VELODYNE LIDAR The following discussion of Velodyne's results of operations and financial condition should be read in conjunction with the information set forth in Velodyne's financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under "Cautionary Note Regarding Forward-Looking Statements" and Item 1A: "Risk Factors."
Overview
Velodyne is a global leader in lidar technology providing real-time 3D vision
for autonomous systems. Our lidar solutions are advancing the development of
safe automated systems throughout the world, thereby empowering the autonomous
revolution by allowing machines to see their surroundings. Our lidar-based smart
vision solutions are also deployed in many non-automotive applications,
including autonomous mobile robots, UAVs, drones, last-mile delivery, precision
agriculture, advanced security systems, and smart city initiatives.
We also license our technology and provide development services to customers and
business partners. In the first quarter of 2022 and year 2021, we generated over
half of sales unit volume from customers deploying our smart vision solutions in
non-automotive applications. In addition, we are transitioning from field
programmable gate arrays to ASICs in order to further improve performance of our
products, lower costs and reduce reliance on any key suppliers.
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--------------------------------------------------------------------------------Impact of COVID-19
The extensive impact of the pandemic caused by the novel coronavirus (COVID-19) has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. The timing of customer orders and our ability to fulfill orders we received was impacted by various COVID-19 related government mandates across our worldwide operations. We witnessed certain current and prospective customers delaying purchases based on budget constraints or project delays related to COVID-19. While the broader and long-term implications of the COVID-19 pandemic on our workforce, operations and supply chain, customer demand, results of operations and overall financial performance remain uncertain, we continued to experience disruptions to our business due to the COVID-19 pandemic during the first quarter of 2022.
The impact of COVID-19 and measures to prevent its spread have been impactful and continue to affect our business in several ways.
•Operations and supply chain. As a result of COVID-19, we experienced some production delays during the first quarter of 2022 due to travel restrictions toThailand , the location of one of our key manufacturing partners. The San Jose factory continued to produce the major lidar products to support customer demand, augmented by our contract manufacturing partners. The San Jose factory confirmed several cases of COVID-19 from external exposure. As part of our continuing COVID-19 mitigation efforts, we perform audits of our supply chain and work with key suppliers to proactively mitigate potential supply constraints. Supply chain disruption due to COVID-19 has been minimal, however, the global supply of certain components, especially in the semiconductor space, requires ongoing vigilance as both lead times and prices reflect demand exceeding industry supply, and our plans to transition production from our San Jose factory to our contract manufacturing partners have experienced delays as a result of travel restrictions. •Demand for our products. While we continue to engage with current and potential customers, we believe some customers may delay purchases from us because their development programs may also be delayed as a result of COVID-19. •Positive customer trend in the pandemic. The global pandemic accelerated a few key robotic programs, which partially offset the impact of some of our customers' delayed purchasing decisions. The accelerated programs include robots that disinfect the air and surfaces, providing more sanitized environments, and touchless delivery robots for food and medical supplies. •Liquidity, working capital, and the CARES Act. OnMarch 27, 2020 , theU.S. government enacted the CARES Act. OnApril 8, 2020 , we received loan proceeds of$10.0 million under the CARES Act's Paycheck Protection Program to help us offset delays in production and customer purchases. We filed a request for PPP loan forgiveness, and the approval was granted onJune 30, 2021 .
See Item 1A: "Risk Factors" for further discussion of the possible impact of COVID-19 on our business.
