威力登 (VLDR) 2021 Q1 法說會逐字稿

Hello, and welcome to the Velodyne Lidar First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to Moriah Shilton. Ms. Shilton, please go ahead.

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Good afternoon, and thank you for joining us on today's conference call to discuss Velodyne Inc.'s first quarter 2021 financial results. With us on today's call are Dr. Anand Gopalan, Velodyne's Chief Executive Officer; and Drew Hamer, the company's Chief Financial Officer.

Before we begin, I would like to remind you that shortly after the market closed today, Velodyne issued a press release announcing its first quarter 2021 financial results. Velodyne also published an investor presentation. You may access the press release and the presentation in the Investor Relations section of velodynelidar.com.

Today's discussion includes forward-looking statements. Please refer to our press release for a discussion of factors that could cause the company's actual results to differ materially from those forward-looking statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Velodyne's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in Velodyne's quarterly financial press releases. (Operator Instructions).

Now I'd like to turn the call over to Dr. Anand Gopalan, CEO of Velodyne.

Thank you, Moriah, and thank you to everyone for joining us this afternoon. I'm Anand Gopalan, CEO of Velodyne. As the leading lidar producer in the world and the one that is clearly defining the lidar market, we continue to make great progress in the first quarter of 2021. Once again, Velodyne shipped a market-leading 2,684 sensors in the quarter and continued our leadership position in solid-state sensor sales with more than 600 sensors sold. We ship 65% of our sensors to customers as spot buys, which we use to see the global lidar market and 35% of our sensors to customers under our multiyear agreements with them. Our strategy of leveraging our manufacturing scale to see the global lidar market with our products is evidenced both by the strong spot buy business as well as the continued conversion of these customers into multi-year agreements, which #29, as of May 1, up from 26 as of February 19.

We are also seeing increased pipeline strength. Velodyne's pipeline of projects grew to 198 projects as of May 1, up from 194 projects reported on February 19, 2021. When you look at where we were 1 year ago at this time, we are seeing significant growth in the robotics and industrial segment, which is one of the lidar segments closer to commercialization. In addition, 23 of our projects now include software as a component. We continue to build out that aspect of our business by providing complete hardware-software solutions to our end customers.

In the first quarter, we also built out our executive team with seasoned technology and business veterans. We appointed Sinclair Vass as Chief Commercial Officer; James Barnhart as Chief Operating Officer; and Mike Jellen was promoted to Chief Strategy Officer. We strengthened our Board of Directors with the appointment of Hamid Zarringhalam, Corporate Vice President of Nikon Corporation; and Deborah Hersman, former Chair of the National Transportation Safety Board, NTSB, to our Board.

Velodyne Lidar is the market leader with a broad portfolio of products at the necessary price points to drive mass market adoption of lidar. We have been working with companies across various lidar segments on R&D projects for more than 10 years as lidar technology matured to the inflection point we are at today with the first wave of mass commercialization ramping across several segments. Our ability to manufacture and ship at scale will be crucial in this new phase.

Our lidar technologies are the eyes for autonomous machines, which operate in many diverse markets, each of which having different time to revenue, different TAMs, different sales pipelines and different margin profiles. For example, the mapping and AV markets consider the traditional markets for Velodyne, continue to be strong and have good long-term viability as they ramp at a linear pace. Our rotational products are in high demand in these markets and continue to be the de facto reference architecture for the industry at large.

To break out auto more finely, interest in the ADAS market is growing robustly, with commercial revenue ramping a few years out. In the ADAS market, there is significant and growing interest in our solid-state solutions which are targeted at large volume applications. Further, lidar and consumer vehicles is being accelerated by new EV players in this space who are adopting lidar and advanced safety technology at a rate that is far outpacing the traditional automotive OEMs. Companies in the Industrial Robotics segment are automating everything from heavy construction machinery to the airborne drones that could deliver packages to your door.

