AEye, Inc. [LIDRW] Filings

10-Q 1 lidr-20230630.htm 10-Q lidr-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			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 333-259554

AEye, Inc.

(Exact name of registrant as specified in its charter)


Delaware						37-1827430
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Park Place, Suite 200, Dublin, CA						94568
(Address of Principal Executive Offices)						(Zip Code)

(925) 400-4366

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value per share	LIDR	The Nasdaq Stock Market LLC
Warrants to purchase one share of common stock	LIDRW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 4, 2023, the registrant had 184,808,775 shares of common stock, $0.0001 par value per share, outstanding.

AEye, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2023

TABLE OF CONTENTS


		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

	PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes To Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		32
	PART II - OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		66
Item 3. Defaults Upon Senior Securities		66
Item 4. Mine Safety Disclosures		66
Item 5. Other Information		66
Item 6. Exhibits		66
Signatures		67

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve substantial risks and uncertainties. These statements reflect the current views of management with respect to future events and our financial performance. In some cases, you can identify these statements by forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words or other comparable words or phrases, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements, which are subject to risks, uncertainties, and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies, and anticipated trends in our business.

These statements are only predictions based on our current expectations and projections about future events. These statements involve known and unknown risks, uncertainties, and other important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied by the forward-looking statements. Given these risks, uncertainties, and other factors, you should not place undue reliance on these forward-looking statements. These factors include the information set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 under the heading “Risk Factors,” and Part II, Item 1A, of this Quarterly Report under the heading “Risk Factors,” which we encourage you to carefully read. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

PART 1. FINANCIAL INFORMATION

Item 1. Financial statements (Unaudited)


AEYE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value)
	June 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	18,392	$	19,064
Marketable securities	40,260		75,135
Accounts receivable, net	290		617
Inventories, net	4,913		4,553
Prepaid and other current assets	3,297		6,181
Total current assets	67,152		105,550
Right-of-use assets	14,749		15,502
Property and equipment, net	7,783		7,665
Restricted cash	—		2,150
Other noncurrent assets	6,235		2,473
Total assets	$	95,919	$	133,340

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,520	$	3,218
Accrued expenses and other current liabilities	9,020		9,764
Contract liabilities	150		987
Convertible notes	1,641		8,594
Total current liabilities	14,331		22,563
Operating lease liabilities, noncurrent	15,888		16,681
Other noncurrent liabilities	44		126
Total liabilities	30,263		39,370
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.0001 par value: 1,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock—$0.0001 par value: 600,000,000 shares authorized; 181,420,313 and 163,099,124 shares issued and outstanding at June 30, 2023 and December 31, 2022	18		16
Additional paid-in capital	358,833		345,742
Accumulated other comprehensive loss	(390)		(1,279)
Accumulated deficit	(292,805)		(250,509)
Total stockholders’ equity	65,656		93,970
Total liabilities and stockholders’ equity	$	95,919	$	133,340

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) (Unaudited)
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
REVENUE:
Prototype sales	$	245	$	195	$	370	$	530
Development contracts	326		511		837		1,258
Total revenue	571		706		1,207		1,788
Cost of revenue	1,911		1,427		4,172		2,909
Gross loss	(1,340)		(721)		(2,965)		(1,121)
OPERATING EXPENSES:
Research and development	5,897		10,762		15,339		19,338
Sales and marketing	2,604		5,323		8,872		9,939
General and administrative	6,345		9,827		14,899		21,157
Total operating expenses	14,846		25,912		39,110		50,434
LOSS FROM OPERATIONS	(16,186)		(26,633)		(42,075)		(51,555)
OTHER INCOME (EXPENSE):
Change in fair value of convertible note and warrant liabilities	(116)		141		(926)		109
Interest income and other	301		350		578		774
Interest expense and other	(11)		(307)		165		(650)
Total other income (expense), net	174		184		(183)		233
Provision for income tax expense	19		18		38		26
Net loss	$	(16,031)	$	(26,467)	$	(42,296)	$	(51,348)
PER SHARE DATA
Net loss per common share (basic and diluted)	$	(0.09)	$	(0.17)	$	(0.25)	$	(0.33)
Weighted average common shares outstanding (basic and diluted)	175,675,994		157,310,419		168,962,722		156,071,676
COMPREHENSIVE LOSS:
Net loss	$	(16,031)	$	(26,467)	$	(42,296)	$	(51,348)
Change in net unrealized loss on available-for-sale securities, net of tax	420		(182)		910		(1,238)
Change in fair value due to instrument-specific credit risk, net of tax	—		—		(21)		—
Comprehensive loss	$	(15,611)	$	(26,649)	$	(41,407)	$	(52,586)

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the six months ended June 30, 2023 and 2022 (In thousands, except share data) (Unaudited)
	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
BALANCE—December 31, 2022	—	$	—	163,099,124	$	16	$	345,742	$	(1,279)	$	(250,509)	$	93,970
Stock-based compensation	—	—		—	—		6,513		—		—		6,513
Issuance of common stock upon exercise of stock options	—	—		2,069,081	—		391		—		—		391
Issuance of common stock upon vesting of restricted stock units	—	—		2,983,790	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(1,320,828)	—		(867)		—		—		(867)
Conversion of convertible note into common stock	—	—		4,138,414	1		1,754		—		—		1,755
Other comprehensive income, net of tax	—	—		—	—		—		469		—		469
Net loss	—	—		—	—		—		—		(26,265)		(26,265)
BALANCE—March 31, 2023	—	$	—	170,969,581	$	17	$	353,533	$	(810)	$	(276,774)	$	75,966
Stock-based compensation	—	—		—	—		4,110		—		—		4,110
Issuance of common stock upon vesting of restricted stock units	—	—		2,562,467	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(895,829)	—		(181)		—		—		(181)
Conversion of convertible note into common stock	—	—		8,119,992	1		1,253		—		—		1,254
Issuance of common stock through Employee Stock Purchase Plan	—	—		664,102	—		118		—		—		118
Other comprehensive income, net of tax	—	—		—	—		—		420		—		420
Net loss				—	—		—		—		(16,031)		(16,031)
BALANCE—June 30, 2023	—	$	—	181,420,313	$	18	$	358,833	$	(390)	$	(292,805)	$	65,656



