VELODYNE LIDAR: Management report and analysis of the financial situation and operating results (form 10-K)

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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
Annual Report on Form 10-K. 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,
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 the non-automotive
applications. In 2020, we generated approximately 40% 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. In an effort to halt the outbreak of COVID-19, a number of
countries, states, counties and other jurisdictions have imposed, and may impose
in the future, various measures, including but not limited to, voluntary and
mandatory quarantines, stay-at-home orders, travel restrictions, limitations on
gatherings of people, reduced operations and extended closures of businesses.

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 believe that this reduction in units sold was exacerbated by
COVID-19.We have also 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 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
fourth quarter of 2020.

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

•Our workforce. Employee health and safety is our priority. In response to
COVID-19, we established new protocols to help protect the health and safety of
our workforce. The actions include a no-touch temperature scan upon entering our
premises and a policy requiring the use of face masks in our facilities. On the
production floor of our San Jose, California manufacturing facility, we
installed station barriers made of acrylic to separate and protect our
workforce. We implemented global travel restrictions and work-from-home policies
for employees who can accomplish their work remotely, such as those in the
Finance, Marketing, and Communications teams. We continue to stay up-to-date and
follow the county and CDC guideline regarding requirements for a healthy work
environment.

•Operations and supply chain. As a result of COVID-19, we experienced some
production delays in the second quarter and early in the third quarter of 2020
due to travel restrictions to Thailand, the location of one of our key
manufacturing partners. The factory in San Jose was closed briefly in March
2020, then re-opened with strict health precautions in place. The San Jose
factory continued to produce the major lidar products required for the operation
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of our business and our manufacturing partners continue to produce lidar sensors
on our behalf. In March 2020, we engaged a third party logistics partner that
has allowed us to continue to ship finished goods from our San Jose factory. In
the fourth quarter of 2020, the San Jose factory confirmed its first case of
COVID-19, and further cases have been reported. This reduced production
capabilities at our manufacturing sites later in the quarter and impaired our
ability to fulfill certain customer orders in December 2020. A substantial
portion of these deliveries are expected to be fulfilled in the first quarter of
2021 and we are implementing measures to meet anticipated customer demand in
2021. As part of our COVID-19 mitigation efforts, we performed continuous audits
of our supply chain. Early in the pandemic, we learned that certain key
suppliers were operating with limited staffing. Although we believe these key
suppliers are now back to full staffing and capacity, we identified alternative
sources of key suppliers and we are now able to purchase key materials from
these alternative sources. Supply chain disruption due to COVID-19 continues to
be minimal and we had no resultant parts shortages in the fourth quarter of
2020.

•Demand for our products. Demand for our products in the third and fourth
quarters of 2020 was less than that in the corresponding period of 2019. We
believe that this decline in customer demand was, in part, the result of
customers impacted by COVID-19 and delayed purchasing decisions. 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. We believe that demand for our products
remains strong, but COVID-19 resulted in some transactions we expected to occur
earlier in 2020 being delayed until 2021.

•Positive customer trend in the pandemic. The global pandemic accelerated a few
key robotic programs, which we believe will offset the impact of some of our
customers' delayed purchasing decisions. The accelerated programs include robots
which 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 ("PPP") to help
us offset delays in production and customer purchases. 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 over 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.

See point 1A: “Risk factors” for a more in-depth 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
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
into pre-commercial development phase projects. 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.
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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 are not
expected to 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 concentration. Historically, our revenue has been from a small number
of end markets. For example, in fiscal 2020 and 2019, approximately 57% and 45%,
respectively, of our revenue came from the automotive market, although we had
more than half of our customers from non-automotive 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. Our end market concentration may cause our financial performance to
fluctuate significantly from period to period based on the success or failure of
the markets in which we compete. 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. It is essential that we
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 operating results

Returned

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 income

Revenue cost includes the cost of manufacturing our lidar sensors, which is primarily comprised of personnel costs directly associated with our manufacturing organization, and amounts paid to our third party contracted manufacturers and

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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

Our gross profit in future periods will depend on a variety of factors,
including: market conditions that may impact our pricing; 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.

Functionnary costs

Research and development costs

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 costs

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 costs

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

Prior to the Business Combination, our stock-based compensation expense
primarily related to our stock options. Compensation expense related to RSAs and
RSUs granted under the pre-combination Velodyne's stock incentive plans remained
unrecognized because the liquidity event vesting condition, which is (i) an
initial public offering, or (ii) a Company
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sale event, was not probable of being satisfied. The liquidity-event vesting
condition was not satisfied upon the completion of the Business Combination.
However, on October 30, 2020, the Board waived such condition applicable to the
pre-combination Velodyne RSUs 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 this determination, the
Company's outstanding RSUs vested to the extent the applicable service condition
was satisfied as of such date. The vesting of these outstanding RSUs on
October 30, 2020 resulted in approximately $77.5 million of incremental
stock-based compensation expense in the fourth quarter of 2020. It is
anticipated that the Board will waive the liquidity event condition applicable
to the RSAs in 2021. If such determination were to occur with respect to the
outstanding RSAs before the end of 2021, it is expected that the vesting of such
outstanding RSAs would result in approximately $53.0 million of incremental
stock-based compensation expense in the quarter when the determination is made
based on the closing price of our common stock on March 10, 2021.

