OUST - NASDAQ

Hello, and welcome to Ouster’s First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today’s presentation and remarks, there will be an opportunity to ask questions.[Operator Instructions] The call today is being recorded and a replay of call will be available on the Ouster Investor Relations website an hour after the completion of this call. I’d now like to turn the conference over to Jim Fanucchi, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our first quarter 2025 earnings call. Today on the call, we have Chief Executive Officer, Angus Pacala; and current Interim Chief Financial Officer, Chen Geng. As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today’s conference call will also be available for webcast replay in the Investor Relations section of our website. Before I pass the call over to Angus for his opening remarks, I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, anticipated industry trends, our business and strategic priorities and our revenue guidance for the second quarter of 2025. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the first quarter 2025 financial results release and in the annual and quarterly reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. In today’s conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the financial results release that was issued today. I would now like to turn the call over to, Angus.

Hello, everyone, and thank you for joining us today. I’ll start with a brief recap of the quarter, an overview of the market and an update on our strategic priorities. Chen will cover our financial results in more detail before I close with some final thoughts. Our first quarter results demonstrate our commitment to continued operational execution. We reported revenue of $32.6 million and gross margin of 41% which includes certain patent royalty of $1.5 million. First quarter shipments exceeded 4,700 sensors. Our balance sheet remains one of the strongest in the industry ending the quarter with $171 million of cash and equivalents with zero debt. During the quarter, we won multimillion-dollar deals across all four of our verticals. Within our smart infrastructure vertical, we expanded our relationship with LASE PeCo and signed our largest ever contract for software-attached sales in Europe. LASE will upgrade to REV7 along with Ouster Gemini to power real-time people counting, mobility analytics and perimeter protection. Within the industrial vertical, we closed a multimillion-dollar deal with Komatsu, one of the world’s largest heavy equipment manufacturers to equip their next generation autonomous mining equipment. By replacing legacy 2D Lidar systems with short-range and long-range REV7 sensors, we are helping Komatsu increase productivity and reduce the total cost of ownership. Within automotive, we were chosen by the mobility subsidiary of a global OEM to supply both short-range and long-range sensors to support the development of their autonomous vehicles. Finally, in our robotics vertical, we continue to expand our relationship with the world’s largest provider of mapping and navigation. Ouster is a physical AI company, leveraging our expertise in advanced perception solutions to enable intelligent real world autonomy across industries. Our digital lidar sensors combined with our AI software empower autonomous systems to perceive, understand and interact with the physical world in real-time. Physical AI demands hardware and software that is not only intelligent, but rugged and scalable, qualities that we embed in every product. Turning to our 2025 strategic priorities, we progressed across all three key focus areas. 1. Scaling the software-attached business. 2. Transforming the product portfolio, and 3. Executing towards profitability. Starting with the software-attached business, we had our strongest quarter yet landing our largest ever contract for software-attached sales in Europe. Another highlight of the quarter was our partner, Econolite, winning a five-year contract with the Utah Department of Transportation to deploy REV7 and Ouster BlueCity to enhance traffic flow, safety and operational efficiencies at intersections and roadways throughout the state. The Utah DoT assessed multiple lidar detection systems and our solution in conjunction with Econolite received the highest overall score. In addition to Utah, we see the potential to expand into additional states as part of the United States DoT’s grant for the Connected West Project. Moving to lidar development, we are excited to be transforming our entire product portfolio in 2025 with new hardware, upgraded firmware capabilities, enhanced features in the Ouster SDK and expanded software functionality. I want to share some updates on a few of these products discussed in our last call. We continue to see robust customer interest in On-Sensor 3D

