Ouster, Inc. Q3 FY2021 Earnings Call

Good day and welcome to Velodyne Lidar Third 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 the conference over to Mr. Andrew Chan, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Velodyne Lidar's third quarter 2021 financial results. Drew Hamer, the Company's Chief Financial Officer will run through the calls prepared remarks. We have Ted Tewksbury, the incoming Chief Executive Officer, Drew and Jim Barnhart, the Chief Operating Officer will be 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 third 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 and our SEC filings including our most recent 10-K and 10-Q for a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. 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.

Thank you, Andrew, and welcome to Velodyne. Ladies and gentlemen, as most of you saw on November 10, we will have a new CEO Ted Tewksbury leading our company. Ted is a seasoned technology executive who brings to Velodyne a proven track record and more than three decades of experience leading innovative businesses. A true visionary, I am looking forward to working with him to expand our lead in the global LIDAR industry, execute on our strategic growth plan and drive long-term value for all shareholders. I also would like to welcome our new Board member, Virginia Boulet. She is a renowned corporate governance expert whose expertise and deep experience will further strengthen our board of directors. Since our last earnings call in August, we've done a number of things. We signed one additional multi-year agreement for a total of 35, on track for a goal of 38 by year end. We've grown our pipeline to 220 projects, with an increasing concentration in the industrial and robotics market, which make up 1/3 of the pipeline project and has grown nearly 50% when compared to last year at this time. We believe the industrial and robotics market is one of the LIDAR markets closest to commercialization. And we expect our activity with customers in this market will only accelerate. We shipped more than 4,400 sensors in the third quarter, continuing our market leadership. Our customers today are giving us purchase orders for larger volumes as they move into the first wave of mass commercialization. We are the global LIDAR leader, shipping more sensors in the third quarter than the aggregate of all our peers combined that have reported shipping sensors year-to-date. We expect to ship more than 15,000 sensors in 2021, up at least 28% over 2020 significantly more than our peers. The interest for our new solid state products continues to grow. We shipped over 630 solid state sensors in the third quarter, more than double the prior quarter. We are excited about the potential for these next generation products and anticipate long-term growth in a linear fashion, smoothing out what could be volatility from quarter-to-quarter. Velabit projects continue to grow. We now have 33 opportunities including solid state Velabits up from 25 in the prior quarter. We anticipate shipping Velabit samples for revenue late in 2022. Overall, the use of LIDAR today in our served markets continues to gain momentum. In automotive, we continue to make progress in our relationships with both emerging and major high volume OEM customers for the use of our LIDAR in ADAS systems. In AV we are working with new customers and existing customers who are looking to extend their current agreements with us to include additional products within our portfolio. In robotics and industrial, we announced a multi-year agreement with Renew Robotics to use our puck sensors in their vegetation management for solar energy facilities. In mapping, we have new customers such as TOPODRONE, which is based in Switzerland and develops affordable high precision solutions for aerial surveys. They signed a multi-year agreement for our sensors to be used for high precision mapping and 3D modeling in demanding environments, including farms, forests, and infrastructure to support development to advance economic sustainability goals. We are also collaborating with Move.ai to provide robot manufacturers with enterprise-grade automation solutions, including mapping, navigation, obstacle avoidance and risk avoidance. We also expanded our relationships with existing customers such as AGM Systems, who has deployed our Alpha Prime Lidar sensor on AGM-MS5 Prime. Their latest high-performance mobile scanning solution. This is the second sensor type AGM Systems has purchased from Velodyne. Last but not least, in Smart Cities, our intelligent infrastructure solution or IIS was selected for a major deployment in the University of California, Irvine Smart Cities Initiative, where it will be used at 25 intersections as part of a $6 million road network project in Irvine. We continue to expand our IAS proof of concept deployments across North America. Now for our financials, I will first review our third quarter and nine months' results and then provide our full year 2021 guidance business outlook. Total revenue for the quarter was $13.1 million, compared to $13.6 million in the second quarter of 2021. Product revenue was $11.8 million, slightly down from $12 million in the second quarter of 2021. Due to a combination of a lower weighted average ASP than the prior quarter, reflecting the ongoing evolution of our product mix toward consumer affordable solid state sensors and ensuring consistent performance across and within our product