10-Q: Hyliion Q3 2025: KARNO Module Progress Amidst Rising Losses

Hyliion Holdings Corp. reports increased net losses and R&D expenses in Q3 2025, while advancing its KARNO Power Module commercialization and securing new government contracts.

Summary

• Net loss for the three months ended September 30, 2025, was $13.3 million, an increase from $11.2 million in the same period of 2024.
• Net loss for the nine months ended September 30, 2025, was $44.0 million, up from $37.7 million for the nine months ended September 30, 2024.
• Revenue from research and development services was $0.8 million for Q3 2025 and $2.8 million for the nine months ended September 30, 2025.
• Research and development expenses increased by 7.1% to $10.1 million in Q3 2025 and by 26.3% to $32.5 million for the nine months ended September 30, 2025.
• Cash and cash equivalents stood at $17.9 million at September 30, 2025, with total investments (short-term and long-term) of $146.9 million.
• The company is winding down its powertrain business, with completion expected in the fourth quarter of fiscal year 2025.
• Two early adopter customer units and two additional KARNO Power Modules for internal testing and UL Solutions certification have been delivered.
• Delays in early deployment unit deliveries and validation occurred due to design and production problems with a key printed component (regenerator) and linear electric motor production, which have since been addressed.
• A new Phase II best effort cost-plus-fixed fee contract up to $1.5 million was awarded by the Office of Naval Research (ONR) in July 2025, extending R&D services through July 2026 with an option to extend through July 2027.
• Remaining revenue to be recognized under government contracts is up to $14.4 million as of September 30, 2025, primarily expected in 2025 and 2026.
• The company expects to have approximately $155 million in cash, short-term, and long-term investments remaining on its balance sheet at the end of 2025, assuming the completion of about $10 million in equipment-backed financing or debt.

Sentiment

Score: 4

Explanation: The company shows clear progress in the development and initial deployment of its KARNO Power Module, securing new government contracts and addressing technical challenges. However, this is overshadowed by increasing net losses, negative operating cash flow, and a setback in asset disposition due to market conditions. The anticipated need for future capital raises, despite a strong current cash position, adds a layer of financial uncertainty.

Positives

• The 125 kW KARNO Core has been successfully operated, validating its fuel oxidation system on a wide range of fuel sources, including natural gas, hydrogen, gas mixtures, and untreated landfill and Permian Basin well gas.
• Testing of the oxidation system demonstrated very low levels of pollutant emissions in the exhaust stream.
• The regenerator component has been redesigned to increase heat storage and transfer capabilities, and new post-processing techniques have been implemented to effectively remove residual powder.
• Insourcing linear electric motor production is accelerating the ramp-up in motor production capacity and enabling greater control over manufacturing quality.
• Two early adopter customer units and two internal testing/certification units for the KARNO Power Module have been delivered.
• A new Phase II best effort cost-plus-fixed fee contract up to $1.5 million was awarded by the ONR in July 2025, extending R&D services through July 2026 (with an option to extend through July 2027).
• The company maintains a strong liquidity position with $17.9 million in cash and cash equivalents and $146.9 million in total investments at September 30, 2025, providing sufficient funds for the next twelve months.
• The KARNO Power Module offers significant advantages including fuel-agnostic operation across over 20 fuel sources, anticipated electrical generating efficiency of up to 50%, ultra-low emissions (over 95% reduction in NOx and CO compared to best-in-class diesel/natural gas engines), reduced maintenance requirements, low noise and vibration (approximately 67 decibels at six feet), high power density, and modularity.

Negatives

• Net loss increased to $13.3 million for Q3 2025 from $11.2 million in Q3 2024, and to $44.0 million for the nine months ended September 30, 2025, from $37.7 million in the prior year.
• Loss from operations increased to $15.3 million for Q3 2025 from $14.2 million in Q3 2024, and to $50.6 million for the nine months ended September 30, 2025, from $47.2 million in the prior year.
• Interest income decreased by $1.0 million in Q3 2025 and $2.9 million for the nine months ended September 30, 2025, primarily due to a decline in the investment balance and lower interest rates.
• The company has generated negative cash flows from operating activities since its inception.
• Assets previously recorded as held for sale, totaling $1.0 million, were reclassified to property and equipment, net, due to increased uncertainty regarding the timing of disposition, driven by deteriorating market conditions in the electric vehicle industry.
• Charges of $1.6 million were recognized during the three months ended March 31, 2025, related to assets held for sale.
• Cash grants of $0.4 million received from the Cedar Park Economic Development Corporation are refundable as applicable performance requirements were not met.

