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Item 1A. Risk Factors

2023-03-24 compared with 2022-02-28 · 498 added, 393 removed, 418 unchanged (68% of the section changed)

Our business involves significant risks, some of which are described below.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K.

Our business involves significant risks and uncertainties, some of which are described below.

You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10-K.

The risks and uncertainties described below are not the only ones we face.

Additional risk and uncertainties that we are unaware of

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or that we deem immaterial may also become important factors that adversely affect our business.

Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business.

The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives.

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Certain factors that could alone or in combination prevent us from successfully commercializing our products include:

• our reliance on third parties to supply significant parts of our production process or to manufacture our products;

• our ability to establish and maintain successful relationships with our suppliers or manufacturers;

• our ability to achieve commercial scale production of our products on a cost-effective basis and in a timely manner;

• our reliance on third parties to manufacture our products or supply significant parts needed for our production process;

• our ability to establish and maintain successful relationships with our manufacturers and suppliers;

• our ability to tailor our commercial production depending on scale and on a cost-effective basis in a timely manner;

• our ability to successfully expand our product offerings;

• our ability to develop and protect intellectual property;

• our ability to gain market acceptance of our products with customers and maintain and expand customer relationships, whether through strategic customer agreements or otherwise;

• our ability to gain market acceptance of our products with customers and maintain and expand customer relationships;

• the adaptability of our products and the ability of our customers to integrate our products into their products in a timely and effective manner;

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• the long-lead time for development of market opportunities, for which we are only at an early stage of development;

• our ability to forecast our revenue and budget for, and manage, our expenses;

• our ability to comply with existing and new or modified laws and regulations applicable to our business, or laws and regulations applicable to our customers for applications in which they may use our products;

• our ability to forecast our revenue, budget, and manage our expenses;

• our ability to comply with existing and new or modified local laws and regulations applicable to our business, or laws and regulations applicable to our customers for applications in which they may use our products;

• our ability to plan for and manage capital expenditures for our current and future products, and manage our supply chain and supplier relationships related to these current and future products;

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• our ability to maintain and enhance the value of our reputation and brand;

• our ability to effectively manage our growth and business operations, including the impacts of the COVID-19 pandemic on our business;

• our ability to effectively manage our growth and business operations;

• our ability to recruit and retain talented people at all levels of our organization.

If we fail to understand fully or adequately address the challenges that we are currently encountering or that we may encounter in the future, including those challenges described here and elsewhere in this Part I, Item 1A.“Risk Factors”, our business, financial condition and results of operations could be adversely and materially affected.

“Risk Factors,” our business, financial condition and results of operations could be adversely and materially affected.

If the risks and uncertainties that we plan for when operating our business are incorrect or change, or if we fail to manage these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.

Our future results will suffer if we do not recognize anticipated synergies, effectively manage the expanded operations or successfully integrate the businesses of Velodyne.

Our future success will depend, in part, upon our ability to manage the expanded business, including challenges related to the management and monitoring of new operations and associated increased costs and complexity associated with the

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Velodyne Merger and other mergers.

If we are not able to successfully complete integrations in an efficient and cost-effective manner, the anticipated benefits of this merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of our common stock may be affected adversely.

An inability to realize the full extent of the anticipated benefits of the Velodyne Merger, as well as any delays encountered in the integration processes, could have an adverse effect upon on our business, financial condition or results of operations.

In addition, the actual integrations may result in additional and unforeseen expenses, including increased legal, accounting and compliance costs.

We have incurred significant losses to date and may never achieve or sustain profitability.

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As of December 31, 2022, we had an accumulated deficit of $441.9 million .

Even if we are able to increase sales of our products, there can be no assurance that we will be commercially successful.

Even if we are able to increase the sales of our products, there can be no assurance that we will be commercially successful or profitable.

We expect we will continue to incur significant losses for the foreseeable future as we:

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• continue to hire additional personnel and make investments in research and development (“R&D”) in order to develop technology and related software;

• hire additional personnel, as needed, to support investments in research and development (“R&D”), in order to develop technology and related software and to support the compliance needs in connection with being a public company;

• increase our sales and marketing functions, including expansion of our customer support and distribution capabilities;

• hire additional personnel to support compliance requirements in connection with being a public company;

• continue to integrate the operations of Velodyne following our recent merger;

• expand operations and manufacturing.

If our products do not achieve sufficient market acceptance, we will not become profitable.

If we fail to become profitable, or if we are unable to fund our continuing losses we may be unable to continue our business operations.

If we fail to become profitable, or if we are unable to fund our business we may be unable to continue our operations.

There can be no assurance that we will ever achieve or sustain profitability.

If we are unable to overcome our limited sales history and establish and maintain confidence in our long-term business prospects among customers in our target markets or revenue opportunity does not materialize into sales and revenue, then our financial condition, operating results, business prospects and access to capital may suffer materially.

We expect to incur substantial R&D costs and devote significant resources to developing and commercializing new products, which could significantly affect our ability to become profitable and may not result in revenue to us.

Any delay or interruption of the development and commercialization of new products may adversely affect our existing business and prospects for securing future business.

Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new and effective products at an opportune time that may then achieve market acceptance.

To remain competitive, we continue to develop new products.

For instance, last October, we announced our newest OS series scanning sensor, REV7, powered by its next-generation L3 chip.

REV7 features the all-new OSDome sensor, as well as upgraded OS0, OS1, and OS2 sensors that deliver double the range, enhanced object detection, increased precision and accuracy, and greater reliability.

introduced the market.

In January 2023, we announced the release of our software, Ouster Gemini, a cloud-backed digital lidar perception platform for crowd analytics, security, and intelligent transportation systems.

Ouster Gemini offers the ability to detect, classify, and track moving objects in real-time using the 3D data from a single or multiple fused Ouster lidar sensors.

In connection with REV7, Ouster Gemini, and future releases, we expect to incur substantial, and potentially increasing, R&D costs.

Our R&D expenses were $64.3 million and $34.6 million during the years ended December 31, 2022 and 2021, respectively, and are likely to grow in the future, particularly as a result of the Velodyne Merger.

