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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 March 31, 2021

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  *

* The registrant became subject to such requirements on April 14, 2021, and it has filed all reports so required since that date.

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 April 30, 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

 

 

 

Page

 

Information Regarding Forward-Looking Statements

ii

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

4

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 6.

Exhibits

54

 

Signatures

56

 


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 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.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

310,815

 

 

$

508,706

 

Restricted cash

 

 

1,536

 

 

 

785

 

Accounts receivable, net

 

 

1,144

 

 

 

1,429

 

Prepaid expenses and other current assets

 

 

2,280

 

 

 

5,640

 

Amounts due from related parties

 

 

3,708

 

 

 

3,715

 

Total current assets

 

 

319,483

 

 

 

520,275

 

Property and equipment, net

 

 

22,116

 

 

 

23,030

 

Other assets

 

 

4,986

 

 

 

5,054

 

Total assets

 

$

346,585

 

 

$

548,359

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

   STOCKHOLDER’S DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,542

 

 

$

13,779

 

Amounts due to related parties

 

 

5,715

 

 

 

9,660

 

Accrued expenses and other current liabilities

 

 

22,961

 

 

 

16,826

 

Short-term debt

 

 

4,623

 

 

 

4,670

 

Warrants liability

 

 

42,452

 

 

 

 

Capital lease liabilities, current

 

 

805

 

 

 

825

 

Total current liabilities

 

 

81,098

 

 

 

45,760

 

Capital lease liabilities, noncurrent

 

 

3,767

 

 

 

3,556

 

Other liabilities

 

 

2,402

 

 

 

3,673

 

Total liabilities

 

 

87,267

 

 

 

52,989

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.0001 par value; 138,102,770 and 138,102,770 shares authorized as of December 31, 2020 and March 31, 2021; 102,074,703 and 120,534,419 shares issued and outstanding as of December 31, 2020 and March 31, 2021, respectively; aggregate liquidation preference of $598,842 and $847,614 as of December 31, 2020 and March 31, 2021, respectively

 

 

664,791

 

 

 

1,282,916

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 361,897,230 and 361,897,230 shares authorized as of December 31, 2020 and March 31, 2021; 60,543,337 and 60,603,953 shares issued and outstanding as of December 31, 2020 and March 31, 2021, respectively

 

 

6

 

 

 

6

 

Additional paid-in-capital

 

 

 

 

 

2,176

 

Accumulated deficit

 

 

(405,178

)

 

 

(790,338

)

Accumulated other comprehensive income (loss)

 

 

(301

)

 

 

610

 

Total stockholders’ deficit

 

 

(405,473

)

 

 

(787,546

)

Total liabilities, redeemable convertible preferred stock and stockholders’

   deficit

 

$

346,585

 

 

$

548,359

 

 

 

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

1


TuSimple Holdings Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2021

 

Revenue

 

$

259

 

 

$

944

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

771

 

 

 

2,246

 

Research and development

 

 

18,182

 

 

 

41,434

 

Sales and marketing

 

 

437

 

 

 

678

 

General and administrative

 

 

6,726

 

 

 

15,224

 

Total costs and expenses

 

 

26,116

 

 

 

59,582

 

Loss from operations

 

 

(25,857

)

 

 

(58,638

)

Change in fair value of warrants liability

 

 

 

 

 

(326,900

)

Other income, net

 

 

96

 

 

 

378

 

Loss before provision for income taxes

 

 

(25,761

)

 

 

(385,160

)

Provision for income taxes

 

 

 

 

 

 

Net loss

 

 

(25,761

)

 

 

(385,160

)

Accretion of redeemable convertible preferred stock

 

 

 

 

 

(4,135

)

Net loss attributable to common stockholders

 

$

(25,761

)

 

$

(389,295

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.45

)

 

$

(6.43

)

Weighted-average shares used in computing net loss per share attributable

   to common stockholders, basic and diluted

 

 

56,679,887

 

 

 

60,576,886

 

