Ouster, Inc.

Hello and welcome everyone to Ouster's fourth quarter 2022 earnings conference call. All lines have been placed on me to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star followed by the number one on your keypad. And if you would like to withdraw your question, press the pound key. And just a reminder, today's call is being recorded and a replay of the call will be available on the Ouster Investor Relations website. an hour after the completion of this call. I'd now like to turn the conference over to Ms. Sarah Ewing, Director of Investor Relations. Sarah, please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining us for our 2022 Fourth Quarter Earnings Call. I'm joined today by Alistair's Chief Executive Officer, Angus Bacala, and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks, we would like to remind you that earlier today, Ouster issued a press release announcing its fourth quarter and fiscal year 2022 results. The company also published an investor presentation, which is available 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 certain forward-looking information regarding the company, including forecasts, targets, statements from its press release, potential future customer orders, and shipments, near and long-term revenue opportunities, strategic customer agreements, market share trends, anticipated synergies from the company's merger with Belladine, ability to recognize the benefits of cost savings initiatives, future products, anticipated benefits and applications of new product releases, technological advancements and commercial paths, potential future market opportunities, customer traction, and the company's business outlook and first quarter 2023 financial guidance and trajectory, are forward-looking statements that are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. There is no guarantee that such plans, estimates, and expectations will be achieved. Thus, while these statements represent management's expected future results and performance, Aster's actual results are subject to several risks and uncertainties that may cause actual results to differ materially from current expectations that we may share with you today. In addition to any risks highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect OUSER's future results as described in its most recent annual report on Form 10-K and other reports that the company files with or furnishes with the SEC. Except as required by law, rule, or regulation, the company undertakes no obligation to update any of these forward-looking statements for any reason after the date of this call. Information discussed on this call concerning the company's industry, competitive position, and markets in which it operates is based on information from independent industry and research organizations, other third party sources, and management estimates, which are derived from publicly available information released by independent industry analysts and other third party sources, as well as data from the company's internal research and are based on reasonable assumptions and computations made upon reviewing such data. and its experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions we consider to be outside of our operations as outlined in today's press release. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For reconciliation of non-GAAP financial measures discussed during this call to the most recently comparable GAAP measures, please refer to today's press release. Finally, please be advised that we will only cover historical ouster financial results as well as forward-looking statements for the combined company. We will not report on nor provide standalone results for Velodyne. I'd now like to turn the call over to Angus.

Good afternoon, everyone, and thank you for joining us today. To start, I want to recap Ouster's mission to improve quality of life by building safer, more efficient assistance, automation, and autonomy technology for diverse end markets. We aim to do this by evolving from a market-leading ladder manufacturer to a category-defining autonomy provider through delivering best-in-class digital ladder hardware that spans markets, creating a robust software ecosystem to accelerate ladder adoption and deepen customer relationships. and releasing vertical-specific autonomy solutions, all of which increases Ouster's value to customers and shareholders. We made meaningful strides towards this goal in 2022, particularly in the fourth quarter. Last year, we released our first A-samples for the solid-state DF series, introduced the industrial OS sensor lineup for high-volume production programs, and launched the most performance sensor suite on the market, our new Rev7 OS sensors powered by the L3 chip, which increases our competitiveness across each of our target markets. Even more, we built and pre-released our first subscription software, Alster Gemini, a cloud-backed digital LiDAR perception platform for smart infrastructure applications, which will expand and accelerate opportunities for digital LiDAR. As a result of these product developments and in combination with our multi-year customer agreements, Alster delivered nearly 11 million in revenue in the fourth quarter of 2022 with 17% gross margins and achieved our full year 2022 guidance with 41 million in revenue and 27% gross margins. We sold a record of over 2,950 sensors in the fourth quarter and over 8,650 sensors in 2022, bringing our total number to more than 18,500 units shipped to date worldwide. Furthermore, we booked $70 million in business in 2022. Finally, we announced our merger with Velodyne in the fourth quarter, which we completed on February 10th, 2023, ahead of our initial timeline. As one consolidated company, we have an even stronger team, a healthy balance sheet, new channel partners, and a wide selection of positive margin products to serve a diverse set of customers, that position us to win more deals than ever before. We expect our innovative digital LiDAR roadmap, amplified by exciting new software solutions, to further expand our serviceable market and catalyze growth across the business. In addition to Ouster's digital LiDAR, OS, and DF sensors, we will continue to manufacture and support the VLP16, VLP32, and the VLS128 product lines. As we continue to support existing customers using the Velodyne products, which bolsters our revenue base, we believe our digital approach is the end state for LiDAR due to its simplified architecture, superior price-to-performance ratio, and alignment with Moore's Law, which ultimately offers a longer-term advantage for customers. We will continue to focus and invest R&D in our digital LiDAR roadmap, along with the Ouster Gemini and Blue City software. to drive product adoption and new high-margin revenue streams. Over time, we aim to transition customers to exclusively digital products. As part of the ongoing integration, Ouster also announced a new management team and board, inclusive of executives and directors from both companies. We brought on Velodyne's CFO, Mark Weinswig, to lead finance at Ouster and promoted Ouster's deputy GC, Megan Chung, to general counsel. Each company designated four directors to the board, all with valuable experience and perspective to offer the company, including former Velodyne CEO, Ted Tewksbury, who will lead the board as executive chairman. We aim to form a management team and board that not only understands our products, our team, and our history, but also has experience in growing a public company in a complex and competitive market. I'm excited to work with this strong team to scale the development of digital LiDAR and evolved Alster from a market-leading ladder