paper$36,675 $$(161)$36,516 
U.S. government agency bondsU.S. government agency bonds4,450— (7)4,443U.S. government agency bonds12,441(328)12,119
State and municipal bondsState and municipal bonds17,797— (115)17,682State and municipal bonds40,10428 (628)39,504
Corporate bonds and notesCorporate bonds and notes202,849(953)201,899Corporate bonds and notes213,08876 (3,344)209,820
$299,004 $$(1,106)$297,903 $302,308 $112 $(4,461)$297,959 
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
Due in one year or lessDue in one year or less$232,917 $229,943 $118,787 $118,714 Due in one year or less$153,625 $152,826 $193,740 $191,094 
Due after one year through five yearsDue after one year through five years68,422 66,019 180,217 179,189 Due after one year through five years141,324 139,780 108,568 106,865 
$301,339 $295,962 $299,004 $297,903 $294,949 $292,606 $302,308 $297,959 
Note 5. Fair Value Measurements
The fair value measurements of our financial assets at September 30, 20222023 and December 31, 20212022 are summarized as follows:
Fair Value Measurements at September 30, 2022Fair Value Measurements at September 30, 2023
Level ILevel IILevel IIITotalLevel ILevel IILevel IIITotal
Cash and cash equivalents Cash and cash equivalents$154,161 $— $— $154,161  Cash and cash equivalents$28,600 $— $— $28,600 
Restricted cash Restricted cash665 — — 665  Restricted cash665 — — 665 
Held-to-maturity investments: Held-to-maturity investments: Held-to-maturity investments:
Commercial paperCommercial paper— 79,925 — 79,925 Commercial paper— 51,346 — 51,346 
U.S. government agency bondsU.S. government agency bonds— 4,135 — 4,135 U.S. government agency bonds— 22,250 — 22,250 
State and municipal bondsState and municipal bonds— 29,729 — 29,729 State and municipal bonds— 15,006 — 15,006 
Corporate bonds and notesCorporate bonds and notes— 182,173 — 182,173 Corporate bonds and notes— 204,004 — 204,004 
$154,826 $295,962 $— $450,788 $29,265 $292,606 $— $321,871 
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Fair Value Measurements at December 31, 2021Fair Value Measurements at December 31, 2022
Level ILevel IILevel IIITotalLevel ILevel IILevel IIITotal
Cash and cash equivalentsCash and cash equivalents$258,445 $— $— $258,445 Cash and cash equivalents$119,468 $— $— $119,468 
Restricted cashRestricted cash665 — — 665 Restricted cash665 — — 665 
Held-to-maturity investments:Held-to-maturity investments:Held-to-maturity investments:
Commercial paperCommercial paper— 73,879 — 73,879 Commercial paper— 36,516 — 36,516 
U.S. government agency bondsU.S. government agency bonds— 4,443 — 4,443 U.S. government agency bonds— 12,119 — 12,119 
State and municipal bondsState and municipal bonds— 17,682 — 17,682 State and municipal bonds— 39,504 — 39,504 
Corporate bonds and notesCorporate bonds and notes— 201,899 — 201,899 Corporate bonds and notes— 209,820 — 209,820 
$259,110 $297,903 $— $557,013 $120,133 $297,959 $— $418,092 
Note 6. Inventory
The carrying value of our inventory at September 30, 20222023 and December 31, 20212022 is summarized as follows:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
Raw materialsRaw materials$— $— Raw materials$— $— 
Work in processWork in processWork in process47 — 
Finished goodsFinished goods135 110 Finished goods92 74 
$140 $114 $139 $74 
During the three and nine months ended September 30, 2023, we recorded inventory write-downs of $0.8 million and $1.0 million, respectively. During the three and nine months ended September 30, 2022, we recorded inventory write-downs of $2.3 million and $5.6 million, respectively. During the three and nine months ended September 30, 2021, we recorded no inventory write-downs. These write-downs are included in cost of revenues.
Note 7. Property and Equipment, Net
Property and equipment, net at September 30, 20222023 and December 31, 20212022 is summarized as follows:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
Production machinery and equipmentProduction machinery and equipment$5,684 $1,717 Production machinery and equipment$10,077 $5,897 
VehiclesVehicles932 720 Vehicles2,013 817 
Leasehold improvementsLeasehold improvements1,037 1,077 Leasehold improvements2,124 1,002 
Office furniture and fixturesOffice furniture and fixtures159 155 Office furniture and fixtures223 162 
Computers and related equipmentComputers and related equipment1,336 1,219 Computers and related equipment1,947 1,367 
9,148 4,888 16,384 9,245 
Less: accumulated depreciationLess: accumulated depreciation(3,376)(2,653)Less: accumulated depreciation(5,308)(3,639)
Total property and equipment, netTotal property and equipment, net$5,772 $2,235 Total property and equipment, net$11,076 $5,606 
Note 8. Share-Based Compensation
During the nine months ended September 30, 20222023 and 2021,2022, the Company granted 2.2 million and 3.82.2 million, respectively, restricted stock units which will vest over a period of one to fourthree years, some of which include performance criteria based on the achievement of key Company milestones. During the nine months ended September 30, 2023 and 2022, 0.6 million and 2021, 0.8 million, and 0.4 million, respectively, of restricted stock units and options were forfeited. Share-based compensation expense for the three and nine months ended September 30, 20222023 was $1.8$1.4 million and $5.3$5.2 million, respectively. Share-based compensation expense for the three and nine months ended September 30, 20212022 was $0.5$1.8 million and $4.0$5.3 million, respectively.
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Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at September 30, 20222023 and December 31, 20212022 are summarized as follows:
September 30, 2022December 31, 2021September 30, 2023December 31, 2022
Accrued professional services and otherAccrued professional services and other$7,819 $3,681 Accrued professional services and other$4,610 $5,834 
Accrued compensation and related benefitsAccrued compensation and related benefits5,565 3,460 Accrued compensation and related benefits3,448 4,773 
Other accrued liabilitiesOther accrued liabilities784 618 Other accrued liabilities809 928 
$14,168 $7,759 $8,867 $11,535 
Note 10. Warranties
The change in warranty liability for the three and nine months ended September 30, 20222023 and 20212022 is summarized as follows:follows and included within accrued expenses and other current liabilities and other liabilities in the condensed consolidated balance sheets:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
20222021202220212023202220232022
Balance at beginning of periodBalance at beginning of period$348 $— $44 $— Balance at beginning of period$566 $348 $527 $44 
Provision for new warranties186 — 517 — 
Accrual for warranties issuedAccrual for warranties issued65 186 218 517 
Net changes in accrual related to pre-existing warrantiesNet changes in accrual related to pre-existing warranties— — — — Net changes in accrual related to pre-existing warranties(131)— (154)— 
Warranty costs incurred(122)— (149)— 
Warranty chargesWarranty charges(64)(122)(155)(149)
Balance at end of periodBalance at end of period$412 $— $412 $— Balance at end of period$436 $412 $436 $412 
Note 11. Commitments and Contingencies
Legal Proceedings
The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product liability, intellectual property, safety and health, employment and other matters. The Company believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows.
