SECURITIES AND EXCHANGE COMMISSION
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2018March 31, 2022
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to___________________to ___________________
Commission file number: 001-38703
GRAF INDUSTRIAL CORP.
VELODYNE LIDAR, INC.
(Exact name of registrant as specified in its charter)
| | 83-1138508 | | | | | | |
Delaware | | 83-1138508 |
(State or other jurisdictionOther Jurisdiction ofincorporation Incorporation or organization)
Organization) | | (Commission FileI.R.S. Employer Identification Number)
|
| | (I.R.S. Employer
Identification Number)
|
118 Vintage Park Blvd., Suite W-222
Houston, Texas
| | 77070 | | | | |
| 5521 Hellyer Avenue | | |
| San Jose, CA | | 95138 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s
Registrant's telephone number, including area code:
(281) 515-3517Not Applicable
(Former name or former address, if changed since last report)
(669) 275-2251 Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common stock, par value $0.0001 per share | | VLDR | | The Nasdaq Stock Market LLC |
| Warrants, each exercisable for three-quarters of one share of common stock | | VLDRW | | The Nasdaq Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
¨☒ No x☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | ¨Accelerated filer | ☐ | | AcceleratedNon-accelerated filer | ☐ | | ¨ |
| | | |
Non-accelerated filer | | x | | Smaller reporting company | ☐ | | x |
| | | |
| Emerging growth company | | x | | | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
x☐ No ¨☒
As of
NovemberApril 29,
2018, 30,470,6402022, the registrant had 207,956,625 shares of common stock,
$0.0001 par value
$0.0001 per share,
were issued and outstanding.
GRAF INDUSTRIAL CORP.
Form 10-Q
VELODYNE LIDAR, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
GRAF INDUSTRIAL CORP.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2018
(UNAUDITED)
| Assets: | | | | |
| Current asset - Cash | | $ | 19,281 | |
| Deferred offering costs | | | 230,331 | |
| Total Assets | | $ | 249,612 | |
| | | | | |
| Liabilities and Stockholder's Equity: | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 3,044 | |
| Accrued expenses | | | 103,500 | |
| Note payable and advance - related parties | | | 130,100 | |
| Total current liabilities | | | 236,644 | |
| | | | | |
| Stockholder's Equity: | | | | |
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | | | - | |
| Common stock, $0.0001 par value; 400,000,000 shares authorized; 6,468,750 shares issued and outstanding (1) | | | 647 | |
| Additional paid-in capital | | | 24,353 | |
| Accumulated deficit | | | (12,032 | ) |
| Total stockholder's equity | | | 12,968 | |
| Total Liabilities and Stockholder's Equity | | $ | 249,612 | |
| (1) | Includes 374,622 founder shares that were forfeited by the Sponsor upon receiving notice of partial exercise of the over-allotment option by the underwriters on October 25, 2018. |
The accompanying notes are an integral part of these financial statements.
1
GRAF INDUSTRIAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | For The Period From | |
| | | For the Three Months Ended | | | June 26, 2018 (inception) | |
| | | September 30, 2018 | | | through September 30, 2018 | |
| Formation and operating costs | | $ | 3,214 | | | $ | 12,032 | |
| Net loss | | $ | (3,214 | ) | | $ | (12,032 | ) |
| | | | | | | | | |
| Weighted average shares outstanding, basic and diluted (1) | | | 6,094,128 | | | | 6,094,128 | |
| Basic and diluted net loss per share | | $ | (0.00 | ) | | $ | (0.00 | ) |
| (1) | Excludes 374,622 founder shares that were forfeited by the Sponsor upon receiving notice of partial exercise of the over-allotment option by the underwriters on October 25, 2018. |
The accompanying notes are an integral part of these financial statements.
GRAF INDUSTRIAL CORP.
STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE PERIOD FROM JUNE 26, 2018 (INCEPTION) Through SEPTEMBER 30, 2018
(UNAUDITED)
| | | | | | | | | | | | | | | Total | |
| | | Common Stock | | | Additional Paid-In | | | Accumulated | | | Stockholder's | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| Balance - June 26, 2018 (inception) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Issuance of common stock to Sponsor (1) | | | 6,468,750 | | | | 647 | | | | 24,353 | | | | - | | | | 25,000 | |
| Net loss | | | - | | | | - | | | | - | | | | (12,032 | ) | | | (12,032 | ) |
| Balance - September 30, 2018 (unaudited) | | | 6,468,750 | | | $ | 647 | | | $ | 24,353 | | | $ | (12,032 | ) | | $ | 12,968 | |
| (1) | Includes 374,622 founder shares that were forfeited by the Sponsor upon receiving notice of partial exercise of the over-allotment option by the underwriters on October 25, 2018. |
The accompanying notes are an integral part of these financial statements.
GRAF INDUSTRIAL CORP.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 26, 2018 (INCEPTION) ThrOugh SEPTEMBER 30, 2018
(UNAUDITED)
| Cash Flows from Operating Activities: | | | | |
| Net loss | | $ | (12,032 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
| Formation and operating costs paid by Sponsor in exchange for issuance of common stock | | | 8,500 | |
| Changes in operating assets and liabilities: | | | | |
| Accounts payable | | | 2,177 | |
| Net cash used in operating activities | | | (1,355 | ) |
| | | | | |
| Cash Flows from Financing Activities: | | | | |
| Proceeds from note payable from related parties | | | 130,100 | |
| Payment of offering costs | | | (109,464 | ) |
| Net cash provided by financing activities | | | 20,636 | |
| | | | | |
| Net change in cash | | | 19,281 | |
| | | | | |
| Cash - beginning of the period | | | - | |
| Cash - end of the period | | $ | 19,281 | |
| | | | | |
| Supplemental disclosure of noncash activities: | | | | |
| Deferred offering costs paid by Sponsor in exchange for issuance of common stock | | $ | 16,500 | |
| Deferred offering costs included in accounts payable | | $ | 867 | |
| Deferred offering costs included in accrued expenses | | $ | 103,500 | |
The accompanying notes are an integral part of these financial statements.
6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSGRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Description of Organization and Business Operations
Graf Industrial Corp. (the “Company”) is a blank check company incorporated in Delaware
This Quarterly Report on June 26, 2018. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of September 30, 2018, the Company had not commenced any operations. All activity for the period from June 26, 2018 (inception) through September 30, 2018 relates to the Company’s formation and preparation for the initial public offering (“Initial Public Offering”), which is described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The registration statement for the Company's Initial Public Offering was declared effective on October 15, 2018. On October 18, 2018, the Company consummated the Initial Public Offering of 22,500,000 units (the "Units" and, with respect to the shares of common stock included in the Units offered, the "Public Shares"), generating gross proceeds of $225 million, and incurred underwriting commissions of $4.5 million. On October 25, 2018, the Company consummated the closing of the sale of 1,876,512 additional Units upon receiving notice of the underwriters' election to partially exercise their overallotment option (the "Over-allotment"), generating additional gross proceeds of approximately $18.8 million, and incurred additional underwriting commissions of $375,302 (Note 3).
Simultaneously with the closing of the Initial Public Offering and the Over-allotment, the Company consummated the private placement (“Private Placement”) of 14,150,605 warrants (the “Private Placement Warrants”) at a price of $0.50 per Private Placement Warrant, with the Sponsor, generating gross proceeds of approximately $7.08 million (Note 4).
Upon the closing of the Initial Public Offering, the Over-allotment and the Private Placement, approximately $243.8 million ($10.00 per Unit) of the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement was placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A, maintained by Continental Stock Transfer & Trust Company, acting as trustee (“Trust Account”). The proceeds held in the Trust Account will be invested in U.S. government securities,Form 10-Q
contains forward-looking statements within the meaning set forth in Section 2(a)(16) of the Investment Company Act 1940, as amended (the “Investment Company Act”)federal securities laws and particularly in Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are based on the expectations and beliefs of management of Velodyne Lidar, Inc. (“Velodyne”, with“Velodyne Lidar” or the “Company”) in light of historical results and trends, current conditions and potential future developments, and are subject to a maturitynumber of 180 days or less or in any open-ended investment companyfactors and uncertainties that holds itself out as a money market fund selected bycould cause actual results to differ materially from forward-looking statements. These forward-looking statements include statements about the Company meeting the conditionsfuture performance and opportunities of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7Velodyne; statements of the Investment Company Act,plans, strategies and objectives of management for future operations of Velodyne; and statements regarding future market opportunities, economic conditions or performance. Forward-looking statements may contain words such as determined by“will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “pursue,” “should,” “target,” “likely” or similar expressions, and include the Company, until assumptions that underlie such statements.
The following factors, among others, could cause actual results to differ materially from forward-looking statements:
•Velodyne’s future performance, including Velodyne’s revenue, costs of revenue, gross profit or gross margin, and operating expenses;
•the earlier of: (i)sufficiency of Velodyne’s cash and cash equivalents to meet its operating requirements;
•Velodyne’s ability to sell its products to new customers;
•supply chain constraints in the completionsemiconductor industry;
•the success of a Business Combination, (ii)Velodyne’s customers in developing and commercializing products using Velodyne’s solutions, and the redemptionmarket acceptance of any Public Shares properly submitted in connection with a stockholder vote to amend those products;
•the Company’s Second Amendedamount and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) to modify the substance or timing of future sales;
•Velodyne’s ability to meet technical and quality specifications;
•Velodyne’s future market share;
•competition from existing or future businesses and technologies;
•the Company’s obligation to redeem 100%impact of the COVID-19 pandemic on Velodyne’s business and the business of its Public Shares if customers;
•the Company does not completemarket for and adoption of lidar and related technology;
•Velodyne’s ability to effectively manage its growth and future expenses;
•Velodyne’s ability to compete in a Business Combination within 18 months from market that is rapidly evolving and subject to technological developments;
•Velodyne’s ability to maintain, protect, and enhance its intellectual property;
•Velodyne’s ability to comply with modified or new laws and regulations applying to its business;
•the closingattraction and retention of qualified employees and key personnel;
•Velodyne’s ability to introduce new products that meet its customers’ requirements and to continue successfully transitioning the manufacturing of its Initial Public Offering orproducts to provide for redemptionthird-party manufacturers;
•Velodyne’s anticipated investments in connectionand results from sales and marketing and research and development; and
•the increased expenses associated with Velodyne being a Business Combinationpublic company.
The foregoing list of important factors should not be construed as exhaustive and
(iii) the redemption of the Company’s Public Shares if the Company is unable to complete a Business Combination within 18 months from the closing of its Initial Public Offering, subject to applicable law.Upon the closing of the Initial Public Offering, the Private Placement and the Over-allotment, the Company had approximately $1.99 million in cash held outside of the Trust Account. The Company's management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering, the Over-allotment and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended toshould be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. New York Stock Exchange ("NYSE") rules require that the initial Business Combination must occur with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (net of amounts disbursed to management for working capital purposes, if permitted, and excluding the amount of any deferred underwriting commissions). The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Public Shares subject to redemption were recorded at a redemption value and classified as temporary equity in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to the Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem sharesread in conjunction with a proxy solicitation pursuant to the proxy rulesother risk factors herein discussed under Item 1A: “Risk Factors.” Forward-looking statements reflect current views about Velodyne’s plans, strategies and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor, officers and directors have agreed to vote their Founder Shares (as defined below in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
The Sponsor and the Company’s officers and directors have agreed (a) to waive their redemption rights with respect to their Founder Shares and Public Shares held by them in connection with the completion of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination or to provide for redemption in connection with a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
If the Company is unable to complete a Business Combination within 18 months from the closing of the Initial Public Offering (by April 18, 2020) (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount thenprospects, which are based on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The Sponsor and the Company's officers and directors have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the officers, directors, the Sponsor or any of its members or their affiliates acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. Pursuant to the terms of the business combination marketing agreement (see Note 6), no fee will be payable if the Company does not complete a Business Combination. In the event that the Company does not complete a Business Combination and subsequently liquidates, the amount of such fee will be included with the funds held in the trust account that will beinformation available to fund the redemption of Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to indemnify the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share or (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsiblethis Quarterly Report on Form 10-Q. Except to the extent required by applicable law, Velodyne undertakes no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statements whether as a result of any liability for such third party claims. The Company will seeknew information, future events or otherwise.
Forward-looking statements are subject to reducerisks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements, which speak only as of the possibility that the Sponsor will havedate of this Quarterly Report on Form 10-Q.
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 31,119 | | | $ | 24,064 | |
| Short-term investments | 225,326 | | | 270,357 | |
| Accounts receivable, net | 7,534 | | | 8,881 | |
| Inventories, net | 12,498 | | | 9,299 | |
| Prepaid and other current assets | 13,090 | | | 14,822 | |
| Total current assets | 289,567 | | | 327,423 | |
| Property, plant and equipment, net | 14,572 | | | 14,710 | |
| Goodwill | 1,189 | | | 1,189 | |
| Intangible assets, net | 586 | | | 724 | |
| Contract assets | 9,182 | | | 12,962 | |
| Other assets | 17,754 | | | 18,413 | |
| Total assets | $ | 332,850 | | | $ | 375,421 | |
| Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 7,130 | | | $ | 5,105 | |
| Accrued expense and other current liabilities | 32,564 | | | 35,651 | |
| Contract liabilities | 5,656 | | | 6,348 | |
| Total current liabilities | 45,350 | | | 47,104 | |
| Long-term tax liabilities | 445 | | | 443 | |
| Other long-term liabilities | 27,401 | | | 28,611 | |
| Total liabilities | 73,196 | | | 76,158 | |
| Commitments and contingencies (Note 14) | 0 | | 0 |
| Stockholders’ equity: | | | |
| Preferred stock | — | | | — | |
| Common stock | 20 | | | 20 | |
| Additional paid-in capital | 836,229 | | | 825,988 | |
| Accumulated other comprehensive loss | (1,141) | | | (412) | |
| Accumulated deficit | (575,454) | | | (526,333) | |
| Total stockholders’ equity | 259,654 | | | 299,263 | |
| Total liabilities and stockholders’ equity | $ | 332,850 | | | $ | 375,421 | |
See accompanying notes to indemnify the Trust Account duecondensed consolidated financial statements.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Revenue: | | | |
| Product | $ | 4,362 | | | $ | 10,593 | |
| License and services | 1,818 | | | 7,133 | |
| Total revenue | 6,180 | | | 17,726 | |
| Cost of revenue: | | | |
| Product | 15,196 | | | 15,629 | |
| License and services | 267 | | | 179 | |
| Total cost of revenue | 15,463 | | | 15,808 | |
| Gross profit (loss) | (9,283) | | | 1,918 | |
| Operating expenses: | | | |
| Research and development | 21,297 | | | 18,378 | |
| Sales and marketing | 6,005 | | | 7,075 | |
| General and administrative | 12,317 | | | 17,036 | |
| | | |
| | | |
| Total operating expenses | 39,619 | | | 42,489 | |
| Operating loss | (48,902) | | | (40,571) | |
| Interest income | 227 | | | 103 | |
| Interest expense | (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) | |
| Net loss per share: | | | |
| Basic and diluted | $ | (0.25) | | | $ | (0.22) | |
| Weighted-average shares used in computing net loss per share: | | | |
| Basic and diluted | 198,166,060 | | | 189,222,807 | |
See accompanying notes to claimscondensed consolidated financial statements.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Net loss | $ | (49,121) | | | $ | (40,817) | |
| Other comprehensive loss, net of tax: | | | |
| Changes in unrealized loss on available for sale securities | (712) | | | (11) | |
| Foreign currency translation adjustments | (17) | | | (11) | |
| Total other comprehensive loss, net of tax | (729) | | | (22) | |
| Comprehensive loss | $ | (49,850) | | | $ | (40,839) | |
See accompanying notes to condensed consolidated financial statements.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Common Stock | | Additional Paid in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders' Equity |
| | | | | | | | | | | | | | | | | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | 197,346,675 | | | $ | 20 | | | $ | 825,988 | | | $ | (412) | | | $ | (526,333) | | | $ | 299,263 | |
| Common stock warrants | | | | | | | | | | | | | | | | | | — | | | — | | | 5,303 | | | — | | | — | | | 5,303 | |
| Issuance of common stock under employee stock award plans, net of taxes | | | | | | | | | | | | | | | | | | 916,819 | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | | | | | | | | | | | | | | | | | | — | | | — | | | 4,938 | | | — | | | — | | | 4,938 | |
| Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | (729) | | | — | | | (729) | |
| Net loss | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | (49,121) | | | (49,121) | |
| Balance at March 31, 2022 | | | | | | | | | | | | | | | | | | 198,263,494 | | | $ | 20 | | | $ | 836,229 | | | $ | (1,141) | | | $ | (575,454) | | | $ | 259,654 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | 175,912,194 | | | $ | 18 | | | $ | 656,717 | | | $ | (230) | | | $ | (315,682) | | | $ | 340,823 | |
| Issuance of common stock under warrant exercises | | | | | | | | | | | | | | | | | | 6,973,882 | | | 1 | | | 80,199 | | | — | | | — | | | 80,200 | |
| Issuance of common stock under employee stock award plans, net of taxes | | | | | | | | | | | | | | | | | | 6,798,504 | | | — | | | (37) | | | — | | | — | | | (37) | |
| Share-based compensation | | | | | | | | | | | | | | | | | | — | | | — | | | 11,530 | | | — | | | — | | | 11,530 | |
| Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | (22) | | | — | | | (22) | |
| Prior year adjustment on warrant liability (Note 9) | | | | | | | | | | | | | | | | | | — | | | — | | | (1,585) | | | — | | | 1,585 | | | — | |
| Net loss | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | (40,817) | | | (40,817) | |
| Balance at March 31, 2021 | | | | | | | | | | | | | | | | | | 189,684,580 | | | $ | 19 | | | $ | 746,824 | | | $ | (252) | | | $ | (354,914) | | | $ | 391,677 | |
See accompanying notes to condensed consolidated financial statements.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (49,121) | | | $ | (40,817) | |
| Adjustments to reconcile net loss to cash used in operating activities: | | | |
| Depreciation and amortization | 2,172 | | | 2,053 | |
| Reduction of operating lease right-of-use (“ROU”) assets | 670 | | | 787 | |
| | | |
| Stock-based compensation | 4,938 | | | 11,530 | |
| Reduction of revenue related to stock warrant granted to a customer | 5,303 | | | — | |
| Provision for doubtful accounts | — | | | 1,682 | |
| | | |
| | | |
| Amortization of investment premium or discount, net | 427 | | | — | |
| Other | (1) | | | 161 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable, net | 1,347 | | | (1,172) | |
| Inventories, net | (3,199) | | | (2,762) | |
| Prepaid and other current assets | 2,249 | | | 1,702 | |
| Contract assets | 3,262 | | | (2,438) | |
| Other assets | 41 | | | (2) | |
| Accounts payable | 2,114 | | | (3,856) | |
| Accrued expenses and other liabilities | (3,832) | | | (3,867) | |
| Contract liabilities | (1,677) | | | 1,892 | |
| Net cash used in operating activities | (35,307) | | | (35,107) | |
| Cash flows from investing activities: | | | |
| Purchase of property, plant and equipment and intangibles | (1,545) | | | (601) | |
| | | |
| Proceeds from sales of short-term investments | 14,499 | | | 2,000 | |
| Proceeds from maturities of short-term investments | 64,750 | | | 7,000 | |
| Purchase of short-term investments | (35,358) | | | (91,932) | |
| | | |
| | | |
| | | |
| Net cash provided by (used in) investing activities | 42,346 | | | (83,533) | |
| Cash flows from financing activities: | | | |
| | | |
| Payment of transaction costs related to Business Combination | — | | | (20,006) | |
| | | |
| Proceeds from warrant exercises, net of issuance costs | — | | | 89,222 | |
| | | |
| Tax withholding payment for vested equity awards | — | | | (37) | |
| | | |
| | | |
| Net cash provided by financing activities | — | | | 69,179 | |
| Effect of exchange rate fluctuations on cash and cash equivalents | 16 | | | 18 | |
| Net increase (decrease) in cash and cash equivalents | 7,055 | | | (49,443) | |
| Beginning cash and cash equivalents | 24,064 | | | 204,648 | |
| Ending cash and cash equivalents | $ | 31,119 | | | $ | 155,205 | |
| | | |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid for interest | $ | 3 | | | $ | 36 | |
| Cash paid for income taxes, net | 407 | | | 333 | |
| Cash paid for operating leases | 883 | | | 1,119 | |
| Supplemental disclosure of noncash investing and financing activities: | | | |
| Changes in accrued purchases of property, plant and equipment, and intangibles | $ | 791 | | | $ | 105 | |
| | | |
| ROU assets obtained in exchange for operating lease liabilities | 55 | | | 340 | |
| | | |
| Transaction costs included in accrued liabilities | — | | | 5,000 | |
| | | |
See accompanying notes to condensed consolidated financial statements.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of
creditors by endeavoring to have all vendors, service providers (except the Company's independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.Note 2 —Business and Summary of Significant Accounting Policies
Description of Business, Background and Nature of Operations
Velodyne Lidar, Inc. (the “Company”, “Velodyne” or “Velodyne Lidar”) provides smart vision solutions that are advancing the development of safe automated systems throughout the world. The Company’s technology, which is used in various automotive and non-automotive applications, is empowering the autonomous revolution by allowing machines to see their surroundings in real-time and in 3D.
