Good afternoon and welcome to Ouster’s Third Quarter 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 the call will be available on the Ouster Investor Relations website an hour after the completion of this call. I now would like to turn the conference over to Sarah Ewing, Director of Investor Relations. Please go ahead.

Thank you, operator and good afternoon everyone. Thank you for joining us for our 2022 third quarter earnings call. I’m joined today by Ouster’s Chief Executive Officer, Angus Pacala and Chief Financial Officer, Anna Brunelle. Before we begin the prepared remarks, we would like to remind you that earlier today Ouster issued a press release announcing its third quarter results and its proposed merger with Velodyne. The company also published an investor presentation, which is available on the Investor Relations section of ouster.com. I would also like to remind everyone that during the course of this conference call, Ouster’s management will discuss forecasts, targets and other forward-looking statements regarding the company, including forecast, target, statements from its press release, potential future customer orders and shipments, near and long-term revenue opportunities, strategic customer agreements, market share trends, the Company’s proposed merger equal to Velodyne, ability to recognize the benefits of cost savings initiatives, future products, anticipated benefits and applications of new product releases, technological advancements and commercial path potential future market opportunities, customer traction in the Company’s business outlook and 2022 financial guidance and trajectory that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and for forward-looking statements and should not be regarded a representation of such plans estimate and expectations will be achieve. Thus, these statements represent management’s expected future results and performance, Ouster’s actual results are subject to total risks and uncertainties that could cause actual results to differ materially from current expectations that we may share with you today. In addition to any risks highlighted during this call, you should consider the important risk factors and other disclosures that may affect Ouster’s future results as described in its most recent annual report on Form 10-K quarterly report…

Thank you, Sarah. Good afternoon, everyone and thank you for joining us today. Ouster had a terrific third quarter, we delivered over 11.2 million in revenue, our second highest quarter ever, representing a 44% increase over the third quarter last year. We shipped 2136 sensors worldwide for an average selling price of $5,246 and did so while also recording the highest gross margins in Ouster’s history at 33%. We continue to grow our business with approximately 80 new customers bring our total 12-months customer count to approximately 700 across over 50 countries. We signed four new Strategic Customer Agreements or SCAs. During the third quarter, bring our total current SCA count to 84. While we delivered strong quarterly growth supported by our world class, commercial and operations teams, we also executed on our product roadmap and doubled our serviceable obtainable market through the launch of our breakthrough L2 chip, our upgraded OS sensor suite REV7, and with it are all new OSDome sensor. This is our largest expansion in songs since first entering the market and a game changer in our ability to win an expanded set of deals. Our focus on digital semiconductor design continues to set us apart in the lidar industry. Digital Products aligned with the exponential performance path of Moore’s Law to eventually displace legacy technologies. Engineered the state-of-the-art 3d backside illumination, the L3 chip packs an incredible amount of processing capability within a compact die area. With 125 million transistors on chip and a maximum computational power of 21.47 giga max, the L3 is capable of counting and processing approximately 10 trillion photons per second. This allows the sensor to output up to 5.2 million points per second, while consuming less power than previous generations. A 10x increase in photon sensitivity enables our REV7 sensors…

Thank you, Angus and good afternoon, everyone. As Angus stated in the third quarter of 2022, we recorded our second highest quarterly revenue of 11.2 million, up 44% over the third quarter of 2021, and up 8% over the second quarter of 2022. We shipped 2,136 sensors in Q3, a 31% increase over the third quarter of 2021, which amounts to approximately 16,000 sensors shipped to-date. Continuing our positive gross margin traction, we saw further improvement in the third quarter, delivering the highest gross margin in Ouster’s history at 33%. Up from the 24% gross margins recorded in the third quarter of 2021 and up from the 27% gross margins recorded in the second quarter of 2022. Over the course of the third quarter, our average sales price per unit remained strong at over $5200. While we saw a slight decrease in our cost per unit sold at approximately $3500 due primarily to lower purchase price variance in the quarter. Ouster continues to have the highest hardware gross margin profile of our public lidar peer group, validating our leading cost structure associated with our CMOS digital lidar architecture, which enables high scalability in both performance and cost. In the third quarter, we sold sensors to approximately 80 new customers, with growth seen across verticals and particularly out of the Americas, as well as Europe, Middle East and Africa. Additionally, through the end of the third quarter, we increase the number of SCAs to 84 from 80 recorded at the end of the second quarter of this year. Our largest revenue growth from new and existing customers was found in the industrial and robotics verticals accounted for 38% and 37% of sales in the third quarter respectively. In line with ongoing global trends, this growth included substantial orders for material handling,…

