What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-24 · 159 added, 149 removed, 263 unchanged (54% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Annual Report on Form 10-K.

On December 21, 2020, Ouster Technologies, 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 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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On April 20, 2023, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Certificate of Incorporation to effect a one-for-10 reverse stock split of our common stock and a corresponding reduction in our authorized shares of common stock (the “Reverse Stock Split”).

The historical share and per share information included herein have been adjusted to reflect the Reverse Stock Split.

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.

To continue to grow our bus iness in the coming years, we have expanded and plan to continue to maintain and opportunistically 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:

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and automotive.

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We also provide perception software platforms for smart infrastructure deployments.

Our software enables real-time people and object detection, classification, and tracking for actionable, intuitive, and customizable insights while preserving personally identifiable information.

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 believe that our extensive patent coverage creates material barriers to entry for anyone aiming to compete in the digital lidar space.

Our product offering today includes three models of sensors in our OS product line:

the ultra-wide field of view OS0, the mid-range OS1, and the long-range OS2.

In January 2020 we released new models in our OS product line, increasing the resolution of our OS1 model and introducing the OS0 and OS2 models.

Our product offering currently includes four models of sensors in our OS product line:

the hemispheric field of view OSDome, the ultra-wide field of view OS0, the mid-range OS1, and the long-range OS2.

Within our OS sensor models, we offer numerous customization options, all enabled by embedded software.

For each of our three models in the OS product line, we offer resolution options of 128 lines vertically (“channels”), 64 channels, or 32 channels, as well as many beam spacing options.

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.

On October 19, 2022, we announced the launch of our newest OS series scanning sensors, REV7, powered by our next-generation L3 chip.

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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.

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.

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

Within our OS sensor models, we offer numerous customization options, all enabled by embedded software which minimizes changes to manufacturing or inventory.

Our main manufacturing partners are Benchmark and Fabrinet.

Benchmark and Fabrinet manufacture the majority of our products at their facilities in Thailand, which we expect will continue to reduce our product costs and allow us to continue to rapidly scale production to meet our anticipated product demand.

Based on cost quotes for our products in mass production, we anticipate our manufacturing costs per unit will decrease further with higher volumes.

Merger with Velodyne Lidar, Inc.

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and strengthen our future financial position.

Our product offerings acquired through the Velodyne Merger includes three models of sensors.

The Alpha Prime (VLS-128) is a lidar sensor designed for autonomous driving and advanced vehicle safety, offering a 300-meter range with 128 lasers and real-time 3D data at 0.1-degree vertical and horizontal resolution.

Recognized at the Pace Automotive Award in 2019, it provides a superior combination of range, resolution, and precision for Level 4 and Level 5 autonomous vehicles in both highway and low-speed urban environments.

On the other hand, the Puck (VLP-16) is designed for mass production and affordability, featuring 16 lasers, a 100-meter range, and a multi-laser design with lower power consumption, lighter weight, and a compact footprint, making it suitable for low-speed autonomy and driver assistance.

The Puck Hi-Res (VLP-16 Hi-Res) is an enhanced version of the original Puck, designed for applications requiring high image resolution, maintaining a 100-meter range and introducing a tighter laser distribution for more details in the 3D image at longer ranges, enabling better object identification.

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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.

(“Amazon”), holds a warrant (“Amazon Warrant”) to acquire shares of our common stock.

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

As a result of the issuance and sale by us of an additional 2,878,875 shares of common stock in the year ended December 31, 2023 pursuant to the At-Market-Issuance Sales Agreement at prices below the exercise price of the Amazon Warrant, an antidilution adjustment to the terms of the Amazon Warrant occurred, resulting in the increase in the number of shares issuable under the Amazon Warrant by 618 shares of common stock and a reduction to the original strike price of the Amazon Warrant to $50.70 per share.

As of December 31, 2023, there were 3,264,516 shares of common stock issuable under the Amazon Warrant.

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

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.

50% of the unvested Amazon Warrant as of the date of the Velodyne Merger 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.

Factors Affecting Our Performance

Supply Chain Continuity.

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.

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 years ended December 31, 2022 and 2021.

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.

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.

