Hello. Welcome to Ouster's Fourth Quarter 2025 Earnings Conference Call. [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'd like to now turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our Fourth Quarter 2025 Earnings Call. Today on the call, we have Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Ken Gianella. 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 be available for webcast replay in the Investor Relations section of our website. I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position and growth opportunities, anticipated industry trends, our business and strategic priorities, our operating expense targets, the impact of our recent acquisition, the development and expansion of our products and our revenue guidance for the first quarter of 2026. 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 fourth quarter 2025 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on the 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 discussed today is included in the financial results release. I would now like to turn the call over to Angus.

Hello, everyone, and thank you for joining. I'll start with a brief recap of the quarter and review of our strategic priorities for 2025. Ken will cover our financial results in more detail before I close with our goals for 2026. The fourth quarter capped off a year of exceptional execution for Ouster. Our fourth quarter revenue of $62 million, including $41 million of product revenue, reflects the continued demand we see across our lidar business and represents our 12th straight quarter of product revenue growth. GAAP gross margin was strong at 60%, and we set a new quarterly record with over 8,100 sensors shipped, bringing physical AI to life across multiple applications, including warehouse automation, robotaxis and mapping. Our strong results are a testament to our disciplined execution across our business. This is supported by durable global growth drivers for increasing automation, efficiency and safety. These secular themes strengthened during 2025, a year where we set and executed on 3 strategic priorities: scaling the software attached business, transforming the product portfolio and executing towards profitability. First, we committed to scaling our software attached business. Software attached bookings more than doubled in 2025 and represented over 15% of our sensors shipped, which is up over 120% year-on-year. In addition, I'm excited to share that today, our in-house trained AI models are now running 24 hours a day at over 1,200 Gemini and BlueCity sites, spanning over 65 million square feet of roadways and facilities around the world. We are delivering physical AI at enterprise scale. We drove significant Gemini renewals, including a 7-figure annual license with a leading global technology company and secured landmark BlueCity agreements to accelerate the adoption of AI-powered lidar detection across Tennessee, Utah and New Jersey. This growth was driven by the increased capabilities of Ouster…

Thank you, Angus, and hello, everyone. As Angus mentioned, we closed fiscal 2025 with a strong finish, underscoring our continued operational execution. Our results demonstrate the resilience of our operating model and the disciplined financial management across the business as we continue to perform within our long-term financial framework, keeping us firmly on the path to profitability. Turning to the fourth quarter financial performance. Operating results were strong with revenue of $62 million, GAAP gross margin of 60% and shipments of over 8,100 sensors. During the quarter, we recorded royalties of approximately $21 million that were primarily onetime and related to long-term IP license contracts. These royalties demonstrate the strength of our IP portfolio. For 2026, total royalty revenue is expected to be less than $5 million, with the majority of that amount expected to be recognized in the back half of the year. Looking ahead, we expect additional royalty revenue to be relatively modest, and it will be included in our revenue guidance. Turning back to our fourth quarter results. Absent the impact of royalties, our fourth quarter product revenue was $41 million, representing an increase of 36% compared to the same quarter a year ago. The industrial vertical was the largest contributor to fourth quarter revenue, followed by robotics and smart infrastructure. Demand for our Gemini and BlueCity solutions remained strong and were important contributors to our quarterly results. GAAP gross margin of 60% reflected the impact of royalties, continued revenue growth in our digital lidar business and improvements in our operational performance. Royalties impacted our fourth quarter GAAP gross margin by approximately 20 percentage points. GAAP operating expenses were $37 million in the fourth quarter, a decrease of 6% from the same quarter last year. The decline was primarily due to a favorable employment tax refund received…

Thank you, Ken. Our execution on our 2025 goals has been further complemented by our recent acquisition of StereoLabs, a pioneer in AI camera vision and perception solutions. As we start the year, Ouster now offers physical AI's first unified sensing and perception platform, combining high-performance digital lidar with cameras, AI compute, sensor fusion and perception software and cutting-edge AI models. Our customers can harness the precision of lidar along with the richness of vision, powered by our combined investments in AI training. By delivering seamlessly synchronized and calibrated data out of the box, we simplify and accelerate customer development and reduce costs. StereoLabs also brings deep expertise in foundational AI model training and core perception functions, along with immediate commercial scale, adding top-tier OEMs, Fortune 500 companies and high-growth technology firms to our customer base. This acquisition strategically positions Ouster as the foundational end-to-end sensing and perception platform for physical AI and initial feedback from our customer base has been resoundingly positive. Our expanded portfolio is resonating with the demands of the market, and customers are excited by the strengthened support and operational capacity of the combined company. For 2026, our road map is built on 3 strategic priorities designed to compound our combined competitive advantages and accelerate our financial performance. One, revolutionize our lidar camera and AI compute products; two, extend our leadership in physical AI solutions; and three, execute to profitability. Our first goal for 2026 is clear: to revolutionize our lidar camera and AI compute products. This year, we will commercialize the most significant product overhaul in our company's history and release more products than ever before. Ouster invented digital lidar, and we will continue to advance the industry with next-generation sensors built on our custom silicon. This powerful digital lidar road map is built on…

[Operator Instructions]. Our first question will come from the line of Colin Rusch from Oppenheimer.

