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tsp-10q_20210630.htm
Author Name, ProPublica
2021-10
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40326
TuSimple Holdings Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 86-2341575 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.) TuSimple Holdings Inc. 9191 Towne Centre Drive Suite 600 San Diego , CA 92122 (Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: ( 619 ) 916-3144
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, par value $0.0001 per share TSP The Nasdaq Stock Market LLC (Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2021, the number of shares of the registrant’s Class A common stock outstanding was 185,040,398 and the number of shares of the registrant’s Class B common stock outstanding was 24,000,000 .
Table of Contents
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” or the negative version of these words and similar expressions are intended to identify forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
• our future performance, including our revenue, cost of revenue, and operating expenses;
• the sufficiency of our cash and cash equivalents to meet our operating requirements;
• our ability to scale our Autonomous Freight Network, which we refer to as our AFN;
• our ability to attract new users to services provided on our AFN;
• our ability to increase reservations for our purpose-built L4 autonomous semi-trucks;
• our ability to convert reservations for our purpose-built L4 autonomous semi-trucks into purchases;
• our ability to fulfill all reservations for our purpose-built L4 autonomous semi-trucks according to each customer’s delivery schedule;
• our ability to effectively manage our growth and future expenses;
• the estimated timing for when additional routes will be available;
• our ability to compete in a market that is rapidly evolving and subject to technological developments;
• our estimated total addressable market, the market for autonomous truck and freight transport solutions, and our market position;
• our ability to successfully collaborate with business partners;
• our ability to obtain, maintain, protect, and enforce our intellectual property;
• our ability to comply with modified or new laws and regulations applicable to our business or industry;
• our ability to attract and retain employees with the technical skills we require and other key personnel;
• our ability to successfully complete our driver-out pilot programs;
• our anticipated investments in research and development and sales and marketing, and the effect of these investments on our results of operations;
• the increased expenses associated with being a public company; and
• the potential impact of the COVID-19 pandemic on our, and our partners’, business and results of operations, and on the global economy generally.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
ii
Except as required by applicable law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by applicable law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TuSimple Holdings Inc.
(in thousands, except share data)
(unaudited)
December 31, June 30, 2020 2021 ASSETS Current assets: Cash and cash equivalents $ 310,815 $ 1,489,829 Accounts receivable, net 1,144 1,274 Prepaid expenses and other current assets 3,816 15,781 Amounts due from related parties 3,708 — Total current assets 319,483 1,506,884 Property and equipment, net 22,116 25,435 Other assets 4,986 5,879 Total assets $ 346,585 $ 1,538,198 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDER’S EQUITY (DEFICIT) Current liabilities: Accounts payable $ 4,542 $ 5,074 Amounts due to related parties 4,360 — Amounts due to joint development partners 1,355 6,654 Accrued expenses and other current liabilities 22,961 25,122 Short-term debt 4,623 509 Warrants liability 42,452 — Capital lease liabilities, current 805 851 Total current liabilities 81,098 38,210 Capital lease liabilities, noncurrent 3,767 3,345 Other liabilities 2,402 3,673 Total liabilities 87,267 45,228 Commitments and contingencies (Note 4) Redeemable convertible preferred stock, $ 0.0001 par value; 138,102,770 and zero shares authorized as of December 31, 2020 and June 30, 2021; 102,074,703 and zero shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively; aggregate liquidation preference of $ 598,842 and $ 0 as of December 31, 2020 and June 30, 2021, respectively 664,791 — Stockholders' equity (deficit): Common stock, $ 0.0001 par value; 361,897,230 and 4,876,000,000 Class A shares authorized as of December 31, 2020 and June 30, 2021; 60,543,337 and 185,040,398 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively; zero and 24,000,000 Class B shares authorized as of December 31, 2020 and June 30, 2021; zero and 24,000,000 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively 6 21 Additional paid-in-capital — 2,399,981 Accumulated other comprehensive loss ( 301 ) ( 165 ) Accumulated deficit ( 405,178 ) ( 906,867 ) Total stockholders’ equity (deficit) ( 405,473 ) 1,492,970 Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 346,585 $ 1,538,198
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
TuSimple Holdings Inc.
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2020 2021 2020 2021 Revenue $ 263 $ 1,482 $ 522 $ 2,426 Costs and expenses: Cost of revenue 857 2,982 1,628 5,228 Research and development 21,979 75,891 40,161 117,325 Sales and marketing 243 1,041 680 1,719 General and administrative 5,207 42,425 11,933 57,649 Total costs and expenses 28,286 122,339 54,402 181,921 Loss from operations ( 28,023 ) ( 120,857 ) ( 53,880 ) ( 179,495 ) Change in fair value of warrants liability — — — ( 326,900 ) Gain on loan extinguishment — 4,183 — 4,183 Other income (expense), net ( 61 ) 145 35 523 Loss before provision for income taxes ( 28,084 ) ( 116,529 ) ( 53,845 ) ( 501,689 ) Provision for income taxes — — — — Net loss ( 28,084 ) ( 116,529 ) ( 53,845 ) ( 501,689 ) Accretion of redeemable convertible preferred stock — — — ( 4,135 ) Net loss attributable to common stockholders $ ( 28,084 ) $ ( 116,529 ) $ ( 53,845 ) $ ( 505,824 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.49 ) $ ( 0.64 ) $ ( 0.94 ) $ ( 4.15 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 57,401,912 182,382,800 57,068,132 121,800,404
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
TuSimple Holdings Inc.
(in thousands)
(unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2020 2021 2020 2021 Net loss $ ( 28,084 ) $ ( 116,529 ) $ ( 53,845 ) $ ( 501,689 ) Other comprehensive loss: Foreign currency translation adjustment 188 ( 775 ) 190 136 Comprehensive loss $ ( 27,896 ) $ ( 117,304 ) $ ( 53,655 ) $ ( 501,553 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
TuSimple Holdings Inc.
