LIGHTNING EMOTORS, INC. The following discussion and analysis provide information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. The discussion and analysis should be read together with the financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this Annual Report on Form
10-K.
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Overview
We are a leading electric, commercial fleet vehicle designer and manufacturer
with over 200 vehicles on the road as of December 31, 2021 . We provide
electrification solutions (both battery electric and fuel cell electric) for
commercial fleets, including but not limited to, Class 3-5 cargo and passenger
vehicles and school buses, Class 5 and 6 work trucks and Class 7 city buses and
motorcoaches. We are focused on eradicating commercial fleet emissions without
compromising safety or efficiency in our commercial fleets. We help our
customers to optimize their businesses while limiting their carbon footprint.
Commercial fleets are one of the top contributors of greenhouse gas emissions in
the transportation sector according to the EPA , making Class 3 to 7 BEV, FCEV
and charging infrastructure solutions to commercial fleet customers one of the
most critical levers in the worldwide campaign against climate change. Our
ongoing focus has been on providing a broad range of ZEV platforms and charging
solutions to help fleets reduce emissions, lower operating costs and improve
energy efficiency.
We started in 2008 as a manufacturer of hybrid systems for commercial vehicles,
and in 2017, customer feedback led us to understand that hybrid systems did not
adequately address the growing issue of urban air pollution from commercial
vehicle fleets. In 2017 we redirected our efforts to focus exclusively on the
attractive market opportunity in ZEVs. We leveraged nearly 10 years of extensive
knowledge and production infrastructure from developing and implementing hybrid
commercial vehicles to successfully adapt to ZEVs. To date, all of our platforms
have been fully certified as ZEVs by the California Air Resource Board, the
clean air agency that defines vehicle emission standards. We currently maintain
five Executive Orders (with one renewal application under review), which are
required to sell ZEVs in California as well as various other states.
We believe we are the only full-range manufacturer of Class 3 to 7 BEV and FCEV
in the United States , and we provide end-to-end electrification solutions
including advanced analytics software and mobile charging solutions. We combine
an internally developed optimized modular software, which can be used in
multiple platforms and applications, with hardware designs that we believe
allows us to address a diverse range of opportunities in the markets in which we
operate in a cost-effective manner with a significant time-to-market advantage.
Our manufacturing facility has the capacity to produce 1,500 ZEVs per year on
one eight-hour shift. The same facility and equipment can produce 3,000 ZEVs
annually by increasing labor to two eight-hour shifts. We believe that with full
utilization of our facilities combined with our ability to lease more space on
our current campus, and with our OEM customers' installation capacities, we will
be able to scale production to 20,000 vehicles and powertrains per year. Over
the long term, we believe that we will be able to leverage our significant
investment in manufacturing capacity to increase production output, leverage our
fixed overhead and improve profitability from the sale of our products. In
addition, we have also built an ecosystem of supply-chain partners and specialty
vehicle partners which are instrumental to our growth.
Closing of Business Combination
Lightning Systems entered into the Business Combination Agreement with Gig and its wholly owned subsidiary Merger Sub, onDecember 10, 2020 . Pursuant to the Business Combination Agreement, the stockholders of Gig approved the transaction onApril 21, 2021 , and the deal was consummated onMay 6, 2021 . As a result, Merger Sub, a newly formed subsidiary of Gig, was merged with and into Lightning Systems and the separate corporate existence of Merger Sub ceased, and Lightning Systems continued as the surviving corporation of the Business Combination. Lightning Systems was deemed the accounting predecessor and the combined entity became the successorSEC registrant, meaning that Lightning Systems' financial statements for previous periods are disclosed in the registrant's periodic reports filed with theSEC after the Closing. On the Closing Date, and in connection with the closing of the Business Combination, Gig changed its name toLightning eMotors, Inc. (the "Company", "Lightning", "we", "our" or "us"). The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Gig was treated as the acquired company for financial statement reporting purposes. The most significant change in our future reported financial position and results was the increase in cash of approximately$268.3 million , after stockholder redemptions of$58.8 million permitted under the Business Combination Agreement and prior to the payment of non-recurring transaction costs and other payments that totaled approximately$51.5 million . 46 Table of Contents As a result of the Business Combination, Lightning Systems became one of our wholly owned subsidiaries. We are a NYSE-listed company with our Common Stock registered under the Exchange Act.
