Ouster, Inc. Q2 FY2021 Earnings Call

Good day and welcome to the Velodyne Lidar Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn over to Ms. Moriah Shilton. Please go ahead.

Good afternoon, and thank you all for joining us on today's conference call to discuss Velodyne Lidar's second quarter 2021 financial results. With us on today's call are Drew Hamer, the Company's Chief Financial Officer, and members of Velodyne's Office of the Chief Executive or OCE, Jim Barnhart, the Company's Chief Operating Officer, and Sinclair Vass, the Company's Chief Commercial Officer. Drew will run through the call prepared remarks and Jim and Sinclair are available for Q&A. Before we begin, I would like to remind you that shortly after the market close today, Velodyne issued a press release announcing its second quarter 2021 financial results. Velodyne also published an investor presentation. You may access the press release and the presentation in the Investor Relations section of velodynelidar.com. Today's discussion includes forward-looking statements. Please refer to our press release for a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Velodyne's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the press releases. To ensure that we address as many analyst questions as possible during the call, we request that you please limit to one initial question and one follow-up question. Now, I'd like to turn the call over to Drew Hamer, CFO of Velodyne and one of the members of Velodyne's OCE.

Thank you, Moriah. Good afternoon and thank you for joining us today. As Moriah mentioned, I am one of the four members of our OCE and together we are executing on the company's growth strategy as developed by members of our executive team and former CEO, Dr. Anand Gopalan. As many of you know, Anand now serves in an advisory capacity and our Board is undertaking a search to find a full-time CEO. The OCE has decades of collective business experience, including operations, general management, supply chain, services, manufacturing, engineering, employee engagement, financial strategy, and execution in industries ranging from telecommunications to consumer electronics, automotive, and industrial laser market. Speaking of markets, the use of lidar today in our served market and emerging target market like gaming continues to gain momentum. We are executing against this trend by closing deals with customers across a variety of markets, supported by a broad lidar product portfolio that we are manufacturing today. Velodyne is the only lidar company that has an office shelf both software and hardware solutions that can be put into vehicles and the infrastructure. We are the global lidar leader shipping more units in the second quarter than the aggregate of all our peers when combined have reported shipping year-to-date. We shipped more than 3,800 sensor units in Q2, up from more than 2,600 in Q1 as we increased the breadth of market adoption for our lidar across multiple industries and applications. Of those units, 260 were solid-state units. We expect roughly 30% of our sales to be solid-state for the full year. Not only did we ship more sensors in the prior quarter, but we also shipped them to a larger group of customers as 72% of our sensors sold were through spot buys, indicating the broader market interest for our solutions. The number of inquiries from customers is increasing. We believe we are now going through the other side of the COVID-19 pandemic. We expect unit volumes to start averaging more than 3,800 sensors a quarter for the rest of the year. We are listening to our customers and moving people and goods closer to them. We have placed inventories in China and Europe. We are strengthening in-country technical support in all the regions we serve, including South Korea. We also established a design center of excellence in India. We continue to deepen our relationships with existing customers and build relationships in new markets. We signed more multiyear agreements bringing our total to 34 and meeting our prior stated goal for the year well before the end of the year. We now expect to sign four additional multiyear agreements by the year end which will bring our total to 38. Our pipeline continues to grow. We had 213 projects at August 1, up from 198 projects at May 1. 