Ouster, Inc.

Good afternoon. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to Alster's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. The call is being recorded, and a replay of the call will be available on the Alster Investor Relations website an hour after the completion of this call. On the call today are Alster's Chief Executive Officer, Angus Piccola, and Chief Financial Officer, Anna Brunel. Before we begin the prepared remarks, we would like to remind you that Alster's issued a press release announcing its first quarter 2021 financial results shortly after market closed today. The company also published an investor presentation. You may access the materials 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... forecasts, targets, and other forward-looking statements regarding the company's future customer orders and the company's business outlook that are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. While these statements represent the management's current expectations and projections about future results and performance as of today, Oster's actual results are subject to many risks and uncertainties that could cause actual results to differ materially from those expectations. In addition to any risk highlighted during this call, important factors that may affect Oster's future results are described in its most recent SEC report filed with the Securities and Exchange Commission, including today's earnings press release. Except as required by applicable law, the company undertakes no obligation to update any of these forward booking statements for any reason after the date of this call. Lastly, information discussed on this call concerning the company's industry competitive position and the market in which it operates is based on information from independent industry and research organizations, other third-party sources, and management estimates. Management estimates are derived from publicly available information released by independent industry analysis and other third-party resources, as well as data from the company's internal research and are based on assumptions made upon reviewing such data and its experience and knowledge of such industry and markets, which it believes to be reasonable. These assumptions are subject to uncertainty the uncertainties and risk which should cause results to differ materially from those expressed in the estimates. I would now like to turn the call over to Alistair's Chief Executive Officer, Angus Bacala. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for our first quarterly earnings call. I'm excited to tell you about our record quarter followed by an update on our business and execution road map. I'll then turn things over to Ouster's CFO, Ana Brunel, to update you on our financial performance and business outlook. To begin, I want to share Ouster's perspective on why digital LiDAR is the only LiDAR technology capable of delivering the quality, reliability, and cost structure to enable revolutionary economy across industries. Today, LiDAR is best known for being a critical sensor for autonomous vehicles. But at Ouster, we understand that LiDAR is much, much more than that. It's the building block of a new world in which autonomous machines can see and understand their surroundings. Digital LiDAR is powering automation in everything from robots and factories to traffic lights and security systems. It can improve safety and save lives, drive efficiency and productivity gains, and enhance sustainability. But LiDAR needs to be both highly performant across a wide set of criteria and also low cost enough that manufacturers are able to design it into the products that users want and can afford. Our digital LIDAR offers a combination of the highest performance at the lowest cost in the industry. It vastly improves upon analog technology in size, weight, form factor, power efficiency, and weather durability. Our performance in the first quarter continues to demonstrate that our sensors are an ideal fit for four target markets, automotive, industrial, smart infrastructure, and robotics, which opens up a TAM we expect to grow to $8.6 billion by 2025. We continue to extend our multi-market presence through meaningful gains in performance due to our digital technology, and we expect to continue to scale exponentially in line with Moore's Law in a way that no other ladder technology can come close to matching. Turning to business updates, Ouster ended 2020 with $18.9 million in product revenue, reached over 500 customers across 50 countries, ramped up manufacturing capacity at our benchmark Thailand facility, and shipped over 2,000 sensors worldwide. we demonstrated tremendous growth in a short period of time, illustrating that we have the right technology to win in this industry and that we have a scalable go-to market approach. In the first quarter of 2021, Alster successfully closed the business combination with Colonnade Acquisition Corp. with nearly $300 million in gross proceeds and began trading on the New York Stock Exchange under the ticker ALST on March 12, 2021. We achieved another record quarter with $6.6 million in revenue, a year-on-year increase of 187%, in line with our forecast and which we believe positions us to meet our full year 2021 revenue target of $33 to $35 million. We scaled up our second-generation sensor production and shipped a record 978 sensors for revenue in the first quarter, which is nearly half of what we shipped in all of 2020. We have signed 30 strategic customer agreements, or SEAs, so far this year, bringing our total SEA count to 40. These customers alone represent the potential for over 385 million in contracted revenue opportunities through 2025. Ana will say more about what this means for the business later on. Turning to product development, we're executing against our product roadmap, delivering increased hardware and software capabilities in faster cycles than our peers. One of the things that makes Zoustar special is our ability to innovate and develop our products faster because of our digital approach. This past quarter, we announced a rollout of upgraded Rev-D sensors with improved reliability and industry's only standard two year warranty for high performance LiDAR across the entire product suite. Additionally, we're releasing a software update in Q2, which will offer a significant improvement in performance for all of our customers. And finally, and most importantly, we're design complete on our next generation L3 chipset, which has been under development for the past year and takes advantage of next generation fabrication technology. The L3 chip offers further exponential gains in performance and capabilities that will strengthen our entire product portfolio. And again, we don't have to re-architect our products to achieve major performance gains, just the chipsets year after year after year. I'm also very excited to go into more detail on our automotive product mission with you. Alster's consumer ADAS strategy is based on the premise that an autonomous system cannot move in the direction that it cannot sense. Consumers expect that their L3 systems be able to change lanes, merge, exit a highway, and drive through a four-way stop. The requirement is clear. These systems need 360-degree vision to make these maneuvers possible, and that's why we're developing the industry's only truly solid-state multi-sensor product suite. Automakers have released LIDAR RFQs for consumer ADAS targeted at three different sensor types, short, medium, and long-range LIDAR. Based on major OEM forecasts, Goldman Sachs recently estimated that by 2030, up to 20% of the 115 million vehicles produced will require between three to six