	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
BALANCE—December 31, 2021	—	$	—	155,137,237	$	16	$	320,937	$	(391)	$	(151,795)	$	168,767
Stock-based compensation							5,340		—		—		5,340
Issuance of common stock upon exercise of options	—	—		656,303	—		222		—		—		222
Issuance of common stock upon vesting of restricted stock units	—	—		856,917	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(285,533)	—		(1,149)		—		—		(1,149)
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—	—		—		(1,056)		—		(1,056)
Net loss	—	—			—		—		—		(24,881)		(24,881)
BALANCE—March 31, 2022	—	$	—	156,364,924	$	16	$	325,350	$	(1,447)	$	(176,676)	$	147,243
Stock-based compensation	—	—		—	—		6,557		—		—		6,557
Issuance of common stock upon exercise of stock options	—	—		1,105,298	—		446		—		—		446
Issuance of common stock upon vesting of restricted stock units	—	—		883,318	—		—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(312,920)	—		(1,431)		—		—		(1,431)
Issuance of common stock under the Common Stock Purchase Agreement	—	—		435,000	—		1,422		—		—		1,422
Issuance of stock upon exercise of public warrants	—	—		10	—		—		—		—		—
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—	—		—		(182)		—		(182)
Net loss	—	—		—	—		—		—		(26,467)		(26,467)
BALANCE—June 30, 2022	—	$	—	158,475,630	$	16	$	332,344	$	(1,629)	$	(203,143)	$	127,588

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


AEYE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	Six months ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(42,296)	$	(51,348)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	666		463
Gain on sale of property and equipment, net	(52)		—
Noncash lease expense relating to operating lease right-of-use assets	706		654
Impairment of right-of-use assets	47		—
Inventory write-downs, net of scrapped inventory	544		335
Change in fair value of convertible note and warrant liabilities	926		(109)
Stock-based compensation	10,623		11,897
Amortization of premiums and accretion of discounts on marketable securities, net of change in accrued interest	(65)		826
Changes in operating assets and liabilities:
Accounts receivable, net	327		4,033
Inventories, current and noncurrent, net	(2,502)		(1,316)
Prepaid and other current assets	2,884		900
Other noncurrent assets	(2,164)		411
Accounts payable	282		932
Accrued expenses and other current liabilities	(785)		1,354
Operating lease liabilities	(749)		(859)
Contract liabilities	(837)		(1,285)
Net cash used in operating activities	(32,445)		(33,112)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(808)		(1,759)
Proceeds from sale of property and equipment	96		—
Proceeds from redemptions and maturities of marketable securities	35,850		26,234
Net cash provided by investing activities	35,138		24,475
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	391		668
Taxes paid related to the net share settlement of equity awards	(1,051)		(3,400)
Payments for convertible note redemptions	(4,973)		—
Proceeds from issuance of common stock under the Common Stock Purchase Agreement	—		1,422
Proceeds from issuance of common stock through Employee Stock Purchase Plan	118		—
Net cash used in financing activities	(5,515)		(1,310)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(2,822)		(9,947)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period	21,214		16,333
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period	$	18,392	$	6,386
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	10		10
Cash paid for interest	106		—
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment included in accounts payable and accrued liabilities	48		562
Operating lease right-of-use assets obtained in exchange for lease obligations upon adoption of ASC 842	—		16,284

Conversion of convertible notes and accrued interest into Class A common stock	3,009		—
Taxes related to net share settlement of equity awards included in accrued liabilities	1		15
Operating lease right-of-use assets obtained in exchange for lease obligation	—		556

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

AEYE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data or otherwise stated)

1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

AEye, Inc. (the “Company” or “AEye”), formerly known as CF Finance Acquisition Corp. III, was originally incorporated in Delaware on March 15, 2016 under the name CF SPAC Re Inc. On February 17, 2021, AEye Technologies, Inc., then known as AEye, Inc., entered into an Agreement and Plan of Merger with CF III. Based on CF III’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended. On August 16, 2021, the business combination contemplated by the Agreement and Plan of Merger was closed and CF III changed its name to AEye, Inc.

AEye is a provider of high-performance lidar systems for vehicle autonomy, advanced driver-assistance systems (ADAS), and smart industrial applications. AEye’s software-definable 4SightTM Intelligent Sensing Platform combines solid-state lidar, an optionally fused low-light HD camera, and integrated deterministic artificial intelligence to capture more intelligent information with less data, enabling faster, more accurate, and more reliable perception of the surroundings.

The Company’s common stock and public warrants are listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “LIDR” and “LIDRW,” respectively. Unless otherwise specified, “we,” “us,” “our,” “AEye,” and the “Company” refers to AEye, Inc.

Unaudited Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Certain prior year line-item descriptions have been updated for consistency with the current year presentation, however, these changes did not impact the amounts or comparability. Amortization of premiums on marketable securities, net of change in accrued interest is now presented as Amortization of premiums and accretion of discounts on marketable securities, net of change in accrued interest on the condensed consolidated statements of cash flows.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities, and accounts receivable. The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high credit quality, to limit the exposure of each investment. The Company’s marketable securities have investment grade ratings when purchased which mitigates risk.

The Company’s accounts receivables are derived from customers located in the U.S., Europe, and Asia. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral.

Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board, ("FASB"), issued Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments, which has subsequently been amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, and ASU No. 2019-11. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available-for-sale and held to maturity debt

securities are also required to be held net of an allowance for credit losses. For public business entities, this standard is effective for fiscal years beginning after December 15, 2019. For smaller reporting companies, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-13 on January 1, 2023 which resulted in an immaterial impact to the consolidated financial statements.

2.FAIR VALUE MEASUREMENTS

The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy established in FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs, other than Level 1 inputs, which are observable either directly or indirectly or can be corroborated by observable market data using quoted prices for similar assets or liabilities.

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company's financial instruments that are not re-measured at fair value include accounts receivable, prepaid and other current assets, accounts payable, accrued expenses and other current liabilities. The carrying values of these financial instruments approximate their fair values.

