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
We are a provider of high-performance, active lidar system technology for vehicle autonomy, advanced driver-assistance systems, or ADAS, and robotic vision applications. With a sophisticated workforce of leaders and researchers, we have developed an artificial intelligence technology that enables adaptive "intelligent sensing," differentiating us in the marketplace from our competition. Our proprietary software-definable 4SightTM Intelligent Sensing Platform combines solid-state active lidar, an optionally fused low-light HD camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception of the surroundings. We were founded in 2013 byLuis Dussan , our Chief Technology Officer, to create a deterministic AI-driven sensing system that performs better than the human eye and visual cortex.Mr. Dussan's experience developing mission-critical targeting systems for fighter jets and ground troops on behalf of theU.S. military provided him with the background to develop a differentiated approach to visual sensing. While traditional sensing systems passively collect data, our active 4SightTM Intelligent Sensing Platform leverages principles from automated targeting systems and biomimicry to scan the environment, while intelligently focusing on what matters in order to enable safer, smarter, and faster decisions in complex scenarios. From our inception, our culture has drawn from esteemed scientists and electro-optics engineers from theNational Aeronautics and Space Administration , or NASA, Lockheed Martin Corporation, Northrop Grumman Corporation, theU.S. Air Force , and theDefense Advanced Research Projects Agency , orDARPA , to create the highest performing sensing and perception system for the most challenging situations, ensuring the highest levels of safety for autonomous driving. As a result, our adaptive lidar is designed to enable higher levels of autonomy and functionality - SAE Levels 2 through 5 - with the goal of optimizing performance and power, and reducing cost. Our 4Sight Intelligent Sensing Platform is software-definable and network-optimized, and leverages deterministic artificial intelligence at the edge. We have made 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 . Our modular design facilitates product hardware updates as technologies evolve, and its small size and modest heat dissipation enable very flexible placement options on the interior or exterior of a vehicle. 4Sight also leverages a common architecture to create application-specific products across the Automotive, Mobility and Industrial markets. Our systems-based approach encourages partnership from the well-established automotive supply chain, including original equipment manufacturers, or OEMs, as well as Tier 1 and Tier 2 suppliers. There is strong alignment between us and our partners given what is required to produce a high-performance automotive grade product at scale, including quality, reliability, and affordability. Our Tier 1 partners will add value with OEM customers through industrialization, manufacturing, integration, sales, marketing, product liability, and warranty. Our Tier 2 partners will provide automotive-grade sub-components, which are used not only in automotive lidar for ADAS use cases, but also for our products to be sold in the Industrial and Mobility markets. We expect the result will be a high-quality, high-performance product at a low cost, which we believe to be a key enabler in accelerating adoption of lidar across various markets in the Automotive market and beyond. In pursuing this strategy, we have partnered with leading Tier 1 automotive suppliers including Continental AG,HELLA GmbH & Co. KG aA, Aisin Corporation, andZKW Group GmbH (an affiliate of LG Electronics Inc.). One of our Tier 1 partners is currently in the process of bidding for long range lidar series production awards with OEMs that are expected to represent a substantial portion of our 2026 forecasted revenues. The main markets for lidar, including Automotive, Industrial, and Mobility, are projected to see significant growth in both the near and long term. We believe this expected growth will allow us to achieve greater market share as well as pursue specialization opportunities like highway autonomous driving applications that benefit from our products. We expect that lidar will be a required sensing solution across many end markets, and we intend to be the leading solutions 29 --------------------------------------------------------------------------------
provider in these spaces.
