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Item 8. Financial Statements and Supplementary Data

2024-03-28 compared with 2023-03-24 · 649 added, 621 removed, 710 unchanged (64% of the section changed)

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Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of Ouster Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, of stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Interim Goodwill Impairment Assessments

As described in Notes 2 and 5 to the consolidated financial statements, the Company has a single reporting unit and the goodwill balance was $51.2 million as of December 31, 2022.

Goodwill is tested by management for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired.

The quantitative impairment test involves comparing the fair value of the reporting unit to the carrying value.

In addition to its annual test, management performed an interim goodwill impairment test as of September 30, 2022, as a result of the decline in market conditions and the impact of market uncertainties that prolonged the sales cycle, and an interim goodwill impairment test as of December 31, 2022 as a result of the continuing market volatility resulting in a decline in the Company’s stock price.

Management determined the estimated fair value of the reporting unit exceeded its carrying value and that goodwill was not impaired as of September 30, 2022 and December 31, 2022.

The Company’s reporting unit estimated fair value was determined by management based on a discounted future cash flow model (income approach) and a market approach.

Management’s estimate of fair value included significant judgments and assumptions relating to an implied control premium and comparable company market transactions.

The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value

Merger with Velodyne Lidar, Inc.

– Valuation of Hardware Developed Technology and Customer Relationships

As described in Notes 1, 2 and 3 to the consolidated financial statements, on February 10, 2023, the Company completed its merger with Velodyne Lidar, Inc.

for an acquisition price of $306.6 million.

Management accounted for the merger as a business combination using the acquisition method of accounting and allocated the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.

Of the identified intangible assets acquired, $2.5 million of hardware developed technology and $5.4 million of customer relationships were recorded.

Management valued the hardware developed technology using the relief-from-royalty method, which involved significant assumptions related to the relief-from-royalty rate, the migration curve, the discount rate, and the economic life.

Management valued the customer relationships using the distributor method, which involved significant assumptions related to the distributions margin.

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estimates of the reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the implied control premiums and comparable company market transactions;

and (iii) the audit effort involved in the use of professionals with specialized skill and knowledge.

The principal considerations for our determination that performing procedures relating to the valuation of hardware developed technology and customer relationships acquired in the merger with Velodyne Lidar, Inc.

is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the hardware developed technology and customer relationships acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the relief-from-royalty rate, the migration curve, the discount rate, and the economic life for hardware developed technology and the distributions margin for customer relationships;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others (i) testing management’s process for developing the fair value estimates of the reporting unit;

(ii) evaluating the appropriateness of the market approach;

(iii) testing the completeness and accuracy of underlying data used in the market approach;

and (iv) evaluating the reasonableness of the significant assumptions used by management related to the implied control premiums and comparable company market transactions.

Evaluating management’s significant assumption related to the implied control premiums involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the reporting unit;

(ii) the synergies which a market participant could achieve;

(iii) the consistency with external market and industry data;

and (iv) whether this assumption was consistent with evidence obtained in other areas of the audit.

Professionals with specialized skills and knowledge were used to assist in evaluating (i) the appropriateness of the market approach and (ii) the reasonableness of the implied control premiums and comparable company market transactions significant assumptions.

These procedures included, among others (i) reading the agreement and plan of merger;

(ii) testing management’s process for developing the fair value estimate of the hardware developed technology and customer relationships acquired;

(iii) evaluating the appropriateness of the relief-from-royalty and distributor methods used by management;

(iv) testing the completeness and accuracy of the underlying data used by management in the relief-from-royalty and distributor methods;

and (v) evaluating the reasonableness of the significant assumptions used by management related to the relief-from-royalty rate, the migration curve, the discount rate, and the economic life for hardware developed technology and the distributions margin for customer relationships.

Evaluating management’s assumptions related to the distributions margin for customer relationships involved considering (i) the consistency with external market and industry data;

(ii) the completeness and accuracy of the distributor data;

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief-from-royalty and distributor methods and (ii) the reasonableness of the relief-from-royalty rate, the migration curve, the discount rate, and the economic life assumptions for hardware developed technology.

/s/ PricewaterhouseCoopers LLP

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Restricted cash, current 552 257

Short-term investments 139,158 —

Accounts receivable, net 14,577 11,233

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Operating lease, right-of-use assets 18,561 12,997

Unbilled receivable, long-term portion 10,567 —

Goodwill — 51,152

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Total assets $ 330,743 $ 256,137

Liabilities, redeemable convertible preferred stock and stockholders’ equity

Liabilities and stockholders’ equity

Current liabilities:

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Accrued and other current liabilities 58,166 17,071

Contract liabilities 12,885 402

Operating lease liability, current portion 7,096 3,221

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Operating lease liability, long-term portion 18,827 13,400

Warrant liabilities (At December 31, 2022 and 2021 related party $ 63 and $ 2,669 , respectively)

Debt 43,975 39,574

Contract liability, long-term portion 4,967 342

Other non-current liabilities 1,610 1,710

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Commitments and contingencies (Note 9)

Redeemable convertible preferred stock, $ 0.0001 par value per share;

100,000,000 shares authorized at December 31, 2022 and 2021;

Nil shares issued and outstanding at December 31, 2022 and 2021, respectively (aggregate liquidation preference of nil at December 31, 2022 and 2021, respectively)

Stockholders’ equity:

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Accumulated deficit ( 816,026 ) ( 441,916 )

Accumulated other comprehensive loss ( 149 ) ( 6 )

Accumulated other comprehensive income (loss) 192 ( 149 )

Total stockholders’ equity 179,672 171,619

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity $ 256,137 $ 307,702

Total liabilities and stockholders’ equity $ 330,743 $ 256,137

The accompanying notes are an integral part of these consolidated financial statements

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Year Ended December 31,

2022 2021 2020

Product revenue $ 41,029 $ 33,578 $ 16,886

Service revenue — — 2,018

Total revenue 41,029 33,578 18,904

Revenue $ 83,279 $ 41,029

Cost of revenue 74,965 30,099

Cost of product 30,099 24,492 17,365

Cost of services — — 26

Total cost of revenue 30,099 24,492 17,391

Gross profit 8,314 10,930

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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 (expense), net 7,654 2,968 ( 52,150 )

Total other income (expense), net 7,168 2,935 ( 54,643 )

Other (expense) income, net

( 130 ) 7,654

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

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

Provision (benefit from) for income tax expense 305 ( 2,794 ) 375

Provision for income tax expense 523 305

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

Other comprehensive loss

Changes in unrealized gain (loss) on available for sale securities $ 354 $ —

Foreign currency translation adjustments ( 13 ) ( 143 )

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CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Redeemable Convertible

Preferred Stock

Common Stock Additional

Capital Notes

stockholders Accumulated Deficit Accumulated other comprehensive loss Total Stockholders’ Equity (Deficit)

Amount Shares Amount

Capital Accumulated Deficit Accumulated other comprehensive loss Total Stockholders’ Equity

Shares Amount

Balance — January 1, 2022

$ 17 $ 564,045 $ ( 303,356 ) $ ( 6 ) $ 260,700

Issuance of common stock upon exercise of stock options — — 12,221,363 — 379 — — — 379

Issuance of common stock upon exercise of restricted stock awards — — 1,617,264 — 6 — — — 6

Issuance of redeemable convertible preferred stock 88,434,754 39,225 — — — — — — —

Conversion of redeemable convertible preferred stock to common stock ( 4,384,348 ) ( 40,016 ) 4,384,348 — 40,016 — — — 40,016

Conversion of convertible notes to common stock — — 7,201,912 — 78,311 — — — 78,311

Stock-based compensation expense — — — — 12,057 — — — 12,057

Reclassification of a note receivable from a stockholder — — — — — 44 — — 44

Vesting of early exercised stock options — — — — 379 — — — 379

Net loss — — — — — — ( 106,780 ) — ( 106,780 )

Balance — December 31, 2020

Proceeds from at-the-market offering, net of commissions and fees of $ 505 and issuance costs of $ 546

783,371 1 15,775 — — 15,776

Issuance of common stock upon exercise of stock options 215,850 — 470 — — 470

Issuance of common stock upon exercise of warrants — — 100 — 1 — — — 1

Repurchase of common stock — — ( 406,845 ) — ( 45 ) — — — ( 45 )

Issuance of redeemable convertible preferred stock upon exercise of warrants 4,232,947 58,097 — — — — — — —

Conversion of redeemable convertible preferred stock to common stock ( 92,667,701 ) ( 97,322 ) 92,667,701 12 97,310 — — — 97,322

Issuance of common stock upon merger and private offering, net of acquired private placement warrants of $ 19,377

Issuance of common stock upon vesting of restricted stock units - net of tax withholding

443,971 1 ( 59 ) — — ( 58 )

Offering costs in connection with the merger — — — — ( 26,620 ) — — — ( 26,620 )

Issuance of common stock in connection with acquisition — — 9,163,982 1 60,023 — — — 60,024

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Issuance of replacement equity awards in connection with acquisition — — — — 1,081 — — — 1,081

Stock-based compensation expense, including vesting of restricted stock units — — 458,012 — 25,363 — — — 25,363

Cancellation of previously issued awards — — ( 105,921 ) — — — — — —

Issuance of common stock to employees under employee stock purchase plan 32,201 — 378 — — 378

Repurchase of common stock ( 31,124 ) — ( 45 ) — — ( 45 )

Cancellation of Sense acquisition shares ( 5,513 ) — ( 358 ) — — ( 358 )

Vesting of early exercised stock options — — 138 — — 138

Stock-based compensation expense — — 33,321 — — 33,321

Net loss — — — ( 138,560 ) — ( 138,560 )

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Balance — December 31, 2022 18,658,798 $ 19 $ 613,665 $ ( 441,916 ) $ ( 149 ) $ 171,619

— 172,200,417

17 564,045 — ( 303,356 ) ( 6 ) 260,700

Issuance of common stock upon Velodyne Merger 19,483,269 20 306,582 — — 306,602

Common Stock adjustment reflected as a result of the one-for-10 reverse stock split effectuated on April 6, 2023 85,893 — — — — —

Proceeds from at-the-market offering, net of commissions and fees of $ 872 and issuance costs of $ 327

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Issuance of common stock upon exercise of stock options 142,117 — 270 — — 270

Issuance of common stock upon exercise of restricted stock units - net of tax withholding — — 4,439,713 1 ( 59 ) — — — ( 58 )

Issuance of common stock upon vesting of restricted stock units 1,755,157 — — — — —

Issuance of common stock to employees under employee stock purchase plan 257,506 — 1,175 — — 1,175

Repurchase of common stock ( 3,753 ) — ( 3 ) — — ( 3 )

Cancellation of Sense acquisition shares — — ( 55,130 ) — ( 358 ) — — — ( 358 )

Common stock warrants issuable to customer — — 528 — — 528

Vesting of early exercised stock options — — 98 — — 98

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Net loss — — — ( 374,110 ) — ( 374,110 )

Other Comprehensive loss — — — — — — — ( 143 ) ( 143 )

Other Comprehensive income — — — — 341 341

Balance — December 31, 2023

43,257,862 $ 42 $ 995,464 $ ( 816,026 ) $ 192 $ 179,672

The accompanying notes are an integral part of these consolidated financial statements

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For the Years ended December 31,

2022 2021 2020

CASH FLOWS FROM OPERATING ACTIVITIES

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Adjustments to reconcile net loss to net cash used in operating activities:

Goodwill impairment charges 166,675 —

Depreciation and amortization 17,148 9,456

Loss on write-off of construction in progress and right-of-use asset impairment 1,732 —

Gain on lease termination ( 807 ) —

Stock-based compensation 57,725 33,321

Deferred income taxes — ( 2,477 ) —

Change in right-of-use asset 2,730 2,180 1,887

Interest expense 799 36 1,030

Reduction of revenue related to stock warrant issued to customer 528 —

Amortization of right-of-use asset 4,519 2,730

Non-cash interest income ( 732 ) —

Interest expense and loss on debt extinguishment 4,001 799

Amortization of debt issuance costs and debt discount 190 160

Accretion or amortization on short-term investments ( 4,685 ) —

Change in fair value of warrant liabilities 49 ( 7,446 )

Change in fair value of derivative liability — — 5,308

Gain on extinguishment of tranche right liability — — ( 1,610 )

Inventory write down 10,047 1,600

Provision for doubtful accounts 1,346 346

Loss from disposal of property and equipment 430 — —

(Gain)/loss from disposal of property and equipment ( 59 ) 430

Changes in operating assets and liabilities:

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Accrued and other liabilities 8,081 3,196

Contract liabilities 6,597 —

Operating lease liability ( 5,567 ) ( 3,225 )

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Purchases of property and equipment ( 3,006 ) ( 5,422 )

Acquisition, net of cash acquired — ( 10,946 )

Purchase of short-term investments ( 137,104 ) —

Proceeds from sales of short-term investments 158,014 —

Cash and cash equivalents acquired in the Velodyne Merger 32,137 —

Net cash used in investing activities 50,601 ( 5,147 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the merger and private offering — 291,442 —

Payment of offering costs — ( 26,620 ) —

Repayment of debt — ( 7,000 ) ( 3,000 )

Proceeds from issuance of promissory notes to related parties — 5,000 —

Repayment of promissory notes to related parties — ( 5,000 ) —

Repurchase of common stock — ( 45 )

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Proceeds from ESPP purchase 1,174 378

Proceeds from exercise of warrants — 1 —

Proceeds from issuance of redeemable convertible preferred stock, net off issuance cost of 265

Proceeds from borrowings, net of debt discount and issuance costs 43,975 39,077

Repayments of borrowings ( 43,975 ) —

Proceeds from the issuance of common stock under at-the-market offering, net of commissions and fees 14,575 16,322

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SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

Proceeds from the issuance of common stock under at-the-market offering not received $ 1,255 $ —

Property and equipment purchases included in accounts payable and accrued liabilities $ 524 $ 269

Equity issued in connection with acquisition $ — $ 61,105 $ —

Issuance of redeemable convertible preferred stock upon exercise of warrants $ — $ 58,097 $ —

Conversion of redeemable convertible preferred stock to common stock $ — $ 97,322 $ 40,016

Right-of-use assets obtained in exchange for operating lease liability $ 571 $ 6,265 $ 6,409

Unpaid at-the-market offering costs $ 5 $ — $ —

Common stock shares issued in the Velodyne Merger $ 297,425 $ —

Common stock warrants issued in the Velodyne Merger $ 9,177 $ —

The accompanying notes are an integral part of these consolidated financial statements

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Description of Business

was incorporated in the Cayman Islands on June 4, 2020 as “Colonnade Acquisition Corp”.

was incorporated in the Cayman Islands on June 4, 2020 as “Colonnade Acquisition Corp.” (“CLA”).

Following the closing of the business combination in March 2021, the Company domesticated as a Delaware corporation and changed its name to “Ouster, Inc.” The Company’s prior operating subsidiary, Ouster Technologies, Inc.

(“OTI”), was incorporated in the state of Delaware on June 30, 2015.

(“OTI” and prior to the Merger (as defined below)), was incorporated in the state of Delaware on June 30, 2015.

The Company is 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 ubiquitous autonomy.

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

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

Colonnade Acquisition Corp.

(formerly known as CLA) and its consolidated subsidiaries following the consummation of the Merger.

CLA, the Company’s legal predecessor, was originally a blank check company incorporated as a Cayman Islands exempted company on June 4, 2020.

CLA was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

On March 11, 2021, CLA consummated a merger with the Company (the “Colonnade Merger”) pursuant to an Agreement and Plan of Merger (the “Colonnade Merger Agreement”) dated as of December 21, 2020, details of which are included below.

On March 11, 2021, CLA consummated a merger (the “Merger”) with OTI pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of December 21, 2020.

As a result of the Merger, among a number of other things, (1) 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 (2) each of the then issued and outstanding 6,000,000 private placement warrants of CLA (the “Private Placement warrants”) converted automatically into a Public warrant pursuant to the Warrant Agreement.

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

On February 10, 2023, the Company completed the merger with Velodyne Lidar, Inc., a Delaware corporation (“Velodyne”) pursuant to the terms of the Agreement and Plan of Merger (the “Velodyne Merger Agreement”) with Velodyne, Oban Merger Sub, Inc.

(“Merger Sub I”) and Oban Merger Sub II LLC (“Merger Sub II”) (the “Velodyne Merger”) dated as of November 4, 2022, accounted for as a business combination with the Company being an accounting acquiror (Note 3).

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries (all of which are wholly owned) and have been prepared in conformity with U.S.

generally accepted accounting principles (“US GAAP”).

generally accepted accounting principles (“U.S.

All intercompany balances and transactions have been eliminated in consolidation.

Impact of the COVID-19 Pandemic

Ouster has been actively monitoring the COVID-19 pandemic on a global scale and continues to evaluate the long-term impacts on the business while keeping abreast of the latest developments, particularly the variants of the virus, to ensure preparedness for Ouster’s employees and its business.

We maintain our commitment to protecting the health and safety of our employees and customers.