The Company’s financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):


	Fair Value Measured as of June 30, 2023 Using:
	Adjusted Cost		Unrealized losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Assets
Level 1
Money market funds	$	16,863	$	—	$	16,863	$	16,863	$	—
Level 2
Asset-backed securities	$	3,503	$	(40)	$	3,463	$	—	$	3,463
Corporate bonds	7,095		(39)		7,056		—		7,056
Commercial paper	—		—		—		—		—
U.S. Government securities	30,006		(265)		29,741		—		29,741
Total financial assets	$	57,467	$	(344)	$	57,123	$	16,863	$	40,260
Liabilities
Level 2
Private placement warrant liability	$	—	$	—	$	2	$	—	$	—
Level 3
Convertible notes	$	—	$	—	$	1,641	$	—	$	—
Derivative warrant liability	—		—		42		—		—
Total financial liabilities	$	—	$	—	$	1,685	$	—	$	—


	Fair Value Measured as of December 31, 2022 Using:
	Adjusted Cost		Unrealized losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Assets
Level 1
Money market funds	$	14,253	$	—	$	14,253	$	14,253	$	—
Level 2
Asset-backed securities	$	3,507	$	(119)	$	3,388	$	—	$	3,388
Corporate bonds	22,139		(240)		21,899		—		21,899
Commercial paper	20,760		—		20,760		—		20,760
U.S. Government securities	29,983		(895)		29,088		—		29,088
Total financial assets	$	90,642	$	(1,254)	$	89,388	$	14,253	$	75,135
Liabilities
Level 2
Private placement warrant liability	$	—	$	—	$	7	$	—	$	—
Level 3
Convertible notes					$	8,594
Derivative warrant liability					119
Total financial liabilities	$	—	$	—	$	8,720	$	—	$	—

As of June 30, 2023, the Company’s financial assets and liabilities subject to fair value procedures were comprised of the following:

Money Market Funds: The Company holds financial assets consisting of money market funds. These securities are valued using observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Marketable Securities: The Company holds financial assets consisting of fixed-income U.S. government agency securities, corporate bonds, commercial paper, and asset-backed securities. The securities are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets. Additionally, quoted prices of similar instruments in active market or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets are used to value marketable securities.

2022 Convertible Note: On September 15, 2022, the Company entered into a convertible note agreement with a face value of $10,500,000 (the "2022 Note"). The Company elected the fair value option to account for the 2022 Note. The fair value estimate of the 2022 Note was based on a binomial lattice model, which represents Level 3 measurements. Significant assumptions include the discount rate used in the model, remaining term, stock price, and volatility. The discount rate is derived from the estimated credit spread and the risk-free interest rate, which is based on interpolated U.S. Treasury rates, commensurate with a similar term to the 2022 Note. The remaining term is calculated based on the estimated maturity date of the 2022 Note. The stock price is based on the publicly traded price of our common stock as of the measurement date. The Company estimated the volatility for the 2022 Note based on the historical and implied volatilities of the Company's publicly traded common stock. The changes in fair value are recognized in other income (expense), net for each reporting period.

Derivative Warrant Liability: The Company’s derivative warrant liability includes the warrants that were issued by the Company as part of the 2022 Note. The warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair value estimate of the warrants was based on a Monte-Carlo simulation model. Inherent in a Monte-Carlo simulation model are assumptions related to price, volatility, risk-free interest rate, term to expiration, and dividend yield. The price is based on the publicly traded price of our common stock as of the measurement date. The Company estimated the volatility for the warrants based on the historical and implied volatilities of the Company's publicly traded common stock. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the warrants. The term to expiration was calculated as the contractual term of the warrants of 4 years. Finally, the Company does not currently anticipate paying a dividend.

Any changes in these assumptions can change the valuation significantly. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the condensed consolidated balance sheets.

Private Placement Warrant Liability: As of June 30, 2023, Private Placement Warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on observable Level 2 inputs, specifically, the observable input of the Company's public warrants. Any changes in the fair value of the liability are reflected in other income (expense), net, on the condensed consolidated statements of operations and comprehensive loss. Private Placement Warrant liability is included within other noncurrent liabilities on the condensed consolidated balance sheets.

For the six months ended June 30, 2023, there were no net transfers between Level 1 and Level 2 inputs.

The following table presents a summary of the changes in fair value of the Company's Level 3 financial instruments for the six months ended June 30, 2023 (in thousands):


	2022 Note		Derivative Warrant Liability		Total
Balance at December 31, 2022	$	8,594	$	119	$	8,713

Payments or conversions	(7,982)		—		(7,982)
Change in fair value included in other income (expense), net	1,008		(77)		931
Change in fair value due to instrument specific credit risk included in other comprehensive income	21		—		21
Balance at June 30, 2023	$	1,641	$	42	$	1,683

The key inputs into the binomial-lattice model for the 2022 Note valued at June 30, 2023 are as follows:


	June 30, 2023
Remaining term (years)	0.2
Expected volatility	115.0	%
Risk-free interest rate	5.3	%
Dividend yield	—	%
Estimated credit spread	35.7	%

The key inputs into the Monte-Carlo simulation model for the derivative warrant liability valued at June 30, 2023 are as follows:


	June 30, 2023
Expected term (years)	3.2
Expected volatility	115.0		%
Risk-free interest rate	4.4		%
Dividend yield	—		%
Exercise price	$	3.50

If factors or assumptions change, the estimated fair values could be materially different. The value of the Company’s derivative warrant liability would increase if a higher risk-free interest rate was used, and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the liability, and a lower volatility assumption would decrease the value of the liability. The value of the Company's 2022 Note liability would increase if a lower discount rate was used, and would decrease if a higher discount rate was used.

3.CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Cash, cash equivalents, and restricted cash as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
	(unaudited)
Cash and cash equivalents	$	18,392	$	19,064
Restricted cash	—		2,150
Total cash, cash equivalents, and restricted cash	$	18,392	$	21,214

4. INVENTORIES

Inventory, net of write-downs, as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
	(unaudited)
Raw materials	$	2,035	$	2,022
Work in-process	2,823		2,484
Finished goods	55		47
Total inventory, net	$	4,913	$	4,553

The Company also had $3,089 and $1,491 of non-current inventory (raw materials) classified within Other noncurrent assets on the condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022, respectively.

The Company's inventory as of June 30, 2023 and December 31, 2022 was written down by $592 and $833, respectively, in order to reduce inventory to the lower of cost or to its net realizable value.

