What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-02-28 · 174 added, 318 removed, 238 unchanged (67% of the section changed)

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On December 21, 2020, Ouster Technologies, Inc.

(“OTI”, prior to the Merger, named Ouster, Inc.) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Colonnade Acquisition Corp., a Cayman Islands exempted company (“CLA”), and Beam Merger Sub, Inc.

(“OTI,”) entered into an Agreement and Plan of Merger (the “Colonnade Merger Agreement”) with Colonnade Acquisition Corp., a Cayman Islands exempted company (“CLA”), and Beam Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation and subsidiary of CLA.

OTI’s and CLA’s board of directors unanimously approved OTI’s entry into the Merger Agreement, and on March 11, 2021, the transactions contemplated by the Merger Agreement were consummated (all such transactions, the “Business Combination”), as further described below.

Pursuant to the terms of the Merger Agreement, (i) CLA domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”) and changed its name to “Ouster, Inc.” (with CLA after such domestication and the other transactions pursuant to the Merger Agreement being referred to as the “Company”) and (ii) Merger Sub merged with and into OTI (the “Merger”), with OTI surviving the Merger.

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Unless the context otherwise requires, references in this subsection to “we”, “our” and “the Company” refer to the business and operations of OTI (formerly known as Ouster, Inc.) and its consolidated subsidiaries prior to the Merger and to Ouster, Inc.

(formerly known as Colonnade Acquisition Corp.) and its consolidated subsidiaries following the consummation of the Merger.

We are a leading provider of high-resolution digital lidar sensors that offer advanced 3D vision to machinery, vehicles, robots, and fixed infrastructure assets, allowing each to understand and visualize the surrounding world and ultimately enabling safe operation and autonomy.

We design and manufacture digital lidar sensors that we believe are the highest-performing, lowest-cost lidar solutions available today across each of our four target markets:

OTI’s and CLA’s board of directors unanimously approved OTI’s entry into the Colonnade Merger Agreement, and on March 11, 2021, the transactions contemplated by the Colonnade Merger Agreement were consummated (all such transactions, the “Business Combination”), as further described below.

Pursuant to the terms of the Colonnade Merger Agreement, (i) CLA domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”) and changed its name to “Ouster, Inc.” (with CLA after such domestication and the other transactions pursuant to the Colonnade Merger Agreement being referred to as the “Company”) and (ii) Merger Sub merged with and into OTI (the “Colonnade Merger”), with OTI surviving the Colonnade Merger.

Unless the context otherwise requires, references in this subsection to “we,” “our,” “Ouster” and “the Company” refer to the business and operations of OTI (formerly known as Ouster, Inc.) and its consolidated subsidiaries prior to the Colonnade Merger and to Ouster, Inc.

(formerly known as Colonnade Acquisition Corp.) and its consolidated subsidiaries following the consummation of the Colonnade Merger.

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We founded Ouster in 2015 with the invention of our high-performance digital lidar.

To continue to grow our bus iness in the coming years, we have expanded and plan to continue to expand our sales and marketing efforts and our software development capabilities, and to accelerate sensor development efforts.

We are headquartered in San Francisco, CA.

We are a leading global provider of high-resolution digital lidar sensors that offer advanced 3D vision to machinery, vehicles, robots, and fixed infrastructure assets, which allows each to understand and visualize the surrounding world and ultimately enabling safe operation and autonomy.

We design and manufacture digital lidar sensors that we believe are one of the highest-performing, lowest-cost lidar solutions available today across each of our four target markets:

industrial automation;

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and automotive.

We shipped sensors to over 600 paying customers including approximately 40 distributors in the year ended December 31, 2021.

Our digital lidar sensors leverage a simplified architecture based on two semiconductor chips and are backed by a suite of patent-protected technology.

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We are currently developing our solid-state DF product line, which is a suite of short, mid, and long-range solid-state digital lidar sensors that provide uniform precision imaging without motion blur across an entire field of view.

In October of 2021, Ouster acquired Sense Photonics, Inc.

(“Sense”) a developer of solid-state flash lidar based on VCSEL and SPAD technology.

This acquisition enables the development of the DF sensor line which leverages technology and engineering expertise from both companies.

As such, the product line has been renamed to reflect the underlying technology of our solid-state sensor lineup.

On October 19, 2022, we announced the launch of our newest OS series scanning sensors, REV7, powered by our 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.

The new REV7 sensors offer performance upgrades that we believe will enhance Ouster’s market opportunity, driven by new opportunities for longer-range and mapping applications.

We believe the simplicity of our digital lidar design gives us a meaningful advantage in costs related to manufacturing, supply chain and production yields.

The same digital lidar architecture underpins our entire product portfolio which we believe drives economies of scale in our supply chains and speeds time to market.

With virtually unlimited software-defined products driving low-cost customization, we are able to increase stock keeping units (“SKUs”) for industry-specific applications, expanding our product offering with minimal manufacturing or inventory changes.

Additionally, we are successfully expanding our manufacturing capacity by outsourcing to our manufacturing partner, Benchmark Electronics, Inc.

We are successfully expanding our manufacturing capacity by outsourcing to our manufacturing partner, Benchmark Electronics, Inc.

(“Benchmark”).

Benchmark manufactures our products at its facility in Thailand, which we expect will reduce our product costs and allow us to rapidly scale production to meet our anticipated product demand.

Based on cost quotes for our products in mass production, we believe our manufacturing costs to be lower than certain of our competitors, and we expect our manufacturing costs per unit to decrease further with higher volumes.

We have won and are actively negotiating a number of additional, multi-year sales contracts which includes our Strategic Customer Agreements (“SCAs”) which establish a multi-year purchase and supply framework for Ouster and the customer, and include details about customer programs and applications where the customer intends to use Ouster products.

SCAs also include multi-year binding and non-binding customer forecasts (typically of three to five years in length) that provide Ouster with more visibility into its customers' potential business requirements as well as potential revenue streams derived from sources such as mutually agreed upon pricing over the duration of the agreement.

We founded Ouster in 2015 with the invention of our high-performance digital lidar.

Since then, we have grown to approximately 278 employees serving over 600 paying customers globally in the year ended December 31, 2021.

We are headquartered in San Francisco, CA.

Merger Agreement with Colonnade Acquisition Corp.

and Beam Merger Sub, Inc.

On December 21, 2020, OTI entered into the Merger Agreement with CLA, and Merger Sub.

OTI’s and CLA’s board of directors unanimously approved OTI’s entry into the Merger Agreement, and on March 11, 2021, the transactions contemplated by the Merger Agreement were consummated.

Pursuant to the terms of the Merger Agreement, (i) CLA domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”) and changed its

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name to “Ouster, Inc.” (with CLA after such domestication and the other transactions pursuant to the Merger Agreement being referred to as the “Company”) and (ii) Merger Sub merged with and into OTI (the “Merger”), with OTI surviving the Merger.

As a result of and upon the effective time of the Domestication, among other things, (1) each of the then issued and outstanding 5,000,000 CLA Class B ordinary shares, par value $0.0001 per share, of CLA (the “CLA Class B ordinary shares”) converted automatically, on a one-for-one basis, into a CLA Class A ordinary share (as defined below), (2) immediately following the conversion described in clause (1), each of the then issued and outstanding 25,000,000 Class A ordinary shares, par value $0.0001 per share, of CLA (the “CLA Class A ordinary shares”), converted automatically, on a one-for-one basis, into a share of common stock, par value $0.0001 per share, of Ouster (the “Ouster common stock”), (3) each of the then issued and outstanding 10,000,000 redeemable warrants of CLA (the “CLA warrants”) converted automatically into a redeemable warrant to purchase one share of Ouster common stock (the “Public warrants”) pursuant to the Warrant Agreement, dated August 20, 2020 (the “Warrant Agreement”), between CLA and Continental Stock Transfer & Trust Company (“Continental”), as warrant agent, and (4) each of the then issued and outstanding units of CLA that had not been previously separated into the underlying CLA Class A ordinary shares and underlying CLA warrants upon the request of the holder thereof (the “CLA units”), were cancelled and entitled the holder thereof to one share of Ouster common stock and one-half of one Public warrant, and (5) each of the then issued and outstanding 6,000,000 private placement warrants of CLA (the “Private Placement warrants”) converted automatically into a warrant to purchase one share of Ouster common stock pursuant to the Warrant Agreement.

