Velodyne Lidar, Inc.

Good day, and welcome to the Velodyne LIDAR second quarter 2021 financial results conference call. All participants, we are in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask these questions, you may press star then one on your cell phone keypad. To withdraw your questions, please press star then two. Please note, this event is being recorded. I would now like to turn it over to Ms. Mariah Shelton Please go ahead.

Good afternoon, and thank you all for joining us on today's conference call to discuss Velodyne Miner's second quarter 2021 financial results. With us on today's call are Drew Hamer, the company's chief financial officer, and members of Velodyne's Office of the Chief Executive, or OCE. Jim Barnhart, the company's chief operating officer, and Sinclair Voss, the company's chief commercial officer. Drew will run through the call's prepared remarks, and Jim and Sinclair are available for Q&A. Before we begin, I would like to remind you that shortly after the market closed today, Velodyne issued a press release announcing its second quarter 2021 financial results. Velodyne also published an investor presentation. You may access the press release and the presentation in the investor relations section of velodynelidar.com. Today's discussion includes forward-looking statements. please refer to the press release for a discussion of factors that could cause a company's actual results to differ materially from these forward-looking statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Velodyne's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the press release. To ensure that we address as many analyst questions as possible during the call, we request that you please limit to one initial question and one follow-up question. Now, I'd like to turn the call over to Drew Hamer, CFO of Velodyne, and one of the members of Velodyne's OCE.

Thank you, Mariah. Good afternoon, and thank you for joining us today. As Mariah mentioned, I am one of the four members of our OCE, and together we are executing on the company's growth strategy as developed by members of our executive team and former CEO, Dr. Anand Gopalan. As many of you know, Anand now serves in an advisory capacity, and our board is undertaking a search to find a full-time CEO. The OCE has decades of collective business experience, including operations, general management, supply chain, services, manufacturing, engineering, employee engagement, financial strategy, and execution, in industries ranging from telecommunications to consumer electronics, automotive, and industrial laser markets. Speaking of markets, The use of LiDAR today in our served markets and emerging target markets, like gaming, continues to gain momentum. We are executing against this trend by closing deals with customers across a variety of markets supported by a broad LiDAR product portfolio that we are manufacturing today. Velodyne is the only LiDAR company that has an off-the-shelf, full software and hardware solution that can be put into vehicles and infrastructure. We are the global LiDAR leader. shipping more units in the second quarter than the aggregate of all our peers when combined have reported shipping year-to-date. We shipped more than 3,800 sensor units in Q2, up from more than 2,600 in Q1 as we increased the breadth of market adoption for our LIDAR across multiple industries and applications. Of those units, 260 were solid-state units. We expect roughly 30% of our sales to be solid-state for the full year. Not only did we ship more sensors in the prior quarter, we also shipped them to a larger group of customers as 72% of our sensors sold were through spot buys, indicating the broader market interest for our solution. The number of inquiries from customers is increasing. We believe we are now going through the other side of the COVID-19 pandemic. We expect unit volumes to start averaging more than 3,800 sensors a quarter for the rest of the year. We are listening to our customers and moving people and goods closer to them. We've placed inventories in China and Europe. We are strengthening in-country technical support in all the regions we serve, including South Korea. We also established the Design Center of Excellence in India. We continue to deepen our relationships with existing customers and building relationships in new markets. We signed five more multi-year agreements, bringing our total to 34 and meeting our prior stated goal for the year well before the end of the year. We now expect to sign four additional multiyear agreements by the year end, which will bring our total to 38. Our pipeline continues to grow. We had 213 projects at August 1st, up from 198 projects at May 1st. Twenty-five of these opportunities include solid-state velobits. Included in the signed and awarded pipeline are new ADAS multiyear agreements, which we expect will begin to ramp starting in 2026. We have an additional $4.5 billion of opportunity for projects that are not