Earnings Call: Q2 2021

Aug 9, 2021

Good afternoon, and welcome everyone to Alstair's Second Quarter Earnings Conference Call. 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 now like to turn the conference over to Sarah Ewing, Director of Investor Relations. Ma'am, please go ahead. Thank you. Good afternoon. I'm joined today by Ouster's Chief Executive Officer, Angus Piccolo and Chief Financial Officer, Anna Brunel, before we begin the prepared remarks, we would like to remind you that Oster issued a press release announcing its 2nd quarter You may access these materials on the Investor Relations section of ouster.com and in our current report on Form 8 ks filed with the SEC today. I'd also like to remind everyone that during the course of this conference call, Alster's management will discuss forecasts, targets and other forward looking statements regarding the company, future customer orders and the company's business outlook that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward looking statements. While these statements represent the management's current expectations and projections about future results And performance as of today, Oster's actual results are subject to many risks and uncertainties that could cause actual results to differ materially from those expectations. In addition to any risks highlighted during this call, important factors that may affect Alster's future results are described in the most recent filings with the Securities and Exchange Commission, including today's earnings press release. Except as required by applicable law, the company undertakes no obligation to update any of these forward looking statements for any reason after the date of this call. Lastly, information discussed on this call concerning the company's Industry competitive position in the markets in which it operates is based on information from independent industry and research organizations, Other third party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third party sources as well as data from the company's internal research and are based on assumptions made upon reviewing such data and its experience in and knowledge of such industry and markets, which it believes to be reasonable. These assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non GAAP financial measures, which exclude the effects of events and transactions we consider to be outside of our core operations. These non GAAP measures should be considered a supplement to and not a substitute for measures prepared in accordance with GAAP. For any reconciliation of non GAAP financial measures with the most directly comparable GAAP measures, please refer to today's press release. I would now like to turn the call over to our Chief Executive Officer, Angus Bacala. Hi, everyone. Thanks for joining us today for our 2nd earnings I look forward to updating you on our performance this quarter, including our latest product developments and forward looking roadmap. I'll also talk about a few trends that we expect will drive Ladder adoption across Aster's end markets and several key milestones that I believe have the potential to unlock even greater market demand over the next few years. I'll then turn the call over to our CFO, Anna Brunel, who will report on our quarterly financial results and outlook. As we go through the call, I want to draw your attention to 3 key differentiators, which fundamentally set Oster apart from other LiDAR companies. The first is our digital approach to LiDAR, which we believe allows us to offer the best combination of price and performance today. The second is our diversified business model. This is possible due to the flexible architectures of our competitively priced sensors, Which is helping drive adoption of digital ladder technology across all of our verticals and unlocks the largest multi market TAM. The third is our proven ability to execute on our strategy. Ouster has continued to deliver. We aim to do what we say we're going to do and are truly excited about the future ahead of us. Now before I jump into our quarterly results, I'm extremely excited to announce that we have appointed Susan Hastie to Chair Ouster's Board of Directors. Susan has been a pivotal contributor to Ouster over the last 3 years, serving as a member of our Board of Directors since September 2018 And in addition, our Interim Chief Revenue Officer from January to July of this year. She has held various leadership positions over Career including Senior Vice President of Verizon Connect's Global Automotive Business and Executive Vice President of Global Sales and OEM Business at Telogis. Susan's more than 30 years of experience in software technology and automotive has been integral to Ouster's growth trajectory And I could not be more thrilled to have her in this leadership capacity. Now turning to performance. I'm pleased to report Oster recorded $7,400,000 in revenue in the 2nd quarter, our highest revenue quarter to date and with a gross margin of 26%. The demand for Oster's CMOS digital ladder sensors has been driven primarily by new customers across each of our target verticals, Industrial, Automotive, Smart Infrastructure and Robotics bring us to a total of approximately 600 customers over the last 12 months in over 50 countries. This includes our now 53 total strategic customer agreements or SCAs, representing over 420 $2,000,000 in contracted revenue opportunity through 2025, up from 40 SCAs $385,000,000 as of our last earnings call. Turning to product. I want to show you how far we've come in a relatively short period of time with the digital architecture. Since we launched our 1st generation sensor in 2018, we've made considerable improvements in sensor performance through software updates and new chipsets. Oster's 2nd generation product was launched in the Q1 of 2020 and provided higher resolution by doubling channels, a wider field of view, shorter minimum range, Improved thermal performance and double the precision, making us the 1st ladder company offering 128 channels of resolution across the complete product portfolio. It was met with incredible customer excitement and in addition to outsourcing our