Commercialization of Lidar Applications.

We believe that lidar is approaching its inflection point of adoption across our target end market applications, and that we are well-positioned to capitalize on this market adoption.

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 foreseeable future.

We believe that lidar and system solutions, including our subscription-based software, are approaching an inflection point of adoption across our target end market applications, and that we are well-positioned to capitalize on this market adoption.

However, as our customers continue research and development projects 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 continue to 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.

Nonetheless, our revenue may not grow as we expect unless and until more customers commercialize their products and lidar technology becomes more prevalent across our target end markets.

In May 2023, the Company announced that it had been awarded a serial production agreement with Motional, a global leader in driverless technology, to be Motional’s exclusive supplier of long-range lidar using the VLS-128 lidar sensor through 2026, and we intend to seek to establish similar relationships with other customers.

In 2024, our strategic business objectives include expanding software solutions.

Accordingly, we expect to make progress towards growing our revenue and expanding gross margins.

Nonetheless, our revenue and gross margins may not increase as we expect unless and until more customers commercialize their products and lidar technology becomes more prevalent across our target end markets.

Number of Customers in Production.

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Customers’ Sales Volumes.

Our customer base is diversified and we will continue to penetrate into diverse end markets to increase our sales volumes.

Our customer base is diversified and we aim to continue to penetrate into diverse end markets to increase our sales volumes.

Ultimately widespread adoption of our customers’ products that incorporate our lidar solutions will depend on many factors, including the size of our customers’ end markets, end market penetration of our customer’s products that incorporate our digital lidar solutions, our end customers’ ability to sell their products, and the financial stability and reputation of the customers.

In 2024, our strategic business objectives include growing our installed base of customers.

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.

Our product costs and gross margins depend largely on the volumes of sensors sold and the number and variety of solutions we provide to our customers.

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 in the near term with multi-year negotiated pricing, as well as the supply chain constraints discussed above.

Our product costs and gross margins depend largely on the volumes of sensors shipped, the mix of existing and new products sold and the number and variety of solutions we provide to our customers.

We anticipate 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 in the near term with multi-year negotiated pricing.

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.

However, notwithstanding any short-term price surcharges on our products, we expect that over time our volume-driven product costs will decrease.

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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.

This has created downward pressure on our ASPs.

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 well-positioned to scale more rapidly than our competitors and leverage our scale to deliver positive gross margins.

However, we believe that because of our complementary metal-oxide-semiconductor, 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.

We believe that we are a leading digital lidar provider.

We believe that we are a leading lidar provider.

Our financial performance is significantly dependent on our ability to maintain this leading position which is further dependent on the investments we make in research and development.

We believe it is essential that we continue to identify and respond to rapidly evolving customer requirements, including successfully realizing our product roadmap.

We believe it is essential that we continue to identify and respond to rapidly evolving customer requirements, including successfully progressing our digital lidar roadmap and developing technologies that will enhance the operating performance of our products.

For example, our next generation L4 custom silicon chip is taped out and we believe it will bring significant improvements in range, field of view, and manufacturability, along with safety certifications to the OS sensor family, and we currently plan to integrate the Chronos chip into its solid-state digital flash sensors in 2024.

If we fail to continue our innovation, our market position and revenue may be adversely affected, and our investments in that area will not be recovered.

Market Trends and Uncertainties.

We anticipate robust demand for our digital lidar solution.

We estimate a multibillion dollar total addressable market (“TAM”) for our solutions in the near future.

We anticipate increasing demand for our digital lidar solution.

We estimate a multibillion dollar total addressable market (“TAM”) for our solutions in the future.

We define our TAM as automation applications in the industrial, smart infrastructure, robotics and automotive end markets where we actively engage and maintain customer relationships.

Each of our target markets is potentially a significant global opportunity, and these markets have historically been underserved by limited or inferior technology or not served at all.

We believe we are well positioned in our market as a leading provider of high-resolution digital lidar sensors.

Although increasing adoption of semi-autonomous solutions that rely on lidar technology may generate higher demand, we may not be able to take advantage of demand if we are unable to anticipate regulatory changes and adapt quickly enough to meet such new regulatory standards or requirements applicable to us or to our customers’ products in which our digital lidar sensors are used.