(in thousands, except share amounts)
(unaudited)
Redeemable Convertible Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total TuSimple Holdings Inc. Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Balance as of December 31, 2019 74,939,388 $ 293,736 56,516,425 $ 6 $ — $ ( 658 ) $ ( 218,718 ) $ ( 219,370 ) $ ( 44 ) $ ( 219,414 ) Issuance of common stock from exercise of options — — 2,125,000 — — — — — — — Stock-based compensation — — — — 1,227 — — 1,227 — 1,227 Acquisition of noncontrolling interest in subsidiary — — — — — ( 44 ) — ( 44 ) 44 — Foreign currency translation adjustment — — — — — 2 — 2 — 2 Net loss — — — — — — ( 25,761 ) ( 25,761 ) — ( 25,761 ) Balance as of March 31, 2020 74,939,388 $ 293,736 58,641,425 $ 6 $ 1,227 $ ( 700 ) $ ( 244,479 ) $ ( 243,946 ) $ — $ ( 243,946 ) Stock-based compensation — — — — 453 — — 453 — 453 Foreign currency translation adjustment — — — — — 188 — 188 — 188 Net loss — — — — — — ( 28,084 ) ( 28,084 ) — ( 28,084 ) Balance as of June 30, 2020 74,939,388 $ 293,736 58,641,425 $ 6 $ 1,680 $ ( 512 ) $ ( 272,563 ) $ ( 271,389 ) $ — $ ( 271,389 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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TuSimple Holdings Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
Redeemable Convertible Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Balance as of December 31, 2020 102,074,703 $ 664,791 60,543,337 $ 6 $ — $ ( 301 ) $ ( 405,178 ) $ ( 405,473 ) Issuance of Series E redeemable convertible preferred stock, net of issuance costs 4,650,999 61,631 — — — — — — Issuance of Series E redeemable convertible preferred stock from the exercise of warrants 9,477,073 379,084 — — — — — — Issuance of Series E-2 redeemable convertible preferred stock from the exercise of warrants 4,331,644 173,275 — — — — — — Issuance of common stock from exercise of options — — 60,616 — 1 — — 1 Vesting of early exercised stock options — — — — 21 — — 21 Accretion of redeemable convertible preferred stock to redemption value — 4,135 — — ( 4,135 ) — — ( 4,135 ) Stock-based compensation — — — — 6,289 — — 6,289 Foreign currency translation adjustment — — — — — 911 — 911 Net loss — — — — — — ( 385,160 ) ( 385,160 ) Balance as of March 31, 2021 120,534,419 $ 1,282,916 60,603,953 $ 6 $ 2,176 $ 610 $ ( 790,338 ) $ ( 787,546 ) Vesting of early exercised stock options — — — — 21 — — 21 Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering ( 120,534,419 ) ( 1,282,916 ) 120,534,419 12 1,282,904 — — 1,282,916 Issuance of common stock in connection with initial public offering, net of offering costs — — 27,027,027 3 1,027,371 — — 1,027,374 Issuance of common stock related to private placement — — 874,999 — 35,000 — — 35,000 Stock-based compensation — — — — 52,509 — — 52,509 Foreign currency translation adjustment — — — — — ( 775 ) — ( 775 ) Net loss — — — — — — ( 116,529 ) ( 116,529 ) Balance as of June 30, 2021 — $ — 209,040,398 $ 21 $ 2,399,981 $ ( 165 ) $ ( 906,867 ) $ 1,492,970
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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TuSimple Holdings Inc.
(in thousands)
(unaudited)
Six Months Ended June 30, 2020 2021 Cash flows from operating activities: Net loss $ ( 53,845 ) $ ( 501,689 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,680 58,798 Accretion of asset retirement obligations 18 — Depreciation and amortization 3,756 4,409 Loss on disposal of property and equipment 118 — Change in fair value of warrants liability — 326,900 Gain on loan extinguishment — ( 4,183 ) Changes in operating assets and liabilities: Accounts receivable ( 97 ) ( 130 ) Prepaid expenses and other current assets 111 ( 11,995 ) Other assets ( 68 ) ( 752 ) Accounts payable 729 532 Amounts due to/from related parties ( 485 ) — Amounts due to joint development partners — 5,299 Accrued expenses and other current liabilities ( 1,392 ) 5,947 Other liabilities 1,129 1,449 Net cash used in operating activities ( 48,346 ) ( 115,415 ) Cash flows from investing activities: Purchases of property and equipment ( 1,880 ) ( 5,928 ) Purchases of intangible assets ( 132 ) ( 179 ) Proceeds from disposal of property and equipment 1 100 Net cash used in investing activities ( 2,011 ) ( 6,007 ) Cash flows from financing activities: Proceeds from issuance of redeemable convertible preferred stock, net of offering costs — 54,693 Proceeds from exercise of warrants for redeemable convertible preferred stock — 183,007 Proceeds from early exercised stock options — 253 Proceeds from issuance of common stock upon initial public offering, net of offering costs — 1,030,965 Proceeds from issuance of common stock related to private placement — 35,000 Proceeds from related party loan 5,000 — Proceeds from loans 4,134 — Return of guarantee deposit on related party loan — 3,715 Principal payments on related party loan — ( 4,398 ) Payment of third-party costs in connection with initial public offering — ( 2,328 ) Principal payments on capital lease obligations ( 347 ) ( 382 ) Principal payments on other liabilities — ( 237 ) Net cash provided by financing activities 8,787 1,300,288 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 215 ) 118 Net increase (decrease) in cash, cash equivalents, and restricted cash ( 41,785 ) 1,178,984 Cash, cash equivalents, and restricted cash - beginning of period 64,110 312,351 Cash, cash equivalents, and restricted cash - end of period $ 22,325 $ 1,491,335
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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TuSimple Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30, 2020 2021 Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 21,575 $ 1,489,829 Restricted cash included in prepaid expenses and other current assets 750 1,506 Total cash and cash equivalents, and restricted cash $ 22,325 $ 1,491,335 Supplemental disclosure of cash flow information: Cash paid for interest $ 684 $ 386 Supplemental schedule of non-cash investing and financing activities: Acquisitions of property and equipment included in current liabilities 777 1,807 Accretion of redeemable convertible preferred stock — 4,135 Vesting of early exercised stock options — 42 Exercise of liability-classified warrants — 369,352 Conversion of redeemable convertible preferred stock to common stock upon initial public offering — 1,282,916 Cashless exercise of stock options for common stock 975 — Issuance costs incurred in connection with initial public offering included in current liabilities — 1,263
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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TuSimple Holdings Inc.
Note 1. Description of Business and Summary of Significant Accounting Policies Description of Business TuSimple Holdings Inc. (“TuSimple” or the “Company”) is principally engaged in the operation and development of autonomous trucks and an autonomous freight network (“AFN”). The Company is headquartered in San Diego, California. TuSimple was originally incorporated as Tusimple (Cayman) Limited, a limited liability company in the Cayman Islands, on October 25, 2016. In February 2021, the Company deregistered as a Cayman Islands exempted company and continued and domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). The business, assets and liabilities of the Company and its subsidiaries on a consolidated basis, as well as its principal locations and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. In addition, the directors and executive officers of the Company immediately after the Domestication were the same individuals who were directors and executive officers, respectively, of the Company immediately prior to the Domestication. Initial Public Offering and Private Placement On April 19, 2021, the Company closed its initial public offering (“IPO”) and concurrent private placement, in which it issued and sold 27,027,027 shares and 874,999 shares, respectively, of its authorized Class A common stock at $ 40.00 per share, resulting in net proceeds of $ 1.0 billion after deducting underwriting discounts and commissions of $ 50.1 million and offering costs. Upon closing of the IPO, (i) the Company filed an amended and restated certificate of incorporation, which authorized 4,876,000,000 shares of Class A common stock and reclassified all outstanding common stock into Class A common stock, authorized 24,000,000 shares of Class B common stock, which are not publicly traded, and authorized 100,000,000 shares of undesignated preferred stock, (ii) Xiaodi Hou and Mo Chen (the “Founders”) each exchanged 12,000,000 shares of their newly designated Class A common stock for an equivalent number of shares of Class B common stock, and (iii) all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into 120,534,419 shares of Class A common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. The holders of our Class A common stock are entitled to one vote per share and the holders of our Class B common stock are entitled to 10 votes per share. Additionally, each share of Class B common stock will automatically convert, on a one-for-one basis, into shares of Class A common stock on the earliest of (i) the date specified by a vote of the holders of Class B common stock representing 75 % of the outstanding shares of Class B common stock, (ii) the date that is between 90 days and 270 days, as determined by the board of directors, after the death or incapacitation of the last Founder to die or become incapacitated, or (iii) the date that is between 61 and 180 days, as determined by the board of directors, after the date on which the number of outstanding shares of Class B common stock held by the Founders (or their permitted affiliates) is less than 12,000,000 shares. Upon the closing of the IPO, the Company recognized $ 42.6 million of stock-based compensation expense related to stock options, restricted stock units (“RSUs”), and share value awards (“SVAs”), for which the time-based vesting conditions had been satisfied or partially satisfied and the performance-based conditions were satisfied upon the closing of the IPO. The Company intends to issue 3,564,673 shares of Class A common stock upon settlement of RSUs and SVAs that are vested as of June 30, 2021, which has not yet occurred as of the date of this filing. Refer to Note 6. Stock-Based Compensation for further detail. Additionally, the Company recorded $ 4.3 million within operating expenses to former employees in connection with post-employment agreements for which payment was contingent upon the occurrence of an IPO or Sale Event (as such terms are defined in the post-employment agreements). Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements (“Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 16, 2021 (the “Prospectus”). The condensed consolidated balance sheet as of December 31, 2020, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by GAAP. In management’s opinion, the accompanying Financial Statements reflect all normal recurring adjustments necessary for their fair presentation. Other than described below, there have been no changes to the Company’s significant accounting policies described in the Prospectus that have had a material impact on the Company’s Financial Statements.
