Velodyne Lidar, the sensor company that went public a year ago when it merged with special purpose acquisition company Graf Industrial Corp., reported its second quarter earnings Thursday, results that show a company spending more to find new customers for its products while grappling with an increasingly expensive internal drama.
Just a few weeks ago, Velodyne’s CEO Anand Gopalan resigned, taking $8 million in equity compensation with him, according to the company’s second-quarter report. At the time of Gopalan’s resignation, the company restated its business outlook for 2021 revenue, noting that its guidance of between $77 million and $94 million remained unchanged.
Earlier in the year, founder David Hall was removed as chairman of the board and his wife, Marta Thoma Hall, lost her role of chief marketing officer following an investigation by the board into the couple for “inappropriate behavior.” The legal fees involved in this debacle set the company back $1.4 million this quarter, and $3.7 million for the first half of 2021, according to Velodyne CFO Drew Hamer.
The board’s fight with the Halls has escalated. In a May letter, David Hall blamed the SPAC, specifically the SPAC-appointed members of the combined company’s board, for its poor financial performance, and called for the resignation of Gopalan and two board members.
During a call with investors Thursday, Hamer also said general and administrative expenses are expected to increase by about 35% in 2021 due to increased public company and legal expenses, meaning the struggle is not over. From the first quarter to the second, there was already a 21% increase, from $17 million to $20.6 million.
The “general and administrative expenses” category falls under the company’s broader operating expenses, which were $84.8 million this quarter, about double last quarter’s spend.
Rising legal costs at the company are only part of its accelerating cost profile. The company is also investing heavily in growth, namely in sales and marketing.
A large majority of operating expenses were spent on sales and marketing. Velodyne spent $47.2 million in the second quarter, which is up massively from $7.1 million in the first quarter.
On average, companies spend about 11.3% of their total revenue on marketing budgets, according to a 2020 CMO survey, though that is a broad metric. It’s important to note that the full impact of sales and marketing spend is never fully realized in the quarter in which that capital is put to work. In other words, we don’t know if Velodyne’s expanded Q2 sales and marketing spend has brought in more business.
The company’s revenue eased between the first and second quarters, falling from $17.7 million to $13.6 million. For a company investing so heavily in sales to see revenue decline is not encouraging, even if the bulk of results stemming from Q2 spend may not show up until the company’s third-quarter earnings report.
Velodyne is betting that its efforts will lead to accelerating sales in coming quarters.
The company said it expects to make an additional $46 to $62 million revenue in the second half of the year due to an increase in demand for lidar products. While Q2’s total revenue was actually less than Q1’s, the company’s product-based revenue rose around 30%, which Hamer attributed to “renewed demand for lidar sensors from customers with delayed purchases due to the uncertainty caused by the COVID-19 pandemic.”
“Our pipeline continues to grow,” said Hamer. “We had 213 projects on August 1, up from 198 projects at May 1…Included in the signed and awarded pipeline are new ADAS multiyear agreements, which we expect will begin to ramp starting in 2026.”
Hamer estimated that through 2025, Velodyne has the opportunity for more than $1 billion in revenue from signed and awarded projects, plus a pipeline of projects that are not yet signed and awarded that could bring the company to $4.5 billion in potential revenue.
At the end of April, Velodyne was selected by EV company Faraday Future as an exclusive lidar supplier for its flagship luxury electric car FF 91, which is due to be launched next year. Faraday’s cars would use the Velarray H800 lidar sensors to power their autonomous driving system.
Velodyne has some other existing partnerships, but it faces steep competition in the automotive space.
Luminar, for example, has deals with major OEMs like Volvo and Toyota, and it recently bought one of its chip suppliers so that it wouldn’t have to be held up like everyone else in the industry, including Velodyne, by the semiconductor shortage. Hesai is also seeing some traction with customers like Lyft, Nuro, Bosch, Navya and Chinese robotaxi operators Baidu, WeRide and AutoX.
Velodyne, which has long been the dominant supplier in the industry, has lost some customers more recently.
For instance, Ford, which had originally backed Velodyne, divested its stake in the company and placed its bets on Argo AI, which is supplying the automaker with its the autonomous vehicle technology. Argo had upped its game by drastically improving its in-house lidar sensor, meaning it would no longer need to rely on Velodyne. That had a ripple effect and impacted Veoneer, which had partnered with Velodyne to produce the lidar for Ford.
