Q2 2024 Ouster Inc Earnings Call

Speaker Change: Hello and welcome to Ouster's 2nd Quarter 2024 Earnings Conference Call.

Operator: For the Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Unknown Executive: 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.

Operator: 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 the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound. The call today is being recorded, and a replay of the call will be available on Ouster's Investors Relations website an hour after the completion of this call. I'd now like to turn the conference over to Chen Geng, VP of Strategic Finance and Treasurer. Good afternoon, everyone.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Speaker Change: 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 the pound key.

Unknown Executive: If you would like to withdraw your question, press the pound key.

Unknown Executive: The call today is being recorded, and a replay of the call will be available on the Alsters Investors Relations website in hour after the completion of this call.

Speaker Change: The call today is being recorded and a replay of the call will be available on the Alsters Investors Relations website an hour after the completion of this call.

Chen Geng: I'd now like to turn the conference over to Chen Geng, CP, a strategic finance and treasure. Good afternoon, everyone. Thank you for joining us for our second quarter, 2024, earnings call. I am joined today by Ouster's Chief Executive Officer, Angus Pacala, 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 second quarter 2024 results. An investor presentation was published and is available on the Investor Relations section of Ouster's website.

Speaker Change: I'd now like to turn the conference over to Chen Geng, VP of Strategic Finance and Treasurer.

Chen Geng: Thank you for joining us for our second quarter 2024 earnings call. I am joined today by Ouster's Chief Executive Officer, Angus Pacala, and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks,

Chen Geng: Good afternoon, everyone. Thank you for joining us for our second quarter 2024 earnings call.

Speaker Change: I am joined today by OUTSER's Chief Executive Officer, Angus Pacala, and Chief Financial Officer, Mark Weinswig.

Unknown Executive: We would like to remind you that earlier today, Ouster issued a press release announcing its second quarter 2024 results. An investor presentation was published and is available on the Investor Relations section of Ouster's website. Today's earnings call and press release reflect management's views as of today only and will include statements related to our business and financial outlook that are forward-looking statements under the federal securities laws. However, actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business.

Speaker Change: Before we begin the prepared remarks.

Speaker Change: We would like to remind you that earlier today, OUTSER issued a press release announcing its second quarter 2024 results.

Speaker Change: An investor presentation was published and is available on the Investor Relations section of OUTSER's website.

Chen Geng: Today's earnings call and press release reflects management's views as of today only and will include statements related to our business and financial outlook that are forward-looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's SEC filings and today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law.

Speaker Change: Today's earnings call and press release reflects management's views as of today only and will include statements related to our business and financial outlook that are forward-looking statements under the federal securities laws.

Speaker Change: Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business.

Speaker Change: For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's SEC filings and today's press release, both of which can be found on our Investor Relations website.

Unknown Executive: For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's FEC filings and today's press release, both of which can be found on our investor relations website. Any forward-looking statements that we make on this call are based on assumptions as of today, and, other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events.

Speaker Change: Any forward-looking statements that we make on this call are based on assumptions as of today and, other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events.

Chen Geng: We undertake no obligation to update these statements as a result of new information or future events.

Chen Geng: Information discussed on this call concerning Ouster's industry, competitive position, and the markets in which it operates is based on information from independent industries and research organizations, other third-party sources, and management estimates, which are derived from publicly available information released by independent organizations. Independent industry analysts and other third party sources, as well as data from Ouster's internal research, are based on reasonable assumptions and computations made upon reviewing such data and its experience and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results from different materially from those expressed in the estimates.

Unknown Executive: Information discussed on this call concerning Ouster's industry, competitive position, and the markets in which it operates is based on information from independent industries 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, as well as data from Ouster's internal research, and are based on reasonable assumptions and computations made upon reviewing such data and its experience and knowledge of such industry and market. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the essay.

Speaker Change: Information discussed on this call concerning Ouster's industry, competitive position, and the markets in which it operates is based on information from independent industries and research organizations.

Speaker Change: 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 Change: as well as data from OUTSER'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 Change: By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates.

Chen Geng: During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call, to the most directly comparable GAAP measures, please refer to today's press release.

Unknown Executive: During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to, and not a substitute for, measures prepared in accordance with GAAP, for a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures. Please refer to today's press release. I would now like to turn the call over to Angus. Hello, everyone, and thank you for joining us.

Speaker Change: During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP.

Speaker Change: For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures.

Angus Pacala: I would now like to turn the call over to Ang. Hello everyone, and thank you for joining us today. I'll start with a brief recap of the quarter overview of the market and update on our strategic priorities.

Unknown Executive: I'll start with a brief recap of the quarter, an overview of the market, and an update on our strategic priorities. Mark will cover our financial results in more detail before I close with some final thoughts. Our second quarter results showcase solid execution as our GAAP gross margin increased to 34%, setting a new operating record. We reported revenues of $27 million, representing the sixth straight quarter we have met or exceeded our guidelines. We're also making our business more efficient. Since the first quarter of 2023, we have reduced our inventory levels by over 30% and improved our annualized inventory terms to over three and a half times from under two and a half.

Speaker Change: Please refer to today's press release.

Speaker Change: I would now like to turn the call over to Angus.

Angus Pacala: Hello, everyone, and thank you for joining us today. I'll start with a brief recap of the quarter, overview of the market, and update on our strategic priorities.

Angus Pacala: Mark will cover our financial results in more detail before I close with some final thoughts. We have met or exceeded our guidance. We are also making our business more efficient. Since the first quarter of 2023, we have reduced our inventory levels by over 30% and improved our annualized inventory turns to over three and a half times from under two and a half. Alongside the continued improvement in our operating results, we have built one of the industry's most resilient balance sheets and diversified business models.

Angus Pacala: Mark will cover our financial results in more detail before I close with some final thoughts.

Mark Weinswig: Our second quarter results showcase solid execution as our gap gross margin increased to 34%, setting a new operating record for Ouster.

Mark Weinswig: We reported revenues of $27 million, representing the sixth straight quarter we have met or exceeded our guidance.

Mark Weinswig: We're also making our business more efficient.

Mark Weinswig: Since the first quarter of 2023, we have reduced our inventory levels by over 30% and improved our annualized inventory turns to over three and a half times from under two and a half.

Unknown Executive: Alongside the continued improvement in our operating results, we have built one of the industry's most resilient balance sheets and diversified business models. Subsequent to the end of the quarter, we repaid all outstanding balances on our revolving credit line with cash.

Mark Weinswig: Alongside the continued improvement in our operating results, we have built one of the industry's most resilient balance sheets and diversified business models.

Angus Pacala: Subsequent to the end of the quarter, we repaid all outstanding balance on our revolving credit line with cash on hand. During the second quarter, we saw a strength in our robotics vertical, which accounted for many of our largest deals. We secured and expanded our relationship with Serve Robotics, a leading developer of advanced AI powered delivery robots. Oster's Rev 7 sensors are designed to support a level 4 capable fleet that makes on-demand delivery more affordable and accessible. We look forward to supporting serves planned fleet expansion across multiple US markets by the end of 2025. Also within robotics, we won deals with two of the world leading mapping companies to improve how their billions of users explore the world.

Mark Weinswig: Subsequent to the end of the quarter, we repaid all outstanding balance on our revolving credit line with cash on hand.

Angus Pacala: During the second quarter, we saw strength in our robotics vertical, which accounted for many of our largest deals. We secured and expanded our relationship with Serve Robotics, a leading developer of advanced AI-powered delivery robots. Ouster's REV7 sensors are designed to support a level four capable fleet that makes on demand delivery more affordable, and we look forward to supporting CERV's planned fleet expansion across multiple U.S. markets by the end of 2025.

Mark Weinswig: During the second quarter, we saw a strength in our robotics vertical, which accounted for many of our largest deals.

Mark Weinswig: We secured and expanded our relationship with Serv Robotics, a leading developer of advanced AI-powered delivery robots.

Mark Weinswig: Ouster's REV7 sensors are designed to support a level 4 capable fleet that makes on-demand delivery more affordable and accessible.

CERV: We look forward to supporting CERV's planned fleet expansion across multiple U.S. markets by the end of 2025.

Angus Pacala: Also in robotics, we won deals with two of the world's leading mapping companies to improve how their billions of users explore the world. These customers are expanding their Rev7 deployments to refresh and upgrade their mapping, with increased range and accuracy. Rev7 took mapping to a whole new level at the Paris Olympics, where fans engaged in new immersive experiences that brought them closer to the games. Reflecting our focus on software solutions, software-attached sales were a highlight in the quarter as we won deals to power perimeter security, intelligent transportation systems, and crowd analytics.

CERV: Also within robotics, we won deals with two of the world's leading mapping companies to improve how their billions of users explore the world.

Angus Pacala: These customers are expanding their rev 7 deployments to refresh and upgrade their mapping fleet with increased range accuracy and precision. Rev 7 took mapping to a whole new level at the Paris Olympics, where fans engaged in new immersive experiences that brought them close to the games. Reflecting our focus on software solutions, software attached sales were a highlight in the quarter as we won deals to power perimeter security, intelligent transportation systems, and crowd analytics. With Oster Gemini, our customers are able to detect and classify objects, conduct real-time tracking, protect secure zones, and automate alerts for security threats.

CERV: These customers are expanding their REV7 deployments to refresh and upgrade their mapping fleets with increased range, accuracy, and precision.

CERV: Rev7 took mapping to a whole new level at the Paris Olympics, where fans engaged in new immersive experiences that brought them closer to the games.

CERV: Reflecting our focus on software solutions, software-attached sales were a highlight in the quarter as we won deals to power perimeter security, intelligent transportation systems, and crowd analytics. Thank you. Thank you.

Angus Pacala: With Ouster Gemini, our customers are able to detect and classify objects, conduct real-time tracking, protect secure zones, and automate alerts for security. Compared to traditional security solutions, Gemini can significantly decrease false alarms, reduce labor constraints, and enhance intrusion detection capabilities in a wide range of environments.

Speaker Change: With Ouster Gemini, our customers are able to detect and classify objects, conduct real-time tracking, protect secure zones, and automate alerts for security threats.

Angus Pacala: Compared to traditional security solutions, Gemini can significantly decrease false alarms, reduce labor constraints, and enhance intrusion detection capabilities in a wide range of environmental conditions.

Speaker Change: Compared to traditional security solutions, GemIIni can significantly decrease false alarms, reduce labor constraints, and enhance intrusion detection capabilities in a wide range of environmental conditions.

Angus Pacala: I am excited about the additional software opportunities we have in the pipeline for the second half of 2024. Touching on the current demand environment more broadly, we are encouraged to see expanding deployments with existing customers as well as evaluation projects with new customers. Consistent with broader macroeconomic and industry trends, we have also seen some customer schedules push to the right. Despite these schedule changes, which may soften near-term growth, we expect our strong margin and operating expense performance to keep us on track to deliver on our path of profitability.

Angus Pacala: I am excited about the additional software opportunities we have in the pipeline for the second half of 2020. Touching on the current demand environment more broadly, we are encouraged to see expanding deployments with existing customers, as well as evaluation projects with new customers. Consistent with broader macroeconomic and industry trends, we have also seen some customer schedules push to the right.

Speaker Change: I am excited about the additional software opportunities we have in the pipeline for the second half of 2024.

Speaker Change: Touching on the current demand environment more broadly, we are encouraged to see expanding deployments with existing customers as well as evaluation projects with new customers.

Speaker Change: Consistent with broader macroeconomic and industry trends, we have also seen some customer schedules push to the right. Despite these schedule changes, which may soften near-term growth, we expect our strong margin and operating expense performance to keep us on track to deliver on our path to profitability.

Angus Pacala: Despite these schedule changes, which may soften near-term growth, we expect our strong margin and operating expense performance to keep us on track to deliver on our path to profitability. Now, turning to our strategic business priorities for 2024. Our first priority is to expand software sales and grow our installed base. In the second quarter, we secured deals to supply Ouster Gemini, our smart infrastructure software solution, to one of the world's largest consumer technology companies, as well as Global Telecommunications.