manufacturing with a key contributor to our growth as of last year. It's important to note that there is Significant learning curve from making a prototype work in a test setting to manufacturing a product that works well in a real world environment. Oster already knows what it takes to keep a sensor alive in the field. For 3 years, we've worked through wide ranging real world field to address environmental durability and longevity issues related to water ingress, shock and vibration and temperature extremes. We believe we've established a meaningful competitive advantage because of our digital platform that has allowed us to quickly improve product performance over time in line with Moore's Law. Our design allows for constant iteration, helping us to maintain our competitive advantage. We believe that Oster is better positioned to respond to market From the beginning, our sensors have been engineered to take advantage Continuous over the air updates. We've consistently delivered on our ability to improve sensor performance by shipping firmware updates Over the past 2 years that included precision, range and even thermal improvements. We continued this trend into the Q2 with our latest firmware 2.1 One update, which is a major step forward in features and can also be easily downloaded off our website today. One of the biggest levers we have Promote LiDAR adoption is accelerating the rate at which our customers integrate our sensors into their systems. This past quarter, we launched our first software developer for LiDAR, which has already had hundreds of external downloads. This is a critical first step in developing a rich software ecosystem And follows a long line of companies that deliver not just best in class hardware, but also best in class software tools. This is also one area where we have committed to invest And where we intend to continue to deliver by adding more features and integrations to make development on Auster Ladder sensors the best in the industry. Lastly, as planned, we are nearing completion on the tape out of our L3 chip, which represents our most significant advancement in product capability to date And we'll further deliver on our promise to rapidly improve performance through our digital roadmap. While we've already proven product market fit, whether 2nd generation sensors using the L2 We believe the L3 chip will further extend our performance lead, increase our competitiveness and close the door on competition across each of our verticals. Now we want to share some insight on our forward looking roadmap for automotive because we believe Ouster is the only LiDAR company currently designing both best in class scanning And true solid state sensors to meet automotive standards, including ASIL B functional safety certifications. This again is possible because all of our sensors share Common digital architecture. Another key differentiator for Ouster is our progress towards achieving automotive readiness, not just for our products, But also for our manufacturing supply chain, we selected a manufacturing partner in Benchmark 4 years ago. And together with Benchmark, We started production in Thailand 3 years ago and passed automotive OEM audits of our IATF 15,949 certified Thailand facility starting 2 years ago. These are critical milestones for any ladder manufacturer in its quest to meet automotive grade And another example of Ouster's lead within the industry. We are in the B sample phase now for our OS sensors With plans to move into the C Sample phase in 2023. As far as our solid state roadmap, this past quarter, we defined our full product portfolio, locked in the product specs, And we're now moving into the engineering design phase. In line with past guidance, we expect to have our 1st solid state samples ready in the Q4 of 2022. While other LiDAR companies are focused on delivering a single forward looking LiDAR, Ouster is certifying its entire lineup of short, medium and long range scanning sensors And true solid state sensors. We believe that there will be a real market need for both sensor types. And as far as we know, Ouster is the only company invested Now I'd like to turn to an ongoing and important trend that is a core driver for growth for Aster, The adoption of automation technology across the worldwide supply chain. Every aspect of the industrial economy is moving to adopt greater levels of economy For improved safety, efficiency and quality of life. In automotive, the core submarkets driving this vertical are robo taxis, robo trucking, consumer ADAS a 4th subvertical that we've not called out before, which is shuttles and buses. Ouster is already a top player in automotive Today with significant revenue in auto compared with other LiDAR companies. We have the largest publicly reported binding production wins for LiDAR sensors this industry, through our deal with Plus, and we believe our future products will only extend our market lead. Take trucking for example. There are approximately 12,000,000 freight trucks in the world, of which approximately 10% need to be replaced annually. Even more, there is a near term opportunity to retrofit existing vehicles. This is a business that has historically had razor thin margins and autonomous driving technology The first opportunity in years to drive a meaningful reduction in costs across the 3 core buckets: labor, fuel and CapEx. Companies like Plus are taking advantage of this opportunity to reduce these costs not in 5 to 10 years, but today By retrofitting existing fleets with marquee customers like Amazon, while pursuing mid term OEM integrations on new trucks. While long term goal of many ropetrucking companies is to reduce operating costs by around 40%, the ability to save even 5 With driver in systems today, there's still a potentially significant savings opportunity for companies like Amazon. With Oster's manufacturing scale, Our affordability and performance, we believe we're in a great position to be the volume lighter supplier for this next wave of trucking fleets. The core submarkets driving the industrial vertical are mining, agriculture, construction, port and yard logistics, factory manufacturing and