Note 12. Net Loss Per Share
The computation of basic and diluted net loss per share for the three and nine months ended September 30, 20222023 and 20212022 is summarized as follows (in thousands, except share and per share data):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
20222021202220212023202220232022
Numerator:Numerator:Numerator:
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(63,387)$(26,615)$(123,970)$(66,421)Net loss attributable to common stockholders$(30,322)$(63,387)$(94,380)$(123,970)
Denominator:Denominator:Denominator:
Weighted average shares outstanding, basic and dilutedWeighted average shares outstanding, basic and diluted174,345,022 172,987,672 173,945,156 171,842,664 Weighted average shares outstanding, basic and diluted181,641,060 174,345,022 180,914,250 173,945,156 
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.36)$(0.15)$(0.71)$(0.39)Net loss per share, basic and diluted$(0.17)$(0.36)$(0.52)$(0.71)
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Potential common shares excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect for the three and nine months ended September 30, 20222023 and 20212022 are summarized as follows:
Three and Nine Months Ended September 30,Three and Nine Months Ended September 30,
2022202120232022
Unexercised stock optionsUnexercised stock options2,682,228 3,551,320 Unexercised stock options683,090 2,682,228 
Unvested restricted stock units*Unvested restricted stock units*3,808,665 3,604,614 Unvested restricted stock units*3,976,223 3,808,665 
6,490,893 7,155,934 4,659,313 6,490,893 
* Potential common shares from unvested restricted stock units for the periods ended September 30, 2023 and 2022 and 2021 include 1,261,667653,334 and 1,931,2501,261,667 shares, respectively, where no accounting grant date has been established.
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Table of Contents

ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the “Company,” “Hyliion,” “we,” or “us” in this report refer to Hyliion Holdings Corp. and its wholly-owned subsidiary Hyliion Inc., unless expressly indicated or the context otherwise requires. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and our audited consolidated financial statements and related notes thereto in our 20212022 Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes(“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act. OurAct of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q are forward-looking statements, include,including, but are not limited to, statements regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.strategic alliances, financial position, and liquidity and anticipated cash needs and availability. The words “anticipate,“anticipates,“believe,“believes,“continue,“estimates,“could,“expects,“estimate,” “expect,” “intend,“intends,” “may,” “might,“plans,“plan,” “possible,” “potential,” “predict,” “project,” “should,“projects,” “will,” “would”“would,” variations of such words and similar expressions mayor the negatives thereof are intended to identify forward-looking statements, but the absence of these words doesstatements. However, not mean that a statement is not forward-looking.
Theall forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated.contain these identifying words. These forward-looking statements represent our management’s expectations as of the date of this filing and involve a number ofknown and unknown risks, uncertainties (some of which are beyond our control), orand other assumptionsfactors that may cause our actual results, performance and achievements, or performanceindustry results, to be materially different from thoseany future results, performance or achievements expressed or implied by thesesuch forward-looking statements. FactorsWe cannot guarantee the accuracy of the forward-looking statements, and you should be aware that might cause or contributeresults and events could differ materially and adversely from those contained in the forward-looking statements due to such a discrepancy include,number of risks and uncertainties including, but are not limited to, those described in the section entitled “Risk Factors” included in our status as an early stage company2022 Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and in other documents we file from time to time with a history of losses,the U.S. Securities and our expectation of incurring significant expenses and continuing losses forExchange Commission (the “Commission” or the foreseeable future; our ability to develop key commercial relationships with suppliers and customers; our ability to retain the services of Thomas Healy, our Chief Executive Officer; our ability to disrupt the powertrain market; the effects of our dynamic and proprietary solutions on commercial truck customers; our ability to incorporate existing and new technologies into products; the ability to accelerate the commercialization of the Hypertruck ERXTM; our ability to meet 2022 and future product milestones; the impact of an inflationary environment and COVID-19 on long-term objectives; the ability of our solutions to reduce carbon intensity and greenhouse gas emissions, the expected performance and integration of the KARNO generator and system, and the other“SEC”) that disclose risks and uncertainties described underthat may affect our business. Readers are urged to carefully review and consider the heading “Risk Factors”various disclosures made in ourthis Quarterly Report on Form 10-Q and in other SEC filings including in our 2021 Annualdocuments we file from time to time with the Commission. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report (See Item 1A. Risk Factors). Should one or more of these risks or uncertainties materialize, or shouldon Form 10-Q. Except as required by law, we do not undertake, and expressly disclaim any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligationduty, to publicly update or revise any forward-lookingthese statements, whether as a result of new information, new developments, or otherwise and even if experience or future changes make it clear that any projected results expressed in this Quarterly Report on Form 10-Q or future quarterly reports, press releases or company statements will not be realized. Unless specifically indicated otherwise, the forward-looking statements in this Quarterly Report on Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions or other business combinations that have not been completed as of the date of this filing. In addition, the inclusion of any statement in this Quarterly Report on Form 10-Q does not constitute an admission by us that the events or otherwise, except as may be required under applicable securities laws.circumstances described in such statement are material. We qualify all of our forward-looking statements by these cautionary statements. In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors” included in our 2022 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q. These and other factors could cause our results to differ materially from those expressed in this Quarterly Report on Form 10-Q.
Overview
Our missionHyliion is committed to creating innovative solutions that enable clean, flexible and affordable electricity production. The Company’s primary focus is to beprovide 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 leading provider ofcommercial 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 solutions for the commercial vehicle industry. Our goal is to reduce the carbon intensity and the greenhouse gas (“GHG”) emissions of the transportation sector by providing hybrid and range-extending electric powertrain solutions forsystem that augments existing Class 8 semi-trucks at the lowest total cost of ownership (“TCO”). Throughout our product offerings, we utilize our battery systems, control software and data analytics, combined with fully integrated electric motors and power electronics, to produce electrified powertrain systems.
