AEye, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Please read the following discussion and analysis of our financial condition and results of operations together with “Note about Forward-Looking Statements,” Part I, Item 1 “Business,” Part I, Item 1A “Risk Factors,” and our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. Overview This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understanding our financial results for fiscal year 2022, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Annual Report, including our consolidated financial statements and accompanying notes. All dollar amounts expressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars, except for per share amounts and unless otherwise specified. Business Combination and Public Company Costs As a result of the Business Combination, which closed on August 16, 2021, a subsidiary of CF Finance Acquisition Corp III, or CF III, Meliora Merger Sub, Inc., merged with and into AEye, Inc., then known as AEye Technologies, Inc., or AEye Technologies, with AEye Technologies continuing as the surviving entity as a wholly owned subsidiary of CF III, and CF III thereafter operating under the new name AEye, Inc., or AEye, or the combined entity. The Business Combination was accounted for as a reverse recapitalization, in accordance with U.S. GAAP. Under this method of accounting, AEye Technologies was treated as the accounting acquirer, meaning CF III was treated as the acquired company for financial reporting purposes. This determination is primarily based on AEye Technologies’ stockholders comprising a relative majority of the voting power of the combined entity and having the ability to nominate the majority of the governing body of the combined entity. Additionally, AEye Technologies’ senior management comprises the senior management of the combined entity and AEye Technologies’ operations comprise the ongoing operations of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of AEye Technologies, and the Business Combination will be treated as the equivalent of AEye Technologies issuing stock for the net assets of CF III, accompanied by a recapitalization. The most significant change in AEye Technologies’ financial position and results of the business combination was an increase in cash of $256,811 before transaction costs. Total non-recurring transaction costs incurred for this transaction were $52,661. Upon the closing of the Business Combination, our common stock and warrants began trading under the symbols “LIDR” and “LIDRW,” respectively, on the Nasdaq Stock Market LLC, or Nasdaq. We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. Key Factors Affecting AEye’s Operating Results We believe that our future performance and success depends to a substantial extent on our ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and the risk factors described in the section of this Annual Report on Form 10-K entitled “Risk Factors.” We are subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or commercialize our products; secure additional capital in a timely manner in order to meet operating cash flow needs; secure a "design win" with automotive OEMs and their suppliers; attract new customers and retain our existing customers; develop and protect our intellectual property; comply with existing and new or modified laws and regulations applicable to our business; maintain and enhance the value of our reputation and brand; hire, integrate, and retain talented people at all levels of our organization; and successfully develop new solutions to enhance the 43 experience of, and deliver value to, our customers. Market Trends and Uncertainties We anticipate growing demand for our 4Sight TM Intelligent Sensing Platform across two major markets, Automotive and Industrial. We also anticipate the total addressable market for lidar-based perception technology will grow to $42 billion by 2030. Within those markets, we are targeting attractive segments including advanced driver-assistance systems, or ADAS, autonomous driving, commercial trucking, robo-taxis, and various Industrial market segments such as mining, aerospace, defense, railway, and intelligent transportation systems, or ITS. This provides us with multiple opportunities for sustained growth by enabling new applications and product features across these market segments. However, as our customers continue R&D projects to commercialize solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end market and customer adoption. In the Automotive market for example, which accounted for 52% and 76% of revenue in 2022 and 2021, respectively, our growth and financial performance will be heavily influenced by our ability to successfully integrate into OEM programs that require years of development, testing, and validation. Because of the size and complexity of these OEM programs, we see our existing Tier 1 partnerships as a substantial competitive advantage given their large scale, mass-production capabilities, and existing OEM customer relationships. Our primary focus in the Automotive market is on ADAS for passenger and commercial vehicle autonomy, particularly highway autonomy applications. We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety. We will need to anticipate and adapt to any changes in the regulatory environment, as well as changes in consumer demand in order to take advantage of this opportunity. Additionally, we are increasing our investments in international operations and partnerships that will position us to expand our business globally and meet growing demand in international markets. This is an important part of our core strategy and may expose us to additional factors such as foreign currency risk, additional operating costs, and other risks and challenges that may impact our ability to meet projected sales and margin targets. Partnerships and Commercialization Our technology is designed to be a key enabler of in certain Automotive and Industrial market applications. Because our technology must be integrated into a broader solution by our customers, it is critical that we achieve design wins with these customers. The timing of these design wins varies based on the market and application. Achieving a design win with an OEM within the Automotive market may take considerably longer than a design win with customers in the Industrial market. 