Thank you, Anna. Ouster is focused on building a great team and great products, scaling the adoption of digital lidar across our fast growing end markets and building a profitable business that can sustain our growth. We remain energized about the remainder of 2022, excited about upcoming product announcements slated for early next year and eager to close the proposed merger with Velodyne, to accelerate the adoption of lidar, bolster our financial position and drive sustainable growth and shareholder value on our mission to building a safer and more sustainable future. And with that, I would like to open it up for Q&A.

Thank you. Before we open the call to questions, I want to remind everyone that Ouster management will only address questions in connection with Velodyne on a standalone basis, exclusive of the proposed merger with Ouster, which remains subject to completion. [Operator Instructions] Our first question today comes from the line of Kevin Cassidy with Rosenblatt. Please go ahead.

Yes. Thanks for taking my question and congratulations on the strong results. And also on the announced merger or proposed merger. Just one question your range for the year is 40 million to 55 million. What are the factors for reaching those numbers? It seems like a large range at this point in the year.

Yes. Thanks for the question, Kevin. Anna, do you want to cover that?

Yes. Happy to. I think Kevin, were really expecting to have a great Q4 and hit our guidance given the REV7 launch and just the immense customer interests we are seeing from that. And we saw our customer in count, this quarter increased from about 600 to about 700. And so our funnel is really strong, and we just are looking forward to having a great Q4. And then similarly, we saw margins, you may remember we guided to 25% to 30% on margins, Q3 came in at 33%, the highest in our history. So all of those things together really gave us a strong confidence and reiterating our guidance.

Okay great. And, the REV7 was very impressive launch and that you’re ready to ship it off as soon as you announced it that is very strong. Can you say what percentage of your revenue do you think REV7 is it going to be significant in the first quarter will be more of a ramp into 2023?

Kevin, yes, that is a great question. So we will absolutely be ramping into REV7 eventually being the vast majority of our revenue. But we typically ramp production between our divisions across multiple quarters, and REV7 will be no different. So we will ship significant revenue REV7 revenue this quarter. But it will take a couple quarters before we really transition to the majority of revenue coming from that line.

Okay, great. Thank you.

Your next quick question comes from the line of Andres Sheppard with Cantor Fitzgerald. Please go ahead.

A couple of quick questions for me. In regards to the strategic customer agreements, it looks like that number increased to 84. Can you just let us know what does that now translate in terms of revenue opportunities through 2026 and maybe when do you expect those to start materializing or ramping up? Thanks.

So a couple points here. The first is that, at the beginning of the year, we changed our approach to strategic customer agreements to require that they all have a binding component. So we increase the threshold for signing FTAs. And that is just a really important note. So all SCA signed this year have a binding component, and we are realizing revenue off of those signed deals already. So those are already taking effect. And then to your question on potential contracted revenue opportunity. You will notice that we left that out of our earnings release, we chose to leave it out, because while the number has gone up. We have seen from our customers a reluctance to provide concrete updates in some cases, to their forecasts just given kind of market uncertainty and macroeconomic climate. And instead of giving a number, we just wanted to give a number that we can stand behind in this case, we have run into a situation where we don’t feel we can stand behind the number even though it technically has gone up. We don’t feel we could stand behind it. So we are looking at how we can revise our approach to contract and revenue opportunity, in the case that customers are having difficulty forecasting their businesses. Again, the reason they might be having difficulty is because of supply chain uncertainty, things like that, that are impacting their ability to ship in some cases. So, we are trying to be perfectly open on why we left that out. And hopefully that makes sense. But overall, what is critical is SCA counts are continuing to increase, we raised the bar at the beginning of the year. And now we are at 84 of these signed active contracts, which is a fantastic place to be given where we were a year and a half ago and went public.

