Hi, everyone. My name is Colin Rusch. I'm the Managing Director and Lead of Oppenheimer's Sustainable Growth and Resource Optimization Team. We're thrilled to have the team from Ouster here, notably Ken Gianella, the CFO of the platform. We're going to get started with a few quick slides, and then we'll get into Q&A. With that, Ken, I'll turn it over to you.
Thanks, Colin. Thought I'd just start off with a brief intro to who we are and after a forward-looking statement. Ouster is one of the leading physical AI companies out there. We've been around for over 10 years as the leading global provider of digital lidar, one of the main inventors of it, which, as you think about it, is sensor and perception and sensing in the physical AI space. We've then adopted this physical AI infrastructure that embeds software applications and our performance to take physical AI into the thinking and actuation and then integration and analytics of that physical AI space. We have a total addressable market of over $70 billion in the automotive, industrial, robotics, and smart infrastructure. We have over 1,000 customers combined since our merger with Velodyne a few years ago. Since then, we've shipped over 100,000 sensors since our inception.
If you combine that with our financial framework, where we're strictly and clearly on a path to profitability, we have an extremely strong balance sheet, $229 million of cash and equivalents, and we're poised to really drive and win this market space. What we're really driving here, Colin, is digital lidar. It's riding the wave of Moore's law. We are the first to really switch over from analog into a digital space using the silicon. Silicon-first movers tend to always win these spaces. We have a series of chips. We're on our L3 chip, which is our OS REV7. Each chip design that we've put out there has not only lowered the cost of production, but it's also doubled the capacity, both in our performance and our range for our lidar. We are deep in the middle of our L4 chip and are super excited for that to come out.
Our market opportunities we talked about, we really focus on three main industries. It's robotics, industrial, smart infrastructure. We've started to move into the automotive space with our L3 and L4, working towards that ADAS systems. Our real bread and butter and our growth strategy isn't so much in the automotive space as much as the robotics, industrial, and smart infrastructure. All of these sectors within physical AI are growing very quickly. To get to that profitability, our long-term financial framework, we've been really focused on this. Achieving 30%-5 0% annualized growth. We said on the last call we're targeting to be at the low end of that this year, around 30% growth this year.
Maintaining our gross margins, focusing on that 35%- 40%, driving higher performance products, getting the leverage out of the silicon and riding that cost curve down while increasing the contribution from our software sales is going to be the main drivers with that. That last bit is being very disciplined with our operational expenses. We're looking to scale and optimize underutilized assets, streamlining our vendors so we can be more efficient and effective with our go-to-market and our production, and also expanding our footprint globally through low-cost locations. When you think about us and you want to invest in us, number one is the AI software solutions. It's not just about the hardware. It's the platform within physical AI that we deliver. Being a leader within the digital lidar technology and then the diversified and proven business, meaning that we're not focused on that automotive space. It is the leader in the other three spaces, the industrials, robotics, and going forward with that. I'll turn it over to you for some questions.
Thanks so much, Ken. We've known you across a couple of platforms, and you recently joined Ouster. I'd love to just hear about that decision. You've been around the block a couple of times. You've had some significant success in terms of other platforms where you've been. What are you seeing on the Ouster platform that got you excited to join the team?
I've been very fortunate in my career, number one, to be working with partners such as you, Colin. I appreciate you having us here today. For myself, I look for three things when I'm looking for a gig. Number one is industry-leading technology. If you look at what Ouster has here, we are by far the leader in digital lidar, but also the perception and sensing systems within physical AI. Next is the management team. Angus Pacala and Mark Frichtl, the two founders, really are smart visionaries. I love working with smart people and having them in a team with such a focus on execution. It's really fun to be around them and partner with them to help them take it to the next level. The last thing that really brought me here is the physical AI and its growth, right?
The focus to make the world a better place in the sector and the growth that's going on in physical AI to transform hardware and everyday outcomes into something that you can use automation and AI technology to make the world stronger and better. Those were really the three drivers for me.