5.PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
	(unaudited)
Prepaid expenses	$	1,728	$	4,203
Advances to suppliers	1,351		984
Demonstration units	109		281
Other	109		713
Total prepaid and other current assets	$	3,297	$	6,181

6. LEASES

The components of operating lease expenses for the three and six months ended June 30, 2023 and 2022 are as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	602	$	600	$	1,204	$	1,178
Variable lease cost	80		52		159		115
Total operating lease cost	$	682	$	652	$	1,363	$	1,293

Maturities of lease liabilities are as follows (in thousands):


	Operating leases
Years ending - December 31:	(Unaudited)
2023 (remaining six months)	$	1,262
2024	2,570
2025	2,583
2026	2,660
2027	2,701
Thereafter	11,116
Total lease payments	22,892
Less amount to discount to present value	(4,505)
Present value of lease liabilities	$	18,387

7. OTHER NONCURRENT ASSETS

Other noncurrent assets as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
	(unaudited)
Non-current inventory	$	3,089	$	1,491
Long-term prepaid expenses	902		901
Security deposits	2,244		81
Total other noncurrent assets	$	6,235	$	2,473

On April 14, 2023 the landlord of the Company's headquarters drew $2,150 from the existing letter of credit which resulted in a reclassification of $2,150 out of restricted cash and into security deposits. Refer to Footnote 18 "Subsequent events" for activity regarding this security deposit after June 30, 2023 but before issuance of this Form 10-Q.

8. CONVERTIBLE NOTES

2022 Convertible Note

On September 14, 2022, the Company entered into a Securities Purchase Agreement, or SPA, with an investor allowing for the sale and issue of two convertible notes, each with a principal balance of $10,500 and cash proceeds of $9,850, for a total of $20,000 in proceeds between the two issuances (each, a "Note Closing"). The first Note Closing ("First Closing") occurred on September 15, 2022, and the Company entered into a Senior Unsecured Convertible Note with the investor pursuant to which the Company issued to the investor one convertible note ("2022 Note") with a principal balance of $10,500 for cash proceeds of $9,850. As part of the First Closing, the Company also issued warrants to the investor. The second tranche convertible note under the SPA can be drawn at our option, subject to satisfaction of certain conditions specified in the SPA, including, without limitation, (i) absence of an uncured event of default, as defined, (ii) there being a sufficient number of authorized but unissued shares of our common stock available for issuance, (iii) the daily volume weighted average price of our common stock exceeding $1.50 for the twenty (20) trading days prior to the draw of the second tranche, (iv) the average daily trading volume of our common stock exceeding $1.5 million for the twenty (20) trading days prior to the draw of the second tranche, and (v) the outstanding balance of the first tranche being less than $2 million. These conditions can be waived by the lender, but the lender has no obligation to do so. If the second tranche is not drawn down by March 15, 2024, the Company's right to effect a Second Closing shall automatically terminate.

The 2022 Note bears interest at an annual rate of 5.0%, in addition to an original issue discount of 4.76%, and had an initial maturity date of March 15, 2024 ("Maturity Date"). Beginning December 15, 2022, and the first of each subsequent month (each a "Monthly Redemption Date" or an "Installment Date"), the Company shall redeem the Monthly Redemption Amount until the 2022 Note is fully redeemed. The Monthly Redemption Amount, in most instances, will be 1/15th of the original principal amount, plus any amount accelerated pursuant to the 2022 Note, accrued but unpaid interest, and late fees, if any. The principal and interest may be settled in cash or, so long as certain equity conditions are met, shares of Common Stock at the option of the Company and is payable together with monthly redemptions of the outstanding principal amount of the Note.

If the Company elects to settle such redemptions in shares of Common Stock, the number of shares to be settled shall be based on an Installment Conversion Price equal to the lower of (i) $2.50 or (ii) 95% of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately preceding the applicable Monthly Redemption Date. If the Company elects to settle redemptions in cash, the Monthly Redemption Amount shall include a 5% premium.

The investor is permitted to accelerate up to four (4) Monthly Redemption Amounts in any calendar month (each, an "Acceleration," and each such amount, an "Acceleration Amount", and the Conversion Date of any such Acceleration, each an "Acceleration Date") at the Acceleration Conversion Price, subject to a $2,800 limit per month. The Acceleration Conversion Price shall be the lower of (i) the Installment Conversion Price for such current Installment Date or (ii) the greater of $0.30 and 95% of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately preceding the Acceleration Date.

As these terms are defined in the 2022 Note, if either the relevant Installment Conversion Price or Acceleration Conversion Price, as applicable, is less than $0.30 per share, then a Conversion Floor Price Condition exists and we must deliver to the note holder the Conversion Installment Floor Amount in cash, in addition to the required number of shares, which are valued at $0.30 regardless of the actual trading price of our shares. The Conversion Installment Floor Amount is an amount in cash equal to the product obtained by multiplying (A) the higher of (i) the highest price that the Common Stock trades at on the Trading Day immediately preceding the relevant Share Delivery Date and (ii) the applicable Installment or Acceleration Conversion Price and (B) the difference obtained by subtracting (i) the number of shares of Common Stock delivered to the investor on the applicable Share Delivery Date with respect to such Conversion from (ii) the quotient obtained by dividing (x) the applicable Installment or Acceleration amount subject to such Conversion, by (y) the applicable Installment Conversion Price. Interest payments are also trued-up in cash when the value of our shares is below $0.30 per share.

The Company elected to apply the fair value option to the measurement of the 2022 Note. As a result of adopting the fair value option, no embedded derivatives should be bifurcated from the 2022 Note. The Company classifies the 2022 Note as a liability at fair value and will remeasure the 2022 Note to fair value at each reporting period. The fair value measurement includes the assumption of accrued interest and expense and thus a separate amount is not reflected on the condensed consolidated statement of operations.

As of June 30, 2023, the 2022 Note has outstanding principal of $1,545 and is recorded as a current liability at fair value of $1,641. Refer to Footnote 18 "Subsequent events" for activity regarding the 2022 Note after June 30, 2023 but before issuance of this Form 10-Q.