Recent Developments and the COVID-19 Pandemic
The global impacts resulting from the COVID-19 pandemic are ongoing, including challenges and increases in costs for logistics and supply chains, such as supplier delays and/or shortages of battery cells, motors and chassis.
We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements and deploy our production, workforce and other resources accordingly. Although we have made our best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. Accordingly, it is reasonably possible that the estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, and if so, we may be subject to future impairment losses related to long-lived assets as well as changes to valuations. Possible Impairments. No impairments were recorded for years endedDecember 31, 2021 and 2020, as no triggering events or changes in circumstances had occurred as of such dates. However, due to significant uncertainty surrounding the continued effects of the COVID-19 pandemic, our results of operations, cash flows, and financial condition could be impacted, and the extent of such impact cannot be reasonably estimated. Supply-Chain Delays. As a result of the COVID-19 pandemic, we have been experiencing significant delivery delays from our suppliers sinceApril 2020 . In addition, we often do not get informed of delivery delays until or after the expected delivery dates, which does not allow for timely mitigation plans. We increased our raw material inventories and added new suppliers to attempt to manage and mitigate this risk. Although we have been focused on addressing supply chain constraints by increasing raw material inventories and adding new suppliers, supply chain delays adversely impacted our 2021 revenue, and we expect supply chain delays will continue for the foreseeable future.
Comparability of Financial Information
Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of our ongoing evolution, refinement, and growth of our business operations within the electric commercial vehicle industry. While historically we developed hybrid systems for commercial vehicles, during 2017, we refocused our business to produce the ZEV powertrains and phased-out the production of hydraulic hybrid upfit systems. During 2019, we increased the physical and production capabilities of ourLoveland, Colorado facility, in preparation of the installation and integration of ZEV powertrains into vehicles beginning in 2020. This change significantly reduced the use and reliance on certified installer or dealers. In conjunction with the transition to using theLoveland plant for comprehensive production, we have continually improved our production technology, processes, and productivity and have invested in the supporting personnel and other infrastructure.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on several factors, including those set forth below, that present significant opportunities for us. These factors pose risks and challenges, including those set forth in the section titled "Risk Factors".
Commercial Launch of medium-duty trucks and other products
In 2020, we attained revenue commercialization of our ZEVs, with 72 customer-ordered Class 3 to Class 7 ZEVs sold during the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we sold 146 Class 3 to 5 ZEVs. We will require additional capital to fund the growth and scaling of our manufacturing facilities and operations; further develop our products and services, including those for orders in our order backlog; and fund possible acquisitions. Until we can 47 Table of Contents generate sufficient cash flow from operations, we expect to finance our operations through a combination of the merger proceeds we received from the Business Combination as well as from additional public offerings, debt financings or other capital markets transactions, collaborations or licensing arrangements. Any delay in the financing, design, manufacture and launch of our ZEVs or zero-emission powertrains, could materially damage our brand, business, prospects, financial condition and operating results. Vehicle manufacturers often experience delays in the design, manufacture and commercial release of new products. To the extent we delay or interrupt the launch of our ZEVs or zero-emission powertrains, our growth prospects could be adversely affected as we may fail to grow our market share. The amount and timing of our future funding requirements depend on many factors, including the pace and results of our development efforts and our ability to scale our operations.
