Document


Filed pursuant to Rule 424(b)(3)
Registration No. 333-249551

PROSPECTUS SUPPLEMENT NO. 1
(to Prospectus dated November 4, 2020)


https://cdn.kscope.io/e4719f6f1e89d28f0e064d4e2535ecab-velodyne1a.jpg
Velodyne Lidar, Inc.

Up to 32,164,576 Shares of Common Stock

This prospectus supplement supplements the prospectus dated November 4, 2020 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-249551). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our quarterly report on Form 10-Q, filed with the Securities and Exchange Commission on November 6, 2020 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

The Prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 18,282,384 shares of our common stock, $0.0001 par value per share (“common stock”) that are issuable upon the exercise of our publicly-traded warrants (the “Public Warrants”) and up to 375,000 shares of our common stock issuable upon exercise of our working capital warrants issued to Graf Acquisition LLC. The Prospectus and this prospectus supplement also relate to the resale from time to time, upon the expiration of lock-up agreements, by the selling stockholders named in the Prospectus or their permitted transferees of up to 13,507,192 shares of our common stock.

Our common stock and Public Warrants are listed on the Nasdaq Global Select Market under the symbols “VLDR” and “VLDRW,” respectively. On November 5, 2020, the closing price of our common stock was $14.94 and the closing price for our Public Warrants was $3.6202.

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

INVESTING IN OUR SECURITIES INVOLVES RISKS THAT ARE DESCRIBED IN THE “RISK FACTORS” SECTION BEGINNING ON PAGE 4 OF THE PROSPECTUS.

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







The date of this prospectus supplement is November 6, 2020.





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, 2020
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(I.R.S. Employer
Incorporation or Organization)Identification Number)
Velodyne Lidar, Inc.
5521 Hellyer Avenue
San Jose, CA
95138
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (669) 275-2251
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0001 per shareVLDRThe Nasdaq Stock Market LLC
Warrants, each exercisable for three-quarters of one share of common stockVLDRWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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, 2020, the registrant had 168,713,296 shares of common stock, $0.0001 par value per share, outstanding.



VELODYNE LIDAR, INC. AND SUBSIDIARIES

Table of Contents

Page
Item 6.Exhibits104
Signatures105

1


PART I. Financial Information

Item 1. Consolidated Financial Statements

VELODYNE LIDAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

September 30,December 31,
20202019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$297,853 $60,004 
Short-term investments— 2,199 
Accounts receivable, net19,405 11,863 
Inventories, net16,422 14,987 
Prepaid and other current assets10,906 12,918 
Total current assets344,586 101,971 
Property, plant and equipment, net17,808 26,278 
Goodwill1,189 1,189 
Intangible assets, net723 982 
Contract assets5,626 — 
Other assets632 5,755 
Total assets$370,564 $136,175 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$10,447 $6,923 
Accrued expense and other current liabilities41,134 31,160 
Contract liabilities6,574 18,261 
Total current liabilities58,155 56,344 
Long-term tax liabilities605 1,360 
Other long-term liabilities26,302 2,225 
Total liabilities85,062 59,929 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 25,000,000 shares authorized, zero shares issued and outstanding
— — 
Common stock, $0.0001 par value; 2,250,000,000 shares authorized; 168,713,296 and 137,911,975 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
17 14 
Additional paid-in capital489,920 240,464 
Accumulated other comprehensive loss(211)(216)
Accumulated deficit(204,224)(164,016)
Total stockholders' equity285,502 76,246 
Total liabilities and stockholders' equity$370,564 $136,175 
See accompanying notes to condensed consolidated financial statements.

2


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,
2020201920202019
Revenue:
Product
$26,099 $11,698 $53,948 $63,234 
License and services6,000 1,819 23,568 19,192 
Total revenue32,099 13,517 77,516 82,426 
Cost of revenue:
Product16,482 14,430 46,027 51,384 
License and services648 180 1,032 1,498 
Total cost of revenue17,130 14,610 47,059 52,882 
Gross profit14,969 (1,093)30,457 29,544 
Operating expenses:
Research and development10,535 16,521 39,653 42,211 
Sales and marketing4,126 5,126 12,798 15,945 
General and administrative10,579 4,148 26,942 10,637 
Gain on sale of assets held-for-sale(7,529)— (7,529)— 
Restructuring— — 1,043 — 
Total operating expenses17,711 25,795 72,907 68,793 
Operating loss(2,742)(26,888)(42,450)(39,249)
Interest income191 119 946 
Interest expense(31)(18)(69)(45)
Other income (expense), net 38 (42)(105)(15)
Loss before income taxes(2,733)(26,757)(42,505)(38,363)
Provision for (benefit from) income taxes2,562 70 (4,098)122 
Net loss$(5,295)$(26,827)$(38,407)$(38,485)
Net loss per share:
Basic and diluted$(0.04)$(0.20)$(0.28)$(0.29)
Weighted-average shares used in computing net loss per share:
Basic and diluted140,490,370 133,033,927 139,425,745 133,033,927 







See accompanying notes to condensed consolidated financial statements.

3


VELODYNE LIDAR, INC. AND SUBSIDIARIES

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


Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net loss$(5,295)$(26,827)$(38,407)$(38,485)
Other comprehensive income (loss), net of tax:
Changes in unrealized gain on available for sale securities— (4)— 18 
Foreign currency translation adjustments39 (8)(67)
Total other comprehensive income (loss), net of tax39 (12)(49)
Comprehensive loss$(5,256)$(26,839)$(38,402)$(38,534)







See accompanying notes to condensed consolidated financial statements.

4


VELODYNE LIDAR, INC. AND SUBSIDIARIES

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



Series A Convertible Preferred StockSeries B Convertible Preferred StockSeries B-1 Convertible Preferred StockCommon Stock
(Pre-Combination)
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2019, as previously reported8,772,852 $1,375,440 $— 1,375,440 $— 34,252,578 $— $— $240,474 $(216)$(164,016)$76,246 
Retroactive application of the recapitalization(8,772,852)(1)(1,375,440)— (1,375,440)— (34,252,578)(3)137,911,975 14 (10)— — — 
Balance at December 31, 2019, as adjusted— — — — — — — — 137,911,975 14 240,464 (216)(164,016)76,246 
Share-based compensation— — — — — — — — — — 21 — — 21 
Other comprehensive loss, net of tax— — — — — — — — — — — (2)— (2)
Net loss— — — — — — — — — — — — (23,385)(23,385)
Balance at March 31, 2020— — — — 137,911,975$14 240,485 (218)(187,401)$52,880 
Issuance of Series B-1 convertible preferred stock at $10.25 per share on April 1, 2020, net of issuance cost of $81
— — — — — — — — 1,951,219 — 19,919 — — 19,919 
Share-based compensation— — — — — — — — — — 135 — — 135 
Other comprehensive loss, net of tax— — — — — — — — — — — (32)— (32)
Net loss— — — — — — — — — — — — (9,727)(9,727)
Balance at June 30, 2020139,863,19414260,539 (250)(197,128)63,175
Recapitalization transaction, net of transaction cost of $21,902
— — — — — — — — 29,025,846 229,296 — — 229,299 
Repurchase of common stock— — — — — — — — (175,744)— — — (1,801)(1,801)
Share-based compensation— — — — — — — — — — 85 — — 85 
Other comprehensive loss, net of tax— — — — — — — — — — — 39 — 39 
Net loss— — — — — — — — — — — — (5,295)(5,295)
Balance at September 30, 2020$— $— $— $— 168,713,296 $17 $489,920 $(211)$(204,224)$285,502 


See accompanying notes to condensed consolidated financial statements.

5


VELODYNE LIDAR, INC. AND SUBSIDIARIES

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


Series A Convertible Preferred StockSeries B Convertible Preferred StockSeries B-1 Convertible Preferred StockCommon Stock
(Pre-Combination)
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2018, as previously reported8,772,852 $1,375,440 $— — $— 34,252,578 $— $— $190,549 $(148)$(96,790)$93,615 
Retroactive application of the recapitalization(8,772,852)(1)(1,375,440)— — — (34,252,578)(3)133,033,927 13 (9)— — — 
Balance at December 31, 2018, as adjusted— — — — — — — — 133,033,927 13 190,540 (148)(96,790)93,615 
Share-based compensation— — — — — — — — — — 52 — — 52 
Other comprehensive loss, net of tax— — — — — — — — — — — (8)— (8)
Net loss— — — — — — — — — — — — (2,182)(2,182)
Balance at March 31, 2019— — — — 133,033,927$13 $190,592 $(156)$(98,972)$91,477 
Share-based compensation— — — — — 34 — — 34 
Other comprehensive loss, net of tax— — — — — — — — — — — (29)— (29)
Net loss— — — — — — — — — — — — (9,476)(9,476)
Balance at June 30, 2019— — — — — — — — 133,033,927 13 190,626 (185)(108,448)82,006 
Share-based compensation— — — — — — — — — — 25 — — 25 
Other comprehensive loss, net of tax— — — — — — — — — — — (12)— (12)
Net loss— — — — — — — — — — — — (26,827)(26,827)
Balance at September 30, 2019$— $— $— $— 133,033,927$13 $190,651 $(197)$(135,275)$55,192 
See accompanying notes to condensed consolidated financial statements.

