Velodyne Lidar, Inc.

Welcome to the Velodyne LIDAR Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jordan Darrow. Investor Relations, please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us. With me on the call today are Dr. Ted Tewksbury, Velodyne's Chief Executive Officer, and Mark Weintzwig, Chief Financial Officer. On today's call, we will discuss Velodyne's third quarter financial results and provide an outlook for the fourth quarter. Shortly after the market closed today, Velodyne issued a press release announcing its third quarter financial results. Velodyne also published an investor presentation reflecting our recent performance. You may access these documents in the investor relations section of velodynelidar.com. Today's discussion includes forward-looking statements. Please refer to our press release and 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. All forward-looking statements in this discussion are based on information available to the company as of the date hereof. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Please also note our results and projections discussed in this call may include non-GAAP metrics. 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 as a supplement to GAAP financial measures will 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 Dr. Ted Tewksbury. Ted, please go ahead.

Thanks, Jordan, and thank you all for joining us. Yesterday, we announced our plan to merge with Ouster in an all-stock merger of equals transaction that is expected to drive significant value creation for Velodyne, our customers, and our shareholders. Please refer to our joint conference call and press release for details. Today's call will focus on Velodyne's Q3 financial results and Q4 outlook. The Q&A session today will be restricted to Velodyne's results and exclude discussion of the proposed merger. In the third quarter, Velodyne delivered another solid quarter as we experienced continued strong demand and made significant progress on initiatives to improve our gross margin and lower our cost structure. In addition, we added new multi-year customer agreements and announced the acquisition of Blue City, which further bolsters our software and AI capabilities. In the third quarter, billings of $12.5 million were above our guidance range of $10 million to $12 million. Revenue of $9.6 million was within the guidance range of $8 to $11 million. As discussed in prior quarters, the difference between billings and revenue is due to non-cash contra revenue related to the Amazon warrant accounting. As I noted earlier, demand for Velodyne's products remains strong and continues to exceed supply. Looking at the supply side, our team has made significant progress towards overcoming component shortages over the past few quarters. In the fourth quarter, we will begin shipping our puck and ultra puck sensors with an alternative field programmable gate array, or FPGA, to address this bottleneck. An additional design improvement is planned for production in early 2023, which should put the biggest source of constrained supply behind us and reduce the costs of our sensors, thereby providing an opportunity to expand our product gross margins. I will now provide an update on Velodyne's recent business results, share the status of our company-wide transformation, and discuss our outlook for Q4. Mark will then review the financial results in greater detail. This month marks my one-year anniversary at Velodyne. When I started, I discussed Velodyne's goal to transform into a leading supplier of AI-powered LiDAR solutions while accelerating the path to profitability. I outlined four strategic pillars to achieve this goal. We have made enormous progress in all four of these areas over the past year. I'd like to take a moment to look at each pillar and summarize the significant advancements made during the third quarter in particular. The first pillar is to drive sales of existing products into the early autonomous markets, including industrial, robotics, and intelligent infrastructure. These markets comprised 85% of our Q3 sales, up from 53% last quarter. According to industry research firm Yole, The available market for LIDAR in industrial and robotics is expected to grow from $1.8 billion in 2021 to $2.6 billion in 2027. Since our last call, we have announced several new multi-year agreements that illustrate our value proposition in these markets. We signed an agreement with Stanley Robotics in France to provide our Puck and Veleray M1600 LIDAR sensors for their automated valet parking solution. This innovative service uses autonomous mobile robots to help car parks increase the number of vehicles that can be stored while improving customer experience. Our sensors met the stringent performance specifications Stanley Robotics require, reflecting our ability to serve the unique and rigorous product requirements for their programs. Yamaha Motors selected Velodyne for EVE Autonomy, a joint venture in Japan between Yamaha Motor and Tier 4 Incorporated. EVE Auto, EVE Autonomy's autonomous goods transport service, provides logistical support for factories to improve their efficiency and safety. We have already begun shipping puck sensors to support the launch of EVE Auto service. We also signed a new multi-year agreement with our longtime partner, Viziment, a Stockholm-based provider of airborne mapping and portable solutions for major European energy distributors. The agreement further strengthens our long-term relationship with Vizimint, including a three-year supply agreement for both puck and ultra-puck sensors for which shipping has already begun. These and other customer engagements show that Velodyne has established itself as a go-to supplier of LiDAR solutions worldwide, that deliver the range, accuracy, and resolution needed to navigate complex indoor and outdoor industrial and factory environments. Moving on to the smart infrastructure market, Yolei estimates this market will be the third largest total addressable LIDAR market by 2027, right behind ADAS and topography. Smart infrastructure is forecasted to grow from $108 million in 2021 to 1.1 billion in 2027, representing a 51% compound annual growth rate, the second largest for the LiDAR industry. To accelerate our growth in smart infrastructure, in October, we acquired Canadian AI software company Blue City in an all-stock deal. Velodyne and Blue City have had a longstanding and successful partnership, and this acquisition was the natural next step The addition of Blue City expands our expertise in intelligent infrastructure, traffic systems, and