Ouster, Inc. Q1 FY2021 Earnings Call

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

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

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

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

Operator Instructions. And your first question comes from Itay Michaeli with Citi.

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

Thanks for the question. So we get a lot of questions about the customers moving towards production in that funnel and customer counts in general. We want to provide more transparency here, which is why we're using a metric called strategic customer agreements for that count that all in counts of SCAs because it's a much more stringent way of defining a customer that has reached a high level of maturity that Ouster has. These agreements are not just a piece of paper; there's a contract associated with that customer. Our customer base absolutely has continued to increase every quarter. But we believe that SCAs are a much better metric because they talk less about the top of the funnel and instead provide clarity on the customers that are moving towards production with these multi-year forecasts, negotiated pricing, clearly identified products and product skews, and projects that those product skews are being used towards. And yes, these 40 SCAs are a superset of the 20 production wins we communicated back at the Investor Day. So this is a better metric, a more stringent version of just saying that we have production wins.

Got it? That's very helpful. Regarding the L3 chip under its QUT, you've made some progress there. It might be early to ask, but could you share what you expect the performance metrics to be in terms of range and resolution, especially compared to some of the recent LIDAR introductions from other players?

Yes, I'm incredibly excited about this L3 chip. It's been in development for the past year. It is a major and vast advancement in the capabilities of this digital data platform. We knew that exponential gains were going to continue to come, but I would say that the L3 chip is one of the biggest exponential gains in raw performance of this technology today. I think it's even bigger of a jump than our L1 to L2 chip. As it relates to specifics on the performance criteria, that’s something that we want to keep close to the chest as a competitive advantage. We're not going to pre-release specs on our products as a policy of the company, but I can tell you that it is the most significant jump in technology and capability today at Ouster.

That’s great to hear. And then just lastly, I think, Angus you mentioned the salesforce grew at least 50% this quarter. Any target you can share in terms of kind of where you expect that to be by year end?

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

Great. That’s…

I’d just point out that we're incredibly happy to have Nate Dickerman joining the team. What he's been able to build is the concept of a commercial engine that has incredibly high throughput and efficiency. It's something that he's applied at his past positions at Planet Labs, Autodesk, and IBM. He is the top commercial leader at Ouster, and we’ll be continuing on the momentum of hiring across all of our regions. And allowing our teams to get more and more focused on the end-use cases, vertical by vertical to be more specific and selective, and targeted in how we sell, so incredibly pleased to have him. It's a very significant addition to our executive team.

That's all. Very helpful answer. Thank you.

Your next question comes from the line of Richard Shannon with Craig-Hallum.

Great, thanks Angus and Anna, congratulations on your first conference call as a public company.

Thank you.

Welcome. On the SCAs here, maybe just a couple of digging in here a little bit. By the description in your press release, some of the revenues in here are binding versus forecasted. Can you give us a sense of how much of that or any kind of rough percentage what is binding?

Sure. Yeah…

Hey, you are going to take the first or you want me to jump in?

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

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

Okay, that's helpful. Thank you for that information. Could you provide another perspective on your SCA pipeline? Specifically, how can we understand the contributions from the end markets? You've already shared some details in your presentation and in your prepared comments. We could guess the figures, but your insights would help clarify. I’m particularly interested in Ouster related to automotive, and I would also include long-haul trucking. Can you characterize the percentages in that area?

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

To give a little more color there, the SCAs are converting large numbers of our customer base to this contracted framework. We expect that the SCA contribution will near our revenue contribution by vertical. That is to say it's a roughly equal contribution by vertical to our revenue, and we expect that in our SCAs as well.

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

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

Yes, the tripling refers to the full year numbers. You're correct. We are on track to triple sensor production for the full year to meet the demand compared to the previous year.

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

Thank you.

Your next question comes from the line of Blayne Curtis of Barclays.

Thanks, and congrats on the first quarter. Maybe a first question, just curious your last couple quarters, it's been product revenue. I think long-term you're looking for a software component. I think maybe you had some service revenue in the past. Maybe just I was curious how you looked at that software opportunity, and when that might start to flow into the model?

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

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

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

Yeah, as we previously said, ramping to 25% with nominal contributions this year. So I said, we're thinking it'll start to contribute next year.

Got you. And then I want to ask from the FDA, a huge pick out between the end of 2020 and I was just curious, the catalyst for that was it just the timing of when the designs that you started to sign these agreements, or was it influenced by the stock process where you're not yet a public company? Can you just walk us through why the FDA had been planned at such a pace over the last quarter? And then as you look at the 500 customers, obviously, there's a pipeline here. I'm just curious, think about just the pace of the signings as you missed this fiscal year?

