Q4 2022 Ouster Inc Earnings Call
Speaker 1: Please wait, the conference will begin shortly.
Speaker 2: Please stand by. We're about to begin.
Speaker 2: Hello and welcome everyone to Ouster's fourth quarter 2022 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 keypad.
Speaker 2: And if you would like to withdraw your question, press the pound key. And just a reminder, today's call is being recorded, and a replay of the call will be available on the Outster Investor Relations website in an hour after the completion of this call. I now like to turn the conference over to Ms. Sarah Ewing, Director of Investor Relations. Sarah, please go ahead.
Speaker 3: Thank you and good afternoon everyone. Thank you for joining us for our 2022 fourth quarter earnings call.
Speaker 3: I'm joined today by Ouster's Chief Executive Officer, Angus Pecala, and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks, we would like to remind you that earlier today, Ouster issued a press release announcing its fourth quarter in fiscal year 2022 results. The company also published an investor presentation, which is available on the investor relations section of ouster.com.
Speaker 3: strategic customer agreements, market share trends, anticipated synergies from the company's merger with Belladine, ability to recognize the benefits of cost savings initiatives, future products, anticipated benefits and applications of new product releases, technological advancements and commercial paths, potential future market opportunities, and the future of the market.
Speaker 3: customer traction, and the company's business outlook and first quarter 2023 financial guidance and trajectory are forward-looking statements that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. There is no guarantee that such plans, estimates, and expectations will be achieved.
Speaker 3: Thus, while these statements represent management's expected future results and performance, ASHRAE's actual results are subject to several risks and uncertainties that may 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 carefully consider other important risk factors and disclosures that may affect ASHRAE's future results.
Speaker 3: on this call concerning the company's industry, competitive position, and market in which it operates is based on information from independent industry and research organizations, other third-party sources, and management estimates which are derived from publicly available information released by independent industry analysts and other third-party sources.
Speaker 3: as well as data from the company's internal research and are based on reasonable assumptions and computations made upon reviewing such data and its experience in and knowledge of such industry and markets.
Speaker 3: By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates.
Speaker 3: During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions we consider to be outside of our operations as outlined in today's press release.
Speaker 3: These non-GAAP financial measures should be considered as a Supplement 2 and not a Substitute 4, Measures Prepared in Accordance with GAAP.
Speaker 3: For reconciliation of non-GAAP financial measures discussed during this call to the most recently comparable GAAP measures, please refer to today's press release.
Speaker 3: Finally, please be advised that we will only cover historical ouster financial results as well as forward-looking statements for the combined company. We will not report on nor provide standalone results for Velodyne. I now would like to turn the call over to Angus.
Speaker 4: Good afternoon, everyone, and thank you for joining us today.
Speaker 4: To start, I want to recap Ouster's mission to improve quality of life by building safer, more efficient assistance, automation, and autonomy technology for diverse end markets. We aim to do this by evolving from a market-leading LIDAR manufacturer to a category-defining autonomy provider.
Speaker 4: through delivering best-in-class digital ladder hardware that spans markets, creating a robust software ecosystem to accelerate ladder adoption and deepen customer relationships, and releasing vertical-specific app-on-way solutions.
Speaker 4: all of which increases outsource value to customers and shareholders.
Speaker 4: We made meaningful strides towards this goal in 2022, particularly in the fourth quarter.
Speaker 4: Last year, we released our first ASAMPLES for the Solid State DF series, introduced the industrial OS sensor lineup for high volume production programs.
Speaker 4: and launched the most performance sensor suite on the market, our new Rev7 OS sensors powered by the L3 chip, which increases our competitiveness across each of our target markets. Even more, we built and pre-released our first subscription software, Ouster Gemini.
Speaker 4: a cloud-backed digital lidar perception platform for smart infrastructure applications, which will expand and accelerate opportunities for digital lidar.
Speaker 4: As a result of these product developments, and in combination with our multi-year customer agreements,
Speaker 4: Ouster delivered nearly $11 million in revenue in the fourth quarter of 2022 with 17% gross margins and achieved their full year 2022 guidance with $41 million in revenue and 27% gross margins.
Speaker 4: We sold a record of over 2,950 sensors in the fourth quarter and over 8,650 sensors in 2022, bringing our total number to more than 18,500 units shipped to date worldwide.
Speaker 4: Furthermore, we booked $70 million in business in 2022.
Speaker 4: Finally, we announced our merger with Velodyne in the fourth quarter, which we completed on February 10, 2023, ahead of our initial timeline.
Speaker 4: As one consolidated company, we have an even stronger team, a healthy balance sheet, new channel partners, and a wide selection of positive margin products to serve a diverse set of customers that position us to win more deals than ever before.
Speaker 4: We expect our innovative digital ladder roadmap, amplified by exciting new software solutions, to further expand our serviceable market and catalyze growth across the business.