6


VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20202019
Cash flows from operating activities:
Net loss
$(38,407)$(38,485)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization6,342 5,804 
Stock-based compensation241 111 
Write-off of deferred IPO costs3,548 — 
Gain on sale of assets held-for-sale(7,529)— 
Provision for doubtful accounts525 418 
Other74 (418)
Changes in operating assets and liabilities:
Accounts receivable, net(8,067)7,769 
Inventories, net3,329 (2,074)
Prepaid and other current assets2,510 (5,164)
Contract assets(8,439)38 
Other assets358 703 
Accounts payable3,188 4,631 
Accrued expenses and other liabilities(9,812)7,932 
Contract liabilities2,512 (1,275)
Net cash used in operating activities(49,627)(20,010)
Cash flows from investing activities:
Purchase of property, plant and equipment(2,197)(4,805)
Proceeds from sale of assets held-for-sale12,275 — 
Proceeds from sales of short-term investments— 8,903 
Proceeds from maturities of short-term investments2,200 48,250 
Purchase of short-term investments— (28,823)
Considerations paid for acquisition— (2,473)
Net cash provided by investing activities12,278 21,052 
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs of $81
19,919 — 
Proceeds from Business Combination and PIPE offering, net of transaction costs of $2,830
248,303 — 
Repurchase of common stock(1,801)— 
Cash paid for IPO costs(1,144)— 
Proceeds from notes payable10,000 — 
Net cash provided by (used in) financing activities
275,277 — 
Effect of exchange rate fluctuations on cash and cash equivalent(79)(67)
Net increase in cash and cash equivalents237,849 975 
Beginning cash and cash equivalents60,004 23,904 
Ending cash and cash equivalents$297,853 $24,879 
Supplemental disclosures of cash flow information:
Cash paid for interest$69 $45 
Cash paid for (received from) income taxes, net(7,806)540 
Supplemental disclosure of noncash investing and financing activities:
Changes in accrued purchases of property, plant and equipment
$237 $105 
Transaction costs included in accounts payable339 — 
Transaction costs included in accrued liabilities18,733 — 
See accompanying notes to condensed consolidated financial statements.

7


VELODYNE LIDAR, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

Description of Business, Background and Nature of Operations

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

Graf Industrial Corp. (Graf), the Company’s predecessor, was originally incorporated in Delaware as a special purpose acquisition company. On September 29, 2020 (the Closing Date), Graf consummated a business combination (the Business Combination) pursuant to an Agreement and Plan of Merger dated as of July 2, 2020, as amended on August 20, 2020 and clarified in an Acknowledgement Letter dated as of the same day (the Merger Agreement) by and among Graf, VL Merger Sub Inc., a wholly owned subsidiary of Graf, and Velodyne Lidar, Inc. (the pre-combination Velodyne). Immediately upon the consummation of the Business Combination, VL Merger Sub Inc. merged with and into the pre-combination Velodyne, with the pre-combination Velodyne surviving the merger 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.

The Company’s common stock and warrants are now listed on the Nasdaq Global Select market under the symbols “VLDR” and “VLDRW”, respectively. Unless the context otherwise requires, “we,” “us,” “our,” “Velodyne,” “Velodyne Lidar” and the “Company” refers to Velodyne Lidar Inc., the combined company and its subsidiaries following the Business Combination. Refer to Note 2 for further discussion of the Business Combination.

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

Unaudited Interim Financial Statements

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

The accompanying condensed consolidated financial statements are unaudited and have been prepared on the
same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of
operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of
operations to be anticipated for any future annual or interim period. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s definitive proxy statement filed with the Securities and Exchange Commission on September 14, 2020.

Basis of Presentation
The Business Combination is accounted for as a reverse recapitalization as the pre-combination Velodyne was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). The determination is primarily based on the evaluation of the following facts and circumstances:

• the equity holders of the pre-combination Velodyne hold the majority of voting rights in the Company;
• the board of directors of the pre-combination Velodyne represent majority of the board of directors of the Company;
• the senior management of the pre-combination Velodyne became the senior management of the Company; and
• the operations of the pre-combination Velodyne comprise the ongoing operations of the Company.

In connection with the Business Combination, outstanding capital stock of the the pre-combination Velodyne was converted into common stock of the Company, par value $0.0001 per share, representing a recapitalization, and the net assets

8


of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. The pre-combination Velodyne was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing Date are those of the pre-combination Velodyne. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. The number of shares of preferred stock was also retroactively restated in shares reflecting the exchange ratio, and the carrying amounts of preferred stock are based on the fair value of its redemption amount on each reporting date. All preferred stock was converted into shares of the Company’s common stock on the Closing Date.

Principles of Consolidation and Liquidity

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company has funded its operations primarily through the Business Combination, issuances of preferred stock and sales to customers. As of September 30, 2020, the Company’s existing sources of liquidity included cash and cash equivalents of $297.9 million and available borrowing capacity of $25.0 million under a revolving credit facility. The Company has incurred losses and negative cash flows from operations. If the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least one year from the date the unaudited interim condensed consolidated financial statements were available for issuance.

Emerging Growth Company

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

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

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

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


9


September 30,December 31,
20202019
Number of customers accounted for 10% or more of accounts receivable
33
Number of vendors accounted for 10% or more of accounts payable
32

One customer accounted for 28% of the Company’s accounts receivable as of September 30, 2020. One vendor accounted for 39% and 36% of accounts payable as of September 30, 2020 and December 31, 2019.

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 its customer contracts, total estimated costs and related progress towards complete satisfaction of performance obligation in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, useful lives of property, plant, and equipment and intangible assets, income tax uncertainties, and other loss contingencies. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.

Reclassification
Certain prior year balance sheet amounts have been reclassified to conform with current year presentation.

Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original maturity of three months or less at date of purchase to be cash equivalents. Cash equivalents were $286.2 million and $44.7 million as of September 30, 2020 and December 31, 2019, respectively.

Short-term investments generally consist of commercial paper and corporate debt securities. Short-term investments were zero and $2.2 million as of September 30, 2020 and December 31, 2019, respectively. They are classified as available-for-sale securities and are recognized at fair value. Unrealized gains and losses, net of tax, are reported as a separate component of accumulated other comprehensive loss within the stockholders’ equity. Unrealized gains and losses on the Company’s short-term investments were not significant as of September 30, 2020 and December 31, 2019 and therefore, the amortized cost of the Company’s short-term investments approximated their fair value.

Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are reduced by an allowance for doubtful accounts, which is the Company’s best estimate of the amount of credit losses inherent in its existing accounts receivable. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company writes off accounts receivable against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Changes in the Company’s allowance for doubtful accounts were as follows (in thousands):

Nine Months Ended
September 30,
20202019
Beginning balance$467 $357 
Charged to costs and expenses525 418 
Uncollectible accounts written off, net of recoveries(101)— 
Ending balance$891 $775 


10


The Company does not have any off-balance-sheet credit exposure related to its customers.

Inventories
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. The Company charges cost of revenue for write-downs of inventories which are obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical revenue, and assumptions about future demand and market conditions. The net change in the Company’s inventory reserve was $(1.8) million and $1.0 million for the three and nine months ended September 30, 2020, respectively, and $0.3 million and $2.4 million for the three and nine months ended September 30, 2019, respectively. The estimated cost of inventories not expected to be used in production within one year is reflected in other assets in the consolidated balance sheets.

Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated based on the straight-line method over the estimated useful lives of the respective assets. Additions, major improvements and betterments are capitalized, and maintenance and repairs are expensed as incurred. Assets are held in asset under construction until placed in service, upon which date, the Company begins to depreciate the assets over their estimated useful lives. The estimated useful lives of the assets are as follows: buildings, 15-30 years; building improvements, 7-15 years, leasehold improvements, 5-7 years which is the lesser of the life of the improvement or the lease term; machinery and equipment, furniture and fixtures, vehicles and software, 3-5 years.

Assets Held for Sale
The Company considers assets to be held for sale when management approves and commits to a plan to actively market the assets for sale at a reasonable price in relation to its fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company ceases to record deprecation expenses and measures the assets at the lower of their carrying value or estimated fair value less costs to sell. Assets held for sale are included as other current assets in the Company’s consolidated balance sheets and the gain or loss from sale of assets held for sale is included in the Company's general and administrative expenses.

Business Combinations
For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The acquisition date is the date on which the Company obtains operating control over the acquired business. The consideration paid is determined on the acquisition date and the acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Assets acquired and liabilities assumed by the Company are recorded at their estimated fair values, while goodwill is measured as the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed.

Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired and liabilities assumed when accounted for using the purchase method of accounting. Goodwill is not amortized, but reviewed for impairment. Goodwill is reviewed annually in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. When evaluating recoverability, the Company compares the fair value of the reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, the Company would record an impairment loss equal to the difference.

Long-Lived Assets
Long-lived assets, such as property, plant and equipment, intangible assets and other long-term assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying

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amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, as considered necessary. No impairment loss was recognized in the three and nine months ended September 30, 2020 and September 30, 2019.

Foreign Currency
The U.S. dollar is the functional currency of the Company’s consolidated entities operating in the U.S. and certain of its subsidiaries operating outside of the U.S. For transactions entered into a currency other than its functional currency, the monetary assets and liabilities are re-measured into U.S. dollars at the current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are re-measured at historical rates. Income and expenses are re-measured at the average exchange rate prevailing during the period. Gains and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated statements of operations.
For foreign subsidiaries whose functional currency is the local currency, assets and liabilities are translated at the local current exchange rates in effect at the balance sheet date, and income and expense accounts are translated at the average exchange rates during the period. The resulting translation adjustments are included in accumulated other comprehensive loss.
Gains and losses resulting from foreign exchange transactions and revaluation of monetary assets and liabilities in non-functional currencies are included in other income (expense) in the consolidated statements of operations. Net foreign exchange gain (loss) recorded in the Company’s consolidated statements of operations was insignificant for all periods presented.

Revenue Recognition
The Company accounts for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration it is entitled to. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

Nature of Products and Services and Revenue Recognition
The majority of the Company’s revenue comes from product sales of lidar sensors to direct customers and distributors. Revenue is recognized at a point in time when control of the goods are transferred to the customer, generally occurring upon shipment or delivery dependent upon the terms of the underlying contract. Product sales to certain customers may require customer acceptance due to performance acceptance criteria that is considered more than a formality. For these product sales, revenue is recognized upon the expiration of the customer acceptance period. For custom products that require engineering and development based on customer requirements, the Company recognizes revenue over time using an output method based on units of product shipped to date relative to total production units under the contract. Amounts billed to customers for shipping and handling are included in revenue. Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting. Accounts receivable are due under normal trade terms, typically 60 days or less.