25 of these opportunities include solid-state Velabit. Included in the signed and awarded pipeline are new ADAS multiyear agreements which we expect will begin to ramp starting in 2026. We have an additional $4.5 billion of opportunity for projects that are not yet signed and awarded that go through 2025. Turning to our served markets, I would like to run through both our lidar sensors and software being used in various applications across different markets, as well as provide an update on our progress with customers. We have over 300 customers who over the past decade have both purchased and continue to buy products from Velodyne. We are seeing many of these customers move from a long research and development phase with lidar to the first wave of mass adoption. In automotive, in ADAS you will find our solid-state Velarray H800 long-range sensor, Velarray M1600, our midrange sensor, and Velabit from ultra-short range to midrange sensing. All of our sensors can enable Advanced Blind Spot Monitoring, Parking Assist, Lane Keep Assist, Adaptive Cruise Control, Automatic Emergency Braking, including for pedestrians and more. Faraday Future was our first publicly unveiled automotive program using the Velarray H800 and we are currently making progress in our relationships with major high-volume OEM customers as well. For example, our project with a major Tier 1 ADAS provider in Asia for mass production of level III lidar systems continues to move forward. As part of this project, we are adding headcount in countries for this effort and to build further relationships with customers in South Korea. EV can use both solid-state and rotational lidar. An application could include the full suite of rotational surround view product family, including our Pucks, Ultra Puck, and Alpha Prime mid-long-range sensors, plus our solid-state Velarray mid-and-long-range sensors and Velabit which are ultra-short range to midrange sensors. For example, Trumtech, the first company in China to independently develop level IV driverless trucks, will use our Ultra Puck, Puck, and Velarray H800 sensors as core sensor hardware in its autonomous trucks. Trumtech recently became one of the first companies to obtain Beijing's permit that allows road tests for self-driving commercial vehicles. As I mentioned earlier in the call, we are increasing our in-country support as well as moving inventories closer to customers. We are already seeing these efforts result in new customer wins. We have signed another large company in China that will use our current and next-generation rotational lidar sensors to support their logistics with precise reliable navigation for real-time autonomous vehicle operation. We are working with existing customers to extend their current agreements with us to include additional products within our portfolio. Some of these opportunities came to us as a result of the customer's concern that their current lidar supplier cannot manufacture at the scale they need. In Robotics and Industrial, you will find our surround view product family, including our Pucks, Ultra Puck, and Alpha Prime, plus our solid-state Velarray and Velabit. We recently signed an agreement with an undisclosed large North American company to provide our sensors and solutions for use in warehouses. This builds upon our existing agreement or relationship with this customer for last-mile delivery. It is another example of our success in deepening our relationships with our customers due to our broad product portfolio. As announced earlier this week ANYbotics is equipping its autonomous mobile robots with our Puck sensors. By using our Puck sensors, the ANYbotics robotic inspection solution is able to map industrial environments to detect obstacles and allow ANYmal to avoid any collisions while navigating harsh environments with a higher level of accuracy. We also signed a five-year sales agreement with a leading defense and security company that has selected our sensors to provide mapping and autonomy capabilities for their robot, the large-scale manufacturing and production of which is scheduled to begin in 2024. The quality of our lidar sensors, plus our ability to mass manufacture, continues to set Velodyne apart from its competitors and are driving additional customer wins for us. In addition, you will also find our surround view product family. Seabed B.V., which specializes in high-quality equipment for offshore surveying and dredging, has selected our Puck sensors for its lidar mobile mapping system. The Seabed system is a turnkey mobile lidar solution for hydrographic surveys that helps companies transform their businesses with offshore 3D mapping solutions which can deliver highly accurate detailed data collection to support safe navigation and protection of the marine environment. Last but not least, our smart city solutions, which is our first offering to combine software and hardware. Our Intelligent Infrastructure Solution or IIS combines our award-winning lidar sensors and powerful AI software to monitor traffic networks in public spaces. In May, IIS was named the winner of the 2021 Smart 50 Award, which honors the 50 most transformative smart cities projects in the world. IIS is deployed in multiple North American cities, including Québec and British Columbia, Boca Raton, Florida, with upcoming installations at the Rutgers campus in New Jersey