Speaker 4: In addition to Ouster's digital LIDAR, OS, and DF sensors, we will continue to manufacture and support the VLP16, VLP32, and the VLS128 product lines. As we continue to support existing customers using the Velodyne products, which bolsters our revenue base,
Speaker 4: We believe our digital approach is the end state for LIDAR due to its simplified architecture, superior price to performance ratio, and alignment with Moore's Law, which ultimately offers a longer-term advantage for customers.
Speaker 4: We will continue to focus and invest R&D in our digital ladder roadmap, along with the Ouster Gemini and Blue City software, to drive product adoption and new high-margin revenue streams.
Speaker 4: Over time, we aim to transition customers to exclusively digital products. As part of the ongoing integration, Ouster also announced a new management team and board, inclusive of executives and directors from both companies.
Speaker 4: We brought on Velodyne CFO Mark Weinswig to lead finance at Ouster and promoted Ouster's deputy GC Megan Chung to general counsel.
Speaker 4: Each company designated four directors to the board, all with valuable experience and perspective to offer the company, including former Velodyne CEO , PED Dukesbury, who will lead the board as executive chairman.
Speaker 4: We aim to form a management team and board that not only understands our products, our team and our history, but also has experience in growing a public company in a complex and competitive market.
Speaker 4: I'm excited to work with this strong team to scale the development of digital lidar and evolve Ouster from a market leading lighter manufacturer to a category defining autonomy provider.
Speaker 4: Turning to merger activities, we are currently focused on immediate initiatives to support the ongoing integration and achieve announced cost synergies.
Speaker 4: Prior to merging, Melodyne had started the process of outsourcing the manufacturing of its products to FabriNet, a contract manufacturer in Thailand to bring meaningful improvements to the cost structure.
Speaker 4: We have accelerated these efforts as a result of the merger and are on track to complete the transition of all maintained product lines this year, starting with the VLP16 sensors in Q1, the VLP32 in Q2, and the VLS128 by the end of the year.
Speaker 4: As products are successfully transitioned, we remain focused on improving yields and quality and optimizing BOM costs, with the goal of improving the margin structure of the Velodyne sensors.
Speaker 4: Immediately after closing the merger, we took action to integrate our sales organization and engineering teams to both support existing Velodyne customers and execute on our strategy for digital LiDAR hardware and software roadmaps.
Speaker 4: We developed a plan to integrate the Ouster Gemini and Blue City Smart Infrastructure software solutions under a single umbrella, which is already underway.
Speaker 4: Additionally, we are streamlining our G&A and IT operations under a consolidated team and platform to realize a cost-efficient structure to drive value creation for Ouster and its shareholders. In the integration, we expect to retain approximately 350 employees.
Speaker 4: The new Ouster is a LIDAR powerhouse offering a comprehensive suite of incredible LIDAR sensors.
Speaker 4: two novel smart infrastructure software solutions, a comprehensive patent portfolio spanning analog and digital IDAR, and global commercial reach with over 850 customers spanning the automotive, industrial, robotics, and smart infrastructure industries in approximately 50 countries.
Speaker 4: Ouster has three strategic priorities for 2023.
Speaker 4: Ouster has three strategic priorities for 2023. Execute on our digital ladder roadmap.
Speaker 4: Develop a robust software ecosystem to accelerate LIDAR adoption.
Speaker 4: and build a financially strong business to support our long-term growth and deliver value to shareholders.
Speaker 4: Our differentiated digital ladder technology supports a uniquely diversified business model with the ability to drive near and long-term revenue growth and scale across multiple markets.
Speaker 4: In the fourth quarter, we released our new REV7 sensors, the highest performing family of sensors on the market, delivering dramatic improvements in range, precision, and accuracy across our entire OS lineup.
Speaker 4: Our OS0 delivers 1.5 times more range and 6 times higher resolution than competitors.
Speaker 4: Our OS1 delivers two times more range and four times higher resolution than competitors. And our OS2 not only achieves a greater than 200 meter range on 10% reflective objects.
Speaker 4: but now has a maximum range of over 400 meters.
Speaker 4: Additionally, the OS Dome's hemispheric 180-degree field of view delivers four times higher resolution than competitors.
Speaker 4: The REV7 sensor suite improves our overall competitiveness across markets, opens up new opportunities, and cements our position as the industry leader for high-performance LiDAR.
Speaker 4: The early feedback from customers has been extremely positive.
Speaker 4: We closed new and expanded deals for Red 7 sensors shipping to 29 customers in the fourth quarter. We also booked orders with customers such as Syngin and Vecna for warehouse automation, ParaFix for speed enforcement, Torque Robotics for trucking, and Rise for aerial drone inspection. As well as a major mapping customer, a large European OEM, and a large European company.
Speaker 4: and another European OEM using REB7 on mining trucks.
