As the digital pioneer in a historically analog industry, Ouster is taking lidar beyond autonomous vehicles and into much larger and rapidly growing markets spanning industrial automation, smart infrastructure, robotics, and more. To accelerate growth and seize the tremendous opportunity ahead, Ouster recently completed its business combination with Colonnade Acquisition Corp. (NYSE: CLA) (“CLA”), a special purpose acquisition company. CLA was renamed Ouster, Inc., and its common stock and warrants will trade on the New York Stock Exchange under the new ticker symbols “OUST” and “OUST WS”, respectively.
IPO Edge interviewed Ouster Co-Founder and CEO Angus Pacala to discuss how the company manages to stand out from increasing competition, and what opportunities lie ahead for the company.
IPO Edge: You are the fifth lidar company to go public in relatively short succession. How are you different from players in the market? Is there room for so many?
The potential market for lidar is very large and has many use cases, so it’s not surprising to see so many companies pursuing this opportunity. We feel there is plenty of room for market growth and expansion – we believe this market is really just getting started. That said, not all lidar companies are created equal, and we have very different approaches to both the market opportunity and technology development.
Ouster really stands out from its industry peers based on several factors, ranging from our business model to the technology itself. First and foremost, we essentially invented high-performance digital lidar – which we believe is the future for this market – and hold numerous patents around the technology, giving us a significant market advantage to our competitors along with the ability to defend our market share and position over time.
Digital lidar is substantially cheaper, performs better, and can improve rapidly compared to analog competition. Our digital lidar sensors leverage a simplified architecture based on two silicon chips, with our core technology being a CMOS system on chip, which historically has allowed us to align key areas of our product roadmap with Moore’s Law. This also allows us to maintain a streamlined supply chain and manufacturing process that enables our business to scale and meet fast-growing customer demand today.
We believe that lidar companies that built their technology, teams, and companies around complex analog architectures may need to essentially reinvent or re-architect their technology to keep competing – struggling to stay relevant in a rapidly evolving market and encountering significant time and investment challenges along the way. We have been digital from day one, which gives us a huge advantage in technology development, manufacturing, sales, and distribution at scale. Instead of constantly re-engineering our systems, we are dropping in new chip sets to the same hardware platform and achieving both higher performance and lower costs as a result.
Ouster’s flexible, scalable digital architecture enables us to rapidly open applications for lidar across multiple industries. Our simplified hardware platform supported by integrated software creates significantly lower incremental cost to customize our solutions by vertical market. In short, we can produce and sell lidar sensors today – and scale that production very quickly – to meet market demands, which is very unique.
So Ouster’s approach to the lidar market is fundamentally different from our peers. While we count a significantnumber of customers in the automotive market and have many great applications for our current and future products there, we also see significant opportunity for lidar to become ubiquitous across other industry verticals. Specifically, we’re focused on three additional markets: industrial automation, smart infrastructure, and robotics. We believe these markets offer a larger commercial opportunity than the automotive market in the long run.
Ouster’s sensors are being adopted across a diverse set of large end markets. Ouster has approximately 500 customers today, spanning the industrial automation, robotics, smart infrastructure, and automotive verticals. We believe we can address up to 14,000 potential customers by 2025 outside of automotive in the industrial, robotics, and smart infrastructure industries. Together, we estimate that these markets are ten times the total addressable market (TAM) of automotive by 2025, and believe that we are well-positioned to scale quickly with stickier customers and higher average selling price and margins. We estimate that the total addressable market for our solutions will be approximately $8.6 billion in 2025. By 2030, we estimate that our TAM can reach upwards of $47.9 billion.
All four verticals have proven commercial viability, and our financial projections are based on existing sales and growth opportunities for current and near-term products, not future development of a product that could meet a promise. We also have real solutions embedded within each of these markets, generating real revenue today. In fact, the lion’s share of our revenue in 2020 came from the end markets outside of automotive, where we are a market leader with design wins today. We also do not model any one customer to account for more than 5% of forecast revenue, and our customers are not concentrated in the ADAS automotive market.
