## Dilution --- DILUTION If you purchase shares of our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. As of June 30, 2024, our historical net tangible book value (deficit) was $                    , or $          per share of our Class A common stock. Our historical net tangible book value (deficit) per share represents our total tangible assets less total liabilities and redeemable convertible preferred stock, divided by the aggregate number of shares of our Class A common stock outstanding as of June 30, 2024. Our pro forma net tangible book value as of June 30, 2024 was $                    , or $           per share of Class A common stock. Pro forma net tangible book value per share represents tangible assets, less liabilities, divided by the aggregate number of shares of Class A common stock outstanding, after giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation; (ii) the Preferred Stock Conversion; (iii) the Option Exercise; (iv) the RSU Net Settlement; (iv) the increase in accrued expenses and other current liabilities and an equivalent decrease in additional paid-in capital of $                in connection with the estimated tax withholding and remittance obligations related to the RSU Net Settlement; and (v) stock-based compensation expense of approximately $               that we will recognize upon the completion of this offering related to RSUs subject to service-based and liquidity-based vesting conditions for which the service-based vesting condition was satisfied as of June 30, 2024 and for which the liquidity-based vesting condition will be satisfied in connection with this offering. After giving effect to (i) the pro forma adjustments set forth above, (ii) the sale by us of                 shares of our Class A common stock in this offering at an assumed initial public offering price of $           per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the receipt by us of gross proceeds of approximately $                in connection with the Option Exercise, and (iv) the use of a portion of the net proceeds from this offering to satisfy the estimated tax withholding and remittance obligations related to the RSU Net Settlement, our pro forma as adjusted net tangible book value as of June 30, 2024 would have been $                    , or $           per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $           per share and an immediate dilution in pro forma net tangible book value to new investors of $           per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of our Class A common stock sold in this offering and the pro forma as adjusted net tangible book value per share immediately after this offering. The following table illustrates this dilution on a per share basis: > **Assumed initial public offering price per share** > > Assumed initial public offering price per share / Assumed initial public offering price per share / $ > > Historical net tangible book value (deficit) per share as of June 30, 2024 ... Historical net tangible book value (deficit) per share as of June 30, 2024 / Historical net tangible book value (deficit) per share as of June 30, 2024 / $ > Pro forma increase in net tangible book value per share as of June 30, 2024 attributable to the pro forma transactions described above ... Pro forma increase in net tangible book value per share as of June 30, 2024 attributable to the pro forma transactions described above / Pro forma increase in net tangible book value per share as of June 30, 2024 attributable to the pro forma transactions described above > Pro forma net tangible book value per share as of June 30, 2024 ... Pro forma net tangible book value per share as of June 30, 2024 / Pro forma net tangible book value per share as of June 30, 2024 > Increase in pro forma net tangible book value per share attributable to new investors participating in this offering ... Increase in pro forma net tangible book value per share attributable to new investors participating in this offering / Increase in pro forma net tangible book value per share attributable to new investors participating in this offering > Pro forma as adjusted net tangible book value per share after this offering ... Pro forma as adjusted net tangible book value per share after this offering / Pro forma as adjusted net tangible book value per share after this offering > Dilution per share to new investors participating in this offering ... Dilution per share to new investors participating in this offering / Dilution per share to new investors participating in this offering / $ Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $              per share and the dilution in pro forma per share to investors participating in this offering by $              per share, assuming that the 75 --- number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $          per share and the dilution in pro forma as adjusted net tangible book value per share to investors participating in this offering by $         per share, assuming the initial public offering price of $          per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the pro forma as adjusted net tangible book value per share of our Class A common stock after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to investors participating in this offering would be $          per share of our Class A common stock. The following table sets forth, on the pro forma basis described above, as of June 30, 2024, the number of shares of Class A common stock purchased from us, the total consideration paid, or to be paid, and the weighted-average price per share paid, or to be paid, by existing stockholders and by the new investors, at an assumed initial public offering price of $         per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us: > **Shares Purchased** > > Shares Purchased / Shares Purchased / Shares Purchased / Shares Purchased / Shares Purchased / Shares Purchased / Shares Purchased / Shares Purchased / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Total Consideration / Weighted-Average PricePer Share / Weighted-Average PricePer Share / Weighted-Average PricePer Share > > Number / Number / Number / Percent / Percent / Percent / Amount / Amount / Amount / Percent / Percent / Percent / Weighted-Average PricePer Share > (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) / (in thousands, except share, per share and percent data) > Existing stockholders ................... Existing stockholders / Existing stockholders / % / % / % / $ / % / % / % / $ > New investors ........................... New investors / New investors > Total ................................... Total / Total / 100 / 100 / % / $ / 100 / 100 / % Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders before this offering reflected in the table above to be reduced to                 shares, or         % of the total number of shares of our Class A common stock outstanding immediately after the completion of this offering, and will increase the number of shares held by new investors to                 shares, or         % of the total number of shares of our Class A common stock outstanding immediately after the completion of this offering. Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors, total consideration paid by all stockholders, and the weighted-average price per share paid by all stockholders by approximately $            , $            , and $            , respectively, assuming that the number of shares of Class A common stock offered by us and the selling stockholders, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase or decrease, as applicable, the total consideration paid by new investors, total consideration paid by all stockholders, and the weighted-average price per share paid by all stockholders by approximately $            , $            , and $            , respectively, assuming the assumed initial public offering price of $             per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The foregoing tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ exercise their option to purchase additional shares of Class A common stock in full, the number of shares of Class A common stock held by our existing stockholders will represent approximately         % of the total number of shares of our Class A common stock outstanding after this offering and the number of shares held by new 76 --- investors will represent approximately          % of the total number of shares of our Class A common stock outstanding after this offering. The foregoing tables and calculations (other than the historical net tangible book value calculation) are based on                shares of our Class A common stock and no shares of our Class N common stock outstanding as of June 30, 2024, after giving effect to the Preferred Stock Conversion, the Option Exercise, and the RSU Net Settlement, and excludes: •                shares of our Class A common stock issuable upon the exercise of outstanding stock options as of June 30, 2024, with a weighted-average exercise price of $           per share, after giving effect to the Option Exercise; •                shares of our Class A common stock issuable upon the exercise of stock options granted after June 30, 2024, with a weighted-average exercise price of $           per share; •                shares of our Class A common stock issuable upon the vesting and settlement of RSUs subject to service-based and liquidity-based vesting conditions outstanding as of June 30, 2024, for which the service-based vesting condition was not yet satisfied as of June 30, 2024 and for which the liquidity-based vesting condition will be satisfied in connection with this offering, after giving effect to the RSU Net Settlement; •                shares of Class A common stock issuable upon the vesting and settlement of RSUs subject to service-based and liquidity-based vesting conditions granted after June 30, 2024, for which the service-based vesting condition was not yet satisfied as of June 30, 2024 and for which the liquidity-based vesting condition will be satisfied in connection with this offering, after giving effect to the RSU Net Settlement; •22,851,296 shares of our Class N common stock reserved for future purchase pursuant to the G42 Primary Purchase (see the section titled “Certain Relationships and Related Party Transactions” for additional information); •a variable number of shares of our Class N common stock that may be issued pursuant to the G42 Option (see the sections titled “—G42 Option” and “Certain Relationships and Related Party Transactions” for additional information); •                shares of our Class A common stock reserved for future issuance under the 2024 Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, including                 new shares and the number of shares (i) that remain available for grant of future awards under the 2016 Plan at the time the 2024 Plan becomes effective, which shares will cease to be available for issuance under the 2016 Plan at such time and (ii) underlying outstanding Prior Plan Awards that expire, or are cancelled, forfeited, reacquired, or withheld; and •                shares of our Class A common stock reserved for future issuance under the ESPP, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. The 2024 Plan and the ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive and Director Compensation—Equity Compensation Plans” for additional information. If all of the foregoing securities, other than the shares reserved for issuance pursuant to the G42 Option, the 2024 Plan, or the ESPP, were converted, exercised, or vested in connection with this offering, the number of shares of Class A common stock held by our existing stockholders would represent approximately         % of the total number of shares of our Class A common stock outstanding after this offering and the number of