LIDAR sensors each. We believe this type of analysis further validates our perspective on the timeline for series production, attach rates, and most critically, the multi-sensor LIDAR requirement for the next generation of advanced driver assistance systems. Hauser is uniquely positioned to offer a full automotive product family that addresses the multi-sensor need at a price that will enable these vehicles to move from a luxury option to mass adoption. We're developing the holy grail of automotive LiDAR, truly solid state, low cost, and high performance digital LiDAR sensors that can be seamlessly integrated into the vehicle body, enabling a combined price point of $1,000. We expect to deliver our first solid state samples for the multi-sensor suite in the fourth quarter of 2022, and I look forward to sharing more about our automotive product offerings in the coming months. As excited as I am about this upcoming product suite and its potential for automotive, Ouster doesn't have to wait for ADAS programs to reach series production to generate meaningful revenue today. Our growth is indexed to the rapid acceleration of automation in each of our end markets. We are witnessing an unprecedented shift across industries as the global economy is disrupted by autonomous technology. Take the global supply chain as an example. Gartner predicts that by 2025, more than 20% of all products will be manufactured, packed, shipped, and delivered without being touched by anyone but the end customer. In a recent LIDAR report, GM estimated that the TAM for moving people and goods autonomously could eventually reach $7 trillion. And COVID has only accelerated the appetite to automate. The vastness of the TAM for LIDAR is only just starting to become clear. So I'd like to walk you through some of the trends we're seeing across each of our end markets, as well as examples of customers that are using our products today. First, in automotive. Aside from the multi-sensor suite that we're developing for consumer ADAS, we believe there are two important areas for growth where we already have an established business, robot taxis and robot trucking. After a decade of R&D, these systems are now transitioning to full production. This year alone, we've signed SEAs for many thousands of units. For instance, we signed an SEA with Automated Trucking Company Plus for an initial binding commitment of 2,000 sensors and a forecast of 160,000 sensors over the next five years. One of the largest LIDAR deals ever aimed. Another Robotrucking customer, Daimler Trucks, recently demonstrated their new development platform, which uses three Alster sensors on each of their torque testing vehicles. May Mobility, a leader in autonomous shuttles, is placing four Alster sensors per vehicle on their next generation platform. Qcraft plans to have 100 robot buses outfitted with Oster sensors on open roads in China by the end of this year. And we signed an SCA with a major trucking OEM representing over 20 million in contracted revenue opportunity through 2023. We believe that years of growth lie ahead of us as our robotrucking, robotaxi, and ADAS submarkets mature and the automotive market expands to a 1.9 billion TAM by 2025. Moving to industrials, for decades, automation has been transforming sectors from mining to advanced manufacturing and construction. Now, LiDAR technology is converting these simple safety systems into intelligent machines capable of greater and greater levels of autonomy. For example, we just signed an SCA with a major warehouse automation provider, which is switching to Alster sensors for its intelligent forklift platform. We have an SCA without LiDAR to deploy our digital LiDAR on its autonomous yard trucks. Our sensors are powering the world's first large-scale autonomous mining truck project in Inner Mongolia through our SCA with Waitus. We have an SCA with Casbor to deploy our sensors on Snowcats as part of its technology for ski slope maintenance. And SONVIC has demonstrated their auto-mine concept using four Alster sensors per vehicle to push the boundaries of mining automation. The industrial ladder market is nearly a billion dollars today and consists primarily of 2D analog ladder technology invented over 30 years ago. This presents a unique near-term opportunity for us to convert this established customer base to 3D LiDAR. As automation trends accelerate, we expect industrial LiDAR market to grow to 2.1 billion by 2025. Third, in smart infrastructure, we are extremely optimistic about Biden's $2 trillion infrastructure plan, which if passed, would likely accelerate investments to modernize bridges, highways, roads, ports, and intersections. LiDAR is uniquely positioned against cameras to modernize our infrastructure while preserving privacy. We've partnered with companies like AkiraCon, a supplier of full-stack AI and VGF solutions, which is deploying our sensors to monitor vehicle and pedestrian traffic flow in APAC cities. We have multiple pilot programs across the US, supporting cities on their mission to reduce road accidents under their Vision Zero programs, as well as major smart infrastructure deployments in Germany and China. To date, we have 13 active projects and 52 projects in development across EMEA, APAC, and the Americas. We believe that the addressable smart infrastructure market, around $500 million today, is poised to grow the fastest of our verticals over the next few years and reach $2.8 billion by 2025. Everywhere there is a CCTV camera or radar system in use today is an opportunity to augment or replace that system with outsourced digital LiDAR in the future. Finally, we categorize last mile delivery, street cleaning, drone applications, and academic research, among other emerging use cases, as part of the robotics end market. The common thread in this vertical is that each one of our customers is pursuing a potentially world-changing application in their own right. Our customer Postmates, now CERV Robotics, uses our sensors for its last mile delivery business with deployments in LA and San Francisco. Renew Robotics is using ASTRA sensors for automated vegetation management and solar farms. Scout DI has deployed our digital ladder on drones to safely navigate and inspect industrial assets. And Canvas, a construction robotics company, is deploying our sensors on robots and large-scale construction sites. The total addressable robotics market is around $200 billion today, and we expect it to grow to $1.8 billion by 2025, driven by literally hundreds of emerging use cases. To capitalize on the demand we're seeing across these four markets, we're investing heavily in our go-to-market teams by building a scalable, predictable commercial engine to accelerate LIDAR adoption. We've up-leveled our management team in the last few months with new additions to our board, including Sundari Mitra, the corporate vice president of an Intel's IP engineering group, Manny Hernandez, the board director at On Semiconductor, and Carl Bass, former Autodesk CEO and chairman at Zoox. And earlier today, we announced a significant addition to our executive team with Nate Bickerman coming on board to serve as president of field operations and lead Alster's overall commercial strategy and execution. He brings decades of sales experience leading global teams at Planet Labs, Autodesk, and IBM. To fast track our growth, we have already expanded the sales team by 50% since the beginning of the year in order to win more of the 14,000 potential customers we estimate are available to us. it is a significant competitive advantage that we can make these investments now and see near-term results. With that, I'd like to turn it over to our CFO, Ana Brunel.

