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 generation enable very flexible placement options on the interior or exterior of a vehicle. Our 4Sight™ Intelligent Sensing Platform 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, including the Automotive market and beyond. In pursuing this strategy, we have partnered with leading Tier 1 automotive suppliers including Continental AG, HELLA GmbH & Co. KGaA, 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 31 --------------------------------------------------------------------------------
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 comprises 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 49% and 64% of our revenue in the nine months endedSeptember 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 also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, which represented 49% and 11% of our revenue in the nine months endedSeptember 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 in part 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.
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
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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, and we expect the
first phase of this transition 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 2021 and the first three quarters of 2022. 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 include direct materials, direct labor, indirect labor, inventory write-downs, 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.
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;
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•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 other 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 consists
primarily of convertible note issuance costs and amortization of premiums on
marketable securities, net of accretion of discounts.
Upon the closing of the Business Combination, our borrowings were repaid with
any remaining debt issuance costs and discounts expensed. The pre-Business
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.
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--------------------------------------------------------------------------------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 endedSeptember 30, 2022 and 2021 (in thousands, except for percentages): Three Months Ended September 30, Change Change 2022 2021 $ % Prototype sales $ 652$ 127 $ 525 413 % Development contracts 115 - 115 100 % Total revenues 767 127 640 504 % Cost of revenue 2,708 466 2,242 481 % Gross (loss) profit (1,941) (339) (1,602) 473 % Research and development 8,971 7,468 1,503 20 % Sales and marketing 4,466 2,991 1,475 49 % General and administrative 7,896 6,086 1,810 30 % Total operating expenses 21,333 16,545 4,788 29 % Loss from operations (23,274) (16,884) (6,390) 38 % Change in fair value of embedded derivative and warrant liabilities 16 341 (325) (95) % Interest income and other 335 69 266 386 % Interest expense and other (688) (919) 231 (25) % Total other income (expense), net (337) (509) 172 (34) % Provision for income tax expense 13 - 13 100 % Net loss $ (23,624)$ (17,393) $ (6,231) 36 % Revenue Prototype Sales Prototype sales revenue increased by$525 , or 413%, to$652 for the three months endedSeptember 30, 2022 , from$127 for the three months endedSeptember 30, 2021 . This increase was primarily due to an increase in 4Sight M unit sales.
Development Contracts
Development contracts revenue increased by$115 to$115 for the three months endedSeptember 30, 2022 , from$0 for the three months endedSeptember 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$2,242 , or 481%, to$2,708 for the three months endedSeptember 30, 2022 , from$466 for the three months endedSeptember 30, 2021 . This increase was primarily due to the cost of revenue associated with the Tier 1 automotive supplier contract in the current period and increased prototype sales as well as increased labor and warranty costs. 36 --------------------------------------------------------------------------------
Operating Expenses
Research and Development
Research and development expenses increased by$1,503 , or 20%, to$8,971 for the three months endedSeptember 30, 2022 , from$7,468 for the three months endedSeptember 30, 2021 . This increase was primarily driven by increases in stock-based compensation expense of$1,234 , personnel costs of$680 , rent and facilities expense of$321 , and travel expense of$112 . The above mentioned increases were offset by a decrease in third party research and development work and engineering parts of$1,027 .
Sales and Marketing
Total sales and marketing expenses increased by$1,475 , or 49%, to$4,466 for the three months endedSeptember 30, 2022 , from$2,991 for the three months endedSeptember 30, 2021 . This increase was primarily due to stock-based compensation expense of$841 , travel expense of$174 , marketing program spend of$161 , information technology expense of$109 , and marketing consultant spend of$96 . General and Administrative Total general and administrative expenses increased by$1,810 , or 30%, to$7,896 for the three months endedSeptember 30, 2022 , from$6,086 for the three months endedSeptember 30, 2021 . This increase was primarily due to an increase in stock-based compensation expense of$1,696 , professional accounting and legal fees of$526 , and directors' and officers' insurance of$397 . These increases were partially offset by a decrease in personnel costs of$756 due to lower accrued payroll.
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities decreased by$325 , or 95%, to a gain of$16 for the three months endedSeptember 30, 2022 , from a gain of$341 for the three months endedSeptember 30, 2021 . This decrease 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.
