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 September 30, 2022

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	VLDR	The Nasdaq Stock Market LLC
Warrants, each exercisable for three-quarters of one share of common stock	VLDRW	The Nasdaq Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

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 filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging 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 November 4, 2022, the registrant had 237,590,372 shares of common stock, $0.0001 par value per share, outstanding.

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Table of Contents

		Page
	PART I. Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	47
	PART II. Other Information
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Default Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	77
Item 6.	Exhibits	77
	Signatures	78

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”. These statements are based on the expectations and beliefs of management of Velodyne Lidar, Inc. (“Velodyne”, “Velodyne Lidar” or the “Company”) 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;

•the impact of adverse or changing economic conditions;

•Velodyne’s ability to sell its products to new customers;

•supply chain constraints in the semiconductor industry;

•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 ability to meet technical and quality specifications;

•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 list 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.

2

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.

PART I. Financial Information

Item 1. Financial Statements

3

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	51,487	$	24,064
Short-term investments	168,570		270,357
Accounts receivable, net	6,129		8,881
Inventories, net	11,498		9,299
Prepaid and other current assets	8,201		14,822
Total current assets	245,885		327,423
Property, plant and equipment, net	11,684		14,710
Operating lease right-of-use (“ROU”) assets	16,727		16,891
Goodwill	1,189		1,189
Intangible assets, net	402		724
Contract assets	9,182		12,962
Other assets	851		1,522
Total assets	$	285,920	$	375,421
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,001	$	5,105
Accrued expense and other current liabilities	31,074		33,028
Operating lease liabilities, current	3,062		2,623
Contract liabilities, current	5,456		6,348
Total current liabilities	44,593		47,104
Operating lease liabilities, non-current	14,674		15,210
Contract liabilities, non-current	9,841		12,740
Long-term tax liabilities	459		443
Other long-term liabilities	814		661
Total liabilities	70,381		76,158
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock: $0.0001 par value; 25,000,000 shares authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021	—		—
Common stock: $0.0001 par value; 2,250,000,000 shares authorized; 232,677,318 and 197,346,675 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	23		20
Additional paid-in capital	877,935		825,988
Accumulated other comprehensive loss	(1,103)		(412)
Accumulated deficit	(661,316)		(526,333)
Total stockholders’ equity	215,539		299,263
Total liabilities and stockholders’ equity	$	285,920	$	375,421

See accompanying notes to condensed consolidated financial statements.

4

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Product	$	7,442	$	11,782	$	21,456	$	34,345
License and services	2,199		1,278		5,872		10,037
Total revenue	9,641		13,060		27,328		44,382
Cost of revenue:
Product	20,353		17,716		53,896		52,555
License and services	165		84		689		433
Total cost of revenue	20,518		17,800		54,585		52,988
Gross loss	(10,877)		(4,740)		(27,257)		(8,606)
Operating expenses:
Research and development	16,918		20,221		56,972		55,608
Sales and marketing	4,878		6,547		16,223		60,798
General and administrative	9,583		23,271		35,330		59,440
Total operating expenses	31,379		50,039		108,525		175,846
Operating loss	(42,256)		(54,779)		(135,782)		(184,452)
Interest income	732		109		1,253		321
Interest expense	—		(6)		(3)		(83)
Other income (expense), net	2		(22)		(104)		10,097
Loss before income taxes	(41,522)		(54,698)		(134,636)		(174,117)
Provision for (benefit from) income taxes	41		14		347		649
Net loss	$	(41,563)	$	(54,712)	$	(134,983)	$	(174,766)
Net loss per share:
Basic and diluted	$	(0.19)	$	(0.28)	$	(0.66)	$	(0.91)
Weighted-average shares used in computing net loss per share:
Basic and diluted	213,518,699		196,204,671		203,504,556		192,835,674

See accompanying notes to condensed consolidated financial statements.

5

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(41,563)	$	(54,712)	$	(134,983)	$	(174,766)
Other comprehensive loss, net of tax:
Changes in unrealized gain (loss) on available for sale securities	165		(5)		(534)		6
Foreign currency translation adjustments	(65)		(12)		(157)		(9)
Total other comprehensive loss, net of tax	100		(17)		(691)		(3)
Comprehensive loss	$	(41,463)	$	(54,729)	$	(135,674)	$	(174,769)

See accompanying notes to condensed consolidated financial statements.

