AEYE, INC. This discussion contains forward-looking statements that are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and those set forth under "Risk Factors" herein and other filings we make with theSEC from time to time. Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "we", "our", "us", and "AEye" refer to the business and operations ofAEye, Inc.
Overview
AEye is a provider of high-performance, adaptive lidar systems for vehicle autonomy, ADAS, and robotic vision applications. With a sophisticated workforce of leaders and researchers,AEye has developed an artificial intelligence technology that enables adaptive "intelligent sensing", differentiatingAEye in the marketplace from competition.AEye's software-definable iDAR™ ("Intelligent Detection and Ranging") platform combines adaptive lidar, an optionally fused camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception.AEye was founded in 2013 byLuis Dussan ,AEye's Chief Technology Officer. His goal was to create a deterministic AI-driven sensing system that performs better than the human eye and visual cortex. From its inception,AEye's culture drew from esteemed scientists and electro-optics engineers from theNational Aeronautics and Space Administration ("NASA"), Lockheed Martin Corporation, Northrop Grumman Corporation, theU.S. Air Force , and theDefense Advanced Research Projects Agency ("DARPA") to create the highest performing sensing and perception system for the most challenging situations, ensuring the highest levels of safety for autonomous driving. Our adaptive iDAR is designed to enable higher levels of autonomy and functionality - SAE Levels 2 through 5 - with the goal of optimizing performance, power and reducing price. Our iDAR platform is software-definable, network-optimized, and leverages deterministic artificial intelligence at the edge. We have substantial investments in our R&D processes and deliver value to our customers through a combination of sales and direct channels. We perform the majority of our R&D activities in our 56,549 square foot corporate headquarters inDublin, California , along with working with technology developers on a world-wide basis to develop new technology. We are partnering with leading Tier 1 suppliers to integrateAEye proprietary technology and design, ultimately meeting the specifications of OEMs while building reliable, trusted business relationships. We expect to enable accelerated adoption of lidar across many markets and have partnered with leading Tier 1 automobile suppliers to achieve this mission. The main markets for lidar, including Automotive, Industrial, and Mobility, are projected to see significant growth, allowing for greater market share as well as specialization opportunities like highway autonomous driving applications that benefit from our product. We believe that lidar will be a required sensing solution across many end markets and we intend to be the leading solutions provider in this space.
All dollar amounts expressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars, except for per share amounts and unless otherwise specified.
Business Combination and Public Company Costs
As a result of the Business Combination, which was consummated onAugust 16, 2021 , a subsidiary of CF Finance Acquisition Corp III ("CF III"),Meliora Merger Sub, Inc. , merged with and intoAEye Technologies, Inc. , then known asAEye, Inc. ("AEye Technologies"), with AEye Technologies continuing as the surviving entity as a wholly owned subsidiary of CF III, and CF III thereafter operated under the new nameAEye, Inc. The Business Combination was accounted for as a reverse recapitalization, in accordance withU.S. GAAP. Under this method of accounting, CF III was treated as the legal acquirer and as the accounting acquiree. This 41 -------------------------------------------------------------------------------- determination is primarily based onAEye stockholders comprising a relative majority of the voting power of the combined entity and having the ability to nominate the majority of the governing body of the combined entity,AEye's senior management comprising the senior management of the combined entity andAEye's operations comprising the ongoing operations of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements ofAEye and the Business Combination will be treated as the equivalent ofAEye issuing stock for the net assets of CF III, accompanied by a recapitalization. The most significant change in the Company's financial position and results of the business combination was an increase in cash of$256,811 . Total non-recurring transaction costs incurred for this transaction were$52,661 . Upon the closing of the Business Combination, the Company began trading under the symbols "LIDR" and "LIDRW" on theNasdaq Stock Market LLC ("Nasdaq"). We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. COVID-19 Impact The extensive impact of the