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The Company’s license and services revenue consist primarily of product development, validation and repair services, intellectual property (IP) license and royalties revenue. The obligation to provide services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations. For product development and validation service projects, the Company bills and recognizes revenue as the services are performed. For these arrangements, control is transferred over as the Company’s inputs incurred to complete the project; therefore, revenue is recognized over the service period with the measure of progress using the input method based on labor costs incurred to total labor cost (cost-to-cost) as the services are provided. For product repair service, revenue is recognized when the repair services are complete and repaired products are shipped to customer.
The Company licenses rights to its IP to certain customers and collects royalties based on customer’s product sales. IP revenue recognition is dependent on the nature and terms of each agreement. The Company recognizes license revenue upon delivery of the IP if there are no substantive future obligations to perform under the arrangement. Contract Liabilities is recorded when license payments received from licensees relating to long-term license contracts for which the Company has future obligations under the license agreements. The Company classifies contract liabilities as current if the Company expects to recognize the related revenue over the next 12 months from the balance sheet date. Royalties from the license of IP are recognized at the later of the period the sales occur or the satisfaction of the performance obligation to which some or all of the royalties have been allocated.

Arrangements with Multiple Performance Obligations
When a contract involves multiple performance obligations, the Company accounts for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service is separately identifiable from other promises in the arrangement. The consideration is allocated between separate performance obligations in proportion to their estimated standalone selling price. The standalone selling price reflects the price the Company would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers. If the selling price is not directly observable, the Company generally uses the cost plus margin approach to estimate standalone selling price. Costs related to products delivered are recognized in the period revenue is recognized.
The Company provides standard product warranties for a term of typically one year to ensure that its products comply with agreed-upon specifications. Standard warranties are considered to be assurance type warranties and are not accounted for as separate performance obligations. Please see Product Warranty for accounting policy on standard warranties. The Company also provides service type extended warranties for an additional term ranging up to two additional years. For service type extended warranty contracts, the Company allocates revenue to this performance obligation on a relative standalone selling price basis and recognizes the revenue ratably over time during the effective period of the services.

Other Policies, Judgments and Practical Expedients
Costs to obtain a contract. The Company generally expenses the incremental costs of obtaining a contract when incurred because the amortization period for these costs would be less than one year. These costs primarily relate to sales commissions and are recorded at the time of the customer order or product shipment in sales and marketing expense in the Company’s consolidated statements of operations. Commission expense was $0.3 million and $0.7 million for the three and nine months ended September 30, 2020, respectively, and $(0.2) million and $0.4 million for the three and nine months ended September 30, 2019, respectively.
Right of return. The Company’s general terms and conditions for its contracts do not contain a right of return that allows the customer to return products and receive a credit. Therefore the Company does not estimate returns and generally recognizes revenue at contract price upon product shipment or delivery.
Remaining performance obligations. Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied. It includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods and does not include contracts where the customer is not committed. The customer is not considered committed where they are able to terminate for convenience without payment of a substantive penalty under the contract. Additionally, as a practical expedient, the Company has not disclosed the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The amount of the transaction price allocated to unsatisfied performance obligations with a duration of more than 12 months is recorded in long-term contract liability.
Significant financing component. In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied. The expected timing difference between the payment and satisfaction

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of performance obligations for the vast majority of the Company’s contracts is one year or less; therefore, the Company applies a practical expedient and does not consider the effects of the time value of money. The Company’s contracts with customer prepayment terms do not include a significant financing component because the primary purpose is not to receive financing from the customers. For arrangements with licenses of intellectual property that include subsequent minimum royalty payments more than one year, the Company adjusts the amount of recorded revenue to reflect the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer with a significant benefit of financing. The effect of the significant financing component will be recognized as interest income separately from revenue from contracts with customers.
Contract modifications. The Company may modify contracts to offer customers additional products or services. Each of the additional products and services are generally considered distinct from those products or services transferred to the customer before the modification. The Company evaluates whether the contract price for the additional products and services reflects the standalone selling price as adjusted for facts and circumstances applicable to that contract. In these cases, the Company accounts for the additional products or services as a separate contract. In other cases where the pricing in the modification does not reflect the standalone selling price as adjusted for facts and circumstances applicable to that contract, the Company accounts for the additional products or services as part of the existing contract primarily on a prospective basis.
Judgments and estimates. 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. The Company reviews and updates its contract-related estimates regularly, and records 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 on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

Research and Development
Research and development costs are expensed as incurred.

Advertising
Advertising costs are expensed as incurred and were $0.1 million and $1.3 million, respectively, for the three and nine months ended September 30, 2020, and $0.4 million and $1.9 million, respectively, for the three and nine months ended September 30, 2019, respectively.

Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of loss or the amount within a range of loss can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Legal costs incurred in connection with loss contingencies are expensed as incurred. No liabilities for loss contingencies were accrued as of December 31, 2019.

Product Warranties
The Company typically provides a one-year warranty on its products. Estimated future warranty costs are accrued and charged to cost of revenue in the period that the related revenue is recognized. These estimates are based on historical warranty experience and any known or expected changes in warranty exposure, such as trends of product reliability and costs

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of repairing and replacing defective products. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s accrued warranty liability, which is included as a component of other accrued expenses was as follows:
Nine Months Ended
September 30,
20202019
Balance as of the beginning of the period$4,322 $3,531 
Warranty provision1,144 5,061 
Consumption(1,349)(3,462)
Changes in provision estimates(899)(1,587)
Balance as of the end of the period$3,218 $3,543 



Note 2. Business Combination and Related Transactions
On September 29, 2020, the Company consummated a business combination with the pre-combination Velodyne pursuant to the Merger Agreement. 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 in accordance with U.S. GAAP, and are consolidated with the pre-combination Velodyne's financial statements on the Closing date. The shares and net income (loss) per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.

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

The aggregate consideration for the Business Combination and proceeds from the Private Placement was approximately $1.8 billion, consisting of (i) $229.3 million in cash at the closing of the Business Combination, net of transaction expenses, and (ii) 150,277,532 shares of common stock valued at $10.25 per share, totaling $1,540.3 million. The common stock consideration consists of up to (1) 143,575,763 shares of Company common stock, including shares issuable in respect of vested equity awards of the pre-combination Velodyne, plus (2) 2,000,000 shares of Company common stock earned due to the satisfaction of the Earnout Condition on July 30, 2020, including 187,861 Earnout RSUs, which are subject to a six-month service condition and are not legally issued and outstanding shares of Company common stock at Closing, plus (3) 4,702,304 shares of Company common stock that were issued to Velodyne equity holders that did not opt to have their respective shares repurchased by the pre-combination Velodyne for cash in a pre-closing tender offer conducted by the pre-combination Velodyne (the “Pre-Closing Tender Offer”). The Company used $1.8 million of the proceeds to repurchase and retire 175,744 shares of Company common stock from certain stockholders in the Pre-Closing Tender Offer.

In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $21.9 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, 2020, the Company has $19.1 million of accrued transaction costs, consisting primarily of investment banking fees, in accounts payable and accrued expenses on the consolidated balance sheet. The final amount of investment banking fees payable by the Company has not yet been determined and the actual amount may differ materially from the estimated amount included herein because the Company and its bankers have differing interpretations of the fee structure in their agreement and an estimate of the range of reasonably possible loss (additional fees) cannot be made. The amount accrued represents the Company's best estimate of the amount of investment banking fees the Company will be required to pay.


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Note 3. Revenue

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

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
% of Revenue% of Revenue% of Revenue% of Revenue
RevenueRevenueRevenueRevenue
Revenue by geography:
North America$22,081 69 %$6,609 49 %$35,984 46 %$42,325 51 %
Asia Pacific4,907 15 %2,041 15 %30,681 40 %22,579 28 %
Europe, Middle East and Africa5,111 16 %4,867 36 %10,851 14 %17,522 21 %
Total$32,099 100 %$13,517 100 %$77,516 100 %$82,426 100 %
Revenue by products and services:
Products$26,099 81 %$11,698 87 %$53,948 70 %$63,234 77 %
License and services6,000 19 %1,819 13 %23,568 30 %19,192 23 %
Total$32,099 100 %$13,517 100 %$77,516 100 %$82,426 100 %
Revenue by timing of recognition:
Goods transferred at a point in time$31,024 97 %$12,032 89 %$75,946 98 %$74,424 90 %
Goods and services transferred over time1,075 %1,485 11 %1,570 %8,002 10 %
Total$32,099 100 %$13,517 100 %$77,516 100 %$82,426 100 %


In June 2020, the Company entered into a patent cross-license agreement related to its litigation settlement with a customer in Asia Pacific. Under the terms of the arrangement, the customer agreed to make a one-time license payment upon settlement, will make annual fixed royalty payments through 2022, and thereafter, will make product sales royalty payments through February 2030. During the three and nine months ended September 30, 2020, the Company recognized license revenue of $0.8 million and $17.4 million, respectively, related to this agreement, representing 3% and 22%, respectively, of total revenue for the three and nine months ended September 30, 2020. 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, 2020, the Company recorded $3.3 million and $14.1 million, respectively, in current and long-term deferred revenue associated with the rights granted to receive future patents as they represent stand ready obligations. As of September 30, 2020, the Company also recorded $8.4 million of contract assets.

Contract Assets and Contract Liabilities
Contract assets primarily relates to unbilled accounts receivable. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when revenue recognized on the guaranteed minimums at the inception of the contract when there is not yet a right to invoice in accordance with contract terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and reclassified to accounts receivable when billed in accordance with the terms of the contract.
Contract liabilities consist of deferred revenue, customer advanced payments and customer deposits. Deferred revenue includes billings in excess of revenue recognized related to product sales, licenses, extended warranty and other services revenue, and is recognized as revenue when the Company performs under the contract. The long-term portion of deferred revenue, mostly related to obligations under license arrangements and extended warranty, is classified as non-current contract liabilities and is included in other long-term liabilities in the Company’s consolidated balance sheets. Customer advanced payments represent required customer payments in advance of product shipments according to customer’s payment term. Customer advance payments are recognized as revenue when control of the performance obligation is transferred to the customer. Customer deposits represent consideration received from a customer which can be applied to future product or service purchases, or refunded.

