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Part I [Business](index=6&type=section&id=Item%201.%20Business) Ouster, Inc. provides digital lidar sensors and software for automotive, industrial, robotics, and smart infrastructure, leveraging its patented technology and the Velodyne merger to expand market reach - Ouster is a global provider of lidar sensors and software solutions targeting **four main markets**: automotive, industrial, robotics, and smart infrastructure[22](index=22&type=chunk) - On **February 10, 2023**, Ouster completed its merger with Velodyne Lidar, Inc., aiming to enhance product offerings, increase operational efficiencies, and strengthen its financial position[29](index=29&type=chunk) - The company's core technology is its **patented digital lidar architecture**, based on custom semiconductor chips, which it believes provides a significant cost and performance advantage[32](index=32&type=chunk)[33](index=33&type=chunk)[36](index=36&type=chunk) - In 2022, the company shipped sensors to over **690 customers**, and post-merger with Velodyne, the combined entity supports over **850 customers** in approximately **50 countries**[69](index=69&type=chunk) - Key manufacturing partners include **Benchmark Electronics** and **Fabrinet**, with production primarily located in **Thailand** to reduce costs and enable scaling[25](index=25&type=chunk)[79](index=79&type=chunk)[95](index=95&type=chunk) [Our Product Portfolio](index=8&type=section&id=Item%201.%20Business%20-%20Our%20Product%20Portfolio) Ouster's portfolio includes OS scanning and DF solid-state digital lidar sensors, legacy Velodyne analog sensors, and software solutions like Ouster Gemini and BlueCity AI - The **OS product line** features four models (OSDome, OS0, OS1, OS2) with the latest **REV7 series**, powered by the L3 chip, offering significant performance upgrades like doubled range and enhanced object detection[44](index=44&type=chunk)[45](index=45&type=chunk) - The **DF product line** is a suite of solid-state digital lidar sensors designed to meet automotive OEM requirements for ADAS, focusing on high resolution, adaptability, and scalability for series production[52](index=52&type=chunk)[55](index=55&type=chunk) - Following the Velodyne merger, Ouster now also offers legacy Velodyne sensors, including the **Alpha Prime (VLS-128)** for autonomous driving and the **Puck family (VLP-32, VLP-16)** for robotics, mapping, and other applications[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - Software solutions include **Ouster Gemini**, a perception platform for crowd analytics and security, and **BlueCity AI**, which provides real-time traffic data analytics[61](index=61&type=chunk)[65](index=65&type=chunk) [Our Growth Strategies](index=14&type=section&id=Item%201.%20Business%20-%20Our%20Growth%20Strategies) Ouster's growth strategies focus on advancing digital lidar technology, introducing value-added software, and executing commercial plans, including strategic mergers and global distribution expansion - Pursue **strategic transactions**, such as the completed merger with Velodyne, to strengthen the company's financial position, technology portfolio, and software offerings[87](index=87&type=chunk) - **Expand the global distribution network** to reach more customers efficiently and grow sales[89](index=89&type=chunk) - **Commercialize the solid-state DF sensor** to meet the automotive industry's requirements for ADAS applications and build relationships with global OEMs and Tier 1 suppliers[91](index=91&type=chunk) - **Grow sales volumes from existing accounts** by supporting customers as they move from evaluation to series production, which can materially increase order volumes[93](index=93&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its limited operating history, net losses, Velodyne merger integration, intense competition, supply chain reliance, regulatory changes, and identified material weaknesses in internal controls - The company has a limited operating history and has incurred significant net losses, reporting a net loss of **$138.6 million** in 2022 and an accumulated deficit of **$441.9 million** as of year-end[119](index=119&type=chunk)[123](index=123&type=chunk) - Successful integration of the **Velodyne merger** is critical, and failure to realize anticipated synergies or manage the expanded operations could adversely affect the business[121](index=121&type=chunk)[122](index=122&type=chunk) - The company relies on third-party manufacturers (**Benchmark**, **Fabrinet**) and limited or single-source suppliers for key components, making it vulnerable to supply chain interruptions[179](index=179&type=chunk)[181](index=181&type=chunk) - **Material