Angus Pacala: Turning to our strategic business priorities for 2024. Our first priority is to expand software sales and grow our installed base. In the second quarter, we secured deals to supply a Ouster Gemini, our smart infrastructure software solution, to one of the world's largest consumer technology companies, as well as a global telecommunications company. During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases such as identifying unauthorized individuals tailgating into restricted areas. The second quarter also marked one of our best quarters for software attached sales.

Angus Pacala: During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases, such as identifying unauthorized individuals tailgating into restricted areas.

Speaker Change: Turning to our strategic business priorities for 2024.

Speaker Change: Our first priority is to expand software sales and grow our installed base.

Speaker Change: In the second quarter, we secured deals to supply Ouster Gemini, our smart infrastructure software solution, to one of the world's largest consumer technology companies, as well as a global telecommunications company.

Speaker Change: During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases such as identifying unauthorized individuals tailgating into restricted areas.

Angus Pacala: The second quarter also marked one of our best quarters for software-as-a-service sales. We increased our deployments at distribution yards as Gemini and Rev7 are helping drive immediate ROI for our customers, in addition to providing safety and operational optimization. We signed Gemini deals for multiple other use cases, such as material handling, crowd analytics, and perimeter security applications. Now, turning to our Digital LiDAR hardware. We have taped out our automotive grade custom silicon Kronos chip and expect to integrate Kronos into our solid state digital flash DF sensors in the next year. Concurrently, we are advancing the development of our next generation custom silicon for OS. The L4.

Speaker Change: The second quarter also marked one of our best quarters for software attached sales. We increased our deployments at distribution yards as Gemini and Red 7 are helping drive the immediate ROI for our customers in addition to providing safety and operational optimization.

Angus Pacala: We increased our deployments at distribution yards as Gemini and Red 7 are helping drive the immediate ROI for our customers in addition to providing safety and operational optimization. We signed Gemini deals for multiple other use cases such as material handling, crowd analytics, and perimeter security applications.

Speaker Change: We sign Gemini deals for multiple other use cases, such as material handling, crowd analytics, and perimeter security applications.

Angus Pacala: Turning to our digital light, our hardware roadmap, we have taped out our automotive grade Custom Silicon Chronos chip and expect to integrate Chronos into our solid state digital flash DS sensors in the next year. Concurrently, we advance the development of our next generation custom silicon for OS sensors, the L4 chip. The L4 Silicon is back from fab, and validation testing is underway. Both Chronos and L4 are expected to open up new verticals and bring significant improvements in performance, reliability, and manufacturability to the Aster product family.

Speaker Change: Turning to our Digital LiDAR Hardware Roadmap.

Speaker Change: We have taped out our automotive grade custom silicon Kronos chip and expect to integrate Kronos into our solid-state digital flash DS sensors in the next year

Speaker Change: Concurrently, we advanced the development of our next-generation custom silicon for OS sensors, the L4 chip.

Angus Pacala: The L4 silicon is back from fab, and validation testing is underway. Both Kronos and L4 are expected to open up new verticals and bring significant improvements in performance, reliability, and manufacturability to the Ouster product. Finally, our second quarter results demonstrate solid execution and progress on our path to profitability. Our gross margins are now approaching the range provided in our long-term financial framework, and we have maintained a low-cost structure while achieving significant year-over-year revenue growth.

Speaker Change: The L4 silicon is back from fab and validation testing is underway.

Speaker Change: Both Kronos and L4 are expected to open up new verticals and bring significant improvements in performance, reliability, and manufacturability to the Aster product family.

Angus Pacala: Finally, our second quarter results demonstrate solid execution and progress on our past profitability. Our gross margins are now approaching the range provided in our long-term financial framework, and we have maintained a low cost structure while achieving significant year-over-year revenue growth. We remain on track to deliver the financial metrics necessary to reach profitability. In summary, the second quarter showcased our execution and progress on all three of our strategic business objectives.

Speaker Change: Finally, our second quarter results demonstrate solid execution and progress on our path to profitability. Our gross margins are now approaching the range provided in our long-term financial framework, and we have maintained a low-cost structure while achieving significant year-over-year revenue growth.

Angus Pacala: We remain on track to deliver the financial metrics necessary to reach profitability. In summary, the second quarter showcased our execution and progress on all three of our strategic business objectives. I'll now turn the call over to our CFO, Mark Weinswig, to provide more context on our financial results for the second quarter. Thank you, Angus, and good afternoon, everyone.

Speaker Change: We remain on track to deliver the financial metrics necessary to reach profitability.

Speaker Change: In summary, the second quarter showcased our execution and progress on all three of our strategic business objectives.

Mark Weinswig: I'll now turn the call over to our CFO, Mark Swig, to provide more context on our financial results for the second quarter. Thank you, Angus, and good afternoon, everyone. In the second quarter, we recognized a record $27 million in revenue, shipping over 4,000 sensors. Revenue increased 39% over the second quarter of 2023 and 4% over the first quarter of 2024. The smart infrastructure vertical was the largest contributor to revenue, followed closely by robotics. Since launching our software solutions in the first quarter of 2023, smart infrastructure has been our fastest-growing vertical, and this quarter comprises roughly one-third of total revenues.

Mark Weinswig: I'll now turn the call over to our CFO, Mark Weinswig, to provide more context on our financial results for the second quarter.

Mark Weinswig: In the second quarter, we recognized a record $27 million in revenue, shipping over $4,000. Revenue increased 39% over the second quarter of 2023 and 4% over the first quarter of 2024. The Smart Infrastructure Vertical was the largest contributor to revenue, followed closely by Roboto. Since launching our software solutions in the first quarter of 2023, smart infrastructure has been our fastest-growing vertical, and this quarter comprised roughly one-third of total revenue. Our Gross Margin Improvement over the past 18 months is a key highlight for us.

Mark Weinswig: Thank You Angus and good afternoon everyone. In the second quarter we recognized a record 27 million dollars in revenue shipping over 4,000 sensors.

Speaker Change: Revenue increased 39% over the second quarter of 2023 and 4% over the first quarter of 2024.

Speaker Change: The Smart Infrastructure Vertical was the largest contributor to revenue, followed closely by robotics. Since launching our software solutions in the first quarter of 2023, Smart Infrastructure has been our fastest-growing vertical, and this quarter comprised roughly one-third of total revenues.

Mark Weinswig: Our gross margin improvement over the past 18 months is a key highlight for Outdoor. Second quarter gross margins set record levels both on a gap and non-gap basis. Gap gross margin was 34% in the second quarter of 2024, compared to negative 2% in the first quarter of 2023, and is nearing the range provided in our long-term framework of 35-40%.

Speaker Change: Our Gross Margin Improvement over the past 18 months is a key highlight for All-Star.

Mark Weinswig: Second quarter gross margins were at record levels, both on a gap and non-gap basis. Gap gross margin was 34% in the second quarter of 2024, compared to negative 2% in the first quarter of 2023, and is nearing the range provided in our long-term framework of 35 to 40%.

Speaker Change: Second quarter gross margins at record levels, both on a gap and non-gap basis.

Speaker Change: Gap gross margin was 34% in the second quarter of 2024 compared to negative 2% in the first quarter of 2023 and is nearing the range provided in our long-term framework of 35 to 40%.

Mark Weinswig: Vincent. Non-depth gross margin improved to 40% in the second quarter. Gross margin benefited from further adoption of our high-performing Rev 7 sensors, favorable product mix, and lower manufacturing costs. We see a slight normalization of these factors and expect our margins to be relatively flat sequentially. I am proud of our progress in expanding gross margins since the merger. The strong performance illustrates our ability to drive revenue in a growth, while at the same time significantly reducing overhead costs and streamlining our manufacturing operations. In addition, we have simultaneously reduced our inventory levels by almost $10 million, increasing our working capital efficiency.

Mark Weinswig: Non-gap gross margin improved to 40% in the. Gross margin benefited from further adoption of our high-performance REV7 sensors, favorable product mix, and lower manufacturing costs. We see a slight normalization of these factors and expect our margins to be relatively flat sequentially. I am proud of our progress in expanding gross margins since the merger. The strong performance illustrates our ability to drive revenue growth while at the same time significantly reducing overhead costs and streamlining our manufacturing operations. In addition, we have simultaneously reduced our inventory levels by almost $10 million, increasing our working capital efficiency. GAAP operating expenses of $34 million were lowered by 72% year-over-year and up 3% sequentially.

Speaker Change: Non-GAAP gross margin improved to 40% in the second quarter.

Speaker Change: Gross margin benefited from further adoption of our high-performing Rev7 sensors, favorable product mix, and lower manufacturing costs. We see a slight normalization of these factors and expect our margins to be relatively flat sequentially.

Speaker Change: I am proud of our progress in expanding gross margins since the merger.

Speaker Change: The strong performance illustrates our ability to drive revenue growth while at the same time significantly reducing overhead costs and streamlining our manufacturing operations. In addition, we have simultaneously reduced our inventory levels by almost $10 million, increasing our working capital efficiency.

Mark Weinswig: Gap operating expenses of $34 million were lower by 72% year-over-year and up 3% sequentially. The sequential increase was driven by higher stock-based compensation and increased litigation expenses. We expect operating expenses to fluctuate on a quarterly basis, largely due to the timing of R&D project spending and litigation activities, and to remain at or below third quarter 2023 levels.

Speaker Change: Gap operating expenses of $34 million were lowered by 72% year-over-year and up 3% sequentially.

Mark Weinswig: The sequential increase was driven by higher stock-based compensation and increased litigation. We expect operating expenses to fluctuate on a quarterly basis, largely due to the timing of R&D project spending and litigation activities and should remain at or below the third quarter 2023 level. Moving to the balance sheet, our balance sheet is industry-leading, with cash, cash equivalents, restricted cash, and short-term investments of $186 million at June 30. During the second quarter, we received approximately $16 million from ATM sales.

Speaker Change: The sequential increase was driven by higher stock-based compensation and increased litigation expenses.

Speaker Change: We expect operating expenses to fluctuate on a quarterly basis, largely due to the timing of R&D project spending and litigation activities, and should remain at or below third quarter 2023 levels.

Mark Weinswig: Moving to the balance sheet, our balance sheet is industry-leading with cash, cash-equivalent, restricted cash, and short-term investments of $186 million at June 30th. During the second quarter, we received approximately $16 million from ATM sales. In August, consistent with our strategy to improve our capital structure, we utilized $44 million of cash to fully repay the outstanding balance on our revolving credit line. This action further strengthens our financial position and provides a ouster with a resilient balance sheet.

Speaker Change: Moving to the balance sheet. Our balance sheet is industry leading with cash, cash equivalents, restricted cash, and short-term investments of $186 million at June 30th.

Speaker Change: During the second quarter, we received approximately $16 million from ATM sales.

Mark Weinswig: In August, consistent with our strategy to improve our capital structure, we utilized $44 million of cash to fully repay the outstanding balance on our revolving credit line. This action further strengthens our financial position and provides Ouster with a resilient balance. Now moving to guidance, for the third quarter, we expect to achieve between $27 million and $29 million of revenue. We anticipate steady sequential revenue growth for the remainder of the year. I'll now turn the call back to Angus for his closing remarks.

Speaker Change: In August, consistent with our strategy to improve our capital structure, we utilized $44 million of cash to fully repay the outstanding balance on our revolving credit line. This action further strengthens our financial position and provides Ouster with a resilient balance sheet.

Mark Weinswig: Now moving to guidance. For the third quarter, we expect to achieve between 27 and 29 million of revenue. We anticipate steady sequential revenue growth for the remainder of the year.

Speaker Change: Now moving to guidance. For the third quarter, we expect to achieve between $27 and $29 million of revenue. We anticipate steady sequential revenue growth for the remainder of the year.

Angus Pacala: I'll now turn the call back to Angus for his closing remarks. Thanks, Mark. The austere team delivered solid execution in the second quarter. This is now the fifth straight quarter of expanding margins and increasing revenue. Non-GAAP growth margin reached 40% for the first time in our history. We, as one of the best quarters for software attached sales, added new features to a software product portfolio, and both of our next generation custom silicon chips are progressing. Oster stands out as a fundamentally differentiated lighter company that is shaped by our exceptional employees, customers, and technology. We are relentlessly focused on building the highest quality products and providing best-in-class support to help solve our customers' cutting-edge challenges.