Speaker 4: We believe the REV7 sensors will more than double our serviceable market, driven by new opportunities for long-range and mapping applications.
Speaker 4: As such, we expect Red 7 to be a major growth catalyst for Ouster in 2023.
Speaker 4: Looking forward, we also expect the digital flash or DF series for high volume series production automotive programs to also be a major catalyst for growth.
Speaker 4: We released our first A samples in 2022, which demonstrated that our solid-state digital flash architecture could achieve the stringent performance requirements of the automotive industry at a competitive cost.
Speaker 4: In the second half of the year, we plan to release final form factor early B samples of our DF sensors.
Speaker 4: This is a critical milestone on our automotive roadmap and in our commercial engagements with automakers, including our strategic OEM partner.
Speaker 4: For the first time, we will be placing DF sensors in OEM hands that represent the final size, shape, and performance of the DF product line. I can't wait to demonstrate the performance, cost, and flexibility advantage of the DF product line.
Speaker 4: Turning to software.
Speaker 4: Building a robust software ecosystem remains an important part of our product roadmap to catalyze new growth.
Speaker 4: simplify development for customers, as well as our new software solutions business, built on Astor Gemini and Blue City, targeting the smart infrastructure vertical.
Speaker 4: The market for LIDAR across smart infrastructure applications is fast and growing, driven by government initiatives built to build safer, more sustainable cities by modernizing public infrastructure and transportation systems, as well as emerging opportunities for LIDAR in security and crowd analytics to enhance the guest experience, boost revenue, and simplify operations.
Speaker 4: With millions of signalized intersections around the world and the global market for end system security cameras already estimated at 32 billion, there is a multi-billion dollar market opportunity for LIDAR and smart infrastructure.
Speaker 4: As LIDAR technology becomes increasingly prevalent on critical infrastructure across the U.S., from airports and shipping ports to our country's most populated cities and traffic roadways, Ouster is proud to be one of the few companies offering Buy American certified sensors.
Speaker 4: To build on this momentum, we recently released the Auster Gemini smart infrastructure perception platform and added the Blue City traffic management solution.
Speaker 4: With the successful early rollout of Ouster Gemini in the second half of 2022, and after closing deals with more than 10 companies, we officially released Ouster Gemini in January 2023.
Speaker 4: A handful of these customers are already using Ouster Gemini in live deployments across the US and Europe to improve retail operations, security, and roadway safety.
Speaker 4: Blue City is a turnkey LIDAR-based solution for intelligent transportation systems with over 100 active deployments in 2022.
Speaker 4: As part of our plans to unify our software solutions for the smart infrastructure vertical, Blue City will be underpinned by Austro Gemini to add OS sensor compatibility, more features, and better overall performance to Blue City customers.
Speaker 4: With the launch of our game-changing REV7 sensors, new software solutions for smart infrastructure applications, and early B samples for the DF series, as well as key benefits from our merger with Velodyne, including an expanded team, customer base, product portfolio, and partner ecosystem,
Speaker 4: We believe Ouster is more competitive and poised to close exciting new deals in 2023.
Speaker 4: In order to position the company for stable near and long-term growth, we are building a business model that is both competitive and resilient.
Speaker 4: I'm happy to introduce Mark Weinswig as our new CFO to lead us through the integration with Velodyne to help us align our cutting-edge technology and market growth with a solid business foundation to support Alster now and into the future.
Speaker 4: And with that, I'll now turn it over to Mark to update on our financial results for the fourth quarter and full year 2022, as well as provide further details on our near-term integration plans. Thank you Angus, and good afternoon everyone. I'm excited to be a member of the Ouster management team and look forward to aligning our differentiated.
Speaker 4: Our industrial and robotics customers accounted for a combined 62% of sales in the fourth quarter, which included substantial shipments for port automation, material handling vehicles, drone inspection, and warehouse automation applications.
Speaker 4: A key highlight of the quarter was the number of units shipped, reaching a record of 2,950 sensors in Q4, or a 23% increase over the fourth quarter of 2021. This included the first commercial shipments of our new REV-7 sensors to 29 customers.
Speaker 4: Further, we shipped sensors to nearly 90 new customers in the fourth quarter of 2022. Ouster is entering 2023 in a great position with a newly released platform, over 850 customers worldwide across all of our key markets and a strong balance sheet. Ouster continued to deliver positive gross margins in the fourth quarter of 2022.
Speaker 4: overhead underutilization from our lower build plan as part of the product transition to the web 7.
Speaker 4: We expect to deliver higher margins over time after we complete the Velodyne integration and ramp up our manufacturing of the Rev7 sensors.
Speaker 4: This transition to REP7 is a major catalyst for growth, as this suite of sensors more than doubles our serviceable market, opening up new opportunities and increasing our overall competitiveness in 2023.