We currently offer two different product lines: a Hybrid system which is designed as an add-on to electric powertrainsimprove vehicle performance or reduce fuel usage, depending on trucks which can augment power needs or potentially save on fuel costs, and the Hypertruck ERX which is a complete powertrain option that is fully electric and leverages an onboard generator to recharge the batteries as the vehicle is in operation. By reducing both GHG emissions and TCO, our environmentally conscious solutions support our customers’ pursuit of their sustainability and financial objectives.
We are currently selling the Hybrid system and are developing our Hypertruck ERX electrified powertrain system for Class 8 semi-trucks. Our Hybrid systems have been installed in low volumes on our initial customers’ commercial vehicles. Across these customer installations and over the entire Hyliion fleet, we have accumulated millions of real-world road miles on Class 8 semi-trucks. Ourapplication. The Hybrid system can either be installed on a new vehiclevehicles prior to entering fleet service, or retrofit to anonto existing in-service vehicle. The Hypertruck ERX system leverages the experience and operating data from our Hybrid systemsvehicles, allowing customers to offer a solution to replace the traditional diesel or compressed natural gas (“CNG”) powertrain installed in new vehicles.
The Hypertruck ERX powertrain, which functions as an electric range-extender, is addressing the market needs of having a fully electric drive truck that can travel long distance between refuels and can leverage existing natural gas infrastructure.Our Hypertruck ERX systems are designed to have their batteries recharged by an onboard CNG generator.Our Hypertruck ERX system can offer commercial vehicle owners and operators a net carbon negative capable electrified powertrain option, when
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using renewable natural gas (“RNG”). We believe CNG/RNG is the correct fuel source to begin with, but there are other fuels that will become available to address the climate change initiative, including hydrogen.We have showcased a multistage roadmap that starts with utilizing a CNG/RNG generator and evolves into offering hydrogen-based solutions as well.The Hypertruck platform is designed to be fuel agnostic while the rest of the electric powertrain can remain the same.We plan to initially release the Hypertruck ERX CNG solution, following with the release of a fuel agnostic capable generator (“KARNO” generator) and a hydrogen fuel cell generator for the Hypertruck platform in the future.
CNG fueled battery recharging is preferable today due to both the current comparable cost of fuels and existing availability of CNG infrastructure. Class 8 semi-trucks can currently be refueled with CNG through existing, geographically diverse and third-party accessible natural gas refueling stations established across North America. Globally, RNG, CNG and liquified natural gas (“LNG”) are used widely for land-based transport and trucking and we believe there are established, geographically diverse and third-party accessible stations available in certain areas that may be leveraged in connection with the use of our electrified powertrain solutions in the future. We believe there is opportunity for adoption of our electrified powertrain solutions across Europe and other countries around the globe. This existing and accessible infrastructure will significantly reduce the buildout time and cost required to utilize our Hypertruck ERX system as compared to other proposed potential electrified solutions.
Our Hybrid and Hypertruck ERX systems are designed to be able to be installed on most major Class 8 semi-trucks in the long term, which will give our customers the flexibility to continue using their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies. Our earlyThe Company began selling the Hybrid system in late 2021, with deployments include leadersto fleets in the transportation and logistics sector. Wesector in a variety of duty cycles, use cases, and geographical regions. The Company also continued development of its Hypertruck ERX
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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 our initial marketing effortsexclusively on large fleet operators as well as companies committedthe 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 reducingretain the overall environmental impactpowertrain technology enabling the Company to explore a sale or future use of the technology and fuel coststhe 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 their owned and operated trucking fleets.this year in collaboration with Hyzon Motors.
KARNO Generator System
In September 2022 we acquired assets including new hydrogen and fuel agnostic capablefuel-agnostic-capable generator technology from General Electric Company'sCompany’s GE Additive business (“KARNO generator”). The KARNO generator emerged out of GE’s long-running R&Dresearch and development investments in aerospace engines and metal additive manufacturing across multiple industries and in areas such as generator thermal and performance design. Initial testing indicatesWe 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 exexpected to reduce both periodic maintenance expenses and expected overhaul costs.
pectedFuel Agnostic: While many traditional generators operate on a single fuel source or require system modification to complyachieve 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 all currentsix or more shafts can be utilized or, multiple
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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 foreseeablerigorous 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 standards, specificallyand 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 California Air Resources Board (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
The U.S. 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
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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: CARBNatural 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.
Flare Gas: )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 Environment Protection Agency (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: EPA), even when utilizing conventional fuels. The technologyrapid 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 achieveintensify 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 meaningfulunique 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 improvementloss 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 today’slocalized 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 could be more efficient than most available alternative sources of
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fuel cells. These efficiency improvements should,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 turn, enable fuel cost reductions and improved vehicle range. The technology should also provide for significant reductions in noise, vibration, moving parts and maintenance as compared to current combustion engines.operation. The KARNO power systemgenerator 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
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NOx emissions expected to be capablereduced 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 different fuels including hydrogen,available fuel sources and fuel mixtures. These include natural gas, propane, ammoniagasoline, jet fuel, and conventional fuels. The technology uses heatalternative fuels like bio-diesel, hydrogen and ammonia. Moreover, the generator can seamlessly transition between these fuels or fuel blends, requiring no physical modifications to driveits flameless oxidation system. This versatility enables a sealed linearsingle generator to produce electricity. The heatadapt to different use cases. For example, the generator may operate on natural gas for prime power generation when a pipeline connection is produced by reacting fuels through flameless oxidationavailable and on waste gas near a landfill or other heat sources including renewables.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
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to current economic uncertainties, supply chain disruptions, inflation and rising interest rates as well as those discussed below and referenced in Item 1A1A. “Risk Factors.”
Successful Commercialization of Our Drivetrain SolutionsKARNO Generator
Our Hybrid system officially launched, and our first earlyfocus in the remainder of 2023 will be on continuing development Hypertruck ERX showcase unit was unveiled, on August 31, 2021 at the ACT Expo in Long Beach, California. Compared to previous Hyliion systems, the Hybrid system offers fleets a lighter solution that is easier to install, service and operate. The Hybrid system draws upon the real-world feedback we have received from customers and the millions of miles logged with the previous system. Due to shortages of various components caused by global supply chain disruptions, we are experiencing longer delivery times for a portion of the orders we have received on new Hybrid systems. In addition, we continually assess the potential demand impact for the Hybrid system offering in light of recent changes within the competitive landscape.