No fractional Public warrants were issued upon separation of the CLA units.

Immediately prior to the effective time of the Merger, (1) each share of OTI’s Series B Preferred Stock, par value $0.00001 per share (the “OTI Preferred Stock”), converted into one share of common stock, par value $0.00001 per share, of OTI (the “OTI common stock” and, together with OTI Preferred Stock, the “OTI Capital Stock”) (such conversion, the “OTI Preferred Conversion”) and (2) all of the outstanding warrants to purchase shares of OTI Capital Stock were exercised in full or terminated in accordance with their respective terms (the “OTI Warrant Settlement”).

As a result of and upon the closing of the Merger, among other things, all shares of OTI Capital Stock (after giving effect to the OTI Warrant Settlement) outstanding immediately prior to the closing of the Merger together with shares of OTI common stock reserved in respect of options to purchase shares of OTI common stock and restricted shares of OTI common stock (together, the “OTI Awards”) outstanding immediately prior to the closing of the Merger that were converted into awards based on Ouster common stock, were canceled in exchange for the right to receive, or the reservation of, an aggregate of 150,000,000 shares of Ouster common stock (at a deemed value of $10.00 per share), which, in the case of OTI Awards, were shares underlying awards based on Ouster common stock, representing a fully-diluted pre-transaction.

Upon the closing of the Merger, the Company received gross proceeds of $299.9 million from the Merger and private offering, offset by $8.5 million of pre-merger costs relating to CLA and offering costs of $26.6 million.

Sense Acquisition

On October 22, 2021, we completed the acquisition of Sense, a lidar technology company for autonomous vehicles, and formally established Ouster Automotive, a new functional division of the Company focusing on driving mass-market adoption of digital lidar in consumer and commercial vehicles.

The transaction has been accounted for as a business combination.

We purchased all of the outstanding shares of the capital stock of Sense and settled all Sense debt for a total consideration of $ 72.8 million comprised of 9,163,982 shares of the our common stock having a fair value of $ 60.0 million, fully vested replacement equity awards having a fair value of $ 1.1 million and a cash payment of $ 11.7 million to settle Sense pre-existing debt and transaction costs incurred by Sense in connection with the acquisition.

We issued and held back 1,573,427 shares of common stock with the aggregate fair value of $ 10.3 million to satisfy any necessary adjustments, including without limitation certain indemnification claims and net working capital shortfall (“Holdback Shares”).

The Holdback Shares will be released, net of any shares necessary to satisfy all unsatisfied or disputed claims for indemnification and net working capital shortfall, and distributed to the Sense stockholders in 18 months from the acquisition date.

The Holdback Shares are considered issued and outstanding from a legal perspective and have the same economic and voting rights as other issued and outstanding shares of our common stock.

We expect this acquisition will continue to help us expand our presence in the automotive vertical by executing on our hiring goals and product roadmap on a faster timeline.

We expect our manufacturing costs per unit to decrease further with higher volumes.

Merger with Velodyne Lidar, Inc.

On November 4, 2022, we entered into an Agreement and Plan of Merger (the “Velodyne Merger Agreement”) with Velodyne Lidar, Inc., a Delaware corporation (“Velodyne”), Oban Merger Sub, Inc., a Delaware corporation and one of our direct, wholly owned subsidiaries (“Velodyne Merger Sub I”) and Oban Merger Sub II LLC, a Delaware limited liability company and one of our direct, wholly owned subsidiaries (“Velodyne Merger Sub II”).

On February 10, 2023, we completed our merger of equals with Velodyne pursuant to the terms of the Agreement and Plan of Merger with Velodyne, Merger Sub I and Merger Sub II (the “Velodyne Merger”).

In connection with the closing of the Velodyne Merger, we and Velodyne now operate as a single combined company.

We believe the Velodyne Mergers will enhance our robust suite of product offerings;

grow our diverse customer base;

increase operational efficiencies;

further develop our innovative product roadmap in anticipation for the future needs of the market;

reduce our production costs;

improve our path to profitability;

and strengthen our future financial position.

Amazon Warrant

Amazon.com NV Investment Holdings LLC, a wholly-owned subsidiary of Amazon.com, Inc.

(“Amazon”), holds a warrant (“Amazon Warrant”) to acquire, following customary antidilution adjustments, up to an aggregate of 32,638,980 shares of our common stock at an exercise price of $5.07 per share.

We assumed the Amazon Warrant as part of the Velodyne Merger.

The exercise price and the warrant shares issuable upon exercise of the Amazon Warrant are subject to further antidilution adjustments, including in the event we make certain sales of common stock (or securities exercisable or convertible into or exchangeable for shares of our common stock) at a price less than the exercise price of the Amazon Warrant.

The Amazon Warrant is subject to vesting;

50% of the unvested Amazon Warrant vested as a result of the Velodyne Merger and the remainder will vest over time based on payments by Amazon or its affiliates to us in connection with Amazon’s purchase of goods and services from us.

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COVID-19 Impact

Throughout 2020 and 2021, the worldwide spread of the pandemic caused by the novel coronavirus (“COVID-19”), including several of its variants, and the measures intended to contain the spread of COVID-19, have resulted in a global slowdown of economic activity and caused disruptions to our business.

In particular, our headquarters are based in the San

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Francisco Bay Area, which has been subject to ongoing government measures and orders such as quarantines and social distancing.

During the second and third quarters of 2020 we slowed our operating and capital spending with the expectation that our revenue and ability to raise capital would be impacted by the global pandemic.

We believe that our overall growth rate during 2020 and 2021 was negatively impacted by the pandemic due in part to pandemic related supply chain issues, though, despite this impact, we were able to continue to grow our sales during 2021 and estimate that in the long-term the pandemic will act as a catalyst for wider adoption of automation and lidar technology.

As a San Francisco Bay Area based company, we were affected by the “shelter in place” order in the first and second quarter of 2020.

While the majority of our employees were able to work remotely, some employees, especially manufacturing employees, were not able to work from home.

The “shelter in place” order delayed order fulfillment and revenue recognition during the first and second quarters of 2020.

We continued to pay employees during the “shelter in place” order whether or not they were able to work.

Manufacturing and order fulfillment employees were able to return to work in the second quarter of 2020;

however, the number of employees allowed on premises at one time was greatly reduced as a result of the California reduced capacity mandates, which also affected our ability to fulfill orders and recognize revenue.

Some essential employees were paid hazard pay, and the hazard pay combined with underutilized employee pay increased our employee overhead and decreased gross margins in the first and second quarter of 2020.

Manufacturing employees continued to work in a reduced capacity at our San Francisco facility until the second quarter of 2021.

We have moved a large portion of our manufacturing to our contract manufacturer in Thailand, which allowed us to satisfy demand for our digital lidar sensors in the first two quarters of 2021 and consequently allowing us to increase our year over year revenue.

This trend continued throughout the rest of 2021 as we continued to ramp manufacturing at our contract manufacturer.

Our suppliers are located worldwide, and some of our key suppliers have been affected by the pandemic resulting in supply chain disruptions.

We have experienced and continue to experience some unfavorable purchase price variance and situational expedite fees in order to meet production and delivery timelines.

While we may see additional or new pressures on our supply chain both related and unrelated to the pandemic, we are actively taking steps to mitigate the impact of the materials shortages on our business.

While we experienced quarter-over-quarter increases in revenue in 2020 and 2021, some customers have delayed orders and production schedules due to COVID-19.

The pandemic continues to evolve, and the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and personnel-related costs, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19, the development of new variants of the disease and the actions taken to contain, prevent or treat COVID-19, rate and success of vaccination efforts, vaccine hesitancy, any resurgence of the pandemic in areas where we, Benchmark or our suppliers operate, and the economic impact on local, regional, national and international customers and markets.