and Austin, Texas, and moving forward with a significant project in the Bay Area. In July we announced we joined the NVIDIA Metropolis Program which is designed to nurture and bring to market a new generation of applications and solutions to make the world's most important spaces and operations safer and more efficient with advancements in AI vision. At Velodyne we continue to advance our industry-leading technology. On the hardware side in June we launched the next generation of our Velabit sensor which delivers on what our customers are asking for: an ultra-wide Field of View (FOV) and higher resolution. Our next-generation Velabit was launched in under a year, highlighting our commitment to meeting our customers' demands. We held a Velabit demo day for key customers in June. 17 companies attended, including five OEMs and other customers evaluating or using our solutions in industrial and robotics, delivery, AV, and ADAS applications. Across the board companies told us they are looking forward to incorporating the product in their solutions. Importantly, the Velabit is equipped with our breakthrough proprietary Micro LiDAR Ready architecture for MLA. The MLA brings together the core elements that make lidar work, the optical chip in our ASIC or application-specific integrated circuit technology. The miniaturization, combined with Velodyne's proprietary fully automated manufacturing process enables cost-effective high-quality mass production. We are currently working on our next-generation rotational sensors that will use proprietary ASICs and our MLA technology to provide ultra-long-range high-resolution performance at scale. Overall, for all the hardware technology choices we have made, we are marrying the high performance that is needed with scalability and the ability to manufacture these technologies at the right cost point to enable mass-market adoption. On the software side, last week we launched a new Software Development Kit that allows customers to utilize the advanced capabilities of our Velo lidar perception software in their specific solution. The Velo Development Kit or VDK enables companies to accelerate time-to-market for bringing cutting-edge lidar capabilities to autonomous vehicles, ADAS, mobile delivery services, industrial robotics, drones, and more. Technology innovations, such as these, advance our mission to democratize lidar-based safety and autonomy. The role lidar can play in improving safety and autonomy continues to gain recognition by the larger public sphere as well. Recent news from the NHTSA on reporting crashes involving autonomous vehicles and ADAS shows that the federal government is taking a hard look at crashes and near misses for vulnerable road users such as pedestrians. We have a solution available now that enables automatic emergency braking for a wide variety of objects, including pedestrians. On the commercial vehicle side, we developed our Velarray for windshield implementation and the Federal Motor Carrier Safety Administration recently published a notice of proposed rulemaking concerning vehicle safety technology installed on the interior of commercial motor vehicle windshields, which if adopted will provide a blanket exemption for lidar and therefore lower the threshold to its adoption. On the infrastructure side, the Smart Cities and Communities Act will provide technical and financial resources to local governments to implement smart city technology, especially in suburban and rural communities. Smart cities is a proxy for technology that enhances and deploys safety in the infrastructure. At Velodyne, we have technology for both infrastructure and vehicles and are the only lidar company providing a full circle of safety and autonomy. Now I'd like to discuss our financials. I will review first our second-quarter and first-half results and then provide our full-year 2021 guidance and business outlook. Total revenue is $13.6 million compared to $17.7 million in the first quarter of 2021 which included a $5.5 million licensing fee. Product revenue was $12 million, up nearly 30% from $10.6 million in the first quarter of 2021 as we were getting renewed demand for our lidar sensors from customers for delayed purchases due to the uncertainty caused by the COVID-19 pandemic. The company's weighted average selling price per sensor was $3106 compared to $3887 per sensor in the first quarter of 2021. License and services revenue is $1.6 million compared to $7.1 million in the prior quarter and included a $5.5 million licensing fee I previously mentioned. GAAP gross loss was $5.8 million and non-GAAP gross loss is $5.3 million compared to the first quarter of 2021 GAAP gross profit of $1.9 million and non-GAAP gross profit of $2.7 million. GAAP gross loss in Q2 did not benefit from the licensing fee in Q1. GAAP operating expenses were $84.8 