Speaker 4: Moving on to our full year results, we are very pleased with our progress over the past year. OSCQR achieved both our revised revenue and gross margin targets for 2022, recording approximately $41 million in revenue and 27% gross margins for the year.
Speaker 4: In total, we shipped over 8,650 sensors in 2022, which amounts to over 18,500 sensors shipped to date.
Speaker 4: Across our target markets, Uster saw strong traction in the industrial and robotics verticals, accounting for 35 and 34% of our censorship in 2022 respectively. With strong demand for automation technologies across the supply chain, continued from mines and farms to shipping ports and warehouses.
Speaker 4: The automotive vertical accounted for 22% of censorship primarily for robotaxis, robotrucking, shuttles, and buses.
Speaker 4: Finally, 9% of sensors were shipped to customers in the smart infrastructure vertical in 2022.
Speaker 4: This remains an area of significant opportunity with over 210 new programs awarded in 2022, representing demand for thousands of sensors which will be deployed over the coming years, as well as with the release of the Auster Gemini software product in January 2023 and our new Blue City offering. In 2022, Auster recorded 70 million in bookings and
Speaker 4: with new and existing customers, demonstrating our growing traction across verticals, even in the near term.
Speaker 4: Bookings represents binding contact orders from customers, which we believe is a more meaningful metric than Strategic Customer Agreements or SCAs, as the Bookings metric captures orders from all customers.
Speaker 4: Ouster ended 2022 as a leading LIDAR company amongst our public LIDAR peer set, based on both revenues and gross margins.
Speaker 4: We believe this momentum is only strengthened by the merger with Validine, which showcases Ouster's maturity in the industry and allows us to build a business model that can sustain near and long-term growth.
Speaker 4: Turning to the Belladine merger integration activities.
Speaker 4: We are taking strategic steps to achieve the cost energies that allow us to build a healthy business.
Speaker 4: The company is well capitalized with a combined approximately $315 million in cash, restricted cash, cash equivalents, and short-term investments as of December 31, 2022.
Speaker 4: We remain on track to exceed previously projected annualized cost synergies of $75 million within nine months. The synergy estimate is baselined against the stand-alone cost structures of the two companies as of the third quarter of 2022. We closed the merger with Valadine on February 10th earlier than expected and took immediate steps to significantly reduce costs.
Speaker 4: By the end of the first quarter of 2023, the company expects to have removed approximately $50 million in annual run rate costs compared to the third quarter of 2022. We expect the first phase of integration to require one-time cash costs of approximately $12 to $14 million, with the majority paid by the end of March. These implemented cost reductions primarily focused on duplicative R&D products and the remaining 10 years in the currency market.
Speaker 4: We're keenly focused on positioning the company for long-term success, and we'll continue to identify additional cost synergies as we work through the integration.
Speaker 4: Through these activities, we are taking the first steps to realign our operating model to build a healthy, scalable business that can deliver value to our shareholders. We look forward to providing further details over the next couple of quarters as we continue to develop and execute on our plan. Went forward at this time.
Speaker 4: We plan to only provide quarterly guidance for revenue.
Speaker 4: For the first quarter of 2023, Auster is targeting between $15 million and $17 million in revenue.
Speaker 4: We expect the first quarter to experience some margin pressure due to the merger integration work, including the ongoing work to outsource manufacturing for Valadine sensors, as well as the manufacturing transition and startup costs from the Rev6 to Rev7 OS sensors. That said, we remain highly confident in our long-term trajectory and continued traction in the market.
Speaker 4: new hardware and software solutions that we believe will accelerate ladder adoption.
Speaker 4: and a new operating model aimed to put us on a path to profitability in line with our long-term growth plans.
Speaker 4: LIDAR is quickly becoming an essential technology on our roads, across our supply chain, and throughout our critical infrastructure.
Speaker 4: Ouster is well positioned with the technology, team, and strategic approach to make LiDAR ubiquitous to build a safer, more efficient future.
Speaker 5: With that, I'd like to open it up for Q&A.
Speaker 2: Thank you, Mr. Krakala. Ladies and gentlemen, at this time, if you do have any questions, again, star one. And if you do find your question has been addressed, you can remove yourself from the queue by pressing the pound key.
Speaker 2: We'll take our first question this afternoon from Andre Shepherd at Cantor Fitzgerald. Hi, good afternoon everyone. Congratulations on the quarter and thanks for taking our questions.
Speaker 6: Maybe to start off, I just wanted to see if you could provide a little more color on gross margins, right? So Q4 margin came down a little bit lower than historical numbers. I realize you don't provide guidance for 2023, but can you give us a sense of whether this last number is a bit of an outlier or whether...
Speaker 6: we should expect similar gross margins in 2023. Thank you.
Speaker 4: Thank you very much for the question. So looking at the fourth quarter, we did see lower gross margins. It was primarily driven by three areas. Number one was higher startup costs associated with the manufacturing transition from the Rev 6 to Rev 7 sensors, which we do believe will deliver higher margins over time. Number two was some large volume lower ASP deals with key commercial customers.