manufacturer to a category-defining autonomy provider. Turning to merger activities, we are currently focused on immediate initiatives to support the ongoing integration and achieve announced cost synergies. Prior to merging, Melodyne had started the process of outsourcing the manufacturing of its products to Fabrinet, a contract manufacturer in Thailand, to bring meaningful improvements to the cost structure. We have accelerated these efforts as a result of the merger and are on track to complete the transition of all maintained product lines this year, starting with the VLP16 sensors in Q1, the VLP32 in Q2, and the VLS128 by the end of the year. As products are successfully transitioned, we remain focused on improving yields and quality and optimizing BOM costs, with the goal of improving the margin structure of the Velodyne sensors. Immediately after closing the merger, we took action to integrate our sales organization and engineering teams to both support existing Velodyne customers and execute on our strategy for our digital LiDAR hardware and software roadmaps. We developed a plan to integrate the Ouster Gemini and Blue City smart infrastructure software solutions under a single umbrella, which is already underway. Additionally, we are streamlining our G&A and IT operations under a consolidated team and platform to realize a cost-efficient structure to drive value creation for Alster and its shareholders. Following the integration, we expect to retain approximately 350 employees. The new Alster is a LiDAR powerhouse, offering a comprehensive suite of incredible LiDAR sensors, two novel smart infrastructure software solutions, a comprehensive patent portfolio spanning analog and digital LiDAR, and global commercial reach with over 850 customers spanning the automotive, industrial, robotics, and smart infrastructure industries in approximately 50 countries. Ouster has three strategic priorities for 2023. Execute on our digital ladder roadmap, develop a robust software ecosystem to accelerate ladder adoption, and build a financially strong business to support our long-term growth and deliver value to shareholders. Our differentiated digital ladder technology supports a uniquely diversified business model with the ability to drive near and long-term revenue growth and scale across multiple markets. In the fourth quarter, we released our new REV7 sensors, the highest performing family of sensors on the market, delivering dramatic improvements in range, precision, and accuracy across our entire OS lineup. Our OS0 delivers 1.5 times more range and six times higher resolution than competitors. Our OS1 delivers two times more range and four times higher resolution than competitors. And our OS2 not only achieves a greater than 200-meter range on 10% reflective objects, but now has a maximum range of over 400 meters. Additionally, the OS dome's hemispheric 180-degree field of view delivers four times higher resolution than competitors. The REV7 sensor suite improves our overall competitiveness across markets, opens up new opportunities, and cements our position as the industry leader for high-performance LiDAR. The early feedback from customers has been extremely positive. We closed new and expanded deals for REV7 sensors, shipping to 29 customers in the fourth quarter. We also booked orders with customers such as Syngin and Vecna for warehouse automation, Parafix for speed enforcement, Torque Robotics for trucking, and Rise for aerial drone inspection, as well as a major mapping customer, a large European OEM, and another European OEM using REV7 on mining trucks. We believe the REV7 sensors will more than double our serviceable market driven by new opportunities for long-range and mapping applications. As such, we expect REV7 to be a major growth catalyst for Ouster in 2023. Looking forward, we also expect the digital flash or DF series for high-volume series production automotive programs to also be a major catalyst for growth. We released our first A samples in 2022, which demonstrated that our solid-state digital flash architecture could achieve the stringent performance requirements of the automotive industry at a competitive cost. In the second half of the year, we plan to release final form factor early B samples of our DF sensors. This is a critical milestone on our automotive roadmap and in our commercial engagements with automakers, including our strategic OEM partner. For the first time, we will be placing DF sensors in OEM hands that represent the final size, shape, and performance of the DF product line. I can't wait to demonstrate the performance, cost, and flexibility advantage of the DF product line. Turning to software, building a robust software ecosystem remains an important part of our product roadmap to catalyze new growth. This includes best-in-class development tools to simplify development for customers, as well as our new software solutions business, built on Ouster Gemini and Blue City, targeting the smart infrastructure vertical. The market for LIDAR across smart infrastructure applications is fast and growing, driven by government initiatives built to build safer, more sustainable cities by modernizing public infrastructure and transportation systems, as well as emerging opportunities for LIDAR and security and crowd analytics to enhance the guest experience, boost revenue, and simplify operations. With millions of signalized intersections around the world, and the global market for end system security cameras already estimated at 32 billion, there is a multi-billion dollar market opportunity for LiDAR and smart infrastructure. As LiDAR technology becomes increasingly prevalent on critical infrastructure across the U.S., from airports and shipping ports to our country's most populated cities and trafficked roadways, Ouster is proud to be one of the few companies offering Buy American certified sensors. To build on this momentum, we recently released the Ouster Gemini smart infrastructure perception platform and added the Blue City traffic management solution. With the successful early rollout of Ouster Gemini in the second half of 2022, and after closing deals with more than 10 companies, we officially released Ouster Gemini in January 2023. A handful of these customers are already using Ouster Gemini in live deployments across the U.S. and Europe. to improve retail operations, security, and roadway safety. Blue City is a turnkey LiDAR-based solution for intelligent transportation systems with over 100 active deployments in 2022. As part of our plans to unify our software solutions for the smart infrastructure vertical, Blue City will be underpinned by Ouster Gemini to add OS sensor compatibility, more features, and better overall performance to Blue City customers. With the launch of our game-changing Rev7 sensors, new software solutions for smart infrastructure applications, and early B-samples for the DF series, as well as key benefits from our merger with Velodyne, including an expanded team, customer base, product portfolio, and partner ecosystem, we believe Ouster is more competitive and poised to close exciting new deals in 2023. In order to position the company for stable near and long-term growth, We are building a business model that is both competitive and resilient. I'm happy to introduce Mark Weinswig as our new CFO to lead us through the integration with Velodyne to help us align our cutting edge technology and market growth with a solid business foundation to support Ouster now and into the future. And with that, I'll now turn it over to Mark to update on our financial results for the fourth quarter and full year 2022. as well as provide further details on our near-term integration plans.