million and non-GAAP operating expenses were $28.8 million compared to the first quarter of 2021 GAAP operating expenses of $42.5 million and non-GAAP operating expenses of $28.6 million. GAAP operating expenses included $53.2 million stock-based compensation expense and included employer taxes. Included in stock-based compensation expense was approximately $42 million charged against sales and marketing related to our 2020 merger with Graf Industrial. This compared to first quarter 2021 GAAP operating expenses including $13.3 million of stock-based compensation expense including employer taxes. Included in general and administrative expenses was $1.4 million in legal and professional expenses in connection with our audit committee's investigation announced in the first quarter of 2021 into conduct by David Hall, the company's former Chairman and Marta Hall, the company's former Chief Marketing Officer and a current Director of the company. For the first half of 2021, this figure was $3.7 million. GAAP and non-GAAP operating expenses included increased spending in research and development that is a response to the visibility provided by a multiyear agreement pipeline. GAAP net loss was $80.7 million and non-GAAP net loss was $34.4 million. GAAP net loss per share was $0.42 and non-GAAP loss per share was $0.18. This compared to our first quarter of 2021 GAAP net loss of $40.8 million, non-GAAP net loss was $26.1 million. First quarter of 2021 GAAP net loss per share was $0.22 and non-GAAP net loss per share was $0.14. EPS for the second quarter of 2021 is calculated using weighted average shares outstanding of 193 million. As of June 30 actual shares outstanding were 195.2 million. Velodyne completed the quarter with $353.6 million in cash and short-term investments on its balance sheet. Now for the first half of 2021, total revenue for the first half of 2021 was $31.3 million comprised of $22.6 million in product revenue and $8.8 million in license and service revenue. This compares to $45.4 million in the first half of 2020 of which $27.9 million was product revenue and $17.6 million was license and service revenue. GAAP net loss for the first half of 2021 was $121.5 million and non-GAAP net loss was $60.5 million. This compares to a GAAP net loss of $33.1 million for the first half of 2020 and $35.9 million in non-GAAP net loss. Now for full-year 2021 financial statement guidance. Revenue is expected to range between $77 million and $94 million. We have seen parts of our global markets such as the U.S. and China recover, while other geographies are still negatively impacted by the continuing toll of COVID-19. We believe we have good line of sight to the low end of our guidance range and see a number of larger projects that will provide upside revenues should they come in. Many of the upside projects would generate non-recurring engineering revenue in 2021. Non-GAAP gross margins are expected to be between 13% to 24%. This reflects fewer units sold to cover remaining fixed overhead costs of our factory in San Jose, while we experienced ongoing delays in moving this manufacturing offshore due to COVID-19. Gross margins at the higher end of our revenue guidance would benefit from increased non-recurring engineering. On a GAAP basis, gross margins are expected to include approximately $2 million of stock-based compensation expense. On a non-GAAP basis, operating expenses are expected to range between $125 million and $129 million. Based upon our expectations regarding our multiyear agreement pipeline, we are increasing our spend in new product development by approximately 40% in 2021 compared to 2020. We expect general and administrative expenses will increase by approximately 35% in 2021 compared to 2020, primarily due to increased legal expenses and public company expenses. On a GAAP basis, operating expenses would include approximately $87 million of stock-based compensation expense that reflects approximately $42 million we charged against sales and marketing in the second quarter, related to our 2020 merger with Graf Industrial, and $8 million related to the recent departure of our CEO. On a GAAP basis, income tax expenses are anticipated to be approximately $800,000. Weighted average shares outstanding for the year are estimated to be $193.5 million. Finally, I would like to review our business outlook. At the end of the second quarter of 2021, we estimate we could have the opportunity for over $1 billion of revenue from signed and awarded projects through 2025, plus a pipeline of projects that are not yet signed and awarded of $4.5 billion. As I mentioned earlier, included in our multiyear agreements, are new ADAS agreements, which are expected to begin to ramp starting in 2026 and the years beyond. This concludes my formal remarks. Operator, we are now ready to take questions.

