Velodyne Lidar, Inc. (VLDR) Q4 2021 Earnings Call Transcript

Velodyne Lidar, Inc. (VLDR)
Q4 2021 Earnings Call
Feb 28, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Velodyne Lidar fourth quarter and year-end 2021 financial results conference call. [Operator instructions]. Please also note, this event is being recorded. And I would now like to turn the conference over to Andrew Chan.

Please go ahead.

Andrew Chan -- Investor Relations

Thank you, operator. Good afternoon. This is Andrew Chan, head of IR for Velodyne Lidar. Thank you for joining us today to discuss Velodyne Lidar's fourth quarter and year-end 2021 financial results.

On our call, chief executive officer, Ted Tewksbury, will open with his vision and a review of 2021 accomplishments, then chief financial officer, Drew Hamer, will review the financial results and outlook. Ted will return to summarize and open the call for questions. To ensure that we address as many analyst questions as possible during the call, we request that you please limit one initial question and one follow-up question. Before we begin, I would like to remind you that shortly after the market closed today, Velodyne issued a press release announcing its fourth quarter 2021 financial results.

Velodyne also published an investor presentation. You may access the press release and the presentation in the investor relations section at velodynelidar.com. Today's discussion includes forward-looking statements. Please refer to our press release and our SEC filings, including our most recent 10-K and 10-Q for a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements.

In management's financial remarks, non-GAAP metrics will be referenced. Management provides non-GAAP metrics because it uses them for budget-planning purposes and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures, help investors evaluate Velodyne's core operating and financial performance and business trends consistent with how management evaluates such performance and trends. In addition, management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies. A full description and reconciliation of these non-GAAP measures versus GAAP is included in the company's press release issued today.

Now I'd like to turn the call over to our new CEO, Ted Tewksbury.

Ted Tewksbury -- Chief Executive Officer

Thanks, Andrew, and thanks to all of you joining us today. I'm very excited to be on my first call as CEO of Velodyne Lidar. In the several months that I've been at Velodyne, I have been meeting with employees, customers, partners and Board members. I have been enormously impressed with the deep bench of talent here, the strength of our customer relationships, and the capabilities of our products and technologies.

We have everything we need to achieve our mission of creating smart technology for our world in motion and our vision of science and service and safety. Velodyne invented Lidar as we know it, creating an entirely new industry. Lidar is a critical technology for autonomy, enabling the movements of people and goods safely through the world. It has the potential to transform every industry as we know it, and demand is growing exponentially across a wide range of applications.

Velodyne has always been the Lidar technology innovation and market leader and is well-positioned to capitalize on this opportunity. I joined Velodyne to build on its strong foundation to create the fastest-growing, most profitable, and financially successful global Lidar company. As CEO of 3 public technology companies prior to Velodyne, I have a proven track record of scaling new technologies into profitable growth businesses. I'm here to do the same for Velodyne.

I'd like to start today with a brief summary of our Q4 and full year 2021 financial results and some recent highlights. Then, I'll discuss our focus areas for 2022, followed by an overview of product traction we are seeing with customers in our target markets. In the fourth quarter of 2021, we sold a record number of sensors for a quarter, more than 4,900 units. This brings sensors sold to over 15,000 for 2021, of which 2,400 were solid state.

With a strong fourth quarter, we delivered full year 2021 revenue of $62 million. Drew will provide a detailed review of our financials in a moment. The first step in any business transformation is to get the right people in the right seats. Last year, we announced key new hires, including our chief product officer, Sinclair Vass, and our chief operating officer, Jim Barnhart.

Last month, we hired Dr. Anurag Gupta as executive vice president of engineering, responsible for both hardware and software. Anurag's proven engineering leadership will help us accelerate the introduction of cutting-edge next-generation Lidar solutions. Last June, we opened our India design center in Bangalore, and we are already benefiting from the addition of a large team of brilliant engineers.

In 2021, Velodyne put in place a strong foundation for growth. In 2022, our top priority is to accelerate the path to profitability by rationalizing our cost structure and driving Lidar deployments at scale across a wide range of industries. Our strategy for doing this consists of four pillars. The first pillar is to drive Lidar volume in early autonomous markets, such as industrial, robotics, and intelligent infrastructure, paving the way for success in later automotive applications.