The Company’s predecessor, Graf Industrial Corp. (“Graf”), was originally incorporated in Delaware as a special purpose acquisition company (“SPAC”). On September 29, 2020 (the “Closing Date”), Graf consummated a business combination (the “Business Combination”) with Velodyne Lidar, Inc. (the “pre-combination Velodyne”). Immediately upon the consummation of the Business Combination, Graf merged into the pre-combination Velodyne, with the pre-combination Velodyne surviving as a wholly-owned subsidiary of the Company. Graf changed its name to Velodyne Lidar, Inc. and the pre-combination Velodyne changed its name to Velodyne Lidar USA, Inc. Refer to Note 2. Business Combination for further discussion of the Business Combination.
On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively.
The Company has evaluated how it is organized and managed and has identified only 1 operating segment.
The accompanying unaudited condensedconsolidated financial statements are presentedprepared in U.S. dollars in conformityaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim. The consolidated financial information and pursuant tostatements include the rules and regulationsaccounts of the SEC. Accordingly, they do not include allCompany’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Liquidity
The Company has funded its operations primarily through the Business Combination, PIPE offering, public warrant exercises, private placements of the informationpre-combination Velodyne preferred stock, employee stock option exercises and footnotes required by GAAP. InESPP share purchases, and sales to customers. As of March 31, 2022, the opinionCompany’s existing sources of liquidity included cash, cash equivalents and short-term investments of $256.4 million and available borrowing capacity of $25.0 million under a revolving credit facility. The Company has incurred losses and negative cash flows from operations. If the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. There can be no assurance that the Company would be able to raise such capital. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least twelve months from the date the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statementquarter ended March 31, 2022 were available for issuance.
Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash and cash equivalents, and short-term investments with high-quality financial institutes with investment-grade ratings. A majority of the
cash balances
are with U.S. banks and
results forare insured to the
periods presented. Operating results for the period from June 26, 2018 (inception) through September 30, 2018 are not necessarily indicative of the results that may be expected through December 31, 2018.The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the final prospectus filedextent defined by the Company withFederal Deposit Insurance Corporation.
The Company’s accounts receivable are derived from customers located both inside and outside the
SEC on October 16, 2018, the audited balance sheet included in the Form 8-K filed by the Company with the SEC on October 24, 2018, and with the pro forma balance sheet included in the Form 8-K filed by the Company with the SEC on October 31, 2018.Emerging Growth Company
U.S. The Company is an “emerging growth company,” as definedmitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions and requires customer advance payments in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.circumstances. The Company has electeddoes not require collateral.
The Company’s concentration of risk related to opt outaccounts receivable and accounts payable was as follows:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| | | |
| Number of customers accounted for 10% or more of accounts receivable | 2 | | 3 |
| Number of vendors accounted for 10% or more of accounts payable | 4 | | 1 |
Two customers accounted for a total of
such extended transition period which means that when a standard is issued or revised25% and
it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison30%, respectively, of the Company’s
financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted outaccounts receivable as of
using the extended transition period difficult or impossible becauseMarch 31, 2022 and December 31, 2021. Two vendors accounted for a total of
the potential differences in accounting standards used.31% of accounts payable as of March 31, 2022. One vendor accounted for 28% of accounts payable as of December 31, 2021.
The preparation of
theconsolidated financial statements in conformity with
U.S. GAAP requires
the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the
periods.Makingreporting period. Significant items subject to such estimates requiresand assumptions include standalone selling price (“SSP”) for each distinct performance obligation in its customer contracts, total estimated future patents and their corresponding estimated development costs, total estimated costs and related progress towards complete satisfaction of performance obligation in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, common stock warrant valuation, useful lives of property, plant, and equipment and intangible assets, income tax uncertainties, and other loss contingencies. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.
Significant Accounting Policies
Except for the change in certain policies described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Description of Business and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2021.
Amazon Warrant
The Amazon Warrant (as defined in Note 9) is accounted for as an equity instrument and measured in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. To determine the fair value of the Amazon Warrant, the Company used the Black-Scholes option pricing model, which is based in part on assumptions that require management to exercise significantuse judgment. It
For awards granted to a customer, which are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is at least reasonably possiblerecorded as a reduction of the transaction price in accordance with ASC 606, Revenue from Contracts with Customers. Accordingly, when Amazon makes payments, and vesting conditions become probable of being achieved, the Company will record a non-cash stock-based reduction to revenue associated with the Amazon Warrant, that is calculated based on the grant date fair value of the Amazon Warrant shares.
Recently Accounting Pronouncements
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“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 after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company expects to adopt the new standard in the first quarter of 2023 and is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. ASU 2020-10 is effective for public companies, other than smaller reporting companies, for fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-10 is effective for fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. The Company adopted ASU 2020-10 on January 1, 2022. The adoption of this new standard did not have a significant impact on the Company’s consolidated financial statements and related footnote disclosures.
Note 2. Business Combination and Related Transactions
On September 29, 2020, the Company consummated a business combination with the pre-combination Velodyne. Pursuant to ASC 805, for financial accounting and reporting purposes, the pre-combination Velodyne was deemed the accounting acquirer and the Company was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse recapitalization. Accordingly, the Business Combination was treated as the equivalent of the pre-combination Velodyne issuing stock for the net assets of Graf, accompanied by a recapitalization. Under this method of accounting, the consolidated financial statements of the Company are the historical financial statements of the pre-combination Velodyne. The net assets of Graf were stated at historical costs, with no goodwill or other intangible assets recorded, and are consolidated with the pre-combination Velodyne's financial statements on the Closing date. The shares and net loss per share for periods prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
The aggregate consideration for the Business Combination and related transactions was approximately $1.8 billion, consisting of (i) $222.1 million in cash at the closing of the Business Combination, net of transaction expenses, and (ii) 150,277,532 shares of common stock valued at $10.25 per share, totaling approximately $1.5 billion. The Company used approximately $1.8 million of the proceeds to repurchase and retire 175,744 shares of Company common stock from certain stockholders in the pre-closing tender offer.
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $29.1 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. As of March 31, 2022, the Company had $5.0 million of accrued transaction costs, consisting primarily of investment banking fees, in accrued expenses on the condensed consolidated balance sheet.
Note 3. Revenue
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by geographic region based on the shipping location of the customer, type of good or service and timing of transfer of goods or services to customers (point-in-time or over time), as it believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
Total revenue based on the disaggregation criteria described above is as follows (dollar in thousands, percentage may not foot due to rounding difference):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| | | | % of Revenue | | | | % of Revenue |
| | Revenue | | | Revenue | |
| Revenue by geography: | | | | | | | | |
North America(1) | | $ | (1,304) | | | (21 | %) | | $ | 5,044 | | | 28 | % |
Asia Pacific(2) | | 4,906 | | | 79 | % | | 9,506 | | | 54 | % |
| Europe, Middle East and Africa | | 2,578 | | | 42 | % | | 3,176 | | | 18 | % |
| Total | | $ | 6,180 | | | 100 | % | | $ | 17,726 | | | 100 | % |
| Revenue by products and services: | | | | | | | | |
Products(1) | | $ | 4,362 | | | 71 | % | | $ | 10,593 | | | 60 | % |
License and services(2) | | 1,818 | | | 29 | % | | 7,133 | | | 40 | % |
| Total | | $ | 6,180 | | | 100 | % | | $ | 17,726 | | | 100 | % |
| Revenue by timing of recognition: | | | | | | | | |
Goods transferred at a point in time(1) | | $ | 4,758 | | | 77 | % | | $ | 16,670 | | | 94 | % |
Goods and services transferred over time(2) | | 1,422 | | | 23 | % | | 1,056 | | | 6 | % |
| Total | | $ | 6,180 | | | 100 | % | | $ | 17,726 | | | 100 | % |
(1) Includes a non-cash stock-based reduction 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 for more information.
(2) Includes license revenue of $0.9 million and $6.4 million, respectively, related to patent cross-license agreements for the three months ended March 31, 2022 and 2021. In June 2020, the Company entered into a patent cross-license agreement related to its litigation settlement with a customer in Asia Pacific. Under the terms of the arrangement, the customer agreed to make a one-time license payment upon settlement, will make annual fixed royalty payments through 2024, and thereafter, will make product sales royalty payments through February 2030. In September 2020, Velodyne entered into another patent cross-license agreement related to its litigation with a different customer in Asia Pacific. As of March 31, 2022 and December 31, 2021, the Company had $3.8 million and $3.8 million, respectively, of current deferred revenue, and $11.1 million and $11.9 million, respectively, of long-term deferred revenue associated with the rights granted as part of these patent cross-license agreements to receive future patents as they represent stand ready obligations. As of March 31, 2022 and December 31, 2021, the Company also had $13.0 million and $16.3 million, respectively, of contract assets related to these patent cross-license agreements.
Contract Assets and Contract Liabilities
Contract assets primarily relate to unbilled accounts receivable. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when revenue is recognized on guaranteed minimums at the inception of the contract when there is not yet a right to invoice in accordance with contract terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and reclassified to accounts receivable when billed in accordance with the terms of the contract.
Contract liabilities consist of deferred revenue, customer advanced payments and customer deposits. Deferred revenue includes billings in excess of revenue recognized related to product sales, licenses, extended warranty and other services revenue, and is recognized as revenue when the Company performs under the contract. The long-term portion of deferred revenue, mostly related to obligations under license arrangements and extended warranty, is classified as non-current contract liabilities and is included in other long-term liabilities in the Company’s consolidated balance sheets. Customer advanced payments represent required customer payments in advance of product shipments according to customer’s payment term. Customer advance payments are recognized as revenue when control of the performance obligation is transferred to the customer. Customer deposits represent consideration received from a customer which can be applied to future product or service purchases, or refunded.
Contract assets and contract liabilities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Contract assets, current | | | |
| Unbilled accounts receivable | $ | 3,830 | | | $ | 3,313 | |
| Contract assets, long-term | | | |
| Unbilled accounts receivable | 9,182 | | | 12,962 | |
| Total contract assets | $ | 13,012 | | | $ | 16,275 | |
| | | |
| Contract liabilities, current | | | |
| Deferred revenue, current | $ | 5,452 | | | $ | 6,209 | |
| Customer advance payment | 204 | | | 139 | |
| | | |
| Total | 5,656 | | | 6,348 | |
| Contract liabilities, long-term | | | |
| Deferred revenue, long-term | 11,755 | | | 12,740�� | |
| Total contract liabilities | $ | 17,411 | | | $ | 19,088 | |
The following table shows the significant changes in contract assets and contract liabilities balances (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Contract assets: | | | |
| Beginning balance | $ | 16,275 | | | $ | 11,253 | |
| Transferred to receivables from contract assets recognized at the beginning of the period | (3,313) | | | (2,813) | |
| Increase due to unbilled and recognized as revenue in excess of billings during the period, net of amounts transferred to receivables | 50 | | | 5,251 | |
| Ending balance | $ | 13,012 | | | $ | 13,691 | |
| Contract liabilities: | | | |
| Beginning balance | $ | 19,088 | | | $ | 22,055 | |
| Revenue recognized that was included in the contract liabilities beginning balance | (2,374) | | | (1,434) | |
| Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period | 697 | | | 3,327 | |
| | | |
| Ending balance | $ | 17,411 | | | $ | 23,948 | |
| | | |
Note 4. Fair Value Measurement
The Company categorizes assets and liabilities recorded at fair value on the consolidated balance sheet based on the level of judgment associated with inputs used to measure their fair value. For assets and liabilities measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability.
The three levels of inputs that may be used to measure fair value are:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or quoted prices in less active market. All significant inputs used in the valuations are observable or can be directly or indirectly through market corroboration, for substantially the full term of the assets or liabilities.
•Level 3 — Unobservable inputs are based on assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. The Company monitors and review the inputs to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
The following table summarize the Company’s assets measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | | | | | | | |
| Money market fund | $ | 6,826 | | | $ | — | | | $ | — | | | $ | 6,826 | |
| | | | | | | |
| Total cash equivalents | 6,826 | | | — | | | — | | | 6,826 | |
| Short-term investments: | | | | | | | |
| Money market fund | 7 | | | — | | | — | | | 7 | |
| Commercial paper | — | | | 92,774 | | | — | | | 92,774 | |
| Corporate debt securities | — | | | 132,545 | | | — | | | 132,545 | |
| | | | | | | |
| Total short-term investments | 7 | | | 225,319 | | | — | | | 225,326 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total assets measured at fair value | $ | 6,833 | | | $ | 225,319 | | | $ | — | | | $ | 232,152 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | | | | | | | |
| Money market fund | $ | 391 | | | $ | — | | | $ | — | | | $ | 391 | |
| | | | | | | |
| Total cash equivalents | 391 | | | — | | | — | | | 391 | |
| Short-term investments: | | | | | | | |
| Money market fund | 7 | | | — | | | — | | | 7 | |
| Commercial paper | — | | | 130,983 | | | — | | | 130,983 | |
| Corporate debt securities | — | | | 139,367 | | | — | | | 139,367 | |
| | | | | | | |
| Total short-term investments | 7 | | | 270,350 | | | — | | | 270,357 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total assets measured at fair value | $ | 398 | | | $ | 270,350 | | | $ | — | | | $ | 270,748 | |
Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of the effect of a condition, situation or set of circumstances that existedfair value. Short-term investments represent highly liquid commercial paper and corporate debt securities with maturities greater than 90 days at the date of purchase. Marketable securities with maturities greater than one year are classified as current assets and were not significant for all periods presented. Unrealized gains and losses on the financial statement, which management considered in formulating its estimate, could changeCompany’s short-term investments were not significant as of March 31, 2022 and 2021 and therefore, the amortized cost of the Company’s short-term investments approximated their fair value.
Note 5. Balance Sheet Components
Accounts Receivables, Net
Accounts receivables, net consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Accounts receivable | $ | 10,741 | | | $ | 12,088 | |
| Allowance for doubtful accounts | (3,207) | | | (3,207) | |
| Accounts receivable, net | $ | 7,534 | | | $ | 8,881 | |
Inventories, Net
Inventories, net of reserve, consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Raw materials | $ | 7,640 | | | $ | 6,585 | |
| Work-in-process | 2,893 | | | 1,883 | |
| Finished goods | 1,965 | | | 831 | |
| Total inventories | $ | 12,498 | | | $ | 9,299 | |
| | | |
| | | |
The raw materials inventory included consigned inventory of $1.8 million and $1.5 million, respectively, as of March 31, 2022 and December 31, 2021.
Prepaid and Other Current Assets
Prepaid and other current assets consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Prepaid expenses and deposits | $ | 5,458 | | | $ | 7,883 | |
| Due from contract manufacturers and vendors | 1,132 | | | 1,302 | |
| Prepaid taxes | 1,012 | | | 1,223 | |
| Contract assets | 3,830 | | | 3,313 | |
| | | |
| Other | 1,658 | | | 1,101 | |
| Total prepaid and other current assets | $ | 13,090 | | | $ | 14,822 | |
Property, Plant and Equipment, Net
Property, plant and equipment, at cost, consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Machinery and equipment | $ | 37,699 | | | $ | 36,264 | |
| Leasehold improvements | 6,887 | | | 6,752 | |
| Furniture and fixtures | 1,500 | | | 1,497 | |
| Vehicles | 359 | | | 359 | |
| Software | 1,945 | | | 1,337 | |
| Assets under construction | 1,613 | | | 1,900 | |
| 50,003 | | | 48,109 | |
| Less: accumulated depreciation and amortization | (35,431) | | | (33,399) | |
| Property, plant and equipment, net | $ | 14,572 | | | $ | 14,710 | |
| | | |
| Finance lease equipment (included in machinery and equipment) | $ | 888 | | | $ | 888 | |
| Less: accumulated depreciation | (603) | | | (559) | |
| Finance lease equipment, net | $ | 285 | | | $ | 329 | |
The aggregate depreciation and amortization related to property, plant and equipment was as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Depreciation and amortization on property, plant and equipment | $ | 2,034 | | | $ | 1,957 | |
| Depreciation on finance lease equipment (included in machinery and equipment) | 44 | | | 44 | |
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| As of March 31, 2022: | | | | | |
| Developed technology | $ | 1,696 | | | $ | 1,110 | | | $ | 586 | |
| As of December 31, 2021: | | | | | |
| Developed technology | $ | 1,696 | | | $ | 972 | | | $ | 724 | |
Amortization of intangible assets is as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Amortization of intangible assets | $ | 138 | | | $ | 96 | |
Other Assets
Other assets, non-current, consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Operating lease ROU assets | $ | 16,274 | | | $ | 16,891 | |
| Notes receivable | 750 | | | 750 | |
| Deposits and other | 730 | | | 772 | |
| Total other assets | $ | 17,754 | | | $ | 18,413 | |
In May 2021, the Company entered into a convertible note receivable agreement (the “Note”) with a borrower wherein Velodyne agreed to lend $750,000 at an interest rate of 0% per annum as a nonrecourse investment. The Note is convertible into equity at the election of the borrower or the Company upon occurrence of certain new financing or corporate transactions. The maturity date of the Note is May 11, 2024.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Accrued payroll expenses | $ | 8,383 | | | $ | 13,550 | |
| Accrued manufacturing costs | 5,963 | | | 3,925 | |
| Accrued transaction costs | 5,000 | | | 5,000 | |
| Accrued professional and consulting fees | 4,474 | | | 3,411 | |
| Accrued warranty costs | 2,152 | | | 1,934 | |
| Accrued taxes | 1,062 | | | 1,017 | |
| Lease liabilities | 2,601 | | | 2,623 | |
| Legal proceedings accrual | 825 | | | 825 | |
| Other | 2,104 | | | 3,366 | |
| Total accrued expense and other current liabilities | $ | 32,564 | | | $ | 35,651 | |
Long-Term Liabilities
Long-term liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| | | |
| Contract liabilities, long-term | $ | 11,755 | | | $ | 12,740 | |
| Lease liabilities, long-term | 14,624 | | | 15,210 | |
| Other | 1,022 | | | 661 | |
| Total long-term liabilities | $ | 27,401 | | | $ | 28,611 | |
Note 6. Leases
The Company leases real estate, equipment and automobiles in the near term dueU.S. and internationally. The Company leases office facilities under non-cancelable operating leases that expire on various dates through December 2027, including office and manufacturing space in San Jose, California used as its corporate headquarters. The leases do not contain any material residual value guarantees or restrictive covenants.
Lease cost, which consisted primarily of operating lease cost, was $0.9 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.
Other information related to oneleases were as follows (in thousands, except years and percentages):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| Supplemental cash flow information: | | | | |
| Cash paid for operating leases included in operating cash flows | | $ | 883 | | | $ | 1,119 | |
| ROU assets obtained in exchange for new operating lease liabilities | | $ | 55 | | | $ | 340 | |
| | | | |
| | March 31, 2022 | | December 31, 2021 |
| Supplemental balance sheet information: | | | | |
| Other assets | | $ | 16,274 | | | $ | 16,891 | |
| Total operating ROU assets | | $ | 16,274 | | | $ | 16,891 | |
| | | | |
| Other current liabilities | | $ | 2,601 | | | $ | 2,623 | |
| Other long-term liabilities | | 14,624 | | | 15,210 | |
| Total lease liabilities | | $ | 17,225 | | | $ | 17,833 | |
| | | | |
| Weighted average remaining lease term (years) | | 5.67 | | 5.91 |
| Weighted average discount rate | | 6.38 | % | | 6.37 | % |
As of March 31, 2022, maturities of lease liabilities were as follows, which excludes $1.1 million of legally binding minimum lease payments for leases that have been signed but not yet commenced:
| | | | | | | | | | |
| Years Ending December 31, | | | | Operating Leases |
| 2022 (remaining nine months) | | | | $ | 2,666 | |
| 2023 | | | | 3,417 | |
| 2024 | | | | 3,479 | |
| 2025 | | | | 3,565 | |
| 2026 | | | | 3,670 | |
| Thereafter | | | | 3,779 | |
| Total lease payments | | | | $ | 20,576 | |
| Less amount representing interest | | | | (3,351) | |
| Present value of lease liabilities | | | | $ | 17,225 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Note 7. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Foreign currency translation loss | $ | (201) | | | $ | (184) | |
| Unrealized loss on investments | (940) | | | (228) | |
| Total accumulated other comprehensive loss | $ | (1,141) | | | $ | (412) | |
During the three months ended March 31, 2022 and 2021, there were no significant amounts related to foreign currency translation loss or morerealized gains or loss on investments reclassified to net loss from accumulated other comprehensive loss.
Note 8. Credit Facilities and Notes Payable
The Company has a loan and security agreement with a financial institution that expires on February 24, 2023. The credit agreement, which was entered into in September 2020 and last amended in February 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 of March 31, 2022, the Company was compliant with all associated covenants in the agreement. No amounts were drawn against this credit facility during any of the periods presented.
