HYLN - Hyliion Holdings: Cash Position Is Starting To Get Concerning

Summary

• Hyliion Holdings Corp. recently reported its Q4 earnings, beating expectations.
• The consensus EPS estimate was -$0.16 and the consensus revenue estimate was $690,000. Hyliion reported $1.1 million in revenue and an EPS of -$0.16.
• The company had previously missed revenue estimates over the last five quarters.
• However, cash burn is still high relative to its current cash position. The company may need to begin using its short-term investments as a funding source soon.
• From a fundamental standpoint, I don't believe Hyliion Holdings Corp. is a great investment as things stand now.

Summary

Hyliion Holdings Corp. ( HYLN ) reported its Q4 2022 earnings , beating revenue estimates and meeting EPS expectations. Despite meeting revenue and earnings expectations in 2022, I think 2023 will be a very important year for the hybrid electric vehicle ("EV") company, as there are some major concerns right now:

1. Revenues aren't growing fast enough: Hyliion continues to recognize its hybrid revenue, albeit slowly. ERX production is still expected to start in late 2023.
2. Cash burn is still high: As of Q4 2022 , Hyliion had around $119 million in cash. The company burns around $30 million a quarter. The company might need to begin selling its short-term investments by end of 2023 in order to meet its cash needs.
3. Uncertainty if the business model is profitable: CEO Thomas Healy mentioned on the last earnings call that the long-term strategy for Hyliion is as a powertrain company and they expect to sell their solutions directly to the OEMs for them to integrate into their production lines.
4. The macroeconomic outlook is not good: Hyliion was already dealing with supply chain issues as of Q3 2022, and now they'll have to face a potential recession in 2023.

Historical Revenue Misses

Hyliion Holdings Corp. had previously missed every consensus revenue estimate since Wall Street began expecting the company to generate it. For those unfamiliar, Hyliion went public back in 2020 as a pre-revenue company, so nothing was expected initially. Q4 2022 marked the first time Hyliion was able to beat revenue expectations at $1.1 million for the quarter.

Unsurprising, the company's share price has taken a tumble over the past couple of years. This can be attributed to a few things, including supply chain issues, uncertainty around demand for its ERX product, and (the biggest impact in my opinion) macroeconomic conditions impacting growth stocks due to rising interest rates.

What I find surprising is that Hyliion still has a market cap of over $500 million for a company that is only doing around $2 million in revenue per year. There is still a lot of optimism priced into Hyliion stock, despite the large decline over the last three years.

Cash Burn

During the Q3 2022 earnings call, Hyliion CFO Jon Panzer noted cash burn will likely increase as production ramps up. Here was Jon's response when asked about the run rate going forward:

As of Q4 2022, Hyliion had a cash position of $119 million, compared to $254 million at the start of 2022. The company has been going through around $30-$35 million in cash per quarter. For reference, if production isn't supposed to start rolling out until late 2023, it's hard to see how Hyliion doesn't run out of cash, in my opinion. As an investor, we also don't know what the profitability will look like for the ERX. So, even if production is successful, Hyliion may still need to raise cash in order to continue its business operations.

Conclusion

Hyliion Holdings Corp.'s cash position isn't infinite. There's going to be a point in time when management will need to raise additional cash through either debt issuance or by diluting shareholders if the initial ERX production is not profitable. Neither is great for the share price if the company can't generate positive cash flow.

I look forward to hearing more about Hyliion Holdings Corp.'s run rate for 2023 during future earnings calls. Until then, I don't think the current valuation is justified and investors should avoid it. There needs to be a more clear roadmap in order to justify this valuation for Hyliion Holdings Corp. in my opinion.

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