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Contract assets and contract liabilities consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,December 31,
20202019
Contract assets, current
Unbilled accounts receivable$2,813 $— 
Contract assets, long-term
Unbilled accounts receivable5,626 — 
Total contract assets$8,439 $— 
Contract liabilities, current
Deferred revenue, current$6,439 $926 
Customer advance payment135 11,252 
Customer deposit— 6,083 
Total6,574 18,261 
Contract liabilities, long-term
Deferred revenue, long-term15,102 903 
Total contract liabilities$21,676 $19,164 

The following table shows the significant changes in contract assets and contract liabilities balances for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended
September 30,
20202019
Contract assets:
Beginning balance$— $— 
Transferred to receivables from contract assets recognized at the beginning of the period— — 
Increase due to unbilled and recognized as revenue in excess of billings during the period, net of amounts transferred to receivables8,439 — 
Ending balance$8,439 $— 
Contract liabilities:
Beginning balance$19,164 $20,911 
Revenue recognized that was included in the contract liabilities beginning balance(12,016)(2,861)
Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period20,611 1,586 
Customer deposits reclassified to refund liabilities(6,083)— 
Ending balance$21,676 $19,636 
During the nine months ended September 30, 2020, the Company reclassified customer deposit of $6.1 million to refund liabilities and refunded the entire amount to a customer.

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

The following table summarize the Company’s assets measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):

September 30, 2020
Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$286,187 $— $— $286,187 
Total cash equivalents286,187 — — 286,187 
Total assets measured at fair value$286,187 $— $— $286,187 

December 31, 2019
Level 1Level 2Level 3Total
Cash equivalents:
Money market fund$44,669 $— $— $44,669 
Total cash equivalents44,669 — — 44,669 
Short-term investments:
Commercial paper— 1,099 — 1,099 
Corporate debt securities— 1,100 — 1,100 
Total short-term investments— 2,199 — 2,199 
Total assets measured at fair value$44,669 $2,199 $— $46,868 


Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value. Short-term investments consist of investment securities with original maturities greater than three months and are included as current assets in the consolidated balance sheets.
There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2020 and 2019.


Note 5. Balance Sheet Components

Accounts Receivables, Net
Accounts receivables, net consist of the following (in thousands):

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September 30,December 31,
20202019
Accounts receivable$20,296 $12,330 
Allowance for doubtful accounts(891)(467)
Accounts receivable, net$19,405 $11,863 

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

September 30,December 31,
20202019
Raw materials$8,590 $12,374 
Work-in-process2,559 1,748 
Finished goods5,273 5,629 
Total inventories16,422 19,751 
Less inventories not deemed to be current, included in other assets— 4,764 
Inventories, included in current assets$16,422 $14,987 

Non-current inventories consist of raw material components forecasted to be used in production later than twelve months from the respective balance sheet dates. The Company believes that these inventories will be utilized for future production plans.

Prepaid and Other Current Assets
Prepaid and other current assets consist of the following (in thousands):
September 30,December 31,
20202019
Prepaid expenses and deposits$2,225 $3,045 
Due from contract manufacturers and vendors3,675 4,068 
Prepaid taxes1,622 2,122 
Contract assets2,813 — 
Other571 3,683 
Total prepaid and other current assets$10,906 $12,918 


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Property, Plant and Equipment, Net
Property, plant and equipment, at cost, consist of the following (in thousands):
September 30,December 31,
20202019
Land$— $2,340 
Building— 3,142 
Machinery and equipment30,738 30,082 
Building improvements— 4,194 
Leasehold improvements5,810 5,581 
Furniture and fixtures1,477 1,431 
Vehicles360 759 
Software1,357 1,343 
Assets under construction1,738 170 
41,480 49,042 
Less: accumulated depreciation and amortization(23,672)(22,764)
Property, plant and equipment, net$17,808 $26,278 
Capital lease equipment$888 $888 
Less: accumulated depreciation(336)(203)
Capital lease equipment, net$552 $685 

In March 2020, the Company reclassified the then carrying value of $4.7 million related to its Morgan Hill properties previously reported as property, plant and equipment to assets held for sale and included as other current assets in its consolidated balance sheets. On July 2, 2020, the Company sold the properties to a third-party buyer for $12.3 million and recorded a gain of $7.5 million in the three months ended September 30, 2020.

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

Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Depreciation and amortization on property, plant and equipment$1,994 $2,017 $6,053 $5,713 
Depreciation on capital lease equipment44 47 133 78 

Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
Gross Carrying AmountAccumulated AmortizationNet Book Value
As of September 30, 2020:
Developed technology$1,200 $477 $723 
As of December 31, 2019:
Developed technology$1,170 $188 $982 

Amortization of intangible assets is as follows:
Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Amortization of intangible assets$96 $92 $289 $92 

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

September 30,December 31,
20202019
Accrued payroll expenses$10,313 $10,537 
Accrued manufacturing costs3,179 3,344 
Accrued transaction costs19,072 — 
Accrued professional and consulting fees2,781 5,572 
Accrued warranty costs3,218 4,322 
Accrued taxes894 944 
Refund liabilities— 4,878 
Other1,677 1,563 
Total accrued expense and other current liabilities$41,134 $31,160 

Accrued manufacturing costs at September 30, 2020 included accrued inventory write-down of $2.1 million on certain products to be delivered in the fourth quarter of 2020.

Long-Term Liabilities
Long-term liabilities consisted of the following (in thousands):
September 30,December 31,
20202019
PPP Loan$10,000 $— 
Contract liabilities, long-term15,102 903 
Other1,200 1,322 
Total long-term liabilities$26,302 $2,225 


Note 6. Mapper Acquisition
On July 3, 2019, the Company acquired technology, workforce and certain assets of Mapper.ai, Inc. (“Mapper”), an on-demand map solution company, for a total of $2.5 million in cash. The acquisition was accounted for using the purchase method of accounting for business combinations. The total purchase price is allocated to acquired assets based on their estimated fair value at the acquisition date as follows:

Assets Acquired:Amount
Developed technology$1,140 
Property and equipment144 
Goodwill1,189 
Total purchase price$2,473 

The excess of the purchase price over the tangible and intangible assets acquired has been recorded as goodwill. The goodwill is attributable to the workforce of the acquired business and expected synergies with the Company’s existing operations and is amortizable for income tax purposes. Management integrates the Mapper acquisition into its existing business structure, which is comprised of a single reporting unit.
Developed technology is amortized on a straight-line basis over its estimated useful life of 3 years. Acquisition- related costs of $0.2 million were expensed in the period incurred within general and administrative expense in the Company’s consolidated statement of operations.


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The results of operations related to this acquisition have been included in the Company’s consolidated statements of operations from the acquisition date. Pro forma disclosures have not been provided since the acquisition did not have, and is not expected to have, a material impact on the Company's results of operations.


Note 7. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,December 31,
20202019
Foreign currency translation loss$(211)$(216)
Total accumulated other comprehensive loss$(211)$(216)

For the three and nine months ended September 30, 2020 and 2019, there were no significant amounts related to foreign currency translation loss or realized gains or loss on investments reclassified to net loss from accumulated other comprehensive loss.


Note 8. Credit Facilities and Notes Payable
In January 2020, the Company entered into a loan and security agreement with a financial institution (the 2020 Revolving Line), as amended in September 2020, which provides a revolving line of credit of $25.0 million, with an option to increase the credit limit up to additional $15.0 million with the bank’s approval. As part of the Revolving Line, there is a letters of credit sub-limit of $5.0 million. The advances under the Revolving Line bear interest at a rate per annum equal to prime rate plus an applicable margin of 1.5% for prime rate advances, or LIBOR rate plus an applicable margin of 2.5% for LIBOR advances. Unused revolving line facility fee is 0.15% per annum of average unused portion of the Revolving Line. In addition, there is a $50,000 non-refundable commitment fee if the Company exercises the Incremental Revolving Line option. The Revolving Line is secured by certain assets of the Company. The 2020 Revolving Line has a maturity date of September 30, 2020 and was extended to December 29, 2020. The Company had no outstanding borrowings and was in compliance with the financial covenants associated with the facility as of September 30, 2020.
On April 8, 2020, the Company 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 in two years at an interest rate of 1% per annum, with a deferral of interest payments for the first six months. The PPP loan balance of $10.0 million was included in other long-term liabilities in the Company’s condensed consolidated balance sheet as of September 30, 2020.


Note 9. Stockholders’ Equity

Common Stock

On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. Pursuant to the terms of the Amended and Restated Certificate of Incorporation, the Company is authorized and has available for issuance the following shares and classes of capital stock, each with a par value of $0.0001 per share: (i) 2,250,000,000 shares of common stock; (ii) 25,000,000 shares of preferred stock. Immediately following the Business Combination, there were 168,713,296 shares of common stock with a par value of $0.0001, and 24,876,512 warrants outstanding.

As discussed in Note 2, Business Combination, the Company has retroactively adjusted the shares issued and outstanding prior to September 29, 2020 to give effect to the exchange ratio established in the Merger Agreement to determine the number of shares of common stock into which they were converted.