And I appreciate all the detail on the perception platform into the software side. And I guess that's the heart of what I'm interested in here is really looking at how you guys can quantify the pace of learning with those systems, obviously, with all these sensors deployed at various places, both on traffic lights as well as some of the perimeter sites. Just curious how quickly you can actually optimize those systems and really monetize some of that efficiency.

Thanks for the question, Colin. Yes, this is a great point. So -- the idea of Sense, Think, Act, Learn is it's really a virtuous cycle of improvement and iterative development that has been embraced by any company that is doing cutting-edge AI development. You really have to iterate to your solution because of the massive amounts of data collection and retraining that are required to achieve cutting-edge safety-critical, capable physical AI and real-world deployments. And I can speak from experience now having over 1,200 sites deployed with this technology over the last couple of years across Gemini and BlueCity deployments that we see the pace of improvement accelerating over these last couple of years simply by investing in the machine that builds the machine, that iterative cycle of Sense, Think, Act and Learn, collecting data from the field, annotating it, retraining and building new insight into the capabilities of our system. It's an absolute acceleration. I think that you can measure it in how quickly you can deploy new versions of the product out to the field. We probably have another order of magnitude of iteration speed that we can still build into this set of products, specifically Gemini and BlueCity. And now the opportunity is both to continue that iterative speed of development on those products, but also to bring that iteration to our industrial AI and broader ecosystem. And that's where StereoLabs acquisition comes in, the ability to provide autonomous intelligent systems that are iterating very rapidly based on our core investments into machine learning training. So an order of magnitude at least to go and a brand-new greenfield opportunity in industrial AI to bring exactly that mentality to that product set.

That's super helpful. And then I just want to get a sense of the trend lines in terms of customer engagement in the defense sector. Obviously, you guys went through the Blue UAS approval last year, and it's pretty topical now in terms of thinking about automated warfare. Just want to get a sense of how those engagements have trended over the last year or so and how quickly we might start to see a real inflection point on some of the revenue growth that seems like is pretty available to you guys here.

Yes. I think here, I -- there's a lot of interest in the automation -- on the battlefield. But there's a big difference between what is happening today in Ukraine and -- which is robotics, but it's actually still human-controlled remote-operated vehicles and fully autonomous systems. Actually, there's a really wide gap. And so the sphere where we play fully automated systems is still in the research and development phase, whether it's in defense or just looking across our broader swath of customers, whereas what is fielded on the battlefield today is glorified remote-operated vehicles with increasing intelligence, but still they're remote operated vehicles. And so I think it's going to be a number of more years before there's a significant shift in that composition, just given the development cycles in defense. They roughly resemble the development cycles that happen in the automotive industry, for instance. It's more like that versus what we just talked about with rapid iteration in something like Gemini or BlueCity. So it's an important industry. It's one that Ouster is definitely plays in, and we have some great evidence of that, things like the Blue UAS certification for drone payloads. But there's a big divide between where the -- what exists today and the automation that is under development and we will be here in -- it's going to be a couple more years for sure.

Next question will come from the line of Kevin Cassidy from Rosenblatt Securities.

Congratulations on the great year. Just as you're looking at your backlog and looking out to 2026, which one of the industries that you service, which one do you think is going to grow the fastest?

Well, that's a great question, Kevin. I think that we -- I have been very bullish on smart infrastructure because of the full solutions that we've been bringing to the table for the past year. I think I said at the beginning of 2025 that given all the investment we've made into Gemini and BlueCity solutions for traffic management, for security, for yard logistics that I expected smart infrastructure to start to play a much more significant role in our revenue composition and our growth trajectory. And I think that, that's definitely played out in the last year. So I'm still incredibly bullish on the success we've had there and its continued success because these are major new opportunities for lidar, places where lidar has never played before that are multibillion-dollar industries. And we've just shown that we are able to execute in this domain. That being said, the StereoLabs acquisition is our ability to inflect the physical AI sphere for mobile robotics, for industrial robotics. And so the -- for the same reasons why smart infrastructure has taken off basically that we're providing total solutions and speeding the time to market for our customers because they can buy something off the shelf from Ouster. Now we're doing that with StereoLabs and Ouster combined, a unified sensing and perception platform that is a drop-in replacement for the legacy systems that have been used in the industrial and robotics sphere. Now you can come to Ouster by AI compute, lidars and cameras and the software and perception, software suite that goes on top of those and get to market quicker. So that's the vision for where Ouster is going is really this two-pronged approach of solutions in smart infrastructure, where it's fixed, fixed installations and solutions in mobile autonomy for physical AI, things like industrial, automotive and robotics.