Because we account for R&D as an operating expense, these expenditures will adversely affect our results of operations in the future.

Further, our R&D program may be delayed and may not produce timely results.

If we cannot produce successful results in time to accommodate customers’ or potential customers’ development timelines, we may lose business.

If we are unsuccessful in introducing these products in accordance with our product launch plans or any publicly announced launch dates, it may be injurious to our reputation and brand and adversely affect our ability to be competitive in our four target markets and potential new markets.

In launching such products, we may face foreseen and unforeseen difficulties that adversely affect such the commercialization and could have a material adverse effect on our operations and business.

Additionally, the success of our competitors’ R&D efforts, including producing higher performing products or providing products competitive to our new products to our customers before us, may result in loss of business to us.

The promise of new products and successful R&D may even decrease our expected and actual revenue attributable to existing products, as historically, customers have delayed or cancelled outstanding purchasing commitments for certain products in anticipation of the release of new generation products from the Company.

There is no guarantee that these delays and cancellations will not occur again in the future as we develop, announce and commercialize new products like our DF solid-state lidar sensor or our complementary software solutions.

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If we are unable to overcome our limited sales history and establish and maintain confidence in our long-term business prospects among customers in our target markets or if our revenue opportunity does not materialize into sales and revenue, then our financial condition, operating results, business prospects and access to capital may suffer materially.

Our company has a limited sales history, as we only commenced selling our first revenue grade products in late 2018.

Because of our limited sales history, we have limited experience managing and growing our relationships with existing customers and securing new customers in our target industries.

Our relationships with many of our existing customers are limited as they may not be prepared to select the company as a long-term supplier given our limited operating and sales history.

Our relationships with many of our existing customers are limited as they may not be prepared to select Ouster as a long-term supplier given our limited operating and sales history.

To establish preliminary relationships with certain customers and to build their confidence, we have entered, and may continue to enter, into evaluation agreements, spot buy purchase orders, non-binding letters of intent, and strategic customer agreements.

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If we are unable to build confidence with our existing customers, either through these preliminary agreements (due to any failure to enter into or perform under the agreements) or otherwise, or if we are unable secure opportunity from these non-binding agreements, involving strategic customer agreements, we may be unable to produce accurate forecasts and become profitable.

With respect to new customers, they may be less confident in us and less likely to purchase our products because of a lack of awareness about our products.

Our new customers, or customers that we inherited from the Velodyne Merger, may be less confident in us and less likely to purchase our products because of a lack of awareness about our products.

They may also not be convinced that our business will succeed because of the absence of an established sales, service, support, and operating history.

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To build and maintain our business, we must maintain confidence in our products, long-term financial viability and business prospects.

Failure to establish and maintain customer confidence may also adversely affect our reputation and business among our suppliers, analysts, ratings agencies and other interested parties.

We currently target many customers that are large corporations with substantial negotiating power and exacting product standards.

If we are unable to sell our products to these customers, our prospects and results of operations will be adversely affected.

Many of our current and potential customers are large corporations that often possess significant leverage over their suppliers, and can successfully demand contract terms favorable to themselves, such as reserving the right to terminate their supply contracts for convenience.

This disparate power has required, and may require in the future, that we accept less favorable contract terms.

These large corporations also have exacting technical specifications and requirements that we have been unable to, and may continue to be unable to, meet, thereby precluding our ability to secure sales.

Meeting the technical requirements to secure and maintain significant contracts with any of these companies will require a substantial investment of our time and resources, and if we fail to comply with our customers’ technical specifications and standards, we may lose existing and future business.

Even when we succeed in securing contracts, these large companies have been and may continue to be uncertain about their technical specifications for our products and terminate our agreement or make a later determination that our products are not satisfactory.

We therefore have no assurance that we can establish relationships with these companies, that our products will meet the needs of these or other companies, or that a contract with these companies will culminate in significant or any product sales.

Even when we secure agreements with these companies, we may not be effective in negotiating contract terms or managing such relationships, which could adversely affect our future results of operations.

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Furthermore, in some instances, these large companies may have internally developed products and solutions that are competitive to our products.

These companies may have substantial research and development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies.

Such activities may foreclose significant sales opportunities for our products.

Failure to establish and maintain customer confidence may also adversely affect our reputation and business among our suppliers, analysts, ratings agencies, stockholders and other interested parties.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide and could cause our stock price to fluctuate or decline.

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• supply chain constraints and considerations and impacts on our costs of goods sold, such as shortages of semiconductor chips;

• our product mix and average selling prices, including negotiated selling prices and long-term strategic customer agreements;

• our product mix and average selling prices, including negotiated selling prices and long-term customer agreements;

• the cost of raw materials or supplied components critical for the manufacture of our products;

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• developments involving our competitors;

• changes in governmental regulations affecting us or applications in which our customers use our products;

• changes in governmental regulations affecting us or applications in which our customers use our products or software;

• future accounting pronouncements or changes in our accounting policies;

• the impact of epidemics or pandemics, including current business disruption and related financial impact resulting from the global COVID-19 health crisis;

• adverse litigation, judgments, settlements or other litigation-related costs, or claims that may give rise to such costs;

• general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

Many of these factors are outside of our control and may not fully reflect the underlying performance of our business.

The individual or cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results.

Many of these factors are outside of our control and may not accurately reflect the underlying performance of our business.

The individual or cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our

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quarterly and annual operating results.

As a result, comparing our operating results on a period-to-period basis may not be meaningful.

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If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common stock could decline substantially.

Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

We are subject to the risks of cancellation or postponement of our contracts with customers or unsuccessful implementation.

We have experienced, and may experience in the future, unexpected cancellations of major purchases of our products, which has affected and in the future may adversely affect our results of operations.

Prospective customers across our target markets generally must make significant commitments of resources to test and validate our products and confirm that they can be integrated with other technologies before including them in any particular system, product or model.

The development cycles of our products with new customers vary widely depending on the application, market, customer and the complexity of the product.

In our target markets, development cycles can be six months to seven or more years.

These development cycles require us to invest our resources prior to realizing any revenue from the commercialization.

