Ouster, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Ouster designs and sells digital lidar sensors for industrial automation, smart infrastructure, robotics, and automotive applications.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $8.6 million | $6.6 million; up 29% |
| Gross profit and margin | $2.6 million; 30% | $1.7 million; 26% |
| Operating expenses | $36.8 million | $18.0 million; up 104% |
| Operating loss | $34.2 million | $16.3 million |
| Net loss | $32.4 million | $21.0 million |
| Net loss per share | $0.19 | $0.38 |
| Cash used in operating activities | $21.8 million | $12.4 million |
At March 31, 2022, cash and cash equivalents were $160.8 million, plus $2.0 million of restricted cash. Current assets were $186.3 million and current liabilities $24.1 million. The company had no outstanding debt at quarter-end. Accumulated deficit was $335.8 million.
Q1 cash declined by $21.9 million to $162.8 million, including restricted cash. Investing activities used $0.1 million; financing activities provided $0.1 million. Noncash stock-based compensation was $8.8 million.
Changes and management commentary
- Revenue growth reflected a 58% increase in sensor volume, while average selling price declined 20% as customers moved toward negotiated production pricing. Regional revenue rose in the U.S. and Asia-Pacific, but fell 8% in Europe, Middle East and Africa, partly because a large one-time prior-year contract was completed.
- Cost of product revenue rose 23%, less than revenue growth; cost per unit declined 23%. Gross margin improved to 30%, despite supply-chain-related purchase-price variances and lower average selling prices.
- Operating expense growth was driven particularly by R&D, which increased 238% to $15.9 million, as well as expanded sales and marketing and higher general and administrative costs. Management expects continued investment in product development and global sales and marketing.
- One customer represented 28% of Q1 revenue. One supplier accounted for 31% of purchases and 52% of accounts payable at quarter-end.
Outlook, risks and unusual items
- Management expects operating losses and negative operating cash flows to continue for the foreseeable future, while investing in R&D and sales and marketing. It stated that quarter-end cash was sufficient to support going-concern status for at least one year from issuance of the statements; no specific revenue or earnings guidance was provided.
- Management cited ongoing semiconductor and other supply-chain constraints, which have pressured margins and may continue to affect costs, production and product launches. It anticipates cost-of-goods-sold fluctuations over the next 12–18 months and possible temporary surcharges. Customer commercialization timing and production ramps are uncertain, and results may fluctuate.
- As of March 31, the company had non-cancelable purchase commitments of approximately $30.4 million: $21.3 million to its contract manufacturer and $9.1 million to other vendors. Inventory was $11.6 million, up from $7.4 million at year-end, and included $1.8 million of cumulative write-downs.
- After quarter-end, Ouster entered into a secured Hercules term-loan facility of up to $50 million and drew $20 million on April 29, 2022. Further draws are conditional; the facility bears interest at the greater of prime plus 6.15% or 9.40%, subject to terms, and matures May 1, 2026. It is secured by substantially all company and guarantor assets and includes financial covenants and other restrictions.
- Also after quarter-end, Ouster established an at-the-market offering program for up to $150 million of common stock; sales are optional and could dilute existing shareholders.
- The company disclosed an SEC investigation and subpoena concerning projected financial information in the predecessor’s merger registration statement. It has responded to requests, but further SEC action could materially affect the business; the company could not estimate any related liability.
- Disclosure controls and procedures were deemed ineffective at March 31 because of material weaknesses in the control environment, financial close and reporting controls, and certain IT general controls. Remediation is underway but requires sustained testing and validation.
Important facts for investors to verify
- Whether sensor volume growth and improved unit costs can offset lower selling prices and supply-chain costs, and sustain gross-margin improvement.
- Cash burn and funding needs against management’s stated one-year liquidity assessment, including the terms and covenant implications of the Hercules borrowing and any ATM share sales.
- Customer and supplier concentration, purchase commitments, inventory quality, and the timing of customer programs reaching commercial production.
- Developments in the SEC investigation and progress in remediating the disclosed material weaknesses in financial reporting controls.