Ouster's Q3 2025 Earnings Call: Contradictions Emerge on Defense Growth, Customer Transition, and Market Expansion

Date of Call: November 4, 2025

Financials Results

• Revenue: $39.5M, up 41% YOY and up 13% sequentially
• Gross Margin: 42%, up 4 percentage points YOY; long-term target 35%–40%

Guidance:

• Q4 revenue expected to be $39.5M–$42.5M.
• Management targets long-term GAAP gross margin of 35%–40%.
• Company expects to sustain 30%–50% annual revenue growth 'for the foreseeable future' and will continue capacity investments to support scaling.

Business Commentary:

• Revenue Growth and Sensor Shipments:
• Ouster, Inc. reported record revenue of $39.5 million for Q3 2025, representing a 41% year-over-year increase and 13% sequential growth.

• This growth was driven by over 7,200 sensors shipped, the highest quarterly sensor shipment to date, and strong demand across its Smart Infrastructure and industrial verticals.

• Product Innovation and Market Expansion:

• Ouster continues to invest in retraining its AI algorithms, resulting in better detection accuracy at longer ranges and higher vehicle speeds, supporting use cases like tolling and highway monitoring.
• The company's strategic partnerships, such as with Constellis, and expansion of its distribution network, particularly in the ITS market, are enabling it to grow its software solutions and market presence.

• Financial Stability and Cash Reserves:
• Ouster ended the quarter with $247 million in cash and equivalents, showcasing a strong financial position.

• The company's focus on managing operating expenses and achieving operational flexibility supports its continued innovation and growth, despite facing tariff headwinds.

• Customer Development and Market Penetration:

• Ouster achieved significant customer successes, such as the expansion of its Ouster BlueCity solution across the U.S. and Canada, and the adoption of its REV7 sensors by leading industrial equipment manufacturers.
• These achievements underscore the company's ability to convert pilot programs into large volume orders and deepen its relationships across diverse customer bases.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted 'record' revenue of $39.5M (11th straight quarter of growth), GAAP gross margin of 42% (up 4 points YOY), $247M cash and no debt, and said the company is 'on track to meet our long-term financial framework,' indicating constructive operational and financial momentum.

Q&A:

• Question from Colin Rusch (Oppenheimer & Co. Inc.): Can you talk about where you're at in the testing process with the Rev8 and the Cronos offerings? Would love to get a sense of kind of how that testing is going. Any sort of concerns or kind of accelerations that you're thinking about with the platform given the potential growth and addressable market here?
  Response: Management declined to provide product-release specifics but reaffirmed strong commitment to next-generation DF/Chronos investments, saying they expect these products to be transformative and to more than double the TAM.

• Question from Colin Rusch (Oppenheimer & Co. Inc.): As you work through the design cycle with your customers...Can you talk a little bit about the cadence of those programs moving forward? ...adoption rates, any sort of win rate data that you can share?
  Response: Large latent customer base (>1,000 end customers) with under 10% in full-scale production today, implying significant upside as development customers convert to mass production (Serve Robotics cited as an order-of-magnitude ramp example).

• Question from Anand Balaji (Cantor Fitzgerald & Co.): With the rapid acceleration of self-driving vehicles...do you guys expect to pursue this vertical more aggressively? Are you looking for any major OEM agreements?
  Response: Ouster is interested and already partnered with robotaxi players (Motional, May Mobility); management is investing in DF/Chronos for future OEM opportunities but tempers expectations due to long OEM integration timelines.

• Question from Anand Balaji (Cantor Fitzgerald & Co.): Any recent updates on the Blue UAS certification and any granularity on sensor shipments or competition/moat in that segment?
  Response: Blue UAS certification (DoD drone payloads) is a commercial benefit that drives inbound interest; management won't disclose specific volumes but asserts a first-mover advantage and product fit for small-form-factor drone use cases.

• Question from Madison de Paola (Rosenblatt Securities Inc.): With many customers moving from prototype to production, what steps are you taking to mitigate potential supply chain constraints? And what's the long-term target for BlueCity's attach rate?
  Response: Company is investing in capacity and capital to meet customer delivery schedules (shipments +85% YoY, +31% QoQ); management declined to provide a specific BlueCity attach-rate target.

• Question from Tyler Perry Anderson (Craig-Hallum Capital Group LLC): Amazon has been talking about adding many robots including humanoids — do you think there's a benefit to you and how would that show up in bookings?
  Response: Humanoid robotics are a positive long-term opportunity—Lidar is relevant—but it's early-stage so material impact is unlikely in the next year; potential to boost the robotics vertical over multiple years.

• Question from Tyler Perry Anderson (Craig-Hallum Capital Group LLC): You mentioned ~300,000 intersections — is that the TAM and do you have plans/business in hand? Can you categorize BlueCity's attach rate?
  Response: 300,000 signalized intersections is the North American TAM; Ouster has partnerships covering the majority of that market and BlueCity is sold as a turnkey, software-attached solution (sensor+software) so each deployment includes both components.

• Question from Casey Ryan (WestPark Capital, Inc.): Regarding defense, do you define it as service-wide and is there a significant retrofit opportunity in addition to new platforms?
  Response: Ouster focuses on new platform opportunities and specific deployed use cases (e.g., surveying/Blue UAS) rather than tracking retrofit; broad defense automation will take years to materially scale.

• Question from Casey Ryan (WestPark Capital, Inc.): Could a potential blocking of DJI U.S. shipments impact your commercial opportunities?
  Response: Management sees a possible modest benefit from increased scrutiny on supply chains and a preference for domestically sourced, certified technology.