9. INTEREST EXPENSE AND OTHER

Interest expense and other for the three and six months ended June 30, 2023 and 2022 consisted of the following (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022






Amortization of premiums (accretion of discounts) on marketable securities, net	(41)		272		(229)		608
Common Stock Purchase Agreement costs	—		28		—		28


Impairment of right-of-use assets	47		—		47		—
Other	5		7		17		14
Interest expense and other	$	11	$	307	$	(165)	$	650

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in accumulated other comprehensive loss by component for the six months ended June 30, 2023 and 2022 are as follows (in thousands):


	Change in net unrealized loss on available-for-sale securities		Change in fair value due to instrument-specific credit risk		Total
Balance at December 31, 2022	$	(1,254)	$	(25)	$	(1,279)
Other comprehensive income (loss), net of tax	490		(21)		469


Balance at March 31, 2023	$	(764)	$	(46)	$	(810)
Other comprehensive income, net of tax	420		—		420
Balance at June 30, 2023	$	(344)	$	(46)	$	(390)


	Change in net unrealized loss on available-for-sale securities		Change in fair value due to instrument-specific credit risk		Total
Balance at December 31, 2021	$	(391)	$	—	$	(391)
Other comprehensive loss, net of tax	(1,056)		—		(1,056)


Balance at March 31, 2022	$	(1,447)	$	—	$	(1,447)
Other comprehensive loss, net of tax	(182)		—		(182)
Balance at June 30, 2022	$	(1,629)	$	—	$	(1,629)

11. NET LOSS PER SHARE

The following table sets forth the basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except per share data):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss attributable to common stockholders	$	(16,031)	$	(26,467)	$	(42,296)	$	(51,348)
Denominator:
Weighted average common shares outstanding- Basic	175,675,994		157,310,419		168,962,722		156,071,676
Dilutive effect of potential common shares	—		—		—		—
Weighted average common shares outstanding- Diluted	175,675,994		157,310,419		168,962,722		156,071,676

Net loss per share attributable to common stockholders - Basic and Diluted	$	(0.09)	$	(0.17)	$	(0.25)	$	(0.33)

Due to net losses for the six months ended June 30, 2023 and 2022, basic and diluted net loss per share were the same, as the effect of all potentially dilutive securities would have been anti-dilutive. The following table sets forth the anti-dilutive common share equivalents for the periods listed:


	Three and six months ended June 30,
	2023	2022
Common stock options issued and outstanding	12,499,030	27,152,921
Unvested restricted stock units	26,297,351	13,203,133
Warrants	9,583,322	7,833,322
Conversion of convertible notes	9,235,233	—
ESPP	6,395,900	—
Total	64,010,836	48,189,376

12. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense recorded in each component of operating expenses in the Company’s condensed consolidated statements of operations and comprehensive loss for

the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	34	$	43	$	95	$	43
Research and development	1,530		2,045		3,808		3,268
Sales and marketing	674		1,332		2,042		2,238
General and administrative	1,872		3,137		4,678		6,348
Total stock-based compensation	$	4,110	$	6,557	$	10,623	$	11,897

The Company uses the Monte-Carlo simulation model to estimate the grant date fair value of awards with a market condition, which requires the input of subjective assumptions such as expected term, the expected stock price volatility, risk free interest rate and dividend yield as discussed below.

Expected Term—The expected term for awards with a market condition is the length of time from the grant date to the date the market condition expires.

Expected Volatility—Expected volatility is estimated using a combination of the average historical volatility of the Company's own stock and those of comparable companies’ stock.

Risk-Free Interest Rate—The risk-free interest rates are based on US Treasury yields in effect at the grant date for notes with comparable terms as the awards.

Dividend Yield—The expected dividend-yield assumption is based on the Company’s current expectations about its anticipated dividend policy.

The following table summarizes the valuation assumptions used in estimating the fair value of awards granted during the period with a market condition:


	Six months ended June 30, 2023
Expected term (years)	1.05
Expected volatility	104.5	%
Risk-free interest rate	4.8	%
Dividend yield	—	%

13. REVENUE

Sale of Prototypes

The Company recorded revenue for prototype sales of $245 and $370 in the three and six months ended June 30, 2023, respectively, and $195 and $530 in the three and six months ended June 30, 2022, respectively, in the condensed consolidated statements of operations and comprehensive loss. The Company does not incur significant contract costs in fulfilling or obtaining their contracts with customers.

Development Contracts

The Company has entered into research and development contracts with companies primarily in the automotive industry. The Company assessed the number of performance obligations associated with the promises under each agreement, primarily the delivery of customized 4SightTM perception-related goods and services, and recognized $326 and $837 in revenue for performance obligations satisfied during the three and six months ended June 30, 2023 and $511 and $1,258 during the three and six months ended June 30, 2022, respectively, in the condensed consolidated statements of operations and comprehensive loss.

Disaggregation of Revenue

The Company recognized the following revenues by geographic area based on the primary billing address of the customer and by the timing of the transfer of goods or services to customers (point in time or over time), as it believes such criteria best depict 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 are as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenue by primary geographical market:
United States	$	443	$	626	$	990	$	1,647
Europe	128		80		160		120
Australia	—		—		32		—
Asia	—		—		25		21
Total	$	571	$	706	$	1,207	$	1,788

Revenue by timing of recognition:
Recognized at a point in time	$	245	$	214	$	370	$	750
Recognized over time	326		492		837		1,038
Total	$	571	$	706	$	1,207	$	1,788

Contract Liabilities

Contract liabilities consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
	(unaudited)
Contract liabilities, current	$	150	$	987

Total	$	150	$	987

The following table shows the significant changes in contract liabilities balance for the six months ended June 30, 2023 and 2022 (in thousands):


	Six months ended June 30,
	2023		2022
Beginning balance	$	987	$	2,918
Revenue recognized that was included in the contract liabilities beginning balance	(837)		(1,285)
Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period	—		—
Ending balance	$	150	$	1,633

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 contract liabilities balance represents the remaining performance obligations for contracts with an original duration of greater than one year.