On April 8, 2020, the Company received loan proceeds of $10.0 million under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Paycheck Protection Program (“PPP”). The principal and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels and that approval is received from the relevant government entity. The unforgiven portion of the PPP loan is payable in two years at an interest rate of 1% per annum, with a deferral of interest payments for ten months after the expiration of the 24-week covered period. The Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan and interest on June 30, 2021. The Company recorded a $10.1 million gain from the forgiveness of the PPP loan and related interest in other income for 2021.
Note 9. Stockholders’ Equity
Common Stock
On September 29, 2020, the Company consummated a business combination with the pre-combination Velodyne. On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. In connection with the Business Combination, outstanding common stock and preferred stock of the pre-combination Velodyne were converted into common stock of the Company. As discussed in Note 2, Business Combination, the Company has retroactively adjusted the pre-combination common and preferred shares issued and outstanding prior to September 29, 2020 to give effect to the exchange ratio established in the Merger Agreement to determine the number of shares of common stock into which they were converted.
The Company is authorized to issue up to 2,250,000,000 shares of common stock, each with a par value of $0.0001 per share. The following summarizes the Company’s common stock outstanding as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Converted pre-combination Velodyne common stock outstanding | 23,788,619 | | 82,024,874 |
| Converted pre-combination Velodyne preferred stock outstanding | 24,772,759 | | 24,772,759 |
| Graf Founder shares | 142,800 | | 157,800 |
| Other stockholders | 149,559,316 | | | 90,391,242 | |
| Total common stock issued and outstanding | 198,263,494 | | 197,346,675 |
Preferred Stock
The Company is authorized to issue up to 25,000,000 shares of preferred stock, each with a par value of $0.0001 per share. As of March 31, 2022, no shares of preferred stock were issued and outstanding.
Dividends
The Company has not paid any cash dividends on the common stock to date. The Company may retain future
confirming events. Accordingly,earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the
actualforeseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, the Company’s results
could differ significantly from those estimates.Deferred Offering Costs
Deferred offering costs consist of legal and accounting feesoperations, financial condition, cash requirements, contractual restrictions and other costs incurred throughfactors that the balance sheet dateBoard may deem relevant. In addition, the Company’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness the Company or its subsidiaries incur.
Public Warrants
Upon the closing of the Business Combination, there were 24,876,512 outstanding warrants to purchase shares of the Company’s common stock that are directly relatedwere issued by Graf prior to the Initial Public Offering. Offering costs were chargedBusiness Combination. Each whole warrant entitles the holder to stockholders’ equity uponpurchase three-quarters of one share of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The warrants are exercisable at any time commencing 30 days after the completion of the Initial Public OfferingBusiness Combination and expire five years after the completion of the Business Combination. The Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant at any time after they become exercisable, provided that the last sale price of the Company’s common stock equals or exceeds $18.00 per share, subject to adjustments, for any 20-trading days within a 30-trading day period ending three business days prior to the date on which the Company sends the notice of redemption to the warrant holders.
In connection with the Business Combination, on October
2018.19, 2020, the Company registered the issuance of an aggregate of up to 18,657,384 shares of its common stock that are issuable upon the exercise of its warrants, including up to 375,000 shares of its common stock issuable upon exercise of its working capital warrants issued to Graf LLC. The following summarizes the Company’s outstanding warrants and common stock issuance related to the warrant exercises:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Warrants outstanding upon Closing | 24,876,512 | | | 24,876,512 |
| Warrants exercised to date | 18,902,642 | | 18,902,642 |
| Warrants outstanding | 5,973,870 | | 5,973,870 |
| | | |
| Aggregated common shares issuable upon exercise of warrants | 18,657,384 | | 18,657,384 |
| Common shares issued upon exercise of warrants | 14,176,959 | | 14,176,959 |
| Remaining common shares issuable upon exercise of warrants | 4,480,425 | | 4,480,425 |
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission (the “SEC”) issued a statement regarding accounting and reporting considerations for warrants issued by SPACs. In light of the issues raised by the SEC, the Company re-evaluated its accounting position for the warrants and concluded that certain warrants should have been classified as a liability measured at fair value for the 30-day period from September 29, 2020 to October 29, 2020. Accounting for these warrants as a liability instead of equity would have reduced non-operating expense and net loss by $1.6 million for 2020. Additionally, a corresponding $1.6 million adjustment would have been made to reduce its accumulated deficit with an offsetting adjustment to additional paid in capital in its equity accounts at December 31, 2020. The Company has concluded that the effects of accounting for the warrants as a liability instead of equity were immaterial to its previously issued financial statements and, accordingly, made an adjustment to its equity accounts for the effects of the accounting for the warrants in its consolidated statement of stockholders’ equity and balance sheet at December 31, 2021 by decreasing its accumulated deficit by $1.6 million with an offsetting decrease to its additional paid in capital.
Amazon Warrant
In February 2022, the Company and Amazon.com (“Amazon”) entered into a warrant agreement and a transaction agreement, pursuant to which Velodyne agreed to issue to Amazon.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 the Company’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 expires February 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 million by Amazon or its affiliates (directly or indirectly through third parties) to the Company in connection with Amazon’s purchase of goods and services from the Company. 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 of March 31, 2022, zero of the Amazon Warrant shares are vested.
When Amazon makes payments, and vesting conditions become probable of being achieved, the Company will record a non-cash stock-based reduction to revenue associated with the Amazon Warrant, that is calculated based on the grant date fair value of the Amazon Warrant shares. The fair value of the Amazon Warrant shares was measured on the grant date using the Black-Scholes option pricing model with assumptions as follows:
| | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 |
| Expected term, in years | | 6.00 |
| Expected volatility | | 50.00% |
| Risk-free interest rate | | 1.84% |
| Expected dividend yield | | 0% |
For the three months ended March 31, 2022, the Company recognized a reduction to revenues of $5.3 million associated with a portion of Amazon Warrant shares that are probable of being vested.
Note 10. Stock-Based Compensation
2020 Equity Incentive Plans
2020 Equity Incentive Plan
In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which provides for the grant of stock options, stock appreciation rights, restricted stock awards and units (“RSAs” and “RSUs”), and other stock or cash-based awards to the Company’s employees, directors and consultants. The Board approved cancelling and converting all outstanding equity-awards granted under the pre-combination Velodyne’s stock plans into equity-based awards under the 2020 Plan effective upon the consummation of the Business Combination, based on exchange ratios established in the Merger Agreement with the same general terms and conditions corresponding to the original awards. The shares under the pre-combination Velodyne’s stock plans have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
The Company had an initial authorized reserve of 27,733,888 shares of its common stock for issuance under the 2020 Plan. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of no more than ten years in an amount equal to the least of (a) 5% of the total number of common shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 common shares, or (c) a number of common shares determined by the Board. This limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The number of shares reserved was 46,606,012 and the remaining shares available for issuance under the 2020 Equity Plan was 26,755,012 as of March 31, 2022.
The Company uses primarily the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.
2020 Employee Stock Purchase Plan
On September 29, 2020, the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the “ESPP”). The Company had an initial authorized reserve of 3,492,097 shares of common stock for issuance under the ESPP. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of no more than 20 years in an amount equal to the least of (i) 1% of the outstanding shares of the Company’s common stock on such date, (ii) 2,500,000 shares of the Company’s common stock or (iii) a lesser amount determined by the Compensation Committee or the Board. As of March 31, 2022, 220,382 shares have been issued and 7,046,140 shares remained available for future issuance under the ESPP.
The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock at the beginning or the end of the applicable purchase period, in an amount not to exceed 15% of their compensation, subject to individual purchase limits of 3,000 shares in any purchase period or $25,000 worth of stock, determined at the fair market value of the shares at the first day of an offering period, in any calendar year. Each offering period has a duration of twelve months beginning on either June 1 or December 1 and consists of 2 consecutive six-month purchase periods. The ESPP contains a reset provision whereby if the price of the Company’s common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such offering periods and re-enrolled in the new offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering period, resulting in incremental expense to be recognized over the new offering period.
2020 Phantom Stock Incentive Plan
In March 2021, the Board adopted the 2020 Phantom Stock Incentive Plan (the “2020 Phantom Stock Plan”), which provides for the granting of up to 7,635,000 phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting. Phantom stock unit activity for the year ended March 31, 2022 was not significant.
Stock Incentive Awards
As of March 31, 2022, the Company has equity incentive awards outstanding, which include stock options, RSUs, RSAs and phantom stock units under its stock incentive plans. Stock options expire in 10 years from the date of grant and typically vest 25 percent upon the one-year anniversary date from the initial vesting date, with the remainder vesting quarterly over the following three years. The RSUs and RSAs typically vest 25 percent upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Certain RSUs also contain performance conditions related to the Company’s product development and business performance for the performance periods specified in the RSU agreements. In May 2020, the Company granted market-based performance RSUs (“PRSUs”) that contain service, liquidity event condition and market conditions to vest in the underlying common stock. The PRSUs vest upon the three-year anniversary date from initial vesting date and the number of shares that vests is ultimately dependent on the value of the Company’s stock at the vesting date.
The RSUs and RSAs issued prior to September 29, 2020 are also subject to a liquidity event vesting condition, which is (i) an initial public offering, or (ii) a Company sale event, both of which must be satisfied on or before the 7-year anniversary of the date of the grant in order for the RSUs to be vested and settled for shares of common stock. As a result of the Business Combination, on October 30, 2020 and May 18, 2021, the Board waived the liquidity event vesting condition applicable to approximately 11.8 million and 4.2 million outstanding shares of pre-combination Velodyne's RSUs and RSAs, respectively, held by approximately 330 current and former employees and directors.
A summary of stock option activities during 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | |
Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | (Years) | | (In thousands) |
| Option: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Options outstanding as of December 31, 2021 | 9,791 | | $7.04 | | | | |
| Exercised | — | | | | | | |
| Expired | — | | | | | | |
| Options outstanding as of March 31, 2022 | 9,791 | | $7.04 | | 2.19 | | $ | — | |
| Options exercisable as of March 31, 2022 | 9,791 | | $7.04 | | 2.19 | | $ | — | |
| Options vested and expected to vest as of March 31, 2022 | 9,791 | | $7.04 | | 2.19 | | $ | — | |
A summary of RSA and RSU activities during 2022 is as follows (in thousands except share and per share amount):
| | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value per Share | | Fair Value of RSU/RSA Released |
| RSA: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| RSAs outstanding as of December 31, 2021 | 211,298 | | $6.63 | | |
| Granted | 124,330 | | $3.64 | | |
| | | | | |
| RSAs outstanding as of March 31, 2022 | 335,628 | | $5.52 | | |
| | | | | |
| RSU: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| RSUs outstanding as of December 31, 2021 | 5,126,896 | | $10.51 | | |
| Granted | 643,568 | | $3.77 | | |
| Released | (461,984) | | $12.17 | | $1,609 |
| Forfeited | (620,128) | | $10.94 | | |
| RSUs outstanding as of March 31, 2022 | 4,688,352 | | $9.36 | | |
| | | | | |
| PRSU: | | | | | |
| | | | | |
| | | | | |
| PRSUs outstanding as of December 31, 2021 | 330,505 | | $6.72 | | |
| Released | (330,505) | | $6.72 | | $1,292 |
| PRSUs outstanding as of March 31, 2022 | — | | | | |
Stock-Based Compensation Expense
Stock-based compensation consists of expense related primarily to the Company’s RSUs and RSAs and, to a lesser extent, stock options, ESPP purchase rights and market-based PRSUs. The Company measures stock-based compensation expenses based on grant date fair value of the stock awards. The Company recognizes stock-based compensation expenses for stock options and service-condition awards that are expected to vest on a straight-line basis over the requisite service period. For performance-based awards, expense is recognized when it is probable the performance goal will be achieved. The Company recognizes forfeitures as they occur.
The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (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 | | | $ | 11,530 | |
As of March 31, 2022, unrecognized compensation cost related to RSUs, RSAs and ESPP was $37.8 million, $1.7 million and $0.9 million, respectively, which is expected to be recognized over a weighted average period of 2.82 years, 3.68 years and 0.36 years, respectively.
Phantom stock units are recorded as a liability at their current market value and are included in other current liabilities. These grants remain subject to vesting 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Based on the trading price of the Company's common stock, the amount of liability recorded related to phantom stock units was not significant at March 31, 2022.
Note 11. Net Loss Per
Common Share
Net loss
Pursuant to the Amended and Restated Certificate of Incorporation and as a result of the Business Combination and reverse recapitalization, the Company has retrospectively adjusted the weighted average shares outstanding prior to September 29, 2020 to give effect to the exchange ratio used to determine the number of shares of common stock into which the pre-combination Velodyne common and preferred stock converted.
Basic net income (loss) per share is computed by dividing net loss bybased on the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period excludingusing the treasury stock method. During the periods when there is a net loss, potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.
Warrants to purchase 24,876,512 shares of common stock subject to forfeiture byat $11.50 per share were issued during Graf’s initial public offering. As of March 31, 2022 and March 31 2021, the Sponsor. Weighted average shares5,973,870 and 5,979,442, respectively, outstanding warrants were reduced forexcluded from the effect of an aggregate of 374,622 shares of common stock that were forfeited by the Sponsor upon receiving notice of partial exercise of the over-allotment option by the underwriters on October 25, 2018. At September 30, 2018, the Company did not have any dilutive securitiesbasic and other contracts that could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the Company. As a result, diluted net loss per share isas they were anti-dilutive given the sameCompany had a net loss for all periods presented. The Amazon Warrant shares were also excluded from the basic and diluted net loss per share as basicthey were anti-dilutive as of March 31, 2022.
The following common stock equivalents have also been excluded from the computation of diluted net loss per share for the
period presented.Income Taxes
periods presented because including them would have been antidilutive (in thousands):
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | |
| Stock options | 10 | | | 597 | | | |
| RSAs | 336 | | | 4,184 | | | |
| RSUs (non-vested) | 4,471 | | | 6,050 | | | |
| Total | 4,817 | | | 10,831 | | | |
Note 12. Retirement Plan
The Company followshas a 401(k) savings and profit-sharing plan (the “401(k) Plan”), which is intended to be a tax-qualified defined contribution plan that covers all eligible employees, as defined in the assetapplicable plan documents. Under the 401(k) Plan, eligible employees may elect salary deferral contributions, not to exceed limitations established annually by the Internal Revenue Service (“IRS”). The Company matches 25% of employees’ eligible contributions up to a maximum amount determined by the Company. The Company’s matching contributions vest 25% per year over the employee’s first four-year period of service. The Company’s matching contributions were $0.3 million and liability method of accounting$0.2 million, respectively, for the three months ended March 31, 2022 and 2021.
Note 13. Income Taxes
The following table summarizes the Company's loss before income taxes and provision for income taxes under FASB ASC 740, “Income Taxes.” Deferred(in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| Loss before income taxes | $ | (48,674) | | | $ | (40,521) | | | | | |
| Provision for income taxes | 447 | | | 296 | | | | | |
| Effective tax rate | (0.9) | % | | (0.7) | % | | | | |
The quarterly income tax
assetsprovision reflects an estimate of the corresponding year’s annual effective tax rate and
liabilities are recognizedincludes, when applicable, adjustments for discrete items. The tax provision for the
estimated future tax consequences attributableperiods presented primarily relates to
differences betweenincome taxes of non-U.S. operations as the
financial statements carrying amounts of existing assetsU.S. operations were in a loss position and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect onCompany maintains a full valuation allowance against its U.S. deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2018. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company is subject to income
taxes in the United States, China, Germany and India. The Company’s effective tax
examinations by major taxing authorities since inception.rate changed from (0.7)% in the three months ended March 31, 2021 to (0.9)% in the three months ended March 31, 2022. This change 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.
Note 14. Commitments and Contingencies
Purchase and Other Commitments
The provisionfollowing table summarizes contractual obligations and commitments as of March 31, 2022 (in thousands):
| | | | | | | | | | | | | | |
| Years Ending December 31, | | Purchase Commitments | | Other Contractual Commitments |
| 2022 (remaining nine months) | | $ | 65,215 | | | $ | 518 | |
| 2023 | | — | | | 211 | |
| 2024 | | — | | | 81 | |
| Total | | $ | 65,215 | | | $ | 810 | |
Purchase commitments represent outstanding purchase orders or commitments for income taxes was deemedgoods or services with contract manufacturers and vendors that range mostly from one month up to a year. The Company uses several contract manufacturers to manufacture components, subassemblies and products. The Company provides these contract manufacturers with demand information and they use this information to acquire components and build products. Contract manufacturer commitments consist of obligations for on-hand inventories and non-cancelable purchase orders with contract manufactures. If the Company cancels all or part of the orders, it may still be immaterialliable to the contract manufacturers for the periodcost of the materials and components purchased by the subcontractors to manufacture the Company’s products. The Company also obtains individual components for its products from June 26, 2018 (inception)a wide variety of individual suppliers. Other contractual commitments represent the Company’s other contractual obligations for goods or services associated with its ordinary course of business.
Product Warranties
The following table summarizes the activity related to
September 30, 2018.Concentration of Credit Risk
Financial instruments that potentially subject the Companyproduct warranty liabilities and their balances as included in other accrued expenses (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| Balance as of the beginning of the period | $ | 1,934 | | | $ | 2,204 | | | | | |
| Warranty provision | 1,133 | | | 663 | | | | | |
| Consumption | (195) | | | (204) | | | | | |
| Changes in provision estimates | (720) | | | (1,071) | | | | | |
| Balance as of the end of the period | $ | 2,152 | | | $ | 1,592 | | | | | |
Legal Proceedings
From time to
concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At September 30, 2018, the Company has not experienced losses on these accounts and management believestime, the Company is
not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assetsinvolved in actions, claims, suits and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts representedother proceedings in the accompanying balance sheet, primarily dueordinary course of business, including assertions by third parties relating to their short-term nature.
Recent Accounting Pronouncements
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdatedintellectual property infringement, breaches of contract or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a notewarranties or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed.employment-related matters. The Company anticipates its first presentationis defending all current litigation matters. Although there can be no assurances and the outcome of changes in stockholders' equity, in accordance withthese matters is currently not determinable (except as specifically described below), the new guidance, will be included in its Form 10-Q for the quarter ended March 31, 2019.
Management does not believeCompany currently believes that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, wouldnone of these claims or proceedings are likely to have a material adverse effect on the Company’s financial statements.
Noteposition.
Arbitration Proceeding Against David Hall
On June 9, 2021, the Company initiated an arbitration proceeding against David Hall, alleging breach of contract and misappropriation of the Company’s confidential, proprietary, and trade secret information. To protect its intellectual property and in aid of the arbitration process, on July 2, 2021 the Company filed an application with the Santa Clara County Superior
Court for a temporary restraining order and preliminary injunction to prohibit Mr. Hall from any further copying, disclosure or use of the Company’s intellectual property and to require him to return all such property to the Company.
On September 7, 2021, the arbitrator issued a preliminary injunction against Mr. Hall, ordering that: 1) Mr. Hall is enjoined from retrieving or accessing 3 — Initial Public Offeringdevices to which he copied Velodyne materials and must transfer those devices to a discovery special master, who will review Mr. Hall’s retention and usage of Velodyne information and prepare reports on such retention and use; 2) Mr. Hall must provide an under-oath inventory of any and all of his personal electronic devices in his possession or control upon which Velodyne information currently resides and, upon Velodyne’s request, must provide Velodyne with access to those devices upon request to retrieve, destroy, or ensure the permanent deletion of Velodyne information from those devices; 3) Mr. Hall is enjoined from using anything he created or worked on for Velodyne during the time of his employment; and 4) In light of the preliminary injunctive relief granted under its breach of contract claim, Velodyne’s requests for relief under the California Uniform Trade Secrets Act and for a deposition were denied at this juncture, but the arbitrator expressly held that Velodyne could reinstate those demands following the special master’s report on Mr. Hall’s retention and usage of Velodyne’s materials. Mr. Hall subsequently provided an under-oath inventory pursuant to that order, which identified NaN personal devices that may contain Velodyne information.
Because Mr. Hall did not consent to the special master conditionally appointed by the arbitrator, Velodyne and Mr. Hall are negotiating on protocol by which to preliminarily review and inspect those personal devices.On October 26, 2021, Mr. Hall filed a motion for a protective order seeking to require the Company to segregate and return his allegedly personal, private, privileged, and confidential information from his Company-issued laptop.On November 30, 2021, the judge denied Mr. Hall’s protective order, noting that Mr. Hall has no expectation of privacy as to the contents of his laptop and that he waived his right to assert privileged over the contents of the laptop.In the same ruling, the judge compelled Mr. Hall to respond to interrogatories issued by Velodyne. On December 16, 2021, the judge ruled that Velodyne sufficiently identified 2,740 allegedly-misappropriated trade secrets. On February 17, 2022, the judge imposed sanctions on Mr. Hall for discovery abuse, and ordered Mr. Hall to pay Velodyne $5,000 as sanctions.