In November 2021, we began our Hypertruck ERX roadshow, which consists of numerous technology fleet experiences focused on demonstrating the features and benefits of the electric powertrain firsthand. The roadshow consists of “Ride and Drive” events and in-depth product education of the Hypertruck ERX’s features and benefits, including how it enables fleet decarbonization goals while also reducing total cost of ownership. Our development timeline has been extended to allow for design verification and testing inclusive of critical summerour fuel-agnostic KARNO stationary generator and winter seasons, as well as the accumulation of up to one million miles prior to production. We expect to complete design verification and begindeploying initial controlled fleet trials by the end of 2022.
There have been ongoing shortagesrevenue-generating units with customers in the transportation industry supply chain including semiconductors as well as several other key components. These supply chain challenges have been especially prominent in the trucking industry, and one of the impacts has been significantly extended lead times for ordering new trucks. Fleets are experiencing lead times on new truck purchases that extend out for delivery into 2023. We placed orders with Peterbilt for all chassis needed in 2022 earlier this year and are securing build slots for the 2023 calendar year in an effort to mitigate future potential supply chain impacts to our Hypertruck ERX development schedule. We continue to work closely with our current supply base to improve delivery of
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components for the quarters ahead and are diligently seeking alternative sources of supply for components that meet our technical specifications with shorter lead times.
In late 2023, we plan to first release the Hypertruck ERX powertrain, leveraging a natural gas engine as the onboard generator. In the years following, we plan to release the Hypertruck KARNO, our fuel agnostic variant, as phase two in the Hyliion journey to a hydrogen-based future. We will also explore other adjacent markets to leverage the KARNO technology for cost savings and emissions reductions.
2024. 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.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 resultsvalidation, 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 our researchproduct offerings we plan to bring to market and development efforts, as well asexternal market factors that are outside ofbeyond our control.
Customer DemandWind-down of Powertrain Business
We have deployed demonstration Hybrid systems to certain early adopters who weno longer expect to become customers in the future,recognize revenue on products not related to KARNO, including leaders in the transportation and logistics sector as well as companies committed to reducing the overall environmental impact and fuel costs of their owned and operated trucking fleets. Further, we began selling the Hybrid system in the fourth quarter of 2021.
In 2021, we announced our Hypertruck Innovation Council, which consists of some of the largest fleets who will be assisting us along the development journey and will have been among the first to experience the Hypertruck ERX through our Ride and Drive events.Hybrid. The successful launch program and deploymentCompany is evaluating opportunities to monetize certain of the Hypertruck ERX metassets 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 positive feedback from customer operations teams and drivers and generated further interest insome expected to be provided transition packages that will provide for continued services through various dates of the Hypertruck ERX solution and longer-term commercial relationships with us.Company’s fiscal year 2024.
The Inflation Reduction Act
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Table of 2022 was signed into law in August 2022, under which the Hypertruck ERX will qualify fleets to receive a 30% tax credit up to $40,000 per vehicle adopted. We expect this to drive further interest in and demand for the Hypertruck ERX.Contents

Key Components of Statements of Operations
Revenue
We currently generatehistorically 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
Cost of revenue includes all direct costs such as labor and materials, overhead costs, warranty costs and any write-down of inventory to net realizable value.
Research and Development Expense
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 consultants and contractors for outsourced engineering services;services and to consultants;
expenses related to components for development and testing, materials, supplies and other third-party services;
depreciation for equipment used in research and development activities;
acquired in-process research and development from asset acquisition; and
allocation of general overhead costs.
We expect to continue to invest in research and development activities to achieve operational and commercial goals.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
Selling, general and administrative expenses consist of personnel-related expenses for our corporate, executive, finance, sales, marketing and other administrative functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for facilities, depreciation, amortization, travel, sales and marketing costs. Personnel-related expenses consist of salaries, benefits and share-based compensation.
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We expect our Factors that also affect selling, general and administrative expenses to increase forexpense include the foreseeable future as we scale headcount with the growthtotal number of our business, andemployees, costs incurred as a result of operating as a public company, including compliance with the rules and regulations of the U.S. Securities and Exchange Commission, legal, audit, additional insurance, expenses, 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)
Other income currently consists primarily of interest income earned on our investments. 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.
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Results of Operations
Comparison of Three Months Ended September 30, 20222023 to Three Months Ended September 30, 20212022
Our results of operations for the three months ended September 30, 20222023 (the “current quarter”) and 20212022 on a consolidated basis are summarized as follows (in thousands, except share and per share data):
Three Months Ended September 30,Three Months Ended September 30,
20222021$ Change% Change20232022$ Change% Change
RevenuesRevenuesRevenues
Product sales and otherProduct sales and other$499 $— $499 N/AProduct sales and other$96 $499 $(403)(80.8)%
Total revenuesTotal revenues499 — 499 N/ATotal revenues96 499 (403)(80.8)%
Cost of revenuesCost of revenuesCost of revenues
Product sales and otherProduct sales and other2,916 — 2,916 N/AProduct sales and other677 2,916 (2,239)(76.8)%
Total cost of revenuesTotal cost of revenues2,916 — 2,916 N/ATotal cost of revenues677 2,916 (2,239)(76.8)%
Gross lossGross loss(2,417)— (2,417)N/AGross loss(581)(2,417)1,836 (76.0)%
Operating expensesOperating expensesOperating expenses
Research and developmentResearch and development(52,678)(18,150)(34,528)190.2 %Research and development25,115 52,678 (27,563)(52.3)%
Selling, general and administrative expensesSelling, general and administrative expenses(10,264)(8,660)(1,604)18.5 %Selling, general and administrative expenses8,186 10,264 (2,078)(20.2)%
Total operating expensesTotal operating expenses(62,942)(26,810)(36,132)134.8 %Total operating expenses33,301 62,942 (29,641)(47.1)%
Loss from operationsLoss from operations(65,359)(26,810)(38,549)143.8 %Loss from operations(33,882)(65,359)31,477 (48.2)%
Interest incomeInterest income1,926 195 1,731 887.7 %Interest income3,534 1,926 1,608 83.5 %
Gain on disposal of assetsGain on disposal of assets46 — 46 N/AGain on disposal of assets— 46 (46)(100.0)%
Other income, netOther income, net26 — 26 N/A
Net lossNet loss$(63,387)$(26,615)$(36,772)138.2 %Net loss$(30,322)$(63,387)$33,065 (52.2)%
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.36)$(0.15)$(0.21)140.0 %Net loss per share, basic and diluted$(0.17)$(0.36)$0.19 (52.8)%
Weighted-average shares outstanding, basic and dilutedWeighted-average shares outstanding, basic and diluted174,345,022 172,987,672 1,357 0.8 %Weighted-average shares outstanding, basic and diluted181,641,060 174,345,022 7,296 4.2 %
See Part I, Item 1. “Note 2. Subsequent Events” and Part II, Item 5. for discussion of estimated charges and pro forma financial statements.