weaknesses** in internal control over financial reporting have been identified, which could result in material misstatements of financial statements or failure to meet reporting obligations[238](index=238&type=chunk)[239](index=239&type=chunk) - The company faces risks related to its **$40.0 million** in outstanding debt as of December 31, 2022, and may require additional capital to execute its business plan[153](index=153&type=chunk)[156](index=156&type=chunk) - The company is subject to an **SEC investigation** initiated in June 2021 regarding projected financial information in a prior S-4 registration statement[204](index=204&type=chunk)[278](index=278&type=chunk) [Unresolved Staff Comments](index=47&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments - None[276](index=276&type=chunk) [Properties](index=47&type=section&id=Item%202.%20Properties) Ouster's corporate headquarters are in San Francisco, with additional leased office and manufacturing spaces in California and internationally following the Velodyne merger - The company's corporate headquarters are located in **San Francisco, California**, consisting of two leased properties totaling **46,157 square feet**, with leases expiring in August 2027[277](index=277&type=chunk) - As a result of the Velodyne Merger, Ouster assumed additional leases, including approximately **205,000 square feet** of space in **San Jose, California**, and other offices in **Alameda, CA, Germany, China, and India**[277](index=277&type=chunk) [Legal Proceedings](index=48&type=section&id=Item%203.%20Legal%20Proceedings) Ouster faces an ongoing SEC investigation and inherited multiple stockholder lawsuits post-Velodyne merger, alongside disputes with Quanergy Systems and shareholder derivative actions - The company received a letter from the **SEC** on **June 10, 2021**, notifying it of an investigation and document subpoena regarding projected financial information in a Form S-4 registration statement[278](index=278&type=chunk) - Following the Velodyne merger, the company is now party to several lawsuits filed against Velodyne by its purported stockholders, alleging that disclosures related to the merger were materially incomplete and misleading[281](index=281&type=chunk)[555](index=555&type=chunk) - The company inherited a settlement with **Quanergy Systems**, which subsequently filed for Chapter 11 bankruptcy, leaving **$2.25 million** of the settlement unpaid[282](index=282&type=chunk) - A putative shareholder derivative lawsuit and a class action lawsuit, both filed in 2021 against former Velodyne directors and officers, are ongoing[287](index=287&type=chunk)[288](index=288&type=chunk) [Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[290](index=290&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=50&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ouster's common stock and warrants trade on NYSE, with 418 registered holders as of March 2023, and the company does not anticipate paying cash dividends - The company's common stock and warrants trade on the NYSE under the symbols "**OUST**" and "**OUST-WS**", and on NYSE American under "**OUST WTA**"[293](index=293&type=chunk) - As of **March 23, 2023**, there were **418 registered holders** of record of the company's common stock[294](index=294&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business growth[296](index=296&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Ouster's 2022 revenue grew 22% to **$41.0 million**, but operating expenses and R&D significantly increased, leading to a **$138.6 million** net loss, with liquidity supported by debt and ATM proceeds [Results of Operations](index=55&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) In 2022, revenue increased 22% to **$41.0 million** driven by volume, but operating expenses rose 44% and R&D 86%, widening the net loss to **$138.6 million** Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $41,029 | $33,578 | 22% | | **Gross Profit** | $10,930 | $9,086 | 20% | | Gross Margin | 27% | 27% | 0% | | **Operating Expenses** | $156,353 | $108,796 | 44% | | R&D Expenses | $64,317 | $34,579 | 86% | | **Loss from Operations** | ($145,423) | ($99,710) | 46% | | **Net Loss** | ($138,560) | ($93,981) | 47% | Revenue by Geographic Location (2022 vs. 2021) | Region | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Americas | $15,977 | $15,656 | 2% | | Asia and Pacific | $9,510 | $7,334 | 30% | | Europe, Middle East and Africa | $15,542 | $10,588 | 47% | | **Total** | **$41,029** | **$33,578** | **22%** | [Liquidity and Capital Resources](index=59&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Ouster had **$122.9 million** in cash and **$441.9 million** accumulated deficit, with