lines. Crucial for our customers as they ramp toward massive commercialization. The weighted average selling price per sensor was $2,622 compared to $3,106 per sensor in the second quarter. License and services revenue was $1.3 million, compared to $1.6 million in the prior quarter. GAAP gross loss was $4.7 million and non-GAAP gross loss was $4.2 million compared to a second quarter GAAP gross loss of $5.8 million and non-GAAP gross loss of $5.3 million. GAAP operating expenses were $50 million and non-GAAP operating expenses were $33.4 million compared to the second quarter GAAP operating expenses of $83.3 million and non-GAAP operating expenses of $28.8 million. Third quarter GAAP operating expenses included $16.3 million of stock-based compensation expense, including employer taxes. This compares to the second quarter GAAP operating expenses that included $53.6 million of stock-based compensation expense, including employer taxes, of which $41.6 million was charged against sales and marketing, a majority of which was accelerated vesting of the stock-based compensation related to our 2020 merger with Graph Industrial. Included in general and administrative expenses are $1.3 million in legal and professional expenses in connection with our audit committee's investigations into conduct by David Hall, the Company's former Chairman and Martha Hall, the company's former Chief Marketing Officer and a current Director of the Company. For the nine months ending September 30, 2021, this figure was $4.7 million. GAAP net loss was $54.7 million and non-GAAP net loss was $37.5 million. GAAP net loss per share was $0.28, and non-GAAP loss per share was $0.19. This compared to a second quarter of 2021 GAAP net loss of $79.2 million. Non-GAAP net loss was $34.4 million. Second quarter 2021 GAAP net loss per share was $0.41, and non-GAAP net loss per share was $0.18. EPS for the third quarter of 2021 is calculated using weighted average shares outstanding of $196.2 million. As of September 30, actual shares outstanding were $195.9 million. We completed the quarter with $324.5 million in cash and short-term investments on our balance sheet. For the nine months ending September 30, 2021, total revenue was $44.4 million, comprised of $34.3 million in product revenue, and $10 million in license services revenue. This compares to $77.5 million in the nine months ended September 30, 2020, of which $53.9 million was product revenue, including a one-time $11.1 million stocking fee and $23.6 million was license services revenue. GAAP net loss for the nine months ended September 30, 2021, was $174.8 million and non-GAAP net loss was $98 million. This compares to a GAAP net loss of $38.4 million for the nine months ended September 30, 2020, and $45 million in non-GAAP net loss. Now for a full year 2021 guidance, we expect to ship over 15,000 units in 2021. A growth of at least 28% as compared to 2020. Revenue is expected to range between $60 million and $63 million. As I mentioned earlier in my remarks, we are moving into the first wave of mass commercialization with customers who are now expecting consistency of performance within our various product lines. This is a natural evolution from the R&D purchases our customers had done with us historically, where test samples were acceptable. We are refining our engineering and production processes to meet customer delivery and performance expectations. As a result of this focus on customer satisfaction approximately $4.3 million of product sales shifted out of the third quarter into the fourth quarter of 2021 and first quarter 2022. Our revenue forecast also reflects the removal of any contribution from non-recurring engineering fees that aren't already signed. Non-GAAP gross margins are expected to be between negative 8% to negative 10%. This reflects volume in weighted ASP mix and ongoing delays in moving manufacturing offshore due to COVID-19. On a GAAP basis, gross margins are expected to include approximately $2.3 million stock-based compensation expense. On a non-GAAP basis, operating expenses are expected to range between $125 million and $129 million. We expect general and administrative expenses will increase by approximately 55% in 2021 when compared to 2020, primarily due to increased legal expenses and other related public company expenses. On a GAAP basis, operating expenses will include approximately $89 million of stock-based compensation expense. 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 $193.7 million. Finally, I would like to review our business outlook. At the end of the third quarter of 2021, we estimate we could have the opportunity for approximately $800 million of revenue from signed in order projects through 2025, plus a pipeline of projects that are not yet signed and awarded with an opportunity for approximately $4.2 billion. As certain of our customers are progressing with their LIDAR solution rollouts, we are seeing variability in their rollout schedules. As they get into their projects, some have reduced their initial ramp rates while maintaining the ramp rates in outlying years. This is reflected in these aggregated business outlook numbers. We anticipate providing updated project pipeline data through time 2026 plus 2022 financial guidance, in our fourth quarter 2021 earnings call. This will allow our new CEO Ted Tewksbury the opportunity to address these metrics. This concludes my formal remarks. Operator, Ted, Jim and I are now ready to take questions.

