LUCID GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2021 , filed with the SEC on February 28, 2022 . This discussion may
contain forward-looking statements based upon Lucid's current expectation,
estimates and projections that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Risk
Factors", in Part II, Item 1A of this Quarterly Report.
Overview
We are a technology and automotive company with a mission to inspire the adoption of sustainable energy by creating advanced technologies and the most captivating luxury electric vehicles, centered around the human experience. Our focus on in-house technological innovation, vertical integration, and a "clean sheet" approach to engineering and design have led to the development of our groundbreaking electric vehicle, theLucid Air . We sell vehicles directly to consumers through our retail sales network and through direct online sales. We believe that owning our sales network provides an opportunity to closely manage the customer experience, gather direct customer feedback, and ensure that customer interactions are on-brand and tailored to our customers' need. We also operate an in-house vehicle service network, with brick-and-mortar service centers in various geographies and a mobile service fleet. In addition to our in-house service capabilities, we established and continue to grow an approved list of specially trained collision repair shops which also serve as a repair hub for our mobile service offerings in some cases. We began delivering theLucid Air to customers inOctober 2021 . We expect to launch additional vehicles over the coming decade. We have already commenced design and engineering work for Project Gravity, a luxury SUV that is expected to leverage many of the technological advancements and learnings from theLucid Air . We expect to begin production of Project Gravity in the first half of 2024. After theLucid Air and Project Gravity, we plan to leverage our technological and manufacturing advancements to develop and manufacture progressively more affordable vehicles in higher volumes. We further believe that our battery systems expertise positions us to produce compelling stationary energy storage system ("ESS") products. ESS is a technologically adjacent opportunity which can leverage the modular design of our battery packs and our extensive experience with battery pack and battery management systems.
Impact of the COVID-19 Pandemic on our Business
The COVID-19 pandemic continues to impact the global economy and cause significant macroeconomic uncertainty. Infection rates vary across the jurisdictions in which we operate. Governmental authorities have continued to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, vaccine recommendations and mandates, limits on gatherings, quarantines, shelter-in-place orders and business shutdowns. We have taken proactive action to protect the health and safety of our employees, customers, partners and suppliers, consistent with the latest and evolving governmental guidelines. We expect to continue to implement appropriate measures until the COVID-19 pandemic is adequately contained. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and safety of our employees, customers, partners and suppliers. While certain of our and our suppliers' operations have from time-to-time been temporarily affected by government-mandated restrictions, we were able to commence deliveries of theLucid Air to customers and to proceed with the construction of theArizona plant. Broader impacts of the pandemic have included inflationary pressure as well as ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. Because we rely on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials used in our vehicles, as well as provisioning and servicing equipment in our manufacturing facilities, we have been affected by inflation and such industry-wide challenges in logistics and supply chains. While we continue to focus on mitigating risks to our operations and supply chain in the current industry environment, we expect that these industry-wide trends will continue to affect our cost structure as well as our ability and the ability of our suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future. In the current circumstances, given the dynamic nature of the situation, any impact on our financial condition, results of operations or cash flows in the future continues to be difficult to estimate and predict, as it depends on future events that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the outbreak, its severity, potential additional waves of infection, the emergence of more virulent or more dangerous strains of the virus, the actions taken to mitigate the virus or its impact, the development, distribution, efficacy and acceptance of vaccines worldwide, how quickly and to what extent normal economic and operating conditions can resume, the broader impact that the pandemic is having on the economy and our industry and specific implications the pandemic 32 -------------------------------------------------------------------------------- may have on our suppliers and on global logistics. See "Risk Factors" in Part II, Item 1A of this Quarterly Report for additional information regarding risks associated with the COVID-19 pandemic, including under the caption "The ongoing COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, results of operations and financial condition."
Key Factors Affecting Our Performance
We believe that our future success and financial performance depend on a number of factors that present significant opportunities for our business, but also pose risks and challenges, including those discussed below and in the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report.