Thanks, Angus. Before I get started, there is one administrative issue I want to cover related to the SEC's new guidance on accounting for warrants issued by SPAC. We want to make clear that we've completed our analysis of the SEC's guidance impact on Oster and our financial results included in today's earnings release reflect our evaluation, and are indicative of how we expect to account for the warrants going forward. Due to the timing of our transaction with Colonnade, we are still evaluating the impact of the SEC's guidance on Colonnade's historical financial statements in the Form 10-K, but we do not expect any determination relating to Colonnade's historic financials to have an impact on Alster's financials going forward or on what we've shared with you today. So, moving on, now I'd like to touch on a few of the operational highlights Angus shared and what they mean for the business this year and over the long term. We achieved a record first quarter with $6.6 million in revenue, a year-on-year increase of 187%, in line with our internal estimates. I also want to reaffirm our previously issued full year 2021 revenue guidance of $33 to $35 million, which represents an increase of approximately 75% to 85% as compared to prior year revenue of $18.9 million. As a reminder, we do not currently offer quarterly revenue guidance. Based on current customer forecasts, we do expect our revenue growth to increase in the second half of 2021, similar to the growth trend we saw in the second half of 2020. To date, Ouster has signed 40 Strategic Customer Agreements, or SCAs, representing over 385 million in contracted revenue opportunity from just these customers alone through 2025. Angus already mentioned a handful of the companies we are working with in each vertical, which are a testament to the benefits of our digital platform and the broad applicability of our unique technology. We want to remind everyone that SBA established a multi-year purchase and supply framework for Ouster and the customer, and include details about the customer programs and applications where the Ouster products will be used. They also include multi-year, non-binding customer forecasts, giving Ouster visibility on the customer's long-term purchasing requirements, mutually agreed upon pricing for specific Ouster products over the duration of the agreement, and in some cases, include multi-year binding purchase commitments. For customers that provided less than a five-year forecast, no additional revenue opportunity beyond the term of the customer's forecast, has been imputed. This is incredibly important to understand because not every company defines contracted revenue opportunity in the same way. At Alster, we've set a high bar for a customer relationship to rise to the level of a strategic customer agreement. And as a result, we believe we are building and reporting on the largest and, more importantly, the most legitimate order book for high-performance digital LIDAR. Because our work with 500-plus customers gives us a unique insight into their automation plans, we believe we are reaching a tipping point in LIDAR adoption as more and more projects move from R&D to production and deployment. Remember, applications in non-automotive verticals often have lower barriers to production scale and benefit from a direct ROI based on improved safety and efficiency via automation, resulting in faster adoption and building confidence around our forecasted revenue ramp. Of course, as Angus said, we also intend to lead adoption in the automotive market with our unique differentiated multi-sensor suite. Remember, a third of our revenue was from automotive customers last year. We expect the TAM for our products across our four target markets to reach 8.6 billion by 2025 and nearly 48 billion by 2030, driven primarily by smart infrastructure and industrial applications today, with automotive and robotics applications gaining momentum by 2025. We expect to see significant market penetration and growth as we expand our sales force and bring new products to market in these four verticals. Turning to margins, in line with expectations, Q1 gross margins were 26%, an increase of 110% over the prior year Q1. We believe our 40 SCAs have set the stage for further margin improvement over the life of these agreements as we lock in three- to five-year negotiated pricing while driving additional volume growth with multiple customers across verticals. As we've said before, we expect our margins to improve over time as we grow our volume, leading to improved purchasing power and the ability to spread our fixed costs over a larger number of units sold. We believe we are the only digital LIDAR company achieving this kind of growth across end markets and also achieving industry-leading positive growth margins. Additionally, we increased our sensor production by over 60% in the fourth quarter of 2020 and will continue to ramp production in line with sales growth. We shipped a record 978 sensors for revenue in the first quarter, up from 290 sensors in Q1 of the prior year. Because our CMOS digital LiDAR technology results in a simplified architecture, our products are inherently suited to volume manufacturing, allowing us to scale rapidly while driving down the cost of goods sold. As Angus mentioned, we closed the quarter with nearly $300 million in gross proceeds from our business combination, and we believe that the capital raised from this transaction should be sufficient to carry us to EBITDA break even, expected in 2023. Put another way, the capital raised from this transaction is approximately double the sum of capital we've used so far to develop our technology and patent portfolio, to bring two generations of industry-leading digital LIDAR products to market with positive growth margins, to stand up and scale our contract manufacturing, and to step into the public market. Our efficient use of capital gives us confidence that we will be able to execute on our plans to grow our business while keeping some dry powder for potential strategic opportunities. We are putting this capital to work in three specific ways. First, we are building out our sales and marketing teams to enable us to pursue an estimated 14,000 potential customers across our end markets by 2025. Second, we plan to strengthen investments in software development to add adjacent revenue streams and to shorten customer adoption cycles. And finally, we plan to accelerate our hardware roadmap through increased investments in R&D aimed at shortening chip design cycles from two years to one and continuing to widen Ouster's technology moat. As a result of our growth and positive margins, our adjusted EBITDA loss improved from 11.3 million in the first quarter of 2020 to 10 million in the first quarter of 2021. However, We have grown and will continue to grow our OpEx in 2021 as we build our teams to deliver on these three initiatives. In all, we remain incredibly excited about the opportunity ahead of Ouster. We believe we are the standout LIDAR company, not only because we have a diversified go-to-market strategy, but also because we continue to build trust with investors by executing the plan with strong business fundamentals. Ouster is achieving success because we invented the right platform. CMOS Digital LiDAR. Our digital LiDAR unlocks a larger multi-market PAM and offers a combination of the highest performance and reliability at the lowest cost in the industry. It has allowed us to make product advancements in rapid succession and offer our growing base of over 500 customers customized solutions based on a single architecture. It has also allowed us to outsource manufacturing, lower our cost of goods sold, and quickly achieve positive growth margins. further to provide an additional point of view on the strength of CMOS digital LIDAR on cost of goods sold. IHS Market has concluded that Vixel and SPAD technology, our digital LIDAR, has the most price reduction potential based on interviews with the underlying suppliers of component parts. So not only is our technology expected to be a low-cost leader across markets, it is also important to point out that we see very little competition for high-performance LIDAR in the industrial, robotics, and smart infrastructure markets, which are expected to provide the majority of our forecasted growth over the next few years. To close, we've had two record quarters back to back. Our recent high-profile customer wins, our significant pipeline of contract opportunities, and our commitment to new product development positioned us well for the future. We're on track to meet this year's revenue target of 33 to 35 million, and gross margin target of 25 to 27%. Our signed multi-year SBAs are ramping, and we are on pace to more than triple sensor production year over year. Austria is uniquely positioned with the right products, more customers, more use cases, and great product market fit across our four verticals in order to dominate the industry. So now I'll turn it back to Angus.