Recent Developments Amazon Warrant Agreement InFebruary 2022 , we entered into a warrant agreement and a transaction agreement with Amazon.com ("Amazon"), pursuant to which we agreed to issue toAmazon.com NV Investment Holdings LLC , a wholly-owned subsidiary of Amazon, a warrant ("Amazon Warrant") to acquire up to an aggregate of 39,594,032 shares of Velodyne's common stock at an exercise price of$4.18 per share. The exercise price and the warrant shares issuable upon exercise of the warrant are subject to customary antidilution adjustments. The right to exercise the warrants and receive the warrant shares that have vested expiresFebruary 4, 2030 . The warrant agreement also contains customary change-in-control provisions. The Amazon Warrant shares vest in multiple tranches over time based on payments of up to$200.0 million by Amazon or its affiliates (directly or indirectly through third parties) to Velodyne in connection with Amazon's purchase of goods and services from us. Upon entry into additional commercial agreement, certain warrant shares will vest, and the number of shares that vest in connection with future payments by Amazon to Velodyne will be reduced pro rata. As ofMarch 31, 2022 , none of the Amazon Warrant shares are vested. 30 --------------------------------------------------------------------------------
For the three months ended
Factors Affecting Our Performance
Design wins. We are developing our smart vision solutions as a key enabling
technology for OEMs in automotive and other applications. Because our solutions
must be integrated into a broader platform by the OEM, it is critical that we
achieve design wins with these customers. The time necessary to achieve design
wins varies based on the market and application. The design cycle in the
automotive market tends to be substantially longer and more onerous than in
other markets. Even within the automotive market, achieving a design win with an
automotive OEM takes considerably longer than a design cycle for an aftermarket
application. 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
future financial performance.
Pricing, product cost and margins. Our pricing and margins will depend on the
volumes and the features of the solutions we provide to our customers. To date,
most of our revenue has been generated by selling our smart vision solutions
that have cost less for us to manufacture and that incorporate new features. In
general, solutions incorporated into development-phase products require more
complex configurations, have higher prices and higher gross margins. As our
markets reach maturity and commercialization, we expect prices and margins will
generally decrease. Our commercial-stage customers will require that our smart
vision solutions be manufactured and sold at per-unit prices that enable mass
market adoption. To meet the technological and pricing needs of customers
reaching commercial scale, we are making significant investments in new
solutions for both cost improvements and new features. Our ability to compete in
key markets will depend on the success of these investments and our efforts to
efficiently and reliably produce cost-effective smart vision solutions for our
commercial-stage customers. We have customers with technologies in various
stages of development. We anticipate that our prices will vary by market and
application due to market-specific supply and demand dynamics and product
lifecycles.
Commercialization of lidar-based applications. Our revenue has been subject to
significant fluctuations. Our customers in the pre-commercial development phase
may have purchased their requirements of our products in earlier periods and we
do not expect them to begin purchasing again in volume unless and until they
reach commercial deployments. As a number of our target markets reach
commercialization, we expect there to be a shift towards higher unit volume at
lower per-unit prices, with more predictable customer demand. We expect that our
results of operations, including revenue and gross margins, will continue to
fluctuate on a quarterly basis for the foreseeable future as our customers
continue research and development projects and begin to commercialize autonomous
solutions that rely on lidar technology. As more customers reach the
commercialization phase and as the market for lidar solutions matures, these
fluctuations in our operating results may become less pronounced. However, in
the near term, our revenue may not grow as we expect until more customers
commercialize their products.
End market demand. We sell our products to customers in a number of end markets.
We believe our entry into new markets will continue to facilitate revenue growth
and customer diversification. While we will continue to expand the end markets
we serve, we anticipate that sales to a limited number of end markets will
continue to account for a significant portion of our total revenue for the
foreseeable future. Success in an end market, or commercialization, is uncertain
and may develop differently in each case, with unique pricing, volume and cost
dynamics. Additionally, as production scales in order to meet the demands of
commercialization, pricing pressure increases and the amount of that pressure is
expected to vary by market.
Sales volume. A typical design win can generate a wide range of sales volumes
for our solutions, depending on the end market demand for our customers'
products. This can depend on several factors, including the reputation of the
end customer, market penetration, product capabilities, size of the end market
that the product addresses and our end customers' ability to sell their
products. In addition to end market demand, sales volumes also depend on whether
our customer is in the development, commercialization or production phase. In
certain cases, we may provide volume discounts on sales of our solutions, which
may or may not be offset by lower manufacturing costs related to higher volumes.
Continued investment and innovation. We believe that we are the industry-leading
lidar provider with proven designs, extensive product offerings and advanced
manufacturing capabilities. Our financial performance is significantly dependent
on our ability to maintain this leading position. This is further dependent on
the investments we make in research and development. We must continually
identify and respond to rapidly evolving customer requirements, develop and
introduce
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innovative new products, enhance and service existing products and generate
active 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.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles ("GAAP"). The preparation of these
consolidated financial statements requires us to make estimates, assumptions and
judgments that can significantly impact the amounts we report as assets,
liabilities, revenue, costs and expenses and the related disclosures. We base
our estimates on historical experience and other assumptions that we believe are
reasonable under the circumstances. Our actual results could differ
significantly from these estimates under different assumptions and conditions.
