The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K. The statements in this discussion regarding expected and other production timelines, development of our own manufacturing facilities, industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Part I, Item 1A. "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements. Certain figures included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Overview
Canoo is a high tech advanced mobility technology company with a mission to bring electric vehicles ("EVs") to everyone and provide connected services that improve the fleet or individual vehicle ownership experience. We are developing a technology platform that we believe will enable us to rapidly innovate, iterate and bring new products, addressing multiple use cases, to market faster than our competition and at lower cost. Our vehicle architecture and design philosophy are aimed at driving productivity and returning capital to our customers, and we believe the software and technology capabilities we are developing, packaged around a modular, customizable product, have the potential to empower the customer experience across a vehicle's lifecycle. We remain committed to the environment and to delivering sustainable mobility that is accessible to everyone. We proudly intend to manufacture our fully electric vehicles inOklahoma , bringing advanced manufacturing and technology jobs to communities in America's heartland. We are committed to building a diverse workforce that will draw heavily upon the local communities ofNative Americans and veterans. We believe we are one of the first automotive manufacturers focused on monetizing value across the entirety of the vehicle lifecycle, across multiple owners. Our platform and data architecture is purpose-built to be durable and serve as the foundation for the vehicles we intend to offer, unlocking a highly differentiated, multi-layer business model. The foundational layer is our Multi-Purpose Platform ("MPP" or "platform") architecture, which serves as the base of our vehicles, including the Lifestyle Vehicle and its Delivery, Base, Premium, and Adventure trims; the Multi-Purpose Delivery Vehicle ("MPDV") and the Pickup. The next layer is cybersecurity which is embedded in our vehicle to ensure the privacy and protection of vehicle data. Our top hats, or cabins, are modular and purpose-built to provide tailored solutions for our customers. This intentional design enables us to efficiently use resources to produce only what is necessary, underscoring our focus on sustainability and returning capital to customers. The remaining layers, connected accessories and digital customer ecosystem, present high-margin opportunities that extend beyond the initial vehicle sale, 59
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across multiple owners. Owners will further be able to customize their vehicles by adding connected accessories such as Bluetooth devices or infotainment systems. In addition, there are opportunities for software sales throughout the vehicle life, including predictive maintenance and service software or advanced driver assistance systems ("ADAS") upgrades. Our platform architecture is a self-contained, fully functional rolling chassis that directly houses the most critical components for operation of an EV, including our in-house designed proprietary electric drivetrain, battery systems, advanced vehicle control electronics and software and other critical components, which all have been optimized for functional integration. Both our true steer-by-wire system, believed to be the first such system applied to a production-intent vehicle, and our transverse composite leaf-spring suspension system are core components of our platform's differentiated functionality, enabling the development of a broad range of vehicle types and use cases due to the chassis' flat profile and fully variable steering positions. All of our announced vehicles, including the Lifestyle Vehicle and the Lifestyle Delivery Vehicle, the MPDV and the Pickup, will share a common platform architecture paired with different top hats to create a range of uniquely customized and use case optimized purpose-built mobility solutions targeting multiple segments of the rapidly expanding EV marketplace. In addition to our vehicle technology, we are developing an in-house designed and proprietary software platform that aggregates car data from bothCanoo and non-Canoo vehicles and delivers valuable insights to our customers. Collected over-the-air for connected vehicles or via an on-board diagnostics ("OBD") device for non-connected vehicles, we believe car data is critical to powering the customer journey and maximizing utility and value from the vehicle ownership experience. Leveraging our data aggregation platform, we aim to create theCanoo Digital Ecosystem, an application store that centralizes all vehicle information for customers and provides key tools across Security & Safety, Household Vehicle Management, Fleet Management, Lifecycle Management and Vehicle Asset Management. Through our software offering, we believe we can provide differentiated and substantial value to both commercial customers and consumers and stay connected throughout the vehicle lifecycle, across multiple owners. Core to our values is delivering high quality products while empowering local communities, which drove our decision to build in America and source a majority of our parts from America and allied nations. We believe vertical integration across our manufacturing and assembly process will enable us to achieve in-house scale production with less supply chain risk and provide us better oversight of our vehicle manufacturing. We are building production facilities in states and communities that are investing in high-tech manufacturing alongside us, creating American jobs and driving innovation.
We have made strategic investments in our technology and products that position us to capture three large and growing markets - commercial and passenger vehicles, upfitting and accessories, and telematics data.
