Document

Filed pursuant to Rule 424(b)(3)
Registration No. 333-254832

PROSPECTUS SUPPLEMENT NO. 4
(to Prospectus dated May 27, 2021)


https://cdn.kscope.io/36a74312ec5f342b93b1278af271b5e7-velodyne.jpg

Velodyne Lidar, Inc.

4,483,728 Shares of Common Stock Underlying Warrants

130,447,513 Shares of Common Stock

1,278,502 Warrants to Purchase Shares of Common Stock
This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated May 27, 2021 (the “Prospectus”), related to (i) the issuance by us of up to an aggregate of 4,108,728 shares of common stock that are issuable upon the exercise of our publicly-traded warrants (the “Public Warrants”) and up to 375,000 shares of common stock issuable upon exercise of our working capital warrants (the “Working Capital Warrants” and, together with the Public Warrants, the “Warrants”), (ii) the resale of up to 778,502 Public Warrants and 500,000 Working Capital Warrants held by certain holders named in this prospectus (the “Selling Warrantholders”), (iii) the resale of up to 200,000 shares of common stock (the “PIPE Shares”) that currently are owned by certain selling stockholders that entered into subscription agreements with Graf Industrial Corp (“Graf”) (such selling stockholders, the “PIPE Investors”), pursuant to which Graf agreed to issue and sell the PIPE Shares to the PIPE Investors in a private placement and (iv) the resale of up to 130,247,513 shares of common stock by certain selling stockholders named in the Prospectus, including Founder Shares (as defined in the Prospectus), with the information contained in our Quarterly Report on 10-Q filed with the Securities and Exchange Commission on August 10, 2021 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

This prospectus supplement updates and supplements certain information in the Prospectus as set forth below and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our common stock and warrants are traded on the Nasdaq Global Select Market under the symbols “VLDR” and “VLDRW”, respectively. On August 9, 2021, the closing price of our common stock was $8.28 and the closing price of our Public Warrants was $2.10.

We are an “emerging growth company” under applicable federal securities laws and will be subject to reduced public company reporting requirements.

INVESTING IN OUR SECURITIES INVOLVES RISKS THAT ARE DESCRIBED IN THE “RISK FACTORS” SECTION BEGINNING ON PAGE 9 OF THE PROSPECTUS.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued or sold under the Prospectus or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.



The date of this prospectus supplement is August 10, 2021.








UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to ___________________

Commission file number: 001-38703

VELODYNE LIDAR, INC.
(Exact name of registrant as specified in its charter)

Delaware
83-1138508
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
5521 Hellyer Avenue
San Jose, CA
95138
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (669) 275-2251
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareVLDR
The Nasdaq Stock Market LLC
Warrants, each exercisable for three-quarters of one share of common stockVLDRW
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 30, 2021, the registrant had 195,558,910 shares of common stock, $0.0001 par value per share, outstanding.






VELODYNE LIDAR, INC. AND SUBSIDIARIES

Table of Contents

Page
Item 3.
Item 4.
PART II. Other Information
Item 3.
Default Upon Senior Securities
Item 4.
Item 5.
Item 6.
Signatures

1


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and particularly in Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. These statements are based on the expectations and beliefs of management of Velodyne Lidar, Inc. (Velodyne) in light of historical results and trends, current conditions and potential future developments, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from forward-looking statements. These forward-looking statements include statements about the future performance and opportunities of Velodyne; statements of the plans, strategies and objectives of management for future operations of Velodyne; and statements regarding future market opportunities, economic conditions or performance. Forward-looking statements may contain words such as “will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “pursue,” “should,” “target,” “likely” or similar expressions, and include the assumptions that underlie such statements.

The following factors, among others, could cause actual results to differ materially from forward-looking statements:

Velodyne’s future performance, including Velodyne’s revenue, costs of revenue, gross profit or gross margin, and operating expenses;
the sufficiency of Velodyne’s cash and cash equivalents to meet its operating requirements;
Velodyne’s ability to sell its products to new customers;
the success of Velodyne’s customers in developing and commercializing products using Velodyne’s solutions, and the market acceptance of those products;
the amount and timing of future sales;
Velodyne’s future market share;
competition from existing or future businesses and technologies;
the impact of the COVID-19 pandemic on Velodyne’s business and the business of its customers;
the market for and adoption of lidar and related technology;
Velodyne’s ability to effectively manage its growth and future expenses;
Velodyne’s ability to compete in a market that is rapidly evolving and subject to technological developments;
Velodyne’s ability to maintain, protect, and enhance its intellectual property;
Velodyne’s ability to comply with modified or new laws and regulations applying to its business;
the attraction and retention of qualified employees and key personnel;
Velodyne’s ability to introduce new products that meet its customers’ requirements and to continue successfully transitioning the manufacturing of its products to third-party manufacturers;
Velodyne’s anticipated investments in and results from sales and marketing and research and development; and
the increased expenses associated with Velodyne being a public company.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other risk factors herein discussed under Item 1A: “Risk Factors.” Forward-looking statements reflect current views about Velodyne’s plans, strategies and prospects, which are based on information available as of the date of this Quarterly Report on Form 10-Q. Except to the extent required by applicable law, Velodyne undertakes no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements, which speak only as of the date of this Quarterly Report on Form 10-Q.
.

2



PART I. Financial Information

Item 1. Consolidated Financial Statements

VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30,December 31,
20212020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$76,084 $204,648 
Short-term investments277,546 145,636 
Accounts receivable, net9,473 13,979 
Inventories, net16,675 18,132 
Prepaid and other current assets10,231 22,319 
Total current assets390,009 404,714 
Property, plant and equipment, net14,652 16,805 
Goodwill1,189 1,189 
Intangible assets, net434 627 
Contract assets10,378 8,440 
Other assets19,935 937 
Total assets$436,597 $432,712 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,940 $7,721 
Accrued expense and other current liabilities25,280 50,349 
Contract liabilities8,736 7,323 
Total current liabilities39,956 65,393 
Long-term tax liabilities570 569 
Other long-term liabilities30,378 25,927 
Total liabilities70,904 91,889 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock— — 
Common stock
20 18 
Additional paid-in capital800,040 656,717 
Accumulated other comprehensive loss(216)(230)
Accumulated deficit(434,151)(315,682)
Total stockholders’ equity365,693 340,823 
Total liabilities and stockholders’ equity$436,597 $432,712 





See accompanying notes to unaudited condensed consolidated financial statements.
3


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue:
Product
$11,970 $11,427 $22,563 $27,849 
License and services1,626 16,959 8,759 17,568 
Total revenue13,596 28,386 31,322 45,417 
Cost of revenue:
Product19,210 14,419 34,839 29,545 
License and services170 81 349 384 
Total cost of revenue19,380 14,500 35,188 29,929 
Gross profit (loss)(5,784)13,886 (3,866)15,488 
Operating expenses:
Research and development17,009 14,591 35,387 29,118 
Sales and marketing47,176 3,373 54,251 8,672 
General and administrative19,133 5,630 36,169 16,363 
Restructuring— (3)— 1,043 
Total operating expenses83,318 23,591 125,807 55,196 
Operating loss(89,102)(9,705)(129,673)(39,708)
Interest income109 212 117 
Interest expense(41)(32)(77)(38)
Other income (expense), net 10,136 22 10,119 (143)
Loss before income taxes(78,898)(9,710)(119,419)(39,772)
Provision for (benefit from) income taxes339 17 635 (6,660)
Net loss$(79,237)$(9,727)$(120,054)$(33,112)
Net loss per share:
Basic and diluted$(0.41)$(0.07)$(0.63)$(0.24)
Weighted-average shares used in computing net loss per share:
Basic and diluted193,002,807 139,863,194 191,123,251 138,887,585 






See accompanying notes to unaudited condensed consolidated financial statements.
4


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net loss$(79,237)$(9,727)$(120,054)$(33,112)
Other comprehensive income (loss), net of tax:
Changes in unrealized gain on available for sale securities22 — 11 — 
Foreign currency translation adjustments14 (32)(34)
Total other comprehensive income (loss), net of tax36 (32)14 (34)
Comprehensive loss$(79,201)$(9,759)$(120,040)$(33,146)



















































See accompanying notes to unaudited condensed consolidated financial statements.
5


VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
(Unaudited)


Series A Convertible Preferred Stock
(Pre-Combination)
Series B Convertible Preferred Stock
(Pre-Combination)
Series B-1 Convertible Preferred Stock
(Pre-Combination)
Common Stock
(Pre-Combination)
Common Stock
(Post-Combination)
Additional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2020$— $— $— $— 175,912,194 $18 $656,717 $(230)$(315,682)$340,823 
Issuance of common stock under warrant exercises— — — — — — — — 6,973,882 80,199 — — 80,200 
Issuance of common stock under employee stock award plans, net of taxes— — — — — — — — 6,798,504 — (37)— — (37)
Share-based compensation— — — — — — — — — — 11,530 — — 11,530 
Other comprehensive loss, net of tax— — — — — — — — — — — (22)— (22)
Adjustment for previously issued warrants (Note 9)— — — — — — — — — — (1,585)— 1,585 — 
Net loss— — — — — — — — — — — — (40,817)(40,817)
Balance at March 31, 2021— — — — — — — — 189,684,580 19 746,824 (252)(354,914)391,677 
Issuance of common stock under warrant exercises— — — — — — — — 1,929 — 22 — — 22 
Issuance of common stock under employee stock award plans, net of taxes— — — — — — — — 5,541,305 (1)— — — 
Share-based compensation— — — — — — — — — — 53,195 — — 53,195 
Other comprehensive loss, net of tax— — — — — — — — — — — 36 — 36 
Net loss— — — — — — — — — — — — (79,237)(79,237)
Balance at June 30, 2021$— $— $— $— 195,227,814 $20 $800,040 $(216)$(434,151)$365,693 