Further, we are also subject to the risk that a customer may cancel or postpone implementation of its technology, as well as that it will not be able to integrate its technology successfully into a larger system with other sensing modalities.

Our revenue growth may be impaired if the system, product or vehicle model that includes our digital lidar sensors 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.

Market adoption of lidar remains uncertain, and it is difficult to forecast long-term end-customer adoption rates and demand for our products.

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Substantially all of our revenue is generated by the sale of our digital lidar sensors.

Given the evolving nature of the markets in which we operate, it is difficult to predict the customer demand or adoption rates for lidar technology generally or our products specifically.

If demand does not develop or if we cannot accurately forecast customer demand, our future financial results, business, results of operations and financial condition will be adversely affected.

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.

Any negative publicity, regardless of its accuracy, could materially adversely affect our business.

Additionally, existing non-lidar technologies may emerge as customers’ preferred alternative to lidar and may adversely affect adoption of our lidar solutions and of lidar generally.

Significant developments in alternative technologies, such as cameras and radar, may materially and adversely affect our business, prospects, financial condition and operating results in ways we do not currently anticipate.

Any failure by us or the lidar market generally to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could adversely affect adoption of lidar and sales of our current products or materially delay development and introduction of new and enhanced products, which could result in the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors.

We are pursuing opportunities in markets that involve novel applications that are rapidly evolving, and that include both technological and regulatory uncertainties, making it difficult to predict the size and timing of market opportunities.

For example, autonomous driving and lidar-based ADAS applications require complex technology and rigorous safety controls.

Because these automotive systems are both themselves complex, and also depend on complex technologies from many suppliers, commercialization of autonomous driving or ADAS products could be delayed or impaired on account of technological capabilities that are not sufficiently advanced for deployment in vehicles.

These standards may never be met at all.

Additionally, ADAS has yet to, and may never, achieve widespread adoption, which would reduce demand for lidar in that market.

These same concerns are also applicable to the robotics, industrial and smart infrastructure markets that we are targeting for use of our products.

Although we currently have contracts with numerous commercial customers across diverse markets, these customers may not be able to utilize our technology in the foreseeable 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 in this environment.

Many of our customers are still in the testing and development phases of applications with our products and it cannot be certain that they will commercialize products or systems with our digital lidar sensors or at all.

We believe adoption of lidar products, including our digital lidar sensors, 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 can keep pace with rapid technological change in certain developing markets.

If lidar technology generally does not achieve commercial success 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.

If we are not able to effectively grow our global sales and marketing organization, or maintain or grow an effective network of distributors, software value add resellers, and integrators, our business prospects, results of operations and financial condition could be adversely affected.

In order to generate future sales growth, we will need to expand the size and geographic coverage of our field organization, including marketing, direct sales, customer support and technical services.

Accordingly, our future success will depend largely on our ability to hire, train, retain, and motivate skilled regional sales managers and direct sales representatives with significant technical knowledge and understanding of our products.

Because of the competition for their skill set, we may not be able to attract or retain such personnel on reasonable terms, if at all.

If we are unable to grow our global sales and marketing organization, we may not be able to increase our revenue, which would adversely affect our business, financial condition and results of operations.

Additionally, we rely on a network of independent distributors to help generate sales of our products internationally.

If a dispute arises with a distributor or if we terminate our relationship with a distributor or a distributor goes out of business, it may take time to identify an alternative distributor, to train new personnel to market our products, and our ability to sell those products in a region formerly serviced by a terminated distributor could be harmed.

In addition, our distributors may not successfully market and sell our products and may not devote sufficient time and resources that we believe are necessary to enable our products to develop, achieve or sustain market acceptance.

Any of these factors could reduce our revenue or impair our revenue growth in affected markets, increase our costs in those markets or damage our reputation.

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addition, if an independent distributor were to depart and be retained by one of our competitors, we may be unable to prevent that distributor from soliciting business from our existing customers, which could further adversely affect us.

As a result of our reliance on third-party distributors, we may be subject to disruptions and increased costs due to factors beyond our control, including labor strikes, third-party errors and other issues.

If the services of any of these third-party distributors become unsatisfactory, we may experience delays in meeting our customers’ demands and we may be unable to find a suitable replacement on a timely basis or on commercially reasonable terms.

Any failure to deliver products in a timely manner may damage our reputation and could cause us to lose potential customers.

Any delay or interruption of the development and commercialization of new products may adversely affect our existing business and prospects for winning future business.

Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new and effective products on a timely basis that then achieve market acceptance.

To remain competitive, we are developing a suite of new products, including our DF solid-state lidar sensor and a software solution that is complementary to our existing and future hardware.

In connection with the development of the DF solid-state lidar sensor, complementary software, and other R&D for new products and product enhancements to be performed by the company, we plan to incur substantial, and potentially increasing, R&D costs.

Our R&D expense s wer e $34.6 million and $23.3 million during the years ended December 31, 2021 and December 31, 2020, respectively, and are likely to grow in the future.

Because we account for R&D as an operating expense, these expenditures will adversely affect our results of operations in the future.

Further, our R&D program may be delayed and may not produce timely results.

If we cannot produce successful results in time to accommodate customers’ or potential customers’ development timelines, we may lose business.

We expect to rely on products we are currently developing, such as our DF solid-state lidar and our software solutions, for a significant portion of our future growth;

however, even if our R&D efforts are successful and completed on time, there is no guarantee that we will be successful in adapting our business to our new products or that our new products will achieve market acceptance or generate sufficient revenue to make us profitable.

Our future products, such as any software solutions we develop, may be products we have limited or no experience commercializing.

In launching such products, we may face foreseen and unforeseen difficulties that adversely affect such the commercialization and could have a material adverse effect on our operations and business.

The promise of new products and successful R&D may even decrease our expected and actual revenue attributable to existing products, as historically, customers have delayed or cancelled outstanding purchasing commitments for current generation products in anticipation of the release of new generation products from the company.

Such a stock price decline could occur even if our performance is consistent with any previously publicly stated guidance.