Discrimination Proceedings by Marta Hall
On August 2, 2021, the Company received a Charge of Discrimination dated July 27, 2021 (“Charge”), indicating that former Chief Marketing Officer, Marta Hall, has filed a charge of employment discrimination under Title VII of the Civil Rights Act, alleging sexual discrimination and retaliation. On February 15, 2022, the Equal Employment Opportunity Commission (EEOC) issued a determination that it will not proceed with an investigation of Ms. Hall’s claim. On September 27, 2021, the Occupational Safety and Health Administration (“OSHA”) informed the Company that it dismissed a complaint brought by Ms. Hall alleging retaliation in violation of the Sarbanes-Oxley Act (“SOX”).OSHA found that Ms. Hall failed to show that she engaged in a protected activity under SOX.On October 21, 2021, Ms. Hall submitted an objection to the findings and requested a hearing before an administrative law judge.The Company intends to defend the actions vigorously.
Hall Proceeding against Individuals
On January 18, 2022, David Hall and Marta Hall filed a complaint against various current and former officers and directors of Velodyne and other individuals in the Superior Court of California, Alameda County, entitled Hall v. Vetter, No. 22-cv-005713. The complaint alleges conspiracy to defraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, intentional misrepresentation, negligent misrepresentation, and securities fraud.The complaint alleges David and Marta Hall have suffered damages and seeks, among other things, compensatory and punitive damages. On May 3, 2022, certain defendants filed motions to compel arbitration and other defendants filed motions to dismiss for lack of personal jurisdiction. The Company intends to defend the action vigorously.
Quanergy Litigation
In September 2016, Quanergy Systems, Inc. (“Quanergy”) filed a complaint against the Company and one of its customers in the Northern District of California (the District Court litigation), seeking a declaratory judgment of non-infringement of 1 of the Company’s patents, U.S. Patent No. 7,969,558 (the “‘558 patent”) and asserting state and federal trade secret misappropriation claims against the Company and its customer and breach of contract and constructive fraud claims against its customer. In November 2016, Quanergy filed an amended complaint, removing its trade secret misappropriation claims against the Company, dropping its customer from the suit and dropping the related claims of breach and constructive fraud. The amended complaint maintained only the declaratory judgment of non-infringement action against
the Company. In December 2016, the Company filed an answer generally denying the allegations and relief requested in Quanergy’s amended complaint. The Company’s answer also included counterclaims against Quanergy asserting direct, indirect, and willful infringement of the ‘558 patent. In January 2017, Quanergy filed an answer generally denying the allegations in the Company’s patent infringement counterclaims and requesting relief. The court held a claim construction hearing on September 13, 2017 and issued a claim construction order on October 4, 2017, which adopted the majority of the Company’s proposed constructions. In June 2018, the district court entered an order granting a joint stipulation to stay the litigation.
Quanergy filed 2 petitions for inter partes review with the U.S. Patent Office’s Patent Trials and Appeal Board (“PTAB”) in November 2017, challenging all claims of the ‘558 patent that the Company asserted. The Company filed its Patent Owner Preliminary Response to Quanergy’s petitions on March 7, 2018. The PTAB issued an institution decision on May 25, 2018, instituting review of all challenged claims. The Company subsequently filed its Patent Owner Response and a Contingent Motion to amend the claims. The PTAB held oral argument on February 27, 2019. On May 23, 2019, the PTAB issued a Final Written Decision upholding the validity of all the challenged claims, finding that Quanergy did not prove by a preponderance of the evidence that any of the challenged claims of the ‘558 patent were unpatentable, and denying the Company’s contingent motion as moot. In June 2019, Quanergy filed a request for rehearing. On July 21, 2020, Quanergy filed a Notice of Appeal, appealing the PTAB decision to the U.S. Court of Appeals for the Federal Circuit. Quanergy’s opening appeal brief was filed on January 22, 2021. On February 4, 2022, the Federal Circuit of Appeals issued a ruling upholding the validity of the Company’s ‘558 patent. In view of that ruling, on February 18, 2022, the district court lifted the stay.On April 18, 2022, the district court issued an order setting the case scheduling through dispositive motions.
Employment Matters
On June 8, 2020, a former employee filed a class action lawsuit in the Santa Clara County Superior Court of the State of California. The complaint alleges that, among other things, the Company failed to pay minimum and overtime wages, final wages at termination, and other claims based on meal periods and rest breaks. The plaintiff is bringing this lawsuit on behalf of herself and other similarly situated plaintiffs who have not been identified and is seeking to certify the action as a class action. The plaintiff has now filed a First Amended Complaint that adds a claim pursuant to California’s Private Attorneys General Act. The First Amended Complaint does not specify the amount the plaintiff seeks to recover. Velodyne’s response to the First Amended Complaint was filed on November 16, 2020 and the parties are in the process of beginning discovery concerning class certification issues. On August 5, 2021, the parties reached a tentative settlement, subject to court approval, whereby the Company will pay$0.8 million.
Securities Litigation Matters
On March 3, 2021, a purported shareholder of Velodyne filed a complaint for a putative class action against Velodyne, Anand Gopalan and Andrew Hamer in the United States District Court, Northern District of California, entitled Moradpour v. Velodyne Lidar, Inc., et al., No. 3:21-cv-01486-SI. The complaint alleges purported violations of the federal securities laws and that, among other things, the defendants made materially false and/or misleading statements and failed to disclose material facts about the Company’s business, operations and prospects. The complaint alleges that purported class members have suffered losses. The complaint seeks, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired the Company’s securities between November 9, 2020 and February 19, 2021. On March 12, 2021, a putative class action entitled Reese v. Velodyne Lidar, Inc., et al., No. 3:21-cv-01736-VC, was filed against the Company, Mr. Gopalan and Mr. Hamer in the United States District Court for the Northern District of California, based on allegations similar to those in the earlier class action and seeking recovery on behalf of the same putative class. On March 19, 2021, another putative class action entitled Nick v. Velodyne Lidar, Inc., et al., No. 4:21-cv-01950-JST, was filed in the United States District Court for the Northern District of California, against the Company, Mr. Gopalan, Mr. Hamer, two current or former directors, and three other entities. The complaint alleges purported violations of the federal securities laws and that, among other things, the defendants made materially false and/or misleading statements and failed to disclose material facts about the Company’s business, operations, controls and prospects and seeks, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired the Company’s securities between July 2, 2020 and March 17, 2021. The class actions have been consolidated, lead plaintiffs have been appointed and an amended consolidated complaint was filed on September 1, 2021. The Company filed a motion to dismiss the complaint on November 1, 2021. The plaintiffs filed a first amended complaint on February 11, 2022. The Company filed a motion to dismiss on March 4, 2022. A hearing on the motion to dismiss is scheduled for June 10, 2022. The Company intends to defend the actions vigorously.
On March 12, 2021, a putative shareholder derivative lawsuit entitled D’Arcy v. Gopalan, et al., No. 1:21-cv-00369-MN, was filed in the United States District Court for the District of Delaware against current and former directors and/or officers Anand Gopalan, Andrew Hamer, David S. Hall, Marta Thoma Hall, Joseph B. Culkin, Michael E. Dee, James A. Graf, Barbara Samardzich, and Christopher A. Thomas, and names the Company as a nominal defendant. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against all of the individual defendants, and asserts a contribution claim under the federal securities laws against Mr. Gopalan and Mr. Hamer. On March 16, 2021, a second shareholder derivative lawsuit entitled Kondner, et al. v. Culkin, et al., No. 1:21-cv-00391-MN, was filed in the United States District Court for the District of Delaware against most of the same defendants named in the earlier derivative complaint, and asserts claims against the individual defendants for alleged breaches of fiduciary duty and waste of corporate assets. Both derivative actions are based on allegations similar to those in the class actions discussed above, and have now been consolidated. On January 3, 2022, the plaintiffs filed an amended complaint.
Contingency Assessment
The Company records accruals for outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluated developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. As of March 31, 2022, the Company recorded a total of $0.8 million for loss contingencies associated with the legal claims or litigation discussed above.
Note 15. Segment, Geographic and Customer Concentration Information
The Company conducts its business in 1 operating segment that develops and produces Lidar sensors for use in industrial, 3D mapping, drones and auto applications. The Company’s Chief Executive Officer (“CEO”) is the chief operating decision maker (“CODM”). The CODM allocates resources and makes operating decisions based on financial information presented on a consolidated basis, accompanied by disaggregated information about sales and gross margin by product group. The profitability of the Company’s product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.
The Company reports revenue by region and country based on the location where its customers accept delivery of its products and services. Revenue by country and number of customers that accounted for more than 10% of revenue was as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Countries over 10% of revenue: | | | |
| U.S. | (23 | %) | | 26 | % |
| China | 32 | % | | 45 | % |
| Sweden | 24 | % | | 13 | % |
| Korea | 20 | % | | * |
| Japan | 18 | % | | * |
| Number of customers that accounted for over 10% of revenue: | 5 | | 2 |
| | | |
| * Less than 10%. | | | |
For the three months ended March 31, 2022, revenue in the U.S. included a reduction to product revenues of $5.3 million in respect of the Amazon Warrant. Refer to Note 9 for more information.
The Company’s long-lived assets, consisting primarily of property, plant and equipment, were primarily located in the United States as of March 31, 2022 and December 31, 2021.
Note 16. Related Party Transactions
Certain holders of the pre-combination Velodyne's convertible preferred stock (which converted into common stock of the Company upon the Business Combination) purchased products and services, directly or through a third party, from the Company. Revenue and accounts receivable for these holders were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Revenue: | | | |
| Stockholder A | $ | 295 | | | $ | 39 | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| Accounts receivable: | | | |
| Stockholder A | $ | 535 | | | $ | 219 | |
| | | |
| | | |
In April 2019, the Company entered into a manufacturing agreement with one of its Series B Preferred Stockholders (“Stockholder D”), and the Company has one product that is currently being manufactured by Stockholder D. As of March 31, 2022 and December 31, 2021, the Company had $1.4 million and $0.2 million, respectively, of payable and accrued purchases, and $15.7 million and $15.7 million, respectively, of outstanding purchase commitments for products with this stockholder. The Company procures equipment, materials and components for Stockholder D to build the product. The Company also loaned to Stockholder D manufacturing equipment with a net book value of $0.4 million and $0.5 million, respectively, as of March 31, 2022 and December 31, 2021, which was included in the Company’s balance sheet within property, plant and equipment, net.
The Company rents its corporate headquarters facility in San Jose, California from a company owned by one of its former officers. The lease was executed in January 2017 and expires in December 2027, as amended. In May 2021, the building was sold to a third-party but the lease terms remain unchanged. Lease cost under this lease was $0.8 million for the three months ended March 31, 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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 to Thailand, 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. On March 27, 2020, the U.S. government enacted the CARES Act. On April 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 on June 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
In February 2022, we entered into a warrant agreement and a transaction agreement with Amazon.com (“Amazon”), pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly-owned subsidiary of Amazon, a warrant (“Amazon Warrant”) to acquire up to an aggregate of 24,376,512 Units,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 expires February 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 of March 31, 2022, none of the Amazon Warrant shares are vested.
For the three months ended March 31, 2022, we recognized a reduction to revenues of $5.3 million associated with a portion of Amazon Warrant shares that are probable of being vested.
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 1,876,512 Unitsrevenue 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
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.
Recent Accounting Pronouncements
In June 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 after December 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):
| | | | | | | | | | | |
| 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 | | | $ | 11,530 | |
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 on October 30, 2020 and May 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.
Comparison of the First Quarter of 2022 to 2021
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | $ Change | | % Change |
| ($ in thousands) | | 2022 | | 2021 | | | | |
| 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, | | $ Change | | % Change |
| ($ in thousands) | | 2022 | | 2021 | | | | |
| 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 | % | | | | | | | | | | |
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 broadencustomer 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, | | $ Change | | % Change |
| ($ in thousands) | | 2022 | | 2021 | | | | |
| 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
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 the SEC 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, | | $ Change | | % Change |
| ($ in thousands) | | 2022 | | 2021 | | | | |
| 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 $0.1 million, or 120%, for the first quarter of 2022 as compared to the first quarter of 2021. The increase was primarily attributable to increases of our average cash equivalent and short-term investment balances in the first quarter of 2022.
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, | | $ Change | | % Change |
| ($ in thousands) | | 2022 | | 2021 | | | | |
| 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.
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 of March 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 of March 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 on February 24, 2023. The credit agreement, which was entered into in September 2020 and last amended in February 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 of March 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.
On April 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 on June 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 of March 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
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 ended March 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 ended March 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.
Financing Activities
During the three months ended March 31, 2022, there were no cash flow activities from financing activities.
During the three months ended March 31, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.
We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.
Interest Rate Risk
As of March 31, 2022, we had cash, cash equivalents and short-term investments of approximately $256.4 million, which are comprised of money market funds, corporate debt securities and commercial paper, which carries a degree of interest rate risk. A hypothetical 10% change in interest rates would not have a material impact on our financial condition or results of operations due to the short-term nature of our investment portfolio.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Substantially all of our revenue is generated in U.S. dollars. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the U.S. and to a lesser extent in Asia and Europe. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical consolidated financial statements. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our management concluded that, as of March 31, 2022, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II. Other Information
Item 1. Legal Proceedings
The information set forth under the “Legal Proceedings” section in Note 14, Commitments and Contingencies, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report, is incorporated herein by reference.
Item 1A. Risk Factors
You should carefully consider the risksdescribedbelowin addition to the other information set forth in this Quarterly Report on Form 10-Q, including Item 2: Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and the consolidated financial statements and related notes.Ourbusiness,prospects,financialcondition,operatingresults or the trading price of our securities could be harmed by any ofthese risks, as well as other risks not known to us or that we consider immaterial.
Summary of Principal Risk Factors
•Since many of the markets in which we compete are new and rapidly evolving, it is difficult to forecast long-term end-customer adoption rates and demand for our products.
•We depend on our ability to attract and retain key management and technical personnel.
•Our products must meet demanding technical and quality specifications.
•Current supply chain constraints, including in the semiconductor market, could adversely affect our growth, increase costs, and adversely affect our financial results.
•We continue to implement strategic initiatives designed to grow our business. These initiatives may prove more costly than anticipated and we may not succeed in increasing our revenue in an amount sufficient to offset the costs of these initiatives and to achieve and maintain profitability.
•Our business could be materially and adversely affected by the current global COVID-19 pandemic.
•Because our sales have been primarily to customers making purchases for research and development projects and our orders are project-based, we expect our results of operations to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
•Our transition to an outsourced manufacturing business model may not be successful, which could harm our ability to deliver products and recognize revenue.
•Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
•Although we believe that lidar is the industry standard for autonomous vehicles and other emerging markets, market adoption of lidar is uncertain. If market adoption of lidar does not continue to develop, or develops more slowly than we expect, our business will be adversely affected.
•Our investments in educating our customers and potential customers about the advantages of lidar and our applications may not result in sales of our products.
•Despite the actions we are taking to defend and protect our intellectual property, we may not be able to adequately protect or enforce our intellectual property rights or prevent unauthorized parties from copying or reverse engineering our solutions. Our efforts to protect and enforce our intellectual property rights and prevent third parties from violating our rights may be costly.
•The failure to maintain effective internal control over financial reporting could harm our business and negatively impact the market price of our common stock.
Risks Related to Our Business
Any projections we may provide about our business or expected future results may differ significantly from actual results.
From time to time we have shared our views in press releases or SEC filings, on public conference calls and in other contexts about current business conditions and our expectations as to our future results of operations, including our previously announced projected revenues. Correctly identifying the key factors affecting business conditions and predicting future events is inherently an uncertain process. Given the complexity and volatility of our business, the impact of the ongoing COVID-19 pandemic on our business and that of our customers and partners, uncertainty overall global economic conditions, it is likely that our prior forecasts will prove to be incorrect. We offer no assurance that such predictions or analysis will ultimately be accurate, and investors should treat any such predictions or analysis with appropriate caution. If any analysis or forecast that we make ultimately proves to be inaccurate, our stock price may be adversely affected.
Any financial projections we have provided, including projections related to our future revenues, reflect numerous qualitative estimates and assumptions including assumptions with respect to general business, economic, market, regulatory and financial conditions and various other factors, all of which are difficult to predict and many of which are beyond our control. The projections are not predictive of our actual future results and should not be construed as financial guidance for any future period. In addition, any projections should be read in conjunction with the accounting policies included in Note 1. “Description of Business and Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements in Item 8 of Part II of this Quarterly Report on Form 10-Q and with these risk factors.
Since many of the markets in which we compete are new and rapidly evolving, it is difficult to forecast long-term end-customer adoption rates and demand for our products.
We are pursuing opportunities in markets that are undergoing rapid changes, including technological and regulatory changes, and it is difficult to predict the timing and size of the opportunities. For example, autonomous driving and lidar-based ADAS applications require complex technology and long lead times for development. Because these automotive systems depend on technology from many companies, commercialization of autonomous driving or ADAS products could be delayed or impaired on account of certain technological components of Velodyne or others not being ready to be deployed in vehicles. Although some companies have released systems and vehicles using our products, others may not be able to commercialize this technology in the near future, or at all. Regulatory, safety or reliability developments, many of which are outside of our control, could also cause delays or otherwise impair commercial adoption of these new technologies, which will adversely affect our growth. Our future financial performance will depend on our ability to make timely investments in the correct market opportunities. If one or more of these markets experience a shift in customer or prospective customer demand, our products may not compete as effectively, if at all, and they may not be designed into commercialized products. Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand or adoption rates for our products or the future growth of the markets in which we operate. This also creates supply issues, as we have had difficulty meeting demand for certain products due to constrained manufacturing capacity.As a result, the financial
projections we have made or may in the future make necessarily reflect various estimates and assumptions that may not prove accurate. If demand does not develop or if we cannot accurately forecast customer demand, the size of our markets, inventory requirements or our future financial results, our business, results of operations and financial condition will be adversely affected.
We depend on our ability to attract and retain key management and technical personnel.
For our business to be successful, we need to attract and retain highly qualified key management and technical personnel. Competition for highly-skilled personnel is often intense, especially in the San Francisco Bay Area where we are located, and we may incur significant costs to attract them. We had in the past been dependent on David Hall, our former executive chairman. Mr. Hall resigned as executive chairman in January 2021 and as a member of our Board in March 2021. We have been expanding our management team as well as other key areas of our business, including product development. Subsequent to the removal of Mr. Hall as the chair of our Board and these resignations, Mr. Hall has made statements to the press and in a Schedule 13D criticizing our Board and management, and on April 11, 2022, Mr. Hall filed a preliminary proxy statement
to solicit proxies in favor of the election of three director candidates, including Mr. Hall and his wife, Marta Hall, to our board of directors at our 2022 annual meeting of stockholders. Furthermore, on June 9, 2021, we initiated an arbitration proceeding against David Hall, alleging breach of contract and misappropriation of our confidential, proprietary, and trade secret information. On September 7, 2021, the arbitrator issued a preliminary injunction against Mr. Hall enjoining him from retrieving or accessing information on his devices that contain Velodyne property, as well as enjoining him from using anything he created or worked on for Velodyne during the time of his employment.This publicity could make it more difficult for us to attract and retain key personnel. Any actual or perceived uncertainties as to our relationship with Mr. Hall, who holds voting rights with respect to a significant amount of our voting stock, or persons aligned with Mr. Hall, may make it more difficult to attract and retain our qualified personnel and directors.
We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We also have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity is not higher than other companies with which we compete for employees, it may adversely affect our ability to retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.
We continue to implement strategic initiatives designed to grow our business. These initiatives may prove more costly than we currently anticipate and we may not succeed in increasing our revenue in an amount sufficient to offset the costs of these initiatives and to achieve and maintain profitability.
We continue to make investments and implement initiatives designed to grow our business, including:
•investing in research and development;
•expanding our sales and marketing efforts to attract new customers across industries;
•improving our manufacturing processes;
•investing in new applications and markets for our products;
•further enhancing our manufacturing processes and partnerships;
•pursuing litigation to protect our intellectual property; and
•investing in legal, accounting, and other administrative functions necessary to support our operations as a public company.
These initiatives may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue, if at all, in an amount sufficient to offset these higher expenses and to achieve and maintain profitability. Although we generated net income of $15.8 million for 2017, we have incurred net losses in the past, including net losses of $49.1 million for the three months ended March 31, 2022, $212.2 million for 2021 and $149.9 million for 2020. The market opportunities we are pursuing are at an early stage of development, and it may be many years before the end markets we expect to serve generate demand for our products at scale, if at all. Our revenue may be adversely affected for a number of reasons, including the development and/or market acceptance of new technology that competes with our lidar products, if certain automotive OEMs or other market participants change their autonomous vehicle technology, failure of our customers to commercialize autonomous systems that include our smart vision solutions, our inability to effectively manage our
inventory or manufacture products at scale, our inability to enter new markets or help our customers adapt our products for new applications or our failure to attract new customers or expand orders from existing customers or increasing competition. Furthermore, it is difficult to predict the size and growth rate of our target markets, customer demand for our products, commercialization timelines, developments in autonomous sensing and related technology, the entry of competitive products, or the success of existing competitive products and services. For these reasons, we do not expect to achieve profitability over the near term. If our revenue does not grow over the long term, our ability to achieve and maintain profitability may be adversely affected, and the value of our business may significantly decrease.