Revenue
Sales increased $0.5 million in the current quarter, driven by sales associated with our Hybrid products. We continueproducts decreased $0.4 million. As a result of our strategic review and decision to pursue the salediscontinue our powertrain business, we do not anticipate further revenue until we begin commercialization of both Hybrid systems as well as complete vehicles installed with our Hybrid system.KARNO generator.
Cost of Revenues
Cost of revenues increased $2.9 million in the current quarter, driven by costs associated with sales ofour Hybrid systems. We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales.products decreased $2.2 million. The increasedecrease in cost of revenues includes:
InventoryA decrease in inventory write-downs of $2.3$1.5 million attributable to inventory on hand that had a cost higher than its expected net realizable value;value as we purchased less inventory in the current quarter;
Class 8 semi-truck costA decrease in costs associated with sales of $0.2Hybrid systems of $0.4 million; and
WarrantyA decrease in warranty costs of $0.2$0.3 million for estimated costs to administer and maintain the warranty program for labor, transportation and parts, excluding any contribution from vendors.vendors as we sold fewer Hybrid systems in the current nine months.
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Research and Development
Research and development expenses increased $34.5decreased $27.6 million in the current quarter primarily due to:
$28.8A decrease of $28.8 million related to hydrogen and fuel agnostic capable generator technology (“KARNO”) acquired in September 2022 from General Electric Company'sCompany’s GE Additive business to develop and commercialize the fuel agnostic Hypertruck KARNO;KARNO generator; and
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An increaseA decrease of $5.5$1.4 million for the design and testing of our Hypertruck system including anERX system; offset by
An increase in expenses related to components, servicesof $2.6 million for the design and personnel as we build outtesting of our engineering, operations and supply chain teams and associated capabilities.KARNO stationary generator.
Selling, General and Administrative
Selling, general, and administrative expenses increased $1.6decreased $2.1 million in the current quarter primarily due to:
An increaseA decrease of $1.6 million in personnel and benefits of $2.4 million and software costs of $0.3 million as we continueprimarily due to grow our sales and other functions, including impacts from the prior year departure of our priorprevious Chief Financial Officer; partially offset by
A decrease of $0.6 million for legal and professional services and other;insurance costs; and
A decrease of $0.2 million forin marketing and advertising.advertising; partially offset by
An increase of $0.2 million in professional services;
Other Income
Total other income increased $1.8$1.6 million in the current quarter primarily due to an increase in interest income on investments.
Comparison of Nine Months Ended September 30, 20222023 to Nine Months Ended September 30, 20212022
The following table summarizes our results of operations on a consolidated basis for the nine months ended September 30, 20222023 (the “current nine months”) and 20212022 (in thousands, except share and per share data):
Nine Months Ended September 30,Nine Months Ended September 30,
20222021$ Change% Change20232022$ Change% Change
RevenuesRevenuesRevenues
Product sales and otherProduct sales and other$1,011 $— $1,011 N/AProduct sales and other$672 $1,011 $(339)N/A
Total revenuesTotal revenues1,011 — 1,011 N/ATotal revenues672 1,011 (339)N/A
Cost of revenuesCost of revenuesCost of revenues
Product sales and otherProduct sales and other7,160 — 7,160 N/AProduct sales and other1,675 7,160 (5,485)N/A
Total cost of revenuesTotal cost of revenues7,160 — 7,160 N/ATotal cost of revenues1,675 7,160 (5,485)N/A
Gross lossGross loss(6,149)— (6,149)N/AGross loss(1,003)(6,149)5,146 N/A
Operating expensesOperating expensesOperating expenses
Research and developmentResearch and development(88,543)(40,871)(47,672)116.6 %Research and development73,472 88,543 (15,071)(17.0)%
Selling, general and administrative expensesSelling, general and administrative expenses(32,255)(26,111)(6,144)23.5 %Selling, general and administrative expenses30,265 32,255 (1,990)(6.2)%
Total operating expensesTotal operating expenses(120,798)(66,982)(53,816)80.3 %Total operating expenses103,737 120,798 (17,061)(14.1)%
Loss from operationsLoss from operations(126,947)(66,982)(59,965)89.5 %Loss from operations(104,740)(126,947)22,207 (17.5)%
Interest incomeInterest income3,066 561 2,505 446.5 %Interest income10,345 3,066 7,279 237.4 %
Loss on disposal of assets(89)— (89)N/A
Gain (loss) on disposal of assetsGain (loss) on disposal of assets(89)90 N/A
Other income, netOther income, net14 — 14 N/A
Net lossNet loss$(123,970)$(66,421)$(57,549)86.6 %Net loss$(94,380)$(123,970)$29,590 (23.9)%
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.71)$(0.39)$(0.32)82.1 %Net loss per share, basic and diluted$(0.52)$(0.71)$0.19 (26.8)%
Weighted-average shares outstanding, basic and dilutedWeighted-average shares outstanding, basic and diluted173,945,156 171,842,664 2,102 1.2 %Weighted-average shares outstanding, basic and diluted180,914,250 173,945,156 6,969 4.0 %
See Part I, Item 1. “Note 2. Subsequent Events” and Part II, Item 5. for discussion of estimated charges and pro forma financial statements.
Revenue
Sales increased $1.0 million in the current nine months, driven by sales associated with our Hybrid products. We continueproducts increased $0.3 million. As a result of our strategic review and decision to pursue the salediscontinue our powertrain business, we do not anticipate further revenue until we begin commercialization of both Hybrid systems as well as complete vehicles installed with our Hybrid system.KARNO generator.
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Cost of Revenues
Cost of revenues increased $7.2 million in the current nine months, driven by costs associated with sales ofour Hybrid systems. We expect a difference in timing between recognition of revenues and cost of revenues due to write-down of inventory to net realizable value in periods prior to sales.products decreased $5.5 million. The increasedecrease in cost of revenues includes:
InventoryA decrease in inventory write-downs of $5.5$4.6 million attributable to inventory on hand that had a cost higher than its expected net realizable value;value as we purchased less inventory in the current nine months;
Class 8 semi-truck costAn decrease in costs associated with sales of $0.2Hybrid systems of $0.4 million; and
WarrantyA 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.vendors as we sold fewer Hybrid systems in the current nine months.