Going forward, the situation remains uncertain, rapidly changing and hard to predict, and the COVID-19 pandemic may have a material negative impact on our future results.

Our suppliers who are located worldwide, including some of our key suppliers, have been affected by the novel coronavirus (“COVID-19”) pandemic, resulting in persistent supply chain disruptions.

We have been experiencing unfavorable purchase price variance and situational expedite fees in order to meet production and delivery timelines.

While we may experience additional and new pressures on our supply chain that may or may not be related to the pandemic, we have been actively taking steps to mitigate the impact of the materials shortages on our business.

Some customers have delayed their orders and production schedules.

In spite of what appears to be a “return-to-normal” in several regions, the pandemic continues to evolve, and the full extent to which it will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and personnel-related costs, will depend on future developments that are uncertain, including new information that may emerge concerning COVID-19, the impact of new variants and sub-variants and the actions taken to contain, prevent or treat COVID-19, rate and success of vaccination efforts, vaccination reticence, resurgence of the pandemic in areas where we, Benchmark or our suppliers operate, and the economic impact on local, regional, national and international customers and markets.

Because the situation remains uncertain and hard to predict, the COVID-19 pandemic may have a material negative impact on our future results.

Factors Affecting Our Performance

Supply Chain Continuity.

A recent surge in demand for electronics containing semiconductor chips and stockpiling of chips by certain companies has created disruptions in the supply chain, resulting in a global chip shortage impacting our industry.

Some chip manufacturers are estimating this supply shortage may continue into 2022.

These chip manufacturers are working to increase capacity in the future, and we are managing our inventory and working closely with our regular supplie rs and customers to minimize the potential impacts of any supply shortages including by securing additional inventory.

While we do not expect the shortage to have a material near-term impact on our ability to meet existing demand for our current products, the shortage adversely impacted our gross margins for the year ended December 31, 2021 and may continue to do so.

Beginning in 2021, a surge in demand for electronics containing semiconductor chips and stockpiling of chips by certain companies created disruptions in the supply chain, which continue to persist and have resulted in a global chip shortage impacting our industry.

Some chip manufacturers continue to estimate that this supply shortage may continue through the end of 2023.

These chip manufacturers are working to increase capacity in the future, and we are managing our inventory and working closely with our regular suppliers and customers to minimize the potential impacts of any supply shortages including by securing additional inventory.

We anticipate fluctuation in our cost of goods sold over the next 12-15 months as a result of ongoing supply chain constraints.

These constraints have caused and may in the future cause us to implement certain temporary price surcharges.

Over time, we expect our overall average selling prices to decline as our volume increases.

If our mitigating efforts are not successful or the shortage continues or worsens in ways we did not anticipate, our ability to supply or improve our current products as well as our development and rollout of future products could also be adversely affected.

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However, as our customers continue research and development projects to commercialize semi-autonomous solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end market and customer adoption.

As a result, we expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly and annual basis for the

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foreseeable future.

As a result, we expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly and annual basis for the foreseeable future.

As the market for lidar solutions matures and more customers reach a commercialization phase with solutions that rely on our technology, the fluctuations in our operating results may become less pronounced.

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We believe our sales volume by customer depends on the end market demand for our customers’ products that incorporate our digital lidar solutions as well as our ability to grow our sales force.

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Average Selling Prices (“ASPs”), Product Costs and Margins.

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We expect that our selling prices will vary by target end market and application due to market-specific supply and demand dynamics.

We expect to continue to experience some downward pressure on margins from signing anticipated large multi-year agreements (including our SCAs) in the near term with multi-year negotiated pricing, as well as supply chain constraints discussed above.

We expect these customer-specific selling price fluctuations combined with our volume-driven product costs may drive fluctuations in revenue and gross margins on a quarterly basis.

However, notwithstanding any short-term price surcharge on our products, we expect that over time our volume-driven product costs will lead to gross margin improvement as our sales volume increases.

Lidar is an emerging market, and there are competitors for the growing market.

We expect to continue to experience some downward pressure on margins from signing anticipated large multi-year agreements in the near term with multi-year negotiated pricing, as well as the supply chain constraints discussed above.

We expect that these customer-specific selling price fluctuations combined with our volume-driven product costs may drive fluctuations in revenue and gross margins on a quarterly basis.

However, notwithstanding any short-term price surcharges on our products, we expect that over time our volume-driven product costs will lead to gross margin improvement as our sales volume increases.

Lidar is an emerging market, and there are many competitors for the growing market.

This has created downward pressure on our ASPs, particularly in the Asia and Pacific region.

We expect this pressure to continue to push our ASPs lower in the coming years.

However, we believe that because of our complementary metal-oxide-semiconductor, (“CMOS”), digital lidar technology, we are in the position to scale more rapidly than our analog competitors and leverage our scale to deliver positive gross margins.

However, we believe that because of our complementary metal-oxide-semiconductor, (“CMOS”), digital lidar technology, we are well-positioned to scale more rapidly than our competitors and leverage our scale to deliver positive gross margins.

Continued Investment and Innovation.

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and Europe, Middle East and Africa.

We intend to expand our presence in these regions over time including through distribution

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partnerships.

We intend to expand our presence in these regions over time including through distribution partnerships.

Expanded global reach will require continued investment and may expose us to additional foreign currency risk, international taxes and tariffs, legal obligations and additional operational costs, risks and challenges that may impact our ability to meet our projected sales volumes, revenue and gross margins.

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All related costs are accrued and recognized within cost of revenue when the related revenue is recognized.

Most of our customers are currently in the evaluation or early R&D stage with our products.

Currently, our product revenue consists of both customers ordering small volumes of our products that are in an evaluation phase and customers that order larger volumes of our products and have more predictable long-term production schedules.

Most of our customers are innovators and early technology adopters incorporating our products into their solutions.

Currently, our product revenue consists of both customers ordering small volumes of our products that are in an evaluation

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phase and customers that order larger volumes of our products and have more predictable long-term production schedules.

However, we are still at the very beginning of the lidar adoption curve, and some customers are still learning their ramp rates which can impact the timing of purchase orders quarter to quarter.

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Over the coming years, as more of our customers move into their respective production phases, we expect the majority of our product revenue to shift to larger volume orders based on predictable production schedules.

We also expect more of our revenue to come from international customers, and anticipate that our sales from regions outside of North and South America will continue to grow over the long-term.

We also expect a significant amount of our revenue to come from international customers, and anticipate that our sales from regions outside of the Americas will continue to grow over the long-term.

Cost of Revenue

Cost of revenue consists of the manufacturing cost of our digital lidar sensors, which primarily consists of sensor components, personnel-related costs directly associated with our manufacturing organization, and amounts paid to our third-party contract manufacturer and vendors.

Our cost of revenue also includes depreciation of manufacturing equipment, an allocated portion of overhead, facility and IT costs, stock-based compensation for manufacturing personnel, reserves for estimated warranty expenses, excess and obsolete inventory and shipping costs.

Cost of revenue consists of the manufacturing cost of our digital lidar sensors, which primarily consists of sensor components, personnel-related expenses, including salaries, benefits, and stock-based compensation directly associated with our manufacturing organization, and amounts paid to our third-party contract manufacturer and vendors.

Our cost of revenue also includes depreciation of manufacturing equipment, an allocated portion of overhead, facility and IT costs, reserves for estimated warranty expenses, excess and obsolete inventory and shipping costs.

Gross Profit and Gross Margin

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We experienced negative gross margins from the fourth quarter of 2018 until we turned gross margin positive during 2020 primarily due to increased unit volumes which improved our ability to absorb fixed costs and lowered material costs by increasing our buying power and a shift to outsourced mass production of our sensors to Benchmark, who has leverage for greater volume discounts and lower overhead costs.

Subject to quarterly fluctuations and volatility, we expect unit costs to improve as we manufacture higher unit volumes of sensors and a greater portion of our sensors are produced by our contract manufacturer in Thailand.