Prior to the Closing, Velodyne Lidar had shares of no par value Series A, Series B and Series B-1 preferred stock outstanding, all of which were convertible into shares of common stock of the pre-combination Velodyne on a 1:1 basis, subject to certain anti-dilution protections. Upon the Closing, the outstanding shares of preferred stock were converted into common stock of the Company at 1:2.9786, 1:3.5465 and 1:3.5465, respectively, the exchange rates established in the Merger

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Agreement. The following summarizes the Company’s preferred stock conversion immediately after the Business Combination:
September 29, 2020
(Closing Date)
Preferred Stock SharesConversion RatioCommon Stock Shares
Series A Convertible Preferred Stock (pre-combination)8,772,8522.978626,130,888
Series B Convertible Preferred Stock (pre-combination)1,375,4403.54654,878,048
Series B-1 Convertible Preferred Stock (pre-combination)1,925,6163.54656,829,267
Total12,073,90837,838,203

In conjunction with the Business Combination, Graf obtained commitments from certain PIPE Investors to purchase shares of Graf Class A common stock, which were automatically converted into 15,000,000 shares of Graf’s Class A common stock for a purchase price of $10.00 per share, which were automatically converted into shares of the Company’s common stock on a one-for-one basis upon the closing of the Business Combination.

As of September 30, 2020, the Company had 168,713,296 shares of common stock outstanding, which excludes 4,183,624 restricted stock award (RSA) shares issued and outstanding that are subject to certain lock-up and forfeiture arrangements. The following summarizes the Company’s common stock outstanding as of September 30, 2020:

Shares%
Pre-combination Velodyne common stock outstanding, net of shares
   repurchased as part of the tender offer
101,849,24760.4 %
Pre-combination Velodyne preferred stock outstanding37,838,20322.4 %
Graf public stockholders11,450,8466.8 %
Graf Founder shares2,575,0001.5 %
PIPE shares15,000,0008.9 %
Total common stock issued and outstanding as of September 30, 2020
168,713,296100.0 %


Preferred Stock

The Company is authorized to issue up to 25,000,000 shares of preferred stock, each with a par value of $0.0001 per share. As of September 30, 2020, no shares of preferred stock were issued and outstanding.

Public Warrants

Upon the Closing, there were 24,876,512 outstanding public warrants to purchase shares of the Company’s common stock that were issued by Graf prior to the Business Combination. Each whole warrant entitles the holder to purchase three-quarters of one share of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The warrants are exercisable at any time commencing 30 days after the completion of the Business Combination. Once the public warrants become exercisable, the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20-trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

In connection to the Business Combination, on October 19, 2020, the Company filed a Registration Statement on Form S-1. This Registration Statement relates to the issuance of an aggregate of up to 18,657,384 shares of common stock issuable upon the exercise of its publicly-traded warrants and up to 375,000 shares of its common stock issuable upon exercise of its working capital warrants issued to Graf. The exercise price of such warrants is $11.50 per share. There were no warrants exercised to date.

Dividend


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


Note 10. Stock-Based Compensation

Pre-Combination Velodyne Stock Incentive Plans

Prior to the Business Combination, commencing in 2008, the Board of Directors of the pre-combination Velodyne approved the 2007 Incentive Stock Plan (2007 Stock Plan) and the 2016 Stock Plan. The 2007 Stock Plan provided for the granting of stock-based awards in the form of stock options and restricted stock awards to employees. The 2016 Stock Plan provides for the direct award or sale of shares, the grant of stock options and restricted stock units (“RSUs”) to employees, directors and consultants.

As a result of the Business Combination, the stockholders of the Company approved the Velodyne Lidar, Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”). In accordance with the Merger Agreement, the Board approved cancelling and converting all outstanding equity-awards granted under the 2007 Stock Plan and 2016 Stock Plan into equity-based awards under the 2020 Incentive Plan effective upon the consummation of the Business Combination, based on exchange ratios established in the Merger Agreement with the same general terms and conditions corresponding to the original awards.

The Company rolled forward all outstanding options, RSAs and RSUs granted under the 2007 Stock Plan and 2016 Stock Plan into same type of equity-based awards under the 2020 Equity Plan effective upon the consummation of the Business Combination. The shares under the 2007 Stock Plan and 2016 Stock Plan have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.

2020 Equity Incentive Plans

In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Plan and the 2020 Employee Stock Purchase Plan (the “2020 ESPP”).

The 2020 Equity Plan provides for the grant of stock options, stock appreciation rights, restricted stock units and other stock or cash-based awards. The Company initially reserved 27,733,888, approximately 16% of the number of shares of its common stock outstanding upon the Closing, as the “Initial Limit” for the issuance of awards under the 2020 Equity Plan. The 2020 Equity Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2021 and ending on (and including) January 1, 2030, the aggregate number of Common Shares that may be issued under the Plan shall automatically increase by a number equal to the least of (a) 5% of the total number of Common Shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 Common Shares, or (c) a number of Common Shares determined by the Board. This limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization.

Under the 2020 ESPP, there are initially 3,492,097 authorized but unissued or reacquired shares of common stock reserved for issuance, plus an additional number of shares to be reserved annually on the first day of each fiscal year for a period of not more than 20 years, beginning on January 1, 2021, in an amount equal to the least of (i) one percent (1%) of the outstanding shares of our common stock on such date, (ii) 2,500,000 shares of our common stock or (iii) a lesser amount determined by the Compensation Committee or the Board.

During the three months ended September 30, 2020, there were 187,861 shares of Earnout RSU issued under the 2020 Equity Plan, which are subject to a six-month service condition.


Stock Options, RSAs and RSUs
In December 2015, the Company granted RSAs to two employees under the 2007 Stock Plan. The RSAs are subject to a time-based vesting condition and a liquidity event vesting condition, both of which must be satisfied on or before the 10-year anniversary of the date of the grant in order for the RSAs to be vested and settled for shares of common stock. Subject to

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certain terms, the RSAs provide voting rights equivalent to a common stockholder and are eligible for dividends. As of September 30, 2020, the vesting condition tied to a liquidity event had not been met.
Beginning March 2017, the Company granted options and RSUs to certain employees, directors and consultants pursuant to the 2016 Stock Plan. Options expire in 10 years from the date of grant and typically vest 25 percent upon the one-year anniversary date from the initial vesting date, with the remainder vesting quarterly over the following three years. The RSUs issued prior to September 29, 2020 are subject to a time-based vesting condition and a liquidity event vesting condition, both of which must be satisfied on or before the 7-year anniversary of the date of the grant in order for the RSUs to be vested and settled for shares of common stock. All shares subject to RSUs that do not vest on or before the 7-year anniversary of the date will be forfeited. The RSUs typically vest 25 percent upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Certain RSUs also contain performance conditions related to the Company’s product development and business performance for the performance periods specified in the RSU agreements. As of September 30, 2020, the vesting condition tied to a liquidity event had not been met.
In May 2020, the Company granted market-based performance RSUs (PRSUs) that contain service, performance and market conditions to vest in the underlying common stock. The PRSUs vest upon the three-year anniversary date from initial vesting date and the number of shares that vests is ultimately dependent on the value of the Company’s stock at the vesting date. As of September 30, 2020, the vesting condition tied to a liquidity event had not been met.
A summary of the stock option activities under the Company’s equity plans during the nine months ended September 30, 2020 is as follows:
Shares

Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value
Option:
Options outstanding as of December 31, 2019, as previously reported53,333$18.24 0.49
Retroactive application of the recapitalization103,348
Options outstanding as of December 31, 2019, as adjusted156,6816.21 
Granted440,6735.74 
Options outstanding as of September 30, 2020
597,3545.86 7.55$11,699 
Options exercisable as of September 30, 2020
156,6816.21 1.623,014
Options vested and expected to vest as of September 30, 2020
597,3545.86 7.5511,699



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A summary of RSA and RSU activities under the Company’s equity plans during the nine months ended September 30, 2020 is as follows:
SharesGrant Date Fair Value
(in thousands)
RSA:
RSAs outstanding as of December 31, 2019, as previously reported
1,404,557$5,745 
Retroactive application of the recapitalization2,779,067
RSAs outstanding as of December 31, 2019, as adjusted
4,183,6245,745 
Forfeited
RSAs outstanding as of September 30, 2020
4,183,6245,745 
RSU:
RSUs outstanding as of December 31, 2019, as previously reported
3,247,352$79,436 
Retroactive application of the recapitalization6,292,459
RSUs outstanding as of December 31, 2019, as adjusted
9,539,81179,436 
Granted3,340,17322,720 
Forfeited (867,538)(7,184)
RSUs outstanding as of September 30, 2020
12,012,44694,972 
PRSU:
PRSUs outstanding as of December 31, 2019, as previously reported
Granted1,101,683$1,515 
PRSUs outstanding as of September 30, 2020, as adjusted
1,101,6831,515 

Stock-Based Compensation
As of September 30, 2020, no compensation expense had been recognized for the RSAs and RSUs because the performance vesting condition was not probable of being met. At the time the performance vesting condition becomes probable, which is not until the earlier of (i) an initial public offering, or (ii) a sale event, the Company will recognize the cumulative stock-based compensation expense for the outstanding RSAs and RSUs using the accelerated attribution method based on the grant-date fair value of the RSAs and RSUs. No incremental compensation costs were recognized on conversion of the options as the fair value of the options issued were equivalent to the fair value of the outstanding options of the 2016 Stock Plan.
As a result of the Business Combination, on October 30, 2020, the Board determined that the liquidity event vesting condition applicable to the pre-combination Velodyne's RSUs was satisfied. 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 is expected to result in approximately $76.0 million of incremental stock-based compensation expense in the fourth quarter of 2020. The Board has not yet made the determination that the liquidity event vesting condition applicable to the pre-combination Velodyne's RSAs is satisfied.

The Company uses the Black-Scholes option pricing model to determine the fair value of its stock option awards and uses the Monte Carlo simulation model (a binomial lattice-based valuation model) to determine the fair value of its market-based 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 determination of the fair value for stock options and PRSUs in connection with determining stock compensation expense requires judgment, including estimating the fair market value of common stock, stock-price volatility, expected term, expected dividends and risk-free interest rates. The expected volatility rates are estimated based on historical volatilities of the Company’s peers’ common stock over a period of time that approximates the expected term of the options. Due to lack of historical data on employees’ option exercises, the Company estimates the expected term of the options using the simplified method, which calculates the expected term equal to the midpoint between the vesting period and the maximum contractual term. Expected dividends are estimated based on the Company’s dividend history as well as the Company’s current projections. The risk-free interest rate for periods approximating the expected terms of the options or the PRSUs is based on the U.S. Treasury yield curve in effect at the time of grant.