We continue to adapt and enhance our safety protocols as we follow the guidance from local authorities.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future events that are uncertain, including as a result of new information that continues to emerge concerning the virus, its variants, the deployment and effectiveness of vaccination roll-outs, vaccination hesitancy, therapeutics, and the actions taken to contain the virus or treat it, as well as the economic impact on local, regional, national and international customers and markets.

Thus, the Company is not able to estimate the future consequences on its operations, its financial condition, or its liquidity.

The presentation of certain prior period amounts has been reclassified to conform with current year presentation.

On April 6, 2023, the Board of Directors approved a one-for-10 reverse stock split and a corresponding reduction in authorized shares of common stock (the “Reverse Stock Split”).

On April 20, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Certificate of Incorporation to effect the one-for-10 Reverse Stock Split of the Company’s common stock and a corresponding reduction in authorized shares of common stock.

The par value of the Company’s common stock was not adjusted as a result of the Reverse Stock Split.

All share and per share amounts and related stockholders’ equity balances presented herein have been retroactively adjusted to reflect the Reverse Stock Split.

The Company’s principal sources of liquidity are its cash and cash equivalents, short-term investments, cash generated from revenues, sales of common stock under its at-the-market equity offering program and debt financing.

The accompanying consolidated financial statements have been prepared on a going concern basis.

The Company has experienced recurring losses from operations, and negative cash flows from operations.

As of December 31, 2022, the Company had an accumulated deficit of approximately $ 441.9 million.

The Company has historically financed its operations primarily through the Colonnade Merger and related transactions, the sale of convertible notes, equity securities, proceeds from debt and, to a lesser extent, cash received from sales.

As of December 31, 2023, the Company’s existing sources of liquidity included cash and cash equivalents, restricted cash and short-term investments of $ 191.8 million.

Management expects significant operating losses and negative cash flows from operations to continue for the foreseeable future.

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The long-term continuation of the Company’s business plan is dependent upon the generation of sufficient revenues from its products to offset expenses.

In the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary

spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations.

The Company has concluded that it has sufficient capital to fund its obligations after closing the Velodyne Merger (as defined below, for additional information, Note 18), as they become due, in the ordinary course of business for at least one year from the date these consolidated financial statements are available for issuance.

The Company may require additional capital in order to execute management’s current business plan and in the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company may be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations.

The Company has concluded that it has sufficient capital to fund its obligations in the ordinary course of business for at least one year from the date these consolidated financial statements were issued.

Merger Agreement with Velodyne Lidar, Inc.

On November 4, 2022, the Company 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 the Company’s direct, wholly owned subsidiaries (“Velodyne Merger Sub I”) and Oban Merger Sub II LLC, a Delaware limited liability company and one of the Company’s direct, wholly owned subsidiaries (“Velodyne Merger Sub II”).

On February 10, 2023, the Company completed the 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, the Company and Velodyne now operate as a single combined company.

Merger Agreement with Colonnade Acquisition Corp.

and Beam Merger Sub, Inc.

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

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

OTI’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.

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

As a result of the Colonnade Merger, 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 Public warrant 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 Colonnade 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 Colonnade 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 Colonnade 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 Colonnade Merger that were converted into awards based on Ouster common stock, were cancelled 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 closing of the Colonnade Merger, the Company 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 offerings costs of $ 26.6 million.

The Colonnade Merger was accounted for as a reverse recapitalization under US GAAP.

Under this method of accounting, CLA is treated as the “acquired” company for financial reporting purposes.

This determination is primarily based on OTI stockholders comprising a relative majority of the voting power of the Company and having the ability to nominate the members of the board of directors of the Company after the Colonnade Merger, OTI’s operations prior to the Colonnade Merger comprising the only ongoing operations of the Company following the Colonnade Merger, and OTI’s senior management prior to the Colonnade Merger comprising a majority of the senior management of the Company following the Colonnade Merger.

Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of OTI with the Colonnade Merger being treated as the equivalent of OTI issuing stock for the net assets of CLA, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded.

Transactions and balances prior to the Colonnade Merger are those of OTI.

The shares and net loss per share available to holders of OTI’s common stock prior to the Colonnade Merger have been retroactively restated as shares reflecting the exchange ratio established in the Colonnade Merger Agreement.

PIPE Investment

On December 21, 2020, concurrently with the execution of the Colonnade 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 Colonnade Merger.

At the Market Issuance Sales Agreement

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Inc., pursuant to which the Company may offer and sell, from time to time, through or to the agents, acting as agent or principal, shares of the Company’s common stock having an aggregate offering price of up to $ 150.0 million under the Company’s Form S-3 registration statement.

From the date of the ATM Agreement through December 31, 2022, the Company sold 7,833,709 shares at a weighted-average sales price of $ 2.08 per share, resulting in cumulative gross proceeds to the Company totaling approximately $ 16.8 million before deducting offering costs, sales commissions and fees.

Loan and Security Agreement

On April 29, 2022, the Company entered into the Loan and Security Agreement (as amended by the First Amendment to Loan and Security Agreement, dated as of August 5, 2022, the Consent and Second Amendment to Loan and Security Agreement, dated as of November 1, 2022 (the “Second Amendment”), and the Third Amendment to Loan and Security Agreement, dated as of February 10, 2023 (the “Third Amendment”), the “Loan Agreement”) with Hercules Capital, Inc.

as administrative agent and collateral agent (“Hercules”).

The Loan Agreement provides the Company with a term loan of up to $ 50.0 million, subject to terms and conditions.

The Company borrowed the initial tranche of $ 20.0 million on April 29, 2022.

On October 17, 2022, the Company borrowed an additional $ 20.0 million.

For additional information, see Note 7.

During the years ended December 31, 2023 and 2022, the Company sold 2,878,875 and 783,371 shares, respectively.

The weighted-average sales price and gross proceeds to the Company before deducting offering costs, sales commissions and fees were approximately $ 5.67 and $ 21.48 per share and $ 33.1 million and $ 16.8 million, respectively, during the year ended December 31, 2023 and 2022.

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.

The most significant estimates included in these consolidated financial statements are the useful lives of long-lived assets, revenue recognition, sales return reserve, inventory write downs, the realizability of deferred tax assets, the measurement of stock-based compensation, and the valuation of the Company’s various financial instruments.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.

The most significant estimates included in these consolidated financial statements are the useful lives of long-lived assets, revenue recognition, inventory write downs, the realizability of deferred tax assets, the measurement of stock-based compensation, and the valuation of the Company’s various financial instruments.

The complexity of the estimation process and factors relating to assumptions, risks and uncertainties inherent with the use of the estimates affect the amount of revenue and related expenses reported in the Company’s consolidated financial statements.

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Revenue Recognition

In accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised products or services.

The Company recognizes revenue when a customer obtains control of promised products or services.

The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for these products or services.

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1) Identify the contract with a customer

The Company considers the terms and conditions of revenue contracts and its customary business practices in identifying contracts with its customers.

It is determined that a contract with a customer exists when the contract is approved, each party’s rights regarding the product or services to be transferred and the payment terms for the product or services can be identified, it is determined that the customer has the ability and intent to pay and the contract has commercial substance.

The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

A contract with a customer exists when the contract is approved, each party’s rights regarding the product or services to be transferred and the payment terms for the product or services can be identified, it is determined that the customer has the ability and intent to pay and the contract has commercial substance.

The Company applies judgement in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

Accounts receivable are due under normal trade terms, typically three months or less.

2) Identify the performance obligations in the contract

either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or services is separately identifiable from other promises in the contract.

The Company’s performance obligations consist of (i) sale of lidar sensor kits and (ii) product development and validation services.

Amounts billed to customers related to shipping and handling are classified as revenue, and the Company has elected to recognize the cost of shipping activities that occur after control has transferred to the customer as a fulfillment cost rather than a separate performance obligation.

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

Performance obligations promised in a contract are identified based on the product or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or services is separately identifiable from other promises in the contract.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring product or services to the customer.

Variable consideration is included in the transaction price if the Company judges that it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

The Company does not have a material amount of variable consideration in its agreements with customers.

Royalties from the license of intellectual property (“IP”) are included in the transaction price in the period the sales occur.

Other forms of variable consideration are included in the transaction price if the Company judges that it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

None of the Company’s contracts contain a significant financing component.

All taxes assessed by a governmental authority on a specific revenue-producing transaction collected by the Company from a customer are excluded from the transaction price.

The Company’s general terms and conditions for its contracts do not contain a right of return that allows the customer to return products and receive a credit.

4) Allocate the transaction price to performance obligations in the contract

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Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to a customer.

Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services.

The Company generates all of its revenue from contracts with customers and applies judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

Revenue is recognized at a point in time when control of the goods is transferred to the customer, generally occurring upon shipment.

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

Product revenue

The majority of the Company’s revenue comes from product sales of lidar sensors to direct customers and distributors.

Revenue is recognized at a point in time when control of the goods is transferred to the customer, generally 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 are considered more than a formality.

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

Amounts billed to customers for shipping and handling are included in revenue, and the Company has elected to recognize the cost of shipping activities that occur after control has transferred to the customer as a fulfillment cost rather than a separate performance obligation.

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

The Company’s services revenue consists primarily of product development and validation services.

The obligation to provide services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations.

For these service projects, the Company bills and recognizes revenue as the services are performed.

For these arrangements, control is transferred to the customer as the Company’s inputs incurred to complete the project;

For product development and validation service projects, the Company bills and recognizes revenue as the services are performed.

For these arrangements, control is transferred over as the Company’s inputs are 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.

Revenue from services that were recognized over time were not material to date.

The Company licenses rights to its IP to certain customers and collects royalties based on customer’s product sales.

IP revenue recognition is dependent on the nature and terms of each agreement.

The Company recognizes license revenue upon the later of (a) delivery of the IP or (b) commencement of the license term if there are no substantive future obligations to perform under the arrangement.

Revenue for licenses to future technology developed on a when-and-if -available basis is recognized straight-line over the license period as long as customers continue to have access to the future technology.

Royalties from the license of IP are recognized at the later of the period the sales occur or the satisfaction of the performance obligation to which some or all of the royalties have been allocated.

Software Licenses

The Company’s Gemini software license arrangements provide the customer with the right to install and use functional intellectual property (as it exists at the point in time at which the license is granted) for the duration of the contract term (perpetual or term license).

Revenue from distinct software licenses is recognized at the point in time when the software is made available to the customer.

The Company’s Gemini software license arrangements typically include an initial (bundled) post contract customer support (maintenance or “PCS”) term.

Those software license arrangements, which include PCS represent a distinct, stand-alone performance obligation.

Contract consideration is allocated to the PCS based on its relative SSP and revenue is recognized ratably over the PCS term.

Product Warranties

The Company provides standard product warranties for a term of typically one to two years to ensure that its products comply with agreed-upon specifications.

Standard warranties are considered to be assurance type warranties and are not accounted for as separate performance obligations.

The Company also provides service type extended warranties for typically an additional term ranging up to two additional years.

For service type extended warranty contracts, the Company allocates revenue to this performance obligation on a relative standalone selling price basis and recognizes the revenue on a ratable basis over time during the effective period of the services as the Company stands ready to provide services as needed.

Costs to obtain a contract

The Company expenses the incremental costs of obtaining a contract when incurred because the amortization period for these costs would be less than one year.

The Company expenses the incremental costs of obtaining a contract when incurred because the amortization period for these costs would typically be less than one year.

These costs primarily relate to sales commissions and are expensed as incurred in sales and marketing expense in the Company’s consolidated statements of operations and comprehensive loss.

The incremental cost of obtaining a contract for the years ended December 31, 2022 and 2021 was $ 2.9 million, $ 2.2 million and $ 0.3 million, respectively.

The incremental cost of obtaining a contract for the years ended December 31, 2023 and 2022 was $ 5.0 million and $ 2.9 million, respectively.

Right of return

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Actual returns in subsequent periods have been consistent with estimated amounts.

Remaining performance obligations

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied at the reporting date.

The composition of unsatisfied performance obligations consists mainly of the Company’s deferred extended warranty services, and to a lesser extent, deferred product revenue and development and validation services for which the Company has an obligation to perform, and has not yet recognized as revenue in the consolidated financial statements.

The following table presents the breakdown of remaining performance obligations (in thousands):

Current $ 224 $ 172

Noncurrent 342 47

Total $ 566 $ 219

Net loss per common share

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The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company has no participating securities outstanding for the periods presented.

Basic net loss per common share attributable to common stockholders is computed by dividing the net loss by the weighted average number of common shares outstanding for the period.

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Diluted net loss per common share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The Company’s redeemable convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company.

Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities.

In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

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Comprehensive loss is comprised of net loss and other comprehensive income (loss).

The Company’s foreign currency translation adjustment is the only component of other comprehensive loss that is excluded from the reported net loss for all periods presented.

The Company’s changes in unrealized loss on available for sale securities and foreign currency translation adjustment are the only components of other comprehensive loss that is excluded from the reported net loss for all periods presented.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents.

Cash and cash equivalents consist of cash deposited with banks and a money market account.

Cash and cash equivalents consist of cash deposited with banks, money market accounts and commercial paper.

Restricted Cash

Restricted cash consists of certificates of deposit held by banks as security for outstanding letters of credit.

The Company considers investments with an original maturity greater than three months and remaining maturities less than one year to be short-term investments.

The Company classifies those investments that are not required for use in current operations and that mature in more than 12 months as long-term investments.

The Company classifies its investments as available for sale and reports them at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss.

For investments sold prior to maturity, the cost of investments sold is based on the specific identification method.

Realized gains and losses on the sale of investments are recorded in other income, net in the consolidated statement of operations and comprehensive loss.

Accounts Receivable

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Year Ended December 31,

2022 2021 2020

Beginning balance $ 853 $ 507

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Prior to performing the impairment test, the Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than the carrying amount.

If after assessing the totality of events or circumstances, the Company were to determine that it is

more likely than not that the fair value of the reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.

If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.

The quantitative impairment test involves comparing the fair value of the reporting unit to the carrying value.

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If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit.

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

Intangible Assets

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Concentrations of credit risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable.

Cash, cash equivalents and restricted cash are deposited with federally insured commercial banks in the U.S.

and UK, Hong Kong, China and European Union.

Financial instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, short-term investments, restricted cash and accounts receivable.

Cash, cash equivalents, restricted cash are deposited with federally insured commercial banks in the U.S.

and UK, Netherlands, France, Hong Kong, China, Thailand, India, Canada and Germany.

At times, cash balances in the U.S.

may be in excess of federal insurance limits.

As of December 31, 2022 and 2021, the Company had cash, cash equivalents and restricted cash with financial institutions in US of $ 123.5 million and $ 184.2 million, respectively.

As of December 31, 2022 and 2021, the Company also had cash on deposit with financial institutions in countries other than the US of approximately $ 0.8 million and $ 0.5 million, respectively, that was not federally insured.

As of December 31, 2023 and 2022, the Company had cash, cash equivalents, short-term investment and restricted cash with financial institutions in U.S.

of $ 184.8 million and $ 123.5 million, respectively.

As of December 31, 2023 and 2022, the Company also had cash with financial institutions in countries other than the U.S.

of approximately $ 7.0 million and $ 0.8 million, respectively, that was not federally insured.

The Company generally does not require collateral or other security deposits for accounts receivable.

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Customer A 42 % — %

* Customer accounted for less than 10 % of total accounts receivable in the period.

There were no customers that accounted for more than 10% of revenue during the years ended December 31, 2022 and 2021 .

Revenue from customer D accounted for approximately 11 % of total revenue during the year ended December 31, 2020.

Customer B 12 % — %

Concentrations of supplier risk

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Year Ended December 31,

2022 2021 2020

Supplier A 11 % — %

Supplier B 17 % 28 %

Supplier B accounted for 44 % and 39 % of total accounts payable balance as of December 31, 2023 and 2022.

No professional services vendor accounted for 10% greater of total accounts payable balance as of December 31, 2023.

One professional services vendor accounted for approximately 14 % of total accounts payable balance as of December 31, 2022.

There were no other vendors that accounted for more than 10% of total accounts payable balance as of December 31, 2021.

Amazon Warrant

The Amazon Warrant (as defined in Note 7) is accounted for as an equity instrument.

To determine the fair value of the Amazon Warrant on its issuance date, the Company used the Black-Scholes option pricing model.

For awards granted to a customer, which are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is recorded as a reduction of the transaction price.

Accordingly, when Amazon purchases goods or services and vesting conditions become probable of being achieved, the Company records a non-cash stock-based reduction to revenue associated with the Amazon Warrant, which is calculated based on the fair value of the Amazon Warrant shares as of the Velodyne Merger date.

Stock-based compensation

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Recently Issued and Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The Company adopted this ASU as of January 1, 2021, which did not have a material impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes.

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by improving consistent application of other areas of Topic 740.

The Company adopted this ASU as of January 1, 2021, which did not have a material impact on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

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ASUs not referenced below were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”).

The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption.

The Company does not expect ASU 2023-07 to have a material impact on the Company’s financial statement and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures” (“ASU 2023-09”), which prescribes standard categories for the components of the effective tax rate reconciliation and requires disclosure of additional information for reconciling items meeting certain quantitative thresholds, requires disclosure of disaggregated income taxes paid, and modifies certain other income tax-related disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and can be adopted on a prospective or retrospective basis.