We believe we are well positioned in our market as a leading provider of high-resolution lidar sensors.

Market acceptance of semi-autonomous solutions and active safety technology depend upon many factors, including cost, performance, safety performance, regulatory requirements and international taxes or tariffs related to such technologies.

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We have an existing presence in three regions:

North and South America;

Asia and Pacific;

Asia-Pacific;

and Europe, Middle East and Africa.

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Components of Results of Operations

The majority of our revenue comes from the sale of our digital lidar sensors and accessories both directly to end users and through distributors both domestically and internationally.

The majority of our revenue comes from the sale of our lidar sensors and accessories both directly to end users and through distributors both domestically and internationally.

We recognize revenue from product sales when the performance obligation of transferring control of the product to the customer has been met, generally when the product is shipped.

We also recognize revenue by performing services related to product development and validation, and shipping;

We also recognize revenue by performing services related to product development, validation, maintenance under our extended warranty contracts and shipping;

however, we do not expect product development and validation and license and services to be material components of revenue, cost of revenue or gross margin in the foreseeable future.

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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

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.

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

As we grow our business, we expect to continue to improve our own understanding of our customers’ needs and timelines, and expect the timing of orders will have a less notable impact on our quarterly results.

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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.

As we grow our business we expect to improve predictability into our customers’ needs and timelines, and expect the timing of orders will have a less notable impact on our quarterly results.

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 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 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.

Cost of revenue consists of the manufacturing cost of our 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, amortization of intangible assets, an allocated portion of overhead, facility and IT costs, warranty expenses, excess and obsolete inventory and shipping costs.

Gross Profit and Gross Margin

Our gross profit equals total revenues less our total cost of revenues, and our gross margin is our gross profit expressed as a percentage of total revenue.

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 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

Research and Development Expenses

Research and development (“R&D”) activities are primarily conducted at our San Francisco based headquarters and our additional R&D facility in Edinburgh, Scotland and consist of the following activities:

Research and development (“R&D”) activities are primarily conducted at our San Francisco based headquarters and our additional R&D facilities in Scotland and Canada and consist of the following activities:

• Design, prototyping, and testing of proprietary electrical, optical, and mechanical subsystems for our digital lidar products;

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• Development of custom manufacturing equipment.

R&D expenses consist of personnel-related expenses, including salaries, benefits, and stock-based compensation, for all personnel directly involved in R&D activities, third-party engineering and contractor costs, prototype expenses, amortization of intangible assets, and an allocation of shared overhead costs including facilities, utilities and IT-related costs that support R&D activities.

R&D costs are expensed as they are incurred.

Our investment in R&D will continue to grow as we invest in new lidar technology and related software.

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

Our absolute amount of R&D expenses is expected to grow over time;

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

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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.

Sales and marketing expenses also include amortization expense of intangible assets related to customer relationships associated with the acquisitions.

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

General and administrative expenses consist of personnel-related expenses, including salaries, benefits, and stock-based compensation, of our executives and members of the board of directors, finance, human resource, IT, and legal departments as well as fees related to legal fees, patent prosecution, accounting, finance and professional services as well as insurance and bank fees.

General and administrative expenses consist of personnel-related expenses, including salaries, benefits, and stock-based compensation, of our executives and members of the board of directors, finance, human resources, an allocation of shared overhead costs including facilities, utilities and IT-related costs that support general and administrative activities, as well as amortization of intangible assets, fees related to legal fees, patent prosecution, accounting, finance and professional services, as well as insurance and bank fees.

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 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.

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, litigation activities, 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.

Goodwill Impairment Charges

In the year ended December 31, 2023, we recorded goodwill impairment charges of $166.7 million.

These charges were primarily driven by the decrease in the Company’s market capitalization during the period.

Our goodwill impairment analysis includes a comparison of the aggregate estimated fair value of our reporting unit to our total market capitalization.

There were no goodwill impairment charges during the year ended December 31, 2022.

As of December 31, 2023, our remaining goodwill balance was nil.

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

Interest income consists primarily of income earned on our cash and cash equivalents.

