hyln-20230930

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, 2023

☐ 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)


Delaware						83-2538002
(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 filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller 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 class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

HYLN

The New York Stock Exchange

As of October 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, 2023

TABLE OF CONTENTS

INDEX


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HYLIION HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	28,600	$	119,468
Accounts receivable	140		1,136
Inventory	139		74
Prepaid expenses and other current assets	11,509		9,795
Short-term investments	153,625		193,740
Total current assets	194,013		324,213

Property and equipment, net	11,076		5,606
Operating lease right-of-use assets	7,494		6,470
Intangible assets, net	200		200
Other assets	2,038		1,686
Long-term investments	141,324		108,568
Total assets	$	356,145	$	446,743

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	3,507	$	2,800
Current portion of operating lease liabilities	807		347
Accrued expenses and other current liabilities	8,867		11,535
Total current liabilities	13,181		14,682

Operating lease liabilities, net of current portion	7,354		6,972
Other liabilities	1,248		1,515
Total liabilities	21,783		23,169

Commitments and contingencies (Note 11)

Stockholders’ equity
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, respectively	18		18
Additional paid-in capital	402,978		397,810
(Accumulated deficit) retained earnings	(68,634)		25,746
Total stockholders’ equity	334,362		423,574
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,
	2023		2022		2023		2022
Revenues
Product sales and other	$	96	$	499	$	672	$	1,011
Total revenues	96		499		672		1,011
Cost of revenues
Product sales and other	677		2,916		1,675		7,160
Total cost of revenues	677		2,916		1,675		7,160
Gross loss	(581)		(2,417)		(1,003)		(6,149)
Operating expenses
Research and development	25,115		52,678		73,472		88,543
Selling, general and administrative	8,186		10,264		30,265		32,255
Total operating expenses	33,301		62,942		103,737		120,798
Loss from operations	(33,882)		(65,359)		(104,740)		(126,947)

Interest income	3,534		1,926		10,345		3,066
Gain (loss) on disposal of assets	—		46		1		(89)
Other income, net	26		—		14		—
Net loss	$	(30,322)	$	(63,387)	$	(94,380)	$	(123,970)

Net loss per share, basic and diluted	$	(0.17)	$	(0.36)	$	(0.52)	$	(0.71)

Weighted-average shares outstanding, basic and diluted	181,641,060		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 Stock			Additional Paid-In Capital		(Accumulated Deficit) Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	179,826,309	$	18	$	397,810	$	25,746	$	423,574
Exercise of common stock options and vesting of restricted stock units, net	869,263	—		(176)		—		(176)
Share-based compensation	—	—		2,040		—		2,040
Net loss	—	—		—		(28,831)		(28,831)
Balance at March 31, 2023	180,695,572	18		399,674		(3,085)		396,607
Exercise of common stock options and vesting of restricted stock units, net	456,579	—		44		—		44
Share-based compensation	—	—		1,721		—		1,721
Net loss	—	—		—		(35,227)		(35,227)
Balance at June 30, 2023	181,152,151	18		401,439		(38,312)		363,145
Exercise of common stock options and vesting of restricted stock units, net	1,564,294	—		130		—		130
Share-based compensation	—	—		1,409		—		1,409
Net loss	—	—		—		(30,322)		(30,322)
Balance at September 30, 2023	182,716,445	$	18	$	402,978	$	(68,634)	$	334,362

	Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	173,468,979	$	17	$	374,795	$	179,103	$	553,915
Exercise of common stock options and vesting of restricted stock units, net	336,155	—		(92)		—		(92)
Share-based compensation	—	—		1,563		—		1,563
Net loss	—	—		—		(27,108)		(27,108)
Balance at March 31, 2022	173,805,134	17		376,266		151,995		528,278
Exercise of common stock options and vesting of restricted stock units, net	193,834	—		15		—		15
Share-based compensation	—	—		1,922		—		1,922
Net loss	—	—		—		(33,475)		(33,475)
Balance at June 30, 2022	173,998,968	17		378,203		118,520		496,740
Issuance of common stock for acquisition	5,500,000	1		16,114		—		16,115
Exercise of common stock options and vesting of restricted stock units, net	146,905	—		(15)		—		(15)
Share-based compensation	—	—		1,783		—		1,783
Net loss	—	—		—		(63,387)		(63,387)
Balance at September 30, 2022	179,645,873	$	18	$	396,085	$	55,133	$	451,236