We believe that the accounting estimates discussed below are critical to
understanding our historical and future performance as these estimates involve a
greater degree of judgment and complexity.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products and to a small extent services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations; however, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment. Transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis. Judgment is required to determine SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when products and services are sold separately. In instances where SSP is not directly observable, we determine SSP using information that may include other observable inputs available to us. Accounting for contracts recognized over time involves the use of various techniques to estimate total contract revenue and costs. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. We review and update our contract-related estimates regularly, and record adjustments as needed. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized in the period in which the revisions to the estimates are made.
Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.
The reductions of revenue associated with Amazon Warrant are determined based on the grant date fair value of the award and recognized as the customer makes payments and vesting conditions become probable of being achieved. See Note 9 to our Condensed Consolidated Financial Statements for additional information.
Inventory Valuation
Inventories are stated at the lower of cost or estimated net realizable value.
Costs are computed under the standard cost method, which approximates actual
costs determined on the first in, first out basis. We record write-downs of
inventories which are obsolete or in excess of anticipated demand. Significant
judgment is used in establishing our forecasts of future demand and obsolete
material exposures. We consider marketability and product life cycle stage,
product development plans, component cost trends, demand forecasts, historical
revenue, and assumptions about future demand and market conditions in
establishing our estimates. If the actual component usage and product demand are
significantly lower than forecast, which may be caused by factors within and
outside of our control, or if there were a higher incidence of inventory
obsolescence because of rapidly changing technology and our customer
requirements, we may be required to increase our inventory writedowns. A change
in our estimates could have a significant impact on the value of our inventory
and our results of operations.
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--------------------------------------------------------------------------------Recent Accounting Pronouncements
InJune 2016 , the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-11, ASU 2020-02 and ASU 2020-03 to provide additional guidance on the credit losses standard. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available for sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. For smaller reporting companies, the standard is effective for fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years. Early adoption is permitted. We expect to adopt the new standard in the first quarter of 2023 and are currently evaluating the impact this standard will have on our consolidated financial statements and related disclosures. Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following table sets forth our consolidated results of operations data for the periods presented (in thousands): Three Months Ended March 31, 2022 2021 Revenue: Product(1) $ 4,362$ 10,593 License and services 1,818 7,133 Total revenue 6,180 17,726 Cost of revenue: Product(2) 15,196 15,629 License and services 267 179 Total cost of revenue(2) 15,463 15,808 Gross profit (loss) (9,283) 1,918 Operating expenses(2): Research and Development 21,297 18,378 Sales and Marketing 6,005 7,075 General and administrative 12,317 17,036 Total operating expense 39,619 42,489 Operating loss (48,902) (40,571) Interest income 227 103 Interest expenses (3) (36) Other income (expense), net 4 (17) Loss before income taxes (48,674) (40,521) Provision for income taxes 447 296 Net loss$ (49,121) $ (40,817) The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue for the periods presented (the table may not foot due to rounding difference): 33 --------------------------------------------------------------------------------
Three Months Ended March 31,
2022 2021
Revenue:
Product 71 % 60 %
License and services 29 40
Total revenue 100 100
Cost of revenue:
Product 246 89
License and services 4 1
Total cost of revenue 250 90
Gross profit (loss) (150) 10
Operating expenses:
Research and Development 345 104
Sales and Marketing 97 40
General and administrative 199 96
Total operating expense 641 240
Operating loss (791) (230)
Interest income 4 1
Interest expenses - -
Other income (expense), net - -
Loss before income taxes (788) (229)
Provision for income taxes 7 2
Net loss (795) % (231) %
_______________________
(1) Includes non-cash stock-based reductions of revenue of $5.3 million for the
three months ended March 31, 2022 associated with the Amazon Warrant agreement
entered into in February 2022 . See Note 9 to our Condensed Consolidated
Financial Statements for more information.