Thanks, Anna. Before Q&A, I want to leave you with this thought. There's no other time in recent history, probably since the invention of the Internet, that so many disparate industries have been affected simultaneously by a single trend like economy. For any disruptive technology, there's a point in time when the right ingredients, technology, market, customers, and ecosystem maturity, are present to create the next Intel, NVIDIA, Google, or Illumina. Ouster has a unique window into the future today through our work with over 500 different customers as they deploy solutions with our digital LiDAR to bring about greater and greater levels of autonomy. Ouster's digital platform is that right technology at that right point in time to bring about the autonomous revolution. We believe that our success today is just the beginning as Ouster is really a bet on the macro trend of autonomy. Ouster is here to build the world's best LiDAR technology combine that hardware with software to provide solutions that power revolutionary applications across industry, and leverage that advantage to become the world's first category-defining economy company. I want to thank you all for joining us today. We're now ready to answer questions.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. And your first question comes from Antae Michele with Citi.

Great, thanks. Hello, everybody, and congrats on the first earnings call. Maybe just to kick it off with, just to clarify, on the 40 SCAs, is that 40 comparable to the 20 production contracts or so I think you reported back at the Investor Day? And I was hoping you could also comment just more broadly on the overall customer funnel. I think there are roughly 200 or so customers that were previously in the funnel, kind of how that's looking today.

Thanks for the question. So, you know, we get a lot of questions about the customers moving towards production in our funnel and customer counts in general. And we want to provide more transparency here, which is why we're using a metric called strategic customer agreements or that count, that all-in count of SEAs. Because it's a much more stringent way of defining a customer that has reached a high level of maturity with Ouster. There's a signed piece of paper, there's a contract associated with that customer. And so our customer base absolutely has continued to increase every quarter. But we believe that SCAs are a much better metric because they talk less about the top of the funnel and instead provide that clarity on the customers that are moving towards production with these multi-year forecasts, negotiated pricing, clearly identified products and product SKUs and projects that those product SKUs are being used towards. And so, again, we have a clear definition that we've been repeating on what an SCA is. It's a higher bar we see than any one of our peers in the industry. And yes, those 40 SCAs are a superset of the 20 production wins that we had communicated back at the investor day. So this is a better metric, a more stringent version of just saying that we have production wins.

Got it. That's very helpful, Angus. And just on the L3 chip, it sounds like you've made some progress there. Maybe it's early to ask this question, but if you can share in terms of what you expect performance metrics to be, you know, range and resolution, particularly as we kind of compare that to some of the recent LIDAR introductions from some of the other players out there.

yeah you know i'm incredibly excited about this the l3 chip you know it's been in development for the past year it is a major advance advancement in the capabilities of this digital ladder platform you know we knew that that exponential gains were going to continue to come but i would say that the l3 chip is one of the biggest exponential gains in raw performance um of this technology today i think it's even bigger of a jump than our l1 to l2 chip As it relates to specifics on the performance criteria, that's something that we want to keep close to the chest as a competitive advantage. We're not going to pre-release specs on our products as a policy as a company, but I can tell you that it is the most significant jump in technology and capability to date at Ouster.