Thank you, Angus, and good afternoon, everyone. In the first quarter we shipped approximately 4,700 sensors and recognized $32.6 million in revenue. The industrial vertical was the largest contributor to first quarter revenue followed by automotive. We shipped large volume deals to support applications in warehouse autonomy, robotaxi and yard logistics. First quarter gross margin increased by 1,200 basis points year-over-year to 41%. Gross margin strength reflects the benefit of higher revenues, favorable product mix and the patent royalty. As Angus stated, our first quarter results include approximately $1.5 million in patent royalty following a confidential legal ruling. This had a positive impact of approximately 300 basis points on GAAP and non-GAAP gross margin. We continue to view 35% to 40% as an appropriate annual gross margin target for the business. For purposes of preparing and presenting our second quarter guidance, we have assumed that we will not have any material revenue from patent royalty. GAAP operating expenses of $37 million in the first quarter were up 12% over the prior year. The increase was primarily driven by higher litigation expenses. We expect operating expenses to fluctuate on a quarterly basis largely due to the timing of R&D project spending and litigation costs and remain committed to keeping our operating expenses at or below third quarter 2023 levels. Our balance sheet remains among the strongest in the industry with cash, cash equivalents, restricted cash and short-term investments of $171 million at March 31. During the first quarter, we did not receive any proceeds from our ATM. We are pleased with our cash burn rate in the first quarter, which reflects our strong operational execution and prudent balance sheet management. Finally, a quick note on the geopolitical and macroeconomic environment. The landscape is fluid and we have worked diligently to assess the effect of tariffs on our costs. We are partnering with our customers to mitigate the impact of these changes. Based on what we know today, we do not expect the currently proposed tariff levels to prevent us from achieving our long-term framework. However, there remains a large degree of uncertainty and we are currently unable to predict how the demand drivers will play out for the rest of the year. Moving to guidance, for the second quarter we expect to achieve revenue between $32 million and $35 million. I’ll now turn the call back to Angus for his closing remarks.

Thanks Chen. We are starting off the year on solid footing, delivering our 9th consecutive quarter of meeting or exceeding our guidance and making meaningful progress on all three of our 2025 goals. We remain focused on executing towards profitability through the combination of consistent revenue growth, strong gross margins and stringent control of operating expenses. I’m encouraged to see our business expanding with multimillion-dollar awards from existing customers to support the scaling of their commercialization efforts. We’re also seeing a growing number of long standing Tier 1 customers commit to Ouster for their multi-year production and delivery schedules. The thousands of sensors shipped each quarter and a growing installed base of connected software solutions underscore our customers’ confidence in both our product performance and long-term roadmap. These real world applications exemplify the accelerating adoption of physical AI. Ouster digital lidar combined with AI software enables machines to perceive, understand and interact with the physical world in real-time. From bustling cities and remote farms to mines, ports and global supply chains, Ouster is bringing physical AI to life. With that, I’d like to open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Richard Shannon with Craig-Hallum Capital Group LLC. Please go ahead.

All right. Thanks, Angus and Chen for taking my questions. First one I want to ask is on gross margins. If I look at the pro forma number here excluding the patents, revenues, you’re about 43%. This is the third straight quarter you’ve had above 40%, which is above your 35% to 40% framework here. And, well, you haven’t delineated the software contribution to that. I mean, I got to believe it’s at least noticeable at this point given your bookings have been good in this area. So, I guess I’m wondering why we haven’t seen that gross margin framework move up here. And, I guess I want to delve into a couple of ways that maybe you’re thinking about. And, if you could address it, that would be great. Is there some sort of mix dynamics you’re expecting in the future like with automotive that, that could bring that down? I think you’ve been clear on what you expect there. Does this give you some room to lower ASPs while keeping that same margin range or are you worried about tariffs, maybe you just discuss how those bleed into and why wouldn’t see that framework go up at least at some point in time?