We will now begin the question-and-answer session. And it appears our first question comes from Itay Michaeii of Citi. Please go ahead.

Great. Thanks, good afternoon everyone.

Hi Itay.

Hi, just help me go through the kind of second half gross margin bridge again, I just wanted to see the key puts and takes to drive the implied second half exit rate?

Yes, as we're looking at the second half of the year for gross margins, we've given you a sense of what we see for sensor accounts, and so that will contribute to the gross margins as we are still a little bit delayed in getting the manufacturing moved offshore. So that and just in the sensors creates a little bit of a drag on where those gross margins will go, but as you get out towards the higher end of the range of the guidance we've provided there is a solid pipeline of newer contracts that will come along with some non-recurring engineering which is a significant gross margin contribution upwards of 100%. So, as we have a clear pipeline to the bottom end of the range, but more confidence is as we get out into the middle, the additional NREs will bring that gross margin number up. So as we look out towards the end of the year, we expect that the gross margins start to move up from there as those NRE deals come in.

Got it, that's helpful. Then just on the contract that begins in 2026 can you give a little more color maybe in terms of the region and perhaps even the prospective volume of that award going forward?

So, without getting into too many specifics because of the confidentiality obligations, it is a large OEM and it's a project where we're working with them closely on. They have actually, I think, they have two projects underneath there, but we're just calling out one for now and it starts moving into what would be a normal OEM scale kind of volume, and it would be in the ADAS space.

Got it, okay that's helpful. Thank you.

Okay.

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

Thanks so much guys.

Hi Colin.

You know, with your non-auto customers can you talk about the level of activity versus a year ago in terms of customer quotations, bill cycle, close, like, what's going on in that segment of the opportunity?

Yes, so, you know, it's interesting to us. Even when we look at our project pipeline that we share with people in our investor presentation, we're seeing a significant uptick. I think, the initial adoption for lidar is going to be coming more from our kind of Robotics and Industrial customers. So when you look at this space, adoption will come a little bit faster, the sale cycles come a little bit more quickly, and the implementation and uses of the sensors has happened much more rapidly. So as we're looking at, even as we look out a couple years into our forecast, we're expecting that the linearity of revenue will actually start with these industrial and robotics sensors, as some of the smart city and other non-automotive applications. Then as automotive comes into play in the later years 2023, 2024, 2025, 2026, you know, this set of customers will start to generate revenues, and the automotive space will start to generate volumes of sales as well that will gather up to catch up. We are seeing a much shorter sales cycle, and much quicker implementation from design win to production with the industrial customers, and so that is resulting in quicker revenues for us.

Perfect. And then, within the guidance, how much of that guide is not due by NRE?

So, you know, we're pretty comfortable that a smaller portion of the low end of our guidance is in NRE. So it's mostly made up of sensors, but as we get further into the range of the guidance, it becomes more and more NRE at this point, because the volumes set to catch up would require having those fixed contracts in place today and the manufacturing up and running.

Okay, thank you so much guys.

Thank you.

Next question comes from Rajvindra Gill of Needham & Co. Please go ahead.

Hi Rajvi.

Hi, yes, Hey guys, this is actually Dennis asking a question on behalf of Rajvi.

I'm sorry, I cannot process that request.

Absolutely. So our first question is just regarding the solid-state transition, would you just talk a little bit about like kind of maybe the mix of solid-state versus regular sensors and maybe kind of who the top adopters are right now for your solid-state sensors?

Sure, you're right. Can you take this one, Sinclair?

So for us, the initial solid-state sensors are actually going out to people in the industrial space. We have a lot of kind of R&D buys, there's certainly a lot of that. We mentioned how, even with our Velabit days that we had here we had a lot of activity, but those aren't necessarily turning up in revenue. So there will be more production in the coming years. The Velarrays, which are producing these solid-state sensors today, in terms of moving into production or more in the industrial spaces, these would be kind of the delivery space. We're seeing a little bit more of the activity for industrial contracts for multiyear agreements kinds, as well as discussions in the smart cities or the IIS solutions, and go to another space, I think there's three of them. So, yes, I think we've covered most of it there.

Could you guys provide any color on how many of the solid states did you ship this quarter?