yet signed and awarded that go through 2025. Turning to our served markets, I would like to run through both how LiDAR sensors and software are being used in the various applications of the various markets, as well as provide an update on our progress with customers. We have 300-plus customers who over the past decade have bought product and most continue to buy product from Velodyne. We are seeing many of these customers move from a long research and development phase with LiDAR to the first wave of mass adoption. First automotive. In ADAS, you will find our solid-state Velleray H800 long-range sensor, Velleray M1600, a mid-range sensor, and VelaBit from ultra-short-range to mid-range sensing. All of our sensors can enable advanced blind spot monitoring, parking assist, lane keep assist, adaptive cruise control, automatic emergency braking, including for pedestrians, and more. Faraday Future was our first publicly unveiled automotive program using the Velleray H800, and we are currently making progress in our relationships with major high-volume OEM customers as well. For example, our project with a major Tier 1 ADAS provider in Asia for mass production of Level 3 LiDAR systems continues to move forward. As part of this project, We are adding headcount in-country to support this effort and to build further relationships with customers in South Korea. AV can use both solid-state and rotational LiDAR. An application could include the full suite of rotational surround-view product family, including our PUX, UltraPUC, and AlphaPrime mid- to long-range sensors, plus our solid-state VelaRays, mid- and long-range sensors, and VelaBit, which are ultra-short-range to mid-range sensors. or it can start with rotational and move to solid state as needed. As one example, Trunk Tech, the first company in China to independently develop level four driverless trucks, will use our UltraPuck, Puck, and Velleray H800 sensors as core sensor hardware in its autonomous trucks. Trunk Tech recently became one of the first companies to obtain Beijing's permit that allows road tests for self-driving commercial vehicles. As I mentioned earlier in the call, We are increasing our in-country support as well as moving inventories closer to customers. We are already seeing these efforts result in new customer wins. We have signed another large company in China who will use our current and next-generation rotational LiDAR sensors to support their logistics with precise, reliable navigation for real-time autonomous vehicle operation. We are working with existing customers to extend their current agreements with us to include additional products within our portfolio. Some of these opportunities came to us as a result of the customer's concern that their current LiDAR supplier cannot manufacture at the scale they need. In robotics and industrial, you will find our SurroundView product family, including our PUX, UltraPUX, and AlphaPrime, plus our solid-state VelaRays and VelaBit. We recently signed an agreement with an undisclosed North American large company to provide our sensors and solutions for use in warehouses. This builds upon our existing agreement or relationship with this customer for last mile delivery. It's another example of our success in deepening our relationships with our customers due to our broad product portfolio. As announced earlier this week, Antibiotics is equipping its autonomous mobile robots with our puck sensors. By using our puck sensors, the Antibiotics robotic inspection solution is able to map industrial environments detect obstacles and allow any mal to avoid any collisions while navigating harsh environments with a higher level of accuracy we also signed a five-year sales agreement with a leading defense and security company who has selected our sensors to provide mapping and autonomy capabilities for their robots the large-scale manufacturing production of which is scheduled to begin in 2024. the quality of our lidar sensors plus our ability to mass manufacture continues to set Velodyne apart from its competitors and are driving additional customer wins for us. In addition, you will also find our SurroundView product family. Seabed BV, which specializes in high-quality equipment for offshore surveying and dredging, has selected our puck sensors for its LiDAR mobile mapping system. The Seabed system is a turnkey mobile LiDAR solution for hydrographic surveys that helps companies transform their businesses with offshore 3D mapping solutions which can deliver highly accurate, detailed data collection to support safe navigation and protection of marine environments. Last but not least, our Smart City Solutions, which is our first offering to combine software and hardware. Our Intelligent Infrastructure Solution, or IIS, combines our award-winning LiDAR sensors and powerful AI software to monitor traffic networks and public spaces. In May, IIS was named a winner of the 2021 Smart 50 Award, which honors the 50 most transformative