Safety and potential cost savings plus operating in geofenced environment are the dynamics driving automation of construction machinery. Additionally, the automation of the supply chain is being driven by the significant growth in e-commerce. We are receiving revenue today from sales of our products for industrial robotics applications across a variety of different segments relating to getting goods from the port to your doorstep, and all using lidar to do so.

We are heading towards the future that involves autonomy not just in mobile systems, but in the infrastructure that helps these machines navigate through the world. There is a renewed effort by governments across the world to update aging infrastructure. Adding lidar sensors and intelligence to the infrastructure can make cities safer and more productive without violating personal privacy. In both smart cities and industrial robotics, we see opportunities to sell not just hardware but complete solutions of hardware plus software, increasing the value we bring to customers. All of this combines to make a robust business for Velodyne with a very robust cohort of customers.

We are the category definer, and several of those categories are now ramping to mass commercialization with Velodyne playing an important role. It's incredible to see the technology, products and solutions that we develop touch everyday life in so many meaningful ways.

Here are a few examples: first, delivery. We announced in the first quarter a multiyear agreement with Gatik, the industry leader in automating on-road transportation networks for B2B middle-mile logistics. Gatik is using Velodyne's lidar sensors as a key part of a fully redundant sensor suite to deliver goods safely and efficiently between micro-fulfillment centers, dark stores and retail locations, a logistics flow, known as the middle mile, that is an expansion of supply chain robotics. That fulfills revenue-generating autonomous orders daily for multiple Fortune 500 customers in the U.S. and Canada, including Walmart, reducing customer costs and keeping delivery times short.

Gatik solution helps retailers meet consumer demand for rapid delivery of goods driven by soaring e-commerce growth, increased road safety for all road users and health consumers and customers meet an unprecedented expectation for contactless delivery. It may surprise you to learn that Gatik's AV using Velodyne sensors were likely involved in delivering some of the goods that you are using in your home today.

We have previously talked about other projects in this space around forklift applications, warehouse logistics and last-mile delivery. In mapping, in the first quarter, we announced a multiyear agreement with AGM Systems, who provide state-of-the-art hardware and software technology for the collection, processing and analysis of air and mobile mapping data. Some of the largest companies in the world rely on AGM solutions equipped with our Ultra Puck to achieve precise mapping. AGM Systems products are an example of how Velodyne sensors enable serving real-time assessment and monitoring applications of valuable energy resources.

In April, we jointly announced with Knightscope, one of our robotics customers with whom we have been working for 7 years that they had selected our lidar technology to power their future fifth generation autonomous security robots. Knightscope's robots have been patrolling across the country for well over 1 million hours and operate across 5 different time zones. We are seeing an increased interest from potential customers for complete solutions that go beyond just sensor hardware.

As you may have seen earlier today, we have introduced our first hardware-software solution, the Intelligent Infrastructure Solution, or IIS, which is used in the smart city segment. When implemented, IIS will enable everything from safe intersections to robust data for city planners. In our cities, the cost of congestion is estimated to be $350 billion annually, and our IIS will help reduce this burden. There is a growing commitment by governments worldwide to rebuild outdated transportation infrastructure systems. In the U.S., the Biden administration has proposed to invest $2.25 trillion to modernize vehicles, roads and transit systems. As we look at a world with connected and autonomous vehicles, we know that infrastructure will play a critical role in moving this industry forward.

Also announced this morning, we signed our first IIS sales agreement with Rutgers Center for Advanced Infrastructure and Transportation to deploy our IIS-equipped Alpha Prime lidar sensors at multiple intersections in New Brunswick, New Jersey, as part of the Middlesex County - Smart Mobility Testing Ground project, in collaboration with the New Jersey Department of Transportation. The same technology can be used to monitor public and retail spaces, providing valuable real-time data and analytics without violating individual privacy, giving it a clear edge over camera solutions.

Now let's turn to the automotive market. First, ADAS. It is becoming clear as we work with our customers on lidar for mass adoption that the winning solution needs to have the right performance and cost combination to ultimately win. A great proof point is evidenced by Faraday Future's selection of Velodyne to be the exclusive lidar supplier for their flagship FF 91 luxury EV, bringing ADAS and advanced safety to the FF 91. Our solid-state Velarray H800 lidar sensors will power the FF 91's autonomous driving system that aims to deliver a comprehensive suite of highway, urban and parking autonomy features.