Current supply chain constraints, including in the semiconductor market, could adversely affect our growth, increase costs, and adversely affect our financial results.
We have been informed that certain FPGAs and discrete components used in our products are being discontinued by the manufacturers. We also rely on third-party manufacturers to produce our custom ASICs. We have made considerable investments to develop our proprietary ASICs and our smart vision solutions depend on them. While we are working with our third-party manufacturers to minimize the impact of shortages, we expect that these supply chain shortages will have a near-term impact on our ability to meet increased demand for certain products and have a negative impact on our operating results if we are not successful in locating alternate supplies, particularly for the discontinued FPGAs, or if the shortages continue. If third-party manufacturers of FPGAs or of our custom ASICs experience interruptions, delays, or disruptions in supplying these components or if there are work stoppages, production delays or facility closures due to the COVID-19 pandemic, our ability to ship our smart vision solutions will be delayed and we may be unable to meet customer demand.
Our products must meet demanding technical and quality specifications. Defects, errors or interoperability issues with our products, the failure of our products to operate as expected, or undue difficulty in deploying our products in actual operations could affect our reputation, result in significant costs to us and impair our ability to sell our products.
Our products must meet demanding customer specifications for quality, reliability and performance. Our customers may discover errors, defects or incompatibilities in our products, including after deploying them. We also may have difficulty identifying and correcting the problems when third parties are combining, incorporating or assembling our products.
If we are unable to fix errors or other problems, we could experience:
•loss of customers;
•loss of market share;
•damage to our brand and reputation;
•increased service costs;
•replacement costs;
•increased insurance costs; and
•inability to achieve market acceptance.
Given the technical and business requirements against which end users evaluate our products, our business results and prospects could suffer if we are unable to produce our products with consistent quality and reliability.Although our agreements typically contain provisions that purport to limit our liability for damages resulting from defects in our products, such limitations and disclaimers may not be enforceable or otherwise effectively protect us from claims. We may be required to indemnify our customers against liabilities arising from defects in our products or in their solutions that incorporate our products. These liabilities may also include costs incurred by our channel partners or end users to correct problems or replace our products.
The costs we incur correcting product defects or errors may be substantial and could adversely affect our operating results. Although we test our products for defects or errors prior to product release and during production, our customers still occasionally catch defects or errors that we miss. Such defects or errors have occurred in the past and may occur in the future. To the extent product failures are material, they could adversely affect our business, operating results, customer relationships, reputation and prospects.Compatibility issues between our products and the protocol, or among different products that nominally conform to the protocol, could disrupt our customers’ operations, hurt our customer relations and materially adversely affect our business and prospects.
Our transition to an outsourced manufacturing business model may not be successful, which could harm our ability to deliver products and recognize revenue.
We are transitioning from a manufacturing model in which we primarily manufactured and assembled our products at our California location, to one where we rely on third-party manufacturers. We currently have agreements with strategic partners to provide contract manufacturing of certain of our products. We believe the use of third-party manufacturers will have benefits, but in the near term, while we are beginning manufacturing with new partners, we may lose revenue, incur increased costs and harm our customer relationships.
Our ASICs may have defects or other issues if our third-party manufacturers have quality control or other problems in their operations. These defects may delay our ability to fulfill customer orders, which would have a negative effect on our brand and operating results. If we need to change manufacturers of our ASICs for any reason, we cannot guarantee that we will be able to find a replacement manufacturer willing to produce our custom ASICs at a price it deems appropriate, or at all.
Reliance on third-party manufacturers reduces our control over the manufacturing process, including reduced control over quality, product costs and product supply and timing. For example, in the second half of 2021 we experienced capacity constraints as we worked with our third-party manufacturers to overcome component constraints in the supply chain and increase production, and as a result of the semiconductor shortage, we expect this trend to continue in the near term. We may experience delays in shipments or issues concerning product quality from our third-party manufacturers. If any of our third-party manufacturers experience interruptions, delays or disruptions in supplying our products, including by natural disasters, the global COVID-19 pandemic or work stoppages or capacity constraints, our ability to ship products to distributors and customers would be delayed. The COVID-19 pandemic has caused interruptions in our manufacturing operations and production delays. For example, our personnel have not been able to travel to Thailand to meet with a key manufacturing partner. Additionally, if any of our third-party manufacturers experience quality control problems in their manufacturing operations and our products do not meet customer or regulatory requirements, we could be required to cover the cost of repair or replacement of any defective products. These delays or product quality issues could have an immediate and material adverse effect on our ability to fulfill orders and could have a negative effect on our operating results. In addition, such delays or issues with product quality could adversely affect our reputation and our relationship with our channel partners. If third-party manufacturers experience financial, operational, manufacturing capacity or other difficulties, or experience shortages in required components, or if they are otherwise unable or unwilling to continue to manufacture our products in required volumes or at all, our supply may be disrupted, we may be required to seek alternate manufacturers and we may be required to re-design our products. It would be time-consuming, and could be costly and impracticable, to begin to use new manufacturers and designs and such changes could cause significant interruptions in supply and could have an adverse effect on our ability to meet our scheduled product deliveries and may subsequently lead to the loss of sales. While we take measures to protect our trade secrets, the use of third-party manufacturers may also risk disclosure of our innovative and proprietary manufacturing methodologies, which could adversely affect our business.
We operate in a highly competitive market and some market participants have substantially greater resources. We compete against a large number of both established competitors and new market entrants.
The markets for sensing technology applicable to autonomous and other solutions across numerous industries are highly competitive. We compete against a large number of companies, including established competitors and new market entrants, in all of the markets we serve. Our future success will depend on our ability to continue to develop and protect from infringement of our advanced lidar technology in a timely manner and to stay ahead of existing and new competitors. Our competitors are numerous and they compete with us directly by offering lidar products and indirectly by attempting to solve some of the same challenges with different technology. We face competition from camera and radar companies, other developers of lidar products, Tier 1 suppliers and other technology and automotive supply companies, some of which have significantly greater resources than we do. Today, we believe there are more than 50 such companies including Luminar, Innoviz, Ouster, Aeva, AEye, Valeo, Hesai, Robosense, Quanergy, Cepton and others, as well as from many lower-end lidar offerings. In the automotive market, our competitors have commercialized non-lidar-based ADAS technology which has achieved market adoption, strong brand recognition and may continue to improve. Other competitors are working towards commercializing autonomous driving technology and either by themselves, or with a publicly announced partner, have substantial financial, marketing, research and development and other resources. Some of our customers in the autonomous vehicle and ADAS markets have announced development efforts or made acquisitions directed at creating their own lidar-based or other sensing technologies, which would compete with our smart vision solutions. We do not know how close these competitors are to commercializing autonomous driving systems or novel ADAS applications. In markets outside of the automotive industry, our competitors, like Velodyne, seek to develop new sensing applications across industries. Even in these emerging markets, we face substantial competition from numerous competitors seeking to prove the value of their technology. Additionally, increased competition may result in pricing pressure and reduced margins and may impede our ability to increase the sales of our products or cause it to lose market share, any of which will adversely affect our business, results of operations and financial condition.
Because our sales have been primarily to customers making purchases for research and development projects and our orders are project-based, we expect our results of operations to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
Our quarterly results of operations have fluctuated in the past and may vary significantly in the future, and our revenue has declined in three consecutive fiscal years. As such, historical comparisons of our operating results may not be meaningful. In particular, because our sales to date have primarily been to customers making purchases for research and development, sales in any given quarter can fluctuate based on the timing and success of our customers’ development projects. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control and may not fully reflect the underlying performance of our business. These fluctuations could adversely affect our ability to meet our expectations or those of securities analysts or investors. If we do not meet these expectations for any period, the value of our business and our stock price could fluctuate or decline significantly. Factors that may cause these quarterly fluctuations include, without limitation, those listed below:
•The timing and magnitude of orders and shipments of our products in any quarter.
•Pricing changes we may adopt to drive market adoption or in response to competitive pressure.
•Our ability to retain our existing customers and attract new customers.
•The duration of the global COVID-19 pandemic and the time it takes for economic recovery.
•Our ability to develop, introduce, manufacture and ship in a timely manner products that meet customer requirements.
•Disruptions in our sales channels or termination of our relationship with important channel partners.
•Delays in customers’ purchasing cycles or deferments of customers’ purchases in anticipation of new products or updates from us or our competitors.
•Fluctuations in demand for our products.
•The mix of products sold in any quarter.
•The timing and rate of broader market adoption of autonomous systems utilizing our smart vision solutions across the automotive and other market sectors.
•Market acceptance of lidar and further technological advancements by our competitors and other market participants.
•The ability of our customers to commercialize systems that incorporate our products.
•Any change in the competitive dynamics of our markets, including consolidation of competitors, regulatory developments and new market entrants.
•Our ability to effectively manage our inventory.
•Changes in the source, cost, availability of and regulations pertaining to materials we use.
•Adverse litigation, judgments, settlements or other litigation-related costs, or claims that may give rise to such costs.
•General economic, industry and market conditions, including trade disputes.
Our business could be materially and adversely affected by the current global COVID-19 pandemic.
The COVID-19 pandemic has disrupted and affected our business. We have a global customer base operating in a wide range of industries that has been impacted in different ways by the pandemic. We also depend on suppliers and manufacturers worldwide. Depending upon the underwriters’ electionduration of the pandemic, the associated business interruptions and the recovery, our customers, suppliers, manufacturers and partners may suspend or delay their engagement with us. If the pandemic worsens, if the economic recovery is delayed or if there are further business interruptions or changes in customer purchasing behavior, our business, results of operations and ability to partiallyraise capital may be materially and adversely affected. Our response to the COVID-19 pandemic may prove to be inadequate and we may be unable to continue our operations in the manner it had prior to the outbreak, and may endure further interruptions, reputational harm, delays in our product development and shipments, all of which could have an adverse effect on our business, operating results, and financial condition. In addition, when the
pandemic subsides, we cannot assure you as to the timing of any economic recovery, which could continue to have a material adverse effect on our target markets and our business.
Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
While we make our strategic planning decisions based on the assumption that the markets we are targeting will grow, our business is dependent, in large part on, and directly affected by, business cycles and other factors affecting the global automobile industry and global economy generally. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rates and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements, and political volatility, especially in energy-producing countries and growth markets. In addition, automotive production and sales can be affected by our automotive OEM customers’ ability to continue operating in response to challenging economic conditions and in response to labor relations issues, regulatory requirements, trade agreements and other factors. The volume of automotive production in North America, Europe and the rest of the world has fluctuated, sometimes significantly, from year to year, and we expect such fluctuations to give rise to fluctuations in the demand for our products. Any significant adverse change in any of these factors may result in a reduction in automotive sales and production by our automotive OEM customers and could have a material adverse effect on our business, results of operations and financial condition.
Although we believe that lidar is the industry standard for autonomous vehicles and other emerging markets, market adoption of lidar is uncertain. If market adoption of lidar does not continue to develop, or develops more slowly than we expect, our business will be adversely affected.
While our lidar-based smart vision solutions can be applied to different use cases across end markets, approximately 72% of our revenue during the three months ended March 31, 2022, 34% and 57% of our revenue for 2021 and 2020, respectively, was generated from automotive applications. Despite the fact that the automotive industry has engaged in considerable effort to research and test lidar products for ADAS and autonomous driving applications, the automotive industry may not introduce lidar products in commercially available vehicles. We continually study emerging and competing sensing technologies and methodologies and we may add new sensing technologies such as radar and cameras to our offering to, for example, address lidar’s relative deficiencies in detecting colors and low reflectivity objects and performing in extreme weather conditions. However, lidar products remain relatively new and it is possible that other sensing modalities, or a new disruptive modality based on new or existing technology, including a combination of technology, will achieve acceptance or leadership in the ADAS and autonomous driving industries. Even if lidar products are used in initial generations of autonomous driving technology and certain ADAS products, we cannot guarantee that lidar products will be designed into or included in subsequent generations of such commercialized technology. In addition, we expect that initial generations of autonomous vehicles will be focused on limited applications, such as robo-taxis, and that mass market adoption of autonomous technology may lag behind these initial applications significantly. The speed of market growth for ADAS or autonomous vehicles is difficult if not impossible to predict, and it is more difficult to predict this market’s future growth in light of the economic consequences of the COVID-19 pandemic. By the time mass market adoption of autonomous vehicle technology is achieved, we expect competition among providers of sensing technology based on lidar and other modalities to increase substantially. If commercialization of lidar products is not successful, or not as successful as we or the market expects, or if other sensing modalities gain acceptance by developers of autonomous driving systems or ADAS, automotive OEMs, regulators and safety organizations or other market participants by the time autonomous vehicle technology achieves mass market adoption, our business, results of operations and financial condition will be materially and adversely affected.
We are investing in and pursuing market opportunities outside of the automotive markets, including in UAVs, self-driving rovers, industrial and security robots, mapping applications for topography and surveying and smart city initiatives. We believe that our future revenue growth, if any, will depend in part on our ability to expand within new markets such as these and to enter new markets as they emerge. Each of these markets presents distinct risks and, in many cases, requires us to address the particular requirements of that market.
Addressing these requirements can be time-consuming and costly. The market for lidar technology outside of automotive applications is relatively new, rapidly developing and unproven in many markets or industries. Many of our customers outside of the automotive industry are still in the testing and development phases and it cannot be certain that they will commercialize products or systems with our lidar products or at all. We cannot be certain that lidar will be sold into these markets, or any market outside of automotive market, at scale. Adoption of lidar products, including our products, outside of
the automotive industry will depend on numerous factors, including: whether the technological capabilities of lidar and lidar- based products meet users’ current or anticipated needs, whether the benefits of designing lidar into larger sensing systems outweigh the costs, complexity and time needed to deploy such technology or replace or modify existing systems that may have used other modalities such as cameras and radar, whether users in other applications can move beyond the testing and development phases and proceed to commercializing systems supported by lidar technology and whether lidar developers such as Velodyne can keep pace with rapid technological change in certain developing markets and the global response to the COVID-19 pandemic and the length of any associated work stoppages. If lidar technology does not achieve commercial success outside of the automotive industry, or if the market develops at a pace slower than we expect, our business, results of operation and financial condition will be materially and adversely affected.
Our investments in educating our customers and potential customers about the advantages of lidar and our applications may not result in sales of our products.
Educating our prospective customers, and to a lesser extent, our existing customers, about lidar, our advantages over other sensing technologies and lidar’s ability to convey value in different industries and deployments is an integral part of developing new business and the lidar market generally. If prospective customers have a negative perception of, or experience with, lidar or a competitor’s lidar products they may be reluctant to adopt lidar in general or specifically our products. Adverse statements about lidar by influential market participants may also deter adoption. Some of our competitors have significant financial or marketing resources that may allow them to engage in public marketing campaigns about their alternative technology, lidar or our solutions. Our efforts to educate potential customers and the market generally and to counter any adverse statements made by competitors or other market participants will require significant financial and personnel resources. These educational efforts may not be successful and we may not offset the costs of such efforts with revenue from the new customers. If we are unable to acquire new customers to offset these expenses or if the market accepts such adverse statements, our financial condition will be adversely affected.
The markets in which we compete are characterized by rapid technological change, which requires us to continue to develop new products and product innovations, and could adversely affect market adoption of our products.
While we intend to invest substantial resources to remain on the forefront of technological development, continuing technological changes in sensing technology, lidar and the markets for these products, including the ADAS and autonomous driving industries, could adversely affect adoption of lidar and/or our products, either generally or for particular applications. Our future success will depend upon our ability to develop and introduce a variety of new capabilities and innovations to our existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the markets in which we offer our products. For example, we are currently working on developing our Vella software, which is a data curation software platform, as well as several other new lidar products. We cannot guarantee that the Vella software or the new products will be released in a timely manner, or at all, or achieve market acceptance. For example, in 2019 we experienced delays in acceptance of certain of our new lidar products as it worked with our customers to identify, define and meet product requirements, and we may be unable to sell these or future products at scale until these issues are resolved. Delays in delivering new products that meet customer requirements could damage our relationships with customers and lead them to seek alternative sources of supply. In addition, our success to date has been based on the delivery of our smart vision solutions to research and development programs in which developers are investing substantial capital to develop new systems. Our continued success relies on the success of the research and development phase of these customers as they expand into commercialized projects. While some customers already have achieved commercialization, most of our automotive customers are just beginning on the path to commercialization. As autonomous technology reaches the stage of large scale commercialization we will be required to develop and deliver smart vision solutions at price points that enable wider and ultimately mass-market adoption. Delays in introducing products and innovations, the failure to choose correctly among technical alternatives or the failure to offer innovative products or configurations at competitive prices may cause existing and potential customers to purchase our competitors’ products or turn to alternative sensing technology.
If we are unable to devote adequate resources to develop products or cannot otherwise successfully develop products or system configurations that meet customer requirements on a timely basis or that remain competitive with technological alternatives, our products could lose market share, our revenue will decline, we may experience operating losses and our business and prospects will be adversely affected.
We expect to incur substantial research and development costs and devote significant resources to identifying and commercializing new products, which could significantly reduce our profitability and may never result in revenue to us.
Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve market acceptance. We plan to incur substantial and potentially increasing, research and development costs as part of our efforts to design, develop, manufacture and commercialize new products and enhance existing products. Our research and development expenses were $21.3 million during the three months ended March 31, 2022, $77.9 million and $88.1 million during 2021 and 2020, respectively, and are likely to grow in the future. Because we account for research and development as an operating expense, these expenditures will adversely affect our results to operations in the future. Further, our research and development program may not produce successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.
As part of growing our business, we may make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business, results of operations and financial condition could be materially adversely affected and our stock price could decline.
From time to time, we may undertake acquisitions to add new products and technologies, acquire talent, gain new sales channels or enter into new markets or sales territories. Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business and our key personnel, entering into new territories or markets with which we have limited or no prior experience, establishing or maintaining business relationships with new customers, channel partners, vendors and suppliers, unexpected liabilities and potential post-closing disputes.
To date, we have limited experience with acquisitions and the integration of acquired technology and personnel. Failure to successfully identify, complete, manage and integrate acquisitions could materially and adversely affect our business, financial condition and results of operations and could cause our stock price to decline.
We may need to raise additional capital in the future in order to execute our business plan, which may not be available on terms acceptable to us, or at all.
In the future, we may require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and we may determine to engage in equity or debt financings or enter into credit facilities for other reasons. In order to further business relationships with current or potential customers or partners, we may issue equity or equity-linked securities to such current or potential customers or partners. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity- linked securities or if it issues equity or equity-linked securities to current or potential customers to further business relationships, our existing stockholders could experience significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
We currently have and target many customers that are large corporations with substantial negotiating power, exacting product standards and potentially competitive internal solutions. If we are unable to sell our products to these customers, our prospects and results of operations will be adversely affected.
Many of our customers and potential customers are large, multinational corporations with substantial negotiating power relative to us and, in some instances, may have internal solutions that are competitive to our products. These large, multinational corporations also have significant development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies. Meeting the technical requirements and securing design wins with any of these companies will require a substantial investment of our time and resources. We cannot assure you that our products will secure design wins from these or other companies or that we will generate meaningful revenue from the sales of our products to these key potential customers. If our products are not selected by these large corporations or if these corporations develop or acquire competitive technology, it will have an adverse effect on our business.
If our lidar products are not selected for inclusion in autonomous driving systems or ADAS by automotive OEMs or their suppliers, our business will be materially and adversely affected.
Automotive OEMs and their suppliers design and develop autonomous driving and ADAS technology over several years. These automotive OEMs and suppliers undertake extensive testing or qualification processes prior to placing orders for large quantities of products because our lidar products will function as part of a larger system or platform and must meet certain other specifications. We spend significant time and resources to have our products selected by automotive OEMs and their suppliers, which is known as a design win. In the case of autonomous driving and ADAS technology, a design win means our lidar product has been selected for use in a particular vehicle model. If we do not achieve a design win with respect to a particular vehicle model, we may not have an opportunity to supply our products to the automotive OEM for that vehicle model for a period of many years. In many cases, this period can be as long as five to seven or more years. If our products are not selected by an automotive OEM or our suppliers for one vehicle model or if our products are not successful in that vehicle model, it is unlikely that our product will be deployed in other vehicle models of that OEM. If we fail to win a significant number of vehicle models from one or more of automotive OEMs or their suppliers, our business, results of operations and financial condition will be materially and adversely affected.
The discontinuation, lack of commercial success, or loss of business with respect to a particular vehicle model or technology package for which we are a significant supplier could reduce our sales and adversely affect our profitability.
