Q2 2022 Velodyne Lidar Inc Earnings Call

August 8, 2022

Good day, everyone and welcome to the Vogtle Dine Lidar second quarter 2022 financial results call.

Participants will be in listen only mode.

Please also note today's event is being recorded for replay purposes.

Should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

At this time I would like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Sir. Please go ahead.

Thank you operator, good afternoon, everyone and thank you for joining US with me today on the call our Doctor Ted Tewkesbury Teledyne's, Chief Executive Officer, and Mark <unk>, Chief Financial Officer on today's call, we will discuss validating second quarter financial results and provide an outlook for the third quarter. Shortly after the market closed today <unk>.

<unk> issued a press release announcing its second quarter 2022 financial results validate also published an investor presentation and you may access. These documents on the Investor Relations section of Ela Dine Lidar Dot Com. Today's discussion includes forward looking statements. Please refer to our press release, and our SEC filings, including our most <unk>.

Recent 10-K, and 10-Q for a discussion of factors that could cause the company's actual results to differ materially from these forward looking statements.

Please also note unless otherwise stated all results and projections discussed in this call are non-GAAP .

Management provides non-GAAP metrics because it uses them for budget planning purposes, and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors evaluate <unk> core operating and financial performance and business trends consistent with how many.

<unk> evaluate such performance and trends.

In addition management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies a full description and reconciliation of these non-GAAP measures versus GAAP is included in the company's press release issued today now I'd like to turn the call over to Dr. Ted Tewksbury Ted Please.

Go ahead.

Thanks, Jim and thank you all for joining us today.

Our second quarter of 2022 was one of solid execution in the face of continuing supply chain headwinds.

Billings of $12 $5 million and revenue of $11 5 million both came in within our guidance range for the second consecutive quarter.

Demand for our products remained robust and thanks to the tireless efforts of our team we were able to procure adequate quantities of critical components to meet the majority of our customers requirements.

I would now like to share more about our second quarter business results provide an update on the status of our transformation and discuss our outlook for Q3, Mark will then review the financial results in greater detail.

<unk> continues to be one of the most diversified suppliers of Lidar solutions with superior performance power efficiency and reliability as differentiators across key industries.

In Q2, we saw increased customer traction across all three of our target markets industrial and robotics intelligent infrastructure and autonomous vehicles.

Roughly half of our sensors shipped into the industrial robotics and infrastructure markets.

Within industrial and robotics are Lidar based solutions are being used across an increasingly diverse set of applications, including last mile delivery robots truck docks cargo handling and shipping.

In the infrastructure use cases include traffic systems vehicle to infrastructure networks, and security space and asset monitoring.

Lastly, we are seeing demand for our solutions and virtual and augmented reality applications, such as mapping entertainment and online interactions.

The other 50% of units shipped in the quarter were four <unk>, four and <unk> five robo taxi and autonomous shuttle customers, who depend on <unk> sensors to power their systems.

During the quarter, we also expanded our customer reach with several new multiyear agreements.

We signed a sales agreement with Boston dynamics, a global robotics market leader.

The selected <unk> high performance sensors to enhance and extend the capabilities of their mobile autonomous robots.

Our intelligent infrastructure solution or <unk>.

S was deployed in Helsinki, Finland for traffic flow monitoring at multiple intersections to improve safety.

Along with delivering multi modal traffic counting and classification or iis demonstrated its efficacy in detecting near Miss collision situations, such as running red lights and jaywalking.

This proliferation of non automotive use cases validates our thesis that the first wave of commercial lidar adoption will be dominated by industrial automation robotics and intelligent infrastructure.

According to research firm Youll lay these segments are estimated to be a $2 $8 billion per year total available market by 2026.

As I enter my third full quarter as CEO of <unk> I continue to be pleased with progress. We've made on the turnaround plan I announced in the February earnings call.

To highlight just a few examples.

We accelerated the outsourcing of manufacturing to our low cost contract manufacturer in Thailand with completion targeted for next year.

This transition will significantly advance our efficiency in operations, allowing us to increase capacity improve yields reduce cost and expand gross margins.

We re prioritized and rationalized products in development by deploying our valuable technical resources on opportunities with attractive returns on investment and high contribution margins.

This process led to the discontinuation of some products in development, including <unk> 800.

We defined our next generation product roadmaps encompassing highly differentiated sensors software and solutions that we expect to be introduced over the next 18 to 24 months.