We also continue to work with major high-volume OEM customers such as our ongoing collaboration with Hyundai Mobis for mass production of a level 3 lidar system. In AV, we continue to bring new technologies to market, supported by the strength of our core foundational IP. We have a product today that already hits 265 meters at 10% reflectivity, but we are certainly not stopping there. We are building the next generation that will see farther and can be manufactured at lower cost and higher volume, which will be the key for mass adoption and commercialization of lidar in the segment. We believe that lidar will be the primary sensing modality for fully autonomous vehicles, and that Velodyne's technology will be front and center as AVs roll out in the coming years.

Velodyne has been able to create the broadest lidar product portfolio on the back of its common core technology platform called the Micro Lidar Array. This technology forms the common engine that allows us to scale down cost and increased manufacturability without compromising on performance. This approach continues to be unique in the industry and gives us the strongest opportunity to capture new applications in this broad emerging space.

The Velabit, our smallest sensor, brings new levels of versatility and affordability to 3D lidar perception. It is a cornerstone solution in our mission to democratize lidar-based safety and autonomy. As we show off this incredible technology to our major customers, we are getting tremendous positive feedback with over 25 pipeline projects that include a Velabit sensor. The versatility of a Velabit enables customers to use it in multiple applications, such as for sidewalk or last-mile delivery, and industrial warehouse obstacle detection and path planning or for pedestrian and traffic monitoring for efficiency and safety improvements, or to assist with blind spot monitoring, rear cross traffic detection and urban PAEB.

Speaking of PAEB, in the first quarter, we demonstrated how Velodyne's affordable lidar-based PAEB solution delivered superior performance in all conditions, a decisive advantage of a radar camera-based systems, which can significantly improve pedestrian safety. With our sensors priced for mass adoption, we truly are democratizing the usage of lidar-based safety in Level 2 plus across as many cars as possible.

Over the past few months, the world has continued to grapple with incredible challenges, and we have faced them by coming together and focusing on real problem solving. Velodyne is a microcosm of this, and I am incredibly proud of what we have achieved as a business, building real products, working with incredible customers and ultimately, by continuing to live up to our mission of bringing lidar technology to many applications that can touch everyday lives meaningfully.

Velodyne continues to be the pioneer and leader that it has always been in defining this exciting space and forging a path to a safer future for all.

Now I'd like to turn the conversation over to my colleague, Drew Hamer, to go over our financials. Thank you.

Thank you, Anand. Before I begin my quarterly financial review and provide our outlook, I want to spend a moment discussing the sales cycle driving our multiyear production agreements. The sales cycle begins with a customer discussion around the need for a solution that would benefit from incorporating lidar technology, including potential software requirements. Based on these discussions, potential sensors that align with the use case are identified along with the anticipated start of production date, or SOP.

Customers then generally do what we refer to as spot buys or book and turn orders to purchase sensors as part of their research and development process related to the solution. When they are ready to put in place an industrial production agreement that includes at least 3 years of volume and pricing forecasts, and share this information with us, the project is added to our multiyear project pipeline.

Completion of this cycle comes with a design award or signed multiyear agreement. As Anand mentioned earlier, of the 2,684 sensors we shipped in the first quarter of 2021, 65% of the sensors were spot-buys and 35% of the sensors were shipped to customers with multiyear agreements.

Now I would like to begin my quarterly financial review. Total revenue was $17.7 million compared to $17.8 million in the fourth quarter of 2020. Product revenue was $10.6 million compared to $14.4 million in the fourth quarter of 2020. The company's weighted average selling price per sensor was $3,887 compared to $3,381 per sensor in the fourth quarter of 2020. The overall product revenue reduction reflects a previously discussed decline in unit sales due to COVID-19, an ongoing evolution of the product mix. License and services revenue of $7.1 million included a $5.5 million licensing fee. Total license and services revenue was $3.7 million higher than the fourth quarter of 2020.