warehousing. We think there are 2 key drivers for LiDAR adoption in industrial applications. The first is task optimization through automation and the second is safety. And there's already a $1,000,000,000 market for legacy 2 d industrial LiDAR sensors, partially addressing these needs today. We believe we offer our customers an incredibly compelling value proposition by enabling them to simplify their system With fewer digital ladder sensors while increasing safety and efficiency. Just looking at the forklift market, there are millions of forklifts around the world today and over 1,500,000 forklifts sold annually, with less than 1% having any level of automation, There is a significant potential market opportunity to retrofit and build new machines with greater levels of intelligence using CMOS digital ladder That we believe could rival an automotive series production in unit volume. Our customer Valeo, a France based leader in autonomous forklifts is a great example of this. They're able to increase the focus productivity by up to 15% and availability by up to 30% through automation. Another example is the massive We previously announced our customer Outrider, which aims to replace over 50,000 diesel yard trucks With autonomous zero emissions vehicles that could feature Ouster sensors, over the road trucks wait on average 1 hour to pick up and drop off trailer at human operated yards, resulting in roughly 12,000,000 combined days waiting in distribution yards each year. If automating yard operations trends this rate time by just 10% to 20%, productivity would increase by an additional 1000000 to 2000000 days per year. There's also potential to deploy 6 sensors in the distribution yards where the trucks operate and there are over 400,000 yards in the U. S. Alone. We're also working with the leading port automation customers like Lhasa, Cone Cranes and FME, which use our CMOS digital Large crane equipment for anti collision systems or the decreased loading times. If you take the world's 835 most active sea And conservatively assume an average of 10 gantry cranes per port and 6 sensors per crane, there's an opportunity to over 50,000 sensors in this single use case. This type of industrial equipment can cost 1,000,000 of dollars and digital LiDAR sensors allow a more significant return On investment given the increased speed and reduced accidents after incorporating these systems. These are just a few examples of the value proposition and the market potential for And Oster also has an opportunity to unlock even more market share through additional certifications like SIL2, which would allow us to displace dedicated safety sensors on many of these systems. The core submarkets driving the robotics vertical are last mile delivery, Defense, 3 d mapping and university research. While some of these applications are in pilot phase now, others are beginning to move to large scale deployments. Our customers serve robotics and other customers focused on last mile delivery are great examples of large scale opportunities in robotics. Last mile delivery is the most expensive part of the supply chain, often representing more than 50% of the overall cost. The cost per last mile delivery today is the $1.60 via human drivers, but could drop to just 0 point 0 $6 a mile as autonomous delivery robots proliferate. It's expected to be a $250,000,000 market by 2027 with a 34% CAGR and these delivery robots require small form factor, high reliability And high resolution LiDAR with an average of 1 to 2 sensors per robot. Served Robotics has already completed tens of thousands of contactless deliveries in major U. S. With plans to scale to robotic fleet significantly over the next few years. Industry forecasts show this market could reach 200,000 units by 2,035. In smart infrastructure, the core submarkets driving this vertical are intelligent transportation systems, security and smart places. Our CMOS digital ladder is already deployed on intersections, local streets and highways around the world. New customers like ParaFx are deploying Ouster across French roads for speed enforcement and analytics. Ouster also recently co won the IDC Smart Cities North America Award For Transportation Infrastructure in Chattanooga, Tennessee, the project uses LiDAR to improve pedestrian safety in a way that was previously not possible using camera and radar alone. The latest data shows that there are over 1,000,000 signalized intersections in the United States and the top 2 legacy camera based Providers have installed some 600,000 units. Intersections today tend to use at least 4 traffic cameras at each intersection. Our CMOS digital ladder can reduce this number to 2 sensors for a lower cost than a 4 camera system in addition to providing better Per Gartner, there will be at least 85,000,000 security surveillance systems installed in the U. S. By the end of this year And nearly $1,000,000,000 globally. As we've said before, we believe that everywhere there is a camera or CCTV system today, This past quarter, we announced that Ouster achieved Buy America and Buy American certifications for sensors manufactured in our San Francisco facility. This is a major milestone given that many U. S. State and local transportation projects depend on federal funding, which require Buy American certified products when available. These certifications further differentiate Oster's products from other ladder companies and demonstrate our ability to scale with our federally funded customers. All of our verticals And each of their submarkets represent significant market opportunities for Digital LiDAR over the next few years. Winning just a fraction of these production deals or why we believe so strongly in our multi market approach. And with that, I'd like to turn it over to Anna to walk you through our financial performance for this quarter. Thank you, Angus. Before I begin, I want to reiterate the 3 takeaways that separate Ouster from the rest of the LiDAR industry: our differentiated technology, Our diversified business and our proven ability to execute. These are the reasons I am such a big believer in Ouster And why I'm excited to report that Ouster