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
We are a global leader in lidar technology providing smart, powerful lidar solutions for autonomous vehicles, advanced driver assistance systems (ADAS), delivery solutions, robotics, industrial, infrastructure, navigation, mapping, and more. Our broad range of high-performance sensor and software solutions provide flexibility, quality and performance to meet the needs of a wide range of industries, including robotics, industrial, intelligent infrastructure, autonomous vehicles and ADAS. Our lidar-based smart vision solutions are deployed in many non-automotive applications, including autonomous mobile robots, UAVs, drones, last-mile delivery, precision agriculture, advanced security systems, and smart city initiatives. Through our direct sales team as well as through distributors, we sell to both automotive customers, including top automotive OEMs, system integrators, and last-mile delivery providers, as well as to non-automotive customers, who are providing an array of applications, including industrial, drone, and security applications. We also license our technology and provide development services to customers and business partners.
Impact of COVID-19
The extensive impact of the COVID-19 pandemic has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world, despite the reports of declines in severity. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, stay-at-home orders, and business shutdowns. The ongoing COVID-19 pandemic has disrupted and affected our operations, supply chain, customer demand, and our results of operations. For example, the timing of customer orders and our ability to fulfill orders we received were impacted by various COVID-19 related government mandates across our worldwide operations. Certain current and prospective customers delayed purchases based on budget constraints or project delays related to COVID-19. Our offices and R&D and manufacturing facilities have been, and from time-to-time may continue to be, impacted due to national and regional government declarations requiring closures, quarantines and travel restrictions. We also experienced an increase in raw materials and assembly costs. OnMarch 27, 2020 , theU.S. government enacted the CARES Act administered by theSmall Business Administration (the "SBA"). We benefited from a$10.0 million PPP loan from and forgiven by the SBA in the quarter endedJune 30, 2021 . The continued impact of the COVID-19 pandemic on our operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on our customers, suppliers, and employees, all of which are uncertain at this time. We expect the COVID-19 pandemic may adversely impact our future revenue and results of operations, but we are unable to predict at this time the size and duration of this adverse impact. At the same time, we have seen some signs of positive effects for our long-term business prospects and partnerships during the 30 --------------------------------------------------------------------------------
pandemic. For more information on our operations and risks related to COVID-19, please see the section of this Quarterly Report on Form 10-Q entitled "Risk Factors."
Recent Developments ATM Offering OnJune 15, 2022 , we entered into an Equity Distribution Agreement, or ATM Agreement, with Oppenheimer, pursuant to which, from time to time, we may raise up to$100 million by selling shares of our common stock. The ATM Shares will be issued pursuant to our shelf registration statement on Form S-3 that became effective onMay 11, 2022 . Subject to the terms and conditions of the ATM Agreement, Oppenheimer will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon our instructions, and is entitled to a commission at a rate equal to 2.5% of the gross price of any ATM Shares sold through Oppenheimer. The ATM offering will terminate upon the earlier of (i) the sale of all common stock subject to the ATM Agreement or (ii) termination of the ATM Agreement in accordance with its terms. We are not required to sell any shares at any time during the term of the ATM Agreement. Net proceeds from the sale of ATM Shares will be used for our general corporate purposes. We record the sale of our ATM Shares on a settlement date basis. For the three months endedJune 30, 2022 , we received net proceeds of approximately$6.8 million (after deducting$0.7 million in commissions and expenses) from sales of 6,471,048 ATM Shares at an average price of$1.17 per share pursuant to the ATM Agreement. 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. Following stock sales under our ATM offering, as ofJune 30, 2022 , the antidilution adjustments provided Amazon with warrants to acquire an additional 50,394 shares, for an aggregate of 39,644,426 shares. 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 ofJune 30, 2022 , none of the Amazon Warrant shares are vested.