liquidity from debt and ATM proceeds, and anticipates needing additional capital - As of December 31, 2022, the company had **$122.9 million** in cash and cash equivalents and an accumulated deficit of **$441.9 million**[354](index=354&type=chunk) - In 2022, the company sold **7.8 million shares** of common stock under its ATM Agreement for net proceeds of **$15.8 million**[352](index=352&type=chunk) - The company has drawn **$40.0 million** under its Term Loan Facility with Hercules Capital as of December 31, 2022[356](index=356&type=chunk) Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($110,690) | ($71,061) | | Net cash used in investing activities | ($5,147) | ($15,229) | | Net cash provided by financing activities | $55,602 | $258,304 | [Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Ouster faces market risks from inflation, interest rate fluctuations on its floating-rate debt, and foreign currency exchange, but does not currently employ hedging strategies - The company is exposed to interest rate risk on its debt arrangements, which bear floating interest rates; a hypothetical **100 basis point increase** in interest rates would have increased interest expense by **$0.4 million** for the year ended December 31, 2022[379](index=379&type=chunk) - Foreign currency exchange risk arises from operations in Asia and Europe, as expenses are denominated in local currencies while revenues are primarily in U.S. dollars; the company does not currently engage in hedging strategies[381](index=381&type=chunk) - Inflation is identified as a risk that could increase operating costs and potentially decrease customer capital available for purchasing the company's products[377](index=377&type=chunk) [Financial Statements and Supplementary Data](index=64&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Ouster's audited consolidated financial statements and PricewaterhouseCoopers LLP's unqualified opinion, highlighting interim goodwill impairment assessments as a Critical Audit Matter [Report of Independent Registered Public Accounting Firm](index=65&type=section&id=Item%208.%20Financial%20Statements%20-%20Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on Ouster's financial statements, identifying interim goodwill impairment assessments as a Critical Audit Matter due to significant management judgment - The auditor's opinion states that the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the three years then ended[387](index=387&type=chunk) - A **Critical Audit Matter** was identified concerning the interim goodwill impairment assessments; this was due to significant management judgment in developing fair value estimates, which involved assumptions about implied control premiums and comparable company market transactions[392](index=392&type=chunk)[393](index=393&type=chunk) [Consolidated Financial Statements](index=67&type=section&id=Item%208.%20Financial%20Statements%20-%20Consolidated%20Financial%20Statements) Ouster's consolidated financial statements show **$256.1 million** in total assets, **$84.5 million** in liabilities, **$41.0 million** revenue, and a **$138.6 million** net loss for 2022 Consolidated Balance Sheet Data (as of Dec 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $122,932 | $182,644 | | Total current assets | $162,498 | $207,358 | | Goodwill | $51,152 | $51,076 | | **Total assets** | **$256,137** | **$307,702** | | Total current liabilities | $29,492 | $22,103 | | Debt | $39,574 | $0 | | **Total liabilities** | **$84,518** | **$47,002** | | **Total stockholders' equity** | **$171,619** | **$260,700** | Consolidated Statement of Operations Data (Year Ended Dec 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total revenue | $41,029 | $33,578 | | Gross profit | $10,930 | $9,086 | | Total operating expenses | $156,353 | $108,796 | | Loss from operations | ($145,423) | ($99,710) | | **Net loss** | **($138,560)** | **($93,981)** | | Net loss per share | ($0.78) | ($0.70) | [Notes to Consolidated Financial Statements](index=74&type=section&id=Item%208.