First question from Colin Rusch of Oppenheimer. Please go ahead.

Hi, good afternoon. This is Kristen on for Colin, thank you so much for taking the question. I wanted to follow-up on some of those final remarks that you made about just sort of the variability in rollout schedules, really wanted to ask about how your customers have been operating in this sort of hand to hand combat environment for the last year now. How are you seeing the pace of innovation and design cycle times right now with your customers? And if you could provide just some context around the end markets and how that differs among those end markets? That would be helpful. Thank you.

Fair enough. I think I'm going to start with the final question first, I guess then, because each of the different markets - I'm sorry, this is Drew. Each of the different markets certainly has its own pace. And what we're seeing in the industrial markets, and the kind of last mile delivery markets, as well as some of the mapping and other industrial sectors, the pace of design is increasing. We see that in our pipeline, the number of projects that have entered our multi-year agreement pipeline has increased substantially in that space, very nicely, in fact, and the time to market for a lot of their solutions tends to be about a year, maybe two years at the most. When we start talking about the automotive manufacturing solutions, those solutions tend to be further out, they could be four or five years away from the design win to the design completion in the startup production. So they tend to take a much longer and require a much larger investment by Velodyne Lidar and so it really, the shift we're seeing right now is there's a more rapid movement in the industrial space to commercialization and revenues for Velodyne Lidar, and for the automotive space, we're feeling like that still feels a real rapid movement, there's is still going to be four or five years out.

That's really helpful. And then wondering if you can touch on any changes in the competitive environment? We're certainly seeing some indications of industry consolidation. But also as you're focusing on this customer engagement, and quality, are you seeing any customers come back after working with other platforms?

Yes, it's our belief that now that we're getting into more of a higher volume production, our focus is on the higher quality on a consistent basis in what we deliver to the sensors that are going out to customers, they want the sensors to have the same kind of performance every time when they open up the box and they take it out. Being the one company that's doing that on a regular basis has created opportunities where customers have come back and let us know that the reason they want to go to Velodyne is because those sensors are consistent when they receive them. We've also during this quarter, with the assistance of Jim Barnhart, spent a lot of effort in really closing our relationships with the existing customers who are buying some of those sensors and making sure that we're meeting that requirement. This has allowed us to or put us in a position where we had to move some of this revenue after Q3 as we've ensured that the quality of the products was and the performance was consistent from sensor to sensor as they opened each box. The impact of that is definitely something that customers have given us a lot of feedback on - is much appreciated. It's something that they're counting on and they are looking forward to. And then our continued evolution along those lines is something that they expect. The fact that we're the leader in that space should lead to additional deals coming not only going forward but also in the current quarter should say, but out into 2022 and beyond.

Thanks for that. And if I could fit one more in. I do just want to ask as we're looking at that first wave of mass commercialization. How are you feeling about component availability and your confidence in ramping production? Thank you.

Sure, this is Jim. That's an excellent question, Kristen. As we experience longer lead times, we are actively collaborating with our suppliers by providing them with advanced forecasts for the next 12 months. While we encounter some surprises, nothing has hindered our production so far. We are in daily communication with our suppliers to ensure we receive the necessary components. The constraints are noticeable across the industry, but we are regularly finding ways to navigate them. We are anticipating shortages at least a quarter in advance for our production requirements with our contract manufacturers and are proactively contacting our suppliers. We are addressing these shortages as they arise, and we have successfully mitigated all of them to date. We will continue to do this regularly. Currently, it is quite tactical. By working closely with customers to ascertain their demand and communicating those signals to our supply chain, we have been able to maintain supply continuity and continue operating effectively.

Great. Thank you so much. I'll turn it over.

Next question, Michael Filatov of Berenberg. Please go ahead.

Thanks for taking my question, guys. I guess it's going to be a pretty straightforward one. Do you anticipate revenue increasing next year?

Yes.

Okay, great.