Hey, Richard, this is Chen. It’s a good question. We’re very pleased with the margin performance of the business. We have been trending towards the higher-end of our range in the past few quarters. So, I would note 35% to 40% we look at on a GAAP basis. So, when you look at our GAAP gross margins adjusted for some of the one-time items that we have seen in the past few quarters, we are at the high-end of the range, and we do believe that, that is still an appropriate range for the business. On the software contribution side, we’re pleased with the tailwinds that we are seeing in software. What we have said is, when it becomes a significant part of the business, we will break it out for additional clarity. And so, we’ll continue to work on our software efforts and when it’s time to give you some additional detail, we’ll give it at that time.

Okay, great. Well, we look forward to seeing that. You guys have done an excellent job in that regard. My second question is regarding the new products. And I know Angus, you mentioned this in your prepared remarks at least last quarter, perhaps before, but I certainly remember last quarter, when you’re talking about new products enabling you to double your TAM here. And specifically in your remarks today, you talked about, I think conversations in the, I think, automotive and industrial markets that add a little bit more detail to that. So, I guess I’m wondering if you could talk to the improvements with the new L4 and Chronos ships are going to give you and what specific area should we expect to see TAM expansion and over what time should we see that happen?

Yes. Thanks for the question. And, I’m going to talk a little, probably in more generalizations than you might want, and there’s good reason for it. We don’t want to talk about unreleased products before they’re real. But, what you’re hitting on is, while we don’t talk publicly about released products, we are able to communicate the incredibly compelling roadmap that we have to our longstanding and important Tier 1 customers on a confidential basis. And the product releases, some are imminent enough in the next year that we’re able to, we’re starting to use that to move customers that are looking for a particular set of features, reliability, ruggedization, functional safety certifications, these kinds of things, that are looking for those in order to move into production, communicate those and kind of cement a longer-term relationship with the customer that already may be a long-term relationship, but one that needs to move into production. So, I see the coming product releases as the most significant, most transformational set of product releases in the company’s history, roughly a doubling of our addressable market. And, we’re already seeing some of that impact again, positive impact where we’re able to share our roadmap behind closed doors with our most important customers. So, a lot more to come on that, but definitely positive signals coming from the roadmap conversations.

Great. Thanks for that detail. I will jump out of the queue.

[Operator Instructions] Our next question comes from the line of Colin Rusch from Oppenheimer. Please go ahead.

Thanks so much guys. Could you talk a little bit about the testing process that you’re going through with some of these new customers and how it’s translating into new awards? As you go a little bit deeper with some of these folks, I assume that, that process gets a little bit faster and that you’re able to accelerate some of the production orders?

Yes. So, that’s a great question. Thanks, Colin. So, when you’re saying a testing process, so there’s testing, we do testing with customers basically on an ongoing basis. Every time we release new firmware, new hardware, new software in Gemini or BlueCity, there’s a certain set of customers that want to take immediate advantage of that new capability. So, that’s one of the ways that we build these kind of long-standing and trusted relationships with customers is through that testing that just happens all the time. And, I think what we’ve seen is, with some of the releases we just had like the zone monitoring feature set that we announced last quarter and now we have at some customers, we’re testing features that allow customers to move into production for the very first time. So, it might be a feature like a ruggedization spec or an environmental spec or a dust penetration capability or a zone monitoring feature that is a requirement of a company, let’s say, it’s a logistics robotics company or a company like Komatsu that has been working with us for many years, has developed a robust autonomy stack, but needs to check the box on a final couple of features. And we’re down to, I’d say, that final couple of features with a lot of customers. And so that testing is proving that they can check those final boxes and expand the scope of their autonomy R&D development into a production type scale. So, and that’s a big part of the strategy and the growth outlook for Ouster is that we have so many of these customers’ pans in the fire, baking over the last couple of years and now we’re moving tranches of them into production. So, that’s going to fuel our growth for years to come. And, it’s great to be able to communicate about some really high-quality customers like Komatsu on this earnings call. I think there’s going to be more like that to come given all the activity you’re seeing behind closed doors.

Amazing. And then, just in warehouse automation specifically, can you just give us an update on how close you are to fully validating functional safety and how quickly that full validation could trigger some new orders? And, that’s it for me. Thanks.