We are synchronizing our investments to coincide with two major waves of Lidar commercialization. The first wave will be dominated by industrial automation, robotics, and intelligent infrastructure. According to Yola, these markets alone are estimated to be $2.8 billion by 2026, and their growth ramp has already started. Velodyne has the right products ready to ship in volume to these markets today.

The second wave, autonomous vehicles, or AVs and advanced driver assistance systems, or ADAS, will ramp into production later in the decade. According to Yola, by 2026, the automotive market is estimated to be another $2.9 billion, bringing our total available market to $5.7 billion. Within automotive, our strategy is to focus initially on trucking, AVs, and leading-edge electric vehicles, or EVs, which are an excellent fit for our existing products. Based on our conversations with many automotive Tier 1s and OEMs, we believe that mainstream adoption of Lidar in passenger cars will require smaller form factors and lower prices than are currently available today.

Supplying high-performance Lidar at scale into the early markets will generate near-term revenue while enabling us to perfect the high-volume, low-cost manufacturing needed to succeed in automotive and other price-sensitive applications. This strategy will enable us to benefit from successive layers of revenue growth, maximizing our return on investment over both the short and the long term. The second pillar is to develop high-performance sensors at a price point to accelerate mass adoption. As I mentioned, this is essential for automotive and ADAS applications, where sensor prices need to fall well below $500 before most tier ones and OEMs will deploy Lidar at scale.

Velodyne already offers the broadest Lidar portfolio with the best overall performance-to-price ratio in the industry. This includes both rotational, as well as solid state sensors for a wide variety of applications. Going forward, we are pursuing a multipronged approach to reducing product costs even further while simultaneously meeting our customers' most demanding performance requirements. First, we are developing new sensor architectures with fewer components and inherently lower bill of materials costs.

Second, we are employing a platform-based design approach, leveraging our proprietary chip-based technology, the micro lidar array, across our entire product portfolio. We will continue to miniaturize, integrate, and modularize common building blocks to improve engineering efficiencies and scalability. Third, we are using software configurable hardware to address diverse use cases with speed and agility. These initiatives will enable us to drive prices down while simultaneously pulling gross margins up.

The third pillar is to expand our software to deliver complete autonomous vision solutions to our customers. Our customers use our Lidar sensors as one component of a system that also includes software and sometimes other sensors. Our goal is to provide as much of that solution as possible to increase our value to customers while expanding our revenue and gross margins. In 2021, we strengthened the company's software offerings with the introduction of Vella Development Kit, which we call VDK.

VDK provides customers with the ability to plug in our Lidar sensors with Vella, an off-the-shelf library of software functions, to fast track their solution development. Our Vella software translates raw point cloud data into actionable information, delivering high-level perception outputs for roadways, sidewalks and indoor environments, including seen segmentation, object detection, velocity estimation, free space detection and Lidar-based odometry. The next generation of Vella and VDK will include even more advanced software and machine learning capabilities, including scalable machine learning, enabling our sensors to continuously learn, improve performance and adapt to changing environments and use cases. Platform services, enabling customers to develop their own applications with Velodyne Lidar, using our cloud analytics, diagnostics, calibration, perception, visualization and other APIs.

Sensor fusion, enabling multiple Lidar to be integrated with camera, radar and other sensors for applications like ADAS that require redundancy. And new vertical market solutions optimized for our target applications, including warehouse robotics, intelligent infrastructure, AV, ADAS and ground truthing. And finally, our fourth pillar is to lead with operational and manufacturing excellence. With over 67,000 sensors shipped to date, Velodyne has established itself as a clear leader in shipping Lidar at scale.

In 2021, we made excellent progress in transferring our high-volume products offshore. 80% of our Velarray line and 100% of our Puck product family are now running at contract manufacturers. We expect to complete the transfer of all of our lines offshore later this year while maintaining optionality for Buy American-compliant products here in the U.S. In 2022, we continue to increase the automation of our manufacturing processes and put in place the capacity to deliver high volumes and quality levels as required by an industry poised for significant growth.

Successful execution of the four pillars will enable Velodyne to focus investments on high ROI opportunities that deliver greater value to customers while lowering the company's overall cost structure and driving the volume levels needed to build a profitable growth business. Now I'd like to provide a deeper dive into the impressive progress we've made with customer adoption of our products in our 3 target markets: industrial and robotics, intelligent infrastructure, and automotive. The industrial and robotics market is closest to large-scale commercial deployments. Companies worldwide are automating their supply chains to save money, improve efficiencies and alleviate bottlenecks caused by the pandemic and other macro issues.