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 closed onAugust 16, 2021 , a subsidiary of CF Finance Acquisition Corp III, or CF III,Meliora Merger Sub, Inc. , merged with and intoAEye, Inc. , then known asAEye Technologies, Inc. , or AEye Technologies, with AEye Technologies continuing as the surviving entity as a wholly owned subsidiary of CF III, and CF III thereafter operating under the new nameAEye, Inc. , orAEye , or the combined entity. The Business Combination was accounted for as a reverse recapitalization, in accordance withU.S. GAAP. Under this method of accounting, AEye Technologies was treated as the accounting acquirer, meaning CF III was treated as the acquired company for financial reporting purposes. This determination is primarily based on AEye Technologies' stockholders comprising a 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. Additionally,AEye Technologies' senior management comprise the senior management of the combined entity and AEye Technologies' operations comprise 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 of AEye Technologies, and the Business Combination will be treated as the equivalent of AEye Technologies issuing stock for the net assets of CF III, accompanied by a recapitalization. The most significant change inAEye Technologies' financial position and results of the business combination was an increase in cash of$256,811 , before transaction costs. Total non-recurring transaction costs incurred for this transaction were$52,661 . Upon the closing of the Business Combination, our common stock and warrants began trading under the symbols "LIDR" and "LIDRW," respectively, on theNasdaq Stock Market LLC , or 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 pandemic 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, despite the reports of declines in severity.The continued impact of the COVID-19 pandemic on our operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on our 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 we are unable to predict at this time the size and duration of this adverse impact. 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 Our Operating Results
We believe that our future performance and success depends to a substantial
extent on our 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 our
products; attract new customers and retain our existing customers; develop and
protect our intellectual property; comply with existing and new or modified laws
and regulations applicable to our business; maintain and enhance the value of
our reputation and brand; hire, integrate, and retain talented people at all
levels of our organization; and successfully develop new solutions to enhance
the experience of, and deliver value to, our customers.
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--------------------------------------------------------------------------------Market Trends and Uncertainties
We anticipate growing demand for our 4SightTM Intelligent Sensing Platform across three major markets - Automotive, Industrial, and Mobility. We also anticipate that the total addressable market for lidar-based perception technology will grow to$42 billion by 2030. Within those markets, we are targeting attractive segments, including advanced driver-assistance systems, or ADAS, autonomous driving, commercial trucking, robo-taxis, and various Industrial and Mobility market segments such as mining, aerospace, defense, shuttles, railway, and intelligent transportation systems, or ITS. This provides us 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, which accounted for 64% and 70% of our revenue in the six months endedJune 30, 2022 and 2021, respectively, our growth and financial performance will be heavily influenced by our 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, we see our existing Tier 1 partnerships as a substantial competitive advantage given their large scale, mass-production capabilities, and existing OEM customer relationships. Our primary focus in the Automotive market 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. We 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, we are increasing our investments in international operations and partnerships that will position us to expand our business globally and meet growing demand in international markets. This is an important part of our core strategy and may expose us 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 margin targets.
Partnerships and Commercialization
Our technology is designed to be a key enabler of autonomous solutions for Automotive, Industrial, and Mobility market applications. Because our technology must be integrated into a broader solution by our customers, it is critical that we achieve design wins with these customers. The timing of these design wins varies based on the market and application. 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. We consider design wins to be critical to our 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 predict our financial performance. We believe our revenue and profitability will be also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, which represented 64% and 13% of our revenue in the six months endedJune 30, 2022 and 2021, respectively, that intend to use our technology in volume production of lidar sensors for OEMs. Delays of autonomy programs by OEMs that we are currently or will be working with through our Tier 1 partners could result in us being unable to achieve our revenue and profitability targets in the timeframe we anticipate. Our overall revenue and profitability will also be 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
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 the Automotive market. We also sell our own lidar solutions
to customers in the Industrial and Mobility markets 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 the
Automotive market 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.
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To date, our revenue has been generated through development contracts with OEMs
and Tier 1 suppliers, as well as unit sales of our products. These development
contracts primarily focus on customization of our proprietary 4Sight
capabilities to our 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 contracts that require more
complex configurations have higher prices. 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 we anticipate will both
increase unit volumes and reduce the cost per unit. In September 2021 , we
commenced our transition process to contract manufacturers which we expect to be
complete in late 2022.
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, our active 4Sight Intelligent Sensing Platform leverages principles from
automated targeting systems and biomimicry to scan the environment, while
intelligently focusing on what matters most 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.
Basis of Presentation
We currently conduct our business through one operating segment.
Components of Results of Operations
Total Revenues
We categorize our revenue as (1) prototype sales and (2) development contracts. In 2022 and 2021, our prototype sales 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 2022 and 2021. Revenue from development contracts are earned from R&D activities and collaboration with OEMs and Tier 1 suppliers. These contracts primarily focus on customization of our proprietary 4Sight capabilities to our 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 costs directly associated with the production of
prototypes and certain costs associated with development contracts. Such costs
for prototypes are direct materials, direct labor, indirect labor, warranty
expense, and allocation of overhead. Costs associated with development contracts
include the direct costs and allocation of overhead costs involved in the
execution of the contracts.
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--------------------------------------------------------------------------------Operating Expenses
Research and Development
Our research and development, or 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; •lab equipment; •new hardware and software expenses; and •allocated overhead expenses. R&D costs are expensed as they are incurred. We expect our investment in R&D will continue to grow over time because we believe that investment in R&D 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, or S&M, efforts are focused primarily on sales, business development, and marketing programs in pursuit of revenue contracts from potential and existing customers. S&M expenses include:
•personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense; •demonstration equipment; •trade shows expenses, advertising, and promotions expenses for press releases and other public relations services; and •allocated overhead expenses.
We expect our S&M expenses 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, or G&A, spending supports all business functions. G&A expenses include:
•personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation for executive, finance, legal, human resources, technical support, and other administrative personnel; •consulting, accounting, legal, and professional fees; •insurance premiums, software and computer equipment costs, general office expenses; and •allocated overhead expenses. We expect our G&A 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 , as well as legal, audit, insurance, investor relations, and other administrative and professional services.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrants are non-cash changes and primarily consists of changes in fair value related to the warrant liabilities. The warrant liabilities are classified as marked-to-market liabilities pursuant to ASC 480 and the corresponding increase or decrease in value impacts our net loss.
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.
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Upon the closing of the Business Combination, our borrowings were repaid with
any remaining debt issuance costs and discounts expensed. The pre-combination
convertible notes and accrued interest were settled and converted to Class A
common stock. See additional discussion in Note 2 to our condensed consolidated
financial statements.
Results of Operations
Comparison of the Three Months Ended
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the three months endedJune 30, 2022 and 2021 (in thousands, except for percentages): Three Months Ended June 30, Change Change 2022 2021 $ % Prototype sales $ 195$ 228 $ (33) (14) % Development contracts 511 519 (8) (2) % Total revenues 706 747 (41) (5) % Cost of revenue 1,427 454 973 214 % Gross (loss) profit (721) 293 (1,014) (346) % Research and development 10,762 5,726 5,036 88 % Sales and marketing 5,323 1,911 3,412 179 % General and administrative 9,827 4,750 5,077 107 % Total operating expenses 25,912 12,387 13,525 109 % Loss from operations (26,633) (12,094) (14,539) 120 % Change in fair value of embedded derivative and warrant liabilities 141 (16) 157 (981) % Gain on PPP loan forgiveness - 2,297 (2,297) (100) % Interest income and other 350 2 348 17,400 % Interest expense and other (307) (1,264) 957 (76) % Total other income (expense), net 184 1,019 (835) (82) % Provision for income tax expense 18 $ -$ 18 100 % Net loss$ (26,467) $ (11,075) $ (15,392) 139 % Revenue Prototype Sales Prototype sales revenue decreased by$33 , or 14%, to$195 for the three months endedJune 30, 2022 from$228 for the three months endedJune 30, 2021 . This decrease was primarily due to lower average selling prices in the current quarter offered on our existing prototype as we prepare to release our new product in the coming months.
Development Contracts
Development contracts revenue decreased by
Cost of Revenue
Cost of revenue increased by$973 , or 214%, to$1,427 for the three months endedJune 30, 2022 , from$454 for the three months endedJune 30, 2021 . This increase was primarily due to the cost of revenue associated with the Tier 1 automotive supplier contract in the current period as compared to the cost of revenue on development contracts in 2021 as well as increased labor and warranty costs. 34 --------------------------------------------------------------------------------
Operating Expenses
Research and Development
Research and development expenses increased by$5,036 , or 88%, to$10,762 for the three months endedJune 30, 2022 , from$5,726 for the three months endedJune 30, 2021 . This increase was primarily driven by increases in personnel costs of$2,483 , stock-based compensation expense of$1,269 , consumption of parts from inventory of$399 , third party research and development work of$230 , information technology expense of$197 , and travel expense of$157 .
Sales and Marketing
Total sales and marketing expenses increased by$3,412 , or 179%, to$5,323 for the three months endedJune 30, 2022 , from$1,911 for the three months endedJune 30, 2021 . This increase was primarily due to increases in personnel costs of$1,393 , stock-based compensation expense of$917 , marketing program spend of$491 , travel expense of$247 , and consultant expense of$122 .
General and Administrative
Total general and administrative expenses increased by$5,077 , or 107%, to$9,827 for the three months endedJune 30, 2022 , from$4,750 for the three months endedJune 30, 2021 . This increase was primarily due to an increase in stock-based compensation expense of$1,708 , directors' and officers' insurance of$1,267 , professional accounting and legal fees of$937 , personnel costs of$781 , and travel expense of$200 .
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities increased by$157 , or 981%, to a gain of$141 for the three months endedJune 30, 2022 , from a loss of$16 for the three months endedJune 30, 2021 . This increase was primarily due to a decrease in the fair value of the private warrant liabilities in the current period compared to prior period warrant liability.
Gain on PPP Loan Forgiveness
Gain on PPP loan forgiveness decreased by
Interest Income and Other
Interest income and other increased by$348 to$350 for the three months endedJune 30, 2022 , from$2 for the three months endedJune 30, 2021 . This increase was primarily due to the interest earned on our marketable securities.
Interest Expense and Other
Interest expense and other decreased by$957 , or 76%, to$307 for the three months endedJune 30, 2022 , from$1,264 for the three months endedJune 30, 2021 . This decrease was primarily due to$1,264 of prior period interest expense not recurring in the current year given the Company no longer has outstanding debt. This is offset by$272 of amortization of premiums on marketable securities, net of accretion of discounts, in the current period.
Provision for Income Tax Expense
Provision for income tax expenses increased to$18 for the three months endedJune 30, 2022 , from$0 for the three months endedJune 30, 2021 . This increase is due to changes in pretax income (loss) in theU.S. and certain foreign entities and changes in tax rates. 35 --------------------------------------------------------------------------------
Net Loss
Net loss increased by
Comparison of the Six Months Ended
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the three months endedJune 30, 2022 and 2021 (in thousands, except for percentages): Six Months Ended June 30, Change Change 2022 2021 $ % Prototype sales$ 530 $ 461 $ 69 15 % Development contracts 1,258 615 643 105 % Total revenues 1,788 1,076 712 66 % Cost of revenue 2,909 1,071 1,838 172 % Gross (loss) profit (1,121) 5 (1,126) (22,520) % Research and development 19,338 11,562 7,776 67 % Sales and marketing 9,939 3,498 6,441 184 % General and administrative 21,157 7,760 13,397 173 % Total operating expenses 50,434 22,820 27,614 121 % Loss from operations (51,555) (22,815) (28,740) 126 % Change in fair value of embedded derivative and warrant liabilities 109 (119) 228 (192) % Gain on PPP loan forgiveness - 2,297 (2,297) (100) % Interest income and other 774 5 769 15,380 % Interest expense and other (650) (1,952) 1,302 (67) % Total other income (expense), net 233 231 2 1 % Provision for income tax expense 26 $ -$ 26 100 % Net loss$ (51,348) $ (22,584) $ (28,764) 127 % Revenue Prototype Sales
Prototype sales revenue increased by
Development Contracts
Development contracts revenue increased by$643 , or 105%, to$1,258 for the six months endedJune 30, 2022 , from$615 for the six months endedJune 30, 2021 . The increase was primarily due to revenue recognized in the current year from a large Tier 1 automotive supplier contract.