ended the 2nd quarter with a record $7,400,000 in revenue. This is our highest revenue quarter to date, up 11% from last quarter and up 72% over the Q2 of 2020. We also delivered the second quarter, a 49% increase over Q1 and a 3 42% increase over the Q2 of the prior year. This means we have already shipped more sensors in the first half of twenty twenty one than we shipped all of last year. This clearly demonstrates our ability to scale production with our contract manufacturing partner benchmark and to deliver on our projection to more than triple sensor Production this year. Demand for Ouster's CMOS digital lidar has continued to grow As we have now sold sensors to approximately 600 customers over the last 12 months. And while we grow this pipeline, We continue to both add and convert preproduction and production level customers to our strategic customer agreements or SCA. To date, Ouster has signed 53 SCAs, representing over $422,000,000 in contracted revenue opportunity, up from 40 SCAs $385,000,000 at the time of our last earnings call. SCAs are a key financial metric for us. They establish a multiyear purchase and supply framework for Ouster and the customer and include details about the customer programs and applications where Ouster products will be used. They also include multi year non binding customer forecasts Giving Ouster visibility to the customers' long term purchasing requirements, mutually agreed upon pricing for specific Ouster products over the duration of the agreement and in some cases include multi year binding purchase commitment. Contracted revenue opportunity The sum of both binding and non binding purchase commitments. For customers that provide less than a 5 year forecast, No additional revenue opportunity beyond the term of the customer's forecast has been imputed. We are excited about our customer traction as we These FCAs provide us with long term forecast visibility, manufacturing predictability and enable us to move down the cost curve and drive customer stickiness. That being said, we are at the very beginning of the LiDAR adoption curve And some customers are still learning their ramp rates, which can impact the timing of purchase orders quarter to quarter. As we grow our business, we expect to improve predictability into our customers' needs and timelines and expect the timing of orders will have a less notable impact on our quarterly results. We are proud of our positive gross margins and believe that CMOS digital LiDAR is the lowest cost platform. Because STAs include multiyear negotiated pricing, we expect to continue to experience some temporary downward pressure on margins from signing anticipated large multiyear deals in the near term. However, over time as sales volumes over the term of BSCAs increase, We anticipate that our cost of goods sold will continue to decline faster than our average selling prices, allowing us to meet our targeted margins. Turning to our forward looking opportunity. We expect the total addressable market or TAM for LiDAR across our 4 target verticals To reach $8,600,000,000 by 2025 and nearly $48,000,000,000 by 2,030. We're already seeing this TAM take shape through our existing customers' Growth. In automotive, for example, it was reported that one of our marquee customers plus won a contract with Amazon to supply autonomous driving systems for 1,000 trucks in its delivery fleet. In this quarter alone, we brought on new customers like ParaFX, BlueWhite Robotics and Valio in Smart Infrastructure, Robotics and Industrial, respectively. We believe these customer wins not only demonstrate We have the ability to build our customer pipeline in each vertical, but that we are also capable of penetrating diverse submarkets, And it is our belief that each submarket represents a significant revenue opportunity for Ouster. Our multi market approach allows us It is our belief that capturing approximately 20% of the total addressable market for digital lidar by 2025 We generate close to $2,000,000,000 in revenue. And remember, we see very little competition for 3 d LiDAR outside of the automotive vertical. Not only does our CMOS digital lidar technology unlock a larger multi market TAM for lidar, it has also allowed us to outsource manufacturing, and reducing cost of goods sold. Ouster is already a low cost leader within the LiDAR industry due to our VCSEL and SPAD technology approach, And we have continued to drive a steady reduction in cost of goods sold in line with our expectations. We reduced our cost goods sold by 68% in 2021 as compared to the prior year quarter through reductions in our bill of materials across FPGAs, VCSEL, ASICs and MicroOptics, in addition to yield improvements and reductions in our value added manufacturing, Scrap and overhead costs. Importantly, during the same period, our COGS have declined faster than our ASPs. And while in the near term, we may experience an impact on our gross margin for the reasons I mentioned earlier, we anticipate that as we sign more And the customers already under SCA mature and ramp purchase volume, our cost of goods sold will continue to decrease and we will continue to meet our targeted margins. In spite of recent supply chain pressures due to the current macro environment, including increased lead times from suppliers related to the global material shortage, Ouster maintained positive gross margins in the 2nd quarter at 26%. In fact, our margins would have been higher had we not experienced unfavorable purchase price variance and situational expedite fees in order to meet production and delivery time line. We expect the global material shortages to continue through the rest of the year, which could continue to put pressure on our margins. However, we are actively taking steps to mitigate the impact of this material shortage on our business. We closed the 2nd quarter with approximately $240,000,000 in cash. During our public debut, we announced a targeted Capital allocation plan focused on 3 areas: building out our sales and marketing teams, strengthening investments in software development and accelerating our hardware roadmap to expand Ouster's product offering. We are delivering