Great. Yes. And that kind of plays into what was going to be my second question was how you're training models using both the StereoLabs and Ouster's lidar, whether that combine those 2 models, if that's going to be much more robust than what your competitors would be offering?

Yes. I think that there's so much to do with the advancements in AI in the last couple of years. There's both opportunities for us to push the frontier of -- so StereoLabs, they built neural depth models that produce incredible point clouds from stereo cameras better than the competition and to push that domain forward. Ouster has invested in our neural perception algorithms for BlueCity and Gemini to perceive what's going on in the environment. And there's a natural cross-pollinate -- cross-pollination at play where we can bring the insights from each one of those core competencies to each other's customers, but also start to do multimodal AI training. So lidar and cameras fused and trained together is the obvious next step if you really want to build the world's most capable perception -- machine learning-driven perception solutions. So there's a ton we can talk about there, but I'll leave it at that. I'm definitely excited about what the future holds for our AI training.

The next question will come from the line of Tim Savageaux from Northland Capital Markets.

I wanted to ask if you had a pretty -- well, at least from a customer standpoint, CES seemed to be a pretty important show for you guys, a lot of focus on autonomy there for machines, both large and small. I wonder if you had any takeaways from that show in terms of market opportunities coming out or specific customer developments.

Yes, absolutely. No. So we were just -- Ken and I were both at CES walking around with a number of investors, analysts. And it was a great embodiment of physical AI, like literal robots, industrial machines, autonomous systems, just ubiquitous on the show floor, no matter where you went, physical AI was in your face as real hardware. And so I think the takeaway for me is when you actually looked at those machines, whether it was an autonomous forklift or a humanoid robot or a big industrial mining machine, what were the commonalities between those systems? They had lidar sensors, they had cameras. They had almost certainly an NVIDIA GPU AI computer, and there was a suite of software that was largely similar in the underpinnings of robotic perceptions, localization, path planning, perception of objects around the vehicle. So the commonality is that's the play for Ouster with this -- both on the hardware and on the software. We think that with the StereoLabs acquisition, we can become the one-stop shop for lidar, cameras, potentially other sensors in the future, AI computers and all the software that runs the underpinning of an intelligent autonomous machine. That's where Ouster wants to play, and that's where we've made a major step forward. So I mean, it's -- CES was just the perfect representation of where the future is going and also the representation of Ouster's business model for the next 10 years.

Yes. And I'll add to it, Tim, seeing our customers' success and their time to market and getting out there quicker, that's our success. So the quicker that these things get out of prototype and into production, that's the growth that we follow along with those partners.

Great. And if I could follow up on a separate topic, and that is on the royalties in the quarter. I wonder if you had any more color about what's -- whether it's a certain type of technology or application. I don't know if that has anything to do with the litigation ongoing, but any more color, it's a pretty good number. So looking for any more details on what drove that and whether that was anticipated, I guess?

First off, it highlights the strength of our IP portfolio, Tim. And it was predominantly onetime, as we mentioned, and we also talked about it will be de minimis going forward. Strategically, we are looking prioritize on this sense, think, run, learn and driving our own product portfolio forward. So we have the royalty piece behind us. And I think all those litigation items in the past are all behind us. And so now it's really focused on our strategic priorities and growth.

Our next question will come from the line of Andres Sheppard from Cantor Fitzgerald.

Congratulations on the strong quarter. I think a lot of our questions have been asked. But Angus, I was hoping to maybe have you elaborate a bit further on the opportunities that you see regarding drones and humanoids in particularly following the recent certification and the recent acquisition. Can you maybe help quantify opportunities that you see there in the near term and maybe medium term? Or just any granularity as to how we should be thinking about these industries translating into revenue?