Amazing. I think, you know, let's dig into this physical AI discussion. I mean, it's obviously gotten a lot of buzz since CES this year with NVIDIA making a big deal. We've got autonomy starting to ramp in a couple of areas. The opportunity set is far more substantial and complex. We'd love to start talking about some of the specific challenges Ouster addresses and the value of perception within that opportunity. You talked about some of the dollar amounts that you guys can address in terms of the addressable market. We'd love to understand how you really leverage perception into more efficient systems and how you guys are thinking about that.
No, absolutely. As I said before, the physical AI, and if you think about the three building blocks that we bring, that's that perception and sensing. That's the lidar and the technology we use there. Being able to transform that into actuation and thinking, then taking that integration and applications and analytics. We see it as empowering everyday objects with the intelligence to sense, think, and act in the physical world. What that means is the entire world is what we focus on. Just to remind everyone, 100% of our revenue comes from physical AI. It's really looking at how we can go into industries that are looking to automate something with intelligence, which is an everyday mundane task, whether it be our Gemini system and the perception platform to allow objects and what's going on around them, like in logistics, right?
Taking out the manualness of someone picking something off a shelf, putting it on a cart, and moving it, having our intelligence for perception and sensing help those robots see, feel, grab, and then move around a warehouse intelligently without running into other things. That's an example of how our technology can really help within the physical AI. When you take the application side of it, that's where Blue City comes in and the information around managing traffic intersections and smart cities. It's another example of how physical AI can manifest itself in the everyday world.
I want to take this into hardware, and then we need to talk about the sensor fusion because the value of the combination is super important here. When you think about where Ouster sits from a market perspective, you've put ADAS on the back burner. You have solutions. It's been an addressable market, and the legacy Velodyne products obviously addressed some of those opportunities. Ouster's vision was really to address the industrial applications. As you move towards this digital lidar to legitimately address some of these smaller applications that have, I think, ultimately some higher value for the owners of these tools, can you talk about your leadership there and the depth of understanding of the challenges in those industrial applications and how the technology portfolio has really developed with that in mind to build a bit of a moat for you guys on the hardware side?
I have to start back to the management team and Mark and Angus when they first set out to do this, right? They really weren't going for the automotive space. It was focusing on these every other day problem sets for perception and sensing and robotics and the industrial and smart infrastructure sectors. As you all know, we've generated the majority of our revenues from non-ADAS since over the last year. When you think about the value prop of what these industries are looking for, and I'm talking about like robotics, last mile delivery. Also, in robotics, we have drones, defense, mapping, military applications there. All of these things are looking for autonomous elements that can work to their advantage. In the industrial side, I mentioned and gave the example about warehousing and the global supply chain. That also goes to off-road vehicles.
Think large mining, production, construction, agriculture, operating the fields of a farm in the middle of America and letting the machine go out and sow the crops and harvest the crops on their own. Millions of forklifts and other earth movers are manufactured every day. This is a marketplace that we're looking to help automate. If you think about the non-ADAS world, it's really the smart infrastructure. How do you look at perimeter security or crowd analytics, right? Especially in today's world of PI, and you don't want to take images of people just because of state laws or country laws, using lidar to sense within stores. We made an announcement this past call of where a leading technology provider, their stores, we're in over 500 stores around the globe, using our technology for crowd analytics and understanding where and how people's shopping habits and patterns are happening.
Those are just some small use cases that we're using today. If you think about the innovation of any technology sector, the combination of end users coming up with new ideas, you know, there's ideas out there that we haven't even thought of as a company that are coming to us that people are saying, "Hey, I would really love to use your product for this. Can you help us make it happen?" That's really what we're seeing is a big pull from the marketplace to introduce our products and our platform into these end use cases.
Before we get to the sensor fusion piece of this, can we just talk about how penetrated the market is? You guys have talked about having upwards of 1,000 customers. There's a few that are in series production. I think about the off-road market. We've done a lot of work in and around mining to see some of these platforms that are trying to go from a single remote driver per vehicle to a single remote driver for two or three vehicles. Just seeing some of the applications and the prototypes that were at CES this year was really meaningful for me to suggest that we're at an inflection point. Can you just talk about the total customer base and then who's actually in series production on some of these things just to give the audience a sense of where we're at and where we're headed?