So based on the contracts that we have in place, some of the POS that we've already received from customers, we are expecting in the conversations we've had with a number of customers we do, as we go through this next two, three months, we talked to all the 300 plus people that we sell sensors to and we get some feedback from them and what they expect their needs to be and what they're expecting. What we have changed here in the forecast that we've provided for the rest of this year. So we've taken out the NRE portion. So in the past, we've had customers tell us they’ll have a contract, and it'll have a piece of NRE, we're finding that those tend to take a little bit longer to close, and then they're going to be lumpy. What we're really looking at right now, if you look at our kind of revenues from last year, and you take out the kind of the one-time items, though we had the one-time restocking fee in Q3, and we had some other licensed revenues that came in from somebody who is now a licensed customer of ours. We're expecting you're going to see some nice growth in our product revenues this year. As we go forward in '22 and beyond, we anticipate these product revenues will continue to maintain growth. The extent that the NRE types of relationships do come in, we'll leave those to be kind of an upside and stay focused on product quality and delivery of sensors to customers.

Got it. Thank you for the thorough answer. Just following up on that, I mean, you guys have lowered the non-GAAP gross margin guidance again, and I'm curious if you have sort of a target revenue level in mind. So when you expect to reach maybe breakeven on the operating income line or EBITDA level, is there a return target revenue threshold you're expecting or a timeframe you’re expecting to reach breakeven?

So, it's the avoidance of not getting 2022 guidance. It's our belief that with some of the work that we're doing, it does have something to do with the mix of products. We're continuing the work of getting our production done offshore, which will also contribute to that. But it will be the increase in the product volume. We should expect that as we come out next year, we should be getting to that breakeven and maybe even better as we go out into '23 '24. But again, that's subject to our review of everything that we're going to be providing for the 2022 plan, now we have Ted on board, we're giving everything a thorough review.

Got it. Alright, I'll leave it there. Thank you.

Thank you. The next question, Mark Delaney of Goldman Sachs. Please go ahead.

Yes, good afternoon, and thanks for taking the questions. I'm pleased to Ted's on as well. I was hoping to start with a question for Ted, and maybe talk about your experience with Velodyne so far, what led you to take the job and any initial views you may be able to share with us?

Sure, sure. So first of all, let me thank Drew for the generous introduction and just say how excited I am to be a member of the Velodyne team. It truly is an honor to have been unanimously selected for this position by the Velodyne Board. I'm really looking forward to rolling up my sleeves and working with the team to do a deep dive across the company in all the business areas. I was attracted to Velodyne for a very simple reason, which is, as you all know, the company is the undisputed LIDAR technology pioneer and market leader. The company has the broadest product portfolio and shipped more sensory units than all the other competitors in the industry combined. Very importantly, Velodyne is really the only company that's demonstrated the ability to manufacture at scale. I looked at that and just saw an enormous opportunity to build on that strong foundation. For those of you who are familiar with my background, you'll know that I have a proven track record of building and scaling innovative technology businesses, and driving revenue growth, profitability and shareholder value, which in my view, is exactly what Velodyne needs today. This was a perfect fit. As I said before, I look forward to working with the Velodyne team to unlock the company's potential and make that a reality.

Thank you, if I could ask the second question. I'm hoping to better understand the consistency issue with the product that's mentioned in the prepared remarks. Even if you could talk about it from a few different dimensions. Maybe firstly, how did you identify the issue? Do you have a good handle now on what's causing it? Have you come up with a fix and a timeline to fully remediate the consistency issue with the other product? Thanks.

Sure, yes, good question. This is Jim. We found out in the quarter that customers in some cases are actually using sensors in applications beyond the original intent. For example, ultra-pucks originally were released with the anticipation of being for more automotive use. Customers are starting to use them for mapping and surveying type applications where they're concerned for tighter accuracy in some cases, and in other cases the different sensors like we're seeing on the puck, the VLP16, are being requested for both high temperature requests as well as even back to the ultra-flex for freezing temperature request. So we're taking all that feedback in and we actually did pause shipment while we made sure on the individual sensors, I should say, made sure we understood what the customers were looking for. In some cases, we modified firmware to enable us to operate in the freezing temperature environments. In other cases, we changed the components to enable some of the higher temperature operations. The bottom line is, as Drew mentioned, we've received very positive feedback from customers. They appreciated the fact that we kept them informed of what we were doing. We did delay some shipments to them but made sure that what we were shipping was going to conform to their actual use case requirements. Again, the feedback has been quite positive from the customers on that. I will say it's actually been positive amongst the employees as well. They appreciate the fact that we're ensuring what we're shipping out to customers conforms to their needs. Drew mentioned in his prepared remarks that we've been refining both the engineering practices for how we actually release the product, as well as the production process for producing them. This holistic approach to quality, we really doubled down on in Q3 and we're continuing that going forward.

