Ouster, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Ouster designs and sells digital lidar sensors for industrial automation, smart infrastructure, robotics and automotive applications. The March 2021 merger with Colonnade was accounted for as a reverse recapitalization; prior-period figures reflect Ouster Technologies’ operations.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $7.8m | $5.9m | $21.7m | $12.5m |
| Gross profit (loss) | $1.9m | $1.1m | $5.5m | $(0.5)m |
| Gross margin | 24% | 18% | 25% | (4)% |
| Operating loss | $(27.3)m | $(14.7)m | $(65.0)m | $(37.6)m |
| Net loss | $(12.7)m | $(19.6)m | $(65.6)m | $(49.6)m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(45.1)m | $(34.6)m |
- Q3 product revenue rose 31%; nine-month product revenue rose 106%. Unit volumes increased 127% and 205%, respectively, while average selling prices declined 42% and 32%.
- For the nine months, operating expenses increased 90% to $70.5m, including sales and marketing of $14.8m (up 134%) and general and administrative expense of $36.2m (up 205%). Stock-based compensation was $18.6m, versus $7.9m a year earlier.
- Q3 net loss included $14.5m of other income from a decrease in the fair value of private-placement warrant liabilities. This non-operating item substantially reduced the reported quarterly net loss; operating loss was $27.3m.
- At September 30, cash and cash equivalents were $221.6m, restricted cash was $2.0m, and current assets were $242.1m versus current liabilities of $19.0m. The company had no short-term debt; it repaid $7.0m of loan principal in March 2021. Warrant liabilities were $11.0m.
- Merger and related financing generated $257.8m of net financing cash flow during the nine months, contributing to the increase in cash. Capital expenditures were $1.8m.
Material changes and management commentary
- Management attributed revenue growth to higher unit shipments, expanded sales coverage and some customers moving toward production. Lower average selling prices reflected negotiated pricing for larger, longer-term customer programs.
- Management reported improved unit costs and margins, but said semiconductor shortages and other supply constraints raised costs, harmed nine-month gross margins and could continue to create cost fluctuations over the next 12–18 months. Temporary price surcharges may be used.
- Ouster expects continued operating losses and negative operating cash flows while investing in product development and global sales and marketing. Management said cash on hand was sufficient for at least twelve months from the filing date. No specific revenue or earnings guidance was provided.
- On October 22, 2021, after quarter-end, Ouster completed its acquisition of Sense Photonics for approximately 10 million Ouster shares, valued at about $63m at closing, and established an automotive division. Purchase-price accounting was still in progress.
- The company had approximately $16.9m of non-cancelable purchase commitments as of September 30: $6.4m to its contract manufacturer and $10.5m to other vendors. It identified no material litigation matters in the financial-statement note, but disclosed an SEC investigation and document subpoena concerning projected financial information in the merger registration statement.
Risks, controls and contingencies
- Management cited uncertain lidar adoption and customer commercialization timelines, pricing pressure and competition, reliance on suppliers including Benchmark Electronics, supply-chain disruption, customer order changes, and COVID-19 impacts. Management said it could not estimate the pandemic’s full financial effect.
- Disclosure controls and procedures were deemed ineffective as of September 30 because of material weaknesses in staffing and accounting expertise, period-end reporting and transaction controls, and IT general controls. Remediation was underway; effectiveness had not yet been demonstrated over a sustained period.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes may differ from current assessments. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether sales growth converts into sustained production volumes and whether falling selling prices are offset by lower unit costs and improved gross margins.
- How semiconductor availability, expedite costs and supplier concentration affect delivery capacity, costs and customer commitments.
- Cash burn and funding needs as operating losses continue, including the financial and dilution impact of the Sense acquisition and outstanding equity awards and warrants.
- Progress in remediating internal-control material weaknesses and any developments in the SEC subpoena investigation.
- Whether acquisition accounting, integration and the automotive product roadmap alter future expenses, liquidity or share count.