Recently, we've implemented other changes that will enhance <unk> governance and leadership, including the appointment of Mark <unk> as our new Chief Financial Officer. The addition of seasoned and highly experienced new board members that will help management take the company to the next level and the redistribution of stock ownership, including a dramatic reduction.

<unk> and founder ownership from.

From day, one I have emphasized the priority of scaling lidar into a profitable growing business delivering attractive shareholder returns.

We discussed our strategy in detail in the past two earnings calls and while it will take time to execute fully we are making progress every day.

As we look forward to the remainder of 2022 and 2023, we are taking steps to align our expense structure with our revenue expectations.

In parallel we will continue to invest in strategic differentiated high ROI product categories that are essential to our long term growth.

These actions are designed to deliver industry, leading smart vision solutions to our customers, while accelerating time to breakeven.

Before handing the call over to Mark I want to offer some commentary around our guidance for the third quarter.

We entered the third quarter with robust demand. However, based on information from our suppliers, we expect supply challenges will extend into 2023, making it difficult for us to fully support all of this demand.

Our efforts to modify our sensors to utilize alternative sources is on track and will help us to partially mitigate the supply chain risks.

Combining all of these factors, we expect billings to be between 10 million and $12 billion and revenue to be between $8 million and $11 million.

The difference between billings and revenue is due to estimated noncash contra revenue related to the Amazon warrants.

Our cost reduction initiatives, including the expanded use of outsourced manufacturers improvements in operating efficiencies and the growth of offshore design center capabilities will deliver incremental improvements in the third quarter of 2022 with the full benefit expected to be realized in the second half.

2023.

With that it is my pleasure to welcome Mark to this call Mark. Please go ahead.

Thank you Ted.

Good afternoon, everyone I am very excited about joining the <unk> team. During this pivotal time and I look forward to contributing to the next stage of <unk> evolution.

During my initial time with the company I've worked closely with the executive and finance teams to analyze opportunities to improve our results I believe there is room for significant improvement in our operating efficiencies, we have a healthy balance sheet with approximately $230 million in cash and equivalents, providing us with the capital.

To execute on our strategic plan.

I want to Echo <unk> earlier comments that we would take the steps needed to reduce our cost structure and focus on profitable revenue growth in order to reach the goal of cash breakeven.

Now turning to our Q2 financial results.

Total revenue was $11 5 million and included an approximately $1 million noncash impact from the Amazon warrant accounting.

Total product revenue was $9 7 million. This compares with $4 4 million in the first quarter in.

In the first quarter, the accounting for the Amazon warrants had a noncash impact of $5 3 million on our revenue.

License and service revenue was $1 9 million compared with $1 8 million in the first quarter.

Billings were $12 5 million compared with billings of $11 5 million in Q1.

Billings, while were impacted by the continued supply chain supply chain constraints.

GAAP gross loss was $7 1 million. This compares with $9 3 million in the first quarter.

The second quarter was impacted by $2 2 million in losses from the discontinuation of a product line as Ted discussed previously.

non-GAAP gross loss was $4 2 million. This compares with a gross loss of $8 8 million in the prior quarter.

GAAP operating expenses were $37 5 million compared with $39 6 million in Q1.

non-GAAP operating expenses were $31 8 million compared with $35 1 million in the prior quarter.

Lower expenses were partially driven by cost containment strategies implemented during the quarter.

I look forward to discussing more of our progress in future quarters.

GAAP net loss was $44 3 million or <unk> 22 per share and compares with $49 1 million or 25 per share in the prior quarter non.

non-GAAP net loss was $35 $7 million or <unk> 18 per share compared with 44 million or <unk> 22 per share in the first quarter.

Finally, moving on to the balance sheet with approximately $230 million in cash and investments at the end of the quarter, our capital and liquidity remains healthy.

As we move through the year I look forward to discussing the progress we are making in improving our financial performance as we balanced the need to develop new products and invest in long term growth, while streamlining our operations to reduce our cash burn with that I will turn the call back to Ted.

Thank you Mark everyday we see exciting new examples of light are being used to make our communities safer our supply chain more efficient and our planet greener.

With over 73000 of our Lidar sensors shipped to date into our three target markets industrial and robotics intelligent infrastructure and automotive village is leading the way.

We are working intensely to bring our next generation products to market and expand our solutions into new industries and applications.