on these goals and are proud of the progress we have made year to date. Ouster is investing to build a best in class and industry leading commercial organization. Prior to our public debut, the majority of our revenue was driven by inbound interest. We are now focused on developing a mature sales organization geared toward ramping our sales pipeline through targeted outbound engagement and account expansion. To this end, we have grown our commercial team from under 30 employees at the end of 2020 to approximately 60 employees year to date including enterprise sales, sales operations and customer success. As a result of these investments, Our customer base increased by around 100 during the Q2, with our overall customer count increasing from approximately 500 to around 600. This is all in line with our commitment to invest in building a larger multinational sales force to capture the massive opportunity we have in front of us. Additionally, we committed to invest in software. We are expanding our internal development team to build a rich software ecosystem, including taking our first steps to bring online a branch in Canada that will focus on this. The launch of our software developer kit in the Q2 was a critical first step in that direction. We are also partnering with leading solutions providers For each of our verticals to access new markets and accelerate customer adoption, we plan to continue to invest here and look forward to sharing more over time. Lastly, we're also investing significantly in our hardware roadmap. AAGES highlighted some of our 2nd quarter product developments, including our firmware update and progress on our L3 chip, which we believe will be a game changer for all of our verticals. We are fully committed to our multifaceted automotive product roadmap for both scanning and true solid state sensors and have even more in development, which we are excited to share when the time is right. As we announced in March, we intended to use the initial proceeds of our public on these initiatives and as a result, we increased OpEx to deliver on these initiatives such that our adjusted EBITDA loss Increased from approximately $10,000,000 in the Q1 of 2021 to approximately $14,000,000 in the Q2 of 2021. In closing, I'm incredibly optimistic about our growing commercial organization as well as our forward looking hardware and software solutions, which we expect will bring new levels of autonomy to thousands of applications over the next few years. As such, we are pleased to reiterate full year 2021 guidance of $33,000,000 to $35,000,000 in revenue and 25% to 27% gross margin. And with that, I'd like to turn the call back to Angus for some closing remarks. Thank you, Anna. Ouster is here to build a safer and more efficient world by delivering best in class LiDAR and software solutions that will transform industries and improve quality of life. Our digital platform is why we have a highly diversified business compared with other LiDAR companies. While others are betting on just a single application or vertical, Ouster Build solutions and achieve certifications. By continuing to execute on our strategy, we expect to capitalize on our 1st mover advantage Thank you. And we will now begin the question and answer session. When called upon, please limit yourself to 2 questions. Our first question comes from the line of Blayne Curtis from Barclays. Please go ahead. Good afternoon. Thanks for taking my question. Maybe first, Angus, you made a point to Highlight auto and your traction with Plus and you even talked about leadership in that category. And I wanted to ask you, when you look at the performance of your digital LiDAR solution, particularly the solution that Plus is using, I think in auto, distance and looking at like a metric like 10% reflexivity and getting over 200 meters is important or at least that's the beauty pageant that's going on with a lot of companies pursuing auto. Just kind of curious your You obviously got a win in autonomous trucking. So it's kind of how your solution fits in and when you talk about leadership, and maybe if you could talk about your road map to getting your Performance maybe to those specs that the auto market seems to be circling in on. Yes, sure. So Keep in mind, auto needs all types of LiDAR. They need short range LiDAR, long range LiDAR, mid field LiDAR, You name it. And core to our product strategy is offering every single type of LiDAR that an automaker could conceivably need. And one thing that we've highlighted in this earnings call is just talk the fact that we are investing in automotive certification, Not only of that multi product suite of true solid state ladder sensors, but also from the beginning, we've been Auto certifying all of our scanning systems as well. So our goal is to provide the complete suite of scanning and solid state sensors short, medium and long range, Wide field of view and narrow field of view sensors and allow the auto market to come to us with exactly the application they need. Because the reality is that there are different Needs for different types of systems. Some automakers are working on parking systems. Some automakers are working on highway autopilot systems. And one sensor is not good. It cannot be used for both. That's just through Audi. And of course, we're doing this all with Digital technology has the underpinning. The same exact LIDAR architecture is applicable to all. And so what we are Offering customers is the ability to come we're a one stop shop for all of those options. And automakers, they understand that there may be a roadmap to achieve the exact spec that they need. Literally no automaker ever comes to us and says exactly what you have is what we're going to put in a car in 4 years, Right. And so and whether that's us or whether that's one of our competitors, automakers need a somewhat customized solution. And so we have our standard product roadmap and then we're able to customize that somewhat to each automaker's requirement. And so but they understand that there's this roadmap and We can achieve all of the requirements, whether it's long range or short range, scanning or solid state. It