Our revenue and margins could be adversely affected if we fail to maintain competitive average selling prices, high sales volumes, and/or fail to reduce product costs.

Cost-cutting initiatives adopted by our customers often place increased downward pressure on our average selling prices.

We also expect that any long term or high-volume agreements with customers may require step-downs in pricing over the term of the agreement or, if commercialized, over the period of production.

We strive to keep our average selling price competitive and expect to achieve profitability by maintaining competitive average sales prices and through continually lower product costs.

Our average selling price may be driven down by customer-specific selling price fluctuations such as non-standard discounts on large volume purchases.

These lower average selling prices on large volume purchases may cause fluctuations in revenue and gross margins on a quarterly and annual basis and ultimately adversely affect our profitability.

We have experienced and may in the future experience declines in the average selling prices of our products generally as our customers seek to commercialize autonomous systems at prices low enough to achieve market acceptance and as our competitors continue to produce and commercialize lower cost competing technologies.

To achieve profitability and maintain margins, we will also need to continually reduce product and manufacturing costs.

Reductions in product and manufacturing costs are principally achieved by scaling our production volumes and through step changes in manufacturing and continued engineering of the most cost-effective designs for our products.

Further, as we continue to provide support for REV6, we anticipate downward pressure on our margins.

In addition, we must continuously drive initiatives to reduce labor cost, improve worker efficiency, reduce the cost of materials and further lower overall product costs by carefully managing component prices, inventory and shipping cost.

We need to continually increase sales volume and introduce new, lower-cost products in order to maintain our overall gross margin.

If we are unable to maintain competitive average selling prices, increase our sales volume or successfully introduce new, low-cost products, our revenue and overall gross margin will likely decline.

We compete against established market participants that have substantially greater resources than us and against known and unknown market entrants who may disrupt our target markets.

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They may also have entered into commercial relationships with key customers and have built relationships and dependencies between themselves and those key customers.

In addition to the established market competitors, new competitors may be preparing to enter or are entering the lidar market that may disrupt the commercial landscape of target markets in ways that we may not be able to prepare for—including customers of lidar who may be developing their own competitive solutions.

We do not know how close any of our current and potential competitors are to commercializing their lidar products and services, nor what they intend to develop as part of their product roadmaps.

The already competitive landscape of the lidar market, along with both

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foreseeable and unforeseeable entries of competitors and lidar technology from those competitors in our target markets, may result in pricing pressure, reduced margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely affect our business, results of operations and financial condition.

In addition to current market competitors, new competitors may enter the lidar market or create products that function as an alternative to lidar, which may disrupt the commercial landscape of our target markets in ways that we may not be able to adapt to adequately and in a timely fashion.

The already competitive landscape of the lidar market, along with both foreseeable and unforeseeable entries of competitors and lidar technology from those competitors in our target markets, along with the potential emergence of new non-lidar solutions, may result in downward pricing pressure, reduced margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely affect our business, results of operations and financial condition.

We target many customers that are large corporations with substantial negotiating power and exacting product standards.

If we are unable to sell our products to these customers, our prospects and results of operations will be adversely affected.

The disparities in negotiating power between us and larger corporations have required, and may require in the future, that we accept less favorable contract terms.

Meeting the technical requirements to secure and maintain significant

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contracts with any of these companies will require a substantial investment of our time and resources, and if we fail to comply with our customers’ technical specifications and standards, we may lose existing and future business.

Even when we succeed in securing contracts, these large companies have required, and may require in the future, evolving technical specifications for our products and may terminate our agreement or make a later determination that our products are not satisfactory, and even set a standard for the industry that we may not be able to meet.

Furthermore, in some instances, these large companies may have internally developed products and solutions that are competitive to our products.

These companies may have substantial research and development resources, which may allow them to acquire or develop independently, or in partnership with others, competitive technologies.

Such activities may foreclose significant sales opportunities for our products.

If our products are not selected for inclusion in our target markets, our business will be materially and adversely affected.

Although our products are designed for use in multiple markets, each of our target or new markets may have unique barriers to entry.

If we are unsuccessful in overcoming these barriers, it may affect our entrance into these target or new markets which could adversely affect our future results of operations.

Although our products are designed for use in multiple markets, each of our target or new markets may have unique features and demands.

If we are unsuccessful in meeting this demand, it may affect our entrance into these target or new markets which could adversely affect our future results of operations.

Our products are used in a wide variety of existing and emerging use cases in the industrial market, where our target customers are generally engaged in the manufacturing, operation, or after-market modification of heavy industrial machinery.

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Our products also are used in a wide variety of existing and emerging use cases in the smart infrastructure market, which generally consists of public bodies and private commercial businesses engaging in the monitoring and analysis of pedestrian and vehicle movements for the purpose of providing building security, improving road user safety, and increasing roadway efficiency.

This is a nascent market, and while this industry is experimenting with the use of lidar in these applications, our customers may decide that lidar is not a feasible solution for one of a variety of reasons, including current price points of lidar sensors.

This is still a nascent market, and while this industry is experimenting with the use of lidar in these applications, our customers may decide that lidar is not a viable solution for a variety of reasons, including price points, interoperability, and integration of lidar sensors.

Customers in this market are often local governments, such as city governments, which may be subject to political pressures, and may not control their own budgets.

For example, programs could be cancelled due to legislative action that is out of a local government’s control.

Our products also are used in a wide variety of existing and emerging use cases in the robotics market, in which our customers are generally engaged in the design, production, operation, or after-market modification of small mobile human-less vehicles.

This is a competitive market that often has strict functional and pricing requirements for products.

If we are unable to make products that meet these requirements, or sell products at the required price point, we could lose this business to competitors or competitive technologies.

There are diverse and potentially conflicting requirements across the robotics industry that may force us to prioritize certain segments over others, resulting in a lower total available market.

Our target markets involve risks of program delay, loss, and cancellation.

Our products also may be purchased by automotive OEMs and their suppliers in connection with their design and development of autonomous driving and ADAS technology.

These programs are time and resource intensive, requiring thousands of man hours and several years.