Next question will come from Aileen Smith, Bank of America. Please go ahead.

Good afternoon, everyone. Thanks for taking the questions. First one on the number of projects and the theoretical units that you have in the pipeline. I just wanted to square this away with a presentation last quarter. I think you had 213 projects that you were citing for 9 million possible units, versus this quarter, you're pointing to 220 projects with 7.5 million units. I think we can understand that some of the more incremental projects you're winning are coming from non-automotive end markets. And those are more spot buys than the multi-year high volume programs. But how do you explain the change in the 1.5 million sensors that are so-called missing from quarter-to-quarter? And are the contract terms really changing that much as you are in RFI or RFQ or other stages?

This is our - first of all, I just want to be careful, there's nothing missing. We are gathering this information from the customers, it comes from them specifically. We provide to you our pipeline. This isn't necessarily - this is a pipeline of the business that we're currently tracking the opportunities that are presented. When I share with you a pipeline, you're seeing the dynamics of any normal business where it goes in and out based upon customer needs. The change that we saw this quarter is a result of direct conversations with a number of our customers about where they're seeing changes in the priority for their business. A big chunk of this change actually came from the pre RFI category, where a customer has indicated that a significant business that they're planning on entering has continued to evaluate their business and restructure their business model focusing on the future. They've decided to spend less in one of those segments. They anticipate the net volume of purchases would be declining. There are other areas, a number of customers who are moving forward with their projects, but as they've gotten into the projects, they better understand their capabilities of launching, they’ve reduced the amount of sensors that they might be buying on the front end, even though they're still expecting to achieve the total volumes year two, three, and four out, which have also impacted those numbers. As again, we're talking to them regularly, and as these customers are launching, they're very close contact with us about their needs so that we can set up the production lines to meet their needs. This is a living, breathing pipeline. This is normal business. It's a lot of disclosure. We think it's right so that people understand the opportunity and potential for LIDAR in the future. That's why we continued to provide it.

Okay, great, understood, that's helpful. And then I wanted to ask a question around the average selling price, and specifically, in comparison to the first quarter. And probably I think these numbers are right, but when I'm looking at the mix of units sold that are solid state and some of your lower price sensors, your absolute units from the first quarter to the third quarter were about comparable, but the percentage of the total was much lower, and yet your weighted average selling price was also much lower in 3Q versus 1Q. So that will lead us to conclude that you're dropping price, potentially substantially across some of your older and more legacy products. Is that a fair interpretation? Or are we missing something?

Well, first of all, in the first quarter, we looked at over 2,700 units that we shipped. In this quarter, we shipped over 4,400. So the volumes are up substantially. It's affected a bit because we are seeing an increase in the number of solid-state sensors that we're shipping. Those are shipped at a lower price. So when you're doing a weighted average ASP, of course, that's going to have an impact. Then as it relates to the traditional rotational sensors, there are some contracts we have with customers at a certain volume; we do normal volume commitments with them. Some of those may be sold at lower prices compared to others. It’s really not an isolated thing. But as we go forward, we're expecting that on a linear basis, we try not to take it one quarter at a time or sequential quarters. We do expect to see ASP coming down over time. We’ll also see the number of units that are shipped. As we get further out, the mix between solid-state and rotational and the higher-priced and lower-priced sensors coming into play. We'll see this dynamic continuing as we go forward.

Okay, but as a clarification, I was referencing the solid-state units from 1Q versus 3Q, which I think were both around 600 units, that 600 units in the first quarter out of a base of 2,700 versus out of a base of 4,400 in the third quarter on a mixed basis. That's actually accretive for you guys in the third quarter. So I'm more so trying to square away that average selling price would imply that across your other products, some of those rotational products that you were taking down price on those units.

There have been some price reductions on those units because customers have increased the volumes that they're purchasing. So unit volume versus price agreements will have some of those happening, but I think it'll, like I said, it's not going to be something we can look at on a sequential basis, we should see things like this happening more on a linear basis. But we could also see those rotational sensors go up in price as well on an ASP basis in future quarters.

Okay, great. That's helpful. Thanks for taking the questions.

Thank you for joining the call.

Thank you. The next question comes from Sam Peterman, Craig-Hallum Capital Group. Please go ahead.