I hate to use baseball terminology, but ever since I've been working with you guys, it's the easiest to describe to investors. I mean, we're in the first inning here. If you think about just where this technology, and most of this technology, like other transformational technologies, it's taking pieces of hardware and things and use cases that have been around and looking for a solution for decades. It's taking that technology and applying the compute power and the thinking power to it and digitizing it with our lidar to really enable that growth. You get a lot of large industrial companies out there, like we've talked about Komatsu and what they're trying to do with it. It's taking these large industrials and helping them transform their business. They turn to us to really be their perception and sensing partner.
I know we're going to talk a little bit more about the sensor fusion and what that means. It's not just about a single point and looking at it and thinking about that point. It's taking the multiple sensors around that device, slamming it together with the data, and thinking quickly and coming with an outcome and decision-making autonomously in order for it to make the decisions to operate. That sensor fusion is really what is transforming this industry from the early innings. You get all these people coming in and our 1,000 customers, the vast majority of them are still in their beta and prototype phase.
We've started to see the ADAS and the automotive market, they've broken out into the production side of it or early innings of production, where every single one of these other industries that I've talked about, they're still in the first and second innings of developing that technology and just ramping into your proto and long-term production. We do have a couple of big first movers that are out there, but the majority of our customers are still early, early innings.
I think that's helpful because we're talking about market creation here, right? Certainly transforming the industrial complex with technology, right? We've seen that sort of disruption on the EV side. We saw it in the power markets where solar is actually growing into the fastest growing technology in the market. A lot of that's around friction reduction, right? How do you help these platforms go from an idea to an actual product? The sensor fusion, to me, seems like the fulcrum there. Can you talk about what Ouster has done from a sensor fusion perspective and where you've got initial applications and how you can apply that technology into adjacent markets?
Yeah, no, we see tremendous value in being able to provide our customers with that plug-and-play solution, right? The years it takes to code to pull these multiple sensors together on a perception platform, being one of the industry leaders that take both of those, the physical asset and the software asset to help customers understand how it operates is key for us. Those synergies between the hardware and the software are really where we bring the value to the customer to really get a jump start on what they're looking for. You know, I gave some of the examples earlier, like crowd analytics, being able to look around a store and see real-time from multiple sensors and multiple points where are people traveling to and how they're operating.
If you're doing mapping of landscapes from multiple sensors at one time, being able to give that 3D image to a user to see around them, not just in one point of how it's operating, that's a big, big part of what we can deliver. Obviously, it goes into other applications, as we talked about in logistics, being able to see around a warehouse and take all that information from every robot that is operating in there to work in harmony, to understand where and how your packages are operating within a floor. It's a huge benefit to our customers to have our technology help orchestrate that for them.
Amazing. How do you think about the synergies between the software and the hardware? Obviously, you're going through ongoing iterations of the technology, right? There's one thing that informs the next thing, and then there's a feedback loop there. How are you thinking about that from a product cycle and a development cycle? This isn't easy to get a product out there, introduce it, take that, and then have that inform another product and keep that cycle going. I'm just curious how you guys are approaching that and thinking about this iteration on the platform.
No, and I have to say right now, Colin, I'm super excited. It's one of the reasons why I'm here. When I saw the technology roadmap that these guys were bringing out, it was just amazing to me. If you think about where we are, both are going to continue to get better. As our hardware improves, the training data for our software improves. Every time we go out there and deploy a node, it helps our software and our AI algorithms get better and enables us to do more with the product set, earlier detection, better object recognition. All of these things come together. As we get better software and we train our software, it makes it easier for our customers to adopt us. That synergy between both the software and the hardware, one pulls the other one forward.
Having that nodes and following that Moore's law, as I talked about, of the digital lidar and being able to double our perception, double our distance, double the amount of things that our hardware can do, the software has to be able to keep up with it and digest and learn and grow. As we get better software, we get more customers, which will ultimately keep pulling the hardware forward. It's a virtuous cycle that we're creating here between our hardware and our software.