Speaker 4: And number three was a reduced build plan, which led to lower manufacturing absorption and a reduced operating leverage. Those were some impacts for the fourth quarter. Looking at the first quarter, obviously we're going to have some additional opportunities or pressures related to the merger integration with Valadine. That will include some ongoing work to outsource manufacturing and for the startup costs associated with manufacturing those.
Speaker 4: as we move to the rest of this year.
Speaker 4: Yeah, and I would also add that we do expect ASPs to be stabilized back at historic levels, not the lower levels of Q4. And that's what we're seeing in Q1. So I think overall, it was absolutely the right call to invest in the REV7 lineup.
Speaker 5: And there were costs associated with that that did obviously impact the Q4 margin. But the early response from the REZ 7 customers, we shipped to 29 customers in the corridor. We've had immense positive reaction from those products. And it's set us up extremely well.
Speaker 5: Looking into 2023 on on where we're going with the business. So just a little helpful context on why we made that investment.
Speaker 6: I know that's very helpful and insightful. Appreciate that color. Maybe as a quick follow-up, do you mind just reminding us on your capital needs?
Speaker 6: So the $315 million in liquidity, that includes the...
Speaker 6: the merger with Velodyne. So what does that mean going forward? Do you anticipate there being a need to raise additional capital, or is that aggregate liquidity deficient to give you significant runway? Thank you. As you mentioned, as of December 31st, we had a...
Speaker 4: as part of the merger to exceed $75 million in cost synergies. As we mentioned in our prepared remarks, we've already removed $50 million exiting the first quarter. There was some one-time cash costs associated with that with about $12 to $14 million, but we do feel very good about the early stage success of the integration. We see significant opportunities in the light hour space and we do believe that our technology and product should enable us to win significant share in the future.
Speaker 4: We are going to continue to make investments over time, but it is something that we are weighing which is obviously making sure that we can put in place a healthy business model for the future and so we are looking at opportunities to continue to reduce our cost structure and put us on in a good position for that. Wonderful, thanks again and congratulations on the quarter. I'll pass it on. Thank you.
Speaker 2: We go next now to Ryan Dobson of Chardon Capital Markets. Yeah, thanks very much. So I understand that you're not issuing guidance. However, you did issue a combined pro forma outlook for the two companies.
Speaker 2: just prior to the close of the deal. Now that you've had some time to overview the businesses of the combined addy, how do you feel about those 2023 and 2024 revenue numbers and should the streets still rely on them?
Speaker 4: Yeah, we appreciate the question. Obviously, right now we're only giving our first quarter guidance, which is for this period, which is between the 15 and 17 million dollars. We are continuing to look at the combined business and what it's going to look like. You know, obviously we're only 40 days into this merger, so we're just starting off with
Speaker 4: kind of looking at the opportunities to grow the business, for the opportunities to get our cost structure aligned. So I look forward to updating you in future quarters as we continue to make more progress on some of these integration activities. But for right now, we're really just putting our heads down and focusing on the task at hand.
Speaker 5: Yeah, and I just said that we came out of 2022 with 70M dollars in bookings for the year. That's an extremely strong number for us as a business and that was built primarily from the Rev6 product line and obviously we've invested and now we're shipping Rev7 products.
Speaker 5: They're a game changer for our customer base and for expanding our SOM. And so the growth we saw in bookings, the growth we saw in revenue and shipments and one deals last year gives us a lot of confidence that we're on the right trajectory for this year. And the merger from the work we've done in the last four weeks, we're on track with the merger. We're on track with our product transition on the Belladine side to FaberNet.
Speaker 5: So absolutely this year Rev7 will be a major catalyst for us winning new business and and also expanding business whether existing customer sets You know, I can't I can't stress enough how much of a game changer the Rev7 product line is
Speaker 5: We changed basically every component in those devices we upgraded, starting with the L3 chip, a much more advanced semiconductor node, hundreds of millions of transistors worth of logic that double the range of the entire product line with no drawback in power draw, size, form factor.
Speaker 5: cost structure to the product line. And we also released a new form factor, the OSDome, in the process. So not only are we improving our existing products, but we released this very differentiated OSDome product to expand more in our industrial and robotics space.
Speaker 5: but also give us a perfect sensor for all of our smart infrastructure solutions business. I'm using it in a ceiling mounted way just like a security dome. So, the Rev7 is absolutely a part of the business. And I'd highlight that we've already announced head to head wins with the Rev7 sensors, Synjin.
Speaker 5: and LASA are two that we recently released, one in industrial robotics, the other LASA in port automation. And so the early product feedback has been incredibly promising.