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 financial performance. We believe our revenue and profitability will also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers, such as Continental, which represented 51% and 55% of 2022 and 2021 revenue, respectively, that intend to use our technology in volume production of lidar sensors for OEMs. Delays of autonomy programs by OEMs that we are currently or will be working with through our Tier 1 partners could result in us being unable to achieve our revenue and profitability targets in the timeframe we anticipate. Our overall revenue and profitability will also be dependent upon both our success in selling our lidar solutions to customers in the Industrial market. Gross Margin Improvement Our gross margins will depend on numerous factors, including, among others, the selling price of our products, pricing of our development contracts with customers, royalty rates on licenses we grant to our customers, unit volumes, product mix, component costs, personnel costs, contract manufacturing costs, overhead costs, and product features. In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in the Automotive market. We also sell our own lidar solutions to customers in the Industrial market utilizing lower-cost components that are sourced, in part, from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners. If our Tier 1 partners in the Automotive market do not achieve the volumes that we expect, then the cost of the components we use to address the Industrial market may not decrease to the extent we anticipate and may impact our gross margins and our ability to achieve profitability in the future. To date, our revenue has been generated through development contracts with OEMs and Tier 1 suppliers, as well as unit sales of our products to Industrial customers. These development contracts primarily focus on customization of our proprietary 4Sight capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of 44 particular perception capabilities to meet specific customer needs. In general, development contracts that require more complex configurations have higher prices. We expect development contracts to remain a significant part of our business in the near-term, but represent a smaller share of our total revenue over time, as we increase our focus on technology licensing and product sales. We expect our gross margins from the sale of products to improve over time as we outsource volume production of our lidar sensors to contract manufacturers, which we anticipate will both increase unit volumes and reduce the cost per unit. In September 2021, we commenced our transition process to contract manufacturers, and we completed the first phase of this transition in late 2022. Investment and Innovation Our proprietary adaptive, intelligent lidar technology delivers industry-leading performance that helps to solve the most difficult challenges in delivering partial or full autonomy. While traditional sensing systems passively collect data, our active 4Sight TM Intelligent Sensing Platform leverages principles from automated targeting systems and biomimicry to scan the environment, while intelligently focusing on what matters most in order to enable safer, smarter, and faster decisions in complex scenarios. We believe our financial performance is significantly dependent on our ability to maintain a technology leadership position. This is further dependent on the investments we make in R&D. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, and generate strong 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. Basis of Presentation We currently conduct our business through one operating segment. Components of Results of Operations Total Revenues We categorize our revenue as (1) prototype sales and (2) development contracts. In 2022 and 2021, our prototype sales revenue primarily related to unit sales of the company’s 4Sight product. Revenue from prototype sales is typically recognized at a point in time when the control of goods is transferred to the customer, generally upon delivery or shipment to the customer. Development contracts represented the majority of our total revenues in 2022 and 2021. Revenue from development and/or collaboration arrangement contracts are earned from R&D activities and collaboration with OEMs and Tier 1 suppliers. These contracts primarily focus on customization of our proprietary 4Sight capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of perception capabilities to meet specific customer needs. Revenue from development contracts is recognized when we satisfy performance obligations in the contract, which can result in recognition at either a point in time or over time. This assessment is made at the outset of the arrangement for each performance obligation. Cost of Revenue Cost of revenue includes the costs directly associated with the production of prototypes and certain costs associated with development contracts. Such costs for prototypes include direct materials, direct labor, indirect labor, inventory write downs, warranty expense, and allocation of overhead. Costs associated with development contracts include the direct costs and allocation of overhead costs involved in the execution of the contracts. Operating Expenses Research and Development Our research and development, or R&D efforts are focused primarily on hardware, software, and system engineering related to the design and development of our advanced lidar solutions. R&D expenses include: • personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense; • third-party engineering and contractor costs; 45 • lab equipment; • engineering parts and test units; • new hardware and software expenses; and • allocated overhead expenses. R&D costs are expensed as they are incurred. We expect our investment in R&D will continue to grow over time because we believe that investment in R&D is essential to maintain our position as a provider