Interest income and expenses

Interest income consists primarily of income earned on our cash equivalents and
investments in marketable securities. These amounts will vary based on our cash loans,
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.

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.

Accounting policies and critical estimates

We prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles ("GAAP"). 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.

Revenue recognition

We adopted the requirements of the new revenue recognition standard, known as
ASC 606, effective January 1, 2018 utilizing the modified retrospective method
of transition. Revenue is recognized upon transfer of control of promised
products and to a small extent services to customers in an amount that reflects
the consideration that we expect to receive in exchange for those products and
services.

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We enter into contracts that can include various combinations of products and
services, which are generally capable of being distinct and accounted for as
separate performance obligations; however, determining whether products or
services are considered distinct performance obligations that should be
accounted for separately versus together may sometimes require significant
judgment.

Transaction price is allocated to each performance obligation on a relative
standalone selling price (SSP) basis. Judgment is required to determine SSP for
each distinct performance obligation. We use a range of amounts to estimate SSP
when products and services are sold separately. In instances where SSP is not
directly observable, we determine SSP using information that may include other
observable inputs available to us.

Accounting for contracts recognized over time under ASC 606 involves the use of
various techniques to estimate total contract revenue and costs. Due to
uncertainties inherent in the estimation process, it is possible that estimates
of costs to complete a performance obligation will be revised in the near-term.
We review and update our contract-related estimates regularly, and record
adjustments as needed. For those performance obligations for which revenue is
recognized using a cost-to-cost input method, changes in total estimated costs,
and related progress towards complete satisfaction of the performance
obligation, are recognized in the period in which the revisions to the estimates
are made.

Changes in judgment from these assumptions and estimates could affect the timing or amount of revenue recognition.

Stock assessment

Inventories are stated at the lower of cost or estimated net realizable value.
Costs are computed under the standard cost method, which approximates actual
costs determined on the first in, first out basis. We record write-downs of
inventories which are obsolete or in excess of anticipated demand. Significant
judgment is used in establishing our forecasts of future demand and obsolete
material exposures. We consider marketability and product life cycle stage,
product development plans, component cost trends, demand forecasts, historical
revenue, and assumptions about future demand and market conditions in
establishing our estimates. If the actual component usage and product demand are
significantly lower than forecast, which may be caused by factors within and
outside of our control, or if there were a higher incidence of inventory
obsolescence because of rapidly changing technology and our customer
requirements, we may be required to increase our inventory writedowns. A change
in our estimates could have a significant impact on the value of our inventory
and our results of operations.

Stock-based compensation

Stock-based compensation consists of expense for stock options, RSAs and RSUs
granted to employees and nonemployees. We estimate the fair value of stock
options granted to employees and directors using the Black-Scholes option
pricing model. We estimate the fair value of RSAs and RSUs based on the fair
market value of our common stock on the date of grant. For market-based
performance RSUs (PRSUs), we use the Monte Carlo simulation model (a binomial
lattice-based valuation model) to determine the fair value of the PRSUs. The
Monte Carlo simulation model uses multiple input variables to determine the
probability of satisfying the market condition requirements. The fair value of
the PRSUs is not subject to change based on future market conditions. The fair
value of stock options and service-condition awards that are expected to vest is
recognized as compensation expense on a straight-line basis over the requisite
service period. We recognize forfeitures as they occur.

Under the pre-combination Velodyne equity incentive plans, we granted RSAs and
RSUs which vest upon the satisfaction of both a time-based condition and a
liquidity event condition. Upon satisfaction of the liquidity event vesting
condition, which is the earlier of (i) an IPO, or (ii) a Company sale event,
RSAs and RSUs for which the service-based condition has been satisfied will vest
immediately, and any remaining unvested RSAs and RSUs will vest over the
remaining service period. Prior to the business combination, no compensation
expense had been recognized for the RSAs and RSUs because the liquidity vesting
condition was not probable of being satisfied. As a result of the Business
Combination, on October 30, 2020, the Board of Directors of Velodyne (the
"Board") waived the liquidity event vesting condition applicable to the
pre-combination Velodyne's RSUs. Therefore, our outstanding RSUs vested to the
extent the applicable service condition was satisfied as of such date. The fair
value of the RSUs were re-measured based on the closing price of our common
stock on October 30, 2020. Stock-based compensation expense for the vested RSUs
as of October 30, 2020 was recognized immediately and compensation expense for
the unvested RSUs are recognized over the remaining service period. If the Board
waives the liquidity event condition applicable to the RSAs, stock-based
compensation for the outstanding RSAs
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would be recognized in the period in which such determination is made based on the fair value of our common shares at that date.