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Stock-Based Compensation The Company accounts for stock-based compensation expense in accordance with the fair value recognition and measurement provisions of GAAP, which requires compensation cost for the grant-date fair value of stock-based awards to be recognized over the requisite service period. The Company determines the fair value of stock-based awards granted or modified on the grant date (or modification date, if applicable) at fair value, using appropriate valuation techniques. Time-Based Service Awards For stock-based awards with time-based vesting conditions only, generally being stock options, the fair value of each stock award granted is estimated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected stock price volatility over the term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. Stock-based compensation is recognized straight-line over the requisite service period, which is generally four years . The Company accounts for forfeitures as they occur instead of estimating the number of awards expected to be forfeited. Performance-Based Awards The Company has granted RSUs, SVAs, and stock options that vest only upon the satisfaction of both time-based service and performance-based conditions. The time-based service condition for these awards generally is satisfied over four years . The performance-based conditions, other than with respect to the CEO Performance Award discussed in Note 6. Stock Based Compensation, are satisfied upon the occurrence of a qualifying event, defined as the earlier of (i) the closing of certain specific liquidation or change in control transactions, or (ii) an IPO. The Company records stock-based compensation expense for performance-based equity awards such as RSUs, SVAs, and stock options on an accelerated attribution method over the requisite service period, which is generally three years , and only if performance-based conditions are considered probable to be satisfied. Upon completion of the IPO, the Company recorded a cumulative one-time stock-based compensation expense determined using the grant-date fair values. Stock-based compensation related to remaining time-based service after the qualifying event is recorded over the remaining requisite service period. For performance-based RSUs and SVAs, the Company determines the grant-date fair value as the fair value of the Company’s common stock on the grant date. For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense associated with each tranche is recognized over the longer of (i) the expected achievement period for the operational milestones for such tranche and (ii) the expected achievement period for the related market capitalization milestone determined on the grant date, beginning at the point in time when the relevant operational milestones are considered probable of being met. If such operational milestones become probable any time after the grant date, the Company will recognize a cumulative catch-up expense from the grant date to that point in time. If the related market capitalization milestone is achieved earlier than its expected achievement period and the achievement of the related operational milestones, then the stock-based compensation expense will be recognized over the expected achievement period for the operational milestones, which may accelerate the rate at which such expense is recognized. The fair value of such awards is estimated on the grant date using Monte Carlo simulations. Refer to Note 6. Stock Based Compensation for further information. Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation in the condensed consolidated financial statements and the accompanying notes. Restricted cash has been reclassified to prepaid expenses and other current assets and accrued expenses incurred under joint development agreements have been reclassified to be presented separately from amounts due to related parties. Recently Adopted Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted the guidance as of with no material impact to the Company’s Financial Statements. In December 2019, the FASB issued ASU no. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. It also clarifies certain aspects of the existing guidance to promote more consistent application, among other things. The Company adopted ASU 2019-12 in the first quarter of 2021 and the adoption had no material impact to the Company's consolidated financial statements.
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Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance in ASC Topic 840, Leases, and makes other conforming amendments to GAAP. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right-of-use asset and lease liability, and additional qualitative and quantitative disclosures. In July 2018, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, was issued to provide more detailed guidance and additional clarification for implementing ASU No. 2016-02. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Furthermore, in June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which defers the effective date of ASU No. 2016-02 for certain entities. For the Company, the new standard is effective for annual reporting periods beginning after December 15, 2021 and for interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. Upon adoption of this standard, the Company expects to recognize, on a discounted basis, its minimum commitments under non-cancelable operating leases on the consolidated balance sheets resulting in the recording of right-of-use assets and lease obligations. The Company has engaged a third party service provider to assist in the implementation of the new leases standard. The Company has evaluated the provisions of the new standards and is in the process of assessing their impact on financial statements and disclosures, information systems and business processes.
Note 2. Fair Value Measurements The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation (in thousands): As of December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Cash equivalents: Certificates of deposit $ 279,279 $ 279,279 $ — $ — Total $ 279,279 $ 279,279 $ — $ — Liabilities: Warrants liability $ 42,452 $ — $ — $ 42,452 Total $ 42,452 $ — $ — $ 42,452 As of June 30, 2021 Total Level 1 Level 2 Level 3 Assets: Cash equivalents: Certificates of deposit $ 7,000 $ 7,000 $ — $ — Money market funds 320,010 320,010 — — Total $ 327,010 $ 327,010 $ — $ — Warrants Liability As of December 31, 2020, the fair value of the warrants liability was estimated using the Black-Scholes option-pricing model. The fair value of the underlying redeemable convertible preferred stock used within the Black-Scholes option-pricing model was estimated using a hybrid between a probability-weighted expected return method (“PWERM”) and option pricing model (“OPM”), estimating the probability-weighted value across multiple scenarios, while using an OPM to estimate the allocation of value within one or more of these scenarios. Discrete future outcomes considered under the PWERM include an IPO of the Company’s common stock, as well as continued operation as a private company. The significant unobservable inputs into the valuation model include the timing and probability of occurrence of these discrete future outcomes and a discount for the lack of marketability of the redeemable convertible preferred stock. In February and March 2021, Traton SE (“Traton”) and Navistar, Inc. (“Navistar”) exercised warrants to purchase 4,331,644 and 9,477,073 shares of Series E-2 and Series E redeemable convertible preferred stock at an exercise price of $ 11.31 and $ 14.14 , resulting in proceeds of $ 49.0 million and $ 134.0 million, respectively. Immediately prior to their exercise, the fair value of the warrants liability was remeasured using the Black-Scholes model. The warrants exercised by Traton represented only a portion of their total and the unexercised warrants expired as of the exercise date. As of June 30, 2021, there were no warrants outstanding. Refer to Note 5. Redeemable Convertible Preferred Stock, Preferred Stock Warrants, and Stockholders’ Deficit for further information.