Excellent. I mean, we want to think about how that translates into growth, right? You talked about the 30%- 50% growth target and that you're going to come in on the low end, but you're also outperforming on margins this year in a pretty substantial way. I guess the question is really, you know, what are you seeing in the first half performance that's, you know, in the first half financials that are just giving you full confidence in the back half? To continue growing on that multi-year journey around this 30%, 50% target, what's happening now here? If we could talk about 2025 and then talk about, you know, kind of what you guys are doing on the sales front that gets you comfortable with a multi-year trajectory at this sort of accelerated growth rate.
Yeah, I mean, we came into the year knowing we needed to accelerate our sequential revenue growth to hit the target. Our management team and our sales team have been extremely focused on this for some time. I think the first basis is what we just talked about, the technology and the evolution of the technology and that pull-through. Our customer base, we're starting to see these prototype customers and these early design wins start to move into fruition and growing as an organization with those customer bases. What you all don't see below the waterline is winning these design nodes. As we win these design nodes, these are product sets that are going to be coming out over the next 18 to 24 months with our customer base.
We're starting to see that maturation of many of these early design wins starting to fulfill themselves here in the first half and the back half of the year. You combine that with that, from Q1 into Q2, really having that momentum of deployment, being able to get out there with the new technology and our software play. Our software-attached revenue has been growing significantly. That goes back to the discussion we just have of software pulling the hardware and vice versa. We just made the win of Utah within the smart infrastructure space. That's a great example of where we started off with just a few intersections that then multiplied to every state-controlled intersection in the state. This is examples of getting in, winning the deal, winning the footprint, and then expanding out into that.
Fantastic. If I think about differentiated hardware coupled with software, I don't think about 35% gross margins. I think about something higher than that. Obviously, we're in the early days of this market, but you've outperformed on the gross margin targets to date. You're going into a product transition and you're keeping the target at that 35%- 40%. We'd love to understand how you guys are thinking about this market creation and using the technology evolution to open up opportunities, but just the kind of foundational discipline that you guys have around margins to think about market creation in a methodical way.
Right. Great quarter, a lot of good tailwinds for us. First and foremost, it's our operational team. This is a seasoned group. I've been very blessed to come into an organization where we have a very seasoned operations team, and they're creating leverage through our organization, consolidating down our manufacturing footprint, getting leverage out of where we're at, and lowering our overall operating cost. That's number one, which is driving our near and long-term gross margin outlook. We had some tailwinds of some one-time items here, particularly an employment credit tax that we had that kind of generated five points of margin this quarter. You pull that out, you're really somewhere around the high 30s, low 40s on a GAAP basis. Plus, we had a tariff headwind that we were able to overcome.
I think there were some articles coming out there, over two-thirds of American corporations are bearing the brunt of these tariffs. We are working with our partners, we're working with our customers to how that trickles down into the supply chain. We do see a tariff headwind that we're going to be managing over the next few quarters. That's really between that and focusing on where we're going to continue to innovate and grow. That's where we feel comfortable with the 35% - 40% is still the right target for us.
That is super helpful. I guess this thematic around regionalization, right? Like, you know, there's one thing that we're seeing in the market, but also that's leading to kind of increased interest in the defense market. It's not just domestic manufacturing, it's around a change in the global landscape. Can you talk about the opportunity in the defense market for Ouster? Obviously, the lidar technology came out of a Defense Department initiative. You guys have just gone through this Blue UAS certification, simplifying some things. I just want to get kind of scope out the opportunity for you and the friction reduction that you guys have gone through in the past period of time here as you look into the back half of this year and going forward.
Colin, I think this is a great example of where our customers are pulling solutions through for us. You know, we were working with several defense agencies already, and they said, "Hey, you know, we want to use you in more applications." One of the things that you have to do is go and get the certification for Blue UAS. We're really proud to be the first and only 3D lidar sensor that's been approved for this and certified by the U.S. DOD . It really sets Ouster apart as a trusted solution for government applications and technology. As I said before, we really got pulled through by our partners, whether it be the Navy, the Army, NASA, working with the national labs. Blue UAS isn't just for the U.S.
That sends a signal to the U.S.'s western allies and partners that this is a trusted partner that you can use within your technology apparatus. When you think about defense, it's not just about a U.S. application. It's the U.S. and all its technology partners around the globe.