Design and Technology Leadership
We believe that we are positioned to be a leader in the electric vehicle market by unlocking the potential for advanced, high-performance, and long-range electric vehicles to co-exist.The Lucid Air is designed with race-proven battery pack technologies and robust performance together with a sleek exterior design and expansive interior space given our miniaturized key drivetrain components. We anticipate consumer demand for theLucid Air based on its luxurious design, high-performance technology and sustainability leadership, and the growing acceptance of and demand for electric vehicles as a substitute for gasoline-fueled vehicles. We have received significant interest in theLucid Air from potential customers. As ofMarch 31, 2022 , we had refundable reservations and non-refundable orders of cars yet to be delivered that reflect potential sales greater than$2.7 billion .
Direct-to-Consumer Model
We operate a direct-to-consumer sales and service model, which we believe will allow us to offer a personalized experience for our customers based on their purchase and ownership preferences. We expect to continue to incur significant expenses in our sales and marketing operations for sale of theLucid Air , including to open Studios, hire a sales force, invest in marketing and brand awareness, and stand up a service center operation. As ofMarch 31, 2022 , we had opened twenty four Studios and service centers, one in each ofNew York ,New Jersey ,Michigan ,Texas ,Virginia ,Washington , and two in each ofArizona ,Canada andIllinois , three inFlorida , as well nine inCalifornia . We expect additional Studios opened in the second quarter of 2022, including our first European location. We also intend to hire additional sales, customer service, and service center personnel. We believe that investing in our direct-to-consumer sales and service model will be critical to deliver and service the Lucid electric vehicles we plan to manufacture and sell.
Establishing Manufacturing Capacity
Achieving commercialization and growth for each generation of electric vehicles requires us to make significant capital expenditures to scale our production capacity and improve our supply chain processes inthe United States and internationally. We expect our capital expenditures to increase as we continue our phased construction of our AMP-1 facilities and international expansion. The amount and timing of our future manufacturing capacity requirements, and resulting capital expenditures, will depend on many factors, including the pace and results of our research and development efforts to meet technological development milestones, our ability to develop and launch new electric vehicles, our ability to achieve sales and experience customer demand for our vehicles at the levels we anticipate, our ability to utilize planned capacity in our existing facilities and our ability to enter new markets.
Technology Innovation
We develop in-house battery and powertrain technology, which requires us to invest a significant amount of capital in research and development. The electric vehicle market is highly competitive and includes both established automotive manufacturers and new entrants. To establish market share and attract customers from competitors, we plan to continue to make substantial investments in research and development for the commercialization and continued enhancements of theLucid Air , the development of Project Gravity, and future generations of our electric vehicles and other products.
Inflationary Pressure
TheU.S. economy has experienced increased inflation recently, including as a result of the COVID-19 pandemic. Our cost to manufacture a vehicle is heavily influenced by the cost of the key components and materials used in the vehicle, cost of labor, as well as cost of equipment used in our manufacturing facilities. As we continue our phased construction of our AMP-1 facility, increases in steel prices and cost of construction labor have led to higher capital expenditures. We expect that the inflationary pressure will persist for the foreseeable future. Results of Operations 33
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Revenue
The following table presents our revenue for the periods presented (in
thousands):
Three Months Ended March 31,
2022 2021 $ Change % Change
Revenue $ 57,675 $ 313 $ 57,362 *nm
*nm - not meaningful
We began generating sales from the deliveries of vehicles in the fourth quarter
of 2021. We recognize vehicle sales when the customer obtains control of the
vehicle which is upon delivery. We also generate revenue from the sale of
battery pack systems, supplies and related services for vehicles to a single
customer.
Revenue increased by
Cost of Revenue
The following table presents our cost of revenue for the periods presented (in
thousands):
Three Months Ended March 31,
2022 2021 $ Change % Change
Cost of revenue $ 245,970 $ 85 $ 245,885 *nm
*nm - not meaningful
Costs of revenue related to vehicle sales primarily include direct parts, materials, shipping and handling costs, allocable overhead costs such as depreciation of manufacturing related equipment and facilities, information technology costs, personnel costs including wages and stock-based compensation, estimated warranty costs and charges to reduce inventories to their net realizable value or charges for inventory obsolescence.
