Ouster, Inc.

Hello, welcome to Alster's third quarter 2023 earnings conference call. All lines have been placed on mute 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 one on your telephone keypad. And if you would like to withdraw your question, simply press star one again. The call today is being recorded and a replay of the call will be available on the Alster Investor Relations website. one hour after the completion of this call. I'd now like to turn the conference over to Mr. Chin Gang, Vice President of Strategic Finance and Treasurer. Please go ahead, sir.

Thank you, and good afternoon, everyone. Thank you for joining us for our 2023 Third Quarter Earnings Call. I am joined today by OUSER'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 third quarter 2023 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 commentary regarding the company's growth strategy, and go-forward financial framework, the company's fourth quarter 2023 financial guidance, and other matters described in today's press release 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, and OUSER's actual results are subject to risk 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 OUTSER's future results as described in the reports the company files with or furnishes to the SEC. Accept 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 the 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. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to today's press release.

I would now like to turn the call over to Angus. Hello, everyone, and thank you for joining us today. Ouster had a fantastic third quarter as we continue to realize the benefits of our merger with Velodyne. We exceeded guidance, recording over $22 million in revenue, and maintained strong quarterly bookings of $38 million. We continue to improve gross margins across the board in line with our expectations for the second half of the year. We shipped over 3,300 sensors, improved our product mix, and recorded GAAP gross margins of 14% and non-GAAP gross margins of 33%. Importantly, we exceeded our cost reduction goal and did so a quarter sooner than expected, achieving over $120 million in annualized cost savings and bringing our spending below pre-merger levels as compared to when we were a standalone company. On top of all of this, we continued to execute on our product roadmaps for the OS and DS series and achieved major milestones that we believe will further advance our software solutions business. Finally, we built an operating model for the company in line with our growth strategy that we believe puts us on a clear path to profitability. Turning to our four strategic priorities for the business this year, which are to drive new business through a targeted sales approach to deliver near-term growth, execute on the digital LIDAR roadmap for OS and DF series to expand our serviceable market, develop a robust software ecosystem to accelerate LIDAR adoption, and build a financially strong business to support our long-term growth. Ouster continued to drive new business, booking over $110 million in business with new and existing customers in the first three quarters of 2023, including $38 million in the third quarter alone. This includes a multi-million dollar award to supply REV7 sensors for use in a mapping application and demonstrates how REV7's enhanced range, accuracy, and precision is expanding the addressable market. We also booked large orders for a tolling application, warehouse logistics, and port automation. Ouster continues to supply a diversified base of hundreds of customers with LiDAR solutions. from startups to established Fortune 100 companies. We believe our expanded product portfolio, reliable hardware, top-tier customer support, and simplified integration tools enable us to consistently drive new business. Turning to execution on our product roadmap, we are on track to tape out the L4 chip, our next-generation custom silicon to power the OS sensor family, as well as the Kronos chip, our automotive grade custom silicon to power the solid state digital flash or DF sensor suite. We completed DF product demonstrations of our early D samples with over a dozen automotive OEMs and tier one partners across North America, Europe, Japan, and Korea during the third quarter. Feedback was resoundingly positive on the richness of the point cloud, system stability, and architecture simplicity. At only 40 millimeters tall, the final form factor DF sensors can detect 10% reflective objects at up to 200 meters range with camera-like resolution and with absolutely no moving parts. Furthermore, Ouster's DF and OS sensors share the same patented VIXL SPAD digital architecture that provides numerous advantages, including manufacturability, reliability, and best-in-class performance. As a result, many of the OS learnings we have gained have already been quickly implemented on the DF sensor to improve performance. We believe our customers clearly recognize the value and straightforward path to final B samples with the integration of the Chronos chip next year. Turning to software, we achieved several milestones in the third quarter, which are expected to accelerate product adoption and signal growing demand for LiDAR-powered smart infrastructure solutions. namely in the security and intelligent traffic system submarkets. This included unifying Blue City under the Ouster Gemini platform, paving the way for more features and faster development. Adding new deep learning AI perception models that improve overall accuracy and reliability of Ouster Gemini and enabled advanced object classification and more complex use cases. Completing integrations with leading real-time video management systems to provide customers more flexibility and accelerate adoption, expanding software adoption to over 375 licensed sites, and booking millions of dollars worth of software coupled sales. Where cameras, radar, or inductive loops have been used in the past, our LiDAR hardware and software solutions provide more actionable and reliable data in all manner of low light and environmental conditions to detect and track objects or people in real time and aggregate analytics in the cloud. One example of this is a significant deal we signed to deploy our digital LiDAR hardware coupled with Alster Gemini at approximately 130 logistics sites. This commitment includes the purchase of hundreds of Red7 sensors and subscription licenses to Gemini software for security, which are expected to drive recurring revenue for our business. For the customer, The addition of deep learning AI models to the Gemini platform, which improved detection accuracy and expanded classifiable objects, was a key selling point given challenges they faced with alternative solutions that resulted in frequent false positives and poor analytics. We were able to solve this with our solution and are in discussions about additional site deployments in the coming year. Astro Gemini has already opened up new and cost-effective use cases for LiDAR and we're just getting started. The improvements to the Gemini platform have been met with excitement by current and prospective customers. We see major opportunities to scale software coupled sales with existing customers and a multi-billion dollar market for legacy sensing technologies within security, transportation, and retail that is ripe for LiDAR adoption. Over time, we expect the smart infrastructure vertical to drive a growing share of revenue, given higher hardware ASPs and revenue accretive opportunities to deploy the Ouster Gemini software. And finally, all of this progress is backed by a strong operating model that builds on decisive actions we have taken since the merger. We have already achieved over $120 million in annualized cost savings, one quarter ahead of schedule. and reduced our cost of capital by refinancing our term loan. To reach profitability, we have set a financial framework focused on averaging 30 to 50% annual revenue growth, expanding gross margins to 35 to 40%, and maintaining operating expenses at or below third quarter 2023 levels. We expect to achieve meaningful progress against these goals over the next 18 months. I'll turn the call over to our CFO, Mark Weinswig, to provide more context on our financial results for the third quarter, the business outlook, and our operating framework.