Thanks, Andres. Yes. So the common thread for drones and humanoids is really the volume. They're generally industrial adjacent, more robotics than industrial. And there's a volume increase from things, the smaller, the cheaper, the more ubiquitous the technology, the more -- the types of payloads and sensors and AI compute that goes on those robots is different than a big mining machine. And so some humanoids use lidar, some don't use lidar. Every humanoid uses cameras. And so that's part of the play for Ouster. And the same goes for drones. Some drones use lidar, some drones and all drones use cameras. And so this is part of investing and becoming a combined lidar and camera sensing company is just being able to play across all physical AI applications by providing the 2 most pervasive sensor modalities that are out there. And so -- and then we layer on top the fact that Ouster has invested in things like the Blue UAS certification, it just builds more opportunity for us in the sphere. So I see drones and humanoids. Drones is a much more of a proven technology and market opportunity for Ouster, and that's why we have things like a certification. Humanoids are an emerging opportunity that we are playing in today because of the StereoLabs acquisition and because of some of the lidar sensors and customers we have there. But I think the time line is a little longer for humanoids to reach market in the scale that's going to start to impact our top line revenue. And I liken this to 10 years ago with the robotaxi industry. It's an emerging technology. It's an exciting technology, and it will happen. But the time line is less known because it's pioneering research, getting humanoid robotics out into the market. And it's also a pioneering business model. It's a new business model to do it. So there are categories of things where Ouster builds the business on today, and there are categories of pans in the fire that will hit eventually and help Ouster build the business of the future. And we're playing across both. But it's definitely exciting times and the StereoLabs acquisition is a key to making sure that we can go to both those use cases and provide something valuable to those customers.

Yes. And wrapping numbers around it, if you look at the prior 3 quarters coming off of 40% year-over-year growth this quarter, just our core product line with the digital lidar growing 36% year-over-year. We continue to see that core underlying business continuing to trend in that 36% range plus. And so we're really proud of what the core business is doing. And so now you combine in the tailwinds of a really high-growth, high-margin business such like StereoLabs makes us really excited for that future.

Wonderful. That's super helpful. Really appreciate all that color. Maybe just as a quick follow-up, Ken, maybe a quick one for you. Can you just remind us liquidity, capital needs, cash burn? Are you still targeting to remain active in the M&A market? How are you thinking about future capital needs and cash runway?

Yes. So we ended the year at $211 million before the StereoLabs acquisition. We gave the number out there, roughly around $35 million in cash for that. On a strict operating basis, even -- we talked prior calls, having the dry powder to be strategic was very, very important in this current marketplace. So I think this acquisition demonstrated having that dry powder on hand allowed us to act quickly and take advantage of a very unique strategic situation. Even after that strategic acquisition, we still have plenty of operating runway until we're operating cash flow positive. So if you look at the numbers out there, it's somewhere in the 4- to 5-year range. So from a continuing in the marketplace, we're going to take it day by day and see what results with it. But our current cash position, we feel is strategically right where it needs to be, as I mentioned, for our customers because these customers that we work with, they're running 3- to 5-year programs, and they want a partner that can be out there operating with them in that space. So we feel really good about our capitalization. We'll always continue to look for what the future brings. And from the M&A, just answering your last question, if the right strategic opportunity comes along like it did with StereoLabs, we're really happy to be in a place that we can act on it.

[Operator Instructions]. Our next question will come from the line of Richard Shannon from Craig-Hallum.

This is Tyler on for Richard. I was just wondering how the customer conversations shifted since the acquisition? Are you getting new customers or existing customers looking for new opportunities to either combine the sensors or thinking of other use cases to get their hands on the sensor that they don't have? Just any color on that would be helpful.

Yes. I can say having been on a number of customer calls since acquiring StereoLabs that the reception to this acquisition has been resoundingly positive. I can't stress that enough. Ouster and StereoLabs have each built incredible brands built on quality, trust and performance of the products and the support that they provide. And by -- when you have 2 great companies combining and it allows a customer to then purchase from one even more dependable and well-resourced company, I mean that's music to their ears. So there's just the ability to work with one great company sourcing critical technology like we are. And then there's all the opportunity of building to the future. We're taking more of the feedback from customers around their total sensing needs and actually building the software and system capabilities that they have this enormous appetite for. I think that's probably the most surprising thing for me is how much appetite there has been for buying combined systems. Now that we're positioned and capable of selling combined systems, compute, software and the sensors, customers are asking for it. And that's just a great place to be. It's one thing to say we're going to do it. It's another for there to be a pull from the end customer now that they're aware we're capable of doing it. So had customers literally ask us, well, when can we just start buying the whole suite of hardware and software from you guys, couldn't happen soon enough. So I'm really pleased with how this has gone. And I think, yes, it's been extremely well received by customers.

And, by the way, it's available today. They're not waiting because one of the great things that we announced at the launch was that our platforms are already unified and people can buy our unified sensing platform today.