Sure. Yeah, I can't stress enough how important this progress in SCAs is. We're really at a tipping point where we're starting to convert large numbers of our customers who have been with us, in some cases for multiple years, to these contract-based engagements. It's a major initiative that we've undertaken in the last, basically, two quarters. I think there's momentum that we have in record revenue that we're having, the growing opportunity, customer counts, and the improving product portfolio that we have versus our peers. So we're really poised to continue to accelerate that, putting those customers under contract. But this is a strategic addition or strategic shift for how we work with customers on a forward basis.

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

Sure. So lead times on shipping as well. So I guess, in each of these SCAs, there is at minimum a three-year forecast. One of the requirements of putting a customer under contract is that they are indeed a customer. They have placed TOs and received sensors. So I would say in every case, these customers that – these are already customers, they're already making sensor purchases, and we're seeing the benefit this year, that's for sure. Now, I think in every case, there is volume for ample time, but yes, the benefit is immediate.

Okay. Thanks.

Your next question comes from the line of Tristan Gerra with Robert W. Baird.

Hi. This is Justin online for Tristan. Still back on the customer agreements. I'm wondering how exclusive mostly your multi-year lidar agreements are? And does the exclusivity differ depending on the end markets you serve, specifically in the case of trucking? I think I spoke to you on a competitor who have mentioned agreements with Daimler? And then, I have a follow-up. Thank you.

Yeah, tackling that last part first. The case with Daimler highlights the fact that there are multiple lidar sensors that are needed across a wide swath of our customer base. We're able to, unlike any other lidar provider, offer the most complete set of lidar sensors to market to hit the most needs and use cases. So in the case of Daimler, yes, we're providing some of the lidar sensors, not all of the lidar sensors. But a customer like Plus, we're providing everybody's sensor on their robotic trucking and truck. And I would say that that lidar example is more the rule than the exception. We commonly inhabit the majority, if not all of the lidar sensors on the customer's platform, another great example is May Mobility, where they have four lidar sensors on their vehicle. So exclusivity is built into some SCAs, but there's not a requirement for us to sign an SCA with a customer. But in cases where there is exclusivity, perhaps we're achieving that through some kind of agreement on the pricing, or other terms that lock in that customer. So it's an option, but not a requirement. Nearly qualifying our sensors as being a first mover in this space with sensors that hit the real needs of a production deployment, for instance, like Plus, where we have the best, most reliable highest resolution and lowest cost sensors for that use case. They are moving forward with us as a first mover qualifying that system over the course of multiple years. There is a massive amount of inertia and momentum at these customers to qualify our sensors and not others. So there's a real barrier to entry there and stickiness, despite the fact that in some cases there is not exclusivity, per se.

Got it. That makes sense. My follow-up, I understand you're ES2 solid sensor is still in development, but how have you guys been sourcing customer interest for that sensor before volume production in 2030? Thank you.

Yeah, I mean, I think it's not difficult to find customer interest. The entire automotive industry is based on this need for multiple, multiple sensors—multiple solid-state sensors around the vehicle. The examples in the remarks that we receive are RFQs from automakers for short, medium, and long-range lidar. There is an inherent need for those three types of lidar sensors. And only solid state digital lidar can actually address the three different varying needs of those three different types of sensors simultaneously. There's an immense focus on sourcing multiple different lidar sensors, and we're in contact with all of these potential customers on that basis, given how consolidated the auto industry is.

Hello there. Hope everyone's doing well. Just a couple of questions—just following on from the previous one, can we assume that these 40 SCAs and the 385 million consists largely of sensors? And then anything that comes out of a different architecture or has yet to show up in that SCA number? Is that a fair assumption?

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

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

Yeah, for sure, we're getting this question all the time. First of all, I hold weekly meetings to track the supply chain for the balance of the system. But importantly, we produce our core chips. The lidar chipset is a fully custom design, and we have a lot of control over that supply chain. We hold safety stock on wafers, so I don't foresee any issues with sourcing the core components, the pixels, the SOC for devices. As for the balance of the system, there's much more competition, and there's actual competition for those parts. But we hold weekly meetings, making sure that we have profitability of supply. We do not foresee any problem with a lack of supply and ability to ship to our targets this year. It's certainly something we focus on internally for the company, but at this point, we do not foresee any issue in the supply chain.

Okay, and that would extend to, I assume, as you rev the SOC, you're probably also moving to different design rules, and obviously, things are tight there. So as you look forward, are there any challenges on that front? You try and drive the different design robot parts on offhand.