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,
	2023		2022
Cash flows from operating activities
Net loss	$	(94,380)	$	(123,970)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,796		823
Amortization and accretion of investments, net	(1,821)		1,300
Noncash lease expense	1,072		922
Inventory write-down	992		5,634
(Gain) loss on disposal of assets	(1)		89
Share-based compensation	5,170		5,268
Acquired in-process research and development	—		28,752
Changes in operating assets and liabilities:
Accounts receivable	996		(824)
Inventory	(1,057)		(5,660)
Prepaid expenses and other assets	(1,200)		3,097
Accounts payable	555		(5,201)
Accrued expenses and other liabilities	(3,295)		7,228
Operating lease liabilities	(1,254)		(900)
Net cash used in operating activities	(92,427)		(83,442)

Cash flows from investing activities
Purchase of property and equipment and other	(6,755)		(2,621)
Proceeds from sale of property and equipment	2		33
Purchase of in-process research and development	—		(14,428)
Payments for security deposit, net	(45)		—
Purchase of investments	(170,197)		(160,116)
Proceeds from sale and maturity of investments	178,556		156,382
Net cash provided by (used in) investing activities	1,561		(20,750)

Cash flows from financing activities


Proceeds from exercise of common stock options	230		65
Taxes paid related to net share settlement of equity awards	(232)		(157)

Net cash used in financing activities	(2)		(92)

Net decrease in cash and cash equivalents and restricted cash	(90,868)		(104,284)
Cash and cash equivalents and restricted cash, beginning of period	120,133		259,110
Cash and cash equivalents and restricted cash, end of period	$	29,265	$	154,826

Supplemental disclosure of noncash investing and financing activities:
Common stock issued for purchase of assets	$	—	$	16,115
Acquisitions of property and equipment included in accounts payable and other	$	512	$	66
Right-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, 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 owned subsidiary, unless expressly indicated or the context otherwise requires.

The Company 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 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 3. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Hyliion Holdings Corp. and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation. The condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. The condensed consolidated balance sheet at December 31, 2022 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required with respect to annual financial statements. In the opinion of the Company, these condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the

Company’s 2022 Annual Report. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company is an early-stage growth company and has generated negative cash flows from operating activities since inception. At September 30, 2023, the Company had total equity of $334.4 million, inclusive of cash and cash equivalents of $28.6 million and total investments of $294.9 million. Based on this, the Company has sufficient funds to continue to execute its business strategy for the next twelve months from the issuance date of the financial statements included in this Quarterly Report on Form 10-Q.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve revenue recognition, inventory, warranties, acquisitions, income taxes and valuation of share-based compensation. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s condensed consolidated financial statements.

Concentration of Supplier Risk

The Company is dependent on certain suppliers, the majority of which are single source suppliers, and the inability of these suppliers to deliver necessary components of the Company’s products in a timely manner at prices, quality levels and volumes that are acceptable, or the Company’s inability to efficiently manage these components from these suppliers, could have a material adverse effect on the Company’s business, prospects, financial condition and operating results.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity date of 90 days or less at the time of purchase to be cash and cash equivalents only if in checking, savings or money market accounts. Cash and cash equivalents include cash held in banks and money market accounts and are carried at cost, which approximates fair value. The Company maintains cash in excess of federally insured limits at financial institutions which it believes are of high credit quality and has not incurred any losses related to these balances to date. The Company believes its credit risk, with respect to these financial institutions to be minimal.

Restricted Cash

The Company has provided its corporate headquarters lessor with a letter of credit for $0.7 million to secure the performance of the Company’s lease obligations, backed by a restricted cash deposit to pay any draws on the letter of credit by the lessor. Total cash and cash equivalents and restricted cash as presented in the condensed consolidated statements of cash flows is summarized as follows:


	September 30, 2023		December 31, 2022		September 30, 2022		December 31, 2021
Cash and cash equivalents	$	28,600	$	119,468	$	154,161	$	258,445
Restricted cash included in other assets	665		665		665		665
	$	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, 2023 and December 31, 2022, accounts receivable included amounts receivable from customers of $0.1 million and $1.1 million, respectively. At September 30, 2023 and December 31, 2022, allowance for doubtful accounts on customer receivables was nil and $0.1 million, respectively.

The portion of our net accounts receivable from significant customers is summarized as follows:


	September 30, 2023		December 31, 2022
Customer A	100	%	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;

Level II: Significant other observable inputs other than level I prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and

Level III: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company believes its valuation methods are appropriate and consistent with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The Company’s financial instruments consist of cash and cash equivalents and restricted cash, accounts receivable, investments, accounts payable and accrued expenses. The carrying value of cash and cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of those instruments. The fair value of investments is 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

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.