That's great to hear. Lastly, you mentioned that Salesforce grew 50% this quarter. Any target you can share in terms of where you expect that to be by year-end?

Yeah, I can help with that one. You know, I think, as you know, we're guiding to revenue and gross margins. But I do think it's really important to point out that, you know, as we completed this merger transaction, we had about 160 employees, which is, you know, many fewer than our competitors. And so we feel we've been, you know, very efficient with the capital that we've, you know, deployed developing our business to date. But that being said, I'm expecting to see a step up in terms of operating expense as we go after the three initiatives that we talked about, both when we were doing the merger transaction with Colonnade and then again today, which is growing our sales and marketing team, investing in software, and investing further in R&D to shorten chip cycle time. And so all of those initiatives with 160 employees, I think, you know you can you can model a pretty significant jump there ramping throughout this year as we're able to to hire more folks to help us with those initiatives great that's all i just point out

No, I just point out that we're incredibly happy to have Nate Dickerman joining the team. You know, what he's been able to build, this kind of concept of a commercial engine that has incredibly high throughput and efficiency is something that he's applied at his past positions at Planet Labs, Autodesk, and IBM. And, you know, he is the top commercial leader at Ouster and will be continuing on the momentum of hiring across the all of our regions and you know allowing our teams to get more and more focused on the end use cases vertical by vertical so we can be more specific and selective and um targeted in in the in in how we fail um so incredibly pleased to have him it's it's a very significant addition to our executive team that's all uh they're very helpful thank you your next question comes from the line of Richard Shannon with Craig Callum

Great. Thanks, Angus and Ana. Congratulations on your first conference call to the public company. Let's see, a couple of questions I have on the SCAs here. Maybe just a couple of digging in here a little bit here. By the description, you know, some of the revenues in here are binding versus forecasted. Can you give us a sense of how much of that, kind of rough percentage of what is binding there?

Sure, yeah.

Are you going to take this one or do you want me to jump in?

Yeah, let me just give the overview. So as a reminder, the vast majority of the terminology that we're using is contracted revenue opportunity, right? Indicating that that this is a non-binding opportunity. There is binding component in some of these contracts, but not all. But the commitment is clearly defined through a multi-year forecast, again, which in some cases has a binding component, in some cases does not. And that's relatively standard for the automotive industry, the industrial industry, basically all the verticals that we serve. And it's really the commitment that is embodied in these contracts is really the multi-year process that is required to reach a volume production. So the certifications required and the investment on the customer side and on our side as governed by these relationships, that is the binding. I mean, that is the representation of the commitment from the customer and what is the sticky part of these. Again, I think that is far more important than a binding component. at this stage, and we expect that to remain the case for years to come, given that even major automakers' contracts are not binding commitments. When you enter an agreement for series production, there is a pre-production stage where there's commitment around the non-recurring engineering required to reach series production, but the actual series production is a non-binding commitment. And so we're just following that same framework for these SEAs.

And I would just add to what Angus is saying really quickly here, too, a little bit more detail, which is, you know, these FDAs, they're for specific product applications, and we don't then impute that we're going to win other products in the future with the same customer, though, of course, we may very well. These are situations where the customer is, you know, issuing purchase orders, so it's not, you know, a future thing that is not happening today. And we have agreed upon volume pricing. So we've negotiated pricing over a period of three to five years, depending on the term of the SCA. And there are customer-driven forecasts for those three to five years that they'll be updating quarterly. And then on top of that, if a customer only gets a three-year forecast, we did not impute any additional revenue from that customer in years four and five. So obviously, we would expect that to come. You know, what we're trying to do here is, you know, give you guys some insight into what's happening in our business now, you know, not kind of a top-of-the-funnel five-year sort of view, but what's really happening in the business in the more immediate term. And I think, you know, this is a really good way of giving you guys a better feel for how customers are moving through the funnel and into production. And so we're really excited to be able to report this way.

Okay, so that is helpful. Thanks for that detail. Just another quick way to think about your SCA situation. pipeline here. Any way that you can help us think about the end market contributions here? You already gave us some details both in the presentation as well as, Angus, in your prepared remarks here, so we could probably guess it. But is there any way you'd help us to think about this? And I think, you know, given the questions that I get about Oster, particularly related to automotive, and I guess I'd probably include long-haul trucking in that. Any way you could characterize how much of that is, what percentage is in that area? Yeah.

Yeah, Richard, I think how we think about it is, you know, last year automotive was about 30% of our revenue. And so we expect, you know, that similarly this year the non-automotive markets are developing, you know, well. And so we expect that we'll continue to see more of our revenue in the next few years coming from the non-auto markets. But, you know, don't want to push your attention away from auto. I mean, auto was 30% of our revenue last year. And as you saw in many of the anecdotal customer information that Angus gave in his script, you know, we're performing really well in the auto space also.

Okay. To give a little more color there. I mean, basically the SEAs, we're converting large numbers of our customer base to this contracted framework. And so we expect that the SEA contribution will mirror our revenue contribution by vertical. That is to say it's a roughly equal contribution by vertical to our revenue. And we expect that in our SEAs as well.

Okay. Great. My last question here, and I may have missed the exact phrasing used in this, but I know you talked about tripling the sensors, and I don't know if that was a demand or a capacity or supply commentary. So could you repeat that and maybe I'll have a follow-up on that. I just want to make sure I'm getting that right.

I'm not sure what you're referring to in terms of tripling. If you're talking about capacity, like we saw a 60% increase in capacity in Q4, and we're growing our capacity in 2021 in line with our revenue needs, because obviously we don't want to produce so much that we're kind of holding on to excess inventory. But I think that the reason we gave that statistic was to give you confidence that we were able to produce the units with our outsourced manufacturer benchmark in Thailand that we need to produce to support the growth of our company.

Yes, but the tripling is the full year number, so you're correct. We're on track to triple sensor production for the full year to meet the demand versus the previous year.

Okay, perfect. That's what I need to know. That is all from you guys. Thank you.

Thank you. Your next question comes from the line of Blaine Curtis of Barclays.

And I'll offer my first quarter. Maybe first question, just curious, the last couple of quarters it's been product revenue. I think long term you're looking for a software component. I think maybe you had some service revenue in the past. Maybe I was curious how you look at that software opportunity and when that might start to flow into the model.

Absolutely. Well, it's already in the previous model that we provided has a 25% software contribution by 2025. We see the software offerings contributing gradually with time, linearly increasing with time. And that's just because we have so many end-use cases and customers that we can go out and provide value-add software to that there's no single piece of software that we're planning on providing to the entire market. There's really three different areas, whether it's developer tooling, middleware, and intelligence capabilities, or complete solutions. You know, those three buckets we're planning to offer to each one of our verticals eventually, and it's a linear ramp from nothing today to 25% in the future for that. So we previously provided that, and I hope that that should answer your question. Ana, I don't know if you have anything else to add there.

No, I think you covered it. I mean, we did talk a bit about software, you know, as we went through the pipe process, and, you know, those decks were, of course, part of the SEC filings, and I'm sure you've all seen them. So, you know, we're still planning to move forward with those projects, and they are budgeted in our OpEx for this year.

Thanks. I guess I was just curious if, like, in this fiscal year, whether you expect software can be a few years out before that starts to contribute.

Yeah, we talked about this previously. We said ramping to 25% was a nominal contribution this year, so we're thinking it will start to contribute next year.

Gotcha. And then I just want to ask on the SBAs, a huge pick-up between the end of 2020, and I was just kind of curious, the catalyst for that, was it just the timing of the designs that you started to sign these agreements, or was it kind of influenced by the stock process where you're not going to be a public company? Can you just walk us through kind of why the SEAs have been kind of signed at such a pace for the last kind of quarter? And then as you look at the 500 customers, obviously there's a pipeline here. I'm just kind of curious, think about just the pace of these signings as you move through the fiscal year.

Sure. I can't stress enough how important this progress in SCAs is. We're really at a tipping point where we're starting to convert large numbers of our customers, who have been with us in some cases for multiple years, to these contract-based engagements. It's a major initiative that we've undertaken in the last basically two quarters. And again, I think it's going to a number of different things why we're starting to see so much success. But I think there's momentum that we have in the record revenue that we're having, the growing opportunity customer counts, and the improving product portfolio that we have versus our peers. So we're really poised to continue to accelerate putting those customers under contract. But this is an initiative that we've started to undertake only recently. So the goal is to put existing customers under contract, some of which we've been engaged with for years, but now we have much, much better visibility and much more confidence in them remaining with us extremely stickily long term, while also pursuing new customers that were engaging under contract. So this is a strategic addition or strategic shift for how we work with customers on a go forward basis. And yeah.

Great. And then maybe just finally, if you could talk about the visibility you have, maybe for the fiscal year, how far does that extend out? Obviously, these SEAs have some volume, so I'm just kind of curious in terms of what your typical lead times are.

Is this a question on the lead time on seeing orders come in?

what your lead times typically are and kind of how far your order book extends out through the fiscal year.

Sure. So lead times on shipping, well, so I guess in each of these SCAs, there is at minimum a three-year forecast. And one of the requirements of putting a customer under contract is that they are indeed a customer. They have placed POs and received sensors. And so I would say in every case, the the customer these are already customers they're already making sense of purchases and we're seeing the benefit um this year for sure now i think in every case there's volume ramp with time um but yes the benefit is immediate okay thanks your next question comes from the line of tristan guerra with robert w baird hi this is dustin online for tristan

To go back on the customer agreements, I'm wondering how exclusive most of your multi-year wider agreements are, and does the exclusivity differ depending on the end market you serve? Specifically in the case of trucking, I think as both you and a competitor have mentioned agreements with Daimler, and then I have a follow-up. Thank you.

Yeah, and tackling that last part first, note that I think that that highlights, in the case of Daimler, highlights the fact that there are multiple ladder sensors that are needed across wide swaths of our customer base. And we're able to, unlike any other LIDAR provider offer the most complete set of LIDAR sensors to the market to hit the most needs and use cases. So in the case of Daimler, yes, we're providing some of the LIDAR sensors, not all of the LIDAR sensors, but a customer like Plus, we're providing every LIDAR sensor on their robot trucking truck. And I would say that that latter example is more the rule than the exception. We commonly inhabit the majority, if not all, of the LiDAR sensors on the customer's platforms. Another great example, Maymobility with four LiDAR sensors on their vehicle. Exclusivity is built into some SCAs, but it is not a requirement for us to sign an SCA with a customer. But, you know, in cases where there is exclusivity, perhaps we're achieving that through some sort of agreement on the pricing or other terms that lock in that customer. So it's an option but not a requirement. nearly qualifying our sensors, being the first mover in the space with sensors that hit the real needs of a production deployment, for instance, like with Plus, where we have the best, most reliable, highest revolution and most affordable sensors for that use case. They are moving forward with us as a first mover, qualifying that system over the course of multiple years. In their case, they've been running our sensors for over a year now. So there's a massive amount of inertia and momentum at these customers to qualify our sensors and not others. So there's a real barrier to entry there, and I think stickiness, despite the fact that in some cases there is not exclusivity per se.

Got it. That makes sense. And my follow-up, I understand your ES2 solid sensor is still in development, but how have you guys been sourcing customer interest for that sensor before volume production in 2023? Thank you.

Yeah, I think it's not difficult to find customer interest. The entire automotive industry is based on this premise, this need for multiple sensors, multiple solid state sensors around the vehicle. gave the example in the remarks that we receive RFQs from automakers for short, medium, and long-range LIDAR. There is an inherent need for those three types of LIDAR sensors, and only a solid-state digital LIDAR can actually address the varying needs of those three different types of sensor simultaneously. It's virtually unanimous consent in automotive that that multi-sensor suite is required, and we see it there. Another example being the Goldman Sachs report that we referenced predicting that by 2025, 20 million cars effectively will require three to six LIDAR sensors each on those vehicles. Again, just highlighting the multi-sensor need of the industry. So there's an immense focus on sourcing multiple different LIDAR sensors, and we're in contact with all of these potential customers on that basis, given how consolidated the auto industry is.

Okay. Thank you, Angus.

Your next question comes from the line of Joseph Osher with Guggenheim Partners.

Hello there. I hope everyone's doing well. Just a couple questions. Hi. Just following on from the previous one, can we assume that these 40 SCAs and the $385 million consist largely of spinners? And then anything that comes out of a different architecture kind of has yet to show up in that SCA number. Is that a fair assumption?

That's absolutely right because, again, one of the requirements is that these are current customers. They have purchased sensors and received those sensors. So it's only for products that we have in hand, yeah.

Okay, got it. Now to shift gears a bit, obviously it's not a very good environment for people trying to source integrated circuits. I'm wondering... how that process has been for you on the CMOS part. And then also I know you've probably got some other power ICs in the spinners. So I'm just wondering if you can comment on how that process has been.

Yeah, for sure. We're getting this question all the time. And I think, first of all, I hold weekly meetings to track the supply chain for the balance of system. Importantly, we produce our core chips. The LiDAR chipset is a fully custom design, and we have a lot of control over that supply chain, and we hold safety stock in wafers. So I don't foresee any issue with sourcing the core components, the pixels, the SOC for our devices. On the balancing system, there's much more competition. There's actual competition for those parts. But we hold weekly meetings, making sure that we have continuity of supply. And we don't foresee any problem with a lack of supply and ability to ship to our targets this year. So it's absolutely something, you know, immense focus internally for the company. But at this point, we don't foresee any issue in the supply chain yet. Yeah.

Okay. And that would extend to, I assume, as you rev the SOC, you're probably also moving to different design rules and that obviously, you know, things are tight there. So as you look forward, are there any challenges on that front? I don't know what design rule that part's on offhand.

Yeah, the only challenge there would be FAB loading impacting production timeline. So it's not that we wouldn't be able to produce the chips, but just that it would take longer to produce the chips if a particular FAB is loaded. So far, we haven't seen that. We're certainly not going to beat our timelines, but we're still tracking to our timelines for our product rollouts. Yeah, that is certainly a concern if fab loading were to get higher than we could be delayed in a product rollout, a new product rollout. Sure, sure.

That certainly makes sense. And then Ana made an interesting comment. I'll let either of you respond to it, the observation that you want to keep your sort of strategic options open without tipping your hand too much. Are there any particular, you know, skill sets or things that you see that might be desirable as you look around the market? You know, liquid crystal metasulfas, say, or something else? I'm just curious.

Yeah, before Angus answers the question on what he might find desirable, I just want to throw out there, we do not currently have anything contemplated. That comment was not to give you guys a tip. It was more just in the light of letting you all know that we think we have enough cash on hand to get to our EBITDA breakeven point. But with that being said, I'll turn it over to Angus to answer the question of if there was something that he had a desire to add to our team, what would it be?

yeah um you know i think if there were an opportunity um i'm i would as a precondition need to be small high performing teams we're not looking to merge with a major you know some large company or anything like that and i i would say that we're very confident in our hardware roadmap and our and our technology set and uh do not feel the need to augment our hardware roadmap with additional IP or different product lines or technology. We truly think we can address all of the market needs with a digital ladder platform that we already have commercialized. So anything that we would do in this space would be more focused on kind of the ecosystem kind of peripheral capabilities that we could offer alongside the digital ladder hardware that we're providing today.

okay well uh thank you very uh thank you very much i appreciate it thank you your next question comes from the line of michael philip top with baron berg just to take my question uh just got actually two questions one quick one um on the non-contact slip ring that you guys use you have a patent on that and if so i'm kind of curious does anybody else in the in the industry currently use something similar

We do have a patent on that, and I think that that highlights the fact that we have over 30 granted patents today, over 100 pending worldwide. We filed very broadly internationally. We have over 20 different invention families, one of which is around non-contact flippering technology, which is the technology that allows a rotating system to be incredibly high reliability and low cost. and you know it's things like that that have led you know i think us to have one of the leading patent portfolios in the industry because we filed extremely broadly and we thought about some of these things that are um you know maybe overlooked by our competitors early on filed it all early and had immense kind of success in in getting these patents granted so um And I think there was an interesting report from Patent Insights, which you can find online, that highlighted that Aster has one of the most strategic and comprehensive patent portfolios of any LIDAR manufacturer in the industry today. So I encourage you all to search the Patent Insights LIDAR report that they just released a couple months ago, as it highlights exactly what I'm saying.