Cost of Revenue
Cost of revenue increased by$1,838 , or 172%, to$2,909 for the six months endedJune 30, 2022 , from$1,071 for the six months endedJune 30, 2021 . This increase was primarily due to the increase in prototype sales and the cost of revenue associated with the Tier 1 automotive supplier contract. 36 --------------------------------------------------------------------------------
Operating Expenses
Research and Development
Research and development expenses increased by$7,776 , or 67%, to$19,338 for the six months endedJune 30, 2022 , from$11,562 for the six months endedJune 30, 2021 . This increase was primarily driven by increases in personnel costs of$4,446 , stock-based compensation expense of$1,871 , consumption of parts from inventory of$708 , information technology expenses of$597 , facilities expense of$332 , travel expense of$193 , and lab equipment expense of$122 , partially offset by a decrease in third party research and development work of$668 .
Sales and Marketing
Total sales and marketing expenses increased by$6,441 , or 184%, to$9,939 for the six months endedJune 30, 2022 , from$3,498 for the six months endedJune 30, 2021 . This increase was primarily due to increases in personnel costs of$2,914 , stock-based compensation expense of$1,465 , marketing program spend of$934 , travel expense of$533 , information technology expense of$246 , consultant expense of$144 , and facilities expense of$133 .
General and Administrative
Total general and administrative expenses increased by$13,397 , or 173%, to$21,157 for the six months endedJune 30, 2022 , from$7,760 for the six months endedJune 30, 2021 . This increase was primarily due to increases in stock-based compensation expense of$4,288 , professional accounting and legal fees of$3,309 , directors' and officers' insurance of$2,526 , personnel costs of$2,450 , investor agency and stock-related expenses of$429 , and travel expense of$330 .
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities increased by$228 , or 192%, to a gain of$109 for the six months endedJune 30, 2022 , from a loss of$119 for the six months endedJune 30, 2021 . This increase was primarily due to a larger decrease in the fair value of the warrant liabilities in the current period compared to prior period.
Gain on PPP Loan Forgiveness
Gain on PPP loan forgiveness decreased by$2,297 to$0 for the six months endedJune 30, 2022 , from$2,297 for the six months endedJune 30, 2021 . InJune 2021 , the full principal and interest of the PPP loan was forgiven.
Interest Income and Other
Interest income and other increased by$769 to$774 for the six months endedJune 30, 2022 , from$5 for the six months endedJune 30, 2021 . This increase was primarily due to the interest earned on our marketable securities of$774 .
Interest Expense and Other
Interest expense and other decreased by$1,302 , or 67%, to$650 for the six months endedJune 30, 2022 , from$1,952 for the six months endedJune 30, 2021 . This decrease was primarily due to a decrease of$1,952 in interest expense in connection with the repayment of the Company's outstanding debt partially offset by$608 of amortization of premiums on marketable securities, net of accretion of discounts, in the current period.
Provision for Income Tax Expense
Provision for income tax expenses increased to$26 for the six months endedJune 30, 2022 , from$0 for the six months endedJune 30, 2021 . This increase is primarily due to changes in pretax income (loss) in theU.S. and certain foreign entities and changes in tax rates. 37 --------------------------------------------------------------------------------
Net Loss
Net loss increased by$28,764 , or 127%, to$51,348 for the six months endedJune 30, 2022 , from$22,584 for the six months endedJune 30, 2021 . This increase was primarily due to an increase in operating expenses.