Lidar is fundamentally shifting the world from 2D camera imaging to full 3D imaging, yielding dramatic performance improvements in analytics and robotic autonomy. And the ability to apply this technology across industry verticals comes down to the flexibility of our product architecture. Our digital lidar
sensors are designed using the same principles as digital cameras today. We put the complex detection and image processing onto a chip, and customize our sensors using different optics, just like a camera lens. We believe everywhere you see a camera today is an opportunity for a lidar sensor in the coming years. This is what we mean when we say we’re driving toward ubiquitous digital lidar.
IPO Edge: Can you tell us more about your customer base and the diversification that exists within it?
In 2020, Ouster shipped sensors to over 500 paying customers across 50+ countries worldwide and we have strong revenue contribution from all four of our verticals. I emphasize paying customers because we only count companies that we have shipped product to and have received payment for that product.
Our digital lidar products are being used, tested, and put into production by a number of top-tier customers and we expect to be able to scale to a broad customer base across multiple end markets. Our revenue today is driven by an established customer base that drives our bottoms-up forecast. We believe we have a unique, superior technology at an attractive price point positioned for mass market consumption, and the supply chain and manufacturing capabilities to support rapid growth.
Here are just a few examples of the types of applications we are already supporting across these industries.
- Industrial automation applications include proactive driver safety, mining autonomy, agricultural autonomy, construction autonomy and port automation.
- Smart infrastructure applications include pedestrian safety, traffic analytics, people counting, smart tolling and intrusion detection.
- Robotics applications include warehouse automation, last-mile delivery, street cleaning, factory automation and autonomous resupply.
- Automotive applications include SAE Level 4-5 autonomous vehicles and Level 1-3 ADAS functions including: highway autopilot, traffic jam assist, parking assist and proactive braking assistance.
IPO Edge: How should an investor think about how to fairly value your company today, and how does it compare to lidar peers?
Like any high growth company, we are valued based on our current foundation and substantial potential in an industry poised for tremendous growth. What differentiates us is that we already have demonstrated traction with our patented digital lidar technology. We are selling not tens or hundreds, but thousands of sensors per year and have hundreds of customers in multiple markets that are rapidly developing. Our multi-market strategy helps stabilize our business by reducing dependence on a small number of automotive customers.
We believe autonomy is coming not just to transportation but to the entire supply chain, and our approach is about making it affordable and easy to deploy in a wide variety of scenarios from raw materials mining vehicles, to logistics center pallet movers, to highway trucking and last-mile delivery. The simplicity of our digital product allows us to better drive scale and simplify our supply chain through the use of common components, which we expect to drive continued margin improvements.
Importantly, we are already gross margin positive. We sell our products in the market today with positive unit economics. As we increase volumes, we expect to move down the cost curve, and be able to bring down average selling price which means we can drop price where needed in competitive markets, like ADAS which we expect will have tighter margins.
Ultimately, we feel great about our competitive advantage and the fact that we have built an outstanding business in markets that are scaling lidar deployments today.
IPO Edge: Tell us what is next and what you plan to do with the proceeds from the transaction with CLA?
We have significant momentum across our business, executing on our strategic plan, and continuing to innovate as we pursue important new growth opportunities. We are making investments to grow our business and plan to use the proceeds from the transaction with CLA across three specific areas. First, we will look to build out our sales and marketing teams to enable us to pursue more than 14,000 potential customers across our end markets by 2025. Second, we plan to strengthen investments in software development to not only add adjacent revenue streams, but to allow customers to adopt our tech faster. And finally, we will look to accelerate our hardware roadmap through increased investments in R&D aimed at shortening chip design cycles from two years to one and widening Ouster’s technology mote.
Simply put, our approach to the business and technology put us in an excellent position to pursue profitability in the near future.
Jarrett Banks, Editor-at-Large