Speaker Change: I'll now turn the call back to Angus for his closing remarks.

Angus Pacala: Thanks, Mark. The Ouster team delivered solid execution in the second quarter. This is now the fifth straight quarter of expanding margins and increasing revenue. Non-Gap Gross Margin reached 40% for the first time in our history.

Angus Pacala: Thanks, Mark.

Angus Pacala: The Ouster team delivered solid execution in the second quarter.

Speaker Change: This is now the fifth straight quarter of Expanding Margins and Increasing Revenue.

Angus Pacala: Non-gap gross margin reached 40% for the first time in our history. We had one of the best quarters for software-attached sales, added new features to our software product portfolio, and both of our next-generation custom silicon chips are progressing.

Angus Pacala: We have one of the best quarters for software attached sales, added new features to our software product portfolio, and both of our next generation custom silicon chips are progressing. Ouster stands out as a fundamentally differentiated LIDAR company that is shaped by our exceptional employees, customers, and technology. We are relentlessly focused on building the highest quality products and providing best-in-class support to help solve our customers' cutting-edge challenges. I'm excited to see the use cases for LiDAR expand as the world automates to solve an ever-increasing number of modern challenges.

Speaker Change: Alstor stands out as a fundamentally differentiated ladder company that is shaped by our exceptional employees, customers, and technology.

Speaker Change: We are relentlessly focused on building the highest quality products and providing best-in-class support to help solve our customers' cutting-edge challenges.

Angus Pacala: I'm excited to see the use cases for LIDAR expand as the world is automating to solve an ever-increasing number of modern challenges. Whether it's industrial companies delivering more efficiency or cities deploying technology for safer roads, Oster's digital LIDAR is increasingly the center of choice.

Speaker Change: I'm excited to see the use cases for LiDAR expand as the world is automating to solve an ever-increasing number of modern challenges. Whether it's industrial companies delivering more efficiency or cities deploying technology for safer roads, Ouster's digital LiDAR is increasingly the center of choice.

Operator: Whether it's industrial companies delivering more efficient, or cities deploring technology for safer roads, Ouster's Digital LiDAR is increasingly the center of choice. With LIDAR adoption still in its infancy, we are just beginning to tap into our growth, and I see a tremendous opportunity still in front of us. With that, I'd like to open the call for a Q&A. At this time, I would like to remind everyone that in order to ask a question, press the star and the number one on your telephone keypad. Your first question comes from Kevin Cassidy with Rosenblatt Securities. Your line is open.

Angus Pacala: With LIDAR adoption still in its infancy, we are just beginning to tap into our growth, and I see a tremendous opportunity still in front of us.

Speaker Change: With LIDAR adoption still in its infancy, we are just beginning to tap into our growth and I see a tremendous opportunity still in front of us. With that, I'd like to open the call for a Q&A.

Unknown Executive: With that, I'd like to open the call for a Q&A. At this time, I would like to remind everyone that in order to ask a question, press star and the number one on your telephone keypad.

Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star and the number one on your telephone keypad.

Kevin Cassidy: Your first question comes from Kevin Cassidy with Bros and Blot Securities. Your line is open. Hi, yeah, thanks for taking my question, and congratulations on the great results. Yeah, moving up to 40% gross margin is quite an accomplishment and just want to understand some of the moving parts and doing that. Is it the unit volumes that are up and cost may be coming down with that, or is it because you're selling more software? And maybe you can give a ranking of which one affected the gross margins the most.

Speaker Change: Your first question comes from Kevin Cassidy with Rosenblatt Securities. Your line is open.

Kevin Cassidy: Hi, yeah, thanks for taking my question and congratulations on the great result. Yeah, moving up to 40% gross margin is quite an accomplishment. I just want to understand some of the moving parts and how you guys are doing that.

Kevin Cassidy: Hi, yeah, thanks for taking my question and congratulations on the great results.

Angus Pacala: Is it the unit volumes that are up, and costs may be coming down with that? Or is it because you're selling more software? Maybe you can give a ranking of, you know, which one affected the gross margins the most. Thanks for the question, Kevin.

Speaker Change: Yeah, moving up to 40% gross margin is quite an accomplishment. Just want to understand some of the moving parts in doing that.

Speaker Change: The unit volumes that are up and costs may be coming down with that or is it because you're selling more software and maybe you can

Speaker Change: Give a ranking of, you know, which one affected the gross margins the most.

Angus Pacala: We're very proud of the gross margins, definitely one of the highlights of, you know, really the past year. But, you know, over the past 18 months, we took significant actions. We moved more product to our contract manufacturer. We took costs out of the business. We shut down facilities.

Angus Pacala: Yeah, thanks for the question, Kevin. We're very proud of the gross margin. It's definitely one of the highlights of really the past year, but over the past 18 months, we took significant actions. We moved more product to our contract manufacturer. We took costs out of the business. We shut down facilities, and those actions and the revenue grow, and the product mix shift have allowed us to really see a significant increase in our overall gross margins. You know, we provided the long term framework of between 35 and 40% in terms of a growth margin target, and we're right now knocking at the door of being able to hit those levels.

Speaker Change: Thanks for the question, Kevin. We're very proud of the gross margin. It's definitely one of the highlights of, you know, really the past year. But, you know, over the past 18 months,

Speaker Change: We took significant actions. We moved more product to our contract manufacturer. We took costs out of the business. We shut down facilities.

Speaker Change: and those actions and the revenue growth and the product mix shift.

Angus Pacala: And those actions and the revenue growth and the product mix shift have allowed us to really see a significant increase in our overall gross margins. You know, we provided the long-term framework of between 35 and 40 percent in terms of a growth margin target, and we're right now knocking at the door of being able to hit those levels.

Speaker Change: have allowed us to really see a significant increase in our overall gross margins. You know, we provided the long-term framework of between 35% and 40% in terms of a growth margin target, and we're right now knocking at the door of being able to hit those levels.

Kevin Cassidy: Great. And maybe to understand the software strategy a little more, you know, you're selling it as an attached feature now and getting an extra price, I would think, and other maintenance contracts along with that. If you have a long term where you continually update the software for your customers.

Angus Pacala: Great. And maybe to understand the software strategy a little more is, you know, you're selling it as an attached service now and getting an extra price, I would think. And what other maintenance contracts come along with that?

Speaker Change: Great. And maybe to understand the software strategy a little more, you know, you're selling it as an attached...

Speaker Change: feature now and getting an extra price, I would think. And are there maintenance contracts along with that? Do you have a long term where you continually update the software for your customers?

Angus Pacala: Yeah, that's a great following question on the, and it really relates to the gross margins as well. The software strategy that we put in place of basically driving software-attached sales through our solutions business is really starting to pay off. You know, we had a record revenue quarter for software attached sales. That's a customer that's buying a combination of hardware and software from Auster. And you know, this is not an overnight success. We've been investing in Gemini and Blue City now for over two years and made a major investment last year and integrating those two products after the merger and a unified software stack, and we're seeing customers respond.

Angus Pacala: Do you have a long term plan where you continually update the software for your customers? Yeah, that's a great follow-up question on the, and it really relates to gross margins as well. The software strategy that we put in place, basically driving software-associated sales through our solutions business, is really starting to pay off. You know, we had a record revenue quarter for software-associated sales. That's a customer that's buying a combination of hardware and software from Ouster. And, you know, this is not an overnight success.

Speaker Change: Yeah, that's a great following question on the, and it really relates to the gross margins as well. The software strategy that we put in place,

Speaker Change: of basically driving software attached sales through our solutions business.

Speaker Change: is really starting to pay off. You know, we had a record.

Speaker Change: revenue quarter for software attached sales. That's a customer that's buying a combination of hardware and software from from Ouster.

Kevin Cassidy: We've been investing in Gemini and Blue City now for over two years and made major investments last year in integrating those two products after the merger and a unified software stack, and we're seeing customers respond. So, you know, Blue City, we see customers now expanding from the pilot phase into real deployments in municipalities that could impact the safety and improve congestion of the, you know, the towns and cities that you and I live in.

Speaker Change: And, you know, this is not an overnight success. We've been investing in Gemini and Blue City now for over two years and made major investments last year in integrating those two products after the merger in a unified software stack, and we're seeing customers respond.

Angus Pacala: So, you know, Blue City, we see customers now expanding from pilot phase into real deployments into municipalities that could impact the safety and improve congestion of the, you know, the towns and cities that you and I live in. And so we're really excited about that adoption starting to show legs and drive actual revenue, significant revenue, and expanding expanding gross margins. About a third of our revenue this quarter came from the smart infrastructure vertical, and again, we sell software solutions into that vertical specifically, and that's all just creating this great flywheel of success in that vertical and for our gross margin expansion.

Speaker Change: So, you know, Blue City, we see customers now expanding from pilot phase.

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Impact the safety and improve congestion of the, you know, the, the towns and cities that you and I live in.

Kevin Cassidy: So we're really excited about that adoption starting to show legs and drive actual revenue, significant revenue, and expanding gross margins. About a third of our revenue this quarter came from the smart infrastructure vertical. And again, we sell software solutions into that vertical specifically. And that's all just creating this great flywheel of success in that vertical and for our gross margin expansion. Thank you. I'll go back in the queue.

Speaker Change: So we're really excited about that adoption starting to show legs and drives, actual revenue, significant revenue, and expanding gross margins. About a third of our revenue this quarter came from the smart infrastructure vertical. And again, we sell software solutions into that vertical specifically. And that's all just creating this great flywheel of success in that vertical and for our gross margin expansion. Microsoft Mechanics

Kevin Cassidy: Thank you.

Unknown Executive: I'll go back in the queue.

Speaker Change: Thank you. I'll go back in the queue.

Kevin Garrigan: Your next question comes from the line of Kevin Garrigan with West Park Capital. Your line is open. Yeah, hang the same mark.

Operator: Your next question comes from the line of Kevin Garrigan with West Park Capital. Your line is open. Yeah, hey, Mark, let me echo my congratulations on the progress. Hey, Angus, you know, some contracts that were pushed to the right by some of your customers. Kind of a two part question.

Speaker Change: Andres Sheppard,

Speaker Change: Your next question comes from the line of Kevin Garrigan with West Park Capital. Your line is open.

Kevin Garrigan: Let me echo my congrats on the progress. Hey, Angus, you know some contracts that were pushed to the right at some of your customers. Kind of a two-part question. Do you guys have agreements with customers that are non-cancelable? And then what, and Mark, did you see the pushouts in? Yeah, so just to answer that. So we absolutely have contracts that are non-cancelable with customers. That's the bookings; the definition of a booking is a non-cancelable PO or contract that we have in hand. And in last year we had a great bookings year, booked a bill ratio of 1.7x.

Kevin Garrigan: Hey Angus, hey Mark, let me echo my congrats on the progress. Hey Angus, you noted some contracts that were pushed to the right at some of your customers. Kind of a two-part question.

Kevin Garrigan: Do you guys have agreements with customers that are non-cancellable, and then what end markets did you see the pushouts in? Yeah, so just to answer that. We absolutely have contracts that are non-cancellable with customers. That's the bookings; the definition of a booking is a non-cancellable PO or contract that we have in hand.

Kevin Garrigan: Do you guys have agreements with customers that are non-cancellable and then what end markets did you see the pushouts in?

Angus Pacala: And last year, we had a great bookings year, a book-to-bill ratio of 1.7x. So, significant customers, a significant number of customers are under contract with Ouster, which gives us a lot of confidence in the long-term kind of view of the top customers at Ouster. And so overall, I mean, to the question of where are we seeing slowdown or expansion, I really want to step back and stress how positive the outlook is for Ouster's business across each one of our verticals. All we see is growth in the future for Ouster.

Angus Pacala: Yeah, so just to answer that, so we absolutely have contracts that are non-cancellable with customers. That's the bookings, the definition of a booking is a non-cancellable PO or contract that we have in hand.

Angus Pacala: and last year we had a great bookings year, book to bill ratio of 1.7x.

Angus Pacala: So significant customers, significant number of customers are under contract with Ouster, which gives us a lot of confidence in the long term kind of view of the top customers at Ouster.