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The Company used the following assumptions in the model: As of December 31, 2020 February 26, 2021 March 19, 2021 Discount for lack of marketability 9.00% - 30.00% — — Fair value of underlying securities $ 14.14 $ 40.00 $ 40.00 Expected volatility 53.90% - 76.90% 62.95 % 60.85 % Expected term (in years) 0.33 - 1.91 1.76 0.79 Risk-free interest rate 0.10% - 0.13% 0.14 % 0.08 % The following table sets forth a summary of the changes in the estimated fair value of the Company’s warrants liability (in thousands): Balance as of December 31, 2020 $ 42,452 Change in fair value of warrants 326,900 Exercises during the period ( 369,352 ) Balance as of June 30, 2021 $ —
Note 3. Balance Sheet Components Property and Equipment, Net Property and equipment, net as of December 31, 2020 and June 30, 2021, was as follows (in thousands): As of December 31, 2020 June 30, 2021 Electronic equipment $ 11,429 $ 12,304 Office and other equipment 6,152 7,415 Vehicles 12,775 13,673 Leasehold improvements 7,340 9,831 Construction in progress 225 1,861 Property and equipment, gross 37,921 45,084 Accumulated depreciation and amortization ( 15,805 ) ( 19,649 ) Property and equipment, net $ 22,116 $ 25,435 Depreciation and amortization expense was $ 1.8 million and $ 3.8 million for the three and six months ended June 30, 2020, respectively, and $ 2.3 million and $ 4.4 million for the three and six months ended June 30, 2021, respectively. As of December 31, 2020 and June 30, 2021, property and equipment financed under capital leases was $ 4.6 million and $ 4.6 million, net of accumulated amortization of $ 1.8 million and $ 2.1 million, respectively. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of December 31, 2020 and June 30, 2021 were as follows (in thousands): As of December 31, 2020 June 30, 2021 Accrued payroll $ 11,941 $ 15,599 Accrued professional fees 7,865 3,274 Other 3,155 6,249 Accrued expenses and other current liabilities $ 22,961 $ 25,122
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Note 4. Commitments and Contingencies Lease Commitments The Company has entered into various noncancelable operating leases for its facilities with various expiry dates through 2033 . Future minimum lease payments for non-cancelable operating and capital leases as of June 30, 2021 are as follows (in thousands): Year Ending December 31, Capital Leases Operating Leases Remainder of 2021 $ 708 $ 3,326 2022 1,274 6,753 2023 999 6,933 2024 984 4,776 2025 1,816 3,427 Thereafter — 21,274 Total minimum lease payments $ 5,781 $ 46,489 Amount representing interest 1,585 Present value of minimum lease payments $ 4,196 Rental expenses amounted to $ 1.3 million and $ 2.4 million for the three and six months ended June 30, 2020, respectively, and $ 1.5 million and $ 2.7 million for the three and six months ended June 30, 2021, respectively. Joint Development Agreement In April 2020, the Company entered into a Development Agreement (“DA”) with Scania relating to a hub-to-hub pilot program using Scania vehicles and the Company’s autonomous technology in northern Europe. Under the DA, each party will fund its own costs related to the program. There are no reimbursements paid between the parties and there are no spending floors included within the DA. Upon successful completion of the development activities, the parties intend to set up a long-term cooperation agreement covering development, maintenance, operation and sales of self-driving systems on a global scale. The terms and conditions of such arrangement will be negotiated by the parties and included in a separate agreement. In July 2020, the Company entered into a Joint Development Agreement (“JDA”) with Navistar, Inc., under which the parties will work collaboratively to develop purpose-built L4 autonomous semi-trucks for the North American market. Under the JDA, the parties grant each other rights to their background intellectual property to permit them to conduct research and development activities. Pursuant to the JDA, the Company agrees to reimburse Navistar up to $ 10.0 million for research and development expenses incurred. Payment of reimbursements is deferred to align with the achievement of certain milestones and reimbursements due are recorded within accrued expenses in the Company’s condensed consolidated balance sheets. All reimbursements are expected to be paid within 12 months of the Company incurring the obligation. Upon successful completion of the development activities under the JDA, the parties will enter into good faith negotiations for a production license agreement. Products developed will be jointly commercialized by the parties. As of June 30, 2021, expenses incurred to-date by Navistar for reimbursement under the JDA are $ 8.0 million. Payroll Protection Program (“PPP”) Loan In April 2020, the Company received loan proceeds in the amount of $ 4.1 million under the Small Business Administration Paycheck Protection Program established under Section 1102 of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. In October 2020, the Company applied for forgiveness of the PPP Loan and corresponding accrued interest, which was approved by the SBA in June 2021. Post-Employment Agreements The Company has entered into post-employment agreements with former employees under which the Company is required to pay additional compensation upon the occurrence of an IPO or Sale Event (as such terms are defined in the post-employment agreements). Since the Company’s IPO, $ 4.3 million has been paid to said former employees and recorded within operating expenses as of June 30, 2021 pursuant to such post-employment agreements. Litigation and Legal Proceedings The Company is not currently a party to any pending material litigation or other legal proceeding or claims.
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Note 5. Redeemable Convertible Preferred Stock, Preferred Stock Warrants, and Stockholders’ Equity Redeemable Convertible Preferred Stock In January 2021, the Company issued 4,650,999 shares of Series E redeemable convertible preferred stock at $ 14.14 per share for aggregate proceeds of $ 61.6 million, net of issuance costs of $ 4.1 million. The shares of Series E redeemable convertible preferred stock were accreted to redemption value immediately upon issuance and $ 4.1 million of accretion was recorded within additional paid-in capital within the condensed consolidated statements of redeemable convertible preferred stock and stockholders’ deficit. In February 2021, Traton exercised warrants to purchase 4,331,644 shares of Series E-2 redeemable convertible preferred stock at an exercise price of $ 11.31 per share, resulting in aggregate proceeds of $ 49.0 million. In March 2021, Navistar exercised warrants to purchase 9,477,073 shares of Series E redeemable convertible preferred stock at an exercise price of $ 14.14 per share, resulting in proceeds of $ 134.0 million. Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into 120,534,419 shares of common stock. As of June 30, 2021, there were no shares of the Company’s preferred stock issued and outstanding.
Note 6. Stock-Based Compensation 2017 Share Plan In April 2017, the Company adopted the 2017 Share Plan (the "2017 Plan") under which employees, directors, and consultants could be granted various forms of equity incentive compensation at the discretion of the board of directors, including stock options, restricted shares, RSUs, and SVAs. Stock options granted under the 2017 Plan have a contractual term of ten years and have varying vesting terms, but generally vest over a requisite service period of four years . The exercise price of the stock options granted may not be less than the par value of the common stock on the grant date for non-U.S. tax residents and may not be less than the fair market value of the common stock on the grant date for U.S. tax residents. Certain share options contain a performance condition and are only exercisable subject to the grantee's continuous service and the completion of an IPO. Options which contain a performance condition and for which the service condition has been satisfied are forfeited should employment terminate before the Company’s IPO. In March 2021, the Company’s board of directors approved an amendment to the 2017 Plan to increase the number of shares of common stock reserved for issuance by 2,300,000 shares, for a total of 24,267,694 shares reserved. The 2017 Plan was terminated in connection with the Company’s IPO in April 2021, and the Company will not grant any additional awards under the 2017 Plan. However, the 2017 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2017 Plan. 2021 Equity Incentive Plan In March 2021, the board of directors adopted the 2021 Plan, which became effective upon its approval by the board of directors, but for which no awards were eligible to be granted prior to the Company’s IPO in April 2021. The 2021 Plan provides for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, and RSUs to the Company’s employees, directors, and consultants. The number of shares of the Company’s Class A common stock reserved for issuance under the 2021 Plan is 20,134,146 plus up to 19,892,067 shares of Class A common stock subject to awards under the Company’s 2017 Plan. The number of shares of Class A common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to either (i) 2.5 % of the Company’s fully-diluted capitalization as of the last day of the immediately preceding fiscal year or (ii) such other amount as determined by the board of directors.