Yes. So, the functional safety certifications and capability is important and coming in future products that we’re releasing. We’re not giving a lot of detail there, but it’s a major focus of future products coming from Ouster. Now, the value that we bring is that traditionally, we play in a non-functionally safe lidar space, meaning that you need to as a customer of Ouster, if you’re using our products and you want to use them in places where you need to protect human lives, you need to go through your own certifications and usually build redundancy into your system adjacent to the lidar. With functionally safe lidar, we can tap into new markets that rely solely on the lidar itself to provide that safety for humans in and around the vehicle. So, the customer can side step based safety certification or cost and time associated with system level certification. There’s a huge amount of value there. There’s a huge established market for functionally safe lidar and we’ve been investing in this for a long period of time. So, as to when that will make a major impact on Ouster’s business, it’s coming, but we’re not committing to a particular time line, but given the immense opportunity, there’s a huge focus internally here on it.

Thank you so much.

Okay. Our next question comes from the line of Casey Ryan from Westpark Capital. Please go ahead.

Good afternoon, everybody. There’s a lot of exciting things to talk about here for the quarter. When you mentioned Chen, you mentioned robotaxis being an area. Could you guys give any color on the region if it’s sort of global robotaxi opportunities or North America or Europe or any sort of color around what that category means as we move forward in 2025?

Hey, Casey, that’s a good question. Yes, so historically we’ve talked about a couple of our robotaxi customers, Motional being one of them, May Mobility being another. I think generally robotaxi as an industry, as a trend has accelerated over the past 12 months, especially in San Francisco, you see them utilized on a daily basis. It’s becoming a real example of physical AI. And so, we continue to support that trend and that’s part of Ouster’s ability to make physical AI happen.

Okay. And so, Motional and May I think are sort of North American-centric if that’s fair to say, is that?

Yes. So, right now, I mean those are two of our high profile named robotaxi customers. We have some robotrucking customers, but largely we’re tapping into a North American market. The other big market for robotaxis is Chinese robotaxi market. We really don’t play in that space for a variety of reasons, but we feel we’re well-positioned in North America. We have some of our key customers there. And, there’s some positive tailwinds for those customers. I saw just, I think last week, May Mobility announcing a contract with Uber to get onto their network and expand their offerings. So, robotaxis are seeing some positive trends. We’re partnered with some of the best companies in the space and looking to expand our reach through them and to new partners all the time.

Okay. Terrific, terrific. You guys also call that warehouse, which is really, obviously a large opportunity and like a really great space. There are lots of different types of equipment in sort of the warehouse space. Should we think about all of those as being opportunities for Ouster, or can we narrow it down to categories, say, forklifts or sort of loaders, unloaders, AGVs, sort of these automated things or moving pallets around? And then, I guess I’m also curious like is there an opportunity in these things that have a humanoid form factor that may or may not be impactful in warehouses in the next 12 months, but sort of are all those form factors opportunities for Ouster or are there specific categories where we should sort of spend our time looking?

Yes. So, I mean the a warehouse, a modern warehouse is a bustling hive of activity and there are many different machines, some autonomous, many driven by human, all of which are benefiting from increasingly capable and flexible autonomy that is largely coupled or enabled by lidar sensors. And, some of them like driver assistance systems that significantly reduce accidents in a warehouse even for human operated vehicles. So, and we play across all these applications. I mean, this is the core of the thesis at Ouster is that autonomy is a diverse set of applications that span the entire logistics supply-chain of the globe. And, it’s all getting automated or being improved with assistance systems. And, Ouster is incredibly well-positioned to capture all of that activity. So, humanoids is kind of the leading edge of the logistics automation in the warehouse. We do have some humanoid customers. You can see some examples of our sensors on some humanoids. I think that’s still it’s unclear what the business model and the timeline for humanoids are. So, I’m not expecting the adoption of that those devices to kind of drive Ouster’s business. But, the good thing is that there is such an obvious cost benefit for driving more automation into a warehouse, filling labor shortages with automation and improving safety with assistance features that you talk to any warehousing, robotics or OEM equipment manufacturer and they have an automation strategy and Ouster is doing a really good job of blanketing this market. A good example is we were at ProMat just last month, I think, which is a major material handling conference in The United States and Ouster sensors were on all manner of vehicles and platforms there. So, just showing the great job we’ve had in covering that market. So, tons of opportunity. It’s one of those practical uses of physical AI today with a clear ROI and technology stack that actually works.