Research and Development
Research and development expenses increased $47.7decreased $15.1 million in the current nine months primarily due to:
$28.8A decrease of $28.8 million related to hydrogen and fuel agnostic capable generatorKARNO technology (“KARNO”) acquired in September 2022 from General Electric Company'sCompany’s GE Additive business to develop and commercialize the fuel agnostic Hypertruck KARNO;KARNO generator; offset by
An increase of $9.3 million for the design and testing of our KARNO stationary generator; and
An increase of $17.9$4.4 million for the design and testing of our Hypertruck system including an increase in expenses related to components, services and personnel as we build out our engineering, operations and supply chain teams and associated capabilities.ERX system.
Selling, General and Administrative
Selling, general, and administrative expenses increased $6.1decreased $2.0 million in the current nine months primarily due to:
An increaseA decrease of $2.0 million for insurance costs; and
A decrease of $0.9 million in personnel and benefits of $4.4 million and software costs of $1.6 million as we continue to grow our sales and other functions, including impacts from the departure of our prior Chief Financial Officer; andprofessional services; partially offset by
An increase of $1.0$0.9 million for legalin personnel and professional servicesbenefits due to workforce growth over the past year and other; partiallyinflation, offset by
A decrease the prior year departure of $0.2 million for marketing and advertising.our previous Chief Financial Officer.
Other Income (Expense)
Total other income increased $2.4$7.4 million in the current nine months primarily due to an increase in interest income on investments.
Liquidity and Capital Resources
At September 30, 2022,2023, our currentcurrent assets were $394.0$194.0 million, consisting primarily of cash and cash equivalents of $154.2$28.6 million, short-term investments of $232.9$153.6 million and prepaid expenses of $5.9$11.5 million. Our current liabilities were $16.8$13.2 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities. 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, 20222023 is strong and will provide sufficient liquidity to satisfy operating requirements, working capital purposes and strategic initiatives. The unrealized gains and losses of the portfolio may remain volatile as changes in the general interest rate environment and supply and demand fluctuations of the securities within our portfolio impact daily market valuations. To mitigate the risk associated with this market volatility, we deploy a relatively conservative investment strategy focused on capital preservation and liquidity whereby no investment security may have a final maturity of more than 36 months from the date of acquisition or a weighted average maturity exceeding 18 months. Eligible investments under the Company’s investment policy bearing a minimum credit rating of A1, A-1, F1 or higher for short-term investments and A2, A, or higher for longer-term investments include money market funds, commercial paper, certificates of deposit and municipal securities. Additionally, all of our debt securities are classified as held-to-maturity as we have the intent and ability to hold these investment securities to maturity, which minimizes any realized losses that we would recognize prior to maturity. However, even with this approach we may incur investment losses as a result of unusual or unpredictable market developments, and we may experience reduced investment earnings if the yields on investments deemed to be low risk remain low or decline further due to unpredictable market developments. 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 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 Hypertruck ERX productcosts associated with the exit of our powertrain business and KARNO generator development costs and components purchasedcosts. 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 support the statedthird parties or business partners. Finally, based on current projections of production, operating expenses, capital spending and production and related costs of Hybrid systems. We plan to stay asset-light and utilize third parties to perform assembly and manufacturing at scale.working
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capital growth, we expect to have approximately $285 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2023.
We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by (i) completing the development and commercialization of the electrified drive systems for Class 8 semi-trucks, (ii) scaling the Company’s operations to meetKARNO generator with anticipated demand and (iii) hiring personnel. Further, we plan to develop and commercialize the fuel agnostic Hypertruck KARNO with an anticipated commercial launch a few years after the Hypertruck ERX.initial customer deployments in late 2024. However, actual results could vary materially and negatively as a result of a number of factors including, but not limited to, those discussed in Part II, Item 1A. "Risk“Risk Factors."
The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts, the breadth of product offerings we plan to commercialize, the pace of sales, and our long-term plan manufacturing plan for the KARNO generator, as well as factors that are outside of our control.
During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Cash Flows
Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the nine months ended September 30, 20222023 and 20212022 is summarized as follows (in thousands):
Nine Months Ended September 30,Nine Months Ended September 30,
2022202120232022
Cash from operating activitiesCash from operating activities$(83,442)$(49,822)Cash from operating activities$(92,427)$(83,442)
Cash from investing activitiesCash from investing activities(20,750)(65,601)Cash from investing activities1,561 (20,750)
Cash from financing activitiesCash from financing activities(92)15,902 Cash from financing activities(2)(92)
$(104,284)$(99,521)$(90,868)$(104,284)
Cash from Operating Activities
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 changesa $2.3 million change in working capital accounts and $42.8 million in certain non-cash expenses of $40.5 million (including $28.8 million related to acquired in-process research and development, $5.3 million related to share-based compensation, $3.1 million related to prepaid expenses and other assets, $3.0 million related to depreciation, amortization and accretion charges and $2.0 million related to accounts payable, accrued expenses and other liabilities).
Cash from Investing Activities
For the nine months ended September 30, 2021,2023, cash flows used in operatingprovided by investing activities were $49.8$1.6 million. Cash used primarilyprovided related to net lossthe sale or maturity of $66.4investments of $178.6 million, adjusted for changes in working capital accountspartially offset by the purchase of investments of $170.2 million and certain non-cash expensesacquired property and equipment of $16.6 million (including $6.9 million related to accounts payable, accrued expenses and other liabilities, $4.0 million related to share-based compensation, $3.6 million related to prepaid expenses and other assets and $2.7 million related to depreciation, amortization and accretion charges).
Cash from Investing Activities$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 oftotaling $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 nine months ended September 30, 2021,2023, cash flows used in investingfinancing activities were $65.6 million. Cash used primarily related to the purchase of investments of $268.7 million and property and equipment of $2.2 million, partially offset by the sale or maturity of investments of $205.4 million.
Cash from Financing Activitiesnil.
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.
For the nine months ended September 30, 2021, cash flows provided by financing activities were $15.9 million. Cash flows were primarily due to net proceeds from the exercise of warrants of $16.3 million and proceeds from exercise of common stock options of $0.6 million, partially offset by repayments of $0.9 million for a Paycheck Protection Program loan.