The Company is currently evaluating the potential impact of the adoption of ASU 2023-09 on its consolidated financial statements and related disclosures.

Business Combination and Related Transactions

Sense Acquisition

On October 22, 2021, the Company acquired Sense Photonics Inc.

(“Sense”), a privately held lidar technology company for autonomous vehicles.

The transaction has been accounted for as a business combination.

The Company purchased all of the outstanding shares of the capital stock of Sense and settled all Sense debt for total consideration of $ 72.8 million comprised of 9,163,982 shares of the Company’s 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.

The Company retained 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 legal perspective and have the same economic and voting rights as other issued and outstanding shares of the Company’s common stock.

Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $ 1.5 million.

Measurement period adjustments recognized during 2022 related primarily to updated estimated fair values for assumed employer withholding tax liabilities, royalty liability and a net working capital adjustment.

A reconciliation of preliminary total consideration as of December 31, 2021, and total final consideration as of December 31, 2022, are presented below (in thousands):

As Reported Measurement Period Adjustment As Adjusted Value

Fair value of common stock issued at closing $ 60,024 $ ( 358 ) $ 59,666

Fully vested replacement equity awards 1,081 — 1,081

Cash paid at closing to settle Sense pre-existing debt and transaction costs incurred by Sense 11,703 — 11,703

Total consideration $ 72,808 $ ( 358 ) $ 72,450

As Reported Measurement Period Adjustment As Adjusted Value

Assets acquired:

Cash $ 689 $ — $ 689

Restricted cash 69 — 69

On February 10, 2023, the Company completed the Velodyne Merger.

Velodyne shares ceased trading on the Nasdaq Stock Market LLC after market close on February 10, 2023, and each Velodyne share was exchanged for 0.8204 shares of the Company’s common stock.

Velodyne is treated as the acquired company for financial reporting purposes.

This determination is primarily based on the Company’s senior management prior to the Velodyne Merger comprising a majority of the senior management of the Company following the Velodyne Merger, the Company being the initiator of acquiring Velodyne and the Company being the party issuing shares in the Velodyne Merger.

The acquisition price for the Velodyne Merger was $ 306.6 million, primarily consisting of fair value of the Company’s common stock issued in exchange for Velodyne shares and fair value of the Amazon Warrant (Note 7) of $ 8.6 million.

Through December 31, 2023, transaction costs incurred by the Company in connection with the Velodyne Merger, including professional fees, were $ 13.0 million.

Under the acquisition method of accounting in accordance with ASC 805, the total purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values using management’s best estimates and assumptions to assign fair value as of the acquisition date.

The purchase accounting, including the identification and allocation of consideration to assets acquired was completed as of the fourth quarter of 2023.

The following table provides the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Estimated Fair Value

Purchase consideration $ 306,602

Preliminary amounts of identifiable assets and liabilities assumed

Cash and cash equivalents $ 32,137

Short-term investments 155,031

Accounts receivable, net 8,611

Inventory 9,700

Prepaid expenses and other current assets 4,387

Unbilled receivable, long-term portion 6,657

Property and equipment, net 9,900

Developed technology 15,900 — 15,900

Vendor relationship 6,600 — 6,600

Customer relationships 900 — 900

Goodwill 51,076 76 51,152

Total assets acquired $ 77,091 $ 76 $ 77,167

Liabilities assumed:

Operating lease, right-of-use assets 10,887

Intangible assets, net 13,000

Other non-current assets 1,047

Accounts payable ( 3,356 )

Accrued and other current liabilities ( 32,821 )

Contract liabilities ( 5,475 )

Operating lease liability, current portion ( 3,735 )

Operating lease liability, long-term portion ( 11,940 )

Contract liabilities, long-term portion ( 2,206 )

Other non-current liabilities ( 745 )

Deferred tax liability ( 2,477 ) — ( 2,477 )

Total liabilities assumed $ ( 4,283 ) $ ( 434 ) $ ( 4,717 )

Net Assets acquired $ 72,808 $ ( 358 ) $ 72,450

The fair value assigned to developed technology was determined as of the acquisition date under the relief-from-royalty rate method using Level 3 inputs.

Management applied significant judgment in estimating the fair value of the developed technology, which involved significant assumptions related to the revenue growth rates, the relief-from-royalty rate, the discount rate, and the economic life.

The fair values assigned to the vendor relationship and customer relationships were determined using Level 3 inputs under the with-and-without method.

These Level 3 inputs include revenue growth rates, discount rate and period to recreate the relationship.

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and assumed liabilities acquired and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition.

Goodwill is not deductible for tax purposes.

The operating results of Sense are included in our consolidated statements of income from the respective dates of acquisition.

Sense’s revenue and pretax loss for the period from the acquisition date of October 22, 2021 to December 31, 2021 was not material.

The following unaudited supplemental pro forma information presents the combined historical results of operations of the Company and Sense as if the business combination had been completed on January 1, 2020.

The pro forma financial information includes amortization of fair value adjustments in the appropriate pro forma periods as though the companies were combined as of the beginning of 2020.

These adjustments include:

• An increase in amortization expense of $ 4.5 million and $ 3.7 million related to the fair value of acquired identifiable intangible assets in 2021 and 2020, respectively;

• A decrease in expenses of $ 1.5 million related to acquisition transaction expenses in 2021;

• An increase in stock based compensation expense of $ 10.8 million and $ 8.7 million in 2021 and 2020, respectively, related to the stock options and restricted stock units issued to Sense employees.

The following table includes unaudited pro forma results (in thousands, except per share data):

Total identifiable net assets $ 191,079

Goodwill $ 115,523

Identified intangible assets acquired and their estimated useful lives as of February 10, 2023, were (in thousands, except years):

Estimated Useful Life

(in years) Estimated Fair Value

Developed technology - Hardware 3 $ 2,500

Developed technology - Software 5 5,100

Customer relationships 8 5,400

Intangible assets, net 5.9 $ 13,000

Developed technology relates to Velodyne’s lidar sensors and Blue City AI software used to monitor traffic networks and public spaces.

The Company applied significant judgment in estimating the fair value of the developed technology, which involved significant assumptions related to the relief-from-royalty rate, the migration curve, the discount rate, and the economic life.

The Company valued the hardware developed technology using the relief-from-royalty method under the income approach.

Software developed technology was valued using the excess earnings method.

The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecasted period.

The estimated fair value of the customer relationships was determined using the distributor method, which involved significant assumptions related to the distributions margin.

The Company estimated customer relationships useful life of 8 years that approximates the pattern in which the economic benefits are expected to be realized.

The estimated fair value of the inventory was determined using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or dispose of the inventory, as well as a profit on the sale.

The estimated fair value of property and equipment utilized a replacement cost method incorporating the age, quality and condition of the assets.

The excess of the purchase consideration and the fair value of identifiable assets acquired and liabilities assumed at the acquisition date over the fair value of net tangible and identified intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes.

Goodwill is primarily attributable to the assembled workforce and the anticipated operational synergies at the time of the Velodyne Merger.

The Company’s consolidated statement of operations as of December 31, 2023, includes Velodyne revenue of $ 29.0 million for the period from the acquisition date of February 10, 2023 to December 31, 2023.

Due to the integration of the combined businesses, it was impractical to determine the earnings.

The unaudited supplemental pro forma information below presents the combined historical results of operations of the

Company and Velodyne as if the Velodyne Merger had been completed as of January 1, 2022 (in thousands):

Year Ended December 31,

Revenue $ 86,935 $ 84,984

Net loss $ ( 372,689 ) $ ( 326,269 )

The unaudited supplemental pro forma information above includes the following adjustments to net loss in the appropriate pro forma periods (in thousands):

Year Ended December 31,

An increase in amortization expense related to the fair value of acquired identifiable intangible assets, net of the amortization expense already reflected in actual historical results $ ( 277 ) $ ( 2,820 )

A decrease (increase) in expenses related to the transaction expenses $ 6,058 $ ( 6,058 )

A net increase in revenue related to the impact of the acceleration of the Amazon Warrant vesting recognized by Velodyne at the close of the Velodyne Merger transaction $ 3,656 $ —

A decrease in expenses related to the impact of the acceleration of the Amazon Warrant vesting recognized by Velodyne at the close of the Velodyne Merger transaction $ 26,704 $ —

Represents decrease (increase) in additional stock-based compensation expense related to Ouster employee terminations due to change in control.

$ 6,383 $ ( 5,195 )

Represents a decrease (increase) in severance expense in connection with the Velodyne Merger transaction $ 10,586 ( 10,586 )

The unaudited supplemental pro forma information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the Velodyne Merger taken place on the date indicated, or of the Company’s future consolidated results of operations.

The supplemental pro forma information presented above has been derived from the Company’s historical consolidated financial statements and from historical consolidated financial statements and the historical accounting records of Velodyne.

Fair Value of Financial Instruments

2 unchanged sentences

Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money market funds $ 7,354 $ — $ — $ 7,354

Commercial paper — 2,989 — 2,989

Short-term investments:

Commercial paper — 80,620 — 80,620

Corporate debt and U.S.

government agency securities — 58,538 — 58,538

Total short-term investments — 139,158 — 139,158

Total financial assets $ 7,354 $ 142,147 $ — $ 149,501

7 unchanged sentences

Total financial liabilities $ — $ — $ 180 $ 180

Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

The fair value of the Private Placement warrant liabilities is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

In determining the fair value of the warrant liabilities, the Company used the Black-Scholes option pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and dividend yield (see Note 7).

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands):

Preferred Stock

Warrant Liability Redeemable Convertible Preferred Stock Tranche Liability Private Placement Warrant Liability Derivative liability

Fair value as of January 1, 2020 $ ( 162 ) $ — $ — $ —

Initial recognition of preferred stock warrant liability upon subsequent issuance of warrants ( 691 ) ( 1,610 ) — —

Change in the fair value included in other income (expense), net ( 48,440 ) — — ( 5,308 )

Extinguishment of derivative liability upon conversion of convertible notes — — — 5,308

Settlement of redeemable convertible preferred stock tranche liability due to the issuance of Series B redeemable convertible preferred stock, included in other income (expense), net — 1,610 — —

Fair value as of December 31, 2020 ( 49,293 ) — — —

Private placement warrant liability acquired as part of the Colonnade Merger — — ( 19,377 ) —

Change in the fair value included in other income (expense), net ( 8,804 ) — 11,751

Issuance of preferred stock upon exercise of warrants 58,097 — — —

Fair value as of December 31, 2021 — — ( 7,626 ) —

Change in the fair value included in other income (expense), net — — 7,446 —

Fair value as of December 31, 2022 $ — $ — $ ( 180 ) $ —

Non-Recurring Fair Value Measurements

The Company has certain assets, including goodwill and other intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to fair value only if an impairment charge is recognized.

The Company has certain assets, including intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to fair value only if an impairment charge is recognized.

The categorization of the framework used to measure fair value of the assets is considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used.

Disclosure of Fair Values

Our financial instruments that are not re-measured at fair value includ e accounts receivable, accounts payable, accrued and other current liabilities and short-term debt.

Our financial instruments that are not re-measured at fair value includ e accounts receivable, accounts payable, accrued and other current liabilities and debt.

The carrying values of these financial instruments approximate their fair values.

Balance Sheet Components

Cash and Cash Equivalents

Cash and Cash Equivalents and Short-Term Investments

The Company’s cash and cash equivalents consist of the following (in thousands):

3 unchanged sentences

7,354 121,100

Commercial paper 2,989 —

Total cash and cash equivalents

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Cash is invested in short-term money market funds that earn interest.

The Company acquired short-term investments consisting of commercial paper, corporate debt and U.S.

government agency securities as a result of the merger with Velodyne that closed on February 10, 2023 (see Note 3).

Short-term investments were $ 139.2 million as of December 31, 2023.

Unrealized gains and losses on the Company’s short-term investments were not significant as of December 31, 2023 and therefore, the amortized cost of the Company’s short-term investments approximated their fair value.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows (in thousands):

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Total inventory $ 23,232 $ 19,533

During the years ended December 31, 2022, 2021 and 2020, $ 1.3 million, $ 0.8 million and $ 0.8 million of inventory write downs were charged to cost of revenue.

During the years ended December 31, 2023 and 2022, $ 10.0 million and $ 1.3 million of inventory write downs were charged to cost of revenue.

Prepaid expenses and other current assets

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Prepaid insurance 648 1,442

Receivable from contract manufacturer 2,526 1,344

Receivable from contract manufacturers 2,028 2,526

Insurance receivable 23,375 —

Other current assets 3,219 2,073

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$ 10,228 $ 9,695

Depreciation expense associated with property and equipment was $ 5.0 million, $ 4.7 million and $ 3.7 million in the years ended December 31, 2022, 2021 and 2020, respectively.

Depreciation expense associated with property and equipment was $ 10.4 million and $ 5.0 million in the years ended December 31, 2023 and 2022, respectively.

The following table summarizes the Company's property and equipment, net by geography (in thousands):

2 unchanged sentences

France 2,416 1,750

Others 112 169

Total $ 10,228 $ 9,695

Goodwill and Acquired Intangible Assets, Net

In the fourth quarter of 2021, the Company completed the acquisition of Sense Photonics Inc.

(“Sense”), a privately held lidar technology company for autonomous vehicles.

In the first quarter of 2023, the Company completed the acquisition of Velodyne.

The transaction has been accounted for as a business combination.

The Company purchased all of the outstanding shares of the capital stock of Sense and settled all Sense debt for total consideration of $ 72.8 million.

The Company acquired Velodyne for the price of $ 306.6 million, primarily consisting of fair value of the Company’s common stock issued in exchange for Velodyne shares and fair value of the Amazon Warrant (Note 7) of $ 8.6 million.

Goodwill represents the excess of the purchase price over the preliminary estimated fair values of the identifiable assets and assumed liabilities acquired and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition.

2 unchanged sentences

December 31, 2022 $ 51,152

Goodwill acquired 51,076

December 31, 2021 51,076

Measurement period adjustment 76

Goodwill addition related to Velodyne Merger

Goodwill impairment charges

December 31, 2023 $ —

Goodwill and purchased intangible assets are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment.

The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results.

The Company with the assistance of third-party valuation specialist performed an interim and annual impairment test of its goodwill, as of September 30, 2022 and October 1, 2022, respectively, as a result of the decline in market conditions and updated outlook as a result of the impact of market uncertainties that prolonged sales cycle.

The Company’s reporting unit fair value was determined based on a discounted future cash flow model (income approach) and a market approach.

The Company’s estimate of fair value included significant judgments and assumptions relating to an implied control premium and comparable company market transactions.

The estimated fair value of the reporting unit exceeded its carrying value by approximately 4 %.

Accordingly, the Company determined that goodwill was not impaired as of September 30, 2022 and October 1, 2022.

The Company with the assistance of third-party valuation specialist performed an interim impairment test of its goodwill in the fourth quarter of 2022 as a result of the continuing market volatility resulting in a decline in the Company’s stock price.

The Company’s reporting unit fair value was determined based on a discounted future cash flow model (income approach) and a market approach.

The Company’s estimate of fair value included significant judgments and assumptions relating to an implied control premium and comparable company market transactions.

The estimated fair value of the reporting unit exceeded its carrying value by approximately 5 % as of December 31, 2022.

Accordingly, the Company determined that goodwill was not impaired as of December 31, 2022.

Given this level headroom, in the event the financial performance of the Company does not meet management’s current expectations in the future or the Company experiences prolonged market downturns or persistent declines in the Company’s stock price, or there are other negative revisions to key assumptions, the Company may be required to perform additional impairment analyses and could be required to recognize a non-cash goodwill impairment charge.

Goodwill is not amortized and is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In 2023 the Company experienced a significant decline in its stock price.

This decline resulted in the total market value of its shares of stock outstanding (“market capitalization”) being less than the carrying value of its reporting unit as of March 31, 2023 and June 30, 2023.

The Company also considered the impact of current macroeconomic conditions in the lidar sensor industry that potentially impact the fair value of the Company’s reporting unit.

The macroeconomic conditions considered include deterioration in the equity markets evidenced by sustained declines in the Company’s stock price, those of its peers, along with an increase in the weighted-average cost of capital primarily driven by an increase in interest rates.

After considering all available evidence in the evaluation of goodwill impairment indicators, the Company determined it was appropriate to perform an interim quantitative assessment of its goodwill as of March 31, 2023 and June 30, 2023.

In connection with the Company’s interim goodwill impairment assessments the Company recorded goodwill impairment charges of approximately $ 99.4 million in the three months ended March 31, 2023 and $ 67.3 million in the three months ended June 30, 2023.

The Company’s goodwill impairment analysis included a comparison of the aggregate estimated fair value of our reporting unit to our total market capitalization.

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

No goodwill impairment charges were recognized during the year ended December 31, 2022.