In warehouses, our customers are using Velodyne Lidar enabled robotics to move goods with a high level of precision, efficiency and safety, helping to maintain continuity of operations. Currently, e-commerce retailers and side robotics programs are deploying our Lidar for fulfillment, delivery and data center operations. For example, one of our customers is Gatik, whose middle mile delivery trucks fulfill revenue-generating orders daily for Walmart and other Fortune 500 companies. In industrial environments, customers have integrated Velodyne's Lidar sensors to power robotics in the airports and seaports.

Also, Velodyne is the Lidar provider of choice for drones. Our sensors enable 3D mapping and digital twin modeling of indoor and outdoor environments, providing an efficient and cost-effective way to map large areas in just hours. The second target market ripe for commercialization is intelligent infrastructure in smart cities. Velodyne's Intelligent Infrastructure Solution, or IIS, generates real-time data analytics and predictions, helping to improve traffic and crowd flow efficiency, improve sustainability, and protect vulnerable road users.

Lidar reliably collects data in any weather or lighting condition, 24/7. IIS is cost-effective and easily installed with a single sensor. It can provide coverage for an entire intersection, replacing inductive loop detectors, camera and radar. Our award-winning solution is implemented across three continents with North American pilots rolled out in seven states so far.

We expect traction in the intelligent infrastructure market to accelerate with new funding from the recently passed $1.2 trillion infrastructure bill. The third market, automotive, includes both AVs and ADAS. While level two-plus and level three AS have been slower than expected to reach full deployment, we remain convinced that the high functional safety levels needed for automotive require Lidar as an essential component of the sensor suite. Autonomous shuttles, including Beep by NAVYA, May Mobility, and leading robo taxi innovators such as Motional, are integrating Velodyne's Lidar in their systems to provide the highest levels of performance and safety.

New electric vehicle companies like Faraday Future are using our solid-state directional sensors to leapfrog traditional EV OEMs. Velodyne will power their autonomous driving systems to help deliver a comprehensive suite of highway, urban and parking autonomy features. Trucking accounts for over 72% of the transportation of goods in the U.S. alone.

Autonomous trucking programs are rapidly expanding to address capacity, efficiency, safety and environmental concerns. Velodyne's Lidar and perception software are being deployed in driverless trucks by companies like Ford Otosan and TrunkTech. For safety critical applications, our Pedestrian Automatic Emergency Braking software solution, also called PAEB, has been shown to dramatically improve safety in darkness as compared to current camera plus radar solutions. Tragically, 2021 saw a historic increase in road rate fatalities.

Data showed that approximately 76% of pedestrian fatalities happen at night or in low light conditions. Velodyne's PAEB can help prevent these strategies and save lives. Velodyne is actively working with the National Highway Transportation Safety Administration and other government agencies to update performance standards and require the safety performance that Lidar can provide to help protect vulnerable road users. Finally, Velodyne would not be where we are today without our partners and customers.

Our automated with Velodyne program now has 100 partner companies, including NVIDIA and Siemens. Our partners are working to commercialize next-generation autonomous solutions in the global market, using Velodyne's Lidar sensors and software. While we are proud of all of these successes, we acknowledge that the company needs to do a much better job of parlaying these opportunities into financial results and shareholder value. We believe that the focus provided by the four-pillar strategy will enable us to do this.

We also recognize that the company's previous guidance has fallen short of actual financial results. As I start my tenure as Velodyne's new CEO, it is important to me to build credibility and trust with all of our investors and analysts. With that in mind, it would not be judicious to provide guidance beyond the range of our visibility. As you have seen, Velodyne is experiencing robust customer demand for our products across all of our target markets.

These early deployments of Velodyne Lidar in real customer products are the best leading indicators of revenue growth in the next several years. That said, our ability to supply this demand is severely constrained by shortages of critical semiconductor components needed to build our sensors. Given our limited visibility, we will not provide full year guidance as the company has done in the past. Instead, we will provide quarterly guidance as we move into 2022.

We look forward to providing longer-term models when our visibility improves. With that, I'll turn it over to Drew to provide more detail on our financials.

Drew Hamer -- Chief Financial Officer

Thanks, Ted. Hello, everyone. It's my pleasure to speak with you today. As noted at the onset of the call, I will provide non-GAAP results for the fourth quarter and full year 2021.