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Stock Options A summary of the stock option activity, including the CEO Performance Award, for the six months ended June 30, 2021 is as follows (in thousands, except share amounts, per share amounts, and years): Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Life (Years) Aggregate Intrinsic Value Outstanding at December 31, 2020 13,295,497 $ 1.29 7.99 $ 97,986 Granted 2,665,968 $ 12.20 Exercised ( 60,616 ) $ 4.18 Cancelled/Forfeited ( 631,766 ) $ 1.19 Outstanding at June 30, 2021 15,269,083 $ 3.19 7.79 $ 1,039,124 Vested and exercisable at June 30, 2021 9,329,385 $ 0.42 6.75 $ 660,689 As of June 30, 2021, there was $ 85.0 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average service period of 3.50 years. Upon the closing of the Company’s IPO, the Company recognized $ 18.8 million of stock-based compensation expense relating to stock options for which the time-based vesting condition has been satisfied or partially satisfied on that date and for which the performance condition was satisfied upon the occurrence of the IPO. The estimated grant-date fair value of the Company’s stock-based option awards was calculated using the Black-Scholes option-pricing model, based on the following assumptions: Three Months Ended Six Months Ended June 30, 2020 June 30, 2021 June 30, 2020 June 30, 2021 Risk-free interest rate 0.34% - 0.44% — 0.34% - 0.44% 0.33% - 1.04% Expected volatility 60.00 % — 60.00 % 50.00 % Expected term (in years) 5.00 - 5.97 — 5.00 - 5.97 4.05 - 6.22 Fair value of common stock $ — $ $ CEO Performance Award In March 2021, included in the stock options discussed above, the Company granted 1,150,000 stock option awards to its CEO with an exercise price of $ 14.14 per share and a contractual life of ten years that vest upon the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment as CEO through the vesting date (the “CEO Performance Award”). The options will vest upon certification by the Board of Directors that all the following milestones have been attained: (i) the average market capitalization of the Company during any consecutive 180-day period is no less than $ 25.0 billion, (ii) the average number of L4 autonomous semi-trucks operating on the Company’s Autonomous Freight Network in any 90-day period is no less than 1,500 , and (iii) the Company’s revenues from its Autonomous Freight Network for any 12-month period exceed $ 200.0 million. As of June 30, 2021, there was a total of $ 29.4 million unrecognized stock-based compensation expense for the operational milestones that were considered probable to achieve which will be recognized over a period of 3.42 years. For the three and six months ended June 30, 2021, the Company recorded stock-based compensation expense of $ 2.1 million and $ 2.8 million, respectively, related to the CEO Performance Award.
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RSUs The following table summarizes the activity related to RSUs for the six months ended June 30, 2021: RSUs Outstanding Weighted-Average Grant Date Fair Value per Share Unvested and Outstanding at December 31, 2020 1,100,000 $ Granted 1,855,330 $ Vested ( 670,055 ) $ Unvested and outstanding at June 30, 2021 2,285,275 $ Vested and outstanding at June 30, 2021 670,055 $ SVAs The following table summarizes the activity related to SVAs for the six months ended June 30, 2021: SVAs Outstanding Weighted-Average Grant Date Fair Value per Share Unvested and Outstanding at December 31, 2020 3,653,146 $ Vested ( 2,894,618 ) $ Cancelled ( 244,322 ) $ Unvested and outstanding at June 30, 2021 514,206 $ Vested and outstanding at June 30, 2021 2,894,618 $ As of June 30, 2021, there was $ 130.3 million of unrecognized stock-based compensation expense related to RSUs and SVAs, which is expected to be recognized over a weighted-average service period of 3.16 years. Upon the Company’s IPO, the Company recognized $ 23.8 million of stock-based compensation expense relating to RSUs and SVAs for which the time-based vesting condition has been satisfied or partially satisfied on that date and for which the performance condition was satisfied upon the occurrence of the IPO. Early Exercise of Common Stock Options The Company’s board of directors authorized certain stock option holders to exercise unvested options to purchase shares of Class A common stock. Shares of Class A common stock issued upon early exercises of unvested options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules and accordingly, the consideration received for early exercises is initially recorded as a liability and reclassified to common stock and additional paid-in capital as the underlying awards vest. Stock options that are early exercised are subject to repurchase in the event of the optionee’s termination of service, at the original issuance price, until the options are fully vested. As of June 30, 2021, 50,000 shares of Class A common stock were subject to repurchase at a weighted-average price of $ 4.20 per share. The cash proceeds received for unvested shares of common stock recorded within accrued expenses and other current liabilities in the condensed consolidated balance sheets were $ 0.2 million as of June 30, 2021.
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Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2021 June 30, 2020 June 30, 2021 Research and development $ 145 $ 25,469 $ 145 $ 27,138 Sales and marketing — 233 — 551 General and administrative 308 26,807 1,535 31,109 Total stock-based compensation expense $ 453 $ 52,509 $ 1,680 $ 58,798 Upon the Company’s IPO, a one-time stock-based compensation expense of $ 42.6 million was incurred for the three and six months ended June 30, 2021, relating to awards for which the time-based vesting condition has been satisfied or partially satisfied on that date and for which the performance condition was satisfied upon the occurrence of the IPO.
Note 7. Income Taxes Prior to February 2021, the Company was a Cayman Islands incorporated holding company. In February 2021, the Company completed a domestication pursuant to Section 388 of the Delaware General Corporation Law pursuant to which it became a Delaware corporation and was no longer subject to the laws of the Cayman Islands. Following the Domestication, the U.S. federal income tax rate is the applicable statutory rate. The Company’s interim period income tax provision is determined using the estimated annual effective income tax rate applied to year-to-date pretax losses adjusted for the tax effects of legislative changes and other discrete items that relate to the interim period. The estimated annual effective income tax rate is impacted by expected annual earnings, valuation allowances related to current year losses, income tax related to foreign operations, and state tax. The Company’s effective tax rate was zero percent for the six months ended June 30, 2021, which is lower than the U.S. federal rate of 21 percent and was primarily due to valuation allowances recorded on current year losses. As of June 30, 2021, the Company continues to maintain a full valuation allowance against its U.S. and foreign net deferred tax assets due to significant negative evidence, including cumulative losses in the most recent three-year period and the Company’s assessment that it is not more likely than not that the net deferred tax assets will be realized.
Note 8. Net Loss Per Share Attributable to Common Stockholders Basic net loss per share of common stock attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders for all years presented because the effects of potentially dilutive items were antidilutive given the Company’s net loss in each period presented.