pandemic caused by the COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. The ongoing COVID-19 pandemic has disrupted and affectedAEye's business operations, which has led to business and supply chain disruptions, as well as broad changes in its supply and demand. For example,AEye's offices and R&D and manufacturing have been, and from time-to-time may continue to be, impacted due to national and regional government declarations requiring closures, quarantines and travel restrictions. To mitigate the impact of the pandemic,AEye took several steps during 2020 to ensure its viability into the future. We significantly reduced internal discretionary costs, reduced senior leadership salaries, furloughed and laid off a portion of the employees, and obtained a loan and rent deferral for a period of six months in 2020. We also applied for and were granted a Paycheck Protection Program, or PPP, loan of$2,270 with SVB as part of theU.S. Small Business Administration program. This loan enabled us to bring back a portion of the furloughed employees. The continued impact of the COVID-19 pandemic onAEye's operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time. We expect the COVID-19 pandemic may adversely impact our future revenue and results of operations, but are unable to predict at this time the size and duration of this adverse impact. At the same time, we have seen some signs of positive effects for our long-term business prospects and partnerships as a result of the pandemic. We believe automakers perceive the incorporation of lidar solutions in new models as a long-term strategic initiative that will be necessary for future growth and which are therefore beyond the direct impact of the COVID-19 pandemic. For more information on our operations and risks related to epidemics, including COVID-19, please see the section of this Quarterly Report on Form 10-Q entitled "Risk Factors."
Key Factors Affecting AEye's Operating Results
AEye believes that its future performance and success depends to a substantial extent on its ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and the risk factors described in the section of this Quarterly Report on Form 10-Q entitled "Risk Factors." We are subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or commercialize its products, attract new customers and retain existing customers, develop and protect intellectual property, comply with existing and new or modified laws and regulations applicable to its business, maintain and 42 --------------------------------------------------------------------------------
enhance the value of its reputation and brand, hire, integrate, and retain talented people at all levels of its organization, and successfully develop new solutions to enhance the experience of customers.
Market Trends and Uncertainties
AEye anticipates growing demand for its iDAR perception platform across three major markets, the Automotive, Industrial and Mobility markets.AEye anticipates the total addressable market for lidar-based perception technology to grow to$42 billion by 2030. Within those markets,AEye is targeting attractive segments including ADAS, autonomous driving, commercial trucking, robo-taxis, and various Industrial and Mobility market segments such as mining, aviation, shuttles, railway, and intelligent transportation systems, or ITS. This providesAEye with multiple opportunities for sustained growth by enabling new applications and product features across these market segments. However, as our customers continue R&D projects to commercialize solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end market and customer adoption. In the Automotive market for example,AEye's growth and financial performance will be heavily influenced by its ability to successfully integrate into OEM programs that require years of development, testing, and validation. Because of the size and complexity of these OEM programs,AEye sees its existing Tier 1 partnerships as a substantial competitive advantage given their large scale, mass-production capabilities, and existing OEM customer relationships.AEye's primary focus in Automotive is on ADAS for passenger and commercial vehicle autonomy, particularly highway autonomy applications. We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety.AEye will need to anticipate and adapt to any changes in the regulatory environment, as well as changes in consumer demand in order to take advantage of this opportunity. Additionally,AEye is increasing its investments in international operations and partnerships that will position the company to expand its business globally and meet growing demand in the international markets. This is an important part ofAEye's core strategy and may exposeAEye to additional factors such as foreign currency risk, additional operating costs, and other risks and challenges that may impact the ability to meet projected sales and margins.
