Ouster, Inc.

Good afternoon. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to Alster's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. The call is being recorded, and a replay of the call will be available on the Alster Investor Relations website an hour after the completion of this call. On the call today are Alster's Chief Executive Officer, Angus Piccola, and Chief Financial Officer, Anna Brunel. Before we begin the prepared remarks, we would like to remind you that Alster's issued a press release announcing its first quarter 2021 financial results shortly after market closed today. The company also published an investor presentation. You may access the materials on the investor relations section of ouster.com. I'd also like to remind everyone that during the course of this conference call, Ouster's management will discuss... forecasts, targets, and other forward-looking statements regarding the company's future customer orders and the company's business outlook that are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. While these statements represent the management's current expectations and projections about future results and performance as of today, Oster's actual results are subject to many risks and uncertainties that could cause actual results to differ materially from those expectations. In addition to any risk highlighted during this call, important factors that may affect Oster's future results are described in its most recent SEC report filed with the Securities and Exchange Commission, including today's earnings press release. Except as required by applicable law, the company undertakes no obligation to update any of these forward booking statements for any reason after the date of this call. Lastly, information discussed on this call concerning the company's industry competitive position and the market in which it operates is based on information from independent industry and research organizations, other third-party sources, and management estimates. Management estimates are derived from publicly available information released by independent industry analysis and other third-party resources, as well as data from the company's internal research and are based on assumptions made upon reviewing such data and its experience and knowledge of such industry and markets, which it believes to be reasonable. These assumptions are subject to uncertainty the uncertainties and risk which should cause results to differ materially from those expressed in the estimates. I would now like to turn the call over to Alistair's Chief Executive Officer, Angus Bacala. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for our first quarterly earnings call. I'm excited to tell you about our record quarter followed by an update on our business and execution road map. I'll then turn things over to Ouster's CFO, Ana Brunel, to update you on our financial performance and business outlook. To begin, I want to share Ouster's perspective on why digital LiDAR is the only LiDAR technology capable of delivering the quality, reliability, and cost structure to enable revolutionary economy across industries. Today, LiDAR is best known for being a critical sensor for autonomous vehicles. But at Ouster, we understand that LiDAR is much, much more than that. It's the building block of a new world in which autonomous machines can see and understand their surroundings. Digital LiDAR is powering automation in everything from robots and factories to traffic lights and security systems. It can improve safety and save lives, drive efficiency and productivity gains, and enhance sustainability. But LiDAR needs to be both highly performant across a wide set of criteria and also low cost enough that manufacturers are able to design it into the products that users want and can afford. Our digital LIDAR offers a combination of the highest performance at the lowest cost in the industry. It vastly improves upon analog technology in size, weight, form factor, power efficiency, and weather durability. Our performance in the first quarter continues to demonstrate that our sensors are an ideal fit for four target markets, automotive, industrial, smart infrastructure, and robotics, which opens up a TAM we expect to grow to $8.6 billion by 2025. We continue to extend our multi-market presence through meaningful gains in performance due to our digital technology, and we expect to continue to scale exponentially in line with Moore's Law in a way that no other ladder technology can come close to matching. Turning to business updates, Ouster ended 2020 with $18.9 million in product revenue, reached over 500 customers across 50 countries, ramped up manufacturing capacity at our benchmark Thailand facility, and shipped over 2,000 sensors worldwide. we demonstrated tremendous growth in a short period of time, illustrating that we have the right technology to win in this industry and that we have a scalable go-to market approach. In the first quarter of 2021, Alster successfully closed the business combination with Colonnade Acquisition Corp. with nearly $300 million in gross proceeds and began trading on the New York Stock Exchange under the ticker ALST on March 12, 2021. We achieved another record quarter with $6.6 million in revenue, a year-on-year increase of 187%, in line with our forecast and which we believe positions us to meet our full year 2021 revenue target of $33 to $35 million. We scaled up our second-generation sensor production and shipped a record 978 sensors for revenue in the first quarter, which is nearly half of what we shipped in all of 2020. We have signed 30 strategic customer agreements, or SEAs, so far this year, bringing our total SEA count to 40. These customers alone represent the potential for over 385 million in contracted revenue opportunities through 2025. Ana will say more about what this means for the business later on. Turning to product development, we're executing against our product roadmap, delivering increased hardware and software capabilities in faster cycles than our peers. One of the things that makes Zoustar special is our ability to innovate and develop