Q2 was a quarter of progress. However, we know there is much more to do.

We have completed a top to bottom analysis of the business and are investing in new programs to deliver the highest return on investment while simultaneously implementing cost reductions to accelerate our time to breakeven.

We believe our strong balance sheet provides us with the capital we need to execute these plans.

In closing I want to thank our stakeholders, including investors customers and suppliers for their continued support and most of all I want to thank the <unk> team for their hard work in helping us to achieve our goals.

Operator, we will now open the call to questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Before we start the question and answer session, we would like to ask everyone to keep to one question and one follow up if you have additional questions. Please return to the queue and we will get back.

I'll get back in.

This should help us get to everyone in a timely manner.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Rajiv Gill with Needham and company. Please go ahead.

Yes. Thank you for taking my questions I. Appreciate it just wanted to get a little more clarity on the supply chain issues last quarter. The supply chain issues were pushing your sensor ASP is higher and the units were lower.

Because of higher component costs.

And that increase your pricing power.

Wondering how youre thinking about pricing trends for the remainder of 2022.

Because of those underlying components, the increasing cost of those components in and how do we expect those cost.

To trend.

Into 2023.

Yes, thanks for the question Rajeev.

First of all maybe I can just provide a little bit of background on the supply chain. Because there is really two separate components here the first being the company's specific component with respect to our specific FPGA.

As you are aware some of those were nearing end of life and we had to replace them and went through a design retrofit procedure to do that that is on track and is scheduled to be complete by the end of this year.

The second component is really the macro supply constraint issues that everybody is seeing across the industry and we don't have a great business.

Great deal of visibility into when those will subside, but.

A lot of our suppliers are saying that the macro supply constraints could last into 2023.

So what's happening here is that we.

Our.

In the process of doing those redesigns, we expect those to be completed by the end of this year and once that's done.

We expect to get into the more normal macro economic.

Determined.

Rising environment.

In the meantime, as we scramble to procure scarce components, we do expect that Asp's could continue to go up.

In order to offset the increased price of components, but again once we get into 2023, and we have those new designs, we expect that they will start to come back down.

I appreciate it for my follow up.

You mentioned when you joined the company that priority number one was to ramp lighter adoption in the industrial robotics robotics market.

While at the same time lower cost for Lidar for the passenger vehicles.

You had mentioned kind of below $300.

It seems like Youre, making a lot of progress on lidar adoption and kind of industrial robotics, I'm curious where are we with passenger vehicles.

I know that's about a third or so of the volume, but you have got the asp's or do you have line of sight, where you see DSV could go based on your kind of current cost structure and just maybe touching upon what youre seeing on the industrial side as well. Thank you.

Enormously broad range of applications, some of which I discussed in the prepared remarks. So as those designs start to go to production, we expect to see an inflection point, where revenue will start to grow in the next one or two years in industrial robotics and infrastructure.

As far as automotive is concerned as you know there are two segments. There there is the autonomous vehicles, where there's a very good product market fit with the products that we already have.

And as you saw 50% of our revenue in the second quarter came from the <unk> segment, specifically drove owe tax season autonomous shuttles.

These are primarily prototype designs and are still some years away from full production.

But when they happen.

<unk> will be there with respect to passenger vehicles as we've talked about in past calls.

Our discussions with Oems and tier ones in the automotive industry, and we've talked to all of them.

The feedback has been loud and clear that prices have to come down below $500.

Preferably in the 300 to $400 range and we have designs in progress right now that we expect to be ready for production when those markets materialized, which is probably still two or three years away.

Thank you.

Again, if you have a question. Please press Star then one.

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks, So much guys within the industrials market can you talk about the diversity of applications that you are in right now and how that's changing and including how many are growing indoor versus outdoor applications.

Thanks, Thanks, Colin for the question there is it really an enormous number of applications.

As far as outdoor applications, we're seeing outdoor space monitoring in parking lots and stadiums.

<unk> spaces are Iis solution. For example is a great solution to monitor safety.

Public spaces, as well as intersections and traffic systems.

To monitor traffic make traffic close more efficient.

And also reduced congestion greenhouse gases and all that good stuff.

In addition, we see sidewalk delivery applications truck docks.

The applications are immense and it seems that they are growing every day, we continue to see mapping applications.

Yes.

We've talked about defense at the last earnings call with the design win at kinetic.

We see applications in agriculture, and mining ascending lidar into hazardous locations, where people don't want to go so that's just.