For the six months ended
Factors Affecting Our Performance
Design wins. We are developing our smart vision solutions as a key enabling
technology for OEMs in a wide range of industries, including robotics,
industrial, intelligent infrastructure, autonomous vehicles and ADAS. 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. 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
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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. In addition, we are working on redesigning our sensors to help
alleviate supply chain shortages. 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 an 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 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 withU.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.
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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.
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): 33 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue: Product(1)$ 9,652 $ 11,970 $ 14,014 $ 22,563 License and services 1,855 1,626 3,673 8,759 Total revenue 11,507 13,596 17,687 31,322 Cost of revenue: Product(2) 18,347 19,210 33,543 34,839 License and services 257 170 524 349 Total cost of revenue(2) 18,604 19,380 34,067 35,188 Gross loss (7,097) (5,784) (16,380) (3,866) Operating expenses(2): Research and Development 18,757 17,009 40,054 35,387 Sales and Marketing 5,340 47,176 11,345 54,251 General and administrative 13,430 19,133 25,747 36,169 Total operating expense 37,527 83,318 77,146 125,807 Operating loss (44,624) (89,102) (93,526) (129,673) Interest income 294 109 521 212 Interest expenses - (41) (3) (77) Other income (expense), net (110) 10,136 (106) 10,119 Loss before income taxes (44,440) (78,898) (93,114) (119,419) Provision for (benefit from) income taxes (141) 339 306 635 Net loss$ (44,299) $ (79,237) $ (93,420) $ (120,054) 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): 34 --------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue:
Product 84 % 88 % 79 % 72 %
License and services 16 12 21 28
Total revenue 100 100 100 100
Cost of revenue:
Product 159 141 190 111
License and services 2 1 3 1
Total cost of revenue 162 143 193 112
Gross loss (62) (43) (93) (12)
Operating expenses:
Research and Development 163 125 226 113
Sales and Marketing 46 347 64 173
General and administrative 117 141 146 115
Total operating expense 326 613 436 401
Operating loss (388) (655) (529) (414)
Interest income 3 1 3 1
Interest expenses - - - -
Other income (expense), net (1) 75 (1) 32
Loss before income taxes (386) (580) (526) (381)
Provision for (benefit from) income
taxes (1) 2 2 2
Net loss (385) % (582) % (528) % (383) %
_______________________
(1) Includes non-cash reductions of revenue of$0.9 million and$6.2 million , respectively, for the three and six months endedJune 30, 2022 associated with the Amazon Warrant agreement entered into inFebruary 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Cost of revenue $ 759 $ 431 $ 1,280 $ 967
Research and development 2,831 2,754 5,187 7,664
Sales and marketing 988 41,616 1,859 43,602
General and administrative 1,733 8,404 2,920 12,502
Total stock-based compensation expense
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 RSAs resulted in approximately$45.1 million of incremental stock-based compensation expense in the second quarter of 2021. 35 --------------------------------------------------------------------------------
Comparison of the Three and Six Months Ended
Revenue
The majority of our revenue comes from the sale of our lidar sensors directly to end users and through our network ofU.S. and international distributors. Product revenue is recognized when control of the products is transferred to the customer, which is generally upon shipment. For custom products that require engineering and development based on customer requirements, revenue is recognized over time using an output method based on units of product shipped to date relative to total production units under the contract. Our customers in the pre-commercial development phase may have purchased their requirements of our products in earlier periods and are not expected to begin purchasing again in volume unless and until they reach commercial deployments. As our target markets reach commercialization, we expect there to be a shift towards higher unit volume at lower per-unit prices, with more predictable customer demand. We also generate a portion of our revenue from intellectual property licensing, royalties and the sale of services related to product development, validation, extended warranty and product repair services. License revenue is