of one of the most advanced lidar solutions available. Sales and Marketing Our sales and marketing, or S&M, efforts are focused primarily on sales, business development, and marketing programs in pursuit of revenue contracts from potential and existing customers. S&M expenses include: • personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation expense; • demonstration equipment; • trade shows expenses, advertising, and promotions expenses for press releases and other public relations services; and • allocated overhead expenses. We expect our S&M expenses to grow over time as we continue to expand our sales and marketing efforts to support the anticipated growth of our business. General and Administrative Our general and administrative, or G&A, spending supports all business functions. G&A expenses include: • personnel-related costs, including salaries, benefits, bonuses, and stock-based compensation expense for executive, finance, legal, human resources, technical support, and other administrative personnel; • consulting, accounting, audit, legal, and other professional fees; • insurance premiums, software and computer equipment costs, general office expenses; and • allocated overhead expenses. We expect our G&A expenses to increase for the foreseeable future as we support the growth of our business, and as a result of operating as a public company, including additional costs and expenses associated with compliance with the rules and regulations of the SEC, legal, audit, insurance, investor relations, and other administrative and professional services. Change in Fair Value of Convertible Note, Embedded Derivative Liability, and Warrant Liabilities Changes in fair value of the convertible note, embedded derivative, and warrant liabilities are the result of the change in fair value at each reporting date. The convertible note, embedded derivative, and warrant liabilities are recorded at fair value for each reporting period, and the changes in fair value are reported as other income (expense) during the period. We have also elected to record interest expense on the 2022 convertible note as changes in fair value. Upon the closing of the Business Combination, the embedded derivative was settled, the pre-combination common stock warrants and Series A preferred stock warrants were net settled and converted to Class A common stock and private placement warrants were acquired. Interest Income, Interest Expense and Other Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable securities. These amounts will vary based on our cash and cash equivalents balances and market rates. Interest expense consists primarily of convertible note issuance costs and amortization of premiums on marketable securities, net of accretion discounts. Upon the closing of the Business Combination, our borrowings were repaid with any remaining debt issuance costs and discounts expensed. The pre-Business Combination convertible notes and accrued interest were settled and converted to Class A common stock. See additional discussion in Note 2 to our consolidated financial statements. 46 Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the years ended December 31, 2022 and 2021 (in thousands, except for percentages): Year ended December 31, Change Change 2022 2021 $ % Prototype sales $ 1,743 $ 1,004 $ 739 74 % Development contracts 1,904 2,003 (99) (5) % Total revenue 3,647 3,007 640 21 % Cost of revenue 8,732 3,637 5,095 140 % Gross loss (5,085) (630) (4,455) 707 % Research and development 37,644 26,543 11,101 42 % Sales and marketing 19,317 10,548 8,769 83 % General and administrative 36,762 25,514 11,248 44 % Total operating expenses 93,723 62,605 31,118 50 % Loss from operations (98,808) (63,235) (35,573) 56 % Change in fair value of convertible note, embedded derivative liability, and warrant liabilities (14) 223 (237) (106) % Gain on PPP loan forgiveness — 2,297 (2,297) (100) % Interest income and other 1,545 561 984 175 % Interest expense and other (1,379) (4,857) 3,478 (72) % Total other income (expense), net 152 (1,776) 1,928 (109) % Provision for income tax expense 58 — 58 100 % Net loss $ (98,714) $ (65,011) $ (33,703) 52 % Revenue Prototype Sales Prototype sales increased by $739, or 74%, to $1,743 for the year ended December 31, 2022 from $1,004 for the year ended December 31, 2021. This increase was primarily due to an increase in 4Sight unit sales. Development Contracts Development contracts decreased by $99, or 5%, to $1,904 for the year ended December 31, 2022, from $2,003 for the year ended December 31, 2021. The decrease was primarily due to less revenue recognized in the current year from a large Tier 1 Automotive Supplier contract. Cost of Revenue Cost of revenue increased by $5,095, or 140%, to $8,732 for the year ended December 31, 2022, from $3,637 for the year ended December 31, 2021. This increase was primarily due to the cost of revenue associated with the Tier 1 Automotive Supplier contract in the current period, increased prototype sales, and increased labor and warranty costs. Operating Expenses Research and Development Research and development expenses increased by $11,101, or 42%, to $37,644 for the year ended 47 December 31, 2022, from $26,543 for the year ended December 31, 2021. This increase was primarily driven by increases in stock-based compensation expense of $5,026, personnel costs of $4,804, information technology expense of $780, engineering parts of $757, rent and facilities expense of $953, and travel expense of $377. These increases were offset by decreases in third party research and development work of $1,530. Sales and Marketing Total sales and marketing expenses increased by $8,769, or 83%, to $19,317 for the year ended December 31, 2022, from $10,548 for the year ended December 31, 2021. This increase was primarily due to increases in stock-based compensation of $3,315, personnel costs of $2,813, marketing program spend of $973, travel expense of $809, information technology expense of $428, and rent and facilities expense of $306. General and Administrative Total general and administrative expenses increased by $11,248, or 44%, to $36,762 for the year