Velodyne Lidar, Inc.

Good day and welcome to Vela Banglitar Third Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to call the conference over to Mr. Andrew Chan, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Velodyne LIDAR's third quarter 2021 financial results. Drew Hamer, the company's chief financial officer, will run through the call's prepared remarks. Then Ted Tewsbury, the incoming chief executive officer, Drew, and Jim Beinhart, the chief operating officer, will be 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 third 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 our press release and our SEC filings, including our most recent 10-K and 10-Q, for a discussion of factors that could cause the 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 gap 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.

Thank you, Andrew, and welcome to Velodyne. Ladies and gentlemen, as most of you saw, on November 10th, we will have a new CEO, Ted Tewksbury, leading our company. Ted is a seasoned technology executive who brings to Velodyne a proven track record and more than three decades of experience leading innovative businesses. A true visionary, I am looking forward to working with him to expand our lead in the global LiDAR industry, execute on our strategic growth plan, and drive long-term value for all shareholders. I also would like to welcome our new board member, Virginia Boulay. She is a renowned corporate governance expert whose expertise and deep experience will further strengthen our board of directors. Since our last earnings call in August, we have done a number of things. We signed one additional multi-year agreement for a total of 35, on track for a goal of 38 by year end. We've grown our pipeline to 220 projects, with an increasing concentration in the industrial and robotics market, which make up one-third of the pipeline projects and has grown nearly 50% when compared to last year at this time. We believe the industrial and robotics market is one of LiDAR markets closest to commercialization, and we expect our activity with customers in this market will only accelerate. We shipped more than 4,400 sensors in the third quarter, continuing our market leadership. Our customers today are giving us purchase orders for larger volumes as they move into the first wave of mass commercialization. We are the global LiDAR leader, shipping more sensors in the third quarter than the aggregate of all our peers combined that have reported shipping sensors year-to-date. We expect to ship more than 15,000 sensors in 2021, up at least 28% over 2020 and significantly more than our peers. The interest for our new solid-state products continues to grow. We shipped over 630 solid-state sensors in the third quarter, more than double the prior quarter. We are excited about the potential for these next-generation products and anticipate long-term growth in the linear fashion, smoothing out what could be volatility from quarter to quarter. Bellabit projects continue to grow. We now have 33 opportunities, including solid-state VelaBits, up from 25 in the prior quarter. We anticipate shipping VelaBit samples for revenue late in 2022. Overall, the use of LiDAR today in our served markets continues to gain momentum. In automotive, we continue to make progress in our relationships with both emerging and major high-volume OEM customers for the use of our LIDAR and ADAS systems. In AV, we are working with new customers and existing customers who are looking to extend their current agreements with us to include additional products within our portfolio. In robotics and industrial, we announced a multi-year agreement with Renew Robotics to use our puck sensors and their vegetation management for solar energy facilities. In mapping, We have new customers such as Tapadrone, which is based in Switzerland and develops affordable, high-precision solutions for aerial surveys. They signed a multi-year agreement for our sensors to be used for high-precision mapping and 3D modeling in demanding environments including farms, forests, and infrastructure to support development that advances economic and sustainability goals. We are also collaborating with Move.ai to provide robot manufacturers enterprise-grade automation solutions, including mapping, navigation, obstacle avoidance, and risk avoidance. We also expanded our relationships with existing customers, such as AGM Systems, who has deployed our Alpha Prime LiDAR sensor on the AGM MS5 Prime, their latest high-performance mobile scanning solution. This is the second sensor type AGM Systems has purchased from Velodyne. Last, but not least, are smart cities. Our Intelligent Infrastructure Solution, or IIS, was selected for a major deployment in the University of California, Irvine's Smart Cities Initiative, where it will be used at 25 intersections as part of a $6 million road network project in Irvine. We continue to expand our IIS proof of concept deployments across North America. Now for our financials. I will first review our third quarter in nine months results and then provide our full year 2021 guidance and business outlook. Total revenue for the quarter was $13.1 million compared to $13.6 million in the second quarter of 2021. Product revenue was $11.8 million, slightly down from $12 million in the second quarter of 2021. due to a combination of the lower weighted average ASP than the prior quarter, reflecting the ongoing evolution of our product mix toward consumer-affordable solid-state sensors and ensuring consistent performance across and within our product lines, crucial for our customers as they ramp toward mass commercialization. The weighted average selling price per sensor was $2,622 compared to $3,106 per sensor in the second quarter. License and services revenue was $1.3 million compared to $1.6 million in the prior quarter. GAAP gross loss was $4.7 million and non-GAAP gross loss was $4.2 million compared to a second quarter GAAP gross loss of $5.8 million and non-GAAP gross loss of $5.3 million. GAAP operating expenses were $50 million and non-GAAP operating expenses were $33.4 million compared to the second quarter GAAP operating expenses of $83.3 million and non-GAAP operating expenses of $28.8 million. Third quarter GAAP operating expenses included $16.3 million of stock-based compensation expense, including employer taxes. This compares to the second quarter GAAP operating expenses that included $53.6 million of stock-based compensation expense, including employer taxes, of which $41.6 million was charged against sales and marketing, a majority of which was accelerated vesting of stock-based compensation related to our 2020 merger with Graff Industrial. Included in general and administrative expenses are $1.3 million in legal and professional expenses in connection with our audit committee's investigations into conduct by David Hall, the company's former chairman, and Marta Hall, the company's former chief marketing officer and the current director of the company. For the nine months ending September 30, 2021, this figure was $4.7 million. GAAP net loss was $54.7 million and non-GAAP net loss was $37.5 million. Gap net loss per share was 28 cents and non-gap loss per share was 19 cents. This compared to a second quarter of 2021 gap net loss of $79.2 million. Non-gap net loss was $34.4 million. Second quarter of 2021 gap net loss per share was 41 cents and non-gap net loss per share was 18 cents. EPS for the third quarter of 2021 is calculated using weighted average shares outstanding of $196.2 million. As of September 30, actual shares outstanding were $195.9 million. We completed the quarter with $324.5 million in cash and short-term investments on our balance sheet. For the nine months ending September 30, 2021, total revenue was $44.4 million, comprised of $34.3 million in product revenue and $10 million in licensed services revenue. This compares to $77.5 million in the nine months ended September 30, 2020, of which $53.9 million was product revenue including a one-time $11.1 million stocking fee and $23.6 million was license and services revenue. Gap net loss for the nine months ended September 30, 2021 was $174.8 million and non-gap net loss was $98 million. This compares to a gap net loss of $38.4 million for the nine months ended September 30, 2020 and $45 million in non-GAAP net loss. Now for our full year 2021 guidance. We expect to ship over 15,000 units in 2021, a growth of at least 28% as compared to 2020. Revenue is expected to range between $60 million and $63 million. As I mentioned earlier in my remarks, we are moving into the first wave of mass commercialization with customers who are now expecting consistency of performance within our various product lines. This is a natural evolution from the R&D purchases our customers had done with us historically, where test samples were acceptable. We are refining our engineering and production processes to meet customer delivery and performance expectations. As a result of this focus on customer satisfaction, Approximately $4.3 million of product sales shifted out of the third quarter into the fourth quarter of 2021 and first quarter of 2022. Our revenue forecast also reflects the removal of any contribution from non-recurring engineering fees that aren't already signed. Non-GAAP gross margins are expected to be between negative 8% to 10%. This reflects volume in weighted ASP mix and ongoing delays in moving manufacturing offshore due to COVID-19. On a GAAP basis, gross margins are expected to include approximately $2.3 million of stock-based compensation expense. On a non-GAAP basis, operating expenses are expected to range between $125 million and $129 million. We expect general and administrative expenses will increase by approximately 55% in 2021 when compared to 2020, primarily due to increased legal expenses and other related public company expenses. On a gap basis, operating expense will include approximately $89 million of stock-based compensation expense. 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 $193.7 million. Finally, I would like to review our business outlook. At the end of the third quarter of 2021, we estimate we could have the opportunity for approximately $800 million of revenue. from signed and awarded projects through 2025, plus a pipeline of projects that are not yet signed and awarded with an opportunity for approximately $4.2 billion. As certain of our customers are progressing with their LiDAR solution rollouts, we are seeing variability in their rollout schedules. As they get into their projects, some have reduced their initial ramp rates while maintaining their ramp rates in outlying years. This is reflected in these aggregated business outlook numbers. We anticipate providing updated project pipeline data through 2026 plus 2022 financial guidance in our fourth quarter 2021 earnings call. This will allow our new CEO, Ted Tewksbury, the opportunity to address these metrics. This concludes my formal remarks. Operator, Ted, Jim, and I are now ready to take questions.