We recognize revenue on Hybrid system sales and Class 8 semi-trucks outfitted with Hybrid systems upon delivery to, and acceptance of the vehicle by, the customer, which is when control transfers. Contracts are reviewed for significant financing components and payments are typically received within 30 days of delivery. The sale of a Hybrid system to an end-use fleet customer consists of a completed modification to the customer vehicle and the installation services involve significant integration of the Hybrid system with the customer’s vehicle. Installation services are not distinct within the context of the contract and together with the sale of the Hybrid system represent a single performance obligation. We do not offer any sales returns. Amounts billed to customers related to shipping and handling are classified as revenue, and we have elected to recognize the cost for freight and shipping when control has transferred to the customer as a cost of revenue. Our policy is to exclude taxes collected from customers from the transaction price of contracts. In the fourth quarter of fiscal 2021, we began 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 with a Hybrid system upfit is sold to a customer, judgment is required to determine if we are the principal or agent in the arrangement. We consider factors such as, but not limited to, which entity has the primary responsibility for fulfilling the promise to provide the specified good or service, which entity has inventory risk before the specified good or service has been transferred to a customer and which entity has discretion in establishing the price for the specified good or service. We have determined that we are the principal in transactions involving the resale of Class 8 semi-trucks outfitted with the Hybrid system.

The disaggregation of our revenue sources is summarized as follows and is attributable to the U.S.:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
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,
	2023		2022		2023		2022
Customer A	94	%	69	%	65	%	43	%
Customer B	—		6		—		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 relates to correction of product defects during the warranty period. We recognize the cost of the warranty upon transfer of control based on estimated and historical claims rates and fulfillment costs, which are variable. Should product failure rates and fulfillment costs differ from these estimates, material revisions to the estimated warranty liability would be required. Warranty expense is recorded as a component of cost of revenue.

Research and Development Expense

Research and development costs did not meet the requirements to be recognized as an asset as the associated future benefits were at best uncertain and there was no alternative future use at the time 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 research and development activities, internal engineering and development expenses, materials, internally developed software and employee related expenses (including salaries, benefits, travel, and share-based compensation) related to development of the Company’s products and services.

Note 4. Investments

The amortized cost, unrealized gains and losses, fair value and maturities of our held-to-maturity investments at September 30, 2023 and December 31, 2022 are summarized as follows:


			Fair Value Measurements at September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	51,420	$	—	$	(74)	$	51,346
U.S. government agency bonds	22,606		—		(356)		22,250
State and municipal bonds	15,221		—		(215)		15,006
Corporate bonds and notes	205,702		7		(1,705)		204,004
	$	294,949	$	7	$	(2,350)	$	292,606


			Fair Value Measurements at December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	36,675	$	2	$	(161)	$	36,516
U.S. government agency bonds	12,441		6		(328)		12,119
State and municipal bonds	40,104		28		(628)		39,504
Corporate bonds and notes	213,088		76		(3,344)		209,820
	$	302,308	$	112	$	(4,461)	$	297,959


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	153,625	$	152,826	$	193,740	$	191,094
Due after one year through five years	141,324		139,780		108,568		106,865
	$	294,949	$	292,606	$	302,308	$	297,959

Note 5. Fair Value Measurements

The fair value measurements of our financial assets at September 30, 2023 and December 31, 2022 are summarized as follows:


	Fair Value Measurements at September 30, 2023
	Level I		Level II		Level III		Total
Cash and cash equivalents	$	28,600	$	—	$	—	$	28,600
Restricted cash	665		—		—		665
Held-to-maturity investments:
Commercial paper	—		51,346		—		51,346
U.S. government agency bonds	—		22,250		—		22,250
State and municipal bonds	—		15,006		—		15,006
Corporate bonds and notes	—		204,004		—		204,004
	$	29,265	$	292,606	$	—	$	321,871


	Fair Value Measurements at December 31, 2022
	Level I		Level II		Level III		Total
Cash and cash equivalents	$	119,468	$	—	$	—	$	119,468
Restricted cash	665		—		—		665
Held-to-maturity investments:
Commercial paper	—		36,516		—		36,516
U.S. government agency bonds	—		12,119		—		12,119
State and municipal bonds	—		39,504		—		39,504
Corporate bonds and notes	—		209,820		—		209,820
	$	120,133	$	297,959	$	—	$	418,092

Note 6. Inventory

The carrying value of our inventory at September 30, 2023 and December 31, 2022 is summarized as follows:


	September 30, 2023		December 31, 2022
Raw materials	$	—	$	—
Work in process	47		—
Finished goods	92		74
	$	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. These write-downs are included in cost of revenues.