Partnerships and Commercialization
AEye's technology is designed to be a key enabler of autonomous solutions for Automotive, Industrial and Mobility applications. Because our technology must be integrated into a broader solution by our customers, it is critical thatAEye achieves design wins with these customers. Achieving these design wins varies based on the market and application. The design win cycle in the Automotive market tends to be substantially longer and more difficult than in other markets. Achieving a design win with an OEM within the Automotive market may take considerably longer than a design win with customers in the Industrial or Mobility markets.AEye considers design wins to be critical to its future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predictAEye's financial performance.AEye's revenue and profitability will be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, that intend to use our technology in volume production of lidar sensors for OEMs. Delays of autonomy programs from OEMs thatAEye is currently or will be working with through our Tier 1 partners could result inAEye being unable to achieve its revenue targets and profitability in the time frame we anticipate. Our revenue and profitability will be further dependent upon both our success in selling our lidar solutions to customers in the Industrial and Mobility markets.
Gross Margin Improvement
Our gross margins will depend on numerous factors, including among others the average selling price of our products, pricing of our development contracts with customers, royalty rates on licenses we grant to our customers, unit volumes, product mix, component costs, personnel costs, contract manufacturing costs, overhead costs, and product features. In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in Automotive, and we expect those licenses will begin generating revenue forAEye in 2024. We also sell our own lidar solutions to customers in the Industrial and Mobility markets 43 -------------------------------------------------------------------------------- utilizing low-cost components that are sourced from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners. If our Tier 1 partners in Automotive do not achieve the volumes that we expect, then the cost of the components we use to address the Industrial and Mobility markets may be higher than we currently anticipate and may impact our gross margins and our ability to achieve profitability. To date, our revenue has been generated through development and/or collaboration arrangements with OEMs and Tier 1 suppliers to the OEMs, as well as unit sales of our products. The development contracts primarily focus on customization of our proprietary iDAR capabilities to the customers' applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of particular perception capabilities to meet specific customer needs. In general, development and/or collaboration arrangements that require more complex configurations have higher prices and higher gross margins. We expect development contracts to represent a smaller share of our total revenue over time, as we increase our focus on technology licensing and product sales. We expect our gross margins from the sale of products to improve over time as we outsource volume production of our lidar sensors to contract manufacturers, which will both increase unit volumes and reduce the cost per unit. InSeptember 2021 , we commenced our transition process to contract manufacturers.
Investment and Innovation
Our proprietary adaptive, intelligent lidar technology delivers industry-leading performance that helps to solve the most difficult challenges in delivering partial or full autonomy. While traditional sensing systems passively collect data,AEye's active iDAR leverages principles from automated targeting systems and biomimicry to scan its environment, while intelligently focusing on what matters in order to enable safer, smarter, and faster decisions in complex scenarios. We believe our financial performance is significantly dependent on our ability to maintain a technology leadership position. This is further dependent on the investments we make in R&D. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, and generate strong market demand for our products. If we fail to do this, our leading market position and revenue may be adversely affected, and our investments in that area will not be recovered.
Components of Results of Operations
Total Revenues
We categorize our revenue as (1) prototype sales and (2) development contracts. In 2020 and during the first three quarters of 2021, our prototype revenue primarily related to unit sales of the company's 4Sight M product. Revenue from prototype sales is typically recognized at a point in time when the control of goods is transferred to the customer, generally upon delivery or shipment to the customer. Development contracts represented the majority of our total revenues in 2020 and approximately half of total revenues for the first three quarters of 2021. Revenue from development contracts are earned from R&D and/or collaboration arrangements with OEMs and Tier 1 suppliers to the OEMs. These contracts primarily focus on customization of our proprietary iDAR capabilities to the customers' applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of perception capabilities to meet specific customer needs. Revenue from development contracts is recognized when we satisfy performance obligations in the contract, which can result in recognition at either a point in time or over time. This assessment is made at the outset of the arrangement for each performance obligation.
Cost of Revenue
Cost of Revenue includes the cost of component inventory used in the production
of prototypes, direct and indirect labor costs associated with the units, as
well as direct labor associated with development contracts.