Since our founding in 2017, we continue to innovate on our technology and strategy. In 2022, we have achieved critical milestones in the development, testing, and manufacturing of our platform and product, as well as important developments for our business:
•Selected by NASA to provide crew transport for Artemis lunar exploration launch
•Received Walmart order to purchase up to 10,000 units
•Announced binding orders from Zeeba and KingBee totaling 12,300 vehicles
•Successfully built and tested 118 Gamma properties during the program
•Announced battery module manufacturing facility in
•Delivered Light Tactical Vehicle (LTV) to
•Announced in-house vehicle manufacturing facility in
•Declared start of production
We continue to innovate and develop every aspect of our business, from our non-traditional business model to our built in America, highly utilitarian vehicles optimized to return capital to our customers. We believe being forward-thinking across these areas has set the foundation for us to develop into a scalable business that is differentiated from our peers across the automotive original equipment manufacturer ("OEM") landscape. 60
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Key Factors Affecting Operating Results
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Item 1A, "Risk Factors."
Availability of Financing Sources and Commercialization of Our EVs
We expect to derive future revenue from our first vehicle offerings. In order to reach commercialization, we must purchase and integrate related property and equipment, as well as achieve several research and development milestones.
Our capital and operating expenditures have increased significantly in connection with our ongoing activities and we expect they will continue to increase, as we:
•continue to invest in our technology, research and development efforts;
•compensate existing personnel;
•invest in manufacturing capacity, via our owned facilities;
•increase our investment in marketing, advertising, sales and distribution infrastructure for our EVs and services;
•obtain, maintain and improve our operational, financial and management information systems;
•hire additional personnel; •commercialize our EVs;
•obtain, maintain, expand and protect our intellectual property portfolio; and
•continue to operate as a public company.
We require substantial additional capital to develop our EVs and services and fund our operations for the foreseeable future. We will also require capital to identify and commit resources to investigate new areas of demand. Until we can generate sufficient revenue from vehicle sales, we are financing our operations through access to private and public equity offerings and debt financings. Management believes substantial doubt exists about the Company's ability to continue as a going concern for twelve months from the date of issuance of the financial statements included in this Annual Report on Form 10-K.
Macroeconomic Conditions
Current adverse macroeconomic conditions, including but not limited to heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, and challenges in the supply chain could negatively affect our business.
Increased demand for semiconductor chips in 2020, due in part to the increased demand for consumer electronics that use these chips, resulted in a global shortage of chips in 2021 that has continued into 2023. As a result, our ability to source semiconductor chips used in our vehicles may be adversely affected. This shortage may result in increased chip delivery lead times, delays in the production of our vehicles, and increased costs to source available semiconductor chips. Although we have made our best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. Accordingly, it is reasonably possible that the estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, and if so, we may be subject to future impairment losses related to long-lived assets as well as changes to valuations. 61
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Key Components of Statements of Operations
Basis of Presentation
Currently, we conduct business through one operating segment. We are an early stage-growth company with limited commercial activities to date, which are primarily conducted inthe United States . For more information about our basis of presentation, refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Research and Development Expenses, excluding Depreciation
Research and development expenses, excluding depreciation consist of salaries, employee benefits and expenses for design and engineering, stock-based compensation, as well as materials and supplies used in research and development activities. In addition, research and development expenses include fees for consulting and engineering services from third party vendors.
Selling, General and Administrative Expenses, excluding Depreciation
The principal components of our selling, general and administrative expenses are salaries, wages, benefits and bonuses paid to our employees; stock-based compensation; travel and other business expenses; and professional services fees, including legal, audit and tax services.
Depreciation Expense
Depreciation is provided on property and equipment over the estimated useful lives on a straight-line basis. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the loss from operations. No depreciation expense is allocated to research and development, cost of revenue and selling, general and administrative expenses.
Interest (Expense) Income
Interest expense consists primarily of interest expense and amortization of debt discount and issuance costs.
Gain on Fair Value Change in Contingent Earnout Shares Liability
The gain on fair value change in the contingent earnout shares liability is due to the change in fair value of the corresponding contingent earnout shares liability.
Loss on Extinguishment of Debt
The loss on extinguishment of debt arose from the redemption of our convertible debt with Yorkville into Common Stock, as discussed in Note 9, Convertible Debt.