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The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Numerator: Net loss $ ( 28,084 ) $ ( 116,529 ) $ ( 53,845 ) $ ( 501,689 ) Less: Accretion of redeemable convertible preferred stock — — — ( 4,135 ) Net loss attributable to common stockholders, basic and diluted $ ( 28,084 ) $ ( 116,529 ) $ ( 53,845 ) $ ( 505,824 ) Denominator: Weighted-average shares used in computing net loss per share, basic and diluted 57,401,912 182,382,800 57,068,132 121,800,404 Net loss per share: Net loss per share attributable to common stockholders, basic and diluted $ ( 0.49 ) $ ( 0.64 ) $ ( 0.94 ) $ ( 4.15 ) The following potentially dilutive outstanding shares were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect, or because issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period: As of June 30, 2020 2021 Redeemable convertible preferred stock 74,939,388 — Options to purchase common stock 16,320,861 15,269,083 RSUs subject to future vesting 11,704 2,285,275 SVAs subject to future vesting 3,581,236 514,206 Early exercised options subject to future vesting* 1,239,513 50,000 Total 96,092,702 18,118,564 *Refer to Note 6. Stock-Based Compensation for further detail.
Note 9. Related Party Transactions At December 31, 2020, the Company had short-term, unsecured, interest free loans outstanding of approximately $ 0.6 million due to its executive chairman and approximately $ 3.7 million due to Jinzhuo Hengbang Technology (Beijing) Co., Ltd. (“Jinzhuo Hengbang”), an affiliated company of Sina Corporation, the ultimate parent company of one of the Company’s investors. Additionally, the Company paid a guarantee deposit of $ 3.7 million to Sina Corporation in connection with the loans borrowed by the Company from Jinzhuo Hengbang, which was outstanding at December 31, 2020. During the six months ended June 30, 2021, the Company paid off these loans in their entirety, and received a refund of the guarantee deposit paid to Sina Corporation.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (the “Prospectus”) filed with the Securities and Exchange Commisison (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on April 16, 2021. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
When used in this report, the terms “TuSimple”, “Company”, “we”, “us”, and “our” mean TuSimple Holdings Inc. and all subsidiaries.
TuSimple is an autonomous technology company that is revolutionizing the estimated $4 trillion global truck freight market. We have developed industry-leading autonomous technology specifically designed for semi-trucks, which has enabled us to build the world’s first Autonomous Freight Network (“AFN”) in partnership with world-class shippers, carriers, railroads, freight brokers, fleet asset owners, and truck hardware partners. We believe that our technology and our AFN will make long haul trucking significantly safer as well as more reliable, efficient, and environmentally friendly, creating significant benefits for all who rely on the freight ecosystem to deliver essential goods.
Our AFN provides autonomous freight capacity as a service through multiple service models based on users’ needs. We believe that allowing our users the flexibility to select different service models is critical to providing a superior customer experience and will help drive rapid adoption of our network.
• Carrier-Owned Capacity. Shippers, carriers, and railroads that prefer to own their fleet will be able to purchase our purpose-built L4 autonomous semi-truck from a semi-truck original equipment manufacturer (“OEM”) partner and subscribe to TuSimple Path—a comprehensive turnkey product to enable autonomous operations across our network. TuSimple Path includes features such as our on-board autonomous driving software, TuSimple Connect cloud-based autonomous operations oversight system, HD digital route mapping support, and emergency roadside assistance. Users will pay TuSimple a per mile, usage-based fee for access to TuSimple Path and benefit from lower overall freight costs with an expected payback period of less than one year on their upfront incremental capital investment to purchase our purpose-built L4 autonomous semi-trucks.
• TuSimple Capacity. Our fleet of purpose-built L4 autonomous semi-trucks, financed through third party fleet asset owners, will serve users that desire access to safe, reliable, low cost, and more environmentally friendly freight transportation without owning semi-truck assets. Users of TuSimple Capacity can range from relatively smaller users of freight logistics to large shippers, carriers, and railroads seeking to supplement their own captive fleet for incremental freight capacity. We will charge users of TuSimple Capacity a per mile rate to ship freight, which we expect will be at a meaningful discount to prevailing market freight rates. We believe that our competitive advantage in terms of pricing will be enabled by our anticipated cost structure, which is expected to be significantly lower than that of human-operated semi-trucks. Users will benefit directly from lower shipping costs compared to conventional truck freight.
We are also working in partnership with leading semi-truck OEMs Navistar and Traton as well as components partners to build the world’s first purpose-built L4 autonomous semi-truck to be operated exclusively on our network. We believe that this collaborative approach to create semi-trucks designed and built with integrated auto-grade components and sensors will increase our AFN’s reliability at scale. Vertically integrating through partnerships with OEMs and Tier 1 suppliers allows us to maintain strong supply chain and hardware design control while remaining capital light and primarily focusing on developing proprietary autonomous technology.
We have developed a robust ecosystem of shippers, carriers, railroads, freight brokers, fleet asset owners, and third-party service providers, including UPS, McLane, U.S. Xpress, Werner, Schneider, and CN, that provide critical validation and enhance the network effect benefits of our approach. We believe that our partnership network creates a significant and sustainable competitive advantage, especially as we work with shippers, carriers, and railroads to strategically locate our AFN terminals near their distribution centers. The continued growth of our AFN infrastructure and partnerships will continue to improve our user experience and drive more users to our platform which will allow us to further densify our strategic terminal network and reinforce rapid network growth.
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Coronavirus (“COVID-19”) Impact
The extensive impact of the pandemic caused by COVID-19 and the measures taken in response thereto has resulted and will likely continue to result in significant disruption to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses.
The COVID-19 pandemic and measures to prevent its spread have had the following impact on our business:
• Our Workforce. Employee health and safety is our priority. In response to COVID-19, we established new protocols to help protect the health and safety of our workforce. We will continue to stay up-to-date and follow county and CDC guidelines regarding requirements for a healthy work environment.
• Operations and Supply Chain. As a result of COVID-19, we experienced some delays in our supply chains which temporarily limited our ability to outfit semi-trucks with key components during the second quarter of 2020; however, we have not experienced material disruptions in our shipping activity or in our ability to continue developing our AFN to date. In the future, we may experience supply chain disruptions from third party suppliers and any such supply chain disruptions could cause delays in our development timelines. We will continue to monitor the situation for any potential adverse impacts and execute appropriate countermeasures, as necessary.
• Liquidity and Working Capital. We have not experienced any significant impairment in our liquidity or working capital, and from July 2020 through August 2021, we raised additional funds through the issuance of Series D-1 and Series E redeemable convertible preferred stock in private financings and through the issuance of Class A common stock in our IPO and concurrent private placement. We will continue to monitor our liquidity and working capital positions.
While we have not experienced significant disruptions to our business due to the COVID-19 pandemic to date, the broader and long-term implications of the COVID-19 pandemic on our workforce, operations and supply chain, user demand, results of operations, and overall financial performance remain uncertain.
See “Risk Factors” for further discussion of the possible impact of COVID-19 on our business.
Key Factors Affecting Our Performance
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those set forth in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.