Customer Demand/Order Backlog
As ofMarch 14, 2022 , we had an order backlog of$169.3 million comprised of ZEVs, zero-emission powertrains and charging systems of approximately 1,500 units. Our order backlog is generally comprised of non-binding agreements and purchase orders from customers. In addition, some of our order backlog have contingencies including completing a successful pilot program, obtaining third-party financing or obtaining government grants such as HVIP. Although the order backlog, in most cases, does not constitute a legal obligation or, in some cases, may have contingencies, we believe the amounts included in our order backlog are firm, even though the non-binding orders may be cancelled or delayed by customers without penalty. We may elect to permit cancellation of orders without penalty where management believes it is in our best interest to do so. On a case-by-case basis and at our sole discretion, we have held partial deposits for purchase orders from customers. See "Risk Factors - Amounts included in order backlog may not result in actual revenue and are an uncertain indicator of our future revenue" for more information. The realization and timing of the recognition of our order backlog is dependent, among other things, on our ability to obtain and secure a steady supply of components used in our manufacturing process. Accordingly, revenue estimates and the amount and timing of work expected to be performed at the time the estimate of order backlog is developed is subject to change. As a result, the order backlog may not be indicative of future sales and can vary significantly from period to period. In addition, it is possible that the methodology for determining the order backlog may not be comparable to methods used by other companies. Regulatory Landscape We operate in an industry that is subject to and currently benefits from environmental subsidies. Government policies can increase the demand for our products by providing market participants with incentives to purchase ZEVs and charging solutions. These government policies are continuously being modified, and adverse changes in such policies could have the effect of reducing the demand for our products. Complying with any new government regulations may result in significant additional expenses or related development costs for us. For more information, see our risk factor titled "We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities."
Public Company Costs
We are incurring additional legal, accounting and other expenses that we did not previously incur, including costs associated withSEC reporting and corporate governance requirements. These requirements include compliance with the rules implemented by theSEC and the NYSE. Our financial statements reflect the impact of these expenses. Basis of Presentation Currently, we conduct business through one operating segment, the ZEV market. All long-lived assets are maintained in, and all losses are attributable to,the United States of America . See Note 2 to the Consolidated Financial Statements included herein for more information about our operating segment. 48
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Components of Results of Operations
Revenues
During the years ended
We anticipate deriving future revenue from the following business lines:
? ZEVs: The sales of zero-emission vehicles in Classes 3 to 7 to dealers and
commercial fleet companies.
Zero-Emission Powertrains: The sales of battery electric and fuel cell electric
? powertrains to our OEM partners, including technology licenses, and training
the OEM technicians on how to install the powertrains within the OEMs'
manufacturing facilities.
? Chargers: The sale of chargers and energy systems as supporting products to
customers for our ZEVs.
Telematics and Analytics: Our 1
each vehicle and powertrain sold, allows us to collect and optimize drive cycle
and vehicle performance data. This data provides drivers and fleet operators
? meaningful real-time recommendations about how to improve vehicle performance,
routes, and charging strategies and scale their electric vehicle fleets. Our 1
and powertrain purchases. Cost of Revenues Cost of revenues includes direct costs (parts, material, and labor); indirect manufacturing costs (manufacturing overhead, depreciation, plant operating lease expense, and rent); shipping, field services, logistics and warranty costs.
Research and Development Expense
Research and development expenses consist primarily of costs incurred for the discovery and development of our BEV and FCEV powertrain solutions and the production thereof, which principally include personnel-related expenses including salaries, benefits, travel and stock-based compensation, for personnel performing research and development activities; expenses related to materials, supplies and testing; and consulting and occupancy expenses.
We expect our research and development expense to increase for the foreseeable future as we continue to invest in research and development activities to achieve our operational and commercial goals.
Selling, General, and Administrative Expense
Selling, general and administrative expenses consist of personnel-related expenses for our corporate, executive, engineering, finance, sales, marketing, program management support, and other administrative functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for information technology, facilities, depreciation, amortization, travel, and sales and marketing costs. Personnel-related expenses consist of salaries, payroll taxes, benefits, and stock-based compensation. We expect our selling, general and administrative expenses to increase for the foreseeable future as we increase headcount and expenses with the growth of our business, drive for productivity improvements, acquisition of new and retention of existing customers and the additional costs associated with being a public company, which include, among other things, increases in headcount for administration and increases in legal and professional services, accounting and audit fees and liability insurance.
Interest Expense
Interest expense consists of interest paid on notes payable, the amortization of
debt issuance costs, the amortization of debt discounts attributable to the
bifurcation of warrants issued, and amortization of an embedded beneficial
conversion feature. The notes payable included, over the periods presented, the
Convertible Note, a related party term loan and working capital
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facility, (the "Facility"), a third party unsecured promissory note and various convertible notes payable. For a description and terms of our notes payable, see Note 8 to the Consolidated Financial Statements.