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The following table sets forth the weighted average grant date fair value for options and the assumptions used as inputs for the Black-Scholes option pricing model:
Nine Months Ended
September 30, 2020
Weighted average grant date fair value of options$2.10 
Expected term, in years5.55
Expected volatility39.82 %
Risk-free interest rate0.371 %
Expected dividend yield— 

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):
Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Cost of revenue$$— $$— 
Research and development11 25 32 73 
Sales and marketing— — 
General and administrative69 — 204 38 
Total stock-based compensation expense$85 $25 $241 $111 

The Company recognizes forfeitures as they occur. As of September 30, 2020 and December 31, 2019, unrecognized compensation cost related to stock options was $0.8 million and $41,000, respectively, which was expected to be recognized over a weighted average period of 3.25 years and 0.49 years, respectively. As of September 30, 2020, unrecognized compensation cost related to Earnout RSUs was $4.6 million, which was expected to be recognized over a weighted average period of 0.5 years.


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

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

Warrants to purchase 24,876,512 shares of common stock at $11.50 per share were issued during Graf’s initial public offering, and no such warrants were exercisable or exercised during the presented periods. The warrants were excluded from the basic and diluted net loss per share as they were anti-dilutive given the Company had a net loss for all periods presented.

The following common stock equivalents have also been excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive (in thousands):
Three and Nine Months Ended
September 30,
20202019
Stock options597 157 
RSAs4,184 4,184 
RSUs13,114 9,371 
Total17,895 13,712 

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Note 12. Retirement Plan
The Company has a 401(k) savings and profit-sharing plan (the 401(k) Plan), which is intended to be a tax- qualified defined contribution plan that covers all eligible employees, as defined in the applicable plan documents. Under the 401(k) Plan, eligible employees may elect salary deferral contributions, not to exceed limitations established annually by the IRS. The Company matches 25% of employees’ eligible contributions. The Company’s matching contributions were $0.2 million and $0.6 million, respectively, for the three and nine months ended September 30, 2020, and $0.2 million and $0.7 million, respectively, for the three and nine months ended September 30, 2019.


Note 13. Restructuring
In March 2020, the Company initiated a restructuring plan to downsize the manufacturing function and related engineering and administrative functions in its California locations. The purposes of this plan are to align resource requirements with the company’s initiatives to lower the company’s cost structure and to increase its production capacity by outsourcing a majority of its manufacturing activities. The Company’s restructuring expenses incurred to date primarily related to employee termination costs.
The following table summarizes the Company's costs incurred during the nine months ended September 30, 2020, estimated additional costs to be incurred and estimated total costs expected to be incurred under the restructuring program as of September 30, 2020 (in thousands):

Cost Incurred During the PeriodCumulative Costs Incurred Through End of the PeriodEstimated Additional Costs to be IncurredTotal Restructuring Costs Expected to be Incurred
Employee termination benefits$1,043 $1,043 $— $1,043 

The following table summarizes the changes in restructuring liabilities during the nine months ended September 30, 2020 (in thousands):
Nine Months Ended
September 30, 2020
Restructuring liabilities, beginning$— 
Provisions and adjustments1,043 
Cash payments(984)
Restructuring liabilities, ending$59 


Note 14. Income Taxes
The following table summarizes the Company's loss before income taxes and provision for (benefit from) income taxes (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Loss before income taxes$(2,733)$(26,757)$(42,505)$(38,363)
Provision for (benefit from) income taxes2,562 70 (4,098)122 
Effective tax rate(93.7)%(0.3)%9.6 %(0.3)%


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

We are subject to income taxes in the United States, China and Germany. Our effective tax rate changed from (0.3)% in the nine months ended September 30, 2019 to 9.6% in the nine months ended September 30, 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.


Note 15. Commitments and Contingencies

Lease Commitments
The Company leases office and manufacturing facilities under non-cancelable operating leases expiring at various dates through December 2027, including office and manufacturing space in San Jose, California used as its corporate headquarters. The lessor company is owned by one of the Company’s officers. Please see Note 17. Related Party Transactions. The Company also entered into capital leases for purchasing of information technology equipment.
As of September 30, 2020, future minimum lease payments under all non-cancelable capital and operating leases with an initial lease term in excess of one year were as follows (in thousands):
Years Ending December 31,Capital LeasesOperating Leases
2020 (remaining three months)$77 $1,065 
2021233 4,029 
202214 3,296 
2023— 3,358 
2024— 3,459 
Thereafter— 11,012 
Net minimum lease payments324 $26,219 
Less amount representing interest(12)
Present value of net minimum lease payments312 
Less current portion(266)
Long-term obligations as of September 30, 2020
$46 

Rent expense under operating leases was approximately $1.1 million and $3.3 million, respectively, for the three and nine months ended September 30, 2020, and $1.2 million and $3.2 million, respectively, for the three and nine months ended September 30, 2019.

Purchase Commitments
The Company uses several contract manufacturers to manufacture components, subassemblies and products. The Company provides these contract manufacturers with demand information and they use this information to acquire components and build products. Contract manufacturer commitments consist of obligations for on-hand inventories and non-cancelable purchase orders with contract manufactures. If the Company cancels all or part of the orders, it may still be liable to the contract manufacturers for the cost of the materials and components purchased by the subcontractors to manufacture the Company’s products. The Company also obtains individual components for its products from a wide variety of individual

29


suppliers. In addition, the Company has other contractual obligations for goods or services associated with its ordinary course of business. As of September 30, 2020 and December 31, 2019, the Company has $43.0 million and $41.6 million, respectively, of outstanding purchase orders or commitments for goods or services with contract manufacturers and vendors that range mostly from one month up to a year.

Legal Proceedings
From time to time, the Company is involved in actions, claims, suits and other proceedings in the ordinary course of business, including assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. The Company is defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable (except as specifically described below), the Company currently believes that none of these claims or proceedings are likely to have a material adverse effect on the Company’s financial position.

Quanergy Litigation
In September 2016, Quanergy Systems, Inc. (Quanergy) filed a complaint against the Company and one of its customers in the Northern District of California (the District Court litigation), seeking a declaratory judgment of non-infringement of one of the Company’s patents, U.S. Patent No. 7,969,558 (the ‘558 patent) and asserting state and federal trade secret misappropriation claims against the Company and its customer and breach of contract and constructive fraud claims against its customer. In November 2016, Quanergy filed an amended complaint, removing its trade secret misappropriation claims against the Company, dropping its customer from the suit and dropping the related claims of breach and constructive fraud. The amended complaint maintained only the declaratory judgment of non-infringement action against the Company. In December 2016, the Company filed an answer generally denying the allegations and relief requested in Quanergy’s amended complaint. The Company’s answer also included counterclaims against Quanergy asserting direct, indirect, and willful infringement of the ‘558 patent. In January 2017, Quanergy filed an answer generally denying the allegations in the Company’s patent infringement counterclaims and requesting relief. The court held a claim construction hearing on September 13, 2017 and issued a claim construction order on October 4, 2017, which adopted the majority of the Company’s proposed constructions. In June 2018, the district court entered an order granting a joint stipulation to stay the litigation.
Quanergy filed two petitions for inter partes review with the U.S. Patent Office’s Patent Trials and Appeal Board (PTAB) in November 2017, challenging all claims of the ‘558 patent that we asserted. The Company filed its Patent Owner Preliminary Response to Quanergy’s petitions on March 7, 2018. The PTAB issued an institution decision on May 25, 2018, instituting review of all challenged claims. The Company subsequently filed its Patent Owner Response and a Contingent Motion to Amend the claims. The PTAB held oral argument on February 27, 2019. On May 23, 2019, the PTAB issued a Final Written Decision upholding the validity of all the challenged claims, finding that Quanergy did not prove by a preponderance of the evidence that any of the challenged claims of the ‘558 patent were unpatentable, and denying the Company’s contingent motion as moot. In June 2019, Quanergy filed a request for rehearing. On July 21, 2020, Quanergy filed a Notice of Appeal, appealing the PTAB decision to the U.S. Court of Appeals for the Federal Circuit. Quanergy’s opening appeal brief is due January 8, 2021.