Speaker 2: Oh, that's excellent to hear. Thank you for that color. Just one final question. In the filing, you have some pro forma revenue numbers for 23 for Velodyne and for Ouster, and then you have the combined entity. And it seems like there's some leakage between those three numbers, and that's probably due to, you know, call it redundant product lines or redundant customers.
Speaker 2: The first quarter guidance you gave that's just for standalone ouster, right? Would you expect combined results to be below that range?
Speaker 4: Well, I appreciate the question. So for the standalone guidance that we're doing for the $15 to $17 million of revenues, that includes any Velodyne products that we are shipping out after the merger date of February 10th. So that would include the existing Houser business plus the VLP-16.
Speaker 7: This is Tyler on for Tristan. Thanks for taking the questions. Could you provide an update of the state of demand in China? Do you expect a second half recovery and then also could you just remind us what your revenue exposure is to China? Thanks for the question. Yeah, so we've never broken out the China revenue base.
Speaker 5: We've invested significantly in the region. There's a ton of great business to be had in APAC as a region overall. We do have a presence in China. Both Velodyne and Ouster did and we continue to have a presence there. We have a lot of great customers within China in the robotics and automotive space. There's been a ton of investment in kind of a robo taxi and adjacent industries. Bhaskar
Speaker 5: But we're also investing significantly into major other Asian markets like South Korea, Japan, Australia, Singapore, and obviously we have a big physical presence in Thailand as well with our manufacturing there. So we're expecting to continue to invest in the entire region. It's an important region.
Speaker 7: Great. For my follow-up, you mentioned that one Q23 ASP should go back to historical levels, but how should we think about price declines expected for the rest of the year and then also compare that with your expected cost declines for the year?
Speaker 5: Yeah, so just stepping back, the fundamental premise of the digital lidar sensors that our cogs are going to continue to decrease faster than our ASPs continues to be our expectation. Mark mentioned some of the headwinds that we'll have as a part of the merger.
Speaker 5: as a part of the Rev 6 to Rev 7 transition, those are near-term effects, but we do expect that Rev 7 will continue to march down this COGS trajectory while ASPs stay more stable. And so, we noted that ASPs were lower in the fourth quarter due to some higher volume lower ASP customers.
Speaker 5: But we've already seen ASPs rebound for the Red 6 products and the Red 7 products are already coming in at higher ASPs, premium ASPs, than the Red 6 products by design, given their premium performance. live.
Speaker 2: Thanks again. Thank you. We go next now to Kevin Cassidy at Rosenblatt Securities. Yeah, thanks for taking my question. Just, you know, congratulations on the book to bill ratio that you had in 2022. I'm not sure if you guys have any questions. I'm just going to go ahead and get started. I'm going to go ahead and get started. I'm going to go ahead and get started.
Speaker 5: When you're looking at the first quarter, are you continuing that type of book to bill ratio, assuming 16 million in revenue? Absolutely, I think that the book to bill is such a strong indicator for the business. Your call going back even to when we went public, we talked about the importance of building binding relationships with our customers, signing contracts with our customers, and we continue to do that.
Speaker 5: and expect to continue to succeed. It's better for customers to have visibility into their purchasing cycles, and it's better for us in managing our supply chain and understanding where their business is going.
Speaker 5: Okay, great. And to just better understand the getting the ASPs back up again, is that high volume customers? Are they still going to be in high volume?
Speaker 5: in 2023 and you're just getting more lower volume, let's say higher ASP, so the mix is bringing the ASP back up or is that high volume customer a one time shipment?
Speaker 5: It's really a mix of both and we have things are there's some volatility in ASPs and we saw that through the quarters last year. There are the seasonal effects of Q4 in our business. We generally see higher volumes with slightly lower ASPs. It was a little more pronounced this year, but.
Speaker 5: Yeah, I think that there's not too much to read into. We have high volume customers that are purchasing in all the quarters through the year.
Speaker 2: Okay, great. Congratulations on getting the merger done. Thank you.
Speaker 2: Okay, great. Congratulations on getting the merger done. Thank you. We'll go next now to Richard Shannon of Craig Hallam.
Speaker 5: Hi guys, thanks for taking my questions. I guess my first one's for Mark here. He'd given us some thoughts here on how to build a cost model and cost structure, but I just want to ask a direct question here of how you see your break-even model from a gross margin OPEX point of view.
Speaker 4: Yeah, I appreciate the question and Richard, I can tell you that we've been focusing probably more time on that topic than on any other one. I can tell you that we are in the process of building out our long-term modeling plans to make sure that we can take into account the combined company. We obviously have...
Speaker 4: Just 40 days ago, we obviously changed the entire dynamics of the organization with the combination and obviously we're very excited about that. In terms of the near-term outlook, we are really focused on that $75 million of cost synergies. We went into the merger with that on our mind. We've really put a lot of effort onto it. We're very happy that really in just the first two months, we've already been able to obtain roughly 65% of those costs.