Interest Income and Other
Interest income and other increased by
Interest Expense and Other
Interest expense and other decreased by$231 , or 25%, to$688 for the three months endedSeptember 30, 2022 , from$919 for the three months endedSeptember 30, 2021 . This decrease was primarily due to$866 of prior period interest expense not recurring in the current year due to the payoff of the loan balances in the prior year. This is offset by increases of$150 in amortization of premiums on marketable securities, net of accretion of discounts, and$381 of convertible note issuance costs in the current period.
Provision for Income Tax Expense
Provision for income tax expenses increased to$13 for the three months endedSeptember 30, 2022 , from$0 for the three months endedSeptember 30, 2021 . This increase is due to changes in pretax income (loss) in theU.S. and certain foreign entities and changes in tax rates.
Net Loss
Net loss increased by
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Comparison of the Nine 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 nine months endedSeptember 30, 2022 and 2021 (in thousands, except for percentages): Nine Months Ended September 30, Change Change 2022 2021 $ % Prototype sales$ 1,182 $ 588 $ 594 101 % Development contracts 1,373 615 758 123 % Total revenues 2,555 1,203 1,352 112 % Cost of revenue 5,617 1,537 4,080 265 % Gross (loss) profit (3,062) (334) (2,728) 817 % Research and development 28,309 19,030 9,279 49 % Sales and marketing 14,405 6,489 7,916 122 % General and administrative 29,053 13,846 15,207 110 % Total operating expenses 71,767 39,365 32,402 82 % Loss from operations (74,829) (39,699) (35,130) 88 % Change in fair value of embedded derivative and warrant liabilities 125 222 (97) (44) % Gain on PPP loan forgiveness - 2,297 (2,297) (100) % Interest income and other 1,109 74 1,035 1,399 % Interest expense and other (1,338) (2,871) 1,533 (53) % Total other income (expense), net (104) (278) 174 (63) % Provision for income tax expense 39 - 39 100 % Net loss$ (74,972) $ (39,977) $ (34,995) 88 % Revenue Prototype Sales
Prototype sales revenue increased by
Development Contracts
Development contracts revenue increased by$758 , or 123%, to$1,373 for the nine months endedSeptember 30, 2022 , from$615 for the nine months endedSeptember 30, 2021 . The increase was primarily due to revenue recognized in the current year from a Tier 1 automotive supplier development contract.
Cost of Revenue
Cost of revenue increased by$4,080 , or 265%, to$5,617 for the nine months endedSeptember 30, 2022 , from$1,537 for the nine months endedSeptember 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 development contract. 38 --------------------------------------------------------------------------------
Operating Expenses
Research and Development
Research and development expenses increased by$9,279 , or 49%, to$28,309 for the nine months endedSeptember 30, 2022 , from$19,030 for the nine months endedSeptember 30, 2021 . This increase was primarily driven by increases in personnel costs of$5,125 , stock-based compensation expense of$3,105 , rent and facilities expense of$653 information technology expense of$636 , and travel expense of$305 , partially offset by a decrease in third party research and development work and engineering parts of$868 .
Sales and Marketing
Total sales and marketing expenses increased by$7,916 , or 122%, to$14,405 for the nine months endedSeptember 30, 2022 , from$6,489 for the nine months endedSeptember 30, 2021 . This increase was primarily due to increases in personnel costs of$2,877 , stock-based compensation expense of$2,306 , marketing program spend of$1,096 , travel expense of$707 , information technology expense of$310 , consultant expense of$239 , and rent and facilities expense of$223 .
General and Administrative
Total general and administrative expenses increased by$15,207 , or 110%, to$29,053 for the nine months endedSeptember 30, 2022 , from$13,846 for the nine months endedSeptember 30, 2021 . This increase was primarily due to increases in stock-based compensation expense of$5,984 , professional accounting and legal fees of$3,835 , directors' and officers' insurance of$2,923 , personnel costs of$1,694 , and investor agency and stock-related expenses of$589 , and travel expense of$345 . These increases were partially offset by decreases in information technology expense of$194 .
Change in Fair Value of Embedded Derivative and Warrant Liabilities
Change in fair value of embedded derivative and warrant liabilities decreased by$97 , or 44%, to a gain of$125 for the nine months endedSeptember 30, 2022 , from a gain of$222 for the nine months endedSeptember 30, 2021 . This decrease was primarily due to a decrease in the fair value of the private warrant liabilities in the current period compared to the prior period.