You could put in there's about 234 or something like that. We are anticipating that it will increase as we get into Q3 as well. So there's going to be a balancing. I think it's like a lot of things that are out there, even like our ASP where you need to be careful not to take this quarter's ASP and assume that that's going to be next quarter's or there's some kind of a steady decline trend there. I think people need to use multiple quarters and look for linear line trends, it'll be a little bit more gradual. So as it relates to the sale of the solid-state versus the rotational, there's a balancing act that's going on where the mix will change from quarter to quarter, but gradually more and more we're going to see more of the solid-state sensors moving in there.

And my follow-up was actually related right to that and then, is there anything you can tell us about kind of the ASPs, either for the rotational units or for the solid states, kind of how are they trending either sequentially or year-over-year? Is there any kind of color you can provide either on the high-end units or some of the lower-end units in detail would be great?

We are not going to provide much more detail regarding our weighted average ASP that we share publicly. However, we have observed a decline in the prices of all sensors. Looking ahead to next year and beyond, as our MLA and ASIC chips are integrated into the rotational sensors, we expect to reduce production costs. This will enable us to maintain our gross margin targets while offering these sensors at lower price points, facilitating broader market adoption, which aligns with the strategy the Company has pursued for approximately five years.

Got it, right. That's it from me. Thank you very much.

Thank you for joining. Have a good day.

Our next question comes from Richard Shannon of Craig-Hallum, please go ahead.

Hi Richard.

Hello guys, hi Drew. Just a clarification, Drew, did I hear something in your prepared comments about something like 30% of your sales are coming from solid-state sensors this year expected? I know I got that wrong, so please clarify what that was?

Yes, we believe that overall sensor sales were going to see a bit of pickup in the solid-state sensors here in the second half of the year, and they could be upwards of 30% of our total sensors. So looking at our current visibility that we're getting from customers and expected buys from them as well as the work that we've done with multi agreements, we see that as a robust possibility. And that's steady, I think we shared that with you last quarter as well.

Okay, and maybe I missed that one. And is that just for the year or for the second half of the year?

For the full year.

Clear, okay perfect, thank you for that. Let's see, my first question was, obviously when you're crossed as becoming public, you talked about a large last-mile delivery customer and I think you just mentioned potentially new opportunities with that customer, specific to the last-mile delivery engagement is that one still on track in terms of timing and scale?

Due to confidentiality obligations, I can't provide too many specifics, but we are noticing a significant increase in our delivery solutions. Additionally, we are experiencing positive engagement with a similar type of customer in China, who will also utilize our sensors for a comparable application. Overall, we are seeing substantial activity among large e-commerce customers in this space.

Perfect, and my follow-on question was, following up on the topic of gross margins here. Just trying to get the again the bridge to the second half of the year to hit full year range even if getting to the low end would suggest you're looking at gross margins in kind of the 30% range for the second half of the year, is that a fair number? And since that wouldn't include much NRE would that be a range to think about going into next year?

Yes, so the low end of our guide, the low end of our gross margins would be the low end of our revenue range, but it would be escalating a bit as we come out of the year here, as we start seeing unit volumes continue to pace as they are.

Okay, fair enough, that's all from me. Thanks.

Thank you.

Our next question comes from Aileen Smith of Bank of America. Please go ahead.

Good afternoon, everyone.

Hi Aileen.

I wanted to follow up on the commentary that a lot of the traction you're seeing on the solid-state sensors is actually coming from industrial end markets. I think most of us would characterize Velabit or I think you've characterized Velabit in the past as really the level one, two, plus eight app-oriented sensor. So is your customer traction on the automotive side consistent with your expectations or what's your thought process on what is a sustainable mix of solid-state sensors between automotive and non-automotive end markets over time?