Risks

• The company is dependent on certain suppliers, many of which are single source, and their inability to deliver necessary components in a timely manner at acceptable prices, quality levels, and volumes could have a material adverse effect.
• Estimates of cash expenditures and charges related to the powertrain business wind-down are subject to assumptions, and actual amounts may differ materially from estimates.
• Increased uncertainty regarding the timing of the disposition of powertrain assets is driven by deteriorating market conditions in the electric vehicle industry.
• The company is an early-stage growth company and has generated negative cash flows from operating activities since inception.
• Actual results could differ materially and adversely from forward-looking statements due to known and unknown risks, uncertainties, and other factors, including economic uncertainties, supply chain disruptions, inflation, and high interest rates.
• Changes in U.S. tariff policies may materially and adversely affect the business, potentially increasing the cost of imported parts (e.g., from Germany and China) or causing shipping delays.
• The company may not be able to pass increased costs from tariffs on to customers.
• Investment losses may be incurred due to unusual or unpredictable market developments, even with a conservative investment strategy focused on capital preservation and liquidity.
• Unpredictable market developments may also create liquidity challenges for certain assets in the investment portfolio.
• Future funding requirements depend on many factors, including the pace of R&D efforts, investment in additive printing capacity, manufacturing plans, product offerings, and external market factors beyond control.
• The projected $10 million in equipment-backed financing or debt before the end of 2025 could be delayed into 2026 or may not occur at all if acceptable terms cannot be obtained.
• If different assumptions, such as underlying share volatility, are used for market-conditioned share-based awards, share-based compensation cost could be under or overstated.
• Modifications or cancellations of underlying unvested securities may require acceleration of remaining unearned share-based compensation cost or incur incremental cost.

Future Outlook

The company expects to complete the wind-down of its powertrain business in Q4 2025. Initial customer deployments of the KARNO Power Module are anticipated through the end of 2025 and into early 2026. The company projects continued net losses in the short term as it executes strategic initiatives. Additional KARNO Cores and Power Modules are expected to be delivered in 2026 under the ONR contract, with expanded testing for long duration operation, ship motion simulation, and extreme temperature environments. The company anticipates entering into additional R&D agreements and expects to have approximately $155 million in cash and investments by the end of 2025, contingent on securing $10 million in equipment-backed financing. Future capital raises are anticipated to accelerate investments in additive printing machines and related assets for growth post-commercialization.

Management Comments

• Hyliion is committed to creating innovative solutions that enable clean, efficient, and flexible electricity production while contributing positively to the environment in the energy economy.
• We believe that the unique capabilities of the KARNO Power Module will make it competitive in the market for distributed power systems, competing favorably against conventional generating systems and new alternative power systems such as fuel cells and other linear generators.
• We believe the versatility and operating characteristics of the KARNO Power Module will make it an effective system for a variety of conventional and emerging electricity generating applications.
• We expect to continue to incur net losses in the short term as we execute on our strategic initiatives by completing the development and commercialization of the KARNO Power Module with anticipated initial customer deployments through the end of 2025 and into early 2026.
• While we expect that we have sufficient capital to get through commercialization of the KARNO Power Module, we do anticipate that at some time we will seek additional sources of capital to accelerate investments in assets needed for growth following commercialization, primarily additive printing machines and related assets.
• With our current cash and investments, we are well positioned to be deliberate and opportunistic in determining the timing and structure of a capital raise.

Industry Context

The global demand for electricity is rapidly accelerating due to widespread electrification, urbanization, industrial growth, and technological advancements like cloud computing, AI, and electric vehicles. This surge in demand is straining traditional centralized power grids, which face challenges from aging infrastructure, stability issues, and the integration of intermittent renewable energy sources. Hyliion's KARNO Power Module is positioned as an innovative solution within the emerging distributed generation market, aiming to address these challenges by providing reliable, efficient, and fuel-flexible power closer to the point of consumption. The technology targets diverse sectors such as data centers, commercial and industrial facilities, defense, EV charging, biogas utilization, oil & gas, mobility, backup power, and waste heat recovery, aligning with the broader industry trend towards decentralized, cleaner, and more resilient energy systems.