Hesai and RoboSense Litigation
On August 13, 2019, the Company filed separate complaints against Hesai Photonics Technology Co., Ltd. (Hesai) (5:19-cv-4742-EJD) and Suteng Innovation Technology Co., Ltd. (RoboSense) (5:19-cv-4746-EJD), in the United States District Court for the Northern District of California. These complaints allege infringement of the ‘558 patent by Hesai and RoboSense, respectively. In both cases, we are seeking, among other relief, a permanent injunction and to be determined monetary damages adequate to compensate us for the alleged infringement. Both cases were stayed pending resolution of the ITC investigation (No. 337-TA-1173). On July 8, 2020, Velodyne filed a Notice of Dismissal with Prejudice of the Hesai case (5:19-cv-4742-EJD) pursuant to the Litigation Settlement and Patent Cross License Agreement discussed further below. The Hesai case is now terminated. On September 30, 2020, the Company filed a Notice of Dismissal with Prejudice of the RoboSense case (5:19-cv-4746-EJD) pursuant to the Litigation Settlement and Patent Cross License Agreement discussed below. The RoboSense case is now terminated.
On August 15, 2019, the Company also filed a patent infringement complaint with the United States International Trade Commission (ITC) against Hesai and RoboSense. The complaint filed with the ITC alleges violations of Section 337 of the Tariff Act of 1930, as amended, by both Hesai and RoboSense and requests that the ITC investigate Hesai and RoboSense for unlawfully importing and selling products that infringe upon the ‘558 patent. On August 28, 2019, the Company filed a supplement with the ITC. The Company is asking the ITC to issue permanent limited exclusion orders and permanent cease and desist orders against Hesai and RoboSense to stop the importation and sale of the following products in the United States:

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(a) rotating 3-D lidar devices; (b) components thereof; and (c) sensing systems containing the same. On September 11, 2019, the Company received notice that the ITC instituted an investigation of Hesai and RoboSense (No. 337-TA-1173). On July 8, 2020, Velodyne and Hesai jointly moved to terminate the ITC investigation with respect to Hesai pursuant to the Litigation Settlement and Patent Cross License Agreement discussed further below. On July 13, 2020, the ALJ issued Order No. 33, granting the joint motion. Order No. 33 is an Initial Determination that terminates Hesai from the Investigation. On August 4, 2020, the Commission issued a Notice determining not to review the Initial Determination terminating the investigation as to Hesai. As a result, the case against Hesai is now terminated. On September 30, 2020, Velodyne and RoboSense filed a Joint Motion for and Memorandum in Support of Termination of the Investigation based on the Litigation Settlement and Patent Cross License Agreement discussed further below. On October 1, 2020, the ALJ issued Order No. 48 granting the joint motion. Order No. 48 is an Initial Determination that terminates RoboSense from the Investigation. On October 15, 2020, the Commission issued a Notice determining not to review the Initial Determination terminating the investigation as to RoboSense. As a result, the case against RoboSense is now terminated.
On November 8, 2019, Velodyne Lidar, Inc., Velodyne Europe GmbH, Gotting KG, and IFTAS GmbH were sued by Hesai for alleged patent infringement before the District Court of Frankfurt, Germany (Docket No. 2-6 O 461/19). Hesai sought money damages and an injunction. On July 8, 2020, Hesai withdrew the case pursuant to the Litigation Settlement and Patent Cross License Agreement discussed further below. This case is now terminated.

On April 30, 2020, Hesai filed four cases in the Shanghai Intellectual Property Court against the Company, Beijing Velodyne Laser Technology Co., Ltd (Velodyne Beijing), and Shanghai Keming Instrument Co., Ltd (Keming) (collectively, Defendants). The cases were docketed by the court on May 6, 2020. Hesai asserts that the Defendants infringed three patents registered in the People’s Republic of China. Each case seeks an injunction and monetary damages. On July 8, 2020, Hesai withdrew the four China cases pursuant to the Litigation Settlement and Patent Cross License Agreement discussed below. These cases are now terminated.
On June 24, 2020, the Company entered into a Litigation Settlement and Patent Cross-License Agreement with Hesai to resolve all of the disputes between the parties, as described above, and agreed on the terms of a patent cross-license and releases of liability. Under the terms of the settlement, Hesai agreed to make a one-time payment to compensate the Company for Hesai’s past use of the Company’s technologies, will make annual fixed royalty payments through 2022, and thereafter, will make product sales royalty payments through February 2030. The parties also agreed to terminate all of the matters related to Hesai described above.

On September 21, 2020, Velodyne entered into a Litigation Settlement and Patent Cross-License Agreement with RoboSense to resolve all of the disputes between Velodyne and RoboSense, as described above, and agreed on the terms of a patent cross-license and releases of liability. The parties also agreed to terminate all of the litigation matters between Velodyne and RoboSense descrbied above.

Employment Matters
On April 3, 2020, a former employee filed a class action lawsuit in the United States District Court for the Northern District of California. The complaint alleges that the Company violated the federal Worker Adjustment and Retraining Notification Act, or WARN Act, and California WARN Act in connection with its termination of the employment of the plaintiff and other similarly situated employees. The plaintiff seeks to certify the action as a class action and seeks various other remedies on behalf of himself and others, including unpaid wages, salaries, commissions, bonuses and other compensation and benefits that would have accrued during the following 60 days. The parties have reached an agreement to resolve the case and the plaintiff filed a voluntary dismissal of the case on June 29, 2020 in accordance with the terms of the settlement. This case is now terminated.

On June 8, 2020, a former employee filed a class action lawsuit in the Santa Clara County Superior Court of the State of California. The complaint alleges that, among other things, the Company failed to pay minimum and overtime wages, final wages at termination, and other claims based on meal periods and rest breaks. The plaintiff is bringing this lawsuit on behalf of herself and other similarly situated plaintiffs who have not been identified and is seeking to certify the action as a class action. The plaintiff has now filed a First Amended Complaint that adds a claim pursuant to California’s Private Attorneys General Act. The First Amended Complaint does not specify the amount the plaintiff seeks to recover. Velodyne’s response to the First Amended Complaint is due on November 16, 2020 and the parties are in the process of beginning discovery concerning class certification issues. The Court has scheduled a Case Management Conference for February 3, 2021.

Business Combination

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On August 4, 2020, a purported shareholder of Graf commenced a putative class action against Graf and its directors in the Supreme Court of the State of New York, New York County. The Plaintiff alleges that the Board members, aided and abetted by Graf, breached their fiduciary duties by entering into the Merger Agreement with Velodyne. The Plaintiff alleges that the Merger Agreement undervalues Graf, was the result of an improper process and that Graf’s disclosure concerning the proposed Merger is inadequate. As a result of these alleged breaches of fiduciary duty, the Plaintiff seeks, among other things, an award of rescissory damages. The Company believes the claim is without merit and intends to defend itself vigorously.

The Company records accruals for outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluated developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. As of September 30, 2020, the Company had accrued and paid $2.5 million for loss contingencies in connection with the settlement of certain employment related legal proceedings. The Company has not recorded any additional accrual for loss contingencies associated with such legal claims or litigation discussed above.


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

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

Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Revenue by region:
North America$22,081 $6,609 $35,984 $42,325 
Asia Pacific4,907 2,041 30,681 22,579 
Europe, Middle East and Africa5,111 4,867 10,851 17,522 
Total$32,099 $13,517 $77,516 $82,426 
% of Revenue by region:
North America69 %49 %46 %51 %
Asia Pacific15 %15 %40 %28 %
Europe, Middle East and Africa16 %36 %14 %21 %
Total100 %100 %100 %100 %


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


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Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Countries over 10% of Revenue:
U.S.58 %45 %36 %50 %
China**31 %*
Sweden13 %***
Canada11 %*10 %*
Korea*11 %*10 %
Japan*11 %**
Number of Customers accounted for over 10% of Revenue:**
3122

*    Less than 10%.
**    For the three months ended September 30, 2020, one customer accounted for 35% of revenue.

The Company’s long-lived assets, consisting primarily of property, plant and equipment, were primarily located in the United States as of September 30, 2020 and December 31, 2019.


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

Three Months Ended September 30,Nine Months Ended
September 30,
2020201920202019
Revenue:
Stockholder A(1)
$131 $(3,828)$408 $(3,563)
Stockholder B3,354 251 6,898 254 
Stockholder C278 988 717 6,028 

September 30,December 31,
20202019
Accounts receivable:
Stockholder A$55 $
Stockholder B5,461 1,404 
Stockholder C— — 

(1) The 2019 amounts included a $4.1 million refund, net of taxes, the Company issued to entities affiliated with the stockholder in October 2019 and accrued as of September 30, 2019, in order to compensate them for unforeseen challenges associated with the use of certain new products purchased from the Company in 2018. The products purchased by these entities in 2018 were still under development at the time and the Company felt it appropriate to compensate these early purchasers for working with a new product.

In April 2019, the Company entered into a manufacturing agreement with one of its Series B Preferred Stockholders (Stockholder D), and the Company has one product that is currently being manufactured by Stockholder D. As of September 30, 2020 and December 31, 2019, the Company had $1.4 million and $2.7 million, respectively, of accrued purchases and

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$15.1 million and $24.9 million, respectively, of outstanding purchase commitment for products with this stockholder. The Company procures equipment, materials and components for Stockholder D to build the product and had $1.1 million and $2.7 million, respectively, of receivables from this stockholder which was included in other current assets as of September 30, 2020 and December 31, 2019.
The Company currently rents its corporate headquarters facility in San Jose, California from a company owned by one of its officers. The lease was executed in January 2017 and expires in December 2027, as amended. As of September 30, 2020, future minimum lease payments totaled $25.0 million related to this facility. Rent expense under this lease was $0.8 million and $2.5 million, respectively, for three and nine months ended September 30, 2020, and $0.8 million and $2.3 million, respectively, for three and nine months ended September 30, 2019.
In January 2017 and December 2016, the Company issued two interest-bearing unsecured promissory notes totaling $3.5 million to one of its officers for purposes of financing the acquisition of the above headquarters facility. The loan accrued interest at a rate of 3.15% per annum. As of December 31, 2019, immediately prior to repayment, the aggregate outstanding balance of the loan was approximately $3.6 million, including aggregate accrued and unpaid interest of $0.1 million. The officer made monthly interest-only payments to the Company on the loan beginning in December 2017 and repaid all outstanding principal and interest due under the two promissory notes on December 31, 2019.
In August 2016, the Company entered into an agreement with one of its officers and Velodyne Acoustics, LLC (Acoustics) pursuant to which Acoustics agreed to, among other things, indemnify, defend and hold harmless the pre-combination Velodyne from and against any and all liabilities relating to, arising out of or resulting from certain litigation matters (Litigation Indemnification Agreement). The litigation matters giving rise to the indemnification obligations involved certain employment-related claims of two former employees of Velodyne Acoustics, which was the predecessor of Acoustics. In November 2019, the Company elected not to seek indemnification from Acoustics for the litigation matters under the terms of the Litigation Indemnification Agreement and assumed control and financial responsibility for the litigation matters. By not seeking indemnification from Acoustics, the Company has paid approximately $2.5 million in settlements in connection with the litigation matters and $2.6 million in legal costs as of September 30, 2020, all of which are included in general and administration in the statement of operations. Such payments and costs incurred that were the subject of the Litigation Indemnification Agreement indirectly benefit the officer, the former sole owner of Acoustics. The Company believes that the litigation matters covered by the Litigation Indemnification Agreement are complete and the Company does not expect to incur additional expenses related to these litigation matters.