Angus Pacala: So, significant customers, significant number of customers are under contract with Ouster, which gives us a lot of confidence in the long-term kind of view of the top customers at Ouster. And,

Angus Pacala: And so overall, I mean, to the question of where are we seeing slow down or expansion, I really want to step back and stress how positive the outlook is for Ouster's business across each one of our verticals. All we see is growth in the future for Ouster. We have created a flywheel across four key industries, and each one of those industries is adopting more automation, more digital lighter sensors from Ouster, and building stronger ties and more mature business models. To give some examples, you know, several botics we mentioned in the call. That's a customer we've been working with for over five years.

Angus Pacala: So overall, I mean, to the question of where are we seeing slowdown or expansion, I really want to step back and stress how positive the outlook is for Ouster's business across each one of our verticals.

Angus Pacala: We have created a flywheel across four key industries, and each one of those industries is adopting more automation, more digital lighter sensors from Ouster, and building stronger ties and more mature business models. To give some examples, Serve Robotics, we mentioned in the call, that's a customer we've been working with for over five years. They've been at the smaller pilot stage for a long time, and now they've made the leap to a 2,000 unit expansion of their business. That's a novel business model, last mile delivery starting in LA, and 2,000 units is nothing to sniff at. That's bigger than Waymo's deployment in any city in the US.

Angus Pacala: All we see is growth in the future for Ouster. We have created a flywheel across four key industries.

Angus Pacala: and each one of those industries is adopting more automation, more digital LiDAR sensors from Alistair and building stronger ties.

Angus Pacala: and more mature business models.

Angus Pacala: To give some examples, Servrobotics, we mentioned in the call, that's a customer we've been working with for over five years.

Angus Pacala: They've been at, you know, smaller pilot stage for a long time. And now they've made the leap to a 2000-unit expansion of their business. That's a novel business model. Last mile delivery, starting in LA and 2000 units, is nothing to sniff at. That's bigger than Waymo's deployment in any city in the US. So we're seeing customers like that in novel domains like robotics, expanding, but we're also seeing customers moving out of pilot stage or development stage with some of our software solutions. So Blue City, I've mentioned municipalities now talking about tens or hundreds of intersections being deployed with the technology where we've been in the pilot stage across, you know, hundreds of different sites in the last couple of years.

Angus Pacala: They've been at a smaller pilot stage for a long time and now they've made the leap to a 2,000 unit expansion of their business.

Speaker Change: That's a novel business model. Last mile delivery starting in LA and 2,000 units is nothing to sniff at. That's bigger than Waymo's deployment in any city in the U.S.

Angus Pacala: So we're seeing customers like that in novel domains like robotics expanding, and we're also seeing customers moving out of the pilot stage or development stage with some of our software solutions. So Blue City, I mentioned municipalities now talking about tens or hundreds of intersections being deployed with the technology, where we've been in the pilot stage across hundreds of different sites in the last couple years. Same thing is true for our Gemini solution.

Speaker Change: So we're seeing customers like that in novel domains like robotics expanding, and we're also seeing customers moving out of pilot stage or development stage with some of our software solutions.

Speaker Change: So, Blue City, I mentioned municipalities now talking about tens or hundreds of intersections being deployed with the technology, where we've been in the pilot stage across

Angus Pacala: We now have customers that are using Gemini as a core part of their business, driving cost savings for logistics players, and security, providing security at sites. So yeah, I really want to stress overall, Ouster, what we see is growth in our future. Obviously, we're guiding up for next quarter, and we're committed to the long-term model that we provided with 30% to 50% growth annually on a path to profitability. Okay, perfect. I appreciate that color.

Angus Pacala: Same thing true for a Gemini solution. We now have customers that are using Gemini as a core part of their business, driving cost savings for logistics players, security, providing security. Security at sites.

Speaker Change: You know, hundreds of different sites in the last couple years. Same thing true for our Gemini solution. We now have customers that are using Gemini as a core part of their business, driving cost savings.

Speaker Change: for logistics players, security, for providing security at sites. So, yeah, I really want to stress...

Angus Pacala: So yeah, I really want to stress overall, after what we see is growth in our future. Obviously, we're guiding up for next quarter and we're committed to the long-term model that we provided with 30 to 50% growth annually on a path of profitability.

Speaker Change: Overall, ouster.

Speaker Change: What we see is growth in our future. Obviously, we're guiding up for next quarter and we're committed to the long-term model that we provided with 30 to 50% growth annually on a path of profitability.

Kevin Garrigan: Okay, perfect. I appreciate that color.

Angus Pacala: And then, you know, as a follow-up, kind of going off with Kevin's software question, I mean, it looks like this quarter, you know, you mentioned you'd signed much larger customers, kind of looking at your pipeline. Do you have for our any other large companies, you know, in the pipeline and are any on the edge and what can you kind of do to get them over the finish line? Yeah, so the software-attached sale is a key part of Ouster's strategy. We outline that at the beginning of the year. And it's really focused on the smart infrastructure of vertical.

Speaker Change: Okay, perfect. I appreciate that color. And then, you know, as a follow-up, kind of going off of Kevin's software question, I mean, it looks like this quarter, you know, you mentioned you had signed much larger customers, kind of looking at your pipeline.

Kevin Garrigan: And then, you know, as a follow-up, kind of going off of Kevin's software question, I mean, it looks like this quarter, you mentioned you had signed much larger customers, kind of looking at your pipeline. Do you have for us any other large companies in your pipeline, and are any on the edge, and what can you kind of do to get them over the finish line? Yeah, so, so.

Speaker Change: Do you have for our any other large companies, you know, in a pipeline and are any on the edge and what can you kind of do to get them over the finish line?

Angus Pacala: The software-attached sale is a key part of Ouster's strategy. We outlined that at the beginning of the year, and it's really focused on the smart infrastructure of verticals. And we have two products there, BlueCity for traffic management, and then Gemini as a more generalized solution for crowd analytics, logistics, and security.

Speaker Change: Yeah, so, so.

Speaker Change: The software-attached sale is a key part of Ouster's strategy. We outlined that at the beginning of the year, and it's really focused on the smart infrastructure of vertical. And we have two products there, BlueCity for traffic management, and then Gemini as a more generalized solution for crowd analytics.

Angus Pacala: And we have two products there, Blue City for traffic management and then Gemini as a crowd analytics, a more generalized solution for crowd analytics, logistics, and security. And this is the first year that we've really had. And a significant go-to-market strategy with a mature product. And already, you know, we're at a point where a third of our revenue this quarter was software attached sales, or excuse me, was from the smart infrastructure vertical. And we had a record quarter for software attached sales in the quarter. And this is just the beginning. I really think that there's a potential for us to have the majority of our sales within the smart infrastructure vertical be software attached.

Angus Pacala: And this is the first year that we've really had a significant go-to-market strategy with a mature product. And already, you know, we're at a point where a third of our revenue this quarter was software-attached sales, or excuse me, was from the smart infrastructure vertical. And we had a record quarter for software-attached sales in the quarter. And this is just the beginning. I really think that there's... Potential for us to have the majority of our sales within the smart infrastructure vertical be software attached Again, these products have been out for, you know, in many cases under a year, and And we're adding to these products all the time, so the difference with hardware and software is we're able to incorporate new features, address customer demand, and drive value at a faster cadence with this customer base because it's software we can deliver over the air versus I appreciate the color.

Speaker Change: Logistics and Security.

Speaker Change: And this is the first year that we've really had a significant go-to-market strategy with a mature product.

Operator: Thank you. Your next question comes from the line of Richard Shannon with Craig Hellman. Your line is open.

Speaker Change: And already, you know, we're at a point where a third of our revenue this quarter was software attached sales, or excuse me, was from the smart infrastructure vertical. And we had a record quarter for software attached sales in the quarter. And

Speaker Change: This is just the beginning. I really, I think that there's a

Speaker Change: potentials for us to have

Speaker Change: The majority of our sales within the Smart Infrastructure Vertical be software attached.

Angus Pacala: Again, these products have been out for, you know, in many cases, under a year. And we're adding to these products all the time. So the difference with hardware and software is we're able to incorporate new features, address customer demand, and drive value at a faster cadence with this customer base because it's software we can deliver over the air versus shipping new hardware and developing new hardware on a longer time frame. So I think there's big things to come here and we're going to continue to give insights into how customers are adopting this as your goes on.

Speaker Change: Again, these products have been out for, in many cases, under a year.

Speaker Change: And we're adding to these products all the time. So the difference with hardware and software is we're able to incorporate new features, address customer demand, and drive value at a faster cadence with this customer base because it's software we can deliver over the air versus shipping new hardware and developing new hardware on a longer time frame.

Speaker Change: I think there's big things to come here, and we're going to continue to give insights into how customers are adopting this as the year goes on.

Kevin Garrigan: Okay, perfect.

Kevin Garrigan: I appreciate color. Thank you.

Speaker Change: Okay, perfect. I appreciate the color. Thank you.

Richard Shannon: Your next question comes from the line of Richard Shannon with Craig. Home in your line is open. Well, hang at some mark. Thanks for taking my questions. I'm going to follow up on one that was asked earlier in particular different perspectives, the response. I just want to be more specific here. And Angus, you talked about some delays and push outs you're seeing here, which is not a surprise going to ever heard from other companies that reporting so far this season here. Maybe characterize where you see that by industry, by geography, and then maybe as a corollary or follow-on to that, mark comments about what this might be for the fourth quarter.

Speaker Change: Your next question comes from the line of Richard Shannon with Craig Hellman. Your line is open.

Richard Shannon: Well, Angus and Mark, thanks for taking my questions. I'm going to follow up on one that was asked earlier. I think there are different perspectives to the response. I just want to be more specific here.

Richard Shannon: Well, hi, Angus and Mark. Thanks for taking my questions. I'm going to follow up on one that was asked earlier. I think there's different perspectives to the response. I just want to be more specific here.

Richard Shannon: And Angus, you talked about some delays and pushbacks you're seeing here, which is not surprising. We've heard from other companies that are reporting so far this season here. Maybe you can characterize where you're seeing that by industry and by geography, and then maybe as a corollary or a follow-on to that Mark's comments about what this might mean for the fourth quarter. I didn't catch the specific language, but it made it sound like you're expecting kind of flattish revenue in the fourth quarter versus the third. Just want to clarify what that means. Yeah, so Richard, I'll go first, just because I want to make sure that I don't, that any words I said are not mischaracterized at all.

Richard Shannon: and Angus, you talked about some delays and pushouts you're seeing here, which is not a surprise, and we've heard from other companies that are reporting so far this season here. Maybe characterize where you're seeing that by industry, by geography, and then maybe as a corollary or a follow-on to that, Mark's comments about what this might mean for the fourth quarter. I didn't catch the specific language, but it made it sound like you're expecting kind of a

Richard Shannon: I didn't catch the specific language, but it made it sound like you're expecting kind of a flatish revenue in the fourth quarter versus the third. Just want to just want to verify what that means.

Speaker Change: Flatish Revenue in the fourth quarter versus the third. Just want to just want to clarify what that means

Mark Weinswig: Yeah, so Richard, I'll go first just because I want to make sure that I don't that any words I said are not mischaracterized at all. So what my comments were is that we do anticipate steady sequential revenue growth for the remainder of the year. And as Angus mentioned, we are going to grow. We are continuing to grow. It's our focus to grow. We've got a very strong book of business, and you know, you should expect that we are going to grow within the framework that we put together, which is the 30 to 50% annual revenue growth.

Mark Weinswig: So what my comments were was that we do anticipate steady sequential revenue growth for the remainder of the year. And as Angus mentioned, we are going to grow, we are continuing to grow, it's our focus to grow. We've got a very strong book of business.

Angus Pacala: Yeah, so Richard, I'll go first just because I want to make sure that I don't

Mark Weinswig: that any words I said are not mischaracterized at all. So what my comments were is that we do anticipate steady sequential revenue growth for the remainder of the year and as Angus mentioned we are going to grow. We are continuing to grow. It's our focus to grow. We've got a very strong book of business and you know you should expect that we are going to grow within the framework that we put together which is the 30 to 50 percent annual revenue growth.

