Hyzon Motors (HYZN) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements The September 30, 2021 financial statements reflect significant post-business combination changes, including increased assets, first revenue, and net income from non-cash fair value adjustments Condensed Consolidated Balance Sheets The September 30, 2021 balance sheet reflects a dramatic increase in assets, primarily cash, post-business combination, with corresponding growth in liabilities and equity Condensed Consolidated Balance Sheets Highlights (in thousands) | Balance Sheet Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $498,014 | $17,139 | | Total current assets | $543,820 | $17,987 | | Total Assets | $562,818 | $21,005 | | Liabilities & Equity | | | | Total current liabilities | $33,294 | $5,063 | | Earnout liability | $114,758 | $— | | Total liabilities | $162,079 | $6,244 | | Total Stockholders' Equity | $400,739 | $14,761 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q3 2021, Hyzon reported its first revenue and a significant operating loss, which was offset by non-cash fair value adjustments leading to net income Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | For the period Jan 21, 2020 – Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $962 | $— | $962 | $— | | Loss from operations | $(49,612) | $(540) | $(62,657) | $(833) | | Change in fair value of earnout liability | $73,615 | $— | $73,615 | $— | | Net income (loss) | $31,253 | $(556) | $13,154 | $(854) | | Diluted EPS attributable to Hyzon | $0.13 | $— | $0.07 | $(0.01) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, cash flows reflect significant usage in operations and investing, largely offset by substantial financing proceeds from the Business Combination Cash Flow Summary for the Nine Months Ended September 30, 2021 (in thousands) | Cash Flow Category | Amount | | :--- | :--- | | Net cash used in operating activities | $(56,236) | | Net cash used in investing activities | $(17,584) | | Net cash provided by financing activities | $558,108 | | Net change in cash and restricted cash | $483,435 | - The Business Combination provided net proceeds of $512.9 million, which was the primary source of cash for the period[20] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, the Business Combination's reverse recapitalization, first revenue, warrant and earnout liabilities, related-party transactions, and ongoing legal proceedings - The Business Combination with DCRB, completed on July 16, 2021, was accounted for as a reverse recapitalization, with Legacy Hyzon as the accounting acquirer[22][41] - The company recognized its first revenue of $1.0 million from the sale of fuel cell vehicles in Q3 2021 and has remaining performance obligations of $20.6 million as of September 30, 2021[53][57] - The company is involved in putative securities class action lawsuits following a short-seller report by Blue Orca Capital on September 28, 2021, and Hyzon intends to vigorously defend against these claims[81] - A significant stock-based compensation expense of $13.4 million was recognized in September 2021 related to a retirement and consulting agreement with the former Chief Technology Officer[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business overview, post-combination financial performance, including first revenue, increased expenses, non-cash driven net income, liquidity, and critical accounting policies - The company operates two main business lines: commercial vehicles (assembling and supplying fuel cell electric vehicles) and hydrogen supply infrastructure (building a clean hydrogen ecosystem with partners)[114][115][118] - As of September 30, 2021, Hyzon had received customer orders with an aggregate value of approximately $20.6 million and had received $11.0 million in customer deposits[129] - The increase in Selling, General and Administrative expenses in Q3 2021 was primarily driven by $26.7 million in stock compensation expense, which included $13.4 million for a key executive's retirement and $13.1 million for earnout equity awards from the Business Combination[145] Reconciliation to Adjusted EBITDA (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net income (loss) | $31,253 | $13,154 | | EBITDA | $31,730 | $18,921 | | Adjusted EBITDA | $(15,168) | $(27,100) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company under SEC regulations - As a smaller reporting company, Hyzon is exempt from the requirement to provide the information for this item pursuant to Item 305(e) of Regulation S-K[208] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of September 30, 2021, due to a material weakness in internal control over financial reporting, with remediation plans underway - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of September 30, 2021[211] - A material weakness was identified due to insufficient financial reporting resources, lack of segregation of duties, and inadequate control oversight over the financial reporting process, which is common for a company of its size and limited operating history[213] - Remediation plans are in progress, including hiring more finance and accounting personnel, developing formal policies, and adopting new technological solutions to address the material weakness[215][216] PART II – OTHER INFORMATION This section covers legal proceedings, updated risk factors, unregistered equity sales, and a list of exhibits Item 1. Legal Proceedings This section incorporates by reference the information from Note 11 of the financial statements, which details ongoing legal matters, including putative securities class action lawsuits - The company refers to Note 11 for details on legal proceedings, which include securities class action lawsuits filed in Q3 2021[220][81] Item 1A. Risk Factors The company highlights new litigation and regulatory risks following a short-seller report, and reiterates risks from material weaknesses in internal control over financial reporting - A new risk factor has emerged related to litigation, regulatory actions, and government investigations following a short-seller report by Blue Orca Capital in September 2021[222] - The company has identified and is working to remediate material weaknesses in its internal control over financial reporting, which could impact the accuracy of financial statements if not corrected[224][225] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Information regarding unregistered sales of equity securities and the use of proceeds is contained in the company's Current Report on Form 8-K, filed with the SEC on July 22, 2021 - This item refers to the Form 8-K filed on July 22, 2021, for relevant information[228] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, agreements, plans, and required certifications