Subject to quarterly fluctuations and volatility, we expect unit costs to decline as we manufacture higher unit volumes of sensors and a greater portion of our sensors are produced by our contract manufacturer in Thailand.

Operating Expenses

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• Robust testing for industrial and autonomous vehicle safety certifications;

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• Development of new products and enhancements to existing products in response to customer requirements including firmware development and software development of lidar integration products;

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Our absolute amount of R&D expenses will grow over time;

however, we expect R&D as a percentage of revenue to decrease annually as our business grows.

however, we expect R&D as a percentage of revenue to decrease over time as our business grows.

Sales and Marketing Expenses

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Selling and marketing expenses consist of personnel-related expenses, including salaries, benefits, and stock-based compensation, for all personnel directly involved in business development, customer support, and marketing activities, and marketing expenses including trade shows, advertising, and demonstration equipment.

We have experienced additional sales and marketing expenses as a result of our global expansion, but expect sales and marketing spend as a percentage of revenue to decrease over time as our business grows.

We have experienced additional sales and marketing expenses as a result of our global expansion, and expect sales and marketing spend as a percentage of revenue to decrease over time as our business grows.

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General and Administrative Expenses

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Our absolute amount of general and administrative expenses will grow over time;

however, we expect the general and administrative spend as a percentage of revenue to decrease annually as our business grows.

We have experienced and may in the near term experience additional increases in general and administrative expenses related to hiring more personnel and consultants to support our growing international expansion and compliance with the applicable provisions of the Sarbanes-Oxley Act (“SOX”) and other U.S.

Securities and Exchange Commission (“SEC”) rules and regulations as a result of being a public company.

however, we expect the general and administrative spend as a percentage of revenue to decrease over time as our business grows.

We have experienced and may in the near term experience additional increases in general and administrative expenses related to legal, accounting, finance and professional services costs associated with the Velodyne Merger, hiring more personnel and consultants to support our growing international expansion and compliance with the applicable provisions of the Sarbanes-Oxley Act (“SOX”) and other SEC rules and regulations as a result of being a public company.

Interest Income, Interest Expense, and Other Income (Expense), Net

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We continue to maintain a full valuation allowance against our net deferred tax assets.

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Results of Operations:

For a discussion of the Company’s results of operations and liquidity and capital resources for the year ended December 31, 2020, including a year-to-year comparison between the year ended December 31, 2021 to the year ended December 31, 2020, refer to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

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The following table summarizes key components of our results of operations for the years ended December 31, 2022 and 2021:

2021 2020 2019

Year Ended December 31,

(dollars in thousands)

Product revenue $ 33,578 $ 16,886 $ 9,804

Service revenue — 2,018 1,609

Total revenue 33,578 18,904 11,413

Revenue $ 41,029 $ 33,578

Cost of revenue (1)

Cost of product 24,492 17,365 17,120

Cost of services — 26 308

Total cost of revenue 24,492 17,391 17,428

30,099 24,492

Gross profit 10,930 9,086

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Loss from operations (145,423) (99,710)

Other income (expense):

Other (expense) income:

Interest income 2,208 471

Interest expense (2,694) (504)

Other income (expense), net 2,968 (52,150) 7

Total other income (expense), net 2,935 (54,643) (3,297)

Other income, net 7,654 2,968

Total other income, net 7,168 2,935

Loss before income taxes (138,255) (96,775)

(Benefit from) provision for income taxes (2,794) 375 1

Provision (benefit from) for income tax expense 305 (2,794)

Net loss $ (138,560) $ (93,981)

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The following table sets forth the components of our consolidated statements of operations and comprehensive loss data as a percentage of revenue for the periods presented:

2021 2020 2019

Year Ended December 31,

(% of total revenue)

Product revenue 100 % 89 % 86 %

Service revenue — 11 14

Total revenue 100 100 100

Revenue 100 % 100 %

Cost of revenue (1)

Cost of product 73 92 150

Cost of services — — 3

Total cost of revenue 73 92 153

Gross profit 27 27

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Interest expense (7) (2)

Other income (expense), net 9 (276) —

Total other expense, net 8 (289) (29)

Other income, net 19 9

Total other income, net 17 8

Loss before income taxes (337) (289)

(Benefit from) provision for income taxes (8) 2 —

Provision (benefit from) for income tax expense 1 (8)

Net loss (338) % (281) %

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(1) Includes stock-based compensation expense as follows:

2021 2020 2019

Year Ended December 31,

(dollars in thousands)

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Total stock-based compensation $ 33,321 $ 25,363

$ 25,363 $ 12,057 $ 1,293

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Comparison of the years ended December 31, 2022 and 2021

2021 - 2020 Change

Year Ended December 31,

2022 - 2021 Change

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(dollars in thousands)

Product revenue $ 33,578 $ 16,886 $ 9,804 $ 16,692 99 % $ 7,082 72 %

Service revenue — 2,018 1,609 (2,018) (100) 409 25 %

Total $ 33,578 $ 18,904 $ 11,413 $ 14,674 78 % $ 7,491 66 %

Revenue by geographic location:

United States $ 14,790 $ 8,328 $ 7,035 $ 6,462 78 % $ 1,293 18 %

Americas, excluding United States 866 436 361 430 99 75 21

Europe, Middle East and Africa 10,588 5,870 2,368 4,718 80 3,502 148

Americas $ 15,977 $ 15,656 $ 321 2 %

Asia and Pacific 9,510 7,334 2,176 30

Europe, Middle East and Africa 15,542 10,588 4,954 47

Total $ 41,029 $ 33,578 $ 7,451 22 %

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Product Revenue

Product revenue increased by $16.7 million , or 99%, to $33.6 million for the year ended December 31, 2021 from $16.9 million for the prior year.

The incr ease in product revenue was driven by an increase in volume of 202%, which we attribute primarily to the expansion of our sales team and the increase of high volume, long-term deals as some of our customers begin to move into the production stage with their autonomous products.

Our average selling price declined by 34% as expected as we sell higher volumes and are able to reduce our cost of goods sold per unit.

Service Revenue

Service revenue decreased by $2.0 million, or 100%, from the prior year.

This decrease in revenue was due to no non-recurring engineering work in the year ended December 31, 2021.

Geographic Locations

Revenue in the United States; Americas excluding the United States; Europe, the Middle East and Africa; and Asia and Pacific increased approximately by $6.5 million, $0.4 million, $4.7 million, and $3.1 million, respectively, in the year ended December 31, 2021 compared to the prior year.

The year-over-year global increases for all regions are a result of our investments in personnel and global expansion.

We have grown our commercial team across the Americas, Asia Pacific, Europe and the Middle East markets and brought on experienced leaders to develop a focused sales organization geared towards ramping our sales pipeline.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Product Revenue

Product revenue increased by $7.1 million, or 72%, to $16.9 million for the year ended December 31, 2020 from $9.8 million for the year ended December 31, 2019.

The increase in product revenue was driven by an increase in volume of 53%, which we attribute primarily to the release of new products and expansion of our sales team into new geographic regions, and an increase in average selling price of 12% which we attribute primarily to more favorable average selling prices for new products.

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Service Revenue

Service revenue increased by $0.4 million, or 25%, to $2.0 million for the year ended December 31, 2020 from $1.6 million for the year ended December 31, 2019.

This revenue represents non-recurring engineering work in relation to our new product release in early 2020.

Revenue increased by $7.5 million, or 22%, to $41.0 million for the year ended December 31, 2022 from $33.6 million for the prior year.

The increase in product revenue was driven by an increase in volume of 34%, which we attribute primarily to the expansion of our sales team and the increase of high volume, long-term deals as some of our customers begin to move into the production stage.

Our average selling price declined by 9%.

Geographic Locations

Revenue increased across the geographic regions of the United States, Americas excluding United States, Europe, Middle East and Africa, and Asia and Pacific by $1.3 million, $0.1 million, $3.5 million, and $2.6 million, respectively, for the year ended December 31, 2020.

The increases in Asia and Pacific and Europe, Middle East and Africa geographic regions were a result of recent expansion in those regions.

We opened sales offices in these regions in late 2019 and have since focused our sales resources on expanding globally.