Speaker 4: move of some of the historical valedine products over to Thailand to really increase margins. One of the things that Angus mentioned in his remarks was that the merger allowed us to actually expedite some of that work and you're going to start seeing more and more of the valedine products manufactured overseas which should allow us to start to increase margins. There are some startup costs associated with that. There's some capital that we've put in place.
Speaker 4: But we are really excited about what this opportunity means in terms of being able to give us a higher gross margin business over the next few quarters, especially as we get through these early parts of the merger. I know I'm not answering your question exactly, but unfortunately, you know, we're still 40 days in and I look forward to giving you more updates, especially as we go through and we start getting more and more information under our belt. I figured it might be a little earlier for that, but I appreciate your.
Speaker 4: What kind of when do we get rid of some of those effects and kind of get to a normal course of business and then following up on that as you talk about, you know, affecting the belladine manufacturing approach with what you've done at Ouster where the gross margin is so good. Is there any way or do you expectation that belladine products are still remaining can get to an Ouster like gross margin structure that you're...
Speaker 4: into it but it's something that we're really focused on from that from just that communication perspective. You know we started the transition before the merger but after the merger there's been a huge amount of increased efforts in terms of the you know both the Velodyne and Ouster operations groups to continue to basically move that process forward. It will take a couple of quarters, additional quarters before we get through most of that.
Speaker 4: some of the margin base, but that's something where obviously we do think that there's a better margin opportunity with some of the newer digital LiDAR products than what we've seen with some of the other existing historical products. Yeah, just to add on to that, I mean, we quickly took a look at the time of the merger, what we could do on the Velodyne product base.
Speaker 5: to increase margins quickly, efficiently, and for the purpose of really supporting the existing customer base and giving them a smooth transition that could be measured in years, not quarters, from analog LIDAR products to digital LIDAR products. We're investing, when I just step back and continue to think about where this industry is going.
Speaker 5: Digital LIDAR products have a fundamental cost structure advantage, and we're going to continue to invest in the R&D roadmap that's behind those digital LIDAR products. But we're in the fortunate position where we can provide a supply guarantee to the Velodyne customers that they're going to be able to purchase these products.
Speaker 5: for the the the VLP 16 and 32 and 128 products for the foreseeable future and give them a really smooth transition to digital products over a matter of years.
Speaker 4: Okay, appreciate those thoughts Angus. One last quick question for Mark. I was just trying to estimate what your cash balance ending this quarter will be in your only eight days from the end so I figured I'd ask to see if you could give us an estimate. I was kind of doing back envelope numbers and kind of getting to around 270. Is that in the right range? Yeah, you know obviously we entered the quarter with $315 million, sorry, into the year. We look at it as a combined basis.
Speaker 4: you know, both the historical balladine and historical house stir, obviously were burning at their typical run rates for that first 40 days. Since that time, we've continued to do a lot of these integration activities to lower the burn rate. There is some cash cost associated with it. We publicly announced that it would be, you know, in just this first stage of integration, it would be roughly $12 to $14 million of cash.
Speaker 4: And so obviously making sure that we can retain as much cash as we can, lower the burn rate, and protect that asset is something that we are very much focused on.
Speaker 2: Okay, appreciate the thoughts guys. That's all for me.
Speaker 2: Okay, appreciate the thoughts guys, that's all for me. Thank you.
Speaker 5: Great and I think that's the, I'm sorry I'm just checking if there are more questions. We do have a couple more questions sir. We go next now to Kevin Garrigan at West Park Capital. Yeah let me echo my congrats on the merger completion and thanks for fitting in. Just you know two quick questions.
Speaker 8: and kind of will it be an impact in 2023?
Speaker 5: Yeah, I think that we, you know, looking back, our business came out of 2022, having weathered this environment quite well, and we expect, you know, we're a diversified company. We highlighted the growth in industrial and robotics sector for the business in 2022.
Speaker 5: Those are industries that really have a much more stable customer base than some of the R&D-focused emerging technologies that other companies in this space have kind of focused their companies on. And so diversification allowed us to complete the year with extremely strong bookings to bill ratio. We really want to highlight.
Speaker 5: against any kind of macroeconomic trends.
Speaker 8: Okay, got it. That makes sense.
Speaker 8: And then just as a quick follow up, the combined company is, I'd say, a powerhouse in the non-automotive LIDAR market. We've heard from some other LIDAR companies that they're trying to break into non-auto. Are you seeing any competitors making a big presence in non-auto or any increased competition in this market? How do you change risk?
Speaker 5: You know, I've seen a lot of press releases and not a lot of products. And I hold that it's just going back to how hard it is to release products in the LIDAR space, let alone competitive products, let alone gross margin positive products. And now with Rev7, it's the seventh time we've done that.