The following tables present acquired intangible assets, net as of December 31, 2023 and 2022 (in thousands):

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Developed technology 3 - 8

$ 23,500 $ ( 5,948 ) $ 17,552

Vendor relationship 3 6,600 ( 4,767 ) 1,833

Customer relationships 3 - 8

6,300 ( 1,249 ) 5,051

Intangible assets, net $ 36,400 $ ( 11,964 ) $ 24,436

7 unchanged sentences

Amortization expense was $ 6.7 million and $ 4.5 million in the years ended December 31, 2023 and 2022, respectively.

The Company did no t have any intangible assets and amortization expense associated as of December 31, 2020.

The following table summarizes estimated future amortization expense of finite-lived intangible assets-net (in thousands):

1 unchanged sentence

Total $ 24,436

Product Warranties

The following table reflects the activity in accrued warranty cost (in thousands):

Beginning balance $ 2,096 $ 983

Additions from acquisitions 802 —

Warranty expenditures ( 2,820 ) ( 1,702 )

Increase to warranty accrual 3,583 2,815

Ending balance $ 3,661 $ 2,096

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

Accrued compensation $ 3,758 $ 3,229

Uninvoiced receipts $ 12,980 $ 10,727

Accrued compensation 6,387 3,758

Accrued legal contingencies 27,500 —

Sales and use taxes 2,667 403

Other 8,632 2,183

Total accrued and other current liabilities $ 58,166 $ 17,071

Convertible Notes Payable

2018 Convertible Notes

During the period from August 2018 through April 2019, the Company issued convertible promissory notes to certain Investors (“2018 Investors”), with an aggregate principal amount of $ 40.3 million (“2018 Convertible Notes”).

The Company received consideration of $ 40.0 million, net of debt issuance costs of $ 0.3 million.

The 2018 Convertible Notes were payable anytime on or after two years from the respective issuance dates upon demand of the 2018 Investors holding at least 60 % of the outstanding principal of the 2018 Convertible Notes or at the Company’s option with 10 days’ notice to the 2018 Investors, and carried paid in-kind interest of 5 %.

The notes and all accrued but unpaid interest were automatically convertible into shares of the Company’s common stock in the event of qualified financing (defined with respect to the 2018 Convertible Notes as a sale by the Company of shares of its capital stock for aggregate gross proceeds of at least $ 5 million) and convertible in the event of non-qualified financing (defined with respect to the 2018 Convertible Notes as a sale by the Company of shares of its capital stock for aggregate gross proceeds of less than $ 5 million) or change of control at the option of the majority of 2018 Investors at a conversion price equal to the lesser of (i) $ 400 million divided by the number of shares of the Company’s common stock outstanding immediately prior to the respective events, assuming conversion or exercise of all securities convertible into common stock and (ii) the price per share of its capital stock paid in the applicable transaction (qualified financing, non-qualified financing, or change of control).

All of the 2018 Convertible Notes were converted to common stock in April 2020 as part of Series B redeemable convertible preferred stock financing.

For the year ended December 31, 2020, the Company recognized interest expense of $ 0.6 million and amortization of debt discount issuance costs, included in interest expense of $ 0.1 million related to the 2018 Convertible Notes.

On April 3, 2020, $ 40.2 million of principal and $ 2.8 million of accrued interest of the 2018 Convertible Notes were converted to 3,005,762 shares of common stock at a conversion price of $ 14.33 per share.

The Notes were converted to common stock outside of the original contract terms.

The holders of 2018 Convertible Notes issued consents to amend the terms of the notes to provide for conversion to common stock before maturity, including a newly negotiated issuance price to affect the conversion in order to raise additional financing.

The Company accounted for the transaction as a troubled debt restructuring as a result of satisfying the below criteria:

• The Company’s challenges associated with the financing efforts of its operations at the time of the convertible notes exchange.

• The holders of the convertible notes completed the exchange for a value lower than the face amount of the notes.

As a result, the Company concluded a concession was granted to the Company.

The convertible notes exchange resulted in a gain of approximately $ 42.5 million, which resulted in a credit to additional paid-in capital as this transaction was with related parties.

2019 Convertible Notes

During the period from September through November, 2019, the Company issued convertible promissory notes to certain Investors (“2019 Investors”), with an aggregate principal amount of $ 29.3 million (“2019 Convertible Notes”).

The Company received consideration of $ 29.2 million, net of debt issuance costs of $ 0.1 million.

The 2019 Convertible Notes were to be payable anytime on or after September 18, 2021 upon demand by consent of the 2019 Investors holding at least 60 % of the outstanding principal of the 2019 Convertible Notes or at the Company’s option with 10 days’ notice to the 2020 Investors, and carried interest at 5 % per annum which in addition to the notes was payable at maturity.

Convertible Notes and all accrued but unpaid interest were automatically convertible into shares of the Company’s common stock in the event of qualified financing and convertible in the event of non-qualified financing (defined with respect to the 2019 Convertible Notes as a sale by the Company of shares of its capital stock for aggregate gross proceeds of less than $ 20 million) or change of control at the option of the majority of 2020 investors at a conversion price determined as the lesser of (i) a ratio of $ 300 million and the number of shares of the Company’s common stock outstanding immediately prior to the respective events, assuming conversion or exercise of all securities convertible into common stock and (ii) 85 % of the price per share of its capital stock paid in the applicable transaction (qualified financing, non-qualified financing, or change of control).

2019 Convertible Notes contain embedded features that provide the lenders with multiple settlement alternatives.

Certain of these settlement features provided the lenders a right to a fixed number of the Company’s shares upon conversion of the notes (the “conversion option”).

Other settlement features provided the lenders the right or the obligation to receive cash or a variable number of shares upon the completion of a capital raising transaction, change of control or default of the Company (the “redemption features”).

The conversion options of the convertible notes did not meet the requirements to be separately accounted for as a derivative liability.

However, certain redemption features of the 2019 Convertible Notes met the requirements for separate accounting and were accounted for as a single, compound derivative instrument.

The derivative instrument was recorded at fair value at inception and was subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the statements of operations and comprehensive loss (see Note 4).

On April 3, 2020, $ 29.3 million of principal and $ 0.7 million of accrued interest of the 2019 Convertible Notes were converted to 4,196,178 shares of common stock at a conversion price of $ 7.17 per share.

All of the 2019 Convertible Notes were converted to common stock in April 2020 as part of Series B redeemable convertible preferred stock financing.

The Notes were converted to common stock outside of the original contract terms.

The holders of 2019 Convertible Notes issued consents to amend the terms of the notes to provide for conversion to common stock before maturity, including a newly negotiated issuance price to affect the conversion in order to raise additional financing.

The Company accounted for the transaction as a troubled debt restructuring as a result of satisfying the below criteria:

• The Company’s challenges associated with the financing efforts of its operations at the time of the convertible notes exchange.

• The holders of the convertible notes completed the exchange for a value lower than the face amount of the notes.

As a result, the Company concluded a concession was granted to the Company.

The convertible notes exchange resulted in a gain of approximately $ 29.3 million, which resulted in a credit to additional paid-in capital as this transaction was with related parties.

The outstanding derivative liability in the amount of $ 5.3 million as of the conversion date of 2019 Notes was extinguished and accounted for as a capital contribution to equity.

For the year ended December 31, 2020, the Company recognized interest expense of $ 0.4 million and amortization of debt discount issuance costs, included in interest expense of $ 0.1 million in relation with the 2019 Convertible Notes.

Runway Growth Loan Agreement

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

(“Runway Loan and Security Agreement”).

The Runway Loan and Security Agreement provided for loans in an aggregate principal amount up to $ 10.0 million with a loan maturity date of November 15, 2021.

The loan carried an interest rate equal to LIBOR plus 8.5 %, unless LIBOR was no longer attainable or ceased to fairly reflect the costs of the lender, in which case the applicable interest rate would have been Prime Rate plus 6.0 %.

In an event of default, annual interest would have been increased by 5.0 % above the otherwise applicable rate.

In conjunction with the Runway Loan and Security Agreement, OTI issued a warrant to purchase 35,348 shares of Series A redeemable convertible preferred stock (the “Series A Preferred Stock”) of OTI ( 4.0 % of original principal amount of $ 10.0 million, divided by the exercise price), with an exercise price of $ 11.3518 per share.

The fair value of this warrant was estimated to be $ 0.1 million and accounted for as a debt discount.

On August 5, 2019, in connection with the second amendment to the Runway Loan and Security Agreement, OTI amended the warrant issued to Runway Growth to increase the number of shares available to purchase to 53,023 shares of Series A Preferred Stock of OTI.

The aggregate value of the warrants increased by $ 0.1 million after the warrant modification.

The warrants were exercised on March 11, 2021 and the warrant liability was remeasured to fair value with the increase recognized as a loss of $ 0.6 million for the three months ended March 31, 2021 within other income (expense), net in the consolidated statements of operations and comprehensive loss.

The warrant liability was remeasured to fair value as of March 31, 2021 and the reduction was recognized as a gain of $ 0.2 million.

On March 26, 2021, the Company 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.

The Company 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, 2022 and 2021, the outstanding principal balance of the loan was nil , respectively.

Promissory notes

The Company issued a $ 5.0 million promissory note in January 2021 to certain current investors of the Company (or their respective affiliates) to help continue to fund the Company’s ongoing operations through the consummation of the Colonnade Merger.

The note accrued interest at a rate equal to LIBOR plus 8.5 % per annum and was repaid on March 11, 2021 in accordance with its terms in connection with the consummation of the Colonnade Merger.

Loan and Security Agreement

On April 29, 2022 (the “Closing Date”), the Company entered into the Loan Agreement with Hercules.

The Loan Agreement provides the Company with a term loan facility of up to $ 50.0 million, subject to certain terms and conditions (the “Term Loan Facility”).

On April 29, 2022 the Company entered into a Loan Agreement with Hercules Capital, Inc.

(“Hercules”) (as amended, the “Loan Agreement”).

The Loan Agreement provided the Company with a term loan facility of up to $ 50.0 million, subject to certain terms and conditions.

The Company borrowed the initial tranche of $ 20.0 million on April 29, 2022.

On October 17, 2022, the Company borrowed an additional $ 20.0 million.

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

Advances under the Loan Agreement bear interest at the rate of interest equal to greater of either (i) (x) the prime rate as reported in The Wall Street Journal plus (y) 6.15 %, and (ii) 9.40 %, subject to compliance with financial covenants and other conditions.

The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities.

The Loan Agreement matures on May 1, 2026 (the “Maturity Date”).

Interest on amounts borrowed under the Loan Agreement is payable on a monthly basis until June 1, 2025 (the “Amortization Date”).

On and as of the Amortization Date, payments consist of equal monthly installments of principal and interest payable until the secured obligations are repaid in full.

However, if the Company achieves certain equity proceeds, revenue or profit targets for the twelve-month period ending December 31, 2023, then the Amortization Date will be extended to the Maturity Date.

The entire principal balance and all accrued but unpaid interest shall be due and payable on the Maturity Date.

On the earliest to occur of May 1, 2026, the date on which the obligations under the Loan Agreement are paid and the date on which such obligations become due and payable, the Company is also required to pay Hercules an end of term fee in an amount equal to 7.45 % of the aggregated amount of all Advances made under the Loan Agreement.

The Loan Agreement included a minimum liquidity financial covenant whereby the Company was required to maintain at least $ 60.0 million of cash in deposit accounts that are subject to an account control agreement in favor of Hercules.

On February 10, 2023, the Company entered into the Third Amendment, which amended 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.

Advances under the Loan Agreement bore interest at the rate of interest equal to greater of either (i) (x) the prime rate as reported in The Wall Street Journal plus (y) 6.15 %, and (ii) 9.40 %, subject to compliance with financial covenants and other conditions.

The Loan Agreement included covenants, limitations, and events of default customary for similar facilities.

In connection with the Loan Agreement, the Company paid the lender a cash facility and legal fees of $ 0.6 million and incurred debt issuance costs to third parties that were directly related to issuing debt in the amount of $ 0.3 million.

The effective interest rate on this debt is 17.90 % after giving effect to the debt discount, debt issuance costs and the end of term charge.

The Company may prepay the principal of any advance made pursuant to the terms of the Term Loan Facility at any time subject to a prepayment charge equal to:

2.50 %, if such advance is prepaid in any of the first 12 months following the Closing Date, 1.50 %, if such advance is prepaid after 12 months but prior to 24 months following the Closing Date, and 1.0 %, if such advance is prepaid anytime thereafter.

If the Company failed to maintain an unrestricted cash balance of $ 60.0 million, it would then be subject to a financial covenant that requires the Company to achieve certain trailing twelve-month revenue targets tested quarterly as set forth in the Loan Agreement and commencing with the quarter ending on June 30, 2023.

In contemplation of entry into the Velodyne Merger Agreement, on November 1, 2022, the Company entered into the Second Amendment.

Pursuant to the terms of the Second Amendment, the financial covenant requiring the Company to achieve certain trailing twelve month revenue thresholds commencing with the quarter ending June 30, 2023 will be eliminated and replaced, contingent upon and effective as of the closing of the transaction under the Velodyne Merger Agreements, with a minimum liquidity financial covenant whereby the Company must maintain at least $ 60.0 million of cash in deposit accounts that are subject to an account control agreement in favor of Hercules.

On February 10, 2023, the Company, entered into Third Amendment, which amends 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.

As of December 31, 2022, we were in compliance with all financial covenants.

All obligations under the Loan Agreement are unconditionally guaranteed by certain of the Company’s subsidiaries, including Sense Photonics, Inc., a Delaware corporation.

The Term Loan Facility is secured by substantially all of the Company’s and the guarantors’ existing and after-acquired assets, including all intellectual property, all securities in existing and future domestic subsidiaries and 65.0 % of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

The Loan Agreement contains customary covenants for transactions of this type and other covenants agreed to by the parties, including, among others, (i) the provision of annual, quarterly and monthly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales.

The Loan Agreement also provides for customary events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults.

Long-term debt outstanding is summarized below (in thousands):

Long-term debt $ 40,000

End of term fee 337

unamortized debt discount ( 496 )

debt issuance costs ( 267 )

Total debt $ 39,574

The unamortized debt discount and debt issuance costs are amortized to interest expense over the life of the instrument using the effective interest rate method.

The effective interest rate on this debt was 17.90 % after giving effect to the debt discount, debt issuance costs and the end of term charge.

Amortization expense included in the interest expense related to debt discount and debt issuance costs of the Loan Agreement was not material for the year ended December 31, 2023.

Warrants and Tranche Liabilities

On November 27, 2018, in connection with the execution of the Runway Loan and Security Agreement, the Company issued a warrant to purchase 35,348 shares of Series A Preferred Stock of the Company at an exercise price of $ 11.3518 per share (the “Runway warrant”).

On August 5, 2019, in connection with the second amendment to the Runway Loan and Security Agreement, the Company amended the warrant issued to Runway Growth to increase the number of shares available to purchase to 53,023 shares of Series A Preferred Stock of the Company at an exercise price of $ 11.3518 per share.

The Runway warrant had a term expiring upon the earlier of 10 -year anniversary from the issuance date and liquidation of the Company.

The Runway warrant had a cashless exercise provision under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s stock at the time of exercise of the warrants after deduction of the aggregate exercise price.

The Runway warrant contained provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications, and consolidations.

The fair value of the Runway warrant issued was recorded as of the date of initial issuance in the amount of $ 0.1 million.

The subsequent issuance of warrants pursuant to the August 5, 2019 amendment to the Runway Loan and Security Agreement was recorded in the amount of $ 0.1 million.

The Runway warrant was exercised on March 11, 2021.

On April 3, 2020, in connection with the closing of the Series B redeemable convertible preferred stock, the Company issued a warrant to purchase 4,513,993 shares of Series B redeemable convertible preferred stock of the Company at an exercise price of $ 0.3323 per share (the “Series B warrants”).

The Series B warrants could be exercised prior to the earliest to occur of (i) the 10 -year anniversary of the date of issuance, (ii) the consummation of a liquidation transaction, or (iii) the consummation of an initial public offering.

These Series B warrants included a cashless exercise provision under which their holders could, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s stock at the time of exercise of the warrants after deduction of the aggregate exercise price.

The Series B warrants contained provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications, and consolidations.

The Series B warrants were initially recognized as a liability at a fair value of $ 0.7 million.

The Series B warrants were exercised on February 11, 2021 and the warrant liability was remeasured to fair value as of that date, resulting in a loss of $ 8.3 million for the year ended December 31, 2021, classified within other income (expense), net in the consolidated statements of operations and comprehensive loss.

Historically, value was assigned to each class of equity securities using an option pricing model method (“OPM”).

In September 2020, the Company began allocating the equity value using a hybrid method that utilizes a combination of the OPM and the probability weighted expected return method (“PWERM”).

The PWERM is a scenario-based methodology that estimates the fair value of equity securities based upon an analysis of future values for the Company, assuming various outcomes.

As the probability of a transaction with a special purpose acquisition company (“SPAC”) increased, the fair value of the redeemable convertible preferred stock warrant liability increased as of the date of the exercise.