Starting with the fourth quarter. Total revenue increased to $17.5 million, up from $13.1 million in the third quarter of 2021, reflecting across-the-board improvements. Product revenue grew to $13.7 million, up from $11.8 million in the third quarter of 2021. This reflects our third consecutive quarter of increased demand and growth in our unit sales volumes.

During the fourth quarter, we sold more than 4,900 sensors, of which more than 900 were solid state, reflecting a linear increase in demand. The weighted average selling price per sensor increased to $2,738 in the fourth quarter compared to $2,622 in the third quarter, reflecting strong demand for our products. License and services revenue was $3.9 million, up from $1.3 million in the prior quarter, reflecting an annual royalty true-up of approximately $2.4 million due to increased usage. We delivered a gross profit of $3.2 million, improving $7.4 million when compared to a third quarter gross loss of $4.2 million.

This reflects increased sensor licensing revenue, the benefit of higher volumes and improvements in production yields and reserves for potential excess materials. Operating expenses were $35.2 million compared to $33.4 million in the third quarter, primarily due to increased investments in our technology. Net loss improved to $31.8 million or $0.16 per share compared to $37.5 million or $0.19 per share in the third quarter of 2021. We ended the year with $294.4 million in cash in short-term investments compared to $350.3 million at December 31, 2020.

This reflects $89.3 million from the exercise of our publicly traded warrants, offset by our operating cash usage of $120.7 million. For the year ending December 31, 2021, we are pleased to have grown our unit volumes to over 15,000 Lidar sensors, up 35% compared to 2020. We are proactively working to achieve mass adoption pricing levels, and we lowered weighted average selling prices from 4,632 in 2020 to $2,988 in 2021. Total revenue was $61.9 million compared to $95.4 million in 2020.

Product revenue was $48 million compared to $68.4 million in 2020. The change reflects a onetime $11.1 million stocking fee in 2020 and $16.3 million related to lower ASPs in 2021 that are partially offset in 2021 by an increase of $7 million in the volume and mix of sensors in parts sold. License and services revenue was $13.9 million in 2021 compared to $27 million in 2020, which reflected a nonrecurring fee for the patent cross license agreements entered into during the second and third quarters of 2020. Net loss was $129.8 million compared to $65.1 million for 2020.

Turning to guidance. As Ted mentioned, going forward, we will provide guidance on a quarterly basis until visibility into market conditions improves. Based on currently available information, we expect revenue for the first quarter to be between $10 million and $12 million, driven by shipments of products to the company's global customer base. We expect the number of sensors shipped and weighted average selling prices to fluctuate each quarter based upon customers' needs and product mix.

The revenue guidance excludes an estimate of the noncash contra revenue charges of $5 million to $7.5 million, vesting in the first quarter of 2022. This is expected to result from the issuance to Amazon.com NV Investment Holdings LLC of a warrant or the Amazon warrant to purchase up to an aggregate of 39,594,032 shares of the company's common stock, subject to adjustment investing in accordance with the terms and conditions set forth in the Amazon warrant. While we believe the warrant has far-reaching value implications to Velodyne Lidar, the accounting rules fall within U.S. GAAP revenue standards since the warrant is directly related to our product sales with Amazon.

The number of warrant shares vesting will primarily be proportionate to the discretionary purchases by Amazon or its affiliates and recorded as a contra revenue in the periods that discretionary payments occur. The vesting of the warrant shares is based on these discretionary payments made pursuant to existing commercial agreements with Velodyne and Amazon, any possible future commercial agreements between Velodyne and Amazon, and the anticipated entry into an agreement between Velodyne and Amazon related to the use of Velodyne's technology. With that, I'll turn the call back to Ted.

Ted Tewksbury -- Chief Executive Officer

Thank you, Drew. We have taken decisive action by strengthening our exceptional leadership team, adding outstanding engineering talent and advancing our road map of Lidar innovation. As you have seen, we are experiencing strong traction across multiple applications, especially in industrial, robotics, and intelligent infrastructure, and this is the best leading indicator of revenue growth in the next several years. To summarize, we plan to make Lidar ubiquitous in a wide range of mainstream applications by focusing on the four pillars.

First, by driving Lidar volume in early autonomous markets. Second, by developing high-performance sensors at a price point to accelerate mass adoption. Third, by expanding our software in order to deliver complete autonomous vision solutions. And fourth, by leading the industry in manufacturing and operational excellence.

By focusing on the four pillars, we plan to expand our value to customers while accelerating the path to profitable revenue growth. Lidar is going to make our communities safer, our supply chains more efficient, and our planet greener, and Velodyne is leading the way. I thank each of you for joining today's call and look forward to touching base throughout the year as it unfolds. In March, we will be at three events: Cowen's Virtual Mobility Disruption Summit, Berenberg's Virtual Industrial Technologies Conference, and Roth Annual Conference in person.

Then in April, we will present at Bank of America's Annual Global Automotive Summit, hosted in conjunction with the New York Auto Show. Operator, I'd now like to open the call for questions.

Questions & Answers:

Operator

[Operator instructions] And the first question comes from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much. Can you break out the mix of hardware sales by application? Obviously, the automotive market is coming a little bit slower than folks had expected. So I'm just curious how much of those hardware sales are actually going into testing programs? And how much of it is going in dollar in other industrial applications that are actually growing right now?

Ted Tewksbury -- Chief Executive Officer

So we see our sales -- this includes all of our R&D sales and everything else, so it's not just the commercial sales or industry. But we do see our split. It's probably around 30% in the automotive space and the rest is growing across various industrial sales.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. Excellent. And then as you ramp up production, can you talk a little bit about yield coming off those automated lines and what you're seeing and how much improvement there might be a lot to go in terms of some of the cost reduction and efficiency of that manufacturing.

Ted Tewksbury -- Chief Executive Officer

Yes. So Paul, we're not going to talk openly about our yield. However, I can say that we're seeing, through Jim Barnhart leadership as our COO, we're seeing continuous improvements in our yields.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK, great. I'll take it offline. Thanks so much, guys

Operator

The next question comes from Raji Gill with Needham & Company. Please go ahead.

Raji Gill -- Needham and Company -- Analyst

Yes. Thanks for taking my question. I appreciate it. Just, Drew, on the gross margins, we've started to see some improvement on the product gross margins.

The negative decline is not as great. It's about negative 8%. And the overall gross margins have been helped by a higher mix of licensing and services. So when you kind of look into 2022, how should we think about the ASP declines? And then how do we think about kind of the mix of licensing and services.

So the -- we clearly see you guys moving offshore to kind of reduce the cost of manufacturing, reducing the product cost, but how do we think about ASP? Should we be expecting kind of another decline in ASPs as you kind of ramp production? So any thoughts there would be really helpful. Thank you.

Ted Tewksbury -- Chief Executive Officer

So let me -- this is Ted. Let me just comment on the ASP trends that we're seeing. First of all, long term, as I indicated in my prepared remarks, we are committed to driving down our cost structure so that we can reduce our prices and simultaneously pull gross margins up. So that's all happening.

However, in the short term, we have headwinds from the supply streams that I mentioned, in particular semiconductor components, which are in scarce supply. And in some cases, we have to pay higher than normal prices for those components and, virtually, we're able to pass on these costs to our customers in the present environment. So you will see ASPs starting to drift up due to that second trend. But then going forward toward the end of the year and into 2022, you'll start seeing ASPs coming down.

Anything you want to add to that...

Drew Hamer -- Chief Financial Officer

Yes. So I think similar to what Ted has said differently is, right now, we're not in normal times with everything is going on with inflation. It is the first time people have seen this in decades. So our customers are understanding that, and we will see ASPs come up a bit.

But in a normal situation, I think as we've talked about it in the past, we think of ASPs coming down kind of on a linear basis over time, I think it's like a four-quarter kind of linear line that you might average out so that you could see it trending down. And that's going to be a function of us bringing to market sensors that have a lower price points like our Velarray and others, while we still may maintain higher prices on some of our other sensors. So we'll be giving you the weighted average ASPs across all the sensors, but we do expect to kind of on a linear basis, over time, we should see that trending down and when things return to normal.

Ted Tewksbury -- Chief Executive Officer

And I should add to that the increase in prices that we're seeing as a result of the supply constraints are not causing us to lose design wins because the entire supply chain is in the same environment, including all of our competitors.

Raji Gill -- Needham and Company -- Analyst

Very good. And my follow-up, I appreciate, Ted, outlining the strategy, the four pivots. Just wondering, in terms of your customer portfolio, you did mention that you're seeing an increased penetration of solid state sensors. Wondering how you think about solid state sensor penetration this year, what customers -- and which end markets are adopting the solid state.

