VLDR - Velodyne Lidar: A Pioneering Force In The Autonomous Vehicle Industry Poised For Growth

Summary

• Velodyne Lidar has a low debt/asset ratio, providing it with a substantial cash reserve and greater financial flexibility.
• The company's outlook for Q4 2022 remains optimistic with continued demand and expected growth in billings and revenue.
• Velodyne recognizes the importance of investing in R&D and focusing on innovation and industry advancement, further solidifying its position as a leader in the field.

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Velodyne Lidar ( VLDR ) is a game-changer in the world of LIDAR sensors for advanced driver-assistance systems (ADAS) and a wide variety of industrial applications. Their LIDAR sensors are renowned for their high performance and power efficiency, which has gained the attention of major automakers and tier 1 suppliers. This has secured their place in the lucrative autonomous vehicle market. Furthermore, recent initiatives taken by the company show its commitment to gaining control over the market. The beta launch of Vella software products and their multiyear agreement to supply sensors to GreenValley International both show Velodyne's commitment to expanding its market penetration.

I believe that Velodyne Lidar's strong product line, partnerships with key players in the industry, and promising financials make it a compelling investment opportunity. With the increasing demand for ADAS and autonomous vehicles, combined with Velodyne's technological leadership and growth trajectory, this is a no-brainer for those looking to capitalize on the future of the LIDAR industry. I personally see Velodyne as a long-term investment with immense potential for growth and success.

Products

Velodyne Lidar is an industry leader in the LIDAR technology space and provides cutting-edge solutions for autonomous vehicles, robotics, and mapping applications. To meet the needs of its customers, Velodyne offers two types of LIDAR sensors : solid-state and surround LIDAR.

Solid-state LIDAR employs one laser and one photodetector to produce a directed view of its environment. The small size, lightweight design, and dependability make solid-state LIDAR ideal for use in tight spaces or with weight limitations, such as those found in small autonomous vehicles.

Surround LIDAR utilizes multiple lasers rotated externally to develop a three-dimensional picture of the landscape. These devices provide a more comprehensive view from all angles compared to their solid-state counterparts and can be used frequently in surveying and mapping tasks.

Velodyne's signature product, Puck Lidar , is a compact and high-performance surround LIDAR sensor that provides an extensive 360-degree view of the environment. It has become popular in applications such as autonomous vehicles and robotics due to its extraordinary efficiency and size when compared to larger sensors.

The Alpha Puck is Velodyne's latest addition to the surround LIDAR sensors market, offering improved resolution and a longer range than traditional Puck LIDARs. In addition, Alpha Puck is able to perform in the widest spectrum of light conditions and can detect objects with low reflectance, making it a vital tool for multiple applications such as self-driving cars and robotic control systems.

The Ouster Situation

The proposed merger between Velodyne Lidar and Ouster (OUST) has been highly anticipated among investors, due to its potential benefits. Recently, the special meeting of stockholders was held again, but adjourned without reaching a decision regarding the merger; it's set to reconvene on Feb. 10, 2023. To reach the required quorum, 50% of shareholders must participate and over 50% of outstanding shares must be voted in favor of the merger. Currently, shareholders representing 48.6% of total outstanding shares have recorded their vote, with 98% in favor. Approximately 3.3 million more shares of the 238 million total shares outstanding need to vote in favor of the merger for it to be approved. The fact that the overwhelming majority of shareholders is in favor of it should give assurance to potential investors that the expected advantages of the merger will come to fruition in the near future.

If the merger goes through, I believe there can be increased scale and market reach, cross-selling opportunities, and potential cost synergies for Velodyne Lidar. The integration of both companies' resources and expertise might result in efficiency improvements, which should translate to cost saving across their product lines. In addition, due to their combined R&D capabilities and innovation capacity, this partnership would bring about more innovative products and solutions challenging competitors and accelerating disruption in the LIDAR market.

Recent News

I have been closely following Velodyne Lidar and its recent developments in the autonomous technology space. I'm quite impressed with the beta launch of their Vella family of software products. The purpose of these products is to help customers develop LIDAR-based vision solutions for autonomous applications, and it is a smart move by Velodyne. The ability to integrate their hardware offerings with complementary software is vital to an improved user experience, more efficient data collection, and greater accuracy. Furthermore, its advanced capabilities enable customers to gain valuable insights to make informed decisions. By leading the Lidar industry with this integration, Velodyne provides its customers with cutting-edge technology that allows them to benefit from all aspects of their technology.