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Results of Operations
Comparison of the Years Ended
Commentary for the year endedDecember 31, 2021 compared to 2020 may be found in Item 7 of the Company's Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 1, 2022 , ("2021 Form 10-K"). The following table sets forth our historical operating results for the periods indicated (in thousands): Year Ended December 31, $ % 2022 2021 Change Change Revenue $ - $ - $ - NM Costs and Operating Expenses Cost of revenue, excluding depreciation - - - NM Research and development expenses, excluding depreciation 299,218 246,245 52,973 22 % Selling, general and administrative expenses, excluding depreciation 196,029 194,736 1,293 1 % Depreciation 11,554 8,921 2,633 30 % Total costs and operating expenses 506,801 449,902 56,899 13 % Loss from operations (506,801) (449,902) (56,899) 13 % Interest (expense) income (2,249) 103 (2,352) NM Gain on fair value change in contingent earnout shares liability 26,044 104,446 (78,402) (75) % Loss on fair value change in private placement warrants liability - (1,639) 1,639 (100) % Loss on extinguishment of debt (4,626) - (4,626) NM Other (expense) income, net (62) 224 (286) (128) % Loss before income taxes (487,694) (346,768) (140,926) 41 % Provision for income taxes - - - NM Net loss and comprehensive loss$ (487,694) $ (346,768) $ (140,926) 41 %
"NM" means not meaningful
Research and Development Expenses, excluding Depreciation
Research and development expenses were$299.2 million for the year endedDecember 31, 2022 , compared to$246.2 million for the year endedDecember 31, 2021 . The increase of$53.0 million , or 22%, was primarily due to an increase in salary and related benefits expense of$39.8 million , stock-based compensation expense of$5.3 million , travel and other business expenses of$4.4 million , and shipping costs of$4.1 million . Other factors affecting research and development expenses were individually immaterial. Salary and related benefits expense was$126.8 million for the for the year endedDecember 31, 2022 , compared to$87.0 million for the year endedDecember 31, 2021 . The increase of$39.8 million , or 46%, in salary and related benefits expenses are primarily due to continued investment in personnel and contract employees to drive and reach our research and development goals. Stock-based compensation expense was$31.1 million for the for the year endedDecember 31, 2022 , compared to$25.8 million for the year endedDecember 31, 2021 . The increase of$5.3 million , or 21%, in stock-based compensation expense was primarily driven by the continued recognition of stock compensation expense related to issuance of awards to employees and the commencement of the ESPP program during the year endedDecember 31, 2022 . See further discussion in Note 15, Stock-based Compensation, of the notes to our accompanying financial statements. Travel and other business expenses were$7.4 million for the for the year endedDecember 31, 2022 , compared to$3.0 million for the year endedDecember 31, 2021 . The increase of$4.4 million , or 147%, in travel and expense costs are primarily due to travel related to gamma stage engineering design and development costs. 63
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Shipping costs were$7.7 million for the for the year endedDecember 31, 2022 , compared to$3.6 million for the year endedDecember 31, 2021 . The increase of$4.1 million , or 114%, in shipping costs are primarily due to investments in research and development and manufacturing activities to achieve start of production in late 2022.
Selling, General, and Administrative Expenses, excluding Depreciation
Selling, general, and administrative expenses were$196.0 million for the year endedDecember 31, 2022 , compared to$194.7 million for the year endedDecember 31, 2021 . The increase of$1.3 million , was primarily due to a decrease of$34.1 million in stock-based compensation expenses and$0.4 million in professional fees, more than offset by an increase in salary and related benefits of$18.2 million , information technology expenses of$12.0 million , and occupancy costs of$4.6 million . Other factors affecting selling, general and administrative expenses were individually immaterial. Stock-based compensation expense was$48.5 million for the for the year endedDecember 31, 2022 , compared to$82.6 million for the year endedDecember 31, 2021 . The decrease of$34.1 million , or 41%, in stock-based compensation expense was primarily driven by the granting of certain non-routine awards, some of which vested immediately during the year endedDecember 31, 2021 , partially offset by the continued recognition of stock compensation expense related to issuance of awards to employees during the year endedDecember 31, 2022 . See further discussion on stock-based compensation in Note 15, Stock-based Compensation, of the notes to our accompanying financial statements.