14. Restructuring

In the first quarter of 2023, management began the implementation of a revised strategic plan to focus on key products and critical customer engagements it believes will generate the best long-term results for all stakeholders. As a part of the implementation of the revised strategic plan, the Company has realigned resources, which resulted in restructuring charges of $45 in the three months ended June 30, 2023 and $1,298 in the six months ended June 30, 2023 relating to one-time employee termination benefits. The majority of these restructuring charges were paid in the second quarter of 2023, however, the Company expects that the implementation of the revised strategic plan will continue over the remainder of the 2023 fiscal year. The Company did not have any restructuring charges during fiscal year 2022. Restructuring related liabilities are included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

Restructuring activity is summarized as follows as of June 30, 2023 (in thousands):


	One-time employee termination benefits
Balance as of December 31, 2022	$	—
Charges	1,253
Cash payments	(199)
Balance as of March 31, 2023	$	1,054
Charges	45
Cash payments	(955)
Balance as of June 30, 2023	$	144

Restructuring charges were included in the condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2023 as follows (in thousands):


	Three months ended June 30, 2023		Six months ended June 30, 2023
Cost of revenue	$	—	$	50
Research and development	—		503
Sales and marketing	45		558
General and administrative	—		187
Total restructuring charges	$	45	$	1,298

15. INCOME TAXES

For the three and six months ended June 30, 2023, the Company recorded $19 and $38 provision for income taxes, respectively. For the three and six months ended June 30, 2022, the Company recorded $18 and $26, respectively. The income tax rates vary from the federal and state statutory rates due to the valuation allowances on the Company's net operating losses and foreign tax rate differences. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested indefinitely outside the U.S.

16. COMMITMENTS AND CONTINGENCIES

Legal matters

The Company may be subject to legal proceedings and claims that arise in the ordinary course of business. Management is not currently aware of any matters that will have a material effect on the financial position, results of operations, or cash flows of the Company.

17. RELATED PARTIES

Since November 2016, the Company has employed a sibling of Mr. Dussan, the Company’s Chief Technology Officer, who held the position of Director, Human Resources at June 30, 2023 and 2022. For the six months ended June 30, 2023 and 2022, Mr. Dussan’s sibling received total cash compensation of $77 and $89, respectively. For the six months ended June 30, 2023 and 2022, Mr. Dussan’s sibling was granted 60,000 and 22,500 RSUs, respectively. In addition, he participates in all other benefits that the Company generally offers to all of its employees.

18. SUBSEQUENT EVENTS

In July 2023, the Company entered into a letter of credit with Citibank as security for the payment of rent on its headquarters in Dublin, CA and deposited $2,150 as funds contractually restricted against this letter of credit. On July 21, 2023, upon issuance of the letter of credit, the landlord refunded the security deposit of $2,150.

As of August 1, 2023, all remaining outstanding principal and accrued interest on the 2022 Note has been fully paid.

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

This discussion contains forward-looking statements that are based on current expectations, estimates, assumptions, and projections about our industry, business, and future financial results. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and those set forth under “Risk Factors” herein and other filings we make with the SEC from time to time. Unless the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “we,” “our,” “us,” and “AEye,” refer to the business and operations of AEye, Inc.

Overview

This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understanding our financial results for the three and six months ended June 30, 2023, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report, including our condensed consolidated financial statements and accompanying notes.

All dollar amounts expressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars, except for per share amounts and unless otherwise specified.

Key Factors Affecting AEye's Operating Results

We believe that our future performance and success depends to a substantial extent on our ability to capitalize on the opportunities described herein, which in turn are subject to significant risks and challenges, including those discussed below, as well as the risk factors described in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors.”

We are subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or commercialize our products; secure additional capital in a timely manner in order to meet operating cash flow needs; maintain and establish relationships with Tier 1 automotive suppliers to facilitate "design wins" with potential end customers, which in our case are automotive OEMs; develop and protect our intellectual property; comply with existing and new or modified laws and regulations applicable to our business; maintain and enhance the value of our reputation and brand; hire, integrate, and retain talented people at all levels of our organization; and successfully develop new solutions to enhance the experience of, and deliver value to, our customers.

Market Trends and Uncertainties

We anticipate growing demand for our 4SightTM Intelligent Sensing Platform across two major markets - Automotive and Industrial. In the near term, we anticipate concentrating on the Automotive market to more effectively leverage our business model, focusing on advanced driver-assistance systems, or ADAS, autonomous driving, and commercial trucking. In the Industrial market, we will continue to remain engaged with customers, but have narrowed our focus to select opportunities that are more of a fit from a product and revenue-generation standpoint in the mining, aerospace, defense, railway, and intelligent transportation systems, or ITS, segments. This provides us with multiple opportunities for sustained growth by enabling new applications and product features across these market segments. However, as our customers continue their R&D projects to commercialize solutions that rely on lidar technology, it is difficult to estimate the timing of ultimate end markets and customer adoption. In the Automotive market for example, which accounted for 71% and 64% of our revenue in the six months ended June 30, 2023 and 2022, respectively, our growth and financial performance will be heavily influenced by our ability to successfully integrate into OEM programs that require years of development, testing, and validation. Because of the size and complexity of these OEM programs, we see our existing Tier 1 partnerships as a significant competitive advantage over our competitors given the large scale, mass-production capabilities, and existing OEM customer relationships held by our Tier 1 partners. Our primary focus in the Automotive market is on ADAS for passenger and commercial vehicle autonomy, particularly highway autonomy applications. We believe that growth in that market is driven by both more stringent safety regulations and consumer demand for vehicles offering increased safety and advanced driver assist features. We will need to anticipate and adapt to any changes in the regulatory environment, as well as changes in consumer demand in order to take advantage of this opportunity.

Additionally, we are strategically managing our investments in certain international operations and partnerships that will position us to expand our business globally and meet growing demand in international markets. This is an important part of our core strategy and may expose us to additional factors such as foreign currency risk, additional operating costs, and other risks and challenges that may impact our ability to meet projected sales and margin targets.

Partnerships and Commercialization

Our technology is designed to be a key enabler in certain Automotive and Industrial market applications. Because our technology must be integrated into a broader solution by our customers, it is critical that we achieve design wins with these customers. The timing of these design wins varies based on the market and application. Achieving a design win with an OEM in the Automotive market may take considerably longer than a design win with customers in the Industrial market. We consider design wins to be critical to our future success, although the revenue generated by each design win and the time necessary to achieve such a win can vary significantly, making it difficult to predict our future financial performance.