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--------------------------------------------------------------------------------Operating Expenses Research and Development
Our R&D efforts are focused primarily on hardware, software, and system engineering related to the design and development of our advanced lidar solutions. R&D expenses include:
•personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense; •third-party engineering and contractor costs; •new hardware and software expenses; and •allocated overhead expenses. R&D costs are expensed as they are incurred. Our investment in R&D will continue to grow because we believe that investment is essential to maintain our position as a provider of one of the most advanced lidar solutions available.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation, for all personnel directly involved in business development and customer account management, trade shows expenses, advertising and promotions expenses for press releases, other public relations services, and allocated overhead expenses. We expect our sales and marketing expense to grow over time as we continue to expand our sales and marketing efforts to support the anticipated growth of our business. General and Administrative Our general and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation, for executive, finance, legal, human resources, technical support, and other administrative personnel. Other significant expenses include consulting, accounting, legal and professional fees, insurance premiums, software and computer equipment costs, general office expenses, and allocated overhead expenses. We expect our general and administrative expenses to increase for the foreseeable future as we increase our headcount to support the growth of our business, and as a result of operating as a public company, including additional costs and expenses associated with compliance with the rules and regulations of theSEC , legal, audit, insurance, investor relations, and other administrative and professional services.
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities is the result of the change in fair value at each reporting date. The carrying amounts of the embedded derivative and warrant liabilities are recorded at fair value at issuance, marked-to-market as of each balance sheet date, and changes in fair value are reported as either income or expense during the period. Upon the closing of the Business Combination, the embedded derivative was settled, the pre-combination common stock warrants and Series A preferred stock warrants were net settled and converted to Class A common stock and private placement warrants were acquired as part of the Business Combination.
Interest Income, Interest Expense and Other
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities. These amounts will vary based on our cash and cash equivalents balances and market rates. Interest expense consisted primarily of interest on our borrowings and convertible notes and amortization of debt issuance costs and discount.
Results of Operations
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Comparison of the Three Months Ended
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report. The following table sets forth our condensed consolidated results of operations data for the three months endedSeptember 30, 2021 and 2020 (in thousands, except for percentages): Three months ended September 30, Change Change 2021 2020 $ % Prototype sales$ 127 $ 87 $ 40 46.0 % Development contracts - 1,050 (1,050) (100.0) % Total revenues 127 1,137 (1,010) (88.8) % Cost of revenue 466 317 149 47.0 % Gross (loss) profit (339) 820 (1,159) (141.3) % Research and development 7,468 3,247 4,221 130.0 % Sales and marketing 2,991 672 2,319 345.1 % General and administrative 6,086 1,650 4,436 268.8 % Total operating expenses 16,545 5,569 10,976 197.1 % Loss from operations (16,884) (4,749) (12,135) 255.5 % Change in fair value of embedded derivative and warrants liabilities 341 1,366 (1,025) (75.0) % Gain on PPP loan forgiveness - - - 0.0 % Interest income and other 69 6 63 1,050.0 % Interest expense and other (919) (401) (518) 129.2 % Total other income (expense), net (509) 971 (1,480) (152.4) % Net loss$ (17,393) $ (3,778) $ (13,615) 360.4 % Revenue Prototype Sales
Prototype sales increased by
Development Contracts Development contracts decreased by$1,050 or 100.0%, for the three months endedSeptember 30, 2021 . The decrease was primarily due to revenue recognized in the prior year from a large Tier 1 contract. Cost of Revenue
Cost of revenue increased by
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--------------------------------------------------------------------------------Operating Expenses Research and Development Research and development expenses increased by$4,221 , or 130.0%, for the three months endedSeptember 30, 2021 . This increase was primarily driven by an increase in nonrecurring engineering research and development fees of$2,547 , stock-based compensation expense of$571 , personnel costs of$861 , and administrative expenses of$312 , including IT charges of$272 .
Sales and Marketing
Total sales and marketing expenses increased by$2,319 , or 345.1%, for the three months endedSeptember 30, 2021 . This increase was primarily due to an increase in marketing program spend of$664 , stock-based compensation expense of$362 , and personnel costs of$1,080 .