Results of Operations
Comparison of Fiscal Year Ended
The following table sets forth our historical operating results for the periods
indicated:
Year Ended December 31, $
2021 2020 Change % Change
(dollar amounts in thousands)
Revenues $ 20,992 $ 9,088 $ 11,904 131 %
Cost of revenues 26,293 11,087 15,206 137 %
Gross loss (5,301) (1,999) (3,302) 165 %
Operating expenses
Research and development 3,089 1,309 1,780 136 %
Selling, general and administrative 42,851 10,451 32,400 310 %
Total operating expenses 45,940 11,760 34,180 291 %
Loss from operations (51,241) (13,759) (37,482) 272 %
Other expenses
Interest expense 13,367 2,983 10,384 348 %
Loss from change in fair value of warrant
liabilities 28,812 20,835 7,977 38 %
Loss from change in fair value of derivative
liability 5,341 - 5,341 nm*
Loss from change in fair value of earnout
liability 4,183 - 4,183 nm*
Gain on extinguishment of debt (2,194) - (2,194) nm*
Other expense 19 76 (57) (75) %
Total other expenses 49,528 23,894 25,634
Net loss $ (100,769) $ (37,653) $ (63,116)
* not meaningful
Revenues
Our total revenue increased by $11.9 million , or 131%, from $9.1 million during
the year ended December 31, 2020 to $21.0 million during the year ended December
31, 2021 . The increase in revenue was principally related to the sale of 146
ZEVs during the year ended December 31, 2021 as compared to the sale of 72 ZEVs
during the year ended December 31, 2020 .
Cost of Revenues
Cost of revenues increased by$15.2 million , or 137%, from$11.1 million during the year endedDecember 31, 2020 to$26.3 million during the year endedDecember 31, 2021 . The increase in the cost of revenues was primarily related to an increase in revenue as well as higher factory overhead and warranty expenses during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . Research and Development Research and development expenses increased by$1.8 million or 136% from$1.3 million in the year endedDecember 31, 2020 to$3.1 million in the year endedDecember 31, 2021 . The increase was primarily due to an increase in our engineering headcount year-over-year, as we continue to advance the development and design of our vehicles, refine and improve our production processes and enhance our in-house engineering capabilities. 50
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Selling, General, and Administrative
Selling, general and administrative expenses increased by$32.4 million or 310% from$10.5 million during the year endedDecember 31, 2020 to$42.9 million during the year endedDecember 31, 2021 , primarily due to an increase in professional services associated with the Business Combination process in the amount of$9.1 million as well as an overall increase in costs associated with being a public company which included, among other things, increases in headcount for administration and increases in legal and professional services, accounting and audit fees and liability insurance.
Interest Expense
Interest expense increased by$10.4 million from$3.0 million during the year endedDecember 31, 2020 to$13.4 million during the year endedDecember 31, 2021 . The increase was mainly due to$9.9 million of accrued interest and amortization of the discount related to the Convertible Note not present in the prior year and$0.9 million for the early payment of interest associated with loans paid off in the Business Combination, offset by$0.4 million reduction in amortization of the discount associated with the short-term convertible notes converted at the close of the Business Combination.
Change in Fair Value of Warrant Liabilities
The change in fair value of warrant liabilities for the year endedDecember 31, 2021 included (1) a loss of$27.9 million associated with the outstanding common and preferred warrants, which were converted to common stock as a result of the Business Combination and (2) a loss of$0.9 million associated with the Gig private warrants assumed in the Business Combination. The change in fair value of warrant liabilities for the year endedDecember 31, 2020 included a loss of$20.8 million associated with the outstanding common and preferred warrants, which were converted to common stock as a result of the Business Combination. These losses reflect the impact of the marking-to-market of the warrant liability.
Change in Fair Value of Derivative Liability
The loss from change in fair value of the derivative liability totaled
Change in Fair Value of Earnout Liability
The loss from change in fair value of the earnout liability totaled
Gain on Extinguishment of Debt
The gain on extinguishment of debt of$2.2 million during the year endedDecember 31, 2021 was associated with the conversion of$12.1 million of Convertible Notes into 1,055,388 shares of the Company's common stock. The gain represents the difference between the fair value of the common stock and the sum of the carrying amount of the converted debt and the fair value of the convertible note derivative liability at the time of conversion.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP financial information among other operational metrics to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
EBITDA, Adjusted EBITDA and Adjusted Net Loss
We define EBITDA as net loss before depreciation and amortization and interest expense. We define adjusted EBITDA as net loss before depreciation and amortization, interest expense, stock-based compensation, gains or losses related to the
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change in fair value of warrant, derivative and earnout share liabilities, gains
or losses on extinguishment of debt and other non-recurring costs determined by
management, such as Business Combination related expenses. We define adjusted
net loss as net loss adjusted for stock-based compensation expense, gains or
losses related to the change in fair value of warrant, derivative and earnout
share liabilities, gains or losses on extinguishment of debt and certain other
non-recurring costs determined by management, such as Business Combination
related expenses. We believe EBITDA, adjusted EBITDA and adjusted net loss are
meaningful metrics intended to supplement measures of our performance that are
neither required by, nor presented in accordance with, GAAP. We believe that
using EBITDA, adjusted EBITDA and adjusted net loss provide an additional tool
for investors to use in evaluating ongoing operating results and trends while
comparing our financial measures with those of comparable companies, which may
present similar non-GAAP financial measures to investors. However, you should be
aware that when evaluating EBITDA, adjusted EBITDA and adjusted net loss we may
incur future expenses similar to those excluded when calculating these measures.
In addition, our presentation of these measures should not be construed as an
inference that our future results will be unaffected by unusual or non-recurring
items. Our computation of EBITDA, adjusted EBITDA and adjusted net loss may not
be comparable to other similarly titled measures computed by other companies,
because all companies may not calculate EBITDA, adjusted EBITDA and adjusted net
loss in the same fashion.
Because of these limitations, EBITDA, adjusted EBITDA and adjusted net loss
should not be considered in isolation or as a substitute for performance
measures calculated in accordance with GAAP. We compensate for these limitations
by relying primarily on our GAAP results and using EBITDA, adjusted EBITDA and
adjusted net loss on a supplemental basis. You should review the reconciliation
of net loss to EBITDA and adjusted EBITDA and reconciliation of net loss to
adjusted net loss below and not rely on any single financial measure to evaluate
our business.
The following table reconciles net loss to EBITDA and adjusted EBITDA for
the years ended
Year Ended December 31,
2021 2020
Net loss $ (100,769) $ (37,653)
Adjustments:Depreciation and Amortization 874
362 Interest expense 13,367 2,983 EBITDA$ (86,528) $ (34,308) Stock-based compensation 2,538 275 Loss from change in fair value of warrant liabilities 28,812
20,835
Loss from change in fair value of derivative liability 5,341
-
Loss from change in fair value of earnout liability 4,183
-
Gain on extinguishment of debt (2,194)
-
Business Combination expense 9,098 -
Adjusted EBITDA $ (38,750) $ (13,198)
The following table reconciles net loss to adjusted net loss for the years ended
December 31, 2021 and 2020:
Year Ended December 31,
2021 2020
Net Loss $ (100,769) $ (37,653)
Adjustments:
Stock-based compensation 2,538 275
Business Combination expense 9,098 -Loss from change in fair value of warrant liabilities 28,812
20,835
Loss from change in fair value of derivative liability 5,341
-
Loss from change in fair value of earnout liability 4,183
-
Gain on extinguishment of debt (2,194)
-
Adjusted net loss $ (52,991) $ (16,543)
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Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our operations primarily from debt financing and the sales of common and convertible preferred shares. We closed the Business Combination onMay 6, 2021 pursuant to which we added$216.8 million of cash, net of redemptions, to the balance sheet. As ofDecember 31, 2021 , our principal sources of liquidity were our cash and cash equivalents in the amount of$168.5 million . We believe our cash and cash equivalents balance will be sufficient to continue to execute our business strategy over the next twelve-month period from the date the financial statements were available to be issued.
Liquidity Requirements
In the near and long-term, we will require additional capital to fund the growth and scaling of our manufacturing facilities and operations; further develop our products and services, including those for orders in our order backlog; and fund possible acquisitions. Until we can generate sufficient cash flow from operations, we expect to finance our operations through a combination of the merger proceeds we received from the Business Combination as well as from additional public offerings, debt financings or other capital markets transactions, collaborations or licensing arrangements. The amount and timing of our future funding requirements depend on many factors, including the pace and results of our development efforts and our ability to scale our operations.
Material Cash Requirements
From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. To provide flexibility in our development and production plan and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders beyond the near term. However, in order to secure raw materials vital to our products, we have entered into multi-year minimum purchase commitments with some of our suppliers. If the Company fails to meet the minimum purchase commitments, the Company must pay a penalty. The minimum purchase commitment for 2022 is$21.9 million under these agreements. See Note 14 to the Consolidated Financial Statements included herein for additional information. Our capital expenditures are typically difficult to project beyond the short term given potential supply chain constraints and market conditions. We estimate our capital expenditures to be between$10 million and$15 million for the year 2022 for development and production activities.
Debt
As ofDecember 31, 2021 , we had outstanding$87.9 million of principal indebtedness associated with our Convertible Notes, which mature onMay 15, 2024 . We are obligated to make semi-annual interest payments through maturity of$3.3 million based on an annual interest rate of 7.5%. We also had outstanding$3.0 million of principal indebtedness associated with our Facility, which matures onOctober 21, 2024 . We are obligated to make quarterly interest payments of 0.1 million through maturity based on an annual interest rate of 15%. See Note 8 to the Consolidated Financial Statements included herein for additional information. Leases We have one material lease commitment, an operating lease covering our manufacturing center, distribution center and office space. We also have finance leases for manufacturing equipment. As ofDecember 31, 2021 , our total minimum lease commitments were$15.2 million , with$2.7 million due in the next twelve months. See Note 9 to the Consolidated Financial Statements included herein
for
additional information.
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Cash Flows
The following table provides a summary of cash flow data:
Year Ended December 31,
2021 2020
Net cash used in operating activities
237,074 17,402
Net increase in cash $ 168,078 $ (837) Cash Flows Used In Operating Activities
Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and administrative. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities. Our operating cash inflows include cash from sales and customer deposits. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings. With respect to the year endedDecember 31, 2021 , significant increases in net cash used in operating activities, in comparison to the corresponding prior period, were principally driven by increases in cost of revenues and selling, general and administrative expenses, as described in more detail above.
Cash Flows Used In Investing Activities
The increase in net cash used in investing activities for the year endedDecember 31, 2021 , in comparison to the corresponding prior period, was due to an increase in capital expenditures to support revenue growth as we invest in and expand our business and infrastructure.
Cash Flows from Financing Activities
Net cash from financing activities for the year endedDecember 31, 2021 primarily included net proceeds of$142.8 million from the Business Combination and PIPE Financing, proceeds of$95.0 million from the issuance of the Convertible Note (See Note 8 to our Consolidated Financial Statements), proceeds from Facility borrowings of$7.0 million , proceeds from the exercise of warrants of$3.3 million and proceeds of$0.6 million from the exercise of common stock options, offset by payments on our Facility borrowings of$11.5 million . Net cash from financing activities for the year endedDecember 31, 2020 primarily consisted of proceeds from convertible notes of$9.7 million , proceeds from the redemption of convertible notes payable and Series C redeemable convertible preferred stock and warrants of$3.0 million , proceeds for the issuance of Series C redeemable convertible preferred stock and warrants of$3.2 million and proceeds from Facility borrowings of$1.0 million .
Backlog
As ofMarch 14, 2022 , we had$169.3 million of order backlog comprised of ZEVs, zero-emission powertrains and/or charging systems of approximately 1,500 units. Our order backlog is generally comprised of non-binding agreements and purchase orders from customers. In addition, some of our order backlog have contingencies including completing a successful pilot program, obtaining third-party financing or obtaining government grants such as HVIP. Although the order backlog, in most cases, does not constitute a legal obligation and, in some cases, may have contingencies, we believe the amounts included in our order backlog are firm, even though the non-binding orders may be cancelled or delayed by customers without penalty. We may elect to permit cancellation of orders without penalty where management believes it is in our best 54
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interest to do so. On a case-by-case basis and at our sole discretion, we have held partial deposits for purchase orders from customers.