Angus Pacala: Yeah. And then on the question on push out by industry, you know, the nature of having hundreds of customers and being a diversified business is there really isn't the single industry where there's, you know, a trend of push outs. We have a certain fraction of customers that always delay. That's the nature of adopting new complex technology, and there's nothing wrong with that if you built a business that incorporates that reality and is resilient to it. And actually, I view that delay. When you go and look at the customer survey, the customers that are delaying. And again, it really is broad based across our industries.

Angus Pacala: And, you know, you know, you should expect that we are going to grow within the framework that we put together, which is the 30 to 50% annual revenue growth. Yeah, and then on the question of pushing out by industry. The nature of having hundreds of customers and being a diversified business is that there really isn't a single industry where there's a trend of push-outs. We have a certain fraction of customers that always delay.

Angus Pacala: Yeah, and then on the question on push out by industry, you know, the nature of having hundreds of customers and being a diversified business is there really isn't a single industry where there's, you know, a trend of push outs.

Unknown Executive: 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 the pound key.

Angus Pacala: That's the nature of adopting new, complex technology, and there's nothing wrong with that if you've built a business that incorporates that reality and is resilient to it. And actually, I view that delay when you go and look at the customers, survey the customers that are delaying. And again, it really is broad-based across our industries. The common thread is that the delay is coming from the technical development of their total solution, and that means software.

Speaker Change: We have a certain fraction of customers that always delay. That's the nature of adopting new complex technology. And there's nothing wrong with that if you've built a business that incorporates that reality and is resilient to it.

Speaker Change: And actually, I view that delay, when you go and look at the customers, survey the customers that are delaying. And again, it really is broad based across our industries. The common thread is that the delay is coming from technical development of their total solution.

Angus Pacala: The common thread is that the delay is coming from technical development of their total solution. And that means software. That means software integration, validation. And so it really is an opportunity for Alster to go and build more of the solutions across our verticals. And so we started in the smart infrastructure vertical, building total solutions. And as a result, we don't have delays of that nature for software-attached sales for the customers in that domain. And so I think that there's an immense capacity to start building out solutions that address these challenging technical problems: software and hardware working in concert.

Unknown Executive: The call today is being recorded and a replay of the call will be available on the Alsters Investors Relations website in hour after the completion of this call.

Angus Pacala: That means software integration and validation, and so it really is an opportunity for Ouster to go and build more of those solutions across our verticals. And so we started in the smart infrastructure vertical, building total solutions. And as a result, we don't have delays of that nature for our software attached sales to customers in that domain. And so I think that there's an immense capacity to start building out solutions that address these challenging technical problems. Software and hardware working in concert, complex AI technology that's safety critical in industrial or robotics or automotive.

Chen Geng: I'd now like to turn the conference over to Chen Geng, CP, a strategic finance and treasure. Good afternoon, everyone. Thank you for joining us for our second quarter, 2024, Erning's Call.

Speaker Change: And that means software, that means software integration, validation, and so it really is an opportunity for Ouster to go and build more of those solutions across our verticals.

Speaker Change: And so, you know, we started in the smart infrastructure vertical building total solutions, and as a result, we don't have delays of that nature for our software attached sales for the customers in that domain.

Chen Geng: I am joined today by Ouster's Chief Executive Officer, Angus Pacala, 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 second quarter, 2024 results. An investor presentation was published and is available on the Investor Relations section of Ouster's website.

Speaker Change: And so I think that there's an immense capacity to start building out solutions that address

Speaker Change: These challenging technical problems, software and hardware working in concert, complex AI technology that's safety critical in industrial or robotics or automotive, and building that software and expanding our revenue base as a result.

Richard Shannon: You know, complex AI technology that's safety critical and industrial or robotics or automotive and building that software and expanding our revenue bases and results and also speeding time to market for the tail of customers that's struggling with that kind of technology. So hopefully that gives you some color. This is really not an industry-by-industry trend at all. It's a nature of having hundreds of customers and having a diverse spot. Business. Okay. And I apologize. I may have misinterpreted your initial comments, but you're not attempting to push out any way to any macroeconomic activity, but delays in complex technical developments.

Angus Pacala: And building that software and expanding our revenue base as a result, and also speeding time to market for the tail of customers that are struggling with that kind of technology. So hopefully, that gives you some color.

Chen Geng: Today's earnings call and press release reflects management's views as of today only and will include statements related to our business and financial outlook that are forward looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's SEC filings and today's press release, both of which can be found on our Investor Relations website.

Speaker Change: and also speeding time to market for the tail of customers that's struggling with that kind of technology. So hopefully that gives you some color. This is really not an industry by industry trend at all. It's the nature of having hundreds of customers and having a diversified business.

Richard Shannon: This is really not an industry by industry trend at all. It's the nature of having hundreds of customers and having a diverse. Okay. And I apologize. I may have misinterpreted your initial comments, but you're not attributing these pushouts in any way to any macroeconomic activity but delays and complex technical developments. Is that accurate, Angus?

Angus Pacala: Okay, and I apologize, I may have misinterpreted your initial comments, but you're not attributing these pushouts in any way to any macroeconomic activity, but delays and complex technical developments. Is that accurate, Angus?

Angus Pacala: Is that accurate, Angus? There will always be some level of macroeconomics that plays with some of our customers, but Ouster is expecting to grow. We've got it up. We're expecting to have growth through the end of the year and continue to grow in line with our long-term model. So, I don't want the; you don't have the wrong takeaway here. We see nothing but up and to the right for the revenue at Ouster. Okay. Great. Thanks for correcting my misinterpretation there.

Angus Pacala: There will always be some level of macroeconomics that affects some of our customers, but Ouster is expecting to grow. We've got it up. We're expecting to have growth through the end of the year and continue to grow in line with our long-term model. So I don't want you to have the wrong takeaway here.

Angus Pacala: There will always be some level of macroeconomics that plays with some of our customers, but

Chen Geng: Any forward looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law. We undertake no obligation to update these statements as a result of new information or future events.

Richard Shannon: We see nothing but up and to the right for revenue at Ouster. Okay, great. Thanks for correcting my misinterpretation there. My second question here, I guess I'll follow up on the software topic in response to the last question you're talking about, within the smart infrastructure space, seeing a majority of your hardware sales being software attached. It sounded like a forward-looking comment, as opposed to something you're seeing here now or expecting in the near future, but maybe you can expand on this.

Angus Pacala: Alistair is expecting to grow. We got it up. We're expecting to have growth through the end of the year and continue to grow in line with our long-term model. So I don't want you to have the wrong takeaway here. We see nothing but up and to the right for the revenue at Alistair.

Chen Geng: Information discussed on this call concerning Ouster's industry, competitive position, and the markets in which it operates is based on information from independent industries and research organizations, other third party sources, and management estimates, which are derived from publicly available information released by independent organizations. Independent industry analysts and other third party sources, as well as data from Ouster's internal research, and are based on reasonable assumptions and computations made upon reviewing such data and its experience and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results from different materially from those expressed in the estimates.

Angus Pacala: My second question here, I guess I'll follow up on the software topic in response to the last question. You're talking about. Within the smart infrastructure space, seeing the majority of your hardware sales being software attached sounded like a forward-looking comment as opposed to something you're seeing here now or expecting in the near future. But maybe you can expand on this and help us maybe think about maybe just within the smart infrastructure space is there visibility into 10%, 25% of that vertical being software driven at some point? Yeah, I fumbled my words on that answer. So, just to clarify, we did about a third of our revenue from the smart infrastructure vertical this quarter, and we had a record quarter for software attached revenue.

Speaker Change: Okay, great. Thanks for correcting my misinterpretation there. My second question here, I guess I'll follow up on the software topic in response to the last question you were talking about. Within the smart infrastructure space, seeing a majority of your hardware sales being software attached.

Speaker Change: It sounded like a forward-looking comment as opposed to something you're seeing here now or expecting in the future.

Richard Shannon: And help us maybe think about, you know, maybe within the smart infrastructure space, is there visibility into 10%, 25% of that vertical being software driven at some point? Yeah, I fumbled my words on that answer.

Speaker Change: in the near future. But maybe you can expand on this.

Speaker Change: And help us maybe think about, you know, maybe with just within the smart infrastructure space, is there visibility into 10%, 25% of that vertical being software driven at some point?

Angus Pacala: So, just to clarify, we did about a third of our revenue from the smart infrastructure vertical this quarter, and we had a record quarter for software-attached revenue. Now, the fact is, we really only sell smart infrastructure software, so we had a strong quarter in smart infrastructure from a software-attached sales basis and just from an overall basis as a mix of the industry. And if you go back and reread some of my comments from late last year, early this year, software-attached sales were under 20% of the revenue for a couple quarters there. That really set the expectation that there's a capacity for us to outgrow, or yeah, outgrow, grow faster in the smart infrastructure vertical than others. Why? It's for two reasons.

Speaker Change: Yeah, I fumbled my words on that on that answer. So just to clarify, we did about a third of our revenue from the smart infrastructure vertical this quarter, and we had a record quarter for software attached revenue.

Chen Geng: During this call, we will discuss certain non-gap financial measures. These non-gap financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAP. For a reconciliation of non-gap financial measures discussed during this call, so the most directly comparable GAP measures, please refer to today's press release.

Angus Pacala: Now, the fact is we really only sell smart infrastructure software. So, we had a strong quarter in smart infrastructure from the software attached sales basis and just from an overall basis of the mix of the industry. And if you go back and reread some of my comments from late last year, early this year, software attached sales were under 20% of the revenue for a couple of quarters there, but really set the expectation that there's a capacity for us to outgrow or outgrow faster in the smart infrastructure vertical than others. Why? It's for two reasons. One is because we're building these total solutions in-house.

Speaker Change: Now the fact is, we really only sell...

Speaker Change: Unknown Speaker Smart Infrastructure Software.

Speaker Change: So we have a strong quarter in smart infrastructure from a software-attached sales basis.

Speaker Change: and just from an overall basis as a mix of the industry. And if you go back and reread some of my comments from late last year, early this year,

Angus Pacala: I would now like to turn the call over to Ang- Hello everyone and thank you for joining us today. I'll start with a brief recap of the quarter overview of the market and update on our strategic priorities. Mark will cover our financial results in more detail before I close with some final thoughts.

Speaker Change: Software attached sales were under 20% of the revenue for a couple quarters there. That really set the expectation that there's the capacity for us to outgrow, or yeah, outgrow, grow faster in the smart infrastructure vertical than others.

Angus Pacala: One is because we're building these total solutions in-house, and like I said, that allows you to sidestep some of the tricky issues with customer integration. The second is because these verticals are immense. The ITS traffic solutions industry is in the billions of dollars globally. 150,000 signalized intersections in the United States alone.

Speaker Change: Why? It's for two reasons. One is because we're building these total solutions in-house. And like I said, that allows you to sidestep some of the tricky issues with customer integrations.

Angus Pacala: And, like I said, that allows you to sidestep some of the tricky issues with customer integrations. The second is because these verticals are immense. The ITS traffic solutions industry is a billions of dollars globally, 150,000 signalized intersections in the United States alone. Likewise, the security industry, security solutions that the hardware, video management solutions, tens of billions of dollars, hundreds of millions of cameras are sold every year into that vertical. So, we're entering major markets with turnkey software hardware solutions. So, you know, I think that smart infrastructure as a vertical has still has the capacity to outgrow.

Angus Pacala: We have met or exceeded our guidance. We are also making our business more efficient. Since the first quarter of 2023 we have reduced our inventory levels by over 30% and improved our annualized inventory turns to over three and a half times from under two and a half. Alongside the continued improvement in our operating results we have built one of the industry's most resilient balance sheets and diversified business models. Subsequent to the end of the quarter we repaid all outstanding balance on our revolving credit line with cash on hand.

Speaker Change: The second is because these verticals are immense.

Speaker Change: ITS traffic solutions industry is in the billions of dollars globally.

Speaker Change: 150,000 signalized intersections in the United States alone.

Angus Pacala: Likewise, the security industry, security solutions, hardware, video management solutions, tens of billions of dollars, hundreds of millions of cameras are sold every year in that vertical. So, we're entering major markets with turnkey software and hardware solutions. So, I think that smart infrastructure as a vertical still has the capacity to outgrow our other verticals or become a larger share over time. And I do think that at least an internal goal is for the majority of those sales to be software-assisted. Just because of the nature of the software products that we have.