(2) Includes stock-based compensation expense as follows (in thousands):
Three Months Ended March 31,
2022 2021
Cost of revenue $ 521 $ 536
Research and development 2,356 4,910
Sales and marketing 871 1,986
General and administrative 1,187 4,098
Total stock-based compensation expense $ 4,935 Prior to the Business Combination, compensation expense related to RSAs and RSUs granted under the pre-combination Velodyne's stock incentive plans remained unrecognized because the performance vesting condition, which is (i) an initial public offering, or (ii) a Company sale event, was not probable of being met. In connection with the Business Combination, the Board waived the liquidity event vesting condition applicable to the pre-combination Velodyne's RSUs and RSAs onOctober 30, 2020 andMay 18, 2021 , respectively. As such, the outstanding RSUs and RSAs vested to the extent the applicable service condition was satisfied as of such dates. The vesting of the RSUs and RSAs resulted in approximately$77.5 million and$45.1 million of incremental stock-based compensation expense in the fourth quarter of 2020 and second quarter of 2021, respectively. 34 --------------------------------------------------------------------------------
Comparison of the First Quarter of 2022 to 2021
Revenue
Three Months Ended March 31,
($ in thousands) 2022 2021 $ Change % Change
Revenue:
Products $ 4,362 $ 10,593 $ (6,231) (59) %
License and services 1,818 7,133 (5,315) (75)
Total $ 6,180 $ 17,726 $ (11,546) (65)
Revenue by geographic location:
North America $ (1,304) $ 5,044 $ (6,348) (126) %
Asia and Pacific 4,906 9,506 (4,600) (48)
Europe, Middle East and Africa 2,578 3,176 (598) (19)
Total $ 6,180 $ 17,726 $ (11,546) (65)
The majority of our revenue comes from the sale of our lidar sensors directly to
end users and through our network of U.S. and international distributors.
Product revenue is recognized when control of the products is transferred to the
customer, which is generally upon shipment. For custom products that require
engineering and development based on customer requirements, revenue is
recognized over time using an output method based on units of product shipped to
date relative to total production units under the contract. We also generate a
portion of our revenue from intellectual property licensing, royalties and the
sale of services related to product development, validation, extended warranty
and product repair services. License revenue is recognized upon delivery of the
intellectual property if there are no substantive future obligations to perform
under the arrangement. Royalties are recognized at the later of the period the
sales occur or the satisfaction of the performance obligation to which some or
all of the royalties have been allocated. As our manufacturing partners to whom
we have licensed our technology start selling to customers, we expect royalty
revenue to increase. Service revenue is recognized as the services are
performed.
Total revenue decreased by $11.5 million , or 65%, to $6.2 million for the first
quarter of 2022 from $17.7 million for the first quarter of 2021. The $6.2
million decrease in product revenue reflected a $5.3 million contra revenue
associated with our warrant agreement with Amazon, and a decrease of $1.3
million related to the volume and mix of sensors and parts sold due to supply
chain constraints, partially offset by an increase in the average selling price
for lidar sensors. We expect these supply chain constraints to persist for the
next several quarters. Our revenue has been subject to significant fluctuations.
Our customers in the pre-commercial development phase may have purchased their
requirements of our products in earlier periods and are not expected to begin
purchasing again in volume unless and until they reach commercial deployments.
As our target markets reach commercialization, we expect there to be a shift
towards higher unit volume at lower per-unit prices, with more predictable
customer demand. The $5.3 million decrease in license and service revenue
primarily reflected a reduction in license revenues associated with our patent
cross license agreements.
The $6.3 million decrease in North America revenue for the first quarter of 2022
was due to a decrease of $5.3 million related to contra revenue associated with
our warrant agreement with Amazon and a reduction associated with the volume and
mix of sensors sold. The $4.6 million decrease in Asia-Pacific revenue was
primarily due to a $5.4 million decrease in license revenue from our patent
cross license agreements partially offset by an increase related to the volume
and mix of units sold. The $0.6 million decrease in Europe , Middle East and
Africa revenue reflected a $1.1 million reduction related to the volume and the
mix of sensors sold, partially offset by an increase in average selling price
for our lidar sensors.