The Americas revenue remained relatively flat compared to prior year.

Revenue increase in Asia and Pacific, Europe, Middle East and Africa regions was primarily attributable to our continued focus and investment in our global sales team and an increase in the demand of our products in the year ended December 31, 2022.

Cost of Revenue and Gross Margin

December 31, 2021 - 2020 Change

2020 - 2019 Change

Year Ended December 31, 2022 - 2021 Change

2022 2021 $ %

1 unchanged sentence

Cost of revenue $ 30,099 $ 24,492 $ 5,607 23 %

Cost of product $ 24,492 $ 17,365 $ 17,120 $ 7,127 41 % $ 245 1 %

Cost of services — 26 308 (26) (100) (282) (92) %

Total $ 24,492 $ 17,391 $ 17,428 $ 7,101 41 % $ (37) 0 %

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Product Cost of Revenue and Gross Margin

Product cost of revenue increased by $7.1 million, or 41%, to $24.5 million for the year ended December 31, 2021 from $17.4 million for the prior year and cost per unit decreased by 53% in the year ended December 31, 2021 compared to the prior year.

The increase in cost of product revenue was due to volume related increases of $8.0 million, $1.6 million, $13.1 million, and $12.4 million in material costs, freight, overhead, and other other product costs, respectively.

These increases in volume were partially offset by per unit decreases of $2.3 million, $1.2 million, $13.3 million, and $11.2 million in material costs, freight, overhead, and other other product costs, respectively.

Product gross margin increased from 8% for the year ended December 31, 2020 to 27% for the year ended December 31, 2021.

The improvement in product gross margin is primarily due to the 53% decrease in cost per unit partially offset by the 34% decrease in average selling prices referenced above.

Services Cost of Revenue and Gross Margin

Services cost of revenue decreased by $26.0 thousand.

This decrease in cost of revenue was due to there being no non-recurring engineering work in the year ended December 31, 2021 .

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Product Cost of Revenue and Gross Margin

Product cost of revenue increased by $0.2 million, or 1%, to $17.4 million for the year ended December 31, 2020 from $17.1 million for the year ended December 31, 2019 and cost per unit decreased by 35% in the year ended December 31, 2020.

The increase in product cost of revenue was primarily due to increases of $3.9 million in manufacturing overhead costs, $1.0 million in material costs and $0.2 million in freight.

The increases were partially offset by a decrease of $4.8 million in other product costs due to lower allowances for excess and obsolete inventory and component yield increases.

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Product gross margin increased from (53)% for the year ended December 31, 2019 to 8% for the year ended December 31, 2020.

The improvement in product gross margin is primarily due to the decrease in cost per unit and the 12% increase in average selling prices for new products.

Services Cost of Revenue and Gross Margin

Services cost of revenue decreased by $0.3 million, or 92%, to $26.0 thousand for the year ended December 31, 2020 from $0.3 million for the year ended December 31, 2019.

Services gross margin increased to 99% for the year from 81% for the year ended December 31, 2019.

This decrease in cost of revenue and subsequent increase in gross margin was primarily due to the majority of non-recurring engineering work for a large contract taking place in 2019.

Cost of revenue and Gross Margin

Cost of revenue increased by $5.6 million, or 23%, to $30.1 million for the year ended December 31, 2022 from $24.5 million for the prior year.

The increase in cost of revenue was primarily attributable to increase related to volume of units shipped.

Gross margin was flat at 27% for the year ended December 31, 2022 as the result of 8% decrease in cost per unit offset by the 9% decrease in average selling prices.

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Operating Expenses

December 31, 2021 - 2020 Change

2020 - 2019 Change

Year Ended December 31, 2022 - 2021 Change

2022 2021 $ %

6 unchanged sentences

$ 156,353 $ 108,796 $ 47,557 44 %

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Research and Development

Research and development expenses increased by $11.3 million, or 48%, to $34.6 million for the year ended December 31, 2021 from $23.3 million for the comparable period in the prior year.

The increase was primarily attributable to an increase of $8.1 million in payroll and personnel-related expense driven by an 89 person increase in employees and contractors of which the majority were added in the fourth quarter during the Sense acquisition, including a $1.2 million increase in stock-based compensation expense, an increase of $0.9 million in product development and equipment costs, an increase of $0.9 million in depreciation expense, an increase of $0.8 million in recruiting and other professional fees and an increase of $0.6 in facility, office and other expenses.

Sales and Marketing

Sales and marketing expenses increased by $13.3 million, or 147%, to $22.3 million for the year ended December 31, 2021 from $9.0 million for the comparable period in the prior year.

The increase was primarily attributable to an increase of $10.3 million in payroll and personnel-related costs driven by the addition of 46 sales personnel in all our global regions, of which $3.2 million was stock-based compensation related, an increase of $0.7 million in consulting and professional fees, an increase of $1.1 million for marketing expenses including additional branding and public relations expenses related to the Merger, an increase of $0.3 million in travel expenses, and $0.9 million in facility, office and related expenses related to opening and expanding sales offices around the world.

General and Administrative

General and administrative expenses increased by $31.0 million, or 148%, to $52.0 million for the year ended December 31, 2021 from $21.0 million for the comparable period in the prior year.

The increase was primarily due to an increase of $9.0 million of stock-based compensation, a $3.1 million increase in payroll-related expense due to a year over year increase of 18 employees and contractors, an increase of $8.4 million in legal, accounting and professional services fees mostly related to our initial public offering, an increase of $0.7 million in recruiting expense, an increase of $6.0 million in directors and officers insurance premiums, an increase of $2.0 million in facilities and office expense including

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equipment for new employees, investments in software infrastructure, and increases in business and local taxes, $0.5 million in investor and public relations, and an increase of $1.3 million in depreciation.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Research and Development

Research and development expenses for the year ended December 31, 2020 remained consistent with the year ended December 31, 2019.

The balance includes a $7.6 million increase in personnel-related costs, including a $5.4 million increase in stock-based compensation due to an increase in common stock value and a $2.2 million increase primarily related to our headcount growth.

These increases were partially offset by a $3.9 million reduction in development costs and $2.4 million reduction in consulting and contractor expense related to the design of new products in 2019, which was launched in the first quarter of 2020, a $0.7 million reduction in prototype and other research costs, a $0.4 million reduction in office expenses, and a $0.1 million reduction in depreciation expense.

Research and development expenses increased by $29.7 million, or 86%, to $64.3 million for the year ended December 31, 2022 from $34.6 million in the prior year.

The increase was primarily attributable to the $11.6 million increase in payroll-related expenses, $6.7 million increase in stock-based compensation expense, $6.5 million increase in contractor, prototype, and equipment costs related to product development, $2.6 million increase in depreciation and amortization expense mainly due to acquired developed technology amortization, and $2.3 million in other materials and supplies, facilities, professional fees and other miscellaneous costs attributable to research and development functions.

The increase in employee-related expenses was mainly due to the higher headcount associated with the Sense Photonics, Inc.

Sales and Marketing

Sales and marketing expenses increased by $4.5 million, or 100%, to $9.0 million for the year ended December 31, 2020 from $4.5 million for the year ended December 31, 2019.

The increase was primarily attributable to an increase of $3.6 million in payroll and personnel-related expenses driven by the addition of sales personnel, of which $0.5 million was stock-based compensation related, as well as smaller increases of $0.2 million for facility and office related expenses related to opening offices in Asia and Pacific and Europe, Middle East and Africa geographic regions and $0.3 million related to providing demonstration units for potential customers.

Sales and marketing expenses increased by $8.6 million, or 39%, to $30.8 million for the year ended December 31, 2022 from $22.3 million in the prior year.

The increase was primarily attributable to the $5.3 million increase in payroll and personnel-related costs and the $3.2 million increase in stock-based compensation expense driven by the addition of sales personnel globally.

General and Administrative

General and administrative expenses increased by $6.4 million, or 44%, to $21.0 million for the year ended December 31, 2020 from $14.5 million for the year ended December 31, 2019.