Automotive OEMs and suppliers undertake extensive testing or qualification processes prior to placing orders for large quantities of products such as ours, because such products will function as part of a larger system or platform and must meet certain other specifications.

We spend significant time and resources to pursue the business of having our products selected by automotive OEMs and their suppliers for use in the manufacture of a particular vehicle model.

Because we do not have long-term, binding relationships with Tier 1s, automotive OEMs may be less inclined to select our products for use in their vehicle models.

If we are not chosen to supply products for a particular vehicle model, we may not have an opportunity to supply our products to that automotive OEM for that vehicle model for a period of many years, perhaps as long as five to seven or more years.

If we are not chosen to supply products to Tiers 1s, OEMs may be less inclined to select our products for a particular vehicle model, which could turn into a lost opportunity to supply our products to this automotive OEM for a period of several years.

If our products are not selected by an automotive OEM or its suppliers for one vehicle model or if our products are not successful in that vehicle model, it is less likely that our products 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 may be adversely affected.

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.

This is a competitive market that often has strict functional and pricing requirements for products.

If we are unable to make products that meet these requirements, or sell products at the required price point, we could lose this business to competitors or competitive technologies.

There are diverse and potentially conflicting requirements across the robotics industry that may force us to prioritize certain segments over others, resulting in a lower total available market.

Our target markets involve risks of program delay, loss, and cancellation.

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reputation with current or prospective customers, 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 and have in the past and will likely in the future experience defects, errors or reliability issues 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 reliability issues, 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 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 expenses, repair and/or replacement costs.

These problems may also result in claims, including class actions, 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, fraud, 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 us 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.

Our customers use our solutions in autonomous driving and ADAS applications, which 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 us liable.

In addition, if lawmakers or governmental agencies were to determine that the use of our products or autonomous driving or certain ADAS applications 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 may incur significant direct or indirect liabilities in connection with our product warranties which could adversely affect our business and operating results.

We typically offer a limited product warranty that requires our products to conform to the applicable specifications and be free from defects in materials and workmanship for a limited warranty period.

As a result of increased competition and changing standards in our target markets, we may be required to increase our warranty period length and the scope of our warranty.

To be competitive, we may be required to implement these increases before we are able to determine the economic impact of an increase.

Accordingly, we may be at risk that any such warranty increase could result in foreseeable and unforeseeable losses for the Company.

In particular, the usage of our products by target customers could make us liable for warranty claims and pecuniary and reputational damages.

In our target markets, our products may be placed in physical locations and environments that present harsh operating conditions, or that present a risk of product damage due to accidents or vandalism.

This may result in more product failures than we anticipate, and may require us to provide warranties for our products beyond our knowledge of their performance.

This could increase the rate of customer returns and warranty claims, resulting in higher-than-expected operating costs for us.

Product failures may also affect market acceptance of our products and our ability to win future business.

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.

We may require additional capital 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 fund our R&D efforts and 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 stay on our growth trajectory and further business relationships with current or potential customers or partners, or for other reasons, 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.

We may not be able to timely secure additional debt or equity financing on favorable terms, or at all, particularly in an

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uncertain economic environment.

The Company maintains the majority of its cash and cash equivalents in accounts with major U.S.

and multi-national financial institutions, and our deposits at these institutions exceed insured limits.

Market conditions can impact the viability of these institutions.

In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all.

Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

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

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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 and our business could be materially and adversely affected.

Key components in our products come from limited or single source third party suppliers, and we expect to rely on third-party to manufacture a significant portion of our products for the foreseeable future.

Interruptions in our relationship with these third parties could adversely impact our business.

We rely on third parties to supply key components of our digital lidar sensors and to manufacture a significant portion of our digital liar sensors.

In particular, for the year ended December 31, 2021, approximately 67% of our manufacturing output was provided through our relationship with Benchmark Electronics, Inc.

(“Benchmark”), a percentage which we expect will increase over time as we scale our operations.

We have also outsourced much of our transportation and logistics management.

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.

We face risks related to our indebtedness.

As of December 31, 2022, we had total outstanding debt of $40.0 million under our Loan and Security Agreement with Hercules Capital, Inc.

(“Hercules”), as amended.

We may incur additional indebtedness in the future.

Our leverage could have important consequences to us, including:

• exposing us to the risk of increased interest rates as our borrowings under our current debt facilities are at variable rates;

• making it more difficult for us to make payments on our debt;

• limiting our ability to pay future dividends;

• increasing our vulnerability to downturns in our business, the storage and organization retail industry or the general economy and limiting our flexibility in planning for, or reacting to, changes in our business;

• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our debt, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities;

• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

• requiring us to comply with financial and operational covenants as well as leverage covenants, restricting us, among other things, from placing liens on our assets, making investments, incurring debt, making payments to our equity or debt holders and engaging in transactions with affiliates;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes;

• preventing us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our store base and product offerings;

• placing us at a competitive disadvantage compared to our competitors who may be less leveraged.

Consequences of this indebtedness may require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our debt, thereby reducing our ability to use our cash flow to fund operations, capital expenditures, and future business opportunities.

If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.

We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.

A failure by us or our subsidiaries to comply with the agreements governing our indebtedness could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations.

Upon the occurrence of an event of default under any of the agreements governing our indebtedness, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements.

If any of our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern.

Market adoption of lidar remains uncertain, and it is difficult to forecast long-term end-customer adoption rates and demand for our products.

Substantially all of our revenue is generated by the sale of our digital lidar sensors.

Given the evolving nature of the markets in which we operate, it is difficult to predict the customer demand or adoption rates for lidar technology generally or our products specifically.

If demand does not develop or if we cannot accurately forecast customer demand, our future financial results, business, results of operations and financial condition will be adversely affected.

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

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in general or specifically our products.

Any negative publicity, regardless of its accuracy, could materially and adversely affect our business.

Additionally, existing or new non-lidar technologies may emerge as customers’ preferred alternative to lidar and may adversely affect the adoption of our lidar solutions and of lidar generally.

Any failure by us or the lidar market generally to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could adversely affect the adoption of lidar and sales of our current products or materially delay the development and introduction of new and enhanced products, which could result in the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors.