6


Series A Convertible Preferred Stock
(Pre-Combination)
Series B Convertible Preferred Stock
(Pre-Combination)
Series B-1 Convertible Preferred Stock
(Pre-Combination)
Common Stock
(Pre-Combination)
Common Stock
(Post-Combination)
Additional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2019, as previously reported8,772,852 $1,375,440 $— 1,375,440 $— 34,252,578 $— $— $240,474 $(216)$(164,016)$76,246 
Retroactive application of the recapitalization(8,772,852)(1)(1,375,440)— (1,375,440)— (34,252,578)(3)137,911,975 14 (10)— — — 
Balance at December 31, 2019, as adjusted— — — — — — — — 137,911,975 14 240,464 (216)(164,016)76,246 
Share-based compensation— — — — — — — — — — 21 — — 21 
Other comprehensive loss, net of tax— — — — — — — — — — — (2)— (2)
Net loss— — — — — — — — — — — — (23,385)(23,385)
Balance at March 31, 2020— — — — 137,911,975 14 240,485 (218)(187,401)52,880 
Issuance of Series B-1 convertible preferred stock at $10.25 per share on April 1, 2020, net of issuance cost of $81
— — — — — — — — 1,951,219 — 19,919 — — 19,919 
Share-based compensation— — — — — — — — — — 135 — — 135 
Other comprehensive loss, net of tax— — — — — — — — — — — (32)— (32)
Net loss— — — — — — — — — — — — (9,727)(9,727)
Balance at June 30, 2020$— $— $— $— 139,863,194 $14 260,539 $(250)$(197,128)$63,175 


See accompanying notes to unaudited condensed consolidated financial statements.
7


VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
20212020
Cash flows from operating activities:
Net loss
$(120,054)$(33,112)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization4,114 4,251 
Reduction in carrying amount of ROU assets1,533 — 
Stock-based compensation64,725 156 
Provision for doubtful accounts2,425 509 
Gain from forgiveness of notes payable(10,124)— 
Other550 70 
Changes in operating assets and liabilities:
Accounts receivable, net2,082 (23,914)
Inventories, net1,457 2,195 
Prepaid and other current assets3,512 2,939 
Contract assets(2,438)(8,439)
Other assets264 
Accounts payable(1,680)645 
Accrued expenses and other liabilities(9,161)(9,506)
Contract liabilities264 11,397 
Net cash used in operating activities(62,789)(52,545)
Cash flows from investing activities:
Purchase of property, plant and equipment(1,779)(1,723)
Proceeds from sales of short-term investments2,000 — 
Proceeds from maturities of short-term investments55,943 2,200 
Purchase of short-term investments(190,376)— 
Investment in notes receivable(750)— 
Net cash provided by (used in) investing activities(134,962)477 
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs— 19,919 
Payment of transaction costs related to Business Combination(20,005)— 
Proceeds from warrant exercises89,244 — 
Tax withholding payment for vested equity awards(37)— 
Cash paid for IPO costs— (1,196)
Proceeds from notes payable— 10,000 
Net cash provided by financing activities
69,202 28,723 
Effect of exchange rate fluctuations on cash and cash equivalents(15)(30)
Net decrease in cash and cash equivalents(128,564)(23,375)
Beginning cash and cash equivalents204,648 60,004 
Ending cash and cash equivalents$76,084 $36,629 
Supplemental disclosures of cash flow information:
Cash paid for interest$77 $38 
Cash paid for (received from) income taxes, net682 (7,811)
Cash paid for operating leases2,256 — 
Supplemental disclosure of noncash investing and financing activities:
Changes in accrued purchases of property, plant and equipment
$$97 
Assets held for sale reclassification
— 4,746 
ROU assets obtained in exchange for new operating lease liabilities340 — 
Transaction costs included in accrued liabilities5,000 1,186 
See accompanying notes to unaudited condensed consolidated financial statements.
8


VELODYNE LIDAR, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business, Background and Nature of Operations

Velodyne Lidar, Inc. (the Company, Velodyne or Velodyne Lidar) provides smart vision solutions that are advancing the development of safe automated systems throughout the world. The Company’s technology, which is used in various automotive and non- automotive applications, is empowering the autonomous revolution by allowing machines to see their surroundings in real-time and in 3D.

Graf Industrial Corp. (Graf), the Company’s predecessor, was originally incorporated in Delaware as a special purpose acquisition company (SPAC). On September 29, 2020 (the Closing Date), Graf consummated a business combination (the Business Combination) with Velodyne Lidar, Inc. (the pre-combination Velodyne). Immediately upon the consummation of the Business Combination, Graf merged into the pre-combination Velodyne, with the pre-combination Velodyne surviving as a wholly-owned subsidiary of the Company. Graf changed its name to Velodyne Lidar, Inc. and the pre-combination Velodyne changed its name to Velodyne Lidar USA, Inc.

On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. Unless the context otherwise requires, “we,” “us,” “our,” “Velodyne,” “Velodyne Lidar” and the “Company” refers to Velodyne Lidar Inc., the combined company and its subsidiaries following the Business Combination. Refer to Note 2 for further discussion of the Business Combination.

The Company has evaluated how it is organized and managed and has identified only one operating segment.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States ( GAAP) for interim financial information. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for the fair presentation of the company’s financial position, results of operations, comprehensive loss, cash flows and stockholders’ equity for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its amended Annual Report on Form 10-K for the year ended December 31, 2020.

The Business Combination is accounted for as a reverse recapitalization as the pre-combination Velodyne was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). In connection with the Business Combination, outstanding capital stock of the pre-combination Velodyne was converted into common stock of the Company, par value $0.0001 per share, representing a recapitalization, and the net assets of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. The pre-combination Velodyne was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing Date are those of the pre-combination Velodyne. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. The number of shares of preferred stock was also retroactively restated in shares reflecting the exchange ratio, and the carrying amounts of preferred stock are based on the fair value of its redemption amount on each reporting date. All preferred stock was converted into shares of the Company’s common stock on the Closing Date. Refer to Note 9, Stockholders’ Equity, and Note 11, Net Loss Per Share, for further discussion of the recapitalization and share adjustments.

Liquidity

9


The Company has funded its operations primarily through the Business Combination, PIPE offering, private placements of the pre-combination Velodyne convertible preferred stock and sales to customers. As of June 30, 2021, the Company’s existing sources of liquidity included cash, cash equivalents and short-term investments of $353.6 million and available borrowing capacity of $25.0 million under a revolving credit facility. The Company has incurred losses and negative cash flows from operations. If the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. There can be no assurance that the Company would be able to raise such capital. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least twelve months from the date the unaudited condensed consolidated financial statements for the quarter ended June 30, 2021 were available for issuance.

Emerging Growth Company

As of December 31, 2020, the Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the Securities Act), as modified by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has opted to take advantage of such extended transition period available to emerging growth companies which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Based on the Company’s aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June 30, 2021, the Company will become a “large accelerated filer” and lose its emerging growth company status upon the filing of its Annual Report on Form 10-K for the year ending December 31, 2021.

Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash and cash equivalents, and short-term investments with high-quality financial institutes with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation.
The Company’s accounts receivable are derived from customers located both inside and outside the U.S. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions and requires customer advance payments in certain circumstances. The Company does not require collateral.

The Company’s concentration of risk related to accounts receivable and accounts payable was as follows:

June 30,December 31,
20212020
Number of customers accounted for 10% or more of accounts receivable
13
Number of vendors accounted for 10% or more of accounts payable
13

One customer accounted for 29% of the Company’s accounts receivable as of June 30, 2021. Two customers accounted for a total of 47%, of the Company’s accounts receivable as of December 31, 2020. One vendor accounted for 45% and 34%, respectively, of accounts payable as of June 30, 2021 and December 31, 2020.

10



Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include standalone selling price (SSP) for each distinct performance obligation in its customer contracts, total estimated future patents and their corresponding estimated development costs, total estimated costs and related progress towards complete satisfaction of performance obligation in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, useful lives of property, plant, and equipment and intangible assets, income tax uncertainties, and other loss contingencies. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.

Significant Accounting Policies
Except for the change in certain policies upon adoption of the accounting standards described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Description of Business and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2020.

Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts includes estimated losses that result from uncollectible accounts receivable. The Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, its customer’s current financial condition and payment history, the condition of the general economy and the industry as a whole, and other relevant facts and circumstances. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon the aforementioned factors and any specific customer collection issues that have been identified. Significant changes in one or more of these considerations may require adjustments affecting the net income (loss) and net carrying value of the account receivable. Provisions for the estimated allowance for doubtful accounts are recorded in general and administrative expense at the end of each reporting period.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which supersedes FASB Accounting Standards Codification Topic 840, Leases (Topic 840), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Among its provisions, this standard requires lessees to recognize right-of-use (ROU) assets and lease liabilities on the balance sheets for operating leases, and also requires additional qualitative and quantitative disclosures about lease arrangements. The Company adopted the new standard in the first quarter of 2021 using the modified retrospective method, under which the Company applies Topic 842 to existing and new leases as of January 1, 2021, but prior periods are not restated and continue to be reported under Topic 840 guidance in effect during those periods. Upon adoption, the Company recorded net ROU assets of $19.4 million and lease liabilities of $20.4 million and there were no cumulative effect adjustments as of January 1, 2021. The standard did not have a material effect on the Company’s condensed consolidated statements of operations and the condensed consolidated statement of cash flows. See Note 6. “Leases” for further information.


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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by, among other things, eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted the new standard on January 1, 2021. The adoption of this new standard did not have a significant effect on our consolidated financial statements.

Leases

The Company determines if an arrangement is a lease at inception. The Company evaluates classification of leases at
commencement and, as necessary, at modification. As of June 30, 2021, all leases are classified as operating leases except for certain immaterial equipment finance leases. Operating leases, consisting primarily office leases, are included in operating lease ROU assets, other current liabilities, and operating lease liabilities on the Company's Condensed Consolidated Balance Sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made prior to lease commencement and excludes lease incentives. Variable lease payments not dependent on an index or a rate, are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. The Company's lease terms are the noncancelable period, including any rent-free periods provided by the lessor, and include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. At lease inception, and in subsequent periods as necessary, the Company estimates the lease term based on its assessment of extension and termination options that are reasonably certain to be exercised. As the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments over the lease term. The incremental borrowing rate is a hypothetical rate based on the Company's understanding of what its credit rating would be for a secured borrowing where the lease was executed. Lease costs are recognized on a straight-line basis over the lease term.

The Company does not recognize ROU assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.


Note 2. Business Combination and Related Transactions
On September 29, 2020, the Company consummated a business combination with the pre-combination Velodyne. Pursuant to ASC 805, for financial accounting and reporting purposes, the pre-combination Velodyne was deemed the accounting acquirer and the Company was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse recapitalization. Accordingly, the Business Combination was treated as the equivalent of the pre-combination Velodyne issuing stock for the net assets of Graf, accompanied by a recapitalization. Under this method of accounting, the consolidated financial statements of the Company are the historical financial statements of the pre-combination Velodyne. The net assets of Graf were stated at historical costs, with no goodwill or other intangible assets recorded, and are consolidated with the pre-combination Velodyne's financial statements on the Closing date. The shares and net income (loss) per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.

In connection with the Business Combination, Graf entered into subscription agreements with certain investors (the PIPE Investors), whereby it issued 15,000,000 shares of common stock at $10.00 per share (the Private Placement Shares) for an aggregate purchase price of $150.0 million (the Private Placement), which closed simultaneously with the consummation of the Business Combination. Upon the closing of the Business Combination, the Private Placement Shares were automatically converted into shares of the Company's common stock on a one-for-one basis.


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The aggregate consideration for the Business Combination and proceeds from the Private Placement was approximately $1.8 billion, consisting of (i) $222.1 million in cash at the closing of the Business Combination, net of transaction expenses, and (ii) 150,277,532 shares of common stock valued at $10.25 per share, totaling $1,540.3 million. The common stock consideration consists of up to (1) 143,575,763 shares of Company common stock, including shares issuable in respect of vested equity awards of the pre-combination Velodyne, plus (2) 2,000,000 shares of Company common stock earned due to the satisfaction of the Earnout Condition on July 30, 2020, including 187,861 Earnout RSUs, which are subject to a six-month service condition and are not legally issued and outstanding shares of Company common stock at Closing, plus (3) 4,702,304 shares of Company common stock that were issued to Velodyne equity holders that did not opt to have their respective shares repurchased by the pre-combination Velodyne for cash in a pre-closing tender offer conducted by the pre-combination Velodyne (the Pre-Closing Tender Offer). The Company used $1.8 million of the proceeds to repurchase and retire 175,744 shares of Company common stock from certain stockholders in the Pre-Closing Tender Offer.

In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $29.1 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. As of June 30, 2021, the Company has $5.0 million of accrued transaction costs, consisting primarily of investment banking fees, in accrued expenses on the consolidated balance sheet.


Note 3. Revenue

Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by geographic region based on the shipping location of the customer, type of good or service and timing of transfer of goods or services to customers (point-in-time or over time), as it believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
Total revenue based on the disaggregation criteria described above is as follows (dollar in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
% of Revenue% of Revenue% of Revenue% of Revenue
RevenueRevenueRevenueRevenue
Revenue by geography:
North America$5,271 38 %$4,650 16 %$10,315 33 %$13,903 30 %
Asia Pacific5,255 39 %20,150 71 %14,761 47 %25,774 57 %
Europe, Middle East and Africa3,070 23 %3,586 13 %6,246 20 %5,740 13 %
Total$13,596 100 %$28,386 100 %$31,322 100 %$45,417 100 %
Revenue by products and services:
Products$11,970 88 %$11,427 40 %$22,563 72 %$27,849 61 %
License and services1,626 12 %16,959 60 %8,759 28 %17,568 39 %
Total$13,596 100 %$28,386 100 %$31,322 100 %$45,417 100 %
Revenue by timing of recognition:
Goods transferred at a point in time$12,272 90 %$28,198 99 %$28,942 92 %$44,922 99 %
Goods and services transferred over time1,324 10 %188 %2,380 %495 %
Total$13,596 100 %$28,386 100 %$31,322 100 %$45,417 100 %


In June 2020, the Company entered into a patent cross-license agreement related to its litigation settlement with a customer in Asia Pacific. Under the terms of the arrangement, the customer agreed to make a one-time license payment upon settlement, will make annual fixed royalty payments through 2023, and thereafter, will make product sales royalty payments through February 2030. In September 2020, Velodyne entered into another patent cross-license agreement related to its litigation with a different customer in Asia Pacific. The Company recorded license revenue of $0.9 million and $7.3 million, respectively, related to these patent cross-license agreements for the three and six months ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the Company recorded $3.5 million and $3.4 million, respectively, in current deferred revenue, and $13.0 million and $13.7 million, respectively, in long-term deferred revenue associated with the rights granted as part of these patent cross-license agreements to receive future patents as they represent stand ready obligations. As of

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June 30, 2021 and December 31, 2020, the Company also recorded $13.7 million and $11.3 million, respectively, of contract assets related to these patent cross-license agreements.

Contract Assets and Contract Liabilities
Contract assets primarily relates to unbilled accounts receivable. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when revenue recognized on the guaranteed minimums at the inception of the contract when there is not yet a right to invoice in accordance with contract terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and reclassified to accounts receivable when billed in accordance with the terms of the contract.
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 long-term 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 contract liabilities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):

June 30,December 31,
20212020
Contract assets, current
Unbilled accounts receivable$3,313 $2,813 
Contract assets, long-term
Unbilled accounts receivable10,378 8,440 
Total contract assets$13,691 $11,253 
Contract liabilities, current
Deferred revenue, current$8,573 $7,143 
Customer advance payment163 180 
Total8,736 7,323 
Contract liabilities, long-term
Deferred revenue, long-term13,583 14,732 
Total contract liabilities$22,319 $22,055 

The following table shows the significant changes in contract assets and contract liabilities balances (in thousands):


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Six Months Ended June 30,
20212020
Contract assets:
Beginning balance$11,253 $— 
Transferred to receivables from contract assets recognized at the beginning of the period(2,813)— 
Increase due to unbilled and recognized as revenue in excess of billings during the period, net of amounts transferred to receivables5,251 8,439 
Ending balance$13,691 $8,439 
Contract liabilities:
Beginning balance$22,055 $19,164 
Revenue recognized that was included in the contract liabilities beginning balance(5,972)(750)
Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period6,236 18,231 
Customer deposits reclassified to refund liabilities— (6,083)
Ending balance$22,319 $30,562 
During the six months ended June 30, 2020, the Company reclassified customer deposit of $6.1 million to refund liabilities and refunded the entire amount to a customer.

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Note 4. Fair Value Measurement
The Company categorizes assets and liabilities recorded at fair value on the consolidated balance sheet based on the level of judgment associated with inputs used to measure their fair value. For assets and liabilities measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability.
The three levels of inputs that may be used to measure fair value are:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or quoted prices in less active market. All significant inputs used in the valuations are observable or can be directly or indirectly through market corroboration, for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs are based on assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. The Company monitors and review the inputs to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

The following table summarize the Company’s assets measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):
June 30, 2021
Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$41,270 $— $— $41,270 
Total cash equivalents41,270 — — 41,270 
Short-term investments:
Commercial paper— 164,651 — 164,651 
Corporate debt securities— 112,895 — 112,895 
Total short-term investments— 277,546 — 277,546 
Total assets measured at fair value$41,270 $277,546 $— $318,816 

December 31, 2020
Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$74,107 $— $— $74,107 
Treasury bill and U.S. government and agency securities19,999 — — 19,999 
Corporate debt securities— 2,003 — 2,003 
Commercial paper— 33,295 — 33,295 
Total cash equivalents94,106 35,298 — 129,404 
Short-term investments:
Commercial paper— 122,265 — 122,265 
Corporate debt securities— 23,371 — 23,371 
Total short-term investments— 145,636 — 145,636 
Total assets measured at fair value$94,106 $180,934 $— $275,040 

Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value. Short-term investments represent highly liquid commercial paper and corporate debt securities with maturities greater than 90 days at the date of purchase. Marketable securities with maturities greater than one year are classified as current assets because management considers all marketable securities to be available for current operations.