Hi Drew. Thanks for taking my questions. My first one is going to be on that same slide in your investor deck that shows your pipeline, not on the $7.5 million versus 9 million units. But if you look at kind of the - just as a percent of the whole graph, where ADAS is at, it looks pretty similar to prior quarters where it's trending up pretty strongly in later years. It doesn't look like there's a huge change to what you're expecting from ADAS, and yet your ADAS projects in that pipeline are down quarter-over-quarter and year-over-year, quite a bit year-over-year. So I'm just curious how you reconcile that? If you can give us any color into what is going into your thinking on ADAS there and what you're seeing from customers?

Yes. So on the ADAS customers, we are seeing those projects aren't moving as quickly as we've indicated. They could take three to four, or five years. Customer priorities are shifting on a pretty regular basis, and it's an area where we're very carefully evaluating the ADAS space, while we're getting tremendous activity from the industrial space. We are seeing that some of the projects are shifting. The OEM's priorities are changing and their commitment to incorporating LIDAR into their solutions will have varying priorities as we go forward.

Okay. And then one more on ADAS is you talked last quarter about your 2026 agreement with an OEM, I believe in Asia for - around your solid-state product. I'm curious if you could provide any update on that and how that's looking and then. I'm not sure this is clarified for. In an RFI or a key stage? Or just any color around that would be great.

Yes. That's actually, we're focusing on the RFI, RFQ stage with that. It's with a very close partner, one of the OEMs in Asia. We've set up operations close to them, and we work with them on a regular basis and have daily calls on that project and getting to that point where we can have those sensors move to the signed and awarded category.

Okay, then quick last one for me on Velabit. The pipeline went up quite a bit here. I'm curious if you could give any color on the markets that you're seeing some activity and where those additional eight wins or eight projects into your pipeline are coming from.

Yes. So we are seeing enormous demand for us to get the Velabits to market. It's a product that we really don't have planned for production, commercial availability until about 2023. The amount of interest from customers has made it a top priority for us to keep that moving along. We are seeing across the board demand for that solution, a lot of activity in the OEM shops. It's interesting, as we break down the industrial customers between the last mile deliveries, the kind of the robotics and even in newer spaces like delivery using drones and things like that, it's a tremendous response from the market for us to get that product out to them. So it's widely spread that we're seeing it across all markets, the interest in buying that, and we're aggressively moving to get that to meet their standards.

Next question will be from Tristan Gerra of Baird. Please go ahead.

Hi, this is Tyler on for Tristan. Maybe first off, can you talk about what efforts you're putting into the software platform that maybe extends beyond just object recognition and into car actualization?

Yes. So we have actually built out a platform of products that can be incorporated into those systems. We are working closely to identify additional features and functionality that customers would want and require so that we can incorporate that into our development plans as we go out to 2022 and beyond. We’ll work closely with them on any feedback they have as we continue to develop that and work towards some kind of a commercial agreement.

Okay, great. And then for my follow-up, do you expect a rebound in 360-degree Lidar shipments? And if so, what would the timing of that inflection be? And then maybe what applications would you see that inflection point in?

A rebound in rotational sensor. We actually haven't seen a decline in the demand for the rotational sensors. We are actually in a number of - we're very steadily selling our Puck sensors. Our Alpha Puck sensors actually had a nice uptick this quarter, contributing to the unit volumes, as Aileen kindly pointed out earlier. We are also engaged with a number of customers around the next-generation LIDAR sensors, which will use our MLA and our ASIC chips. We have a number of customers that want to use some of our sensors that will be kind of moving towards that automotive-grade capability. They're working closely with us and defining how that should work; they're running tests on those sensors today on their vehicles. I really don't think it's as much a rebound as we expect it to continue to be a strong product for Velodyne Lidar, a market-leading product as well as our Velodyne products and our solid-state products. We have agreements with customers to incorporate it into solutions. You'll also see it in the automotive vehicle solutions, the AV, sorry, autonomous vehicle solutions. We are also seeing an interesting dynamic where with the robotics, some people want to use rotational because it gives them more data and a full surround view from one sensor, whereas others just want to use a solid-state sensor, whether it’s a Velarray, or a Velabit. We’re seeing rotational sensors used in mapping, and we also have a customer who's using it for backpacks. They put them on backpacks to walk around neighborhoods doing mapping. Rotational sensors are still a product that people want as well as giving them that option to go with a solid-state sensor.

Next question comes from Raj Gill of Needham & Company. Please go ahead.

