A new giant in lidar is born! Ouster and Velodyne complete merger

According to foreign media reports, on February 13, lidar manufacturers Ouster and Velodyne announced that they had successfully completed a "merger of equals", creating a new lidar giant. The combined company will retain the Ouster name and continue to trade under the ticker symbol "OUST."

According to year-end data, the combined company will have more than 850 existing customers, a rich patent portfolio and approximately $315 million in cash. For companies that are not yet profitable, this cash is crucial in a market where it is increasingly difficult to raise much-needed capital.

Image source: NYSE

LiDAR is a sensor technology that uses infrared laser light to create detailed 3D maps of the sensor's surroundings. LiDAR devices are used in a variety of robotic applications. Of particular interest to investors is the fact that lidar sensors are considered an essential component of nearly all autonomous driving systems currently being developed.

Over the past few years, investor interest in the potential of autonomous vehicles has led to a number of lidar startups going public. But the market value of these lidar startups has plummeted over the past year as investor enthusiasm cooled and some automakers reduced spending on self-driving projects in favor of driver-assistance technology.

Ouster CEO Angus Pacala said when the merger deal was first announced that the move would help lay the foundation for consolidation in the lidar field. Pacala, who will continue to lead the combined company, said in an interview that the merger is "an important step toward profitability for Ouster."

Ouster's products have maintained positive gross margins for some time, meaning they sell for more than they cost to make. Pacala noted that Velodyne's gross margins are also beginning to turn positive after the company recently changed its contract manufacturing arrangements. "This is significant for the merger and the strength of the combined business," Pacala said. “Not only do we grow the revenue base of both companies through the merger, but we also maintain positive margins.”

Image source: Velodyne

When Ouster and Velodyne first announced the merger in November, they said they expected to save about $75 million annually within the first nine months of the deal. Pacala noted that he now expects the total savings to be higher, but that comes at a cost, with the combined company cutting between 100 and 200 jobs, primarily due to the substantial overlap in operational roles between the two companies. Pacala also revealed that the two companies will have about 350 employees after the merger.

The executive teams of Ouster and Velodyne have also been integrated. Velodyne CEO Ted Tewksbury will serve as chairman of the combined company's board of directors, Velodyne CFO Mark Weinswig will continue in his role as chief financial officer at Ouster, and Ouster co-founder Mark Frichtl will serve as chief technology officer of the combined company.

But Pacala said the combined Ouster and Velodyne companies have no plans to consolidate production. "Velodyne is manufactured in Thailand in partnership with Fabrinet, approximately an hour and a half from the Benchmark manufacturing facility Ouster has been using. We intend to continue working with our partners on both sides."

Image source: Ouster

Ouster said it will provide "comprehensive information" on the integration plan in its fourth-quarter 2022 results report on March 23. But investors can expect good news. Ouster said in its performance preview that it achieved its full-year revenue and gross profit margin targets for 2022. Velodyne's fourth-quarter revenue also exceeded expectations.

On February 10, Velodyne shareholders voted to approve the merger. Velodyne shareholders will receive 0.8204 shares of Ouster stock for each Velodyne share they own, a premium of approximately 7.8% based on their respective companies' share prices when the deal was first announced in November. On February 13, Ouster's stock price closed down about 10% as investors digested the dilutive effect of the all-stock transaction.