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Note 5. Balance Sheet Components

Accounts Receivables, Net
Accounts receivables, net consist of the following (in thousands):
June 30,December 31,
20212020
Accounts receivable$12,773 $14,855 
Allowance for doubtful accounts(3,300)(876)
Accounts receivable, net$9,473 $13,979 

Inventories, Net
Inventories, net of reserve, consist of the following (in thousands):

June 30,December 31,
20212020
Raw materials$5,539 $6,876 
Work-in-process2,960 4,347 
Finished goods8,176 6,909 
Total inventories$16,675 $18,132 

Prepaid and Other Current Assets
Prepaid and other current assets consist of the following (in thousands):
June 30,December 31,
20212020
Prepaid expenses and deposits$3,927 $5,698 
Due from contract manufacturers and vendors1,504 2,944 
Prepaid taxes58 1,612 
Contract assets3,313 2,813 
Receivable from warrant exercises— 9,074 
Other1,429 178 
Total prepaid and other current assets$10,231 $22,319 


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Property, Plant and Equipment, Net
Property, plant and equipment, at cost, consist of the following (in thousands):
June 30,December 31,
20212020
Machinery and equipment$33,884 $32,688 
Leasehold improvements5,921 5,905 
Furniture and fixtures1,481 1,479 
Vehicles360 360 
Software1,360 1,357 
Assets under construction976 641 
43,982 42,430 
Less: accumulated depreciation and amortization(29,330)(25,625)
Property, plant and equipment, net$14,652 $16,805 
Finance lease equipment$888 $888 
Less: accumulated depreciation(470)(381)
Finance lease equipment, net$418 $507 

The aggregate depreciation and amortization related to property, plant and equipment was as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Depreciation and amortization on property, plant and equipment$1,964 $1,984 $3,921 $4,059 
Depreciation on finance lease equipment44 44 89 89 

Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
Gross Carrying AmountAccumulated AmortizationNet Book Value
As of June 30, 2021:
Developed technology$1,200 $766 $434 
As of December 31, 2020:
Developed technology$1,200 $573 $627 

Amortization of intangible assets is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Amortization of intangible assets$97 $96 $193 $192 

Other Assets
Other assets, non-current, consist of the following (in thousands):
June 30,December 31,
20212020
Operating lease ROU assets$18,254 $— 
Notes receivable750 — 
Other931 937 
Total other assets$19,935 $937 


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In May 2021, the Company entered into a convertible note receivable agreement (the Note) with a borrower wherein Velodyne agreed to lend $750,000 at an interest rate of 0% per annum as a nonrecourse investment. The Note is convertible into equity at the election of the borrower or the Company upon occurrence of certain new financing or corporate transactions. The maturity date of the Note is May 11, 2024.


Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):

June 30,December 31,
20212020
Accrued payroll expenses$8,812 $11,877 
Accrued manufacturing costs1,849 8,003 
Accrued transaction costs5,000 25,057 
Accrued professional and consulting fees2,519 965 
Accrued warranty costs1,153 2,204 
Accrued taxes1,000 1,074 
Lease liabilities2,819 — 
Legal proceedings accrual800 75 
Other1,328 1,094 
Total accrued expense and other current liabilities$25,280 $50,349 


Long-Term Liabilities
Long-term liabilities consisted of the following (in thousands):
June 30,December 31,
20212020
PPP Loan$— $10,000 
Contract liabilities, long-term13,583 14,732 
Lease liabilities, long-term16,380 — 
Other415 1,195 
Total long-term liabilities$30,378 $25,927 


Note 6. Leases

The Company leases real estate, equipment and automobiles in the U.S. and internationally. The Company leases office facilities under non-cancelable operating leases that expire on various dates through December 2027, including office and manufacturing space in San Jose, California used as its corporate headquarters. The lessor entity is owned by one of the Company’s former officers. Please see Note 17, Related Party Transactions. The leases do not contain any material residual value guarantees or restrictive covenants.

Lease cost, which consisted primarily of operating lease cost, was $1.1 million and $2.2 million, respectively, for the three and six months ended June 30, 2021. Under ASC 840, the previous lease standard, total rent expense under operating leases during the three and six months ended June 30, 2020 was $1.1 million and $2.2 million, respectively.

Other information related to leases were as follows (in thousands, except years and percentages):


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Six Months Ended
June 30, 2021
Supplemental cash flow information:
Cash paid for operating leases included in operating cash flows$2,256 
ROU assets obtained in exchange for new operating lease liabilities$340 
June 30, 2021
Supplemental balance sheet information:
Other assets$18,254 
Total operating ROU assets$18,254 
Other current liabilities$2,819 
Other long-term liabilities16,380 
Total lease liabilities$19,199 
Weighted average remaining lease term (years)6.30
Weighted average discount rate 6.36 %

As of June 30, 2021, maturities of lease liabilities were as follows:
Years Ending December 31,Finance LeasesOperating Leases
2021 (remaining six months)$92 $2,102 
202214 3,466 
2023— 3,358 
2024— 3,459 
2025— 3,563 
Thereafter— 7,450 
Total lease payments106 $23,398 
Less amount representing interest(2)(4,199)
Present value of lease liabilities$104 $19,199 



Note 7. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following as of June 30, 2021 and December 31, 2020 (in thousands):
June 30,December 31,
20212020
Foreign currency translation loss$(167)$(170)
Unrealized loss on investments(49)(60)
Total accumulated other comprehensive loss$(216)$(230)

During the three and six months ended June 30, 2021 and June 30, 2020, there were no significant amounts related to foreign currency translation loss or realized gains or loss on investments reclassified to net loss from accumulated other comprehensive loss.


Note 8. Credit Facilities and Notes Payable
In January 2020, the Company entered into a loan and security agreement with a financial institution (the 2020 Revolving Line), as amended in September 2020, December 2020 and March 2021, which provides a revolving line of credit

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of $25.0 million, with an option to increase the credit limit up to additional $15.0 million with the bank’s approval. As part of the Revolving Line, there is a letters of credit sub-limit of $5.0 million. The advances under the Revolving Line bear interest at a rate per annum equal to prime rate plus an applicable margin of 1.5% for prime rate advances, or LIBOR rate plus an applicable margin of 2.5% for LIBOR advances. Unused revolving line facility fee is 0.15% per annum of average unused portion of the Revolving Line. In addition, there is a $50,000 non-refundable commitment fee if the Company exercises the Incremental Revolving Line option. The Revolving Line is secured by certain assets of the Company. The 2020 Revolving Line expired on February 27, 2021 and was extended to February 26, 2022. The Company had no outstanding borrowings and was in compliance with the financial covenants associated with the facility as of June 30, 2021.
On April 8, 2020, the Company received loan proceeds of $10.0 million under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Paycheck Protection Program (PPP). The principal and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels and that approval is received from the relevant government entity. The unforgiven portion of the PPP loan is payable in two years at an interest rate of 1% per annum, with a deferral of interest payments for ten months after the expiration of the 24-week covered period. The Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan and interest on June 30, 2021. The Company recorded a $10.1 million gain from the forgiveness of the PPP loan in other income for the three months ended June 30, 2021.


Note 9. Stockholders’ Equity

Common Stock

On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. As discussed in Note 2, Business Combination, the Company has retroactively adjusted the pre-combination common and preferred shares issued and outstanding prior to September 29, 2020 to give effect to the exchange ratio established in the Merger Agreement to determine the number of shares of common stock into which they were converted.

The Company is authorized to issue up to 2,250,000,000 shares of common stock, each with a par value of $0.0001 per share. The following summarizes the Company’s common stock outstanding as of June 30, 2021 and December 31, 2020:

June 30,December 31,
20212020
Converted pre-combination Velodyne common stock outstanding89,164,440101,849,247
Converted pre-combination Velodyne preferred stock outstanding24,772,75924,772,759
Graf Founder shares412,6412,575,000
Other stockholders80,877,974 46,715,188 
Total common stock issued and outstanding 195,227,814175,912,194


Preferred Stock

The Company is authorized to issue up to 25,000,000 shares of preferred stock, each with a par value of $0.0001 per share. As of June 30, 2021, no shares of preferred stock were issued and outstanding.

Warrants

Upon the closing of the Business Combination, there were 24,876,512 outstanding warrants to purchase shares of the Company’s common stock that were issued by Graf prior to the Business Combination. Each whole warrant entitles the holder to purchase three-quarters of one share of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The warrants are exercisable at any time commencing 30 days after the completion of the Business Combination and expire five years after the completion of the Business Combination. The Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant at any time after they become exercisable, provided that the last sale price of the Company’s common stock equals or exceeds $18.00 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.