Comparison to Industry Standards

• The KARNO Power Module is expected to achieve an electrical generating efficiency of up to 50%, surpassing the typical 25% to 40% efficiency range of conventional internal combustion diesel or natural gas generators and the U.S. electrical power grid's estimated 33% to 40% efficiency.
• While best-in-class grid-level combined cycle gas turbine powerplants can achieve efficiencies above 50%, they often incur 5% to 10% transmission and distribution losses, which the KARNO Power Module aims to circumvent by being located near the point of consumption.
• The KARNO Power Module is anticipated to achieve ultra-low emissions, with NOx and CO emissions expected to be reduced by over 95% compared to best-in-class diesel or natural gas engines, meeting South Coast Air Quality Management District (SCAQMD) Rule 1110.3 emission standards without the need for aftertreatment.
• Unlike conventional generators that typically incur 5% to 20% of total operating cost in periodic and usage-based maintenance, the KARNO Power Module's simplified design with only a single moving linear actuator per shaft and helium bearings is expected to significantly reduce maintenance requirements and costs.
• The KARNO Power Module operates at approximately 67 decibels at six feet, offering a significantly lower noise level compared to conventional generators.
• In contrast to fuel cells that reach peak efficiency at low power levels and experience diminishing efficiency as output increases, the KARNO Power Module's high efficiency is expected to remain consistent across a broad range of output power levels.

Legal Proceedings

• The company is not currently involved in any material legal proceedings.
• Periodically involved in legal proceedings, legal actions, and claims arising in the normal course of business, including those related to product liability, intellectual property, safety and health, employment, and contractual disputes.
• The company believes that the outcome of such legal proceedings, legal actions, and claims will not have a significant adverse effect on its financial position, results of operations, or cash flows.

Stakeholder Impact

• Shareholders: Increased net losses and negative cash flow from operations could negatively impact share value. The potential for future capital raises may lead to dilution. The share repurchase program is currently paused.
• Employees: The wind-down of the powertrain business has involved severance and retention payments. Continued investment in R&D supports current R&D personnel.
• Customers: Initial KARNO Power Module deployments and R&D services contracts indicate ongoing engagement and potential for future product sales. Delays in deployment could affect customer timelines and satisfaction.
• Suppliers: Dependence on certain single-source suppliers poses a risk to timely and cost-effective component delivery. Potential impacts from tariffs and supply chain issues could affect supplier relationships and costs.
• Creditors: The company's strong liquidity with cash and investments provides a buffer, but ongoing net losses and negative operating cash flow require monitoring. The pursuit of equipment-backed financing indicates a need for additional debt.

Next Steps

• Complete the wind-down activities for the powertrain business in Q4 2025.
• Continue development and testing of the KARNO Power Module.
• Deploy initial KARNO Power Module units with customers through the end of 2025 and into early 2026.
• Deliver additional KARNO Cores and Power Modules during 2026 under the ONR contract.
• Expand testing for the ONR contract to include long duration operation, ship motion simulation, and extreme temperature environments.
• Enter into additional R&D agreements with third parties based on interest from current and prospective customers.
• Accelerate investments in additive printing capacity and KARNO Power Module manufacturing, potentially through in-house production or outsourcing.
• Evaluate funding needs and sources of capital, potentially seeking external funding to accelerate growth investments following commercialization.
• Implement design modifications to increase the insulative properties of KARNO Core components, with improved results expected in the coming months.

Key Dates

Recommendation

Hyliion is in a critical transition phase, fully pivoting to the KARNO Power Module. While the technology demonstrates promising efficiency and emissions profiles, supported by new government R&D contracts, the company continues to report increasing net losses and negative operating cash flow. Recent delays in product deployment and the reclassification of assets held for sale due to challenging EV market conditions highlight execution risks. The company's substantial cash and investment reserves provide a strong liquidity buffer, but the explicit mention of an anticipated future capital raise, even if opportunistic, introduces potential dilution. Investors should hold to closely monitor the successful commercialization and initial customer deployments of the KARNO Power Module, the company's ability to manage its burn rate, and its success in securing additional financing on favorable terms. The long-term potential of the KARNO technology is significant, but near-term operational and financial uncertainties warrant a cautious approach.

Keywords

KARNO Power Module, Distributed Power Generation, Fuel-Agnostic, Linear Generator, SEC 10-Q, Hyliion Holdings Corp., Energy Efficiency, Low Emissions, R&D Services, Government Contracts, Electric Vehicles, Data Centers, Microgrids, Additive Manufacturing, Thermal Converter