Speaker 5: So, you know, I expect there to be more head-to-head competition, but we've shown in the past, and I'm positive with the Rev7 sensors that we're going to continue to show that we are highly, highly competitive in the space. And I'd actually point to what Ouster is doing in automotive. Thank you for watching.
Speaker 5: and looking to 2023 with the DF sensor line finally coming with early B samples into the automotive market as an indication of the presence Ouster is going to have in this market that historically some of our competitors thought was safe.
Speaker 5: And just to highlight some of the benefits that we're bringing to the market there, the DF sensor is really targeted at ultra-cost competitive, high-performance modular sensors to go into the consumer vehicles that you and I drive. And there's an immense amount of technology that has gone into building.
Speaker 5: be releasing early B samples, final form factor devices with the final size, shape, performance of the devices that will go into cars ultimately just in this next year, in the next couple quarters actually. And I have a ton of expectations for that and how it's going to catalyze our automotive business.
Speaker 5: Given all the feedback that we've gotten internally from automakers as we've released a samples last year Communicated the DF roadmap and now, you know, finally putting putting the actual hardware into automakers hands Yeah, now that makes a ton of sense, okay, thank you for that color great that was all that I have thanks guys and congrats again
Speaker 5: And we'll go next now to Colin Rush at Oppenheimer. Thanks so much for fitting me in guys. You know, first could we talk a little bit about the ecosystem of you know, non-hardware elements that you guys are merging here and how much progress and synergy there is within the software development tools and some of the other data.
Speaker 5: in Sensorfusion, offerings that you guys are bringing to the table for your customers and how that's being received by the customer base so far. Yeah, I think the biggest thing to highlight here, this is a great question and it really targets where we're going as a business. I mentioned at the beginning how
Speaker 5: We have a multi-pronged strategy to really grow from a hardware lidar maker into a solutions provider, an autonomy solutions provider. And we have the good fortune that both Velodyne and Ouster pre-merger had begun to invest in smart infrastructure solutions. And that's the Ouster Gemini software platform that targets really the entire vertical, so security, crowd analytics.
Speaker 5: and intelligent traffic systems. And then the Blue City solution, which is a very focused solution just for traffic, analytics and management on the Velodyne side. Since the merger, we actually now have combined those teams and I held a software summit in Canada.
Speaker 5: where we got both teams together and defined a unified road map where we could integrate Blue City and Gemini into kind of a single software roadmap where now Blue City is underpinned by the Gemini offering and both can be sold to their respective audiences. And we've seen a ton of really great initial progress on this. We mentioned early traction with Gemini.
Speaker 5: released just this quarter, we already have over 10 deployments with that software. It's sped the time to market for the customer set that we're selling into, really opened up new opportunities in crowd analytics, security, and traffic because...
Speaker 5: We're selling to a customer that may not know about LIDAR specifically, but wants to have an end capability. And then Blue City has been in the market actually for a couple years now and announced that they had done over 100 deployments in 2022 alone. And so we're combining, we now have a significant team devoted to these efforts.
Speaker 5: I see huge synergies as a result of the Summit and the combined roadmap that came out of the Summit that we held just last month. Okay, that's super helpful. Just shifting away from the synergies that you guys are seeing from the organization to the potential optimization of the balance sheet. Can you talk a little bit about what you can do to lower the cost of capital overall for an organization and extend the runway?
Speaker 4: Given the scope and scale of the ambition for for the combined entity Yeah, you know as we talked about before you know obviously we entered the you know the year with you know a combined 315 million dollars You know as you mentioned we are really focused on the cost synergies that we can take out of the business And making sure we can take those out as quickly as possible
Speaker 4: We are very pleased with the $50 million of annualized cost savings that we've taken out, entering into the second quarter. For us, investment in new programs and new technologies is key. It's one of the reasons why OSTRS has been so successful. The $70 million of bookings that we have as an organization that we got in 2022 is right from that investment. And so, the LIDAR space is just starting off. You know, the...
Speaker 4: work but we're very excited about the opportunity and the merger really helped us in terms of putting together these two organizations giving us additional scale and allowing us to realign the overall cost structure.
Speaker 7: Okay, I'll take the rest of it offline. I've got some more detailed questions. Thanks, guys.
Speaker 9: Okay, I'll take the rest of it offline. I've got some more detailed questions. Thanks, guys. Thanks, Colin.
Speaker 5: And Mr. Piccala, it appears we have no further questions today. I'll turn the conference back to you. All right, well, I wanted to end by thanking all of our employees actually for a very strong 2022 and for putting in the work that positions Ouster for another incredible year in 2023. And I'd also like to thank everyone for attending the call today and for the questions asked.
Speaker 10: Thank you. Ladies and gentlemen, that will conclude Alster's fourth quarter 2022 earnings conference call. Again, we'd like to thank you all so much for joining us and wish you all a great remainder of your day. Goodbye. Please wait, the conference will begin shortly.