Recent accounting statements

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
assets and lease liabilities on the balance sheets for operating leases, and
also requires additional qualitative and quantitative disclosures about lease
arrangements. Topic 842 is effective for emerging growth companies for fiscal
years beginning after December 15, 2020, and interim periods within fiscal years
beginning after December 15, 2021. We expect to adopt the new standard in the
first quarter of 2021 using the modified retrospective method, under which we
will apply Topic 842 to existing and new leases as of January 1, 2021, but prior
periods will not be restated and will continue to be reported under Topic 840
guidance in effect during those periods. We are currently evaluating the impact
the adoption of these ASUs will have on our financial statements and related
disclosures. We expect to recognize a right-of-use asset and corresponding lease
liability for the lease portfolio to be recorded on our consolidated balance
sheet upon adoption. No material impact is expected with respect to our
consolidated statements of operations or cash flows.

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, and ASU No. 2019-11. 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.

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 expects to adopt the new
standard in 2021. The adoption of this new standard is not expected to have a
significant effect on our consolidated financial statements.

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.
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Results of operations

The results of operations presented below should be considered in conjunction with the consolidated financial statements and the notes appearing elsewhere in this prospectus. The following table presents our consolidated operating results and as a percentage of sales for the periods presented:

                                                       Year Ended December 31,                                   Year Ended December 31,
                                             2020                2019               2018               2020                2019               2018
                                                           (In thousands)                                  (As a percentage of total revenue)
Revenue:
Product                                  $   68,355$  81,424$ 132,933                  72  %              80  %              93  %
License and services                         27,007             19,974             10,013                  28  %              20  %               7  %
Total revenue                                95,362            101,398            142,946                 100  %             100  %             100  %
Cost of revenue:
Product                                      69,115             69,903            111,081                  73  %              69  %              77  %
License and services                          1,131              1,727                985                   1  %               2  %               1  %
Total cost of revenue (1)                    70,246             71,630            112,066                  74  %              71  %              78  %
Gross profit                                 25,116             29,768             30,880                  26  %              29  %              22  %
Operating expenses (1):
Research and development                     88,080             56,850             51,993                  92  %              56  %              36  %
Sales and marketing                          31,753             21,873             22,137                  33  %              22  %              16  %
General and administrative                   65,732             20,058             12,902                  69  %              19  %               9  %
Gain on sale of assets
held-for-sale                                (7,529)                 -                  -                  (8) %               -  %               -  %
Restructuring                                   984                  -                  -                   1  %               -  %               -  %
Total operating expense                     179,020             98,781             87,032                 187  %              97  %              61  %
Operating loss                             (153,904)           (69,013)           (56,152)               (161) %             (68) %             (39) %
Interest income                                 152              1,146                630                   -  %               1  %               -  %
Interest expenses                              (106)               (77)               (14)                  -  %               -  %               -  %
Other income (expense), net                     (90)                35               (136)                  -  %               -  %               -  %
Loss before income taxes                   (153,948)           (67,909)           (55,672)               (161) %             (67) %             (39) %
Provision for (benefit from)
income taxes                                 (4,084)              (683)             6,628                  (4) %              (1) %               5  %
Net loss                                 $ (149,864)$ (67,226)$ (62,300)               (157) %             (66) %             (44) %



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

                                                      Year Ended December 31,
                                                     2020            2019       2018
                                                           (In thousands)
Cost of revenue                               $     7,417           $   -      $   -
Research and Development                           37,030              97         93
Sales and Marketing                                14,773               -          -
General and administrative                         32,280              38        114
Total stock-based compensation expense        $    91,500$ 135

$ 207

Prior to the Business Combination, compensation expense related to RSAs and RSUs
granted under the pre-combination Velodyne's stock incentive plans remained
unrecognized because the performance vesting condition, which is (i) an initial
public offering, or (ii) a Company sale event, was not probable of being met. As
a result of the Business Combination, on October 30, 2020, the Board waived the
liquidity event vesting condition applicable to the pre-combination Velodyne's
RSUs. Therefore, our outstanding RSUs vested to the extent the applicable
service condition
                                       45
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was satisfied as of such date. The vesting of these outstanding RSUs on
October 30, 2020 resulted in approximately $77.5 million of incremental
stock-based compensation expense in the fourth quarter of 2020. It is
anticipated that the Board will waive the liquidity event condition applicable
to the RSAs in 2021. If such determination were to occur with respect to the
outstanding RSAs, it is expected that the vesting of such outstanding RSAs would
result in significant incremental stock-based compensation expense in the
quarter when the determination is made based on the closing price of our common
stock as of such date.