Yes, so that's a really important question because that last part of your statement is really, it's the overtime part. So we live in a unique world where you guys measure us on how we're doing this year and this quarter in terms of our P&L, but where we are expecting things to go in the coming years. So for the current period we're seeing the solid-state sensors being picked up in industrial spaces where those markets are really kind of the early adopters of this technology and it's rolling out a little more quickly. We are getting a lot of activity in the ADAS space very much so around the Velabit as well as some of our Velarray products. What we're working with and so our Asia customers is strictly along the Velarray family line, and then the 2026 solution that we talked about is also solid-state, primarily around the Velarray space. So in time we're expecting that the automotive space will probably not so much the robotics, our sources say the robot taxi space. Robot taxis are not as concerned about aesthetics and they'll more likely be using rotational sensors on their cars because they are more efficient and provide more data to ensure the safety of the vehicle driving. But as you get into cars that are more focused on aesthetics, then the Velabits and the Velarrays become more important because they can embed them in the car, and it doesn't detract from the nature of the vehicle. So we are seeing a lot of activity and there was a lot of very, very good feedback from the OEMs when they're here for our Velabit days, a month or so ago, and we are having a lot of extended conversations with them at this point around that.

Okay, that's helpful color and then I wanted to touch base a bit, I think on slide 12 and to kind of compare it versus last quarter. Is there anything to read into the billion-dollar revenue number in signed and awarded contracts, despite what is an increase I think of 15% to 20% in the number of those signed and awarded contracts themselves? I think it was 29 in May, 2021 and 34 as of this quarter, yet the estimated revenue numbers is similar or some of the contracts that you're winning smaller in scope or revenue size or have there been adjustments to your perhaps assumptions in the previous pipeline?

Yes, so this is a very important conversation because the reason why we kind of talked about 2026 activities is that we are not forecasting or providing any information on that yet, which we will probably do starting next quarter. But, so the billion dollars is with these additional customers some of the industrial contracts are slightly smaller and the MYA is just the very nature of their businesses, while others of the more recent MYA agreements continue to be larger and will expand in the coming years. But as you start looking out past 2025, we're seeing the potential for those numbers to continue to expand substantially with some automotive activity. So, for right now we're confident that these numbers become a little more reliable, and we're working towards ensuring they're turning into the P&L, and adding additional contracts is something we anticipate as time passes these numbers will continue to grow.

Okay, and one more if I may, can you provide a little bit more color on what specifically is the delay in the industrialization process and moving some of your production offshore, particularly as it sounds, you referenced that last quarter and it sounds as if it's incrementally worse this quarter than maybe you perhaps it anticipated. So as you think about that resolving itself through the remainder of the year, what's still outstanding that needs to be completed that the industrialization process will get back on track?

You know, if you don't mind, I'm going to introduce Jim Barnhart. He's our new COO. He's had a month here evaluating this. He is seasoned COO with many, this isn't his first rodeo as a COO. He's evaluated and he's got some feedback and then I'll add some additional color at the end if there's any other questions for follow-up. Jim?

Thanks, good question Aileen, and certainly the Pucks have been with our contract manufacturers for years. Their strategy was to have the Pucks assembled, and then sent back to our facility here in San Jose for final testing. We're moving towards having the full work being done at the contract manufacturer. So that's in process and what's frankly delayed it is the resurgence of COVID, both with our contract manufacturers' facility in Thailand as well as in Japan. They unfortunately have been hit fairly hard with the Delta variant. So that has delayed not getting the equipment in the facilities, but allowing our engineers to travel to help and make sure that things are properly set up, calibrated, or aligned, etc. There has been some delay there but certainly with the Ultra Puck's, it's already completely with the contract manufacturer in Japan, and we're in process with the Alpha Prime transition that is moving forward as well, but again it has been somewhat delayed just due to the unfortunate timing of the resurgence of the COVID pandemic.

I guess I could comment also, sorry, but the Velarray, the M1600 and H800, those transitions were in progress as well, even as we're finalizing the various phases of designs of the product. So already these sub-assemblies, the modules if you will, that go into the full lidar module, those are in process being transitioned to the contract manufacturers as well. To your point is slid a little bit to the right, but it's really due to the resurgence of COVID that has slowed things down for a bit here.

Okay, great, that's very helpful commentary. Thanks for taking the questions.

Okay, thank you.

Our next question comes from Michael Filatov of Berenburg. Please go ahead.