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our 20212022 Annual Report supplemented with those below, that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues and expenses.
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Acquisitions
To determine whether acquisitions should be accounted for as a business combination or as an asset acquisition, we make certain judgments which include assessing whether the acquired set of activities and assets meet the definition of a business. If the acquired set of activities and assets meets the definition of a business, assets acquired and liabilities assumed are required to be recorded at their respective fair values as of the acquisition date with the excess of the purchase price over the fair value of the acquired net assets recorded as goodwill. If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an acquisition of assets and, therefore, any acquired in-process research and development (IPR&D) that does not have an alternative future use is charged to expense at the acquisition date, and no goodwill is recorded.
The judgments made in determining estimated fair values of assets acquired and liabilities assumed in a business combination or asset acquisition, as well as estimated asset lives, can materially affect our consolidated results of operations. All assets acquired in 2022 were valued using level 3 inputs with property and equipment valued using a cost approach and IPR&D valued using an income approach based on management’s projections. The fair values of assets, including acquired IPR&D, are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by management. Significant estimates and assumptions include, but are not limited to, probability of technical success, revenue growth, future revenues and expenses and discount rate.
Revenue Recognition
When a Class 8 semi-truck outfitted with a Hybrid system is resold to a customer, judgment is required to determine if we are the principal or agent in the arrangement. We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service. We have determined that we are the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system. We are in early stages of development, continue to refine our business plans and consider the resale of Class 8 semi-trucks outfitted with Hybrid systems to constitute ordinary activities from our ongoing major or central operations.
Should our business plans, estimates or assumptions change, we may record receipts from sales of Class 8 semi-trucks as non-operating income in future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A description of the market risks associated with our business is contained in the “Quantitative and Qualitative Disclosures About Market Risk” section of our 20212022 Annual Report. There have been no material changes to our market risks as therein previously reported.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on our management’s evaluation (with the participation of our Principal Executive Officer and Principal Financial Officer) of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our Principal Executive Officer and Principal Financial Officer have concluded that, at September 30, 2022,2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In September 2022, we acquired certain assets (the "Acquired Assets") of General Electric Company's GE Additive business (the "Acquisition"). As a result, the Company has expanded certain controls such as review and integration of a material acquisition.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time in the ordinary course of business, the Company may be named as a defendant in legal proceedings related to various issues, including workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.
ITEM 1A. RISK FACTORS
A descriptionInvesting in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” and in our 2022 Annual Report on Form 10-K you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.
Our KARNO business strategy may not succeed.
As discussed under Part II. Item 5 of this quarterly report on Form 10-Q, the Company is undertaking a significant shift in its business strategy by discontinuing operations related to the electrified powertrain systems business and focusing on the development and commercialization of the risk factors associatedCompany's fuel-agnostic KARNO generator technology.
We have historically incurred net losses ($153.4 million for the year ended December 31, 2022 and cumulative net operating losses of $277.3 million during the previous three years ended December 31, 2022). We believe that we will continue to incur significant operating and net losses each quarter until we are generating positive gross margins from sales of KARNO generator products. We do not expect to achieve this level of financial performance in 2023, and we may never achieve such performance.
Additionally, in connection with our new business is containedstrategy, we expect to adopt initiatives in an effort to improve operating efficiencies and lower our cost structure. There may be unanticipated difficulties in implementing one or more of these initiatives, and we may not ultimately realize the full benefits of, or be able to sustain the benefits anticipated by, these initiatives.
We will require significant capital to develop and grow our business, including developing, producing and servicing KARNO generators and our brand. We expect to incur significant expenses, which will impact our profitability and available capital, including costs for research and development efforts, component and service procurement, sales, general and administrative costs, and production, distribution and support.
Our ability to become profitable in the “Risk Factors” sectionfuture will require us to complete the design, development and testing of our 2021 Annual Report. ThereKARNO generator while achieving projected performance criteria. We must also successfully market our KARNO generator and related services to customers, sell our systems at prices needed to achieve positive gross margins, and control operating and production costs. We may need to sell our products at a loss or discounted prices in the short term in order to win initial customer orders and gain the confidence of potential customers. If we are unable to efficiently design, produce, market, sell, distribute and service our KARNO generator, our margins, profitability, and long-term prospects will be materially and adversely affected.
Significant markets for our KARNO generator may never develop or may develop more slowly than we anticipate. This would significantly harm our revenues and may cause us to be unable to recover the losses we have been no material changesincurred and expect to incur in the development of our products.
The distributed power generation industry is still an emerging market in an otherwise mature and heavily regulated energy utility industry, and we cannot be sure that potential customers will accept distributed generation broadly, or stationary power generators including our KARNO generators, specifically. Significant markets for distributed power generation may never develop or they may develop more slowly than we anticipate. Enterprises may be unwilling to adopt our KARNO generator technology over traditional or competing power sources like electricity from the grid, for any number of reasons, including the perception that our technology or our Company is unproven, lack of confidence in our business model, the unavailability of third-party service providers to operate and maintain KARNO generators, and lack of awareness of our product or their perception of regulatory or political headwinds.
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Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. In particular, estimates and forecasts relating to the size and expected growth of electricity demand in our target markets, our capacity to address this demand, the adoption of our KARNO generator technology, and our pricing may prove to be inaccurate. Any inaccuracies or errors in our estimates or third-party estimates of market opportunity may cause us to misallocate capital and other business resources, which could harm our business. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet size estimates and growth forecasts, our business could fail to grow at similar rates, if at all.
Any such delay or failure in the development of potential markets would significantly harm our revenues and we may be unable to recover the losses we have incurred and expect to continue to incur in the acquisition and development of KARNO generator technology. If this were to occur, we may never achieve profitability and our business could fail. Whether or not end-users will want to implement and use stationary power generators other distributed generation technologies may be affected by many factors, some of which are beyond our control, including: the emergence of more competitive technologies and products; alternative technologies and products that could render our products obsolete; the future cost of fuels used by our products; the regulatory requirements of agencies with respect to energy products; government support by way of legislation, tax incentives, policies or otherwise, relating to our Risk Factorstechnology; the manufacturing and supply costs for components and systems for the KARNO generator; the perceptions of consumers regarding the safety of our products; the willingness of consumers to try new technologies; and the continued development and improvement of existing power technologies.
We expect to face significant competition in the distributed generation market.