The increase was primarily due to an increase of $4.2 million of stock-based compensation and an increase of $2.2 million in accounting and professional services fees.

General and administrative expenses increased by $9.2 million, or 18%, to $61.2 million for the year ended December 31, 2022 from $52.0 million in the prior year.

The change was primarily attributable to the $2.6 million increase in litigation costs, $2.5 million increase in payroll and personnel-related costs, $2.3 million increase in professional services fees primarily related to Velodyne Merger, $2.2 million increase in office, facility and other expenses, $1.3 million increase in depreciation and amortization expenses and $1.1 million increase in insurance premiums, partially offset by a decrease of $2.8 million in stock-based compensation expenses.

Interest Income, Interest Expense and Other Income (Expense), Net

December 31, 2021 - 2020 Change

2020 - 2019 Change

Year Ended December 31, 2022 - 2021 Change

2022 2021 $ %

2 unchanged sentences

Interest expense (2,694) (504) (2,190) 435

Other income (expense), net 2,968 (52,150) 7 55,118 (106) (52,157) (745,100)

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Other income, net 7,654 2,968 4,686 158

Interest income was $2.2 million for the year ended December 31, 2022 compared to $0.5 million for the prior year.

This increase in interest income was primarily related to an increase in our cash and cash equivalent balances after the Merger closed on March 11, 2021.

The increase in interest income was primarily attributable to higher interest rates on excess cash and cash equivalent balances.

Interest expense was $2.7 million for the year ended December 31, 2022 compared to $0.5 million for the prior year.

The decrease was primarily due to the conversion of convertible notes in the second quarter of 2020 and the repayment of bank debt in the third quarter of 2020 and March 2021.

We recorded interest expense on our debt and amortization of debt issuance costs and discount in the year ended December 31, 2022 relating to multiple term loan borrowings and amortization of debt issuance costs and discount under our Loan and Security Agreement with Hercules Capital, Inc., dated April 29, 2022 (as amended, the “Term Loan Facility”).

Interest expense recorded in the year ended December 31, 2021 primarily consisted of interest and amortization of debt issuance

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cost and discount on the loan and security agreement with Runway Growth Credit and Fund Inc., which was terminated on March 26, 2021.

Other income (expense), net was $7.7 million for the year ended December 31, 2022 compared to $3.0 million for the prior year.

During the year ended December 31, 2022, we recorded a gain of $7.4 million for the fair value change of private placement warrant liability.

During the year ended December 31, 2021, we recorded a gain of $11.8 million for the fair value change of warrant liability and a loss of $8.8 million for the fair value change of redeemable convertible preferred stock warrant liability.

During the year ended December 31, 2020, we recorded losses of $48.4 million for the fair value change of the warrant liability and $5.3 million for the fair value change of the derivative liability related to our convertible notes, partially offset by a $1.6 million gain from extinguishment of the tranche liability which was recorded as other income.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Interest income was $0.0 million for the year ended December 31, 2020 compared to $0.3 million for the year ended December 31, 2019.

This decrease in interest income was primarily related to a decrease in our cash and cash equivalent balances for the year ended December 31, 2020.

Interest expense was $2.5 million for the year ended December 31, 2020 compared to $3.6 million for the year ended December 31, 2019.

The decrease was primarily due to the conversion of convertible notes in the second quarter of 2020 and the repayment of $3.0 million of bank debt.

Other income (expense), net was $(52.2) million for the year ended December 31, 2020 compared to $0.0 million for the year ended December 31, 2019.

During the year ended December 31, 2020, we recorded $5.3 million for the fair value change of the derivative liability related to our convertible notes and $48.4 million for the fair value change of warrant liability, partially offset by a $1.6 million gain from extinguishment of the tranche liability which was recorded as other income .

December 31, 2021 - 2020 Change

2020 - 2019 Change

Year Ended December 31, 2022 - 2021 Change

2022 2021 $ %

1 unchanged sentence

Loss before income taxes $ (138,255) $ (96,775) $ (41,480) 43 %

(Benefit from) provision for income taxes (2,794) 375 1 (3,169) 845 374 (37,400)

Provision (benefit from) for income tax expense 305 (2,794) 3,099 (111)

Effective tax rate (0.22) % 2.89 %

Our effective tax benefit was 2.89% for the year ended December 31, 2021 compared to our effective tax rate of (0.35)% for the prior year.

Our tax expense decreased by $3.2 million during the year ended December 31, 2021, compared to prior year, primarily due to the release of the valuation allowance of $2.8 million as a result of the recording of a deferred tax liability from an acquisition during the year.

Our effective tax rate was (0.35)% for the year ended December 31, 2020 compared to 0.00% for the prior year.

Our tax expense increased by $0.4 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to state taxes.

Our effective tax rate was (0.22)% for the year ended December 31, 2022 compared to our effective tax benefit of 2.89% for the prior year.

Our tax expense changed by $3.1 million during the year ended December 31, 2022, compared to prior year, primarily due to the release of the valuation allowance as a result of recording a deferred tax liability from an acquisition during the year ended December 31, 2021.

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents, cash generated from product revenues, sales of common stock under our at-the market equity offering program and our Loan Agreement with Hercules Capital, Inc.

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, public company costs and general corporate needs.

We expect these needs to continue as we develop and grow our business.

Prior to the Merger, we primarily funded our operations from the net proceeds from sales of our preferred convertible stock and convertible notes, borrowing under our loan and security agreement with Runway Growth Credit Fund, Inc.

Prior to the Colonnade Merger, we primarily funded our operations from the net proceeds from sales of our preferred convertible stock and convertible notes, borrowing under our loan and security agreement with Runway Growth Credit Fund, Inc.

and product revenue.

Upon closing of the Merger, we received gross proceeds of $299.9 million from the Merger and private offering, offset by $8.5 million of pre-merger costs relating to CLA and offerings costs of $26.6 million.

Subsequent to the Merger, our principal sources of liquidity have been and are expected to be our cash and cash equivalents and cash generated from product revenues.

Upon closing of the Colonnade Merger, we received gross proceeds of $299.9 million from the Colonnade Merger and private offering, offset by $8.5 million of pre-merger costs relating to CLA and transactions cost of $26.6 million.

On April 29, 2022, we entered into an open market sale agreement with B.

Riley Securities, Inc., Cantor Fitzgerald & Co.

and Oppenheimer & Co.

(the “ATM Agreement”), pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $150.0 million under an “at the market” offering program.

Subject to the terms and conditions of the agreement, we may sell the shares in amounts and at times to be determined by us but we are under no obligation to sell any of the shares.

Actual sales, if any, will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our common stock, capital needs and determinations by us of the appropriate sources of funding.

During the year ended December 31, 2022, we sold 7,833,709 shares of common stock for net proceeds of $15.8 million under the ATM Agreement.

We currently intend to use the net proceeds from the sale of shares pursuant to the ATM Agreement for working capital and general corporate purposes.

On April 29, 2022, we entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc.

(“Hercules”).

For additional information, see “Debt Arrangements” below.

As of December 31, 2022 we had an accumulated deficit of $441.9 million and cash and cash equivalents of $122.9 million.

We manage our cash and cash equivalents with financial institutions that we believe have high credit quality and, at times, such amounts exceed federally insured limits.

The failure of any bank with which we maintain a commercial relationship could cause us to lose our deposits in excess of the federally insured or protected amounts.

We have experienced recurring losses from operations, and negative cash flows from operations, and we expect to continue operating at a loss and to have negative cash flows from operations for the foreseeable future.

We believe our cash and cash equivalents on hand, together with cash we expect to generate from future operations, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Annual Report on Form 10-K.

However, because we are in the growth stage of our business and operate in an emerging field of technology, we expect to continue to invest in research and development and expand our sales and marketing teams worldwide.

We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our

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ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

In particular, the widespread COVID-19 pandemic, including variants, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.

Because we are in the growth stage of our business and operate in an emerging field of technology, we expect to continue to invest in research and development and expand our sales and marketing teams worldwide.

We may require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons.

If we are unable to obtain adequate financing or financing on

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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.