%20Financial%20Statements%20-%20Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the **$72.5 million** Sense Photonics acquisition, **$40 million** debt, **$16.6 million** lease obligations, **$28.6 million** purchase commitments, **$33.3 million** stock-based compensation, and the Velodyne merger as a subsequent event - The acquisition of Sense Photonics in October 2021 was accounted for as a business combination with total consideration of **$72.5 million**, resulting in **$51.2 million** of goodwill and **$23.4 million** of intangible assets[476](index=476&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk) - As of Dec 31, 2022, the company had **$39.6 million** in total debt outstanding under its Loan Agreement with Hercules Capital[528](index=528&type=chunk) - The company has non-cancelable purchase commitments of approximately **$22.3 million** with a contract manufacturer and **$6.3 million** with other vendors as of year-end 2022[553](index=553&type=chunk) - Total stock-based compensation expense was **$33.3 million** in 2022, primarily from RSUs (**$24.2 million**) and stock options (**$8.9 million**)[595](index=595&type=chunk) - As a subsequent event, the company completed its merger with Velodyne on **February 10, 2023**, and initiated restructuring expected to impact **180-200 employees** and result in **$27-$30 million** in charges[618](index=618&type=chunk) [Controls and Procedures](index=112&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of December 31, 2022[623](index=623&type=chunk) - The ineffectiveness was due to **material weaknesses**, including: not maintaining a sufficient complement of personnel with appropriate accounting knowledge, ineffective controls over the financial reporting process, and ineffective IT general controls[627](index=627&type=chunk) - Remediation measures are underway, including recruiting additional personnel, enhancing board oversight, strengthening IT governance, and implementing additional controls for financial reporting[629](index=629&type=chunk)[634](index=634&type=chunk) [Other Information](index=113&type=section&id=Item%209B.%20Other%20Information) The company reports that there is no other information to disclose for this item - None[632](index=632&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=114&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section lists executive officers and directors, confirms the adoption of a Code of Business Conduct and Ethics, and incorporates further details by reference from the 2023 proxy statement - The company has adopted a **Code of Business Conduct and Ethics** applicable to all directors, officers, and employees[636](index=636&type=chunk) - A table lists the company's executive officers and directors, including Angus Pacala (CEO), Mark Frichtl (CTO), Mark Weinswig (CFO), and Theodore L. Tewksbury (Executive Chairman)[638](index=638&type=chunk) [Executive Compensation](index=114&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding executive compensation is **incorporated by reference** from the 2023 Annual Meeting proxy statement[639](index=639&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=115&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details securities authorized for issuance under equity compensation plans as of December 31, 2022, and incorporates other security ownership information by reference from the 2023 proxy statement Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 37,527,355 | $1.01 | 15,051,217 | | - Restricted Stock Units | 16,510,193 | N/A | N/A | | - Options to Purchase Common Stock | 21,017,162 | $1.01 | N/A | | - Employee Stock Purchase Plan | — | N/A | 6,627,990 | [Certain Relationships and Related Transactions, and Director Independence](index=115&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related person transactions and director independence is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding certain relationships, related transactions, and director independence is **incorporated by reference** from the 2023 Annual Meeting proxy statement[643](index=643&type=chunk) [Principal Accountant Fees and Services](index=115&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding principal accountant fees and services is **incorporated by reference** from the 2023 Annual Meeting proxy statement[644](index=644&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=117&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, including corporate governance documents, material contracts, and certifications - This item lists **all exhibits** filed with the 10-K, including corporate governance documents, material contracts, and certifications[647](index=647&type=chunk) [Form 10-K Summary](index=121&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary provided - None[653](index=653&type=chunk)

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Ouster, Inc. (NYSE:OUST) Q4 2022 Earnings Conference Call March 23, 2023 5:00 PM ET Company Participants Sarah Ewing - Director, Investor Relations Angus Pacala - Chief Executive Officer Mark Weinswig - Chief Financial Officer Conference Call Participants Andres Sheppard - Cantor Fitzgerald Brian Dobson - Chardan Capital Markets Kevin Cassidy - Rosenblatt Securities Richard Shannon - Craig-Hallum Kevin Garrigan - WestPark Capital Colin Rusch - Oppenheimer Operator Hello and welcome everyone to Ouster’s Four ...