GAAP gross profit was $1.9 million and non-GAAP gross profit was $2.7 million compared to a fourth quarter 2020 GAAP gross loss of $5.3 million and non-GAAP gross profit of $2.1 million. GAAP gross profit was reduced by $800,000 of stock-based compensation expense compared to fourth quarter 2020 GAAP gross loss, reflecting $7.4 million of stock-based compensation expense.

GAAP operating expenses were $42.5 million and non-GAAP operating expenses were $28.6 million compared to fourth quarter 2020 GAAP operating expenses of $106.1 million and non-GAAP operating expenses of $22.1 million. GAAP operating expenses included $13.3 million of stock-based compensation expense, including employer taxes, compared to fourth quarter 2020 GAAP operating expenses including $83.8 million of stock-based compensation expense. GAAP and non-GAAP operating expenses included increased spending in research and development that is in response to the visibility provided by our multiyear agreement pipeline.

GAAP net loss was $40.8 million and included $14.2 million of stock-based compensation expense. Non-GAAP net loss was $26.1 million. GAAP net loss per share was $0.22 and non-GAAP loss per share was $0.14. This compared to a fourth quarter of 2020 GAAP net loss of $111.5 million included $91.3 million of stock-based compensation expense. Non-GAAP net loss was $20.1 million. Fourth quarter of 2020 GAAP net loss per share was $0.64 and non-GAAP net loss per share was $0.12.

EPS for the first quarter of 2021 is calculated using weighted average shares outstanding of 189.2 million. As of March 31, actual shares outstanding were 190.8 million. Velodyne completed the quarter with $383.6 million in cash and short-term investments on its balance sheet, which included $89.3 million in proceeds from the exercise of publicly traded warrants.

Now I would like to review our business outlook. At the end of the first quarter of 2021, we estimate we could have the opportunity for over $1 billion of revenue from signed and awarded projects through 2025, plus a pipeline of projects that are not yet signed and awarded of $4.5 billion. In addition, it continues to be our top priority to invest in scalable lidar architectures, advanced manufacturing technology and software solutions. This underpins the company's long-term business outlook of a total gross margin percentage ranging in the mid- to high 50s, and EBITDA margin of more than 20%. We also anticipate our multiyear agreements increasing to at least 34 by December 31, 2021.

Now for our full year 2021 financial statement guidance. Revenue is expected to range between $77 million and $94 million. Our revenue comes from a global customer base to whom we are actively shipping product. We are seeing parts of our market come back and meet the expectations for the second half, such as the U.S. and China. Other geographies we serve, such as Europe, the rest of Asia and India are impacted more negatively by the continued toll of COVID-19 and are struggling to keep programs on track for spot buys and multiyear agreements. These remain macro headwinds and are the reason we are providing the broad revenue range.

This compares to a full year 2020 revenue of $95.4 million, which included unique onetime items of $11 million in product revenue from a restocking fee and $17.5 million in license and services revenue that came from lump sum licensing activity. When we account for these nonperiodic elements, we expect to see product based revenues grow year-over-year despite various macroeconomic uncertainties. Non-GAAP gross margins are expected to be between 16% to 24%. This reflects fewer units sold to cover remaining fixed overhead costs of our factory in San Jose. On a GAAP basis, gross margins will include approximately $2 million of stock-based compensation expense.

On a non-GAAP basis, operating expenses are expected to range between $125 million and $129 million. Based upon the visibility provided by our multiyear agreement pipeline, we are increasing our spend in new product development to -- by approximately 50% in 2021. General and administrative expenses will increase by approximately 30% in 2021 to increase public company and legal expenses. On a GAAP basis, operating expense will include approximately $84 million of stock-based compensation expense that reflect approximately $52 million to be charged against sales and marketing in the second quarter related to our 2020 merger with Graf Industrial. On a GAAP basis, income tax expenses are anticipated to be approximately $600,000. Weighted average shares outstanding for the year are estimated to be 193.5 million.