We believe our revenue and profitability will also be dependent upon our success in licensing our technology to Tier 1 automotive suppliers - such as Continental, which represented 71% and 64% of our revenue in the six months ended June 30, 2023 and 2022, respectively - that intend to use our technology in volume production of lidar sensors for OEMs. Delays of autonomy programs by OEMs that we are currently or will be working with through our Tier 1 partners could result in us being unable to achieve our revenue and profitability targets in the time frame we anticipate. Our overall revenue and profitability will also be dependent upon our success in selling our lidar solutions to customers in the Industrial market.

Restructuring

In the first quarter of 2023, we began the implementation of a revised strategic plan which outlines the steps we are taking to focus on key products and critical customer engagements that we believe will generate the best long-term results for our stakeholders. As a part of the implementation of the revised strategic plan, we have realigned our resources which included reducing our workforce by approximately one-third, most of which was effective April 3, 2023. Our revised plan also includes other significant operating expense reductions.

Gross Margin Improvement

Our gross margins will depend on numerous factors, including, among others, the selling price of our products, pricing of our development contracts with customers, royalty rates on licenses we grant to our customers, unit volumes, product mix, component costs, personnel costs, contract manufacturing costs, overhead costs, and product features. In the future, we expect to generate attractive gross margins from licensing our lidar technology and software to our Tier 1 partners in the Automotive market. We also sell our own lidar solutions to customers in the Industrial market utilizing lower-cost components that are sourced, in part, from the Tier 2 automotive supply chain and assembled by our contract manufacturing partners. If our Tier 1 partners in the Automotive market do not achieve the volumes that we expect, then the cost of the components we use to address the Industrial market may not decrease to the extent we anticipate and our gross margins and our ability to achieve profitability in the future may be impacted.

To date, our revenue has been generated through development contracts with OEMs and Tier 1 suppliers, as well as unit sales of our products to Industrial customers. These development contracts primarily focus on customization of our proprietary 4Sight™ product capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of particular perception capabilities to meet specific customer needs. In general, development contracts that require more complex configurations have higher prices. We expect development contracts to remain a significant part of our business in the near-term, but represent a smaller share of our total revenue over time, as we increase our focus on technology licensing and product sales. We expect our gross margins from the sale of products to improve over time as we outsource volume production of our lidar sensors to contract manufacturers, which we anticipate will both increase unit volumes and reduce the cost per unit.

Investment and Innovation

Our proprietary adaptive, intelligent lidar technology delivers industry-leading performance that helps to solve the most difficult challenges in delivering partial or full autonomy. While traditional sensing systems passively

collect data, our active 4Sight™ Intelligent Sensing Platform leverages principles from automated targeting systems and biomimicry to scan the environment, while intelligently focusing on what matters most in order to enable safer, smarter, and faster decisions in complex scenarios.

We believe our financial performance is significantly dependent on our ability to maintain a technology leadership position. This is further dependent on the investments we make in R&D. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance and service existing products, and generate strong market demand for our products. If we fail to do this, our market position and revenue may be adversely affected, and our investments in that area will not be recovered.

Basis of Presentation

We currently conduct our business through one operating segment.

Components of Results of Operations

Total Revenues

We categorize our revenue as (1) prototype sales and (2) development contracts. In 2023 and 2022, our prototype sales revenue primarily related to unit sales of the company’s 4Sight™ product. Revenue from prototype sales is typically recognized at a point in time when the control of goods is transferred to the customer, generally upon delivery or shipment to the customer.

Development contracts represented the majority of our total revenues in 2022 and the first two quarters of 2023. Revenue from development and/or collaboration arrangement contracts are earned from R&D activities and collaboration with OEMs and Tier 1 suppliers. These contracts primarily focus on customization of our proprietary 4Sight™ product capabilities to our customers’ applications, typically involving software implementation to assist with sensor connection and control, customization of scan patterns, and enhancement of perception capabilities to meet specific customer needs. Revenue from development contracts is recognized when we satisfy performance obligations in the contract, which can result in recognition at either a point in time or over time. This assessment is made at the outset of the arrangement for each performance obligation.

Cost of Revenue

Cost of revenue includes the costs directly associated with the production of prototypes and certain costs associated with development contracts. Such costs for prototypes include direct materials, direct labor, indirect labor, inventory write-downs, warranty expense, and allocation of overhead. Costs associated with development contracts include the direct costs and allocation of overhead costs involved in the execution of the contracts.

Operating Expenses

Research and Development

Our research and development, or R&D, efforts are focused primarily on hardware, software, and system engineering related to the design and development of our advanced lidar solutions. R&D expenses include:

•personnel-related expenses, including salaries, benefits, bonuses, severance, and stock-based compensation expense;

•third-party engineering and contractor costs;

•lab equipment;

•engineering parts and test units:

•new hardware and software expenses; and

•allocated overhead expenses.

R&D costs are expensed as they are incurred. We expect our investment in R&D to be reduced this fiscal year as a result of our revised strategic plan, with a reduced workforce and consolidated global footprint. We also plan to execute more focused spending with vendors in critical areas that support our strategy and product development, in line with our revised strategic plan and manage costs more efficiently.

Sales and Marketing

Our sales and marketing, or S&M, efforts are focused primarily on sales, business development, and marketing programs in pursuit of revenue contracts from potential and existing customers. S&M expenses include:

•personnel-related expenses, including salaries, benefits, bonuses, severance, and stock-based compensation expense;

•demonstration equipment;

•trade shows expenses, advertising, and promotions expenses for press releases and other public relations services; and

•allocated overhead expenses.

We expect our S&M expenses to be reduced this fiscal year as a result of our revised strategic plan, with a reduced workforce and consolidated global footprint. We also plan to focus our sales and marketing efforts on key products and critical customer engagements to support our revised strategic plan and manage costs more efficiently.

General and Administrative

Our general and administrative, or G&A, spending supports all business functions. G&A expenses include:

•personnel-related costs, including salaries, benefits, bonuses, severance, and stock-based compensation expense for executive, finance, legal, human resources, technical support, and other administrative personnel;

•consulting, accounting, audit, legal, and other professional fees;

•insurance premiums, software and computer equipment costs, general office expenses; and

•allocated overhead expenses.