Comparison of completed years December 31, 2020 and 2019

Revenue
                                               Year Ended December 31,            Change        Change
                                                 2020               2019             $            %
                                                       (Dollars in thousands)
  Revenue:
  Products                               $     68,355$  81,424$ (13,069)       (16) %
  License and services                         27,007               19,974          7,033         35
  Total                                  $     95,362$ 101,398$  (6,036)        (6)

  Revenue by geographic location:
  North America                          $     41,228$  49,634$  (8,406)       (17) %
  Asia and Pacific                             39,310               28,791         10,519         37
  Europe, Middle East and Africa               14,824               22,973         (8,149)       (35)
  Total                                  $     95,362$ 101,398$  (6,036)        (6)



Total revenue decreased by $6.0 million, or 6%, to $95.4 million for 2020 from
$101.4 million for 2019. The $13.1 million decrease in product revenue reflected
a decrease of $36.0 million related to reduction in average selling price for
lidar sensors and a decrease of approximately $3.9 million related to reduction
in total units sold as a result of the timing of customer demand related to
their programs, partially offset by $8.9 million increase due to the mix of
sensors sold, an increase of $11.1 million related to a one-time stocking fee, a
$4.1 million one-time refund to a related party customer in September 2019, and
an increase of $2.3 million attributable to higher sales of refurbished units
and parts. 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. The reduction in average selling price reflected our
continued objective to drive additional adoption of our smart vision solutions
in multiple end markets. 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 are not
expected to 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. The $7.0 million
increase in license and service revenue primarily reflected a $12.0 million
increase in license revenue driven by the recent cross-license agreements. The
increase in license revenue was partially offset by a $5.0 million decrease in
product development and repair services revenue.

The $8.4 million decrease in North America revenue for 2020 was due to a $9.0
million reduction in license revenues, plus a decrease of $6.7 million related
to volume decreases due to the timing of customer programs, a decrease of $12.6
million due to reduction of average selling price of units sold and a decrease
of $1.6 million for repair services, partially offset by an increase of $5.1
million as a result of the mix of units sold, a $2.3 million increase in
refurbished units sold, an
increase of $3.7 million for engineering services and an increase of $11.1
million related to a one-time stocking fee. The $10.5 million increase in
Asia-Pacific revenue was primarily due to a $21.4 million increase in license
revenue from our recent patent cross license agreements, a $4.1 million one-time
refund to a related party customer in September 2019, and an increase of
approximately $2.0 million related to volume, partially offset by a decrease of
approximately $10.1 million due to reduction of average selling price of units
sold and a $5.0 million one-time non-recurring engineering fee in June 2019. The
$8.1 million decrease in Europe, Middle East and Africa revenue was due to a
decrease of $13.3 million due to reduction of average selling price, partially
offset by an increase of $0.8 million related to volume and a $4.5 million
increase related to the mix of sensors sold.
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Cost of revenues and gross margin

                                          Year Ended December 31,            Change       Change
                                         2020                  2019            $            %
                                                 (Dollars in thousands)
         Cost of revenue:
         Product                    $    69,115$ 69,903$   (788)        (1) %
         License and services             1,131                1,727

(596) (35)%

         Total cost of revenue      $    70,246$ 71,630$ (1,384)        (2) %
         Gross margin                        26   %               29  %



Cost of revenue decreased by $1.4 million, or 2%, to $70.2 million for 2020 from
$71.6 million for 2019. The $0.8 million product cost reduction was primarily
driven by decreases of $11.9 million in factory overhead and direct cost of
manufacturing, $4.0 million reduction in warranty expense and $1.2 million from
lower sales volume, partially offset by increases of $7.4 million in stock-based
compensation, $3.9 million in excess and obsolete inventory and scrap expenses
and $4.6 million related to product mix. License and services cost of revenue
decreased due to a decrease in repair services cost.

Gross margin decreased from 29% for 2019 to 26% for 2020. The decrease in gross
margin was primarily due to $7.4 million stock-based compensation expense. We
expect to decrease manufacturing labor and overhead costs as we outsource
production to our contract manufacturing partners, with the objective of
reducing the per unit cost of revenue.