our products faster because of our digital approach. This past quarter, we announced a rollout of upgraded Rev-D sensors with improved reliability and industry's only standard two year warranty for high performance LiDAR across the entire product suite. Additionally, we're releasing a software update in Q2, which will offer a significant improvement in performance for all of our customers. And finally, and most importantly, we're design complete on our next generation L3 chipset, which has been under development for the past year and takes advantage of next generation fabrication technology. The L3 chip offers further exponential gains in performance and capabilities that will strengthen our entire product portfolio. And again, we don't have to re-architect our products to achieve major performance gains, just the chipsets year after year after year. I'm also very excited to go into more detail on our automotive product mission with you. Alster's consumer ADAS strategy is based on the premise that an autonomous system cannot move in the direction that it cannot sense. Consumers expect that their L3 systems be able to change lanes, merge, exit a highway, and drive through a four-way stop. The requirement is clear. These systems need 360-degree vision to make these maneuvers possible, and that's why we're developing the industry's only truly solid-state multi-sensor product suite. Automakers have released LIDAR RFQs for consumer ADAS targeted at three different sensor types, short, medium, and long-range LIDAR. Based on major OEM forecasts, Goldman Sachs recently estimated that by 2030, up to 20% of the 115 million vehicles produced will require between three to six LIDAR sensors each. We believe this type of analysis further validates our perspective on the timeline for series production, attach rates, and most critically, the multi-sensor LIDAR requirement for the next generation of advanced driver assistance systems. Hauser is uniquely positioned to offer a full automotive product family that addresses the multi-sensor need at a price that will enable these vehicles to move from a luxury option to mass adoption. We're developing the holy grail of automotive LiDAR, truly solid state, low cost, and high performance digital LiDAR sensors that can be seamlessly integrated into the vehicle body, enabling a combined price point of $1,000. We expect to deliver our first solid state samples for the multi-sensor suite in the fourth quarter of 2022, and I look forward to sharing more about our automotive product offerings in the coming months. As excited as I am about this upcoming product suite and its potential for automotive, Ouster doesn't have to wait for ADAS programs to reach series production to generate meaningful revenue today. Our growth is indexed to the rapid acceleration of automation in each of our end markets. We are witnessing an unprecedented shift across industries as the global economy is disrupted by autonomous technology. Take the global supply chain as an example. Gartner predicts that by 2025, more than 20% of all products will be manufactured, packed, shipped, and delivered without being touched by anyone but the end customer. In a recent LIDAR report, GM estimated that the TAM for moving people and goods autonomously could eventually reach $7 trillion. And COVID has only accelerated the appetite to automate. The vastness of the TAM for LIDAR is only just starting to become clear. So I'd like to walk you through some of the trends we're seeing across each of our end markets, as well as examples of customers that are using our products today. First, in automotive. Aside from the multi-sensor suite that we're developing for consumer ADAS, we believe there are two important areas for growth where we already have an established business, robot taxis and robot trucking. After a decade of R&D, these systems are now transitioning to full production. This year alone, we've signed SEAs for many thousands of units. For instance, we signed an SEA with Automated Trucking Company Plus for an initial binding commitment of 2,000 sensors and a forecast of 160,000 sensors over the next five years. One of the largest LIDAR deals ever aimed. Another Robotrucking customer, Daimler Trucks, recently demonstrated their new development platform, which uses three Alster sensors on each of their torque testing vehicles. May Mobility, a leader in autonomous shuttles, is placing four Alster sensors per vehicle on their next generation platform. Qcraft plans to have 100 robot buses outfitted with Oster sensors on open roads in China by the end of this year. And we signed an SCA with a major trucking OEM representing over 20 million in contracted revenue opportunity through 2023. We believe that years of growth lie ahead of us as our robotrucking, robotaxi, and ADAS submarkets mature and the automotive market expands to a 1.9 billion TAM by 2025. Moving to industrials, for decades, automation has been transforming sectors from mining to advanced manufacturing and construction. Now, LiDAR technology is converting these simple safety systems into intelligent machines capable of greater and greater levels of autonomy. For example, we just signed an SCA with a major warehouse automation provider, which is switching to Alster sensors for its intelligent forklift platform. We have an SCA without LiDAR to deploy our digital LiDAR on its autonomous yard trucks. Our sensors are powering the world's first large-scale autonomous mining truck project in Inner Mongolia through our SCA with Waitus. We have an SCA with Casbor to deploy our sensors on Snowcats as part of its technology for ski slope maintenance. And SONVIC has demonstrated their auto-mine concept using four Alster sensors per vehicle to push the boundaries of mining automation. The industrial ladder market is nearly a billion dollars today and consists primarily of 2D analog ladder technology invented over 30 years ago. This presents a unique near-term opportunity for us to convert this established customer base to 3D LiDAR. As automation trends accelerate, we expect industrial LiDAR market to grow to 2.1 billion by 2025. Third, in