Now I would like to turn the call over to the operator for questions. Operator?

(Operator Instructions) And the first question comes from Colin Rusch with Oppenheimer.

As you're looking at your over-the-road customers and the cycle times and cadence for their move towards Level 4, Level 5 ADAS. Can you speak to the time frames on those development programs? Are they progressing as you expected? Or are we starting to see some slippage on those times?

Yes. I think -- thanks for the question, Colin. As we look at Level 4, Level 5 programs, we are seeing a couple of different things happen. We are seeing our major customers continue to stay on track and ramp their programs as we expected in a methodical linear fashion. You will see these systems roll out in a couple of cities in 1 year and then followed with more cities the next year and so on. So that plan stays on track.

The other thing, of course, we are seeing is we are seeing consolidation in this space where many of the smaller players getting consolidated into the large customers that we have. But broadly, our outlook for lidar technology, our lidar technology being designed into these systems and being deployed in mass volume continues to be the same and as these major customers roll out their systems over the next 3 to 5 years.

That's super helpful. And then just looking on the cost side, as you guys have started working with the automated lines a little bit more. Clearly, I mean, are you seeing meaningful opportunities for designing cost out? Are you seeing additional component suppliers come online that can support that? Just help us understand the cost structure and the cadence of the lowering cost structure as we go forward here.

Yes. I think this is really an important part of what will make lidar adopted across all these applications and why we feel strongly in the choices we have made. The cost starts at the architecture level. And some of the choices we have made from an architecture perspective are really holding us in good stead as we move towards mass adoption.

The other thing that we have talked about is the common core technology platform that we call the Micro Lidar Array that started off with our solid-state products, but now it's making its way across our entire product portfolio, including the products that are used in the AV segment. And as a result of that, we expect to see our ability not just to continue to push performance further and further, but do that at a lower cost point and much improved scalability. So for that reason, you will see end cost of lidar technologies across the entire AV mapping segment as well come down as we roll out these next generation of products.

And the next question comes from Rajvindra Gill with Needham & Company.

This is Denis taking a question on behalf of Raji Gill. If you guys don't mind, could you tell us a little bit more about the full year guidance and maybe provide a little bit more color about the -- basically the spread on the revenue and kind of the gross margin downgrade? Can you speak about some of the key drivers of this change?

Yes. So the key things. First is just the revenue. That's really kind of 2 questions there. So the spread of the revenue is it's a bit back-end loaded year. We have good line of sight to kind of the low end of the range. But as we get out into the year, we're looking for other markets to open up. And so as we start to see Europe come back online and other regions of the world become a little bit more successful in their deployment of vaccinations, we anticipate that they could start to ramp back up in their purchases to spot buys and executing against the multiyear agreements we have with them.

In addition, for the upside, we also have a number of larger projects that are also kind of targeted that could come in here in the second and third and fourth quarter of the year. It will also provide potential upside revenues that we could see come in, which will allow us to hit the upper range of the revenue guidance which you're targeting. So it's really just time will pass here, and we'll get an opportunity to close these opportunities -- to close these deals. But for now, this is a higher confidence revenue ratio we can provide.

On the gross margins. This is just -- as it relates to the first quarter and then it affects your whole year, we had lower unit sales, and we're still in the transition of our manufacturing offshore to our contract manufacturers. So we had higher kind of overhead costs that we had to absorb here in Q1 and potentially Q2 as we get further out into the year. We're going to continue those transfers to the contract manufacturers or anticipate continuing that transfer to contract manufacturers. There is a risk there, as I think we're all well aware of countries like Thailand and Japan, are also increased -- seeing increased COVID-19 cases so it makes it a little bit more challenging to get these transfers completed because people can't travel to those countries and accelerate them. It doesn't mean we won't get them done, but it might take a little bit longer than we originally expected.

Got you. And then for my follow-up, could you speak a little bit about the kind of non-auto design pipeline with regard to maybe what parts of that pipeline we could see kind of hit the top line first and which aspects of that pipeline make you most excited?