If we are able to secure design wins and our smart vision solutions are included in these autonomous driving and ADAS products, we expect to enter into supply agreements with the relevant customer. Market practice dictates that these supply agreements typically require us to supply a customer’s requirements for a particular vehicle model or autonomous driving or ADAS product, rather than supply a set number of products. These contracts can have short terms and/or can be subject to renegotiation, sometimes as frequently as annually, all of which may affect product pricing, and may be terminated by our customers at any time. Therefore, even if we are successful in obtaining design wins and the systems into which our products are built are commercialized, the discontinuation of, the loss of business with respect to, or a lack of commercial success of a particular vehicle model or technology package for which we are a significant supplier could mean that the expected sales of our products will not materialize, materially and adversely affecting our business.
Continued pricing pressures, automotive OEM cost reduction initiatives and the ability of automotive OEMs to re-source or cancel vehicle or technology programs may result in lower than anticipated margins, or losses, which may adversely affect our business.
Cost-cutting initiatives adopted by our customers often result in increased downward pressure on pricing. We expect that our agreements with automotive OEMs may require step-downs in pricing over the term of the agreement or, if commercialized, over the period of production. In addition, our automotive OEM customers often reserve the right to terminate their supply contracts for convenience, which enhances their ability to obtain price reductions. Automotive OEMs also possess significant leverage over their suppliers, including us, because the automotive component supply industry is highly competitive, serves a limited number of customers and has a high fixed cost base. Accordingly, we expect to be subject to substantial continuing pressure from automotive OEMs and Tier 1 suppliers to reduce the price of our products. It is possible that pricing pressures beyond our expectations could intensify as automotive OEMs pursue restructuring, consolidation and cost- cutting initiatives. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability would be adversely affected.
Our business could be materially and adversely affected if we lost any of our largest customers or if they were unable to pay their invoices.
Although we have and continue to pursue a broad customer base, we are dependent on a collection of large customers with strong purchasing power. In the three months ended March 31, 2022, year 2021 and 2020, our top 20 customers represented 152%, 79% and 81% of our revenue, respectively. There were five, two and two customers that each accounted for more than 10% of our revenue in the three months ended March 31, 2022, year 2021 and 2020, respectively. The loss of business from any of our major customers (whether by lower overall demand for our products, cancellation of existing contracts or product orders or the failure to design in our products or award us new business) could have a material adverse effect on our business.
To the extent autonomous vehicle and ADAS systems become accepted by major automotive OEMs, we expect that we will rely increasingly for our revenue on Tier 1 suppliers through which automotive OEMs procure components. We expect
that these Tier 1 suppliers will be responsible for certain hardpoint and software configuration activities specific to each OEM, and they may not exclusively carry our smart vision solutions.
There is also a risk that one or more of our major customers could be unable to pay our invoices as they become due or that a customer will simply refuse to make such payments if it experiences financial difficulties. If a major customer were to enter into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, we could be forced to record a substantial loss.
The period of time from a design win to implementation is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation.
Prospective customers, including those in the automotive industry, generally must make significant commitments of resources to test and validate our products and confirm that they can integrate with other technologies before including them in any particular system, product or model. The development cycles of our products with new customers varies widely depending on the application, market, customer and the complexity of the product. In the automotive market, for example, this development cycle can be five to seven or more years. The development cycle in certain other markets can be months to one or two years. These development cycles result in us investing our resources prior to realizing any revenue from the commercialization. Further, we are subject to the risk that customers cancel or postpone implementation of our technology, as well as that we will not be able to integrate our technology successfully into a larger system with other sensing modalities. Further, our revenue could be less than forecasted if the system, product or vehicle model that includes our lidar products is unsuccessful, including for reasons unrelated to our technology. Long development cycles and product cancellations or postponements may adversely affect our business, results of operations and financial condition.
The complexity of our products could result in unforeseen delays or expenses from undetected defects, errors or bugs in hardware or software which could reduce the market adoption of our new products, damage our reputation with current or prospective customers, result in product returns or expose us to product liability and other claims and adversely affect our operating costs.
Our products are highly technical and very complex and require high standards to manufacture. These products have in the past and will likely in the future experience defects, errors or bugs at various stages of development. We may be unable to timely release new products, manufacture existing products, correct problems that have arisen or correct such problems to our customers’ satisfaction. Additionally, undetected errors, defects or security vulnerabilities, especially as new products are introduced or as new versions are released, could result in serious injury to the end users of technology incorporating our products, or those in the surrounding area; our customers never being able to commercialize technology incorporating our products; litigation against us; negative publicity and other consequences. These risks are particularly prevalent in the highly competitive autonomous driving and ADAS markets. Some errors or defects in our products may only be discovered after they have been tested, commercialized and deployed by customers. If that is the case, we may incur significant additional development costs and product recall, repair or replacement costs. Furthermore, we could also experience higher levels of product returns in such cases, which could adversely affect our financial results in a particular quarter. These problems may also result in claims against us by our customers or others. Our reputation or brand may be damaged as a result of these problems and customers may be reluctant to buy our products, which could adversely affect our ability to retain existing customers and attract new customers, and could adversely affect our financial results.
In addition, we could face material legal claims for breach of contract, product liability, tort or breach of warranty as a result of these problems. Defending a lawsuit, regardless of its merit, could be costly and may divert management’s attention and adversely affect the market’s perception of Velodyne and our products. In addition, our business liability insurance coverage could prove inadequate with respect to a claim and future coverage may be unavailable on acceptable terms or at all. These product-related issues could result in claims against us and our business could be adversely affected.
If we do not maintain sufficient inventory or if we do not adequately manage our inventory, we could lose sales or incur higher inventory-related expenses, which could negatively affect our operating results.
To ensure adequate inventory supply, we must forecast inventory needs and expenses, place orders sufficiently in advance with our suppliers and manufacturing partners and manufacture products based on our estimates of future demand for particular products. Fluctuations in the adoption of lidar products may affect our ability to forecast our future operating results, including revenue, gross margins, cash flows and profitability. Our ability to accurately forecast demand for our products could be affected by many factors, including the rapidly changing nature of the markets in which we operate,
including the autonomous driving, ADAS and mapping markets, the uncertainty surrounding the market acceptance and commercialization of lidar technology, the emergence of new markets, an increase or decrease in customer demand for our products or for products and services of our competitors, product introductions by competitors, the COVID-19 pandemic and any associated work stoppages or interruptions, unanticipated changes in general market conditions and the weakening of economic conditions or consumer confidence in future economic conditions. If our lidar products are commercialized in autonomous driving, ADAS or other applications experiencing rapid growth in demand, we may face challenges acquiring adequate supplies to manufacture our products and/or we and our manufacturing partners may not be able to manufacture our products at a rate necessary to satisfy the levels of demand, which would negatively affect our revenue. This risk may be exacerbated by the fact that we may not carry or be able to obtain for our manufacturers a significant amount of inventory to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would adversely affect our financial results, including our gross margin, and have a negative effect on our brand. Conversely, if we underestimate customer demand for our products, we, or our manufacturing partners, may not be able to deliver products to meet our requirements, and this could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.
We rely on third-party suppliers and because some of the raw materials and key components in our products come from limited or sole sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain and could delay deliveries of our products to customers.
All of the components that go into the manufacture of our smart vision solutions are sourced from third-party suppliers. To date, we have produced our products in relatively limited quantities for use in research and development programs. We do not have any experience in managing our supply chain to manufacture and deliver our products at scale. Some of the key components used to manufacture our products come from limited or sole sources of supply. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. We have a global supply chain and the COVID-19 pandemic may adversely affect our ability to source components in a timely or cost effective manner from our third-party suppliers due to, among other things, work stoppages or interruptions. For example, our products depend on lasers and we currently consume a substantial portion of the available market. Any shortage of these lasers could materially and adversely affect our ability to manufacture our smart vision solutions. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. We have in the past experienced and may in the future experience component shortages and price fluctuations of certain key components and materials, and the predictability of the availability and pricing of these components may be limited. Component shortages or pricing fluctuations could be material in the future. In the event of a component shortage, supply interruption or material pricing change from suppliers of these components, we may not be able to develop alternate sources in a timely manner or at all in the case of sole or limited sources. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to meet our requirements or to fill customer orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would adversely affect our ability to meet our scheduled product deliveries to our customers. This could adversely affect our relationships with our customers and channel partners and could cause delays in shipment of our products and adversely affect our operating results. In addition, increased component costs could result in lower gross margins. Even where we are able to pass increased component costs along to our customers, there may be a lapse of time before we are able to do so such that we must absorb the increased cost. If we are unable to buy these components in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver products to our customers, which may result in such customers using competitive products instead of Velodyne’s.
The average selling prices of our products could decrease rapidly over the life of the product, which may negatively affect our revenue and gross margin.
We have substantially reduced the price of certain of our products to accelerate market adoption and solidify our position as a market leader. We expect the average selling prices of our products generally to continue to decline as our customers seek to commercialize autonomous systems at prices low enough to achieve market acceptance. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we will need to continually reduce product and manufacturing costs. To manage manufacturing costs, we must engineer the most cost-effective design for our products.
In addition, we continuously drive initiatives to reduce labor cost, improve worker efficiency, reduce the cost of materials, use fewer materials and further lower overall product costs by carefully managing component prices, inventory and shipping cost.
We also need to continually introduce new products with higher sales prices and gross margin in order to maintain our overall gross margin. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margin, our revenue and overall gross margin would likely decline.
Changes in our product mix may impact our financial performance.
Our financial performance can be affected by the mix of products it sells during a given period. If our sales include more of the lower gross margin products than higher gross margin products, our results of operations and financial condition may be adversely affected. There can be no guarantees that we will be able to successfully alter our product mix so that we are selling more of our high gross margin products. If actual results vary from this projected product mix of sales, our results of operations and financial condition could be adversely affected.
Our management team has limited experience managing a public company.
Many of the members of our management team have limited experience managing a publicly- traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Additionally, many members of our management team were recently hired or assumed new roles. Our management team may not successfully or efficiently manage their new roles and responsibilities, our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. In addition, we will need to implement and continue to operationalize many of the policies and controls needed to operate as a public company. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.
We may experience difficulties in managing our growth and expanding our operations.
We expect to experience significant growth in the scope and nature of our operations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, compliance programs and reporting systems. We are currently in the process of strengthening our compliance programs, including our compliance programs related to export controls, privacy and cybersecurity and anti-corruption, as well as controls related to human resources. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in existing controls, programs, systems and procedures, which could have an adverse effect on our business, reputation and financial results.
Our sales and operations in international markets expose us to operational, financial and regulatory risks.
International sales comprise a significant amount of our overall revenue. Sales to international customers accounted for 123%, 65% and 66% of our revenue during the three months ended March 31, 2022, year 2021 and 2020, respectively. We are committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful. International operations are subject to a number of other risks, including:
•Exchange rate fluctuations.
•Political and economic instability (including an outbreak or escalation of a regional conflict, such as the current situation in Ukraine) , international terrorism and anti-American sentiment, particularly in emerging markets.
•Global or regional health crises, such as the COVID-19 pandemic.
•Potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud.
•Preference for locally branded products, and laws and business practices favoring local competition.
•Potential consequences of, and uncertainty related to, the “Brexit” process in the United Kingdom, which could lead to additional expense and complexity in doing business there.
•Increased difficulty in managing inventory.
•Delayed revenue recognition.
•Less effective protection of intellectual property.
•Stringent regulation of the autonomous or other systems or products using our products and stringent consumer protection and product compliance regulations, including but not limited to General Data Protection Regulation in the European Union, European competition law, the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive that are costly to comply with and may vary from country to country.
•Difficulties and costs of staffing and managing foreign operations.
•Import and export laws and the impact of tariffs.
•Changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws.
The occurrence of any of these risks could negatively affect our international business and consequently our business, operating results and financial condition.
Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, global pandemics, and interruptions by man-made problems, such as network security breaches, computer viruses or terrorism. Material disruptions of our business or information systems resulting from these events could adversely affect our operating results.
A significant natural disaster, such as an earthquake, fire, flood or significant power outage or other similar events, such as infectious disease outbreaks or pandemic events, including the COVID-19 pandemic, could have an adverse effect on our business and operating results. The COVID-19 pandemic has produced meaningful operational challenges and we expect to continue to experience disruptions in our business during 2021. COVID-19 has heightened many of the other risks described herein, such as the demand for our products, our ability to achieve or maintain profitability and our ability to raise additional capital in the future. Despite the implementation of network security measures, our networks and lidar products also may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our solutions. Both our corporate headquarters and manufacturing facility are located in the San Francisco Bay Area, a region known for seismic activity. In addition, natural disasters, acts of terrorism or war could cause disruptions in our remaining manufacturing operations, our or our customers’ or channel partners’ businesses, our suppliers’ or the economy as a whole. We also rely on information technology systems to communicate among our workforce and with third parties. Any disruption to our communications, whether caused by a natural disaster or by manmade problems, such as power disruptions, could adversely affect our business. We do not have a formal disaster recovery plan or policy in place and does not currently require that our suppliers’ partners have such plans or policies in place. To the extent that any such disruptions result in delays or cancellations of orders or impede our suppliers’ ability to timely deliver product components, or the deployment of our products, our business, operating results and financial condition would be adversely affected.
Risks Related to Legal and Regulatory Matters
Changes to trade policy, tariffs and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.
Changes in global political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently purchase our components, sell our products or conduct our business could adversely affect our business. The U.S. has recently instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the United States and other countries where we conduct our business. A number of other nations have proposed or instituted similar measures directed at trade with the U.S. in response. As a result of these developments, there may be greater restrictions and economic disincentives on international trade that could adversely affect our business. For example, such changes could adversely affect the automotive market, our ability to access key components or raw materials needed to manufacture our products (including, but not limited to, rare-earth metals), our ability to sell our products to customers outside of the U.S. and the demand for our products. It may be time-consuming and expensive for us to alter our
business operations to adapt to or comply with any such changes, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We have in the past and may become involved in legal and regulatory proceedings and commercial or contractual disputes, which could have an adverse effect on our profitability and consolidated financial position.
We may be, from time to time, involved in litigation, regulatory proceedings and commercial or contractual disputes that may be significant. These matters may include, without limitation, disputes with our suppliers and customers, intellectual property claims, stockholder litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, customs and VAT disputes and employment and tax issues. In addition, we have in the past and could face in the future a variety of labor and employment claims against it, which could include but is not limited to general discrimination, wage and hour, privacy, ERISA or disability claims. In such matters, government agencies or private parties may seek to recover from us very large, indeterminate amounts in penalties or monetary damages (including, in some cases, treble or punitive damages) or seek to limit our operations in some way. These types of lawsuits could require significant management time and attention or could involve substantial legal liability, adverse regulatory outcomes, and/or substantial expenses to defend. Often these cases raise complex factual and legal issues and create risks and uncertainties. No assurances can be given that any proceedings and claims will not have a material adverse impact on our operating results and consolidated financial position or that our established reserves or our available insurance will mitigate this impact.
We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution and sale of our products. Some of our customers also require that we comply with their own unique requirements relating to these matters.
We manufacture and sell products that contain electronic components, and such components may contain materials that are subject to government regulation in both the locations where we manufacture and assemble our products, as well as the locations where we sell our products. For example, certain regulations limit the use of lead in electronic components. Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. If there is an unanticipated new regulation that significantly impacts our use of various components or requires more expensive components, that regulation could materially adversely affect our business, results of operations and financial condition.
Our products are also used for autonomous driving and ADAS applications, which are subject to complicated regulatory schemes that vary from jurisdiction to jurisdiction. These are rapidly evolving areas where new regulations could impose limitations on the use of lidar generally or our products specifically. If we fail to adhere to these new regulations or fails to continually monitor the updates, we may be subject to litigation, loss of customers or negative publicity and our business, results of operations and financial condition will be adversely affected.
Concerns over environmental pollution and climate change have produced significant legislative and regulatory efforts on a global basis, and we believe this will continue both in scope and in the number of countries participating. These changes could directly increase the cost of energy, which may have an effect on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials or key components we use in our products. Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in required recovery and recycling of our products. We are unable to predict how any future changes will impact it and if such impacts will be material to our business.
We are subject to, and must maintain compliance with, the regulatory requirements under the Federal Food, Drug, and Cosmetic Act or the Food and Drug Administration (FDA).
As a lidar technology company, we are subject to the Electronic Product Radiation Control Provisions of the Federal Food, Drug, and Cosmetic Act. These requirements are enforced by the FDA. Electronic product radiation includes laser technology. Regulations governing these products are intended to protect the public from hazardous or unnecessary exposure, including eye safety. Manufacturers are required to certify in product labeling and in reports to the FDA that their products comply with applicable performance standards as well as maintain manufacturing, testing, and distribution records for their products. Failure to comply with these requirements could result in enforcement action by the FDA, which could require us to cease distribution of our products, recall or remediate products already distributed to customers, or subject us to FDA enforcement.
Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market.
Government vehicle safety regulations are an important factor for our business. Historically, these regulations have imposed ever-more stringent safety regulations for vehicles. These safety regulations often require, or customers demand that, vehicles have more safety features per vehicle and more advanced safety products.
While we believe increasing automotive safety standards may present a market opportunity for our products, government safety regulations are subject to change based on a number of factors that are not within our control, including new scientific or technological data, adverse publicity regarding the industry recalls and safety risks of autonomous driving and ADAS, accidents involving our products, domestic and foreign political developments or considerations, and litigation relating to our products and our competitors’ products. Changes in government regulations, especially in the autonomous driving and ADAS industries could adversely affect our business. If government priorities shift and we are unable to adapt to changing regulations, our business may be materially and adversely affected.
Federal and local regulators impose more stringent compliance and reporting requirements in response to product recalls and safety issues in the automotive industry. As the cars that carry our sensors go into production, we are subject to existing stringent requirements under the National Traffic and Motor Vehicle Safety Act of 1966, or the Vehicle Safety Act, including a duty to report, subject to strict timing requirements, safety defects with our products. The Vehicle Safety Act imposes potentially significant civil penalties for violations including the failure to comply with such reporting actions. We are also subject to the existing U.S. Transportation Recall Enhancement, Accountability and Documentation Act, or TREAD, which requires equipment manufacturers, such as Velodyne, to comply with “Early Warning” requirements by reporting certain information to the NHTSA, such as information related to defects or reports of injury related to our products. TREAD imposes criminal liability for violating such requirements if a defect subsequently causes death or bodily injury. In addition, the National Traffic and Motor Vehicle Safety Act authorizes NHTSA to require a manufacturer to recall and repair vehicles that contain safety defects or fail to comply with U.S. federal motor vehicle safety standards. Sales into foreign countries may be subject to similar regulations. If we cannot rapidly address any safety concerns or defects with our products, our business, results of operations and financial condition may be adversely affected.
The U.S. Department of Transportation issued regulations in 2016 that require manufacturers of certain autonomous vehicles to provide documentation covering specific topics to regulators, such as how automated systems detect objects on the road, how information is displayed to drivers, what cybersecurity measures are in place and the methods used to test the design and validation of autonomous driving systems. As cars that carry our sensors go into production, the obligations of complying with safety regulations could increase and it could require increased resources and adversely affect our business.
Failures, or perceived failures, to comply with privacy, data protection, and information security requirements in the variety of jurisdictions in which we operate may adversely impact our business, and such legal requirements are evolving, uncertain and may require improvements in, or changes to, our policies and operations.
Our current and potential future operations and sales subject it to laws and regulations addressing privacy and the collection, use, storage, disclosure, transfer and protection of a variety of types of data. For example, the European Commission has adopted the General Data Protection Regulation and California recently enacted the California Consumer Privacy Act of 2018, both of which provide for potentially material penalties for non-compliance. These regimes may, among other things, impose data security requirements, disclosure requirements, and restrictions on data collection, uses, and sharing that may impact our operations and the development of our business. While, generally, we do not have access to, collect, store, process, or share information collected by our solutions unless our customers choose to proactively provide such information to us, our products may evolve both to address potential customer requirements and to add new features and functionality. Therefore, the full impact of these privacy regimes on our business is rapidly evolving across jurisdictions and remains uncertain at this time.
We may also be affected by cyber attacks and other means of gaining unauthorized access to our products, systems, and data. For instance, cyber criminals or insiders may target us or third-parties with which we have business relationships in an effort to obtain data, or in a manner that disrupts our operations or compromises our products or the systems into which our products are integrated.
We are assessing the continually evolving privacy and data security regimes and measures it believes are appropriate in response. Since these data security regimes are evolving, uncertain and complex, especially for a global business like ours,
we may need to update or enhance our compliance measures as our products, markets and customer demands further develop and these updates or enhancements may require implementation costs. The compliance measures we do adopt may prove ineffective. Any failure, or perceived failure, by us to comply with current and future regulatory or customer-driven privacy, data protection, and information security requirements, or to prevent or mitigate security breaches, cyber attacks, or improper access to, use of, or disclosure of data, or any security issues or cyber attacks affecting us, could result in significant liability, costs (including the costs of mitigation and recovery), and a material loss of revenue resulting from the adverse impact on our reputation and brand, loss of proprietary information and data, disruption to our business and relationships, and diminished ability to retain or attract customers and business partners. Such events may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity, and could cause customers and business partners to lose trust in us, which could have an adverse effect on our reputation and business.
Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.
We are subject to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, that will require it to determine, disclose and report whether our products contain conflict minerals. The implementation of these requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used in or necessary to the production of our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. It is also possible that our reputation may be adversely affected if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to alter our products, processes or sources of supply to avoid use of such materials.
We may be subject to product liability or warranty claims that could result in significant direct or indirect costs, which could adversely affect our business and operating results.
Our customers use our smart vision solutions in autonomous driving, ADAS and other applications that present the risk of significant injury, including fatalities. We may be subject to claims if a product using our lidar technology is involved in an accident and persons are injured or purport to be injured. Any insurance that we carry may not be sufficient or it may not apply to all situations. Similarly, our customers could be subjected to claims as a result of such accidents and bring legal claims against us to attempt to hold it liable. In addition, if lawmakers or governmental agencies were to determine that the use of our products or autonomous driving or certain ADAS increased the risk of injury to all or a subset of our customers, they may pass laws or adopt regulations that limit the use of our products or increase our liability associated with the use of our products or that regulate the use of or delay the deployment of autonomous driving and ADAS technology. Any of these events could adversely affect our brand, relationships with customers, operating results or financial condition.
We typically provide a limited-time warranty on our products. The occurrence of any material defects in our products could make us liable for damages and warranty claims. In addition, we could incur significant costs to correct any defects, warranty claims or other problems, including costs related to product recalls. Any negative publicity related to the perceived quality of our products could affect our brand image, partner and customer demand, and adversely affect our operating results and financial condition. Also, warranty, recall and product liability claims may result in litigation, the occurrence of which could be costly, lengthy and distracting and adversely affect our business and operating results.
Risks Related to Intellectual Property
Despite the actions we are taking to defend and protect our intellectual property, we may not be able to adequately protect or enforce our intellectual property rights or prevent unauthorized parties from copying or reverse engineering our solutions. Our efforts to protect and enforce our intellectual property rights and prevent third parties from violating our rights may be costly.
The success of our products and our business depends in part on our ability to obtain patents and other intellectual property rights and maintain adequate legal protection for our products in the United States and other international jurisdictions. We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We cannot assure you that any patents will be issued with respect to our currently pending patent applications or that any trademarks will be registered with respect to our currently pending applications in a manner that
gives us adequate defensive protection or competitive advantages, if at all, or that any patents issued to us or any trademarks registered by us will not be challenged, invalidated or circumvented. We have filed for patents and trademarks in the United States and in certain international jurisdictions, but such protections may not be available in all countries in which we operate or in which we seek to enforce our intellectual property rights, or may be difficult to enforce in practice. Our currently issued patents and trademarks and any patents and trademarks that may be issued or registered, as applicable, in the future with respect to pending or future applications may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to us or infringe our intellectual property.
Protecting against the unauthorized use of our intellectual property, products and other proprietary rights is expensive and difficult, particularly internationally. We believe that our patents are foundational in the area of lidar products and intends to enforce the intellectual property portfolio we have built over the years. Unauthorized parties may attempt to copy or reverse engineer our smart vision solutions or certain aspects of our solutions that it considers proprietary. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to prevent unauthorized parties from copying or reverse engineering our solutions, to determine the validity and scope of the proprietary rights of others or to block the importation of infringing products into the U.S.
For example, we recently achieved a favorable result in two proceedings before the U.S. Patent Trial and Appeal Board (“PTAB”) where the PTAB upheld the validity of our patent claims that were being challenged as unpatentable by one of our competitors. That decision was appealed to the Federal Circuit court, who upheld the validity of the patent. There is also litigation pending in the U.S. District Court for the Northern District of California, and we cannot guarantee a favorable outcome in the litigation.
Additionally, to protect our intellectual property, we filed patent infringement cases in August 2019 with the U.S. International Trade Commission (“ITC”) and the U.S. District Court for the Northern District of California against Hesai Photonics Technology Co., Ltd. (“Hesai”) and Suteng Innovation Technology Co., Ltd. (“RoboSense”). We resolved our disputes with Hesai in June 2020 and resolved our disputes with RoboSense in September 2020.
Any such litigation, whether initiated by us or a third party, could result in substantial costs and diversion of management resources, either of which could adversely affect our business, operating results and financial condition. Even if it obtains favorable outcomes in litigation, we may not be able to obtain adequate remedies, especially in the context of unauthorized parties copying or reverse engineering our smart vision solutions or certain aspects of our solutions that we consider proprietary. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights than we have. Attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. Effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our products are available and competitors based in other countries may sell infringing products in one or more markets. An inability to adequately protect and enforce our intellectual property and other proprietary rights or an inability to prevent authorized parties from copying or reverse engineering our smart vision solutions or certain aspects of our solutions that we consider proprietary could seriously adversely affect our business, operating results, financial condition and prospects.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright, trademark, trade dress or service mark protection, or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our current or future manufacturing partners and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third
parties. To the extent that our employees, consultants, contractors, advisors and other third parties use intellectual property owned by others in their work for Velodyne, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets. We also rely on physical and electronic security measures to protect our proprietary information, but it cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights.
Third-party claims that we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses, and our business could be adversely affected.
Although we hold key patents related to our products, a number of companies, both within and outside of the lidar industry, hold other patents covering aspects of lidar products. In addition to these patents, participants in this industry typically also protect their technology, especially embedded software, through copyrights and trade secrets. As a result, there is frequent litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. We have received, and in the future may receive, inquiries from other intellectual property holders and may become subject to claims that it infringes their intellectual property rights, particularly as we expand our presence in the market, expands to new use cases and faces increasing competition. In addition, parties may claim that the names and branding of our products infringe their trademark rights in certain countries or territories. If such a claim were to prevail, we may have to change the names and branding of our products in the affected territories and we could incur other costs.
We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify and hold harmless our customers, suppliers, and channel partners and other partners from damages and costs which may arise from the infringement by our products of third-party patents or other intellectual property rights. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover all intellectual property infringement claims and our indemnity obligations. A claim that our products infringe a third party’s intellectual property rights, even if untrue, could adversely affect our relationships with our customers, may deter future customers from purchasing our products and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we are a named party. Any of these results could adversely affect our brand and operating results.
Our defense of intellectual property rights claims brought against Velodyne or our customers, suppliers and channel partners, with or without merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty or other payments and may not be available on acceptable terms or at all. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or obtain an injunction. An adverse determination also could invalidate our intellectual property rights and adversely affect our ability to offer our products to our customers and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. Any of these events could adversely affect our business, operating results, financial condition and prospects.
Risks Related to Tax and Accounting Matters
Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
Factors that could materially affect our future effective tax rates include but are not limited to:
•Changes in tax laws or the regulatory environment.
•Changes in accounting and tax standards or practices.
•Changes in the composition of operating income by tax jurisdiction.
•Our operating results before taxes.
Because we do not have a long history of operating at our present scale and we have significant expansion plans, our effective tax rate may fluctuate in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under GAAP, changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had $367.3 million of U.S. federal and $107.2 million of state net operating loss carryforwards available to reduce future taxable income, which will be carried forward indefinitely for U.S. federal tax purposes and will expire beginning in 2028 through 2039 for state tax purposes. It is possible that we will not generate taxable income in time to use these net operating loss carryforwards before their expiration or at all. In addition, the federal and state net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), respectively, and similar provisions of state law. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use our pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset our post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We completed an analysis and determined that the Business Combination did not result in an “ownership change” for purposes of Section 382 and Section 383 of the Code.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We are subject to income taxes in the United States and other jurisdictions, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
•changes in the valuation of our deferred tax assets and liabilities;
•expected timing and amount of the release of any tax valuation allowances;
•tax effects of stock-based compensation;
•costs related to intercompany restructurings;
•changes in tax laws, regulations or interpretations thereof; or
•lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.
In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
We previously identified material weaknesses in our internal control over financial reporting, and the failure to maintain effective internal control over financial reporting could harm our business and negatively impact the market price of our common stock.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by SPACs entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (the “SEC Statement”). As a result of the SEC Statement, we re-evaluated the accounting treatment of our warrants and concluded that certain warrants should have been classified as a liability measured at fair value, for the 30-day period from September 29, 2020 to October 29, 2020. As part of the re-evaluation process, we identified a material weakness in our internal control over financial reporting related to the accounting for certain of our warrants. Accounting for these warrants as a liability instead of equity would have reduced non-operating expense and net loss by $1.6 million for 2020. Additionally, a corresponding $1.6 million adjustment would have been made to reduce our accumulated deficit with an offsetting adjustment to additional paid in capital in our equity accounts at December 31, 2020. Accounting for these warrants as a liability instead of equity would not have any effect on Velodyne’s previously reported revenues, assets, liabilities, total equity, or cash flows for the year ended December 31, 2020. We have concluded the effects of accounting for the warrants as
a liability instead of equity were immaterial to the previously issued financial statements. We have made an immaterial adjustment to our equity accounts for the effects of the accounting for the warrants in our consolidated statement of stockholders’ equity and balance sheet at December 31, 2021 by decreasing our accumulated deficit by $1.6 million with an offsetting decrease to our additional paid in capital.
As of December 31, 2020, our management determined that we did not maintain effective internal control over financial reporting as a result of identifying a material weakness related to our process and controls over tracking and reporting whistleblower complaints and litigation matters, which was remediated in the fourth quarter of 2020. In addition, management identified a material weakness in connection with our failure to adequately review revenue schedules associated with non-standard revenue arrangements, which resulted in misstatements of revenue and deferred revenue for the three months ended December 31, 2020. These misstatements have been corrected as of the end of 2021.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.
The material weaknesses identified above have been remediated as of December 31, 2021.We have incurred significant costs to remediate these weaknesses, primarily personnel costs and external consulting and legal fees. However, completion of remediation does not provide assurance that our controls will operate properly or that our financial statements will be free from error, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results. There may be additional undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis. Further, to the extent we identify additional material weaknesses, we will not be able to fully assess whether corrective measures will remediate the material weakness in our internal control over financial reporting until we have completed our implementation efforts and sufficient time passes in order to evaluate their effectiveness. In addition, if we identify additional errors that result in material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Moreover, in the future we may engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems that could negatively affect our internal control over financial reporting and result in material weaknesses.
If we identify additional material weaknesses in our internal control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. This could cause investors to lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities.
We may face litigation and other risks as a result of prior material weaknesses in our internal control over financial reporting.
Following the issuance of the SEC Statement and after consultation with our independent registered public accounting firm, we concluded that it was appropriate to re-evaluate certain of our warrants as liability measured at fair value, for the 30-day period from September 29, 2020 to October 29, 2020. As part of the re-evaluation process, we identified a material weakness in our internal control over financial reporting related to the accounting for certain of our warrants. As of December 31, 2020, our management determined that we did not maintain effective internal control over financial reporting as a result of identifying a material weakness related to our process and controls over tracking and reporting whistleblower complaints and litigation matters, which was remediated in the fourth quarter of 2020. In addition, management identified a material weakness in connection with our failure to adequately review revenue schedules associated with non-standard revenue arrangements, which resulted in misstatements of revenue and deferred revenue for the three months ended December 31, 2020. These misstatements have been corrected as of the end of 2020.
As a result of such material weaknesses, the change in accounting for our warrants, the failure to adequately review revenue schedules associated with non-standard revenue arrangements, the failure to track and report whistleblower complaints and litigation and other matters raised or that may in the future be raised by the SEC, we face the potential for litigation or other disputes which may include, among others, claims invoking federal and state securities laws, contractual claims or other claims arising from the re-evaluation of our warrants, the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. We can provide no assurance that such litigation or dispute
will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
We are subject to the reporting requirements of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act (“SOX”), and the rules and regulations of Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, we have previously identified material weaknesses in our internal control over financial reporting, and additional such weaknesses may be discovered in the future. See “—We previously identified material weaknesses in our internal control over financial reporting, and the failure to maintain effective internal control over financial reporting could harm our business and negatively impact the market price of our common stock.” Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially and adversely affect our ability to operate our business. In the event that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to maintain our listing on Nasdaq.
Risks Related to Ownership of our Common Stock
Resales of the shares of common stock could depress the market price of our common stock.
We had approximately 198.3 million shares of common stock outstanding as of March 31, 2022, and there may be a large number of shares of common stock sold in the market. The shares held by our public stockholders are freely tradable, and the shares of common stock held by other investors are also freely tradable, subject to compliance with Rule 144 under the Securities Act. In addition, from March 3, 2022 through March 11, 2022, David Hall sold 45.8 million shares of common stock, creating significant downward pressure on our stock.Also there are an additional up to 39,594,032 shares issuable upon exercise of a warrant held by Amazon, which will be registered for resale. Such sales of shares of common stock or the perception of such sales may depress the market price of our common stock. If the market price of our common stock declines for any reason, including due to resales of shares of our common stock in the open market, it is possible that we may become subject to securities class action litigation. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Amazon controls warrants to purchase a significant portion of our outstanding common stock, and they may in the future be able to influence the Company’s corporate decisions, including a change of control.
We have agreed to issue to Amazon.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 our common stock at an exercise price of $4.18 per share, representing 19.97% of our outstanding common stock as of March 31, 2022. The exercise price and the warrant shares issuable upon exercise of the warrant are subject to customary antidilution adjustments.
If Amazon were to exercise the Amazon Warrant to purchase significant amounts of our common stock, they may be able to influence control of us.They also may have interests that differ from other stockholders and may vote or otherwise act in ways with which we or other stockholders disagree or that may be adverse to your interests. A concentration of stock ownership may also have the effect of delaying, preventing or deterring a change of control, which could deprive our stockholders of an opportunity to receive a premium for their overallotment option,shares of our common stock as part of a sale of our Company and could affect the market price of our common stock. Conversely, such a concentration of stock ownership may facilitate a change of control under terms other stockholders may not find favorable or at a time when other stockholders may prefer not to sell.
Our only significant asset is our ownership interest in our Velodyne Lidar USA, Inc. subsidiary and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock.
We are a holding company with no direct operations and no significant assets other than our ownership of Velodyne Lidar USA, Inc. We will depend on Velodyne Lidar USA, Inc. for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company and pay any dividends with respect to our common stock. The financial condition and operating requirements of Velodyne Lidar USA, Inc. may limit our ability to obtain cash from Velodyne Lidar USA, Inc. The earnings from, or other available assets of, Velodyne Lidar USA, Inc. may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or satisfy our other financial obligations.
The ability of Velodyne Lidar USA, Inc. to make distributions, loans and other payments to us for the purposes described above and for any other purpose may be limited by credit agreements to which Velodyne Lidar USA, Inc. is party from time to time, including the existing loan and security agreement described in Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and will be subject to the negative covenants set forth therein. Any loans or other extensions of credit to us from Velodyne Lidar USA, Inc. will be permitted only to the extent there is an applicable exception to the investment covenants under these credit agreements. Similarly, any dividends, distributions or similar payments to us from Velodyne Lidar USA, Inc. will be permitted only to the extent there is an applicable exception to the dividends and distributions covenants under these credit agreements.
A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.
The price of our securities may fluctuate significantly due to the market’s reaction to the developments in our business and general market and economic conditions. An active trading market for our securities may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. You may be unable to sell your securities when desired or at an acceptable price unless an active trading market can be sustained.
If we do not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.
If we do not meet the expectations of investors or securities analysts, the market price of our securities may decline. In addition, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. If an active market for our securities develops and continues, the trading price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
•actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
•changes in the market’s expectations about our operating results;
•the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
•speculation in the press or investment community;
•announcements of technological innovation, new products, acquisitions, strategic alliances, significant agreements by us or competitors;
•success of competitors;
•our operating results failing to meet the expectation of securities analysts or investors in a particular period;
•changes in financial estimates and recommendations by securities analysts concerning us or the market in general;
•operating and stock price performance of other companies that investors deem comparable to us;
•our ability to market new and enhanced products on a timely basis;
•changes in laws and regulations affecting our business;
•commencement of, or involvement in, litigation;
•changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
•the volume of shares of our common stock available for public sale;
•any major change in our Board or management;
•sales of substantial amounts of common stock by our directors, officers or significant stockholders or the perception that such sales could occur;
•the expiration of existing market stand-off or contractual lock-up agreements;
•the realization of any of the risk factors presented in this Quarterly Report on Form 10-Q;
•additions or departures of key personnel;
•failure to comply with the requirements of Nasdaq;
•failure to comply with SOX or other laws or regulations;
•actual, potential or perceived control, accounting or reporting problems;
•changes in accounting principles, policies and guidelines; and
•general economic and political conditions such as recessions, COVID-19, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and Nasdaq have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, then the price and trading volume of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on Velodyne. If no securities or industry analysts commence coverage of Velodyne, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us were to cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
We may redeem unexpired Warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their public warrants worthless.
We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of
$10.00$0.01 per
Unit inpublic warrant; provided that the
Initial Public Offering. Each Unit consists of one share of common stock and one redeemable warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one-half of one share of common stock at alast reported sales price of
$11.50 per whole share, provided that if the Company has not consummated a Business Combination within 15 months from the closing of the Initial Public Offering, each Public Warrant will entitle the holder thereof to purchase three-quarters of one share of common stock at a price of $11.50 per whole share, subject to adjustment in either case (see Note 7). The Private Placement Warrants and the Public Warrants were classified as a liability at issuance due to this potential adjustment to the settlement amount (see the audited balance sheet included in the Form 8-K filed by the Company with the SEC on October 24, 2018).GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 4 — Private Placement
Concurrently with the closing of the Initial Public Offering and the Over-allotment, the Sponsor purchased an aggregate of 14,150,605 Private Placement Warrants at a price of $0.50 per Private Placement Warrant, for an aggregate purchase price of approximately $7.08 million. Each Private Placement Warrant has the same terms as the Public Warrants. A portion of the net proceeds from the sale of the Private Placement Warrants were added to the proceeds from the Initial Public Offering to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Placement Warrants and all underlying securities will expire worthless. The Sponsor has agreed not to transfer, assign or sell any of the Private Placement Warrants until the date that is 30 days after the completion of a Business Combination.
Note 5 — Related Party Transactions
Founder Shares
On June 26, 2018, the Sponsor purchased 8,625,000 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. On September 13, 2018, the Sponsor returned to the Company, at no cost, 2,156,250 shares of common stock, which the Company cancelled, resulting in the Sponsor holding 6,468,750 Founder Shares. On October 9, 2018, the Sponsor transferred 25,000 Founder Shares at the same per-share price paid by the Sponsor to each of Keith Abell and Sabrina McKee, two of the Company’s directors (then director-nominees), resulting in the Sponsor holding 6,418,750 Founder Shares.
The Founder Shares include an aggregate of up to 843,750 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Sponsor will own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering. On October 25, 2018, the underwriters partially exercise their over-allotment option; thus, an aggregate of 374,622 Founder Shares were forfeited.
The Sponsor has agreed, subject to certain limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) subsequent to a Business Combination, (x) if the last sale price of theour common stock equals or exceeds $12.00$18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-tradinga 30 trading-day period ending on the third trading day period commencing at least 150 days after a Business Combination, or (y)prior to the date on which we give notice of such redemption to the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in allwarrant holders. Redemption of the Company’s stockholders havingoutstanding Warrants could force the rightWarrant holders: (i) to exchangeexercise their Warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so; (ii) to sell their Warrants at the then-current market price when they might otherwise wish to hold their Warrants; or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of their Warrants.
Warrants and other shares underlying equity awards could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of March 31, 2022, we had outstanding publicly traded warrants exercisable for 5,973,870 shares of common stock
for cash, securities or other property.Related Party Loans
As of September 30, 2018, the Sponsor had loaned the Company an aggregate of $130,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Promissory Note”) and James A. Graf had advanced the Company $100 in connection with the initial establishment of a bank account. The Promissory Note and the advance from James A. Graf were non-interest bearing. The Company repaid the Promissory Note and the advances to James A. Graf on October 18, 2018.
at $11.50 per share. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor oras of March 31, 2022, Amazon had an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Exceptoutstanding warrant exercisable for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into additional warrants at a price of $0.50 (or $0.75 if the Company has not consummated a Business Combination within 15 months from the closing of the Initial Public Offering) per warrant. As of September 30, 2018, there were no Working Capital Loans under this arrangement.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Administrative Support Agreement
The Company agreed commencing on the effective date of the Initial Public Offering through the earlier of the Company’s consummation of a Business Combination and its liquidation, to reimburse an affiliate of its Sponsor up to $5,000 per month for office space, utilities and secretarial and administrative support on an at-cost basis to the extent such office space, utilities and support is not contracted with the Company directly.
Note 6 — Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Private Placement Warrants (and any39,594,032 shares of common stock issuableat $4.18 per share. The shares of our common stock issued upon the exercise of the Private Placement Warrants), and securities that may be issued upon conversionany of Working Capital Loansour warrants will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of Initial Public Offering, requiring the Company to register such securities for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequentresult in dilution to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option from the date of the prospectus relating to the Initial Public Offering to purchase up to 3,375,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters partially exercised this option on October 25, 2018 to purchase 1,876,512 additional Units.