smart infrastructure, we are extremely optimistic about Biden's $2 trillion infrastructure plan, which if passed, would likely accelerate investments to modernize bridges, highways, roads, ports, and intersections. LiDAR is uniquely positioned against cameras to modernize our infrastructure while preserving privacy. We've partnered with companies like AkiraCon, a supplier of full-stack AI and VGF solutions, which is deploying our sensors to monitor vehicle and pedestrian traffic flow in APAC cities. We have multiple pilot programs across the US, supporting cities on their mission to reduce road accidents under their Vision Zero programs, as well as major smart infrastructure deployments in Germany and China. To date, we have 13 active projects and 52 projects in development across EMEA, APAC, and the Americas. We believe that the addressable smart infrastructure market, around $500 million today, is poised to grow the fastest of our verticals over the next few years and reach $2.8 billion by 2025. Everywhere there is a CCTV camera or radar system in use today is an opportunity to augment or replace that system with outsourced digital LiDAR in the future. Finally, we categorize last mile delivery, street cleaning, drone applications, and academic research, among other emerging use cases, as part of the robotics end market. The common thread in this vertical is that each one of our customers is pursuing a potentially world-changing application in their own right. Our customer Postmates, now CERV Robotics, uses our sensors for its last mile delivery business with deployments in LA and San Francisco. Renew Robotics is using ASTRA sensors for automated vegetation management and solar farms. Scout DI has deployed our digital ladder on drones to safely navigate and inspect industrial assets. And Canvas, a construction robotics company, is deploying our sensors on robots and large-scale construction sites. The total addressable robotics market is around $200 billion today, and we expect it to grow to $1.8 billion by 2025, driven by literally hundreds of emerging use cases. To capitalize on the demand we're seeing across these four markets, we're investing heavily in our go-to-market teams by building a scalable, predictable commercial engine to accelerate LIDAR adoption. We've up-leveled our management team in the last few months with new additions to our board, including Sundari Mitra, the corporate vice president of an Intel's IP engineering group, Manny Hernandez, the board director at On Semiconductor, and Carl Bass, former Autodesk CEO and chairman at Zoox. And earlier today, we announced a significant addition to our executive team with Nate Bickerman coming on board to serve as president of field operations and lead Alster's overall commercial strategy and execution. He brings decades of sales experience leading global teams at Planet Labs, Autodesk, and IBM. To fast track our growth, we have already expanded the sales team by 50% since the beginning of the year in order to win more of the 14,000 potential customers we estimate are available to us. it is a significant competitive advantage that we can make these investments now and see near-term results. With that, I'd like to turn it over to our CFO, Ana Brunel.

Thanks, Angus. Before I get started, there is one administrative issue I want to cover related to the SEC's new guidance on accounting for warrants issued by SPAC. We want to make clear that we've completed our analysis of the SEC's guidance impact on Oster and our financial results included in today's earnings release reflect our evaluation, and are indicative of how we expect to account for the warrants going forward. Due to the timing of our transaction with Colonnade, we are still evaluating the impact of the SEC's guidance on Colonnade's historical financial statements in the Form 10-K, but we do not expect any determination relating to Colonnade's historic financials to have an impact on Alster's financials going forward or on what we've shared with you today. So, moving on, now I'd like to touch on a few of the operational highlights Angus shared and what they mean for the business this year and over the long term. We achieved a record first quarter with $6.6 million in revenue, a year-on-year increase of 187%, in line with our internal estimates. I also want to reaffirm our previously issued full year 2021 revenue guidance of $33 to $35 million, which represents an increase of approximately 75% to 85% as compared to prior year revenue of $18.9 million. As a reminder, we do not currently offer quarterly revenue guidance. Based on current customer forecasts, we do expect our revenue growth to increase in the second half of 2021, similar to the growth trend we saw in the second half of 2020. To date, Ouster has signed 40 Strategic Customer Agreements, or SCAs, representing over 385 million in contracted revenue opportunity from just these customers alone through 2025. Angus already mentioned a handful of the companies we are working with in each vertical, which are a testament to the benefits of our digital platform and the broad applicability of our unique technology. We want to remind everyone that SBA established a multi-year purchase and supply framework for Ouster and the customer, and include details about the customer programs and applications where the Ouster products will be used. They also include multi-year, non-binding customer forecasts, giving Ouster visibility on the customer's long-term purchasing requirements, mutually agreed upon pricing for specific Ouster products over the duration of the agreement, and in some cases, include multi-year binding purchase commitments. For customers that provided less than a five-year forecast, no additional revenue opportunity beyond the term of the customer's forecast, has been imputed. This is incredibly important to understand because not every company defines contracted revenue opportunity in the same way. At Alster, we've set a high bar for a customer relationship to rise to the level of a strategic customer agreement. And as a result, we believe we are building and reporting on the largest