The redeemable convertible preferred stock warrants were valued using the following assumptions under the Black-Scholes option-pricing model:

Initial Issuance Date Subsequent Issuance Date December 31,

2020 February 11,

2021 March 11,

Stock price $ 5.80 $ 5.80 $ 7.11 $ 10.27 $ 8.44

Term (years) 10.00 9.31 2.00 2.00 2.00

Expected volatility 57.81 % 57.35 % 76.00 % 76.00 % 76.00 %

Risk-free interest rate 3.06 % 1.75 % 0.13 % 0.13 % 0.13 %

Dividend yield 0 % 0 % 0 % 0 % 0 %

Series B Redeemable Convertible Preferred Stock Tranche

In April 2020 and May 2020, the Company issued 62,505,102 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share.

For each share purchased, the purchaser had an option to purchase an additional share of Series B redeemable convertible preferred stock at $ 0.3323 per share, exercisable at any time prior to August 13, 2020 (the “Tranche Right”).

The Company determined that the Tranche Right represented a freestanding obligation of the Company to issue additional shares of contingently redeemable shares if exercised by the holder.

The freestanding redeemable convertible preferred stock tranche liability was initially recorded at fair value, with fair value changes recorded within other income (expense), net in the consolidated statements of operations and comprehensive loss.

In July 2020, the Company issued 37,970,846 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share for net proceeds of $ 12.5 million, less $ 0.1 million of stock issuance costs.

In August, 2020, upon the expiration of the Tranche Right, 25,286,587 shares of Series B redeemable convertible preferred stock were issued in accordance with the Tranche Right.

The remaining Tranche Right expired, unexercised, resulting in a $ 1.6 million gain recorded within other income (expense), net in the consolidated statements of operations and comprehensive loss.

Prior to repayment of the Loan Agreement, interest on amounts borrowed was payable on a monthly basis until June 1, 2025 (the “Amortization Date”).

On and as of the Amortization Date, payments consist of equal monthly installments of principal and interest payable until the secured obligations are repaid in full.

However, if the Company achieved certain equity proceeds, revenue or profit targets for the twelve-month period ending December 31, 2023, then the Amortization Date would have been extended to the Maturity Date.

The entire principal balance and all accrued but unpaid interest were to be due and payable on the Maturity Date.

On the earliest to occur of May 1, 2026, the date on which the obligations under the Loan Agreement were paid and the date on which such obligations became due and payable, the Company was also required to pay Hercules an end of term fee in an amount equal to 7.45 % of the aggregated amount of all Advances made under the Loan Agreement.

The Company was permitted to prepay the principal of any advance made pursuant to the terms of the Term Loan Facility at any time subject to a prepayment charge equal to:

2.50 %, if such advance was prepaid in any of the first 12 months following the Closing Date, 1.50 %, if such advance was prepaid after 12 months but prior to 24 months following the Closing Date, and 1.0 %, if such advance was prepaid anytime thereafter.

On October 25, 2023, the Loan Agreement was repaid with proceeds of the loans drawn under the Credit Agreement (as defined below) with UBS Bank USA and UBS Financial Services Inc.

resulting in 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 for the twelve months ended December 31, 2023.

Revolving Credit

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 the Company with a revolving credit line of up to $ 45.0 million, subject to certain terms and conditions.

The Company borrowed $ 44.0 million on October 25, 2023, and all of the proceeds were used to prepay and terminate the Company’s Loan Agreement on October 25, 2023.

The Company recognized constructive financing cash outflows and financing cash inflows on the statement of cash flows of $ 44.0 million, respectively, even though no funds were actually paid or received.

Pursuant to the terms of the UBS Agreement, the Company has agreed to maintain minimum liquidity, that can be 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.

As of December 31, 2023, the Company is in compliance with this minimum liquidity requirement within the loan agreement.

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.

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

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

The Company has 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.

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.

As of December 31, 2023, the Company was in compliance with the covenants set forth in the UBS Agreement.

Private Placement Warrants

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The Private Placement warrants became exercisable 12 months following the closing of the Company’s IPO, and will expire 5 years from the completion of the Colonnade Merger, or earlier upon redemption or liquidation.

Each Private Placement warrant is exercisable for one Class A ordinary share at a price of $ 11.50 per share.

On March 11, 2021, each outstanding Private Placement warrant automatically converted into a warrant to purchase one share of Ouster common stock pursuant to the Warrant Agreement.

The Private Placement warrants were initially recognized as a liability at a fair value of $ 19.4 million and the Private Placement warrant liability was remeasured to fair value as of December 31, 2022 and 2021, resulting in a gain of $ 7.4 million and $ 11.8 million in the years ended December 31, 2022 and 2021, respectively, classified within other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The Private Placement warrants were valued using the following assumptions under the Black-Scholes option-pricing model:

2021 December 31,

On March 11, 2021, as adjusted to reflect the Reverse Stock Split, each outstanding Private Placement warrant automatically converted into a warrant to purchase one-tenth of a share of Ouster common stock pursuant to the Warrant Agreement.

Each 10 Private Placement warrants is exercisable for one share of Ouster common stock at an exercise price of $ 115.00 per share, with no fractional shares being issuable upon exercise of a warrant.

The private placement warrant liability was initially recognized as a liability at a fair value of $ 19.4 million and the private placement warrant liability was remeasured to fair value as of December 31, 2023 and 2022, resulting in a loss of $ 0.05 million and $ 7.4 million in the years ended December 31, 2023 and 2022, respectively, classified within other income (expense), net in the consolidated statements of operations and comprehensive loss.

The private placement warrant was valued using the following assumptions under the Black-Scholes option-pricing model:

2023 December 31,

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Public Warrants

CLA, in its IPO in August 2020, issued 20,000,000 units that each consisted of one Class A ordinary share and one-half warrant to purchase a Class A ordinary share, which the Company refers to as CLA warrants before the Colonnade Merger and Public warrants after the Colonnade Merger.

These warrants may only be exercised for a whole number of shares, and no fractional warrants were issued or issuable upon separation of the units and only whole warrants will trade.

The warrants became exercisable 12 months following the closing of the Company’s IPO, and will expire five years from the completion of the Colonnade Merger, or earlier upon redemption or liquidation.

Each Public warrant is exercisable at a price of $ 11.50 per share.

On March 11, 2021, upon the closing of the Colonnade Merger pursuant to the Colonnade Merger Agreement (Note 1), each of the 9,999,996 outstanding warrants, as adjusted for any fractional warrants that were not issued upon separation, was converted automatically into a redeemable Public warrant to purchase one share of the Company’s common stock.

The Public warrants were recognized as equity upon the Colonnade Merger in the amount of $ 17.9 million.

CLA, in its IPO in August 2020, issued units that each consisted of one Class A ordinary share and one-half warrant to purchase a Class A ordinary share (the “Public warrants”).

The warrants became exercisable 12 months following the closing of the Company’s IPO, and expire five years from the completion of the Merger, or earlier upon redemption or liquidation.

On March 11, 2021, upon the closing of the Colonnade Merger each of the 999,999 outstanding warrants, as adjusted for any fractional warrants that were not issued upon separation, was converted automatically into a redeemable Public warrant to purchase one share of the Company’s common stock.

As adjusted for the Reverse Stock Split, each 10 Public warrants is exercisable for one share of Ouster common stock at an exercise price of $ 115.00 per share with no fractional shares issuable upon exercise of a warrant.

The Public warrants were recognized as equity upon the Merger in the amount of $ 17.9 million.

Prior to their expiration, the Company may redeem the Public warrants at a price of $ 0.10 per warrant, provided that the closing price of the Company’s common stock equals or exceeds $ 180.00 per share for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which the Company gives proper notice of such redemption to the warrants holders.

The Company also assumed 5,973,170 outstanding public warrants upon closing the Velodyne Merger to purchase shares of the Company’s common stock (the “Velodyne Public warrants”).

Each warrant entitles the holder to purchase 0.06153 shares of the Company’s common stock.

Each 10 Velodyne Public warrants is exercisable for 0.6153 shares of the Company’s common stock at an exercise price of $ 140.20 per 0.6153 share of common stock, with no fractional shares being issuable upon exercise of a warrant.

The warrants are exercisable at any time and expire in September 2025.

The Company may redeem the outstanding warrants in whole and not in part at a price of $ 0.10 per warrant at any time after they become exercisable, provided that the last sale price of the Company’s common stock equals or exceeds $ 219.41 per share, subject to adjustments, for any 20 -trading days within a 30 -trading day period ending three business days prior to the date on which the Company sends the notice of redemption to the warrant holders.

The Velodyne Public warrants were recognized as equity upon the Velodyne Merger.

Amazon Warrant

On February 10, 2023, as part of the Velodyne Merger, the Company assumed a warrant agreement and a transaction agreement, pursuant to which Velodyne agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly-owned subsidiary of Amazon Inc.

(“Amazon”), a warrant to acquire, following customary antidilution adjustments, up to an aggregate of 3,263,898 shares of the Company’s common stock at an exercise price of $ 50.71 per share (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 the Company makes certain sales of common stock (or securities exercisable or convertible into or exchangeable for shares of the Company’s common stock) at a price less than the exercise price of the Amazon Warrant.

As a result of the issuance and sale by the Company of an additional 2,878,875 shares of common stock in the twelve months 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 (see Note 11), 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 Amazon Warrant is subject to vesting.

As a result of the Velodyne Merger, 50 % of the unvested Amazon Warrant as of the date of the Velodyne Merger have vested 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 the Company.

The vested portion of the Amazon Warrant, representing 1,848,694 shares of Ouster common stock with a fair value of $ 8.6 million, was included in the Velodyne Merger purchase price consideration on February 10, 2023.

The Amazon Warrant shares vest in multiple tranches over time based on payments of up to $ 100.0 million by Amazon or its affiliates (directly or indirectly through third parties) to the Company in connection with Amazon’s purchase of goods and services.

The fair value of the unvested Amazon Warrant, representing 1,330,903 unvested Ouster common stock shares will be recognized as a non-cash stock-based reduction to revenue when Amazon makes payments and vesting conditions become probable of being achieved.

For the year ended December 31, 2023, 56,613 Amazon Warrant shares vested and the Company recognized non-cash stock-based reduction to revenue of $ 0.5 million.

The fair value of the Amazon Warrant shares was estimated on February 10, 2023, the date of completion of the Velodyne Merger, using the Black-Scholes option pricing model on the remaining contractual term of 6.98 years, an expected volatility of 53.7 %, a 3.86 % risk-free interest rate and a 0 % expected dividend yield.

The Company estimated expected volatility by using historical volatility of the Company’s publicly traded stock and historical volatility of a group of publicly traded peer companies for the period commencing February 16, 2016 and ending on the date of the Merger.

The right to exercise the Amazon Warrant and receive the warrant shares that have vested expires February 4, 2030.

As of December 31, 2023, 1,933,613 Amazon Warrant shares have vested.

The Company leases its headquarters located in San Francisco, California, where the Company lease properties as follows:

(i) 26,125 square feet of office space pursuant to a lease that is scheduled to expire in August 2027 and (ii) 20,032 square feet of office space in a building adjacent to our corporate headquarters, which term is scheduled to expire in August 2027.

Prior to 2023, the Company had executed or assumed as lessee other five operating leases for rental of office space.

The terms of those leases range from 1 to 3 years.

On February 10, 2023, the Company assumed long-term non-cancellable lease agreements stemming from the Velodyne Merger:

(i) approximately 204,000 square feet of office and manufacturing space in San Jose, California and (ii) additional space pursuant to the assumed leases for offices located in Alameda, California;

and Bengaluru, India.

Supplemental balance sheet information related to leases was as follows:

Weighted-average remaining lease term 3.84 4.52

Weighted-average discount rate 6.83 % 4.66 %

The Company incurred total lease costs in its consolidated statements of operations and comprehensive loss of $ 8.1 million and $ 3.9 million for the years ended December 31, 2023 and 2022, respectively.

Additionally, the Company determined that the lease office facility located in Bengalaru, India assumed in the Velodyne Merger was not needed to support the future growth of its business.

The Company fully vacated the facilities in March 2023 and remained contractually obligated to the lessor for the underlying lease.

The Company recorded $ 0.8 million for right-of-use asset impairment in connection with these leased office facilities in the three months ended March 31, 2023.

In the twelve months ended December 31, 2023, the Company recorded $ 0.8 million gain on lease modification due to the termination of its Bengalaru, India lease.

350 Treat Building Lease

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The discount rate used to determine the operating lease liability was 5.25 %.

5521 Hellyer Avenue Lease

As part of the Velodyne Merger, the Company assumed a long-term non-cancellable lease agreement of 5521 Hellyer Avenue (the “5521 Hellyer Avenue Lease”), which was entered into in January 2017, to lease approximately 204,000 square feet of office, research and development, manufacturing and storage space in San Jose, California.

In October 2019, as part of the second amendment to the 5521 Hellyer Avenue Lease, the lease term was extended for an additional five years ending in December 31, 2027.

The total base lease payments for the extended period of 5.0 years equals $ 17.6 million.

As of December 31, 2023, the operating lease right-of-use asset and operating lease liability were $ 8.4 million and $ 12.0 million, respectively.

The discount rate used to determine the operating lease liability was 9.75 %.

Other operating real estate leases

The Company has executed or assumed as lessee other five operating leases for rental of office space.

The Company has executed or assumed as lessee operating leases for rental of office space.

The terms of those leases range from 1 to 3 years.

The Company is obligated to make lease payments totaling approximately $ 0.4 million for those leases over the respective lease terms.

Total operating lease cost for the years ended December 31, 2022, 2021 and 2020 was $ 3.9 million, $ 3.6 million and $ 2.9 million, which consisted of $ 3.8 million, $ 3.0 million and $ 2.6 million of fixed lease expense and $ 0.1 million, $ 0.6 million and $ 0.3 million of variable lease expense, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 4.0 million, $ 4.2 million and $ 3.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The following table presents the weighted average remaining lease term and discount rate for leases:

Weighted-average remaining lease term 4.52 5.53

Weighted-average discount rate 4.66 % 4.55 %

Total operating lease cost for the years ended December 31, 2023 and 2022 was $ 8.1 million and $ 3.9 million, which consisted of $ 7.4 million and $ 3.8 million of fixed lease expense and $ 0.7 million and $ 0.1 million of variable lease expense, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 7.0 million and $ 4.0 million for the years ended December 31, 2023 and 2022, respectively.

The maturities of the operating lease liabilities as of December 31, 2023 were as follows (in thousands):

Year ending December 31,

2027 and thereafter 2,733

Total undiscounted lease payments 29,814

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Letters of credit

In connection with certain office leasehold interests in real property located in San Francisco (350 Treat Ave and, 2741 16th Street) and in Paris (5, rue Coq Héron), the Company obtained letters of credit from certain banks as required by the lease agreements.

In connection with certain office leasehold interests in real property located in San Francisco (350 Treat Ave and, 2741 16th Street) and in Paris, the Company obtained letters of credit from certain banks as required by the lease agreements.

If the Company defaults under the terms of the applicable lease, the lessor will be entitled to draw upon the letters of credit in the amount necessary to cure the default.

2 unchanged sentences

Non-cancelable purchase commitments

As of December 31, 2022, the Company had non-cancelable purchase commitments to a third-party contract manufacturer for approximately $ 22.3 million and other vendors for approximately $ 6.3 million.

As of December 31, 2023, the Company had non-cancelable purchase commitments to third-party contract manufacturers for approximately $ 23.4 million and other vendors for approximately $ 3.6 million.

Contingencies

From time to time, the Company may be involved in legal and administrative proceedings arising in the ordinary course of business.

The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate.

If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements.

If a loss is probable but the amount of loss cannot be reasonably estimated, the Company discloses the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made).

Legal costs incurred in connection with loss contingencies are expensed as incurred.

The Company is involved in various legal proceedings arising in the ordinary course of business.

The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated.

Legal fees are expensed as incurred.

The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate any loss is expected to be immaterial.

This assessment is based on our current understanding of relevant facts and circumstances.

As such, our view of these matters is subject to inherent uncertainties and may change in the future.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates.

The Company has made no accruals with respect to the following:

On December 1, 2022, December 20, 2022, December 29, 2022, and January 9, 2023, purported stockholders of Velodyne filed the following lawsuits against Velodyne and certain of its directors and officers in the Southern District of New York for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and U.S.

Velodyne Legacy Litigation

On March 3, 2021, a purported shareholder of Velodyne filed a complaint for a putative class action against Velodyne, Anand Gopalan and Andrew Hamer in the United States District Court, Northern District of California, entitled Moradpour v.

Velodyne Lidar, Inc., et al.

3:21-cv01486-SI.

The complaint alleged purported violations of the federal securities laws and that, among other things, the defendants made materially false and/or misleading statements and failed to disclose material facts about Velodyne’s business, operations and prospects, including with respect to David Hall’s role with Velodyne and removal as Chairman of Velodyne’s Board of Directors.

The complaint alleged that purported class members have suffered losses and sought, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired Velodyne’s securities between November 9, 2020 and February 19, 2021.

On March 12, 2021, a putative class action entitled Reese v.

Velodyne Lidar, Inc., et al.

3:21-cv-01736-VC, was filed against Velodyne, Mr.

Gopalan and Mr.

Hamer in the United States District Court for the Northern District of California, based on allegations similar to those in the earlier class action and seeking recovery on behalf of the same putative class.