These amounts will vary based on our cash and cash equivalents balances and market rates.

Interest expense consists primarily of interest on our debt and convertible notes and amortization of debt issuance costs and discounts.

Other income (expense), net consists primarily of realized and unrealized gains and losses on foreign currency transactions and balances, the change in fair value of financial instruments, including warrants issued in connection with a debt agreement, and warrants initially issued by CLA in a private placement.

Interest income consists primarily of income earned on our cash and cash equivalents and short-term investments.

These amounts will vary based on our respective balances and market rates.

Interest expense consists primarily of interest on our debt, amortization of debt issuance costs and discounts, fees paid on refinancing and loss on debt extinguishment from our former credit line with Hercules.

Other income (expense), net consists primarily of realized and unrealized gains and losses on foreign currency transactions and balances, realized gains and losses related to sales of our available-for-sale investments, the change in fair value of the private placement warrant liability.

Our income tax provision consists of federal, state and foreign current and deferred income taxes.

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statutory tax rate primarily due to valuation allowances on deferred tax assets as it is more likely than not that some, or all, of our deferred tax assets will not be realized.

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

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.

We continue to maintain a full valuation allowance against our U.S.

Federal and state deferred tax assets, excluding specific balances due to the Velodyne Merger.

Income tax provision for the years ended December 31, 2023 and 2022, respectively, was not material to the Company’s consolidated financial statements.

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Results of Operations:

The following table summarizes key components of our results of operations for the years ended December 31, 2023 and 2022:

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General and administrative 81,982 61,203

Goodwill impairment charges 166,675 —

Total operating expenses 381,506 156,353

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Interest expense (9,303) (2,694)

Other income, net 7,654 2,968

Total other income, net 7,168 2,935

Other income (expense), net (130) 7,654

Total other income (expense), net (395) 7,168

Loss before income taxes (373,587) (138,255)

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

Provision for income tax expense 523 305

Net loss $ (374,110) $ (138,560)

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General and administrative 98 149

Goodwill impairment charges 200 —

Total operating expenses 458 381

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Interest expense (11) (7)

Other income, net 19 9

Total other income, net 17 8

Other income (expense), net — 19

Total other income (expense), net — 17

Loss before income taxes (448) (337)

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

Provision for income tax expense 1 1

Net loss (449) % (338) %

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Americas $ 45,744 $ 15,977 $ 29,767 186 %

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

Asia-Pacific 12,929 9,510 3,419 36

Europe, Middle East and Africa 24,606 15,542 9,064 58

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Revenue increased by $42.3 million, or 103%, to $83.3 million for the year ended December 31, 2023 from $41.0 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%.

The increase in revenue was driven by higher volume that was primarily due to the Velodyne Merger, which contributed $29.0 million of revenue in 2023.

In addition, the Company realized higher revenues relating to sales of our OS sensors.

Geographic Locations

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.

Revenue increased across the geographic regions of the Americas, Asia-Pacific, and Europe, Middle East and Africa as compared to the comparable period in the prior year.

The revenue increases in those geographic regions were primarily attributable to the Velodyne Merger, our focus and investment in our global sales team and increased demand for our OS sensors during the year ended December 31, 2023.

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Cost of Revenue and Gross Margin

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Cost of revenue increased by $44.9 million, or 149%, to $75.0 million for the year ended December 31, 2023 from $30.1 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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The increase in cost of revenue was primarily attributable to the Velodyne Merger.

In addition, the Company recognized $10.0 million in inventory write downs primarily related to canceling certain Velodyne products and transitioning to the REV7 sensors.

In addition, we had higher costs due to higher OS product revenues in the year ended December 31, 2023.

Gross margin fell to 10% for the year ended December 31, 2023 from 27% in the prior year primarily as a result of the factors described above related to the Velodyne Merger.

Operating Expenses

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General and administrative 81,982 61,203 20,779 34

Goodwill impairment charges

$ 166,675 $ — $ 166,675 100 %

Total operating expenses:

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Research and development expenses increased by $26.9 million, or 42%, to $91.2 million for the year ended December 31, 2023 from $64.3 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.