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

Sure. That certainly makes sense. And then on automated, interesting comment, I'll let either of you respond to the observation that you want to keep your strategic options open without tipping your hand too much. Are there any particular skill sets or things that you see that might be desirable as you look around the market?

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

Yeah, I think if there were an opportunity, I would as a precondition, you need to be a small, high-performing team. We're not looking to merge with a large company or anything like that. I'm very confident in our hardware roadmap and our technology set and do not feel the need to augment our hardware roadmap with additional IP or different product lines or technology. We think we can address all of the market needs with a digital lidar platform that we already have commercialized. Anything that we would do in the space would be more focused on kind of the ecosystem and kind of peripheral capabilities that we can offer alongside the digital lidar hardware that we're providing today.

Okay. Well, thank you very much. I appreciate it.

Thank you.

Your last question comes from Michael Filatov with Berenberg.

Thanks for taking my question. Just got actually two questions. One quick one. On the non-contact footprint that you guys use, do you have a patent on that? And if so, I'm kind of curious, is anybody else in the industry currently using something similar?

I think there was an interesting report from Patent Insights, which you can find online, that highlighted that Ouster has one of the most strategic and comprehensive patent portfolios of any lidar manufacturer in the industry today. I encourage you all to search the Patent Insights report that they released a few months ago, as it highlights exactly what I'm saying.

Great. And just one follow-up, because you mentioned a couple of times during the call, I understand that OEMs like to source multiple sensors within a modality, such as long-range, short-range, and medium-range. However, in my experience with OEMs, it seems that the approach is usually to use one long-range facing lidar for Level three or possibly even Level four, rather than having multiple lidar sensors for surround view. They have typically depended on cameras and radar. So, I'm curious about the trade-off with your sequential flash lidar regarding range and field of view. If you were to implement forward long-range object detection, how many sensors would you allocate for that purpose, and how many would be positioned around the vehicle?

Yes, so we absolutely believe that we need just one forward-looking long-range lidar, which again highlights the point that there is more volume to be had—more opportunity if you can supply the entire system, given how many other lidar sensors, we expect—and others expect—there to be on the vehicle. I think it's not true that automakers are only sourcing vehicles with a forward-looking lidar and cameras. I think what you're seeing is that that is a limited L3 system. There may be initial L3 systems, where the car is only capable of providing for directional L3 capabilities, basically following a car and not making any turns, lane changes or maneuvers. What we're highlighting is that in order to achieve the full suite of L3 capabilities, which means hands-free and high-speed driving, you must have redundant lidar sensors positioned around the vehicle to look in the direction that you want to travel. That's where we're differentiating: being able to provide that complete suite of lidar sensors, not to mention that we're offering it at a fundamentally lower price point than our competitors. We're developing a complete suite for $1,000 when our competitors are talking about a single forward-looking lidar for $1,000. We're entering the market at fundamentally lower price points. We're not saying we're not going to build a forward-looking high-performance lidar, that's absolutely part of this suite. But it's just one—it's a minority of the total opportunity.

Sure, I have a quick follow-up. It was mentioned before regarding Daimler. For example, in your trucking program, you have multiple lidars, and I assume there are other references for long-range sensors. Specifically, you mentioned that on Plus AI, you're essentially the only lidar supplier. For the forward-facing lidar used in long-range object detection, what range are you achieving for that program, and what trade-off exists concerning the field of view?

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

Understood, Thank you very much. Appreciate it.

And your last question comes from Jay Van Sciver with Hedgeye.

Great. Thank you so much. And thank you for the transparency on these SCAs. I'm wondering, can you give us a timeline for a customer coming to Ouster to buy by RFP to getting one of these SCAs signed to actual revenue recognition? And how much of that growth is just limited by the size of your sales force?

Yes. The time span anywhere from three months to 18 months, with probably the average being somewhere between six to 12 months. Plus is another great example here where they had our systems, our sensors on their system for approximately 12 months before moving forward with the SCA. But back to this concept, we are at a tipping point where more and more customers are willing to commit to our platform because of the maturity of our products, the benefits of our products, and the confidence they have in us as a public company with a significant balance sheet at this point. I think we're at a tipping point where maybe we'll see those timelines shortening from six months to a year to maybe three to six months going forward.

Great. Congrats on your first call.

Thank you.

And now I’d like to turn the call back over to Angus Pacala for closing remarks.

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

Thank you for participating. This concludes today's conference call. You may now disconnect.