Absolutely, yes. I mean we're actually able to tell them, well, you can get started immediately.

That's great to hear. You had also mentioned enhanced connectivity features. Could you expand on that and specifically what that enables for customers?

This is with respect to the StereoLabs unified -- yes.

You said for this year, what you wanted to focus on?

Yes, absolutely. So the connectivity features is it's -- this is all about building an ecosystem that is interoperable with many different subcomponents of a physical AI system. So while we are today positioned to provide lidar cameras and AI compute and the software that runs them, we also want to make sure that the AI compute and the software on it is interoperable with all manner of other sensors, maybe GPS, maybe inertial measurement units, maybe just -- it's something as simple as radio connectivity or RTK systems or -- so the wheel encoders, there are just so many auxiliary systems that are required to build a domain-specific robot that we want to make sure that we really are providing all those little connectors in our software so that we can play really be that platform that you can build your entire solution on. And we don't want to have caveats when we're selling saying, "Oh, you can't go and use that existing GPS receiver that you've already selected and qualified." Quite the opposite. We're focused on saying you can use it, and we're implementing the low-level drivers for you. So that's kind of the vision there is -- and that all goes back to speeding time to market. The biggest thing holding back a lot of these customers in robotics and industrial is their development time to bring products to market. And we're cutting that down significantly by doing the work for them.

Okay. That just begets another question real quick for me. So when you're adding these different sensors, are these drivers something that are universal such that you can develop the drivers in your system for one type of GPS, but that works with any of the GPS providers or the inertial providers?

No, this is all hard work. It's just every single implementation is unique, and that's where the value comes in. You have to -- someone has to do the work and the companies that do that well and provide high-quality interoperability is where the value comes in.

Our next question will come from the line of Casey Ryan from WestPark Capital.

It's a great quarterly update. Yes, I just want to follow up a little more on this software component Angus that you're laying out. I mean it sounds like you guys start to move into being the operating system for any industrial manufacturer of physical AI systems. But does this sort of change the competitor matrix, I guess? And do we start competing with Open Mind and the Google Intrinsic thing and other kind of operating system physical AI companies?

I -- there's so much opportunity right now that I wouldn't call it changing the competitive landscape. There's a lot of companies pushing the frontier of this technology in ways -- in new and unexpected ways. Ouster is focused on being a unified sensing and perception platform, which could eventually become a complete operating system for these robots. That's definitely -- but saying -- I couldn't tell you today that there's immediate overlap of our eventual success with some of the companies that you mentioned because there's just so many different ways to approach these problems that are being researched right now, let alone deployed. So Ouster has always done a good job of finding the line between research and real deployed solutions that can generate revenue and grow a business today. And so that's what we're doing right now. We see -- we've narrowed down the solution to sensing and perception. And -- but that gives us opportunity, certainly with success, it gives us the opportunity to become more of the operating system of these robots in the future.

Yes. So maybe being more modest, I think maybe the company's vision of what it could accomplish has been expanded in some sense with what you're sharing with us today.

No question. The same way that lidar was our opening to build strong relationships with our customers. This is the next step in building an even stronger cohesive relationship, and that may be a jumping off point for a future where we're even more deeply embedded.

Right. Okay. Terrific. And then just sort of simply on the hardware, it sounds like what you're saying is we want to work with all and make it easy to use any kind of hardware components ultimately. Is it part of your vision that Ouster would want to provide at least one version of that, say, radar or GPS or something? Or were cameras kind of unique in terms of its importance to combined solutions, I guess?

Yes. We've really focused -- so the answer is yes to both things you asked. We want to work well with peripheral components, but there's a good reason why lidar and cameras have a special place. They really are the most important, most capable sensory inputs to these robots, and they're also the most unique and difficult to develop to the quality standard required by physical AI. So -- and so yes, we're so focused on making sure that we have the best-in-class lidar and camera combined sensing systems. And there's a lot of detailed work to be interoperable with other things, but they are secondary in these systems to the lidar and the cameras.

And the fusing of the 2 together to operate simultaneously, that is one of the toughest problems that all of our customers have today. And so being able to offer that unified platform with those 2 sensors together, it's a game changer.

Yes. Okay. That clarification is helpful. But I think putting a stake in the ground, it feels like the vision has gotten a little bit bigger, which is exciting. So I'm looking forward to '26. And yes, great job, obviously, in Q4 and looking forward.

I'm not showing any further questions in the queue at this moment. I'd like to turn it over to Angus Pacala for any closing remarks.

Well, thank you all for joining the call. We look forward to speaking with you again when we report our first quarter earnings. So have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.