Understood, thanks, Angus, know that that is very helpful, indeed. And maybe for my follow-up, as it pertains to the merger with Velodyne. I’m curious, how do you foresee your capital needs changing if at all? Thank you.

Yes, I mean, a big part of this merger is the opportunity to build a strong company financially. So absolutely one of the goals here is to limit the need for outside capital and limit dilution at the close of the deal. We haven’t provided a complete outlook, forward looking outlook. We will do that upon closing the deal in the first half of next year. But absolutely, a major benefit here is that it provides much more clarity on the path to profitability as a combined company.

Wonderful. Thanks Angus. Congrats again, that is it for me. I will pass it on. Thank you.

Your next question comes from the line of Tristan Gerra with Baird. Your line is now open.

Hi, this is Tyler on Tristan. Thanks for taking the questions on building off the previous question. Should we expect cash burn to accelerate or slow in the next two years as revenue hits an inflection point, but more spending will be needed to ramp production?

Thanks for the question there. So we expect for cash burn to decrease overtime. As the company grows, so we have outlined as part of the deal up as much as 75 million and cost synergies between the companies with a combined 355 million in cash on hand as of Q3 between the two companies and expect to this provides better clarity on the path of profitability for the company, meaning reduce cash burn over time. No question. Hopefully that provides some clarity there.

Yes. That is great.

I was just going to say I could build on that a little bit, too, if you don’t mind. We are, as we said, seen just incredible reception with REV7 and we expect to continue to see increased demand for digital lidar. And so you know, obviously, is that top line growth, we feel we have the right cost structure in place to get us on that path to profitability. And so if you look at the cash use for EBITDA so far this year, we have used about 23 million or 24 million per quarter each quarter this year and we expect Q4 to be similar. And then I think we have mentioned before on the CapEx side, we don’t need a significant amount of CapEx to run our business. We have previously said it is about five million or so per year. And it is a little lumpy per quarter, but about 1.5 million per quarter. And so, that covers us for cables and equipment for manufacturing capacity increases in such generally. And so I think as we see our top line growth as we continue to introduce these great products, we feel we have the right cost structure in place to get us on that path to profitability.

Great. Yes, that is super helpful. For my follow-up, what is the current situation with Velodyne’s IP. I know that they rank intention with the Chinese supplier of lidar for patent infringement and the licensing deals put in place. Is that going to be relevant going forward from a revenue standpoint?

Yes. Thanks for the question. We haven’t provided insight in that level of detail on the combined company or expectations around revenue mix. But we will be providing a much more fulsome update when the deal closes.

Great, thanks again for taking the questions.

Your next question comes from the line of Brian Dobson with Chardan Capital Markets. Your line is now open.

Yes. Thanks very much. Congratulations on the L3 chip launch and the merger announcement. So I guess first turning to the chip launch. Do you see your revenue mix by end user industry shifting as that new technology is introduced?

I absolutely think there will be some shift because one of the things we have highlighted with this release is that, we have doubled our SOM or Serviceable, Obtainable Market. And that has allowed us to tap into new longer range markets, the mapping market where there is a need for higher precision accuracy and range as well. And so overtime, I do expect to see new use cases introduced in a shift, but not a shift because of a move off of other markets, it is just an expansion of the overall opportunities that we are addressing.

Yes, excellent. And you mentioned obtaining Vertical Safety Certification for your new sensor technology. Which of your core verticals offers the most opportunity if those certifications are obtained?

