The competition to dominate the important lidar market has been intense, driving competition up but stock prices down.
Two of those firms, Velodyne (NASDAQ: VLDR) and Ouster (NYSE: OUST), announced on Monday that they would join forces in the hopes of improving the positions of both companies moving forward. In an all-stock transaction, the leaders of both companies said they have signed a definitive agreement to merge, creating a single portfolio that will hold 173 patents and 504 pending patents, as well as approximately $355 million in cash on hand as of Sept. 30.
“Ouster’s cutting-edge digital lidar technology, evidenced by strong unit economics and the performance gains of our new products, complemented by Velodyne’s decades of innovation, high-performance hardware and software solutions, and established global customer footprint, positions the combined company to accelerate the adoption of lidar technology across fast-growing markets with a diverse set of customer needs,” said Ouster CEO Angus Pacala. “Together, we will aim to deliver the performance customers demand while achieving price points low enough to promote mass adoption.”
The new company, which is expected to be finalized in the first half of 2023, does not have a name as of yet, but it will be led by Pacala as CEO and Ted Tewksbury, Velodyne CEO, will serve as executive chairman of the board. It would have a combined valuation of approximately $400 million.
“Lidar is a valuable enabling technology for autonomy, with the ability to dramatically improve the efficiency, productivity, safety, and sustainability of a world in motion. We aim to create a vibrant and healthy lidar industry by offering both affordable, high-performance sensors to drive mass adoption across a wide variety of customer applications, and by creating scale to drive profitable and sustainable revenue growth,” said Tewksbury. “The combination of Ouster and Velodyne is expected to unlock enormous synergies, creating a company with the scale and resources to deliver stronger solutions for customers and society, while accelerating time to profitability and enhancing value for shareholders.”
The board will be comprised of eight members, with each company appointing an equal number of members. Those members will be announced at a later date.
Under terms of the agreement, holders of Velodyne shares will receive 0.8204 shares of Ouster stock. The result will be shareholders of each company holding approximately 50% of the new firm. In a joint statement, the companies said the merger will result in an annualized cost savings of at least $75 million within nine months of closing.
Both companies will continue to operate independently until all the terms and conditions are approved.
Lidar, which stands for light detection and ranging, is a critical element of autonomous vehicles. The technology reads objects up to 1,000 meters away, sending signals back to onboard computer processors that create a virtual map of the road ahead for a robot driver. But it is also a very competitive space. And that competition has heated up as wide-scale deployment of autonomous vehicles has moved along slowly.
In June, Velodyne sued Ouster claiming patent infringement. In a complaint filed with the U.S. International Trade Commission, Velodyne accused Ouster of unlawful imports of lidar sensors that infringed on Velodyne patents.
“Velodyne invented rotational lidar and our Company spends significant financial and human resources on research and development to advance smart vision technology,” Tewksbury said in a June statement. “Velodyne has a history of vigorously protecting this investment by taking strong and successful legal action against companies that infringe on our intellectual property and this action is no different.”
Velodyne has also seen its share of drama over the years. An early entry in the lidar space, the company’s previous CEO, Anand Gopalan, suddenly resigned in July 2021, replaced by Tewksbury in November. Velodyne’s founder, David Hall, was previously removed as chairman of the board and his wife, Marta Hall, was ousted as chief marketing officer after the two clashed with the SPAC that merged with Velodyne. TechCrunch also reported the two had been investigated for “inappropriate behavior.”
Ouster has also faced its share of headwinds. The company’s shares have fallen 77% since Jan. 1 and were trading at $1.16 midmorning on Monday. The stock’s high-water mark came in mid-December 2020 when it peaked at about $17.80 a share.
Likewise, Velodyne has seen its shares drop 80% since the beginning of the year and were at 90 cents in midmorning trading Monday. In August 2020, Velodyne stock topped $32 per share.
Unlike Velodyne, though, Ouster has continued to see some growth, reporting a 44% year-over-year jump in revenue for Q3 on Monday, at $11.2 million. It said it sold 2,136 sensors in the quarter, but its net loss increased to $36 million compared to $13 million a year ago. Ouster reported an adjusted EBITDA loss of $24 million compared to $19 million in Q3 2021 and $22 million in the second quarter of 2022.
Velodyne posted a net loss of $28 million in the second quarter on revenue that fell 41%.