depends on the automaker what they need and we can be that one stop And so a customer like Plus has started with wide field of view LiDAR sensors. And they we're able to provide under NDA, one of the things that we're doing through our SCAs and our confidential relationships It is providing much more insight into our longer term or even medium term roadmap for our expanded product suite. This is something we're not releasing the exact Specs of all of our solid state and scanning products 1, 2, 3 years out. But the reality is that they completely encompass every possible That is required by an automaker for any conceivable application they're using that they need it for. And We have that credibility. We can share that information with automakers and kind of be the one stop shop and the only LiDAR company that an automaker Ever needs to work with. And so that's what we're providing. We think that's unique in the industry. Really, we don't see any other company that's providing such a broad Swath of products into the market. Thanks. And then maybe just one for Ahmed on the OpEx line. You mentioned investing in a few areas, Roadmap and software, etcetera, just any thoughts on OpEx for the year? That would be helpful. Yes. I mean, I think We at the beginning of the year, we gave some guidance on what we thought our hiring would be when we kind of came out and said that we plan to use the proceeds For those three areas that I just addressed in my prior remarks. And so we really haven't changed from that and we're right on track to where we said we would be. So I think looking into the back half of the year, we kind of intend to continue to hire at a similar rate. Thanks. Our next question comes from the line of Itay Michaeli of Sidi, your line is now open. Great. Thanks. Good afternoon, everyone. Maybe just 2 quick First on the gross margin. Anil, you mentioned that you incurred some premium freight and other kind of supply chain inefficiency costs in Q2. So I hope you could perhaps Quantify what those were. And then maybe the second half of the year, it looks like you're guiding for revenue to grow sequentially, gross margin about Vlad, I think you alluded to some of the factors there. Maybe could you provide a little bit more on the assumptions around ASPs in particular in the second half of the year? Yes. I mean, I think to address your first question on margins, first of all, I just I can't let a margin question go by without reiterating How proud I am that as far as I know, we're the only LiDAR company out there with positive gross margins on our hardware And we're very proud of that. And so we managed to keep those flat this year I'm sorry, this quarter versus the prior quarter. And that was in spite of the pressures that we mentioned, which would have added a handful of additional percentage points to margin had we not incurred the global semiconductor shortage or had to expedite some shipping fees and things of that nature. And so obviously, we expect that those pressures will continue for a little while But we feel we have a plan in place to mitigate them and ensure that our customers receive product timely. I think you're go ahead. No, I think on the second half of the year on the kind of walk and maybe ASPs? Well, as you know, we reiterated our margin guidance, so that's what we're aiming towards. And then on ASPs, I think what's really important to keep reiterating here is that our cost of goods sold are declining faster than our ASPs. So we think of ASPs And really these SCAs that we're signing as a business initiative that we have to get a lot of predictability into both our revenues and costs And so when I think about SCAs and ASPs and COGS, We know that as we are able to grow our volumes that our COGS will continue to decline at a very steady rate as we improve our purchasing power And just have more units over which to spread our fixed costs. And so that's very predictable for us since we're already With Benchmark, we know what it costs to manufacture our products at scale. And so we look at the SCA process as really a way for us to Work with customers to better understand their longer term needs and gather forecasts from them such that we are driving pricing that ensures or that we believe allows us to predict both our COGS and our revenue and ensure that our revenue Our ASPs are not declining faster than our COGS. And so as an example, if you look at our ASPs in Q2 of this year Versus Q2 of the prior year, they declined by about 40%, but our COGS declined our average COGS per unit over the same period declined about 68%. And so we expect that there may be some variability in that. We have In the 600 customers that we mentioned, we have many customers who are progressing through the funnel and getting closer to signing SCAs. And as we agree and commit to multi year pricing with those customers, there may be some initial variability in margins. But over the long term, we have a lot of visibility and are quite confident that we'll meet our mid and long term margin goals. That's super helpful. Thanks for all that detail. If I could just sneak in one question on the SCAs. I think you kind of alluded to a little bit in your prepared remarks, but the growth that you saw versus last quarter. Maybe talk about what particular end markets drove that incremental growth? And then I was hoping you could also comment on just what you're In terms of demand from existing customers as well as sort of new customers? Yes. I mean, I think across end markets, we continue to sign SCAs across all of our 4 verticals. So we're really excited about that. And I'm sorry, what was your second question? You said demand across? It's kind of the split between Existing customers as well as sort of new customers coming in? Well, obviously we're getting both really because You can tell by the rate that we're signing SCAs and how we added 100 new customers approximately in the second quarter. You can get kind of an idea that there's it's coming from both. Perfect. That's very helpful. Thank you. Our next question comes from the line of Tristan Gerra of Baird. Please go ahead. Yes. Hi. This is Tyler Bomba on for