Sure. I can start, and Drew, feel free to jump in as well. The fastest-growing part of our pipeline, definitely around the industrial segment. We see tremendous growth in robotics, in general, frankly, accelerated in the post-COVID world that we live in. We see this across the entire supply chain of delivering goods to your doorstep. We also see it in other applications such as forklifts and smart agriculture and so on. We are seeing lidar adoption clearly pick up at a fast clip. And this is a very exciting part of our pipeline because time to revenue is shorter and we see our ability to provide the products exist today. And further, many parts of this pipeline also involve a software opportunity, where we have the ability to add more value to the end applications of our customers, not just by providing hardware, but we're also providing software/hardware solutions. And that's actually really an exciting growth opportunity for the company.

And the next question from Itay Michaeli from Citi.

Just the first question on -- going back to the gross margin, Drew. Any color you can share just given the, I guess, delay in the transfer where you think you might exit the year, let's say, in the fourth quarter? Just trying to think about the trajectory of gross margin over the next couple of years, see if anything has changed.

Yes. So we're expecting to be kind of coming out of the year at kind of approaching those ranges where we originally discussed, probably I think it's going to see us be a linear trajectory coming through the year. So kind of starting low and going at high so that you can hit to the averages we gave you for the full year.

Got it. Okay. That's helpful. And then just secondly, on the higher R&D, based on the visibility from the multiyear agreements. Hope you could elaborate a little bit more about kind of what you're seeing there. Is that sort of new product development because of greater revenue opportunities or an acceleration in launches? Just kind of curious sort of more detail around the product spending there?

Sure. I mean I would say that there's a couple of areas that are really exciting. As we just talked about, we are seeing a tremendous uptick in opportunities to not just provide hardware but provide hardware software solutions. And that's definitely going to drive some additional R&D investment on our part to develop and deliver the solutions to market. That's definitely happening, and it's happening at a faster rate.

And then further, I would say that we are seeing on the backs of technology like the Velabit, we are seeing an incredible expansion in the number of applications that use lidar, and there's opportunities for innovation around new lidar architectures and technologies as well. So that's driving increased investment on our part so that we can capture the huge upside opportunities that are coming into the pipeline.

That's helpful. Just to sneak one quick one in. On the 5 additional awards you expect by year-end, any color kind of which end market, is it ADAS, is it non-auto, robotics, in terms of what you expect those additional wins?

Yes. We're actually expecting that they'll be spread across all of those markets you just described, honestly. And we're going to see something we anticipate. We have some in the pipeline that are larger than others. So I think it's very relevant that there are some very strong conversations going on around some ADAS opportunities. We also have strong conversations going on with a couple of people with some robotic solutions that are going to be coming to market. And then it's going to be a nice spread, I think, of different opportunities across different markets that are forming to use lidar now that we have something that's a price point that people can incorporate in their solutions.

And the next question comes from Tristan Gerra with Baird.

I think you had mentioned on the last call about your expectation for pricing to decline about 20% this year. With your new revenue forecast for the year, is that implying a low-teens increase in units? Is that in the ballpark of what's embedded in your guidance?

Yes. I think that it is -- we're definitely seeing the guidance. Again, it will be a linear thing. So you have, for example, last quarter was lower as ASPs we saw this quarter. But the trend is that they will, yes, continue to go down at those levels.

Okay. So if we look at the growth from a unit standpoint, given the increasing adoption rates that you've described in the past for Velabit, which is lower-priced than the 360 lidar, how do I reconcile the 2? I mean is it fair to assume that the 360 units are actually coming down year-over-year? But then you have a double-digit increase in the solid-state lidar for this year as you've been targeting a percentage of adoption rate exiting this year. How should we look at that? And should we see an acceleration in unit growth next year?

Yes. So we are expecting the solid-state sensors, the volumes to at least double this year. They are sold at a lower ASP so that as the volumes start to pick up, the ASP will continue to come down because we can volume price them accordingly. So as we get out into this year, we do see that representing a larger portion of the overall revenue, which will affect product metric, which affects the weighted average ASPs.