6

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2021	197,346,675	$	20	$	825,988	$	(412)	$	(526,333)	$	299,263
Common stock warrants issuable to customer	—	—		5,303		—		—		5,303
Issuance of common stock under employee stock award plans	916,819	—		—		—		—		—
Stock-based compensation	—	—		4,938		—		—		4,938
Other comprehensive loss, net of tax	—	—		—		(729)		—		(729)
Net loss	—	—		—		—		(49,121)		(49,121)
Balance at March 31, 2022	198,263,494	20		836,229		(1,141)		(575,454)		259,654
Issuance of common stock under at the market (“ATM”) offering, net of issuance costs of $741	6,471,048	1		6,845		—		—		6,846
Common stock warrants issuable to customer	—	—		942		—		—		942
Issuance of common stock under employee stock award plans	11,428,168	1		809		—		—		810
Stock-based compensation	—	—		6,307		—		—		6,307
Other comprehensive loss, net of tax	—	—		—		(62)		—		(62)
Net loss	—	—		—		—		(44,299)		(44,299)
Balance at June 30, 2022	216,162,710	$	22	$	851,132	$	(1,203)	$	(619,753)	$	230,198
Issuance of common stock under at the market (“ATM”) offering, net of issuance costs of $574	16,907,260	1		19,080		—		—		19,081
Common stock warrants issuable to customer	—	—		2,817		—		—		2,817
Issuance of common stock under employee stock award plans	690,289	—		—		—		—		—
Forfeiture of restricted stock awards	(1,082,941)	—		—		—		—		—
Stock-based compensation	—	—		4,906		—		—		4,906
Other comprehensive loss, net of tax	—	—		—		100		—		100
Net loss	—	—		—		—		(41,563)		(41,563)
Balance at September 30, 2022	232,677,318	$	23	$	877,935	$	(1,103)	$	(661,316)	$	215,539

7

	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2020	175,912,194	$	18	$	656,717	$	(230)	$	(315,682)	$	340,823
Issuance of common stock under public warrant exercises	6,973,882	1		80,199		—		—		80,200
Issuance of common stock under employee stock award plans	6,798,504	—		(37)		—		—		(37)
Stock-based compensation	—	—		11,530		—		—		11,530
Other comprehensive loss, net of tax	—	—		—		(22)		—		(22)
Prior year adjustment on warrant liability (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 public warrant exercises	1,929	—		22		—		—		22
Issuance of common stock under employee stock award plans	5,541,305	1		(1)		—		—		—
Stock-based compensation	—	—		53,195		—		—		53,195
Other comprehensive income, 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
Issuance of common stock under public warrant exercises	2,250	—		25		—		—		25
Issuance of common stock under employee stock award plans	692,575	—		—		—		—		—
Stock-based compensation	—	—		16,645		—		—		16,645
Other comprehensive income, net of tax	—	—		—		(17)		—		(17)
Net loss	—	—		—		—		(54,712)		(54,712)
Balance at September 30, 2021	195,922,639	$	20	$	816,710	$	(233)	$	(488,863)	$	327,634

See accompanying notes to condensed consolidated financial statements.

8

VELODYNE LIDAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(134,983)	$	(174,766)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	6,071		6,208
Reduction of operating lease ROU assets	2,124		2,288
Stock-based compensation	16,151		81,370
Reduction of revenue related to stock warrant issued to customer	9,062		—
Provision for doubtful accounts	—		2,070
Gain from forgiveness of PPP loan	—		(10,124)
Amortization of investment premium or discount, net	350		1,075
Other	(38)		(27)
Changes in operating assets and liabilities:
Accounts receivable	2,751		2,072
Inventories, net	(2,199)		6,273
Prepaid and other current assets	7,954		2,882
Contract assets	3,262		(2,209)
Other assets	(79)		67
Accounts payable	325		(3,352)
Accrued expenses and other liabilities	(583)		(18)
Operating lease liabilities	(2,056)		(2,305)
Contract liabilities	(3,791)		(1,740)
Net cash used in operating activities	(95,679)		(90,236)
Cash flows from investing activities:
Purchase of property, plant and equipment and intangibles	(2,884)		(3,213)
Proceeds from sales of short-term investments	14,500		12,207
Proceeds from maturities of short-term investments	197,345		115,223
Purchase of short-term investments	(110,941)		(249,957)
Investment in notes receivable	—		(750)
Net cash provided by (used in) investing activities	98,020		(126,490)
Cash flows from financing activities:
Proceeds from issuance of ATM shares, net of transaction costs	26,560		—
Payment of issuance costs related to ATM shares	(603)		—
Payment of transaction costs related to Business Combination	(1,500)		(20,005)
Proceeds from warrant exercises, net of issuance costs	—		89,270
Proceeds from common stock issuance under equity incentive plans	810		—
Tax withholding payment for vested equity awards	—		(37)
Net cash provided by financing activities	25,267		69,228
Effect of exchange rate fluctuations on cash and cash equivalents	(185)		(6)
Net increase (decrease) in cash and cash equivalents	27,423		(147,504)
Beginning cash and cash equivalents	24,064		204,648