On March 19, 2021, another putative class action entitled Nick v.

Velodyne Lidar, Inc., et al.

4:21-cv-01950-JST, was filed in the United States District Court for the Northern District of California, against Velodyne, Mr.

Hamer, two current or former directors, and three other entities.

The complaint was based on allegations similar to those in the earlier class actions and sought, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired Velodyne’s securities between July 2, 2020 and March 17, 2021.

The class actions have been consolidated, lead plaintiffs have been appointed and an amended consolidated complaint was filed on September 1, 2021, based on allegations similar to those in the earlier class actions.

Velodyne filed a motion to dismiss the amended and consolidated complaint on November 1, 2021.

The plaintiffs filed a first amended complaint on February 11, 2022.

Velodyne filed a motion to dismiss on March 4, 2022.

On July 1, 2022, the court denied the motion to dismiss as it relates to the claims related to David Hall’s role with Velodyne, but granted the motion to dismiss as to all other claims.

On July 14, 2023, the Court granted Diane Smith’s motion for class certification.

The Court encouraged the parties to conduct mediation and the parties conducted mediation.

On March 13, 2024, the parties to the securities class action lawsuit entitled Moradpour v.

Velodyne Lidar, Inc., et al.

3:21-cv01486-SI (N.D.

Cal.) filed a stipulation of settlement to settle this lawsuit, without any admission or concession of wrongdoing or liability by Velodyne or the individual defendants.

The settlement is subject to, among other things, final documentation and court approval.

The proposed settlement provides for a payment of $ 27.5 million, of which the Company expects approximately $ 23.4 million to be funded by insurance proceeds.

The Company accrued for and recorded the entire amount of this $ 27.5 million settlement liability and recorded the expense within general and administrative expenses in 2023 after concluding that such settlement amount is probable and reasonably estimable.

As of December 31, 2023, the Company recorded an insurance receivable of $ 23.4 million in prepaid expenses and other current assets to be funded by insurance proceeds based on the terms of the settlement.

The $ 23.4 million insurance proceeds allows the Company to recover the majority of the settlement expense, resulting in a net charge of $ 4.1 million in its consolidated statement of operations.

The Company will continue to assess the probable amount of insurance proceeds expected to be received in future reporting periods based on any additional facts that arise and make adjustments, if necessary.

On March 12, 2021, a putative shareholder derivative lawsuit entitled D’Arcy v.

Gopalan, et al.

1:21-cv-00369-MN, was filed in the United States District Court for the District of Delaware against current and former directors and/or officers Anand Gopalan, Andrew Hamer, David S.

Hall, Marta Thoma Hall, Joseph B.

Culkin, Michael E.

Dee, James A.

Graf, Barbara Samardzich, and Christopher A.

Thomas, and names Velodyne as a nominal defendant.

The complaint asserted claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against all of the individual defendants, and asserted a contribution claim under the federal securities laws against Mr.

Gopalan and Mr.

On March 16, 2021, a second shareholder derivative lawsuit entitled Kondner, et al.

Culkin, et al.

1:21cv-00391-MN, was filed in the United States District Court for the District of Delaware against most of the same defendants named in the earlier derivative complaint, and asserted claims against the individual defendants for alleged breaches of fiduciary duty and waste of corporate assets.

Both derivative actions are based on allegations similar to those in the class actions discussed above, and have now been consolidated.

On January 3, 2022, the plaintiffs filed an amended complaint.

On November 7, 2023, the court approved the parties’ stipulation to dismiss the derivative action and directed that the case be closed.

On January 18, 2022, David and Marta Hall filed a lawsuit in the Superior Court of California, County of Alameda, against current and former officers and directors of Velodyne, as well as Jeff Vetter, Velodyne’s outside counsel.

The Halls sought to recover damages for financial and other injuries they allegedly sustained as a result of the merger between Graf and Velodyne.

On May 3, 2022, certain defendants filed motions to compel arbitration and other defendants filed motions to quash service of process for lack of personal jurisdiction.

The court conducted a hearing on the motions on July 20, 2022.

On August 30, 2022, the court granted the motion to quash service with respect the out of state defendants.

On October 3, 2022, the court granted the motion to compel Mr.

Hall to arbitrate his claims, and stayed proceedings on Ms.

Hall’s claims pending arbitration of Mr.

Hall’s claims.

On October 20, 2022, the Halls voluntarily dismissed the action without prejudice.

On January 3, 2023, the Halls filed an arbitration demand with substantially the same allegations as the prior lawsuit.

On or about August 22, 2023, the Halls filed an application in Texas District Court, Dallas County to compel arbitration of Messrs.

Graf and Dee who had been dismissed from the prior court action for lack of personal jurisdiction.

Graf and Dee agreed to participate in the arbitration and thus the Texas action has been stayed.

The arbitrator has not yet set a schedule in the arbitration.

The Company does not believe the claims are meritorious and intends to defend the action vigorously.

On August 10, 2023, Plaintiffs David and Marta Hall filed a complaint against Velodyne in the Superior Court of California, County of San Francisco asserting claims for breach of contract and failure to reimburse expenses in violation of California Labor Code Section 2802 (the “2023 Hall Matter”).

The 2023 Hall Matter seeks indemnification for legal fees incurred on the Halls’ behalf in connection with a derivative action against certain Velodyne officers and directors, and naming Velodyne as a nominal defendant , captioned In Re Velodyne Lidar, Inc.

Derivative Action, Case No.

1:21-cv-00369-TMH (D.

On November 21, 2023, Velodyne denied all allegations.

The 2023 Hall Matter is set for trial on September 9, 2024.

The Company does not believe the claims are meritorious and intends to defend the action vigorously.

On December 8, 2021, Velodyne received a subpoena for documents related to Wei Weng’s trading in stock of Graf Acquisition Corp.

(Velodyne’s predecessor) stock during 2020, prior to the announcement that Velodyne was planning to merge into Graf Acquisition Corp.

Velodyne has complied with the SEC’s requests to date;

however, the SEC may request additional documents or information.

No such follow up requests have been received to date.

On December 1, 2022 and December 20, 2022, purported stockholders of Velodyne filed the following lawsuits against Velodyne and certain of its directors in the Southern District of New York for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and U.S.

Securities and Exchange Commission ("SEC") Rule 14a-9:

Velodyne, et.

al., Carlisle v.

Velodyne, et.

al., Wheeler v.

al., and Cristino v.

Velodyne, et.

The complaints allege that Velodyne’s disclosures in connection with the Merger with Ouster were materially incomplete and misleading.

The plaintiff in O’Dell v.

voluntarily dismissed his complaint on January 17, 2023.

Velodyne also received eleven demand letters from stockholders making similar allegations regarding Velodyne’s disclosures relating to the Merger.

The Company does not believe the allegations in the complaints and demand letters are meritorious, and intends to defend against them vigorously.

On June 14, 2022, Velodyne filed a lawsuit against the Company relating to two patents and requested an International Trade Commission proceeding with respect to the same two patents.

On July 8, 2022, the Company filed a complaint against Velodyne, alleging multiple claims including intellectual property misappropriation and false advertising.

In connection with the Velodyne Merger, the matters were dismissed.

Velodyne Lidar, Inc., et al., Civil Action No.

22-cv-10211, Carlisle v.

Velodyne Lidar, Inc., et al., Civil Action No.

On December 29, 2022, a complaint alleging generally the same claims was filed in the United States District Court for the District of Delaware, captioned Wheeler v.

Velodyne Lidar, Inc., et al., Civil Action No.

22-cv-01641-UNA.

All of the lawsuits were voluntarily dismissed by the respective Plaintiffs.

The parties settled for immaterial mootness fees in September 2023.

On August 25, 2023, a putative shareholder class action suit was filed in the Delaware Court of Chancery against six former officers and directors of Graf Industrial Corp.

(“GIC”), the predecessor entity of Velodyne, as well as two other entities, entitled Berger v.

Graf Acquisition, LLC, et al ., No.

2023 0873 LWW.

The Company, GIC and Velodyne are not named as defendants.

The plaintiff, who was allegedly a GIC shareholder, asserts claims for breach of fiduciary duty and unjust enrichment in connection with the merger of GIC and Velodyne on September 29, 2020, and seeks damages, disgorgement and other recovery on behalf of the putative class of GIC shareholders in an unspecified amount.

The Company is obligated to indemnify such former officers and directors under certain circumstances.

The Company does not believe the claims are meritorious.

Ouster Litigation

On June 10, 2021, the Company received a letter from the SEC notifying us of an investigation and document subpoena.

The subpoena seeks documents regarding projected financial information in CLA’s Form S-4 registration statement filed on December 22, 2020.

The Company has complied with the SEC’s requests to date;

however, the SEC may request additional documents or information.

On August 15, 2023, the SEC informed the Company that they have concluded the investigation and that they do not intend to recommend any enforcement action.

On April 11, 2023, the Company filed a complaint with the United States International Trade Commission (the “Commission”) pursuant to 19 U.S.C.

§ 1337 (“Section 337”).

The complaint requests that the Commission institute an investigation relating to the unlawful importation, sale for importation, and/or sale after importation into the United States by Hesai Group, Hesai Technology Co., Ltd., and Hesai Inc.

(collectively “Hesai”) of certain LiDAR (Light Detection and Ranging) systems and/or components thereof.

The complaint alleges that Hesai’s LiDAR products infringe certain claims of the Company’s U.S.

11,175,405, 11,178,381, 11,190,750, 11,287,515 and/or 11,422,236.

The complaint seeks the issuance of a permanent exclusion order and cease and desist order.

On May 11, 2023, the Commission decided to institute an investigation based on the Company’s complaint as In the Matter of Certain LiDAR (Light Detection and Ranging) Systems and Components Thereof, 337-TA-1363.

On May 25, 2023, the Administrative Law Judge issued a

procedural schedule whereby the evidentiary hearing is set to begin on January 4, 2024, with a target date for completion of the Investigation by the Commission on October 17, 2024.

On June 7, 2023, Hesai responded to the complaint and denied all allegations.

On June 22, 2023, Hesai filed a motion to terminate or alternatively stay the investigation in light of an alleged agreement to arbitrate based on the Settlement Agreement signed in 2020 between Hesai and Velodyne (the "Settlement Agreement”).

Hesai alleges that the Company is bound to the 2020 Settlement Agreement as a result of the Company’s merger with Velodyne in 2023.

The Company has opposed the motion, including any allegation that the Company has any obligation to arbitrate or that its patents are subject to any terms of the 2020 Settlement Agreement, which the Company never signed.

On August 24, 2023, the administrative law judge (“ALJ”) issued an initial determination granting the motion to terminate, holding that a valid arbitration agreement exists as part of the Settlement Agreement, and thus the Company has obligation to arbitrate.

On August 31, 2023, the Company filed a petition for review of the initial determination with the Commission.

On September 14, 2023, Hesai responded.

On October 11, 2023, the Commission issued a notice of its determination to review and, on review, to affirm with modification the ALJ’s initial determination granting the motion to terminate the investigation in its entirety based upon the arbitration agreement.

As a result, the investigation was terminated.

The Company has until December 11, 2023 to file a notice of appeal with the Federal Circuit.

On April 11, 2023, the Company also filed a complaint in the District of Delaware alleging patent infringement of the same patents as in the aforestated Section 337 proceeding against Hesai Group and Hesai Technology Co., Ltd.

The complaint seeks monetary damages as well as the issuance of a permanent injunction.

On May 30, 2023, the Court granted stay the case pending the resolution, including all appeals, of In the Matter of Certain LiDAR (Light Detection and Ranging) Systems and Components Thereof, 337-TA-1363.

On May 17, 2023, Hesai Photonics Technology Co.

and Hesai Group (collectively “Hesai Photonics”) filed a request for arbitration with JAMS against the Company, Velodyne, Velodyne, LLC, and Oban Merger Sub II LLC.

Hesai Photonics alleges that the Company is bound by the terms and conditions, including an obligation to arbitrate disputes, of a Settlement Agreement signed in 2020 between Hesai Photonics and Velodyne as a result of the Company’s 2023 merger with Velodyne.

On June 13, 2023, the Company responded to the arbitration demand.

The Company denied all allegations.

The Company also disputed that there was an obligation to arbitrate, and thus, alleged that JAMS lacked jurisdiction.

No further dates have been set.

On September 14, September 25, and September 26, 2023, Hesai filed Petitions for Inter Partes Review with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of the Company’s patents asserted in the ITC and Delaware patent actions.

The Company has an opportunity to respond in late December 2023 and early January 2024.

On March 19, 2024, the PTAB issued decisions to institute inter partes review for two of the five patents.

The PTAB is expected to issue decisions on whether to institute inter parties review for the remaining three patents by April 3, 2024.

Other than as set forth above, as of December 31, 2023 the Company is unable to estimate a possible loss or range of losses in respect to those disclosed matters.

Indemnification

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The Company has also entered into indemnity agreements pursuant to which it has indemnified its directors and officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or executive officer, other than liabilities arising from willful misconduct of the individual.

To date, the Company has never incurred costs to defend lawsuits or settle claims related to these indemnity agreements.

The consolidated financial statements do not include a liability for any potential obligations under the indemnification agreements at December 31, 2022 and 2021.

Redeemable Convertible Preferred and Common Stock

The Company’s common stock trades on the New York Stock Exchange under the symbol “OUST” and the Company’s warrants trade on the New York Stock Exchange and NYSE American under the symbols “OUST WS” and “OUST WTA,” respectively.

Pursuant to the terms of the Second Amended and Restated Certificate of Incorporation, the Company

is authorized to issue the following shares and classes of capital stock, each with a par value of $ 0.0001 per share:

To date, the Company is indemnifying and has incurred costs to defend lawsuits or settle claims described above under the heading “Litigation” pursuant to the indemnity agreements of former directors and officers.

Pursuant to the terms of the Second Amended and Restated Certificate of Incorporation, the Company is authorized to issue the following shares and classes of capital stock, each with a par value of $ 0.0001 per share:

(i) 100,000,000 shares of common stock;

(ii) 100,000,000 shares of preferred stock.

Immediately following the Colonnade Merger, there were 161,449,205 shares of common stock with a par value of $ 0.0001 , and 15,999,996 warrants outstanding.

The holder of each share of common stock is entitled to one vote.

The Company has retroactively adjusted the shares issued and outstanding prior to March 11, 2021 to give effect to the exchange ratio established in the Colonnade Merger Agreement to determine the number of shares of common stock into which they were converted.

Immediately prior to the Colonnade Merger, OTI’s certificate of incorporation, as amended, authorized it to issue 342,367,887 shares of $ 0.00001 par value, with 210,956,516 shares designated as common stock and 131,411,372 shares of redeemable convertible preferred stock.

On March 11, 2021, upon the closing of the Colonnade Merger Agreement (Note 1), all of OTI’s outstanding redeemable convertible preferred stock was converted to the Company’s common stock pursuant to the conversion rate effective immediately prior to the Colonnade Merger and the remaining amount was reclassified to additional paid-in capital.

As of December 31, 2022 and 2021, the Company does not have any redeemable convertible preferred stock outstanding.

ATM Agreement

On April 29, 2022, the Company entered into the ATM Agreement pursuant to which the Company may, subject to the terms and conditions set forth in the agreement offer and sell, from time to time, through or to the agents, acting as agent or principal, shares of the Company’s common stock, par value $ 0.0001 per share, having an aggregate offering price of up to $ 150.0 million.

Cumulative net proceeds to the Company totaled approximately $ 15.8 million after deducting offering costs, sales commissions and fees.

During the years ended December 31, 2023 and 2022, the Company sold 2,878,875 and 783,371 shares, respectively.

The Company plans to use the net proceeds from this offering for working capital and general corporate purposes.

In September 2022, the Company suspended sales of common stock through its ATM Agreement.

The remaining availability under the ATM Agreement as of December 31, 2023 is approximately $ 116.9 million.

Series Seed Financing and conversion

In April 2016, the Company issued 1,887,253 shares of Series Seed redeemable convertible preferred stock at $ 1.02 per share for net proceeds of $ 1.8 million, net of $ 0.1 million stock issuance costs.

In April 2016, the Company issued 44,256 shares to an investor upon conversion of a note having a balance of principal and interest of $ 45,000 .

In May 2016, the Company issued 563,725 shares of Series Seed redeemable convertible preferred stock at $ 1.02 per share for net proceeds of $ 0.6 million.

In July 2016, the Company issued 445,942 shares of Series Seed redeemable convertible preferred stock at $ 1.02 per share for net proceeds of $ 0.5 million.

In April 2020, in order to induce the closing of the Series B Financing, the holders exercised the embedded conversion feature and all the outstanding Series Seed redeemable convertible preferred stock shares were converted to 2,941,176 shares of the Company’s common stock.

Series A Financing and conversion

In October 2017, the Company issued 1,324,511 shares of Series A Preferred Stock at $ 11.3158 per share for net proceeds of $ 14.8 million, net of $ 0.2 million of stock issuance costs.

In October 2017, the Company issued 1,253,556 shares of Series A Preferred Stock upon conversion of multiple notes having a principal and interest balance of $ 4.6 million.