Financial Data and Key Metrics Changes - In Q3 2022, Velodyne reported billings of $12.5 million, exceeding guidance of $10 million to $12 million, while revenue was $9.6 million, within the guidance range of $8 million to $11 million [12][41] - The company experienced a GAAP gross loss of $10.9 million, compared to a gross loss of $7.1 million in Q2 2022, impacted by $7 million in charges [42] - Non-GAAP net loss was $27.6 million or $0.13 per share, an improvement from a non-GAAP net loss of $35.7 million or $0.18 per share in the previous quarter [44] Business Line Data and Key Metrics Changes - Sales in early autonomous markets, including industrial, robotics, and intelligent infrastructure, accounted for 85% of Q3 sales, up from 53% in the previous quarter [17] - Product revenue was $7.4 million, down from $9.7 million in Q2 2022, while license and services revenue increased to $2.2 million from $1.9 million [41] Market Data and Key Metrics Changes - The available market for lidar in industrial and robotics is projected to grow from $1.8 billion in 2021 to $2.6 billion in 2027, indicating strong future demand [17] - The smart infrastructure market is expected to grow from $108 million in 2021 to $1.1 billion in 2027, representing a 51% compound annual growth rate [21] Company Strategy and Development Direction - Velodyne aims to transform into a leading supplier of AI-powered lidar solutions, focusing on four strategic pillars: driving sales in early autonomous markets, developing low-cost sensors, expanding software solutions, and leading in high-volume manufacturing [16][29] - The acquisition of Bluecity enhances Velodyne's capabilities in intelligent infrastructure and traffic systems, integrating AI software with lidar sensors [22][23] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand for Velodyne's products, with expectations for billings between $13 million and $15 million in Q4 2022, driven by new long-term customer agreements [34][35] - The company is optimistic about overcoming supply chain constraints and expects to see better financial results, including revenue growth and improved gross margins [33][84] Other Important Information - Velodyne announced a planned all-stock merger with Ouster, expected to close in the first half of 2023, which is anticipated to create significant synergies and enhance value for shareholders [36][38] Q&A Session Summary Question: What percentage of billings is from existing vs. new customers? - Approximately 80% to 90% of billings are from existing customers, but new multi-year agreements indicate growth in the customer base [53][54] Question: How prepared is the supply chain for scaling? - Significant progress has been made in improving the supply chain, with expectations to overcome constraints by early 2023 [56][57] Question: What are the competitive differentiations with Ouster? - Velodyne uses 905-nanometer laser time-of-flight technology, while Ouster employs SPAD and VCSEL-based technology, which are complementary [62] Question: How is the company addressing macroeconomic concerns? - Demand remains strong in early autonomous markets, with no significant hesitation from customers despite macroeconomic concerns [80][81]

Business Operations - Ouster shipped sensors to approximately 680 customers in the twelve months ended September 30, 2022[152]. - Ouster's manufacturing partner, Benchmark Electronics, is expected to reduce product costs and allow rapid scaling of production[155]. - Ouster announced the launch of the REV7 sensors, which deliver double the range and enhanced object detection capabilities[163]. - The company completed the acquisition of Sense Photonics for approximately $63.0 million in equity value[169]. - The Velodyne Merger is expected to result in existing stockholders each owning approximately 50% of the combined company[159]. - Ouster plans to expand sales and marketing efforts, software development capabilities, and accelerate sensor development[158]. Financial Performance - Product revenue for Q3 2022 was $11,204,000, up 44.5% from $7,755,000 in Q3 2021[195]. - Gross profit for Q3 2022 was $3,716,000, compared to $1,876,000 in Q3 2021, representing a 97.9% increase[195]. - Net loss for Q3 2022 was $35,987,000, compared to a net loss of $12,669,000 in Q3 2021, reflecting a significant increase in losses[195]. - Product revenue increased by $3.4 million, or 44%, to $11.2 million for the three months ended September 30, 2022, compared to $7.8 million for the same period in the prior year[198]. - Interest income rose to $0.7 million for the three months ended September 30, 2022, compared to $0.2 million in the prior year, reflecting improved cash management[206]. - Product revenue for the nine months ended September 30, 2022, increased by $8.4 million, or 39%, to $30.1 million from $21.7 million in the prior year[212]. - The