Cost of Revenue and Gross Margin
Three Months Ended March 31,
($ in thousands) 2022 2021 $ Change % Change
Cost of revenue:
Product $ 15,196 $ 15,629 $ (433) (3) %
License and services 267 179 88 49
Total cost of revenue $ 15,463 $ 15,808 $ (345) (2)
Gross margin (150) % 10 %
35-------------------------------------------------------------------------------- Cost of revenue includes the manufacturing cost of our lidar sensors, which primarily consists of personnel-related costs directly associated with our manufacturing organization, and amounts paid to our third-party contract manufacturers and vendors. Our cost of revenue also includes depreciation and amortization, cost of component inventory, product testing costs, costs of providing services, an allocated portion of overhead, facility and IT costs, warranty costs, excess and obsolete inventory and shipping costs. Our gross margin varies by product and depends on a variety of factors, including market conditions that may impact our pricing, including our desire to broaden customer adoption of lidar across multiple industries and markets; product mix changes between established products and new products and licenses; excess and obsolete inventories; our cost structure for manufacturing operations, including supply constraints for certain commodities during the next fiscal year, third-party manufacturers, relative to volume; and product support obligations. We also believe our transition to an outsourced manufacturing model will favorably impact our gross margin over time. In addition, our license revenue has lower cost, and therefore it contributes to higher gross margin. We expect our gross margins to fluctuate over time, depending on the factors described above. Cost of revenue decreased by$0.3 million , or 2%, to$15.5 million for the first quarter of 2022 from$15.8 million for the first quarter of 2021. The$0.4 million product cost decrease was primarily driven by a decrease of$1.9 million cost related to volume and mix of units sold, partially offset by a cost increase of$1.5 million as a result of component price increases driven by supply constraints. Gross margin decreased from 10% for the first quarter of 2021 to (150)% for the first quarter of 2022, primarily reflecting the timing of high margin license revenues, the impact of the reduction of revenue associated with the Amazon warrant agreement and component price increases as a result of supply constraints. We expect higher component costs as a result of supply constraints to impact margins at least through the third quarter of 2022. We expect to decrease manufacturing labor and overhead costs as we outsource production to our contract manufacturing partners, with the objective of reducing the per unit cost of revenue. Operating Expenses Three Months Ended March 31, ($ in thousands) 2022 2021 $ Change % Change Operating Expense: Research and development$ 21,297 $ 18,378 $ 2,919 16 % Sales and marketing 6,005 7,075 (1,070) (15) % General and administrative 12,317 17,036 (4,719) (28) % Total operating expenses$ 39,619 $ 42,489 $ (2,870) (7) % Research and Development Research and development expenses consist primarily of personnel-related costs directly associated with our research and development organization, with the remainder being prototype expenses, third-party engineering and contractor costs, an allocated portion of facility and IT costs and depreciation. Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development, including new releases and upgrades to our lidar sensors. Research and development expenses increased by$2.9 million , or 16%, to$21.3 million for the first quarter of 2022 from$18.4 million for the first quarter of 2021. The increase was primarily due to an increase of$2.2 million in prototype costs, an increase of$1.8 million in personnel related costs and$1.0 million in allocated facility and IT expenses, partially offset by a decrease of$2.6 million in stock-based compensation expense.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel-related costs
directly associated with our sales and marketing activities. These include the
cost of sales commissions, marketing programs, trade shows, consulting services,
promotional materials, demonstration equipment, an allocated portion of facility
and IT costs and depreciation. We expect
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that our sales and marketing expenses will increase in absolute dollars over
time as we hire additional sales and marketing personnel, increase our marketing
activities, grow our domestic and international operations, and build brand
awareness.
Sales and marketing expenses decreased by $1.1 million , or 15%, to $6.0 million
for the first quarter of 2022 from $7.1 million for the first quarter of 2021.
The decrease was primarily attributable to decreases of $1.1 million in
stock-based compensation expense and $0.5 million related to personnel expenses,
partially offset by an increase of $0.7 million in trade show expenses.
General and Administrative
General and administrative expenses primarily consist of personnel-related expenses associated with our general and administrative organization, professional fees for legal, accounting, and other consulting services, an allocated portion of facility and IT costs and depreciation. We expect to continue to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and stock exchange listing standards, additional insurance expenses (including directors' and officers' insurance), investor relations activities and other administrative and professional services. General and administrative expenses decreased by$4.7 million , or 28%, to$12.3 million for the first quarter of 2022 from$17.0 million for the first quarter of 2021. The decrease was primarily attributable to decreases of$2.9 million in stock-based compensation expense,$1.6 million in bad debt reserves and$1.0 million in legal settlements, partially offset by a$0.7 million increase in insurance expense.