recognized upon delivery of the intellectual property if there are no substantive future obligations to perform under the arrangement. Royalties are recognized at the later of the period the sales occur or the satisfaction of the performance obligation to which some or all of the royalties have been allocated. As our manufacturing partners to whom we have licensed our technology start selling to customers, we expect royalty revenue to increase. Service revenue is recognized as the services are performed. Three Months Ended June 30, ($ in thousands) 2022 2021 $ Change % Change Revenue: Products$ 9,652 $ 11,970 $ (2,318) (19) % License and services 1,855 1,626 229 14 Total$ 11,507 $ 13,596 $ (2,089) (15) Revenue by geographic location: North America$ 4,292 $ 5,271 $ (979) (19) % Asia and Pacific 3,645 5,255 (1,610) (31) Europe, Middle East and Africa 3,570 3,070 500 16 Total$ 11,507 $ 13,596 $ (2,089) (15) Six Months Ended June 30, ($ in thousands) 2022 2021 $ Change % Change Revenue: Products$ 14,014 $ 22,563 $ (8,549) (38) % License and services 3,673 8,759 (5,086) (58) Total$ 17,687 $ 31,322 $ (13,635) (44) Revenue by geographic location: North America$ 2,988 $ 10,315 $ (7,327) (71) % Asia and Pacific 8,551 14,761 (6,210) (42) Europe, Middle East and Africa 6,148 6,246 (98) (2) Total$ 17,687 $ 31,322 $ (13,635) (44) Product Revenue Product revenue decreased by$2.3 million , or 19%, for the three months endedJune 30, 2022 compared to the same period in 2021. The decrease in product revenue reflected a$0.9 million non-cash contra revenue associated with our warrant agreement with Amazon and a decrease in the sales volume of our established products due primarily to supply chain 36 --------------------------------------------------------------------------------
constraints, partially offset by increases in the average selling price for lidar sensors sold. We expect these supply chain constraints to persist for the next several quarters.
Product revenue decreased by$8.5 million , or 38%, for the six months endedJune 30, 2022 compared to the same period in 2021. The decrease in product revenue reflected a$6.2 million contra revenue associated with our warrant agreement with Amazon and a decrease in the sales volume of our established products due primarily to supply chain constraints, partially offset by increases in the average selling price for lidar sensors sold.
License and Services Revenue
License and services revenue increased by
License and services revenue decreased by
Revenue by Geographic Location
OurNorth America revenue decreased by$1.0 million and$7.3 million , respectively, for the three and six months endedJune 30, 2022 compared to the same periods in 2021. The decreases were due primarily to non-cash contra revenue of$0.9 million and$6.2 million , respectively, for the three and six months endedJune 30, 2022 , associated with our warrant agreement with Amazon. OurAsia-Pacific revenue decreased by$1.6 million and$6.2 million , respectively, for the three and six months endedJune 30, 2022 compared to the same periods in 2021. The$1.6 million decrease for the three months endedJune 30, 2022 reflected a reduction in the sales volume of our established products due primarily to supply chain constraints, partially offset by increases in average selling price for our lidar sensors sold. The$6.2 million decrease reflected a$5.4 million decrease in license revenue from our patent cross license agreements and a reduction in the sales volume of our established products due primarily to supply chain constraints, partially offset by increases in average selling price for our lidar sensors sold. OurEurope ,Middle East andAfrica revenue increased by$0.5 million for the three months endedJune 30, 2022 compared to the same period in 2021, reflecting increases of average selling price for our lidar sensors, partially offset by a reduction in the sales volume of our established products. OurEurope ,Middle East andAfrica revenue decreased by$0.1 million for the six months endedJune 30, 2022 compared to the same period in 2021, reflecting a reduction in the sales volume of our established products, largely offset by increases in average selling price for our lidar sensors sold.
Cost of Revenue and Gross Margin
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, cost
of component inventory, product testing costs, outside services, an allocated
portion of overhead, facility and IT costs, warranty costs, excess and obsolete
inventory and shipping costs. We are transitioning to outsourcing our production
to contract manufacturing partners with the objective of reducing manufacturing
labor and overhead costs and the per unit cost of goods sold.