Yes. Okay. Well, that’s actually helpful, and very encouraging, kind of the last thing I want to I know we’re all eager to sort of get us off our hardware breakout and sort of dig into the impacts around margins. But, what can you say trend wise about sort of just where you’ve had just sensor sales or sort of sensor pricing? What would you call the environment, I guess, as we get into a little bit higher volumes? Would you say that pricing has been stable or sort of a natural curve where we see some price reductions? And then, as you refresh the product line, does that kind of change what towel that pricing takes?

Yes. So I mean, generally, prices go down, not up.

Right.

And, we want to see that. I mean, I’m focused as much on maintaining gross margins as making sure that our revenue and our unit shipments are growing. And, unit shipments really in a healthy business where the technology is working for customers, you generally want to see unit shipments rise faster than revenue. And, I think we’ve been able to show that as a business, though yes, we’ve been able to show that as a business. So that, yes, whenever you’re increasing unit shipments faster than revenue, there’s a good chance that ASPs are dropping. Now of course, we have a software attached business that’s making it a little more difficult to pull out the numbers. But suffice it to say, like we think we’re managing the ASP trend well. Here, there’s a lot of stickiness in lidar and so there’s a lot of kind of relationship building and things that get priced into the value of a lidar system, that so it’s not just a commoditized piece of hardware where it’s pure pricing discussion. So, but there’s also opportunities to unlock new use cases and new markets by offering lower pricing. And, I think we’re in a position to do that each and every year that we also lower our cost. And, that’s what we’ve been shown we’ve been able to do. So, I don’t think there’s anything, any fundamental change to pricing or that’s coming down the line like we’re doing a good job managing this and enabling our customers’ applications because ultimately they need to be commercially successful and some of that does come back down to the cost of their platforms.

Yes, Casey, the only thing I would add to the latter half of your question, the impact of future technology certainly does have something to do with ASPs. What you’ve seen, Ouster able to accomplish in the past two years since we’ve rolled out REV7 is we’ve actually seen our ASPs increase given that customers are able to extract more value proposition out of the product offering that we are providing. And so, we have been generally consistent with our expectation that ASPs do decline over time, but our ability to introduce new technology, new revisions to our product, new features does have a tailwind in terms of supporting our ability to price a value proposition to our customer.

Yes. And, like I think certainly sort of from the analyst perspective, right, we’re sort of Angus as you alluded to sort of ASP price drops could actually be really encouraging when units start to jump, right? And there’s some, basically, halo effect around that, and that all could be, maybe enabling. It doesn’t sound like price is a barrier to adoption at this point is sort of one conclusion that, like, I’m trying to drive to from this conversation, which is, our sensors aren’t limiting people’s demand. It’s sort of an evolution of technology. And, as people get the volume, you guys sound like you’re well-positioned to sort of meet that demand, I guess, from a hardware price component, I guess, perspective.

That’s right. That’s right. For the majority of our customers, the economics are not what is holding back them expanding their volumes. That’s a good conclusion.

Right.

Yes.

Yes. Okay, great. Thank you. A lot of exciting things. Great quarter, and thanks for taking my questions.

Your next question comes from the line of Kevin Garrigan from Rosenblatt Securities. Please go ahead.