The increase was primarily attributable to the Velodyne Merger, which increased headcount-related expenses including stock based compensation by $19.0 million in 2023.

Sales and Marketing

Sales and marketing expenses increased by $10.8 million, or 35%, to $41.6 million for the year ended December 31, 2023 from $30.8 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.

The increase was primarily attributable to the Velodyne Merger, which increased headcount-related expenses including stock based compensation by $8.1 million in 2023.

General and Administrative

General and administrative expenses increased by $20.8 million, or 34%, to $82.0 million for the year ended December 31, 2023 from $61.2 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.

The increase was primarily attributable to the Velodyne Merger, which increased headcount-related expenses including stock based compensation and litigation related costs by $29.6 million.

Goodwill Impairment Charges

Goodwill impairment charges were $166.7 million for the year ended December 31, 2023 and related to the reasons described above under “Goodwill impairment charges.” There were no goodwill impairment charges during the year ended December 31, 2022.

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

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Interest expense (9,303) (2,694) (6,609) 245

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

Other income (expense), net (130) 7,654 (7,784) (102)

Interest income was $9.0 million for the year ended December 31, 2023 compared to $2.2 million for the prior year.

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

The increase in interest income was primarily attributable to a higher average cash and cash equivalent balance driven by additions from the Velodyne Merger transaction and higher interest rates earned on held balances.

Interest expense was $9.3 million for the year ended December 31, 2023 compared to $2.7 million for the prior year.

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.

We utilized proceeds from a revolving credit line with UBS to prepay and terminate our existing term loan with Hercules.

We recognized a loss of extinguishment of debt of $3.6 million and recorded it is interest expense, along with amortization of debt issuance costs and discount in the year ended December 31, 2023.

Interest expense recorded in the year ended December 31, 2022 primarily consisted of interest and amortization of debt issuance cost and discount on the Loan and Security Agreement with Hercules Capital, Inc.

and interest expense on the Revolving Credit Line Agreement with UBS Bank USA and UBS Financial Services Inc.

Other income (expense), net was $(0.1) million for the year ended December 31, 2023 compared to $7.7 million for the prior year.

Other income (expense) included the fair value change of private placement warrant liability and was not material during the year ended December 31, 2023.

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.

Year Ended December 31, 2023 - 2022 Change

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Loss before income taxes $ (373,587) $ (138,255) $ (235,332) 170 %

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

Provision for income tax expense 523 305 218 71

Effective tax rate (0.14) % (0.22) %

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.

Our effective tax rate was (0.14)% for the year ended December 31, 2023 compared to our effective tax rate of (0.22)% for the prior year.

Our tax expense changed by $0.2 million during the year ended December 31, 2023, compared to the prior year, primarily due to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Liquidity and Capital Resources

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 principal sources of liquidity are our cash and cash equivalents and short-term investments, cash generated from product revenues, sales of common stock under our at-the market equity offering program and proceeds from debt financing.

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 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 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.

As of December 31, 2023 we had an accumulated deficit of $816.0 million and cash, cash equivalents, restricted cash and short-term investments of approximately $191.8 million.

Management believes that our existing sources of liquidity will be adequate to fund our operations for at least twelve months from the date of this Annual Report on Form 10-K.

However, we may need to raise additional capital in the future to support our operations.

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.

Because we are in the growth stage of our business and

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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 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, 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.

ATM Agreement

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

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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.

During the year ended December 31, 2022, we sold 783,371 shares of common stock for net proceeds of $15.8 million under the ATM Agreement, and during the year ended December 31, 2023, we sold 2,878,875 shares of common stock for net proceeds of $32.2 million.

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.

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.

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.

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 .

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 had been drawn under the Term Loan Facility, and could be used for general working capital purposes subject to certain terms and conditions.

On October 25, 2023, the Company entered into the Credit Line Account Application and Agreement for Organizations and Businesses (the “Credit Agreement”) and the Addendum to Credit Line Account Application and Agreement (the “Addendum”;

and the Credit Agreement as amended, modified, and/or supplemented by the Addendum, the “UBS Agreement”) by and among the Company, UBS Bank USA (the “Bank”), and UBS Financial Services Inc.

