With lidar companies Ouster and Velodyne officially merged, CEO Angus Pacala has identified the next phase of growth. And it’s not self-driving cars or even advanced driver assistance systems. It’s smart infrastructure.
“I keep saying this and people think I’m crazy, but there’s a good chance that smart infrastructure becomes our biggest vertical by a long shot in the next five years,” Pacala told TechCrunch. “The reason is because if you look at the established revenue base for traffic systems, for security systems, it’s immense. It’s way larger than the revenue generated from camera and radar companies in automotive.”
Smart infrastructure can refer to intelligent traffic management, security systems and crowd analytics. Cities might put sensors, like lidar, on traffic poles so an intersection can make smarter signaling decisions based on who’s crossing the street. Facilities could use lidar along a perimeter so they can know when someone is trying to jump a fence line and break in. A retail store might place lidar on the ceiling so it can collect data on foot traffic patterns.
Lidar, or light detection and ranging radar, is considered a critical component in autonomous vehicle systems. It typically completes the sensor stack that includes cameras and radar, which helps a system perceive its environment. More recently, a few automakers have seen value in adding lidar to support automated driving features in the advanced driving assistance systems found in modern day cars, trucks and SUVs.
Autonomous vehicles and ADAS are both considered promising areas of growth for lidar. But Pacala says they’re not verticals that can generate revenue for lidar companies today — or in 2024 or 2025.
Smart infrastructure, on the other hand, can go to market at scale now, he said. One lidar sensor can replace up to eight high-definition security cameras, making for a more affordable solution, says Pacala. Using lidar instead of cameras for security, retail and traffic monitoring also gives cities and companies the benefits of getting necessary data while still preserving privacy.
Ouster and Velodyne have both recently released smart infrastructure offerings. Last October, Velodyne acquired AI software company Bluecity and began offering a transportation infrastructure product that combines lidar with software to provide real-time traffic data and analytics. Bluecity has around 80 installs around the U.S. and Europe, according to Pacala.
At CES this year, Ouster released Gemini, a similar product that spans traffic, security, and crowd and retail analytics. Ouster is already working with Cisco in two U.S. states to provide a detection solution for road users with real-time safety alerts, and with Digital Mortar to analyze crowds in a new convenience store model in New York and New England. The company also brought on OpenSpace Group as a customer to understand passenger flow and boost customer experience at Euston train station in London.
“We can combine the best of both offerings in a unified platform,” said Pacala.
Taking on the surveillance camera market is a big bet to make, but it could definitely prove lucrative. Globally, the market was valued at $28 billion in 2021 and is expected to reach $45.54 billion by 2027. Similarly, the global intelligent traffic systems market was valued at $9.7 billion in 2021 and experts estimate it will expand to $27.6 billion by 2030.
“This is way way bigger than the automotive sensor market as it exists today,” said Pacala. “And I think it’s faster to deploy because it’s not safety critical. In almost all cases, it’s fixed sensors analyzing the environment and not a mobile vehicle that could potentially be dangerous if it malfunctioned.”
More on the Ouster-Velodyne merger
In November, Ouster and Velodyne agreed to merge in an all-stock transaction, with both companies maintaining a 50% stake in the new company. The combined company is keeping the name Ouster and will trade on the New York Stock Exchange under the ticker OUST.
Velodyne stopped trading shares on the Nasdaq after market close on February 10, and each Velodyne share was exchanged for 0.82 shares of Ouster common stock.
Ouster’s stock initially dropped 25% Monday after the merger went through, but has since climbed and is up 20.44% at market close.
The combined company closed out the fourth quarter of 2022 with over $315 million in cash and is on track to exceed its previously projected annualized operating expenditure synergies of $75 million. A combined company with a fresh injection of capital will allow Ouster to reduce costs and get a cash balance that puts it on the path to profitability, said Pacala.
The companies already appear to be reining in cash burn. Their combined cash balance as of September 30, 2022 was about $355 million, so together, they spent under $40 million in the fourth quarter.
Ouster plans to report its Q4 and full year 2022 earnings on March 23, but the company shared in advance that Ouster met its 2022 guidance of $40 million to $55 million in revenue and 25% to 30% in gross margins, and Velodyne exceeded its Q4 guidance of $12 million to $14 million in revenue.
Mark Weinswig, formerly CFO of Velodyne, will serve the same role at Ouster.