Velodyne Lidar, Inc.

Hello, and welcome to the Velodyne LiDAR first quarter 2022 financial results call. All participants will be in listen-only mode. Should you need assistance, please seek out a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. Now I'll turn the conference over to Andrew Chan. Mr. Chan, please go ahead.

Good afternoon, and thank you for joining us. This is Andrew Chan, head of IR for Velodyne LiDAR. With me on the call today are Ted Tewksbury, Velodyne's CEO, and Drew Hamer, Velodyne's CFO. On this call, we will discuss Velodyne's first quarter fiscal year 2022 financial results. Ted will open with a review of his strategy and Q1 accomplishments, and Drew will review the financial results and outlook. Ted will return to summarize and open the call for questions. 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. Before we begin, I would like to remind you that shortly after the market closed today, Velodyne issued a press release announcing its first quarter 2022 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. In management's financial remarks, non-GAAP metrics will be referenced. Management provides non-GAAP metrics because it uses them for budget planning purposes and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors evaluate Velodyne's core operating and financial performance and business trends consistent with how management evaluates such performance and trends. In addition, management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies. A full description and reconciliation of these non-GAAP measures versus GAAP is included in the company's press release issued today. Now, I'd like to turn the call over to our CEO, Ted Tewksbury.

Thanks, Andrew, and thank you all for joining us today. We'd like to welcome any new investors on the call. And remind you that Velodyne LiDAR creates smart technology for a world in motion. LiDAR is making our communities safer, our supply chains more efficient, and our planet greener. With over 69,000 LiDAR sensors shipped to date, Velodyne is leading the way. Our first quarter of 2022 was one of solid execution in the face of significant supply chain headwinds. Billings of $11.5 million was at the top end of expectations. Revenue, which for the first time this quarter includes the non-cash accounting treatment of Amazon warrants, came in at the high end of our guidance range. This reflected our ability to secure scarce components and partially offset the cost impact of shortages via pricing. Demand for our products remains strong. However, we expect component shortages to continue to challenge our ability to fulfill this demand for several quarters. Even with these near-term headwinds, we expect sequential revenue growth in the second quarter of 2022. Drew will review our financial results as well as the warrant accounting in greater detail in a moment. I'd like to begin by reviewing some highlights from the first quarter of 2022. We continued to see robust customer engagements across all three of our target markets, industrial and robotics, intelligent infrastructure, and automotive. Approximately two-thirds of our LiDAR sensors sold during the quarter were for industrial and robotics applications, and about one-third were for automotive uses. Progress in industrial and robotics continued to be driven by automation of the supply chain across diverse applications including warehouse, logistics, and port automation. Demand in automotive was dominated by sales of our high-performance rotational sensors for robo-taxis. In intelligent infrastructure, our solutions are being deployed in an increasing number of pilot programs for smart cities. Our intelligent infrastructure solution, or IIS, was selected by Rüsselsheim on Main, Germany, to create a citywide system for truck passage control. And we are very excited that our IIS won the South by Southwest 2022 Innovation Award in the Smart Cities, Transportation, and Delivery category. We are also seeing growing interest in our sensors for military applications, a largely untapped market which requires the high performance that Velodyne provides. In Q1, we announced a five-year sales agreement with Kinetic, a leading defense and security company, to provide perception and mapping capabilities for their unmanned ground vehicle portfolio. And our Automated with Velodyne program surpassed the 100 Partners milestone, including global brands like NVIDIA and Siemens. Earlier this year, I laid out our four strategic pillars to accelerate our path to profitable revenue growth. First, by selling existing products into early autonomous markets, including industrial, robotics, and intelligent infrastructure. Second, by developing an ultra low cost sensor platform to drive mass adoption in automotive and other price sensitive markets. Third, by expanding our software to enable complete AI-powered vision solutions. And fourth, by leading the industry in high-volume manufacturing at the lowest cost and highest quality. In Q1, we made significant progress in transforming Velodyne's organization, processes, and culture to ensure the successful execution of this strategy. We built a customer-centric product management group under the oversight of Velodyne's first Chief Product Officer, Sinclair Vass. This group has been working closely with our customers to understand their system requirements and pain points in order to define the right products with the right features, specifications, and costs. We established a solutions-oriented engineering organization under Dr. Anurag Gupta, Velodyne's first Executive Vice President of Engineering. to facilitate the agile development of autonomous vision solutions encompassing both hardware and software. For the first time, Velodyne has an end-to-end product development engine to consistently define, develop, and deliver innovative solutions to our customers while maximizing our return on investment. As a result, commencing in 2023, we expect to increase new product throughput to at least two new sensors and four software releases per year. We also plan to introduce at least one full stack system solution every year. Looking to full year 2022, we are experiencing strong customer demand for our puck and ultra puck rotational sensors in the industrial, robotics, and infrastructure markets. As we shared last quarter, our ability to supply this demand has been constrained by shortages of critical semiconductor components, particularly field programmable gate arrays, or FPGAs. Our operations and engineering teams are working hand in hand to allow us to satisfy as much of this demand as possible during this challenging period. We have been able to procure small quantities of the scarce components, albeit at elevated cost, which we have been able to partially recover through price increases. Additionally, we have been able to secure limited quantities of similar components as substitutes. This requires some redesign and requalification of our hardware and firmware, which we expect to be completed in the third quarter. And finally, we are developing an improved next generation PUC family using a readily available lower cost FPGA. This is expected to provide a sustainable solution in early 2023. In addition to PUCs, our solid-state Velleray M1600 sensor is experiencing strong demand from customers in the industrial and robotics markets. This sensor is currently not constrained by component shortages, and we recently launched a major marketing campaign to help drive additional sales. Looking to 2023 and beyond, we expect improved revenue growth as we introduce new sensors, software, and services. We anticipate these introductions will include our next generation VelaBit and VelaRay solid state sensors in 2023, followed in 2024 by our low-cost software configurable sensor platform. We are designing these sensors to sell for just a few hundred dollars, a price point that we believe will drive mass adoption in advanced driver assistance systems and other price-sensitive high-volume markets. Turning now to price and gross margin trends, in 2022, we expect ASPs to directionally track the prices of key underlying components, many of which are supply-constrained. In 2023, we anticipate sensor ASPs to revert to a more normal pattern as supply chain constraints abate and new lower-price sensors start to contribute to the mix. We believe that gross margins will improve as these new products which are designed for low cost and ease of manufacturing, are introduced. Our gross margin improvement plan includes several initiatives, launching higher value system solutions and software to increase our pricing power, developing new sensor architectures to dramatically reduce bill of materials and assembly costs, and increasing volumes, yields, and manufacturing efficiencies to drive down the cost of goods sold. While we still have significant work ahead, we are confident that we're on the right track to deliver turnkey, intelligent vision solutions to our customers, which we believe will accelerate revenue growth and profitability. With that, I'll turn it over to Drew to review our first quarter financial results.