shares held by new investors would represent approximately          % of the total number of shares of our Class A common stock 77 --- outstanding after this offering, in each case, assuming no exercise of the underwriters’ option to purchase additional shares. To the extent we issue any additional stock options, warrants, or RSUs or any outstanding stock options or RSUs are exercised or settled, or to the extent we issue any other securities or convertible debt in the future, including in connection with the G42 Primary Purchase or the G42 Option, investors will experience further dilution. G42 Option Investors may experience further dilution in connection with the G42 Option. Pursuant to the Preferred Stock Purchase Agreement, if G42 or certain third parties at the direction of G42 purchase more than $500.0 million in one purchase order, and less than $5.0 billion in the aggregate, of high-performance computing clusters from us (the “G42 Option Threshold”), we will grant G42 the option to purchase additional shares of our Series F-2 redeemable convertible preferred stock (or, if such option is granted or exercised following the completion of this offering, shares of our Class N common stock), subject to the terms and conditions thereof (the “G42 Option”). Each share of our Class N common stock is convertible at any time at the option of the holder into one share of our Class A common stock. G42 has agreed to not convert its shares of Class N common stock into shares of Class A common stock before July 31, 2025. See the section titled “Description of Capital Stock—Common Stock” for additional information. Shares may be issued pursuant to the G42 Option in one or more closings. The $1.43 billion of products and services that G42 has committed to purchase pursuant to the G42 May 2024 Agreement (as defined in “Management’s Discussion & Analysis—G42 Relationship”) does not count toward the G42 Option Threshold. The G42 Option expires if the G42 Option Threshold is not achieved by December 31, 2025. The maximum number of shares that may be purchased pursuant to the G42 Option will be the quotient of (i) the total aggregate purchase price for the G42 Option, which will equal 10% of the value of the relevant purchaser order(s), divided by (ii) (A) if the G42 Option is granted and exercised prior to the completion of this offering, a price per share that is 17.5% below the price per share of our then most recent arms-length sale of our redeemable convertible preferred stock (excluding our Series F-1 and Series F-2 redeemable convertible preferred stock), or (B) if the G42 Option is granted or exercised following the completion of this offering, a price per share that is 17.5% below the average closing price per share of our Class A common stock over the 30-day period prior to the G42 Option Threshold being met. Assuming the G42 Option Threshold is satisfied after this offering, the minimum and maximum number of shares that could be purchased pursuant to the G42 Option, assuming the average closing price per share of our Class A common stock over the 30-day period prior to the G42 Option Threshold being met is $           per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would be                shares of Class N common stock (assuming the G42 Option Threshold is satisfied by product sales of $500.0 million in one purchase order) and                 shares of Class N common stock (assuming the G42 Option Threshold is satisfied by product sales of $5.0 billion in the aggregate), respectively. If the price per share of our Class A common stock over the 30-day period prior to the G42 Option Threshold being met is greater or lesser than $           per share, the number of shares that could be purchased pursuant to the G42 Option would decrease or increase, respectively. 78 ## Management’s Discussion and Analysis of Financial Condition and Results of Operations --- 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 the “Summary Consolidated Financial Data” section, our audited consolidated financial statements and related notes, and other financial information appearing elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Data as of and for the years ended December 31, 2023 and 2022 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. Data as of and for the six months ended June 30, 2024 and 2023 has been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any period in the future, and results for any interim period should not be construed as an inference of what our results would be for any full year or future period. Overview Our mission is to accelerate AI by making it faster, easier to use, and more energy efficient, making AI accessible around the world. We design processors for AI training and inference. We build AI systems to power, cool, and feed the processors data. We develop software to link these systems together into industry-leading supercomputers that are simple to use, even for the most complicated AI work, using familiar ML frameworks like PyTorch. Customers use our supercomputers to train industry-leading models. We use these supercomputers to run inference at speeds unobtainable on alternative commercial technologies. We deliver these AI capabilities to our customers on premise and via the cloud. Our business model is designed to meet the needs of our customers. Organizations seeking control over their data and AI compute infrastructure can purchase Cerebras AI supercomputers for on-premise deployment. Those that want the flexibility of a cloud-based platform can purchase Cerebras high-performance AI compute via a consumption-based model through the Cerebras Cloud. We offer customers the flexibility to choose the solution that best aligns with their budgetary, security, and scalability requirements, and some customers choose to use both options simultaneously. Our customers include CSPs, leading enterprises, Sovereign AI programs, national laboratories, research institutions, and other innovators at the forefront of AI and at the intersection of AI and HPC. We are working to grow our user base and collaborate with our customers to harness the power of AI to tackle their most significant challenges and drive breakthroughs across industries. We have experienced rapid growth, with revenue of $78.7 million and $24.6 million for the years ended December 31, 2023 and 2022, respectively, representing year-over-year growth of 220%. During the six months ended June 30, 2024 and 2023, we generated $136.4 million and $8.7 million in revenue, respectively. Our net loss for the years ended December 31, 2023 and 2022 was $127.2 million and $177.7 million, respectively, representing a year-over-year reduction of 28%. Our net loss for the six months ended June 30, 2024 and 2023 was $66.6 million and $77.8 million, respectively, representing a year-over-year reduction of 14%. Our Business Model We use a combination of direct sales and partnerships to address the rapidly expanding AI market. We offer both on-premise solutions and cloud-based solutions to provide maximum flexibility to our customers. We offer a 79 --- collection of services from data center deployment to AI expert services and AI Supercomputer operation and management, to provide our customers with the support they need to train, deploy, and accelerate GenAI time-to-value. On Premise. We sell our AI Supercomputers to leading organizations who seek maximum control over their data and their AI infrastructure, fulfilling their needs for high-performance AI compute on premise. For on-premise use, we offer deployment services, as well as a subscription to an ongoing stream of software updates and upgrades. Cloud-Based Computing Services. We sell Cerebras solutions primarily via our hosted cloud offering. Our cloud solutions provide customers fast and flexible access to our powerful AI acceleration hardware, with payment based on time or work (number of models). This offering gives our customers the ability to train LLMs with extraordinary speed and deploy them for inference at ultra-low latencies, all without the complexity or time needed to build and manage on-premise infrastructure. Cerebras Inference Cloud. Our real-time inference solution is also available via a dedicated inference cloud service. Leveraging our Cerebras Inference Serving Stack, this cloud API offering allows developers to directly point their applications towards efficient and reliable model serving endpoints. On Cerebras Inference Cloud, we host both popular open-source models and proprietary customer models. For customers who do not need direct compute access and are not interested in managing their own inference serving software stack, our inference cloud offering is the quickest and simplest way to leverage our fast model inference services. We provide a combination of these offerings to customers who may benefit from leveraging both on-premise and cloud-based options—for example, enabling them to quickly use the cloud for their largest training jobs, while enjoying the cost efficiencies of on-premise infrastructure for their baseline AI work. This flexibility allows customers to choose the solution that best aligns with their budgetary, security, and scalability requirements. Additionally, customers can train models on-premise and then leverage our inference cloud for production, benefiting from flexible serving resources that can adapt to fluctuating demand. This end-to-end solution allows seamless integration from training to production, serving the entire lifecycle of a customer’s AI needs. We also provide professional services to assist customers throughout the AI workflow. G42 Relationship We have developed a strategic relationship with Group 42 Holding Ltd (together with its affiliates, “G42”) as a partner, customer, and investor. G42, a technology holding group, is an AI and cloud-computing company that develops and deploys cutting-edge, large-scale, AI-powered solutions for governments and large corporations. Founded in Abu Dhabi and operating worldwide, G42 offers a broad range of products and services that apply AI, cloud computing, and data analytics in several verticals, including healthcare, smart cities, finance, energy, and consumer businesses. We have been informed by G42 that its portfolio companies—which contribute AI-driven solutions across various sectors—include Bayanat, a developer of surveying technology; Core42, a provider of cloud infrastructure and professional services; Inception, a developer of AI data and models; Khazna Data Centers, a provider of wholesale data centers; M42, a joint venture between G42 and Mubadala and a provider of medical solutions leveraging data-centric technologies; and Presight, a provider of turnkey solutions across multiple sectors using big data analytics and AI, which also controls AIQ, an AI pioneer in the energy sector. We have been informed by G42 that as of June 30, 2024, G42 was owned by Mubadala, a sovereign investor owned by the Government of Abu Dhabi; SilverLake, a leading global private equity firm specializing in technology; Microsoft Corporation, a multinational technology corporation; the Dalio Family Office, the private investment office of the Dalio family; RGH1 Investment SPV RSC Ltd., a member of the Royal Group of companies; and the Kai Foundation, a foundation incorporated in the Abu Dhabi Global Market. In November 2021, G42, through an affiliate, acquired an approximate 1% ownership interest in our company as of such date by purchasing approximately 1.4 million shares of our Series F redeemable convertible preferred stock at $27.74 per share, resulting in gross proceeds to us of approximately $40.0 million. 