General and Administrative
Total general and administrative expenses increased by$4,436 , or 268.8%, for the three months endedSeptember 30, 2021 . This increase was primarily due to an increase in administrative fees of$2,194 , including insurance fees of$636 , professional fees of$1,177 , and personnel costs of$1,400 .
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities decreased$1,025 , or 75.0% for the three months endedSeptember 30, 2021 . This decrease was primarily due to a significant decrease in the fair value of the embedded derivative resulting in a gain during Q3 2020.
Gain on PPP Loan Forgiveness
Gain on PPP loan forgiveness had a
Interest Income and Other
Interest income and other increased by$63 , or 1,050.0%, for the three months endedSeptember 30, 2021 . This increase was primarily due to the interest earned on our marketable securities of$65 inSeptember 2021 .
Interest Expense and Other
Interest expense and other increased by$518 , or 129.2%, for the three months endedSeptember 30, 2021 . This increase was primarily due to the expense increase related to the SVB financing facility loan of$111 , an increase in interest on convertible notes of$49 , and an increase in the amortization of debt discount and issuance costs of$257 .
Net Loss
Net loss increased by
Comparison of the Nine Months Ended
The results of operations presented below should be reviewed in conjunction with
the condensed consolidated financial statements and notes included elsewhere in
this report. The following table sets forth our
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condensed consolidated results of operations data for the nine months ended
Nine months ended September 30, Change Change
2021 2020 $ %
Prototype sales $ 588 $ 150 $ 438 292.0 %
Development contracts 615 1,150 (535) (46.5) %
Total revenues 1,203 1,300 (97) (7.5) %
Cost of revenue 1,537 464 1,073 231.3 %
Gross (loss) profit (334) 836 (1,170) (140.0) %
Research and development 19,030 11,207 7,823 69.8 %
Sales and marketing 6,489 2,610 3,879 148.6 %
General and administrative 13,846 4,862 8,984 184.8 %
Total operating expenses 39,365 18,679 20,686 110.7 %
Loss from operations (39,699) (17,843) (21,856) 122.5 %
Change in fair value of embedded
derivative and warrant liabilities 222 1,284 (1,062) (82.7) %
Gain on PPP loan forgiveness 2,297 - 2,297 100.0 %
Interest income and other 74 19 55 289.5 %
Interest expense and other (2,871) (955) (1,916) 200.6 %
Total other income (expense), net (278) 348 (626) (179.9) %
Net loss $ (39,977) $ (17,495) $ (22,482) 128.5 %
Revenue
Prototype Sales
Prototype sales increased by
Development Contracts Development contracts decreased by$535 , or 46.5%, for the nine months endedSeptember 30, 2021 . The decrease was primarily due to revenue recognized in the prior year from a large Tier 1 contract.
Cost of Revenue
Cost of revenue increased by
Operating Expenses
Research and Development
Research and development expenses increased by$7,823 , or 69.8%, for the nine months endedSeptember 30, 2021 . This increase was primarily driven by an increase in nonrecurring engineering research and development fees of$4,910 , stock-based compensation expense of$1,721 , personnel costs of$901 , and administrative expenses of$481 , including IT charges of$460 . 48 --------------------------------------------------------------------------------
Sales and Marketing
Total sales and marketing expenses increased by$3,879 , or 148.6%, for the nine months endedSeptember 30, 2021 . This increase was primarily due to an increase in marketing program spend of$924 , stock-based compensation expense of$1,055 , and personnel costs of$1,702 .
General and Administrative
Total general and administrative expenses increased by$8,984 , or 184.8%, for the nine months endedSeptember 30, 2021 . This increase was primarily due to an increase in administrative expense, including professional accounting and legal fees of$2,371 , stock-based compensation expense of$2,930 , and personnel costs of$2,634 .