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

The following discussion of Velodyne’s results of operations and financial condition should be read in conjunction with the information set forth in Velodyne’s financial statements and the notes thereto included elsewhere in this Form 10-Q. This discussion contains forward-looking statements based upon Velodyne’s 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 “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to the business of Velodyne Lidar, Inc., a Delaware corporation, and its subsidiaries prior to the consummation of the Business Combination, which will be the business of the post-combination company and its subsidiaries following the consummation of the Business Combination.

Overview

Velodyne is the global leader in lidar technology providing real-time 3D vision for autonomous systems, which we call smart vision. Our smart vision solutions are advancing the development of safe automated systems throughout the world, thereby empowering the autonomous revolution by allowing machines to see their surroundings. In automotive applications, our products improve roadway safety by providing perception data for reliable object avoidance and safe path-planning. We have a vision we call LIVE, Lidar In Vehicles Everywhere, which encompasses a mass-produced lower cost lidar sold for every model of car and truck. We believe safety on the roadways is for everyone. To improve roadway, bicycle, and pedestrian safety, we sell automotive solutions to the rapidly expanding ADAS market, which will incrementally address the requirements of the NHTSA 5-Star Safety Ratings System. Our lidar-based smart vision solutions are also deployed in many non-automotive applications, such as autonomous mobile robots, UAVs, last-mile delivery, precision agriculture, advanced security systems and smart city initiatives, among others. Our first products were commercially available in 2010. Since then, we have shipped over 42,000 units and generated cumulative revenue of over $600 million. While purchases have been

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primarily focused on R&D projects, several of our non-automotive customers are in commercial production with their offerings.

Our proprietary smart vision solutions offer several advantages over other sensor technologies for a broad range of applications. Using an array of eye-safe lasers, our lidar solutions measure distances in the environment at the speed of light. Unlike camera-based solutions, lidar solutions allow machines to see in 3D by providing precise distance measurements of surrounding objects. Compared to radar, lidar provides better resolution for superior object detection and classification. Lidar also performs better than cameras in low light conditions and produces fewer errors. According to a report by AAA, current pedestrian detection systems proved relatively ineffective at protecting pedestrians and bicycles in various tests, particularly at night. Lidar systems currently being tested can detect pedestrians equally well during daytime and nighttime conditions because the systems provide self- illumination by means of laser beams. By sending an alert or applying the brakes, these lidar systems are equipped to mitigate death and injury. These advantages of lidar, combined with lower computing power requirements, enable autonomous platforms to make fast and accurate decisions to mitigate collisions. Velodyne’s proprietary lidar-based hardware and software solutions combine class-leading range, up to centimeter-level accuracy and lower power consumption with high-grade reliability.

Our visionary founder and executive chairman, David Hall, is a serial inventor and successful business leader. Mr. Hall created the world’s first lidar solution for the Grand Challenges for autonomous vehicles organized by the Defense Advanced Research Projects Agency (DARPA). In a historic engineering milestone, Mr. Hall invented a lidar sensor that could see and measure the vehicle’s surroundings with unprecedented precision, enabling the vehicle to navigate the course autonomously.

Since the DARPA Grand Challenge, we have rapidly developed and released a suite of lidar products and achieved many key corporate milestones.
https://cdn.kscope.io/e4719f6f1e89d28f0e064d4e2535ecab-productdevelopmentchart21a.jpg
Many of the markets we are pursuing with our smart vision solutions are currently in pre-commercial development phases. Selling into these markets typically involves lower unit volume, but higher per-unit prices, with customers placing fewer and less consistent orders. One of the goals during the pre-commercial development phase is to demonstrate to customers that our products can be affordably and reliably manufactured. Accordingly, in certain instances, we have strategically reduced the price of our smart vision solutions in an effort to drive market adoption in automotive and non-automotive applications. In addition, our sales have been subject to significant fluctuations. Our customers in pre-commercial development 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. Finally, as we have introduced higher functionality products, in certain cases we have experienced delays as we work with customers to achieve the required functionality and performance which has resulted in slower than expected market adoption of these products. As a result of these factors and other investments we have made in our business, our operating results have fluctuated from period to period and our revenue has declined year over year since 2017. 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. However, future revenue can be difficult to predict as commercial success of a product is inherently uncertain.

We have successfully sold our smart vision solutions into the highly competitive automotive market. Automotive OEMs and their suppliers are just beginning to commercialize autonomous systems that rely on lidar technology. After many years

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of investment, there have been significant advancements in autonomous vehicle technology and ADAS. To date, the ADAS market has depended heavily on optical and radar perception technologies. We believe that lidar-based solutions offer superior capabilities for ADAS applications, and that the ADAS market will be the first to adopt widespread commercialization of lidar. The race to fully autonomous vehicles has also pushed our customers closer to commercializing lidar-based solutions. Achieving success in the automotive market, especially in ADAS and autonomous driving applications, requires participation in competitive design cycles that can last for many years.

While the automotive market is a key focus, we have successfully sold our smart vision solutions to customers and partners developing non-automotive, next-generation solutions, including UAVs, self-driving rovers, autonomous vessels, industrial and security robots, mapping applications for topography and surveying 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 three fiscal years, more than 200 are using our smart vision solutions for non-automotive applications. In 2019, for example, we generated slightly over half of our revenue from sales to customers deploying our smart vision solutions in non-automotive applications. Most of these next-generation solutions in emerging non-automotive markets are still in the pre-commercial development stage and, as a result, our future success depends on these customers bringing these projects to commercial scale.

We have historically manufactured our products in our 203,800 square foot manufacturing facility in San Jose, California and our recently sold 46,630 square foot manufacturing facility in Morgan Hill, California. These advanced manufacturing facilities enabled us to control all critical aspects of product development and commercialization within close proximity of our engineering and development teams, most of which are located at these or other locations in the San Francisco Bay Area. Moving forward, as automotive and other applications that use our products approach more widespread commercialization, we believe mass production capabilities will be required and expect to rely on third-party manufacturing partners. To this end, we have partnered with Veoneer, Nikon and Fabrinet, and are in negotiations with other third-party manufacturers so that we can efficiently scale to meet the demand of high volume markets while simultaneously innovating at our primary research facilities.

We began developing our lidar technology in 2005 as part of Velodyne Acoustics, which was formed in 1983. In December 2015, Velodyne was incorporated as a new company and all of the assets and operations related to our lidar business were assigned to us. Since the spin-off, we have operated as a standalone, independent entity and the results of operations since that date represent the results of the lidar business.

We are currently confronting numerous operational limitations due to the global outbreak of coronavirus in early 2020. We have manufacturing locations that have been, and continue to be, severely impacted due to national and regional government declarations requiring closures, quarantines and travel restrictions. The coronavirus pandemic is also adversely affecting our customers’ business operations. The extent of the impact of the coronavirus pandemic on our operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on our customers, suppliers, contract manufacturers and employees, all of which is uncertain at this time. We expect the coronavirus pandemic to adversely impact our revenue and results of operations, but we are unable to predict at this time the size and duration of this adverse impact. For more information on our operations and risks related to health epidemics, including the coronavirus, please see “Risk Factors — Velodyne’s business could be materially and adversely affected by the current global COVID-19 pandemic.”

Business Combination

Graf Industrial Corp. (Graf), our legal predecessor, was originally incorporated in Delaware as a special purpose acquisition company. Graf consummated the Business Combination on September 29, 2020. Immediately upon the consummation of the Business Combination, the pre-combination Velodyne became a wholly owned subsidiary of the Company. Graf changed its name to Velodyne Lidar, Inc. and the pre-combination Velodyne Lidar changed its name to Velodyne Lidar USA, Inc. The Company is now listed on NASDAQ under the symbol "VLDR".

The aggregate consideration for the Business Combination and related transactions was approximately $1.8 billion, consisting of (i) $229.3 million in cash at the closing of the Business Combination, net of transaction expenses, and (ii) 150,277,532 shares of common stock valued at $10.25 per share, totaling $1,540.3 million.

Impact of COVID-19


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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 believe that we will continue to experience disruptions to our business due to the COVID-19 pandemic in the remaining of 2020.

The impact of COVID-19 and measures to prevent its spread have been impactful 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. The company continues 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. We were manufacturing close to 10% capacity for much of the third quarter of 2020. We are currently meeting sales demand through our factories in San Jose and those of our manufacturing partners in Thailand and Japan. The factory in San Jose was closed briefly in March, then re-opened with strict health precautions in place. The San Jose factory continued to produce the major lidar products required for the operation 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. 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. Despite the staffing and operational limitations of certain suppliers during the COVID-19 pandemic, we believe the disruption to our supply chain has been minimal largely because we were operating at approximately 50% capacity until June.

Demand for our products. Demand for our products in the quarter ended September 30, 2020 was less than that in the corresponding period of 2019, after adjusting for a $4.1 million one-time refund to a related party customer in September 2019. This refund was to compensate them for unforeseen challenges associated with the use of certain new products purchased from us in 2018. 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 will result in some transactions we expected to occur earlier in 2020 being delayed until late 2020 or early 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.


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Liquidity, Working Capital, and the CARES Act. On March 27, 2020, the U.S. government enacted the CARES Act. On April 8, 2020, we received loan proceeds of $10.0 million under the CARES Act’s Paycheck Protection Program to help us offset delays in production and customer purchases. 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 up to five years at an interest rate of 1% per annum, with a deferral of payments for the first six months.

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


Factors Affecting Our Performance

Design Wins. We are developing our smart vision solutions as a key enabling technology for OEMs in automotive and other applications. Because our solutions must be integrated into a broader platform by the OEM, it is critical that we achieve design wins with these cust