Speaker Change: Likewise, the security industry, security solutions.

Speaker Change: The Hardware Video Management Solutions, tens of billions of dollars, hundreds of millions of cameras are sold every year into that vertical. So we're entering major markets with turnkey software hardware solutions.

Angus Pacala: During the second quarter we saw a strength in our robotics vertical which accounted for many of our largest deals. We secured and expanded our relationship with serve robotics, a leading developer of advanced AI powered delivery robots. Oster's rev 7 sensors are designed to support a level 4 capable fleet that makes on-demand delivery more affordable and accessible. We look forward to supporting serves planned fleet expansion across multiple US markets by the end of 2025.

Speaker Change: So...

Speaker Change: I think that smart infrastructure as a vertical still has the capacity to outgrow our other verticals or become a larger share over time. And I do think that at least an internal goal is for the majority of those sales to be software attached.

Richard Shannon: Our other verticals have become a larger share over time. And I do think that at least an internal goal is for the majority of those sales to be software attached, just because of the nature of the product that we're the software products that we have. Gemini and Blue City, I see as encompassing the best or a majority of use cases in the smart infrastructure vertical. I got it. Okay, great perspective. There's the Angus. That's all for me.

Speaker Change: just because of the nature of the products that we're, the software products that we have. Gemini and BlueCity, I see as encompassing the vast or a majority of use cases in the smart infrastructure vertical.

Angus Pacala: Gemini and Blue City, I see as encompassing the vast or a majority of use cases in the smart infrastructure vertical. Got it. Okay. Great perspective there, Angus. That's all for me. I'll jump online.

Angus Pacala: Also within robotics we won deals with two of the world leading mapping companies to improve how their billions of users explore the world. These customers are expanding their rev 7 deployments to refresh and upgrade their mapping fleet with increased range accuracy and precision. Rev 7 took mapping to a whole new level at the Paris Olympics where fans engaged in new immersive experiences that brought them close to the games. Reflecting our focus on software solutions software attached sales were a highlight in the quarter as we won deals to power perimeter security, intelligent transportation systems and crowd analytics.

Richard Shannon: I'll jump along.

Speaker Change: Got it. Okay. Great perspective there, Angus. That's all for me. I'll jump online. Thanks.

Itay Michaeli: Thanks.

Richard Shannon: Thanks. Thanks, Richard. Your next question comes from the line of Itay Michaeli with Citi. Your line is open. Great, thanks. Hi, everybody.

Unknown Executive: Thanks, Richard.

Itay Michaeli: Your next question comes from the line of Italy, McKaylee, with city. Your line is open. Great. Thanks, everybody. Just two questions. First, on gross margin. With 40% non-GAAP, this quarter, I think Angus, you mentioned the opportunity ahead; it increases software attached sales. It will prevent upside over time to the 35% to 40% range you provided. And if you do see some upside, could there be an opportunity for the company to even invest some of that back into price to what to drive volume? And just secondly, maybe for Mark, I hope you can expand a bit more on the decision to pay down the revolver in Q3, kind of what went behind that decision.

Speaker Change: Thanks, Richard.

Speaker Change: Your next question comes from the line of Italy McKaylee with Citi. Your line is open.

Itay Michaeli: Just two questions. First, on gross margin, with 40% non-gap this quarter, and I think, Angus, you mentioned the opportunity ahead to increase the software-attached sales, it won't prevent upside over time to the 35% to 40% range you provided. And if you do see some upside, could there be an opportunity for the company to even invest some of that back into price to drive volume? And just secondly, maybe for Mark, I was hoping you could expand a bit more on the decision to pay down the revolver in Q3 and kind of what went behind that decision. Thank you. Thanks for the questions, Itay.

Italy McKaylee: Great, thanks. Hi, everybody. Just two questions. First on gross margin, with 40% non-gap this quarter, and I think Angus, you mentioned the opportunity ahead to increase the software-attached sales, it won't prevent...

Speaker Change: upside over time to the 35 to 40% range you provided? And if you do see some upside, could there be an opportunity for the company to even invest some of that back into price?

Angus Pacala: With Oster Gemini our customers are able to detect and classify objects conduct real time tracking, protect secure zones and automate alerts for security threats. Compared to traditional security solutions Gemini can significantly decrease false alarms, reduce labor constraints and enhance intrusion detection capabilities in a wide range of environmental conditions. I am excited about the additional software opportunities we have in the pipeline for the second half of 2024. Touching on the current demand environment more broadly we are encouraged to see expanding deployments with existing customers as well as evaluation projects with new customers.

Mark Weinswig: to drive volume. And just secondly, maybe for Mark, I was hoping you could expand a bit more on the decision to pay down the revolver in Q3 and kind of what went behind that decision. Thank you.

Angus Pacala: Thank you. Thanks for the questions.

Mark Weinswig: You did a great, great to hear from you. So just moving first to the gross margin side, we're very, very happy by the performance of this quarter. We did have a couple of tailwinds that impacted us. We saw strong revenue growth. We had a favorable product mix. We saw lower cost. We've guided, or we've noted that we have this long-term framework of 35 to 40%. We've not made any changes to that. As we see more of the business move to potentially higher margin verticals, we may update that. In the future, at this point, we're sticking with kind of that framework that we've laid out.

Mark Weinswig: Great to hear from you. So just moving first to the gross margin side, you know, we're very, very happy with the performance this quarter. We did have a couple of tailwinds that impacted us.

Speaker Change: Thanks for the questions, Itai. Great to hear from you. So just moving first to the gross margin side,

Speaker Change: You know, we're very, very happy by the performance this quarter. We did have a couple of tailwinds that impacted us. You know, we saw strong revenue growth. We had a favorable product mix. We saw lower cost.

Mark Weinswig: You know, we saw strong revenue growth, we had a favorable product mix, and we saw lower costs. You know, we've guided or noted that we have this long-term framework of 35% to 40%. We have not made any changes to that.

Speaker Change: You know, we've guided or we've noted that we have this long-term framework of 35 to 40%. You know, we've not made any changes to that. As we see more of the business move to potentially higher margin verticals, we may update that in the future, but at this point, we're sticking with kind of that framework that we've laid out. And going back to your other point, which is that there might be opportunities to, you know, to look at opportunities from the fact that we may have higher margins in certain verticals than other verticals. So it's something that we have discussed and it's something that we are looking at. Yeah, the question being kind of on investing some of that margin back into volume with certain customers. You know, I think that that's an apt answer.

Mark Weinswig: As we see more of the business move to potentially higher-margin verticals, we may update that in the future, but at this point, we're sticking with kind of that framework that we've laid out. And going back to your other point, which is that there might be opportunities to look at opportunities from the fact that we may have higher margins in certain verticals than in other verticals. So it's something that we have discussed and something that we are looking at. Yeah, the question being kind of investing some of that margin back into volume with certain customers. You know, I think that that's an apt observation in the question.

Angus Pacala: Consistent with broader macro economic and industry trends we have also seen some customer schedules push to the right. Despite these schedule changes which may soften near term growth we expect our strong margin and operating expense performance to keep us on track to deliver on our path of profitability.

Mark Weinswig: And going back to your other point, which is that there might be opportunities to look at opportunities for the fact that we may have higher margins in certain verticals and other verticals. So it's something that we have discussed, and it's something that we are looking at. Yeah, the question being kind of on investing some of that margin back into volume with certain customers. I think that that's an apt observation in question. There's certainly a set of customers that we could invest in, per se, if we see a major volume opportunity. And I think that that's built into some degree our long-term model.

Angus Pacala: Turning to our strategic business priorities for 2024. Our first priority is to expand software sales and grow our installed base. In the second quarter, we secured deals to supply a ouster Gemini, our smart infrastructure software solution to one of the world's largest consumer technology companies, as well as a global telecommunications company. During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases such as identifying unauthorized individuals tailgating into restricted areas.

Angus Pacala: There are certainly a set of customers that we could invest in, per se, if we see a major volume opportunity. And I think that that's built into, to some degree, our long-term model. I do want to make it clear that we're committed to the 35% to 40% margins. Now, where we end up in that regime could be determined by how much we are investing in a particular vertical that might need a different type of pricing in order to reach an order of magnitude more scale.

Speaker Change: You know, observation in question. There are certainly a set of customers that we could invest in.

Speaker Change: For say, if we see a major volume opportunity.

Speaker Change: and I think that that's

Mark Weinswig: I do want to make it clear. We're committed to the 35 to 40% margins. Now, where we end up in that regime could be determined by how much we are investing in a particular vertical that might need a different type of pricing in order to reach an order of magnitude more scale. We're certainly in a position with the balance sheet we have and the progress we've made to move aggressively in a couple directions if that makes sense for the business and for the long-term profitability of the business.

Speaker Change: You know, that's built into to some degree, our long term model, I do want to make it clear, we're committed to the 35 to 40% margins. Now, where we end up in that in that regime could be determined by how much we are investing in a particular vertical that might need a different type of pricing and in order to reach an order of magnitude more scale, we're certainly in a position with the balance sheet we have and the progress we've made to move aggressively in a couple directions. If, if that makes sense for the business and for the long term profitability of

Angus Pacala: The second quarter also marked one of our best quarters for software attached sales. We increased our deployments at distribution yards as Gemini and Red 7 are helping drive the immediate ROI for our customers in addition to providing safety and operational optimization. We signed Gemini deals for multiple other use cases such as material handling, crowd analytics, and perimeter security applications.

Angus Pacala: We're certainly in a position, with the balance sheet we have and the progress we've made, to move aggressively in a couple directions if that makes sense for the business and for the long-term profitability of the business. And then moving over to the balance sheet and the decision to pay down the debt that we had outstanding, $45 million in debt. Part of the business, which might not be as flashy but which I really enjoy, is really looking at the balance sheet, focusing on efficiency and working capital management. Over the last year, a year and a half, we've lowered our DSOs by 60%. We've reduced our inventory by $10 million, increasing our inventory turns 2x, and significantly reduced the cash conversion cycle.

Mark Weinswig: And then moving over to the balance sheet and the decision to pay down the debt that we had outstanding: the $45 million of debt. Part of the business which might not be as flashy but which I really enjoy is where we're looking at the balance sheet, focusing on efficiency and working capital management. Over the last year, year and a half, we've lowered our DSOs by 60%. We've reduced our inventory by $10 million, increasing our inventory turns. Two acts significantly reduced the cash conversion cycle. So every one of our working capital metrics just looking very, very positive.

Speaker Change: of the business.

Speaker Change: And then moving over to the balance sheet and the decision to pay down the, you know, the debt that we had outstanding, the $45 million of debt, you know, part of the business which might not be as flashy but, you know, which I really enjoy is really looking at the balance sheet, focusing on efficiency and working capital management.

Angus Pacala: Turning to our digital light, our hardware roadmap, we have taped out our automotive grade Custom Silicon Chronos chip and expect to integrate chronos into our solid state digital flash DS sensors in the next year. Concurrently, we advance the development of our next generation Custom Silicon for OS sensors, the L4 chip. The L4 Silicon is back from fab and validation testing is underway. Both chronos and L4 are expected to open up new verticals and bring significant improvements in performance, reliability, and manufacturer ability to theaster product family.

Speaker Change: Over the last year, year and a half, we've lowered our, you know, DSOs by 60%, we've reduced our inventory by $10 million, increasing our inventory turns, you know, 2x.

Mark Weinswig: So every one of our working capital metrics looks very, very positive. That, along with the fact that we had a very strong ending cash amount of about $186 million as of the end of June, gave us the confidence to be able to pay down that debt so that we have what we believe is the most resilient balance sheet of anybody in the industry. We think that's a competitive advantage.

Speaker Change: Significantly reduce the cash conversion cycle. So every one of our working capital metrics just looking very, very positive.

Mark Weinswig: That, along with the fact that we had a very strong ending cash amount of about $186 million as of the end of June, it gave us the confidence to be able to pay down that debt so that we have what we believe is the most resilient balance sheet of anybody in the industry. And we think that's a competitive advantage. Yeah. Terrific.

Speaker Change: That along with the fact that we had a very strong ending cash amount of about $186 million as of the end of June, it gave us the confidence to be able to pay down that debt so that we have what we believe is the most resilient balance sheet of anybody in the industry. We think that's a competitive advantage.