Interest Income, Interest Expense and Other Expense, Net
Three Months Ended March 31,
($ in thousands) 2022 2021 $ Change % Change
Interest income $ 227 $ 103 $ 124 120 %
Interest expense (3) (36) 33 (92) %
Other income (expense), net 4 (17) 21 (124) %
Interest income consists primarily of income earned on our cash equivalents and
investments in marketable securities. These amounts will vary based on our cash,
cash equivalents and short-term investment balances, and also with market rates.
Interest expense consists primarily of interest on our equipment financing
leases and credit facility.
Interest income increased by
Interest expense was primarily related to our finance leases and was insignificant for all periods presented.
Other income, net consists primarily of foreign exchange gain or loss resulting
from foreign currency exchange rate fluctuations and was insignificant for all
periods presented.
Income Taxes
Three Months Ended March 31,
($ in thousands) 2022 2021 $ Change % Change
Income Taxes:
Loss before income taxes $ (48,674) $ (40,521) $ (8,153) 20 %
Provision for income taxes 447 296 151 51 %
Effective tax rate (0.9) % (0.7) %
Our provision for income taxes consists of federal, state and foreign current
and deferred income taxes. As we expand the scale and scope of our international
business activities, any changes in the United States and foreign taxation of
such activities may increase our overall provision for income taxes in the
future.
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We have a full valuation allowance for our net deferred tax assets, including
federal and state net operating loss carryforwards and research and development
credit carryforwards. We expect to maintain this valuation allowance until it
becomes more likely than not that the benefit of our federal and state deferred
tax assets will be realized by way of expected future taxable income.
We believe that we have adequately reserved for our uncertain tax positions,
although we can provide no assurance that the final outcome of these matters
will not be materially different. To the extent that the final outcome of these
matters is different than the amounts recorded, such differences will affect the
provision for income taxes in the period in which such determination is made and
could have a material impact on our financial condition and results of
operations.
We are subject to income taxes in the United States , China , Germany and India .
Our effective tax rate changed from (0.7)% in the first quarter of 2021 to
(0.9)% in the first quarter of 2022. The change in income taxes was primarily
due to a combination of permanent tax items, mainly related to the valuation
allowance recorded on U.S. deferred tax assets, foreign withholding taxes and
state taxes
Liquidity and Capital Resources
Sources of Liquidity
As ofMarch 31, 2022 , we had cash, cash equivalents and short-term investments totaling$256.4 million , which were held for working capital purposes. Our cash equivalents and short-term investments are comprised of money market funds,U.S. government and agency securities, corporate debt securities and commercial paper. To date, our principal sources of liquidity have been payments received from sales to customers and the net proceeds we received through the Business Combination, PIPE offering, private placements of the pre-combination Velodyne convertible preferred stock, public warrant exercises, employee option exercises and ESPP share purchases. As ofMarch 31, 2022 , we received an aggregate of$247.0 million in net proceeds from the Business Combination and PIPE offering, and an aggregate of$73.7 million in net proceeds from the exercises of our public warrants. We have a loan and security agreement with a financial institution that expires onFebruary 24, 2023 . The credit agreement, which was entered into inSeptember 2020 and last amended inFebruary 2022 , provides a$25.0 million revolving line of credit, with a$5.0 million letter of credit sublimit. The agreement includes an option to increase the credit limit up to an additional$15.0 million with the bank's approval. The advances under the credit facility bear interest at a rate per annum equal to the prime rate plus an applicable margin of 1.5% for prime rate advances, or the SOFR rate plus an applicable margin of 2.5% for SOFR advances. The unused revolving line facility fee is 0.15% per annum of the average unused portion of the credit facility. The revolving line of credit is secured by certain assets of the Company. As ofMarch 31, 2022 , we were compliant with all associated covenants in the agreement. No amounts were drawn against this credit facility during any of the periods presented. OnApril 8, 2020 , we received loan proceeds of$10.0 million under the CARES Act's Paycheck Protection Program (PPP). We filed for the forgiveness of the PPP loan and were approved for forgiveness of such loan and interest onJune 30, 2021 . We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of$575.5 million as ofMarch 31, 2022 . We expect to continue to incur operating losses at least for the next 12 months due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business. We believe that current cash, cash equivalents, short-term investments and available borrowing capacity under the revolving credit facility will be sufficient to fund our operations, including capital expenditures and purchase commitments, for at least the next 12 months. For additional information regarding our cash requirements from lease obligations and contractual obligations, see Note 6. "Leases" and Note 14. "Commitments and Contingencies" in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Our future capital requirements, however, will depend on many factors, including our lidar sales volume, the timing and extent of spending to support our research and development efforts in smart vision technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. From time to time, we may seek to raise additional funds through equity and debt. If we are unable to raise additional 38 --------------------------------------------------------------------------------
capital when desired and on reasonable terms, our business, results of operations, and financial condition be adversely affected.