In December, 2018, the Company issued 715,712 shares of Series A Preferred Stock at $ 11.3158 per share for net proceeds of $ 8.1 million.

In April 2020, in order to induce the closing of the Series B Financing, the holders exercised the embedded conversion feature and all of the outstanding Series A redeemable convertible preferred stock shares were converted to 3,293,779 shares of the Company’s common stock.

Series B Financing

In April 2020, the Company issued 45,185,071 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share for gross proceeds of $ 15.1 million, less $ 0.1 million of stock issuance costs.

In May 2020, the Company issued 17,320,031 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share for gross proceeds of $ 5.8 million, less $ 0.1 million of stock issuance costs.

In July 2020, the Company issued 37,970,846 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share for gross proceeds of $ 12.5 million, less $ 0.1 million of stock issuance costs.

In August 2020, the Company issued 25,286,587 shares of Series B redeemable convertible preferred stock at $ 0.3323 per share for gross proceeds of $ 8.4 million, less $ 0.1 million of stock issuance costs.

On March 11, 2021, upon the closing of the Transaction pursuant to the Colonnade Merger Agreement (Note 1), all of the outstanding redeemable convertible preferred stock was converted to the Company’s common stock pursuant to the conversion rate effective immediately prior to the Transaction and the remaining amount was reclassified to additional paid-in capital.

Redeemable convertible preferred stock as of December 31, 2020, consisted of the following (in thousands, except share and per share data):

Series December 31, 2020

per share Shares

Authorized Shares

Amount Carrying

Series B $ 0.33 131,411,372 88,434,754 $ 41,791 $ 39,225

The significant features of the Company’s redeemable convertible preferred stock were as follows:

Dividend provisions

The Series Seed, Series A and Series B preferred stockholders were entitled to receive dividends prior and in preference to any dividends on the common stock, at a rate of $ 0.0612 , $ 0.6789 and $ 0.019938 per share, respectively, per annum on a non-cumulative basis, when and if declared by the board of directors, subject to the prior rights of the preferred stockholders.

After payment of such dividend, any additional dividends were to be distributed among the holders of the preferred stock and common stock pro rata based on the number of shares of common stock then held by each holder (assuming conversion of all shares of preferred stock into common stock).

Liquidation preference

In the event of liquidation, dissolution or winding up of the Company, merger or a reduction of capital through the sale or lease of all or substantial part of the business of the Company, before any distribution or payment could be made to the holders of common stock, the holders of Series Seed, Series A and Series B redeemable convertible preferred stock were entitled to receive $ 1.02 , $ 11.3518 and $ 0.3323 per share (subject to adjustment in the event of any share dividend, share split, combination, or other recapitalization), respectively, plus any declared but unpaid dividends on such shares.

If the assets and funds were insufficient for such distribution, they were to receive a pro rata distribution, based on the relative preferred stock ownership and in proportion to the preferential amount each such holder is otherwise entitled.

If the assets and funds were in excess of amounts distributed to the preferred stockholders, the remaining assets and funds were to be distributed pro rata to the holders of the common stock.

If the holders of the redeemable convertible preferred stock would receive a greater distribution if they converted to common stock, then such conversion would have been assumed prior to distribution.

Conversion rights

The holders of Series Seed, Series A and Series B redeemable convertible preferred stock had a right to convert their stock into not assessable shares of common stock at a conversion rate equal to their respective liquidation preferences divided by a conversion price of $ 1.02 , $ 11.3518 and $ 0.3323 , respectively, which would be adjusted for any stock splits, stock dividends, combination, subdivisions, recapitalization or similar transactions.

Shares of Series B redeemable convertible preferred stock were automatically be converted into shares of common stock upon the earlier of (a) the closing of the sale of shares of common stock to the public at a minimum price of $ 1.41 per share, subject to appropriate adjustment in the event of any stock splits, stock dividends, combinations, subdivisions, recapitalization or similar transactions with respect to common stock, in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least

$ 75.0 million of gross cash proceeds to the Company or (b)(i) upon vote or written consent of a majority of the then outstanding shares of the Series Seed redeemable convertible preferred stock, voting as a separate series on an as-converted basis or (ii) upon vote or written consent of the majority of the then outstanding shares of the Series B redeemable convertible preferred stock, voting as a separate series on an as-converted basis, respectively.

Redemption rights

The redeemable convertible preferred stock is recorded in mezzanine equity because while it is not currently redeemable, it may become redeemable at the option of the preferred stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control for an amount equal to the shares respective liquidation preference plus declared and unpaid dividends.

Voting rights

Each holder of redeemable convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such redeemable convertible preferred stock could then be converted and, with respect to such vote, holders of redeemable convertible preferred stock are entitled to vote together with the holders of common stock as a single class on all matters.

Stock-based Compensation

As of December 31, 2022, the Company has four equity incentive plans, the 2015 Stock Plan (the “2015 Plan”), the Sense 2017 Equity Incentive Plan (the “Sense Plan”), the 2021 Incentive Award Plan (the “2021 Plan”) and 2022 Employee Stock Purchase Plan (the “2022 ESPP” and, collectively with the 2015 Plan, the Sense Plan and the 2021 Plan, together the “Plans”).

The Plans provide for the grant of stock options, stock appreciation rights, restricted stock awards (“RSA”), restricted stock units (“RSUs”), performance stock unit awards and other forms of equity compensation (collectively, “equity awards”).

As of December 31, 2023, the Company has five equity incentive plans:

its Amended and Restated 2015 Stock Plan (the “2015 Plan”), the Sense Photonics, Inc.

2017 Equity Incentive Plan (the “Sense Plan”), the Velodyne Lidar, Inc.

2020 Equity Incentive Plan (the “Velodyne Plan”), its 2021 Incentive Award Plan (the “2021 Plan”) and its 2022 Employee Stock Purchase Plan (the “2022 ESPP” and, collectively with the 2015 Plan, the Sense Plan, the Velodyne Plan and the 2021 Plan, the “Plans”).

The Plans, other than the 2022 ESPP, provide for the grant of stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock unit awards and other forms of equity compensation (collectively, “equity awards”).

In addition, the 2021 Plan provides for the grant of performance bonus awards.

All awards under the Plans may be granted to employees, including officers, and awards under the 2015 Plan, Sense Plan and 2021 Plan also may be granted to directors and consultants, in each case, within the limits defined in the Plans.

New equity awards may only be granted under the Velodyne Plan and the 2021 Plan.

Awards under the Velodyne Plan may be granted to employees, including officers, and other service providers who were not previously employed by or who did not previously provide services to the Company or a subsidiary of the Company, in each case, prior to February 10, 2023, within the limits provided in the Velodyne Plan.

Awards under the 2021 Plan can also be granted to employees, including officers, directors and consultants of the Company and its subsidiaries, in each case, within the limits provided in the 2021 Plan.

Options under the Plans will be exercisable at such times and as specified in the Award Agreement (as defined in the Plans) provided that the term of an option or stock appreciation will not exceed ten years .

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The 2021 Plan includes an evergreen provision that provides for an annual increase in the number of shares of common stock available for issuance thereunder beginning on January 1, 2022 and ending on January 1, 2031, equal to 5 % of the shares of Company common stock outstanding on the last day of the immediately preceding fiscal year and such smaller number of shares as determined by the board of directors or a committee thereof.

In March 2021, the Company granted an option to purchase 1,614,492 shares of Company common stock, 807,246 restricted stock units and 807,246 performance stock units to a senior advisor serving on the Company’s board of directors as chair.

The option would vest over five years starting from the first anniversary from the senior advisor’s employment start date and at a rate of 20 % per annum, subject to his continued employment with the Company and provided that option grant will only be exercisable in the event that the closing trading price per share of the Company stock equals or exceeds 130 % of the exercise price per share of the option for 30 consecutive trading days.

The restricted stock units would vest over five years starting from the first anniversary from the senior advisor’s employment start date and at a rate of 20 % per annum, subject to his continued employment with the Company.

The performance stock units would vest over four years based on achieving increases in the Company’s stock price from the date of grant ranging from 150 %, to earn 25 % of the performance stock units, to 300 % to earn the entire award of performance stock units.

Each performance stock unit constituted the right to receive one share of Company common stock upon vesting.

The senior advisor resigned in June 2021 and the option to purchase 1,614,492 shares of Company common stock, all restricted stock unit awards granted and all performance stock unit awards granted were forfeited.

In March 2021, the Company also granted 152,628 restricted stock units to several members of the board of directors subject to standard terms of these awards.

2015 Stock Plan

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The Company’s 2022 ESPP has been offered to all eligible employees since August 2022 and generally permits certain employees to purchase shares of our common stock through payroll deductions of up to 15 % of their compensation of each offering period, subject to certain limitations.

The 2022 ESPP has overlapping offering periods, with each offering period lasting 24 months.

Under the 2022 ESPP, the purchase price of a share under the ESPP equals 85 % of the lesser of the fair market value of a share of common stock on either the first or last day of each offering period, but no less than the par value per share of common stock.

As of December 31, 2022, 6.6 million shares of our common stock were available for issuance under the 2022 ESPP.

The maximum amount that an employee can contribute during a purchase right period is $ 7,500 .

The 2022 ESPP provides offering periods that have a duration of 24 months in length and are comprised of purchase periods of six months in length.

The offering periods are scheduled to start on the first trading day on or after May 16 and November 16 of each year.

Under the 2022 ESPP, the purchase price of a share under the ESPP equals 85 % of the lesser of the fair market value of a share of common stock on either the first or last day of the applicable offering period of the last day of the applicable purchase period.

In May of 2023, the Company increased the share purchase limit under the 2022 ESPP to 3,000 shares of the Company’s common stock per offering period and added Velodyne Lidar, Inc.

as a participating employer in the 2022 ESPP.

The stock-based compensation expense is calculated as of the beginning of the offering period as the fair value of the 2022 ESPP shares utilizing the Black-Scholes option valuation model and is recognized over the offering period.

The first offering period under the 2022 ESPP commenced on September 6, 2022.

During fiscal 2022 employees purchased approximately 0.3 million shares of common stock under the 2022 ESPP at a purchase price of $ 1.1730 , with proceeds of $ 0.4 million.

Stock Options Assumed from Acquisition

During fiscal 2023 employees purchased 257,506 shares of common stock under the 2022 ESPP at a weighted-average purchase price of $ 4.56 , with proceeds of $ 1.2 million.

Equity Plans Assumed from Acquisition

On October 22, 2021 (“Effective Time”), the Company closed the acquisition of Sense pursuant to the Agreement and Plan of Merger and Plan of Reorganization (“Sense Agreement”).

2 unchanged sentences

In connection with the closing of the acquisition, 82,311 stock options and 449,098 RSUs were assumed.

Promissory Notes

On October 12, 2020, the Company issued $ 1.1 million partial recourse promissory notes to certain executives and employees.

The promissory notes carried 0.38 % annual cash interest and were due on earliest of 9th anniversary of the date of issuance of the notes, or termination of employment of the executive/employee, or filing by the Company of a registration statement under the Securities Act of 1933, or promissory notes being prohibited under Section 13(k) of the Securities Exchange Act of 1934 or closing of change a in control of the Company.

At issuance, the promissory notes were used to settle certain executives’ and employees’ obligations for 2,883,672 vested and 4,603,833 unvested ISOs that were exercised and no cash was exchanged.

In March 2021, in connection with the close of the Colonnade Merger, the Company forgave half of the respective obligations under the promissory notes for certain executives and required such noteholders to repay the remaining balance of $ 0.5 million under each of their respective notes.

Additional compensation expense of $ 0.5 million was recognized in general and administrative expenses in the year ended December 31, 2021.

On February 10, 2023, the Company consummated the Velodyne Merger.

Pursuant to the Velodyne Merger, the Company assumed the Velodyne Lidar, Inc.

2020 Equity Incentive Plan (the “Velodyne Plan”), and all restricted stock units granted thereunder that were outstanding immediately prior to the consummation of the Velodyne Merger and converted into restricted stock units covering shares of the Company’s common stock (such assumed awards, the “Assumed RSUs”) and all shares of Velodyne Lidar, Inc.

restricted stock were converted into shares of Company restricted stock.

Each Assumed RSU and award of restricted stock is subject to substantially the same terms and conditions as applied to the related Velodyne restricted stock unit award or restricted stock award immediately prior to the consummation of the Velodyne Merger, except that the number of shares of common stock subject to each Assumed RSU or constituting restricted stock

was adjusted in accordance with the terms of the Velodyne Merger Agreement.

In connection with the consummation of the Velodyne Merger, 961,012 Assumed RSUs and 728,646 shares of restricted stock were assumed.

Pursuant to the terms of the Velodyne Plan, the number of shares reserved for issuance increases on January 1 of each year by the lesser of 820,400 shares or such smaller number of shares determined by the board of directors.

In addition, any shares that are subject to awards forfeited and any shares of restricted stock that are forfeited will be available for grant under the Velodyne Plan.

As of December 31, 2023, the Company had reserved 1,077,184 shares of the Company’s common stock for issuance under the Velodyne Plan.

The Company recognized stock-based compensation for all stock options in the statements of operations and comprehensive loss as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Cost of revenue $ 2,854 $ 783

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Year Ended December 31,

2022 2021 2020

RSUs $ 43,772 $ 24,236

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Outstanding—January 1, 2022 2,412,910 $ 10.10 8.6 $ 100,992

Options granted 37,663,242 0.45 9.4 363,941

Options exercised ( 213,318 ) 2.00 4,639

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Outstanding—December 31, 2022 2,101,536 $ 10.12 7.7 $ 8,285

Options assumed through acquisition 823,114 5.05 8.3 125

Options granted 645,796 10.26 9.3 —

Options exercised ( 142,117 ) 1.94 617

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Outstanding—December 31, 2023 1,871,649 $ 7.36 6.7 $ 6,191

Options exercised ( 2,133,181 ) 0.20 4,639

Options cancelled ( 978,753 ) 2.86 1,015

Outstanding—December 31, 2022 21,017,162 $ 1.01 7.7 $ 8,285

Vested and expected to vest—December 31, 2023 1,871,649 $ 7.36 6.7 $ 6,191

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1,871,649 1,528,830

21,017,162 12,398,966

No options were granted during the year ended December 31, 2022.

The weighted average grant date fair value of options granted during the years ended December 31, 2021 and 2020 was $ 5.90 and $ 1.10 , respectively.

The weighted average grant date fair value of options assumed during the year ended December 31, 2021 was $ 3.11 .

No options were granted during the years ended December 31, 2023 and December 31, 2022.

As of December 31, 2023, there was approximately $ 4.5 million of unamortized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted average period of 0.7 years.

Cash received from option exercises and purchases of shares was $ 0.8 million, $ 0.5 million and $ 1.3 million for years ended December 31, 2022, 2021 and 2020, respectively.

The weighted-average assumptions in the Black-Scholes option-pricing models used to determine the fair value of stock options granted during the years ended December 31, 2021 and 2020 were as follows:

Year Ended December 31,

Expected term (in years) 6.0 5.0 - 6.1

Risk-free interest rate 1.0 % 0.3 % - 1.5 %

Expected volatility 63.2 % 57.4 % - 63.3 %

Expected dividend rate 0 % 0 %

The weighted-average assumptions in the Black-Scholes option-pricing models used to determine the fair value of stock options assumed during the year ended December 31, 2021 were as follows:

Year Ended December 31,

Expected term (in years) 3.1 - 5.6

Risk-free interest rate 0.8 % - 1.3 %

Expected volatility 44.1 % - 48.6 %

Expected dividend rate 0 %

Cash received from option exercises and purchases of shares was $ 1.4 million and $ 0.8 million for years ended December 31, 2023 and 2022, respectively.

Restricted Stock Units (“RSU”)

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Unvested—January 1, 2022 932,657 $ 78.22

Assumed through acquisition 4,490,980 6.55

Granted during the year 1,571,079 27.41

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As of December 31, 2023, total compensation expense related to unvested RSUs granted to employees, but not yet recognized, was $ 37.6 million, with a weighted-average remaining vesting period of 1.8 years.

Restricted Stock Awards

A summary of RSA activity is as follows:

Shares Weighted Average

Grant Date Fair

Value (per share)

Unvested—December 31, 2022 — $ —

Granted 732,110 15.30

Vested ( 351,727 ) 15.30

Unvested—December 31, 2023 380,383 $ 15.30

Stock compensation expense is recognized on a straight-line basis over the vesting period of each award of RSAs.

As of December 31, 2023, total compensation expense related to unvested RSAs granted to employees, but not yet recognized, was $ 3.0 million, with a weighted-average remaining vesting period of 1.70 years.

The common stock comprising RSAs is issued at grant but, generally, is subject to a risk of forfeiture if the holder terminates service with the Company and its subsidiaries prior to vesting.

Employee benefit plan

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The Company at its discretion offers matching contributions of up to 4 % of each employee’s annual compensation.

The Company provided matching contributions of $ 1.5 million, $ 1.0 million and $ 0.7 million to the plan during the years ended December 31, 2022, 2021 and 2020, respectively.

The Company provided matching contributions of $ 2.1 million and $ 1.5 million to the plan during the years ended December 31, 2023 and 2022, respectively.