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In connection with the Business Combination, on October 19, 2020, the Company registered the issuance of an aggregate of up to 18,657,384 shares of its common stock that are issuable upon the exercise of its warrants including up to 375,000 shares of its common stock issuable upon exercise of its working capital warrants issued to Graf LLC. The exercise price of the warrants is $11.50 per share. The following summarizes the Company’s common stock issuance related to the warrant exercises:

June 30,December 31,
20212020
Warrants outstanding upon Closing24,876,512 24,876,512
Warrants exercised to date18,899,6429,598,538
Warrants outstanding5,976,87015,277,974
Aggregated common shares issuable upon exercise of warrants18,657,38418,657,384
Common shares issued upon exercise of warrants14,174,7097,198,898
Remaining common shares issuable upon exercise of warrants4,482,67511,458,486

On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission (the SEC) issued a statement regarding accounting and reporting considerations for warrants issued by SPACs. In light of the issues raised by the SEC, the Company re-evaluated its accounting position for the warrants and concluded that certain warrants should have been classified as a liability measured at fair value for the 30-day period from September 29, 2020 to October 29, 2020.

Accounting for these warrants as a liability instead of equity would have reduced non-operating expense and net loss by $1.6 million for the year ended December 31, 2020. Additionally, a corresponding $1.6 million adjustment would have been made to reduce its accumulated deficit with an offsetting adjustment to additional paid in capital in its equity accounts at December 31, 2020. Accounting for these warrants as a liability instead of equity would not have any effect on Velodyne’s previously reported revenues, assets, liabilities, total equity, or cash flows for the year ended December 31, 2020. Velodyne has concluded the effects of accounting for the warrants as a liability instead of equity were immaterial to the previously issued financial statements. The Company has made an immaterial adjustment to its equity accounts for the effects of the accounting for the warrants in its condensed consolidated statement of stockholders’ equity and balance sheet at March 31, 2021 by decreasing its accumulated deficit by $1.6 million with an offsetting decrease to its additional paid in capital.

Dividends

The Company has not paid any cash dividends on the common stock to date. The Company may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, the Company’s results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, the Company’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness the Company or its subsidiaries incur.


Note 10. Stock-Based Compensation

2020 Equity Incentive Plans

2020 Equity Plan

In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Plan. The 2020 Equity Plan provides for the grant of stock options, stock appreciation rights, restricted stock units (RSUs) and other stock or cash-based awards. The Company initially reserved 27,733,888, approximately 16% of the number of shares of its common stock outstanding upon the Closing, as the “Initial Limit” for the issuance of awards under the 2020 Equity Plan. The number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2021 and ending on (and including) January 1, 2030, by a number equal to the least of (a) 5% of the total number of Common Shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 Common Shares, or (c) a number of Common Shares determined by the Board. This limit is subject to adjustment

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in the event of a stock split, stock dividend or other change in the Company’s capitalization. The number of shares reserved was 36,738,678 and the remaining shares available for issuance under the 2020 Equity Plan was 17,433,350 as of June 30, 2021.

In January 2021, the Company adopted the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

2020 Employee Stock Purchase Plan

In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the 2020 ESPP). Under the 2020 ESPP, 3,492,097 authorized but unissued or reacquired shares of common stock were initially reserved for issuance. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of not more than 20 years in an amount equal to the least of (i) 1% of the outstanding shares of our common stock on such date, (ii) 2,500,000 shares of our common stock or (iii) a lesser amount determined by the Compensation Committee or the Board.

The ESPP is implemented by overlapping, twelve-month offering periods and each offering period may contain up to two purchase periods of six months each. At any one time, there may be up to two offering periods under the ESPP. In general, a new twelve-month offering period commences on each June 1st and December 1st of a calendar year.

Common stock may be purchased under the ESPP at a price equal to 85% of the fair market value of our common stock on either the date of purchase or the first day of an offering period, whichever is lower. Eligible employees may elect to withhold up to 15% of their compensation through payroll deductions during an offering period for the purchase of stock. The ESPP contains a reset provision whereby if the price of our common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such offering periods and re-enrolled in the new offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering period, resulting in incremental expense to be recognized over the twelve-month period of the new offering.

The ESPP limits the maximum number of shares that may be purchased by any one participant in an offering period to 3,000 shares. In addition, the Internal Revenue Code limits purchases under an ESPP to $25,000 worth of stock in any one calendar year, valued as of the first day of an offering period. As of June 30, 2021, 5,293,055 shares of common stock were reserved and available for future purchase.

2020 Phantom Stock Incentive Plan

In March 2021, the Board adopted the 2020 Phantom Stock Incentive Plan, which provides for the granting of up to 7,635,000 phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting. Phantom stock unit activity for the six months ended June 30, 2021 was not significant.

Stock Incentive Awards

As of June 30, 2021, the Company has certain equity incentive awards outstanding, which include stock options, RSAs, RSUs and phantom stock units under its stock incentive plans. In the six months ended June 30, 2021, the Company granted RSUs to certain employees and directors pursuant to its 2020 Stock Plan. The RSUs are subject to time-based vesting criteria and vest on a quarterly basis over a four-year period, or 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years.


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A summary of stock option activities is as follows:
Shares

Weighted Average Exercise Price
Weighted Average Remaining Contractual LifeAggregate Intrinsic Value
(Years)(In thousands)
Option:
Options outstanding as of December 31, 2020597,354$5.86
Granted
Options outstanding as of June 30, 2021
597,354$5.866.80$2,857 
Options exercisable as of June 30, 2021
312,754$5.974.88$1,460 
Options vested and expected to vest as of June 30, 2021
597,354$5.866.80$2,857 


A summary of RSA and RSU activities is as follows:
SharesWeighted Average Grant Date Fair Value per Share
RSA:
RSAs outstanding as of December 31, 2020
4,183,624$1.37
Released(4,183,624)
RSAs outstanding as of June 30, 2021
RSU:
RSUs outstanding as of December 31, 2020
11,983,636$12.43
Granted2,515,134$11.96
Released(8,159,316)$12.50
Forfeited(1,098,559)$12.41
RSUs outstanding as of June 30, 2021
5,240,895$12.10
PRSU:
PRSUs outstanding as of December 31, 2020
1,101,683$6.72
Granted9,141$1.97
PRSUs outstanding as of June 30, 2021
1,110,824$6.68

The Company uses primarily the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

Stock-Based Compensation Expense

Prior to the business combination, no compensation expense had been recognized for the RSAs granted under the pre-combination Velodyne's stock incentive plans because the liquidity event vesting condition was not probable of being met. As a result of the Business Combination, on May 18, 2021, the Board waived the liquidity event vesting condition applicable to the pre-combination Velodyne's RSAs. Therefore, the Company's outstanding RSAs vested to the extent the applicable service condition was satisfied as of such date. The vesting of the RSAs resulted in approximately $45.1 million of incremental stock-based compensation expense in the second quarter of 2021.


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The Company uses the Black-Scholes option pricing model to determine the fair value of purchase rights issued under the ESPP. The computation of the expected volatility assumption is based on a weighting of historical and implied volatilities. The risk-free interest rate for the period within the expected term is based on the U.S. Treasury yield curve for the comparable term in effect at the time of grant. The expected dividend yield used in the calculation is zero because the Company has not historically paid and currently does not expect to pay dividends in the foreseeable future. The weighted-average grant date fair value of purchase rights granted under the ESPP and the weighted-average assumptions used in the model were as follows:
Six Months Ended June 30, 2021
Weighted average grant date fair value of purchase rights issued under ESPP$4.59
Expected term, in years0.75
Expected volatility97.90%
Risk-free interest rate4%
Expected dividend yield 0.00%

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cost of revenue$431 $— $967 $— 
Research and development2,754 21 7,664 21 
Sales and marketing41,616 — 43,602 — 
General and administrative8,404 — 12,502 135 
Total stock-based compensation expense$53,205 $21 $64,735 $156 

The Company recognizes forfeitures as they occur. As of June 30, 2021, unrecognized compensation cost related to RSUs, ESPP and stock options was $62.2 million, $1.5 million and $0.6 million, respectively, which was expected to be recognized over a weighted average period of 2.66 years, 0.66 years and 2.43 years, respectively.

Phantom stock units are recorded as a liability at their current market value and are included in other current liabilities. These grants remain subject to vesting 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Based on the trading price of the Company's common stock, the amount of liability recorded related to phantom stock units was not significant at June 30, 2021.


Note 11. Net Loss Per Share
Pursuant to the Amended and Restated Certificate of Incorporation and as a result of the Business Combination and reverse recapitalization, the Company has retrospectively adjusted the weighted average shares outstanding prior to September 29, 2020 to give effect to the exchange ratio used to determine the number of shares of common stock into which the pre-combination Velodyne common and preferred stock converted.

Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. During the periods when there is a net loss, potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.

Warrants to purchase 24,876,512 shares of common stock at $11.50 per share were issued during Graf’s initial public offering. As of June 30, 2021, there were 18,899,642 warrants exercised and 14,174,709 shares of common stocks issued under warrant exercises. The 5,976,870 outstanding warrants were excluded from the basic and diluted net loss per share as they were anti-dilutive given the Company had a net loss for all periods presented.