Note 7. Property and Equipment, Net

Property and equipment, net at September 30, 2023 and December 31, 2022 is summarized as follows:


	September 30, 2023		December 31, 2022
Production machinery and equipment	$	10,077	$	5,897
Vehicles	2,013		817
Leasehold improvements	2,124		1,002
Office furniture and fixtures	223		162
Computers and related equipment	1,947		1,367
	16,384		9,245
Less: accumulated depreciation	(5,308)		(3,639)
Total property and equipment, net	$	11,076	$	5,606

Note 8. Share-Based Compensation

During the nine months ended September 30, 2023 and 2022, the Company granted 2.2 million and 2.2 million, respectively, restricted stock units which will vest over a period of one to three years, some of which include performance criteria based on the achievement of key Company milestones. During the nine months ended September 30, 2023 and 2022, 0.6 million and 0.8 million, respectively, of restricted stock units and options were forfeited. Share-based compensation expense for the three and nine months ended September 30, 2023 was $1.4 million and $5.2 million, respectively. Share-based compensation expense for the three and nine months ended September 30, 2022 was $1.8 million and $5.3 million, respectively.

Note 9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities at September 30, 2023 and December 31, 2022 are summarized as follows:


	September 30, 2023		December 31, 2022
Accrued professional services and other	$	4,610	$	5,834
Accrued compensation and related benefits	3,448		4,773
Other accrued liabilities	809		928
	$	8,867	$	11,535

Note 10. Warranties

The change in warranty liability for the three and nine months ended September 30, 2023 and 2022 is summarized as follows and included within accrued expenses and other current liabilities and other liabilities in the condensed consolidated balance sheets:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Balance at beginning of period	$	566	$	348	$	527	$	44
Accrual for warranties issued	65		186		218		517
Net changes in accrual related to pre-existing warranties	(131)		—		(154)		—
Warranty charges	(64)		(122)		(155)		(149)
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, 2023 and 2022 is summarized as follows (in thousands, except share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net loss attributable to common stockholders	$	(30,322)	$	(63,387)	$	(94,380)	$	(123,970)

Denominator:
Weighted average shares outstanding, basic and diluted	181,641,060		174,345,022		180,914,250		173,945,156

Net loss per share, basic and diluted	$	(0.17)	$	(0.36)	$	(0.52)	$	(0.71)

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, 2023 and 2022 are summarized as follows:


	Three and Nine Months Ended September 30,
	2023	2022
Unexercised stock options	683,090	2,682,228
Unvested restricted stock units*	3,976,223	3,808,665
	4,659,313	6,490,893

* Potential common shares from unvested restricted stock units for the periods ended September 30, 2023 and 2022 include 653,334 and 1,261,667 shares, respectively, where no accounting grant date has been established.

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ITEM 2. MANAGEMENT’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 2022 Annual Report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“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 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, including, but 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 strategic alliances, financial position, and liquidity and anticipated cash needs and availability. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” variations of such words and similar expressions or the negatives thereof are intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements represent our management’s expectations as of the date of this filing and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, those described in the section entitled “Risk Factors” included in our 2022 Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) that disclose risks and uncertainties that may affect our business. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Commission. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake, and expressly disclaim any duty, to publicly update or revise these 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 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

Hyliion is committed to creating innovative solutions that enable clean, flexible and affordable electricity production. The Company’s primary focus is to provide distributed power generators that can operate on various fuel sources to future-proof against an ever-changing energy economy. Headquartered in Austin, Texas, and with research and development in Cincinnati, OH, Hyliion is addressing the commercial space first with a locally deployable generator that can offer prime power, peak shaving, and renewables matching. As the Company goes forward, it plans to scale its generator solution to also address household applications. This approach enables consumers to produce their own electricity while utilizing the grid as a backup source. Beyond stationary power, Hyliion will address mobile applications such as vehicles and marine. The KARNO generator is a fuel-agnostic solution, enabled by additive manufacturing, that leverages a linear heat generator architecture. The Company aims to offer innovative, yet practical solutions that contribute positively to the environment in the energy economy.

Strategic Business Developments

During the quarter, Hyliion offered the Hyliion Hybrid system (“Hybrid”), an electrified powertrain system that augments existing Class 8 semi-trucks to improve vehicle performance or reduce fuel usage, depending on application. The Hybrid system can be installed on new vehicles prior to entering service, or retrofit onto existing in-service vehicles, allowing customers to use their preferred vehicle brands and maintain their existing fleet maintenance and operations strategies. The Company began selling the Hybrid system in late 2021, with deployments to fleets in the transportation and logistics sector in a variety of duty cycles, use cases, and geographical regions. The Company also continued development of its Hypertruck ERX

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