Cost of revenue related to battery pack systems, supplies and related services for electric vehicles primarily consists of direct parts and materials, shipping and handling costs, personnel costs including wages and stock-based compensation, and estimated warranty costs related to battery pack systems. Cost of battery pack systems also includes allocated overhead costs such as depreciation of manufacturing related equipment and facilities, and information technology costs. Cost of revenues increased by$245.9 million for the three months endedMarch 31, 2022 as compared to the same period prior year, primarily due to the manufacture and sale ofLucid Air vehicles in the first quarter of 2022. We incurred significant personnel and overhead costs to operate our large-scale manufacturing facilities while ramping up production, with production activity for a limited quantity of vehicles in the quarter endedMarch 31, 2022 . In the near term, we expect our production volume of vehicles continue to be significantly less than our manufacturing capacity. Additionally, we recorded an impairment charge of$96.4 million in the quarter endedMarch 31, 2022 to reduce our inventories to their net realizable values. We expect impairment charges could negatively affect our costs of vehicle sales in upcoming periods in the near term as we ramp production volumes up toward our manufacturing capacity.
Operating Expenses
The following table presents our operating expenses for the periods presented
(in thousands):
Three Months Ended March 31,
2022 2021 $ Change % Change
Operating expenses
Research and development $ 186,076 $ 167,369 $ 18,707 11 %
Selling, general and administrative 223,159 131,652 91,507 70 %
Total operating expenses $ 409,235 $ 299,021 $ 110,214 37 %
Research and Development
Our research and development efforts have primarily focused on the development
of our battery and powertrain technology, the Lucid Air , Project Gravity, and
future generations of our electric vehicles. Research and development expenses
consist primarily of materials, supplies and personnel-related expenses for
employees involved in the engineering, designing, and testing of electric
vehicles. Personnel-related expenses
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primarily include salaries, benefits and stock-based compensation. Research and
development expenses also include prototype material, engineering, design and
testing services, and allocated facilities costs, such as office and rent
expense and depreciation expense, and other engineering, designing, and testing
expenses.
Research and development expense increased by $18.7 million , or 11%, for the
three months ended March 31, 2022 as compared to the same period prior year. The
increase was primarily attributable to increases in personnel-related expenses
of $45.3 million due to growth in headcount (which included stock-based
compensation expense of $36.8 million ), partially offset by a decrease of $27.9
million for prototype material, engineering, design and testing services.
Selling, General, and Administrative
Selling, general, and administrative expenses consist primarily of personnel-related expenses for employees involved in general corporate, selling and marketing functions, including executive management and administration, legal, human resources, facilities and real estate, accounting, finance, tax, and information technology. Personnel-related expenses primarily include salaries, benefits and stock-based compensation. Selling, general, and administrative expenses also include allocated facilities costs, such as office, rent and depreciation expenses, professional services fees and other general corporate expenses. As we continue to grow as a company, build out our sales force, and commercialize theLucid Air and planned future generations of our electric vehicles, we expect that our selling, general and administrative costs will increase. We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , as well as higher expenses for general and director and officer insurance, investor relations, and professional services. Selling, general, and administrative expense increased by$91.5 million , or 70%, for the three months endedMarch 31, 2022 as compared to the same period prior year. The increase was primarily attributable to increases in personnel-related expenses of$61.6 million due to growth in headcount (which included stock-based compensation expense of$24.6 million ), and increase in higher utilization of contractors and professional fees by$11.0 million .