software. Our Intelligent Infrastructure Solution, or IIS, combines Blue City's proprietary AI software with Velodyne's LiDAR sensors to monitor networks and generate real-time traffic data and analytics. This full-stack solution integrating software and hardware is a major differentiator and key value proposition for our customers in the smart infrastructure space. IIS is now deployed in 82 pilot installations around the globe and continues to expand. We discussed some of these design wins in previous earnings calls, including those in Helsinki, Finland, and Rüsselsheim, Germany. Our second pillar, is the development of low cost sensors to drive mass adoption of LiDAR in automotive and other price sensitive applications. Our next generation directional and rotational sensor platforms remain on track for customer sampling next year. Proprietary new architectures will enable these devices to achieve low price points while expanding gross margins. We look forward to providing more detail on these new products on future calls as they are introduced. Our third pillar is to expand software to enable complete AI-powered vision solutions that make it easy for our customers to deploy Velodyne LiDAR in any application. In Q3, we continued to develop and expand Vela, Velodyne's software product line, which will include VelaGo to make it easy for customers to manage sensor settings, generate point clouds, and calibrate one or more LiDAR sensors in minutes right out of the box. Vela Perception, to translate raw point cloud data into actionable information, enabling autonomous systems to not only see, but understand their surroundings. And Vela Solutions, providing end-to-end hardware and software for a wide variety of vertical market applications. IIS, for traffic systems, is Velodyne's first application-specific solution. The acquisition of Blue City will accelerate the development of new Vela solutions for other vertical markets by replicating the successful IIS model. We have several new Vela solutions in development, which we expect to be announced in 2023. Customers will be able to access Vela software offerings through Vela Portal, an online hub providing easy and secure account management, software downloads, cloud services for LIDAR-based perception tasks, and more. Finally, our fourth pillar is to lead in high-volume, low-cost manufacturing, operational excellence, and quality. Our gross margin improvement plan is well underway and we expect to realize further progress. The three main levers in this plan are the manufacturing transition to Thailand, the design of low-cost sensors, and the development of full-stack solutions that include software. I'm pleased to announce that we are on schedule with our strategy to consolidate all production at our contract manufacturer in Thailand. The transfer is expected to deliver significant improvements across our operations, lower our overall cost structure, and accelerate our gross margin improvement and time to profitability. While we have made progress on our outsourcing plan and in alleviating our supply chain issues, In the third quarter, we recorded significant charges from excess and obsolete inventory, losses on purchase commitments, and expenses from canceled supplier contracts. These charges totaled approximately $8 million. Mark will provide additional details later in the call on the charges. We have also made changes to our operations team leadership, which we believe will allow us to further improve our operating performance and expedite our transition and cost reduction efforts. In addition to these initiatives to improve gross margins, we made excellent progress on our cost reduction plans discussed last quarter. We have implemented measures to reduce expenses by streamlining our product portfolio and operations, as well as improving our processes. Since March 31st, we have reduced our operating expenses by $10 million per quarter. or 28% by rationalizing headcount and cutting spending in other areas. We are making these reductions while continuing to invest in innovative new products to better serve our customers. Going forward, we are continuing to look for opportunities to enhance efficiencies and believe we can further improve our expense base over the next few quarters. While we have more to do, the foundation is firmly in place and we expect to see better financial results in the future, including resumption of revenue growth, increased gross margins, and improved bottom line performance. Before handing the call to Mark, I want to offer some commentary around our guidance for the fourth quarter. We entered the fourth quarter with strong demand across the entire business, adding more long-term customer agreements on multiple continents that reflect the global acceptance of Belladine's solutions. Billings are expected to be between $13 million and $15 million and revenue to be between $12 million and $14 million. Our gross margin improvement initiatives will continue as we move more manufacturing to our partner in Thailand. In addition, there will be more actions taken around our cost containment measures that should deliver further progress in our operating expense structure. Outside of these improvement initiatives, Yesterday, we announced the planned merger with Ouster, which we believe is an exciting opportunity to accelerate the adoption of LIDAR in fast-growing global markets while strengthening our financial position. The all-stock merger of equals is expected to drive significant value creation for Velodyne, our customers, business partners, and shareholders. Ouster's CEO, Angus Pakala, will serve as CEO, and I will serve as executive chairman of the board. As one combined company, we are setting the stage to become a leading LiDAR provider with global scale, a deep history of technological innovation, a strong balance sheet, and a world-class commercial organization. Together, we can offer robust product offerings, including verticalized software, to serve a broader set of customers and to address an ever-increasing number of use cases. We expect the proposed merger to unlock significant synergies creating a company with the scale and resources to deliver industry-leading solutions for customers and society, while accelerating time to profitability and enhancing value for shareholders. With the merger transaction expected to close in the first half of 2023, we'll continue to execute on Velodyne's growth strategies and advance our pillars for success. With that, I would like to hand the call over to Mark for a review of our financial results. Mark? Please go ahead.