Quick a quick few examples for outdoor applications and then indoors.

Our houses are the big ones.

And then.

Many others as well, including data centers fulfillment centers.

Procurement.

Centers.

Sure.

There's just an enormous range of applications in industrial and robotics.

Great. Thanks, and then on the cost side at the manufacturing level can you walk us through the key elements and cadence for implementation.

<unk>.

Pieces that are going to get you to positive gross margins.

Yes, so it's really a three point plan.

As far as gross margins are concerned.

The first component being to increase our ASP through full system solutions as we've talked about before that provide the hardware sensor together with the <unk>.

Software and the ml.

Capabilities and analytics to help business.

Obtain insights so we're not just giving a business a point cloud, we're allowing them to actually derive business insights and analytics from from a product. So that's number one that's going to enable us to increase our asps and also eventually derive a recurring source of revenue through SaaS.

Revenue.

The second component is to reduce our bom costs through architectural innovation, we already talked about that with regard to the Adas products, we have in development.

And then third is manufacturing efficiencies to drive down product costs, and specifically, we're accelerating the transition to Thailand to increase our operational efficiencies and then in parallel with that as Mark talked about in the prepared remarks, we are realigning our cost structures.

With revenue, bringing down opex and identifying a lot of opportunities for cost efficiencies across the organization.

That's super helpful. Thanks, guys.

The next question comes from Sam Peterman with Craig Hallum Capital Group. Please go ahead.

Hi, guys. Thanks for taking my question I wanted to ask on the product.

You said you exited the H 800.

<unk>.

I think you had a couple of other products based on that solid state architecture, including the double debt. So curious if you could give some more color around why the <unk> was exited and then what that means for your other products that are based on an architecture that'd be great Yeah, Greg.

Great Great question, Sam So as I mentioned earlier, we are rationalizing our products in development and really investing our limited engineering resources on those products that have the greatest chance of success and that meet our requirements for profitability.

The H 800 was really one of our first solid state sensors, and we used it to test the market and we learned a great deal about what customers really want and need.

And while the H 800 offered outstanding performance and power efficiency, we heard loud and clear from customers that they need much lower pricing.

And we don't see anybody else out there we don't see any of our competitors, who are able to hit the kind of price points that I alluded to earlier and so low cost really became one of the main pillars of our strategy and as I talked about we now have a really exciting next generation product roadmap and it makes me.

More sense for us to invest our engineering resources, and bringing those new products to market, rather than looking backwards and trying to improve existing products.

Gotcha that makes sense, thanks for the detail there.

Second question just.

Thinking about the guidance going forward Im assuming youre down a little bit quarter over quarter and I'm, assuming that's primarily on the product side rather than the licensing side is that correct and can you talk about which end markets kind of youre seeing.

Relative strength versus relative weakness or any color there.

Yes, again, the strength is coming from industrial and robotics as well as the intelligent infrastructure with continuing contributions from Avs and yes. Let me just let me just emphasize that we're going into Q3 with enormous demand.

An enormous backlog and the only thing that's holding revenue growth back right now is supply.

And.

As I explained earlier, we are well underway in.

Redesigning, our Pax to use new FPGA, which we expect to get us out of this.

On a company specific supply constraint.

By the end of the year.

Was there a follow up Mr. Peterson.

Alright Thats it for me thank.

Thanks.

Okay. So.

Maybe I could just wrap up by bringing everybody back to the big picture and the main takeaways, we have got a great new strategy that we all feel good about we've upgraded the management team with top talent, we have a whole new board of directors with the right skills and experience to help take the company to next level. The founders are off the board and out of the stock eliminating and.

Over hang of uncertainty for investors, we met our guidance and we grew revenue sequentially in the second quarter, we're getting great customer traction and industrial robotics and intelligent infrastructure, we have strong demand and backlog going into Q3, we have some supply constraints by our efforts to redesign our products are on track, we have a new game changing product roadmap.

A high performance low cost sensors and solutions and we have a detailed plan to increase gross margins and realign our cost structure with our revenue to accelerate the path to profitability and we haven't.

$230 million cash balance in the bank to accomplish all of these things so with that I want to thank everybody for joining US today, we look forward to speaking to you in the weeks to come and have a good afternoon.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yes.

Sure.

Okay.

Yes.

[music].

Good day, everyone and welcome to the Vulval Dine Lidar second quarter 2022 financial results call all participants will be in listen only mode.