The realization and timing of the recognition of our order backlog is dependent, among other things, on our ability to obtain and secure a steady supply of components used in our manufacturing process. Accordingly, revenue estimates and the amount and timing of work expected to be performed at the time the estimate of order backlog is developed is subject to change. As a result, the order backlog may not be indicative of future sales and can vary significantly from period to period. In addition, it is possible that the methodology for determining the order backlog may not be comparable to methods used by other companies.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements, as defined in the
rules and regulations of the
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve deferred income taxes, allowance for doubtful accounts, warranty liability, write downs and write offs of obsolete and damaged inventory, valuation of share-based compensation, warrants and warrant liabilities, the value of the convertible note derivative liability and the value of the earnout share liability. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company's financial statements.
While our significant accounting policies are described in the Notes to our Consolidated Financial Statements, we believe that the following accounting policies are most critical to understanding our financial condition and historical and future results of operations.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These inputs can be readily observable, market corroborated or generally unobservable. Any global economic changes, changes to our stock price or other future events could materially impact the Company's fair value measurements. In addition, our assumptions could change or actual circumstances could differ from those utilized in our assumptions.
The Company's recurring fair value measurements categorized within Level 3 discussed below contain significant unobservable inputs. A change in those significant unobservable inputs could result in a significantly higher or lower fair value measurement at the reporting date.
As a result of the Business Combination, we recognized additional earnout shares
with performance conditions as a liability measured at fair value with
subsequent changes in fair value recorded in the consolidated statement of
operations for each reporting period. The earnout shares are valued using our
stock price as of the valuation date. The valuation methodology used is a Monte
Carlo Simulation model ("MCS") utilizing a Geometric Brownian motion process to
capture meeting the various performance conditions. MCS is a technique that uses
a stochastic process to create a range of potential future outcomes given a
variety of inputs. Stochastic processes involve the use of both predictive
assumptions (e.g., volatility, risk-free rate) and random numbers to create
potential outcomes of value. MCS assumes that stock prices take a random walk
and cannot be predicted; therefore, random number generators are used to create
random outcomes for stock prices. The fair value measurements are considered
Level 3 measurements within the fair value hierarchy.
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As a result of the Business Combination, we assumed the liability associated
with the Gig warrants. We account for the warrants as liabilities at fair value
with subsequent changes in fair value recorded in the consolidated statement of
operations for each reporting period. The fair value is determined using the
Black-Scholes-Merton ("BSM") option-pricing model where the share price input
represents our stock price as of the valuation date. The BSM is a commonly-used
mathematical model for pricing an option or warrant. In particular, the model
estimates the variation in value over time of financial instruments. The fair
value measurements are considered Level 3 measurements within the fair value
hierarchy.
We estimate the fair value of our derivative liability associated with the
Convertible Note at each reporting date, as well as at each conversion date. The
Convertible Note and embedded conversion option are valued using a Binomial
Lattice Model designed to capture incremental value attributed to the conversion
options in addition to the value of the Convertible Note. The value of the
Convertible Note without the conversion feature is valued utilizing the income
approach, specifically the discounted cash flow method. Cash flows are
discounted utilizing the U.S. Treasury rate and the credit spread to estimate
the appropriate risk-adjusted rate. The conversion feature utilizes our stock
price as of the valuation date as the starting point of the valuation. A
Binomial Lattice Model is used to estimate our credit spread by solving for a
premium to the U.S. Treasury rate that produces a fair value of the Convertible
Note. As of issuance, the value of the Convertible Note and warrants related to
the Convertible Note are set to equal $100.0 million to solve for the credit
spread which is then updated quarterly. The fair value measurements are
considered Level 3 measurements within the fair value hierarchy.
Recent Accounting Pronouncements
For further information on the effects of recently adopted accounting pronouncements and the potential effects of recent accounting pronouncements not yet adopted, refer to the Recent accounting pronouncements issued and adopted and Recent accounting pronouncements issued not yet adopted sections in Note 2 to the Consolidated Financial Statements.
Emerging Growth Company Status
We are an EGC, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As an EGC, we are permitted to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates. In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer's compensation to median employee compensation. We will remain an EGC under the JOBS Act until the earliest of (i)December 31, 2025 , which is the last day of our first fiscal year following the fifth anniversary of our initial public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least$1.07 billion , (iii) the date on which we are deemed to be a "large accelerated filer" under the rules of theSEC with at least$700.0 million of our common equity held by non-affiliates, or (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the previous three-year period. 56
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