Tristan. Thanks for taking my questions. You mentioned that your styled LIDAR will be introduced in the Q4 of 'twenty two. Is this because you're still working on the technology or because of the market timing reasons? And then could you elaborate on the choice for rotational lighters You have made thus far versus solid state in terms of end market applications? Sure. So, the where We've said that we'll release the prototypes of the solid state sensors in Q2 or Q4 2022. And the reason for that is simply just the design cycles for introducing new products. So it's no specific delay. There's no new technology that has to be created because it's the same fundamental VCSEL SPAD architecture, the digital add architecture Powers all our products. And if you were to pull apart one of our scanning systems, you would see a true solid state Digital LiDAR module that looks very, very similar, almost identical to the fully solid state devices that we're developing for To have prototypes ready by the end of next year. So, it's just the inertia in designing new products. But and then the choice to offer both scanning and solid state systems is really just it's more a strategic one. And it's This goes back to the realization that there is an immense market today for wide field of view scanning systems. And that's essentially the entire Market for LiDAR today is for either the sensors that the scanning sensors, the analog sensors from companies like Velodyne Or industrial ladder sensors, which are also mostly still scanning systems that produced By industrial ladder companies for the last 20 to 30 years. And so there's this immense established market that we don't need to reeducate, we just need to out compete. And we can do that very effectively, both on affordability and performance with scanning digital adder sensors. So we want to go out, provide those sensors and we are able to do that and start winning significant business in that industry while Simultaneously developing true solid state sensors. And to be frank, it doesn't matter to Ouster particularly Which customers decide that they want true solid food sensors and which ones scanning sensors? We're certifying all of our products to the same industrial and automotive And other specifications, so that customers from any vertical can come and choose from the entire product portfolio. And so it's yes, hopefully that answers the question. Yes, great. Thanks. And as a follow-up, how should we look at the unit ramp for Rotational LIDARs versus ASP declines, maybe 1 of the 2 of them intersect and where ASP declines less than offset The unit ramps. Well, I mean, I guess I can jump in and start and maybe Angus, if you have something to add. But Our units are ramping. So Q2 of last year, we sold about 3 30 units and then Q2 of this year, we sold 14.62, so our units are definitely ramping. And as I mentioned on the last question I asked, Our cost of goods sold are declining much faster than our ASPs. So it's always been our goal to see our ASPs decline to really widen adoption by customers Over time, and to do that while meeting our margin goals as we grow the business. And so we've taken a very kind of Thoughtful approach to how we price our product as we are ramping volume, and we'll continue to do that into the future. Great. Thank you so much. Our next question comes from the line of Richard Shannon of Craig Hallum Capital. Please go ahead. Thanks, Inge and Anh for taking my questions. I guess my first one is on the strategic customer agreements here. You added $15,000,000 during the quarter with value of I think Something like $37,000,000 or so of the average on those would be more modest number, I think $2,000,000 to $3,000,000 roughly. Whereas average was a fair amount more. I There was 1 or 2 large deals in that number you quoted for us last quarter. Maybe Angus, can you give us some perspective on how should we see Size of deals and maybe if you want to couch it in terms of end markets, that'd probably be an interesting perspective to offer. Yes. And so the entire goal of SCAs Is to provide credible visibility into our long term pipeline with customers. Like that is the stated kind of our stated goal with SCAs. And so, if anything, we want to be under estimating or under communicating besides of the opportunities with our customers. And also we want to run a diversified business, a highly diversified business with hundreds of thousands of customers And hopefully hundreds and hundreds of customers under SCA in the relatively near term in the next couple of years. And I'm kind of I'm extremely pleased that we're seeing we have several 100 FCA customers That are each $5,000,000 opportunities. That's a fantastic kind of foundation for the business. While we also will be winning Certain customers that have much larger, multi $10,000,000 to $100,000,000 opportunities. And so I think that's the right way to build the business. In some quarters, we're going to sign mostly SCAs that are $5,000,000 opportunities And that's just great. And I'm really happy about it. But we also will have some that have much larger opportunities. And what I'm looking for in those deals with larger opportunities, I'm always looking to make sure that the customer has a reputable end customer That's supporting those larger volumes, right? We don't want to because we're reporting on this, if we have a customer Change their forecast on their SBA. That will affect the number we report to The Street. And we do not want to be a lot of volatility in these SBA numbers. So, I mean, for that reason, we're really making sure that the larger opportunities here have reputable kind of end customers associated with them wherever possible. And I could just add to that a little bit of additional perspective of how I think about it, if you don't mind, Richard, which is, As Inge said, my goal is to sign quite a few SCAs over the near term. I'd like to see us sign 1,000,000,000 or 2,000,000,000 And in that way, because the SBAs, many of them cover a 3 year time period, some cover a 5 year time period, You start to get to a very predictable business that is operating at the level that I'd like to see us operate