The following common stock equivalents have also been excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive (in thousands):

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Three and Six Months Ended June 30,
20212020
Stock options597 597 
RSAs— 4,184 
RSUs (non-vested)6,060 12,074 
Total6,657 16,855 


Note 12. Retirement Plan
The Company has a 401(k) savings and profit-sharing plan (the 401(k) Plan), which is intended to be a tax-qualified defined contribution plan that covers all eligible employees, as defined in the applicable plan documents. Under the 401(k) Plan, eligible employees may elect salary deferral contributions, not to exceed limitations established annually by the Internal Revenue Service (IRS). The Company matches 25% of employees’ eligible contributions. The Company’s matching contributions were $0.3 million and $0.5 million, respectively, for the three and six months ended June 30, 2021, and $0.2 million and $0.5 million, respectively, for the three and six months ended June 30, 2020.


Note 13. Restructuring
In March 2020, the Company initiated a restructuring plan to downsize the manufacturing function and related engineering and administrative functions in its California locations, which was completed in 2020. The purposes of this plan were to align resource requirements with the Company’s initiatives to lower the Company’s cost structure and to increase its production capacity by outsourcing a majority of its manufacturing activities. The Company’s restructuring expenses incurred primarily related to employee termination costs. The Company incurred restructuring costs of $1.0 million for the six months ended June 30, 2020.


Note 14. Income Taxes

The following table summarizes the Company's loss before income taxes and provision for (benefit from) income taxes (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Loss before income taxes$(78,898)$(9,710)$(119,419)$(39,772)
Provision for (benefit from) income taxes339 17 635 (6,660)
Effective tax rate(0.4)%(0.2)%(0.5)%16.7 %

The quarterly income tax provision reflects an estimate of the corresponding year’s annual effective tax rate and includes, when applicable, adjustments for discrete items. The tax provision for the periods presented primarily relates to income taxes of non-U.S. operations as the U.S. operations were in a loss position and the Company maintains a full valuation allowance against its U.S. deferred tax assets.

The Company is subject to income taxes in the United States, China and Germany. The Company’s effective tax rate changed from 16.7% in the six months ended June 30, 2020 to (0.5)% in the six months ended June 30, 2021. This change was primarily due to the $6.7 million tax benefit related to the release of a valuation allowance associated with carrying back a portion of our 2019 net operating losses to 2017 that is allowed by the CARES Act in the first quarter of 2021.

Enacted on March 27, 2020, the CARES Act provides emergency assistance and health care response for businesses affected by the coronavirus pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Additionally, the CARES Act allows net operating losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. In May 2020, the Company received a $7.1 million tax refund related to the

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carryback of a portion of its 2019 net operating losses to 2017. As of December 31, 2020, the Company had $173.5 million of U.S. federal and $105.5 million of state net operating loss carryforwards available to reduce future taxable income, which will be carried forward indefinitely for U.S. federal tax purposes and will expire beginning in 2028 through 2040 for state tax purposes. Based on the Company’s analysis, the relief provisions will not have additional material impact on its 2021 consolidated financial statements.



Note 15. Commitments and Contingencies

Purchase and Other Commitments
The following table summarizes contractual obligations and commitments as of June 30, 2021 (in thousands):

Years Ending December 31,Purchase CommitmentsOther Contractual Commitments
2021 (remaining six months)$28,358 $1,127 
2022— 797 
2023— 51 
Total$28,358 $1,975 


Purchase commitments represent outstanding purchase orders or commitments for goods or services with contract manufacturers and vendors that range mostly from one month up to a year. The Company uses several contract manufacturers to manufacture components, subassemblies and products. The Company provides these contract manufacturers with demand information and they use this information to acquire components and build products. Contract manufacturer commitments consist of obligations for on-hand inventories and non-cancelable purchase orders with contract manufactures. If the Company cancels all or part of the orders, it may still be liable to the contract manufacturers for the cost of the materials and components purchased by the subcontractors to manufacture the Company’s products. The Company also obtains individual components for its products from a wide variety of individual suppliers. In addition, the Company has other contractual obligations for goods or services associated with its ordinary course of business.

Product Warranties
The Company typically provides a one-year warranty on its products. Estimated future warranty costs are accrued and charged to cost of revenue in the period that the related revenue is recognized. These estimates are based on historical warranty experience and any known or expected changes in warranty exposure, such as trends of product reliability and costs of repairing and replacing defective products. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s accrued warranty liability, which is included as a component of other accrued expenses was as follows (in thousands):
Six Months Ended June 30,
20212020
Balance as of the beginning of the period$2,204 $4,322 
Warranty provision898 2,918 
Consumption(649)(940)
Changes in provision estimates(1,300)(3,104)
Balance as of the end of the period$1,153 $3,196 


Legal Proceedings
From time to time, the Company is involved in actions, claims, suits and other proceedings in the ordinary course of business, including assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. The Company is defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable (except as specifically described below), the Company

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currently believes that none of these claims or proceedings are likely to have a material adverse effect on the Company’s financial position.

Arbitration Proceeding Against David Hall

On June 9, 2021, the Company initiated an arbitration proceeding against David Hall, alleging breach of contract and misappropriation of the Company’s confidential, proprietary, and trade secret information. To protect its intellectual property and in aid of the arbitration process, on July 2, 2021 the Company filed an application with the Santa Clara County Superior Court for a temporary restraining order and preliminary injunction to prohibit Mr. Hall from any further copying, disclosure or use of the Company’s intellectual property and to require him to return all such property to the Company. The parties engaged in a preliminary conference on August 4, 2021, and the arbitrator set a hearing date of September 2, 2021 for a hearing on the Company’s motion for preliminary injunctive relief.

Discrimination Proceeding by Marta Hall

On August 2, 2021, the Company received a Charge of Discrimination dated July 27, 2021, indicating that former Chief Marketing Officer, Marta Hall, has filed a charge of employment discrimination under Title VII of the Civil Rights Act, alleging sexual discrimination and retaliation. The Charge indicates that there is no action required by the Company at this time and that Ms. Hall needs to submit a perfected charge, containing a description of the underlying facts giving rise to her claim, and then the Company will need to respond in writing to the claims.

Quanergy Litigation

In September 2016, Quanergy Systems, Inc. (Quanergy) filed a complaint against the Company and one of its customers in the Northern District of California (the District Court litigation), seeking a declaratory judgment of non-infringement of one of the Company’s patents, U.S. Patent No. 7,969,558 (the ‘558 patent) and asserting state and federal trade secret misappropriation claims against the Company and its customer and breach of contract and constructive fraud claims against its customer. In November 2016, Quanergy filed an amended complaint, removing its trade secret misappropriation claims against the Company, dropping its customer from the suit and dropping the related claims of breach and constructive fraud. The amended complaint maintained only the declaratory judgment of non-infringement action against the Company. In December 2016, the Company filed an answer generally denying the allegations and relief requested in Quanergy’s amended complaint. The Company’s answer also included counterclaims against Quanergy asserting direct, indirect, and willful infringement of the ‘558 patent. In January 2017, Quanergy filed an answer generally denying the allegations in the Company’s patent infringement counterclaims and requesting relief. The court held a claim construction hearing on September 13, 2017 and issued a claim construction order on October 4, 2017, which adopted the majority of the Company’s proposed constructions. In June 2018, the district court entered an order granting a joint stipulation to stay the litigation.

Quanergy filed two petitions for inter partes review with the U.S. Patent Office’s Patent Trials and Appeal Board (PTAB) in November 2017, challenging all claims of the ‘558 patent that we asserted. The Company filed its Patent Owner Preliminary Response to Quanergy’s petitions on March 7, 2018. The PTAB issued an institution decision on May 25, 2018, instituting review of all challenged claims. The Company subsequently filed its Patent Owner Response and a Contingent Motion to amend the claims. The PTAB held oral argument on February 27, 2019. On May 23, 2019, the PTAB issued a Final Written Decision upholding the validity of all the challenged claims, finding that Quanergy did not prove by a preponderance of the evidence that any of the challenged claims of the ‘558 patent were unpatentable, and denying the Company’s contingent motion as moot. In June 2019, Quanergy filed a request for rehearing. On July 21, 2020, Quanergy filed a Notice of Appeal, appealing the PTAB decision to the U.S. Court of Appeals for the Federal Circuit. Quanergy’s opening appeal brief was filed on January 22, 2021. The Company’s responsive appeal brief was filed on April 2, 2021. Quanergy filed its reply brief on April 23, 2021. The Federal Circuit held oral arguments on the appeal on July 7, 2021. The Company believes the allegations in the actions are without merit, and intends to defend the actions vigorously.

Criterion ITC Litigation

In July 2021, Criterion Technology, Inc. (Criterion) filed complaints against the Company and one of its suppliers in the International Trade Commission (ITC) and Northern District of California. The complaints allege claims of trade secret misappropriation, breach of contract, and unfair business practices under federal and California law. Criterion’s claims are directed to optical enclosures in Lidar products. Both litigations are in their early stages. The ITC investigation was instituted

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on August 4, 2021. The Company believes the allegations in the actions are without merit and intends to defend the actions vigorously.