company recorded a net income of $7.1 million for other income (expense) for the nine months ended September 30, 2022, compared to a net expense of $0.4 million in the prior year[222]. Cost and Expenses - Research and development expenses increased to $17,212,000 in Q3 2022 from $8,390,000 in Q3 2021, a 105.1% rise[195]. - Operating expenses for Q3 2022 totaled $39,761,000, up from $29,200,000 in Q3 2021, indicating a 36.2% increase[195]. - The company experienced a 30% increase in cost of product revenue for the nine months ended September 30, 2022, totaling $21.0 million, primarily due to supply chain issues and increased material costs[214]. - Research and development expenses increased by $29.4 million, or 150%, to $49.0 million for the nine months ended September 30, 2022, compared to $19.6 million for the same period in 2021[217]. - Sales and marketing expenses rose by $8.4 million, or 57%, to $23.2 million for the nine months ended September 30, 2022, from $14.8 million in the prior year[218]. - General and administrative expenses increased by $4.1 million, or 11%, to $40.3 million for the nine months ended September 30, 2022, compared to $36.2 million for the same period in 2021[219]. Market Conditions - Supply chain disruptions due to the COVID-19 pandemic have led to unfavorable purchase price variances and delayed customer orders[170]. - A global chip shortage is impacting the industry, with estimates suggesting it may continue through the end of 2023[173]. - The average selling prices (ASPs) are expected to face downward pressure due to competition and market dynamics, particularly in the Asia and Pacific region[178]. - The company expects fluctuations in revenue and gross margins to continue as customers reach commercialization phases with lidar technology[174]. - The total addressable market (TAM) for the company's solutions is estimated to be multibillion-dollar, focusing on automation applications in various end markets[181]. Internal Controls and Risks - The company identified material weaknesses in its internal control over financial reporting, which could result in misstatements of financial statements[253]. - The company is committed to continuous improvement in its internal controls and has taken measures to remediate identified weaknesses[255]. - The company’s market risk exposure is primarily due to fluctuations in interest rates and foreign currency exchange rates[244]. - The company does not believe inflation has had a material effect on its business, but significant inflationary pressures could harm its financial condition[245]. - The company is exposed to interest rate risk, with $19.2 million of variable rate debt outstanding under its Loan Agreement; a 1% change in effective interest rate would impact interest expense by approximately $0.2 million over the next 12 months[248]. Cash Flow and Financing - Cash provided by financing activities was $35.4 million for the nine months ended September 30, 2022, primarily from borrowings and common stock issuance[237]. - Operating activities used $83.3 million in cash during the nine months ended September 30, 2022, primarily due to a net loss of $96.4 million[234]. - The company had an accumulated deficit of $399.7 million and cash and cash equivalents of $133.2 million as of September 30, 2022[228]. - The company entered into a loan agreement with Hercules Capital, Inc., providing a term loan facility of up to $50.0 million, with $20.0 million drawn as of September 30, 2022[229].

Financial Performance & Guidance - Q3 2022 revenue was $9.6 million[12] - Q3 2022 billings were $12.5 million, excluding a $2.8 million non-cash contra revenue impact[12, 29] - Revenue guidance for Q4 2022 is $12 million to $14 million[29] - Billings guidance for Q4 2022 is $13 million to $15 million[29] Market Opportunity & Strategy - The total addressable market is estimated to be approximately $6.4 billion by 2027[10, 14] - The industry expects a 22%+ CAGR across all verticals by 2027[10] - The company is focusing on capturing early autonomous markets first[15] Business Updates - Operating expenses were reduced by 16% compared to Q2 2022[12] - The company announced a proposed Merger of Equals with Ouster[12] Products & Technology - The company has 84 granted and 289 pending patents[12] - The company shipped over 75,000 sensors to date[10, 39]

Velodyne Lidar, Inc. (VLDR) Q2 2022 Earnings Conference Call August 8, 2022 4:30 PM ET Company Participants Jim Fanucchi - Darrow Associates Ted Tewksbury - Chief Executive Officer Mark Weinswig - Chief Financial Officer Conference Call Participants Raji Gill - Needham & Company Colin Rusch - Oppenheimer Sam Peterman - Craig-Hallum Capital Group Operator Good day everyone and welcome to the Velodyne Lidar Second Quarter 2022 Financial Results Call. All participants will be in listen-only mode. Please also ...