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 components, third-party
manufacturers, relative to volume; and product support obligations. We are
transitioning to an outsourced manufacturing model and believe that the use of
third-party manufacturers will favorably impact our gross margin over time. But
in the near term, while we are beginning manufacturing with new partners, we may
incur increased costs and result in lower gross margin.
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.
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Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cost of revenue:
Product $ 18,347 $ 19,210 $ (863) (4) %
License and services 257 170 87 51
Total cost of revenue $ 18,604 $ 19,380 $ (776) (4)
Gross margin (62) % (43) %
Six Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cost of revenue:
Product $ 33,543 $ 34,839 $ (1,296) (4) %
License and services 524 349 175 50
Total cost of revenue $ 34,067 $ 35,188 $ (1,121) (3)
Gross margin (93) % (12) %
Cost of product revenue decreased by $0.9 million , or 4%, for the three months
ended June 30, 2022 compared to the same period in 2021. The product cost
decrease was primarily driven by a decrease of $3.6 million in cost due to
decreased product sales volume, partially offset by a $2.2 million one-time
charge related to a discontinued product line and a cost increase resulting from
component price increases driven by supply constraints.
Cost of product revenue decreased by $1.3 million , or 4%, for the six months
ended June 30, 2022 compared to the same period in 2021. The product cost
decrease was primarily driven by a decrease of $5.5 million cost related to
decreased volume of units sold, partially offset by a $2.2 million one-time
charge related to a discontinued product line and a cost increase resulting from
component price increases driven by supply constraints.
Gross margin decreased to (62)% and (93)%, respectively, for the three and six
months ended June 30, 2022 from (43)% and (12)%, respectively, for the same
periods of 2021. The decreases primarily reflected the timing of high margin
license revenues, the impact of the contra revenue associated with the Amazon
warrant agreement, a one-time charge related to a discontinued product line, and
component price increases as a result of supply constraints, partially offset by
increased average selling price of our lidar sensors sold. We expect higher
component costs as a result of supply constraints to impact margins at least
through the fourth quarter of 2022.
Operating Expenses
Our research and development expenses consist primarily of personnel-related
costs directly associated with our research and development organization,
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.
Our sales and marketing expenses consist primarily of personnel-related costs
directly associated with our sales and marketing organization, sales
commissions, marketing programs, trade shows, consulting services, promotional
materials, demonstration equipment, an allocated portion of facility and IT
costs and depreciation.
Our 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, public
company related expenses, insurances, an allocated portion of facility and IT
costs and depreciation.
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Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Operating Expense:
Research and development $ 18,757 $ 17,009 $ 1,748 10 %
Sales and marketing 5,340 47,176 (41,836) (89)
General and administrative 13,430 19,133 (5,703) (30)
Total operating expenses $ 37,527 $ 83,318 $ (45,791) (55)
Six Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Operating Expense:
Research and development $ 40,054 $ 35,387 $ 4,667 13 %
Sales and marketing 11,345 54,251 (42,906) (79)
General and administrative 25,747 36,169 (10,422) (29)
Total operating expenses $ 77,146 $ 125,807 $ (48,661) (39)
Research and Development
Research and development expenses increased by $1.7 million , or 10%, for the
three months ended June 30, 2022 compared to the same period in 2021. The
increase was primarily due to an increase of $2.1 million in personnel related
costs and $1.2 million in facility and IT expenses, partially offset by a
decrease of $1.6 million in prototype costs.
Research and development expenses increased by $4.7 million , or 13%, for the six
months ended June 30, 2022 compared to the same period in 2021. The increase was
primarily due to increases of $3.9 million in personnel related costs and $2.2
million in facility and IT expenses, partially offset by a decrease of $2.5
million in stock-based compensation expense.