Please also note today's event is being recorded for replay purposes.

Should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

At this time I would like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Sir. Please go ahead.

Thank you operator, good afternoon, everyone and thank you for joining US with me today on the call are Dr. Ted Tewkesbury Teledyne's, Chief Executive Officer, and Mark <unk>, Chief Financial Officer on today's call, we will discuss <unk> second quarter financial results and provide an outlook for the third quarter.

Shortly after the market closed today <unk> issued a press release announcing its second quarter 2022 financial results validate also published an investor presentation and you may access. These documents on the Investor Relations section of Ela Dine Lidar Dot Com. Today's discussion includes forward looking statements. Please refer to our press release and our SEC.

SEC filings, including our most recent 10-K and 10-Q for a discussion of factors that could cause the company's actual results to differ materially from these forward looking statements.

Please also note unless otherwise stated all results and projections discussed in this call are non-GAAP .

<unk> evaluate such performance and trends in.

Go ahead.

Thanks, Jim and thank you all for joining us today.

Our second quarter of 2022 was one of solid execution in the face of continuing supply chain headwinds.

Billings of $12 $5 million and revenue of $11 5 million both came in within our guidance range for the second consecutive quarter.

<unk> continues to be one of the most diversified suppliers of Lidar solutions with superior performance power efficiency and reliability as differentiators across key industries.

In Q2, we saw increased customer traction across all three of our target markets industrial and robotics intelligent infrastructure and autonomous vehicles.

Roughly half of our sensors shipped into the industrial robotics and infrastructure markets.

In the infrastructure use cases include traffic systems vehicle to infrastructure networks, and security space and asset monitoring.

Lastly, we are seeing demand for our solutions and virtual and augmented reality applications, such as mapping entertainment and online interactions.

The other 50% of units shipped in the quarter were four <unk> and L. Five robo taxi and autonomous shuttle customers, who depend on <unk> sensors to power their systems.

During the quarter, we also expanded our customer reach with several new multiyear agreements.

We signed a sales agreement with Boston dynamics of global Robotics market leader.

The selected <unk> high performance sensors to enhance and extend the capabilities of their mobile autonomous robots.

Our intelligent infrastructure solution or Iis was deployed in Helsinki, Finland for traffic flow monitoring at multiple intersections to improve safety.

Along with delivering multimodal traffic counting and classification or Iis demonstrated its efficacy in detecting near Miss collision situations, such as running red lights and jaywalking.

According to research firm Youll lay these segments are estimated to be a $2 $8 billion per year total available market by 2026.

As I enter my third full quarter as CEO of Teledyne I continue to be pleased with the progress. We've made on the turnaround plan I announced in the February earnings call.

To highlight just a few examples.

We accelerated the outsourcing of manufacturing to our low cost contract manufacturer in Thailand with completion targeted for next year.

This transition will significantly advance our efficiency in operations, allowing us to increase capacity improve yields reduce cost and expand gross margins.

We re prioritized and rationalized products in development by deploying our valuable technical resources on opportunities with attractive returns on investments and high contribution margins.

This process led to the discontinuation of some products in development, including <unk> 800.

We defined our next generation product roadmaps encompassing highly differentiated sensors software and solutions that we expect to be introduced over the next 18 to 24 months.

<unk> and founder ownership from.

From day, one I have emphasized the priority of scaling lidar into a profitable growing business delivering attractive shareholder returns.

We discussed our strategy in detail in the past two earnings calls and while it will take time to execute fully we are making progress every day.

As we look forward to the remainder of 2022 and 2023, we are taking steps to align our expense structure with our revenue expectations.

In parallel we will continue to invest in strategic differentiated high ROI product categories that are essential to our long term growth.

These actions are designed to deliver industry, leading smart vision solutions to our customers, while accelerating time to breakeven.

Before handing the call over to Mark I want to offer some commentary around our guidance for the third quarter.

Our efforts to modify our sensors to utilize alternative sources is on track and will help us to partially mitigate these supply chain risks.

Combining all of these factors, we expect billings to be between 10 million and $12 billion and revenue to be between $8 million and $11 million the.

The difference between billings and revenue is due to estimated noncash contra revenue related to the Amazon warrants.

'twenty three.

With that it is my pleasure to welcome Mark to this call Mark. Please go ahead.

Thank you Ted.