Professional fees expense was
Salary and related benefits expense was$47.7 million for the for the year endedDecember 31, 2022 , compared to$29.5 million for the year endedDecember 31, 2021 . The increase of$18.2 million , or 62%, in Salary and related benefits expense are primarily driven by investment in personnel to support our growth and achieve start of production during the year endedDecember 31, 2022 . Information technology expenses was$19.8 million for the for the year endedDecember 31, 2022 , compared to$7.8 million for the year endedDecember 31, 2021 . The increase of$12.0 million , or 154%, in information technology expense are primarily driven by increased computer software-related costs including subscriptions and maintenance during the year endedDecember 31, 2022 . Occupancy costs expense was$17.5 million for the for the year endedDecember 31, 2022 , compared to$12.9 million for the year endedDecember 31, 2021 . The increase of$4.6 million , or 36%, in occupancy costs expense are primarily driven by increased rent from additional spaced leases that commenced during the year endedDecember 31, 2022 . Refer to Note 10, Operating leases, for information regarding the Company's lease portfolio.
Depreciation Expense
Depreciation expense was$11.6 million for the year endedDecember 31, 2022 , compared to depreciation expense of$8.9 million for the year endedDecember 31, 2021 . The increase of$2.7 million , was primarily due to assets acquired during the year endedDecember 31, 2022 .
Interest (Expense) Income
Interest expense was$2.3 million for the year endedDecember 31, 2022 , compared to interest income of$0.1 million for the year endedDecember 31, 2021 . This change of$2.4 million was primarily due to the effective interest incurred under the PPA of$0.4 million , as well as the amortization of debt issuance costs of$1.0 million , and debt discount of$0.9 million .
Gain on Fair Value Change in Contingent Earnout Shares Liability
Gain on fair value change in contingent earnout shares liability was$26.0 million for the year endedDecember 31, 2022 , compared to$104.4 million for the year endedDecember 31, 2021 . The change of$78.4 million , or 75.1%, was a result of the periodic remeasurement of the fair value of our contingent earnout shares liability. 64
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Loss on Fair Value Change of Private Placement Warrants Liability
We recognized a non-cash loss on fair value change of private placement warrants liability of$1.6 million for the year endedDecember 31, 2021 which was a result of the periodic remeasurement of the fair value of our private placement warrants liability. All of the private placement warrants were converted to public warrants onMarch 2, 2021 .
Loss on Extinguishment of Debt
We recognized
Non-GAAP Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted inthe United States ("GAAP"), we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance. EBITDA and Adjusted EBITDA "EBITDA" is defined as net loss before interest expense, income tax expense or benefit, and depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA adjusted for stock-based compensation, restructuring charges, asset impairments, and other costs associated with exit and disposal activities, acquisition and related costs, changes to the fair value of contingent earnout shares liability, changes to the fair value of warrants liability, and any other one-time non-recurring transaction amounts impacting the statement of operations during the year. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe EBITDA and Adjusted EBITDA, when combined with net loss are beneficial to an investor's complete understanding of our operating performance. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We manage our business utilizing EBITDA and Adjusted EBITDA as supplemental performance measures. 65
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The following table reconciles net loss to EBITDA and Adjusted EBITDA for the
years ended
Year Ended December 31, 2022 2021 Net loss$ (487,694) $ (346,768)
Interest expense (income) 2,249 (103) Depreciation 11,554 8,921 EBITDA (473,891) (337,950)
Adjustments:
Gain on fair value change in contingent earnout shares liability
(26,044) (104,446)
Loss on fair value change in private placement warrants liability
- 1,639 Loss on extinguishment of debt 4,626 - Other (expense) income, net 62 (224) Stock-based compensation 79,573 108,360 SEC settlement (Note 12) 1,500 - Non-cash legal settlement (Note 12) 5,532 - Adjusted EBITDA (408,642) (332,621)
Liquidity and Capital Resources
As ofDecember 31, 2022 , we had unrestricted cash and cash equivalents in the amount of$36.6 million , which was primarily invested in money market funds that consist of liquid debt securities issued by theU.S. government. In assessing our liquidity requirements and cash needs, we also consider contractual obligations to which we are a party. Additionally, see discussion related to the operating lease maturity schedule and any new leases entered into in Note 10 of the notes to our accompanying financial statements. We have incurred and expect to incur, net losses which have resulted in an accumulated deficit of$1.2 billion as ofDecember 31, 2022 . Management continues to explore raising additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the Company's capitalization and liquidity. If and as we raise additional funds by incurring loans or by issuing debt securities or preferred stock, these forms of financing have rights, preferences, and privileges senior to those of holders of our Common Stock. The availability and the terms under which we are able to raise additional capital could be disadvantageous, and the terms of debt financing or other non-dilutive financing involve restrictive covenants and dilutive financing instruments, which could place significant restrictions on our operations. Macroeconomic conditions and credit markets are also impacting the availability and cost of potential future debt financing. As we raise capital through the issuance of additional equity, such sales and issuance has and will continue to dilute the ownership interests of the existing holders of Common Stock. There can be no assurances that any additional debt, other non-dilutive and/or equity financing would be available to us on favorable terms or at all. We expect to continue to incur net losses, comprehensive losses, and negative cash flows from operating activities in accordance with our operating plan as we continue to expand our research and development activities to complete the development of our MPP and EVs, establish our go-to-market model and scale our operations to meet anticipated demand. We expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we:
•continue to invest in our technology, research and development efforts;
•compensate existing personnel;
•invest in manufacturing capacity, via our owned facilities;
•increase our investment in marketing, advertising, sales and distribution infrastructure for our EVs and services;
•obtain, maintain and improve our operational, financial and management information systems;
•hire additional personnel;
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•commercialize our EVs;
•obtain, maintain, expand and protect our intellectual property portfolio; and
•operate as a public company.