Angus Pacala: Finally, our second quarter results demonstrate solid execution and progress on our past profitability. Our gross margins are now approaching the range provided in our long-term financial framework and we have maintained a low cost structure while achieving significant year-over-year revenue growth. We remain on track to deliver the financial metrics necessary to reach profitability.

Itay Michaeli: Terrific. That's all very helpful. Thank you. And your next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Yeah, thanks for letting me ask a follow-up question. Um, you know, the L4 coming out and when you came out with rev seven, you know, it was a real game changer. And you're still benefiting from that. What do you think fruit will do with L

Mark Weinswig: That's all very helpful.

Speaker Change: Terrific. That's all very helpful. Thank you.

Kevin Cassidy: And your next question comes from the line of Kevin Cassidy with Rose and Blood Securities. Your line is open. Thanks for letting me ask a follow-up question. You know, the L4 coming out and when you came out with Rev 7, you know, it was a real game changer. And you're still benefiting from that. What do you think with L4? Are you addressing higher end markets or different markets? Or do you expect this to be more or less a cannibalization of the current product? Yeah, thanks for the question. I was waiting for a product question. So, you know, still the core of Ouster is our digital ladder technology and our roadmap based around silicon chips.

Kevin Cassidy: Are you addressing higher-end markets or different markets with that? Or do you expect this to be more or less a cannibalization of the current? Yeah, thanks for the question. I was waiting for a product question.

Speaker Change: And your next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.

Kevin Cassidy: Yeah, thanks for letting me ask a follow-up question. You know the L4 coming out and when it came out with Rev 7, you know, it was a real game-changer.

Angus Pacala: In summary, the second quarter showcased our execution and progress on all three of our strategic business objectives.

Charles Pacala: and you're still benefiting from that. What do you think with L4? Are you addressing higher end markets or different markets with that? Or do you expect this to be more or less a cannibalization of the current product? Charles Pacala, Unknown Executive

Mark Weinswig: I'll now turn the call over to our CFO Mark Swig to provide more context on our financial results for the second quarter. Thank you, Angus, and good afternoon, everyone. In the second quarter, we recognized a record $27 million in revenue shipping over 4,000 sensors. Revenue increased 39% over the second quarter of 2023 and 4% over the first quarter of 2024. The smart infrastructure vertical was the largest contributor to revenue followed closely by robotics.

Angus Pacala: So, you know, still the core of Ouster is our digital ladder technology and our roadmap based around silicon chips. So, and really, the promise here is that Ouster's products are going to continue to become exponentially better based on Moore's law improvements in the underlying semiconductor technologies. And we've seen that across multiple generations of chip, most recently with the L3 chip doubling the range of all of our products just by swapping out that silicon.

Speaker Change: Yeah, thanks for the question. I was waiting for a product question.

Speaker Change: Still the core of Ouster is our digital ladder technology and our roadmap based around silicon chips. So, and really the promise here is that

Angus Pacala: So, and really the promise here is that Ouster's products are going to continue to become to be to be able to be exponentially better based on the Moore's Law improvement in the underlying semiconductor technologies. And we've seen that across multiple generations of chip, most recently with the L3 chip doubling the range of all of our products just by swapping out that silicon. So, our customers can expect to benefit from continued exponential improvement in our products. The L4 is going to deliver on that promise again. But it's not just about producing higher-end products. We can also simultaneously reduce costs in the system by absorbing even more complexity of the system onto the silicon chips.

Speaker Change: Alcer's products are going to continue to be exponentially better based on the Moore's Law improvements and the underlying semiconductor technologies.

Mark Weinswig: Since launching our software solutions in the first quarter of 2023, smart infrastructure has been our fastest-growing vertical and this quarter comprises roughly one-third of total revenues. Our gross margin improvement over the past 18 months is a key highlight for Outdoor. Second quarter gross margins set record levels both on a gap and non-gap basis. Gap gross margin was 34% in the second quarter of 2024, compared to negative 2% in the first quarter of 2023 and is nearing the range provided in our long-term framework of 35-40%.

Speaker Change: And we've seen that across multiple generations of chip, most recently with the L3 chip doubling the range of all of our products just by swapping out that silicon. So

Angus Pacala: Our customers can expect to benefit from continued exponential improvement in our products. L4 is going to deliver on that promise again, but it's not just about producing higher-end products. We can also simultaneously reduce costs in the system by absorbing even more complexity of the system onto the silicon chips. And that applies not only to the L4, but also to the Khronos chip, which is notably taped out and will be coming back for incorporation into the DF sensors.

Speaker Change: Our customers can expect to benefit from continued exponential improvement in our products. L4 is going to deliver on that promise again.

Speaker Change: But it's not just about producing higher-end products. We can also simultaneously reduce costs in the system by absorbing even more complexity of the system onto the silicon chips.

Mark Weinswig: Vincent. Non-depth gross margin improved to 40% in the second quarter. Gross margin benefited from further adoption of our high-performing rev 7 sensors, favorable product mix, and lower manufacturing costs. We see a slight normalization of these factors and expect our margins to be relatively flat sequentially. I am proud of our progress in expanding gross margins since the merger. The strong performance illustrates our ability to drive revenue in a growth, while at the same time significantly reducing overhead costs and streamlining our manufacturing operations.

Angus Pacala: And that applies to the L4, but also to the Chronos chip, which, you know, notably is taped out and will be coming back for incorporation into the DS sensors. So, the promise of digital lidar and the silicon based roadmap that Ouster has is continuing with both the L4 and the Chronos, and customers will benefit immensely from improvements and performance features and affordability as a result of that investment. Okay, great. Thanks, left clarification.

Speaker Change: and that applies to the L4, but also to the Kronos chip, which, you know, notably is taped out and will be coming back for incorporation into the DF sensors.

Angus Pacala: So the promise of digital LiDAR and the silicon-based roadmap that Ouster has is continuing with both the L4 and the Khronos, and customers will benefit immensely from improvements in performance, features, and affordability as a result of that investment.

Speaker Change: So, the promise of digital LiDAR and the silicon-based roadmap that Ouster has is continuing with both the L4 and the Kronos, and customers will benefit immensely from improvements in performance, features, and affordability as a result of that investment.

Angus Pacala: Okay, great. Thanks for that clarification. There are no further questions at this time, so I will hand it back over to Mr. Pacala for closing remarks. Well, I want to thank the Ouster team for another great quarter and thank everyone for joining the call and hope everyone has a great evening. Cheers. Thank you. This does conclude today's conference call. You may now disconnect. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.

Mark Weinswig: In addition, we have simultaneously reduced our inventory levels by almost $10 million, increasing our working capital efficiency. Gap operating expenses of $34 million were lower by 72% year-over-year and up 3% sequentially. The sequential increase was driven by higher stock-based compensation and increased litigation expenses. We expect operating expenses to fluctuate on a quarterly basis, largely due to the timing of R&D project spending and litigation activities, and to remain at or below third quarter 2023 levels.

Speaker Change: Okay, great. Thanks for that clarification.

Angus Pacala: There are no further questions at this time, so I will hand it back over to Mr. Piccala for closing remarks. Great. Well, I want to thank the Ouster team for another great quarter and thank everyone for joining our call. And hope everyone has a great evening. Cheers. Thank you.

Speaker Change: There are no further questions at this time, so I will hand it back over to Mr. Pacala for closing remarks.

Mr. Pacala: Great. Well, I want to thank the Ouster team for another great quarter and thank everyone for joining the call and hope everyone has a great evening. Cheers.

Unknown Executive: This does conclude today's conference call. You may now disconnect. Please wait.

Speaker Change: Thank you. This does conclude today's conference call. You may now disconnect.

Unknown Executive: The conference will begin shortly.

Speaker Change: Please wait. The conference will begin shortly. Please wait. The conference will begin shortly.

Mark Weinswig: Moving to the balance sheet, our balance sheet is industry-leading with cash, cash-equivalent restricted cash, and short term investments of $186 million at June 30th. During the second quarter, we received approximately $16 million from ATM sales. In August, consistent with our strategy to improve our capital structure, we utilized $44 million of cash to fully repay the outstanding balance on our revolving credit line. This action further strengthens our financial position and provides a ouster with a resilient balance sheet.

Mark Weinswig: Now moving to guidance. For the third quarter, we expect to achieve between 27 and 29 million of revenue. We anticipate steady sequential revenue growth for the remainder of the year.

Angus Pacala: I'll now turn the call back to Angus for his closing remarks. Thanks, Mark. The austere team delivered solid execution in the second quarter. This is now the fifth straight quarter of expanding margins and increasing revenue. Non-gap growth margin reached 40% for the first time in our history. We as one of the best quarters for software attached sales added new features to a software product portfolio, and both of our next generation custom silicon chips are progressing.

Angus Pacala: Oster stands out as a fundamentally differentiated lighter company that is shaped by our exceptional employees, customers, and technology. We are relentlessly focused on building the highest quality products and providing best in class support to help solve our customers' cutting edge challenges. I'm excited to see the use cases for LIDAR expand as the world is automating to solve an ever-increasing number of modern challenges. Whether it's industrial companies delivering more efficiency or cities deploying technology for safer roads, Oster's digital LIDAR is increasingly the center of choice. With LIDAR adoption still in its infancy, we are just beginning to tap into our growth, and I see a tremendous opportunity still in front of us.

Unknown Executive: With that, I'd like to open the call for a Q&A. At this time, I would like to remind everyone in order to ask a question, press star and the number one on your telephone keypad.

Kevin Cassidy: Your first question comes from Kevin Cassidy with Bros and Blot Securities. Your line is open. Hi, yeah, thanks for taking my question and congratulations on the great results.

Mark Weinswig: Yeah, moving up to 40% gross margin is quite an accomplishment and just want to understand some of the moving parts and doing that is it the unit volumes that are up and cost may be coming down with that or is it because you're selling more software and maybe you can give a ranking of which one affected the gross margins the most. Yeah, thanks for the question, Kevin. We're very proud of the gross margin.

Mark Weinswig: It's definitely one of the highlights of really the past year but over the past 18 months we took significant actions. We moved more product to our contract manufacturer. We took costs out of the business. We shut down facilities and those actions and the revenue grows and the product mix shift have allowed us to really see a significant increase in our overall gross margins. You know, we provided the long term framework of between 35 and 40% in terms of a growth margin target and we're right now knocking at the door of being able to hit those levels.

Kevin Cassidy: Great.

Angus Pacala: And maybe to understand the software strategy a little more, you know, you're selling it as an attached feature now and getting an extra price I would think and other maintenance contracts along with that. If you have a long term where you continually update the software for your customers. Yeah, that's a great following question on the and it really relates to the gross margins as well. The software strategy that we put in place of basically driving software attached sales through our solutions business is really starting to pay off.

Angus Pacala: You know, we had a record revenue quarter for software attached sales. That's a customer that's buying a combination of hardware and software from from Auster. And you know, this is not an overnight success. We've been investing in Gemini and Blue City now for over two years and made a major investments last year and integrating those two products after the merger and a unified software stack and we're seeing customers respond. So, you know, Blue City, we see customers now expanding from pilot phase into real deployments into municipalities that could impact the safety and improve congestion of the, you know, the towns and cities that you and I live in.

Angus Pacala: And so we're really excited about that adoption starting to show legs and drive actual revenue significant revenue and expanding expanding gross margins about a third of our revenue this quarter came from the smart infrastructure vertical and again, we sell software solutions into that vertical specifically and that's all just creating this great flywheel of success in that vertical and for our gross margin expansion.

Kevin Cassidy: Thank you. I'll go back in the queue.

Kevin Garrigan: Your next question comes from the line of Kevin Garrigan with West Park Capitol. Your line is open. Yeah, hang the same mark.

Angus Pacala: Let me echo my congrats on the progress. Hey, Angus, you know some contracts that were pushed to the right at some of your customers. Kind of a two-part question. Do you guys have agreements with customers that are non-cancelable? And then what, and Mark, is did you see the pushouts in? Yeah, so just to answer that. So we absolutely have contracts that are non-cancelable with customers. That's the bookings, the definition of a booking is a non-cancelable PO or contract that we have in hand.