Good afternoon, everyone. This is Denis on for Raj. For my first question, I just want to ask them, can you talk about your current mix of the in-house versus outsourced production? How much of the guidance reduction we're seeing here from the previous one was due to supplier component challenges that you're having versus this issue of improving consistency?

We don't usually speak specifically to the components of in-house versus out of house. But what we have shared previously is that a number of our sensors are being produced by our contract manufacturers. Our Pucks, a number of other products, our Ultra Pucks, even our VLS-128s are now produced by contract manufacturers. We started looking at our solid-state products; we haven't been able to move as many of those offshore due to delays we've talked about in previous quarters. A number of the components are produced offshore, and they come back to the United States for final assembly. The newer products as they're being assembled and stood up, those will continue to be done here in the San Jose facility. So the split is generally done across the line. I'm sorry, I think there was a second question there and I missed it. Would you like to repeat it, please?

Sure. So essentially, and then we had the guidance reduction here versus last quarter, moving to 61.5% from 85% or so how much of this was due to component shortages that are affecting the entire semiconductor industry versus just the ones that are - versus this issue of you guys trying to improve consistency for volume production?

It's actually, none of it has to do with supplier shortages or anything of that nature. It's mostly around the improving production consistency for our customers. It's also just an expectation that we're finding NRE very difficult to forecast. We have customers talking to us about long-term contracts, we had some in the pipeline but it felt like they should move forward in Q3 or certainly in Q4, and now we believe they're taking longer than expected. We’ve decided to take that out of the forecast, leaving it as an upside unless we have the signed agreement in hand as we go into this guidance.

Yes. It's interesting - this is Jim. I don't see any issue with moving production offshore. We’re continuing with the strategy as we do our development in-house to the initial prototyping up to pilot in our main center facility. Once we have the technical transfer documentation done, manufacturing process instructions are ready, we hand that package off to the contract manufacturers for production. That's progressing well.

Next question comes from Michael Filatov of Berenberg.

Sorry, just another one for me. I was looking - just to confirm, the non-GAAP gross margin guidance for the full year. That negative 8% to positive 10%, is that correct?

No, it's negative 8% to negative 10%.

Okay. Got you. Thanks for clarifying that. Just looking at sort of the full-year revenue guidance again, if you look back at the original spec it was $150 something million for 2021 and now it's in the 60s, and margins are obviously down quite a bit. I mean what would you characterize as the main driver of that quite significant change in the revenue and margin expectations for this year? What is the primary driver of that?

Yes. For us, the primary driver, now that we're at the end of the year versus when we came into the year or actually, when these numbers were provided during the merger, honestly, these weren't even guidance for the company for the year. The main thing that we're seeing is the impact of COVID slowing programs down. We’ve definitely been impacted by that. Some projects we were expecting to get this year are pushing out to next year. People are starting to pick those projects back up again and we look forward to those coming back into vogue in 2022. The key thing now in this forecast is a lot of those pipeline numbers consistently reflected that NRE piece, and by taking that out, we've gotten to the current forecast that we're sharing with everybody.

Based on what you said, it seems like things have just kind of gotten shifted back. Does that imply that in the next year or two, we could see that $150 million plus revenue become realized?

We have seen things shift back. We want to be careful of everything that we're providing for the 2022 plan. We have Ted on board, we're giving everything a thorough review, which is why we can't verify or deny that right now.

Alright, thanks very much.

That concludes the question-and-answer session. I'll now turn the call back to management for closing remarks.

Okay. Well, everybody, I just want to thank you very much for joining our call today. I want to thank, we're very excited to have Ted joining the company. It's an honor to be working with him and looking forward to working with you going forward. Again, I also just want to reiterate, we are very excited about what we're seeing in our unit volumes increasing. The activity that we're seeing with our industrial customers is really exciting for Velodyne Lidar because we expect it, at least in the near term, to be the key generator of revenues. As we go forward, this will allow us to build out our products, our ability to produce at scale and consistency, and the level of quality that customers expect. As we get into the future, as other projects get closer to starting production, we're looking forward to being able to satisfy customers' needs in ways that other LIDAR companies can't, because we'll be that proven technology that has evolved to meet all of the various components that need to be checked in order to use a LIDAR sensor in one of their solutions. So thank you very much for your time today. We look forward to talking with you more as we go forward. Hope you all have a good evening. Bye-bye.

That concludes today's conference. Thank you for attending. You may now disconnect.