• Question from Timothy Savageaux (Northland Capital Markets): As Serve Robotics scales (e.g., LA opportunity), is that a significant growth driver for last-mile or Serve specifically?
  Response: Serve's rapid scale validates last-mile delivery as a viable, growing market and serves as a strong proof point that can drive meaningful sensor demand for Ouster.

• Question from Timothy Savageaux (Northland Capital Markets): If sub-10% of customers in production rises to 25%–50%, what are the implications for revenue?
  Response: Scaling more customers into production supports management's 30%–50% revenue growth model and helps sustain GAAP gross margins in the ~35%–40% range as volumes ramp.

• Question from Tyler Perry Anderson (Craig-Hallum Capital Group LLC): Can customers use other sensors with your software or is it tied to Ouster hardware?
  Response: No — the business is software-attached; Ouster's software (BlueCity, Gemini) is designed to run with Ouster sensors, though some customers add software onto existing Ouster hardware post-sale.

• Question from Tyler Perry Anderson (Craig-Hallum Capital Group LLC): Is your model training traditional machine learning and are customers asking for LLM/visual-model capabilities?
  Response: Perception uses cutting-edge deep learning (fleet-trained) tailored to Lidar data rather than text LLMs; management acknowledges potential future model-architecture evolution (e.g., transformers) but current focus is advanced deep learning for perception.

Contradiction Point 1

Defense Vertical Growth and Market Potential

It highlights differing perspectives on the growth potential and strategic focus of the defense vertical, which is crucial for understanding the company's market strategy and revenue projections.

Will you pursue the self-driving vehicle vertical more aggressively? Are major OEM agreements planned? - Anand Balaji (Cantor Fitzgerald & Co., Research Division)

2025Q3: Defense is one of the top verticals today. It has been a part of the top 5. It is a very big opportunity for us. - Charles Pacala(CEO)

With the L4 and Chronos chips in new products, can you discuss your pricing strategy? - Richard Cutts Shannon (Craig-Hallum Capital Group LLC, Research Division)

2025Q2: Defense is emerging as a growth area, driven by federal and international interests and Ouster's product advancements like Blue UAS certification. Although it's not the top vertical currently, it offers future potential. - Charles Pacala(CEO)

Contradiction Point 2

Customer Transition to Full Production

It involves differing expectations regarding the timeline and pace at which customers are transitioning from prototypes to full-scale production, which directly impacts revenue growth projections.

How does the cadence of customer design cycles impact adoption and win rates? - Colin Rusch (Oppenheimer & Co. Inc., Research Division)

2025Q3: Over 1,000 end customers exist, with a minority in full production. Customers typically transition from pilot to full-scale production. Serve Robotics is an example, increasing robots from 57 to over 2,000. - Charles Pacala(CEO)

As you begin commercial shipments of the L4 chip in the latter part of the year, how quickly can you transition customers to the L4 platform and lower-cost modules? - Colin William Rusch (Oppenheimer & Co. Inc., Research Division)

2025Q2: We don't need 100 different customers to reach production levels to keep growing. Single digits can significantly expand our volumes. Many customers moving into production from prototypes will fuel our growth. - Charles Pacala(CEO)

Contradiction Point 3

Testing and Validation in the Automotive Market

This contradiction highlights differing timelines and expectations for the validation of functionally safe lidar technology in the automotive market.

How close are you to fully validating functional safety for warehouse automation, and how will it affect new orders? - Colin Rusch (Oppenheimer & Co. Inc., Research Division)

2025Q3: Functionally safe lidar is a major focus for future products. It is crucial for tapping into new markets and can significantly increase our business. While we can't commit to a specific timeline, it's a significant opportunity. - Angus Pacala(CEO)

How close to full validation of warehouse automation's functional safety, and what impact on new orders? - Colin Rusch (Oppenheimer)

2025Q1: Functionally safe lidar is a major focus for future products. It is crucial for tapping into new markets and can significantly increase our business. While we can't commit to a specific timeline, it's a significant opportunity. - Angus Pacala(CEO)

Contradiction Point 4

Expansion into New Markets and Growth Strategy

It reflects differing perspectives on the company's growth strategy and expansion into new markets, which can impact investor expectations and strategic directions.

Will you increase your focus on the self-driving vehicle vertical moving forward? Are there major OEM agreements planned? - Anand Balaji (Cantor Fitzgerald & Co., Research Division)

2025Q3: Ouster invests in future-ready products, and the markets are aligning for potential integration within the next couple of years. - Charles Pacala(CEO)

Do you expect an incremental $70 billion in TAM, and can you break down the growth by segment? - Timothy Savageaux (Northland Capital Markets)

2024Q4: Our next-generation digital LIDAR products have the opportunity to dramatically increase the size of the addressable market across all four of our verticals. - Angus Pacala(CEO)

Contradiction Point 5

Lidar Adoption and Market Growth

It involves differing perspectives on the pace of lidar adoption and its impact on Ouster's market expansion and growth.

Has lidar adoption accelerated faster than expected, and how do you view the competitive landscape? - Kevin Garrigan (Rosenblatt Securities)

2025Q3: Lidar adoption is progressing according to our long-term model. We're seeing a lot of positivity in physical AI and autonomy advancements. While some competitors have discussed expanding into our verticals, we haven't seen sustained efforts. - Angus Pacala(CEO)

Has lidar adoption accelerated beyond expectations, and how do you assess the competitive landscape? - Kevin Garrigan (Rosenblatt Securities)

2025Q1: While some competitors have discussed expanding into our verticals, we haven't seen sustained efforts. - Angus Pacala(CEO)