Operating Expenses
                                                  Year Ended December 31,            Change       Change
                                                    2020                2019           $            %
                                                         (Dollars in thousands)
Research and development                    $      88,080$ 56,850$ 31,230         55  %
Sales and marketing                                31,753              21,873         9,880         45
General and administrative                         65,732              20,058        45,674        228
Gain on sale of assets held-for-sale               (7,529)                  -        (7,529)          N/A
Restructuring                                         984                   -           984           N/A
Total operating expenses                    $     179,020$ 98,781$ 80,239         81



Research and Development

R&D expenses increased by $31.2 million, or 55%, to $88.1 million for 2020 from
$56.9 million for 2019. The increase was primarily due to increases of $36.9
million in stock-based compensation expense, $2.3 million in allocated facility
and IT expenses, and $0.6 million in depreciation expense, partially offset by
decreases of $6.8 million in prototype product development costs, $0.4 million
in travel expenses, and $0.8 million in personnel related costs, mainly driven
by manufacturing related restructuring activities.
Sales and Marketing

Sales and marketing expenses increased by $9.9 million, or 45%, to $31.8 million
for 2020 from $21.9 million for 2019. The increase was primarily attributable to
$14.8 million stock-based compensation expense, and $0.2 million increase in
commission expense, partially offset by a decrease of $2.3 million in travel and
trade show expenses, a decrease of $1.1 million in allocated facility and IT
expenses, a decrease of $0.7 million in depreciation expense and a decrease of
$0.7 million in demonstration product expense.
General and Administrative

General and administrative expenses increased by $45.7 million, or 228%, to
$65.7 million for 2020 from $20.1 million for 2019. The increase was primarily
attributable to increases of $32.2 million in stock-based compensation expense,
$7.2 million in legal and professional services, $1.4 million in
personnel-related costs, and a $3.5 million write-off of our deferred initial
public offering costs.
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Gain on Sale of Assets Held-for-Sale
In March 2020, we reclassified the then carrying value of $4.7 million related
to our Morgan Hill properties previously reported as property, plant and
equipment to assets held for sale and included as other current assets in our
consolidated balance sheets. On July 2, 2020, we sold the properties to a
third-party buyer for $12.3 million and recorded a gain of $7.5 million in 2020.


Restructuring

In March 2020, we initiated a restructuring plan to downsize the manufacturing
function and related engineering and administrative functions in our California
locations. The plan included a reduction in our workforce and has been completed
as of December 31, 2020. As a result of the restructuring program, we incurred
restructuring charges totaling $1.0 million for 2020, primarily related to
employee severance related costs.

Interest income, interest expense and other income (expense), net

                                         Year Ended December 31,            Change      Change
                                            2020                2019          $           %
                                                (Dollars in thousands)
           Interest income         $      152$ 1,146$ (994)       (87) %
           Interest expense              (106)                    (77)        (29)        38
           Other expense, net             (90)                     35        (125)      (357)

Interest income was $ 0.2 million in 2020 compared to $ 1.1 million in 2019. The decrease is mainly related to a decrease in our average balances of cash, cash equivalents and short-term investments in 2020.

Interest expense was primarily related to our capital leases and was insignificant for all periods presented.

Other income (expense), net was insignificant for all periods presented. The
changes were primarily related to foreign exchange gain or loss resulting from
foreign currency exchange rate fluctuations during 2020 and 2019.

Income Taxes
                                           Year Ended December 31,          Change        Change
                                            2020              2019             $            %
                                                   (Dollars in thousands)

Loss before income taxes (153,948) $(67,909) $(86,039) $ 127%

        Benefit from income taxes            (4,084)           (683)         (3,401)       498  %
        Effective tax rate                      2.7  %          1.0  %



We are subject to income taxes in the United States, China and Germany. Our
effective tax rate changed from 1.0% in 2019 to 2.7% in 2020. 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 Coronavirus Aid, Relief, and
Economic Security (CARES) Act, partially offset by a $2.5 million tax expense
related to a Chinese foreign income withholding tax.

Enacted on March 27, 2020, the CARES Act provides emergency assistance and
health care response for businesses affected by the 2020 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 April 2020, we filed a
claim to carryback a portion of our 2019 net operating losses to 2017 and
received a $7.1 million tax refund in May 2020. As of December 31, 2020, we 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.
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Comparison of completed years December 31, 2019 and 2018

Revenue
                                               Year Ended December 31,            Change        Change
                                                 2019               2018             $            %
                                                       (Dollars in thousands)
  Revenue:
  Products                               $      81,424$ 132,933$ (51,509)       (39) %
  License and services                          19,974              10,013          9,961         99
  Total                                  $     101,398$ 142,946$ (41,548)       (29)

  Revenue by geographic location:
  North America                          $      49,634$  84,541$ (34,907)       (41) %
  Asia and Pacific                              28,791              39,770        (10,979)       (28)
  Europe, Middle East and Africa                22,973              18,635          4,338         23
  Total                                  $     101,398$ 142,946$ (41,548)       (29)



Total revenue decreased by $41.5 million, or 29%, to $101.4 million for 2019,
from $142.9 million for 2018. The product revenue decreased by $51.5 million and
license and service revenue increased by $10.0 million. The decrease in product
revenue was primarily due to a decrease of approximately $36.3 million, driven
by the mix of products sold towards our lower-priced sensors, and a decrease of
approximately $7.8 million related to a reduction in average selling price and a
decrease of approximately $2.5 million driven by lower unit volume. In addition,
we issued a $4.1 million one-time refund to a related party customer in order to
compensate them for unforeseen challenges associated with the use of certain new
products purchased from us in 2018. Starting in 2018, we strategically reduced
the price of our higher volume products to continue to drive additional adoption
of our smart vision solutions in multiple end markets. Our overall unit volume
remained consistent in 2019 across an increased customer base. The increase in
license and services revenue was primarily due to higher services revenue
related to product validation and repair services, and to a lesser extent,
increases in product licensing related revenue.

