Ouster Inc - Ordinary Shares - Class A Stock

Hi, everyone. This is Colin Rusch. I lead the industrial innovation research practice here at Oppenheimer. We're thrilled to have the Ouster team with us today, Ken Gianella, the CFO; and Chen Geng, the SVP of Strategic Finance and Treasurer at Ouster, a long-time veteran of the company. And we may have Angus be able to join us here as well, the CEO.

But to get started, guys, can we talk about the fact that you've got 14 consecutive quarters of revenue growth and you're sitting at a $55 million, plus or minus, run rate. As you bring REV8 into the mix, how are you thinking about the impact to revenue and that product transition from REV7 to REV8 and how that's going to start translating through the P&L?

Thank you, Colin, and thanks again for hosting us at the event today. It's been a great day. Q2 was really our first full quarter as a unified platform with the launch of REV8, and we also announced the launch of Stereolabs Nano. It's a camera specifically for the robotics industry. Really pleased with how the quarter performed. When you look ex royalties product-wise, we outperformed in Q2 than we initially anticipated. And our product revenue quarter-over-quarter for Q3 will be sequentially higher in Q3.

REV8, been very, very electric, the reception that it's gotten, multimillion-dollar orders already booked, some from new, some from existing customers, a lot of brand-new use cases that it opens up. So the bookings, we've been really pleased with that. And REV8 is still in the early stages of its volume production ramps. So we said on the call that we're looking for that to ramp, really getting to scale in the September time frame as we go through Q3 and then carrying that on to Q4 and into the out years.

We expect REV8 to become the core of our sensing platform for the business over the next several years. But as project -- product transitions go, this one is probably the longest tail that the company's had in its history. REV7 was a real workhorse for us. It's built into a lot of existing company production platforms already. So we expect that one to have a long tail and be part of our product suite for a while to come.

The key for us looking ahead, though, it's really about continuing to grow the full product suite, continuing to grow the platform, REV8 being a piece -- big part of that. But what you're going to start seeing as that growth and potential inflection is that platform play of bringing in compute in the software for the individual applications over the next few years.

And it raises a good point around the early stages of growth that you guys are in the individual verticals that are seeing real adoption. So the industrial vertical was the biggest contributor this last quarter, was more infrastructure. How should we think about the durability, repeatability and kind of mix shift from vertical to vertical as we go forward and thinking about repeat orders and the consistency of margins as you see slightly different dynamics in each of those verticals?

Right. Well, I think the one thing we've always talked about is the adoption and cadence is very similar across almost every vertical. You start with a prototype. You move to pilot. You lock in a design win. Then you scale to production. And then once you land and you win that production, you're really expanding and building new use cases at a customer. And so we have several customers that we've been able to demonstrate that with even within the early days.

I think the largest thing for us, and just focusing on smart infrastructure for a second, is having that end-to-end play, being able to be no-code turnkey solution, think easy button, for these customers is what we're seeing start to emerge, especially within the Department of Transit areas.

For the industrial side, though, it's really about how can you get product to market that's durable and repeatable for the customer and a high quality. And the ruggedness that you need within these environments, especially in the outdoor environments, that's what really sets Ouster apart from the competitors. So I'm not going to make you pick which one we love the best, but if you think about these deployment schedules, you really got to love the industrial side because once they get into that logistical production mode, it really takes off and it smooths out a lot of the lumpiness.

So you signed multiple multimillion-dollar orders, right? And so I think I would love to understand the significance of that. Certainly, we've seen a lot of demonstration of the technology integrated into large capital equipment, ton of AV providers as well as some of the DOT applications. But the history of lidar, in some cases, has been around sampling and smaller order sizes and prototypes moving into these larger awards signals something different. I just want to understand that from your perspective and what that means for maturity of the physical AI space and where you sit in that ecosystem.

Well, where we sit in the ecosystem has significantly changed with the acquisition of Stereolabs and bringing the compute piece to it. So we've moved from a single point provider to expanding to a platform player within physical AI for sensing and perception.

So being able to come to these companies and provide them not only just a point lidar solution but be able to offer the compute, the software and the camera, we're already seeing early indications of that really driving us, Colin. As you start looking forward with this, the lidar business is really going to be a big driver of their technology needs because the REV8 brings such a unique component to it that people are starting to build into their platforms and where before you had a lidar that was great and had the right resolution, bringing revolutionary -- speaking of -- it's perfect timing for you, Angus. Speaking of the revolutionary REV8 and the RGB that brings to the table, we're seeing these industrial customers call and want to sign on now because they want to build that as part of their core platform to get that fusion right on the chip.

Anything you want to add about the REV8 launch, Angus, and how that does for industrial?

Angus, before you get started, let me refine the question a little bit. We were just talking about the significance of the larger orders that you guys are receiving. And as you get into answering kind of the significance of that for the physical AI ecosystem, the ecosystem here, I just want to understand a little bit more about why that's so important for folks, right, from a product differentiation and what that enables from a system level, if you could address both of those.

Yes, absolutely. I mean, so it's important context to remember that we've been shipping a highly competitive REV7 product line for the last 3 years. We are largely regarded as having some of the best lidar sensors, if not, in many cases, for different use cases, the best lidar sensors on the market with REV7 for the past 3 years. That's why we've built such a suite of high-end customers for our history.

And so REV8 is taking something that's already really a leadership position and making it, I would say, obvious that there's no other choice by bringing even more performance capability and now RGB into the mix.

And so if you've ever done sales, and I do a lot of sales and talking to customers, there's a big difference between a competitive sale and an obvious sale when customers are just asking and they're not even debating or comparing against the competitor. REV7, you compare against a competitor. You think about it. You choose the REV7 because it has superior specs. REV8, it has native color. It's functionally safe. We have long-range hypercapable OS1 Max versions. It's an obvious choice. That doesn't have a comparison at all in the market. And that makes the sale even that much more -- that much faster, that much easier for us and that much kind of -- that much more confident on the customer to actually place that order upfront.

So we've seen a series of long-term REV7 customers immediately turn around. They have confidence in Ouster. They see REV8, and they've signed onboard with a major -- multimillion-dollar orders. And just this morning, the Utah DOT is such a great example of this, turned around 160 intersections with OS1 Max REV8 sensors on them. This is a brand-new product, brand-new hardware, brand-new software, and it's not normal for traffic engineers to deploy this kind of technology at scale when it's this new. But they have the confidence because it's built on the Ouster brand, the REV7 reputation, and it's got such obvious benefits with this native color and long-range capability.

And that's just one example of a use case with what I would call a conservative kind of customer, not a customer that wants to take any chances on quality and capability, reliability and yet they have the confidence in Ouster. So that's playing out across all of our industrial customers, all our smart infrastructure customers. They're seeing REV8. They know it's got the capability and the quality that Ouster has become known for. And then they seek native color performance, and it just becomes an obvious decision to adopt.

So I'd love to just follow up on that RGB discussion. Why is that so hard? How long has it been in the works for you guys? I think that's something that takes some explaining for folks newer to the story, but it's a very, very big deal, and it's very, very hard from what we understand. So I would love to get your perspective on why it's so hard, what's involved and what that enables for you from a leadership and a moat perspective.

Yes, for sure. And first, I mean, the concept or the definition of what is this native color technology in the first place, so native color lidar is lidar data that has RGB or color information at every point. And the reality is you cannot -- you and I don't perceive the world in just 3D. We also don't perceive the world in just color 2D camera-like imagery. We actually combine depth sensing and color to describe the state of the physical world. You need both channels.

And that's why historically, if you're a REV7 customer of Ouster, almost assuredly, you're buying a color camera in the last 3 years to pair with a REV7 lidar because you need both. You need to know that the blinkers are running on the car in front of you and the brake lights have fired and the stop light is green, not red. You get where all those things are with lidar, and you know you don't want to run into them. But you still don't know the state of a lot of those objects without color information.

So our customers are already convinced of this fact, and they're already -- they've been buying REV7 lidars with color cameras. Turns out that's not an ideal way to build those systems. The calibration, the synchronization, the capability of today's cameras just isn't quite -- it's not at the -- where it needs to be for you to have hyper-safe, low-latency and incredible performance on the perception capability of these devices.

It's much better if you can make one device that did all of it internally at a very, very deep architectural level that provided guarantees on the quality of the [ paired ] output, of the depth and the 3D and the color. And that's what REV8 does. And it's hard because you have to do it right. You have to do it at the lowest level possible, which is at silicon chip level. And so the REV8 has an L4 architecture silicon chip in it that has color and depth sensing combined for the very first time onto a single chip, all using the same optics, that shared optics in front of the silicon chip that's doing nanosecond-level timing, synchronization and calibration of these traditionally 2 different data streams.

So it's really powerful. When you see it, it's obvious. This is a black and white TV to color TV transition. You're never going to go back from operating a color lidar once you've started using it. So it's a really big deal, and Ouster has been investing years on it. And now we have this competitive edge because we're the only company in the market actually doing it.

And what do you think that does from a time perspective for you guys to go on sale? If we're making an obvious sale, how long do you think it takes before someone comes along with something that can present itself as even in the same bucket of performance?

Well, what's interesting is there have been companies that have said that they're doing a colorized lidar in various forms over the last couple of years. And it's made -- they've kind of been these nonevents. I was just at CES in January, actually, and there was a lidar company saying they had an RGB lidar, and no one cared. And the reason no one cared is because -- the customers didn't care is because it was an afterthought. It was a poorly implemented, nonfunctional or nonuseful kind of cobbled together system, not something that was engineered at the silicon level.

So I expect there to be a lot of that kind of thing that happens for the next couple of years as companies try to market the idea of color lidar, but they won't drive the benefits of it because customers are smart. I say you never trick a customer into buying a lidar sensor. All customers are going to test before they buy, and so you can't kind of fake this color capability.

And so I think we have multiple years, 2 to 5 years of head start depending on which type of product and which environment we're using it in, a head start because of the silicon lead times associated with doing this correctly. In the meantime, there will be all kinds of press releases with companies claiming they've done it, and it will be irrelevant because it will be kind of a demo prototype system that customers can actually field at scale.

Awesome. So then just shifting to the sensor fusion and software piece of this, right? That's something you guys have talked about. You've made some acquisitions related to some of the software, but sensor fusion has been historically a critical part of performance for these systems. But obviously, with more information native to the sensor, you can redesign some of that sensor fusion in the computer. Can you talk a little bit about what you've done from an investment perspective around software, sensor fusion and what that means for system simplicity and performance?

Yes. So sensor fusion is a really nitty-gritty problem that every single customer has to solve. And it involves timing synchronization and understanding where different sensors are pointed and getting all of that data into one reference frame that a machine learning algorithm can parse in a GPU. You have to take all that data from many different sensors, bucket it up properly and give it to machine learning. And the quality of the machine learning output is directly related to how well you do all that fusing of data upfront.

That's why native color -- native color just gets to sidestep some of that when we're talking about color camera versus lidar. But it also pertains to when you have multiple lidar sensors or maybe lidar sensors and stereo cameras or monocular cameras, stereo cameras, lidars and inertial measurement units.

And so there's a broader ecosystem of sensors that all have to be calibrated, synchronized and fused before you apply algorithms to them. And I think this is a place that Ouster can provide huge value by building that software layer for customers and providing it as part of our SDK and software ecosystem, providing the -- it just works platform of sensor perception and development that no other company has ever tackled.

We've done this in a couple of ways, but the big one is that we acquired a company, Stereolabs, just at the beginning of this year, which is a leading provider of stereo cameras. So that's colorized point clouds from stereo cameras and monocular cameras that we can pair with our colorized REV8 point clouds. And Stereolabs has also invested in this SDK, the ZED SDK that has over 10,000 users, something they've built over the last 1.5 decades.

And what it does is it fuses the disparate data streams from all these different sensors into one coherent stream that they can then pass the machine learning algorithms. So we have 10,000 customers currently using the ZED SDK. It's doing this exact -- this really difficult technical challenge that every customer needs to solve. And now we're just investing more and more.

We're getting REV8 onto the platform. We're building it out to be more robust and rigorous for production environments because I want customers -- I want the heavy equipment manufacturers of the world that are going to put 10,000 construction machines out into the world that have to last for 10 years, I want them running our software and our sensors. And so this is the start of that, that autonomy platform play, which is a major investment for us for the next decade.

Excellent. And just continuing on that, you guys have deepened the NVIDIA partnership in REV8 to DRIVE and Jetson and dedicated toolkits and drivers for Orin and Thor. How does that reference design position and the kind of the brand compatibility with NVIDIA translate into the sales process and adoption rates for the Ouster platform?

Yes. The partnership with NVIDIA has been great. We've really expanded our work. I mean REV8 did a couple of things that immediately put us as a key partner for NVIDIA. The first is just ASIL-B automotive safety standards and just safety qualification. So we're an automotive REV8 product line now, and so the NVIDIA DRIVE group is very interested in that aspect because they want automotive-qualified sensors.

In the robotics space, we now have all the monocular and stereo and cameras along with the REV8 lidar cameras. So we have the full suite of robotic vision sensors that we can deploy into the NVIDIA robotics ecosystem, JetPack and NVIDIA Isaac. And then there's some other stuff that we can do in the future with smart infrastructure and things like that.

But -- so -- we're a great partner because we have all of these sensors. They all work well together, and we're making the investment to make sure that they work in the NVIDIA ecosystems like DRIVE and JetPack. And in some case -- in some ways, it's a similar play to what we're doing internally with our own SDKs to make everything interoperable and a great ecosystem, but some customers are going to want to work in an NVIDIA ecosystem. Some customers are going to work -- want to work in an Ouster ecosystem when it comes to software.

Under the hood, it's still Ouster sensors and it's still NVIDIA chips, whether it's our software platform or an NVIDIA DRIVE platform or an NVIDIA JetPack platform. So everyone is kind of winning no matter what. And it's -- and we're just providing a couple of different ways to interface through software, whether it's an Ouster software SDK or an NVIDIA software SDK.

So that's part of the broader ecosystem play here. We want customers to have a lot of different options to go build this high-quality software. And we're still, under the hood, the key enabling technology and the hardware and the low-level work that's been put in on the software side on both ecosystems.

That's super helpful. So Ken, how are you guys translating that into evidence of pricing margins, durability of cash flow? How are you thinking about that? There's -- maybe this is for both of you guys, but I'll put you on the spot, Ken, and give Angus a minute to catch his breath. That's the real heart of this, right, is the business model that you guys have built and the operating leverage plus the flywheel of amplifying sales here. So how are you thinking about that moat evolving from here and translating into margin?

Well, I think it's 3 steps. Number one is continuing this rotation into a platform, having the ability to offer customers both the lidar, the camera, the compute and the software to it, that becomes a very sticky and becomes value add versus just selling an individual component. And so continuing that rotation to bring solutions to the marketplace that can help just like we do with BlueCity with a no-code turnkey ITS solution is the perfect example of how we're going to continue to innovate and grow this platform out.

I think the second piece is continuing to be diverse in our product portfolio and finding ways that we can continue to go across our verticals with the products and offerings that we have. Not being niche or specific to a specific use case like ADAS or consumer ADAS has really benefited the company and not being price pointed down or being pressured into a point where you have to lower your standards in order to win business.

Having a portfolio that can go across all these different use cases has really been invaluable to helping bolster that overall ASP and the value that people can see from our platform. So those 2 things really are the major drivers that we see in the long term.

And last but not least is innovation. What Angus didn't say is with the new L4 chip that we released, we have programs and roadmaps we're working on today for next-generation innovation. So continuing that investment in innovation, continuing to broaden our portfolio, not just from new chips but also from form factors that can fit into different use cases using the same base technology, that's something you're going to see us invest in over the next 12 to 24 months that's going to keep that ASP and that margin in a good level.

Excellent. And then just shifting gears a little bit into the supply chain. Obviously, you guys have been qualified for the Blue UAS. There's a lot of Buy America activity right now, the tariff dynamics. Can you talk a little bit about how you're seeing the supply chain evolve as you start to scale up a little bit more actively and start to see some of these other elements impact the sales process as well as the -- just component availability and pricing?

Well, I can start with that, Angus. I think number one is having the ability to buy ahead on long lead time parts. The good thing about having visibility in the backlog with your partners is you know what they're looking for, at what quantities they're at. So we've been able to go out in the marketplace and secure enough components to give us visibility, sometimes 18 to 24 months into the future to make sure that we have that inventory on hand.

You might have seen, if you look at our balance sheet, it's ticking up a little bit, and that's predominantly because of 2 reasons. One, we're going to continue to invest more in the supply chain. We want to be a provider that can do quick turns with folks, particularly within the Stereolabs business. So you're going to continue to see us invest more in that finished good inventory to be able to supply and meet the market demand pretty quickly. So continuing to invest in the supply chain and the capacity at our CMs is something that we're going to focus on here over the next 12 months.

Angus, would you talk -- anything that you would supplement around that? I mean obviously it's been...

Yes, maybe around the strategic aspects with customers, I think, is part of the question you're asking is like things like Blue UAS, which is a certification around the source of our supply chain components, really domestic source or Western partners for sourcing strategic technologies like lidar. So there's been a lot of effort to make us a preferred partner for companies that need a secured supply chain of this -- of lidar. It's been years of effort. We've divested from a Chinese supply chain as one example, which is no small feat. That's why we're able to get a certification like a Blue UAS certification. These aren't just window dressing. This is real effort, and getting the certification was a huge lift. And it's just one that we've been investing in for years at this point.

So there's definitely -- when I go into customer conversations now, it's one of the first questions that gets asked, is where are you buying your parts, where are your major suppliers, where are you manufacturing the product, how can I guarantee that I'm going to maintain a supply of this product and you don't have undue risk in your supply chain. So that's -- and part of it's about geopolitics, and part of it is about just like things like semiconductor crunch and continuity of supply and things like that.

So we have a world-class operations team and supply chain team that has built very deep partnerships with our critical single-source suppliers. And it's just not something you build overnight. We've been working on this for years. And I think we're way ahead of kind of the average technology company when it comes to this.

Excellent. Yes. Speaking of derisking, you guys have raised a lot of money in the last 12 months, right? And you put yourself in a fantastic position from a balance sheet perspective and model. You've kind of stayed disciplined on your spending. You've got kind of single-digit -- low single-digit millions of EBITDA losses per quarter, over $450 million of cash after this last transaction. Talk to me about what that does for you from a customer perspective and a planning perspective for the organization as you think about trying to become the -- really being the dominant lidar player in North America and Europe on a go-forward basis.

Yes. I mean the first thing is we got to this point because we were good stewards of cash, and we're going to continue to be good stewards of cash despite having $450-plus million on the balance sheet. But it is a critical -- it's a selling point when I'm in customer conversations. And a lot of times now these are C-suite level conversations because lidar has become a critical technology for the future of autonomy platforms kind of the world over, and there aren't that many places to buy lidar. Ouster is one of very few companies that a lot of companies are able to source from.

So they want to know that we have a long history ahead of us. And this completely removes -- these raises that we did completely remove any kind of financial funding risk from Ouster. We said on the earnings call, we see this as -- we have a fully funded business model. Regardless of kind of what happens or what directions and investments we make in the future, we're fully funded. So that resonates internally. It resonates with investors, and it resonates with customers. It's definitely a strategic selling aspect of what we've done here.

So as you guys look at the landscape, the physical AI space is evolving pretty quickly. Where are the biggest risks that you guys are thinking about right now? And where is the most rapid evolution that you're going to have to respond to? I think as folks start to digest the impact of AI and on some of the design cycles, there is some improvement and some kind of just fluff about what's happening here. And so there's, I think, a lot of BS, and then there are some real things that are happening. So curious how you guys are thinking about technology risk and market risk on a go-forward basis and how Ouster is getting ready for that.

I -- we diversified fundamentally because it reduced risk -- diversified commercially into our 4 markets: automotive, industrial, smart infrastructure and robotics because it reduces risk. And a lot of the risk is technology risk associated with our customer, a particular type of customer scaling an emerging technology.

And when we founded Ouster in 2015, the emerging technology that had risk was robotaxis. And we were smart to diversify into many different verticals. We still sell into robotaxis. And today, we have a great business in our robotaxi, robotrucking customers, but man, was at a longer time line to scale than most people predicted in 2015 other than we were 1 of the few that kind of had a realistic view on this.

So -- and that's not to say that there wasn't a lot of revenue generated along the way for things like lidar sensors into robotaxi companies. So I think that there's -- I take that same viewpoint to the current scaling of robotics. Obviously, everything that's happening with advanced robotics is real. It's here to stay. They're going to be humanoid robots doing productive work in our society, guaranteed and already are in some cases.

But we have purposely diversified to the point that we don't know the exact trajectory of that scale up a few moments. It's very frothy right now, and people are deploying a lot of that type of robot or building a lot. We're selling a lot of cameras, a lot of lidars into those applications. That's great revenue, but it's also not the only revenue that we generate. We're diversified because no one can predict the way that this set of physical AI robotics is going to progress in kind of fine-grained detail. All I can say is that I know that it's growing very significantly, and Ouster is a core part of it.

And now we're coming to the end here, and we spent a lot of time on technology, which I kind of enjoyed as much as some of the finance pieces. But as we think about a robotic future, right, and the interaction of robots in human environments and human-machine interaction, you guys rolled out, even though there's a lot of attention around RGB elements of the lidar, the functional safety piece of the lidar is a big deal, right, in terms of where risk sits at the product level and who takes this on.

And the way you guys explained it to me was just like it's like automatic braking, right, and that sort of functionality. Talk to me about how important that is as folks start to figure out human-machine interaction with these bots and what you bring to the table in terms of facilitating that market adoption and growth.

Yes, this is a great -- this is somewhat of a subtle part of our strategy or maybe we haven't been communicating enough about how important safety-certified sensors are and safety in general is for physical AI. If you -- a world in which there are millions and millions of these powerful, capable robots in our world is only a good future if those robots are safe. And humans are bad at judging the level of safety required for us to be comfortable with technology.

This is not 99% safety. We can't have 1 in 100 robots or -- doing something unsafe falling on your toddler in your home. You can't have 1 in 100 days a robot breaking the dishes in your dishwasher. You can't do this over 1 in 1,000 days if it comes to human safety.

It might be, if you ask people, maybe 1 in every 10,000 days across the robot population, you can have a robot doing something mildly unsafe in your home. But not when it comes to your kids. So that maybe 1 in 100,000 robots can do something unsafe every year in someone's home. That's probably the level where most people will accept it. That is vastly beyond where we are today for this technology. And the core -- the path from getting where we are today to getting where we need to be ultimately comes down to -- well, it's many layered, but a core component is certifiable perception, knowing that the world around you that you're sensing is being sensed in a guaranteed, certified way that is "functionally safe" and is correct in kind of all ways and is fault tolerant.

And so that's what we're beginning to sell, is certified safety, critical lidar sensors. All REV8s are going to have this option. And it means that you will literally be able to trust your life and the life of everyone around you on the output of Ouster's REV8 lidar products. And that's how we bridge the gap from a robot that works 1 in 100 days to a robot that works 1 in 100,000 days, which is where we need to get.

There are many more layers to it, but a really critical and hard part of it is the underlying sensing hardware. And there's a huge amount of value to capture from being a company that gets there and builds a reputation on providing that kind of technology first.

Well, given the fact that we're just about at time, and that's a very big idea for people to digest and think about how to value that, I think we'll leave it there. Guys, I want to thank you all for your time and your partnership here. We value the working relationship with you guys and are excited about what you're building.

For the investors here, please give me a call if you have any questions. We're happy to answer questions or get you in touch with the company as it makes sense. So thanks guys for the afternoon, and we look forward to talking to you soon.

Always a pleasure. Thank you.

Hello, and welcome to Ouster's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website an hour after the completion of this call.

I'd now like to turn the conference over to Chen Geng, Senior Vice President and Strategic Finance, Treasurer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our second quarter 2026 earnings call. Today on the call, we have Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Ken Gianella. As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, product advantages and growth opportunities, anticipated industry trends, our business and strategic priorities, our operating expense targets, the impact of our recent acquisitions, the development and expansion of our products, our products' capabilities and performance, and our revenue guidance for the third quarter of 2026 and long-term financial targets. Actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the second quarter 2026 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates.

In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release.

I would now like to turn the call over to Angus.

Hello, everyone, and thank you for joining us today. I'll start with a brief recap of the quarter and an update on our strategic priorities before Ken covers our financial results in more detail. We delivered exceptional results for the second quarter, generating $55 million in revenue and shipping over 17,000 sensors. This marks our 14th straight quarter of product revenue growth and is a testament to the strength of our unified sensing and perception platform.

We had strong contributions from our industrial and smart infrastructure verticals for use cases in warehouse automation, yard logistics, port automation, mining and ITS. Across the world, customers have continued to scale their investment in physical AI. Our smart infrastructure business continues to scale with major deployments in New Jersey and Georgia to support the 2026 FIFA World Cup. The New Jersey DOT deployed Ouster BlueCity to create a digital traffic twin across 42 highway locations around MetLife Stadium. In Georgia, we deployed BlueCity at an additional 30 intersections across the Atlanta area, including around Mercedes-Benz Stadium. Upon the conclusion of the World Cup, BlueCity will continue to provide high-fidelity traffic monitoring, automated data analytics and real-time safety alerts, designed to optimize traffic and enhance the safety of everyday residents in these locations.

Ouster sensors are helping industrial customers like AIM Intelligent Machines improve safety and productivity for autonomous operations in complex unstructured environments. AIM's autonomy kits retrofit heavy machinery into AI-powered fleets that maximize safety and productivity. We expanded our footprint in the defense industry with a strategic agreement with ARGUS Interception and announced a collaboration with FieldAI to leverage Rev8 to power the next generation of robotic autonomy in markets like construction, mining and security.

The second quarter was also a period of strategic execution and expansion for Ouster. We brought the world's first native color lidar sensors to customers with Rev8 and set a new standard for wrist-mount stereo vision with the ZED X Nano. We also deepened our partnership with NVIDIA, bringing Rev8 to the NVIDIA DRIVE and Jetson platforms. With dedicated NVIDIA toolkits supporting direct data ingestion and drivers designed to leverage Jetson Orin and Thor, Ouster is providing customers with a production-ready ecosystem that is critical to solve the most complex challenges in physical AI.

We are actively scaling our Rev8 production lines and anticipate reaching production volumes by the end of the quarter. As previously announced, we expanded our partnership with Benchmark to support Rev8, establishing manufacturing capacity that ultimately exceeds 100,000 units per year. We also achieved Build America Buy America compliance for Rev8, which makes Rev8 and BlueCity eligible for deployment in U.S. government-funded infrastructure upgrades.

Finally, we continue to bolster our strong operational execution with disciplined financial management. Building upon an already resilient balance sheet, the additional capital we raised provides us with the ability to fully fund our current business plan, while providing immense strategic flexibility. This strength gives our customers ultimate confidence in our ability to serve their needs and serve as their foundational physical AI partner.

Turning to our 2026 strategic priorities. We progressed across all 3 key focus areas: revolutionizing our lidar camera and AI compute products, extending our leadership in physical AI solutions and executing towards profitability. The launch of Rev8 was the most important product release in Ouster's history and a pivotal moment for physical AI. Featuring the world's first native color lidar, Rev8 has set a new industry benchmark and delivers the Holy Grail for 3D spatial perception. Feedback from customers has been electric, calling Rev8 a massive leap in sensing capability that provides unprecedented situational awareness to scale next-generation physical AI solutions where it matters most.

Engineered for functional safety and built for scale, Rev8 is driving commercial momentum across all of our verticals. From the harsh demanding environments of mining and construction sites to the dynamic complex world of robotaxi fleets and statewide traffic networks across the country, Rev8 is cementing Ouster as a core perception partner for market leaders scaling real-world autonomy.

Customer response has been immediate, highlighted by multiple million-dollar-plus orders, including the world's largest manufacturer of heavy machinery, a leading developer of autonomous agriculture equipment and a top autonomous vehicle provider. During the quarter, we secured a significant order to provide the Utah Department of Transportation with its largest lidar deployment to date, covering several hundred intersections across the state. With native color and industry-leading performance, Rev8 is solidifying our market leadership and deepening relationships across these and other key accounts.

Our acquisition of Stereolabs is already proving strategic and financial value. The ZED X Nano was the most successful launch in Stereolabs' history and expanded our reach into industrial and robotics markets, winning new sockets requiring smaller form factors. By delivering high-resolution and ultra-low latency capture pipeline and millimeter accuracy, we're giving roboticists a major upgrade to their vision systems, enabling machines to sense, think, act and learn with unprecedented precision. With a unified lidar camera and AI compute stack, Ouster is providing customers with the world's most capable perception platform.

We also upgraded our Gemini and BlueCity software solutions with Rev8, opening up a new level of spatial intelligence. This breakthrough introduces the industry's first native color lidar detection system, simultaneously capturing both color and 3D depth information without the need for complex calibration. Powered by the Rev8 OS1 Max, we released advanced detection for BlueCity, delivering double the range and resolution of previous generations and achieving multimodal detection and classification up to 500 feet. By providing unmatched situational awareness and delivering precise high-fidelity digital traffic twins, Rev8 opens up higher speed markets and allows transportation departments to further optimize signal timing based on real-time data to improve traffic flow, while reducing their total cost of ownership.

Privacy is paramount for this market, and we designed BlueCity with system-level privacy features at the edge to reduce the collection of identifying features. Ouster BlueCity has quickly become a premier traffic management solution, including the 3 largest lidar-based deployments in the United States, and our goal is to be the #1 provider of smart infrastructure solutions. Since its launch in 2023, we have established Gemini as a standard for sensing and perception, providing the real-time digital twin necessary for our smart infrastructure customers to increase their efficiency and safety.

We see an enormous opportunity in our other verticals to provide software solutions for everything that moves in the physical world. Similar to smart infrastructure, these customers need a less technical turnkey solution that is easy to deploy, and we will continue to invest in products and solutions that broaden our market opportunity and help accelerate our customers' development.

Finally, our strong results are aligned with our long-term financial framework. We are making strategic investments to expand our addressable market, while maintaining our path to profitability.

With that, let me now turn the call over to Ken, who will provide more context on our second quarter financial results.

Thank you, Angus, and hello, everyone. In the second quarter, we delivered a record quarter of revenue and number of sensors sold and introduced multiple new products to the market. These are important proof points in our continued execution against both our financial and operational goals. These results reinforce our confidence in the long-term financial model, supported by continued operating leverage and strong customer demand across our served markets.

Turning to the second quarter financial performance. Operating results were again strong with revenue of $55 million. This represents an increase of approximately 56% compared with the second quarter last year. The industrial vertical was the largest contributor to the second quarter revenue, followed by smart infrastructure. We shipped over 17,000 sensors, a new quarterly record, which included over 9,000 lidar and over 8,000 camera sensors. Royalty revenue in Q2 was approximately $1.9 million. And for the first half of the year, royalty revenue was approximately $2.2 million. We continue to estimate total royalty revenue in 2026 to be around $5 million for the full year.

GAAP gross margin was 49%, up from 45% in the same quarter last year. A onetime refund was included in our cost of goods sold, which positively impacted gross margin by approximately 1,000 basis points. As a reminder, in the second quarter of 2025, we had a onetime refund, which positively impacted us by approximately 500 basis points. We do not expect these onetime benefits to reoccur in our ongoing normal operations.

GAAP operating expenses were $47 million, an increase of approximately 10% from the second quarter last year. The increase was primarily due to the addition and integration of Stereolabs for a full quarter, new product introductions with the Rev8 and ZED X Nano, and recent investments in expanding our physical AI solution portfolio. We are closely monitoring our operating expenses and anticipate the third quarter expenses to be 5% to 8% higher year-over-year.

Our adjusted EBITDA in Q2 was a negative $4 million, which was an improvement of approximately $1 million from the second quarter last year.

Turning to our balance sheet. We ended the quarter with cash, cash equivalents, restricted cash and short-term investments of $263 million and no debt. This figure includes approximately $98 million raised in the second quarter through our previously discussed ATM program. At the beginning of the third quarter, we further strengthened our cash position through a successful offering of common stock, which closed on July 6.

Given the favorable market conditions at the time and corresponding strong investor demand, we closed a common stock offering that generated approximately $191 million in net proceeds. Upon completion, we had approximately 72 million shares outstanding. This strategic financing decision gives us additional capital to support our growth objectives, invest in opportunities we see across our markets and further strengthen what is already one of the industry's strongest balance sheets. Furthermore, after this most recent financing, we do not expect to need additional capital to fund our current operating plan on our path to profitability.

Now turning to our guidance. Total revenue for the third quarter of 2026 is expected to be in the range of $54.5 million to $57.5 million, with the ramp of Rev8 to production volumes expected to occur throughout and into the latter part of the third quarter. Our full year revenue expectations remain unchanged.

The acquisition of Stereolabs, introduction of Rev8 and ZED X Nano and our expanding software and AI solutions are great proof points towards our continued investment to be a leader in sensing and perception for physical AI. Our execution continues to build confidence in our long-term financial model.

I'll now turn the call back to Angus for his closing remarks.

The second quarter continued the momentum of the most transformative year in Ouster's history. With the landmark launch of Rev8 and the ZED X Nano, the integration of Stereolabs, a strengthened partnership with NVIDIA and significant strategic flexibility provided by our capital raises, Ouster is further extending its leadership as the foundational end-to-end sensing and perception platform for physical AI.

Our focus remains on providing the industry's most performant products and solutions, dramatically simplifying system integration and accelerating time-to-market for the world's most innovative companies. The resounding customer feedback we received enforces our strategic path.

With that, I'd like to open the call up for Q&A.

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

Can you give us a sense -- you mentioned some of these orders that you're talking about, the bookings and kind of backlog that you guys are looking at -- some order of magnitude or quantification of what you're looking at that's already been kind of put into your expectations for revenue ramp over the next couple of years?

Colin, yes, good question. So we gave a bit of color as it pertains to this year, Q3, Q4, and our revenue expectation remains on track, just given the really strong reception to Rev8. So we -- it's been 1 quarter with Rev8 out being sold, and we've already racked up very significant wins with Fortune 500 companies, millions of dollars worth of orders. And now, we're ramping the production to ship the product at volume scale this quarter. But Rev8 will fuel the core of our business for my expectation in the next 5 years. So -- and we have very strong signal on that being the case, just given the reaction that we've already had and how much better the Rev8 platform is and how expanded the Rev8 platform is with the long-range Max sensors and RGB sensing versus Rev7, which has been the core of our business for so long.

Adding on top of that, Stereolabs, which is having an exceptional year. And we're sitting on 50-plus-percent year-over-year product revenue growth as a company and feeling very, very bullish about both this year and the future of Ouster. So yes, not giving exact bookings numbers on the full year quite yet, but feeling really great about the business for sure.

And can you just talk about the competitive landscape a little bit? Now that you've got a couple of very differentiated capabilities in the sensors, coupled with the software capability, can you talk about how competitive some of these bidding efforts are and how you're thinking about pricing on a relative basis?

Yes. Well, I view -- the lidar is not an easy business. Physical AI is not an easy business. These are new technologies that require significant investment. And I visualize this as almost as a flywheel of investment that gains momentum slowly, but considerably year in and year out for any company that's able to be consistent and focused in their strategy and investment over that long time period. I think NVIDIA is such a great example of this, sticking to their guns and investing in edge compute, and we see the results. But that was a strategy compounded over decades. And I view Ouster the same way. We are sticking to our -- to what we do best, cutting-edge technology in sensing, perception, whether it's a camera, a lidar, the compute and the algorithms that run on them. This is a virtuous cycle that has an immense amount of institutional inertia in it that gives us an edge today, but accelerates and keeps that momentum for the next 5 years.

So in terms of competitors coming and just catching up, given that there's this amount of investment needed, I don't see anyone just kind of jumping into the mix and being able to build what Ouster has built in a year or a couple of years for that matter, given that I've been at this for 11 years straight. So, yes -- and I think that Ouster is yet to have any major misstep on strategy, technology, product mix or M&A. And that can't be said for a lot of our competitors. So I'm feeling very good about how we positioned Ouster across all of our markets for the foreseeable future.

And just the only thing I'll add on to that, Angus, is the software piece of it that you -- that he discussed was, taking all that infrastructure that Angus just put together and then having products like BlueCity that go end-to-end into the marketplace and expanding that software component with the investments that we're doing in our software, it's very hard for any company to match the investment that Ouster has done in that area. So it's -- we are one of the few companies, if not the [ only company ], out there that have that end-to-end game in play.

[Operator Instructions] Our next question comes from the line of Kevin Cassidy of Rosenblatt Securities.

Congratulations on the ramp of Rev8. And maybe just along those lines with Rev8, were there any orders that you couldn't ship for the quarter because Rev8 wasn't available? Or, let's say, even for this quarter, in the guidance, is there potential that if you could make more, you could guide for a higher revenue, you have more orders than you do product?

Well, we always carry a backlog in our business. We maintain inventory and a healthy backlog for the lidar business and increasingly for the Stereolabs camera business. And so, that's kind of a -- I can answer it technically. There could be more revenue to ship, but it's at the sacrifice of backlog, which we wouldn't want to do, and we also want to uphold our lead time obligations and shipment schedules with our customers. So what we're guiding to is what we think we can ship realistically in revenue each and every quarter, and there's not that much wiggle room within that guide.

Okay. And maybe on BlueCity, it seems Utah is starting to release more orders. And what is the time frame? Or can we expect that in Atlanta or Stamford, Connecticut or even Northern Jersey that your foothold will expand? Is there a time frame expected for that? Or do you just sit and wait?

Yes. I see the expansion happening all the time. So while I don't know exactly what will happen in Atlanta or New Jersey specifically, the trend is, customers get their hands on BlueCity, they deploy POCs, then they deploy citywide scale or statewide scale, and it works, and then they order more and more and more. And so, Utah is one of the earliest adopters, been a really strong customer of ours for -- so they're furthest along perhaps in adopting the BlueCity product. And so, when they saw the advanced detection capability that we came out with 500-foot sensing with full RGB OS1 Max sensors, they were first in line because they knew how well it would work on Utah's big, wide open roadways. So, that is absolutely an indication of where this market is going and the competitiveness we bring to it with the new OS1 Max Rev8 sensors.

There's a huge part of the market that we now have broader access to because they're bigger roads, bigger, wider roads with higher-speed traffic, where the longer range is pretty critical. So yes, a lot of momentum in BlueCity. And I would say that the trend is, customers get their hands on it, and they order more and more and more. Very few customers are kind of stagnant in this industry for us, given how good the product is.

And we gave a number at the beginning of the year, just to add to that, Kevin, of about 15% of our sales were based off of BlueCity and Gemini-based products. We expect and would like to see that continue to grow upwards as the years go on, a bigger portion of that type of BlueCity content being a larger portion of our revenue in the years to come.

Our next question comes from the line of Suji Desilva of ROTH.

Congratulations on the progress here. I want to follow up on the questions on ITS, intelligent transport. I'm curious, you have a bunch of customers already. But in the deal pipeline, are you seeing any exogenous factors that are maybe causing an inflection in the inbound interest or activity in terms of layering on deals and kind of growing this functionality out there beyond the initial customers you have?

That's a great question. There's a lot going on. We've actually invested a huge amount into BlueCity this year and the go-to-market, and we're starting to see the payoff of that. Rev8, I can't stress it enough, the [ OS1 Max ] advanced detection, long-range detection opens up about half the market. And the market, as a reminder, in North America, there are 300,000 signalized intersections. In North America, we have hundreds -- rapidly moving to thousands of intersections deployed. But it's still a very small fraction of the total market that we can go and capture. So we're not going to be gated by the market size in the foreseeable future, and we have the best product in the market. I'm convinced of that.

So yes, I think that the first 6 months of this year have been a huge inflection point for our BlueCity business, given the investments we've made in the go-to-market strategy and the product development on the software side, and then integrating this new Rev8 RGB OS1 Max capability.

Okay. Great. And then, just on an end market that's emerging here, robotics, I just want to understand how that might play out for you guys, what you're seeing in initial sort of discussions? And are we early in this? Or is there contribution already or coming soon? Just an update there where robotics is as an end market for you guys.

Yes. Robotics has been an incredible business for us. We've -- Q2 was the first quarter -- first full quarter with Stereolabs under the Ouster umbrella. And Stereolabs is stereo cameras that -- and monocular camera products, including their release of the ZED X Nano, which is a special stereo camera for wrist-mounted manipulation on humanoid and robotic arms. They have the most competitive set of products for this like hypergrowth humanoid and robotic manipulation market. And we've seen incredible kind of interest and uptake from that customer set. So I feel like I'm in the thick of this industry that it was kind of lidar-adjacent. But now, with Stereolabs under the umbrella, we are just -- we are pushing every last camera we can through our manufacturing supply chain to get them to customers because of the voracious appetite for physical AI systems in that category set.

Our next question comes from the line of Tim Savageaux of Northland Capital.

Congrats on the revenue growth in the quarter. I'll just start with that last question, which is going to be about kind of capacity overall. You mentioned the announcement with Benchmark and the 100,000-plus, I gather, for lidar sensors. And my first question was going to be, running where you are, which is below 40,000 currently annualized, what drove -- what prompted, I guess, that announcement? I think it's the Rev8 launch. But how long do you think to get there, I guess, to that type of capacity metric from where you are currently? That's from a lidar perspective.

And given your comments you just made about Stereolabs, what kind of -- are there similar capacity dynamics there regarding what you have currently relative to what you're shipping and where you'd like to be from a capacity standpoint?

Yes. So the -- we need to be investing in the capacity plan for the lidar because if you actually look at our lidar unit volumes, they're up 70% year-over-year. So they're way up, and I expect that to continue. I mean, this adoption of physical AI systems has really caught us by storm, and we're shipping a lot more lidars year-over-year. And that compounds very, very quickly from 40,000 unit a year run rate on up to 100,000. So we'll probably -- we'll have to be expanding beyond 100,000 because we always want to have excess capacity to make sure that we can meet last-minute product SKU changes in our customer set. So -- but we have a really good handle on it because of the long-term relationship we've had with [ BET ] -- with Benchmark.

On Stereolabs, part of the rationale of the merger from that team was finding a partner like Ouster that knew how to scale production, and that's really playing out. So we have a major focus on maturing their manufacturing strategy and their capacity because of the explosion in demand that we're seeing out of their customer base. So it couldn't have come at a better time for them that we now have the entire Ouster operations team and our COO, Darien Spencer, hyper-focused on the scaling effort. So yes, there's definitely a lot of work we're doing to just meet the demand on the Stereolabs side.

Okay. Sticking with that for the moment, I know it's a full quarter here, but it's a pretty big stub last quarter, seemed to be a pretty sharp uptick in Stereolabs sensor unit shipments that goes well beyond the inclusion of the full quarter. Was that ahead of your expectations? And is it fair to tie that to humanoid robotics demand? Or are there other drivers there?

I mean, I think the first thing is, it's within the plan that we have for the full year for them. We're really excited in how we looked at that. We anticipated this ramp-up once we got a hold of them heading into the back half of the year. The capacity piece of it, and especially in this marketplace with as hot as robotics is right now, you have to have the capacity to service the demand comes in. You don't want that order slipping or pushing to another provider potentially. So we are investing this quarter, and we're going to continue to invest in the next couple of quarters in building their capacity to ramp expectations, not just what we've already laid out for this calendar year. We guided at the beginning of the year, we expect that to grow at least at the midpoint on a year-over-year basis, 40%. But we see this progressing as a multiyear thing. So having that capacity to go into '27 and beyond is important to start driving that now.

Okay. And last question for me. And you mentioned -- you talked about humanoid robotics more in the context of cameras, but at least certain configurations or certain units seem to have, in some cases, a couple of lidar sensors on them. Is there a lidar sensor opportunity here as well in humanoid robotics? Or should we think of that more focused on cameras?

Well, I'm just looking at the humanoid platforms, and there's upwards of 100 to 200 of them that I've seen. Every one of them has 6 to 12 cameras, sometimes more, and then a small subset have lidar. And so, yes, there is absolutely an opportunity for lidar. And as we continue to build different form factors of our lidars, there could be better fits in terms of form, fit and function for the humanoid market. But right now, that's a solidly camera-first market.

And -- but the broader question, we have seen a lot of cross-selling opportunities within the customer set outside of just humanoids. Stereolabs has a lot of industrial customers, a lot of heavy equipment customers. And there, we're getting inbound saying, hey, we're already buying a Stereolabs camera. We are looking at layering in lidar or safety lidar or some kind. Can we just buy Ouster? And vice versa. Huge number of customers in the lidar domain, traditional Ouster customers that have been sourcing cameras somewhere, and now they're coming to us saying, hey, we'd much rather source this all from one reputable partner. And so, can we buy these stereo cameras now? So the cross-selling has emerged organically, which is great to see. It's just part of the thesis that customers would prefer a business combination of 2 companies like Stereolabs and Ouster. And then, there's obviously some inorganic outbound stuff that we're doing with the sales teams to cross-sell.

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

Congratulations on the quarter and all the great progress. I think a lot of the things we wanted to touch on have been asked, but maybe a 2-part question. Angus, are you able to share like how should we be thinking about cadence and unit mix going forward between lidars and cameras? Not looking for a specific number, but just maybe percentage-wise or just kind of how are you thinking about that and how we should be thinking about that going forward in terms of the split?

And then the second part of that question is, if you could maybe highlight what you see as the key upcoming catalysts that investors should be aware of?

Yes. So thanks for the question, Andres. So the unit mix expectation somewhat follows the ASP difference between these technologies, so cameras at much lower ASPs than the lidar sensors. There are also -- cameras are directional versus our lidars are 360. So you need more of them to cover the field of view of a robot. So right now -- Stereolabs is a smaller company that's now becoming a midsized kind of entity within Ouster. And I see their unit volumes increasing and outpacing the unit volume increase of lidar just because of the dynamics. More cameras are deployed on these robots because they're at lower ASPs, and they need to be positioned to cover the field of view of the robot differently than a lidar. That's good news for us. It doesn't mean we're going to sell fewer lidars. We see our lidar unit demand also accelerating, but just accelerating at a slightly slower pace than the cameras.

And then, in terms of catalysts for the business, I mean, there are so many things that we're doing right. And, I mean, we're just starting to feel the positive effects of the Rev8 release across all of our verticals. I've talked a ton about that. But, I mean, native color is such a big deal to this customer base. It really blew away my expectations, the customer reaction to native color lidar. We have almost universal adoption of native color in the Rev8 customer set. And then, you layer on that the stereo cameras and the ZED X Nano that was released and the future road map that we have there. And finally, the unified sensing and perception stack that we're building is resonating with customers.

So if we talk about a catalyst that's a little further in the future, it's the ability to bundle all of this technology, compute, cameras and lidars and the software that runs it together in a way that speeds customers' time-to-market, gets practical physical AI that's safe, efficient, capable in the hands of the thousands of customers that we're already serving today with just hardware. So that's the mission of the company -- or one of the big missions of the company going forward for the next couple of years is transitioning from a fantastic ecosystem supplier of these parts to a solutions provider that's providing the full stack software that underlies all of physical AI. That's going to be a big catalyst for us in the next 5 years.

Excellent. And maybe just as a quick follow-up. I think we talked a lot about robotics and humanoids. I wanted to come back maybe to drones following your previous certification there. So just curious if you can maybe give us some color what kind of near-term or medium-term opportunities you might be pursuing as it pertains to drones and maybe how material do you expect this segment to be going forward?

Yes. So drones are very interesting for us. I think Rev8, we have a couple of things -- a couple of capabilities in Rev8, native color, improved accuracy, precision and range that are very specific or useful in the drone surveying market and drone navigation market. And so, I've been talking with a lot of drone customers lately, just getting Rev8 in their hands. And there's been an extremely positive reaction to what Rev8 can do either as a surveying payload or as a navigation payload on drones. And obviously, things like a Buy American Build American certification is helping immensely in that market. We previously have the Blue UAS certification on Rev7 products. You can anticipate maybe that's where we could invest more in Rev8 as well. So there's a lot of things that are going to be tailwinds in that market. And then, the customer reaction to Rev8 has been really, really good in the drone market. So I definitely see it as a growth area for us through the end of the year.

Our next question comes from the line of Richard Shannon of Craig-Hallum.

Let me ask a couple of questions. Apologies for asking -- potentially asking questions that have already been asked. I got on the call a little bit late here. But I did want to follow up on Rev8. I've heard a couple of questions and answers so far, and it sounds like the reaction has been at least as strong as you're hoping for when you announced it last quarter here. But Angus, I'd love to get a sense from you of what kind of pace of adoption we're seeing here. Can you talk about, as an example, how much of your revenue base was Rev8 in the second quarter? I know it's early, but I'd love to get a sense. And do you have any idea of how long of a time frame to look for when Rev8 crosses over Rev7?

I have an expectation -- well, I guess, we've done this now -- this will be the eighth or seventh product transition that we've done at Ouster, right? Rev8, 7 times we've transitioned the customer base across revisions. So we do have really good information on how quickly customers transition. And Rev7 has been a product out in the market for 3 years, homologated into customer designs, certified by end customers. And so, there are going to be reasons completely unrelated to the benefits of Rev8, why customers may stick with Rev7. And it's core to our strategy that we actually remain a dependable source of Rev7 sensors for years and years to come. That's good for our customers because. Again, they've spent money homologating into Rev7.

Now, there are also new customers that see Rev8 as the solution to a problem they could never solve before and are rapidly adopting it, or totally new customers that we've never served before that now that we're capturing because of Rev8's unique capabilities, et cetera, et cetera. So this will be a 2-year transition is my expectation for the entire customer base, but it rapidly becomes a critical part of our revenue. And you know what, we're entering volume production because it is -- and at that point, it's a critical part of our revenue. So that's happening in the second half of this year, no question.

And I think it's less important to track the exact mix of Rev7 to Rev8 over the next 18 months so long as the adoption is in the direction of Rev8, which I'm absolutely confident it will be, just given all the value it brings. So yes, managing a customer's transition in this kind of market is really critical, and it's one of the additional benefits we bring to the table. And we spent a lot of time in the background, making sure Rev8 is backwards compatible with a lot of Rev7 capabilities for the customers that need that so they can adopt. And I won't bore you with all the details, but there's a lot of work that goes on here.

Yes. And I'll answer your other part of the question real quick. It was minor prototype sales that we had in Q2 that were in our numbers, but we expect that, with production ramp, to increase quarter-over-quarter into the back half.

Okay. Angus, that was great perspective. Second question is on gross margins here. I missed some of the prepared remarks here, and I know there's some amount of nonproduct revenues in here that probably has a different gross margin to it. But how do we think about the product gross margins in the quarter that makes it comparable with the last few here? They've been very healthy, well above or notably above your range for a while here. So I want to get a sense of trend here. And do you still think that 35% to 40% is the right range? Or can we see it consistently above there?

Yes. We think it's the right range in the near term. I know it may not feel like it with the last so many quarters being 40% and plus. A lot of that's come from revisions and cost-downs that made -- was very aggressive, a couple of [ bluebirds ] that we've gotten into there. On a normalized basis, the reason why I called out in the last -- this year and then prior year numbers was both of them had onetime elements that pushed us well into the north 40s. We want to be in the high-30s to 40s. We do see potential that you could go higher than that. We want to keep everyone's expectations in check as we start getting into more production orders in the out years for the models. We would see that to come back into that 35% to 40% range. Like on a normalized basis, this quarter would have been in the high-30s, right?

So we just want to keep the overall models realizing that we know production and different competitive market dynamics with supply chain are always going to be things that we're going to be fighting against year-on-year. But as we get more of a mix into our software strategy and more into our solutions like BlueCity, those definitely are higher than that range that we gave, and that's going to help bolster that into the future and potentially pull us higher as those mix of solutions come more of a play in the out years.

This does conclude the question-and-answer session. I would now like to turn it back to Angus for closing remarks.

All right. Thank you all for joining the call. We look forward to speaking with you again during the third quarter, and have a good day.

[ Thanks ] for your participation in today's conference. This does conclude the program. You may now disconnect.

Hello, and welcome to Ouster's First Quarter 2026 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website 1 hour after the completion of this call.

I would like to now turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our first quarter 2026 earnings call. Today on the call, we have Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Ken Gianella.

As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, product advantages and growth opportunities, anticipated industry trends, our business and strategic priorities, our operating expense targets, the impact of our recent acquisition, the development and expansion of our products, our products' capabilities and performance and our revenue guidance for the second quarter of 2026 and long-term financial targets.

Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the first quarter 2026 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission.

Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates.

In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release.

I would now like to turn the call over to Angus.

Hello, everyone, and thank you for joining us today. Over the last 4 months, we have seen the culmination of over 10 years of Ouster innovation, strategy and execution. In February, we acquired Stereolabs, a pioneer in AI camera vision and perception solutions, creating a world-leading sensing and perception company for Physical AI.

We are already seeing the strategic rationale transform into operational reality with a resoundingly positive customer response. And just yesterday, we launched Rev8, the world's first native color lidar and a paradigm shift in AI perception. To perceive the world in full context requires a combination of structure and color, and Rev8 is the first sensor to unify both.

With native color across our entire product portfolio of cameras and lidars, we have further strengthened Ouster as the foundational sensing and perception platform for Physical AI as we provide unified products and solutions that accelerate customer innovation and unlock new applications that sense, think, act and learn in the physical world.

Now turning to an update of our Q1 2026 results. Ouster had a strong start to the year, achieving our 13th straight quarter of product revenue growth with over 12,600 lidar and cameras shipped, reflecting robust demand for our expanded product portfolio. With $49 million in revenue, we achieved another record product revenue quarter on a strong 43% gross margin, overcoming headwinds from a continuing constrained supply chain environment. We ended the quarter with adjusted EBITDA loss of $7 million and cash, cash equivalents and restricted cash and short-term investments of $175 million.

Our Lidar business grew approximately 44% year-over-year with strong contributions from our industrial vertical, where we secured several large deals to power industrial automation. We significantly expanded our long-term relationship with a large European industrial company for port automation. In another key win supported by our NDAA-compliant centers, we secured a deal with an autonomous earthmoving company to retrofit heavy equipment to support a project with the U.S. Department of Defense.

Ouster's Smart Infrastructure Solutions business continues to validate our end-to-end system strategy. We saw continued momentum from our expanded ITS distributor network as we won contracts to deploy Ouster BlueCity across the United States, securing large million dollar deals to provide next-generation traffic actuation systems in Arizona, Michigan and the Northeast U.S.

We were also proud to announce the expansion of Ouster BlueCity with the Georgia Department of Transportation to modernize the region's traffic infrastructure. The turnkey Ouster BlueCity traffic management solution will be deployed at more than 30 intersections across the Greater Atlanta area in preparation for the FIFA World Cup and beyond.

BlueCity is bringing Physical AI to smart cities around the world with over 700 contracted site deployments across intersections, mid-blocks and highways, reinforcing Ouster's position as a leading solution for transportation departments, seeking to transition from legacy traffic solutions into dynamic digitally integrated 3D lidar-powered traffic management solutions for actuation and analytics.

We also saw strength from Ouster Gemini in the quarter, recognizing millions of dollars of revenue from a significant customer renewal. Leveraging our unified platform and proprietary deep learning perception model trained on over 4 million labeled objects, Gemini empowers our customers to operate more efficiently and safely at over 550 sites around the world.

In the months since the acquisition, Stereolabs has already proven to be a perfect complement. We're seeing benefits of our unified platform through the ability to immediately help customers, combine multiple modalities of sensors and AI compute, easing the friction of combining disparate technologies and accelerating our customers' go-to-market efforts.

The rapid integration and commercial success of our expanded camera vision portfolio provided tailwinds during the quarter, and business momentum exceeded our initial expectations. We are seeing strong demand from companies building foundational AI models and advanced robotics platforms and leading companies around the world are relying on our expanded product portfolio to train, scale and deploy the next generation of autonomous delivery, advanced manipulation and precision agriculture.

We continue to see large opportunities for Stereolabs to augment Ouster's perception road map to meet Physical AI's increasing demand for sophisticated multi-sensor fusion. By merging our proprietary AI models with Stereolabs neural depth capabilities, we are delivering the specialized perception logic and application-specific software required to revolutionize safety and efficiency across the global supply chain.

Continuing the momentum and our leadership in cameras for Physical AI, we released the Stereolabs ZED X Nano, which is shipping this month. This product sets a new standard for wrist-mount stereo vision, delivering 2.3 megapixels RGB with neural depth, 0 copy capture data pipeline and ruggedized GMSL2 connectivity and a 40% smaller form factor. Like all Stereolabs cameras, the ZED X Nano comes with a purpose-trained neural depth model, specifically tuned for its capabilities and further highlighting Ouster's deep vertical integration from hardware to software.

Engineered for robotic manipulation and high-throughput data collection, we are helping robotics teams scale imitation and reinforcement learning from manipulation tasks. Leveraging Stereolabs' industry-leading image quality and end-to-end capture latency, our customers can now overcome critical bottlenecks by capturing high-resolution RGB and stereo camera depth images at up to 120 frames per second for training data and manipulation learning.

And now turning to yesterday's highly anticipated product announcement. I'm truly excited to introduce Rev8, the world's first native color lidar sensors powered by next-generation L4 Ouster Silicon. We are redefining the meaning of lidar itself with native color sensing implemented directly on the silicon. By fusing color and 3D data through physics and leveraging Fujifilm color science, our patented native color technology unlocks megapixel resolution and stunning image quality with ultra-low latency and perfect spatial temporal alignment.

We work with industry-leading camera experts to ensure Rev8 delivers uncompromising industrial grade imaging. Delivering an exceptional 48-bit color depth and 116 dB of dynamic range, Ouster's native color data maintains performance in lighting extremes from 1 lux to 2 million lux. We live in a world where a machine's capacity to perceive is constrained by the capability of its sensors. Rev8 is built to generate the petabytes of rich, native color 3D information necessary to build the next generation of Physical AI systems and train new world models.

Now for the first time, a single lidar sensor can understand road signs, interpret brake lights or simply capture the richness of planet Earth in survey-grade colorized maps. Featuring radically upgraded OS 0, OS 1 and OSDome sensors and the new flagship 256-channel OS1 Max, Rev8 delivers industry-leading resolution, range and reliability designed for functional safety, affordability and scale.

Rev8 represents the culmination of years of research and development, innovative design and rigorous testing. It is the most advanced family of lidar Ouster has ever developed and sets a new standard in sensing. All of this is a testament to Ouster's digital-first approach, which starts with our proprietary system-on-chip.

Rev8 is powered by our breakthrough L4 Ouster Silicon with up to 256 channels of resolution honed over years of development by our in-house silicon design team. The L4 architecture features both the 128-channel L4 and the 256-channel L4 Max, each embedded with Fujifilm color science, resulting in exquisite color data and hardware-enabled high dynamic range.

The L4 boasts 42.9 gigamax of processing power, detection of up to 20 trillion photons per second, a 40-kilohertz measurement rate with picosecond timing precision and is capable of processing up to 10.4 million points per second and 22.4 gigabits per second of data bandwidth off chip. And we've paired it with a completely redesigned light engine, featuring all new custom VCSEL arrays and our most advanced driver topology ever. Enhanced by picosecond timing precision, this architecture delivers unprecedented levels of range, resolution and accuracy across the entire Rev8 OS family.

The cornerstone of the new Rev8 family is the flagship OS1 Max, a sensor without compromise. With double the resolution of the Rev7 OS2 and 1/4 of the size, the OS1 Max packs an incredible amount of capability into a small ruggedized form factor. The OS1 Max provides best-in-class performance with 256 channels of high-definition sensing up to 500 meters in all directions with a 45-degree vertical field view. No other 360-degree spinning lidar comes close.

Purpose-built for high speed autonomy, smart infrastructure and heavy industrial applications, the OS1 Max is capable of resolving the smallest objects at long range. And like all Rev8 sensors, the OS1 Max offers exceptional native color imaging. But we didn't stop there. We set out to build the safest family of 3D lidar sensors ever created. This took years of rigorous engineering work, testing and design validation. The result, Rev8 is life-saving technology made right, ruggedized for the real world with automotive grade reliability that can withstand the harshest production environments.

Ouster now offers a set of products to break into the multibillion-dollar market for industrial safety sensors long dominated by legacy players by replacing outdated 2D laser scanners and cameras with high-resolution 3D native color lidars. Every sensor is auto-grade, cybersecure and designed for ASIL-B, SIL-2 and PLd functional safety certifications, ensuring continuous uptime and industry-leading reliability.

Importantly, this is a platform built to scale. Rev8 was designed for low-cost, high-volume production deployments to support mass market adoption. With a planned 10-year production life, Rev8 sensors provide the long-term program stability and scalability required for global commercial rollouts. With Rev8, we are delivering the safest, most feature rich, secure and reliable family of 3D lidar sensors we have ever built, and we hit the ground running.

Earlier today, we announced the integration of our new Rev8 family across the NVIDIA Jetson platform, bringing native color lidar to the NVIDIA robotics ecosystem for the first time. With dedicated support for Rev8 across NVIDIA JetPack, Isaac Sim and Jetson AGX Orin and Thor, we are ensuring rich high-fidelity 3D digital lidar data is fully harnessed by NVIDIA's accelerated computing and development tools. This builds on years of integration support for previous OS sensor generations as well as Stereolabs' own integrations across the entire Zed portfolio.

Together, we are providing the essential building blocks for Physical AI, enabling machines to sense, think and act in the real world with more speed and precision than ever before. Rev8 is shipping today and is being adopted by some of the world's most innovative companies. This is a testament to our close collaboration with key customers over years to ensure Rev8 met their program needs.

We're already seeing early traction with dozens of technology leaders across the industrial, robotics, automotive and smart infrastructure markets intending to adopt Rev8 OS sensors, including Google, Volvo Autonomous Solutions, Liebherr, Epiroc, Field AI, Flyability, Skydio, PlusAI, Constellis, Bedrock, Kassbohrer, Third Wave Automation, Burro, Seegrid, Gecko Robotics, Pratt Miller, AIM Intelligent Machines, Cyngn, Freefly Systems, ATI Robotics and SwarmForm, among others. Clearly, there is overwhelming customer pull for Rev8, and this gives us confidence in an incredibly strong back half of the year. We spent years developing these groundbreaking capabilities, and I am thrilled to finally introduce Rev8 to the world.

With that, let me now turn the call over to Ken, who will provide more context on our first quarter financial results.

Thank you, Angus, and hello, everyone. As you heard, our excitement over the acquisition of Stereolabs and our new product launches look to keep the momentum we built in 2025 continuing into 2026. In the first quarter, we are pleased with our continued progress against both our financial and operational goals, which are the cornerstones of our path to profitability. Our results demonstrate the resilience of our operating model and the disciplined financial management across the business as we continue to execute within our long-term financial framework.

Turning to the first quarter financial performance. Operating results were strong with revenue of $49 million, which included approximately 7 weeks of contribution from Stereolabs. This represents an increase of 49% compared with the first quarter last year. We shipped over 12,600 sensors, which included over 8,300 lidar, a new quarterly record and over 4,300 camera sensors.

Royalty revenue in Q1 was not material. As I mentioned in our March call, this year, we expect total royalty revenue in 2026 to be less than $5 million. The majority of this amount will be recognized in the back half of this year. Smart infrastructure vertical was the largest contributor to first quarter revenue, followed by industrial.

GAAP gross margin was 43%, up 200 basis points from the same quarter last year. GAAP operating expenses were $40 million, an increase of 7% from the first quarter last year. The increase was primarily due to the addition of Stereolabs operating expenses, including $2.3 million of acquisition and integration-related charges in Q1. We continue to anticipate year-over-year operating expenses to be higher 5% to 8%, with the acquisition of Stereolabs. However, we continue to focus on our path to profitability and will remain diligent in managing our operating expense profile.

Excluding the acquisition and integration expense of Sterolabs, our adjusted EBITDA in Q1 was negative $7 million compared with negative $8 million in the first quarter last year. Ouster remains one of the industry's strongest balance sheets, ending the quarter with cash, cash equivalents, restricted cash and short-term investments of $175 million and no debt. The strength of our balance sheet gives us the strategic and financial flexibility to operate our business and gives confidence to our customers who rely on Ouster as a key Physical AI partner on their long-term autonomy journey.

Now turning to guidance. For the second quarter of 2026, we expect to achieve total revenue in the range of $49.5 million to $52.5 million. Beyond the revenue outlook for Q2, I want to reiterate the long-term financial framework I discussed last quarter, which includes revenue growth of 30% to 50%, GAAP gross margins of 35% to 40% and GAAP operating expense growth of 5% to 8% from our 2025 levels.

With our acquisition of Stereolabs, the release of Rev8, our smart infrastructure solutions and our investment in foundational AI models, Ouster has one of the broadest range of perception and sensing products in the market. We remain confident that our innovation and go-to-market strategy will continue to bring us closer to positive operating free cash flow and profitability.

I'll now turn the call back to Angus for his closing remarks.

Thanks, Ken. To close out, we are off to a great start executing against our 2026 strategic priorities, revolutionizing our lidar camera and AI compute products, extending our leadership in Physical AI solutions and executing towards profitability. We kicked-off the year with strong momentum, delivering our 13th consecutive quarter of product revenue growth. We're executing on our strategy to provide Physical AI's first unified sensing and perception platform, and I'm excited by the transformative products we are bringing to market this year as we work to solve our customers' most complex challenges.

Rev8 is redefining the meaning of lidar with fundamentally new capabilities that empower our customers to simplify their perception stacks, better train next-generation world models and scale their production deployments. On the heels of a successful first quarter, Ouster is better positioned than ever as the foundational end-to-end sensing and perception platform for Physical AI.

With that, I'd like to open up the call for Q&A.

[Operator Instructions] Our first question comes from the line of Colin Rusch of Oppenheimer & Co.

Congratulations on getting Rev8 out. I guess I have a 2-part question to start with that introduction. Obviously, you've been working very closely with a lot of customers. And I'm curious about 2 things. One, how many of them have been waiting for this product to move into series production with some of their products given some of the range and the functional safety pieces to this?

And then the second part is really about which new applications are you seeing as material opportunities for you guys to move into, given the functionality improvements that you're seeing with this next-generation product?

Colin, thanks for the question. So while we don't preannounce -- we held on to the Rev8 announcement until it was ready to ship this quarter. Behind the scenes, we worked incredibly closely with a set of key customers for more than 1 year to make sure that Rev8 met their needs, both their current needs and future needs to expand business with us over time.

And so it's no surprise that we had a really compelling list of over 20 customers that I announced, and I'm going to spare reading through them again. But it spans the gamut of existing customers doing things that they've always done, but doing them much more capably with a colorized point cloud to all new applications. So a great example of that would be high-altitude drone surveying.

The OS1 Max is the perfect sensor for simplifying a drone payload. And we have a great interested customer, Skydio, who is very interested in the OS1 Max and gave some great comments about how the combination of payload into a single platform makes it a game changer for their type of surveying application where weight is at a premium and quality of data is at a premium.

So we absolutely have new applications with the OS1 Max for things like that, for high-speed applications and driving on the highway or heavy machinery where you need to see small things at long range. And then obviously, the multibillion-dollar opportunity for functionally safe devices is brand new area for us to expand in our customer base and start to finally capture some of that significant value with these sensors.

So -- but if you step back, long-term I expect the vast majority of our customer base to adopt Rev8 over time and to be operating with native color lidar data. I think the entire industry is going through a paradigm shift with this, and we're going to end up on the other side with native color Rev8 lidars across the vast majority of customers.

Super helpful. And I guess the second question is really now that you've got a fairly rapidly evolving portfolio of offerings, including the edge compute, I guess I'm curious about a couple of things. One, how we should be thinking about mix on a go-forward basis?

And then secondly, how much leverage you're getting from that edge compute capability in premise given some of the escalating data transfer expenses that we're starting to see for things like intersections where it can be upwards of $800,000 or $1 million of expense just to transfer data back to a data center if you're transferring all of it? Just curious how you're seeing that play out as well?

Yes, sure. So in terms of the product portfolio, that's ever expanding. I mean I also want to highlight, we released the ZED X Nano during the quarter, which is a big deal and also a brand new use case in these wrist-mounted robotic manipulation. So the -- on the question of mix going forward, the -- we haven't split out exactly how we see that long-term unit basis or revenue basis.

But we expect both of our businesses to grow very significantly. And obviously, we had an incredibly strong quarter with 44% year-over-year growth for lidar-only business. And overall, we were up significantly year-over-year, especially with the Stereolabs acquisition. So we expect to have very significant and strong growth across all of our product lines over time.

And to the question around edge compute, I do expect that to start to contribute more to our overall business. Right now, I mean, we're really fresh off of acquiring Stereolabs. The compute was something that had good traction and still has good traction within the customer base. We're going to invest more into the compute line that we -- that they started. But I can't say that it's having a significant impact on the Ouster customers at this point. We're still getting our feet under us on exactly how to position that compute line up with the other customers. But I do think it will be a big opportunity for Ouster going forward.

[Operator Instructions] Our next question comes from the line of Kevin Cassidy of Rosenblatt Securities.

Congratulations on launching Rev8 and continuing this high growth. So maybe along those lines of questions around Rev8, you touched on it slightly. I think would Rev7 continue to go in production? What's the transition look like for the 2 different lidars?

Yes. Great question. So we are fully committed to continuing to produce and support Rev7 for our established customer base. I mean Rev7 has been out for 3 years now. And we have a lot of customers that have fully qualified and are in active production with the Rev7's lineup, and it's a great set of products. I mean they are -- they really established Ouster as a performance technology and reliability leader in the lidar space and we don't want to change any of that.

So while Rev8 is designed to be a seamless upgrade for any customer that wants to, we want to make sure that customers that have qualified Rev7 can continue to operate their businesses with it. So this is -- we're being customer-friendly here and making sure that it's their choice when they transition.

Okay. And yes, I remember when Rev7 came out, it was an inflection point for you, especially on ASP increases. Are they similar ASPs between Rev7 and Rev8? Or maybe even talk about the manufacturing and the gross margins between the two?

Yes. That's another great question about -- so Rev8 was designed to be more affordable than Rev7 and more scalable than Rev7. We want to make sure that we're enabling our customers to continue to scale and to bring this technology to the broader Physical AI ecosystem. So the Rev7 was a different scenario where we were introducing a fundamentally new capability and ASPs went up. Here, it will be a little bit more of a mix because we have vastly more customers in production, and we can't disrupt the economics of their production.

So yes, we have new products that are incredible like the OS1 Max, that probably will command premium ASPs in certain domains. But we also want to make sure that a customer that wants to upgrade to Rev8 can do so without having a significant economic disruption or commercial disruption to the end business that they've created around the Rev7 product. And just going back again, highlighting, Rev8 was built to be more scalable and more affordable than Rev7.

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

This is Anand on for Andres. Congrats on the quarter. It's really great to see an update on the L4 chip with the Rev8 announcement. And based on the customer interest, as I know you disclosed a really long list of prospects on the call, maybe what type of opportunities there do you see in automotive, especially with robotaxis ramping up with Motional as your customer, et cetera? Who do you see interested there? What type of opportunities?

So Rev8 is a big deal when it comes to the automotive world because Rev8 is an auto-grade sensor. They're designed for functional safety. So the ASIL-B functional safety spec in automotive is incredibly important, whether you're -- whether it's a lidar going into a consumer car or into robotaxi or a robo truck. So Rev8, the OS1 Max, the OS0, purpose designed to be ideal sensors for that market. I'm expecting some pretty significant things there just because it's the first time that we'll have a full suite of lidars that blankets. You can outrig an entire car and Ouster digital lidars and be a one-stop shop.

So -- and we obviously, we work in the background with a number of customers, many of which I couldn't name, around the Rev8 spec for the automotive domain. But yes, so a lot of things to come there. I think that just highlighting the long-range, high-resolution aspect of the OS1 Max and combining that with the colorized point clouds is pretty game changing in the automotive domain, where advanced AI algorithms go hand-in-hand with the kind of flexible Physical AI progress that's been made in the ADAS sector. So we think these are really good sensors for that domain, and I can't wait to get them in customers' hands.

Got it. And I guess maybe a question for Ken. As we think about the gross margins and the EBITDA improving that, and as we go through the financials, what's the most important remaining steps to hit breakeven? Is it the revenue scale, the gross margins, OpEx? Or is it a mix of these things to improve the EBITDA?

Well, I think, number one, the continued innovation that we've been doing is a great stepping stone to showing how our long-term model, the consistency that we've brought over the last 3 years, it's just another proof point of us as a company, Ouster, continuing to hit those proof points year after year after year. And that long-term model, the 30% to 50% growth obviously, with the acquisition, it was high. But even with ex acquisition, 44% growth year-on-year, that's just a proof point of our underlying innovation continuing to that long-term model.

If you do the math on that and you look at our gross margins, even staying -- we had another strong tailwind that we overcame some economic challenges and constraints in the quarter for a strong GAAP gross margin quarter. That 35% to 40%, coupled with the growth rate and our discipline on the OpEx side, the innovation we've done with little to no OpEx growth, that 5% to 8% with Stereolabs and the $2.3 million acquisition in the Q1, that combined together shows that we're on a strong path for somewhere within '27, starting to hit that profitability stride. So the model is holding true. We're going to continue to execute towards that. It's a very important milestone for us to get to that. But this innovation is key to unlocking that continued long-term growth.

Our next question comes from the line of Richard Shannon of Craig-Hallum.

Apologies, I just jumped on the call. I got like 4 or 5 earnings here tonight and I have no idea if this question was asked, but I want to ask it anyway, which is the new Rev8 product is quite interesting in many ways, a lot of performance improvements here. But the interesting one here is the ability to do color. I'm curious, Angus, if you can tell us a little bit more about that, how you did that? I assume this is something in the detector.

Wondering if this is a technology that's exclusive, inherent to Ouster or are you the first one to try to implement this? Just any ideas to help us understand how you're doing this? And then maybe if you want to follow on, what applications do you expect to be adopting that first?

Absolutely. Thanks, Richard. So I mean, the Rev8 native color point clouds are a genuine world-first invention. This is a really significant milestone for the lidar industry in general. And it's a first-of-its-kind technology, no question. So, the core innovation happens at the silicon level, and this just goes back to Ouster inventing digital lidar, and we've continued to innovate at the silicon architecture level now by fusing in-silicon color and lidar data so that customers don't have to think about this and getting an absolutely incredible result for the end customer. So absolutely, this is a world-first direct innovation, basically the result of 10 years of pushing on silicon innovation at Ouster and building it into the L4 and L4 Max chips.

In terms of the applications, I mean, the most -- the clearest opportunity here is simply more context to train the next generation of Physical AI models. The world truly cannot be described with just 3D information or just color. It really is a combination of those 2 attributes that allows you to both sense the position of a street sign and read what it's saying or sense the location of a car and knowing that it's just slammed on its brakes with brake lights. So training AI models with a colorized point cloud data set is the final frontier that so many of our customers have been trying to reach. It's literally -- they call it the Holy Grail. I've heard that many times from our customer base. This is the Holy Grail colorized point clouds, unified and trained for -- trained into new AI algorithms.

So -- that's the most obvious use case, and that just gives better, safer, more capable AI systems. There's also one in 3D surveying. So almost all surveying applications require a combination of structure and color or texture to assess the quality and status of a bridge, right? If you -- if a bridge is degrading, you want to know that it's structurally stagging, but you also want to see that the concrete has cracked and so color and lidar data give you that.

So there are obvious applications with a customer set that really span every single customer use case. It's hard to identify any customer that won't benefit from this, which is why I said I think every customer effectively will adopt a Rev8 colorized capability eventually. So yes, again, this just comes back to 10 years pushing silicon innovation into our products, and this is the end result.

Yes. And Richard, I just want to point out to the last piece of it. This is over almost a dozen patents just on the RGB colorization alone. And then the underlying Rev8 technology building not just from the Rev7, but it's almost 200 patents underneath supporting the Rev8. So that technology and effort that we've put in to bring out there, is also covered with real innovation with those patents for the company.

Okay. That's helpful perspective. And one quick follow-up again on this topic here. As you add in color to applications that are previously using lidar, how do we think about the upsize in the -- in value and price that you're able to charge these sorts of things?

Well, I think that did -- that goes back to another question that was asked around ASPs and how this filters down into costs and value capture. And this here really depends on the application. We always try to price our products to be -- to enable our customers' commercial application. It's one of the key strategies that we've done really well with, maintaining strong gross margins, but also working with customers to make sure that the pricing works for their business at scale.

And so I'm giving you an unsatisfying answer. Rev8, the technology and getting color into our customers' hands, the pricing depends on the customer application. We do want to make sure that customers don't have price as an impediment to adopting an incredible capability that actually enables their long-term viability as a company. So I think the key takeaway is Rev8 is a drop-in compatible replacement for Rev7. So the adoption can be quick and seamless to getting that value, and that's a huge benefit to these customers.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Angus for closing remarks.

Well, I want to thank everyone for joining the call and really want to thank the Ouster team for the push that they made to get Rev8 out. This is a paradigm shift for the industry. We have incredible customer demand for the Rev8 product. And I can't wait to continue to update everyone that joined the call for the rest of the year on Rev8's adoption through the year. Thank you all.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Well welcome to Elster's Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions]. The call today is being recorded, and a replay of the call will be available on the Elster Investor Relations website an hour after the completion of this call. I'd like to now turn the conference over to Chen Gang, Senior Vice President of Strategic Finance and Treasurer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our Fourth Quarter 2025 Earnings Call. Today on the call, we have Chief Executive Officer, Angus Pacala and Chief Financial Officer, Ken Gianella. As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position and growth opportunities, anticipated industry trends, our business and strategic priorities are operating expense targets the impact of our recent acquisition, the development and expansion of our products and our revenue guidance for the first quarter of 2026.

Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the fourth quarter 2025 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission.

Any forward-looking statements that we make on this call are based on the assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release. I would now like to turn the call over to Angus.

Hello, everyone, and thank you for joining. I'll start with a brief recap of the quarter and review of our strategic priorities for 2025. Ken will cover our financial results in more detail before I close with our goals for 2026. The fourth quarter capped off a year of exceptional execution for Ouster. Our fourth quarter revenue of $62 million, including $41 million of product revenue, reflects the continued demand we see across our LiDAR business and represents our 12th straight quarter of product revenue growth.

GAAP gross margin was strong at 60% and we set a new quarterly record with over 8,100 sensors shipped, bringing physical AI to life across multiple applications, including warehouse automation, robotaxis and mapping. Our strong results are a testament to our disciplined execution across our business.

This is supported by durable global growth drivers for increasing automation, efficiency and safety. These secular themes strengthened during 2025, a year where we set and executed on 3 strategic priorities: scaling the software attached business, transforming the product portfolio and executing towards profitability.

First, we committed to scaling our software attached business. Software attached bookings more than doubled in 2025 and represented over 15% of our sensors shipped, which is up over 120% year-on-year. In addition, I'm excited to share that today, our in-house trained AI models are now running 24 hours a day at over 1,200 Gemini and Blue City sites, spanning over 65 million square feet of roadways and facilities around the world.

We are delivering physical AI at enterprise scale. We drove significant Gemini renewals, including a 7-figure annual license with a leading global technology company and secured landmark Blue City agreements to accelerate the adoption of AI-powered LIDAR detection across Tennessee, Utah and New Jersey. This growth was driven by the increased capabilities of AstreGemini in Blue City validating our continued investments in proprietary AI model training as well as the expansion of distribution partnerships across nearly the entirety of North America.

Second, we set out to further transform our product portfolio. In 2025, we introduced powerful new features, unlocked greater performance and reshape how our customers integrate, manage and utilize LIDAR data through a series of major software releases. We launched 4 new versions of our SDK, which included revolutionary new features. This included on sensor 3D zone monitoring, which is the first time perception Logic has been embedded directly into 3D digital LIDAR. This feature supports collision avoidance warnings, deceleration and emergency stops and was the result of significant demand from customers. Many of the world's largest material handling companies are using this as a critical aspect in their collision avoidance technology.

We also released real-time localization, empowering customers to track the position of their assets with centimeter-level accuracy and implement features like geofencing and automatic speed limit enforcement without requiring the installation of expensive and complex infrastructure.

We continue to strategically invest in our proprietary AI model training, leveraging real-world data to iterate, retrain, improve and deliver increased capabilities to our customers.

Our breakthrough multisensor AI model, powering Aster Gemini and Blue City is trained on millions of labeled objects collected from hundreds of sites around the world, spanning diverse environments and weather conditions by dramatically improving detection accuracy, efficiency and long-term object identity persistence, we have unlocked new use cases, allowing us to support large-scale installations of 40 LiDAR sensors at a single site.

We also advanced Blue City features from prototype to real-world deployments with the addition of intelligent signal actuation, which catalyzes Aster scaling across hundreds of intersections in 2025. Within Ouster Gemini, we released new features like cloud portal and Event Server. Gemini Cloud portal allows customers to securely configure and manage deployments from any location.

While Gemini event server creates a no-code environment that enables customers to build custom logic for applications like intrusion detection and zone occupancy without requiring heavy engineering. Finally, we made major progress in validating our next-generation L4 and Cronos custom silicon as we look to redefine what's possible with digital LiDAR. Our digital LiDAR road map continues to drive dramatic improvements in performance and reliability, reinforcing the core advantages of our architecture.

Importantly, these breakthrough chips will power our next-generation sensors which represent a major step forward in capability, scalability and value for our customers. These advancements are expected to more than double our current addressable market for LiDAR unlocking new applications and expanding opportunities across each of our industry verticals. We're excited to share much more on this front soon.

Our execution in 2025 aligned with our long-term financial framework, progressing us further on our path towards profitability. Our core business delivered on all target metrics for 2025 excluding the benefit of royalties, full year product revenue increased by 32% year-over-year, and we successfully navigated a volatile macroeconomic environment and the headwind of tariffs to deliver 41% gross margin.

We maintained our operating expense discipline even as we absorbed the operational and compliance requirements of a growing global business. We continue to have 1 of the strongest balance sheets in the industry, demonstrating our ability to achieve both high growth and financial prudence. I'll now turn the call over to Ken to discuss our financial results in detail.

Thank you, Angus, and hello, everyone. As Angus mentioned, we closed fiscal 2025 with a strong finish, underscoring our continued operational execution, our results demonstrate the resilience of our operating model and the disciplined financial management across the business as we continue to perform within our long-term financial framework, keeping us firmly on the path to profitability. .

Turning to the fourth quarter financial performance. Operating results were strong with revenue of $62 million, GAAP gross margin of 60% and shipments of over 8,100 sensors. During the quarter, we recorded royalties of approximately $21 million that were primarily onetime and related to long-term IP license contracts.

These royalties demonstrate the strength of our IP portfolio. For 2026, total royalty revenue is expected to be less than $5 million, with the majority of that amount expected to be recognized in the back half of the year.

Looking ahead, we expect additional royalty revenue to be relatively modest, and it will be included in our revenue guidance. Turning back to our fourth quarter results. Absent the impact of royalties, our fourth quarter product revenue was $41 million, representing an increase of 36% compared to the same quarter a year ago.

The industrial vertical was the largest contributor to fourth quarter revenue followed by robotics and smart infrastructure. Demand for our Gemini and Blue City solutions remained strong and were important contributors to our quarterly results.

GAAP gross margin of 60% reflected the impact of royalties, continued revenue growth in our digital LIDAR business and improvements in our operational performance. Royalties impacted our fourth quarter GAAP gross margin by approximately 20 percentage points. GAAP operating expenses were $37 million in the fourth quarter, a decrease of 6% from the same quarter last year.

The decline was primarily due to a favorable employment tax refund received during the quarter. As we continue to focus on our path to profitability, we will remain diligent on managing our operating expenses. Adjusted EBITDA was a positive $11 million, which reflects the impact of the royalty payments. Next, our balance sheet continues to be 1 of the strongest in the industry. ending the quarter with cash, cash equivalents, restricted cash and short-term investments of $211 million and no debt. The strength of our balance sheet gives Elster the strategic and financial flexibility to operate our business as it also vitally important to our customers who rely on Alister as a key physical AI partner on their long-term autonomy journey.

Turning to our full year results. we generated revenue of $169 million, of which approximately $23 million was attributable to royalty revenue that were primarily onetime and related to long-term IP license contracts. This represents growth of 52% year-over-year or 32% excluding the impact of royalties.

We shipped over 25,000 sensors, an increase of 48% compared to 2024 with help from record bookings of $177 million, delivering a robust product book-to-bill of 1.2x in 2025. GAAP gross margin was 49% up 13 points year-over-year. royalties contributed 8 points of gross margin. GAAP operating expense was $157 million, up 9% from $145 million in 2024.

This reflects increased investment to support our product road map, expenses related to the Stereo Labs acquisition and the implementation of operational and compliance tools that support our growing business. These expenses were partially offset by proceeds received from favorable employment tax refund.

Adjusted EBITDA was a loss of $12 million compared to a loss of $42 million in 2024. This reflects the benefit of royalty revenue, combined with the continued operational improvement of the business.

Now turning to guidance. Our outlook for the first quarter of 2026, we expect to achieve total revenue between $45 million and $48 million. This will include approximately 7 weeks of revenue from stereo labs following the close of the transaction on February 4.

Next, I would like to add some color to our long-term financial framework following the acquisition of Stereo labs. While Stereo Labs is currently a small portion of our overall revenue mix, we expect this high-growth, high-margin business to be accretive to our consolidated results and anticipate it to have a positive impact on our long-term financial framework.

With the combined companies, we are reiterating our long-term targets of 30% to 50% annual revenue growth and 35% to 40% GAAP gross margin. This outlook reflects the continued strong demand from our digital wider products layered with accretive growth profile of our new vision and compute portfolio. Our focus remains on driving towards profitability.

By pairing sustained top line growth, strong margins and disciplined cost management, we remain firmly on our path to profitability. Finally, applying the long-term framework, let me give some color to the full year 2026. Excluding the revenue and gross margin impact of royalties in 2025, we remain confident in the combined Ulster & Stereo Labs 2026 revenue and margin profile to be in line with our long-term financial framework when measured against a consolidated pro forma baseline in 2025.

Going forward, we will be reporting revenues on a combined basis. However, for some additional context, I would note that StereoLab's historical revenue has tended to be seasonally stronger in the second half of the year, with approximately 60% of the revenue occurring during this period. Next, turning to GAAP operating expense for 2026. Factoring in stereo apps operating and integration expenses, we anticipate GAAP operating expense growth at 5% to 8% from our full year 2025 levels.

We also expect our 2026 quarterly operating expenses to follow a similar quarterly profile as 2025. This outlook underscores the strength and durability of our digital IDR business, which remains firmly on track. As we scale the combined business, we anticipate growth combined with improved operating leverage provides a clear path to achieving positive operating free cash flow and profitability.

Thank you for your continued interest in Elster. I'll now turn the call back to Angus to discuss our goals for 2026.

Thank you, Ken. Our execution on our 2025 goals has been further complemented by our recent acquisition of Stero Labs, a pioneer in AI camera vision and perception Solutions. As we start the year, Aster now offers physical AI's first unified sensing and perception platform, combining high-performance digital LiDAR with cameras, AI compute, sensor fusion and perception software and cutting-edge AI models.

Our customers can harness the precision of LiDAR along with the richness of vision, powered by our combined investments in AI training. By delivering seamlessly synchronized and calibrated data out of the box, we simplify and accelerate customer development and reduce costs. Stereo labs also brings deep expertise in foundational AI model training and core perception functions along with immediate commercial scale, adding top-tier OEMs Fortune 500 companies and high-growth technology firms to our customer base.

This acquisition strategically positions Aster as the foundational end-to-end sensing and perception platform for physical AI and initial feedback from our customer base has been positive.

Our expanded portfolio is resonating with the demands of the market and customers are excited by the strength and support and operational capacity of the combined company. For 2026, our road map is built on 3 strategic priorities designed to compound our combined competitive advantages and accelerate our financial performance. One, revolutionize our LiDAR camera and AI compute products; two, extend our leadership in physical AI solutions; and three, execute to profitability.

Our first goal for 2026 is clear: to revolutionize our LiDAR camera and AI compute products. This year, we will commercialize the most significant product overhaul in our company's history and release more products than ever before. Ouster invented digital LiDAR, and we will continue to advance the industry with next-generation sensors built on our custom silicon.

This powerful digital LIDAR road map is built on silicon architecture that drives exponential improvements that compound over time, delivering industry-leading performance, reliability and scalability. Building on stereo Labs' legacy as a pioneer and AI vision, we will continue to develop leading-edge products designed to support customers, building the future of physical AI. Our next-generation AI compute will support real-time reasoning at the edge for larger workloads that were previously too slow to run in dynamic real-world environments.

We will also bring expanded connectivity features to our industry-leading camera portfolio to align with the market demands of our customers. Simultaneously, we will further unify our products to support plug-and-play sensor fusion.

With the industry's first unified sensing and perception platform for physical AI, we are creating a one-stop shop for customers to deploy tightly integrated perception solutions out of the box. These product launches are expected to bring unprecedented new features to our portfolio, help us gain market share in billion-dollar brownfield markets and support new use cases across industrial robotics, automotive and smart infrastructure. 2026 marks the beginning of a new era for our product portfolio, the broadest most capable and most integrated lineup we have ever delivered to further accelerate real-world autonomy across industries.

Our second goal is to extend our leadership in physical AI solutions including cementing our lead in smart infrastructure and deepening our presence in industrial AI. We have already established a leading position in LiDAR power detection for transportation, security, logistics and crowd analytics with Aster Blue City and Gemini.

In 2026, we are leveraging the partnerships we have built to further expand Blue City across the United States as well as launch additional pilots in Europe and the Middle East. Following recent wins, we are deploying additional Gemini pilots for perimeter security in 2026 to tap into an existing multibillion-dollar security market.

We are also aggressively targeting the industrial vertical, where we see a broad swath of opportunities that can quickly realize the benefits of the Stereo Labs acquisition.

Stereo labs is a perfect complement to augment Elster's perception road map to meet physical AI's increasing demand for sophisticated multisensor fusion. By merging our proprietary AI models with Stereo Labs' vision capabilities, we are delivering the specialized perception logic and application-specific software required to revolutionize safety and efficiency across the global supply chain.

Finally, we will continue our operational execution as we drive towards profitability. Through a growing addressable market served by our expanded portfolio, disciplined cost management and clear operational priorities, we have a line of sight to deliver on our long-term financial framework. The strength of our digital Lider business, combined with the acquisition of Stereo Labs, positions Auster as the foundational sensing and perception platform for physical AI.

By expanding our capabilities across the entire stack from sensors and software to specialized applications and AI modeling, we will continue to drive our business on a path of sustainable growth. We are uniquely equipped to accelerate customer development of solutions that sense, think, act and learn in the physical world. The era of physical AI is here and Ulster is powering it. With that, I'd like to now open up the call for Q&A.

Thank you. [Operator Instructions]. One moment for our first question. Our first question will come from the line of Colin Rusch from Oppenheimer.

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

Thanks for the question, Colin. Yes, this is a great point. So the idea of sense think Act learn it's really a virtuous cycle of improvement and iterative development that has been embraced by any company that is doing cutting-edge AI development. You really have to iterate to your solution because of the massive amounts of data collection and retraining that are required to achieve cutting aid edge, safety-critical, capable physical AI and real-world deployments.

And I can speak from experience now having over 1,200 sites deployed with this technology over the last couple of years across Gemini and Blue City deployments that we see the pace of improvement accelerating over these last couple of years, simply by investing in the machine that builds the machine, that iterative cycle of sense think act and learn collecting data from the field, annotating it, retraining and building new insight into the capabilities of our system. It's an absolute acceleration I think that you can measure it and how quickly you can deploy new versions of the product out to the field.

We probably have another order of magnitude of iteration speed that we can still build into this set of products, specifically Gemini and Blue City. And now the opportunity is both to continue that iterative speed of development on those products but also to bring that iteration to our industrial AI and broader ecosystem. And that's where Stereo Labs acquisition comes in, the ability to provide autonomous intelligent systems that are iterating very rapidly based on our core investments in the machine learning training.

So an order of magnitude at least to go and a brand-new greenfield opportunity in industrial AI to bring exactly that mentality to that product set.

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

Yes. I think here, I -- there's a lot of interest in the automation in -- on the battlefield. But there's a big difference between what is happening today in Ukraine and -- which is robotics, but it's actually still human controlled remote-operated vehicles and fully autonomous systems.

Actually, there's a really wide gap. And so the sphere where we play fully automated systems is still in the research and development phase, whether it's in defense or just looking across our broader swath of customers. Whereas what is fielded on the battlefield today is glorified remote-operated vehicles with increasing intelligence, but still their remote operated vehicles.

And so I think it's going to be a number of more years before there's a significant shift in that composition just given the development cycles in defense. They roughly resemble the development cycles that happen in the automotive industry, for instance. It's more like that versus what we just talked about with rapid iteration in something like Gemini or Blue City.

So it's an important industry. It's 1 that Aster definitely plays in, and we have some great evidence of that, things like the Blue UAS certification for drone payloads. But there's a big divide between where the -- what exists today and the automation that is under development, and we'll be here and it's going to be a couple more years for sure.

One moment for next question. Next question will come from the line of Kevin Cassidy from Rosenblatt Securities.

Congratulations on the great year. Just as you're looking at your backlog and looking out to 2026, which 1 of the industries that you service, which 1 do you think is going to grow the fastest.

Well, that's a great question, Kevin. I think that we -- I have been very bullish on smart infrastructure because of the full solutions that we bring to the table for the past year. I think I said at the beginning of 2025 that given all the investment we've made in the Gemini and Blue City solutions for traffic management, for security, for yard logistics, that I expected smart infrastructure to start to play a much more significant role in our revenue composition and our growth trajectory.

And I think that, that's definitely played out in the last year. So I'm still incredibly bullish on the success we've had there and its continued success because these are major new opportunities for LiDAR, places where LIDAR has never played before that are multibillion-dollar industries.

And we've just shown that we are able to execute in this domain. That being said, the Stereo Labs acquisition is our ability to inflect the physical AI sphere for mobile robotics -- for industrial robotics. And so the same -- for the same reasons why smart infrastructure has taken off, basically that we're providing total solutions and speeding the time to market for our customers because they can buy something off the shelf from ouster.

Now we're doing that with stereo lamps and Olster combined, a unified sensing and perception platform that is a drop in replacement for the legacy systems that have been used in the industrial and robotic sphere.

Now you can come to Aster by AI compute, LiDARs and cameras and the software and perception software suite that goes on top of those and get to market quicker. So that's the vision for whereafter is going is really this two-pronged approach of solutions and smart infrastructure, where it's fixed -- fixed installations and solutions in mobile autonomy for physical AI, things like industrial, automotive and robotics.

Great. Yes. And that kind of plays into what was going to be my second question was how your trained models using both the stereo last and out LiDAR whether that combine those 2 models, if that's going to be much more robust than what your competitors would be offering.

Yes. I think that there's so much to do with the advancements in AI in the last couple of years. There's both opportunities for us to push the frontier of so stereo labs, they built neural depth models that produce incredible point clouds from stereo cameras, better than the competition and to push that domain forward.

Aster has invested in our neural perception algorithms for Blue City and Gemini to perceive what's going on in the environment. And there's a natural cross-pollination at play where we can bring the insights from each 1 of those core competencies to each other's to each other's customers, but also start to do multimodal AI training.

So LIDAR and cameras fused and trained together is the obvious next step. If you really want to build the world's most capable perception machine learning-driven perception solutions. So there's a ton we can talk about there, but I'll leave it at that. I'm definitely excited about what the future holds for our AI training.

One moment for our next question. Next question will come from the line of Tim Savage from Northland Capital Markets.

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

Yes, absolutely. No. So we were just -- Ken and I were both at CES walking around with a number of investors, analysts. And it was a great embodiment of physical AI, like literal robots, industrial machines, autonomous systems, just ubiquitous on the show floor, no matter where you went, physical AI was in your face as real hardware.

And so I think the takeaway for me is when you actually looked at those machines, whether it was an autonomous forklift or a humanoid robot or a big industrial mining machine -- what were the commonalities between those systems.

They had LiDAR sensors, they had cameras. They had almost certainly an NVIDIA GPU AI computer, and there was a suite of software that was largely similar in the underpinnings of robotic perception, localization, path planning, perception of objects around the vehicle.

So the commonality is that's the play for Aster with this -- both on the hardware and on the software, we think that with the Stereo Labs acquisition, we can become the one-stop shop for LiDAR cameras, potentially other sensors in the future, AI computers and all the software that runs the underpinning of an intelligent autonomous machine. That's where Elster wants to play, and that's where we've made a major step forward.

So I mean it's CES was just the perfect representation of where the future is going and also the representation of Aster's business model for the next 10 years.

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

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

So looking for any more details on what drove that and whether that was anticipated, I guess?

First off, it highlights the strength of our IP portfolio, Tim. And it was predominantly onetime as we mentioned. And we also talked about it will be de minimis going forward. .

Strategically, we are looking to prioritize on this sense think run, learn and driving our own product portfolio forward. So we have the royalty piece behind us.

And I think all those litigation items in the past are all behind us. And so now it's really focused on our strategic priorities and growth.

Our next question will come from the line of Andrea Shepperd from Cantor Fitzgerald.

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

Thanks, Andres. Yes. So the common thread for drones and humanoid is really the volume. They're generally industrial adjacent, more robotics than industrial, and there's a volume increase from things -- the smaller, the cheaper the more ubiquitous the technology, the more the types of payloads and sensors and AI compute that goes on those robots is different than a big mining machine.

And so some humanoid use LIDAR, some don't use LiDAR. Every humanoid uses cameras. And so that's part of the play for Aster and the same goes for drones. Some drones use LiDAR some drones and all drones use cameras. And so this is part of investing in becoming a combined LiDAR and camera sensing company is just being able to play across all physical AI applications by providing the 2 most pervasive sensor modalities that are out there.

And so -- and then we layer on top the fact that Olster has invested in things like the Blue UAS certification, it just builds more opportunity for us in the sphere. So I see drones in humanoid. Drones is much more of a proven technology and market opportunity for Aster, and that's why we have things like a certification.

Humanoids are an emerging opportunity that we are playing in today because of the stereo Labs acquisition and because of some of the lighter sensors and customers we have there. But I think the time line is a little longer for humanoid to reach market in the scale that's going to start to impact our top line revenue.

And I likened this 10 years ago with the robotaxi industry. It's an emerging technology. It's an exciting technology, and it will happen, but the time line is less known because it's pioneering research, getting humanoid robotics out into the market. And it's also a pioneering business model. It's a new business model to do it.

So there are categories of things where Aster build the business on today, and there are categories of cans in the fire that will hit eventually and help Elster build the business of the future. And we're playing across both. But it's definitely exciting times and the Stereo Labs acquisition is a key making sure that we can go to both those use cases and provide something valuable to those customers.

Yes. And wrapping numbers around it. If you look at the prior 3 quarters coming off a 40% year-over-year growth this quarter, just our core product line with the digital LiDAR growing 36% year-over-year. We continue to see that core underlying business continuing to trend in that 36% range plus.

And so we're really proud of what the core business is doing. And so now you combine in the tailwinds of a really high growth, high-margin business, such like stereo labs, makes us really excited for that future.

Wonderful. That's super helpful. I really appreciate all that color. Maybe just as a quick follow-up, Ken, maybe a quick 1 for you. Can you just remind us liquidity, capital needs, cash burn? Are you still targeting to remain active in the M&A market -- how are you thinking about future capital needs and cash runway? .

Yes. So we ended the year at [ 2.11% ] before the Stereo Labs acquisition. We gave the number out there, roughly around $35 million in cash for that. On a strict operating basis, even -- we talked prior calls having the dry powder to be strategic was very, very important in this current marketplace.

So I think this acquisition demonstrated having that dry powder on hand allowed us to act quickly and take advantage of a very unique strategic situation even after that strategic acquisition, we still have plenty of operating runway until we're operating cash flow positive.

So if you look at the numbers out there, it's somewhere in the 4- to 5-year range. So from a continuing in the marketplace, we're going to take it day by day and see what results with it. But our current cash position, we feel is strategically right where it needs to be, as I mentioned, for our customers because these customers that we work with, they're running 3- to 5-year programs, and they want a partner that can be out there operating with them in that space.

So we feel really good about our capitalization. We'll always continue to look for what the future brings. And from the M&A, just answering your last question, if the right strategic opportunity comes along like it did with stereo webs, we're really happy to be in a place that we can act on it.

Wonderful. Congrats on the quarter. We'll pass it on.

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

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

Yes. I can say, having been on a number of customer calls since acquiring stereo labs that the reception to this acquisition has been resoundingly positive. I can't stress that enough. Aster and Stereo labs have each built incredible brands built on quality, trust and performance of the products and the support that they provide.

And by when you have 2 great companies combining and it allows a customer to then purchase from 1 even more dependable and well-resourced company. I mean that's music to their ears. So there's just the ability to work with 1 great company sourcing critical technology like we are.

And then there's all the opportunity of building to the future taking more of the feedback from customers around their total sensing needs and actually building the software and system capabilities that they have this enormous appetite for.

I think that's probably the most surprising thing for me is how much appetite there has been for buying combined systems. Now that we're positioned and incapable of selling combined systems, compute software and the sensors.

Customers are are asking for it. And that's just a great place to be. It's 1 thing to say we're going to do it. It's another for there to be a pull from the end customer. Now that they're aware, we're capable of doing it. So as customers literally ask us, well, when can we just start buying the whole suite of hardware and software from you guys couldn't happen soon enough.

So I'm really pleased with how this has gone. And I think, yes, it's been extremely well received by customers.

And oh, by the way, it's available today. They're not waiting because 1 of the great things that we announced at the launch was that our platforms are already unified and people can buy our unified sensing platform today.

Absolutely. Yes. I mean it's -- we're actually able to tell them, well, you can get started immediately. .

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

This is with respect to the stereo labs, unified, yes.

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

Yes, absolutely. So the connectivity features is it's -- this is all about building an ecosystem that is interoperable with many different subcomponents of a physical AI system. So while we are today positioned to provide LiDAR cameras and AI compute and the software that runs them, we also want to make sure that the AI compute and the software on it is interoperable with all manner of other sensors, maybe GPS, maybe inertial measurement units, maybe just -- it's something as simple as radio connectivity or RTK systems or so wheeling coaters, -- there are just so many auxiliary systems that are required to build a domain-specific robot that we want to make sure that we really are providing all those little connectors in our software so that we can play -- really be that platform that you can build your entire solution on. .

We don't want to have caveats when we're selling saying, "Oh, you can't go and use that existing GPS receiver that you've already selected and qualified quite the opposite. We're focused on saying, you can use it, and we're implementing the low-level drivers for you.

So that's kind of the vision there is -- and that all goes back to speeding time to market. the biggest thing holding back a lot of these customers in robotics and industrial is their development time to bring products to market, and we're cutting that down significantly by doing the work for them.

Okay. That just gets another question real quick for me. So when you're adding these different sensors, are these drivers something that are universal such that you can develop the drivers in your system for 1 type of GPS, but that works with any of the GPS providers or the inertial providers? .

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

One moment for our next question. Our next question will come from the line of Casey Ryan from WestPark Capital.

It's a great quarterly update. Yes, I just want to follow up a little more on this. software component Angus that you're laying out. I mean it sounds like you guys start to move into being the operating system for any industrial manufacturer of physical AI systems.

But does this sort of change the competitive competitor matrix, I guess? And do we start competing with open mind and the Google Intrinsic thing and other kind of operating system physical AI companies?

I -- there's so much opportunity right now that I wouldn't call it changing the competitive landscape. There's a lot of companies pushing the frontier of this technology in ways -- in new and unexpected ways.

Alistair is focused on being a unified sensing and perception platform, which could eventually become a complete operating system for these robots. That's definitely but saying -- I couldn't tell you today that there's immediate overlap of our eventual success with some of the companies that you mentioned because there's just so many different ways to approach these problems that are being researched right now, let alone deployed.

So Auster has always done a good job of finding the line between research and real deployed solutions that can generate revenue and grow a business today. And so that's what we're doing right now.

We see we've narrowed down the solution to sensing and perception and -- but that gives us opportunity, certainly with success. It gives us the opportunity to become more of the operating system of these robots in the future.

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

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

Right. Okay. Terrific. And then just sort of simply on the hardware. It sounds like what you're saying is we want to work with all and make it easy to use any kind of hardware components ultimately.

Is it part of your vision that Alistair would want to provide at least 1 version of that, say, radar or GPS or something? Or were cameras kind of unique in terms of its importance to combined solutions, I guess.

Yes. We've really focused -- so the answer is yes to both things you asked. -- want to work. We want to work well with peripheral components, but there's a good reason why LIDAR and cameras have a special place. They really are the most important, most capable sensory inputs to these robots, and they're also the most unique and difficult to develop to the quality standard required by physical AI.

So -- and so yes, we're so focused on making sure that we have the best-in-class LiDAR and camera combined sensing systems. And there's a lot of detailed work to be interoperable with other things.

But they are secondary in these systems to the lighter and the cameras.

And the fusing of the 2 together to operate simultaneously, that is 1 of the toughest problems that all of our customers have today. And so being able to offer that unified platform with those 2 sensors together. It's a game changer.

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

Thanks, Casey. .

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

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

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

Hello, and welcome to today's call discussing Ouster's acquisition of StereoLabs. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website an hour after the completion of this call. I'd now like to turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Please go ahead.

Thank you, operator, and hello, everyone. Thank you for joining today's call. Today on the call, we have Ouster's Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Ken Gianella, and Co-Founder of Stereo Labs, Cecile Schmollgruber. As a reminder, prior to the market opened today, Ouster issued a news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about the integration of StereoLabs, our competitive position, anticipated industry trends, our business and strategic priorities and the development and expansion of our products. Actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the acquisition news release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. I will now turn the call over to Angus.

Hello, everyone, and thank you for joining. Ouster invented digital lidar in 2015, and we have driven innovation through dramatic improvements in lidar performance with 7 generations of our technology. In 2023, we acquired Velodyne and began selling smart infrastructure software solutions with the release of Gemini and BlueCity. We have shipped nearly 150,000 sensors to more than 1,000 customers worldwide and pursued a diversified strategy spanning automotive, industrial, smart infrastructure and robotics markets that puts us at the forefront of physical AI.

We have one of the strongest balance sheets in the industry and a proven track record of operational and financial execution. And today, we are announcing our acquisition of StereoLabs, a pioneer in AI camera vision and perception solutions. Today marks a pivotal moment for both companies as we join forces to create a world-leading sensing and perception company for physical AI.

With this acquisition, Ouster now offers physical AI's first unified sensing and perception platform, combining high-performance digital lidar cameras, AI compute, sensor fusion and perception software and cutting-edge AI models. With seamless sensor fusion, we are addressing the unprecedented pull for both lidar and vision as industries transition from simple automation towards physical AI.

A wide array of companies around the world, spanning the industrial, robotics, smart infrastructure and automotive verticals require advanced perception solutions that can sense, think, act and learn in the physical world. Whether a customer requires high-density camera data or the 3D precision of lidar, Ouster can provide a single source for sensing and perception needs.

We see growing demand for the fusion of lidar and camera data to achieve the levels of safety required to accelerate the safe adoption of physical AI. Lidar provides our customers with exceptional depth accuracy and performs exceedingly well in dark and obscured conditions. Cameras complement this by providing high-resolution context, color and texture, providing further data to interpret complex environments.

Now our customers can harness the precision of lidar along with the richness of vision, powered by our combined investments in AI training and proven in-house models. For the first time, Ouster and StereoLabs are bringing this complex system development under a single roof, providing customers a simpler and safer way to bring demanding physical AI applications to market. By designing the lidar's, the cameras, the AI compute, writing the software and validating the systems in-house, we can guarantee that every component will work seamlessly together for end customers.

In this example, we have fused 4 ZED X cameras with a REV7 OS1 in an automated forklift. Operating autonomously in a warehouse demands a balance of ultra-wide short-range stereo camera data for maneuvering in narrow dynamic aisles, distinguishing pedestrians from background clutter and reading QR codes and other visual indicators and precision lidar data for mapping, localization and safe obstacle avoidance at any speed.

With our unified platform, all of this sensor data, software and AI compute works reliably in real time with perfect synchrony and fault tolerance to make autonomous systems safe and practical. This acquisition strategically positions Ouster as the foundational end-to-end sensing and perception platform for physical AI. Before elaborating further, I'd like to introduce Cecile Schmollgruber, Co-Founder and CEO of StereoLabs. As a driving force behind StereoLabs' success, I've asked her to provide an overview of their business and her perspective on our strategic combination. Cecile, welcome to the team.

Thank you, Angus. I'm happy to be here today and to embark on this transformative journey with Ouster. The future of autonomy isn't about choosing between vision or Lidar, it's about unifying them. By combining our strengths, we can push the boundaries of innovation in sensing and perception and accelerate the safe deployment of physical AI in real-world environments.

I co-founded StereoLabs in 2010 with a vision to enable machines to see, think, act and learn. We were pioneers in the AI vision industry. And since then, we have developed a leading portfolio of industrial-grade ZED cameras, AI compute powered by NVIDIA's platform and in-house AI vision software. Our high-performance ZED cameras provide best-in-class 2D and 3D color data with ultra-low latency. Paired with our Neural Depth engine, ZED delivers up to 10x sensing price to performance advantage over traditional cameras.

We have ruggedized these products for harsh industrial conditions with a compact form factor that simplifies robotics integration. Furthermore, our embedded AI compute hardware facilitates native real-time sensor fusion at the edge. As a result, we have shipped over 90,000 ZED cameras to over 10,000 customers across 75 countries spanning robotics, industrial and smart infrastructure applications.

A community of many thousands of developers rely on our perception software as the foundation for their autonomy workflows and leverage our AI models to accelerate their go-to-market strategy and commercialize their products. We have a massive opportunity ahead of us. We have long viewed Ouster as a market leader for their cutting-edge technology, best-in-class customer support and diversified market approach.

While Ouster began in lidar and we began in vision, our companies are highly complementary. By uniting our strength, we have the potential to unlock significant synergies and redefine the marketplace for sensing and perception technology. Together, we are delivering the first commercially available unified sensing and perception platform for physical AI. We are creating a one-stop shop for the entire perception stack, ensuring that as the requirements for physical AI evolve, our customers will have the most advanced integrated tools to lead their respective industries.

Finally, I am pleased to announce that my co-founders, Edwin Azzam and Olivier Braun and I, will continue to lead the entire StereoLabs team, ensuring smooth continuity for our products, customers and developer community. Our focus remains on what we do best, innovating the powerful vision solutions our customers demand. Thank you for your time, and I look forward to meeting our stakeholder in person soon. I'll now turn the call back to Angus to speak more on the strategic benefits of the acquisition.

Thanks, Cecile. In addition to our ability to serve the growing demand for sensor fusion solutions, this acquisition delivers multiple strategic benefits that accelerate customer development, strengthen our software capabilities, extend our market reach and drive stakeholder value. Historically, our customers spent significant resources acting as their own system integrator, sourcing disparate components, enabling sensors to talk to each other and reinventing software for sensor fusion, calibration and visualization.

We are now empowering our customers to shift their focus from integration to innovation. By combining industrial-grade hardware with proven in-house AI models, we are delivering seamless, synchronized and calibrated data on day 1. The result for customers is simplified and accelerated development with reduced engineering costs while benefiting from Ouster's dedicated global support teams from prototype to production.

StereoLabs also fundamentally strengthens our software capabilities. Their deep expertise in foundational AI model training and core perception functions such as mapping, localization and object detection will act as a force multiplier for our own software expertise and capabilities. StereoLabs technical leadership is validated by their ecosystem, a highly engaged community of many thousands of developers that has been built over the past 15 years.

Furthermore, both teams share a DNA of strategically investing in proprietary AI model training, leveraging real-world data to iterate, retrain, improve and deliver solutions to customers. StereoLabs' Neural Depth engine is trained on massive GPU clusters using over 10 million images of synthetic and real-world industrial environments to master complex edge cases.

Ouster's investment in proprietary AI models for Ouster Gemini and Ouster BlueCity incorporates training data from over 4 million labeled objects and has been validated at over 800 sites around the world, operating continuously across diverse environments and weather conditions. Our unified platform harnesses our combined investments in AI training and proven in-house models, merging our expertise in complex spatial data with StereoLabs' leadership in industrial perception to accelerate Ouster's software development and provide increased capabilities to customers across our industry verticals.

With an expanded product portfolio featuring new camera vision solutions and AI compute, Ouster is positioned to secure a greater share of the sensing and perception market, including new high-growth use cases such as humanoid robotics, industrial automation and visual inspection. StereoLabs brings immediate commercial scale, adding top-tier OEMs, Fortune 500 companies and high-growth technology firms to our customer base.

We see a significant opportunity to deepen our engagements with these accounts. A prime example of this is our work with a leading global technology company. We already power their warehouse AMRs with Ouster digital lidar and help optimize their logistics operations with Ouster Gemini. We are now supporting additional next-generation industrial automation platforms with our AI vision solutions. We will strategically leverage our complete suite of technologies to provide additional value to our customer base. Now I'll turn it over to Ken to provide financial details of this transaction, which we expect to drive significant value for all stakeholders.

Thank you, Angus. I'd also like to welcome Cecile and the StereoLabs team to Ouster. StereoLabs is a high-growth, high-margin business with strong financial performance. For fiscal year 2025 unaudited results show StereoLabs generated $16 million in revenue and positive EBITDA, reinforcing Ouster's path to profit. briefly summarize the traction, Ouster completed the acquisition of StereoLabs of $35 million cash on hand and 1,800,000 shares portion of shares vesting over a 4-year period.

The acquisition will be accounted for a business combination and the company will begin consolidating StereoLabs financial results in its consolidated financial statements in the first quarter of fiscal 2026. For Ouster, we have been extremely pleased with our existing business growth and our long-term outlook. We anticipate this acquisition to not only be accretive, but create additional leverage as we execute our long-term model. By expanding our capabilities across the entire stack from sensors and software to specialized applications and AI modeling, it will continue to drive our business on a path towards profitability.

A quick reminder that our earnings call for fiscal year ending 2025 will be on March 2nd. Our fourth quarter 2025 results will not include the results of StereoLabs. Our first quarter 2026 results, which will be for the period ending March 31, will contain approximately 7 weeks of StereoLabs operations. Thank you all for your time, and I'll now turn the call back to you, Angus.

Thanks, Ken. This acquisition brings thousands of new customers into the Ouster ecosystem, and it cements our leadership in enabling real-world autonomy across diverse industries. Ouster is positioned as the foundational end-to-end sensing and perception platform for physical AI. We are building a formidable technological moat through a virtuous cycle of sense, think, act and learn that speeds customer development and build shareholder value. I'm pleased to welcome the entire StereoLabs team to Ouster. And with that, I'd like to now open up the call for Q&A.

[Operator Instructions] And our first question is going to come from Colin Rusch with Oppenheimer.

Congratulations on evolving the platform. Could you talk about the maturity of the sensor fusion offering that you're going to have? And how long it's going to take to really be able to deliver fully integrated camera and lidar signals out to a device?

Colin, thanks for the question. So the sensor fusion platform is ready to get today, actually. So some of the imagery that you saw in the presentation is that automated forklifts example. That is ready today in the ZED SDK. It's -- we were demonstrating 4 ZED X cameras fused with an Ouster OS1. So we really wanted to get ahead of the software work involved and make sure that customers can take advantage of everything we talked about on the call day 1. Obviously, we're going to continue to invest in this and build more and more capabilities. But yes, we got ahead of this, and this is ready for customers.

And then in terms of the AI and the learning cycles, can you talk a little bit about the breadth and depth of environments that you guys have for simulation at this point and how we should think about your ability to deliver kind of learning cycle cadence versus peers out in the space?

Yes. This is one of the most interesting things about our two companies. And I -- there's a lot of shared DNA between Ouster and StereoLabs in our investments in foundational AI models. And when I say foundational, I mean we're not post-training some model and weights that we took off the Internet or someone else's research. This is our own training data sets, our own corpus of data that we have trained from scratch on GPU clusters. In Ouster's case, we've created a neural detect model that's powering Gemini and BlueCity. And on the StereoLabs side of things, they've developed Neural Depth, which is an algorithm that creates best-in-class point cloud data from their Stereo cameras.

And -- so there's been a core investment there on both sides, and now we get to combine the resources, the learning and the investments we've made from both companies into one program going forward. And just on the point around simulation, StereoLabs has actually invested very significantly on a simulation platform and Neural Depth is trained on 10 million images that is a combination of simulated stereo camera images and real-world data that they've pulled from sites in the real world. So they've already made a major investment on the simulation side, and that's one thing that we're going to pull over and be able to use on the lidar side of the equation as well.

So core investments in foundational AI models on both fronts and the core investment in simulation -- simulated data generation on the StereoLabs side that now is available internally to all of Ouster's teams.

[Operator Instructions] And the next question comes from Kevin Cassidy with Rosenblatt.

Congratulations on this acquisition. I wonder if you could tell us a little more about the customer overlap that you and StereoLabs have. If you can give a rough percentage. I see in your slide deck, there's some that you're showing your 2 products on the same systems already. But just in general, if they have 10,000 customers, how many of those are already Ouster customers?

Yes. Thanks, Kevin. So in terms of customer overlap, I mean, there's 2 ways to look at this. They've -- StereoLabs has an impressive customer base that they've built up over time in many ways organically and incredibly efficiently. But they've also proven that they can lock down and win major OEMs and Tier 1 customers in that set.

And so if you look at the composition of StereoLabs' customer base, it follows somewhat like a 90-10 rule kind of like Ouster's customer base. There's a component of the customer base, 10% that are major Tier 1s, OEMs. And within that, there's overlap with many of Ouster's Tier 1 and OEM customers, which is great. That means that we can now provide more value in a single source of development and support to a shared customer base.

But there are also some really interesting Tier 1 and OEM customers that are brand new to the Ouster fold. StereoLabs has pushed into the data factory world with physical AI and then into the humanoid robotics world of physical AI. Those are traditionally not use cases and end markets that Ouster has played in significantly. And so those -- and there are some major customers within that set. So -- we are -- it's a nice mix of overlapping Tier 1 customers and some brand-new customers that just are places for Ouster to expand in the future.

Okay. And just on competition, is there anybody else that would have this type of offering? Or are you moving it up a level and building a wider moat?

Yes. I really think that we are pioneering the combination of seamless lidar camera and AI compute with all the algorithms to go with it. We're in a class of our own right now. And Ouster has always led the way with our acquisitions. And it's no coincidence that we approach StereoLabs out of the variety of camera and stereo vision companies that exist. I've actually long been a fan of StereoLabs and have tracked their progress and really been impressed with the business they've built and the technology that they've invested in over time, and the results speak for themselves.

So we think this combination, it's not any combination of lidar and camera, it's Ouster and StereoLabs. This is very important. And I do want to highlight the strength of their leadership team. Cecile and her 2 co-founders are a big part of their success and the fact that they're staying on just means that we're bringing more capability -- more capable leadership under the Ouster umbrella.

And our next question will come from Richard Shannon with Craig-Hallum.

Congrats on what looks like a very interesting acquisition here. A couple of questions from me. Maybe you could just help me understand the dynamics here across industries here, you kind of typically talk at least outside of automotive and robotics and smart infrastructure and industrial. And two of these -- or you already have software packages, BlueCity, Gemini covering portions of that here. Help me understand where StereoLabs will go in the context of this? Will StereoLabs be kind of more of an umbrella across all these? Or they be slotted into specific applications? Just kind of -- let me know how the kind of the long-term vision for how these all fit together goes?

Yes. Thanks, Richard. So StereoLabs has done a great job of building the unifying layer of software that end companies can use to build their end solutions. So I call this the autonomy stack, really it's the middleware layer that's incredibly challenging to develop and get right because it's safety critical fusion of many different sensor sources, combined with a perception layer of advanced AI models that are interpreting the raw sensor data coming in.

So Ouster traditionally has had more of a barbell strategy. We've had our hardware at the bottom and our Gemini and BlueCity end solutions for very targeted use cases at the top of the pyramid. And -- but StereoLabs has invested in this middle layer, the autonomy stack that is shared -- a shared need across the vast majority of our customers.

And so I'm really excited to now build that layered strategy, really 3 tiers of hardware, the lidar, the camera, the AI compute, the middleware stack of autonomy sensor fusion and AI algorithms and then the end solutions like Gemini and BlueCity that, by the way, can start to take advantage of the additions that we've made to the lower layers of the product stack for Ouster. So I expect that this is a new avenue of software that we're able to provide to our end customers. And -- but it's a virtuous cycle of creating more value for our end solutions like Gemini and BlueCity and potentially new end solutions that we bring to market in the future.

Angus, maybe a follow-on to that last phrase you used there. To what degree can this perception and sensor fusion capability be used in automotive? And is that part of the long-term strategy here?

Well, we have our automotive strategy, and I think that, that largely rests on the DF sensors and other products that we're bringing out. But for right now, what StereoLabs has done a great job doing is going after the incredible excitement in physical AI and robotics, industrial and smart infrastructure opportunities that if you were walking around CES, you saw every different physical embodiment of physical AI down on the floor. And that's what StereoLabs has gone and captured and is building a rapidly growing business around.

So I'm hyper-focused on making sure that those near-term fast-growing markets, we can successfully go and capture and be a leading player in. Automotive, I've always said that automotive will come. But right now, we're focused on the robotics, industrial and smart infrastructure customer bases for the here and now of this acquisition.

Our next question comes from Kevin Cassidy with Rosenblatt.

Yes, thanks for letting me have a follow-up questions. On the manufacturing side, is there any synergies possible there?

Yes, that's a great question. So it's remarkable how few dissynergies there are in this deal. StereoLab has built an incredibly efficient EBITDA positive business. On the manufacturing side, this is one of the places where Ouster has really excelled, and we do think that we'll be able to bring our operations team, our manufacturing acumen, all the investments we've made in precision manufacturing and high-quality manufacturing to the table.

StereoLabs is largely an engineer-driven company. The vast majority of the employees there are engineers, and it's incredible that they've been able to ship 90,000 sensors with the very small operations team that they have. But I think it's important for this next stage of growth for them that they have the backing of a very considerable operations and manufacturing capability at Ouster. So definitely going to bring some value into the product, into the scale that we can drive and also, I think, into the quality and the cost reductions that we can bring into their product portfolio.

And the next question will come from Richard Shannon with Craig-Hallum.

Let me take one quick follow-on question here, which is, obviously, this acquisition brings in a lot more software capability, complementary to what you've been doing here. Any way that you can characterize either in terms of headcount or dollars or whatever, how much the R&D here is going to be software versus hardware?

I missed how many -- I missed the...

Sorry, in terms of headcount or dollar terms or however you like to characterize it, how much of the combined business will be software-oriented versus hardware?

Yes. Right now, what's interesting about StereoLabs' business is that the camera, the hardware, the AI computers and the software goes hand in hand. You really need all 3 to properly process and take advantage of the richness of modern cameras. And so they've done a great job of building this cutting edge suite of technology. And so there's virtually universal adoption of Ouster -- StereoLabs' software development environment with their cameras. They really go hand-in-hand.

The Neural Depth model is something proprietary to StereoLabs and to get the great capability out of their cameras and out of that hardware, you need modern AI algorithms. And this is a theme that just is generally true at this stage. If you want to make safe, capable practical autonomy, you need to pair your hardware with cutting-edge AI compute and cutting-edge AI algorithms that are trained to run on that AI compute. And there's no better company in the camera space to have done that than StereoLabs. And Ouster again, has done the same investment into AI algorithms on the lidar side.

So it's a very significant take rate of the software that StereoLabs has built with their hardware. And I'm excited to leverage that experience to bring more of that into the lidar side of the equation for Ouster's lidar-only customers.

And I am showing no further questions in the queue at this time. I would now like to turn the call back over to Angus for closing remarks.

Well, thank you all for joining early in the morning. I want to congratulate the StereoLabs team for an incredible business you've built. Welcome to the Ouster fold. I can't wait for what comes next.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Thank you all for attending the 28th Annual Needham Growth Conference. My name is Casey Kempner. I work on the New York sales desk here at Needham. I'm happy to introduce Ken Gianella, CFO; Chen Geng, SVP, Strategic Finance and Treasurer; and Jim Fanucchi of Ouster for the company presentation. We will have investor Q&A. Questions can be sent to me through the conference portal, and I'll have those relayed post presentation.

And with that, I'll let the Ouster team take it away. Thank you.

Thank you so much, Casey. Totally appreciate you guys hosting us here today. Let's just jump right into it, obviously, past the safe harbor statement, still early within our year-end close. But I want to start first with just describing about who we are and what Ouster does. So a lot of people come to us and say, "Well, you're just a sensor company. What are you just selling?" And I think the biggest thing that people's perception has changed over the last 12 to 24 months is, we're not just a hardware company. We are a perception solution platform.

And what that means is that not only do we sense and take the perception and sensing side of it, but then we have a perception software layer that can think and actuate and generate actions. And then we have applications that can drive outcomes or help support the outcomes you're looking for. So that sense, think, and act is really the platform that Ouster brings to light. So when you start thinking about physical AI and what physical AI means, to us, it's really anything that moves.

Do you want to monitor something that moves? Or do you want to be something that moves within the environment autonomously? Now how we do that is we take our global leading digital lidar sensors. So in the areas we operate, we are the #1 provider for 3D digital lidar within the areas we operate. We offer the only software infrastructure with a very clear perception platform that can help people get to market a lot quicker. So our over 1,000 customers, they work with us not only just to get the perception in the sensing side of it, but how can we help them get to market quicker using our expertise over 10 years.

And then last but not least, it's pulling together this global solution that with our Gemini AI program, we've used that to log and catalog over 4 million endpoints as part of our AI training algorithm that creates a virtuous cycle for our customers. So it's not just sensing and performing, it's also learning and taking those learnings and cycling it through with our AI algorithm. Next slide, please. So when you think about the market opportunity that we go to, today, $70 billion market opportunity across 4 key verticals.

In 2024, it was about equally split, 25% across each vertical. But let me just walk through and what we're seeing each of those today. Everyone understands automotive and what's going on there. Our primary play in there is really around robotrucking, robotaxis, not so much in the ADAS system. We don't have that product line yet, but we predominantly work with the robotrucking and robotaxis. Moving next to smart infrastructure. This is one we've really been pleased with the performance lately, and that's primarily driven by our Intelligent Transport Systems.

So what that means is over 300,000 intersections in America use stoplights or controlled stoplight at some form. We're targeting that market squarely. Our BlueCity platform has the ability to control an intersection intelligently, but it's also a force multiplier. It allows cities to not only put to control the lights, but in real time, they can monitor, manage and more importantly, get the data from them, so city planners can understand what's going on as part of their long-term planning. This system, it is a brownfield opportunity that we're going into, and it's a very open market that we're seeing a lot of synergies across city and state that's helping us grow that sector.

Next within here, what we really like in this is perimeter crowd security. We've already secured for the Los Angeles Olympics as well as several stadiums around America that to help do crowd control and crowd analytics for the upcoming World Cup games later this year. It also is great for logistics and detection within the perimeter security. So the logistics side of this, think within warehouses, and this starts moving into the industrial complex side of it. If you think about that end-to-end supply chain as a truck moves on to a lot and then from that truck, it gets offloaded and then it moves into our warehouse and gets shelved.

Each one of those end use cases, our lidar and our perception systems are used, whether that's perimeter security around the warehouse, whether that's detecting the truck entering the lot and logging where it parked in the lot, whether that's the autonomous or safety modified forklifts because many of the forklifts today, while they're not full autonomous, there our lidar, it is used for safety applications when you mix heavy equipment with humans in a place. All the way then when you get into the warehouse, we map the warehouse with our lidar and our applications, and then we can monitor and help move autonomously pallets and pickers and so forth within that warehouse to operate.

So that smart infrastructure and industrial, really big space driving our business today. Last but not least is robotics. This is one that we've been super pleased with and we've partnered with folks for a very long time with. And one of the best use case examples we have is our partner, Serve Robotics. Serve, they've been with us for several years now, and we started with them, helping them get off the ground with proof points that really help them hit their business model to where they need to be.

And from that, we've grown with them from tens of units to hundreds of units. So we are really pleased with the recent announcement that they had that increased their orders with us by the thousands. This is a great example how by partnering with 1,000 customers across multiple use cases, not just one specific use case, this helps us give visibility into our growth. And so our partners' success is really our success. And so as they grow and as their end use cases break open, this gives us the ability to go and supply and work with them.

The other use case that many folks may know about is in defense and drones. Ourselves at Ouster, we've been actually in this space for a long time, predominantly in the mapping side of it, working with our various integrators and drone partners. And we recently announced that we had Blue UAS certification. So what that means is the Department of Defense has certified our supply chain to really be conflict-free from any end users or end states that may compromise the supply chain and the production of DoD or military or other government operations using our lidar sensor.

We are the only 3D lidar sensor in the Western space that has -- in the world actually, that has that certification for these applications. So we've been doing drones for a while. It's a big part of our business. It's not just a new use case for us, but this is something that we also are excited about that and the larger robotics sector.

Next slide, please. So when we think about what our technology is built on and why we believe we're going to win. Lidar has been around for decades now. What's really changed the face of it is moving from an analog-based lidar into more of a digital lidar space. The second thing is the compute power. So when you combine compute with our digital lidar, you're truly riding the Moore's wave, not only of every node that we create, we're on the L3 chip today. It not only doubles our TAM in the markets that we can serve, but it greatly improves the efficiency of not just the power, but also the efficiency of other attributes such as visibility and the amount of attributes that it can operate under.

Our next chip node, which we're super excited about coming out soon is the L4 chip. That's going to take it even to the next level and open up even more specs with us. The key about the L3 chip today, that full $70 billion, that's all on the truck already. We can service that whole market with the existing applications. By adding more products and services and software to our platform, that not only expands our TAM, but helps us get deeper into our customers' wallet. It helps us get more market share and more of their wallet in this perception layer of physical AI.

Next slide, please. So when you look at the actual hardware side of it, that's where our OS products come in. This is line of digital, 3D lidar for short, mid, long-range sensing. The cool thing about this product set, what you're really looking at is different form factors. But the reality is the underlying architecture and manufacture that we do is all one platform. The platform layer for the perception applications, maybe you tweak those a little bit from a software side. But this one set of hardware series can serve every single one of those use cases I just talked about, whether that's working with a large ag producer on a large combine to help them guide through the fields with worth $2 million or to a Serve Robotics with a couple of hundred thousand dollar unit.

It's the exact same perception and sensing system that supports and drives that perception for those physical AI solutions. The DS Series, which is in development, that's another chips that we're developing called Chronos. That one is also in the works to come out shortly. But what this will do is, this will enter us directly into the automotive space and the ADAS space, specifically designed to deal with a truly solid-state lidar digital system predominantly for, again, the automotive space.

Next slide, please. So when you think about the long-term financial framework, and we talked about the hardware and you add on those software elements and you add on the perception platform that we bring to the table, we believe this can drive across those market segments, 30% to 50% growth. That growth that we're looking at is predicated on things we have on the truck today. It's going to continue to be fueled by innovation. It's going to be continued to be fueled by both organic and inorganic means through software and through continuing to broaden our overall perception and sensing portfolio.

Gross margins, we're targeting 35% to 40% on a GAAP basis. This is driven from a mix of all those elements I just talked about, hardware, software, service and applications that go to it. We believe within this marketplace and with the mix that we see, that's a great place to be at to continue to grow our business. And then last but not least, something that the company was founded on, it's really fiscal responsibility and driving not just cool technology, but cool technology that can sell into an active marketplace.

So we're very, very pleased with our road map of what we developed, but also maintaining our operating expenses to get leverage and build leverage from that operating space and grow profitably is something we're looking at. So when you look at this long-term framework combined and you look at some of the notes that are out there, this would target us towards a profitability, both from a cash flow and from an EBITDA somewhere in the late '27, early '28 time frame.

Next. So to end and before we turn to questions, I just want to rehighlight the investment strategy. We're an AI platform solution player, driving solutions, not just at the middleware or at the perception platform layer, but it's the applications and end use cases that our customers can use to speed their time to market and make them successful. Think of us as being that platform. If you think back to the gold rush, we're selling the picks and shovels of perception solutions to folks driving into this physical AI gold mine that's out there.

Next is our digital lidar technology. Every new node that we bring out there lowers our total cost basis, drives higher efficacy, drives higher application use and opens up new TAM for us. And then last but not least, is our diversified and proven business model. We didn't come out 10 years ago focused just on one narrow segment, one narrow use case, we came out with this platform that can operate across all of these use cases ubiquitously in using our platform to penetrate these. We've shipped over 100,000 sensors, and we're really, really pleased. We did a merger. One thing I didn't mention, we merged with Velodyne a few years ago.

And with that, brought like the fundamental patent IP portfolio with it that really solidified this overall investment highlight. So we own the patents. We own the IP. We are the one of the founders of this space. And our road map of what we're driving is going to continue to keep us a leader in perception and sensing for years to come.

So with that, Casey, we'd love to turn back to you to see if we have any questions from the audience.

Of course. Thank you so much, Ken. Really appreciate it. First one coming in, at CES, autonomy was pretty front and center. Many transportation and industrial companies discussing, talking about their autonomous products. So I just want to get a sense how does your technology and product portfolio fit into these applications?

Thank you, Casey, and thank you for the question. Number one, you can't have physical AI without some sort of perception and sensing platform. You have to have sensing and perception platform to work autonomously with whatever end application you're trying to do. What we did this year at CES and CES was a very successful one for us, and we were really pleased because you can see how physical AI has grown over the years, just looking at CES, where, one, started where no one knew what physical AI was. Two, we really had a breakout year this year to where it was front and center across all those segments I just talked about, both robotics, industrials as well as smart infrastructure.

So what we did this year, what was really unique is we took our investors and our analysts, we did a tour. We didn't have our own booth, but we took them a tour to all of our partners. So we literally walked the floor and say, "Look, this is how we're being used on ag machinery. Look, here's how we're being used in security and aviation. Look, here's how we're being used in logistics."

And it was a real great proof point for everybody to then talk to our customers right there face-to-face to hear what great partners we were. And in all my years of finance, CFO and operations, I can't remember where I walked into partners' booths or even competitors' booths and they're like, "Ouster, wow, you guys are really the leaders. We're the ones -- you're the ones really helped us get to where we're at."

And so that's a great feeling knowing that we're really changing and helping our partners be successful. And CES, yes, you can just see the focus. You can see the growth in physical AI becoming more mainstream across all those segments. Robotics was a big one, but also we can't forget the industrial side was really shown well there.

Of course. No, really, really appreciate it. So would you be able to touch on the various technologies your customers use in their autonomy stacks and how they really all fit into your approach?

Yes. So first and foremost, we look at ourselves not as a lidar company, but as a perception platform. When you think about our customers, we really believe that they want multiple sensing modalities. And that's lidar, that's cameras, that's anything that they can do to put into a perception layer that can sense, think, act. At the end of the day, that's what they're trying to do with our product set. And so what we bring to the table is, we bring that full platform of sensing, thinking with our perception layer and then being able to act real time.

Now what we also bring with our Gemini product set is an example of where we can take all those learnings of what we learned operating, and we can pull that back into the Gemini model, continue to train their model for unique use cases that they do to continue their R&D development and then you can push that AI model back into production to operate even more effectively and efficiently from what you learn from the next cycle.

So we really bring to the table that whole end-to-end use case. And our end goal is really to reduce the friction for our customers to get to autonomy. So again, I go back to, I want them to win. I want them to get to market quickly. And if I can help them with my software and my kits and my sensing platform to get to market quicker, then that's a virtuous cycle we're going to continue to win at.

Of course. No, absolutely. And just coming off the back of that question, can you spend a moment breaking down your BlueCity and Gemini offerings, in particular, how they're different, what markets do they serve? And what is the go-to-market approach with each?

Yes. So Gemini, think of that as kind of our AI engine, right? We use that as part of the perception platform to detect, classify, track, and it can be used across multiple applications, mostly stationary items tracking. We've trained on over 4 million endpoints out there. We're continuously training and growing that AI module within Gemini and think of that as a foundational piece from that AI portion for us.

When you look at BlueCity, that's one of the true applications that we have out there that offer that end-to-end. BlueCity is a transportation or smart city solution, if you will. We go to market predominantly through distributors with that application that allows them to sell to cities, states and other government entities that allow them to monitor and manage traffic flow within intersections, freeways and thoroughfares more effectively and efficiently. So think when you pull up to a stop light or if you're in the Northeast, they plow up the inductors and the things that make the light change constantly.

Our system works through rain, snow, sleet, hail and actively real time can change and monitor the flow of traffic and change the lights. If grandma is having a tough time crossing the street and it's taking a little bit longer, we can hold the lights until the pedestrians clear out. We have great use cases, great partners with this, whether it's the city of Nashville, the state of Utah, plenty, plenty of use cases where this comes together. And the reason why this is a great segment it's using is there's really no competition between cities and states.

We're seeing growth just by word of mouth of people loving what our product does and telling different folks at conferences "Hey, you got to go and pilot this." And what we're seeing and why we're seeing such great traction with this, is not just because it's an end-to-end solution and it's ease of use. And oh, by the way, it's cost effective and already baked into these cities and states budgets, but we're seeing it because it's a force multiplier for them.

We're displacing brownfield technology, but then they're able to take this AI data set. They're able to do other learnings from it for city planning, for making the streets be more productive and understand how and where they can manage traffic flow more effectively. It's just an added application and analytics that we can provide to them for the same cost as they would get from other technology.

No, thank you so much. So having a strong balance sheet and financial position is really helping cement your position as a leader in the perception and sensing market. So what benefits or opportunities do you really see from this position?

Well, I mean -- think of the example I just gave about Serve, right? It was a 3-year journey with them from inception through the growth and prototypes to them, hitting it with production and really knocking out of the park. We have 999-plus customers just like that, that need to partner with someone, not just for a year. They're not just buying a sensor from us. They're buying someone that needs to help them be successful through their journey.

And that journey, especially in physical AI and especially with the large industrials, they're looking for ways and someone that can partner with them for 2, 3, 5 years. If I do nothing different from a financial structure, we have over 6 years' worth of runway from our balance sheet. We're the best capitalized Western lidar company out there. We have really great partnerships and we have a very strong balance sheet that allows us to get into doors and stay there because they know we're going to be around to support and partner with them throughout their physical AI journey.

That's great. See if we have any others come in. We can give it another 30 seconds. But in the meantime, thank you so much for your time. Really appreciate the presentation. What it sounds like the conference has been very successful. So best of luck in 2026 and after that.

Thank you very much for hosting us today, Casey.

Absolutely. Thank you.

Hello, and welcome to Ouster's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website an hour after the completion of this call.

And with that, I'd now like to turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Chen, please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining our third quarter 2025 financial results call. Today on the call, we have Chief Executive Officer Angus Pacala; and Chief Financial Officer Ken Gianella.

As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, anticipated industry trends, our business and strategic priorities, the development and expansion of our products and our revenue guidance for the fourth quarter of 2025. Actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the third quarter 2025 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release that was issued today.

I would now like to turn the call over to Angus.

Hello, everyone, and thank you for joining us today. I'll start with a brief recap of the quarter and review our strategic priorities. Ken will cover our financial results in more detail before I close with some final thoughts. Our third quarter results reflect the continued growth we are seeing across our business with revenue of $39.5 million, representing our 11th straight quarter of revenue growth. We set a new quarterly record with over 7,200 sensors shipped, bringing physical AI to life across multiple applications, including yard logistics and traffic intersections.

Gross margin remained strong at 42%, and we ended the third quarter with $247 million of cash and equivalents and no debt. This performance further demonstrates our ability to convert pilot programs into large volume orders as we deepen our relationships across our diverse customer base. In our Smart Infrastructure vertical, we expanded deployments of Ouster Gemini and REV7 at logistics yards around the country, helping our customer improve throughput, efficiency and safety. We continue to progress with testing new Gemini AI algorithms at key customer sites during the quarter with the potential to expand use cases and more than quadruple the number of sensors per logistics yard.

We also won new deals to bring Ouster BlueCity to additional intersections across Utah to enhance traffic flow, safety and operational efficiency. In our industrial vertical, we shipped a significant number of REV7 sensors to a leading global technology company as it continued to expand the use of autonomous mobile robots across its warehouse floors. Ouster's sensors are mounted on a variety of warehouse equipment, including AMRs, forklifts and tuggers, enabling our customers to detect and avoid nearby objects and helping heavy machinery to work safely in unstructured environments.

We also secured a substantial order to supply REV7 to a large European industrial equipment manufacturer, which is upgrading the sensor stack on its next-generation electric mining trucks. These trucks are part of an autonomous haulage solution that increases safety, productivity and efficiency while producing 0 greenhouse gas emissions during operation. During the quarter, we delivered REV7 sensors to support the continued expansion of Serve Robotics last-mile delivery fleet across the United States. Last month, Serve announced its 1,000th robot deployment compared to an average of 57 active daily robots in the fourth quarter of last year and expects to reach 2,000 robots in service by the end of this year. Serve is a prime example of Ouster's engagement with companies that are rapidly accelerating from initial testing to commercial deployment.

Turning to our 2025 strategic priorities. We progressed across all 3 key focus areas: one, scaling the software attached business; two, transforming the product portfolio; and three, executing towards profitability. Our software attached business gained traction during the quarter. Yard logistics was a key driver of demand, and we also won a deal to deploy Gemini for crowd management solutions at major tourist sites and large events in South Korea. More customers are recognizing the benefits of our Lidar solutions, and we won pilot deployments for intelligent perimeter security, spanning energy and industrial sites, Tarmac, data centers and defense facilities across the world.

In September, we announced a strategic partnership with Constellis, which now offers a unified security solution enabled by Ouster Gemini and Ouster Digital Lidar. By investing in AI perception, Ouster has built a core platform to enable our customers to develop targeted market-specific applications. With Gemini, Constellis can provide real-time analytics, threat classification and automated response protocols to bring physical AI to advanced security operations. Constellis' operational expertise and global network positions us to rapidly advance Gemini for critical and large-scale security operations.

In the ITS market, I'm excited by the continued growth of our Ouster BlueCity solution, where we won large deals in the U.S. and Canada. We continue to expand our distribution network and signed 7 new exclusive partnerships to bring BlueCity to additional states, including Illinois and Missouri. We are proving the value of AI-powered Lidar to state and local governments across the nation, and our Blue City partnership network now covers the majority of a nationwide market of over 300,000 signalized intersections. We also brought on a transportation integrator in Europe following a successful pilot deployment in Brussels. These partnerships in conjunction with expanding our BlueCity bundles to provide customers with more setup options are key actions to support the continued growth of our software solutions.

Moving to the product portfolio. We continue to make major investments in retraining our AI algorithms on an ever-expanding corpus of field data. In the third quarter, these efforts delivered better detection accuracy at longer ranges and higher vehicle speeds to support use cases like tolling and highway monitoring. We also released real-time localization or RTLS, in our Ouster SDK. RTLS empowers our customers to understand the position of their assets with centimeter level accuracy, enabling features like geofencing, automatic speed limit enforcement and custom go/no-go zones. In addition, Lidar-powered RTLS significantly reduces the investment and infrastructure required by legacy sensors.

Our team continued to progress with testing and validation of our next-generation L4 and Cronos custom silicon. These investments will unlock major performance, security and reliability improvements for our OS sensors and become the backbone of our solid-state digital flash line. The innovations from this next phase of our product roadmap are expected to more than double our current addressable market and are the most profound investment in our product roadmap to date. Finally, I am proud of our team's consistent execution towards profitability as we deliver record results in the third quarter as we remain on track to meet our long-term financial framework.

I'll now turn it over to Ken to cover our financial results in more detail.

Thank you, Angus, and good afternoon, everyone. I want to open my comments by noting that since joining the company in May, I have witnessed firsthand the incredible dedication and laser focus on execution towards our 2025 company goals that Angus discussed, and I'm excited about the opportunities in front of us.

Now turning to third quarter financial performance. As Angus noted, our results reflect the underlying strength in our business. Revenue of $39.5 million was a record, representing growth of 41% year-over-year and 13% sequentially. We delivered more than 7,200 sensors, which also represented an all-time high. As a reminder, we do expect a level of fluctuation of volumes on a quarterly basis as it is largely dependent on meeting our customer delivery and timing needs. Smart Infrastructure was the largest contributor to the third quarter revenue, followed by roughly equal contributions from our robotics and industrial verticals. GAAP gross margin of 42% increased by 4 points compared with the third quarter last year and reflects the benefits of steadily increasing revenues and product mix, offset by continuing tariff headwinds. While our gross margin performance has been strong this year, we maintain that 35% to 40% is an appropriate long-term annual gross margin target for the business.

Next, GAAP operating expenses were $41 million in the third quarter, up 7% over the prior year. The increase was primarily driven by investments in R&D to support the new product development cycle. As I mentioned last quarter, we remain focused on managing our operating expenses, but anticipate there will be variability on a quarterly basis, largely due to the timing of investments in our innovation and go-to-market expansion. Adjusted EBITDA was a loss of approximately $10 million, flat year-over-year and a decline of $4 million sequentially. The sequential decline is primarily due to a favorable employment tax refund we received in the prior quarter. We are pleased with our ability to drive growth and have the operational capacity to meet our customers' needs. Creating strategic and operational flexibility for the company to innovate and grow as we continue to execute towards profitability remains a top priority.

Our balance sheet is one of the strongest in the industry, which is important for our customers as they depend not only on the long-term support of our products, but also our long-term financial security as a key supplier. We ended the quarter in a stronger position with cash, cash equivalents, restricted cash and short-term investments of $247 million. This includes approximately $35 million of net proceeds from our ATM. At September 30, we had approximately $4 million of authorization remaining on our ATM.

Moving to guidance. For the fourth quarter, we expect to achieve revenue between $39.5 million and $42.5 million.

Thank you for your continued interest in Ouster. I'll now turn the call back to Angus for his closing remarks.

Thanks, Ken. Ouster has a strong financial foundation, a robust distribution and partner network and a diverse customer base of emerging and world-class companies. Ouster is at the forefront of technology that is reshaping how the world engages with the physical environment. Our physical AI solutions are helping deliver improvements in safety and efficiency across a wide range of industries. All of this, coupled with our cutting-edge product roadmap positions us well to further accelerate the adoption of physical AI.

With that, I'd like to now open up the call for Q&A.

[Operator Instructions] Our first question today comes from the line of Colin Rusch with Oppenheimer.

Can you talk about where you're at in the testing process with the Rev8 and the Cronos offerings? Would love to get a sense of kind of how that testing is going. Any sort of concerns or kind of accelerations that you're thinking about with the platform given the potential growth and addressable market here?

Colin, thanks for the question. So we really try not to talk ahead of the release of our next-generation products other than to make sure that it's clear that we remain incredibly committed to the investments we're making in the digital Lidar portfolio. So our L4 chip, the Chronos going into the DF platform, these are things we talk about each and every earnings call because they're still the biggest source of investment that we have at Ouster and because of all the promise, the importance of these products to the future expansion of Ouster's business.

So the points that we've made in the past and we continue to make on this earnings call, a doubling of the overall TAM the most significant set of products -- hardware products in Ouster's roadmap in Ouster's history, all remain true. We're incredibly committed and focused to getting these products out as soon as humanly possible. But beyond that, I'm going to just leave it at that.

Okay. Fair enough. And then as you work through the design cycle with your customers, and we know that there's an awful lot of customers you guys are working with. There's a lot of innovation happening in industrial hardware design. Can you talk a little bit about the cadence of those programs moving forward? We know that you have a number of wins and moving from kind of smaller volumes into more series production, particularly with some of the off-road vehicles. But what you're seeing in terms of just the cadence of design cycles, the adoption rates, any sort of win rate data that you can share? I would love to get a sense of how that's evolving here.

Yes. I mean so we have over 1,000 end customers. And one of the points that we've made and one of the kind of bright spots about Ouster's promise of the future is that there's a small minority of all of the high-quality customers that we have that have actually reached full-scale production and commercial release of their products that are built with an Ouster Lidar inside. And so that means there's immense opportunity in our existing latent customer base for tranches of these customers to go from development all the way to commercial lease.

And we mentioned on the call, Serve Robotics, a great example of a customer that shows how the volumes shift from a kind of development, small-scale pilot style production where they had 57 robots deployed with our technology, if you look back a year or so ago. Now they're on track to have 2,000 robots deployed with our technology in the next couple of months. So that kind of fundamental order of magnitude shift is a big part of our growth strategy for the foreseeable future. And a small fraction of our overall customer mix under 10% is actually in that full-scale production.

So -- and -- but one of Ouster's core kind of muscles that we've built on the commercial side is our ability to support our customers developing these challenging new technologies and close gaps that maybe we have better expertise closing than our customers do, either on the hardware or the software that processes our Lidar technology so that we're getting customers to market faster and they're seeing that we're a valued partner in that process versus just a hardware supplier. So I think there's a lot of -- yes, there's a lot of kind of goodwill and deep partnerships that we've built along the way. And we're continuing to do that. It's something that our customers value at this point.

And our next question comes from the line of Andres Sheppard with Cantor Fitzgerald.

This is Anand on for Andres. Congrats on the quarter. With the rapid acceleration of self-driving vehicles, both passenger and commercial vehicles, do you guys expect to pursue this vertical a little bit more aggressively going forward? I know it wasn't as much of a focus this quarter. But are you looking for any major OEM agreements? And what would be an ideal candidate? Because it seems like most companies with the exception of Tesla are really reliant on Lidar for this.

Yes. Thanks for the question, Anand. So I mean, it's -- first, it's great to see the renewed kind of resurgence and interest around self-driving vehicles. A lot of this is because of the advancements that Waymo has made in really providing commercial service to customers out here on the West Coast and in Texas and Arizona and then also some of the advancements from Tesla.

So -- it's great to see this. Ouster already has some really strong partners in this area. We're talking about robotaxi specifically, Motional and May Mobility, both are strong Ouster partners. We've seen a lot of great partnerships that May Mobility has been inking with -- to build their customer base and actually expand their commercial robotaxi deployments. So Ouster already has some of these great customer relationships. When it comes to the OEMs and kind of direct OEM integration of this technology into a car you and I can buy, that's where I have tempered expectations in the past, just basically because of the long time horizon for OEMs directly integrating self-driving technology into the cars that you and I can buy.

That's largely because of technology difficulties on the OEM side versus like the readiness of compute and sensor technologies that Ouster is responsible for. So -- but on that latter point, we're absolutely interested in this space. What I've always said is it's important to have the right products with the right -- at the right point in time for that adoption to happen. I think a lot of things are converging. We have put a lot of investment into the DF and the future products on that internally at Ouster so that, again, we have the right product at the right time for this massive opportunity in direct OEM integration. So definitely interesting to us in the future, something I've tempered in the past, but I think the stars are aligning in the next couple of years here.

Got you. That's helpful. Just switching gears a little bit. I guess, for the past few months, the elephant in the room has been the Blue UAS certification. So I was wondering what are maybe some of the most recent updates related to that? And if you could potentially give us any granularity on sensor shipments? Or if not, do you continue to believe that you have a moat in this segment? Or are you seeing more competitors pursuing this now?

Yes, specifically asking -- so for those listening on the call, the Blue UAS certification was really -- it was a certification for using Ouster's Lidars on defense DoD use cases and payloads, specifically for drones. So the common use case here is -- or the traditional use case for Lidar on drones is a surveying payload, surveying and surveillance payload. Ouster is a robust business as a surveying payload on drones already and the UAS announcement made us the first DoD Blue UAS certified company in the mix. And it's definitely a boost for our business. We're not splitting out specific sensor volumes, but we do see inbounds from customers that are interested in making sure they're operating certified payloads.

And whether or not, sometimes it's because the end customer is a DoD customer. And sometimes the end customer isn't, but values the fact that we're using a certified American-made technology. So definitely a bunch of benefits there. I think we do have a moat. We're the first -- we're certainly the first mover in this space. And we have a great set of products that apply really well, small form factor, super high resolution, robust Lidars that don't weigh a lot. And all those things make sense if you want to put these on a small form factor drone like the Blue UAS certification is positioned for. So yes, not splitting out any specific numbers, but definitely a benefit to our business.

[Operator Instructions] And our next question comes from the line of Madison de Paola with Rosenblatt Securities.

This is Madison calling on behalf of Kevin Cassidy. I was just wondering with so many customers moving from prototype to production, what steps are you taking to mitigate potential supply chain constraints that could impact growth? And just as a follow-up, what's the long-term target for BlueCity's attach rate?

Well, let me start with the latter first. Thank you, Madison. The bigger thing is we're not breaking that out and giving the long-term target. It is part of our overall robotics and industrial outlook that we have already. So if you just stick with those growth rates that we talk about, that's the majority of what would be covered there.

Turning to your first part about capacity. One of the things we've done very well. And if you look at the growth just these last 2 quarters, we set 2 record quarters of shipments pretty much quarter-over-quarter, our sensors grew year-over-year for this quarter alone was 85% and quarter-over-quarter from last quarter to this quarter is a 31% growth. So having that capacity is very important to us as we continue our growth journey. So part of the capital investments we make aren't just strategic. It's also financial flexibility. What's important for us is meeting our customers' scheduled demands because while we pride ourselves on the continued growth, our customers are growing just as fast. And so, we have to have the capacity to deliver their needs so they can meet their customers' needs. So we will always be investing in capacity to ensure that we can meet the customer demands.

And our next question comes from the line of Richard Shannon with Craig-Hallum Capital Group.

This is Tyler Anderson on for Richard. So Amazon has been talking about adding a lot of robots in the future and including the humanoid robots, do you think there's going to be a benefit to you from this? I have seen some pictures of robots that look similar to yours. And how would they show up in bookings when that starts moving forward? Is this something that takes a long time that needs to be built out? Just any way to think about that would be helpful.

Yes. It's a good question, Tyler, because this is a fast-evolving space. I'm amazed how many humanoid robotics companies have been announced in the last year. Overall, definitely a great thing for us. Humanoids need sensing technology like any other robot and Lidar is the best possible sensor you could put in the mix. And we already have some customers that are using our Lidars in their humanoid robotics platform.

So definitely good news there. You would see -- the way that's going to impact our business is it would boost our robotics vertical, right? That's where this would fall into the financials or the financial performance of the company. I'd say it's still early days, like there aren't thousands of humanoid robotics -- humanoid robots that are deployed at end customer sites right now. It's a prototyping environment. So I don't expect it to be a big impact, positive impact on Ouster's business for the next year or so, foreseeable future. But this is all about laying the groundwork for a future tranche of customers to reach commercial deployment just like what we've seen with some of our other verticals happening all the time. So we love investing in new customer sets. I think the humanoid thing is interesting, but I think it's going to take a couple of years to play out.

Great. And then you mentioned something about a majority of intersections, about 300,000 in the U.S. Is this the total addressable market that you're speaking to? Or is this something that you already have plans and that's moving forward with business in hand? Just want to get a look at that. And then also, is there any way that you could categorize the attach rate for your traffic data?

Yes, absolutely. So what I said was that we had signed exclusive partnerships and distribution partnerships that covered regions for the majority of signalized intersections in North America. There are about 300,000 signalized intersections in North America. That's the total addressable market. But I think it's a market that we can largely go after aggressively today. BlueCity is a best-in-class intersection -- intelligent intersection product. It can cover a wide swath of the use cases today. We haven't quantified exactly how many of those 300,000 intersections exactly that BlueCity can go and capture, but it's a significant fraction.

And a major impediment to going and addressing that market is just having regional partners that we can sell through that can support the end customers, not just in installing the technology upfront, but also supporting them for the long term. It's important that a municipality has support on their traffic infrastructure for many years to come. So we have a lot of inertia there. We announced 7 new exclusive partnerships. And so overall, we are -- we have partnerships that cover the majority of the North American market.

When we're talking about attach rates, BlueCity is by default, a software-attached product. You cannot just buy sensors and you cannot just buy software. You have to buy the whole complete solution that goes turnkey onto your intersection. So I wouldn't -- every BlueCity cell has an attach rate of 100% for Lidars, has an attach rate of 100% for a software component. So it's more -- what we're seeing is that we're growing pretty fast in this market. Smart Infrastructure was our biggest vertical this quarter. And so my goal is instead of looking at attach rates per se for BlueCity, it's looking at the growth rate for BlueCity versus the rest of our business. I think there's some early signs that there's some really positive fast growth happening there.

[Operator Instructions] Our next question comes from the line of Casey Ryan with WestPark Capital.

Great quarter. We've talked a little bit about defense. I just wanted to get your perspective on that as a vertical because I think there's a lot of focus on drones. But as a company, do you guys define it as maybe being service-wide, meaning potentially all vehicles could sort of use automation? And as part of that, do you see sort of a retrofit opportunity as being potentially significant in addition to new weapons platforms and vehicle platforms?

Thanks, Casey. It's a thoughtful question. So the defense market is incredibly diverse. I think that's the first thing to acknowledge. And there's legacy vehicles already deployed in the DoD. There are traditional defense contractors. And then there's this new tranche of kind of faster-moving start-ups in the space. Ouster is really focused, I would say, on the non-retrofit opportunities, working with the traditional defense industry or the new players.

And yes, I think that the retrofit opportunity may be not something that we're tracking. But overall, like there's a big opportunity here, but with, I would say, an unclear timeline to the scale where this is deployed universally on these vehicle platforms. I do think that that's where it goes. Automation is good in this -- no matter what in this industry. But it's going to take quite a while, I think, to field this technology in a big way. But there's some promising first -- places where this is useful even today.

So Blue UAS surveying platforms, great example. It's not automation, it's surveying. That use case ready today, being widely deployed and used, great for Ouster's business. Automated systems operating in the field in life or death situations, there's a very high bar for fielding that. And I think it's going to be a couple of years before that's a major impact on Ouster's business. But Ouster is as well positioned for this industry as anyone in the world.

Okay. Terrific. That's a very thoughtful and helpful answer. Very quickly, there's the potential for DJI to be blocked, I guess, for U.S. shipments. Could you see that having an impact to your commercial opportunities because I think DJI obviously dominates market share in the U.S. for people who are using commercial drones for businesses and things like that. But I wonder if we should associate sort of a blocking as being positive somehow for Ouster in terms of serving domestic manufacturers.

Yes. I think that maybe there could be a positive impact on just the general awareness on where customers are sourcing critical technology in their supply chain. So the scrutiny of DJI, it's an adjacent market to us. But I think more would be around the general kind of perspective on strategic supply chains and knowing who you're buying from and maybe there's some bleed over that benefits our business. So net-net, a little bit of benefit for Ouster.

And our next question comes from the line of Tim Savageaux with Northland Capital Markets.

Congrats on the results. I might have dropped off there for a second. So sorry about that. My first question is you called out Serve Robotics as a kind of an example of the deployment of technology and volume. I wonder, we've seen some work. You obviously just did a deal with DoorDash for Los Angeles. There are some estimates that L.A. by itself could take 10,000 robots. As you look at the scale of this opportunity, is that something that's significant in terms of potential growth drivers, whether it's last mile delivery in general or Serve in particular that you're focused on?

Yes. Serve Robotics is -- I think they're having their Waymo moment, right? It's been many years of wondering, is this market -- is last mile delivery viable as a business, is it ready technologically for the prime time. And they've stuck to their game plan of making the technology and the commercial strategy work. And here we are with them now moving to orders of magnitude greater deployments. So kudos to them. I think that they're -- that's the best evidence that this is a real market with -- well, not just a real market with real demand, but that it's a viable market now.

So it's easy to be skeptical and pessimistic and people were of Waymo and then they kind of scaled by orders of magnitude and now everyone is a true believer. I think that's what's happening with Serve, and I'm happy for it, both because they're a customer and because it also is like a harbinger of good things to come in the rest of the last-mile delivery market.

I think I just want to add on there, too, Tim. It's a great proof point for our strategy of go-to-market, right? We across multiple verticals. It's just not a one vertical play. And Serve is just one of our thousands of customers who were in these early stages who scaled to success with their business plan and prevailed and gave us the opportunity to grow with them. So not just betting on one sector and riding that but having the foresight to go across multiple sectors and really work with these companies through their success, it's paying off for us now.

Okay. And that's a good segue to my follow-up, which is, Angus, I think you mentioned sub 10% of your customer base having scaled into full production and I don't know how far sub-10%. But I guess if we look a little bit forward, I don't know whether it's a year or 2 and that number is 25% or 50%. What are the implications there for your overall revenue opportunity?

Yes. I mean I'm pointing straight to our model of the 30% to 50% growth, right? When you look at how we're progressing with that and with that going into production, I mean, we've had some good tailwinds with margin lately, but I think that would keep our margins in that 35% to 40% on a GAAP basis we looked at. But we fully are looking at that ramp-up. That's where you can get towards the higher end of that 30% to 50% range.

Yes. And I would say this is exactly the sub 10% in production is why we talk about Ouster being in the early innings or I think last quarter, we said we're still in the dugout. We're not even playing the game yet. So there's a long way to go and a lot of growth for Ouster to grow into our TAM numbers. We've put out TAM numbers. I think those are real in the long term. And -- but it just speaks to the confidence we have in hitting our 30% to 50% revenue growth for the foreseeable future.

And I believe we have Tyler from Craig-Hallum with a follow-up question.

Just a quick one. So thinking about your software business, are you -- or are customers able to use other sensors with your software? And essentially, could you be just overlaid in different use cases with your software for what people have already purchased?

So short answer, no, you cannot use a different sensor with our software, and that's why it's a software attached business. We really always focus on the fact that we're selling systems BlueCity and Gemini combine our sensors with our software and in most cases, our compute as well. So software attached business. There are cases, though, where you can buy -- we have some customers, distributors that used to sell just Ouster Lidars, and now they're selling Gemini on top of those Lidars maybe after the fact to a certain set of customers.

Maybe a customer thinks that they can write their own software for our sensors and realizes that after trying for a little while that Ouster has something more mature and they can sidestep a bunch of difficult technical issues by purchasing the Gemini software themselves. So we do have some cases there. But again, the end result is that the customer is running a software attached product solutions product from Ouster.

Yes. And Tyler, I think the goal here for us is that software attach is buying the full system and perception and sensing fusion from us. The goal is that you would use an Ouster product set for your sensor and perception. And then once that software is integrated into your software stack, they can grow with us for generations because our -- we write this, so it's forward and backward compatible on the hardware elements that we sell. So regardless of the generation we're on, it gives us the flexibility.

The other thing I would just add to that is if you start thinking about into the future, having that software attach rate, that makes us extremely sticky to our customer bases. So once you get in there, you want to provide not just quality service and quality products, but if you can provide a whole system and a platform that they can grow generation over generation, that's the ultimate goal of this play.

Awesome. Just one more for me. So just thinking about the software and the model training, this is all traditional machine learning, correct? And is there any way -- or are there any customers that they're pulling for some kind of LLM or visual model capability that isn't traditional machine learning?

I don't know if we've ever used the term traditional machine learning. I would definitely say that for this type of Lidar perception, we are using cutting-edge models, but they're not text models. So LLM is almost a misnomer for this industry. But we are using cutting-edge deep learning models in our products, trained on giant corpuses of annotated data that we've collected from the field. So true kind of cutting-edge fleet learning, true cutting-edge deep learning models used best-in-class in the perception space for Lidar.

So yes, I think that there are ways we could augment our products with things like LLMs or maybe that the perception space will transition to transformers and LLMs. But the cutting edge is actually what we're using, and that's deep learning.

Got it. And I meant traditional and non-transformer models coming from a data background. I was just trying to differentiate from that.

Yes.

And with that, I would now like to say that Q&A is concluded. So I will hand it back to Angus for closing remarks. Angus?

All right. Well, with that little discussion on LLMs, thank you all for joining the call, and have a great rest of your day. Cheers.

And again, ladies and gentlemen, that concludes today's conference call. You may now disconnect. Have a great day, everyone.