Other Income (Expense), net
The following table presents our other income and expense, net for the periods
presented (in thousands):
Three Months Ended March 31,
2022 2021 $ Change % Change
Other income (expense), net:
Change in fair value of forward contracts - (442,164) 442,164 (100) %
Change in fair value of convertible preferred
stock warrant liability - (6,976) 6,976 (100) %
Change in fair value of common stock warrant
liability 523,330 - 523,330 *nm
Interest expense, net (7,705) (5) (7,700) *nm
Other income (expense), net 942 (10) 952 *nm
Total other income (expense), net 516,567 (449,155) 965,722 (215) %
*nm - not meaningful
Change in Fair Value of Contingent Forward Contracts
Our contingent forward contracts provided the holder the right to purchase LegacyLucid Series D preferred stock and LegacyLucid Series E preferred stock in future periods and were subject to remeasurement to fair value at each balance sheet date. Changes in the fair value of our contingent forward contracts were recognized in the condensed consolidated statements of operations and comprehensive loss. Change in contingent forward contracts liability decreased by$442.2 million , or 100%, for the three months endedMarch 31, 2022 as compared to the same period prior year. The LegacyLucid Series E contingent forward contracts were settled during six months endedJune 30, 2021 , and there are no future earnings adjustments pertaining to the contingent forward contracts.
Change in Fair Value of Convertible Preferred Stock Warrant Liability
Our convertible preferred stock warrant liability related to the warrants to purchase shares of LegacyLucid Series D preferred stock was subject to remeasurement to fair value at each balance sheet date. Changes in the fair value of our convertible preferred stock warrant liability were recognized in the condensed consolidated statements of operations and comprehensive loss. All issued and outstanding shares of Legacy 35 --------------------------------------------------------------------------------
We recorded loss of$7.0 million for the three months endedMarch 31, 2021 due to the changes in fair value of the convertible preferred stock warrant liability related to LegacyLucid Series D preferred stock upon the exercise and settlement of all outstanding warrants to purchase LegacyLucid Series D preferred stock.
Change in Fair Value of Common Stock Warrant Liability
Our common stock warrant liability relates to the Private Placement Warrants to purchase shares ofLucid Group common stock that were effectively issued upon the Closing in connection with the reverse recapitalization treatment of the Merger. Our common stock warrant liability is subject to remeasurement to fair value at each balance sheet date. Changes in the fair value of our common stock warrant liability were recognized in the condensed consolidated statements of operations and comprehensive loss. The Private Placement Warrants remained unexercised as ofMarch 31, 2022 . The liability was remeasured to fair value, resulting in a gain of$523.3 million for the three months endedMarch 31, 2022 , and was classified within change in fair value of common stock warrant liability in the condensed consolidated statements of operations. See Note 9 - Common Stock Warrant Liability in our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. Interest Expense, net
Interest expense, net consists primarily of contractual interest and
amortization of debt discounts and debt issuance costs incurred related to the
2026 Notes issued in
Interest expense, net increased by
Other Income (Expense), net
Other income (expense), net consists primarily of income on money market funds and foreign currency gains and losses. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than theU.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
Other income (expense), net did not significantly fluctuate during the three
months ended
Provision for Income Taxes
Three Months Ended March 31,
2022 2021 $ Change % Change
Provision for income taxes 323 4 319 *nm
*nm - not meaningful
Our provision for income taxes consist primarily of U.S. state and foreign
income taxes in jurisdictions in which we operate. We maintain a valuation
allowance against the full value of our U.S. and state net deferred tax assets
because we believe it is more likely than not that the recoverability of these
deferred tax assets will not be realized.
The provision for income taxes increased by $0.3 million for the three months
ended March 31, 2022 as compared to the same period prior year, primarily due to
changes in taxable income of our foreign operations.