Yes. Angus, hey, Chen. Thanks for taking my questions and congrats on the strong results. Angus, you talked earlier about having a lot of pans in the fire and you announced a few new multimillion-dollar deals recently. Is lidar adoption kind of happening faster than you would have thought maybe a year or two ago, or has it been pretty much on par with what you’re thinking?

Well, that’s a good question. I’m nearing my 10-year anniversary at Ouster. So, I think you have to be impatient to run a company like this and keep pushing. And so, there’s one side of things where we all thought we were going to riding around in like flying cars that were autonomous in 2018 and that didn’t happen. But on the other hand, we are tracking to our long-term model, our revenue growth and seeing just a ton of positivity in the field of autonomy, in the field of physical AI, what’s going on with NVIDIA, with Edge capability, with the advancements in AI are making these systems more capable, more affordable and faster to market. And so, there’s definitely a lot of positivity and that’s underpinning Ouster’s entire business. So, nothing can ever happen fast enough. And yet, I also think we’re doing everything we can to speed things along with our investments in software and the SDK and peripheral features in our, the support we provide our customers. So, I think we’re doing, we’re maximizing the speed that things are being adopted. And, it’s nothing but kind of a positive outlook for the entire industry.

Yes, that makes ton of sense. Okay, great. And then, Chen, you mentioned you’re not seeing any impacts from tariffs at the moment, but I’d just love to hear any commentary from customers you can give on whether they’re just kind of going about business as usual because things are so fluid and whatever kind of happens, happens, or are they trying to readjust strategies at all? Anything you’re hearing about how customers are looking at this market would be great?

Yes, sure. It’s a good question. We were just talking about this earlier today. We honestly haven’t seen much disruption to our business because of the tariffs. There might be some minor things moving here and there, but overall I think automation is just such a strong trend. And again, it goes back to the value proposition that we provide with our hardware, with our software where these tariffs at the current level are not significantly impacting the business, difficult to predict how things evolve from here, but we feel pretty confident that we’ll be able to execute the business plan with the status quo.

Okay, great. Thanks guys.

Our final question comes from the line of Richard Shannon, Craig-Hallum Capital Group LLC. Please go ahead.

Hi guys, thanks for letting me ask a follow-up and I just have one here. I can’t remember how long it’s been since we’ve heard this question on the call, but I always love to get your thoughts here, from the competitive dynamics here. So, I’ve seen a lot of other lidar companies have been focused in the automotive space for a long time and have seen difficulty there in the last year or two and obviously, if you can focus their businesses in other markets where you’ve been there frankly since the beginning here. Wondering, Angus, if you’re seeing any changes in the competitive dynamics here with other companies who used to be in those spaces primarily now coming into your non-automotive markets and how you’re responding to that?

Yes. Well, first, I’d love to point out that Ouster has continued to be correct in our thesis that there has been plenty of time to develop automotive lidar solutions given the pace of automotive lidar adoption in the automotive industry. It’s been our founding thesis, diversifying into other industries and being around to be able to be ideally a major player in the automotive industry in the future. So, that’s still on track. When it comes to our auto-centric competitors maybe rethinking their strategy and moving into our diverse verticals, I mean, I really haven’t seen there are fits and starts. I think each and every earnings cycle, one of our competitors has kind of a refresh of their perspective and some announcement about moving into adjacent industries, but I’ve never seen the consistent push quarter-after-quarter required to develop ground-up solutions, ground-up hardware, ground-up software, ground-up commercial efforts to be a long-term player in this space. So, may change in the future. I’m surprised frankly that there hasn’t been more of a pivot as I mean, I think Ouster has emerged as a leading player in diverse end markets. But so far, it just fits and starts from, I think, our competitors.

Okay. Appreciate that perspective Angus. That’s all for me.

I will now turn the call back over to Angus Pacala for closing remarks.

All right. Well, thanks everyone for joining the call. And, we look forward to speaking with you all again next quarter. Thanks and have a good day.