Full Commercialization of our AFN at Scale
To date, we have only recorded limited revenue from the freight capacity services we provide on our AFN. Prior to full commercialization of our AFN at scale, we must increase the number of users, grow our network of terminals, expand our high definition digital mapped routes, increase the number of purpose-built L4 autonomous semi-trucks and achieve several research and development milestones. While not yet commercially available, we have received significant interest from potential users, with over 6,500 reservations for our purpose-built L4 semi-trucks as of June 30, 2021. Additionally, we continue to grow our database of HD digital maps of freight corridors and surface streets with approximately 8,500 mapped miles as of June 30, 2021. Due to the fixed costs associated with operating our AFN, including labor for operating terminals, autonomous operations oversight systems, and maintaining our purpose-built L4 autonomous semi-trucks, we expect our gross margins to improve as more users are added to our AFN and as we achieve economies of scale. Until we can generate sufficient additional revenue from our AFN, we expect to finance our operations through equity and/or debt financings. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts.
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Continued Investment in R&D and Innovation
We believe that we are the industry-leading autonomous truck company with the most efficient and reliable autonomous trucking technologies and an unmatched product and service offering. Our financial performance will be significantly dependent on our ability to maintain this leading position. We expect to incur substantial and increasing research and development expenses and stock-based compensation expenses as a result. We develop most of our key technologies in-house to achieve a rapid pace of innovation. Accordingly, we dedicate significant resources towards research and development and invest heavily in recruiting talent, especially for software developers and engineers with high levels of experience in artificial intelligence and designing and developing autonomous driving related algorithms. Our research and development staff totaled approximately 1,000 professionals and accounted for approximately 83% of our total employees as of June 30, 2021. We will continue to recruit and retain talented software developers and engineers to grow our strength in our key technologies. We expect to incur additional stock-based compensation expenses as we support our growth and status as a publicly traded company. Additionally, we continue to progress toward our expected fourth quarter driver-out pilot program. We expect our strategic focus on innovations will further solidify our leadership position.
Improvement of Operating Efficiency
We aim to improve operating efficiency in every aspect of our business, such as research and development, supply chain, collaboration with business partners, and sales and marketing, as well as service offerings. As we continue to scale our AFN, we expect utilization rates across our network, including terminals, routes, and semi-trucks, to increase, leading to improved operating efficiency.
Investment in Sales and Marketing
As our purpose-built L4 autonomous semi-trucks reach commercialization and as our AFN continues to grow, we will need to devote significant resources to our sales and marketing activities and towards building brand awareness but in a cost-effective manner.
Components of Results of Operations
Revenue
To date, all of our revenue recognized has been from freight capacity services provided through the TuSimple Capacity service model on our AFN. Revenue is recognized over time as the goods are transported from one location to another based on the number of miles traveled. Shipments are completed within a short period of time, typically spanning one to two days. As we continue to grow and improve our technology, we expect a new revenue stream through our Carrier-Owned Capacity service model. We expect to derive revenue from per-mile fees charged to users of Carrier-Owned Capacity on our AFN. Recognition of this future revenue will be subject to the terms of any arrangements with our partners or users, which have not yet been negotiated. To date, we have not recorded any revenue under the Carrier-Owned Capacity service model.
Cost of Revenue
Our cost of revenue consists primarily of fuel costs, depreciation of property and equipment (including semi-trucks acquired under capital leases), labor costs, and other costs directly attributable to the provision of freight capacity services. Currently, we operate a large portion of our semi-trucks with two occupants, a safety engineer and a safety driver. We expect to gradually lower the average number of occupants in our semi-trucks as we continue to improve our autonomous technology and to the extent we ultimately remove all occupants upon achievement of full driver-out, L4 autonomous operations.
Research and Development
Research and development costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with software developers and engineering personnel and consultants responsible for the design, development, and testing of our autonomous truck driving solutions, depreciation of equipment used in research and development, and allocated overhead costs. Research and development costs are expensed as incurred. We expect our research and development expenses to increase in absolute dollars as we increase our investment in scaling our AFN through our proprietary technologies and as we continue to expand our technical workforce, which would impact our personnel-related and stock-based compensation costs.
Sales and Marketing
Sales and marketing costs consist primarily of personnel-related expenses associated with our sales and marketing activities, advertising expenses, sponsorship, public relations, and other related marketing activities. Although we incurred limited sales and marketing expenses in the six months ended June 30, 2020 and 2021, we expect that our sales and marketing expenses will increase in absolute dollars from period to period as we further scale our AFN, educate market participants on the benefits of autonomous trucking and our autonomous trucking solutions, hire additional sales and marketing personnel, increase our marketing activities, grow our domestic and international operations, and build brand awareness.
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General and Administrative
General and administrative costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with our management and administration activities, professional service fees and other general corporate expenses.
We will continue to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing standards, additional insurance expenses, investor relations activities, and other administrative and professional services. We also expect to increase the size of our general and administrative function and to continue to expand our workforce, which would impact our personnel-related and stock-based compensation costs, to support the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars.
Change in Fair Value of Warrants Liability
The change in the fair value of warrants liability consists of the net changes in the fair value of our outstanding warrants to purchase redeemable convertible preferred stock that are remeasured at the end of each reporting period and upon their exercise. All outstanding warrants were exercised or expired during the six months ended June 30, 2021, and we recorded one final remeasurement at fair value as of the exercise date.
Gain on Loan Extinguishment
The gain on loan extinguishment was a result of the Paycheck Protection Program (“PPP”) loan forgiveness by the lender. We expect this to be a one-time event.
Other Income (Loss), Net
Other income, net consists primarily of interest income earned on our cash and cash equivalents, interest expense on our related party borrowings, income from government grants, and foreign currency exchange gains (losses), net of remeasurement of transactions and monetary assets and liabilities denominated in currencies other than the functional currency at the end of the period.
Provision for Income Taxes
Provision for income taxes consists primarily of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Since inception, we have incurred operating losses and, accordingly, have not recorded a provision for income taxes for any of the periods presented.
We have a full valuation allowance for net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income.
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Results of Operations
The following table sets forth our condensed consolidated results of operations data for the periods presented (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Revenue $ 263 $ 1,482 $ 522 $ 2,426 Costs and expenses: Cost of revenue 857 2,982 1,628 5,228 Research and development (1) 21,979 75,891 40,161 117,325 Sales and marketing (1) 243 1,041 680 1,719 General and administrative (1) 5,207 42,425 11,933 57,649 Total costs and expenses 28,286 122,339 54,402 181,921 Loss from operations (28,023 ) (120,857 ) (53,880 ) (179,495 ) Change in fair value of warrants liability — — — (326,900 ) Gain on loan extinguishment — 4,183 — 4,183 Other income (expense), net (61 ) 145 35 523 Loss before provision for income taxes (28,084 ) (116,529 ) (53,845 ) (501,689 ) Provision for income taxes — — — — Net loss (28,084 ) (116,529 ) (53,845 ) (501,689 ) Accretion of redeemable convertible preferred stock — — — (4,135 ) Net loss attributable to common stockholders $ (28,084 ) $ (116,529 ) $ (53,845 ) $ (505,824 )
(1) Includes stock-based compensation expense as follows (in thousands)
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Research and development $ 145 $ 25,469 $ 145 $ 27,138 Sales and marketing — 233 — 551 General and administrative 308 26,807 1,535 31,109 Total stock-based compensation expense $ 453 $ 52,509 $ 1,680 $ 58,798
Upon the Company’s IPO, a one-time stock-based compensation expense of $42.6 million was incurred for the three and six months ended June 30, 2021, relating to awards for which the time-based vesting condition has been satisfied or partially satisfied on that date and for which the performance condition was satisfied upon the occurrence of the IPO.