Liquidity and Capital Resources
Sources of Liquidity
As ofMarch 31, 2022 , Lucid had$5.4 billion of cash and cash equivalents. Our sources of cash are predominantly from proceeds from Lucid's de-SPAC transaction withChurchill (plus PIPE), and the issuance of convertible debt. We expect that our current sources of liquidity together with our projection of cash flows from operating activities will provide us with adequate liquidity over at least the next 12 months, including investment in funding (i) ongoing operations, (ii) research and development projects for new products/ technologies, (iii) ongoing production and manufacturing ramps at existing manufacturing facilities inCasa Grande , 36 --------------------------------------------------------------------------------Arizona , (iv) Phase 2 of construction at Advanced Manufacturing Plant 1 ("AMP-1") inCasa Grande, Arizona , (v) the start of construction of a manufacturing facility in theKingdom of Saudi Arabia , (vi) retail Studios and service centers, and (vii) other initiatives related to the sale of vehicles and/ or technology. We anticipate our cumulative spending on capital expenditures to be in the range of$2.0 billion for the fiscal year 2022 to support our continued commercialization and growth objectives as we strategically invest in manufacturing capacity and capabilities, our retail Studios and service center footprint throughoutNorth America and across the globe, development of different products and technologies, and other areas supporting the growth of Lucid's business. We expect our operating expenses to increase in the 2022 calendar year to grow and support the operations of a global automotive company targeting volumes in line with Lucid's aspirations. As ofMarch 31, 2022 , our total minimum lease payments are$324.5 million , of which$27.3 million is due in the current fiscal year. We also have a non-cancellable long-term commitment of$138.0 million to purchase certain inventory components. For details regarding these obligations, refer to Note 14 - Leases and Note 15 - Commitments and Contingencies.
2026 Notes
InDecember 2021 , Lucid entered into a purchase agreement pursuant to which we issued$2,012.5 million of the 2026 Notes. The 2026 Notes accrue interest at a rate of 1.25% per annum, payable semi-annually in arrears onJune 15 andDecember 15 of each year, beginning onJune 15, 2022 . The 2026 Notes will mature onDecember 15, 2026 , unless earlier repurchased, redeemed or converted. Before the close of business on the business day immediately beforeSeptember 15, 2026 , noteholders will have the right to convert their Notes only upon the occurrence of certain events. From and afterSeptember 15, 2026 , noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company's election. The initial conversion rate is 18.2548 shares of common stock per$1,000 principal amount of Notes, which represents an initial conversion price of approximately$54.78 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a "Make-Whole Fundamental Change" (as defined in the indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
International Manufacturing Expansion
OnFebruary 27, 2022 , the Company announced that it has selectedKing Abdullah Economic City ("KAEC") in theKingdom of Saudi Arabia as the location of its first international manufacturing plant and signed related agreements with theMinistry of Investment of Saudi Arabia , theSaudi Industrial Development Fund , and the Economic City at KAEC. The agreements are estimated to provide financing and incentives of up to$3.4 billion in aggregate over the next 15 years to build and operate a manufacturing facility in the Kingdom. The operations at the new plant would initially consist of re-assembly ofLucid Air vehicle "kits" pre-manufactured in theU.S. and, over time, production of complete vehicles. OnFebruary 27, 2022 ,Lucid LLC entered into a loan agreement (as subsequently amended, the "SIDF Loan Agreement") with the SIDF. Under the SIDF Loan Agreement, SIDF has committed to provide loans (the "SIDF Loans") toLucid LLC in an aggregate principal amount of up toSAR 5.19 billion (approximately$1.4 billion ); provided that SIDF may reduce the availability of SIDF Loans under the facility in certain circumstances. SIDF Loans will be subject to repayment in semi-annual installments in amounts ranging fromSAR 25 million toSAR 350 million , commencing onApril 3, 2026 and ending onNovember 12, 2038 . SIDF Loans are financing and will be used to finance certain costs in connection with the development and construction of the Company's planned manufacturing facility in theKingdom of Saudi Arabia ("the KSA Facility").Lucid LLC may repay SIDF Loans earlier than the maturity date without penalty. Obligations under the SIDF Loan Agreement do not extend to the Company or any of its other subsidiaries. SIDF Loans will not bear interest. Instead,Lucid LLC will be required to pay SIDF service fees, consisting of follow-up and technical evaluation fees, ranging, in aggregate, fromSAR 415 million (approximately$111 million ) toSAR 1.77 billion (approximately$471 million ), over the term of the SIDF Loans. SIDF Loans will be secured by security interests in the equipment, machines and assets funded thereby. The SIDF Loan Agreement contains certain restrictive financial covenants and imposes annual caps onLucid LLC's payment of dividends, distributions of paid-in capital or certain capital expenditures. The SIDF Loan Agreement also defines customary events of default, including abandonment of or failure to commence operations at the plant in KAEC, and drawdowns under the SIDF Loan Agreement are subject to certain conditions precedent. As ofMarch 31, 2022 , no amounts were outstanding under the SIDF Loan Agreement.