ended December 31, 2022, from $25,514 for the year ended December 31, 2021. This increase was primarily due to an increase in stock-based compensation of $5,471, directors' and officers' insurance premium of $2,467, professional accounting and legal fees of $2,387, investor and stock related expenses of $622, and travel expense of $348. Change in Fair Value of Convertible Note, Embedded Derivative, and Warrant Liabilities Change in fair value of convertible note, embedded derivative, and warrant liabilities (see Note 3) decreased by $237, or 106%, to $14 for the year ended December 31, 2022, from $223 for the year ended December 31, 2021. This decrease was primarily due to a decrease in the fair values of the warrant liabilities compared to prior period, offset by an increase in fair value of the 2022 convertible note. Gain on PPP Loan Forgiveness Gain on PPP loan forgiveness decreased by $2,297, or 100%, for the year ended December 31, 2022. In June 2021 the full principal and interest of the PPP loan was forgiven. Interest Income and Other Interest income and other increased by $984, or 175%, to $1,545 for the year ended December 31, 2022, from $561 for the year ended December 31, 2021. This increase was primarily due to the interest earned on our marketable securities of $1,545. Interest Expense and Other Interest expense and other decreased by $3,478, or 72%, to $1,379 for the year ended December 31, 2022, from $4,857 for the year ended December 31, 2021. This decrease was primarily due to $2,818 of prior period interest expense not recurring in the current year due to the payoff of the loan balances in the prior year, as well as $1,583 of costs associated with the Tumim Stone Common Stock Purchase Agreement in the prior year which did not recur in the current year. This is offset by $474 in convertible note issuance costs and an increase of $322 in amortization of premiums on marketable securities, net of accretion of discounts, in the current period. Provision for Income Tax Expense Provision for income tax expenses increased to $58 for the year ended December 31, 2022, from $0 for the year ended December 31, 2021. This increase is due to changes in pretax income (loss) in the U.S. and certain foreign entities and changes in tax rates. Net Loss Net loss increased by $33,703, or 52%, to $98,714 for the year ended December 31, 2022, from $65,011 for the year ended December 31, 2021. This increase was primarily due to an increase in operating expenses. 48 Liquidity and Capital Resources Sources of Liquidity Our capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. As of December 31, 2022, our cash, cash equivalents, and marketable securities totaled $94.2 million. To date, our principal sources of liquidity have been proceeds received from the issuance of equity. In December 2021, we entered into a Common Stock Purchase Agreement, or CSPA, with Tumim Stone Capital LLC, or Tumim Stone, pursuant to which we have the right, but not the obligation, to issue and sell to Tumim Stone over a 36-month period up to $125,000 of the Company’s common stock. On May 6, 2022, the Company filed a Registration Statement on Form S-1, which related to the offer and resale of up to 30,865,419 shares of our common stock to be purchased by Tumim Stone, pursuant to the CSPA. As of December 31, 2022, 1,145,000 shares were issued under this CSPA. In September 2022, we entered into a Securities Purchase Agreement, or SPA, with an investor allowing for the sale and issuance of two convertible notes, each with cash proceeds of $10,000, for a total of $20,000 in proceeds between the two issuances (each, a "Note Closing"). On September 15, 2022, we closed the first Note Closing with the investor and received proceeds of $9,850 (net of fees paid to the investor). The second Note Closing may occur, at our option, after the ninetieth (90 th ) calendar day after the first Note Closing provided that we meet certain equity conditions. Until we can generate sufficient revenue from the sale of our products to cover operating expenses, working capital, and capital expenditures, we expect the funds raised in the Business Combination and PIPE financing, as well as any future funds from the CSPA and SPA, and other potential sources of capital, to fund our near-term cash needs. If we are required to raise additional funds by issuing equity securities, dilution of stockholders will result. Any debt securities issued may also have rights, preferences, and privileges senior to those of holders of our common stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing. For the years ended December 31, 2022 and 2021, we had a net loss of $98,714 and $65,011, respectively. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development, selling and marketing, and general and administrative expenses will continue to be significant and, as a result, we may need additional capital resources to fund our operations. We believe that the net proceeds from the Business Combination, CSPA, and SPA, together with our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expenses, working capital, and capital expenditure requirements for a period of at least twelve months from the date of this Annual Report on Form 10-K. Our plans for the use of cash in the long-term (beyond twelve months from this Annual Report) are similarly related to funding operating expenses and capital expenditure requirements as we continue to scale the business. For additional information regarding our cash requirements from lease obligations and contractual obligations, see Notes 7 and 21 in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. On March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation, or FDIC, was appointed as receiver. We have deposit accounts at SVB. The standard deposit insurance amount is up to $250 thousand per depositor, per insured bank, for each account ownership category. As of March 10, 2023, we had approximately $9.6 million in deposit accounts at SVB, of which approximately $2.2 million is held as collateral for a letter of credit under our lease agreements. We do not maintain any other material accounts or lines of credit with SVB. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors will have access to all of their money starting March 13, 2023. 49 Cash Flow Summary Twelve months ended December 31, 2022 2021 (in thousands) Net cash provided by (used in): Operating activities $ (71,649) $ (55,703) Investing activities $ 68,463 $ (151,546) Financing activities $ 8,067 $ 207,084 Operating Activities For the year ended December 31, 2022, net cash used in operating activities was $71,649. Factors affecting our operating cash flows during this period were net loss of $98,714, offset by stock-based compensation of $23,959, depreciation and amortization of $1,422, noncash lease expense of $1,338, amortization of premiums on marketable securities, net of change in accrued interest, of $1,086, inventory write-downs of $675, and issuance costs of $474. Within operating activities, the net changes in operating assets and liabilities were cash used of $1,980, primarily driven by increases in inventories and prepaid and other current assets of $2,634 and $1,130, respectively, and decreases in operating lease liabilities and contract liabilities of $1,341 and $1,931, respectively. Cash used was offset by cash provided by decreases in accounts receivable and other noncurrent assets of $3,605 and $527, respectively, and increases in accounts payable of $839. For the year ended December 31, 2021, net cash used in operating activities was $55,703. Factors affecting our operating cash flows during this period were net loss of $65,011 and gain on PPP loan forgiveness of $2,297, offset by stock-based compensation of $10,018 and depreciation and amortization of $1,014. Within operating activities, the net changes in operating assets and liabilities were cash used of $4,064, primarily driven by increases in prepaids and other current assets of $3,655, accounts receivable of $5,496, and accounts payable of $557. Investing Activities For the year ended December 31, 2022, net cash provided by investing activities was $68,463. The primary factors affecting net cash provided by investing activities during this period were proceeds from redemptions and maturities of marketable securities of $96,592, offset by the purchases of available-for-sale debt securities of $23,929 and property and equipment purchases of $4,200. For the year ended December 31, 2021, net cash used in investing activities was $151,546. The primary factor affecting net cash used in investing activities during this period was the purchase of available-for-sale debt securities of $150,525. Financing Activities For the year ended December 31, 2022, net cash provided by financing activities was $8,067. The primary factors affecting our financing cash flows during this period were net proceeds from the issuance of convertible notes of $9,850, proceeds from issuance of common stock under the CSPA of $2,891, and proceeds from the exercise of stock options of $1,174, offset by taxes paid related to the net share settlement of equity awards of $4,621 and payments for convertible note redemptions of $874. For the year ended December 31, 2021, net cash provided by financing activities was $207,084. The primary factors affecting our financing cash flows during this period were the proceeds from the Business Combination and PIPE financing of $256,811 and proceeds from a bank loan of $10,000, partially offset by transaction costs related to the Business Combination of $52,372 and principal payments on bank loans of $13,333. Critical Accounting Policies and Estimates Our consolidated financial statements are in accordance with GAAP. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, fair value measures, and the related disclosures in the consolidated financial statements. Our actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations. We believe our critical 50 accounting policies involve the greatest degree of judgement and complexity and have the greatest potential impact on our consolidated financial statements. Revenue We recognize revenues from R&D and development arrangements with OEMs and suppliers to the OEMs and from the sale of prototype products. Revenue represents the amount of expected consideration we are entitled to receive upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of sales taxes. We recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment; (ii) transfer of legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance of the goods or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation. The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex development arrangements with nonstandard terms and conditions may require relevant contract interpretation to determine the appropriate accounting treatment, including whether the promised goods and services specified in a multiple element arrangement are capable of being distinct and accounted for as separate performance obligations. Determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment. When a contract involves multiple performance obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement. For multiple element arrangements, the transaction price is allocated to each performance obligation using the relative stand-alone selling price, or SSP. 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, or use a residual approach to estimate the SSP for performance obligations where SSP is highly variable or uncertain. Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition. Emerging Growth Company Status Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the closing of the Business Combination, we will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which the Company has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which the Company has issued more than $1.0 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2025. We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to adopt such new or revised accounting standards early to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Recent Accounting Pronouncements See Note 1 to our consolidated f inancial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted 51 as of the date of this Annual Report on Form 10-K.