The underwriters were entitled to a cash underwriting discount of $0.20 per Unit, or approximately $4.88 million in the aggregate, which was paid upon the closing of the Initial Public Offering.
Business Combination Marketing Agreement
The Company has engaged EarlyBirdCapital and Oppenheimer & Co. Inc. as advisors in connection with the Business Combination. The Company will pay EarlyBirdCapital and Oppenheimer & Co. Inc. for such services upon the consummation of the Business Combination (i) a cash fee in an amount equal to 3.5% of the gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might become payable) an amount equal to up to 40% of which may, in the Company’s discretion, be allocated by the Company to other FINRA members, plus (ii) 150,000 sharesthen existing holders of common stock to be issued to EarlyBirdCapital and/or its designees. EarlyBirdCapital and/or its designees will be entitled to registration rights requiringand increase the Company to register such shares for resale. The Company has agreed to use its best efforts to effect such registration in connection with the consummation of the Business Combination or, if not then reasonably practicable, to use the Company’s best efforts to file a registration statement covering such shares within 15 days of the closing of the Business Combination. Pursuant to the terms of the business combination marketing agreement, no fee will be due if the Company does not complete a Business Combination.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 7 — Stockholder’s Equity
Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September 30, 2018, there were no shares of preferred stock issued or outstanding.
Common Stock — The Company is authorized to issue 400,000,000 shares of common stock with a par value of $0.0001 per share. Holders of shares of common stock are entitled to one vote for each share. At September 30, 2018, there were 6,468,750 shares of common stock issued or outstanding, of which an aggregate of up to 843,750 shares are subject to forfeiture to the extent that the underwriters’ over-allotment option is not exercised in full or in part so that the Sponsor will own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering. On October 25, 2018, the underwriters partially exercised their over-allotment option; thus, an aggregate of 374,622 shares of common stock were forfeited.
Warrants — Public Warrants may only be exercised for a whole number of shares. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain a current prospectus relating to those shares of common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a Business Combination, warrantholders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, the Company will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Once the warrants become exercisable, the Company may redeem the Public Warrants:
in whole and not in part;
at a price of $0.01 per warrant;
upon not less than 30 days’ prior written notice of redemption; and
if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrantholders.
If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
The Private Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and the common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. The Private Placement Warrants will be redeemable by the Company on the same basis as the Public Warrants.
GRAF INDUSTRIAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances includingeligible for resale in the eventpublic market. Sales of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuancesubstantial numbers of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds heldsuch shares in the Trust Account, holderspublic market could adversely affect the market price of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 8 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statement was available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statement.
our common stock.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
References to the “Company,” “our,” “us” or “we” refer to Graf Industrial Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information
Anti-takeover provisions contained in
the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes, and oral statements made from time to time by representatives of the Company may include, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated in Delaware on June 26, 2018 and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses that the Company has not yet identified (“business combination”). We are not limited to a particular industry or sector for purposes of consummating a Business Combination. Our sponsor is Graf Acquisition LLC, a Delaware limited liability company (the “Sponsor”).
Our registration statement for the initial public offering (the "Initial Public Offering") was declared effective on October 15, 2018. On October 18, 2018, we consummated the Initial Public Offering of 22,500,000 units (the "Units" and, with respect to the shares of common stock included in the Units offered, the "Public Shares"), generating gross proceeds of $225 million and incurred underwriting commissions of $4.5 million. On October 25, 2018, we consummated the closing of the sale of 1,876,512 additional Units upon receiving notice of the underwriters' election to partially exercise their overallotment option (the "Over-allotment"), generating additional gross proceeds of approximately $18.8 million, and incurring $375,302 in underwriting commissions.
Simultaneously with the closing of the Initial Public Offering and the Over-allotment,we consummated the private placement (“Private Placement”) of 14,150,605 warrants (the “Private Placement Warrants”) at a price of $0.50 per Private Placement Warrant, with our Sponsor, Graf Acquisition LLC, a Delaware limited liability company (the “Sponsor”), generating gross proceeds of approximately $7.08 million.
Upon the closing of the Initial Public Offering, the Over-allotment and the Private Placement, approximately $243.8 million ($10.00 per Unit) of the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement was placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A, maintained by Continental Stock Transfer & Trust Company, acting as trustee (“Trust Account”). The proceeds held in the Trust Account will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by us meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by us, until the earlier of: (i) the completion of a Business Combination, (ii) the redemption of any Public Shares properly submitted in connection with a stockholder vote to amend our Second Amended and Restated Certificate of Incorporation (the “Amendedand bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our Amended and Restated Certificate of Incorporation”)Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to modifybe in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the substance or timingremoval of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:
•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board;
•the requirement that directors may only be removed from the Board for cause;
•the right of our obligationBoard to redeem 100%elect a director to fill a vacancy created by the expansion of its Public Shares if we doour Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board;
•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
•a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by a majority of the Board, the chairman of the Board or the chief executive office and may not completebe called by any other person, which may delay the ability of our stockholders to force consideration of a Business Combination within 18 months from the closing of its Initial Public Offeringproposal or to providetake action, including the removal of directors;
•the requirement that changes or amendments to certain provisions of our Amended and Restated Certificate of Incorporation must be approved by holders of at least two-thirds of our common stock;
•advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of Velodyne; and
•an opt out from Section 203 of the General Corporation Law of the State of Delaware (the DGCL) and, instead, inclusion of a provision in the Amended and Restated Certificate of Incorporation that is substantially similar to Section 203 of the DGCL.
We are no longer a “controlled company” under the corporate governance rules of Nasdaq. However, during the applicable phase-in periods we may continue to rely on exemptions from certain corporate governance standards, which limit the presence of independent directors on our Board of Directors or committees of the Board of Directors.
During the first half of 2021, David Hall controlled the votes of the majority of our common stock. As a result, we were a “controlled company” for redemption in connectionpurposes of the Nasdaq corporate governance rules and were exempt from certain governance requirements otherwise required by Nasdaq, including requirements:
•that a majority of our Board of Directors consist of independent directors;
•that we have a nominating and corporate governance committee that is composed entirely of independent directors with a Business Combinationwritten charter addressing the committee’s purpose and (iii)responsibilities; and
•that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the redemptioncommittee’s purpose and responsibilities.
We are no longer a “controlled company” under the corporate governance rules of our Public Shares ifNasdaq. Under the Company is unable to completeNasdaq listing requirements, a Business Combination within 18 months from the closing of its Initial Public Offering, subject to applicable law.
In order to protect the amounts held in the Trust Account, our Sponsor had agreedcompany that ceases to be liable to us if anda “controlled company” must comply with the independent board committee requirements as they relate to the extent any claims bynominating and corporate governance and compensation committees no later than the following phase-in schedule: (1) one independent committee member at the time it ceases to be a third party for services rendered or products sold to us, orcontrolled company, (2) a prospective target business with which we have entered into a written lettermajority of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share or (ii) the actual amount per Public Share held in the Trust Account asindependent committee members within 90 days of the date it ceases to be a controlled company and (3) all independent committee members within one year of the liquidationdate it ceases to be a controlled company. Additionally, the Nasdaq listing requirements provide a 12-month phase-in period from the date a company ceases to be a “controlled company” to comply with the majority independent board requirement. At this time, the majority of our directors are independent, as are a majority of the Trust Account, if less than $10.00 per share duemembers of each of our committees. Until we are fully subject to reductionsthese requirements, however, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of
Nasdaq.
Activist shareholders, including David Hall, could negatively impact our business and cause disruptions.
David Hall, our former chairman and CEO, holds voting rights with respect to an aggregate of approximately 20.0 million shares of common stock, which represented approximately 9.6% of the voting power of our outstanding capital stock as of April 15, 2022. As a stockholder, Mr. Hall is entitled to vote his shares in his own interests, which may not always be in the valueinterests of our stockholders generally and could adversely affect the market price of our common stock.
On April 11, 2022, Mr. Hall filed a preliminary proxy statement to solicit proxies in favor of the
trust assets, less taxes payable, provided that such liability will not applyelection of three director candidates, including Mr. Hall and his wife, Marta Hall, to
any claims by a third party or prospective target business who executed a waiverour board of
anydirectors at our 2022 annual meeting of stockholders. On April 21, 2022, Ms. Hall resigned from our Board, and
all rights toon April 25, 2022, Mr. Hall withdrew from the
monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsorproxy contest. Mr. Hall has
sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of ours. Therefore, we cannot assure that the Sponsor would be able to satisfy those obligations. Nonemade public statements critical of our
officers orboard of directors
will indemnify us for claimsand management and may continue to do so. Responding to these actions by
third parties including, without limitation, claims by vendorsMr. Hall is costly and
prospective target businesses. Moreover, intime-consuming, disruptive to our operations and diverts the
event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extentattention of
any liability for such third party claims. We will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claimsmanagement, our board of
creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business, execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.Our management has broad discretiondirectors and our employees. The contested election with respect to the specific applicationCompany's directors requires us to incur substantial legal, public relations and other advisory fees and proxy solicitation expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of the net proceeds of the Initial Public Offering, the Over-Allotment, and the Private Placement, although substantially all of the net proceeds are intended to be applied toward consummatingproposals by activist shareholders or proxy contests or matters relating
thereto, which would serve as a
Business Combination.Results of Operations
Our entire activity since inception up to September 30, 2018 relatedfurther distraction to our formation, commencementboard of the Initial Public Offering,directors and we will not be generating any operating revenues until the closingmanagement and completion of our initial Business Combination. We expectcould require us to incur increased expenses assignificant additional costs.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
As a resultpublic company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of SOX, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. To comply with the requirements of being a public company, (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.For the three months ended September 30, 2018, we had a net loss of approximately $3,000, which consists solely of formation and operating costs.
For the period from June 26, 2018 (inception) through September 30, 2018, we had a net loss of approximately $12,000, which consists solely of formation and operating costs.
Liquidity and Capital Resources
As indicated in the accompanying financial statements, at September 30, 2018, we had approximately $19,000 in our operating bank account and working capital deficit of approximately $217,000.
Through September 30, 2018, our liquidity needs have been satisfied through receipt of a $25,000 capital contribution from our Sponsor in exchange for the issuance of the founder shares to our Sponsor, and $130,100 in loans and advances from our Sponsor and officer. We repaid the Promissory Note and the advances to James A. Graf on October 18, 2018.
In addition, in order to finance transaction costs in connection with a business combination, the Sponsor or an affiliate of the sponsor, or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (“Working Capital Loans”). As of September 30, 2018, there were no Working Capital Loans under this arrangement.
Related Party Transactions
Founder Shares
On June 26, 2018, the Sponsor purchased 8,625,000 shares (the “Founder Shares”) of our common stock for an aggregate price of $25,000. On September 13, 2018, the Sponsor returned to us, at no cost, 2,156,250 shares of common stock, which we cancelled, resulting in the Sponsor holding 6,468,750 Founder Shares. On October 9, 2018, the Sponsor transferred 25,000 Founder Shares at the same per-share price paid by the Sponsor to each of Keith Abell and Sabrina McKee, two of our directors (then director-nominees), resulting in the Sponsor holding 6,418,750 Founder Shares.
The Founder Shares include an aggregate of up to 843,750 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Sponsor will own, on an as-converted basis, 20% of our issued and outstanding shares after the Initial Public Offering. On October 25, 2018, the underwriters partially exercise their over-allotment option; thus, an aggregate of 374,622 Founder Shares were forfeited.
The Sponsor has agreed, subject to certain limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) subsequent to a Business Combination, (x) if the last sale price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after a Business Combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Private Placement
Simultaneously with the closing of the Initial Public Offering and the Over-allotment, we consummated the Private Placement of 14,150,605 Private Placement Warrants at a price of $0.50 per Private Placement Warrant, with the Sponsor generating gross proceeds of approximately $7.08 million. The Private Placement Warrants have the same terms as the warrants sold as components of the Units in the Initial Public Offering. Each Private Placement Warrant is exercisable for one-half of one share of common stock at a price of $11.50 per whole share, provided that if we have not consummated a Business Combination within 15 months from the closing of the Initial Public Offering, each Private Placement Warrant will entitle the holder thereof to purchase three-quarters of one share of common stock at a price of $11.50 per whole share, subject to adjustment in either case. A portion of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from the Initial Public Offering to be held in the Trust Account. If we do not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless.
Related Party Loans
As of September 30, 2018, the Sponsor had loaned us an aggregate of $130,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Promissory Note”)undertaken and James A. Graf had advanced us $100 in connection with the initial establishment of a bank account. The Promissory Note and the advance from James A. Graf were non-interest bearing. We repaid the Promissory Note and the advances to James A. Graf on October 18, 2018.
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (“Working Capital Loans”). If we complete a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to us. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, we may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into additional warrants at a price of $0.50 (or $0.75 if the Company has not consummated a Business Combination within 15 months from the closing of the Initial Public Offering) per warrant. As of September 30, 2018, there were no Working Capital Loans under this arrangement.
Administrative Support Agreement
We agreed commencing on the effective date of the Initial Public Offering through the earlier of our consummation of a Business Combination and its liquidation, to reimburse an affiliate of its Sponsor up to $5,000 per month for office space, utilities and secretarial and administrative support on an at-cost basis to the extent such office space, utilities and support is not contracted with us directly.
Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants (and any shares of common stock issuable upon the exercise of the Private Placement Warrants), and securities that may be issued upon conversion of Working Capital Loans will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of Initial Public Offering, requiring us to register such securities for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the prospectus relating to the Initial Public Offering to purchase up to 3,375,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters partially exercised this option on October 25, 2018 to purchase 1,876,512 additional Units.
The underwriters were entitled to a cash underwriting discount of $0.20 per Unit, or approximately $4.88 million in the aggregate, which was paid upon the closing of the Initial Public Offering.
Business Combination Marketing Agreement
We have engaged EarlyBirdCapital and Oppenheimer & Co. Inc. as advisors in connection with the Business Combination. We will pay EarlyBirdCapital and Oppenheimer & Co. Inc. for such services upon the consummation of the Business Combination (i) a cash fee in an amount equal to 3.5% of the gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might become payable) an amount equal to up to 40% of which may, in our discretion, be allocated by us to other FINRA members, plus (ii) 150,000 shares of common stock to be issued to EarlyBirdCapital and/or its designees. EarlyBirdCapital and/or its designees will be entitled to registration rights requiring us to register such shares for resale. We have agreed to use its best efforts to effect such registration in connection with the consummation of the Business Combination or, if not then reasonably practicable, to use our best efforts to file a registration statement covering such shares within 15 days of the closing of the Business Combination. Pursuant to the terms of the business combination marketing agreement, no fee will be due if we do not complete a Business Combination.
Recent Accounting Pronouncements
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. We anticipate our first presentation of changes in stockholders' equity, in accordance with the new guidance, will be included in its Form 10-Q for the quarter ended March 31, 2019.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
As of September 30, 2018, we were not subject to any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, were invested in U.S. government treasury bills, notes or bonds or in certain money market funds that invest solely in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respectcontinue to the market risk to which we are exposed.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosureundertake various actions, such as implementing additional internal controls and procedures as of the end of the fiscal quarter ended September 30, 2018, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our chief executive officer and chief financial officerhiring additional accounting or internal audit staff. Additionally, we have concluded that during the period covered by this report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by uspreviously identified material weaknesses in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specifiedinternal control over financial reporting. We remediated one material weakness in the SEC’s rulesfourth quarter of 2020 and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changesthe remaining material weaknesses were remediated in Internal Control over Financial Reporting
There was no change2021. See “—We previously identified material weaknesses in our internal control over financial reporting, that occurred duringand the quarter ended September 30, 2018 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likelyfailure to materially affect, ourmaintain effective internal control over financial reporting.
20
reporting could harm our business and negatively impact the market price of our common stock.” Our management has devoted significant time, attention and resources to these remedial efforts and intends to hire additional personnel as part of our remediation plan.PART II – OTHER INFORMATION
None.
As
Testing and maintaining these controls can divert our management’s attention from other matters that are important to the operation of our business. If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
Our Amended and Restated Certificate of Incorporation designates the Court of Chancery of the dateState of Delaware and federal court within the State of Delaware as the exclusive forum for certain types of actions and proceedings that stockholders may initiate, which could limit a stockholder’s ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Amended and Restated Certificate of Incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State of Delaware will be exclusive forums for any:
•derivative action or proceeding brought on our behalf;
•action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to Velodyne or our stockholders;
•action asserting a claim against Velodyne arising pursuant to any provision of the DGCL, our Amended and Restated Certificate of Incorporation or bylaws; or
•other action asserting a claim against Velodyne that is governed by the internal affairs doctrine.
This choice of forum provision does not apply to actions brought to enforce a duty or liability created under the Exchange Act. Our Amended and Restated Certificate of Incorporation also provides that the federal district courts of the United States are the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. We intend for this Quarterlyprovision to apply to any complaints asserting a cause of action under the Securities Act despite the fact that Section 22 of the Securities Act creates concurrent jurisdiction for the federal and state courts over all actions brought to enforce any duty or liability created by the Securities Act or the rules and regulations promulgated thereunder. There is uncertainty as to whether a court would enforce such a provision with respect to claims under the Securities Act, and stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock shall be deemed to have notice of and to have consented to the provisions of the Amended and Restated Certificate of Incorporation described above.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As disclosed in our Current Report on Form
10-Q, there8-K dated February 4, 2022, we have
been no material changesagreed to
the risk factors disclosed in our final prospectus filed with the SEC on October 16, 2018.Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities |
On June 26, 2018, our Sponsor purchasedissue to Amazon.com NV Investment Holdings LLC, a wholly-owned subsidiary of Amazon, a warrant to acquire up to an aggregate of 8,625,000 Founder Shares, for an aggregate offering price of $25,000 at an average purchase price of approximately $0.003 per share. On September 13, 2018, our Sponsor returned to us, at no cost, 2,156,25039,594,032 shares of common stock, which we cancelled, resulting in our Sponsor holding 6,468,750 Founder Shares. On October 9, 2018, our Sponsor transferred 25,000 founder shares at the same per-share price paid by our Sponsor to each of Keith Abell and Sabrina McKee, two of our directors (then-director nominees), resulting in our Sponsor holding 6,418,750 Founder Shares. The number of Founder Shares issued was determined based on the expectation that the Founder Shares would represent 20% of the outstanding shares of common stock upon completion of the Initial Public Offering. Such securities were issued in connection with our organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Each of our Sponsor and directors is an accredited investor for purposes of Rule 501 of Regulation D.
Simultaneously with the closing of the Initial Public Offering and the Over-allotment, we consummated the Private Placement of 14,150,605 Private Placement Warrants at a price of $0.50 per Private Placement Warrant, with the Sponsor generating gross proceeds of approximately $7.08 million. The Private Placement Warrants have the same terms as the warrants sold as components of the Units in the Initial Public Offering. Each Private Placement Warrant is exercisable for one-half of one share of common stock at aan exercise price of $11.50$4.18 per whole share, provided that if we have not consummated a Business Combination within 15 months from the closing of the Initial Public Offering, each Private Placement Warrant will entitle the holder thereof to purchase three-quarters of one share of common stock at a price of $11.50 per whole share, subject to adjustment in either case. A portion of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from the Initial Public Offering to be held in the Trust Account. If we do not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless.
Use of Proceeds
On October 18, 2018, we consummated the Initial Public Offering of 22,500,000 Units, generating gross proceeds of $225 million. On October 25, 2018, we consummated the sale of 1,876,512 additional Units upon receiving notice of the underwriters’ election to partially exercise the Over-allotment, generating additional gross proceeds of approximately $18.8 million. Following the closing of the Initial Public Offering and the Private Placement, approximately $243.8 million was placed in the Trust Account.
There has been no material change in the planned use of proceeds from such use as described in the Company’s final prospectus (File No. 333-227396), dated October 15, 2018, which was declared effective by the SEC on October 15, 2018.
share.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
None.
None.
Exhibit
Number
| | Description | | | | | | |
| Exhibit No. | | Description |
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| 101.INS | | XBRL Instance Document |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | | Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q is formatted in iXBRL. |
(^) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on this 29th day of November, 2018.authorized.
GRAF INDUSTRIAL CORP. | | | | | | | | | | | | | | |
| Date: | May 6, 2022 | | VELODYNE LIDAR, INC. | |
By: | | | /s/ James A. GrafTheodore L. Tewksbury | |
| Name: James A. Graf | | | |
| Title: | | | |
| | | Theodore L. Tewksbury | |
| | | Chief Executive Officer and Director |
| | | (Principal Executive Officer) |
| | | | |
| | | /s/ Andrew Hamer | |
| | | | |
| | | | |
| | | Andrew Hamer | |
| | | Chief Financial Officer and Chair, Office of the Chief Executive |
| | | (Principal Executive, Financial and Accounting Officer) |