For example, autonomous driving and lidar-based ADAS applications require complex technology, stringent testing, and rigorous safety controls.

These standards may never be met at all.

Additionally, ADAS has yet to, and may never, achieve widespread adoption, which would reduce demand for lidar in that market.

Similar concerns are also applicable to our other three verticals.

Although we currently have contracts with numerous commercial customers across diverse markets, these customers may not be able to utilize our technology in the foreseeable future, or at all.

Our future financial performance will depend on our ability to make timely investments in the correct market opportunities in this environment.

We believe adoption of lidar products, including our digital lidar sensors, will depend on numerous factors, including:

whether the technological capabilities of lidar and lidar-based products meet users’ current and evolving needs;

If lidar technology generally does not achieve commercial success or if the market adoption is slower than expected, our business, results of operation and financial condition will be materially and adversely affected.

We may experience difficulties in managing our growth and expanding our operations.

We are experiencing 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 product certifications, quality management systems certifications, environmental certifications, export controls, privacy and cybersecurity and anti-corruption.

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.

Additionally, rapid growth in our business may place a strain on our human and capital resources.

Furthermore, we expect to continue to conduct our business internationally and anticipate increased business operations in the United States, Europe, Asia and the Middle East and Africa.

These diversified, global operations place increased demands on our limited resources and require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage and retain qualified management, technical, manufacturing, engineering, sales and other personnel.

As our operations expand domestically and internationally, we will need to continue to manage multiple locations and additional relationships with various customers, partners, suppliers and other third parties across several markets.

We are focusing our current commercial efforts across four distinct target markets.

We will be required to prioritize our limited financial and managerial resources as we pursue particular development and commercialization efforts in each target market.

Any resources we expend on one or more of these efforts could be at the expense of other potentially profitable opportunities.

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If we are not able to effectively grow our global sales and marketing organization, or maintain or grow an effective network of distributors, resellers, and integrators, our business prospects, results of operations and financial condition could be adversely affected.

Because of the competition for their skillset, we may not be able to attract or retain such personnel on reasonable terms, if at all.

If we are unable to grow our global sales and marketing organizations, we may not be able to increase our revenue, which would adversely affect our business, financial condition and results of operations.

Additionally, we rely on a network of independent distributors to help generate sales of our products internationally.

If a dispute arises with a distributor or if we terminate our relationship with a distributor or a distributor goes out of business, it may take time to identify an alternative distributor, to train new personnel to market our products, and our ability to sell our products in a region formerly serviced by a terminated distributor could be harmed.

Any of these factors could reduce our revenue or impair our revenue growth in affected markets, increase our costs in those markets or damage our reputation.

In addition, if an independent distributor were to depart and be retained by one of our competitors, we may be unable to prevent that distributor from soliciting business from our existing customers, which could further adversely affect us.

Any failure to deliver products in a timely manner may damage our reputation and could cause us to lose potential customers.

Our forecasts of market growth may not be accurate.

Market opportunity estimates and growth forecasts included in this Annual Report on Form 10-K and in our other public disclosures are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.

The forecasts and estimates relating to the expected size and growth of the markets for lidar-based technology may prove to be inaccurate.

Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all.

Our future growth is subject to many factors, including market adoption of our products, which is subject to many risks and uncertainties.

Accordingly, the forecasts and estimates of market size and growth described in this Annual Report on Form 10-K and in our other public disclosures, should not be taken as indicative of our future growth.

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 and while growing our international sales is an important part of our growth strategy, these efforts may not be successful.

International operations are subject to a number of other risks, including:

• import and export laws and the impact of tariffs;

• exchange rate fluctuations;

• political and economic instability, war, international terrorism and anti-American sentiment, particularly in emerging markets and the war between Russia and Ukraine;

• 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;

• increased risk in collecting trade receivables;

• delayed revenue recognition;

• less effective protection and/or lack of enforceability of intellectual property;

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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;

• changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws;

government’s restrictions on certain technology transfer to certain countries of concern.

The occurrence of any of these risks could negatively affect our international business and consequently our business, operating results, and financial condition.

We are subject to the risk of cancellation or postponement of our contracts with customers or the unsuccessful implementation of our products, which may adversely affect our business, results of operations and financial condition.

We have experienced, and may experience in the future, unexpected cancellations of major purchases of our products, which has affected and may adversely affect our results of operations.

Our products must meet customer specifications for quality, reliability and performance.

Integration of our products may reveal errors, defects or incompatibilities with other sensing modalities that, if we are unable to correct them, may result in loss of customers, loss of market share, damage to our brand and reputation, increased service and replacement costs, lack of profitability, and constitute a hindrance to market acceptance.

Although our agreements may contain provisions that aim at limiting our liability for damages resulting from defects in our products, such limitations and disclaimers may not be enforceable or otherwise effectively protect us from such claims, and we may have 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, which could adversely affect our operating results and business prospects.

These inherent operational risks are all the more important that the development cycles of our products with new customers vary widely depending on the application, market, customer and the complexity of the product.

In our four target markets, development cycles can be six months to seven or more years.

These development cycles require us to invest significant resources prior to realizing any revenue from the commercialization.

Our revenue growth may be impaired if the system, product or vehicle model that includes our digital lidar sensors is unsuccessful, including for reasons unrelated to our technology or software.

Long development cycles and product cancellations or postponements may adversely affect our business, results of operations and financial condition.

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 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 our current target 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, other epidemics and public health crises, 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.

We may face challenges acquiring adequate supplies to manufacture our products and we, Benchmark and Fabrinet may not be able to manufacture our sensors at a rate necessary to satisfy the levels of demand, which would negatively affect our short-term and long-term growth.

This risk may be exacerbated by the fact that we may not carry or be able to obtain from our suppliers 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 have resulted and may in the future 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 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.

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We are exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellation risk.

We record a write-down for product and component inventories that have become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value.

We also accrue necessary cancellation fee reserves for orders of excess products and components.

We review long-lived assets, including capital assets held at our suppliers’ facilities, for impairment whenever events or circumstances indicate the assets may not be recoverable.