and, more importantly, the most legitimate order book for high-performance digital LIDAR. Because our work with 500-plus customers gives us a unique insight into their automation plans, we believe we are reaching a tipping point in LIDAR adoption as more and more projects move from R&D to production and deployment. Remember, applications in non-automotive verticals often have lower barriers to production scale and benefit from a direct ROI based on improved safety and efficiency via automation, resulting in faster adoption and building confidence around our forecasted revenue ramp. Of course, as Angus said, we also intend to lead adoption in the automotive market with our unique differentiated multi-sensor suite. Remember, a third of our revenue was from automotive customers last year. We expect the TAM for our products across our four target markets to reach 8.6 billion by 2025 and nearly 48 billion by 2030, driven primarily by smart infrastructure and industrial applications today, with automotive and robotics applications gaining momentum by 2025. We expect to see significant market penetration and growth as we expand our sales force and bring new products to market in these four verticals. Turning to margins, in line with expectations, Q1 gross margins were 26%, an increase of 110% over the prior year Q1. We believe our 40 SCAs have set the stage for further margin improvement over the life of these agreements as we lock in three- to five-year negotiated pricing while driving additional volume growth with multiple customers across verticals. As we've said before, we expect our margins to improve over time as we grow our volume, leading to improved purchasing power and the ability to spread our fixed costs over a larger number of units sold. We believe we are the only digital LIDAR company achieving this kind of growth across end markets and also achieving industry-leading positive growth margins. Additionally, we increased our sensor production by over 60% in the fourth quarter of 2020 and will continue to ramp production in line with sales growth. We shipped a record 978 sensors for revenue in the first quarter, up from 290 sensors in Q1 of the prior year. Because our CMOS digital LiDAR technology results in a simplified architecture, our products are inherently suited to volume manufacturing, allowing us to scale rapidly while driving down the cost of goods sold. As Angus mentioned, we closed the quarter with nearly $300 million in gross proceeds from our business combination, and we believe that the capital raised from this transaction should be sufficient to carry us to EBITDA break even, expected in 2023. Put another way, the capital raised from this transaction is approximately double the sum of capital we've used so far to develop our technology and patent portfolio, to bring two generations of industry-leading digital LIDAR products to market with positive growth margins, to stand up and scale our contract manufacturing, and to step into the public market. Our efficient use of capital gives us confidence that we will be able to execute on our plans to grow our business while keeping some dry powder for potential strategic opportunities. We are putting this capital to work in three specific ways. First, we are building out our sales and marketing teams to enable us to pursue an estimated 14,000 potential customers across our end markets by 2025. Second, we plan to strengthen investments in software development to add adjacent revenue streams and to shorten customer adoption cycles. And finally, we plan to accelerate our hardware roadmap through increased investments in R&D aimed at shortening chip design cycles from two years to one and continuing to widen Ouster's technology moat. As a result of our growth and positive margins, our adjusted EBITDA loss improved from 11.3 million in the first quarter of 2020 to 10 million in the first quarter of 2021. However, We have grown and will continue to grow our OpEx in 2021 as we build our teams to deliver on these three initiatives. In all, we remain incredibly excited about the opportunity ahead of Ouster. We believe we are the standout LIDAR company, not only because we have a diversified go-to-market strategy, but also because we continue to build trust with investors by executing the plan with strong business fundamentals. Ouster is achieving success because we invented the right platform. CMOS Digital LiDAR. Our digital LiDAR unlocks a larger multi-market PAM and offers a combination of the highest performance and reliability at the lowest cost in the industry. It has allowed us to make product advancements in rapid succession and offer our growing base of over 500 customers customized solutions based on a single architecture. It has also allowed us to outsource manufacturing, lower our cost of goods sold, and quickly achieve positive growth margins. further to provide an additional point of view on the strength of CMOS digital LIDAR on cost of goods sold. IHS Market has concluded that Vixel and SPAD technology, our digital LIDAR, has the most price reduction potential based on interviews with the underlying suppliers of component parts. So not only is our technology expected to be a low-cost leader across markets, it is also important to point out that we see very little competition for high-performance LIDAR in the industrial, robotics, and smart infrastructure markets, which are expected to provide the majority of our forecasted growth over the next few years. To close, we've had two record quarters back to back. Our recent high-profile customer wins, our significant pipeline of contract opportunities, and our commitment to new product development positioned us well for the future. We're on track to meet this year's revenue target of 33 to 35 million, and gross margin target of 25 to 27%. Our signed multi-year SBAs are ramping, and we are on pace to more than triple sensor production year over year. Austria is uniquely positioned with the right products, more customers, more use cases, and great product market fit across our four verticals in order to dominate the industry. So now I'll turn it back to Angus.