That is a really interesting question. And it depends on what timescale you are looking at. One of the things about Ouster is sort of versus our early diversification into industrial, smart infrastructure and robotics alongside our core strategy in auto. And that is because there is an established market, especially in the industrial lidar sector, over around $2 billion market today. So I would say, there is a significant near term opportunity for the industrial certifications. But then setting that aside, the automotive sector. There are a lot of companies that are interested in automotive grade, automotive quality, whether or not they are true high volume automotive application. So I think there is going to be a significant positive impact on the automotive certifications. And luckily, there is a lot of overlap between those two certification sets, so we can tackle them at once, which is what we are doing.

Excellent. And I will just sneak a quick one in about the merger. So you mentioned that the two companies have complementary customer bases. Can you just give us a little bit more color on Velodyne’s core business segments or customer segments?

Yes. I think that questions specific to Velodyne, you should definitely ask them. But on the complementary statement, one of the things that is common between us is a diversification across markets and there is natural complementary complementing that is going to happen as a result of the merger, just because we are two companies, two of the few companies that have diversified across markets more than just auto. So we see an opportunity to provide a really robust set of products a really robust set of products and customer success that combines the best of each company and the learnings that we have, from operating as independent businesses for the better part of the past decade.

Great, thank you very much.

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

Hi guys thanks for taking my question. Maybe my first one is for Anna on your guidance for the year here, both on sales and gross margins, the ranges here are pretty wide. And if you look at what numbers could give both the high and the low end here, it is pretty wide both revenues and gross margins. I think you just mentioned in an answer to a question about EBITDA being in a similar, maybe slightly improved level versus last quarter. So it seems like you have kind of pinpointed what those might look like versus a fairly wide range to left on the for both those numbers here. So maybe your comments are helping us kind of narrow that down a little bit from the wide ranges you have yourself?

Like I said before, we are expecting to have a great quarter, we are already seeing traction from REV7, the 40 to 55 range was already in existence going into this quarter. And so we, it is still accurate, so we kept it. But yes, we definitely expect to have a great quarter. And as I said, our customer count continues to increase and just our line of sight gives us very strong confidence that will be within that range.

Okay, fair enough. Follow on question for Angus. Last quarter, you talked about a little - macro seemingly affecting some of the sales cycles within a number of your end markets here and obviously had a good quarter growing nicely here with some continued strength in industrial robotics. Maybe you could give us a comment, kind of update a comment versus last quarter on whether the sales cycles are staying the same improving lengthening in any areas where it is kind of at the edges, either positive or negative by product line in markets or geographies, please.

Yes I think that the comments I made last quarter, and those observations are still hold true this quarter. And that is why we are sticking with our guidance. We revised it as of Q2 and sticking with and expect that will hit it. So I think that maybe what has changed is really the, what we have done internally by releasing these new products, where we see the industrial sensor suite, releasing REV7 and the L3, that has generated a significant amount of external interest. Kind of additional new interest in our products. But that is kind of irrespective of the macroeconomic climate, which I think remains pretty similar to last quarter.

Okay, fair enough. That is all for me thanks.

And this does conclude our question-and-answer session. I would like to turn the conference back over to Angus Pacala for any closing remarks.

Alright. Well, thank you all for joining and for the questions. I’m incredibly excited about the merger with Velodyne that we have announced as of today and the positive impact that we are going to have through it for customers and for investors and for the maturation of the later industry as a whole. I really think consolidation is an important step for this industry, and glad to be leading the way here. I’m also equally proud of what Ouster accomplished in the third quarter. We had a record gross margins, we had our second highest revenue quarter with over 44% year-over-year growth and we launched the L3 powered REV7 sensors, which expand raw performance to an extent, but I think few thought was possible with digital lidar. With REV7 digital lidar really is hitting its stride and there is plenty more to come in 2023 across our product portfolio. So thanks again for joining and have a great evening.

Ladies and gentlemen, the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.