The $34.9 million decrease in North America revenue was due to a decrease of
approximately $18.3 million due to reduction in volume of units sold to existing
customers driven by customer program timing, coupled with a decrease of
approximately $14.7 million driven by the mix of products sold towards our
lower-priced sensors, and a decrease of approximately $4.3 million due to
decrease in average selling price of units sold, partially offset by an increase
of $2.5 million in license and service revenue. The $11.0 million decrease in
Asia-Pacific revenue was primarily due to a decrease of approximately $17.5
million due to change in mix of products sold, and a $4.1 million one-time
refund to a related party customer, partially offset by an increase of $1.6
million related to increased sales volume and an increase of $6.6 million in
services revenues. The $4.3 million increase in Europe, Middle East and Africa
revenue was driven by an increase of approximately $10.8 million due to an
increase in purchasing volume from customers, partially offset by the impact of
a decrease of approximately $4.3 million driven by reduction in average selling
price, and a decrease of approximately $2.1 million driven by a change in mix of
products sold.

Cost of revenues and gross margin

                                         Year Ended December 31,          Change        Change
                                          2019              2018             $            %
                                                 (Dollars in thousands)
          Cost of revenue:
          Product                    $    69,903$ 111,081$ (41,178)       (37) %
          License and services             1,727              985             742         75  %
          Total cost of revenue      $    71,630$ 112,066$ (40,436)       (36) %
          Gross margin                        29   %           22  %



                                       49
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Cost of revenue decreased by $40.4 million, or 36%, to $71.6 million for 2019,
from $112.1 million for 2018. The decrease in cost of revenue was driven by
decrease in $41.2 million of product revenue and offset by increase in $0.7
million license and service cost. The decrease of product cost primarily due to
an approximately $8.3 million decrease in product costs resulting from the
decrease in product volume and change in product mix during 2019, an
approximately $13.6 million decrease in personnel costs related to manufacturing
labor and overhead from manufacturing process improvements, and an approximately
$16.0 million in material cost and utilization savings.
Gross margin increased from 22% for 2018 to 29% for 2019. The increase was
primarily due to a change in revenue mix with an increase in license and service
revenue, savings on material cost and utilization and increased resource
utilization in 2019 resulting from the improvements we made in our manufacturing
processes in 2018.

Operating Expenses

                                      Year Ended December 31,             Change       Change
                                         2019                2018           $            %
                                              (Dollars in thousands)
Research and development        $      56,850$ 51,993$  4,857          9  %
Sales and marketing                    21,873               22,137          (264)        (1)
General and administrative             20,058               12,902         7,156         55
Total operating expenses        $      98,781$ 87,032$ 11,749         13



Research and Development
Research and development expenses increased by $4.9 million, or 9%, to $56.9
million for 2019, from $52.0 million for 2018. The increase was primarily
attributable to an increase of $4.7 million in personnel related costs, mainly
driven by an increase in employee headcount contributed primarily to the
acquisition of Mapper in July 2019, an increase of $1.9 million in allocated
facility and IT expenses, and an increase of $0.8 million in depreciation
expense, partially offset by a decrease of $3.0 million in prototype product
development costs and a decrease of $0.3 million in professional services.
Sales and Marketing
Sales and marketing expenses decreased by $0.3 million, or 1%, to $21.9 million
for 2019 from $22.1 million for 2018. The decrease was primarily attributable to
a reduction of $1.0 million in personnel-related costs, mainly driven by a
decrease in employee headcount, a decrease of $0.2 million in professional
services, partially offset by increases of $0.7 million in demonstration product
expenses and $0.2 million in travel and trade show expenses.
General and Administrative
General and administrative expenses increased by $7.2 million, or 55%, to $20.1
million for 2019 from $12.9 million for 2018. The increase was primarily
attributable to an increase of $7.8 million in legal, accounting and other
professional services, partially offset by a decrease of $0.5 million in
personnel-related costs, mainly driven by a decrease in employee headcount, a
decrease of $0.2 million in depreciation and other allocated expenses.