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities decreased by$1,062 or 82.7% for the nine months endedSeptember 30, 2021 . This decrease was due to a significant decrease in the fair value of the embedded derivative resulting in a gain during Q3 2020.
Gain on PPP Loan Forgiveness
Gain on PPP loan forgiveness increased by$2,297 , or 100.0% for the nine months endedSeptember 30, 2021 . This increase was due to the gain from the forgiveness of the PPP loan. Interest Income and Other Interest income and other increased by$55 , or 289.5%, for the nine months endedSeptember 30, 2021 . This increase was primarily due to the interest earned on our marketable securities of$65 inSeptember 2021 .
Interest Expense and Other
Interest expense and other increased by$1,916 , or 200.6%, for the nine months endedSeptember 30, 2021 . This increase was primarily due to the expense increase related to the SVB financing facility loan of$235 , interest on convertible notes of$510 and an increase in the amortization of debt discount and issuance costs of$923 . Net Loss
Net loss increased by
Liquidity and Capital Resources
Sources of Liquidity
AEye's capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, increased costs as we continue to hire additional personnel, and market adoption of new and enhanced products and features. As ofSeptember 30, 2021 , our cash, cash equivalents, and marketable securities totaled$182,378 . To date,AEye's principal sources of liquidity have been proceeds received from the issuance of equity. UntilAEye can generate sufficient revenue from the sale of its products to cover operating expenses, working capital, and capital expenditures,AEye expects the funds raised in the Business Combination, including the funds 49 -------------------------------------------------------------------------------- from PIPE financing, to fund its cash needs. If we are required to raise additional funds by issuing equity securities, dilution of stockholders may result. Any debt securities issued may also have rights, preferences, and privileges senior to those of holders ofAEye common stock. The terms of debt securities or borrowings could impose significant restrictions onAEye's operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing. During the nine months endedSeptember 30, 2021 and 2020, we had a net loss of$39,977 and$17,495 , respectively. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development expenses and selling, general and administrative expenses will continue to be significant and, as a result, we may need additional capital resources to fund our operations. We believe that the net proceeds from the Business Combination, together with our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. Cash Flow Summary Nine months ended September 30, 2021 2020 (in thousands) Net cash provided by (used in): Operating activities $ (39,588)$ (13,958) Investing activities$ (130,712) $ (4,017) Financing activities $ 208,421$ 14,428 Operating Activities For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$39,588 . Factors affecting our operating cash flows during this period were net loss of$39,977 and gain on PPP loan forgiveness of$2,297 , offset by stock-based compensation of$6,522 , amortization of issuance costs of$725 , and amortization of debt issuance costs of$752 . Within operating activities, the net changes in operating assets and liabilities was cash used of$6,193 , primarily driven by increases in prepaids and other current assets of$5,305 and inventory of$2,197 , partially offset by increases in accrued expenses and other current liabilities of$1,417 , and accounts payable of$840 . For the nine months endedSeptember 30, 2020 , net cash used in operating activities was$13,958 . Factors affecting our operating cash flows during this period were net loss of$17,495 and change in fair value of embedded derivative and liability of$1,284 , offset by stock-based compensation of$815 and depreciation and amortization of$679 . Within operating activities net changes in operating assets and liabilities was cash provided of$2,657 , primarily driven by decreases in prepaids and other current assets of$3,832 , partially offset by increases in inventory of$414 .
Investing Activities
For nine months endedSeptember 30, 2021 , net cash used in investing activities was$130,712 . The primary factor affecting net cash used in investing activities during this period was the purchase of available-for-sale securities of$129,999 . For nine months endedSeptember 30, 2020 , net cash used in investing activities was$4,017 , due to the purchase of property and equipment of$4,017 associated with the construction allowance for the new headquarters.
Financing Activities
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For the nine months ended September 30, 2021 , net cash provided by financing
activities was $208,421 . The primary factors affecting our financing cash flows
during this period were the proceeds from the Business Combination and private
offering of $256,811 , partially offset by transaction costs related to the
Business Combination of $47,775 , proceeds from a bank loan of $10,000 , offset by
principal payments on the credit facility of $13,333 .
For the nine months ended September 30, 2020 , net cash provided by financing
activities was $14,428 . The primary factors affecting our financing cash flows
during this period were the proceeds from the issuance of AEye Convertible
Equity Instruments of $12,596 , proceeds from PPP loan of $2,270 , offset by
principal payments on a credit facility of $444 .
Contractual Obligations and Commitments
In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments result primarily from lease for office space. The following table summarizes our contractual obligations and commercial commitments (in thousands) as ofSeptember 30, 2021 : Less than More than 1 year 1 to 3 years 3 to 5 years 5 years Rental Payments$ 2,333 $ 4,719 $ 5,006 $ 425 Total$ 2,333 $ 4,719 $ 5,006 $ 425
Off-Balance Sheet Arrangements
As of the balance sheet date ofSeptember 30, 2021 we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are in accordance with GAAP. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, fair value measures and the related disclosures in the condensed consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities and fair value measures that are not readily apparent from other sources. As a result, these accounting policies could materially affect our financial statements.
Revenue
We recognize revenues from the sale of prototype systems and from R&D and collaboration and development arrangements with OEMs and suppliers to the OEMs. Revenue represents the amount of expected consideration we are entitled to receive upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of sales taxes. We recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment; (ii) legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation.
The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and
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conditions may require relevant contract interpretation to determine the
appropriate accounting treatment, including whether the promised goods and
services specified in a multiple element arrangement should be treated as
separate performance obligations. When a contract involves multiple performance
obligations, the Company accounts for individual products and services
separately if the customer can benefit from the product or service on its own or
with other resources that are readily available to the customer and the product
or service is separately identifiable from other promises in the arrangement.
For multiple element obligations, the transaction price is allocated to each
performance obligation using the relative stand-alone selling price.
Stock-Based Compensation
We recognize stock-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We estimate the fair value of options using the Black-Scholes option-pricing model, which requires objective and subjective assumptions such as the option's expected term, fair value of our ordinary shares, risk-free interest rate, expected dividend yield, expected term, and expected volatility of our ordinary shares. Our assumptions may differ from those used in prior periods. Changes to the estimates we make from time to time may have a significant impact on our stock-based compensation expense and could materially impact our results of operations. The grant date fair value of our common stock, prior to the closing of the Business Combination was determined using valuation methodologies that utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability. Subsequent to the closing of the Business Combination the valuation of our common stock was determined using the publicly traded closing price as reported on Nasdaq.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable.
AEye is an "emerging growth company" as defined in Section 2(a) of the
Securities Act, and has elected to take advantage of the benefits of the
extended transition period for new or revised financial accounting standards.
Following the consummation of the Business Combination, our Post-Combination
Company will remain an emerging growth company until the earliest of (i) the
last day of the fiscal year in which the market value of common stock that is
held by non-affiliates exceeds $700 million as of the end of that year's second
fiscal quarter, (ii) the last day of the fiscal year in which the Company has
total annual gross revenue of $1.07 billion or more during such fiscal year (as
indexed for inflation), (iii) the date on which the Company has issued more than
$1.0 billion in non-convertible debt in the prior three-year period, or (iv)
December 31, 2024 . AEye expects to continue to take advantage of the benefits of
the extended transition period, although it may decide to early adopt such new
or revised accounting standards to the extent permitted by such standards. This
may make it difficult or impossible to compare the Company's financial results
with the financial results of another public company that is either not an
emerging growth company or is an emerging growth company that has chosen not to
take advantage of the extended transition period exemptions because of the
potential differences in accounting standards used.
Recent Accounting Pronouncements
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See Note 1 toAEye's financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.
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