In relation to the selection of the
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We have generated significant losses from our operations as reflected in our
accumulated deficit of $6.1 billion as of March 31, 2022 and December 31, 2021 .
Additionally, we have generated significant negative cash flows from operations
and investing activities as we continue to support the growth of our business.
The expenditures associated with the development and commercial launch of our
vehicles, the anticipated increase in manufacturing capacity, and the
international expansion of our business operations are subject to significant
risks and uncertainties, many of which are beyond our control, which may affect
the timing and magnitude of these anticipated expenditures. These risk and
uncertainties are described in more detail in the section entitled "Risk
Factors" in Part II, Item 1A.
Cash Flows
The following table summarizes our cash flows for the periods presented (in
thousands):
Three Months Ended
March 31,
2022 2021
Cash used in operating activities (494,649) (218,726)
Cash used in investing activities (185,082) (94,779)
Cash (used in) provided by financing activities (187,301) 511,098
Net (decrease) increase in cash, cash equivalents, and restricted cash
(867,032) 197,593
Cash Used in Operating Activities
Our cash flows used in operating activities to date have been primarily comprised of cash outlays to support overall growth of the business, especially the costs related to inventory and sale of our vehicles, costs related to research and development, payroll and other general and administrative activities. As we continue to ramp up hiring after starting commercial operations, we expect our cash used in operating activities to increase significantly before it starts to generate any material cash flows from our business.
Net cash used in operating activities of$494.6 million for the three months endedMarch 31, 2022 primarily consisted of$81.3 million of net loss, adjusted for$201.3 million of non-cash charges and an increase in net operating assets of$212.1 million . The non-cash charges primarily included gain for changes in fair value of common stock warrant liability of$523.3 million , stock-based compensation expense of$174.6 million , write-down of inventory of$96.4 million , and depreciation and amortization of property and equipment of$38.2 million . The increase in net operating assets is primarily due to an increase in operating assets of$341.0 million offset by an increase in operating liabilities of$128.9 million . Net cash used in operating activities of$218.7 million for the three months endedMarch 31, 2021 primarily consisted$748.0 million of net losses, adjusted for$565.2 million of non-cash charges and a decrease in net operating liabilities of$36.0 million . The non-cash charges primarily included the fair value of contingent forward contracts and warrant liabilities of$449.1 million , and convertible preferred stock related expense of$104.8 million . The decrease in net operating liabilities is primarily due to a decrease in operating liabilities of$23.1 million and an increase in operating assets of$12.9 million .
Cash Used in Investing Activities
We continue 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 of
Cash Provided by Financing Activities
Since inception, we have financed our operations primarily from the issuances of equity securities, including convertible preferred stock, the proceeds of the Merger, and the 2026 Notes. Net cash used in financing activities of$187.3 million during the three months endedMarch 31, 2022 was primarily attributable to$180.6 million of remittance for tax withholding obligations in connection with vesting of the CEO time-based and performance-based RSUs through net settlement,$12.9 million for the payment of short-term insurance financing note and$1.2 million for the payment of finance lease liabilities, partially offset by$9.1 million of proceeds from the exercises of stock options. 38 -------------------------------------------------------------------------------- Net cash provided by financing activities of$511.1 million during the three months endedMarch 31, 2021 was primarily attributable to$507.1 million of proceeds from the issuance of LegacyLucid Series E preferred stock,$4.3 million of proceeds from the exercises of stock options and$3.0 million of proceeds from the issuance of LegacyLucid Series D preferred stock, partially offset by$3.0 million cash paid for the repurchase of LegacyLucid Series B preferred stock.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP"). The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures in our financial statements and accompanying notes. We base our estimates on historical experience and on various other factors that we believe to be 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 due to the inherent uncertainty involved in making those estimates and any such differences may be material. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.
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