80 --- During the year ended December 31, 2023, G42 purchased cloud-based computing services in the second quarter. In the third quarter of 2023, we entered into a commercial framework agreement and received the first purchase order for an on-premise high-performance computing cluster, as well as a multi-year contract for related data center space and operational services. We began recognizing significant revenue from G42 in the third quarter of 2023. We also received new purchase orders for two additional high-performance computing clusters and related services in the fourth quarter of 2023. We generated significant revenue from G42 in the year ended December 31, 2023, representing $65.1 million, or 83%, of our total revenue. In April 2024, we entered into an agreement with G42 (the “G42 April 2024 Agreement”) pursuant to which G42, or a third party nominee affiliated with G42, intends to issue purchase orders for high-performance computing products and services for a minimum value of $300 million. Pursuant to the G42 April 2024 Agreement, we received a prepayment of $300.0 million from G42 in May 2024 to be used for payments to third-party vendors to manufacture high-performance computing infrastructure. If the purchase orders are not issued by G42, any portion of the prepayment not paid by us to our third-party vendors will be payable to G42 on demand and our rights to inventory purchased with the prepayment will transfer to G42. In May 2024, we entered into a Series F-1 redeemable convertible purchase agreement (as subsequently amended and restated in September 2024, the “Preferred Stock Purchase Agreement”) with G42 and other parties. Pursuant to the Preferred Stock Purchase Agreement, G42 agreed to purchase an aggregate of approximately 22.9 million shares of our Series F-2 redeemable convertible preferred stock (or, if purchased following the completion of this offering, shares of our Class N common stock) at $14.66 per share, for anticipated gross proceeds to us of $335.0 million (the “G42 Primary Purchase”). G42 has committed to purchase these shares by April 15, 2025. Following the completion of the G42 Primary Purchase, the shares owned by G42 will represent approximately     % of our outstanding capital stock following the completion of this offering (or approximately     % of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares from us). Additionally, pursuant to the Preferred Stock Purchase Agreement, under certain circumstances, G42 will have the option to purchase additional shares of our Class N common stock at a 17.5% discount to the then-fair market value of our shares of Class A common stock. For additional information, see the section titled “Certain Relationships and Related Party Transactions.” In May 2024, we also entered into an agreement with G42 (the “G42 May 2024 Agreement”) pursuant to which we agreed to certain pricing commitments with G42 through the end of 2025, and G42 agreed that it will purchase, or will cause a third party that may be affiliated or unaffiliated and under a commercial agreement with G42, to purchase, our high-performance computing systems, installation, and support services in an aggregate amount of approximately $1.43 billion by completing the prepayment of such amount before February 28, 2025 and executing binding purchase orders totaling such amount. G42 has informed us that any third party with whom it coordinates to purchase high-performance computing clusters from us would engage G42 or its affiliates to manage and operate the high-performance computing clusters for a fee. The Cerebras systems would be housed in facilities leased by G42 or its affiliates, who would oversee their operation. In September 2024, Mohamed bin Zayed University of Artificial Intelligence (“MBZUAI”), an Abu Dhabi-based university focused on research and graduate-level education in AI, agreed to purchase $350.0 million of the $1.43 billion committed pursuant to the G42 May 2024 Agreement. To the extent MBZUAI or other third parties make purchases subject to the G42 May 2024 Agreement, such purchases would reduce the amount that G42 purchases directly, but would not alter the total amount committed for purchase under the G42 May 2024 Agreement. In July 2024, we received a purchase order from G42 for the sale of $178.7 million of our high-performance computing systems, including installation and support services (the “July 2024 PO”). Additionally, we entered into a new agreement, and modified an existing agreement, pursuant to which we agreed to provide operation and management services for certain high-performance computing systems purchased from us by G42. The fees to be paid by G42 under these agreements will be deducted from the initial $300 million prepayment we received as part of the G42 April 2024 Agreement, and the $178.7 million fee for the July 2024 PO fulfills a portion of the prepayment and purchase order commitments under the G42 May 2024 Agreement. 81 --- In September 2024, we received a $350.0 million prepayment from MBZUAI in connection with the purchase order described above. The prepayment will be used for payments to third-party vendors to manufacture high performance computing infrastructure. Key Factors Affecting Our Performance We believe that the growth and future success of our business depends on many factors. While these factors present significant opportunities for our business, they also pose important challenges that we will need to address in order to improve our results of operations. Commercial relationship with G42. We have derived, and expect to continue to derive, a substantial portion of our revenue from sales to G42. Any changes in G42’s demand for our solution, whether due to competitive factors, data center availability, changes in its business strategy, budgetary constraints, or other reasons could materially impact our financial performance in the future. We have received substantial advance payments from G42 for our AI systems to support future installations. These large prepayments have allowed us to reduce our working capital needs and provide G42 access to a significant portion of our initial production volumes to support its ambitious, multi-year AI investment plans. AI compute demand and increasingly complex models. The escalating global demand for AI training and inference compute, fueled by advancements in LLMs, GenAI, and other AI-powered applications, plays a significant role in the demand for our solution. We have designed our AI compute platform to address the challenges of accelerating large-scale AI workloads, and our customer base in research, government, CSPs, and enterprise sectors reflects the increasing recognition of our differentiated technology. We believe that the increasing complexity of AI models, which require substantial computational resources for training and inference will support the demand for our high-performance AI compute platform. We will depend on continued growth in compute demand to drive our future financial performance. New customer adoption. Attracting new customers to our platform is a key driver of our revenue growth strategy. We have successfully grown our customer base to include CSPs, leading enterprises, Sovereign AI programs, national laboratories, and research institutions seeking to leverage the power of AI for their specific needs. An increase in new customers will impact our revenue growth and market share and also contributes to a diversified customer base, which can provide greater stability over the long term. Additionally, new customers bring fresh perspectives and use cases, which can drive innovation and product development, further enhancing our competitive position. AI adoption and the emergence of new use cases and applications. We expect to benefit from the rapid adoption of AI across industries and the emergence of innovative AI use cases and applications. As organizations increasingly recognize the transformative potential of AI to enhance efficiency, productivity, and decision-making, we expect the demand for high-performance AI compute solutions to accelerate. The rapidly expanding range of AI use cases, from natural language processing and computer vision to drug discovery and climate modeling, among others, creates a broad market opportunity for our AI compute solution. We expect our ability to address the evolving needs of diverse industries and applications with cutting-edge AI compute technology to be instrumental in driving our growth and market leadership in the years to come. Sovereign AI initiatives. The expansion of Sovereign AI initiatives represents a significant opportunity to drive demand for our solution. We believe that our focus on developing secure, high-performance AI infrastructure positions us well to meet this demand. Investment in technology leadership and product development. Increasing our investment in technology leadership and product development directly impacts our competitive position and future financial performance. Our continued commitment to research and development enables us to focus on emerging market needs and expand into new applications of AI. As we develop new products and services tailored to specific industries and use cases, we can unlock additional demand and continue to broaden our customer base. Additionally, technical leadership is important to help us attract and retain top talent, which is essential for maintaining our technological edge and 82 --- driving continuous innovation. A talented workforce, in turn, contributes to the development of new solutions that can continue to fuel our revenue growth. Supply chain and manufacturing capacity. We operate a fabless business model that utilizes third-party suppliers and manufacturers, such as third-party wafer foundries and module assembly and test service providers in a number of countries, including outside the United States. We do not generally have long-term capacity commitments with our suppliers, and we source a number of the components used in our products from sole or single-source suppliers or use a single supplier to perform certain of the processes involved in the manufacture of our products. The continued and timely supply of input materials and the availability of manufacturing capacity and packaging and testing services impact our ability to meet customer demand. Onboarding new third-party suppliers and our dependency on them to allocate sufficient manufacturing capacity to meet our needs in a cost-effective and timely manner may impact our ability to scale and support growing customer demand. Non-GAAP Financial Measures We use certain non-GAAP financial measures to supplement the performance measures in our consolidated financial statements, which are presented in accordance with GAAP. These non-GAAP financial measures include non-GAAP operating loss and non-GAAP net loss. We use these non-GAAP financial measures for financial and operational decision-making and as a means to assist us in evaluating period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that non-GAAP operating loss and non-GAAP net loss provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. Non-GAAP Operating Loss We define non-GAAP operating loss as operating loss presented in accordance with GAAP, adjusted to exclude stock-based compensation expenses. We have presented non-GAAP operating loss because we consider non-GAAP operating loss to be a useful metric for investors and other users of our financial information in evaluating our operating performance because it excludes the impact of stock-based compensation, a non-cash charge that can vary from period to period for reasons that are unrelated to our core operating performance. This metric also provides investors and other users of our financial information with an additional tool to compare business performance across companies and periods, while eliminating the effects of items that may vary for different companies for reasons unrelated to core operating performance. A reconciliation of our GAAP operating loss, the most directly comparable GAAP financial measure, to non-GAAP