Yes. I think the only color I would add to that is -- the only color I would add to that is we are -- as Drew described, there are several opportunities that we are seeing around the solid-state lidar technology, both the Velarray and the Velabit. So we definitely -- we'll continue to see an acceleration of adoption of that technology across many different applications. So I think that's definitely happening.

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

I think my first question is on ADAS. As you provided in your investor presentations, we see the number of projects by quarter here. And a number of projects come down the last couple of quarters, if I caught the numbers right from 70 down to 56 here. Can you discuss what's going on there? Do you see this as a retrenchment in use of lidar and ADAS? Or is it just higher quality projects that are still around here? Could you kind of help us understand the situation there?

Yes. I think what you are seeing is really the quality of the projects is getting defined much better as the customers are further along in their evaluation of lidar as a key technology for ADAS. So broadly, we don't see a retrenchment in the ADAS market. We see actually a very robust set of opportunities that are just getting more -- better and better defined.

Further, I would say that really, we are seeing the ADAS opportunity settle into 2 buckets, what I would call the fast EV adopters where players like Faraday Future are looking to come in and leapfrog existing traditional players by adopting both electrification and lidar technology as part of their ADAS offerings. And you see these players move very fast and adopt lidar at -- in a fast rate. Combined with that, you are seeing the traditional OEMs also continue to make good progress especially the leaders in the pack around creating sophisticated Level 3 ADAS systems that incorporate lidar in them. So you are seeing both those buckets move forward. So broadly, I would say we don't see this at all as a retrenchment for the usage of lidar in the ADAS market.

Okay. Helpful perspective. Second question is on software. If I caught the numbers right here, an increase in the number of projects that are looking at that. Can you give us a sense of how far down some of the more advanced discussions are going? Can we see some agreements signed like next quarter or by the end of the year? Are these all automotive? Or are you seeing any opportunities outside of automotive?

Yes. We are seeing a broad base set of opportunities for software, both in automotive and non-automotive. But as I said before, the really exciting part for us is in the industrial segment where time to revenue is much faster, we are seeing opportunities for us to provide both hardware and software. So certainly, we believe that we will see some of these opportunities materialize into signed multiyear agreements in the near future.

In addition to that, earlier today, we announced the Intelligent Infrastructure Solution, which is our first hardware-software solutions that we have publicly talked about. And really, this is focused on the smart city segment, where, again, we see the -- our ability to work across different state DOT city organizations and commercial companies. We have the ability to provide not just the lidar hardware that makes this possible, but also the entire solution, including the data analytics platform that these companies can use to really mine the valuable data that exists, whether it's a city intersection or whether it's a retail or public space. And so that's our -- so we are pushing forward fast and creating products around these different segments that incorporate both Velodyne's hardware, compute and software.

Okay. And could you specifically comment on the progression of software within the auto space, too?

Yes. I mean I think the progression of software in the auto space, as we have always talked about, is on the backs of the hardware and stock, right? So as we continue to see traction and get installed into these ADAS systems, we see opportunities for software there. One of the things that we showed in the first quarter of this year is our lidar-based automatic emergency braking system comparing it with the state-of-the-art camera and radar system, where you could see significant advantages, especially in the nighttime for the lidar-based system over the camera radar-based systems.

As you can imagine, this has led to some very deep conversations not just around Level 3, but around Level 2, Level 2 plus sorts of applications where we could provide not just, again, the lidar hardware, but our PAEB software solution as part of the offering. So lots of great progress there. But ultimately, the time to revenue for software in ADAS will be combined with when the hardware gets installed on the vehicles. And so that continues to be the critical path.

(Operator Instructions) And the next question from Aileen Smith with Bank of America.

First question. When we look at the 2021 revenue outlook, it's a pretty notable shortfall versus what I think was $150 million plus that you outlined upon going public in September of last year. But it's also the lowest annual revenue that you've reported since 2016. I think we can all appreciate that there's some near-term headwinds associated with semiconductor shortages and supply chain disruption. But 2021 looks like it could be more of a structural air gap as you try to make the shift from R&D project-based lidar to commercial multiyear contract lidar. So why are we not -- would that be a fair characterization for 2021? And what gives you confidence that some of the out-year financial targets you've outlined are still valid?