With the Vella Portal serving as an online platform that allows customers to access these software offerings, Velodyne is demonstrating its commitment to providing its customers with a seamless and secure experience. Vella Go delivers free tools that provide autodetection and configuration for Velodyne sensors, diagnostic streams, point cloud visualization, and firmware updates/LIDAR drivers. There is also a premium option that introduces additional sources such as LIDAR calibration and point cloud stitching.

Vella Perception is the real star of the show, in my opinion. It enables users to construct intelligent and autonomous apps by supporting multiple operational domains and environments through 3D object detection, obstacle/free-space recognition, and scene segmentation. The Vella Cloud Services makes use of the unique capabilities inside Vella Perception to create low-cost object identification and classifications, allowing users to further boost system accuracy. Users can further upload raw LIDAR datasets to visualize data and thereby boost system accuracy.

On Nov. 17, 2022, Velodyne Lidar announced a multiyear partnership with GreenValley International to provide LIDAR sensors for a range of 3D mapping solutions. These solutions include handheld, mobile, and unmanned aerial vehicle ((UAV)) mapping, even in GPS-denied environments. Specifically, the Puck LIDAR sensors from Velodyne will be used by GreenValley to enable perception and navigation capabilities and simultaneous localization and mapping ((SLAM)). The sensors are versatile enough to support different form factors, and power efficient enough to work in any environment, regardless of temperature, lighting, or precipitation. This collaboration is a great opportunity for Velodyne to showcase its capabilities and expand its reach in the industry.

GreenValley International is well regarded as a provider of complete 3D surveying and mapping solutions. They specialize in LIDAR, UAV, SLAM, photogrammetry, and other technologies which cumulatively create an accurate digital representation of three-dimensional space. Their software like LiDAR360 and LiPowerline provides core processing and analysis to give detailed point cloud editing and visualization. Industries commonly using the services provided by GreenValley include energy, agriculture, forestry, roadwork, geographic information systems ((GIS)), mining, and more.

Financials

Velodyne's financials speak to its strong management and commitment to providing quality products. In Q3 2022 , they reported total revenue of $9.6 million and billings remaining flat at $12.5 million; this affirms their growth and investment in quality products. As for money management, Velodyne's GAAP gross loss was $10.9 million while their non-GAAP gross loss was only $3.3 million, demonstrating effective operations by the leadership.

The company's efforts to reduce expenses also stand out. By reorganizing its strategies, Velodyne was able to decrease the GAAP operating expenses ($31.4 million) and the non-GAAP operating expenses ($25.1 million). This allowed them to be more efficient without increasing losses; they were able to maneuver out of both the GAAP net loss of $41.6 million and the non-GAAP net loss of $27.6 million.

On Sept. 30, 2022, Velodyne had an impressive balance sheet that showed up to $220.1 million in cash and short-term investments - giving them plenty of resources to expand and invest in their future. This showcase demonstrates their successful handling of finances and providing value to shareholders.

Looking ahead to Q4 2022, Velodyne Lidar's prospects are optimistic owing to continuing demand, and forecasts estimate between $13 million and $15 million in billings with expectations for revenue ranging from $12 million to $14 million. Additionally, around $1 million will come from Amazon (AMZN) warrants: counted under contra revenue and non-cash profits. These developments provide strong evidence for believing in Velodyne Lidar's promising future.

Velodyne Lidar's fourth quarter of 2022 is looking positive, suggesting that it has managed to capture a significant portion of the LIDAR market. This success can be largely attributed to its ability to meet demand even in the face of challenging economic conditions - reflecting the company's resilience. What's more, Velodyne Lidar's strong financial performance and outlook make it a leader in the industry, making it an interesting investment potential due to the growth prospects of this booming sector.

Competitors and Valuation

Velodyne Lidar, Luminar Technologies (LAZR), and AEye (LIDR) are all major players in the highly competitive autonomous vehicle market, providing critical LIDAR sensors to their clients. However, when it comes to financial strength, Velodyne stands out as the strongest among the three. With total debt of just $17 million, or 7.7% of its total cash, Velodyne holds substantial cash reserves, offering them more financial flexibility.

In contrast, Luminar Technologies faces a debt burden of $635 million , which accounts for 115% of its cash. That, in my view, could restrict its financial maneuverability in the rapidly evolving autonomous vehicle market. An industry that is heavily reliant on the company's ability to finance R&D. AEye's debt/asset ratio is also relatively high with financial liabilities totaling $29 million , representing 25.9% of its overall cash, leaving less room for financial flexibility.

It's crucial to remember that competition in the autonomous vehicle industry is fierce, and new developments and shifts in the market can quickly change the competitive landscape. When considering overall financial strength, with its low debt/asset ratio, Velodyne Lidar is the strongest out of the three companies, providing it with greater financial flexibility when taking into account its substantial cash reserves. Therefore, Velodyne's financial strength offers it a competitive advantage, making it a more attractive investment option in my opinion.

Velodyne Lidar stands out with its exceptional price/book ratio compared to the sector's median performance. The TTM P/B ratio for Velodyne is a low 1.6 , which is notably lower than the sector median of 3.1. This indicates that the company's stock is undervalued in comparison to the sector, and, therefore, holds potential for growth. Additionally, the forward-looking P/B ratio for Velodyne Lidar is also lower at a quite favorable 1.6, compared to the sector median of 4.3. This reinforces the notion that the company is undervalued and presents a favorable investment opportunity for those looking for growth over the long term.

One might argue that the lower P/B ratio of Velodyne Lidar indicates weak financial performance and a lack of investor confidence in the company. However, this overlooks the fact that a low P/B ratio can be a sign of a strong balance sheet with many assets relative to its stock price. In Velodyne's case, the low P/B ratio could result from the early stage development of the LIDAR industry, and thus the company's assets might not be fully accounted for yet in its stock price. Furthermore, Velodyne has proven its growth with strategic investments in software, enhancing its position in the market. As the Lidar industry continues to develop, Velodyne's true value is likely to be recognized by the market leading to an increase in the stock price and a higher P/B ratio.

Industry Risks

In my view, the LIDAR market presents both exciting opportunities and significant challenges for companies like Velodyne. On one hand, the growing demand for this technology offers a wealth of opportunities for growth and expansion. That said, there are several key risks that companies in the LIDAR industry must navigate in order to succeed in this market.

First and foremost, the competition in the LIDAR market is intense and growing. The global LIDAR market size is expected to grow from $1.4 billion in 2021 to nearly $7 billion by 2030 at a CAGR of 19.27%. With so many players entering the market, it can be difficult for companies like Velodyne to stand out and maintain their competitive edge. It's not uncommon to see new entrants offering low-cost alternatives, which could put pressure on established players to reduce their prices and compromise on quality. In my opinion, this is a major challenge that companies like Velodyne must navigate carefully in order to remain profitable and relevant in the market.

Another challenge is the cost of LIDAR technology. While Velodyne has made great strides in reducing the cost of its systems, the relatively high cost of LIDAR remains a barrier to widespread adoption, particularly in consumer applications. I believe that companies like Velodyne will need to continue to focus on cost reduction in order to meet the demands of cost-sensitive customers and compete effectively in the market.

The lack of integration of lidar technology into a variety of applications and platforms presents another risk for companies like Velodyne. If they are unable to find new customers and applications for their products, as a supplier, they are solely dependent on relying on others for directing growth and may struggle to remain relevant in the market. In my opinion, this is a critical area for companies like Velodyne to focus on in order to remain competitive and capitalize on the opportunities presented by this technology.

Finally, the constant evolution of technology in the lidar market presents a major risk for companies like Velodyne. With new technological advancements emerging all the time, it can be difficult for companies to keep up and maintain their competitive edge. In my opinion, this highlights the importance of continuous investment in R&D and a focus on innovation and industry advancement in order to succeed. That said, Velodyne's strong financial position positions the company to effectively navigate many of these risks, further solidifying its position as a leader in the LIDAR market.

Conclusion

Velodyne Lidar has demonstrated a strong financial performance with rising revenue and solid billings. While there have been some setbacks, such as GAAP gross and net losses, Velodyne's non-GAAP results have demonstrated improvement and their cost-saving strategies have successfully decreased operating expenses.

In my opinion, Velodyne Lidar's outlook for 2023 and beyond is incredibly bright. The demand for their LIDAR technology continues to grow and I expect to see a surge in both billings and revenue. The fact that they are anticipating non-cash contra revenue from Amazon warrants only adds to my bullish sentiment for the company's future financial prospects.

I believe that Velodyne Lidar's expertise in the LIDAR technology sector, coupled with its comprehensive product line, positions them as a front-runner in the industry. The company's effective cost management, positive outlook, and dominance in their field make Velodyne Lidar a standout investment opportunity in the thriving LIDAR market.

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