Sales and Marketing
Sales and marketing expenses decreased by$41.8 million , or 89%, for the three months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to decreases of$40.6 million in stock-based compensation expense and$0.5 million in professional services. Sales and marketing expenses decreased by$42.9 million , or 79%, for the six months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to decreases of$41.7 million in stock-based compensation expense,$0.7 million in personnel expenses and$0.5 million in professional services, partially offset by an increase of$0.7 million in trade show expenses.
General and Administrative
General and administrative expenses decreased by$5.7 million , or 30%, for the three months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to decreases of$6.7 million in stock-based compensation expense, partially offset by increases of$1.2 million in legal and professional services. General and administrative expenses decreased by$10.4 million , or 29%, for the six months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to decreases of$9.6 million in stock-based compensation expense and$2.4 million in bad debt reserves, partially offset by an increase of$1.5 million in insurance expense. 39 --------------------------------------------------------------------------------
Interest Income, Interest Expense and Other Income (Expense), Net
Interest income consists primarily of income earned on our cash equivalents and
investments in marketable securities. These amounts will vary based on our cash,
cash equivalents and short-term investment balances, and also with market rates.
Interest expense consists primarily of interest on our equipment financing
leases and credit facility.
Other income (expense), net consists primarily of foreign exchange gain or loss
resulting from foreign currency exchange rate fluctuations and was insignificant
for all periods presented.
Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Interest income $ 294 $ 109 $ 185 170 %
Interest expense - (41) 41 (100)
Other income (expense), net (110) 10,136 (10,246) (101)
Six Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Interest income $ 521 $ 212 $ 309 146 %
Interest expense (3) (77) 74 (96)
Other income (expense), net (106) 10,119 (10,225) (101)
Interest income increased for the three and six months ended
Interest expense was primarily related to our finance leases and was insignificant for all periods presented.
Other income, net for the three and six months endedJune 30, 2021 was primarily related to the$10.1 million gain from forgiveness of our PPP loan and related interest under the CARES Act. Other changes were primarily related to foreign exchange gain or loss resulting from foreign currency exchange rate fluctuations during the three and six months endedJune 30, 2022 and 2021.
Income Taxes
Our provision for income taxes consists of federal, state and foreign current and deferred income taxes. As we expand the scale and scope of our international business activities, any changes inthe United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a full valuation allowance for our net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income. We believe that we have adequately reserved for our uncertain tax positions, although we can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations. 40 --------------------------------------------------------------------------------
Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Income Taxes:
Loss before income taxes $ (44,440) $ (78,898) $ 34,458 (44) %
Provision for (benefit from) income taxes (141) 339 (480) (142)
Effective tax rate 0.3 % (0.4) %
Six Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Income Taxes:
Loss before income taxes $ (93,114) $ (119,419) $ 26,305 (22) %
Provision for income taxes 306 635 (329) (52)
Effective tax rate (0.3) % (0.5) %
We are subject to income taxes in the United States , China , Germany and India .
The changes in income taxes for the three and six months ended June 30, 2022
compared to the same periods in 2021 were 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 ofJune 30, 2022 , we had cash, cash equivalents and short-term investments totaling$229.2 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 completion of the Business Combination and issuances of stock. As ofJune 30, 2022 , we received an aggregate of$247.0 million in net proceeds from the Business Combination and the related private placement pursuant to subscription agreements with certain investors, or PIPE offering, an aggregate of$163.0 million in net proceeds from the exercises of our public warrants. OnJune 15, 2022 , we entered into an ATM Agreement with Oppenheimer, pursuant to which, from time to time, we may raise up to$100 million by selling shares of our common stock. Oppenheimer will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon our instructions, and is entitled to a commission at a rate equal to 2.5% of the gross price of any ATM Shares sold. Net proceeds from the sale of ATM Shares will be used for our general corporate purposes. For the three months endedJune 30, 2022 , we received net proceeds of approximately$6.8 million (after deducting$0.7 million in commissions and expenses) from sales of 6,471,048 ATM Shares pursuant to the ATM Agreement. 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 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 revolving line of credit is secured by certain assets of the Company. As ofJune 30, 2022 , there were no amounts outstanding under this credit facility and we were in compliance with all associated covenants in the agreement. Also as ofJune 30, 2022 , the credit facility had$4.2 million available for borrowing. We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of$619.8 million as ofJune 30, 2022 . We expect to continue to incur operating losses at least for the next 12 months and 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. 41 -------------------------------------------------------------------------------- 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 capital when desired and on reasonable terms, our business, results of operations, and financial condition may be adversely affected.