The facility under the UBS Agreement matures and terminates on August 2, 2025 (the “Maturity Date”).

The UBS Agreement provides us with a revolving credit line of up to $45.0 million, subject to certain terms and conditions.

We initially borrowed $44.0 million, and all of the proceeds were used to prepay and terminate our Term Loan Facility with Hercules on October 25, 2023.

We recognized a loss on extinguishment of debt of $3.6 million and recorded it as interest expense in its consolidated statements of operations and comprehensive loss.

Pursuant to the terms of the UBS Agreement, we have agreed to maintain minimum liquidity, comprised of unencumbered cash and cash equivalents, U.S.

treasuries and other assets acceptable to the Bank, of $52.0 million in an account maintained with the Bank or its affiliates at all times.

The facility under the UBS Agreement is secured by our assets in securities accounts and any other accounts maintained with the Bank or its affiliates, and any supporting obligations, general intangibles and other rights ancillary or attributable to such assets, subject to customary exceptions.

Loans under the UBS Agreement bear interest at a rate equal to (x) for variable rate loans, the sum of (i) the applicable SOFR average plus 0.110%, plus (ii) 1.20%, and (y) for fixed rate loans, the sum of either (1) CME Term Rate or (2) the U.S.

Treasury Rate, as applicable and as defined in the UBS Agreement, as determined based on the duration of the advance, plus the applicable liquidity premium with a range of 0.15% to 0.50%, as set forth in the UBS Agreement.

Interest payments are due (x) for variable rate loans, on the last day of each calendar month, and on each date that any portion of the principal amount is due, including on the Maturity Date, and (y) for fixed rate loans, on the last day of the applicable interest period, and on each date that any portion of the principal amount is due, including on the Maturity Date.

We may repay any variable rate loans at any time in whole or in part, without penalty.

We may repay any fixed rate loans in whole, but not in part, subject to certain breakage costs.

We have agreed to pay an unused line fee in an amount equal to (i) the commitment amount of $45.0 million less the average daily balance of the sum of the principal amount of the obligations outstanding during the preceding calendar quarter, multiplied by (ii) 0.50% per annum, and such unused line fee is payable quarterly in arrears on the last day of each calendar quarter.

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The UBS Agreement also contains affirmative and negative covenants customary for a credit line of this type, including requirements for maintenance of the collateral accounts and certain limitations on withdrawal of cash from such collateral accounts.

The UBS Agreement also provides for customary events of default, including, among others, non-payment, failure to maintain an amount equal to the greater of (x) the outstanding loans and (y) the collateral value as determined by the Bank, in the securities accounts maintained with the Bank, bankruptcy, or breach of a covenant, representation and warranty.

For additional information regarding the terms of the UBS Agreement, see Note 6.

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

Material Cash Requirements

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During the year ended December 31, 2023, operating activities used $137.9 million in cash.

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.

The primary factors affecting our operating cash flows during this period were our net loss of $374.1 million, impacted by our non-cash charges of $257.7 million primarily consisting of inventory write-down of $10.0 million, interest expense and loss on extinguishment of debt of $4.0 million, goodwill impairment charges of $166.7 million, depreciation and amortization of $17.1 million, stock-based compensation of $57.7 million, loss on write-off of construction in-progress and right-of-use asset impairment of $1.7 million, and amortization of right-of-use asset of $4.5 million.

The cash used in changes in our operating assets and liabilities of $21.5 million was primarily due to an increase in inventories of $4.0 million, a decrease in accounts payable of $8.5 million, an increase in accrued and other liabilities of $8.1 million.

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 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.

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 $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.

Investing Activities

During the year ended December 31, 2023, cash used in investing activities was $50.6 million, which was attributed primarily to the Velodyne Merger and proceeds and purchases of short-term investments.

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.

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Financing Activities

During the year ended December 31, 2023, cash provided by financing activities was $15.7 million, consisting primarily of $14.6 million of proceeds from the issuance of common stock under the ATM Agreement and proceeds from employee stock purchase program of $1.2 million.

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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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.

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

In connection with the Company’s goodwill impairment assessments for the year ended December 31, 2023, the Company impaired all of its goodwill.

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Inventory Valuation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis