Ouster, Inc.

Good afternoon and welcome everyone to Ouster's fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. 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 star one again. The call today is being recorded, and a replay of the call will be available on the Oster Investor Relations website an hour after the completion of this call. I'd now like to turn the conference over to Sarah Ewing, Director of Investor Relations. Please go ahead.

Sarah Ewing Thank you. I'm joined today by Oster's Chief Executive Officer, Angus Pakala, and Chief Financial Officer, Ana Brunel. Before we begin the prepared remarks, we would like to remind you that Ouster issued a press release announcing its fourth quarter and full year 2021 financial results shortly after market closed today. The company also published an investor presentation, which is available 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, customer orders and the doubling of our contracted revenue in 2022 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, the forward-looking statement. The statement regarding the doubling of the company's contracted revenue opportunity does not speak to expectations for any period beyond 2022. While these statements represent management's expectations Oster's actual results are subject to many risks and uncertainties that could cause actual results to differ materially from current expectations that we may share with you today. In addition to any risks highlighted during this call, you should consider important risk factors and other disclosures that may affect Oster's future results are described in this SEC filing that will be updated in its 10-K. Except as required by law, rule, or regulation, the company undertakes no obligation to update any of these forward-looking 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 markets 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 the independent industry analyst and other third-party sources, as well as data from the company's internal research and are based on reasonable assumptions made upon reviewing such data and its experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we may discuss certain non-GAAP financial measures which exclude the effects of events and transactions we consider to be outside our core operations. These non-GAAP measures should be considered a supplement to, and not a substitute for, measures prepared in accordance with GAAP. For reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures, please refer to today's press release. I would now like to turn the call over to our Chief Executive Officer, Angus McCullough.

Hi, everyone. The fourth quarter represented a strong end to a transformative year for Ouster, with 86% revenue growth over the fourth quarter of 2020 and continued industry-leading gross margins that clearly validate our diversified strategy of providing state-of-the-art solutions to multiple rapidly accelerating industry verticals. Our growth rate and strategic position reinforce our confidence that Ouster is poised for continued market share gains. We have a significant lead over earlier stage pre-revenue competitors and superior technology to legacy players. This is proven by our growth and ability to deliver positive and meaningful gross margin, even as the industry matures. As the LIDAR market continues to mature, we're confident that our multi-market approach will enable Ouster to capture significant shares of the automotive, industrial, smart infrastructure, and robotics verticals. These four target industries represent an aggregate addressable market of $8.6 billion by 2025, and Ouster is well-positioned to deliver meaningful growth in each vertical. We're confident in our ability to win in automotive with our multi-sensor suite, as well as our advantage in the industrial, robotics, and smart infrastructure verticals, which represent an even larger near-term opportunity. The first 100 days of Ouster Automotive have exceeded our expectations, and our two teams are now fully integrated, with each adding highly complementary expertise. Design, development, and validation work are on track with the timeline we've previously shared. Our automotive negotiations are progressing well, and our pipeline of deals continues to expand as we engage more OEMs. We're excited to share more details on our progress today and over the coming months. Ouster has the most differentiated LIDAR technology with our OS and DF series digital LIDAR platforms, backed by a leading patent portfolio, scalable manufacturing, and growing supplier relationships. We have the most diversified business with over 600 customers over the last 12 months across multiple markets, allowing us to build toward a stable run rate while investing in products and solutions to capture new growth opportunities. And we have a proven ability to execute nearly doubling our revenue, more than tripling the number of sensors shipped, and adding 58 strategic customer agreements, or SCAs, year over year, all while operating with the highest hardware gross margin of our public peer set. In short, we're confident that we have the team, the technology, and the strategy to make Alster the leader in LiDAR. As the eyes of autonomy, we're poised to have a large-scale impact on the safety and sustainability of our society through the multitude of applications and industries that we touch. Anything that moves or that monitors moving objects has the potential to become more intelligent and efficient with digital LIDAR. And with that, I'd like to turn the call over to our CFO, Ana Brunel, to provide a full update on our 2021 results and 2022 guidance before I dive into Alster's growth strategy.

Thank you, Ingen. Ouster had a breakout year, one in which we maintained and delivered on our 2021 guidance. And we will not stop there. We believe the pace of digital LIDAR adoption is only accelerating across each of our industry verticals, automotive, industrial, smart infrastructure, and robotics. We have the right technology, CMOS digital LIDAR, an outstanding team, and a multi-market strategy to take advantage of both near and long-term revenue opportunities, and extend our market leadership throughout the upcoming year. Let me turn to our financial results. Ouster delivered record quarterly results, generating $11.9 million in revenue, up 86% over the fourth quarter of 2020, and up 53% sequentially, demonstrating the acceleration of our business. We shipped over 2,400 sensors in Q4, nearly a 200% increase over the fourth quarter of 2020. Further, we increased our total signed strategic customer agreements to 68 through the fourth quarter. Consistent feedback from these customers indicates that they chose us over other LiDAR companies because we offer superior performance and deliver industry-leading reliability. Our digital technology has fewer parts than our analog competitors, meaning greater reliability in real-world applications and less risk in our manufacturing process. This translates directly to our financial results. We continue to deliver industry-leading gross margins, reaching 30% in the fourth quarter, and continue to reduce our cost per unit sold in spite of the ongoing supply chain challenges. which resulted in temporary purchase price variance related to bulk purchases and expedited shipment fees in order to keep up with product demand. We have a phenomenal manufacturing and operations team that managed to secure our source materials, scale production of our new OS sensors powered by the L2X chip, ship a record number of sensors with short lead times and without shipping delays, and strategically drive down our cost per unit sold during a year in which manufacturing proved challenging for many of our competitors. We delivered on our full year 2021 guidance with $34 million in revenue and 27% growth margin. We made a commitment to our shareholders and executed on that commitment by almost doubling our revenue in 12 months. With approximately 6,500 sensors shipped in 2021, we tripled the number of sensors sold over the prior year amounting to over 10 000 sensors shipped to date these results help us illustrate the three key takeaways that separate ouster from the rest of the lidar industry our differentiated technology our diversified business and our proven ability to execute Ouster has a diverse group of over 600 customers across over 50 countries purchasing and using our sensors in the last 12 months. Our 68 signed SCAs accounted for 20% of Ouster's 2021 revenue and represents approximately $500 million in contracted revenue opportunity through 2025. We see strong customer and SDA growth across each of our four verticals and throughout the Americas, Asia Pacific, Europe, and the Middle East. The automotive vertical, which includes robo-taxi, robo-trucking, shuttles and buses, and consumer ADAS, accounted for 34% of sensor shift in 2021. This includes robotic research, which uses Oster's OS sensors across a number of its commercial and defense platform offerings, including five OS sensors on the modular unmanned Danner vehicle for the agricultural, industrial, and defense markets. Industrial accounted for 25% of sensors shipped in 2021, including Vecna Robotics, which signed a strategic customer agreement to utilize approximately 3,000 OS digital sensors to equip self-driving pallet trucks, tow tractors, and lift trucks through 2025. We saw the strongest quarter-on-quarter growth in smart infrastructure, which accounted for 15% of sensors shipped in 2021 to support 86 deployed projects within our intelligent transportation smart places, and security sub-markets. Finally, robotics accounted for 26% of sensor shift in 2021, including CERV Robotics, which recently signed a binding commitment through 2023, along with a non-binding forecast for additional sensors through 2025 as it scales its delivery fleet. This diverse group of SCAs exemplifies the success of our multi-market approach. as Ouster is not dependent on a single or small handful of customers or even one market vertical with revenues hitting in 2025 and 2026, but rather on both auto and non-auto opportunities that offer revenues and attractive margins in both the near and long term. These strong financials are a direct result of our targeted capital allocation plan. In 2021, we committed to using our public offering cash proceeds to accelerate our product roadmap, increase software offerings, and build out a global sales and marketing team. These initiatives helped to nearly double revenue growth year over year, increase our market share across our four market verticals, and extend our technical advantage over our peers. In particular, we have grown our commercial team across the Americas, EMEA, and Asia Pacific markets and brought on experienced leaders to develop a focused sales organization geared towards ramping our sales pipeline. We released the first software development kit for LIDAR, expanded our partner platform, and invested in verticalized software solutions to drive new customers and higher margin revenues. Since Photonics, our first major acquisition, accelerated our automotive product roadmap by more than a year and immediately positioned us in late round negotiations with multiple OEMs and Tier 1s. We were able to make these strategic investments while maintaining a cash balance of approximately $184 million at the end of the fourth quarter. We generated higher growth margin compared to Q3, but additional cash burn versus the third quarter was driven by non-recurring items related to the sense photonics acquisition, working capital headwinds to support growing sales and mitigate supply chain shortage risk, and manufacturing equipment purchases. We aim to reduce our quarterly cash burn rate in the first quarter of 2022. as the $11 million fourth quarter 2021 non-recurring cash impact from the Sense Photonics acquisition rolls off. This past year was a breakout year for Ouster, and we expect this rapid growth to continue in 2022. For the full year 2022, we aimed at double revenue, targeting a range of $65 million to $85 million, and maintained positive growth margins, targeting a range of 25% to 30%. The broad range in projected revenue reflects the continued evolution of the industry with customer timelines that can shift and evolve. With this, we do anticipate some variability in the first quarter of 2022 as compared to the previous quarter. As we progress throughout the year, we expect to narrow our projected range. As we move into 2022, we expect our quarterly operating expenditures, excluding stock-based compensation, to be roughly in line with the fourth quarter of 2021, as we continue to support ongoing product development goals, including a full quarter of acquired headcount costs, offset by one-time fees associated with the sense acquisition in the fourth quarter of 2021. We expect capital expenditures to increase by approximately 5 million year over year. Since the formation of Ouster Automotive, our deal flow has both accelerated and expanded. These high volume opportunities require some additional investment in the development and manufacturing process as we work with OEMs and tier ones to integrate our solid state digital LIDAR in mass production vehicles. Further, we are investing in other areas of the business. like product and vertical-specific certifications and software tools, and value-added solutions, which will drive high-margin deals over the long term. Resulting from our digital technology, we remain confident in our ability to continue to meaningfully reduce cost per unit sold faster than our average selling price over the course of 2022. Through significant 2021 customer growth and our 68 established SDAs, Alistair now has greater insight into our customers' forecasted long-term purchasing needs, including several multi-year binding purchasing commitments. Through our SDAs, we are building a business based on greater visibility, predictability, and stickiness, and remain confident in our long-term strategy and the immense opportunity we are pursuing through our multi-market approach. We think about our long-term business growth from both a top-down and bottoms-up perspective. We see an $8.6 billion total addressable market opportunity by 2025 across our four verticals, which shows we have significant headroom to grow with our customers as the market expands into this TAM. From the bottoms-up, every one of our 68 SDAs includes a three- to five-year forecast provided directly from the customer. In aggregate, a metric we call contracted revenue opportunity, which we see roughly doubling year over year. We're encouraged by what we see with SBAs, and there's still potential to win additional new business and expand further with existing customers. So whether we look bottoms up or tops down, the numbers paint an incredibly exciting vision for the immense multi-market opportunity we're pursuing, backed by the doubling of our revenue that we've seen over the past year. These growth expectations are supported by our accelerated automotive momentum generated by the formation of Alster Automotive. The upcoming launch of our L3 chip, which we believe will unlock new opportunities in every vertical we serve, achieving industrial, automotive, and safety certifications to expand market opportunities and displace legacy sensors, and a more robust software ecosystem, which will enable us to accelerate LiDAR adoption and provide customized solutions for our customers. These advancements will be a catalyst for growth across each of our four verticals. 2021 provided us with an excellent foundation on which to grow, and I cannot wait to drive towards our goals in 2022. I'd now like to turn it back over to Angus to speak through key opportunities driving our 2022 guidance and overall growth.

Thanks, Ana. Digital LIDAR is permeating our roads and cities, how we manufacture goods, and every link along the global supply chain. This widespread adoption is driven by three key trends that span our target verticals. First, a generational shift in what consumers and regulators expect from next generation vehicles, including increased safety, efficiency, and advanced driver assistance functionality. Second, accelerated industrial automation to improve workplace safety and productivity and counter ongoing supply chain challenges. And third, increased investments in smart infrastructure to build safer and more efficient transportation systems. We're in the midst of a generational shift in the automotive world. Consumers and regulators are expecting more from vehicles than ever before, including new levels of safety, driver assistance and electrification. As a result, automakers are reimagining the automobile around these expectations. Camera and radar based systems work in limited scenarios and fall far short of higher levels of autonomy. Comprehensive lidar coverage around the vehicle promises to close the performance gap to deliver improved safety and driver assistance systems. Ouster's affordable, flexible, and high-performance multi-sensor LiDAR suite delivers exactly what OEMs need to bring safe ADAS-enabled vehicles to market. However, when it comes to passenger vehicles and series production, the best technology in the world is simply a curiosity unless it comes at a price point that allows for true mass adoption. This is where Ouster's simple CMOS-based digital LiDAR approach truly separates from the pack. Today, Alster can offer pricing on our DF series sensors that makes LiDAR standard fit on next generation luxury and mass market vehicles. The next five years will determine the winners in automotive, and I'm confident that our technology and team is poised to make Alster Automotive the leading LiDAR solution. The second macro trend driving growth across our business is the widespread automation of millions of industrial vehicles across the global supply chain, from mining and agriculture to ports, distribution yards, warehouses, trucking, and last mile delivery. Collectively, these applications have the potential to rival series production runs in automotive and with even higher margins. This trend has only accelerated in the wake of the global supply chain challenges and COVID-19 pandemic. Ongoing labor shortages, inflation, and public health concerns are increasing the pace of ladder adoption as industries across the supply chain seek to improve workplace safety and improve the efficiency of their operations with automated technologies. We're seeing a huge demand from customers looking to adopt digital LIDAR, whether they're established multibillion-dollar OEMs looking to update their fleets like Sandvik and Kohn Cranes, or upstarts like Beckner and Outrider, bringing autonomy to mature industries. Alster is working with both to help address worker shortages and increase safety and efficiency through automation. The third trend driving growth is government-led initiatives to build safer, more sustainable cities by modernizing public infrastructure and transportation systems. With the over 1 million signalized intersections and 85 million surveillance systems in the U.S. alone, we see significant potential upside beyond the $2.8 billion can for digital LiDAR and the smart infrastructure vertical. We're at the very beginning of a broad societal shift that will bring greater intelligence, connectivity, and safety to public and private spaces and transportation systems. For example, deploying just two LIDAR sensors at an intersection can replace expensive and unreliable ground loops and adds analytics that reduce idling time for vehicles and increase pedestrian safety. In ports, our digital LiDAR is being used to increase productivity and safety in handling shipping containers. And in metro stations, LiDAR sensors are being used to count foot traffic and analyze crowd patterns without compromising citizens' privacy. Last year, Alster was selected for 110 smart infrastructure projects in over 20 countries, many of which represent large-scale growth opportunities over the coming years. We view the acceleration in market demand as a signal that the smart infrastructure vertical is starting to ramp. These projects represent nearly 3,000 digital LiDAR OS sensors for initial deployments across the intelligent transportation systems, smart places, and security submarkets. The social impact of these programs is significant. They increase road safety and efficiency, improve quality of life, and enhance the sustainability of our communities. The U.S. Infrastructure Investment and Jobs Act and the new National Roadway Safety Strategy are great examples of the current administration's strategic focus to fund these programs, and we're seeing a similar trend play out across Europe, Asia, and the Middle East. These three macro trends are driving widespread adoption of LiDAR technology, and Ouster is well-positioned to meet customer requirements across each of our verticals. Last quarter, we introduced the Ouster Automotive DF Series of flexible and scalable high-performance solid-state lidars for high-volume automotive programs. Our breakthrough DF series is impressive in terms of performance and unique in offering multiple ranges and fields of view for automakers to design into their vehicles. We shipped short- and long-range DF0 and DF2 prototypes to a number of automotive customers last quarter, as well as our strategic OEM partner. We also achieved another major milestone with the introduction of our L2X chip, the highest performing chip we've ever designed with two times the processing power and twice the data output as the L2 chip. This chip advancement enabled us to offer our most reliable and rugged sensors yet for superior 3D perception through fog, rain, dust, and snow, and made each sensor in our OS product family even more capable. The L2X-powered sensors unlock new market opportunities and revenue in the fourth quarter and are expected to drive additional growth across our verticals in 2022. Finally, we launched features and sensor capabilities with another over-the-air firmware update and rolled out a new version of our software development kit, or SDK, that's being adopted by an increasing number of our customers. I'll come back to this critical piece of our software ecosystem later on. While 2021 was an important year for product releases and scaling for Ouster, we expect 2022 to be even stronger, with more products spanning hardware and software than ever before. Ouster's diversified digital LiDAR strategy has taken stride. We have a clear plan to grow our business, further differentiate our product offerings, capture market share, and extend our market leadership. Foremost, I view 2022 as the year of the L3 chip. the L3 will offer the most significant performance upgrade ever for our OS series. The L3 chip is the culmination of years of R&D inside Ouster and keeps us on the exponential performance path of Moore's Law. The technology inside the L3 is incredible and brings the same backside illumination advancements that revolutionized the camera sensor industry to the high-performance LiDAR industry for the very first time. As with our L2 and L2X chips, the L3 chip is a fully custom ASIC fabricated on a standard CMOS process. The significant performance improvement provided by this proprietary chip design cannot be replicated with off-the-shelf chip offerings. I simply cannot wait to unveil it to our customers as planned later this year. While the L3 chip will power OS sensors, our solid-state digital flash silicon is powering all of our DF sensors. In line with our digital roadmap, our next-generation digital flash chip will be taped out later this year and serve as the backbone of our automotive-grade multi-sensor DF suite for series production programs starting in 2025. We remain on track with select day samples in the first quarter of 2022 and expect to establish digital LIDAR as the predominant LIDAR technology in automotive this year. While product features and performance upgrades will be major growth drivers for our business for the foreseeable future, we have a significant additional axis on which to catalyze new business, and this is the vertical-specific product and safety certifications which we are pushing forward. It's well understood that high-volume automotive applications require stringent quality and safety certifications, notably ASIL-B and IATF 16949. And we believe Alster is uniquely positioned to achieve these certifications across our entire portfolio of OS and DF sensors. In fact, our contract manufacturer, Benchmark, achieved IATF 16949 two years ago at our Thailand facility. and has already passed several automotive OEM audits. Outside of automotive, there's an established market for SIL2 and NEMA TS2 safety-certified industrial and smart infrastructure LiDAR that is primed to convert to advanced 3D LiDAR. There's already nearly a $1 billion market for legacy 2D industrial LiDAR sensors today. We understand from our customers that there is significant latent demand for digital LiDAR that can reduce costs and enable advanced autonomy by displacing outdated safety sensors. We're excited about the anticipated developments this year, which have the potential to open up these high margin opportunities. Finally, we are building a robust software ecosystem built on three foundational pillars that will be a major catalyst for growth. The first is a best-in-class software development experience that provides the resources and tools to reduce our customers' time to test, validate and integrate our sensors. The second is an expanded partner platform to bring targeted solutions to our customers. And the third are verticalized software solutions that drive new customers and higher margin revenues. In 2021, we invested in building out a best-in-class software development experience that serves as the foundation of our entire software ecosystem. These tools accelerate our customers' time to autonomy, enabling them to test and validate our sensors faster and bring their applications to market sooner. Since releasing the Ouster SDK in Q2 2021, we've seen tremendous customer adoption and will continue to ship major additional advancements in 2022. We also invested in building out an expanded partner platform that includes over 40 software and integration partners to date and growing. These partners help us win new customers, streamline sensor integration, and accelerate our customers' time to market across each of our target industries. And finally, Ouster has a tremendous opportunity to bring to market verticalized software solutions to complement our partner ecosystem and developer tools. Our customers solve repeatable problems using our sensors across a wide variety of use cases every day, And there is a clear need for solutions in the market that solve these repeatable use cases. We see these software solutions creating a new high-margin revenue stream, as well as accelerating LiDAR sensor adoption by lowering the barrier to entry to a new set of less technical customers. And I can't wait to share what we have in store later this year. In closing, Oster continued to execute this year. We had a record fourth quarter, and we achieved our 2021 guidance. This year, we intend to double our revenue while maintaining industry-leading gross margins. We've laid out an aggressive plan for 2022 to grow our business, further differentiate our products, and extend our market leadership. And the team is continuing to execute as we've done in the past. And with that, I'd like to open it up for Q&A.

Thank you. And we will now begin the question and answer session. To ask a question, you may press star, then 1 on your phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star one again. When called upon, please limit yourself to two questions. Our first question today comes from Blaine Curtis with Barclays. Your line is open.

Hey, good afternoon. Thanks for taking my question. Maybe just first, on the outlook for 22, you know, I think Ana talked about some variability for Q1. I didn't know what that meant, but then if you could just address that a little bit. And then I'm just curious, you know, you started to break out the percent and verticals. I don't know if you're going to continue to do that, but any color between those verticals as how you're thinking about the growth this year?

Well, I can take the first one. This is Anna. Good to talk to you again, Blaine. On the variability in Q1, you know, much like we saw in the prior year, we saw the Q1 number, you know, aligning closer to the Q4 number than to, you know, to seeing a step up, a significant step up in growth. And so we were just kind of guiding that we'll see the Q1 ramp potentially have a little bit of variability in it rather than just a straight trajectory.

And then good to talk to you, Blaine. Thanks for the question on the vertical breakdown. Hope you appreciated the breakdown at all. That's the first time we've done that, giving the percentage units per vertical. But now that we've done that, you know, we're committed to doing that on an annual basis. And we're going to look to, you know, whether we do it on a quarterly basis, but haven't committed to that yet.

Great. I definitely appreciate it. Is there any color or thoughts between those four verticals as to what's driving the growth this year?

Yeah, absolutely. So the three major catalysts that we outlined are the major growth drivers for the first three verticals so we in automotive we have you know the adoption electrification and then autonomy and increased safety in automotive um and and the kind of the receptiveness to that technology set that are specifically and industrial to the automation of the global supply chain that we've seen kind of top to bottom. You can't talk to an industrial OEM at this point and not hear about an automation strategy of some kind or another. And that's whether it's a legacy company or a major established company in the space like Amazon or John Deere or Caterpillar of the world. or, you know, a newcomer in the space like Outrider or Vecna. Everyone has an automation strategy, and it, you know, far more often than not centers around LIDAR or requires LIDAR as a component. And then the last, you know, in smart infrastructure, I think that's the industry where we have a huge amount of growth quarter over quarter in smart infrastructure, and we And we see that having huge potential upside. When you look at the potential unit kind of sockets where LIDAR could go and displace legacy sensors, whether they're cameras or radar sensors or ground loops, or just make something that was not intelligent before intelligent, like a crosswalk. There's millions of sockets that we could put digital LiDAR in in the next five years, and there's such a significant investment at the government level. There's funding available, but it's greenfield, and so it's a lot of new emerging applications. And so that's why we see so much upside is because it's not fully understood yet. It's a lot of new and emerging applications. a lot of growth across all our verticals, robotics being the last, which is more of a catch-all and combines a number of our sub-verticals, and it's growing for its own reasons. A lot of emerging applications in robotics as well.

Thanks. And then just one for Ana. I appreciate the revenue growth margin guidance for the year. I was curious how you're thinking about managing OpEx for the year, if there's any colors you can give. I think at one point you gave the EBITDA guidance, but just anything in terms of OpEx growth or EBITDA would be awesome.

yeah i mean i think we we gave some clues to what we're going to be entering 2022 with in terms of um in my script uh scripted remarks we talked a little bit about that there were about 11 million of non-recurring sense fees that we won't see from q4 to q1 um and then we would see a full quarter of the sense employees because we had a partial quarter in Q4 going into Q1. And so we talked about that we expected, you know, OpEx and going into 2022 to look similar to the fourth quarter. And that would be net of stock based compensation, just just the baseline fees.

Appreciate it. Thank you.

Your next question comes from the line of Etae McAuley with Citi. Your line is open.

Great, thanks. Good afternoon, everyone. Angus, I want to go back to the topic of the non-auto certification and the opportunities you see there. I think the industry opportunity may be around a billion dollars. You mentioned an appetite from some of the customers there to upgrade sensors, and of course you've got the L3 chip coming. Just curious, roughly what the timing is on some of those certifications, and once you're there, how quickly can you book additional revenue? Is this really more of a 2023, 2024 kind of revenue opportunity as you unlock some of these markets post-certification?

Yeah, sure. Thanks for the question, Kay. So, you know, I think that the The timeline, actually, the ouster strategy around certifications that unlock these new kind of land and expand opportunities with existing customers or just unlock completely new certified LIDAR markets to us, that is paying dividends already today to some degree, which it's been a great benefit to be able to go to a customer say a robotic forklift customer and say, we can replace some of the LIDARs on your platform today with a consolidated set that's more affordable and more performant. But you can also expect in the future, any of the certified LIDAR that you have to keep on your platform by law, that we can replace those in the future as well and make your system simpler, make it more cost, capital efficient, lower cost for you. And that's all because we have this clear roadmap that's pretty unique in the industry because we have this unified product portfolio. We have this roadmap towards certifying all of our products for all of the major certifications required across our verticals. All that being said, it's paying dividends today to some degree. but you can expect in the next year or so for that to be an even bigger catalyst as we actually achieve some of these certifications. We're not giving an exact timeline on when we're achieving each one of the certifications, basically for competitive reasons, but you don't have to hold your breath significantly. And again, we're already seeing some of the benefits.

Great. And one other kind of new business question. I think the release mentions a goal of winning at least one OEM production program this year. Anything else you can share in terms of is it one sensor, is it a surround, is it kind of L2 plus features, maybe the region and the volume, whatever you can share on that would be super helpful.

Yeah, absolutely. So One of the major updates from the automotive side is that we've been pushing forward with the production versions of our DF sensor lineup. So we announced the digital flash sensors, fully solid state lineup. Now we're moving into the design phase of the digital flash silicon that's going to move into production and replace the Gen 1 silicon that we have in-house today. And that token is capable or the digital flash product lineup is capable of being single sensor installs for like L2 and L2 plus applications. And it could also be multi-sensor suites for either advanced L2 plus systems that have much more capability or L3 powered systems. And regardless of application, our goal is to be the most affordable solution for either of those. I would say it's split. A lot of the deals that we're working on are actually multi-sensor suites that are pushing towards L3 capability. But there still is a contingent of automakers that are focused on typically near-term opportunities that are just single-sensor installs. So we have the strategy and the product line and the affordability and the performance that allows for these more advanced, more feature-rich L3 multi-sensor suites. Because of that, we also are able to offer highly competitive and affordable single sensor solutions for kind of the L2, L2 plus feature set. So yeah, of the five deals that we've, you know, previously announced that we're working on, both of those requests are represented. And, you know, one of the significant reasons why we're in the mix is because we can be so competitive on pricing for either.

That's great. That's all very helpful. Thank you.

Your next question comes from the line of Sam Peterman with Craig Hallam Capital Group. Your line is open.

Hi, guys. Thanks for taking my question. Congrats on the quarter. I just wanted to ask on the SCA pipeline, I'm curious where you saw kind of strength coming this quarter and increases coming. And I wanted to make sure I heard you right that you saw that pipeline dollar value doubling in 2022. And if that's the case, kind of based on the run rate you've been at for the average value per SCA, you need to add, you know, close to 100 SCAs, obviously, that can change with, you know, one or two larger customers thrown in there. But is that kind of how you're thinking about it for 2022?

I think that when you're talking about the SCAs, and we talked about seeing kind of a roughly doubling in our customers' forecasts, You know, we're talking about not necessarily doubling the number of SCAs. We're just talking about looking ahead to what our customers are telling us their businesses are growing at that rate. And so that's what we were referencing. We weren't trying to impute like a certain number of signed SCAs needed in the future. That was based off of customers that are in existence today.

Yeah, I want to make sure that that makes sense because it's a really important point and it's a really positive sign for the business. So that doubling is when we ask a customer for a three to five year forecast in aggregate, you know, our customers are roughly doubling their forecast, you know, what they're going to purchase from us year over year. So that's the doubling. We see the doubling of growth in the established customer base based on, you know, the direct information they're providing. And then a separate goal of ours is to increase the number of SCAs that we have every year, but we haven't given any indication of what our expectation necessarily is there. Obviously, we intend to grow the SCA count this year.

Gotcha. Okay, thanks for clarifying that. And then I wanted to ask one on the gross margin. That guidance, obviously you guys have industry-leading margins like you talked about. And you'd expect, you know, ASPs to come down, units to go up over time. But kind of the way you framed that was you saw, you know, you saw units coming down faster than ASPs are going up. But your margin guidance is pretty flat here. So I just want to get some color on what's built into the gross margin guidance. Are there other factors? So, you know, maybe a next shift to certain product lines or end markets that are affecting the guidance or Just any color on that would be helpful.

Yeah, I mean, I think we are still seeing our cost of goods sold decline at a faster rate than our ASPs. So for the annual results, it was about a 35% decline on ASPs and a 53%, I think, decline on cost of goods sold. So we are still meeting our initiatives to, you know, to target the margins or to achieve the margins that we've targeted. I think going forward into next year, we're being a little bit perhaps cautious related to supply chain issues and allowing ourselves a little bit of room there. But generally, we do still continue to see the margins developing in the way that we're expecting.

Okay. Thanks, guys. That's it for me.

Your next question comes from the line of Joseph Osh with Guggenheim. Your line is open.

I'm Joseph Osh now. Hello, everyone. Hi, Joe. Good to hear from you. Yeah. Just a couple questions. First, on your comments on the L2X and the L3, just looking at the L2X and the picture of it, it kind of looks like you've got three pieces, big pieces of silicon there, the digital logic, the detectors, and the emitters. And then I look at the sort of little picture of L3, and it's sort of a gray square. I'm wondering... Is the idea, as you go to L3, that we might see greater integration of these different pieces of silicon? Can you comment on that?

I can't really give more details on the L3. I mean, the reason we have a grayed out is because there are things that you can figure out about a chip by looking at it. And we want to keep the surprise for when we announce all the products. But the general idea is that, and we mentioned this, we're taking advantage of a really significant advancement in semiconductor technology, backside illumination, for the very first time with L3. And that increases both the key kind of raw sensing metrics, like how well it can perceive light, And then we're also combining that with architectural improvements in the digital logic. And we have, as you pointed out, we have over 100 million transistors of digital logic that's running the LiDAR sensor co-located with that pixel array. And improving both is the goal every time that we take out a chip. So it's a really significant advancement. It really is the most significant advancement we've ever had in a chipset. But we're going to save some of the improvements for when we release the products next. that are powered by the L3 later this year.

Okay. And that, okay. And so we'll get a more detailed look at L3 architecture later this year. Absolutely. Okay. Now, completely different question. Just thinking much longer term, you know, obviously we're talking about the margin outlook this year, but just, you know, thinking about as you look out to 2025 and we've been having lots of these conversations, it seems as if the industrial part of this business, you know, with the sophomore ramps and so forth, really possibly could still get to, you know, 55%, 60% gross margin someday. But, you know, at the same time, all the, you know, conversations I and the other people on this call have had on automotive, you know, that we should probably think about that still as, you know, maybe a kind of mid-30% gross margin business looking at the way automotive is. Is that still a reasonable long-term set of expectations to have?

Yeah, I think, Joe, like we've been giving guidance for the next year. And I think, you know, what's really important here is that, you know, with our guidance, we're going to do what we say we're going to do and really build trust with the investor community in the streets. And I think, you know, if you look out further, it is an immense multi-market opportunity, and we are very excited about our four verticals and the growth in both the near term and the long term. And I do agree with you, there's going to be some variability in margins across verticals. But overall, I think it's going to be a great business. And we do agree with you. We think probably auto is going to be the lowest margin vertical. We said before maybe around 25% is probably accurate for automotive, while the other verticals we see as higher margin opportunities. But I think, you know, it's an immense multi-market opportunity, and we're really excited about our customers' growth and the visibility that that's giving us into the future, you know, greater visibility, greater predictability, greater stickiness in our business. So we're really excited about the growth that we're seeing and the margins that we're seeing today.

Okay, thank you. And then just one final quick one, if you can comment. Is Shauna McIntyre still running automotive, or has there been some kind of change there?

Yeah, actually, Shauna has moved on to a new CEO role as of just last month. And, you know, on that note, I actually want to thank her for her role in the acquisition. She was integral in the successful integration of the two teams. And so now Alistair Automotive is in great hands with kind of the established team that was under her. And there's no change to our outlook or strategy or any commitment we have to our automotive partners or customers. Okay. Thank you for that.

Thanks, Dan. And this does conclude our question and answer session. I'd like to turn the conference back over to Angus Bacala for any closing remarks.

Yeah, absolutely. I just want to highlight 2021 was a fantastic year for us. We doubled revenue. We built a world-class commercial and auto teams like we said we would. We accelerated our hardware and software roadmaps, three extra unit shipments, dropped COGS faster than ASPs, signed 58 SCAs, grew our customers to over 600 and over 10,000 units shipped worldwide. And we delivered on our full year 2021 year guidance. we did all of that in the midst of a global pandemic and you know a disruption in the semiconductor supply chain that's pretty unprecedented so you know to say i'm proud of our team and what we've accomplished is a complete understatement i'm incredibly proud and we're not stopping there we've aligned ouster with these big catalysts in the global economy new shifts in autonomy in automotive um automation in the global supply chain and industrial and an investment in the safety and efficiency of our world in smart infrastructure and so you know ouster's products address those trends head-on we have this digital technology and diversification across industries and we've proven that we're able to execute on you know do what we say and and say what we do so i think ouster's future in 2022 and beyond is incredibly bright And I wanted to thank everybody for tuning in and everyone that asked questions and have a great rest of your day.

Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.