Cash Flow Summary
The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,
2022 2021
(In thousands)
Net cash provided by (used in):
Operating activities $ (69,309) $ (62,789)
Investing activities 114,223 (134,962)
Financing activities 8,155 69,202
Operating Activities
During the six months ended June 30, 2022 , operating activities used
$69.3 million in cash. The primary factors affecting our operating cash flows
during this period were our net loss of $93.4 million , impacted by our non-cash
net adjustments of $23.9 million primarily consisting of stock-based
compensation of $11.2 million , provision for common stock warrants issued to a
customer of $6.2 million , depreciation and amortization of $4.4 million ,
reduction in carrying amount of the ROU assets of $1.4 million and net
amortization of investment premium or discount of $0.7 million . The cash used in
changes in our operating assets and liabilities of $14.2 million was primarily
due to an increase of $4.2 million in inventory primarily due to increases in
inventory purchases, a decrease of $5.6 million in accrued expenses and other
liabilities due to timing of payments, a decrease in operating lease liabilities
of $1.3 million and a decrease of $3.0 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 $14.4 million which primarily consists of a decrease of
$1.8 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
$5.8 million in prepaid expenses, and an increase of $3.5 million in accounts
payable.
During the six months ended June 30, 2021 , operating activities used $62.8
million in cash. The primary factors affecting our operating cash flows during
this period were our net loss of $120.1 million , impacted by our non-cash
charges of $63.2 million primarily consisting of stock-based compensation of
$64.7 million , depreciation and amortization of $4.1 million , provision for
doubtful accounts of $2.4 million , reduction in carrying amount of the ROU
assets of $1.5 million and gain on extinguishment of debt of $10.1 million . The
cash used in changes in our operating assets and liabilities of $13.3 million
was primarily due to an increase of $2.4 million in contract assets, a decrease
in operating lease liabilities of $1.6 million , a decrease of $1.7 million in
accounts payable and a decrease of $7.6 million in accrued expenses and other
liabilities due to timing of payments. These amounts were partially offset by
cash provided from changes in our operating assets and liabilities of $7.3
million which primarily consists of a decrease of $3.5 million in prepaid
expenses, a decrease of $1.5 million in inventory due to decreased sales volume
of certain products, a decrease of $2.1 million in accounts receivable and an
increase of $0.3 million in contract liabilities due to the timing of billings
and cash received in advance of revenue.
Investing Activities
During the six months endedJune 30, 2022 , cash from investing activities was$114.2 million , which consisted primarily of$152.2 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$2.6 million . During the six months endedJune 30, 2021 , cash used in investing activities was$135.0 million , which was primarily used to purchase short-term investments of$190.4 million , purchase property, plant and equipment of$1.8 million and invest 42 --------------------------------------------------------------------------------
in notes receivable of
Our machinery and equipment is depreciated over a useful life of approximately five years.
Financing Activities During the six months endedJune 30, 2022 , cash flow provided by financing activities was$8.2 million , which consisted primarily of net proceeds of$7.4 million and$0.8 million , respectively, from sales of our common stock under the ATM offering and ESPP. During the six months endedJune 30, 2021 , cash provided by financing activities was$69.2 million , consisting primarily of net proceeds of$89.2 million from exercises of public warrants, partially offset by$20.0 million cash paid for transaction costs related to the Business Combination.
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