In particular, the widespread COVID-19 pandemic and current macroeconomic conditions, including elevated inflation rates and high interest rates, have resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.

If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.

PIPE Investment

On December 21, 2020, concurrently with the execution of the Merger Agreement, CLA entered into subscription agreements with certain institutional and accredited investors (collectively, the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase, in the aggregate, 10,000,000 shares of Ouster common stock at $10.00 per share for an aggregate commitment amount of $100,000,000 (the “PIPE Investment”), a portion of which was funded by certain affiliates of Colonnade Sponsor LLC, CLA’s sponsor (the “Sponsor”).

The PIPE Investment was consummated substantially concurrently with the closing of the Merger.

Financing Arrangements

On November 27, 2018, we entered into a Loan and Security Agreement with Runway Growth Credit Fund, Inc.

(“Runway Loan and Security Agreement”) and borrowed $10.0 million per the terms of that agreement with a loan maturity date of November 15, 2021.

The loan carried an interest rate equal to LIBOR plus 8.50%.

We repaid $3.0 million of the loan in August 2020.

On March 26, 2021 we terminated the Runway Loan and Security Agreement and repaid the $7.0 million principal amount outstanding as well as interest and fees amounting to $0.4 million.

We incurred no prepayment fees in connection with the termination and all liens and security interests securing the loan made pursuant to the Runway Loan and Security Agreement were released upon termination.

As of December 31, 2021 and December 31, 2020, the outstanding principal balance of the loan was nil and $7.0 million, respectively.

Debt Arrangements

As described above, on April 29, 2022, we entered into the Loan Agreement with Hercules, which provided us with a term loan facility of up to $50.0 million, subject to terms and conditions (the “Term Loan Facility”).

As of December 31, 2022, $40.0 million has been drawn to date under the Loan Agreement, and can be used for general working capital purposes subject to certain terms and conditions.

As of December 31, 2022, we did not achieve certain conditions relating to the achievement of trailing twelve month revenue and profit milestones therefore an additional $10.0 million under the Term Loan Facility is no longer available to us.

In contemplation of entry into the Velodyne Merger Agreement, on November 1, 2022, we entered into a Consent and Second Amendment to Loan and Security Agreement (the “Second Amendment”), amending the Loan Agreement.

Pursuant to the terms of the Second Amendment, the financial covenant requiring us to achieve certain trailing twelve month revenue thresholds commencing with the quarter ending June 30, 2023 was eliminated and replaced, contingent upon and effective as of the closing of the Velodyne Merger, with a minimum liquidity financial covenant whereby we must maintain at least $60 million of cash in deposit accounts that are subject to an account control agreement in favor of Hercules.

On February 10, 2023, we entered into the Third Amendment to Loan and Security Agreement (the “Third Amendment”), which amends certain provisions of the Loan Agreement, to (i) increase the existing debt baskets for (a) purchase money debt and capital leases, and (b) letter of credit obligations;

(ii) provide for increased flexibility to maintain cash in non-US accounts;

and (iii) provide for increased flexibility to relocate certain equipment.

For additional information regarding the terms of the Loan Agreement, see Note 7.

Debt and Note 18.

Subsequent Events to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K .

Material Cash Requirements

3 unchanged sentences

Our contractual obligations primarily consist of non-cancelable purchase commitments with various parties to purchase goods or services, primarily inventory, entered into in the normal course of business and operating leases.

For information regarding our other contractual obligations, refer to Note 9, Leases and Note 10, Commitments and Contingencies.

For information regarding our other contractual obligations, refer to Note 9.

Leases and Note 10.

Commitments and Contingencies.

Cash Flow Summary

Year Ended December 31,

2021 2020 2019

For the Years ended December 31,

(dollars in thousands)

8 unchanged sentences

During the year ended December 31, 2022, operating activities used $110.7 million in cash.

The primary factors affecting our operating cash flows during this period were our net loss of $94.0 million, impacted by our non-cash charges of $29.1 million primarily consisting of depreciation and amortization of $5.5 million , stock-based compensation of $25.4 million , change in right-of-use asset of $2.2 million , amortization of debt issuance costs and debt discount of $0.3 million , inventory write down of $0.8 million and allowance for expected credit losses of $0.4 million, partially offset by deferred income taxes of $2.5 million and $2.9 million change in fair value of warrant liabilities.

The cash used in changes in our operating assets and liabilities of $6.1 million was primarily due to an increase in accounts receivable of $8.0 million, an increase in inventories of $3.4 million , a decrease in prepaid expenses and other assets of $0.4 million, a decrease in accounts payable of $2.4 million, an increase in accrued and other liabilities of $9.1 million and a decrease of operating lease liability of $1.7 million .

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During the year ended December 31, 2020, operating activities used $42.1 million in cash.

The primary factors affecting our operating cash flows during this period were our net loss of $106.8 million , impacted by our non-cash charges of $72.0 million primarily consisting of a $5.3 million change in fair value of derivative liability and $48.4 million change in fair value of warrant liabilities, depreciation and amortization of $3.7 million , stock-based compensation of $12.1 million , change in right-of-use asset of $1.9 million , interest expense on convertible debt of $1.0 million, inventory write down of $0.8 million, amortization of debt issuance costs and debt discount of $0.3 million , partially offset by a gain on extinguishment of tranche right liability of $1.6 million .

The cash used in changes in our operating assets and liabilities of $7.3 million was primarily due to an increase in inventories of $3.1 million , an increase in accounts receivable of $1.5 million , an increase in prepaid expenses and other assets of $1.4 million , a decrease in accrued and other liabilities of $0.4 million, and a decrease of operating lease liability of $1.0 million.

The primary factors affecting our operating cash flows during this period were our net loss of $138.6 million, impacted by our non-cash charges of $41.4 million primarily consisting of depreciation and amortization of $9.5 million, stock-based compensation of $33.3 million, change in right-of-use asset of $2.7 million, interest expense and amortization of debt issuance costs and debt discount of $1.0 million, a $7.4 million change in fair value of warrant liabilities, inventory write down of $1.6 million allowance for expected credit losses of $0.3 million and loss from disposal of property and equipment of $0.4 million.

The cash used in changes in our operating assets and liabilities of $13.5 million was primarily due to an increase in accounts receivable of

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$0.9 million, an increase in inventories of $13.7 million, an increase in prepaid expenses and other assets of $3.1 million, an increase in accounts payable of $4.2 million, an increase in accrued and other liabilities of $3.2 million and a decrease in operating lease liability of $3.2 million.

During the year ended December 31, 2021, operating activities used $71.1 million in cash.

The primary factors affecting our operating cash flows during this period were our net loss of $51.7 million, impacted by our non-cash charges of $12.9 million primarily consisting of inventory write down of $4.8 million, interest expense on convertible debt of $2.4 million, depreciation and amortization of $2.0 million, change in right-of-use asset of $1.3 million, stock-based compensation of $1.2 million, write-off property and equipment of $0.6 million, amortization of debt issuance costs and debt discount $0.3 million.

The cash used in changes in our operating assets and liabilities of $1.4 million was primarily due to an increase in inventories of $5.4 million, an increase in prepaid expenses and other current assets of $0.5 million and an increase in accounts receivable of $0.6 million, an increase in accrued and other current liabilities of $2.6 million, an increase of accounts payable of $2.1 million, and an increase of operating lease liability of $0.4 million.

The primary factors affecting our operating cash flows during this period were our net loss of $94.0 million, impacted by our non-cash charges of $29.1 million primarily consisting of depreciation and amortization of $5.5 million, stock-based compensation of $25.4 million, change in deferred income taxes of $2.5 million, change in right-of-use asset of $2.2 million, amortization of debt issuance costs and debt discount of $0.3 million, $2.9 million change in fair value of warrant liabilities, inventory write down of $0.8 million and allowance for expected credit losses of $0.4 million.

The cash used in changes in our operating assets and liabilities of $6.1 million was primarily due to an increase in accounts receivable of $8.0 million, an increase in inventories of $3.4 million, a decrease in prepaid expenses and other assets of $0.4 million, a decrease in accounts payable of $2.4 million, an increase in accrued and other liabilities of $9.1 million and a decrease of operating lease liability of $1.7 million.