9

	Nine Months Ended September 30,
	2022		2021
Ending cash and cash equivalents	$	51,487	$	57,144
Supplemental disclosures of cash flow information:
Cash paid for interest	$	3	$	83
Cash paid for income taxes, net	394		721
Cash paid for operating leases	2,779		3,382
Supplemental disclosure of noncash investing and financing activities:
Changes in accrued purchases of property, plant and equipment, and intangibles	$	310	$	2
ROU assets obtained in exchange for operating lease liabilities	1,959		498
Transaction costs included in accrued liabilities	30		5,000
Receipt of equity shares from customer in satisfaction of accounts receivable	—		297

See accompanying notes to condensed consolidated financial statements.

10

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.

The Company’s predecessor, Graf Industrial Corp. (“Graf”), 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. Refer to Note 2. “Business Combination and Related Transactions” for further discussion of the Business Combination.

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.

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

Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, operating lease ROU assets, current and non-current lease liabilities and non-current contract liabilities are now presented as separate line items on the consolidated balance sheets and were previously included within other assets, current liabilities and other long-term liabilities, respectively. In addition, operating lease liabilities are now presented as separate line items on the consolidated statements of cash flows and were previously included within accrued and other liabilities.

Liquidity

The Company has funded its operations primarily through proceeds realized from the Business Combination, issuances of stock, and sales to customers. As of September 30, 2022, the Company’s existing sources of liquidity included cash, cash equivalents and short-term investments of $220.1 million, continuing sale of its stocks under the ATM offering, available borrowing capacity of $3.6 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 September 30, 2022 were available for issuance.

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

11

short-term investments with high-quality financial institution 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:

	September 30,		December 31,
	2022		2021
Customers accounted for 10% or more of accounts receivable:
Customer A	16	%	16	%
Customer B	*		14	%
Customer C	*		11	%
Vendors accounted for 10% or more of accounts payable:
Vendor A	39	%	28	%
Vendor B	18	%	*
* Less than 10%.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. 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 customer contracts, total estimated future patents and their corresponding estimated development costs, total estimated costs and related progress towards complete satisfaction of performance obligations in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, common stock warrant valuation, useful lives of property, plant, and equipment and intangible assets, assessment of the recoverability of long-lived assets, goodwill impairment, 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 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, 2021.

Amazon Warrant

The Amazon Warrant (as defined in Note 9) is accounted for as an equity instrument and measured in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. To determine the fair value of the Amazon Warrant, the Company used the Black-Scholes option pricing model, which is based in part on assumptions that require management to use judgment.

For awards granted to a customer, which are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is recorded as a reduction of the transaction price in accordance with ASC 606, Revenue from Contracts with Customers. Accordingly, when Amazon makes payments and vesting conditions become probable of being achieved, the Company will record a non-cash stock-based reduction to revenue associated with the Amazon Warrant, which is calculated based on the grant date fair value of the Amazon Warrant shares.

12

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The standard is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt the new standard in the first quarter of 2023 and does not expect a significant impact to its consolidated financial statements and related footnote disclosures.

Recently Adopted Accounting Pronouncements

In October 2021, FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). This new guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 will be effective for fiscal years beginning after December 15, 2022, including interim periods within these fiscal years, with early adoption permitted. The provisions of ASU 2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company has adopted ASU 2021-08 effective January 1, 2022. As of September 30, 2022, the adoption of this new standard had had no impact on the Company’s consolidated financial statements and related footnote disclosures.