Velodyne Lidar® 1 | V E L O D Y N E L I D A R . C O M Second Quarter 2022 Investor Presentation August 8, 2022 Safe harbor This presentation contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook and market positioning, business strategy and plans, potential contract opportunities, planned products and services, growth opportunities, market deman ...

Part I - Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Financials show revenue growth but a widening net loss, decreased assets, and increased inventory, with new financing secured [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (as of June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | 159,707 | 182,644 | ▼ | | Inventory | 17,181 | 7,448 | ▲ | | Total current assets | 194,786 | 207,358 | ▼ | | Total assets | 290,550 | 307,702 | ▼ | | **Liabilities & Equity** | | | | | Total current liabilities | 23,412 | 22,103 | ▲ | | Debt | 19,119 | — | ▲ | | Total liabilities | 59,579 | 47,002 | ▲ | | Total stockholders' equity | 230,971 | 260,700 | ▼ | - Inventory levels significantly increased to **$17.2 million** as of June 30, 2022, up from $7.4 million at the end of 2021[17](index=17&type=chunk) - The company took on new debt, with a balance of **$19.1 million** as of June 30, 2022, compared to zero at the end of 2021[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $10,329 | $7,360 | $18,887 | $13,971 | | Gross profit | $2,782 | $1,895 | $5,373 | $3,638 | | *Gross Margin* | *26.9%* | *25.7%* | *28.4%* | *26.0%* | | Loss from operations | $(33,189) | $(21,390) | $(67,377) | $(37,692) | | Net loss | $(28,000) | $(32,011) | $(60,397) | $(52,968) | | Net loss per share | $(0.16) | $(0.21) | $(0.35) | $(0.50) | - Revenue for Q2 2022 grew **40% year-over-year** to $10.3 million, while revenue for the first six months of 2022 grew **35%** to $18.9 million[18](index=18&type=chunk) - Operating expenses increased significantly, with **R&D expenses more than doubling** for both the three and six-month periods year-over-year, contributing to a larger loss from operations[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (55,393) | (28,346) | | Net cash used in investing activities | (1,002) | (659) | | Net cash provided by financing activities | 33,599 | 257,791 | | **Net (decrease) increase in cash** | **(22,884)** | **228,786** | - Cash used in operating activities nearly doubled to **$55.4 million** in the first six months of 2022 compared to the same period in 2021[27](index=27&type=chunk) - Financing activities in H1 2022 provided **$33.6 million**, primarily from $19.1 million in debt proceeds and $14.6 million from an at-the-market (ATM) stock offering[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company has experienced recurring losses and negative cash flows, with an accumulated deficit of **$363.8 million** as of June 30, 2022[35](index=35&type=chunk) - On April 29, 2022, the company entered into a loan agreement for up to **$50.0 million** and an At Market Issuance Sales Agreement to sell up to **$150 million** in common stock[42](index=42&type=chunk)[43](index=43&type=chunk) - The company is involved in an **SEC investigation** regarding projected financial information and is in a **patent lawsuit** with Velodyne Lidar USA, Inc[102](index=102&type=chunk)[103](index=103&type=chunk) Revenue by Geography (Six Months Ended June 30) | Region | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | United States | 5,840 | 4,426 | | North and South America (ex-US) | 663 | 528 | | Asia and Pacific | 4,932 | 2,947 | | Europe, Middle East and Africa | 7,452 | 6,070 | | **Total** | **18,887** | **13,971** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 40% in Q2 from higher sales volume, but rising R&D costs and supply chain pressures impacted margins and profitability - Key factors affecting performance include **supply chain continuity**, the pace of commercialization of lidar applications, competition creating downward pressure on ASPs, and continued investment in R&D[149](index=149&type=chunk)[150](index=150&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $10.3M | $7.4M | +40% | | Gross Profit | $2.8M | $1.9M | +47% | | Gross Margin | 27% | 26% | +1 ppt | | R&D Expense | $15.9M | $6.5M | +145% | | Total Operating Expense | $36.0M | $23.3M | +54% | - The company's liquidity position as of June 30, 2022, included **$159.7 million in cash** and cash equivalents, a new