Employment Matters

On June 8, 2020, a former employee filed a class action lawsuit in the Santa Clara County Superior Court of the State of California. The complaint alleges that, among other things, the Company failed to pay minimum and overtime wages, final wages at termination, and other claims based on meal periods and rest breaks. The plaintiff is bringing this lawsuit on behalf of herself and other similarly situated plaintiffs who have not been identified and is seeking to certify the action as a class action. The plaintiff has now filed a First Amended Complaint that adds a claim pursuant to California’s Private Attorneys General Act. The First Amended Complaint does not specify the amount the plaintiff seeks to recover. Velodyne’s response to the First Amended Complaint was filed on November 16, 2020 and the parties are in the process of beginning discovery concerning class certification issues. On August 5, 2021, the parties reached a tentative settlement, subject to court approval, whereby the Company will pay $0.8 million.

Securities Litigation Matters

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., No. 3:21-cv-01486-SI. The complaint alleges 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 the Company’s business, operations and prospects. The complaint alleges that purported class members have suffered losses. The complaint seeks, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired the Company’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., No. 3:21-cv-01736-VC, was filed against the Company, 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., No. 4:21-cv-01950-JST, was filed in the United States District Court for the Northern District of California, against the Company, Mr. Gopalan, Mr. Hamer, two current or former directors, and three other entities. The complaint alleges 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 the Company’s business, operations, controls and prospects and seeks, among other things, an award of compensatory damages on behalf of a putative class of persons who purchased or otherwise acquired the Company’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 is scheduled to be filed by September 1, 2021. The Company believes the allegations in the actions are without merit, and intends to defend the actions vigorously.

On March 12, 2021, a putative shareholder derivative lawsuit entitled D’Arcy v. Gopalan, et al., No. 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 the Company as a nominal defendant. The complaint asserts 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 asserts a contribution claim under the federal securities laws against Mr. Gopalan and Mr. Hamer. On March 16, 2021, a second shareholder derivative lawsuit entitled Kondner, et al. v. Culkin, et al., No. 1:21-cv-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 asserts 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.

Contingency Assessment

The Company records accruals for outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluated developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. As of June 30, 2021, other than the $0.8 million litigation accrual related to the employment matter, the Company has not recorded any significant accrual for loss contingencies associated with such legal claims or litigation discussed above.



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Note 16. Segment, Geographic and Customer Concentration Information
The Company conducts its business in one operating segment that develops and produces Lidar sensors for use in industrial, 3D mapping, drones and auto applications. The Company’s Chief Executive Officer (CEO), or the Office of CEO, is the chief operating decision maker (CODM). The CODM allocates resources and makes operating decisions based on financial information presented on a consolidated basis, accompanied by disaggregated information about sales and gross margin by product group. The profitability of the Company’s product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.

The Company reports revenue by region and country based on the location where its customers accept delivery of its products and services. Revenue by region was as follows (dollar amount in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue by region:
North America$5,271 $4,650 $10,315 $13,903 
Asia Pacific5,255 20,150 14,761 25,774 
Europe, Middle East and Africa3,070 3,586 6,246 5,740 
Total$13,596 $28,386 $31,322 $45,417 
% of Revenue by region:
North America38 %16 %33 %30 %
Asia Pacific39 %71 %47 %57 %
Europe, Middle East and Africa23 %13 %20 %13 %
Total100 %100 %100 %100 %


Revenue by countries and customers accounted for more than 10% of revenue was as follows:

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Countries over 10% of revenue:
U.S.37 %15 %31 %21 %
China24 %65 %36 %46 %
Sweden15 %*14 %*
Number of customers accounted for over 10% of revenue:
1121
The Company’s long-lived assets, consisting primarily of property, plant and equipment, were primarily located in the United States as of June 30, 2021 and December 31, 2020.


Note 17. Related Party Transactions
Certain holders of the pre-combination Velodyne's convertible preferred stock (which converted into common stock of the Company upon the Business Combination) purchased products and services, directly or through a third party, from the Company. Revenue and accounts receivable for these holders were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Revenue:
Stockholder A$44 $35 $83 $278 
Stockholder B(1)
*— *3,544 
Stockholder C— 439 — 439 


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June 30,December 31,
20212020
Accounts receivable:
Stockholder B(1)
*3,085 

(1) Stockholder B sold all its shares of the Company’s common stock in the fourth quarter of 2020.

In April 2019, the Company entered into a manufacturing agreement with one of its Series B Preferred Stockholders (Stockholder D), and the Company has one product that is currently being manufactured by Stockholder D. As of June 30, 2021 and December 31, 2020, the Company had zero  and $6.3 million, respectively, of payable and accrued purchases and $0.2 million and $15.0 million, respectively, of outstanding purchase commitments for products with this stockholder. The Company procures equipment, materials and components for Stockholder D to build the product and had $0.1 million and $1.5 million, respectively, of receivables from this stockholder which was included in other current assets as of June 30, 2021 and December 31, 2020. The Company also loaned to Stockholder D manufacturing equipment with a net book value of $0.4 million and $0.4 million, respectively, as of June 30, 2021 and December 31, 2020, which was included in the Company’s balance sheet within property, plant and equipment, net.

The Company rents its corporate headquarters facility in San Jose, California from a company owned by one of its former officers. In May 2021, the building was sold to a third-party but the lease terms remain unchanged. The lease was executed in January 2017 and expires in December 2027, as amended. Lease cost or rent expense under this lease was $0.6 million and $1.4 million, respectively, for the two and five months ended May 31, 2021, and $0.8 million and $1.7 million, respectively, for the three and six months ended June 30, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of Velodyne’s results of operations and financial condition should be read in conjunction with the information set forth in Velodyne’s financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Cautionary Note Regarding Forward-Looking Statements” and Item 1A: “Risk Factors.”


Overview

Velodyne, the first pure-play lidar company, is a global leader in lidar technology providing real-time 3D vision for autonomous systems. Our lidar solutions are advancing the development of safe automated systems throughout the world, thereby empowering the autonomous revolution by allowing machines to see their surroundings. Our lidar-based smart vision solutions are also deployed in many non-automotive applications, including autonomous mobile robots, unmanned aerial vehicles (UAV), drones, last-mile delivery, precision agriculture, advanced security systems, and smart city initiatives.

We also license our technology and provide development services to customers and business partners. Of the more than 300 customers that purchased smart vision solutions from us and our distributors in the last two fiscal years, approximately 200 are using our smart vision solutions for non-automotive applications. For the six months ended June 30, 2021, we generated over half of our revenue from sales to customers deploying our smart vision solutions in non-automotive applications. In addition, we are transitioning from field programmable gate arrays to ASICs in order to further improve performance of our products, lower costs and reduce reliance on any key suppliers.


Impact of COVID-19

The extensive impact of the pandemic caused by the novel coronavirus (COVID-19) has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

The timing of customer orders and our ability to fulfill orders we received was impacted by various COVID-19 related government mandates across our worldwide operations. We witnessed certain current and prospective customers delaying purchases based on budget constraints or project delays related to COVID-19. While the broader and long-term implications

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of the COVID-19 pandemic on our workforce, operations and supply chain, customer demand, results of operations and overall financial performance remain uncertain, we continued to experience disruptions to our business due to the COVID-19 pandemic during the first six months of 2021.

The impact of COVID-19 and measures to prevent its spread have been impactful and continue to affect our business in several ways.

Operations and supply chain. As a result of COVID-19, we experienced some production delays during the first six months of 2021 due to travel restrictions to Thailand, the location of one of our key manufacturing partners. The San Jose factory continued to produce the major lidar products to support customer demand, augmented by our contract manufacturing partners. The San Jose factory confirmed several cases of COVID-19 from external exposure. As part of our continuing COVID-19 mitigation efforts, we perform audits of our supply chain and work with key suppliers to proactively mitigate potential supply constraints. Supply chain disruption due to COVID-19 has been minimal, however, the global supply of certain components, especially in the semiconductor space, requires ongoing vigilance as both lead times and prices reflect demand exceeding industry supply, and our plans to transition production from our San Jose factory to our contract manufacturing partners have experienced delays as a result of travel restrictions.

Demand for our products. While we continue to engage with current and potential customers, we believe some customers may delay purchases from us because their development programs may also be delayed as a result of COVID-19.

Positive customer trend in the pandemic. The global pandemic accelerated a few key robotic programs, which partially offset the impact of some of our customers’ delayed purchasing decisions. The accelerated programs include robots that disinfect the air and surfaces, providing more sanitized environments, and touchless delivery robots for food and medical supplies.

Liquidity, working capital, and the CARES Act. On March 27, 2020, the U.S. government enacted the CARES Act. On April 8, 2020, we received loan proceeds of $10.0 million under the CARES Act’s Paycheck Protection Program to help us offset delays in production and customer purchases. We filed a request for PPP loan forgiveness, and the approval was granted on June 30, 2021.

See Item 1A: “Risk Factors” for further discussion of the possible impact of COVID-19 on our business.


Factors Affecting Our Performance

Design wins. We are developing our smart vision solutions as a key enabling technology for OEMs in automotive and other applications. Because our solutions must be integrated into a broader platform by the OEM, it is critical that we achieve design wins with these customers. The time necessary to achieve design wins varies based on the market and application. The design cycle in the automotive market tends to be substantially longer and more onerous than in other markets. Even within the automotive market, achieving a design win with an automotive OEM takes considerably longer than a design cycle for an aftermarket application. We consider design wins to be critical to our future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predict our future financial performance.