Cash Flow Summary
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
2022 2021
(In thousands)
Net cash provided by (used in):
Operating activities $ (35,307) $ (35,107)
Investing activities 42,346 (83,533)
Financing activities - 69,179
Operating Activities
During the three months ended March 31, 2022 , operating activities used
$35.3 million in cash. The primary factors affecting our operating cash flows
during this period were our net loss of $49.1 million , impacted by our non-cash
net adjustments of $13.5 million primarily consisting of stock-based
compensation of $4.9 million , provision for common stock warrant of $5.3
million , depreciation and amortization of $2.2 million , reduction in carrying
amount of the ROU assets of $0.7 million and net amortization of investment
premium or discount of $0.4 million . The cash used in changes in our operating
assets and liabilities of $8.7 million was primarily due to an increase of
$3.2 million in inventory primarily due to increases in inventory purchases, a
decrease of $3.8 million in accrued expenses and other liabilities due to timing
of payments, and a decrease of $1.7 million in contract liabilities due to the
timing of billings and cash received in advance of revenue. These amounts were
partially offset by cash provided from changes in our operating assets and
liabilities of $9.0 million which primarily consists of a decrease of
$1.3 million in accounts receivable due to the timing of billings and cash
received, a decrease of $3.3 million in contract assets, a decrease of
$2.2 million in prepaid expenses, and an increase of $2.1 million in accounts
payable.
During the three months ended March 31, 2021 , operating activities used $35.1
million in cash. The primary factors affecting our operating cash flows during
this period were our net loss of $40.8 million , impacted by our non-cash net
expense of $16.2 million primarily consisting of stock-based compensation of
$11.5 million , depreciation and amortization of $2.1 million , reduction in
carrying amount of the ROU assets of $0.8 million and provision for doubtful
accounts of $1.7 million . The cash used in changes in our operating assets and
liabilities of $14.1 million which primarily consists of an increase of $1.2
million in accounts receivable, an increase of $2.8 million in inventories due
to increased sales volume of certain products, an increase of $2.4 million in
unbilled receivables from a licensing arrangement with a customer, a decrease of
$3.9 million in accounts payable and a decrease of $3.9 million in accrued
expenses and other liabilities primarily due to timing of payments. These
amounts were partially offset by cash provided from changes in our operating
assets and liabilities of $3.6 million was primarily due to an increase of $1.9
million in contract liabilities primarily due to billings in excess of revenue
recognition related to product sales and licensing arrangement, and a decrease
of $1.7 million in prepaid and other current assets.
Investing Activities
During the three months endedMarch 31, 2022 , cash from investing activities was$42.3 million , which consisted primarily of$79.2 million proceeds from sales and maturities of short-term investments, partially offset by cash used to purchase short-term investments of$35.4 million and property, plant and equipment of$1.5 million . During the three months endedMarch 31, 2021 , cash used in investing activities was$83.5 million , which was primarily used to purchase short-term investments of$91.9 million and purchase property, plant and equipment of$0.6 million , partially offset by proceeds from sales and maturities of short-term investments of$9.0 million .
Our machinery and equipment is depreciated over a useful life of approximately five years.
39
--------------------------------------------------------------------------------Financing Activities
During the three months ended
During the three months ended
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