Good afternoon, everyone I am very excited about joining the <unk> team. During this pivotal time and I look forward to contributing to the next stage of <unk> evolution.

To execute on our strategic plan.

I want to Echo <unk> earlier comments that we would take the steps needed to reduce our cost structure and focus on profitable revenue growth in order to reach the goal of cash breakeven.

Now turning to our Q2 financial results.

Total revenue was $11 5 million and included an approximately $1 million noncash impact from the Amazon warrant accounting.

Total product revenue was $9 7 million. This compares with $4 4 million in the first quarter and.

In the first quarter, the accounting for the Amazon warrants had a noncash impact of $5 3 million on our revenue.

License and service revenue was $1 9 million compared with $1 8 million in the first quarter.

Billings were $12 5 million compared with billings of $11 5 million in Q1.

Billings, while up were impacted by the continued supply chain supply chain constraints.

GAAP gross loss was $7 1 million. This compares with $9 3 million in the first quarter the.

The second quarter was impacted by $2 2 million in losses from the discontinuation of a product line as Ted discussed previously.

non-GAAP gross loss was $4 2 million. This compares with a gross loss of $8 8 million in the prior quarter.

GAAP operating expenses were $37 5 million compared with $39 6 million in Q1.

non-GAAP operating expenses were $31 8 million compared with $35 1 million in the prior quarter.

Lower expenses were partially driven by cost containment strategies implemented during the quarter.

I look forward to discussing more of our progress in future quarters.

GAAP net loss was $44 3 million or <unk> 22 per share and compares with $49 1 million or 25 cents per share in the prior quarter non.

non-GAAP net loss was $35 $7 million or <unk> 18 per share compared with 44 million or <unk> 22 per share in the first quarter.

Finally, moving on to the balance sheet with approximately $230 million in cash and investments at the end of the quarter, our capital and liquidity remains healthy.

Thank you Mark everyday we see exciting new examples of light are being used to make our communities safer our supply chain more efficient and our planet greener.

With over 73000 of our Lidar sensors shipped to date into our three target markets industrial and robotics intelligent infrastructure and automotive village is leading the way.

We are working intensely to bring our next generation products to market and expand our solutions into new industries and applications.

Q2 was a quarter of progress. However, we know there is much more to do.

We believe our strong balance sheet provides us with the capital we need to execute these plans.

Operator, we will now open the call to questions.

We will now begin the question and answer session.

I'll get back in.

This should help us get to everyone in a timely manner.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Rajiv Gill with Needham and company. Please go ahead.

Because of higher component costs.

And that increase your pricing power I'm wondering how you're thinking about pricing trends for the remainder of 2022.

Because of the underlying components of the increase in cost of those components in and how do we expect those cost.

To trend.

Into 2023.

Yes, thanks for the question Rajeev.

The second component is really the macro supply constraint issues that everybody is seeing across the industry and we don't have a great.

Great deal of visibility into when those will subside, but.

A lot of our suppliers are saying that the macro supply constraints could last into 2023.

So what's happening here is that we.

Our.

In the process of doing those redesigns, we expect those to be completed by the end of this year and once that's done.

We expect to get into the more normal macro economic.

Determined.

<unk> environment.

In the meantime, as we scramble to procure scarce components, we do expect that Asp's could continue to go up.

In order to offset the increased price of components, but again once we get into 2023, and we have those new designs, we expect that they will start to come back down.

I appreciate it and for my follow up.

You mentioned when you joined the company that priority number one was to ramp lighter adoption in the industrial robotics robotics market.

While at the same time lowered the cost for lidar for the passenger vehicles.

You had mentioned kind of below $300.

It seems like Youre, making a lot of progress on lidar adoption and kind of industrial robotics, I'm curious where are we with passenger vehicles.

I know thats about a third or so of the volume, but have you got the asp's or do you have line of sight, where you think these could go based on your kind of current cost structure and just maybe touching upon what you are seeing on the industrial side as well. Thank you.

Yes, we're getting really good traction in the industrial and robotics and intelligent infrastructure markets with the product portfolio that we have today and we're really seeding that market across an enormously broad range of applications some of which I discussed in the prepared remarks, so as those designs start to go to <unk>.

<unk>, we expect to see an inflection point, where revenue will start to grow in the next one or two years in industrial robotics and infrastructure.

As far as automotive is concerned as you know there are two segments. There there is the autonomous vehicles.

