Hyliion Holdings Corp. (f/k/a Tortoise Acquisition Corp.) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The reported financial statements are for Tortoise, a special-purpose acquisition company, before it completed its business combination; they do not report Legacy Hyliion’s operating results.
Business context and subsequent transaction
Before the combination, Tortoise had no operating business or operating revenue; its activities were pursuing the acquisition and meeting administrative and compliance costs. On October 1, 2020, it completed the merger with Legacy Hyliion, which designs, develops and sells electrified powertrain solutions for Class 8 trucks, and changed its name to Hyliion Holdings Corp.
At closing, investors funded a $307.5 million PIPE and a $17.5 million forward purchase. The company also paid the $8.13 million deferred IPO underwriting commission, $150,000 of deferred legal fees, a $120,000 sponsor note and approximately $33,573 to redeem 3,308 shares. These are subsequent events, not Q3 operating results.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | None | None | None | None |
| General and administrative expense | $2.707 million | $124,000 | $5.233 million | $343,000 |
| Operating loss | $2.787 million | $204,000 | $5.473 million | $563,000 |
| Trust investment income | $17,000 | $1.181 million | $886,000 | $2.878 million |
| Net income (loss) | $(2.770) million | $740,000 | $(4.749) million | $1.742 million |
Margins and cash flow: Revenue-based margins are not meaningful because the pre-combination company had no operating revenue. Net cash used in operating activities was $1.491 million for the first nine months of 2020, compared with $1.032 million in 2019. No product-level or operating-company cash flow data are provided for Legacy Hyliion in this filing.
Balance sheet at September 30: Cash was $117.1 million, trust assets were reported as $236.5 million, and total assets were $353.7 million. Current liabilities were $121.5 million, including $117.1 million due to private placement investors; management reported a working-capital deficit of approximately $4.3 million. Total liabilities were $129.8 million. The filing states there was no long-term debt; the $120,000 sponsor note was repaid at the October 1 closing.
Changes, outlook, risks and unusual items
- Compared with 2019, 2020 expenses increased substantially while trust investment income declined, shifting results from net income to net loss. The filing attributes the period’s activity to SPAC transaction and administrative costs, not Hyliion product operations.
- The company provided no financial guidance or quantified operating outlook. Management stated it expected higher expenses as a public operating company following the combination.
- Management cautioned that forward-looking statements are subject to risks and uncertainties and referred investors to risk factors in the Business Combination proxy statement. The filing does not provide a clear forecast of post-combination revenue, profitability, cash burn or financing needs.
- A shareholder disclosure lawsuit relating to the proxy statement was dismissed September 29, 2020 after supplemental disclosures; the company said it believed the claims lacked merit. It reported no other material legal proceedings.
- Management concluded disclosure controls and procedures were effective as of September 30, 2020, and reported no material change in internal control over financial reporting during the quarter.
- The filing reports trust assets of $236,483,652 on the balance sheet but $236,643,898 in its fair-value table. These reported amounts differ; the filing text does not explain the discrepancy.
Important facts for investors to verify
- Review the first post-combination filings for Legacy Hyliion’s actual revenue, gross margins, operating expenses, cash flows and liquidity; this 10-Q does not provide those results.
- Confirm the post-closing cash balance and use of the PIPE and forward-purchase proceeds, including any redemption and transaction-related payments.
- Reconcile the differing September 30 trust-asset values and understand the $117.1 million due-to-private-placement-investors balance.
- Assess post-combination financing requirements, execution risks, product commercialization prospects and the risk factors incorporated by reference to the proxy statement.
- Consider dilution and trading restrictions associated with shares, warrants, registration rights and lock-up agreements described in the filing.