If we determine that an impairment has occurred, we record a write-down equal to the amount by which the carrying value of the asset exceeds its fair value.

No assurance can be given that we will not incur write-downs, fees, impairments and other charges given the rapid and unpredictable pace of product obsolescence in the industries in which we compete.

We order components for our products and build inventory in advance of product manufacturing and shipments.

Manufacturing purchase obligations cover our forecasted component and manufacturing requirements, typically for periods up to three months.

Because our target markets are volatile, competitive and subject to rapid technology and price changes, and because we have limited sales history, there is a risk we will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm our purchase commitments.

Our business could be materially and adversely affected if our customers become unable to, or otherwise do not, pay their invoices.

If one or more of our major customers is unable to pay our invoices as they become due or a customer simply refuses to make such payments if it experiences financial difficulties, our business would be adversely affected.

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.

Additionally, a number of our customers are startup companies, small and mid-sized business, that are privately funded, have limited resources, and do not have a history of creditworthiness that we can audit to determine reliability and increase the potential risk to record potential losses.

These companies could fail to raise enough capital and have to shut down operations.

Even if they are financially solvent and stable and we are successful in securing a commercial relationship with them, their business plans for future programs may be inherently uncertain and unpredictable, and less structured than established companies.

We are exposed to credit risk on our trade accounts receivable, supplier non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.

We sell our products directly to small and mid-sized businesses and educational customers.

Our outstanding trade receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance.

Our exposure to credit and collectability risk on our trade receivables is higher in certain international markets and our ability to mitigate such risks may be limited.

We also have unsecured supplier non-trade receivables resulting from purchases of components by outsourcing partners and other vendors that manufacture sub-assemblies or assemble final products for us.

In addition, from time to time, we may make prepayments associated with long-term supply agreements to secure supply of inventory components.

While we are implementing procedures to monitor and limit exposure to credit risk on our trade and supplier non-trade receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2022, we had $246.2 million of U.S.

federal and $124.9 million of state net operating loss carryforwards available to reduce future taxable income.

Of the $246.2 million in U.S.

federal net operating loss carryforwards, $237.7 million will be carried forward indefinitely.

state net operating loss carryforwards, $124.9 million less than $0.1 million will begin to expire in 2031.

It is possible that we will not generate taxable income in time to use these net operating loss carryforwards before their expiration (if we generate taxable income at all).

In addition, our 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, respectively, and similar provisions of state law.

Under those sections of the Internal Revenue Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited.

In general, an “ownership change” will occur if there is a cumulative change in our ownership by certain significant shareholders that exceeds 50 percentage points over a rolling three-year period.

Similar rules may apply under state tax laws.

The Company has experienced ownership changes since its inception, and may experience ownership changes in the future as a result of future transactions in our stock, including the closing of the Velodyne Merger.

If it is determined that we have in the past experienced an ownership change, or if we undergo one or more ownership changes in the future, then our ability to utilize our U.S.

federal and state net operating loss carryforwards or other tax attributes may be limited or eliminated.

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Key components in our products come from limited or single source third party suppliers, and we expect to rely on third parties to manufacture a significant portion of our products for the foreseeable future.

Interruptions in our relationships with these third parties could adversely impact our business.

We rely on third party manufacturers, including Benchmark Electronics, Inc.

(“Benchmark”) and Fabrinet USA Inc.

(“Fabrinet”), to supply our products.

These arrangements are intended to lower our operating costs, but they also reduce our direct control over production and distribution.

This diminished control may have an adverse effect on the quality or quantity of products or services, or our flexibility to respond to changing conditions.

If Benchmark or any of our third-party component suppliers or logistics and transportation partners experience interruptions, delays or disruptions in supplying their products or services, including by natural disasters, the global COVID-19 pandemic, other health epidemics and outbreaks, or work stoppages or capacity constraints, our ability to ship products to distributors and customers may be delayed.

If Benchmark or any of our third-party component suppliers or logistics and transportation partners experience interruptions, delays or disruptions in supplying their products or services, including by natural disasters, trade restrictions, the global COVID-19 pandemic, other epidemics and public health crises, or work stoppages or capacity constraints, our ability to ship products to distributors and customers may be delayed.

In addition, unfavorable economic conditions could result in financial distress among third-party suppliers or manufacturers upon which we rely, thereby increasing the risk of disruption of supplies necessary to fulfill our production requirements and meet customer demands.

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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 our products to our customers, and cause our customers to use competitors’ products instead of ours.

An interruption in, or the loss of operations at, one or more of our suppliers’ facilities or at Benchmark’s facility, which may be caused by work stoppages, disease outbreaks or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters at one or more of these facilities, could delay, postpone or reduce production of some of our

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products, which could have a material adverse effect on our business, results of operations and financial condition until such time as such interruption is resolved or an alternate source of production is secured.

Should operations at our third-party suppliers, including Benchmark and Fabrinet, encounter disruptions or losses that may be caused by work stoppages, disease outbreaks or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters, it could result in delays, postponement or reduce production of our products, which could have a material adverse effect on our business, results of operations and financial condition until such time as such production disruption is resolved or an alternate source of production or supply is secured.

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Outsourcing a substantial percentage of our manufacturing outside of the United States involves certain risks or may not be successful, which could harm our ability to deliver products and recognize revenue.

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• foreign government regulatory requirements;

• stricter lockdown measures in some countries aimed at controlling the spread of COVID-19;

• reduced protection for intellectual property rights in some countries;

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• potentially adverse tax consequences.

We are exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellation risk.

We record a write-down for product and component inventories that have become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value.

We also accrue necessary cancellation fee reserves for orders of excess products and components.

We review long-lived assets, including capital assets held at our suppliers’ facilities, for impairment whenever events or circumstances indicate the assets may not be recoverable.

If we determine that an impairment has occurred, we record a write-down equal to the amount by which the carrying value of the asset exceeds its fair value.

Although we believe our inventory, capital assets, and other assets and purchase commitments are currently recoverable, no assurance can be given that we will not incur write-downs, fees, impairments and other charges given the rapid and unpredictable pace of product obsolescence in the industries in which we compete.