Angus Pacala: And in last year we had a great bookings year, booked a bill ratio of 1.7x. So significant customers, significant number of customers are under contract with Ouster, which gives us a lot of confidence in the long term kind of view of the top customers at Ouster.

Angus Pacala: And so overall, I mean, to the question of where are we seeing slow down or expansion, I really want to step back and stress how positive the outlook is for Ouster's business across each one of our verticals. All we see is growth in the future for Ouster. We have created a flywheel across four key industries, and each one of those industries is adopting more automation, more digital lighter sensors from Ouster, and building stronger ties and more mature business models.

Angus Pacala: To give some examples, you know, several botics we mentioned in the call. That's a customer we've been working with for over five years. They've been at, you know, smaller pilot stage for a long time. And now they've made the leap to a 2000 unit expansion of their business. That's a novel business model. Last mile delivery, starting in LA and 2000 units is nothing to sniff at. That's bigger than Waymo's deployment in any city in the US.

Angus Pacala: So we're seeing customers like that in novel domains like robotics, expanding, but we're also seeing customers moving out of pilot stage or development stage with some of our software solutions. So Blue City, I've mentioned municipalities now talking about tens or hundreds of intersections being deployed with the technology where we've been in the pilot stage across, you know, hundreds of different sites in the last couple years. Same thing true for a Gemini solution. We now have customers that are using Gemini as a core part of their business driving cost savings for logistics players, security, providing security. Security at sites.

Angus Pacala: So yeah, I really want to stress overall, after what we see is growth in our future, obviously we're guiding up for next quarter and we're committed to the long term model that we provided with 30 to 50% growth annually on a path of profitability. Okay, perfect. I appreciate that color. And then, you know, as a follow up kind of going off with Kevin software question, I mean, it looks like this quarter, you know, you mentioned you'd sign much larger customers kind of looking at your pipeline.

Angus Pacala: Do you have for our any other large companies, you know, in the pipeline and are any on the edge and what can you kind of do to get them over the finish line? Yeah, so the software attached sale is a key part of Ouster's strategy. We outline that at the beginning of the year. And it's really focused on the smart infrastructure of vertical. And we have two products there, Blue City for traffic management and then Gemini as a crowd analytics, a more generalized solution for crowd analytics, logistics and security.

Angus Pacala: And this is the first year that we've really had. And a significant go to market strategy with a mature product. And already, you know, we're at a point where a third of our revenue this quarter was software attached sales, or excuse me was was was from the smart infrastructure vertical. And we had a record quarter for software attached sales in the quarter. And this is just the beginning, I really I think that there's a potential for us to have the majority of our sales within the smart infrastructure vertical be software attached.

Angus Pacala: Again, these products have been out for, you know, in many cases under a year. And we're adding to these products all the time. So the difference with hardware and software is we're able to incorporate new features, address customer demand and drive value at a faster cadence with this customer base because it's software we can deliver over the air versus shipping new hardware and developing new hardware on a longer time frame.

Kevin Garrigan: So I think there's big things to come here and we're we're going to continue to to give insights into how customers are adopting this as your goes on. Okay, perfect. I appreciate color.

Unknown Executive: Thank you.

Richard Shannon: Your next question comes from the line of Richard Shannon with Craig home in your line is open. Well, hang at some mark. Thanks for taking my questions. I'm going to follow up on one that was asked earlier in particular different perspectives, the response. I just want to be more specific here. And Angus, you talked about some delays and push outs you're seeing here, which is not a surprise going to ever heard from other companies that reporting so far this season here.

Richard Shannon: Maybe characterize where you see that by industry by geography and then maybe as a corollary or follow on to that mark comments about what this might be for the fourth quarter. I didn't catch the specific language, but it made it sound like you're expecting kind of a flatish revenue in the fourth quarter versus the third. Just want to just want to verify what that means.

Angus Pacala: Yeah, so Richard, I'll go first just because I want to make sure that I don't that any words I said are not mischaracterized at all. So what my comments were is that we do anticipate steady sequential revenue growth for the remainder of the year. And as Angus mentioned, we are going to grow. We are continuing to grow. It's our focus to grow. We've got a very strong book of business and, you know, you should expect that we are going to grow within the framework that we put together, which is the 30 to 50% annual revenue growth.

Angus Pacala: Yeah. And then on the question on push out by industry, you know, the nature of having hundreds of customers and being a diversified business is there really isn't the single industry where there's, you know, a trend of push outs. We have a certain fraction of customers that always delay. That's the nature of adopting new complex technology and there's nothing wrong with that if you built a business that incorporates that that reality and is resilient to it.

Angus Pacala: And actually, I view that delay when you go and look at the customer survey the customers that are delaying. And again, it really is broad based across our industries. The common thread is that the delay is coming from technical development of their total solution. And that means software. That means software integration, validation. And so it really is an opportunity for Alster to go and build more of the solutions across our verticals.

Angus Pacala: And so we started in the smart infrastructure vertical building total solutions. And as a result, we don't have delays of that nature for software attached sales for the customers in that domain. And so I think that there's an immense capacity to start building out solutions that address these challenging technical problems software and hardware working in concert. You know, complex AI technology that's safety critical and industrial or robotics or automotive and building that software and expanding our revenue bases and results and also speeding time to market for the tail of customers that's struggling with that kind of technology.

Angus Pacala: So hopefully that gives you some color. This is really not an industry by industry trend at all. It's a nature of having hundreds of customers and having a diverse spot. Business. Okay. And I apologize. I may have misinterpreted your initial comments, but you're not attempting to push out any way to any macroeconomic activity but delays in complex technical developments. Is that accurate, Angus? There will always be some level of macroeconomics that plays with some of our customers, but Ouster is expecting to grow.

Angus Pacala: We've got it up. We're expecting to have growth through the end of the year and continue to grow in line with our long-term model. So, I don't want the, you don't have the wrong takeaway here. We see nothing but up and to the right for the revenue at Ouster.

Angus Pacala: Okay. Great. Thanks for correcting my misinterpretation there. My second question here, I guess I'll follow up on the software topic in response to the last question you're talking about. Within the smart infrastructure space, seeing the majority of your hardware sales being software attached, sounded like a forward-looking comment as opposed to something you're seeing here now or expecting in the near future. But maybe you can expand on this and help us maybe think about maybe just within the smart infrastructure space is there visibility into 10%, 25% of that vertical being software driven at some point?

Angus Pacala: Yeah, I fumbled my words on that answer. So, just to clarify, we did about a third of our revenue from the smart infrastructure vertical this quarter and we had a record quarter for software attached revenue. Now, the fact is we really only sell smart infrastructure software. So, we had a strong quarter in smart infrastructure from the software attached sales basis and just from an overall basis of the mix of the industry.

Angus Pacala: And if you go back and reread some of my comments from late last year, early this year, software attached sales were under 20% of the revenue for a couple of quarters there, but really set the expectation that there's a capacity for us to outgrow or outgrow faster in the smart infrastructure vertical than others. Why? It's for two reasons. One is because we're building these total solutions in-house. And like I said, that allows you to sidestep some of the tricky issues with customer integrations.

Angus Pacala: The second is because these verticals are immense. The ITS traffic solutions industry is a billions of dollars globally, 150,000 signalized intersections in the United States alone. Likewise, the security industry, security solutions that the hardware, video management solutions, tens of billions of dollars, hundreds of millions of cameras are sold every year into that vertical. So, we're entering major markets with turnkey software hardware solutions. So, you know, I think that smart infrastructure as a vertical has still has the capacity to outgrow.

Angus Pacala: Our other verticals have become a larger share over time. And I do think that at least an internal goal is for the majority of those sales to be software attached, just because of the nature of the product that we're the software products that we have. Gemini and Blue City, I see as encompassing the best or a majority of use cases in the smart infrastructure vertical. I got it. Okay, great perspective. There's the Angus. That's all for me. I'll jump along. Thanks. Thanks, Richard.

Itay Michaeli: Your next question comes from the line of Italy, McKaylee, with City. Your line is open. Great. Thanks, everybody. Just two questions. First, on gross margin. With 40% non-gap, this quarter, I think Angus, you mentioned the opportunity ahead, it increases software attached sales. It will prevent upside over time to the 35% to 40% range you provided. And if you do see some upside, could there be an opportunity for the company to even invest some of that back into price to what to drive volume?

Itay Michaeli: And just secondly, maybe for Mark, I hope you can expand a bit more on the decision to pay down the revolver in Q3, kind of what went behind that decision. Thank you. Thanks for the questions. You did a great, great to hear from you. So just moving first to the gross margin side, we're very, very happy by the performance of this quarter. We did have a couple of tailwinds that impacted us.

Itay Michaeli: We saw strong revenue growth. We had a favorable product mix. We saw lower cost. We've guided or we've noted that we have this long-term framework of 35 to 40%. We've not made any changes to that. As we see more of the business move to potentially higher margin verticals, we may update that. In the future, at this point, we're sticking with kind of that framework that we've laid out. And going back to your other point, which is that there might be opportunities to look at opportunities for the fact that we may have higher margins in certain verticals and other verticals.

Itay Michaeli: So it's something that we have discussed and it's something that we are looking at. Yeah, the question being kind of on investing some of that margin back into volume with certain customers. I think that that's an apt observation in question. There's certainly a set of customers that we could invest in per se if we see a major volume opportunity. And I think that that's built into some degree our long-term model. I do want to make it clear.

Itay Michaeli: We're committed to the 35 to 40% margins. Now, where we end up in that regime could be determined by how much we are investing in a particular vertical that might need a different type of pricing in order to reach an order of magnitude more scale. We're certainly in a position with the balance sheet we have and the progress we've made to move aggressively in a couple directions if that makes sense for the business and for the long-term profitability of the business.

Mark Weinswig: And then moving over to the balance sheet and the decision to pay down the debt that we had outstanding the $45 million of debt. Part of the business which might not be as flashy but which I really enjoy is where we're looking at the balance sheet focusing on efficiency and working capital management. Over the last year, year and a half, we've lowered our DSOs by 60%. We've reduced our inventory by $10 million increasing our inventory turns.

Mark Weinswig: Two acts significantly reduced the cash conversion cycle. So every one of our working capital metrics just looking very, very positive. That along with the fact that we had a very strong ending cash amount of about $186 million as of the end of June, it gave us the confidence to be able to pay down that debt so that we have what we believe is the most resilient balance sheet of anybody in the industry. And we think that's a competitive advantage. Yeah. Terrific. That's all very helpful. Thank you.

Kevin Cassidy: And your next question comes from the line of Kevin Cassidy with Rose and Blood Securities. Your line is open. Thanks for letting me ask a follow-up question. You know, the L4 coming out and when you came out with rev 7, you know, it was a real game changer. And you're still benefiting from that. What do you think with L4? Are you addressing higher end markets or different markets? Or do you expect this to be more or less a cannibalization of the current product?

Kevin Cassidy: Yeah, thanks for the question. I was waiting for a product question. So, you know, still the core of Ouster is our digital ladder technology and our roadmap based around silicon chips. So, and really the promise here is that Ouster's products are going to continue to become to be to be able to be exponentially better based on the Moore's law improvement in the underlying semiconductor technologies. And we've seen that across multiple generations of chip, most recently with the L3 chip doubling the range of all of our products just by swapping out that silicon.

Kevin Cassidy: So, our customers can expect to benefit from continued exponential improvement in our products. The L4 is going to deliver on that promise again. But it's not just about producing higher end products. We can also simultaneously reduce costs in the system by absorbing even more complexity of the system onto the silicon chips. And that applies to the L4, but also to the chronos chip, which, you know, notably is taped out and will be coming back for incorporation into the DS sensors.

Kevin Cassidy: So, the promise of digital lidar and the silicon based roadmap that Ouster has is continuing with both the L4 and the chronos and customers will benefit immensely from improvements and performance features and affordability as a result of that investment. Okay, great. Thanks, left clarification.

Angus Pacala: There are no further questions at this time, so I will hand it back over to Mr. Piccala for closing remarks.

Angus Pacala: Great. Well, I want to thank the Ouster team for another great quarter and thank everyone for joining us call.

Unknown Executive: And hope everyone has a great evening. Cheers. Thank you.

Unknown Executive: This does conclude today's conference call.

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