As of the date of this report, we believe that our existing cash resources and additional sources of liquidity are not sufficient to support planned operations for the next 12 months. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty related to the Company's ability to continue as a going concern.
Cash Flows Summary
Presented below is a summary of our operating, investing and financing cash flows (in thousands): For the Year Ended December 31, 2022 2021 Net cash used in operating activities$ (400,475) $
(300,816)
Net cash used in investing activities (66,830)
(162,728)
Net cash provided by (used in) financing activities 290,428 (11,386)
Cash Flows from Operating Activities
Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development as well as selling, general, and administrative activities. Our operating cash flow is also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities. Net cash used in operating activities was$400.5 million for the year endedDecember 31, 2022 . Our cash outflow from operating activities primarily consist of payments related to our research & development and selling, general and administration expenses. Total expenditure as it relates to research & development excluding depreciation was$299.2 million during year endedDecember 31, 2022 , of which$31.1 million related to stock-based compensation expenses during the year. The Company also incurred selling, general and administration expenses of$196.0 million for year endedDecember 31, 2022 , of which$48.5 million related to stock-based compensation expenses during the year. The expenses include salaries and benefits paid to employees as primarily all salaries and benefits are paid in cash during the year. Net cash used in operating activities was$300.8 million for the year endedDecember 31, 2021 . Our cash outflow from operating activities primarily consist of payments related to our research & development and selling, general and administration expenses. Total expenditure as it relates to research & development excluding depreciation was$246.2 million during year endedDecember 31, 2021 , of which$25.8 million related to stock-based compensation expenses during the year. The Company also incurred selling, general and administration expenses of$194.7 million for year endedDecember 31, 2021 , of which$82.6 million related to stock-based compensation expenses during the year. The expenses include salaries and benefits paid to employees as primarily all salaries and benefits are paid in cash during the year.
Cash Flows from Investing Activities
We generally expect to experience negative cash flows from investing activities as we expand our business and continue to build our infrastructure. Cash flows from investing activities primarily relate to capital expenditures to support our growth. Net cash used in investing activities for the year endedDecember 31, 2022 was$66.8 million , which consisted of purchases of production tooling, machinery, and equipment to support manufacturing activities of$97.3 million , offset by a repayment received inFebruary 2022 totaling$30.4 million from VDL Nedcar. 67
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Net cash used in investing activities was approximately$162.7 million for the year endedDecember 31, 2021 , which primarily consisted of purchases of fixed assets that are recorded in construction in progress specifically related to the development of manufacturing lines as well as equipment and tooling necessary in the production of the Company's vehicles. Net cash used in investing activities was also comprised of the prepayment made to VDL Nedcar.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year endedDecember 31, 2022 was$290.4 million , which consisted primarily of proceeds from PPA of$141.1 million , proceeds from issuance of shares under PIPE of$60.0 million , proceeds from issuance of shares under ATM of$49.3 million , proceeds from issuance of shares under SEPA agreement of$32.5 million , and proceeds from the purchase of shares by VDL Nedcar of$8.4 million , partially offset by cash repayments under the PPA of$2.5 million . Net cash used in financing activities was$11.4 million for the year endedDecember 31, 2021 , which was primarily due to the$11.3 million in payments for offering costs. The$6.9 million repayment of the PPP loan during the year was offset by$6.9 million in cash received from exercise of public warrants.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. While our significant accounting policies are described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies require a greater degree of judgment and complexity and are the most critical to understanding our financial condition and historical and future results of operations: Contingent Earnout Shares Liability The Company has a contingent obligation to issue shares of Common Stock to certain stockholders and employees upon the achievement of certain market share price milestones within specified periods (the "Earnout Shares"). The initial fair value of our contingent Earnout Shares liability was recognized at$248.9 million with a corresponding reduction from the additional paid in capital in our stockholders' equity. The terms and conditions of the right to receive Earnout Shares are described in Note 4 to the accompanying consolidated financial statements. In accordance with the guidance under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, the