Investing Activities

During the year ended December 31, 2022, cash used in investing activities was $5.1 million, which was primarily related to purchases of property, plant and equipment of $5.4 million, partially offset by sales of property and equipment of $0.3 million.

During the year ended December 31, 2021, cash used in investin g activities was $15.2 million, which was primarily related to cash used for our acquisition of Sense, net of cash acquired, of $10.9 million and purchases of property, plant and equipment of $4.3 million.

During the year ended December 31, 2020, cash used in investing activities was $3.5 million, which was related to purchases of property, plant and equipment.

During the year ended December 31, 2019, cash used in investing activities was $7.5 million, which was related to purchases of property, plant and equipment.

Financing Activities

During the year ended December 31, 2021, cash provided by financing activities was $258.3 million, consisting primarily of net proceeds from the merger and PIPE Investment of $264.8 million, and proceeds from exercise of stock options of $0.5 million, partially offset by repayment of debt of $7.0 million.

During the year ended December 31, 2020, cash provided by financing activities was $39.9 million, consisting primarily of net proceeds from issuance of Series B redeemable convertible preferred stoc k of $41.5 million and proceeds from exercise of stock options of $1.3 million , partially offset by repayment of long-term debt of $3.0 million .

During the year ended December 31, 2019, cash provided by financing activities was $50.5 million primarily consisting of $40.5 million of net proceeds from issuance of convertible notes, and $10.0 million of proceeds from issuance of debt.

During the year ended December 31, 2022, cash provided by financing activities was $55.6 million, consisting primarily of $39.1 million of proceeds from borrowings, net of debt discount and issuance costs, $16.3 million of proceeds from the issuance of common stock under the ATM Agreement, net of commissions and fees, proceeds from exercise of stock options of $0.5 million and proceeds from ESPP purchase of $0.4 million.

During the year ended December 31, 2021, cash provided by financing activities was $258.3 million, consisting primarily of net proceeds from the Colonnade Merger and PIPE Investment of $264.8 million, and proceeds from exercise of stock options of $0.5 million, partially offset by repayment of debt of $7.0 million.

Critical Accounting Estimates

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Revenue is recognized at a point in time when control of the goods are transferred to the customer, occurring upon shipment or delivery dependent upon the terms of the underlying contract.

Product sales to certain customers may require customer acceptance due to performance acceptance criteria that is considered more than a formality.

For these product

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sales, revenue is recognized upon the expiration of the customer acceptance period.

Amounts billed to customers for shipping and handling are included in revenue.

Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.

For service projects, we bill and recognize revenue as the services are performed.

For these arrangements, control is transferred over time as we input costs incurred to complete the project;

therefore, revenue is recognized over the service period with the measure of progress using the input method based on labor costs incurred to total labor cost (cost-to-cost) as the services are provided.

We enter into contracts that can include multiple performance obligations, we account for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement.

The consideration is allocated between separate performance obligations in proportion to their estimated standalone selling price.

The standalone selling price reflects the price we would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers.

Business Combinations

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During the measurement period, which extends no later than one year from the acquisition date, we may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill.

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After the measurement period, all adjustments are recorded in the consolidated statements of operations within other income (expense), net.

Stock-Based Compensation

We measure and recognize stock-based compensation expense for stock-based awards granted to employees, directors, and consultants over the requisite service periods based on the estimated grant date fair value, which for options is using the Black-Scholes-Merton option pricing model using the following variables:

• Common Stock Valuation – The fair value of the shares of common stock underlying our stock-based awards issued after the Merger is based on the grant date closing fair market value of our common stock.

Before closing of the Merger, the fair value of the shares of common stock underlying our stock-based awards was historically determined by management and approved by the Board of Directors.

Because there was no public market for the our common stock, the Board of Directors determined the fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors, including contemporaneous valuations performed by an unrelated third-party specialist, valuations of comparable public companies, operating and financial performance, the lack of liquidity of capital stock, and general and industry-specific economic outlook.

Valuations performed by the third-party valuation specialist used methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“AICPA” Accounting and Valuation Guide).

In relation to options, the Board intends all options granted to be exercisable at a price per share not less than the per share fair value of the common stock underlying those options on the date of grant.

• Expected Term – The expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the options.

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• Expected Volatility – The expected volatility is based on the historical volatility for the period commensurate with the expected term of the awards for a peer group of comparable companies with publicly traded shares.

• Expected Dividends – We do not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

Accordingly, the expected dividend yield is 0%.

• Risk-Free Interest Rate – The risk-free interest rate is based on the U.S.

Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.

The fair values of the restricted stock awards and restricted stock units were determined based on the fair value of the our common stock on the grant date.

We recognize stock-based compensation expense over the requisite service period.

Forfeitures are accounted for as they occur.

Our policy for issuing stock upon stock option exercise is to issue new common stock.

The recoverability of goodwill is evaluated annually or whenever events or changes in circumstances indicate that the fair value of the reporting unit is less than its carrying amount.

The Company’s impairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of its single reporting unit is less than its carrying amount.

The Company’s qualitative assessment considers factors including changes in the macroeconomic, industry and market conditions, a sustained share price or market capitalization decrease, and if there is any other specific event.

If this qualitative assessment indicates it is more likely than not that the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is required and goodwill is not impaired.

Otherwise, we compare the estimated fair value of the asset to its carrying amount with an impairment loss recognized for the amount, if any, by which carrying value exceeds estimated fair value.

When the Company performs the quantitative test for goodwill, fair values are determined using a combination of the discounted cash flow approach (“income approach”) and the guideline public company method (“market approach”).

This approach requires the use of significant estimates and assumption including forecasted future cash flows, long-term future growth rates and discount rates.

Estimating the fair value of reporting unit requires the use of estimates and significant judgments that are based on a number of factors including actual operating results.

It is reasonably possible that the judgments and estimates described above could change in future periods.

Inventory Valuation

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A change in our estimates could have a significant impact on the value of our inventory and our results of operations.

Common Stock Valuations

Prior to the Business Combination, the fair value of the common stock underlying our stock-based awards was determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations.

Given the absence of a public trading market of our common stock prior to the Business Combination, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date.

These factors included:

• contemporaneous valuations of our common stock performed by independent third-party specialists;

• the prices, rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

• the prices paid for common or convertible preferred stock sold to third-party investors by us and prices paid in secondary transactions for shares repurchased by us in arm’s-length transactions, including any tender offers, if any;

• the lack of marketability inherent in our common stock;

• our actual operating and financial performance;

• our current business conditions and projections;

• the hiring of key personnel and the experience of our management;

• the history of the company and the introduction of new products;

• our stage of development;

• the likelihood of achieving a liquidity event, such as an initial public offering (IPO), a merger, or acquisition of our company given prevailing market conditions;

• the operational and financial performance of comparable publicly traded companies;

and global capital market conditions and overall economic conditions.

In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of income, market, cost approaches with input from management.

The income approach estimates value based on the expectation of future cash flows that a company will generate.

These future cash flows are discounted to their present values using a discount rate that is derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks

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inherent in our cash flows.

The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business.

From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial forecasts to estimate the value of the subject company.

For each valuation, the fair value of our business determined by these approaches was then allocated to the common stock using the option-pricing method.

In addition, we also considered any secondary transactions involving our capital stock.

In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange and assigned the transactions an appropriate weighting in the valuation of our common stock.

Factors considered include the number of different buyers and sellers, transaction volume, timing relative to the valuation date, whether the transactions occurred between willing and unrelated parties, and whether the transactions involved investors with access to our financial information.

Following the Business Combination, the fair value of our common stock is based on the closing price of our common stock on the relevant determination date, as reported on the New York Stock Exchange.

Recent Accounting Pronouncements

Please refer to Note 2 in our consolidated financial statements contained elsewhere in this Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Form 10-K.

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What changed 10-K

Item 7. Management’s Discussion and Analysis