Fantastic. Going into the back half of the year, the big event really is the introduction of the L4 chip and Chronos. Can you just get us kind of oriented on timing and the implications of those products for customer adoption and margins? There's always, when you go through a product transition, there can be noise in the numbers. I just want to get a sense of when we get started and how we should think about that transition from a financial perspective for you guys.
Yeah, so first off, we haven't announced the exact launch date. If I give this management team any credit for anything, it's really being disciplined to make sure the customers have a great use experience. We hope to be making an announcement here shortly. If you think about where the L4 and Chronos are going to deliver, we're super excited about this next generation of silicon. It's going to give us so many more use cases that we can open up. It's going to give us not just head-to-head with some of the Chinese players with distance and technology that we're delivering, but it's going to give us the ability to grow into brand new market spaces and address and almost nearly double our current addressable market. We've learned a long time ago, be careful about when you announce stuff. You don't want to crater your existing product line.
The good news is our current generation with the REV7 or the L3 chip that we're using today, we have customers that are just starting their prototypes and working into it. We see that chip really covering for the next 18 to 24 months, a real strong demand that's already out there that we've won these design wins a few quarters ago. We see that giving us a nice platform as we launch the L4 into the marketplace.
Fantastic. I guess let's shift gears into the financial model. The model is, I think, well set up for some pretty substantial gearing and operating leverage. As you think about going into that doubling of the addressable market for the products, how are you guys thinking about OpEx levels and the potential for larger leverage, not only at the manufacturing level, but also at the operating level?
Yeah, I mean, I think first and foremost, I believe cash is king. If you have a chance to have enough food on hand and give yourself the runway to not just operate, but think strategically as an organization, it puts you in a really great place to win the sector. Our balance sheet is strengthened to $229 million in cash. If you think about that from a trailing 12-month burn rate, that's over five years' worth of runway as an organization. We're extremely prudent. It's nice to have, and we're going to keep that ATM there for us as needed to raise cash if needed. We feel really strong from an operational standpoint that we have enough on our balance sheet to carry us through to profitability. Now, when you think about being prudent with that execution of our business plan, we're not going to miss opportunities, Colin.
Having this amount of cash on the balance sheet allows us to be opportunistic, allows us to be strategic, and think about how we can capture this growing market sector faster and more nimbly than any of our competitors. We're the most well-funded Western lidar company out there. Having the ability to have a strong balance sheet coupled with the physical AI growth, and we're determined to not just be the industry leader, but to continue to set the standard for what the products and platform can bring to this sector, having a strong balance sheet is key to that.
Excellent. I guess we're coming into time here pretty quickly, but the company's been inquisitive in the past, right? To an effective end, can you talk a little bit about that pipeline and what sort of things you'd be looking for? Are these more transformative acquisitions? Are they tuck-ins for technology that open up new markets? How are you guys thinking about that opportunity side right now?
First and foremost, our organic innovation we're really pleased with, and that's, you know, first and foremost continuing to grow our organic elements. As you just said, every single one of those elements, we have a portfolio that we're constantly looking and evaluating what's going to help us capture this, right? If I go back to my opening slide, when you talk about the three pillars that we operate in within physical AI, how can we strengthen and grow our position and perception and sensing? How and where can we increase the thinking and the software and the perception SDKs and being able to have that, you know, the sensor amalgamation and pulling together the data in a more strategic way for our customers with the sensor fusion? That's the second piece.
The third piece is applications, looking at use cases, where we can help customers accelerate their growth within physical AI, can accelerate their go-to-market at the end of the day. That comes from end use cases. The majority of everything we do is going to be focused on organic. If we have an eye for inorganic, it's going to be not just one of those three, or if there's opportunities to cover all three of them with an acquisition, we're definitely going to take a hard look at it.
Excellent. I think that seems like a good place to wrap it up. I appreciate you guys making the time today, talking about the story and the opportunity that's really pretty substantial and in early stages here with the perception element of the physical AI space. Ken, Chen, thanks so much for being here, and we'll look forward to catching up with you. Anyone online that wants to do some deeper work, please do get in touch with us. We're happy to help as best we can and then put you in touch with the company as you get ready for it. Thanks so much, guys, and have a great rest of the day. Take care.
Thank you.