smart cities projects in the world. IIS is deployed in multiple North America cities, including in Quebec and British Columbia, Boca Raton, Florida, with upcoming installations at the Rutgers campus in New Jersey, and Austin, Texas, and moving forward with a significant project in the Bay Area. In July, we announced we joined the NVIDIA Metropolis program which is designed to nurture and bring to market a new generation of applications and solutions that make the world's most important spaces and operations safer and more efficient with advancements in AI's vision. At Velodyne, we continue to advance our industry-leading technology. On the hardware side, in June we launched the next generation of our VeloBit sensor, which delivers on what our customers are asking for, an ultra-wide field of view, FOV, and higher resolutions. Our next generation VeloBit was launched in under a year, highlighting our commitment to meeting our customers' demands. We held the VeloBit demo day for key customers in June. 17 companies attended, including five OEMs and other customers evaluating or using our solutions in industrial and robotics, delivery, AV, and ADAS applications. Across the board, companies told us they are looking forward to incorporating the product in their solutions. Importantly, The VeloBit is equipped with our breakthrough proprietary micro LiDAR array architecture, or MLA. The MLA brings together the core elements that make LiDAR work, the optical chip and our ASIC, or application-specific integrated circuit, technology. The miniaturization combined with Velodyne's proprietary fully automated manufacturing process enables cost-effective, high-quality mass production. We are currently working on our next generation rotational sensors that will use proprietary ASICs and our MLA technology to provide ultra long range, high resolution, auto grade performance at scale. Overall, for all hardware technology choices we have made, we are marrying the high performance that is needed with scalability and the ability to manufacture these technologies at the right cost point to enable mass market adoption. On the software side, Last week, we launched a new software development kit that allows customers to utilize the advanced capabilities of our Vela LiDAR perception software in their autonomous solution. The Vela Development Kit, or VDK, enables companies to accelerate time to market for bringing cutting edge LiDAR capabilities to autonomous vehicles, ADAS, mobile delivery services, industrial robotics, drones, and more. Technology innovations such as these advance our mission to democratize LiDAR-based safety, and autonomy. The role LIDAR can play in improving safety and autonomy continues to gain recognition by the larger public sphere as well. Recent news from the NHTSA on reporting crashes involving autonomous vehicles in ADAS shows that the federal government is taking a hard look at crashes and near misses for vulnerable road users such as pedestrians. We have a solution available now that enables automatic emergency braking for a wide variety of objects, including pedestrians. On the commercial vehicle side, we developed our VELARAY for windshield implementation, and the Federal Motor Carrier Safety Administration recently published a notice of proposed rulemaking concerning vehicle safety technology installed on the interior of commercial motor vehicle windshields, which, if adopted, will provide a blanket exemption for LIDAR and therefore should lower the threshold to its adoption. On the infrastructure side, the Smart Cities and Communities Act would provide technical and financial resources to local governments to implement smart city technology, especially in suburban and rural communities. Smart cities is a proxy for technology that enhances and deploys safety in the infrastructure. At Velodyne, we have technology for both infrastructure and vehicles, and are the only lighter company as a result, providing a full circle of safety and autonomy. Now I'd like to discuss our financials. I will review first our second quarter and first half results, and then provide our full year 2021 guidance and business outlook. Total revenue is $13.6 million, compared to $17.7 million in the first quarter of 2021, which included a $5.5 million licensing fee. Product revenue was $12 million, up nearly 30% from $10.6 million in the first quarter of 2021, as we were getting renewed demand for our LiDAR sensors from customers who had delayed purchases due to the uncertainty caused by the COVID-19 pandemic. The company's weighted average selling price per sensor was $3,106 compared to $3,887 per sensor in the first quarter of 2021. Licensed services revenue is $1.6 million compared to $7.1 million in the prior quarter that included a $5.5 million licensing fee I previously mentioned. GAAP gross loss was $5.8 million and non-GAAP gross loss was $5.3 million compared to our first quarter 2021 GAAP gross profit of $1.9 million and non-GAAP gross