Earnout Shares right are classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized as other expense or other income in our consolidated statement of operations accordingly. The fair value of the contingent Earnout Shares liability was estimated using a Monte Carlo simulation of stock prices using an expected volatility assumption based on the historical volatility of the price of the Company's Common Stock and implied volatility derived from the price of exchange traded options on the Company's Common Stock. Changes in these inputs or other underlying assumptions could have a significant impact on the fair value of the contingent Earnout Shares liability. Changes to contingent earnout shares liability can result from changes to discount rates or accretion of the liability due to the passage of time. The determination of the contingent Earnout Shares liability requires significant judgments including the appropriateness of the valuation model, reasonableness of estimates and assumptions, and the discount rates applied to such forecasts. 68
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As ofDecember 31, 2021 , the fair value of our contingent Earnout Shares liability was estimated to be$29.1 million . We recognized a gain on fair value change in contingent Earnout Shares liability of$104.4 million as other income in our consolidated statement of operations for the year endedDecember 31, 2021 . As ofDecember 31, 2022 , the fair value of our contingent Earnout Shares liability was estimated to be$3.0 million . We recognized a gain on fair value change in contingent Earnout Shares liability of$26.0 million as other income in our consolidated statement of operations for the year endedDecember 31, 2022 .
Warrants
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments' specific terms and applicable authoritative guidance in ASC 480 and ASC 815, as further described in Note 2. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company concluded that the warrants issued to Walmart and vested as ofDecember 31, 2022 qualify for equity accounting treatment. The equity classified warrants are measured at fair value on its grant date using a Black-Scholes-Merton model, with no fair value re-measurement at each reporting period given equity classification. The Company concluded that the warrants issued to Yorkville as ofDecember 31, 2022 qualify for liability accounting treatment. The liability classified warrants are measured at fair value on its grant date using a Black-Scholes-Merton model, with fair value re-measurement at each reporting period given its classification. Refer to Note 16 for information regarding the warrants issued to Walmart and Yorkville. Stock-Based Compensation We account for stock-based compensation awards granted to employees and members of our Board based on the awards' estimated grant date fair value using a fair value method. For awards that vest solely based on continued service ("requisite service"), the resulting fair value is recognized as an expense on an accelerated basis over the requisite service period, which is generally four years. For awards which contain performance conditions, the resulting fair value is recognized over the requisite service period using the graded vesting method, when it is probable the performance conditions will be met. We account for forfeitures as they occur. We estimate the fair value of RSUs based on the market price of our Common Stock underlying the awards on the grant date. Fair value for awards with our stock price performance metrics is calculated using the Monte Carlo simulation model, which incorporates stock price correlation and other variables over the time horizons matching the performance periods.
The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and our management uses significantly different assumptions or estimates, our stock-based compensation expense for future periods could be materially different, including as a result of adjustments to stock-based compensation expense recorded for prior periods.
For the years ended
Smaller Reporting Company Status
Based on the aggregate worldwide market value of voting and non-voting Common Stock held by non-affiliates as ofJune 30, 2022 , we re-qualified as a "non-accelerated filer" beginning with this Annual Report on Form 10-K for the year endedDecember 31, 2022 . Therefore, our independent registered public accounting firm is not required to provide the attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act in this Annual Report. In addition, we re-qualified as a "smaller reporting company", given that the market value of our Common Stock held by non-affiliates was less than the subsequent qualification threshold of$560.0 million and our annual revenue was less than$80.0 million during the most recently completed fiscal year. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting Common Stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than$100.0 million during the 69
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most recently completed fiscal year and the market value of our voting and
non-voting Common Stock held by non-affiliates is less than
Recent Accounting Pronouncements
See Item 8. Note 3 - Recent Accounting Pronouncements of the notes to our
accompanying financial statements for the years ended
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