Oh yes, thanks for taking my question. I guess just wanted to follow up on a question that was asked by one of my fellow analysts earlier about that last mile delivery customer. I believe in an earlier presentation you put out a while ago, there had been some numbers put out that said 100,000 units related to that customer for 2022 and ramping to 250,000 in 2023 and 2024. So rather important I think the projection. So I'm just wondering, I mean obviously you don't have stated the customer is, but I mean, are those volumes still in play? Is that customer still in your multiyear agreement backlog, just any other additional comment?

Sure, the customer is still in the multiyear agreement backlog. I think, we're not giving any 2022 guidance as of right now, but it's not unreasonable to suggest that the customer's priorities might change where some of the things could move in any direction. But we also believe that with some of the other activity from other projects that are coming in if anything move down, others can move up. So that kind of beauty of our business relationship is, we're in multiple industries with multiple products with multiple customers. So as it relates to that one customer, there are so many different opportunities in there that, even if that did slip, we believe that other solutions would probably fill it.

Got it, thanks. And then just looking at licensing and services revenue, if you back out the lump sum, sort of one-time adjustments I guess from the prior year, it looked like maybe sort of a baseline coming into this year would be $10 million for the license services revenue, but even if you annualize the first half and back out that one-time number from the first quarter. It looks like maybe licensing services could be like $10 million or less. I don’t know, maybe tell me if I'm wrong there. But on top of that, you know with ASPs coming down, it seems like your volume unit growth would have to be pretty robust in the back half. I mean, we're talking maybe 50 plus percent unit volume growth in the back half, even from step up in the run rate, so I guess is that achievable? I mean, is that sort of what you're targeting in terms of unit volume growth or is there maybe a mix impact that's going to drive the ASP back up in the back half of the year?

I previously mentioned the volume of sensors we expect in the second half of the year, broken down by quarter. You can piece that information together. We believe that average selling prices will likely follow a linear trend rather than fluctuate significantly from quarter to quarter. Therefore, just relying on Q2 average selling prices might lead to overly conservative projections. The differences between projected unit volumes and average selling prices will probably be offset by non-recurring engineering opportunities, which are quite substantial for us at this moment.

Yes thanks. And then one last question just around sort of the ADAS activity recently, I mean, we've seen from other competitors in this space, awards from several OEMs. I'm guess, I'm curious, I mean obviously you guys have been competing for those awards. I just wanted to get your thoughts as to why you think Velodyne hasn't been selected for the sort of the near term awards outside of Faraday Future. Just any commentary as to why you think that that could be?

Yes, it's an interesting conversation because when we talk about the awards, I'm not sure what your near term is, but we're not expecting anybody to see anything significant in the next year or so. So, the awards, most of the awards we've heard discussed and we've seen out there a couple years out. We believe that a lot of those will still be in play. We mentioned earlier, we've had some conversations with customers who are coming back to us because the ones who are more near term are finding that the people selected or who might have previously announced their relationship are unable to produce and they're not confident in the sensors to be able to perform at the level that was expected, where Velodyne Lidar is currently producing sensors and can deliver sensors at the volumes they need to meet their startup production targets, and are also going to be capable of providing the levels of accuracy that they need in order to be able to release their systems. This is, it's an evolving story, but that's what we've gotten so far. So we are aware of some of them. We look at them and we feel like some of them are kind of really still kind of R&D stage and they're still, this could change and we'll see the dynamic we just discussed could play out more so in the coming years.

Understood, thank you for the color, I appreciate it.

Okay.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Drew Hamer for any closing remarks.

Thank you very much everybody for joining us today. We are very excited here at Velodyne Lidar for what we're starting to see as the traction of the lidar sensors and their adoption in so many different industries and so many different parts of the world and in so many different customers. So as we go forward, we look forward to talking with you more and looking forward to seeing this evolving market take shape and continue to be the major player in this space and leading it as it goes forward. Hope you have a wonderful afternoon. Thank you.

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