Yes. So the key thing for us, Aileen, is the fact that we are still having deep conversations with customers across a broad base of contracts. There about these discussions where they are actively interested in looking forward and moving forward with these different production agreements that we're talking to them about. And they provide a baseline. As the world starts to accelerate again hopefully here in the second half of the year, we'll be able to see that pick up, and we'll be able to get back on pace for the expectations of the forecast for 2022. So it's really -- if there's anything in the air gap, we really feel it's more kind of a macro headwind. And that it really should start to take shape here in the second half of the year as the vaccinations and other things start to take hold and the market start to come back.

And while we -- just to add some color to that, I mean, we should keep in mind, while we talk about that, that as we sit here today, we still have the highest revenue of all the lidar companies in the market. We have a maximum number of units produced and shipped across the broader set of applications, has the broadest product portfolio, the largest pipeline of projects in this space. So I think this is what gives us confidence that we can hit the numbers that we outlined in the future as we sign these multiyear agreements and building deep relationships with our customers and manufacture and scale and deliver these products at scale.

Okay. That's helpful. And then I wanted to ask another question around the gross margin. Some of the comments today are a little bit counterintuitive versus how you described the company upon going public of shifting more towards that fabless model and manufacturing with partners. And then also some -- relative to some of the factors that you outlined is driving margin expansion like the Micro Lidar Array and low-cost country sourcing. Again, I think we can understand COVID delayed the manufacturing transition a little bit, and it's going to be a pressure point this year. But as you think about the business going forward, is there a certain volume or revenue level that we should be thinking about above which you can leverage fixed costs?

And where I'm trying to get out with this is, as we think about bridging that 16% to 24% gross margin this year versus 50% plus over the long term, is it something that can be achieved in the next year or so as you complete the shift towards fabless manufacturing? Or are your targets based on certain volume levels that may have been pushed out along with COVID?

So I can start and then, Drew, feel free to jump in as well. Again, keep in mind that we build and ship real volumes of products. And as you make these transitions, these transitions are not a step function. So you have to transition starting from subsystems and work your way to building an entire lidar. So yes, these transitions really are driving the -- our ability to switch to the gross margins that we have talked about. And as those transitions get completed, we will be able to move towards the targets that we have talked about.

In terms of the Micro Lidar Array, the ASICs, these things are in production, both in our factories as well as our partner factories. And as the products start -- as the product mix evolves and more and more of the products are using the Micro Lidar Array, you will see that part of the rewards of -- also being transferred into the gross margin. So I think it is more complicated because we -- again, we have a broad portfolio of many different products that we build and ship.

But at the same time, the plans that we laid out are still absolutely valid. The transition for the Micro Lidar Array and the ASICs across the product line is happening. As we talked about before, by end of 2021, we have the -- the entire product line will have the benefit of Micro Lidar Arrays. And the transition to overseas manufacturing is happening, and we continue to make progress on that despite COVID.

And we shared that by giving you kind of the direction of the gross margins as we come out of the year, so that, that will be linear trends should continue upward as we go out of 2021 and into 2022 and beyond.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing comments.

Thank you. As I started off saying, Velodyne Lidar is the leading producer of lidar in the world, and we are clearly the ones defining the lidar market. And this happens to be because we have the highest revenue in the space. We build and ship more units than all the other players put together combined in multiple product categories. We have a broad portfolio of products. We have a robust pipeline of products across many different applications. We have the manufacturing leadership and ability to scale up to meet the demand and weather the inevitable uncertainties that exist in the marketplace. And finally, we are moving forward fast and including software as part of our offering with our first software product that we announced today.

With all of this, we have very high confidence in our ability to continue to grow, continue to execute as we have done so consistently and continue to be the pioneer in bringing lidar-based safety across all of these different applications to all of our customers. Thank you very much for your time and your questions.

Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.