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. The Company adopted ASU 2020-10 on January 1, 2022. The adoption of this new standard did not have a significant impact on the Company’s consolidated financial statements and related footnote disclosures.

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 loss per share for periods prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the merger agreement.

The aggregate consideration for the Business Combination and related transactions 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 approximately $1.5 billion. The Company used approximately $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 September 30, 2022, the Company had $3.5 million of accrued transaction costs, consisting primarily of investment banking fees, in accrued expenses on the condensed consolidated balance sheet after payment of $1.5 million.

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On October 3, 2022, the Company completed its acquisition of Bluecity Technology, Inc. (“Bluecity”). The acquisition is expected to be accounted for as a business combination. For additional information regarding the Bluecity acquisition, see Note 17. “Subsequent Events” herein.

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, percentage may not foot due to rounding difference):

	Three Months Ended
	September 30, 2022				September 30, 2021
	Revenue		% of Revenue		Revenue		% of Revenue
Revenue by geography:
North America(1)	$	1,992	21	%	$	5,526	42	%
Asia Pacific(2)	4,062		42	%	3,813		29	%
Europe, Middle East and Africa	3,587		37	%	3,721		28	%
Total	$	9,641	100	%	$	13,060	100	%
Revenue by products and services:
Products(1)	$	7,442	77	%	$	11,782	90	%
License and services(2)	2,199		23	%	1,278		10	%
Total	$	9,641	100	%	$	13,060	100	%
Revenue by timing of recognition:
Goods transferred at a point in time(1)	$	8,351	87	%	$	11,738	90	%
Goods and services transferred over time(2)	1,290		13	%	1,322		10	%
Total	$	9,641	100	%	$	13,060	100	%
	Nine Months Ended
	September 30, 2022				September 30, 2021
	Revenue		% of Revenue		Revenue		% of Revenue
Revenue by geography:
North America(1)	$	4,980	18	%	$	15,841	36	%
Asia Pacific(2)	12,613		46	%	18,574		42	%
Europe, Middle East and Africa	9,735		36	%	9,967		22	%
Total	$	27,328	100	%	$	44,382	100	%
Revenue by products and services:
Products(1)	$	21,456	79	%	$	34,345	77	%
License and services(2)	5,872		21	%	10,037		23	%
Total	$	27,328	100	%	$	44,382	100	%
Revenue by timing of recognition:
Goods transferred at a point in time(1)	$	23,184	85	%	$	40,680	92	%
Goods and services transferred over time(2)	4,144		15	%	3,702		8	%
Total	$	27,328	100	%	$	44,382	100	%

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(1) Includes a non-cash stock-based reduction of revenue of $2.8 million and $9.1 million, respectively, for the three and nine months ended September 30, 2022 associated with the Amazon Warrant agreement entered into in February 2022. See Note 9 for more information.

(2) Includes license revenue of $1.4 million and $3.3 million, respectively, related to patent cross-license agreements for the three and nine months ended September 30, 2022, and $0.7 million and $8.0 million, respectively, for the three and nine months ended September 30, 2021. 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 2024, 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. As of September 30, 2022 and December 31, 2021, the Company had $3.8 million and $3.8 million, respectively, of current deferred revenue, and $9.1 million and $11.9 million, respectively, of 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 September 30, 2022 and December 31, 2021, the Company also had $13.0 million and $16.3 million, respectively, of contract assets related to these patent cross-license agreements.

Contract Assets and Contract Liabilities

Contract assets primarily relate to unbilled accounts receivable. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when revenue is recognized on 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 September 30, 2022 and December 31, 2021 (in thousands):

	September 30,		December 31,
	2022		2021
Contract assets, current
Unbilled accounts receivable	$	3,830	$	3,313
Contract assets, long-term
Unbilled accounts receivable	9,182		12,962
Total contract assets	$	13,012	$	16,275
Contract liabilities, current
Deferred revenue, current	$	5,109	$	6,209
Customer advance payment	347		139
Total	5,456		6,348
Contract liabilities, long-term
Deferred revenue, long-term	9,841		12,740
Total contract liabilities	$	15,297	$	19,088

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

	Nine Months Ended September 30,
	2022		2021
Contract assets:
Beginning balance	$	16,275	$	11,253
Transferred to receivables from contract assets recognized at the beginning of the period	(3,313)		(