Liquidity and Capital Resources
Sources of Liquidity
Our 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 ofJune 30, 2022 , our cash, cash equivalents, and marketable securities totaled$125.8 million . To date, our principal sources of liquidity have been proceeds received from the issuance of equity. In December 2021.we entered into a Common Stock Purchase Agreement, or CSPA, withTumim Stone Capital LLC , or Tumim Stone, whereby we will have the right, but not the obligation, to issue and sell to Tumim Stone, over a 36-month period, up to$125,000,000 of the Company's common stock. OnMay 6, 2022 , the Company filed a Registration Statement on Form S-1, which related to the offer and resale of up to 30,865,419 shares of our common stock to be purchased by Tumim Stone, pursuant to the CSPA. As ofJune 30, 2022 , 435,000 shares were issued under this CSPA. Until we can generate sufficient revenue from the sale of our products to cover operating expenses, working capital, and capital expenditures, we expect the funds raised in the Business Combination, PIPE financing, as well as any future funds from the CSPA, to fund our near-term cash needs. If we are required to raise additional funds by issuing equity securities, dilution of stockholders will likely result. Any debt securities issued may also have rights, preferences, and privileges senior to those of holders of our common stock. The terms of debt securities or borrowings could impose significant restrictions on our 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. For the six months endedJune 30, 2022 and 2021, we had a net loss of$51,348 and$22,584 , respectively. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development, selling and marketing, and general and administrative expenses will continue to be significant and, as a result, we may need additional capital resources to fund our operations. We believe that the net proceeds from the Business Combination and CSPA with Tumim Stone, together with our existing cash, cash equivalents, and marketable securities, will enable us to fund our operating expenses, working capital, and capital expenditure requirements for a period of at least twelve months fromJune 30, 2022 . Our plans for the use of cash in the long-term (beyond the twelve months indicated above) are similarly related to funding operating expenses, working capital, and capital expenditure requirements as we continue to scale the business. For additional information regarding our cash requirements from lease obligations and contractual obligations, see Notes 7 and 19 to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Cash Flow Summary Six months ended June 30, 2022 2021 (in thousands) Net cash provided by (used in): Operating activities$ (33,112) $ (18,339) Investing activities$ 24,475 $ (245) Financing activities$ (1,310) $ 15,463 Operating Activities
For the six months ended
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affecting our operating cash flows during this period were a net loss of
$51,348 , offset by stock-based compensation of $11,897 , depreciation and
amortization of $463 , inventory write-downs of $335 , and amortization of
premiums on marketable securities, net of changes in accrued interest, of $826 .
Within operating activities, the net changes in operating assets and liabilities
were cash provided of $4,170 , primarily driven by decreases in prepaids and
other current assets of $900 and accounts receivable of $4,033 , and increases in
accrued expenses and other current liabilities of $1,354 and accounts payable of
$932 , offset by an increase in inventories of $1,316 and a decrease in contract
liabilities of $1,285 .
For the six months ended June 30, 2021 , net cash used in operating activities
was $18,339 . Factors affecting our operating cash flows during this period were
net loss of $22,584 and a gain on PPP loan forgiveness of $2,297 , offset by
stock-based compensation of $4,230 , depreciation and amortization of $498 , and
amortization of debt issuance costs of $437 . Within operating activities net
changes in operating assets and liabilities were cash provided of $526 ,
primarily driven by an increase in accounts payable of $1,513 and accrued
expenses and other current liabilities of $1,953 , offset by an increase in
inventories of $1,813 .
Investing Activities
For the six months ended
For the six months endedJune 30, 2021 , net cash used in investing activities was$245 , due to the purchase of lab and testing equipment, test vehicles, and computer equipment of$245 associated with growth of our employee base.
Financing Activities
For the six months endedJune 30, 2022 , net cash used in financing activities was$1,310 . The primary factors affecting our financing cash flows during this period were payments for taxes related to net settlement of equity awards of$3,400 , partially offset by proceeds from the exercise of stock options of$668 and proceeds from the exercise of the CSPA of$1,422 . For the six months endedJune 30, 2021 , net cash provided by financing activities was$15,463 . The primary factor affecting our financing cash flows during this period were the proceeds from a bank loan of$10,000 and the issuance of convertible notes of$8,045 , partially offset by payments of deferred financing costs of$1,287 , payments of debt issuance costs of$717 , and principal payments of bank loans of$667 .
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are in accordance withU.S. GAAP. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the 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. Our actual results could differ significantly from these estimates due to changes in judgments, assumptions, and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations. We believe our critical accounting policies involve the greatest degree of judgment and complexity and have the greatest potential impact on our condensed consolidated financial statements. During the six months endedJune 30, 2022 , there were no significant changes in our critical accounting policies and estimates as compared to those previously disclosed in "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2021 Annual Report on Form 10-K.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012, or the
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
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--------------------------------------------------------------------------------period is irrevocable.
We are an "emerging growth company" as defined in Section 2(a) of the Securities Act, and we have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the closing of the Business Combination, ourPost-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, 2025 . We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to adopt such new or revised accounting standards early to the extent permitted by such standards. This may make it difficult or impossible to compare our 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
See Note 1 to our 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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