Gain on PPP Loan Forgiveness
Gain on PPP loan forgiveness decreased by$2,297 to$0 for the nine months endedSeptember 30, 2022 , from$2,297 for the nine months endedSeptember 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
Interest Expense and Other
Interest expense and other decreased by$1,533 , or 53%, to$1,338 for the nine months endedSeptember 30, 2022 , from$2,871 for the nine months endedSeptember 30, 2021 . This decrease was primarily due to$2,818 of prior period interest expense not recurring in the current year due to the payoff of the loan balances in the prior year. This is offset by increases of$758 in amortization of premiums on marketable securities, net of accretion of discounts, and$381 of convertible note issuance costs in the current period.
Provision for Income Tax Expense
Provision for income tax expenses increased to$39 for the nine months endedSeptember 30, 2022 , from$0 for the nine months endedSeptember 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. 39 --------------------------------------------------------------------------------
Net Loss
Net loss increased by
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 ofSeptember 30, 2022 , our cash, cash equivalents, and marketable securities totaled$112.2 million . To date, our principal sources of liquidity have been proceeds received from the issuance of equity. InDecember 2021 , we entered into a Common Stock Purchase Agreement, or CSPA, withTumim Stone Capital LLC , or Tumim Stone, pursuant to which we have the right, but not the obligation, to issue and sell to Tumim Stone, over a 36-month period, up to$125,000 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 ofSeptember 30, 2022 , 1,145,000 shares were issued under this CSPA. InSeptember 2022 , we entered into a Securities Purchase Agreement ("SPA") with an investor allowing for the sale and issuance of two convertible notes, each with cash proceeds of$10,000 , for a total of$20,000 in proceeds between the two issuances (each, a "Note Closing"). OnSeptember 15, 2022 , we closed the first Note Closing with the investor and received cash proceeds of$10,000 . The second Note Closing may occur, at our option, after the ninetieth (90th) calendar day after the first Note Closing and provided that we meet certain equity conditions. 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 and PIPE financing, as well as any future funds from the CSPA and SPA, and other potential sources of capital, to fund our near-term cash needs. If we are required to raise additional funds by issuing equity securities, dilution of stockholders will 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 nine months endedSeptember 30, 2022 and 2021, we had a net loss of$74,972 and$39,977 , 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, 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 fromSeptember 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. 40 --------------------------------------------------------------------------------
Cash Flow Summary
Nine months ended September 30,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ (55,525) $ (39,588)
Investing activities $ 90,190 $ (130,712)
Financing activities $ 9,642 $ 208,421
Operating Activities
For the nine months ended September 30, 2022 , net cash used in operating
activities was $55,525 . Factors affecting our operating cash flows during this
period were a net loss of $74,972 , offset by stock-based compensation of
$18,003 , depreciation and amortization of $794 , inventory write-downs of $576 ,
and amortization of premiums on marketable securities, net of changes in accrued
interest, of $1,211 . Within operating activities, the net changes in operating
assets and liabilities were cash used of $2,082 , primarily driven by increases
in inventories and prepaid and other current assets of $2,256 and $445 ,
respectively, and decreases in accounts payable, contract liabilities, and
operating lease liabilities of $1,236 , $1,400 , and $983 , respectively, offset by
cash provided by decreases in accounts receivable of $3,598 and increases in
accrued expenses and other current liabilities of $220 .
For the nine months ended September 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 a gain on PPP loan forgiveness of $2,297 ,
offset by stock-based compensation of $6,522 , depreciation and amortization of
$769 , and amortization of debt issuance costs of $725 . Within operating
activities net changes in operating assets and liabilities were cash provided of
$6,193 , primarily driven by increases in prepaid 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 .
Investing Activities
For the nine months endedSeptember 30, 2022 , net cash provided by investing activities was$90,190 . The primary factor affecting net cash provided by investing activities during this period were the proceeds from redemption of marketable securities of$93,592 , offset by purchases of property and equipment of$3,402 . For the 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 . Financing Activities For the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$9,642 . The primary factors affecting our financing cash flows during this period were proceeds from the issuance of convertible notes of$10,000 and proceeds from the exercise of the CSPA of$2,891 , partially offset by payments for taxes related to net settlement of equity awards of$4,252 . For the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$208,421 . The primary factor 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 .
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 41 -------------------------------------------------------------------------------- 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 nine months ended
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 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, we 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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