Hyliion (NYSE:HYLN) announced on January 7 that 98.5% of the public warrants set to expire on Dec. 31, 2020, were exercised and converted into 12.5 million shares of HYLN stock.
The manufacturer of electrified powertrain solutions for Class 8 commercial vehicles got $142 million in cash proceeds, an infusion of capital that will help keep the lights on as it moves to capture more market share.
“The successful exercise of these warrants and resulting capital raised allows Hyliion to accelerate its investment in technology, talent and infrastructure towards achieving the company’s mission,” said Thomas Healy, Hyliion’s Chief Executive Officer. “This incremental capital allows us to pursue additional partnerships and M&A activity that we may not have considered previously.”
As I stated in early December, its move to force early redemption of its 12.5 million outstanding warrants wasn’t a bad thing. For 8% dilution, the company was getting $142 million in cash.
I still think that’s a good thing. Here’s why.
There Are Now More Than 166 Million Shares of HYLN Stock Outstanding
Before the January 7 exercise of its warrants, Hyliion had approximately 153.9 million shares outstanding. Add in 12.3 million shares (98.5% exercised) and the number of outstanding jumps to 166.2 million and a market capitalization of $2.87 billion.
Based on its Oct. 1, 2020, strategic combination with Tortoise Acquisition, Hyliion had approximately $520 million in cash entering 2021. The exercise of warrants into common stock increased its cash on the balance sheet by 27% to $662 million or $3.98 per share.
So it’s currently valued at approximately 4.3 times cash. More importantly, having lost $11.8 million in the first nine months of fiscal 2020 on zero revenue, it’s got plenty of cash to grow in 2021.
“With ample resources from our strategic combination, Hyliion is well-capitalized and primed to disrupt the powertrain market. Our focus in 2020 and 2021 will be to position the company for long-term sustainable growth, capturing the material market opportunity from the electrification of class 8 vehicles,” Hyliion CEO Thomas Healy stated in November.
As the company stated on page 14 of its June 2020 presentation, the total addressable market (TAM) for both the Hyliion hybrid-electric system (diesel or compressed natural gas) and its fully-electric Hyliion ERX Hypertruck is $800 billion.
While SPAC investors have gotten used to hyperbole from operating companies before the combination, the fact that it was able to install eight hybrid electric units in the third quarter for four fleet-based customers suggests that it’s going to need a lot of cash sooner rather than later.
That’s a good problem to have.
Ride the Hybrid Electric in the Short-Term
My InvestorPlace colleague Matt McCall summed it up best recently while discussing discussing the advantages of Hyliion’s systems.
“The end result is a transportation platform that has the range and quick refueling rate of traditional semis with the superior emissions profile and energy efficiencies of EVs,” McCall wrote on Dec. 29, 2020.
I like Matt’s thinking.
In my last article about Hyliion, I discussed the fact that it was working with a Canadian trucking company to test five of Hyliion’s hybrid systems on its trucks. If all goes well, it plans to add 95 more in the future.
At $40,000 a pop, that’s $4 million in revenue. To produce those systems, it will need $2.8 million (30% gross margin) to take care of the orders. That doesn’t speak to the operating expenses it will need to carry out its expansion plans beyond the 100 hybrid-electric systems.
For example, Hyliion’s presentation projects 4,100 of these units sold in 2022. That’s $164 million in sales and $115 million in cost of goods. That doesn’t consider the sales and cost of goods of the 2,500 Hyliion ERX Hypertrucks it expects to sell in 2022.
So the fact it was able to get $142 million in additional cash before the expenses have really started to pile up ought to be good news for potential investors. From where I sit, it appears the company is prepared as it can be for the growing pains that will come in 2021.
If you’re a speculative investor, I don’t see a problem buying at current prices, but I think $15 is an excellent entry point.
I continue to like Hyliion’s chances.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.