 

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

2


TuSimple Holdings Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2021

 

Net loss

 

$

(25,761

)

 

$

(385,160

)

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

2

 

 

 

911

 

Comprehensive loss

 

$

(25,759

)

 

$

(384,249

)

 

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

 

 

3


 

TuSimple Holdings Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

(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

)

 

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

4


TuSimple Holdings Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ 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’

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

)

 

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

 

5


 

TuSimple Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(25,761

)

 

$

(385,160

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,227

 

 

 

6,289

 

Depreciation and amortization

 

 

1,825

 

 

 

2,110

 

Change in fair value of warrants liability

 

 

 

 

 

326,900

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(17

)

 

 

(285

)

Prepaid expenses and other current assets

 

 

1,055

 

 

 

(3,360

)

Other assets

 

 

(120

)

 

 

(152

)

Accounts payable

 

 

1,143

 

 

 

9,237

 

Amounts due to/from related parties

 

 

(386

)

 

 

4,558

 

Accrued expenses and other current liabilities

 

 

(2,262

)

 

 

(8,217

)

Other liabilities

 

 

932

 

 

 

1,347

 

Net cash used in operating activities

 

 

(22,364

)

 

 

(46,733

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,120

)

 

 

(1,210

)

Purchases of intangible assets

 

 

(62

)

 

 

(87

)

Proceeds from disposal of property and equipment

 

 

 

 

 

100

 

Net cash used in investing activities

 

 

(1,182

)

 

 

(1,197

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred stock

 

 

 

 

 

61,631

 

Proceeds from exercise of warrants for redeemable convertible preferred stock

 

 

 

 

 

183,007

 

Proceeds from exercise of stock options

 

 

 

 

 

253

 

Principal payments on related party loan

 

 

 

 

 

(613

)

Principal payments on capital lease obligations

 

 

 

 

 

(191

)

Principal payments on other liabilities

 

 

(171

)

 

 

(117

)

Net cash provided by (used in) financing activities

 

 

(171

)

 

 

243,970

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(42

)

 

 

1,100

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(23,759

)

 

 

197,140

 

Cash, cash equivalents, and restricted cash - beginning of period

 

 

64,110

 

 

 

312,351

 

Cash, cash equivalents, and restricted cash - end of period

 

$

40,351

 

 

$

509,491

 

 

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

6


TuSimple Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2021

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

173

 

 

$

195

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment included in liabilities

 

$

686

 

 

$

1,939

 

Accretion of redeemable convertible preferred stock

 

$

 

 

$

4,135

 

Vesting of early exercised stock options

 

$

 

 

$

21

 

Exercise of liability-classified warrants

 

$

 

 

$

369,352

 

Cashless exercise of stock options for common stock

 

$

975

 

 

$

 

 

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

7


TuSimple Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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”), in which it issued and sold 27,027,027 shares 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. In connection with the IPO, the Company closed a concurrent private placement in which it issued and sold 874,999 shares of its Class A common stock at a purchase price of $40.00 per share and received aggregate proceeds of $35.0 million. The Company did not pay any underwriting discounts or commissions with respect to the shares of Class A common stock that were sold in this private placement.

Immediately prior to the completion of the IPO and concurrent private placement, the Company filed an amended and restated certificate of incorporation, which became effective on April 19, 2021. The amended and restated certificate of incorporation 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. Additionally, 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. 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.

Immediately prior to the completion of the IPO and concurrent private placement, all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted ino 120,534,419 shares of Class A common stock. Refer to Note 10. Subsequent Events for further information.

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.

8


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 restricted stock units (“RSUs”), share value awards (“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 three years. The performance-based conditions 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. As of March 31, 2021, the Company had not recognized stock-based compensation expense for awards with performance-based conditions which include a qualifying event because the qualifying event described above had not occurred and, therefore, cannot be considered probable. In the period in which the Company’s qualifying event is probable, the Company will record 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 will be 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.

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 January 1, 2021 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.

9


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