We order components for our products and build inventory in advance of product manufacturing and shipments.

Manufacturing purchase obligations cover our forecasted component and manufacturing requirements, typically for periods up to three months.

Our forecasts of market growth may not be accurate.

The forecasts and estimates relating to the expected size and growth of the markets for lidar-based technology may prove to be inaccurate.

Even if these markets experience the forecasted growth , we may not grow our business at similar rates, or at all.

Our future growth is subject to many factors, including market adoption of our products, which is subject to many risks and uncertainties.

Accordingly, the forecasts and estimates of market size and growth described in

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this Annual Report on Form 10-K and in our other public disclosures, should not be taken as indicative of our future growth.

In addition, these forecasts do not take into account the impact of the current global COVID-19 pandemic, and we have no assurances that these forecasts will not be materially and adversely affected as a result.

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.

Additionally, rapid growth in our business may place a strain on our human and capital resources.

Furthermore, we expect to continue to conduct our business internationally and anticipate increased business operations in the United States, Europe, Asia and elsewhere.

We are focusing our current commercial efforts across four distinct target markets.

We will be required to prioritize our limited financial and managerial resources as we pursue particular development and commercialization efforts in each target market.

Any resources we expend on one or more of these efforts could be at the expense of other potentially profitable opportunities.

We plan to continue working with Fabrinet, which was historically Velodyne’s primary manufacturing partner, for the manufacturing output of our Velodyne sensors.

Integration with Fabrinet may require additional capital expenditures, efforts and attention from our management and personnel, is subject to similar risks as those enumerated with respect to Benchmark, and potentially higher risks inherent to building a new relationship.

We do not currently have long-term, committed supply contracts with many of our suppliers.

Loss of one or more of these suppliers or our inability to identify and establish relationships with new suppliers could harm our business and impede our growth.

Because of the absence of long-term supply contracts, any of these suppliers could seek to alter or terminate its relationship with us at any time, leaving us with periods during which we have limited or no ability to manufacture our products.

Because we do not maintain long-term supply contracts, any of our suppliers could seek to alter or terminate its relationship with us at any time, leaving us with periods during which we have limited or no ability to manufacture our products.

The production of our products is dependent on producing or sourcing certain key components, including semiconductor chips, and raw materials at acceptable price levels.

If we are unable to adequately reduce and control the costs of such key components, we will be unable to realize manufacturing costs targets, which could reduce the market adoption of our products, damage our reputation with current or prospective customers, and materially and adversely impact our brand, business, prospects, financial condition and operating results.

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 forecast inventory needs and expenses, place orders sufficiently in advance with our suppliers and manufacturing partner 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 our current target 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, other health epidemics and outbreaks, 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.

We may face challenges acquiring adequate supplies to manufacture our products and we and Benchmark may not be able to manufacture our products at a rate necessary to satisfy the levels of demand, which would negatively affect our short-term and long-term growth.

This risk may be exacerbated by the fact that we may not carry or be able to obtain for our suppliers 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.

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Our business could be materially and adversely affected if our customers become unable to, or otherwise do not, pay their invoices.

If one or more of our major customers would be unable to pay our invoices as they become due or a customer simply refuses to make such payments if it experiences financial difficulties, our business would be adversely affected.

Additionally, a number of our customers are early stage, startup companies that are privately funded, have limited resources, and do not have a history of creditworthiness that we can audit to determine reliability.

They could fail to raise enough capital and have to shut down operations.

We sell our products directly to small and mid-sized businesses and educational customers.

Our outstanding trade receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance.

Our exposure to credit and collectability risk on our trade receivables is higher in certain international markets and our ability to mitigate such risks may be limited.

In addition, from time to time, we may make prepayments associated with long-term supply agreements to secure supply of inventory components.

If we engage in acquisitions to grow our business, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations and cause our stock price to decline.

If appropriate opportunities become available, we may seek to acquire businesses, assets, technologies or products to enhance our business.

For example, in October 2021, we acquired Sense to help us expand our presence in the automotive vertical by executing on our hiring goal product roadmap on a faster timeline.

In connection with any acquisitions, we could issue additional equity securities, which would dilute our stockholders, incur substantial debt to fund the acquisitions or assume significant liabilities.

Acquisitions involve many and diverse risks and uncertainties, including problems integrating the purchased operations, assets, technologies or products as well as unanticipated costs, liabilities, and economic, political, legal and regulatory challenges due to our inexperience operating in new regions or countries and we may fail to successfully integrate acquired companies, such as Sense, or retain key personnel from the acquired company.

To date, we have limited experience with acquisitions and the integration of acquired technology and personnel.

Acquisitions may divert our attention from our core business.

Acquisitions may require us to record goodwill and non-amortizable intangible assets that will be subject to testing on a regular basis and potential period impairment charges, incur amortization expenses related to certain intangible assets, and incur write offs and restructuring and other related expenses, any of which could harm our operating results and financial condition.

New business strategies, especially those involving acquisitions, are inherently risky and may not be successful.

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.

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 56% and 56% of our revenue for the years ended December 31, 2021 and 2020, re spectively.

Growing our international sales is an important part of our growth strategy, but these efforts may not be successful.

International operations are subject to a number of other risks, including:

• import and export laws and the impact of tariffs;

• exchange rate fluctuations;

• political and economic instability, war, international terrorism and anti-American sentiment, particularly in emerging markets and the current situation in Russia and Ukraine;

• global or regional health crises, such as the COVID-19 pandemic or other health epidemics and outbreaks;

• potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;

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• 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;

• increased risk in collecting trade receivables;

• 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;

• changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws;

government’s restrictions on certain technology transfer to certain countries of concern.

The occurrence of any of these risks could negatively affect our international business and consequently our business, operating results, and financial condition.

The complexity of our products could result in unforeseen delays or expenses from undetected defects, errors or reliability issues in hardware or software which could reduce the market adoption of our new products, damage our reputation with current or prospective customers, expose us to product liability and other claims and adversely affect our operating costs.

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.

These risks are particularly prevalent in the 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.