at in the near term. And so When I think back that we've only been signing SBAs for considerably less than a year and we're already at the $422,000,000 mark, we're nearly kind of 25% And I think that we'll just continue to develop those relationships, add new customers into the funnel, convert them through the pipeline and build that very predictable business. And I'm happy with the ramp rate that we're ramping those SCA agreements. Great. That's just great perspective. Thanks for that. Angus, my second question is looking at your markets here outside of automotive in the last quarter here, What have been kind of the positive and negatives of the flows of the market? Where have you seen the most increasing tension? Have you seen any that have slowed down? Just any broader perspective of the growth rates? I think it's all been extraordinarily positive. I mean, if you look at the I mean, going back to the FDA signs, the unit Shifts are up and the revenue is up. We are going to continue to be signing and announcing customers. Like this is What I see is a momentum in our non auto markets, to the question asked. And I'm incredibly pleased. I mean, I think that it's just it's such a different industry to be working in when there's an established $1,000,000,000 market for Lidar today $1,000,000,000 industrial lidar market that's been established over the last 20 to 30 years. That is a customer base that's incredibly receptive to LiDAR technology. It's currently using LiDAR technology. And what they want to hear is That Ouster can sell them a product that's more affordable and is more capable and is a drop in replacement to what they currently Our purchasing, and that's all true. For large swaths of the industrial market and the smart infrastructure market and the robotics market, That is all true today. And so we just feel we have fantastic product market fit in all of those verticals and it's certainly paying Our last question comes from the line of Joseph Osha of Guggenheim. Please go ahead. Hey, I made it. Hello, everyone. Hi, Joe. How's it going? Very well. I wanted first question to return a little bit to a topic that came up earlier. You look at some of these markets like say, gantry cranes Sure. Materials handling robots or whatever. And I know you've got a complete suite of products, but I mean Angus, in your opinion, Are those markets likely to end up having rotating scanners or do you think you need a lower price point To really penetrate those opportunities. And then I have one other question. I think a lot of those will continue to be scanning systems For the next decade or more. Okay. And that's just is that Because you think that you can the price points are coming down a lot or it's just if it's a $400,000 robot, a Spending Lidar doesn't matter that much. Can you amplify your thinking? Yes. So there are many different reasons. The first is that the industrial Lidar market, the ASPs are already Quite high. It's fundamentally different price points than consumer automotive. The second is that the platforms that they're going on are much commonly multimillion dollar platforms like gantry cranes Or warehousing robots or something like that. And then heavy construction, mining vehicles. And then the customers understand the ROI much better. They can model the ROI for the investment in capital Equipment, much better than a consumer can. And so for and then there are safety certifications that Make it hard for incumbents to come in and for this to be a come out of the industry excuse me, for new entrants to come in and compete with incumbents because of all the certification. So, for all those reasons, the price points are already we're already able to hit competitive price points in this industry. And the scanning systems have set the precedent in the last 20 to 30 years. So I think that Ouster will be able to shift The industry towards true solid state with our products long term, but it's going to take a lot there's a lot of inertia in the industry, Which is a good thing for us now that we're a major entrant. And for that reason alone, it will take better part of a decade for There could be any significant shift from the scanning systems. That's interesting. It makes sense. Secondly, just a more Technology run-in question, obviously you've gotten a great deal done with integrating the SPAD and other attributes of the product and Seem awesome. I'm just wondering as you look forward, what other potential exists there? I mean, could you ever CEO emitters and sensors on the same what's on the roadmap here? Yes, there is so much potential in the digital Ladder roadmap. I mean, the L3 chip is incredibly exciting. It really is the biggest Jump in product performance we'll have ever seen and we've already driven huge jumps in product performance to date. But This is as though everyone in the analog world is playing with the card the hand of cards that they were dealt at the start of the game. And Ouster is being handed trump cards every round, in the form of new chipsets, new semiconductor improvements that our partners are literally handing to us And giving us access to. And so it's just a paradigm shift in the capacity we have to move this technology forward long term. And so the L3 chip, we get to the L4, the L5, the L6 and this just keeps going. And it is you're right, it's not just On the silicon side, it's on the VCSEL side as well, the laser side. And there's immense investment there and we're being handed new technology Deep partnerships with our supplier base, for that side of the equation as well. And so this is very much the beginning for this technology. And despite all that, We're already in this market leading position across most relevant metrics. And so, yes, I'm incredibly excited for the future and there's It's a huge opportunity to push the technology forward. Okay. Thank you very much. And this does conclude our question and answer session. I'd like to turn the conference back over to Mr. Angus Pakala for any closing remarks. Well, great. I just wanted to thank everyone for tuning in today and everyone have a great day. Ladies and gentlemen, the conference is now concluded.