Comparison of the Three and Six Months Ended June 30, 2020 and 2021
Revenue
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 % Change 2020 2021 % Change ($ in thousands) ($ in thousands) Revenue $ 263 $ 1,482 463 % $ 522 $ 2,426 365 %
Three Months Ended June 30, 2021 Compared with the Same Period in 2020
Revenue increased by $1.2 million, or 463%, from $0.3 million for the three months ended June 30, 2020 to $1.5 million for the three months ended June 30, 2021, due to growth in our U.S. business from an increase in paid miles through increased commercial utilization of TuSimple fleets and partners' fleets (brokerage) that supplement our capacity and increases in our rate per mile charged. During the three months ended June 30, 2021, we expanded our revenue-miles by 315% from the same period in the prior year as a result of expanded routes and commercial partnerships.
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Six Months Ended June 30, 2021 Compared with the Same Period in 2020
Revenue increased by $1.9 million, or 365%, from $0.5 million for the six months ended June 30, 2020 to $2.4 million for the six months ended June 30, 2021, primarily due to growth in our U.S. business from an increase in paid miles through increased commercial utilization of TuSimple fleets and partners' fleets (brokerage) that supplement our capacity and increases in our rate per mile charged. During the six months ended June 30, 2021, we expanded our revenue-miles by 285% from the same period in the prior year as a result of expanded routes and commercial partnerships.
Cost of Revenue
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 % Change 2020 2021 % Change ($ in thousands) ($ in thousands) Cost of revenue $ 857 $ 2,982 248 % $ 1,628 $ 5,228 221 %
Three Months Ended June 30, 2021 Compared with the Same Period in 2020
Cost of revenue increased by $2.1 million, or 248%, from $0.9 million for the three months ended June 30, 2020 to $3.0 million for the three months ended June 30, 2021, primarily due to increased operating costs associated with the generation of revenue. Gross loss margin for the three months ended June 30, 2021 was 101%, an improvement from the gross loss margin for the three months ended June 30, 2020 of 226%. This improvement is a result of increased revenue-miles per truck, improved leverage through better fixed cost utilization, and an increase in the number of semi-trucks in our TuSimple fleet.
Six Months Ended June 30, 2021 Compared with the Same Period in 2020
Cost of revenue increased by $3.6 million, or 221%, from $1.6 million for the six months ended June 30, 2020 to $5.2 million for the six months ended June 30, 2021, primarily due to increased operating costs associated with the generation of revenue. Gross loss margin for the six months ended June 30, 2021 was 115%, an improvement from the gross loss margin for the six months ended June 30, 2020 of 212%. This improvement is a result of increased revenue-miles per truck, improved leverage through better fixed cost utilization and an increase in the number of semi-trucks in our TuSimple fleet.
Research and Development
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 % Change 2020 2021 % Change ($ in thousands) ($ in thousands) Research and development $ 21,979 $ 75,891 245 % $ 40,161 $ 117,325 192 %
Three Months Ended June 30, 2021 Compared with the Same Period in 2020
Research and development expenses increased by $53.9 million, or 245%, from $22.0 million for the three months ended June 30, 2020 to $75.9 million for the three months ended June 30, 2021. The increase was primarily attributable to an increase of $46.2 million in personnel-related costs, mainly driven by an increase in employee headcount in the ordinary course of business and increased stock-based compensation expense of $25.3 million. The stock-based compensation expense for this period includes a one-time charge of $22.1 million incurred in connection with the IPO, with the remaining increase due to time-based vesting and additional grants in the three months ended June 30, 2021. The remainder of the increase in research and development expenses for the period was primarily driven by an increase of $3.5 million in research and development costs incurred under the July 2020 joint development agreement with Navistar, an increase of $2.1 million in depreciation and allocated facility costs, driven by an increase in headcount and expansion of our facilities, and an increase of $1.4 million in equipment, supplies, and materials.
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Six Months Ended June 30, 2021 Compared with the Same Period in 2020
Research and development expenses increased by $77.2 million, or 192%, from $40.2 million for the six months ended June 30, 2020 to $117.3 million for the six months ended June 30, 2021. The increase was primarily attributable to an increase of $59.2 million in personnel-related costs, mainly driven by an increase in employee headcount in the ordinary course of business and increased stock-based compensation expense of $27.0 million. The stock-based compensation expense for this period includes a one-time charge of $22.1 million incurred in connection with the IPO, with the remaining increase due to time-based vesting and additional grants during the period. The remainder of the increase in research and development expenses for the period was primarily driven by an increase of $8.8 million in research and development costs incurred under the July 2020 joint development agreement with Navistar, an increase of $3.8 million in depreciation and allocated facility costs, driven by an increase in headcount and expansion of our facilities, an increase of $3.3 million in equipment, supplies, and materials, and an increase of $2.1 million in vehicle and equipment-related costs, mainly driven by an increase in the number of semi-trucks in our fleet.
Sales and Marketing
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 % Change 2020 2021 % Change ($ in thousands) ($ in thousands) Sales and marketing $ 243 $ 1,041 328 % $ 680 $ 1,719 153 %
Three Months Ended June 30, 2021 Compared with the Same Period in 2020
Sales and marketing expenses increased by $0.8 million, or 328%, from $0.2 million for the three months ended June 30, 2020 to $1.0 million for the three months ended June 30, 2021. The increase was primarily attributable to an increase in business development, public relations, and marketing consulting services incurred in connection with the IPO.
Six Months Ended June 30, 2021 Compared with the Same Period in 2020
Sales and marketing expenses increased by $1.0 million, or 153%, from $0.7 million for the six months ended June 30, 2020 to $1.7 million for the six months ended June 30, 2021. The increase was primarily attributable to an increase in business development, public relations, and marketing consulting services incurred in connection with the IPO and the subsequent continuation of investments in the TuSimple brand.
General and Administrative
Three Months Ended June 30, Six Months Ended June 30, 2020 2021 % Change 2020 2021 % Change ($ in thousands) ($ in thousands) General and administrative $ 5,207 $ 42,425 715 % $ 11,933 $ 57,649 383 %
Three Months Ended June 30, 2021 Compared with the Same Period in 2020
General and administrative expenses increased by $37.2 million, or 715%, from $5.2 million for the three months ended June 30, 2020 to $42.4 million for the three months ended June 30, 2021. The increase was primarily attributable to an increase of $29.7 million in personnel-related costs, mainly driven by an increase in employee headcount in the ordinary course of business and increased stock-based compensation expense of $26.5 million. The stock-based compensation expense for this period includes a one-time charge of $20.2 million incurred in connection with the IPO, with the remaining increase due to time-based vesting and additional grants in the three months ended June 30, 2021. The remainder of the increase in general and administrative expenses for the period was primarily driven by an increase of $2.6 million in office and facility-related costs, driven by the acquisition of director and officer insurance appropriate for public companies, and an increase of $2.0 million in legal, accounting and other professional services, driven mainly by increased usage of professional service firms to prepare for public company reporting and other complex matters.
24
Six Months Ended June 30, 2021 Compared with the Same Period in 2020
General and administrative expenses increased by $45.7 million, or 383%, from $11.9 million for the six months ended June 30, 2020 to $57.6 million for the six months ended June 30, 2021. The increase was primarily attributable to an increase of
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