Net Loss Per Common Share

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

$ ( 138,560 ) $ ( 93,981 ) $ ( 106,780 )

Weighted average shares used to compute basic and diluted net

loss per share

Weighted average shares used to compute basic and diluted net loss per share

37,042,081 17,792,316

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The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

2022 2021 2020

Redeemable convertible preferred stock — — 88,434,754

Options to purchase common stock 1,871,649 2,101,716

4 unchanged sentences

Unvested RSAs 376,919 —

Vested and early exercised options subject to nonrecourse notes — — 2,151,100

Total 12,640,203 5,678,896

Income (loss) before income taxes for the years ended December 31, 2022, 2021 and 2020 are as follows (in thousands):

Loss before income taxes for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Domestic $ ( 375,023 ) $ ( 139,295 )

3 unchanged sentences

Year Ended December 31,

2022 2021 2020

Federal $ 84 $ —

1 unchanged sentence

Total current expense 494 305

Federal — ( 2,185 ) —

State — ( 646 ) 351

Foreign — — —

Total deferred (benefit) expense 29 —

3 unchanged sentences

Year Ended December 31,

2022 2021 2020

Tax at federal statutory rate $ ( 78,453 ) $ ( 29,034 )

4 unchanged sentences

Fair value changes - warrants 10 ( 1,564 )

Goodwill impairment 35,002 —

Valuation allowance 35,856 25,666

Non-deductible expenses ( 412 ) 78

Convertible debt cancellation of indebtedness income — — 15,079

Other 29 35 168

Total tax provision (benefit) $ 523 $ 305

Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):

Significant components of the Company’s deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):

Year Ended December 31,

1 unchanged sentence

Net operating loss carryforwards $ 222,481 $ 43,990

$ 43,990 $ 42,721

Credits 9,863 4,828

Stock based compensation 6,359 3,653

Accruals and reserves 10,805 1,718

Deferred revenue 5,017 30

Fixed assets 2,260 2,771

2 unchanged sentences

Gross deferred tax assets 320,157 76,496

76,496 56,101

Valuation allowance ( 305,007 ) ( 69,608 )

( 69,608 ) ( 47,420 )

Net deferred tax assets 15,150 6,888

1 unchanged sentence

Intangible property ( 6,343 ) ( 4,077 )

( 4,077 ) ( 5,287 )

Operating lease, right of use assets ( 8,388 ) ( 2,811 )

( 2,811 ) ( 3,394 )

Gross deferred tax liabilities ( 14,731 ) ( 6,888 )

( 6,888 ) ( 8,681 )

Net deferred tax assets $ 419 $ —

The Company has established a full valuation allowance of $ 69.6 million and $ 47.4 million for the years ended December 31, 2022 and 2021, respectively, against its net deferred tax assets.

The Company has established a full valuation allowance of $ 305.0 million and $ 69.6 million for the years ended December 31, 2023 and 2022, respectively, against its U.S.

Federal and state deferred tax assets.

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized.

Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain.

Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets can be realized as of December 31, 2022.

Accordingly, the Company has recorded a full valuation allowance on its deferred tax assets.

Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of its U.S.

Federal and state deferred tax assets can be realized as of December 31, 2023.

The valuation allowance on the Company’s net deferred taxes increased by $ 235.4 million and $ 22.2 million during the years ended December 31, 2023 and 2022, respectively.

The increase in valuation allowance is primarily attributable to the generation of net operating losses and capitalization of research and development expenditures, which became enacted for tax year beginning after December 31, 2021, during 2022.

The increase in valuation allowance is primarily attributable to the generation of net operating losses and capitalization of research and development expenditures.

As of December 31, 2023, the Company had federal net operating loss carryforwards and state net operating loss carryforwards of approximately $ 844.3 million and $354.1 million, respectively.

1 unchanged sentence

As of December 31, 2023, the amount of federal net operating loss that does not expire is $ 835.8 million.

As of December 31, 2021, the Company had federal net operating loss carryforwards and state net operating loss carryforwards of approximately $ 224.4 million and $ 146.8 million, respectively.

As of December 31, 2021, federal net operating loss carryforwards generated after December 31, 2017 will be carried forward indefinitely and the state net operating loss carryforward begins expiring in 2035.

As of December 31, 2021, the amount of federal net operating loss that does not expire is $ 215.9 million.

As of December 31, 2023, the Company had federal and state research and development credit carryforwards of approximately $ 5.0 million and $ 12.8 million, respectively.

As of December 31, 2021, the Company had federal and state research and development credit carryforwards of approximately $ 4.0 million and $ 2.3 million, respectively.

As of December 31, 2023 the federal credits will expire starting in 2035, if not utilized and state credits carryforward indefinitely.

The Tax Reform Act of 1986 and similar state legislation impose substantial restrictions on the utilization of the net operating losses and tax credit carryforwards in the event there is a change in ownership as provided by Section 382 and Section 383 of the Internal Revenue Code and similar state provisions.

Such ownership change could result in the limitation and /or expiration of the net operating loss and tax credit carryforwards before utilization, which could result in increased future tax liabilities.

While the Company has experienced ownership shifts, there has been no limitation or loss of tax attributes as of December 31, 2022.

Beginning January 1, 2022, the Tax Cuts and Jobs Act (the "Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenditures pursuant to Internal Revenue Code (“IRC”) Section 174.

The capitalized research and development expenditures are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses.

As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenditures increased by $ 15.9 million.

ASC 740, Income Taxes (“ASC 740”), requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

As of December 31, 2022 and 2021 the Company has reviewed the positive and negative evidence relating to the realizability of the deferred tax assets and has concluded that the deferred tax assets are more likely than not to not be realized.

We have completed an analysis of Section 382 ownership changes in our stock through February 10, 2023 and have concluded that we have experienced ownership changes that will result in limitations in our ability to use certain of our tax credit carryforwards.

The Company may experience ownership changes in the future as a result of future transactions in our stock.

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

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

The balance of gross unrecognized tax benefits as of December 31, 2023, and 2022 was $ 24.8 million and $ 18.8 million, respectively.

Out of the total unrecognized tax benefits, $ 0.5 million at December 31, 2023, if recognized, would impact our effective tax rate in the period of recognition.

The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

As of December 31, 2022 and 2021, the Company has not accrued interest and penalties related to uncertain tax positions.

As of December 31, 2023 and 2022, the Company has accrued immaterial interest and penalties related to uncertain tax positions.

The following table sets forth the change in the uncertain tax positions for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended December 31,

2022 2021 2020

Balance at the beginning of the year $ 18,812 $ 18,534

For current year’s tax positions — — —

For prior years’ tax positions ( 1,958 ) ( 64 )

5 unchanged sentences

In the normal course of business, the Company is subject to examination by taxing authorities.

The Company has not been audited by the Internal Revenue Service or any state income or franchise tax agency.

As of December 31, 2022, its federal returns for the years ended December 31, 2016 through the current period and the state

returns for the years ended December 31, 2016 through the current period are still open to examination.

In addition, all of the net operating losses and research and development credit carry-forwards that may be used in future years are still subject to inquiry given that the statute of limitation for these items would begin in the year of the utilization.

Related Party Transactions

Debt for details of promissory notes issued by the Company to certain investors of the Company (or an affiliate thereof).

Stock-based compensation for details of partial recourse promissory notes issued by the Company to certain executives and employees.

Revenue from the sale of lidar sensor kits, which is recognized at a point in time, was $ 41.0 million, $ 33.6 million and $ 16.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Service revenue from non-recurring engineering work in relation to the Company’s new product release in early 2020 for the year ended December 31, 2020 was $ 2.0 million.

The earliest year open for examination is the 2016 tax year.

The Company’s 2017 and 2018 tax years are currently under IRS examination.

The Company believes that an adequate provision has been made for any adjustments that may result from the tax examination.

Although the timing of the resolution, settlement, and closure of the examination is not certain, the Company does not believe it is reasonably possible that the Company’s unrecognized tax benefits will materially change in the next 12 months.

All of the net operating losses and research and development credit carry-forwards that may be used in future years are still subject to inquiry given that the statute of limitation for these items would begin in the year of the utilization.

Revenue from the sale of lidar sensor kits, which is recognized at a point in time, was $ 83.3 million and $ 41.0 million for the years ended December 31, 2023 and 2022, respectively.

Revenue from the sale of licenses and services are not material for any period presented and, therefore, not presented separately.

The following table presents total revenues by geographic area based on the location products were shipped to and services provided (in thousands):

Year Ended December 31,

2022 2021 2020

Americas $ 45,744 $ 15,977

Asia and Pacific 9,510 7,334 4,270

Asia-Pacific 12,929 9,510

Europe, Middle East and Africa 24,606 15,542

Total $ 83,279 $ 41,029

There were no customers that accounted for more than 10% of revenue during the years ended December 31, 2023 and 2022 .

Country that accounted for more than 10% of revenue was as follows:

Year Ended December 31,

United States 53 % 36 %

Revenue contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers.

An unbilled receivable is recorded in instances when revenue is recognized prior to invoicing, and amounts collected in advance of services being provided are recorded as deferred revenue.

Contract assets are generated when contractual billing schedules differ from revenue recognition timing.

Unbilled receivables

A receivable for multi-year licensing contracts is generally recorded upon invoicing.

A receivable for multi-year license contracts is recorded upon delivery, whether or not invoiced, to the extent the Company has an unconditional right to receive payment in the future related to those licenses.

As of December 31, 2023, the current portion of these unbilled receivables in the amount of $ 3.0 million, primarily consisting of unbilled receivables from multi-year license contracts, is included in “Accounts receivable, net” on the consolidated balance sheet.

Contract Assets

Contract assets primarily relate to the Company’s rights to consideration under license arrangements when the licenses have been transferred to the customers, but payment is contingent upon a future event, other than the passage of time (i.e.

type of unbilled receivable) and for which the Company does not have an unconditional right at the reporting date.

Contract asset also arises when the timing of billing differs from the timing of revenue recognized, such as when revenue is recognized on guaranteed minimum payments at the inception of the contract when there is not yet a right to invoice in accordance with contract terms and payment is contingent upon future event.

Contract Liabilities

Contract liabilities consist of deferred revenue, customer advanced payments and customer deposits.

Deferred revenue includes billings in excess of revenue recognized related to product sales, licenses, extended warranty and other services revenue, and is recognized as revenue when the Company performs under the contract.

The long-term portion of deferred revenue, mostly related to obligations under license arrangements and extended warranty, is classified as non-current contract liabilities and is included in other non-current liabilities in the Company’s consolidated balance sheets.

Customer advanced payments represent required customer payments in advance of product shipments according to customer’s payment term.

Customer advance payments are recognized as revenue when control of the performance obligation is transferred to the customer.

Customer deposits represent consideration received from a customer which can be applied to future product or service purchases, or refunded.

Contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheet and are classified as current or long-term based on the nature of the underlying contractual rights and obligations.

2023 December 31,

Contract liabilities, current

Deferred revenues from multi-year licensing contracts $ 4,723 $ —

Other contract liabilities 8,162 402

Contract liabilities, long-term portion

Deferred revenues from multi-year licensing contracts $ 3,997 $ —

Other contract liabilities 970 342

Total contract liabilities $ 17,852 $ 744

Deferred revenues from multi-year licensing contracts mainly represent minimum royalty payments received from licensees relating to long-term IP license contracts for which the Company has future obligations under the license agreements.

Royalties from the IP licenses are recognized at the later of the period the sales occur or the satisfaction of the performance obligation to which some or all of the royalties have been allocated.

The Company evaluated its performance obligations under multi-year licensing contracts and did not recognize any revenue under such licensing contracts in 2023 because the Company concluded there is significant uncertainty associated with resolving the Company’s performance.

Other contract liabilities mainly relates to one $ 6.6 million multiyear contract entered in 2023 with a customer to sell its products.

During the twelve months ended December 31, 2023, the Company partially satisfied the related performance obligation and recognized $ 0.7 million revenue that was included in the contract liabilities balance.

As of December 31, 2023, $ 5.9 million remained deferred until a future product delivery date.

The following table provides information about contract liabilities (remaining performance obligations) and the significant changes in the balances during the years ended December 31, 2023 and 2022 (in thousands).

Contract Liabilities

Ending balance as of December 31, 2021 $ 280

Net revenue deferred in the period 621

Revenue recognized that was included in the contract liability balance at the beginning of the period ( 157 )

Ending balance as of December 31, 2022 744

Contract liabilities acquired in the Velodyne Merger 8,384

Net revenue deferred in the period 9,126

Revenue recognized that was included in the contract liability balance at the beginning of the period ( 402 )

Ending balance as of December 31, 2023 $ 17,852

Restructuring

In connection with the closing of the Velodyne Merger, in the year ended December 31, 2023, the Company initiated and completed actions to reduce operating expenses, which included a reduction in force and the closure of its India facility (see Note 8.

Leases) (collectively, the “Restructuring Initiatives”).

Non-cash stock-based compensation charge related to the vesting of share-based awards for employees who were terminated related to a "double-trigger provision" that provided for acceleration in the event of a change in control and subsequent termination of the employee from the Company.

The following table presents Restructuring Initiatives charges incurred (in thousands):

Employee termination and associated benefits $ 15,172

Stock-based compensation expense 7,139

Long-lived asset write-down 804

Total $ 23,115

For the year ended December 31, 2023, the Restructuring Initiatives were recorded as follows (in thousands):

Employee termination and associated benefits Stock-based compensation expense Long-lived asset write-down Total

Cost of product revenue $ 1,293 $ 70 $ — $ 1,363

Research and development 6,758 4,922 804 12,484

Sales and marketing 2,322 1,225 — 3,547

General and administrative 4,799 922 — 5,721

Total $ 15,172 $ 7,139 $ 804 $ 23,115

The following table presents a roll forward of the Restructuring Initiatives liability, which is recorded in accrued expenses in the consolidated balance sheets for the twelve months ended December 31, 2023 (in thousands):

Employee termination and associated benefits

Beginning balance

Additions as a result from Velodyne Merger

Restructuring Initiative expenses related to one-time employee termination and associated benefits 15,172

Amount paid during the period ( 15,331 )

Balance at December 31, 2023

Subsequent Events

As noted above, on February 10, 2023, the Company completed the Velodyne Merger with Velodyne pursuant to the terms of the Velodyne Agreement with Velodyne, Velodyne Merger Sub I and Velodyne Merger Sub II.

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

Velodyne shares ceased trading on the Nasdaq after market close on February 10, 2023, and each Velodyne share was exchanged for 0.8204 shares of Ouster common stock.

The combined company will keep the name Ouster and continue to trade on New York Stock Exchange under the ticker “OUST.”

In connection with the closing of the Velodyne Merger the Company undertook actions to reduce operating expenses by initiating a reduction in force that is expected to impact approximately 180 - 200 employees and consolidating some of its facilities, including Velodyne’s facility in India (collectively, the “Restructuring Initiatives”).

The Restructuring Initiatives are expected to result in a range of approximately $ 27.0 million - $ 30.0 million of aggregate charges, which we anticipate to include $ 12.0 million - $ 13.0 million of one-time cash termination benefits, $ 0.5 million of termination costs related to the facility in India, and approximately $ 14.5 million - $ 16.5 million of non-cash stock-based compensation charge related to the vesting of share-based awards for employees who are terminated.

These actions are consistent with the Company’s previously stated intention to derive operational synergies from the combined enterprise resulting from the Mergers.

Through these initiatives, the Company seeks to streamline the organization and re-balance resources to better align with the Company’s priorities following the Mergers.

The Company anticipates that most of these charges will be recognized in the Company’s first fiscal quarter of 2023.

On January 20, 2023, Oban Merger Sub, Inc.

(“Merger Sub”) and Oban Merger Sub II LLC (“Merger Sub II”, together with Merger Sub, collectively, the “Subsidiary Guarantors”) entered into the Joinder Agreement by and between the Subsidiary Guarantors and Hercules, pursuant to which the Subsidiary Guarantors became guarantors under the Loan Agreement.

On February 10, 2023, the Company 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.

On March 13, 2024, the parties to the previously disclosed securities class action lawsuit entitled Moradpour v.

Velodyne Lidar, Inc., et al., No.

3:21-cv01486-SI (N.D.

Cal.) filed a stipulation of settlement to settle this lawsuit, without any admission or concession of wrongdoing or liability by Velodyne or the individual defendants.

The settlement is subject to, among other things, final documentation and court approval.

Defendants entered into the proposed settlement to eliminate the uncertainty, burden, distraction, and expense of further protracted litigation.

Defendants continue to deny all claims and allegations in the litigation, including but not limited to any claims of wrongdoing or impropriety, and the proposed settlement does not constitute, contain or reflect any admission of wrongdoing or liability by Velodyne, the individual defendants, or Ouster.

The proposed settlement provides for a payment of $ 27.5 million, of which the Company expects approximately $ 23.4 million to be funded by insurance proceeds.

Commitments and Contingencies for additional information regarding the settlement.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

The information required by this Item 9 was previously reported in the Company’s Current Report on Form 8-K/A that was filed with the SEC March 15, 2021.

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 8. Financial Statements and Supplementary Data