profit of $2.7 million. GAAP gross loss in Q2 did not benefit from the licensing fee in Q1. GAAP operating expenses were $84.8 million and non-GAAP operating expenses were $28.8 million compared to first quarter 2021 GAAP operating expenses of $42.5 million and non-GAAP operating expenses of $28.6 million. GAAP operating expenses included $53.2 million stock-based compensation expense including employer taxes. Included in stock-based compensation expense was approximately $42 million charged against sales and marketing related to our 2020 merger with Graf Industrial. This compared to first quarter 2021 gap operating expenses, including $13.3 million of stock-based compensation expense, including employer taxes. Included in general and administrative expenses are $1.4 million in legal and professional expenses in connection with our audit committee's investigation announced in the first quarter of 2021 into conduct by David Hall, the company's former chairman, and Marta Hall, the company's former chief marketing officer and a current director of the company. For the first half of 2021, this figure was $3.7 million. Gap and non-gap operating expenses included increased spending in research and development that is in response to the visibility provided by our multiyear agreement pipeline. Gap net loss was $80.7 million, and non-gap net loss was $34.4 million. Gap net loss per share was 42 cents, and non-gap loss per share was 18 cents. This compared to a first quarter of 2021 gap net loss of $40.8 million, Non-GAAP net loss was $26.1 million. First quarter of 2021, GAAP net loss per share was 22 cents, and non-GAAP net loss per share was 14 cents. EPS for the second quarter of 2021 is calculated using weighted average shares outstanding of 193 million. As of June 30, actual shares outstanding were 195.2 million. Velodyne completed the quarter with $353.6 million in cash and short-term investment on its balance sheet. Now for the first half of 2021. Total revenue for the first half of 2021 was $31.3 million, comprised of $22.6 million in product revenue and $8.8 million in license and service revenue. This compares to $45.4 million in the first half of 2020, of which $27.9 million was product revenue and $17.6 million was license and service revenue. GAAP net loss for the first half of 2021 was $121.5 million, and non-GAAP net loss was $60.5 million. This compares to a GAAP net loss of $33.1 million for the first half of 2020 and $35.9 million in non-GAAP net loss. Now for our full year 2021 financial statement guidance. Revenue is expected to range between $77 million and $94 million. We are seeing parts of our global markets, such as the U.S. and China, recover, while other geographies are still negatively impacted by the continuing toll of COVID-19. We believe we have good line of sight to the low end of our guidance range and see a number of larger projects that would provide upside revenue should they come in. Many of the upside projects would generate non-recurring engineering revenue in 2021. Non-GAAP gross margins are expected to be between 13% to 24%. This reflects fewer units sold to cover remaining fixed overhead costs of our factory in San Jose, while we experience ongoing delays in moving this manufacturing offshore due to COVID-19. Gross margins at the higher end of our revenue guidance would benefit from increased non-recurring engineering. On a GAAP basis, gross margins are expected to include approximately $2 million of stock-based compensation expense. On a non-GAAP basis, operating expenses are expected to range between $125 million and $129 million. Based upon our expectations regarding our multi-year agreement pipeline, we are increasing our spend in new product development by approximately 40% in 2021 compared to 2020. We expect general and administrative expenses will increase by approximately 35% in 2021 compared to 2020, primarily due to increased legal expenses and public company expenses. On a GAAP basis, operating expenses would include approximately $87 million of stock-based compensation expense that reflects approximately $42 million to be charged against sales and marketing in the second quarter related to our 2020 merger with Graf Industrial. and $8 million related to the recent departure of our CEO. On a GAAP basis, income tax expenses are anticipated to be approximately $800,000. Weighted average shares outstanding for the year are estimated to be $193.5 million. Finally, I would like to review our business outlook. At the end of the second quarter of 2021, We estimate we can have the opportunity for over $1 billion of revenue from signed and awarded projects through 2025, plus a pipeline of projects that are not yet signed and awarded of $4.5 billion. As I mentioned earlier, included in our multi-year agreements are new ADAS agreements, which are expected to begin to ramp starting in 2026 and the years beyond. This concludes my formal remarks. Operator, we are now ready to take questions.