operating loss is presented below: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > GAAP operating loss ..................... GAAP operating loss / GAAP operating loss / $ / (133,934) / $ / (178,821) / $ / (41,811) / $ / (81,015) > Add: Stock-based compensation expense ... Add: Stock-based compensation expense / Add: Stock-based compensation expense / 26,631 / 26,631 / 23,044 / 23,044 / 32,329 / 32,329 / 9,260 / 9,260 > Non-GAAP operating loss ................. Non-GAAP operating loss / Non-GAAP operating loss / $ / (107,303) / $ / (155,777) / $ / (9,482) / $ / (71,755) 83 --- Non-GAAP Net Loss We monitor non-GAAP net loss for planning and performance measurement purposes. We define non-GAAP net loss as net loss reported on our consolidated statements of operations, excluding the impact of stock-based compensation expenses and change in fair value of forward contract liability. We have presented non-GAAP net loss because we believe that the exclusion of these charges allows for a more relevant comparison of our results of operations to other companies in our industry and facilitates period-to-period comparisons as it eliminates the effect of certain factors unrelated to our overall operating performance. Our calculation of non-GAAP net loss does not currently include the tax effects of the stock-based compensation expense adjustment because such tax effects have not been material to date. A reconciliation of our GAAP net loss, the most directly comparable GAAP financial measure, to our non-GAAP net loss is presented below: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > GAAP net loss ........................... GAAP net loss / GAAP net loss / $ / (127,155) / $ / (177,719) / $ / (66,605) / $ / (77,820) > Add: Stock-based compensation expense(1) ... Add: Stock-based compensation expense(1) / Add: Stock-based compensation expense(1) / 26,631 / 26,631 / 23,044 / 23,044 / 32,329 / 32,329 / 9,260 / 9,260 > Add: Change in fair value of forward contract liability ... Add: Change in fair value of forward contract liability / Add: Change in fair value of forward contract liability / — / — / — / — / 30,327 / 30,327 / — / — > Non-GAAP net loss ....................... Non-GAAP net loss / Non-GAAP net loss / $ / (100,524) / $ / (154,675) / $ / (3,949) / $ / (68,560) _______________ (1)Non-GAAP net loss does not include the tax effects of the stock-based compensation expense adjustment because such tax effects were not material during the periods presented. Components of Results of Operations Revenue We generate revenue primarily from the sale of AI systems, support services, cloud-based computing services, and custom AI modeling services. We primarily sell directly to end customers. Contracts with our customers typically include multiple performance obligations. For contracts with more than one performance obligation, we allocate the transaction price to each separate obligation. Our payment terms vary by contract type and type of customer and generally range from 30 to 60 days from the invoice date. Hardware Revenue Hardware revenue consists of sales of our AI systems that can be used for both training and inference. We recognize revenue from sales of AI systems when control of the goods transfers to the customer, which generally occurs upon shipment or delivery, depending on shipping terms or upon meeting the contractual acceptance terms. Services and Other Revenue We generate services and other revenue primarily through sales of one- to three-year support services, cloud-based computing services, and custom AI modeling services. We recognize revenue from sales of support services and cloud-based computing services, including hosted inference, over the service term, as the customer benefits from our services throughout the contract period. We generate revenue from custom AI modeling services over time as services are provided or at a point-in-time upon completion and acceptance by the customer of contract deliverables, depending on the terms of the agreement. 84 --- Cost of Sales and Gross Profit Hardware Cost of Sales Cost of sales for hardware consists primarily of the cost of materials, such as wafers processed by third-party foundries, costs associated with packaging, assembly, shipping, logistics, quality assurance, warranty cost, cost of personnel, including salaries, stock-based compensation, and employee benefits, write-down of inventories, and facilities expenses. Services and Other Cost of Sales Cost of sales for services and other revenue primarily consist of data center costs, depreciation of equipment, cost of personnel, including salaries, stock-based compensation, and employee benefits, and facilities expenses. Gross Profit and Gross Margin Gross profit represents revenue less cost of sales. Gross margin is gross profit expressed as a percentage of revenue. Our gross profit has been, and we expect will continue to be, influenced by several factors, including sales volume and pricing of our products and services, changes in inventory costs, including wafer yield, contract manufacturing, and supplier pricing, data center costs, cost of logistics, and personnel costs. Operating Expenses Research and Development Expenses Research and development expenses primarily consist of costs incurred in performing research and development activities and include salaries, stock-based compensation, employee benefits, tape-out costs, which include layout services, mask sets, prototype components, system qualification and testing incurred before releasing new system designs into production, shipping, data center costs, depreciation and amortization, professional services fees, cloud computing, and facilities expenses. We expense research and development costs as incurred. We also expense software development costs, including costs to develop the software component of hardware to be sold, leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. Sales and Marketing Expenses Sales and marketing expenses primarily consist of personnel costs, including salaries, stock-based compensation, employee benefits, public relations costs, tradeshow and other sales event costs, travel and entertainment costs, and facilities expenses. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs, including salaries, stock-based compensation, employee benefits and bonuses related to corporate, finance, legal, information technology and human resource functions, professional services fees, audit and compliance expenses, software subscription costs, travel and entertainment costs, insurance costs, depreciation and amortization, allocation of facilities and other general corporate expenses. We expect to incur additional expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to auditing, compliance, and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and professional services. 85 --- Interest Income and Other Income (Expense), Net Interest income and other income (expense), net consists primarily of interest income, dividend income, and realized gains or losses on debt securities, foreign exchange losses, and gains and losses arising from remeasurement of forward contract liability and warrant liability to fair value at each reporting date. Income Tax Expense Income tax expense consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance. Results of Operations The following tables set forth selected consolidated statements of operations data for each of the periods indicated: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > Revenue: ................................ Revenue: / Revenue: > Hardware ................................ Hardware / Hardware / $ / 57,114 / $ / 15,599 / $ / 104,269 / $ / 1,559 > Services and other ...................... Services and other / Services and other / 21,630 / 21,630 / 9,020 / 9,020 / 32,133 / 32,133 / 7,105 / 7,105 > Total revenue ........................... Total revenue / Total revenue / 78,744 / 78,744 / 24,619 / 24,619 / 136,402 / 136,402 / 8,664 / 8,664 > Cost of sales(1): ....................... Cost of sales(1): / Cost of sales(1): > Hardware ................................ Hardware / Hardware / 45,559 / 45,559 / 19,195 / 19,195 / 66,442 / 66,442 / 1,980 / 1,980 > Services and other ...................... Services and other / Services and other / 6,827 / 6,827 / 2,534 / 2,534 / 13,941 / 13,941 / 2,306 / 2,306 > Total cost of sales ..................... Total cost of sales / Total cost of sales / 52,386 / 52,386 / 21,729 / 21,729 / 80,383 / 80,383 / 4,286 / 4,286 > Gross profit ............................ Gross profit / Gross profit / 26,358 / 26,358 / 2,890 / 2,890 / 56,019 / 56,019 / 4,378 / 4,378 > Operating expenses: ..................... Operating expenses: / Operating expenses: > Research and development(1) ............. Research and development(1) / Research and development(1) / 140,057 / 140,057 / 155,408 / 155,408 / 77,742 / 77,742 / 76,295 / 76,295 > Sales and marketing(1) .................. Sales and marketing(1) / Sales and marketing(1) / 9,642 / 9,642 / 9,401 / 9,401 / 7,237 / 7,237 / 4,176 / 4,176 > General and administrative(1) ........... General and administrative(1) / General and administrative(1) / 10,593 / 10,593 / 16,902 / 16,902 / 12,851 / 12,851 / 4,922 / 4,922 > Total operating expenses ................ Total operating expenses / Total operating expenses / 160,292 / 160,292 / 181,711 / 181,711 / 97,830 / 97,830 / 85,393 / 85,393 > Loss from operations .................... Loss from operations / Loss from operations / (133,934) / (133,934) / (178,821) / (178,821) / (41,811) / (41,811) / (81,015) / (81,015) > Interest income ......................... Interest income / Interest income / 5,683 / 5,683 / 1,076 / 1,076 / 3,809 / 3,809 / 2,349 / 2,349 > Other income (expense), net ............. Other income (expense), net / Other income (expense), net / 1,228 / 1,228 / 230 / 230 / (28,284) / (28,284) / 918 / 918 > Loss before income tax .................. Loss before income tax / Loss before income tax / (127,023) / (127,023) / (177,515) / (177,515) / (66,286) / (66,286) / (77,748) / (77,748) > Income tax expense ...................... Income tax expense / Income tax expense / 132 / 132 / 204 / 204 / 319 / 319 / 72 / 72 > Net loss ................................ Net loss / Net loss / $ / (127,155) / $ / (177,719) / $ / (66,605) / $ / (77,820) 86 --- _______________ (1)Includes stock-based compensation expense as follows: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > Cost of sales ........................... Cost of sales / Cost of sales / $ / 309 / $ / 223 / $ / 420 / $ / 51 > Research and development ................ Research and development / Research and development / 21,187 / 21,187 / 17,732 / 17,732 / 23,905 / 23,905 / 7,367 / 7,367 > Sales and marketing ..................... Sales and marketing / Sales and marketing / 3,563 / 3,563 / 832 / 832 / 3,195 / 3,195 / 1,075 / 1,075 > General and administrative .............. General and administrative / General and administrative / 1,572 / 1,572 / 4,257 / 4,257 / 4,809 / 4,809 / 767 / 767 > Total stock-based compensation expense ... Total stock-based compensation expense / Total stock-based compensation expense / $ / 26,631 / $ / 23,044 / $ / 32,329 / $ / 9,260 Stock-based compensation expense included $9.0 million, $8.6 million, $18.5 million, and $0.9 million for the years ended December 31, 2023 and 2022 and for the six months ended June 30, 2024 and 2023, respectively, related to secondary transactions in each period and a common stock repurchase from employees during the year ended December 31, 2022. See Note 12 to our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for additional details on the secondary transactions. The following table sets forth selected consolidated statements of operations data expressed as a percentage of revenue for each of the periods indicated: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) / (as a percentage of revenue) > Revenue: ................................ Revenue: / Revenue: > Hardware ................................ Hardware / Hardware / 72.5 / 72.5 / % / 63.4 / 63.4 / % / 76.4 / 76.4 / % / 18.0 / 18.0 / % > Services and other ...................... Services and other / Services and other / 27.5 / 27.5 / 36.6 / 36.6 / 23.6 / 23.6 / 82.0 / 82.0 > Total revenue ........................... Total revenue / Total revenue / 100.0 / 100.0 / 100.0 / 100.0 / 100.0 / 100.0 / 100.0 / 100.0 > Cost of sales: .......................... Cost of sales: / Cost of sales: > Hardware ................................ Hardware / Hardware / 57.8 / 57.8 / 78.0 / 78.0 / 48.7 / 48.7 / 22.9 / 22.9 > Services and other ...................... Services and other / Services and other / 8.7 / 8.7 / 10.3 / 10.3 / 10.2 / 10.2 / 26.6 / 26.6 > Total cost of sales ..................... Total cost of sales / Total cost of sales / 66.5 / 66.5 / 88.3 / 88.3 / 58.9 / 58.9 / 49.5 / 49.5 > Gross profit ............................ Gross profit / Gross profit / 33.5 / 33.5 / 11.7 / 11.7 / 41.1 / 41.1 / 50.5 / 50.5 > Operating expenses: ..................... Operating expenses: / Operating expenses: > Research and development ................ Research and development / Research and development / 177.9 / 177.9 / 631.2 / 631.2 / 57.0 / 57.0 / 880.6 / 880.6 > Sales and marketing ..................... Sales and marketing / Sales and marketing / 12.2 / 12.2 / 38.2 / 38.2 / 5.3 / 5.3 / 48.2 / 48.2 > General and administrative .............. General and administrative / General and administrative / 13.5 / 13.5 / 68.7 / 68.7 / 9.4 / 9.4 / 56.8 / 56.8 > Total operating expenses ................ Total operating expenses / Total operating expenses / 203.6 / 203.6 / 738.1 / 738.1 / 71.7 / 71.7 / 985.6 / 985.6 > Loss from operations .................... Loss from operations / Loss from operations / (170.1) / (170.1) / (726.4) / (726.4) / (30.6) / (30.6) / (935.1) / (935.1) > Interest income ......................... Interest income / Interest income / 7.2 / 7.2 / 4.4 / 4.4 / 2.8 / 2.8 / 27.1 / 27.1 > Other income (expense), net ............. Other income (expense), net / Other income (expense), net / 1.6 / 1.6 / 0.9 / 0.9 / (20.7) / (20.7) / 10.6 / 10.6 > Loss before income tax .................. Loss before income tax / Loss before income tax / (161.3) / (161.3) / (721.1) / (721.1) / (48.5) / (48.5) / (897.4) / (897.4) > Income tax expense ...................... Income tax expense / Income tax expense / 0.2 / 0.2 / 0.8 / 0.8 / 0.2 / 0.2 / 0.8 / 0.8 > Net loss ................................ Net loss / Net loss / (161.5) / (161.5) / % / (721.9) / (721.9) / % / (48.7) / (48.7) / % / (898.2) / (898.2) / % 87 --- Comparison of the Six Months Ended June 30, 2024 and 2023 Revenue > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Hardware ................................ Hardware / Hardware / $ / 104,269 / $ / 1,559 / $ / 102,710 / NM / NM / NM > Services and other ...................... Services and other / Services and other / 32,133 / 32,133 / 7,105 / 7,105 / 25,028 / 25,028 / NM / NM / NM > Total revenue ........................... Total revenue / Total revenue / $ / 136,402 / $ / 8,664 / $ / 127,738 / 1,474 / 1,474 / % _______________ NM – Not meaningful Our total revenue for the six months ended June 30, 2024 increased by $127.7 million, or 1,474%, compared to the six months ended June 30, 2023. This increase was primarily due to hardware revenue, which grew by $102.7 million. The growth was attributable to a significant increase in the number of AI systems sold. Services and other revenue increased by $25.0 million primarily due to an increase in professional services and ongoing support services as a result of our growing installed base. We generated significant revenue from G42 for the six months ended June 30, 2024 and 2023, representing $119.1 million and $3.7 million, respectively, or 87% and 43%, respectively, of our total revenue. During the six months ended June 30, 2024, G42 represented $101.3 million, or 97%, and $17.8 million, or 56%, of hardware revenue and services and other revenue, respectively. During the six months ended June 30, 2023, G42 represented $3.7 million, or 52%, of services and other revenue. No hardware revenue was recognized from G42 during the six months ended June 30, 2023. Cost of Sales > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Hardware ................................ Hardware / Hardware / $ / 66,442 / $ / 1,980 / $ / 64,462 / NM / NM / NM > Services and other ...................... Services and other / Services and other / 13,941 / 13,941 / 2,306 / 2,306 / 11,635 / 11,635 / NM / NM / NM > Cost of sales ........................... Cost of sales / Cost of sales / $ / 80,383 / $ / 4,286 / $ / 76,097 / NM / NM / NM _______________ NM – Not meaningful Cost of sales for the six months ended June 30, 2024 increased by $76.1 million compared to the six months ended June 30, 2023 primarily due to an increase in the number of AI systems sold, and growth in our professional services, and ongoing support services. Gross Profit and Gross Margin > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Gross profit ............................ Gross profit / Gross profit / $ / 56,019 / $ / 4,378 / $ / 51,641 / NM / NM / NM > Gross margin ............................ Gross margin / Gross margin / 41.1 / 41.1 / % / 50.5 / 50.5 / % _______________ NM – Not meaningful Gross profit for the six months ended June 30, 2024 was $56.0 million, an increase of $51.6 million compared to $4.4 million in the six months ended June 30, 2023. Gross margin decreased from 50.5% to 41.1%, primarily due 88 --- to a change in the mix of hardware revenue and services and other revenue. Services and other revenue typically have higher gross margins than hardware revenue. During the six months ended June 30, 2023, a significant portion of our revenue was from services and other revenue. During the six months ended June 30, 2024, we extended a larger price discount for hardware sold to G42 in exchange for a high-volume fixed-price purchase order, which lowered the total gross margin, the impact of which was partially offset by lower bill of materials costs. Operating Expenses Research and Development > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Research and development ................ Research and development / Research and development / $ / 77,742 / $ / 76,295 / $ / 1,447 / 2 / 2 / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 57 / 57 / % / 881 / 881 / % Research and development expenses for the six months ended June 30, 2024 remained largely consistent with the six months ended June 30, 2023. During the six months ended June 30, 2024, stock-based compensation expense increased by $16.5 million, though this was largely offset by a reduction in non-recurring engineering services. Sales and Marketing > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Sales and marketing ..................... Sales and marketing / Sales and marketing / $ / 7,237 / $ / 4,176 / $ / 3,061 / 73 / 73 / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 5 / 5 / % / 48 / 48 / % Sales and marketing expenses for the six months ended June 30, 2024 increased by $3.1 million, or 73%, compared to the six months ended June 30, 2023. The increase in sales and marketing expenses was primarily due to an increase in stock-based compensation expenses and personnel-related expenses as a result of an increase in headcount. General and Administrative > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > General and administrative .............. General and administrative / General and administrative / $ / 12,851 / $ / 4,922 / $ / 7,929 / 161 / 161 / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 9 / 9 / % / 57 / 57 / % General and administrative expenses for the six months ended June 30, 2024 increased by $ 7.9 million, or 161%, compared to the six months ended June 30, 2023. The increase in general and administrative expenses was primarily due to an increase in personnel-related expenses, including stock-based compensation expense and legal and other professional services to support our growth. 89 --- Interest Income and Other (Expense) Income, Net > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Interest income ......................... Interest income / Interest income / $ / 3,809 / $ / 2,349 / $ / 1,460 / 62 / 62 / % > Other income (expense), net ............. Other income (expense), net / Other income (expense), net / $ / (28,284) / $ / 918 / $ / (29,202) / NM / NM / NM _______________ NM – Not meaningful Interest income for the six months ended June 30, 2024 increased by $1.5 million, or 62%, compared to the six months ended June 30, 2023. The increase was primarily attributable to stronger yield on higher invested cash, cash equivalents, and investments. The change in other (expense) income, net was primarily attributable to a change in fair value of Series F-1 redeemable convertible preferred stock forward contract liability recorded during the six months ended June 30, 2024. Income Tax Expense > **Six Months Ended June 30,** > > Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2024 / 2024 / 2024 / 2023 / 2023 / 2023 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Income tax expense ...................... Income tax expense / Income tax expense / $ / 319 / $ / 72 / $ / 247 / 343 / 343 / % Income tax expense for the six months ended June 30, 2024 increased compared to the six months ended June 30, 2023 due to a change in the measurement of our deferred tax liability and an increase in state income tax. Comparison of the Years Ended December 31, 2023 and 2022 Revenue > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Hardware ................................ Hardware / Hardware / $ / 57,114 / $ / 15,599 / $ / 41,515 / 266 / 266 / % > Services and other ...................... Services and other / Services and other / 21,630 / 21,630 / 9,020 / 9,020 / 12,610 / 12,610 / 140 / 140 / % > Total revenue ........................... Total revenue / Total revenue / $ / 78,744 / $ / 24,619 / $ / 54,125 / 220 / 220 / % Total revenue for the year ended December 31, 2023 increased by $54.1 million, or 220%, compared to the year ended December 31, 2022, primarily due to the increase in hardware revenue. Hardware revenue increased by $41.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an approximately four-fold increase in the number of AI systems sold. Services and other revenue increased $12.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in professional services as well as an increase ongoing support services as a result of our growing installed base. We generated significant revenue from G42 for the year ended December 31, 2023, representing $65.1 million, or 83%, of our total revenue. G42 represented $54.5 million, or 95%, and $10.7 million, or 49%, of hardware revenue and services and other revenue, respectively, for the year ended December 31, 2023. No revenue was recognized from G42 for the year ended December 31, 2022. 90 --- Cost of Sales > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Hardware ................................ Hardware / Hardware / $ / 45,559 / $ / 19,195 / $ / 26,364 / 137 / 137 / % > Services and other ...................... Services and other / Services and other / 6,827 / 6,827 / 2,534 / 2,534 / 4,293 / 4,293 / 169 / 169 / % > Cost of sales ........................... Cost of sales / Cost of sales / $ / 52,386 / $ / 21,729 / $ / 30,657 / 141 / 141 / % Cost of sales for the year ended December 31, 2023 increased by $30.7 million, or 141%, compared to the year ended December 31, 2022, primarily due to an increase in the number of AI systems sold as well as increased costs from more professional and ongoing support services being delivered. These increases were partially offset by a $8.3 million decrease in write-offs and provision for excess and obsolete inventory due to transition from an older generation to a newer generation of our AI systems in 2022. Gross Profit and Gross Margin > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Gross profit ............................ Gross profit / Gross profit / $ / 26,358 / $ / 2,890 / $ / 23,468 / NM / NM / NM > Gross margin ............................ Gross margin / Gross margin / 33.5 / 33.5 / % / 11.7 / 11.7 / % _______________ NM – Not meaningful Gross profit for the year ended December 31, 2023, was $26.4 million, an increase of $23.5 million compared to $2.9 million in the year ended December 31, 2022. Gross margin for the year ended December 31, 2023 increased to 33.5% from 11.7% for the year ended December 31, 2022. Charges to cost of sales for write-offs and provision for excess and obsolete inventory were $2.5 million and $10.8 million during the years ended December 31, 2023 and 2022, respectively, which negatively affected our gross margin during those years. Operating Expenses Research and Development > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Research and development ................ Research and development / Research and development / $ / 140,057 / $ / 155,408 / $ / (15,351) / (10) / (10) / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 178 / 178 / % / 631 / 631 / % Research and development expenses for the year ended December 31, 2023 decreased by $15.4 million, or 10%, compared to the year ended December 31, 2022. The decrease in research and development expenses was primarily attributable to reduced compensation and benefits as a result of a reduction in employee workforce executed during the third quarter of 2022 and the first quarter of 2023. 91 --- Sales and Marketing > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Sales and marketing ..................... Sales and marketing / Sales and marketing / $ / 9,642 / $ / 9,401 / $ / 241 / 3 / 3 / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 12 / 12 / % / 38 / 38 / % Sales and marketing expenses for the year ended December 31, 2023 remained largely consistent with the year ended December 31 2022. General and Administrative > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > General and administrative .............. General and administrative / General and administrative / $ / 10,593 / $ / 16,902 / $ / (6,309) / (37) / (37) / % > Percentage of revenue ................... Percentage of revenue / Percentage of revenue / 14 / 14 / % / 69 / 69 / % General and administrative expenses for the year ended December 31, 2023 decreased by $6.3 million, or 37%, compared to the year ended December 31, 2022. The decrease in general and administrative expenses was primarily attributable to a decrease in stock-based compensation expense in 2023 compared to the expense recorded for a common stock repurchase transaction in 2022, a decrease in compensation and benefits due to a reduction in employee workforce executed during the third quarter of 2022 and the first quarter of 2023, and a decrease in other general administrative expenses. Interest Income and Other Income, Net > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Interest income ......................... Interest income / Interest income / $ / 5,683 / $ / 1,076 / $ / 4,607 / NM / NM / NM > Other income, net ....................... Other income, net / Other income, net / $ / 1,228 / $ / 230 / $ / 998 / NM / NM / NM _______________ NM – Not meaningful Interest income for the year ended December 31, 2023 increased by $4.6 million compared to the year ended December 31, 2022. The increase in interest income was primarily attributable to higher yield received on invested cash, cash equivalents, and investments. Other income, net for the year ended December 31, 2023 increased by $1.0 million compared to the year ended December 31, 2022. The increase in other income, net was primarily attributable to an increase in dividend income and remeasurement of the warrant liability. Income Tax Expense > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / $ Change / $ Change / $ Change / % Change / % Change / % Change > (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) / (in thousands, except percentages) > Income tax expense ...................... Income tax expense / Income tax expense / $ / 132 / $ / 204 / $ / (72) / (35) / (35) / % Income tax expense for the year ended December 31, 2023 decreased compared to the year ended December 31, 2022 due to a change in the measurement of our deferred tax liability. 92 --- Quarterly Results of Operations The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the six quarters ended June 30, 2024. The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments, consisting of normal, recurring adjustments that are necessary for a fair statement of this information. These quarterly operating results are not necessarily indicative of the results that may be expected for a full year or any other fiscal period. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in the prospectus. > **Three Months Ended** > > Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended > > March 31, 2023 / March 31, 2023 / March 31, 2023 / June 30,2023 / June 30,2023 / June 30,2023 / September 30, 2023 / September 30, 2023 / September 30, 2023 / December 31, 2023 / December 31, 2023 / December 31, 2023 / March 31, 2024 / March 31, 2024 / March 31, 2024 / June 30,2024 / June 30,2024 / June 30,2024 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > Revenue: ................................ Revenue: / Revenue: > Hardware ................................ Hardware / Hardware / $ / 1,354 / $ / 205 / $ / 28,933 / $ / 26,622 / $ / 49,411 / $ / 54,858 > Services and other ...................... Services and other / Services and other / 1,583 / 1,583 / 5,522 / 5,522 / 6,182 / 6,182 / 8,343 / 8,343 / 17,220 / 17,220 / 14,913 / 14,913 > Total revenue ........................... Total revenue / Total revenue / 2,937 / 2,937 / 5,727 / 5,727 / 35,115 / 35,115 / 34,965 / 34,965 / 66,631 / 66,631 / 69,771 / 69,771 > Cost of sales(1): ....................... Cost of sales(1): / Cost of sales(1): > Hardware ................................ Hardware / Hardware / 1,094 / 1,094 / 885 / 885 / 21,867 / 21,867 / 21,713 / 21,713 / 33,619 / 33,619 / 32,823 / 32,823 > Services and other ...................... Services and other / Services and other / 488 / 488 / 1,819 / 1,819 / 2,254 / 2,254 / 2,266 / 2,266 / 7,873 / 7,873 / 6,068 / 6,068 > Total cost of sales ..................... Total cost of sales / Total cost of sales / 1,582 / 1,582 / 2,704 / 2,704 / 24,121 / 24,121 / 23,979 / 23,979 / 41,492 / 41,492 / 38,891 / 38,891 > Gross profit ............................ Gross profit / Gross profit / 1,355 / 1,355 / 3,023 / 3,023 / 10,994 / 10,994 / 10,986 / 10,986 / 25,139 / 25,139 / 30,880 / 30,880 > Gross margin ............................ Gross margin / Gross margin / 46.1 / 46.1 / % / 52.8 / 52.8 / % / 31.3 / 31.3 / % / 31.4 / 31.4 / % / 37.7 / 37.7 / % / 44.3 / 44.3 / % > Total operating expenses(1) ............. Total operating expenses(1) / Total operating expenses(1) / 54,323 / 54,323 / 31,069 / 31,069 / 31,656 / 31,656 / 43,244 / 43,244 / 43,190 / 43,190 / 54,640 / 54,640 > Loss from operations .................... Loss from operations / Loss from operations / (52,968) / (52,968) / (28,046) / (28,046) / (20,662) / (20,662) / (32,258) / (32,258) / (18,051) / (18,051) / (23,760) / (23,760) > Net loss ................................ Net loss / Net loss / $ / (51,592) / $ / (26,227) / $ / (18,461) / $ / (30,875) / $ / (15,750) / $ / (50,855) _______________ (1)Includes stock-based compensation as follows: > **March 31, 2023** > > March 31, 2023 / March 31, 2023 / June 30,2023 / June 30,2023 / June 30,2023 / September 30, 2023 / September 30, 2023 / September 30, 2023 / December 31, 2023 / December 31, 2023 / December 31, 2023 / March 31, 2024 / March 31, 2024 / March 31, 2024 / June 30,2024 / June 30,2024 / June 30,2024 > > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > Cost of Sales ........................... Cost of Sales / Cost of Sales / $ / 10 / $ / 41 / $ / 86 / $ / 172 / $ / 189 / $ / 231 > Operating expenses ...................... Operating expenses / Operating expenses / 4,444 / 4,444 / 4,765 / 4,765 / 6,734 / 6,734 / 10,379 / 10,379 / 9,237 / 9,237 / 22,672 / 22,672 > Total stock-based compensation .......... Total stock-based compensation / Total stock-based compensation / $ / 4,454 / $ / 4,806 / $ / 6,820 / $ / 10,551 / $ / 9,426 / $ / 22,903 Revenue Hardware revenue varies based on the number of AI systems delivered and has significantly increased over time. Services and other revenue generally increased due to ongoing increases in support services as a result of our growing installed base, other than in the second quarter of 2024, when we recognized lower professional services project-based revenue. Cost of Sales Cost of sales has primarily varied sequentially with the volume of AI systems, professional services, and ongoing support services delivered in each quarter and has significantly increased over time. 93 --- Gross Profit and Gross Margin Gross profit has primarily increased as a result of higher revenues. Our gross margin percentage decreased beginning in the third quarter of 2023 due to a volume price discount for a significant customer order and then began to improve over the quarters presented primarily due to lower bill of materials costs. Total Operating Expenses Research and development expense was the largest component of our operating expenses and was approximately 80% or higher during the quarters presented. In the first quarter of 2023, we incurred a significant expense for non-recurring engineering services, partially offset by a reduction in workforce during the third quarter of 2022. Beginning in the fourth quarter of 2023, the level of operating expenses generally increased due to higher stock-based compensation charges attributable to secondary market transactions, as well as higher personnel and other costs to support the significant step up in revenue growth in the first half of 2024. Quarterly Trends in Non-GAAP Financial Measures Non-GAAP Operating Loss and Non-GAAP Net Loss The following tables set forth our non-GAAP operating loss and non-GAAP net loss (income), for each of the periods presented. See the section titled “—Non-GAAP Financial Measures” for the details of how we calculate non-GAAP operating loss and non-GAAP net loss: > **Three Months Ended** > > Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended > > March 31, 2023 / March 31, 2023 / March 31, 2023 / June 30,2023 / June 30,2023 / June 30,2023 / September 30, 2023 / September 30, 2023 / September 30, 2023 / December 31, 2023 / December 31, 2023 / December 31, 2023 / March 31, 2024 / March 31, 2024 / March 31, 2024 / June 30,2024 / June 30,2024 / June 30,2024 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > GAAP operating loss ..................... GAAP operating loss / GAAP operating loss / $ / (52,968) / $ / (28,046) / $ / (20,662) / $ / (32,258) / $ / (18,051) / $ / (23,760) > Add: Stock-based compensation expense ... Add: Stock-based compensation expense / Add: Stock-based compensation expense / 4,454 / 4,454 / 4,806 / 4,806 / 6,820 / 6,820 / 10,551 / 10,551 / 9,426 / 9,426 / 22,903 / 22,903 > Non-GAAP operating loss ................. Non-GAAP operating loss / Non-GAAP operating loss / $ / (48,514) / $ / (23,240) / $ / (13,842) / $ / (21,707) / $ / (8,625) / $ / (857) > **Three Months Ended** > > Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended / Three Months Ended > > March 31, 2023 / March 31, 2023 / March 31, 2023 / June 30,2023 / June 30,2023 / June 30,2023 / September 30, 2023 / September 30, 2023 / September 30, 2023 / December 31, 2023 / December 31, 2023 / December 31, 2023 / March 31, 2024 / March 31, 2024 / March 31, 2024 / June 30,2024 / June 30,2024 / June 30,2024 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > GAAP net loss ........................... GAAP net loss / GAAP net loss / $ / (51,592) / $ / (26,227) / $ / (18,461) / $ / (30,875) / $ / (15,750) / $ / (50,855) > Add: Stock-based compensation expense(1) ... Add: Stock-based compensation expense(1) / Add: Stock-based compensation expense(1) / 4,454 / 4,454 / 4,806 / 4,806 / 6,820 / 6,820 / 10,551 / 10,551 / 9,426 / 9,426 / 22,903 / 22,903 > Add: Change in fair value of forward contract liability ... Add: Change in fair value of forward contract liability / Add: Change in fair value of forward contract liability / — / — / — / — / — / — / — / — / — / — / 30,327 / 30,327 > Non-GAAP net (loss) income .............. Non-GAAP net (loss) income / Non-GAAP net (loss) income / $ / (47,138) / $ / (21,421) / $ / (11,641) / $ / (20,324) / $ / (6,324) / $ / 2,375 _______________ (1)Non-GAAP net (loss) income does not include the tax effects of the stock-based compensation expense adjustment because such tax effects were not material during the periods presented. Liquidity and Capital Resources As of June 30, 2024 and December 31, 2023, our principal sources of liquidity were cash, cash equivalents, restricted cash, and investments of $472.5 million and $152.4 million. Restricted cash consisted of $263.0 million as of June 30, 2024 and was primarily due to prepayments from G42. Our cash and cash equivalents primarily consisted of cash deposited in money market or holding accounts with financial institutions. Our investments primarily included time deposits and U.S. Treasury securities that have an initial maturity of greater than three 94 --- months but less than or equal to one year as of period end. Since June 30, 2024, we have sold an aggregate of 5,798,089 shares of our Series F-1 redeemable convertible preferred stock at a purchase price of $14.66 per share, for an aggregate purchase price of $85.0 million. Pursuant to the Preferred Stock Purchase Agreement, G42 agreed to purchase an aggregate of 22,851,296 shares of our Series F-2 redeemable convertible preferred stock (or, if purchased following the completion of this offering, shares of our Class N common stock) at a purchase price of $14.66 per share, for anticipated gross proceeds to us of $335.0 million. G42 has committed to purchase these shares by April 15, 2025. Since our inception, we have financed our operations primarily through sales of redeemable convertible preferred stock and payments from our customers, including prepayments from G42. We had no outstanding debt as of June 30, 2024 and December 31, 2023. Our principal uses of cash in recent periods have been to fund our operations, invest in research and development and to purchase investments. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $728.2 million and $ 661.6 million, respectively. Our short-term and long-term liquidity requirements primarily arise from research and development efforts, as well as inventory and other working capital requirements. We have used funds to make investments, capital expenditures, and common stock repurchases from time to time. Our ability to fund our liquidity requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business, and other factors, some of which are beyond our control. If we are unable to obtain funding when necessary, we may be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion, or commercialization efforts. However, we believe that our existing cash and cash equivalents and investments will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months. We expect to require additional capital resources in the future, or may determine to raise additional funds opportunistically. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock. In addition, incurring any indebtedness would increase our fixed obligations, and may include covenants or other restrictions that could impede our ability to manage our operations. We continuously evaluate our liquidity and capital resources, including our access to external capital, and our future capital requirements will depend on many factors, including working capital needs, costs to hire and retain employees in a highly competitive industry, and research and development expenditures, among others. We cannot be sure that we will be able to obtain financing on reasonable terms, or at all, in the future. The following table summarizes our cash flows for the periods presented: > **Year Ended December 31,** > > Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Year Ended December 31, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, / Six Months Ended June 30, > > 2023 / 2023 / 2023 / 2022 / 2022 / 2022 / 2024 / 2024 / 2024 / 2023 / 2023 / 2023 > (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) / (in thousands) > Net cash provided by (used in) operating activities ... Net cash provided by (used in) operating activities / Net cash provided by (used in) operating activities / $ / (78,977) / $ / (164,402) / $ / 311,813 / $ / (70,185) > Net cash provided by (used in) investing activities ... Net cash provided by (used in) investing activities / Net cash provided by (used in) investing activities / 81,701 / 81,701 / 137,393 / 137,393 / (9,750) / (9,750) / 55,490 / 55,490 > Net cash provided by financing activities ... Net cash provided by financing activities / Net cash provided by financing activities / 5,933 / 5,933 / 9,104 / 9,104 / 17,225 / 17,225 / 2,376 / 2,376 Operating Activities Net cash provided by operating activities of $311.8 million for the six months ended June 30, 2024 primarily consisted of net loss of $66.6 million, a $300.0 million increase in a customer deposits for an advance received from G42, a $29.7 million increase in deferred revenue due to increased sales of support services, non-cash addbacks for stock-based compensation expense of $32.3 million and the change in fair value of forward contract liability of $30.3 million. Net working capital usage included a $33.9 million increase in inventory primarily due to higher 95 --- order volumes, and an $11.8 million increase in prepaid expenses and other assets, partially offset by a $20.6 million increase in other liabilities. Net cash used in operating activities of $70.2 million for the six months ended June 30, 2023 primarily included net loss of $77.8 million, addbacks for non-cash items of $9.3 million for stock-based compensation expense and $5.7 million for depreciation and amortization, and a reduction of $9.0 million due to an increase in inventory primarily due to higher order volumes. Net cash used in operating activities of $79.0 million for the year ended December 31, 2023 included net loss of $127.2 million, a $25.2 million increase in inventory primarily due to increased sales, a $3.0 million increase in accounts receivable due to timing of customer payments, and a $1.6 million decrease in accrued compensation and benefits related to a decrease in headcount. These cash flow uses were partially offset by non-cash adjustments of $38.4 million, primarily consisting of stock-based compensation expense, depreciation and amortization, loss on disposal of property and equipment, changes in our provision for excess and obsolete inventories, amortization of discount on investments and non-cash lease expense, a $15.2 million increase in deferred revenue due to increased sales of support services and prepaid cloud computing services, a $10.3 million increase in accrued expenses, and a $9.8 million increase in accounts payable related to timing of purchases and payments. Net cash used in operating activities of $164.4 million for the year ended December 31, 2022 included net loss of $177.7 million, and a $37.5 million increase in inventory primarily due to an increase in sales. Non-cash addbacks in operating activities were $49.7 million, primarily consisting of stock-based compensation expense, depreciation and amortization, loss on disposal of property and equipment, non-cash lease expense, and changes in our provision for excess and obsolete inventories. Investing Activities Net cash used in investing activities of $9.8 million for the six months ended June 30, 2024 was the result of $152.8 million in various purchases of investments, and $11.8 million in purchases of property and equipment, partially offset by $154.9 million in maturities and sales of various investments. Net cash provided by investing activities of $55.5 million for the six months ended June 30, 2023 was primarily the result of $194.8 million in maturities and sales of various investments partially offset by $138.9 million in purchases of various investments. Net cash provided by investing activities of $81.7 million for the year ended December 31, 2023 was the result of $353.9 million in maturities and sales of various investments partially offset by $265.6 million in various purchases of investments, and $6.6 million in purchases of property and equipment. Net cash provided by investing activities of $137.4 million for the year ended December 31, 2022 was the result of $355.1 million in maturities and sales of various investments partially offset by $207.2 million in purchases of various investments and $10.5 million in purchases of property and equipment. Financing Activities Net cash provided by financing activities of $17.2 million for the six months ended June 30, 2024 was the result of proceeds from stock option exercises of $18.3 million offset in part by $1.0 million in payments of deferred offering costs. Net cash provided by financing activities of $2.4 million for the six months ended June 30, 2023 was the result of proceeds from stock option exercises. Net cash provided by financing activities of $5.9 million for the year ended December 31, 2023 was the result of proceeds from stock option exercises. 96 --- Net cash provided by financing activities of $9.1 million for the year ended December 31, 2022 was the result of $10.0 million from the sale of shares of common stock and $3.0 million in proceeds from stock option exercises, partially offset by $3.9 million from the repurchase of shares of common stock. Commitments and Contractual Obligations Operating lease commitments. As of June 30, 2024, our operating lease commitments included data centers and corporate office leases, for which we had fixed lease payment obligations of $32.6 million, with $10.3 million to be paid within 12 months of June 30, 2024, and the remainder thereafter. See “Leases” in Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for additional information. Purchase commitments. Our purchase commitments are primarily related to software licenses and consulting services. As of June 30, 2024, future payments related to non-cancelable commitments of $5.9 million (2024), $11.0 million (2025), and $2.7 million (2026) . See “Commitments and Contingencies” in Note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for additional information. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency and Exchange Risk The functional currency of all our entities is the local currency of that entity’s jurisdiction. As such, we expect to be exposed to both currency transaction remeasurement and translation risk. However, we engage in a small number and immaterial amount of transactions outside of the functional currency of the reporting unit, resulting in negligible exposure to foreign currency risk. We have not hedged such exposure, although we may do so in the future. Any fluctuations in exchange rates may adversely affect our financial position, results of operations and cash flows. Interest Rate Risk We had cash, cash equivalents, restricted cash, and investments of $472.5 million as of June 30, 2024. Cash and cash equivalents primarily consists of amounts deposited in money market instruments with financial institutions that have an original maturity of three months or less. Our investments generally consist of time deposits, U.S. Treasury securities, and corporate debt securities. We hold cash, cash equivalents, and investments for working capital purposes. The primary objective of our investment activities is to preserve principal. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our historical consolidated financial statements. Critical Accounting Estimates We prepare our financial statements in accordance with U.S. GAAP. In preparing these financial statements, we are required to make estimates and judgments that affect the amounts and balances reported and contingencies disclosed. We evaluate our estimates on an ongoing basis, specifically including those related to revenue recognition, inventory, stock-based compensation, valuation of our common stock, and income taxes, and base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The following critical accounting estimates require the use of significant judgment and estimation in the preparation of our audited consolidated financial statements. The accounting estimates and judgment discussed in this section are those that we consider to be the most critical in the preparation of our audited consolidated financial 97 --- statements. See “Significant Accounting Policies” in Note 4 to our audited consolidated financial statements included elsewhere in this prospectus for additional information. Revenue Recognition We derive substantially all of our revenue through sales of hardware and embedded software and through provision of installation, integration, and acceptance services and other technical support to our customers. Contracts with Multiple Performance Obligations A critical estimate required in recognizing revenue relates to contracts consisting of more than one performance obligation. When a contract with a customer consists of more than one performance obligation, we must exercise judgment in determining whether each obligation within the contract is distinct as well as in determining the relative standalone selling price to allocate to each performance obligation. Typically, the standalone selling price is the price at which we sell a promised good or service separately to a customer. The best evidence of the standalone selling price, when available, is the price we have charged for goods or services in similar circumstances and to similar customers. If the standalone selling price is not directly observable, management estimates the standalone selling price using various observable inputs including cost-plus expected margin analysis due to the limited standalone sales history. See “Revenue Recognition” in Note 4 to our audited consolidated financial statements included elsewhere in this prospectus for additional information. Inventory Our inventories consist primarily of semiconductors, memory products, and other component parts purchased from subcontractors and are carried as raw materials, work-in-progress, and finished goods. We account for inventories on a weighted average cost basis and state them at the lower of cost or net realizable value. We calculate the cost of our inventories on an adjusted standard cost basis, which approximates actual cost. We calculate net realizable value as the estimated selling price of our products less reasonably predictable costs of completion, disposal, and transportation. We charge cost of sales on our consolidated statements of operations for provisions made to write down our inventory balances when circumstances suggest a write down is necessary – for example, when the cost basis of the inventory exceeds its net realizable value, when quantities exceed expected demand, or when inventories are otherwise deemed obsolete. The valuation of inventory involves assumptions about the likely method of inventory disposition, other-than-temporary decreases in product demand, changes in technology, competition, or customer needs, and future business and macroeconomic conditions, which require use of management judgment. If the future demand for our products is less favorable than our forecasts, the value of the inventories may be required to be reduced, which could result in additional expense to us and affect our results of operations. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that we use to calculate our inventory reserve. However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material. If, in any period, we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, related revenue would be recorded with a lower or no offsetting charge to cost of sales, resulting in a net benefit to our gross margin in that period. See “Inventory” in Note 4 to our audited consolidated financial statements included elsewhere in this prospectus for additional information. Stock-Based Compensation We measure stock-based awards, including stock options, RSUs, and restricted stock awards (“RSAs”), granted to employees and non-employees based on the estimated fair value as of the grant date. Stock option awards with only service-based vesting conditions are granted to employees and non-employees. The fair value of stock options 98 --- are estimated using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the stock option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. The fair value of RSUs and RSAs are based on the price of our common stock on the date of grant. We recognize the fair value of each award with only service-based vesting conditions on a straight-line basis over the requisite service period of the award. For certain equity awards that have both service- and liquidity-based vesting conditions, we recognize the expense over the requisite service period if it is probable that the performance conditions will be achieved. We reassess the achievement of the performance conditions at each reporting date and adjust the stock-based compensation accordingly for such awards. Stock-based compensation expense is based on the value of the portion of stock-based awards that is ultimately expected to vest. As such, our stock-based compensation is reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Common Stock Valuations The fair value of common stock underlying our stock-based awards has historically been determined by our board of directors, with input from management and contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors included: •the results of contemporaneous valuations performed at periodic intervals by a third-party valuation firm; •the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock; •the prices of our redeemable convertible preferred stock and common stock sold to investors in arms-length transactions; •our actual operating and financial performance and estimated trends and prospects for our future performance; •our stage of development; •the likelihood of achieving a liquidity event, such as an initial public offering, direct listing, or sale of our company, given prevailing market conditions; •the lack of marketability involving securities in a private company; •the market performance of comparable publicly traded companies; and •U.S. and global capital market conditions. In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of the income approach and the market approach with input from management. The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenue and costs. The market approach estimates value based on a comparison of our company to comparable 99 --- public companies in a similar line of business. From the comparable companies, a representative market value multiple was determined, which was applied to our operating results to estimate the enterprise value of our company. Once the enterprise value was determined under the market approach, we derived the equity value of our company and used a hybrid method that considered both an option pricing model (“OPM”) and the probability weighted expected return method (“PWERM”) to allocate that value among the various classes of securities to arrive at the fair value of our common stock. The OPM is based on the Black-Scholes-Merton option pricing model, which allows for the identification for a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. PWERM involves a forward-looking analysis of the possible future outcomes of an enterprise, including an initial public offering as well as non-initial public offering market-based outcomes. After the equity value is determined and allocated to the various classes of securities, a discount for lack of marketability (“DLOM”) is applied to arrive at the fair value of our common stock. A DLOM is applied based on the theory that as an owner of private company stock, the stockholder has limited opportunities to sell this stock, and any such sale would involve significant transaction costs, thereby reducing overall fair market value. In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered included transaction volume, timing, whether the transactions occurred among unrelated parties, and whether the transactions involved investors with access to our financial information. Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock. For valuations after the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the grant date. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions. Income Taxes We are subject to income taxes in the United States and in foreign jurisdictions. To determine taxable income for financial statement reporting purposes, we make certain estimates and judgments. These estimates and judgments are also applied when calculating certain tax liabilities and assessing the recoverability of deferred tax assets, each of which reflect the expected future tax consequences of events that have been included in the audited consolidated financial statements. We apply the asset and liability method in accounting for deferred tax balances. Under this method, we determine deferred tax balances on the basis of differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize the effect of a change in tax rates on deferred tax balances in income in the period that includes the enactment date. We recognize deferred tax assets only to the extent we expect they are more likely than not to be realized and consider all available positive and negative evidence in making such a determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that a deferred tax asset is recorded in an amount that exceeds the amount we ultimately expect to realize, we will make an adjustment in the form of a valuation allowance, which could reduce the 100 --- provision for income taxes. In determining the need to establish or maintain a valuation allowance, we consider (i) carryback of net operating losses to prior years; (ii) future reversals of existing taxable temporary differences; (iii) viable and prudent tax planning strategies; and (iv) future taxable income exclusive of reversing temporary differences and carryforwards. We record uncertain tax positions using a two-step process. We first determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position. For those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority is realized. JOBS Act Accounting Election We are an emerging growth company, as defined in the JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that would have been applicable were we a public company that was not an emerging growth company. Such exemptions include, but are not limited to, the exemption to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, the exemption from holding a non-binding advisory vote on executive compensation, and the exemption from stockholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. If we cease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transition period for complying with new or revised accounting standards. Recent Accounting Pronouncements See Note 3 to our audited consolidated financial statements included elsewhere in this prospectus for additional information. 101