And wondering about the nature of some of these multiyear agreements and how you're looking at those multiyear agreements and project pipelines progressing throughout the year?

Ted Tewksbury -- Chief Executive Officer

Sure. So let me first comment on the solid state sensor question. We are seeing solid state sensors being sold into automotive applications. Also, a lot of the robotics and industrial automation applications are using solid state, but they're also using rotational.

So we're seeing both types of sensors being sold in those kinds of applications. In the intelligent infrastructure segment, the ceramic view rotational sensors are very popular -- products are very popular because you can mount it on a telephone pole in an intersection, and you've got immediate real-time 3D view of traffic and road conditions and pedestrians and other road users. So we're seeing both of those. As far as -- but we do expect to see a continuing increase in the solid state sensors.

They do have a benefit, a couple of lower price point, and are very suitable for a lot of those industrial applications. As far as the multiyear agreements are concerned, you will notice that they were conspicuously asking from the press release, as well as from the prepared remarks. The reason for that is that these are very important metrics that we use to measure the business internally, and we will continue to measure both multiyear agreements, as well as the funnel statistics, the number of aggregate customer projects that we have ongoing. The company was very transparent in the past and providing those details in these calls.

However, given the increasingly competitive nature of the industry, we made the decision that we will no longer be reporting those multiyear agreements and active projects in the funnel as we've done in past. We are in the process of defining new metrics that we will be able to share with you that will give you a more accurate leading indicator of future revenue growth, and we'll start doing that next quarter.

Raji Gill -- Needham and Company -- Analyst

Thank you.

Operator

Your next question comes from Sam Peterman with Craig-Hallum. Please go ahead.

Sam Peterman -- Craig-Hallum Capital Group -- Analyst

Hi, guys. Thanks for taking my question. I want to ask first on sales for next year -- I'm sorry, for next quarter. Can you break down how much of that you expect to come from products versus licenses and services?

Ted Tewksbury -- Chief Executive Officer

Yes. So a vast majority of that's going to come from products. We have kind of a run rate of license to services of around $1 million a quarter, and so that should continue. And then the rest will be coming from products.

Sam Peterman -- Craig-Hallum Capital Group -- Analyst

OK. Great. That's really helpful. And then kind of bigger picture here.

You mentioned a new architecture that you're transitioning to. Can you describe that architecture a little more? And then can you talk about what that means for the Vella family of products that you have developing as your next gen products?

Ted Tewksbury -- Chief Executive Officer

So I prefer not to give any more detail publicly on the architecture that we're working on, the low-cost architecture. I think the company has aired in the past and being a little bit too open, but not seeing products before they were ready for global volume production. And I think that doesn't serve our customers well, it doesn't serve the company well, it certainly serves our competitors very well. So we don't want to do that anymore.

But just to elaborate a little bit more on the products that we have in the development queue right now, the first would be these new architectures to achieve the performance that our customers require in our target market at a much lower price point. And that's particularly to accelerate adoption in automotive, where, as I mentioned, our customers are demanding prices of several hundred dollars. So that's a pretty good hurdle, and that does require new architecture development. The second kinds of products that we have in the pipeline are next generations of platforms that we already have, where we are addressing new use cases, as well as reducing cost.

And we're doing that, and as I mentioned in the prepared remarks, by leveraging reusable hardware, software configurability and the micro light on the rig, which has really been a workhorse building block that we can proliferate through the entire product lines in order to reduce cost, improve the scalability and get products to market very fast. And then the third new product category, of course, is the software, where we continue to move up the software stack in order to deliver complete solutions to our customers and deliver more value to them, which in turn increases our gross margins and our profitability.

Sam Peterman -- Craig-Hallum Capital Group -- Analyst

OK. Great. Thanks for the detail. That's all for me.

Ted Tewksbury -- Chief Executive Officer

Thanks, Sam.

Operator

[Operator instructions] This concludes our question-and-answer session. I'll turn the conference back over to Ted Tewksbury for any closing remarks.

Ted Tewksbury -- Chief Executive Officer

Thank you all for joining us today. We look forward to seeing you at the upcoming events. Thank you very much. Have a good day.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Andrew Chan -- Investor Relations

Ted Tewksbury -- Chief Executive Officer

Drew Hamer -- Chief Financial Officer

Colin Rusch -- Oppenheimer and Company -- Analyst

Raji Gill -- Needham and Company -- Analyst

Sam Peterman -- Craig-Hallum Capital Group -- Analyst

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