Velodyne's Internal Issues: Mounting Costs

Velodyne Lidar Navigates Challenges and Increased Spending

Velodyne Lidar, a sensor manufacturer that became a publicly traded company through a merger with Graf Industrial Corp a year prior, has released its second quarter earnings report. The results indicate increased expenditures aimed at securing new clientele, alongside ongoing internal complexities.

Leadership Changes and Financial Restatements

The company recently experienced a change in leadership, with CEO Anand Gopalan resigning and receiving $8 million in equity compensation. Despite this transition, Velodyne maintained its previously stated 2021 revenue guidance, projecting between $77 million and $94 million.

Earlier this year, founder David Hall was removed from his position as chairman of the board. Simultaneously, his wife, Marta Thoma Hall, relinquished her role as chief marketing officer following a board investigation into allegations of “inappropriate behavior.”

Legal Expenses and Administrative Costs

The legal ramifications stemming from the investigation into the Halls amounted to $1.4 million this quarter, and a total of $3.7 million for the first half of 2021, as reported by Velodyne CFO Drew Hamer.

A dispute between the board and the Halls has intensified. In a May communication, David Hall attributed the company’s financial underperformance to the special purpose acquisition company (SPAC) and its appointed board members, requesting the resignations of Gopalan and two other board members.

Rising Operating Expenses

Hamer also projected a roughly 35% increase in general and administrative expenses for 2021, citing heightened costs associated with being a public company and ongoing legal proceedings. This suggests the current difficulties are far from resolved.

A 21% increase in these expenses was already observed between the first and second quarters, rising from $17 million to $20.6 million.

Overall operating expenses reached $84.8 million this quarter, representing a doubling of the previous quarter’s expenditure.

Investment in Sales and Marketing

A significant portion of the operating expenses was allocated to sales and marketing initiatives. Velodyne invested $47.2 million in the second quarter, a substantial increase from the $7.1 million spent in the first quarter.

While the average marketing budget typically constitutes around 11.3% of total revenue, as indicated by a 2020 CMO survey, it’s crucial to recognize that the full benefits of such investments are not immediately apparent.

The impact of the expanded Q2 sales and marketing efforts on business acquisition remains to be seen, with results likely to become evident in the third-quarter earnings report.

Revenue Trends and Future Outlook

The company’s revenue experienced a decline between the first and second quarters, decreasing from $17.7 million to $13.6 million. This downward trend, coupled with substantial investments in sales, is a cause for concern.

Velodyne anticipates accelerating sales in the coming quarters, projecting revenue between $46 million and $62 million for the second half of the year, driven by increased demand for lidar products.

Despite the Q2 revenue decrease, product-based revenue increased by approximately 30%, which Hamer attributed to a resurgence in demand from customers who had postponed purchases due to the uncertainties surrounding the COVID-19 pandemic.

Project Pipeline and Partnerships

Hamer reported a growing project pipeline, with 213 projects underway as of August 1, compared to 198 projects on May 1. This includes new multiyear agreements for Advanced Driver-Assistance Systems (ADAS), expected to begin generating revenue in 2026.

Velodyne estimates a potential revenue opportunity exceeding $1 billion through 2025 from signed and awarded projects, with an additional $4.5 billion in potential revenue from projects currently in the pipeline.

In April, Velodyne was designated as the exclusive lidar supplier for Faraday Future’s FF 91, a flagship luxury electric vehicle slated for launch next year. Faraday’s vehicles will utilize Velarray H800 lidar sensors for their autonomous driving capabilities.

Competitive Landscape

While Velodyne maintains existing partnerships, it faces significant competition within the automotive sector.

Luminar, for example, has established collaborations with major automotive manufacturers like Volvo and Toyota, and recently acquired one of its chip suppliers to mitigate supply chain disruptions, a challenge also faced by Velodyne.

Hesai is also gaining traction with clients including Lyft, Nuro, Bosch, Navya, and Chinese robotaxi operators Baidu, WeRide, and AutoX.

Shifting Alliances and Industry Dynamics

Velodyne, formerly the dominant supplier in the industry, has experienced some customer attrition.

Ford, a previous backer of Velodyne, divested its stake and shifted its focus to Argo AI, which is now providing the automaker with autonomous vehicle technology. Argo’s advancements in in-house lidar sensor technology reduced its reliance on Velodyne, impacting Veoneer, a partner that had been producing lidar for Ford.