Great. And just one follow-up, because it's mentioned a couple times in the call. I hear you that, you know, OEMs like to source sort of, you know, multiple sensors within a modality, right, long-range, short-range, medium-range. But I suppose in my experience, you know, in the OEMs I've been talking to, it tends to be, you know, the concept seems to be one long-range forward-facing LiDAR for Level 3 or maybe even L2+. but never multiple LIDAR sensors for surround view. Generally, it's reliant on cameras and radar. So I'm curious, I know that there's a trade-off, particularly with your sequential flash LIDAR of range and field of view, right? So if you were to get sort of a forward long-range, provide a forward long-range LIDAR sensor, would you have to have multiple of your LIDAR sensors? How many would be for forward long-range optic detection? And then how many would you have surrounding the vehicle?

Yeah, so we absolutely believe that we need just one forward-looking long-range LIDAR, which again highlights the point that there is more volume to be had, more opportunity if you can supply the entire system, given how many other LIDAR sensors we expect, and I think others expect, there to be on the vehicle. I think it's not true that automakers are only sourcing vehicles with a forward-looking LIDAR and cameras. I think what you're seeing is that that is a limited L3 system. So there may be initial L3 systems where the car is only capable of providing four direction L3 capabilities, basically following a car and not making any turns or lane changes or maneuvers. And so what we're highlighting is that in order to achieve the full suite of L2 capabilities, which means hands-free and eyes-free driving, including making lane changes, moving through stop signs, merging and exiting a highway, and making any turn or movement that isn't in the forward direction, you must have redundant ladder sensors positioned around the vehicle to look in the directions that you want to travel. And so that's where we're differentiating is being able to provide that complete suite of LIDAR sensors, not to mention that we're offering it at a fundamentally lower price point than our competitors. You know, just looking at us offering a complete suite for $1,000 when our competitors are talking about a single forward-looking LIDAR for $1,000. So entering the market fundamentally lower price points, we're not saying we're not going to build a forward-looking high performance lidar that's absolutely part of this suite um but it's just one of uh it's a minority of the total opportunity

Sure, and sorry, just one quick follow-up. I mean, I believe it was referenced before as well. You know, Daimler, for instance, you have multiple LIDARs on sort of that program, trucking program, and, you know, I assume the other reference is Luminar for the forward-facing long-range sensor. But I'm curious, on Plus AI, for instance, you said you're basically the only LIDAR supplier. You know, for the forward-facing, you know, LIDAR long-range optic detection, what is the range that you're achieving for that particular program, and what's the tradeoff in the field of view?

Well, that's a great example actually, because in that case, And you can watch the PLUS video that we released onto YouTube, it's publicly available, where they talk about it being more challenging, the fast lane change maneuvers and merging and exiting are more challenging in their use case than the forward-looking long-range application, where they feel they can use only cameras and radar and don't need necessarily a long-range LIDAR. So they view the LIDAR, the wider field of view LIDARs that are mounted on the sides of the vehicle that are protecting against fast lane change maneuvers and cars kind of side swiping and things like that. Those are more critical and it's a harder challenge for a large vehicle like a semi. A SEMI has so much forward momentum that a long-range LiDAR is not really going to provide the benefit that's needed. They need to see much, much further and feel that they can do it with cameras and radar and that they have to solve that and view it as an easier challenge than the fast side-to-side mediators. Just highlighting that a customer that's truly moving into production has a very different view of what the hard challenges are after literally years of on-road testing.

Understood. Thank you very much.

Appreciate it.

And your last question comes from J. Vince Guyver with Hedgeye.

Great. Thank you so much. And thank you for the transparency on these SCAs. Um, I'm wondering, can you get the timeline for a customer coming into Oster, say by RFP to getting one of these STAs signed to actual revenue recognition? Um, and how much of that growth is just limited by the size of your Salesforce?

Yeah. So the time, so at the point that we've signed an SCA, a precondition is that we have, we have generated, that customer has generated revenue. We have shipped, they have placed a PO and received a sensor. We are not going to report on any, we're not going to count any customer as under SCA if they're not truly a customer, where we have shipped the sensor and by that condition, we have generated revenue. That time, I would say spanned anywhere from three months to 18 months, with probably the average being somewhere between six to 12 months. And plus is another great example here where they had our sensors on their system for 12 months approximately before moving forward with an SCA. But I would say that Back to this concept, we really are at a tipping point where more and more customers are willing to commit to our platform because of the maturity of our products, the benefits of our products, and the confidence they have in us as a public company with a significant balance sheet at this point. I think we're just at a tipping point where maybe we'll see those timelines shortening from six months to a year to maybe three to six months going forward.

Great. Congrats on your first call.

Thank you. And I would now like to turn the call back over to Angus Piccola for closing remarks.

Thanks. Well, I just wanted to thank everyone, our employees, customers, and shareholders who are on this journey with us. We're excited to be a public company, and we look forward to providing the market with timely and transparent updates about the state of our business, and we appreciate everyone that joined us for the call.

thank you for participating this concludes today's conference call you may now disconnect