There's a very good product market fit with the products that we already have.

And as you saw 50% of our revenue in the second quarter came from the <unk> segment, specifically robo taxis and autonomous shuttles.

Those are primarily prototype designs.

There are still some years away from full production.

But when they happen.

<unk> will be there with respect to passenger vehicles as we've talked about in past calls.

Our discussions with Oems and tier ones in the automotive industry, and we've talked to all of them.

The feedback has been loud and clear that prices have to come down below $500.

Thank you.

Again, if you have a question. Please press Star then one.

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks, So much guys within that industrials market can you talk about the diversity of applications that you're in right now and how that's changing and including how many are growing on indoor versus outdoor applications.

Thanks, Thanks, Colin for the question there is it really an enormous number of applications.

As far as outdoor applications, we're seeing outdoor space monitoring in parking lots and stadiums.

<unk> spaces are Iis solution. For example is a great solution to monitor safety.

Public spaces, as well as intersections and traffic systems.

To monitor traffic make traffic flows more efficient.

And also reduce congestion greenhouse gases and all that good stuff.

In addition, we see sidewalk delivery applications truck docks.

The applications are immense and it seems that they are growing every day, we continue to see mapping applications.

We talked about defense at the last earnings call with the design win at kinetic.

We see applications in agriculture and mining ascending.

Ascending lidar into hazardous locations, where people don't want to go so that's just.

A quick.

Quick few examples for outdoor applications and then indoors.

These are the big ones.

And then.

Yes.

Many others as well, including data centers fulfillment centers.

Procurement.

Centers.

Sure.

There's just an enormous range of applications in industrial and robotics.

Okay, great. Thanks, and then on the cost side.

Manufacturing level can you walk us through the key elements and cadence for implementation.

The pieces that are going to get you to positive gross margins.

Yes, so it's really a three point plan.

As far as gross margins are concerned.

The first component being to increase our ASP through full system solutions as we've talked about before that provide the hardware sensor together with fee.

Software and the ml.

Capabilities and analytics to help business.

Revenue the second component is to reduce our bom costs through architectural innovation, we already talked about that with regard to the Adas products, we have in development.

With revenue, bringing down opex and identifying a lot of opportunities for cost efficiencies across the organization.

That's super helpful. Thanks, guys.

The next question comes from Sam Peterman with Craig Hallum Capital Group. Please go ahead.

Hi, guys. Thanks for taking my question I wanted to ask on the product.

You said you exited the H 800.

Bel Ray.

I think you had a couple of other products based on that solid state architecture, including the dollar debt. So curious if you could give some more color around why the <unk> was exited and then what that means for your other products that are based on that architecture that'd be great yeah great.

The H 800 was really one of our first solid state sensors, and we used it to test the market and we learned a great deal about what customers really want and need.

And while the H 800 offered outstanding performance and power efficiency, we heard loud and clear from customers that they need much lower pricing.

More sense for us to invest our engineering resources on.

And bringing those new products to market, rather than looking backwards and trying to improve existing products.

Got you that makes sense, thanks for the detail there.

Second question just.

Thinking about the guidance going forward I'm, assuming you're down a little bit quarter over quarter and I'm, assuming that's primarily on the product side rather than the licensing side.

Is that correct and can you talk about which end markets kind of youre seeing.

Relative to strengthen versus relative weakness or any color there.

Yes, again, the strength is coming from industrial and robotics as well as the intelligent infrastructure with continuing contributions from <unk> and yes. Let me just let me just emphasize that we're going into Q3 with enormous demand.

The enormous backlog and the only thing that's holding revenue growth back right now is supply.

And.

As I explained earlier, we are well underway in.

Redesigning, our Pax to use new FPGA, which we expect to get us out of this.

Our company specific supply constraint.

By the end of the year.

Was there a follow up Mr. Peterson.

Alright, thats it for me thanks.

Thanks.

Okay. So.

Hang of uncertainty for investors, we met our guidance and we grew revenue sequentially in the second quarter, we're getting great customer traction and industrial robotics and intelligent infrastructure, we have strong demand and backlog going into Q3, we have some supply constraints by our efforts to redesign our products are on track, we have a new game changing product roadmap.

With high performance low cost sensors and solutions and we have a detailed plan to increase gross margins and realign our cost structure with our revenue to accelerate the path to profitability and we haven't.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q2 2022 Velodyne Lidar Inc Earnings Call

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