loan facility of up to **$50.0 million**, and a **$150.0 million ATM equity offering program**[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate fluctuations affecting debt and cash, with minimal foreign currency exposure - The company is exposed to interest rate risk on its **$159.7 million of cash** and cash equivalents and its **$19.1 million of variable-rate debt**[221](index=221&type=chunk)[222](index=222&type=chunk) - A hypothetical **1% change** in the effective interest rate on the company's debt would result in an approximate **$0.2 million change** in interest expense over the next 12 months[222](index=222&type=chunk) - **Foreign currency exchange risk is not considered material** as revenue is almost entirely in U.S. dollars[223](index=223&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to material weaknesses in financial reporting and IT, with a remediation plan in progress - The company's principal executive officer and principal financial officer concluded that **disclosure controls and procedures were not effective** as of June 30, 2022[225](index=225&type=chunk) - **Material weaknesses** were identified in the control environment, specifically a lack of sufficient personnel with appropriate accounting and internal controls experience[227](index=227&type=chunk) - Contributing material weaknesses included **ineffective controls** over the period-end financial reporting process and certain IT general controls[227](index=227&type=chunk) - A **remediation plan is in progress**, focusing on recruiting personnel, enhancing entity-level controls, strengthening IT governance, and designing additional financial controls[228](index=228&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company faces an SEC investigation regarding financial projections and is engaged in patent litigation with Velodyne Lidar - The company received a letter and document subpoena from the **SEC** on June 10, 2021, regarding an investigation into projected financial information in its Form S-4 registration statement[231](index=231&type=chunk) - On June 14, 2022, **Velodyne Lidar USA, Inc. filed a lawsuit** against Ouster related to two patents and requested an International Trade Commission proceeding[232](index=232&type=chunk) - Ouster filed a complaint against Velodyne on July 8, 2022, alleging **intellectual property misappropriation and false advertising**[232](index=232&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) Key risks include adverse economic conditions, costs from ongoing legal proceedings, and challenges in protecting intellectual property - **Adverse economic conditions**, including rising inflation and interest rates, could negatively impact the business by increasing operating costs and decreasing customer capital for purchases[234](index=234&type=chunk)[235](index=235&type=chunk) - **Ongoing legal proceedings**, such as the Velodyne patent lawsuit and the SEC investigation, could result in substantial costs and divert management resources[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) - The company faces risks in **protecting its intellectual property rights** and may be subject to costly litigation if accused of infringing on third-party IP[240](index=240&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were sold or repurchased during the quarter - The company **did not sell any securities** during the three months ended June 30, 2022, that were not registered under the Securities Act[249](index=249&type=chunk) - The company **did not purchase any of its equity securities** during the three months ended June 30, 2022[250](index=250&type=chunk) [Item 3. Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - There were **no defaults** upon senior securities[251](index=251&type=chunk) [Item 4. Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - This item is **not applicable** to the company[252](index=252&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) No other material information is reported for the period - There is **no other information** to report for this item[253](index=253&type=chunk) [Item 6. Exhibits.](index=50&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the report, including required officer certifications - The exhibits include **CEO and CFO certifications** pursuant to Rules 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350 (Sarbanes-Oxley Act of 2002)[256](index=256&type=chunk)