Interest income, interest expense and other income (expense), net

                                              Year Ended December 31,             Change      Change
                                                  2019                 2018         $           %
                                                     (Dollars in thousands)
    Interest income                    $        1,146$ 630$  516         82  %
    Interest expense                              (77)                  (14)        (63)       450
    Other income (expense), net                    35

(136) 171 (126)

Interest income was $1.1 million in 2019 compared to $0.6 million in 2018. The
increase was primarily related to an increase in our invested funds due to the
proceeds from the Series B and B-1 preferred stock financing completed in
September 2018 and October 2019, respectively.
                                       50
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Other income (expense), net was $35,000 in 2019 compared to $(136,000) in
2018. The change was primarily related to foreign exchange gain or loss
resulting from foreign currency exchange rate fluctuations in 2019 and 2018.

Income Taxes
                                                      Year Ended December 31,                Change              Change
                                                      2019                 2018                $                    %
                                                                (Dollars in thousands)
Loss before income taxes                         $    (67,909)$ (55,672)$ (12,237)                   22  %
Provision for (benefit from) income taxes                (683)             6,628             (7,311)                 (110) %
Effective tax rate                                        1.0  %           (11.9) %



We are subject to income taxes in the United States, China and Germany. Our
effective tax rate increased from (11.9)% in 2018 to 1.0% in 2019. This change
was primarily due to taxes incurred by foreign subsidiaries and state taxes and
partially offset by release of income tax reserves. Due to the change in our
valuation allowance on our federal and state deferred tax assets, our provision
for income taxes in 2018 includes the effect of establishing a full valuation
allowance for the existing net deferred tax assets. We also continue to provide
a full valuation allowance on our net deferred tax assets in 2019.

Liquidity and Capital Resources
Sources of Liquidity

As of December 31, 2020, we had cash, cash equivalents and short-term
investments totaling $350.3 million, which were held for working capital
purposes. Our cash equivalents and short-term investments are comprised of money
market funds, U.S. government and agency securities, corporate debt securities
and commercial paper. To date, our principal sources of liquidity have been
payments received from sales to customers and the net proceeds we received
through the Business Combination, PIPE offering and private placements of the
pre-combination Velodyne convertible preferred stock. In 2020, we received
$247.0 million in net proceeds from the Business Combination and PIPE offering
on September 29, 2020 and $73.7 million in net proceeds from the exercises of
our warrants. In April 2020 and October 2019, we received $19.9 million and
$49.8 million, respectively, in net proceeds from the sale of our Series B-1
convertible preferred stock. In 2021, we received an additional $89.3 million
from the exercises of our warrants as of March 10, 2021.

In January 2020, we entered into a loan and security agreement with a financial
institution which provides a $25.0 million revolving line of credit (the "2020
Revolving Line"), as amended in September 2020 and December 2020, with an option
to increase the credit limit up to an additional $15.0 million with the bank's
approval (Incremental Revolving Line). As part of the 2020 Revolving Line, there
is a letter of credit sublimit of $5.0 million. The advances under the 2020
Revolving Line bear interest at a rate per annum equal to the 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. The unused revolving line facility
fee is 0.15% per annum of the average unused portion of the Revolving Line. In
addition, there is a $50,000 non-refundable commitment fee if we exercise the
Incremental Revolving Line option. The revolving line of credit is secured by
certain of our assets. The 2020 Revolving Line matured on February 27, 2021 and
we intend to extend for one additional year. There were no outstanding
borrowings under the 2020 Revolving Line as of December 31, 2020.

On April 8, 2020, we received loan proceeds of $10.0 million under the CARES
Act's 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 over 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.

At July 2, 2020, we sold our Morgan hill building to a third party and received the net proceeds of $ 12.3 million.

We have incurred negative cash flows from operating activities and significant
losses from operations in the past as reflected in our accumulated deficit of
$315.7 million as of December 31, 2020. We expect to continue to incur operating
losses at least for the next 12 months due to the investments that we intend to
make in our business and, as a result, we may require additional capital
resources to grow our business. We believe that current cash, cash equivalents,
short-term investments and available borrowing capacity under the revolving
credit facility will be sufficient to fund our operations for
                                       51
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at least the next 12 months. Our future capital requirements, however, will
depend on many factors, including our lidar sales volume, the timing and extent
of spending to support our R&D efforts in smart vision technology, the expansion
of sales and marketing activities, and market adoption of new and enhanced
products and features. We may in the future enter into arrangements to acquire
or invest in complementary businesses, services, and technologies, including
intellectual property rights. From time to time, we may seek to raise additional
funds through equity and debt. If we are unable to raise additional capital when
desired and on reasonable terms, our business, results of operations, and
financial condition be adversely affected.

