Ouster, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Ouster develops and sells digital lidar sensors for industrial automation, smart infrastructure, robotics and automotive applications. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $10.3 | $7.4 | $18.9 | $14.0 |
| Gross profit / margin | $2.8 / 27% | $1.9 / 26% | $5.4 / 28% | $3.6 / 26% |
| Operating expenses | $36.0 | $23.3 | $72.8 | $41.3 |
| Operating loss | $(33.2) | $(21.4) | $(67.4) | $(37.7) |
| Net loss | $(28.0) | $(32.0) | $(60.4) | $(53.0) |
| Basic and diluted loss per share | $(0.16) | $(0.21) | $(0.35) | $(0.50) |
- Q2 revenue grew 40%, with reported unit volume up 38% and average selling price up 1.5% year over year. For the first half, revenue grew 35%; volume rose 46%, while average selling price declined 8%.
- Q2 gross margin increased to 27% from 26%. First-half margin increased to 28% from 26%, reflecting lower unit costs, partly offset by lower first-half selling prices and supply-chain costs.
- Operating expenses rose sharply, led by research and development, which increased to $15.9 million in Q2 and $31.8 million in the first half. Management attributed much of the increase to staffing, including the Sense Photonics acquisition, stock compensation and product-development spending.
- Q2 net loss improved year over year despite a larger operating loss, principally because the change in fair value of private-placement warrants generated $5.4 million of other income; the comparable quarter included a $10.7 million loss. First-half other income included a $7.1 million warrant fair-value gain versus warrant-related losses in 2021.
Cash, debt and liquidity
- At June 30, 2022, cash and cash equivalents were $159.7 million; cash, cash equivalents and restricted cash totaled $161.8 million. Total assets were $290.6 million, total liabilities $59.6 million, and stockholders’ equity $231.0 million.
- Operating activities used $55.4 million in the first half, versus $28.3 million a year earlier. Investing activities used $1.0 million. Financing activities provided $33.6 million, including net borrowing proceeds of $19.1 million and net ATM proceeds of $14.6 million.
- Ouster drew $20.0 million under a Hercules term-loan facility of up to $50.0 million; debt carrying value was $19.1 million after discount and issuance costs. The loan bears variable interest at the greater of prime plus 6.15% or 9.40%; its stated effective rate, including financing costs and end-of-term charge, was 14.3%. Further draws are conditional, and the loan matures May 1, 2026.
- The company sold 6.75 million shares under its ATM program at a weighted-average $2.16 per share, raising approximately $14.0 million net. The program had approximately $135 million of remaining capacity at quarter-end.
- Inventory increased to $17.2 million from $7.4 million at year-end. Non-cancelable purchase commitments were approximately $29.4 million, including $23.1 million to a contract manufacturer. Current assets were $194.8 million and current liabilities $23.4 million.
Changes, outlook and key risks
- Management expects significant operating losses and negative operating cash flows to continue while it invests in product development and sales and marketing. It stated that quarter-end cash and cash equivalents are expected to support the business for at least twelve months from the financial statements’ issuance. No specific revenue or earnings guidance was provided.
- Management cited semiconductor shortages and supply-chain constraints as pressures on costs and margins, with cost-of-goods-sold fluctuations anticipated over the next 12–18 months. It said chip shortages could persist through mid-2023, and that constraints may affect product supply, costs and future product development.
- Customer adoption and commercialization timing remain uncertain; customers’ product validation and production cycles can range from six months to seven years. Management expects continued quarterly variability, competitive pricing pressure and, over time, lower average selling prices as volumes grow.
- Ouster reported an SEC investigation and document subpoena concerning projected financial information in the predecessor’s 2020 merger registration statement; it said it had complied with requests to date. Velodyne filed patent-related litigation and requested an ITC proceeding; Ouster filed a separate complaint against Velodyne in July 2022. No accrual was recorded for these matters, and outcomes are uncertain.
- Disclosure controls and procedures were deemed ineffective at June 30, 2022 because of material weaknesses in the control environment, financial close and reporting controls, and IT general controls. Management described remediation efforts, but said they require continued evaluation and testing.
- Other stated exposures include inflation and rising interest rates, dependence on key suppliers and contract manufacturer Benchmark, inventory obsolescence, competition, customer concentration/credit risk and the need for additional capital. The filing states that management believes cash is sufficient for at least twelve months, but future financing may be needed.
Important facts for investors to verify
- Whether revenue growth converts into sustained production volumes and improved gross margins, given lower first-half average selling prices and supply-chain costs.
- Cash burn, inventory growth and purchase commitments relative to available liquidity; the timing and conditions for any additional Hercules borrowing or ATM issuance.
- The ongoing cost of operating losses, including R&D and sales expansion, and the effect of stock-based compensation and dilution.
- Developments, potential costs and business consequences of the SEC investigation and Velodyne disputes, including any ITC action.
- Progress in remediating material weaknesses and whether controls become effective after sustained testing.