Ouster, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise. Ouster completed its merger with Velodyne on February 10, 2023, so Q1 results include Velodyne only from the acquisition date; year-over-year comparisons are therefore not like-for-like.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $17.2 | $8.6 |
| Gross profit (loss) | ($0.4); gross margin approximately (2.2%) | $2.6; gross margin approximately 30.3% |
| Operating expenses | $176.7, including $99.4 goodwill impairment | $36.8 |
| Operating loss | ($177.1) | ($34.2) |
| Net loss | ($177.3); diluted loss per share $6.03 | ($32.4); diluted loss per share $1.90 |
| Cash used in operating activities | $53.0 | $21.8 |
Revenue increased 101% year over year, driven primarily by the Velodyne merger and higher sensor revenue, including REV7. Velodyne contributed $6.4 million of revenue and $29.7 million of net loss from February 10 through March 31. Q1 pro forma revenue, assuming the merger had occurred January 1, was $20.9 million versus $14.7 million in Q1 2022; pro forma net loss was $175.8 million versus $104.1 million.
At March 31, cash and cash equivalents were $115.8 million and short-term investments were $140.9 million, or $256.7 million combined. Current assets were $319.5 million and current liabilities $72.7 million. Debt was $39.9 million, primarily a variable-rate Hercules term loan; the company reported covenant compliance. Cash, cash equivalents and restricted cash decreased $6.8 million during the quarter. Investing cash flow was positive $46.3 million, including merger-related cash and investment sales; financing cash flow was $0.02 million.
Material changes and unusual items
- The merger added products, software, employees, assets and liabilities, and substantially increased reported operating expenses. The company issued approximately 19.5 million shares in the transaction.
- Ouster recorded a $99.4 million non-cash goodwill impairment after its share-price decline left market capitalization below the reporting unit’s carrying value. Goodwill remaining at quarter-end was $67.3 million.
- Gross margin turned negative. Management cited supply-chain constraints, merger and integration effects, manufacturing transition and inventory-related charges as factors weighing on margins; Q1 included a $2.8 million inventory write-down.
- Merger-related restructuring affected approximately 190 employees. The company recorded $11.8 million of termination and benefit costs, of which $9.8 million had been paid by quarter-end.
- Stock-based compensation was $21.8 million, versus $8.8 million a year earlier. The company also recorded $1.4 million for construction-in-progress write-off and right-of-use asset impairment.
Outlook, risks and contingencies
Management gave no specific revenue, profit or cash-flow guidance in the provided filing text. It expects ongoing operating-result volatility as customers progress through lengthy testing and commercialization cycles. Management expects unit costs to decline with higher volumes and manufacturing scale, but also anticipates near-term margin pressure from integration, manufacturing transition and excess or obsolete inventory. It believes existing liquidity is adequate for at least twelve months from the financial statements’ issuance, while noting continued losses could require additional equity or debt financing.
- Risks include uncertain lidar adoption and customer production timing, competitive pricing pressure, supply-chain constraints, customer and supplier concentration, execution of merger integration and synergies, and the need to fund continued R&D and growth.
- Ouster reported ineffective disclosure controls and material weaknesses in internal control over financial reporting, including insufficient accounting and controls personnel, period-end reporting controls and IT general controls. Remediation was underway but required sustained testing.
- As of March 31, the company had $28.2 million of non-cancelable purchase commitments with contract manufacturers and $15.3 million with other vendors. It reported $39.9 million of debt and $31.3 million of operating lease liabilities.
- Ouster filed patent-infringement actions against Hesai in April 2023, after the quarter; the ITC instituted an investigation in May. The filing reports no accrual for specified litigation matters because a loss was not considered probable or reasonably estimable. A separate legacy Velodyne securities class action remained in discovery.
- After quarter-end, NYSE notified Ouster of a minimum-share-price deficiency. Ouster effected a one-for-ten reverse stock split, and the NYSE subsequently confirmed the company had regained compliance.
- The filing notes a May 2023 serial-production agreement with Motional for exclusive supply of long-range VLS-128 lidar through 2026; this was announced after the reporting period and is not Q1 revenue.
Key facts for investors to verify
- How much of revenue growth reflects acquired Velodyne operations versus organic growth, and whether the pro forma figures are comparable to future reported results.
- Whether gross margins improve as integration proceeds, manufacturing shifts and inventory risks normalize.
- The cash-burn rate, liquidity runway, financing needs and compliance with the Hercules loan’s minimum-liquidity covenant.
- Progress toward merger synergies and restructuring savings, including any further integration charges or impairments.
- Whether internal-control remediation is completed and operating effectively, and developments in Hesai and legacy Velodyne litigation.
- Commercial conversion of customer programs, including the Motional agreement, and the timing and financial contribution of production awards.