Summary of cash flow

The following table summarizes our cash flows for the periods presented:

                                                Year Ended December 31,
                                          2020           2019

2018

                                                    (In thousands)
Net cash provided by (used in):
Operating activities                   $ (68,437)$ (43,230)$ (30,503)
Investing activities                    (134,527)        29,544        (19,383)
Financing activities                     347,726         49,790         44,158



Operating Activities

During 2020, operating activities used $68.4 million in cash. The primary
factors affecting our operating cash flows during this period were our net loss
of $149.9 million, impacted by our non-cash net expense of $96.6 million
primarily consisting of stock-based compensation of $91.5 million, depreciation
and amortization of $8.4 million, write-off of deferred IPO costs of $3.5
million and provision for doubtful accounts of $0.5 million, partially offset by
a gain of $7.5 million from sale of assets held-for-sale. The cash used in
changes in our operating assets and liabilities of $20.6 million which primarily
consists of an increase of $2.6 million in accounts receivable, a decrease of
$6.7 million in accrued expenses and other liabilities due to timing of
payments, and an increase of $11.3 million in unbilled receivables from a
licensing arrangement with a customer. These amounts were partially offset by
cash provided from changes in our operating assets and liabilities of $5.4
million was primarily due to an increase of $9.0 million in contract liabilities
primarily due to deferred revenues from a licensing arrangement, partially
offset by a decrease of $6.1 million in customer deposit. The cash provided from
changes in our operating assets and liabilities also included a decrease of $1.6
million in inventories due to decreased sales volume of certain products, a
decrease of $0.2 million in prepaid and other current assets and an increase of
$0.7 million in accounts payable due to timing of payments.

During 2019, operating activities used $43.2 million in cash. The primary
factors affecting our operating cash flows during this period were our net loss
of $67.2 million, impacted by our non-cash charges of $5.9 million primarily
consisting of depreciation and amortization of $8.0 million, partially offset by
deferred income tax of $2.0 million. The cash provided from changes in our
operating assets and liabilities of $24.3 million was primarily due to an
increase of $13.6 million in accrued expenses and other liabilities due to
timing of payments, a decrease of $9.6 million in accounts receivable and a
decrease of $1.1 million in other noncurrent assets. These amounts were
partially offset by cash used in changes in our operating assets and liabilities
of $6.2 million which primarily consists of an increase of $3.6 million in
prepaid expenses and other current assets, a decrease of $1.7 million in
contract liabilities due to the timing of billings and cash received in advance
of revenue and an increase of $0.9 million in inventories due to decreased sales
volume of certain products.

During 2018, operating activities used $30.5 million in cash. The primary
factors affecting our operating cash flows during this period were our net loss
of $62.3 million, impacted by our non-cash charges of $12.9 million primarily
consisting of depreciation and amortization of $6.8 million and deferred income
tax of $5.8 million. The cash provided from changes in our operating assets and
liabilities of $28.0 million was primarily due to a decrease in inventories of
$21.3 million as we consumed previously purchased inventory, an increase in
contract liabilities of $4.3 million due to the timing of billings and cash
received in advance of revenue and a decrease in accounts receivable of $2.4
million. These amounts were partially offset by cash used in changes in our
operating assets and liabilities of $9.0 million which primarily consists of
decreases of $4.4 million in accounts payable and $2.4 million in accrued
expenses and other liabilities due to timing of payments, and an increase of
$1.3 million in prepaid expenses and other current assets.

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Investment activities

During 2020, cash used in investing activities was $134.5 million, which was
primarily used to purchase short-term investments of $145.7 million and purchase
property, plant and equipment of $3.3 million, partially offset by proceeds from
the sale of our Morgan Hill building of $12.3 million and sales and maturities
of short-term investments of $2.2 million.

During 2019, cash provided by investing activities was $29.5 million, which was
primarily from sales and maturities of short-term investments of $62.6 million
and proceeds from repayment of notes receivable from stockholders of $3.5
million, partially offset by cash used to purchase short-term investments of
$28.8 million, purchase property, plant and equipment of $5.2 million and to
acquire Mapper of $2.5 million.

During 2018, cash used in investing activities was $19.4 million, which was
primarily used to purchase short-term investments of $35.3 million and purchase
property, plant and equipment of $6.9 million, partially offset by sales and
maturities of short-term investments of $20.8 million and proceeds from the
cancellation of corporate-owned life insurance policies of $2.1 million.

Our machines and equipment are depreciated over a useful life of approximately five years.

Financing Activities

During 2020, cash provided by financing activities was $347.7 million,
consisting primarily of net proceeds of $247.0 million from the Business
Combination and PIPE offering, $73.7 million from exercises of public warrants,
$19.9 million from issuance of preferred stock and proceeds of $10.0 million
from the PPP loan, partially offset by $1.1 million cash paid for IPO costs and
$1.8 million cash paid for repurchases of common stock.

In 2019, cash from financing activities was $ 49.8 million made up of the net proceeds from the issuance of preferred shares, Series B-1 October 2019.

During 2018, cash provided by financing activities was $44.2 million consisting
of net proceeds of $46.7 million from the issuance of Series B preferred stock
in September 2018, partially offset by $2.5 million use of cash to repurchase
our common stock.

Off-balance sheet arrangements

From December 31, 2020, we have not entered into any off-balance sheet arrangements and have no interests in variable interest entities.

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