We expect our G&A expenses to be reduced this fiscal year as a result of our revised strategic plan with a reduced workforce and consolidated global footprint. We also plan to manage spending with vendors more effectively to support our revised strategic plan to manage costs.

Change in Fair Value of Convertible Note and Warrant Liabilities

Changes in fair value of the 2022 Note and warrant liabilities are the result of the change in fair value at each reporting date. The 2022 Note and warrant liabilities are recorded at fair value for each reporting period, and the changes in fair value are reported within other income (expense), net during the period. We have also elected to record interest expense on the 2022 Note as changes in fair value.

Interest Income, Interest Expense and Other

Interest income and other consists primarily of interest earned on our cash, cash equivalents, and marketable securities. These amounts will vary based on our cash and cash equivalents balances and market rates. Interest income and other also includes the net gain on sale of property and equipment. Interest expense and other consists primarily of convertible note issuance costs, amortization of premiums (accretion of discounts) on marketable securities, net, and impairment of right-of-use assets.

Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report. The following table sets forth our consolidated results of operations data for the three months ended June 30, 2023 and 2022 (in thousands, except for percentages):


	Three Months Ended June 30,				Change		Change
	2023		2022		$		%
Prototype sales	$	245	$	195	$	50	26	%
Development contracts	326		511		(185)		(36)	%
Total revenue	571		706		(135)		(19)	%
Cost of revenue	1,911		1,427		484		34	%
Gross loss	(1,340)		(721)		(619)		86	%
Research and development	5,897		10,762		(4,865)		(45)	%
Sales and marketing	2,604		5,323		(2,719)		(51)	%
General and administrative	6,345		9,827		(3,482)		(35)	%
Total operating expenses	14,846		25,912		(11,066)		(43)	%
Loss from operations	(16,186)		(26,633)		10,447		(39)	%
Change in fair value of convertible note and warrant liabilities	(116)		141		(257)		(182)	%
Interest income and other	301		350		(49)		(14)	%
Interest expense and other	(11)		(307)		296		(96)	%
Total other income (expense), net	174		184		(10)		(5)	%
Provision for income tax expense	19		18		1		6	%
Net loss	$	(16,031)	$	(26,467)	$	10,436	(39)	%

Revenue

Prototype Sales

Prototype sales revenue increased by $50, or 26%, to $245 for the three months ended June 30, 2023, from $195 for the three months ended June 30, 2022. This was primarily due to an increase in units sold of our 4Sight™-based Industrial product.

Development Contracts

Development contracts revenue decreased by $185, or 36%, to $326 for the three months ended June 30, 2023, from $511 for the three months ended June 30, 2022. The decrease was primarily due to less revenue recognized in the current year from a Tier 1 automotive supplier contract as the design validation phase nears completion.

Cost of Revenue

Cost of revenue increased by $484, or 34%, to $1,911 for the three months ended June 30, 2023, from $1,427 for the three months ended June 30, 2022. This increase was primarily due to a higher cost of revenue associated with a Tier 1 automotive supplier in the current period to complete the remaining obligations under the contract and higher 4Sight™-based Industrial units sold.

Operating Expenses

Research and Development

Research and development expenses decreased by $4,865, or 45%, to $5,897 for the three months ended June 30, 2023, from $10,762 for the three months ended June 30, 2022. This decrease was primarily driven by decreases in personnel costs of $2,079, third party research and development costs of $1,399, stock-based compensation expense of $515, engineering parts and lab equipment expense of $409, and information technology and travel and entertainment expense of $303.

Sales and Marketing

Total sales and marketing expenses decreased by $2,719, or 51%, to $2,604 for the three months ended June 30, 2023, from $5,323 for the three months ended June 30, 2022. This decrease was primarily driven by decreases to personnel costs of $979, stock based compensation of $657, marketing spend of $592, and information technology and facilities expense of $130.

General and Administrative

Total general and administrative expenses decreased by $3,482, or 35%, to $6,345 for the three months ended June 30, 2023, from $9,827 for the three months ended June 30, 2022. This decrease was primarily due to decreases in stock-based compensation expense of $1,265, professional accounting and legal fees of $667, personnel costs of $607, directors' and officers' insurance of $443, travel and entertainment expense of $229, and investor and stock related expenses of $193.

Change in Fair Value of Convertible Note and Warrant Liabilities

Change in fair value of convertible note and warrant liabilities increased by $257, or 182%, to a loss of $116 for the three months ended June 30, 2023, from a gain of $141 for the three months ended June 30, 2022. This decrease was primarily due to an increase in fair value of the 2022 Note in the current period.

Interest Income and Other

Interest income and other decreased by $49, or 14%, to $301 for the three months ended June 30, 2023, from $350 for the three months ended June 30, 2022. This decrease was primarily due to less interest earned on our marketable securities in the current period.

Interest Expense and Other

Interest expense and other decreased by $296, or 96%, to a loss of $11 for the three months ended June 30, 2023, from a loss of $307 for the three months ended June 30, 2022. This decrease was primarily due to a favorable increase in accretion of discounts on marketable securities, resulting in a net decrease within Amortization of premiums (accretion of discounts) on marketable securities, net, of $313.

Provision for Income Tax Expense

Provision for income tax expenses increased to $19 for the three months ended June 30, 2023, from $18 for the three months ended June 30, 2022 resulting in a flat period over period variance.

Net Loss

Net loss decreased by $10,436, or 39%, to $16,031 for the three months ended June 30, 2023, from $26,467 for the three months ended June 30, 2022. This decrease was primarily due to decreases in operating expenses following restructuring

AEye, Inc. [LIDRW] Filings
AEye, Inc. [LIDR] Filings
10-Q	[2023-08-09]
10-Q	[2023-05-11]
10-K	[2023-03-16]
10-Q	[2022-11-10]
10-Q	[2022-08-15]
10-Q	[2022-05-13]
S-1	[2022-05-06]
10-K	[2022-03-28]
10-Q	[2021-11-15]
S-1	[2021-09-15]
10-Q	[2021-08-10]
10-Q	[2021-05-14]
10-K	[2021-03-15]
S-1	[2020-10-07]

AEye, Inc. [LIDRW] Filings

AEye, Inc. [LIDR] Filings