Pricing, product cost and margins. Our pricing and margins will depend on the volumes and the features of the solutions we provide to our customers. To date, most of our revenue has been generated by selling our smart vision solutions that have cost less for us to manufacture and that incorporate new features. In general, solutions incorporated into development-phase products require more complex configurations, have higher prices and higher gross margins. As our markets reach maturity and commercialization, we expect prices and margins will generally decrease. Our commercial-stage customers will require that our smart vision solutions be manufactured and sold at per-unit prices that enable mass market adoption. To meet the technological and pricing needs of customers reaching commercial scale, we are making significant investments in new solutions for both cost improvements and new features. Our ability to compete in key markets will depend on the success of these investments and our efforts to efficiently and reliably produce cost-effective smart vision solutions for our commercial-stage customers. We have customers with technologies in various stages of development. We anticipate that our prices will vary by market and application due to market-specific supply and demand dynamics and product lifecycles.

Commercialization of lidar-based applications. Our revenue has been subject to significant fluctuations. Our customers in pre-commercial development phase may have purchased their requirements of our products in earlier periods and we do

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not expect them begin purchasing again in volume unless and until they reach commercial deployments. As a number of our target markets reach commercialization, we expect there to be a shift towards higher unit volume at lower per-unit prices, with more predictable customer demand. We expect that our results of operations, including revenue and gross margins, will continue to fluctuate on a quarterly basis for the foreseeable future as our customers continue research and development projects and begin to commercialize autonomous solutions that rely on lidar technology. As more customers reach the commercialization phase and as the market for lidar solutions matures, these fluctuations in our operating results may become less pronounced. However, in the near term, our revenue may not grow as we expect until more customers commercialize their products.

End market demand. We sell our products to customers in a number of end markets. We believe our entry into new markets will continue to facilitate revenue growth and customer diversification. While we will continue to expand the end markets we serve, we anticipate that sales to a limited number of end markets will continue to account for a significant portion of our total revenue for the foreseeable future. Success in an end market, or commercialization, is uncertain and may develop differently in each case, with unique pricing, volume and cost dynamics. Additionally, as production scales in order to meet the demands of commercialization, pricing pressure increases and the amount of that pressure is expected to vary by market.

Sales volume. A typical design win can generate a wide range of sales volumes for our solutions, depending on the end market demand for our customers’ products. This can depend on several factors, including the reputation of the end customer, market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development, commercialization or production phase. In certain cases, we may provide volume discounts on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes.

Continued investment and innovation. We believe that we are the industry-leading lidar provider with proven designs, extensive product offerings and advanced manufacturing capabilities. Our financial performance is significantly dependent on our ability to maintain this leading position. This is further dependent on the investments we make in research and development. We must continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products and generate active market demand for our products. If we fail to do this, our leading market position and revenue may be adversely affected, and our investments in that area will not be recovered.


Components of Results of Operations

Revenue

The majority of our revenue comes from the sale of our lidar sensors directly to end users and through our network of U.S. and international distributors. Product revenue is recognized when control of the products is transferred to the customer, which is generally upon shipment. For custom products that require engineering and development based on customer requirements, revenue is recognized over time using an output method based on units of product shipped to date relative to total production units under the contract. We also generate a portion of our revenue from intellectual property licensing, royalties and the sale of services related to product development, validation, extended warranty and product repair services. License revenue is recognized upon delivery of the intellectual property if there are no substantive future obligations to perform under the arrangement. Royalties 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. As our manufacturing partners to whom we have licensed our technology start selling to customers we expect royalty revenue to increase as a percentage of total revenue. Service revenue is recognized as the services are performed.

Cost of Revenue

Cost of revenue includes the manufacturing cost of our lidar sensors, which primarily consists of personnel-related costs directly associated with our manufacturing organization, and amounts paid to our third-party contract manufacturers and vendors. Our cost of revenue also includes depreciation and amortization, cost of component inventory, product testing costs, costs of providing services, an allocated portion of overhead, facility and IT costs, warranty costs, excess and obsolete inventory and shipping costs. We expect cost of revenue to increase in absolute dollars in future periods.

Gross Profit and Gross Margin

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Our gross profit in future periods will depend on a variety of factors, including: market conditions that may impact our pricing, including our desire to broaden customer adoption of lidar across multiple industries and markets; product mix changes between established products and new products and licenses; excess and obsolete inventories; our cost structure for manufacturing operations, including third-party manufacturers, relative to volume; and product support obligations. Additionally, we believe our transition to an outsourced manufacturing model will favorably impact our gross profit over time. Our gross margin varies by product. In addition, our license revenue has lower cost, and therefore it contributes to higher gross margin. We expect our gross margins to fluctuate over time, depending on the factors described above.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of personnel-related costs directly associated with our research and development organization, with the remainder being prototype expenses, third-party engineering and contractor costs, an allocated portion of facility and IT costs and depreciation. Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development, including new releases and upgrades to our lidar sensors. We expense research and development costs as incurred. We expect our research and development expenses to increase in absolute dollars as we increase our investment in software development to broaden the capabilities of our solutions and introduce new products and features.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing activities. These include the cost of sales commissions, marketing programs, trade shows, consulting services, promotional materials, demonstration equipment, an allocated portion of facility and IT costs and depreciation. We expect that our sales and marketing expenses will increase in absolute dollars over time as we hire additional sales and marketing personnel, increase our marketing activities, grow our domestic and international operations, and build brand awareness.

General and Administrative Expenses

General and administrative expenses primarily consist of personnel-related expenses associated with our general and administrative organization, professional fees for legal, accounting, and other consulting services, an allocated portion of facility and IT costs and depreciation. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing standards, additional insurance expenses (including directors’ and officers’ insurance), investor relations activities and other administrative and professional services. We also expect to increase the size of our general and administrative function to support the growth of our business.

Restructuring Expenses

Restructuring expenses primarily consist of costs of employee termination benefits incurred in connection with our restructuring plan to downsize the manufacturing function and related engineering and administrative functions in our California locations in March 2020. The purposes of this plan are to align resource requirements with our initiatives to lower our cost structure and to increase our production capacity by outsourcing a majority of manufacturing activities. The plan included a reduction of workforce and has been completed as of December 31, 2020.

Stock-Based Compensation

Stock-based compensation expense primarily related to our RSUs, RSAs, stock options and Employee Stock Purchase Plan (ESPP). Compensation expense related to RSUs and RSAs granted under the pre-combination Velodyne’s stock incentive plans remained unrecognized until the liquidity event vesting condition, which is (i) an initial public offering, or (ii) a Company sale event, was satisfied. The liquidity-event vesting condition was not satisfied upon the completion of the Business Combination. However, the Board waived such condition applicable to the pre-combination Velodyne RSUs and RSAs on October 30, 2020 and May 18, 2021, respectively, in order to provide the holders of such awards with the treatment that they would have received if the pre-combination Velodyne had completed an initial public offering. As a result of these determinations, our outstanding RSUs and RSAs vested to the extent the applicable service condition was satisfied as of such

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date. The vesting of these outstanding RSUs and RSAs resulted in approximately $77.5 million and $45.1 million, respectively, of incremental stock-based compensation expense in the fourth quarter of 2020 and second quarter of 2021, respectively.

Interest Income and Expense

Interest income consists primarily of income earned on our cash equivalents and investments in marketable securities. These amounts will vary based on our cash, cash equivalents and short-term investment balances, and also with market rates. Interest expense consists primarily of interest on our equipment capital leases and credit facility.

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency transaction gains and losses related to the impact of transactions denominated in a foreign currency other than the U.S. Dollar. As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue. For the three and six months ended June 30, 2021, we recorded a $10.1 million gain from forgiveness of our PPP loan and related interest in other income.

Provision for Income Taxes

Our provision for income taxes consists of federal, state and foreign current and deferred income taxes. As we expand the scale and scope of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future.

We have a full valuation allowance for our net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income.

We believe that we have adequately reserved for our uncertain tax positions, although we can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

During the six months ended June 30, 2021, there were no significant changes in our critical accounting policies and estimates as compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-11, ASU 2020-02 and ASU 2020-03 to provide additional guidance on the credit losses standard. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available for sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. For emerging growth companies, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We expect to adopt the new standard in the first quarter of 2023 and are currently evaluating the impact this standard will have on our consolidated financial statements and related disclosures.

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In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. ASU 2020-10 is effective for public companies, other than smaller reporting companies, for fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-10 is effective for fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. We are currently evaluating the impact of adoption of ASU 2020-10 on our consolidated financial statements and related footnote disclosures.


Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this prospectus. The following table sets forth our consolidated results of operations data for the periods presented:

Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(in thousands)
Revenue:
Product$11,970 $11,427 $22,563 $27,849 
License and services1,626 16,959 8,759 17,568 
Total revenue13,596 28,386 31,322 45,417 
Cost of revenue:
Product(1)
19,210 14,419 34,839 29,545 
License and services170 81 349 384 
Total cost of revenue(1)
19,380 14,500 35,188 29,929 
Gross profit (loss)(5,784)13,886 (3,866)15,488 
Operating expenses(1):
Research and Development17,009 14,591 35,387 29,118 
Sales and Marketing47,176 3,373 54,251 8,672 
General and administrative19,133 5,630 36,169 16,363 
Restructuring— (3)—