Our KARNO generators will compete with a broad range of companies and technologies, including traditional energy suppliers, such as therein previously reported.public utilities, and other energy providers utilizing traditional co-generation systems, nuclear, hydro, coal or geothermal power, companies utilizing intermittent solar or wind power paired with storage, and other commercially available stationary power generation technologies, including fuel cells and diesel generators.
Many of our competitors, such as traditional utilities and other companies offering distributed generation products, have longer operating histories, customer incumbency advantages, access to and influence with local and state governments, and access to more capital resources than us. Significant developments in alternative technologies, such as energy storage, wind, solar or hydro power generation, or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used in combustion, or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new competitors who are not currently in the market, including companies with newer or better technologies or products, larger providers or traditional utilities or other existing competitors that may enter our market segments. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our growth will be limited, which would adversely affect our business results.
We may experience significant delays in the design, production and launch of the KARNO generator which could harm our business, prospects, financial condition and operating results.
The KARNO generator is still in the development and testing phase, and commercial deliveries are not expected to begin until late 2024 or later, and may not occur at all. Any delay in the financing, design, production and launch of the KARNO generator, would materially damage our brand, business, prospects, financial condition and operating results.
We have no experience manufacturing the KARNO generator on a large-scale basis and if we do not develop adequate manufacturing processes and capabilities to do so, or if we fail to identify qualified outsourced manufacturing partners, in a timely manner, we will be unable to achieve our growth and profitability objectives.
We have not yet manufactured the KARNO generator on a large scale but in order to produce the generator at affordable prices, we will have to manufacture at scale. We do not know whether our plans to scale the product will be implemented such that they will satisfy the requirements of our customers and the anticipated markets for the KARNO generator. If the Company is unable to develop these manufacturing capabilities internally, we may be unable to identify outsourced manufacturing partners who have the technical capability to produce KARNO generators or who can do so on commercially acceptable terms. Our failure to develop manufacturing processes and capabilities in a timely manner could prevent us from achieving our growth and profitability objectives.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
In connection with the acquisition of assets from General Electric Company, acting solely by and through its GE Additive business unit on September 26, 2022, we issued an aggregate of 5,500,000 shares of our common stock to General Electric Company. Such shares were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.Costs Associated with Exit or Disposal Activities
On November 7, 2023, the board of directors (the “Board”) of the Company approved a strategic plan to wind-down its electric powertrain business (the “Powertrain Business”) and preserve technology relating to the Powertrain Business, to better align its workforce with the Company’s future needs, and to reduce the Company’s operating costs (the “Plan”). As part of the Plan, the Company will continue to focus on commercialization of its KARNO generator technology (“KARNO”). Following completion of the Plan, we no longer expect to recognize revenue on products not related to KARNO, including the Company’s Hypertruck ERX system (“Hypertruck ERX”) and Hyliion Hybrid system (“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. In connection with the Plan, the Company expects to incur total charges and expenses of approximately $18.4 million.
The Plan includes 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. The Company expects the Plan will result in (i) charges consisting of approximately $1.4 million in employee severance and retention payments and $0.9 million in non-cash stock-based compensation expense related to vesting of share-based awards, and (ii) cash expenditures of approximately $13.9 million for contract terminations, with up to an additional $9.0 million depending on the outcome of supplier negotiations and other estimates and uncertainties.
The Company expects the majority of the charges and expenses related to the Plan to be incurred in the Company’s fourth quarter of fiscal year 2023.
The above estimates of the cash expenditures and charges that the Company expects to incur in connection with the Plan, and the timing thereof, are subject to a number of assumptions and actual amounts may differ materially from estimates. For example, potential employee reductions are subject to legal requirements, which may extend the reduction process beyond that expected in certain cases. In addition, the Company may incur other cash expenditures or charges not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Plan or otherwise.
Pro Forma Financial Information
The following unaudited pro forma financial information of the Company is filed as Exhibit 99.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2023;
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2023;
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2022; and
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.
The pro forma financial statements are presented for informational purposes only and do not purport to represent what the Company’s results of operations or financial position would have been had the discontinuation of the Business and other transactions reflected occurred on the dates indicated or to project the Company’s financial position as of any future date or the Company’s results of operations for any future period.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
On November 2, 2023, Hyliion Holdings Corp. (the “Company”) received notice (the “Delisting Notice”) from the New York Stock Exchange (the “NYSE”) that because the average per share closing price of its common stock (the “Common Stock”) over a 30 consecutive trading-day period ended November 1, 2023 was below $1.00 (the “Minimum Price Requirement”), the Company was not in compliance with Section 802.01C of the NYSE’s Listed Company Manual.
The Company plans to notify the NYSE within 10 business days of its receipt of the Delisting Notice of its intent to cure the deficiency and will consider a number of alternatives to regain compliance with the Minimum Price Requirement. Pursuant to Section 802.01C, the Company has a period of six months following receipt of the Delisting Notice (the “Cure Period”) to regain compliance with the Minimum Price Requirement. Compliance with the Minimum Price Requirement can be regained at any time during the Cure Period if on the last trading day of any calendar month during the Cure Period or on the last day of the
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Cure Period, the Company has both (i) a closing price of at least $1.00 per share of Common Stock, and (ii) an average closing price of at least $1.00 per share of Common Stock over the thirty trading-days ended that day.
The Delisting Notice has no immediate impact on the listing of the Common Stock, which will continue to be listed and traded on the NYSE under the symbol “HYLN” during the Cure Period, subject to the Company’s compliance with the other continued listing requirements of the NYSE. The Delisting Notice does not affect the ongoing business operations of the Company or its reporting requirements with the Securities and Exchange Commission. However, failure to regain compliance with the Minimum Price Requirement within the Cure Period or to satisfy other NYSE listing standards could lead to the initiation of suspension and delisting procedures by the NYSE.
A copy of the press release announcing the Company’s receipt of the Delisting Notice is furnished herewith as Exhibit 99.2 and is incorporated by reference herein.
ITEM 6. EXHIBITS
Exhibit
Number
Description
2.1***3.1
10.1*†3.2
10.2*†
31.1*
31.2*
32.1**
32.2**
99.1*
99.2**
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)
*    Filed herewith.
**    Furnished herewith.
***    Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish to the U.S. Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request.
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†    Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 8, 20222023HYLIION HOLDINGS CORP.
/s/ Thomas Healy
Name: Thomas Healy
Title:President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon Panzer
Name: Jon Panzer
Title:Chief Financial Officer
(Principal Financial Officer)
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