Ouster, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Ouster develops digital lidar sensors for industrial automation, smart infrastructure, robotics and automotive applications. The March 11, 2021 merger with Colonnade was accounted for as a reverse recapitalization; prior-period operating results reflect Ouster Technologies, Inc., so the transaction and share-count changes affect comparability.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $7.36M | $4.28M | $13.97M | $6.58M |
| Gross profit (margin) | $1.90M (26%) | $0.39M (9%) | $3.64M (26%) | $(1.52)M ((23)%) |
| Operating expenses | $23.29M | $11.04M | $41.33M | $21.41M |
| Operating loss | $(21.39)M | $(10.65)M | $(37.69)M | $(22.93)M |
| Net loss | $(32.01)M | $(11.31)M | $(52.97)M | $(30.01)M |
| Operating cash flow | Not stated by quarter | $(28.35)M | $(24.27)M |
- Q2 product revenue grew 221%; H1 product revenue grew 204%. Product sales were the entirety of 2021 revenue; the prior-year periods included $1.99M of non-recurring service revenue.
- Management attributed product growth to higher shipment volumes, new geographic sales coverage and some customers entering production. Average selling prices fell 28% in Q2 and 23% in H1 year over year, alongside negotiated pricing for higher-volume agreements.
- Product gross margin improved to 26% in both 2021 periods from negative margins in the prior-year comparisons, as unit costs declined substantially. Management cautioned that chip shortages adversely affected H1 gross margins.
- Operating expenses rose sharply, including G&A, sales and marketing, and R&D. H1 stock-based compensation was $11.41M, versus $0.64M a year earlier.
- Other expense was $10.62M in Q2 and $15.28M in H1, materially affected by warrant fair-value accounting. The filing reports non-cash warrant remeasurement effects; narrative descriptions of the private-placement warrant component are inconsistent, so the component-level direction is not clear from the filing text.
Financial position and liquidity
- At June 30, 2021, cash and cash equivalents were $240.15M; restricted cash was $1.28M. Total current assets were $256.18M and current liabilities were $12.98M.
- Total liabilities were $49.77M, including $25.47M of warrant liabilities and $13.32M of operating lease liabilities. Short-term debt was zero; the $7.0M Runway loan was repaid in March 2021.
- H1 financing cash flow was $257.79M, principally reflecting merger and private-offering proceeds, net of offering costs and debt repayment. Capital expenditures were $0.66M.
- Management expects continued operating losses and negative operating cash flow, but stated cash on hand was sufficient for at least twelve months from the financial statements’ issuance date. No numeric revenue, margin or earnings guidance was provided.
Outlook, risks and notable items
- Management plans continued investment in product development and global sales and marketing. It expects operating results to fluctuate as customers progress from evaluation and development toward commercial production; customer commercialization timelines can range from six months to seven years.
- Management expects unit costs to benefit from higher volumes and outsourced manufacturing, but anticipates pricing pressure from negotiated multi-year customer agreements. Semiconductor shortages, potentially continuing into 2022, may further pressure margins and could affect supply or product development if mitigation efforts fail.
- COVID-19, supply-chain disruption, customer order delays, reliance on third-party suppliers (including Benchmark Electronics), customer concentration, and the uncertain pace of lidar adoption are among the disclosed risks. Two suppliers each represented at least 10% of Q2 purchases; one supplier was 38% of accounts payable at quarter-end.
- The company disclosed $5.7M of non-cancelable contract-manufacturer purchase commitments and $6.2M of commitments to other vendors. It reported no material litigation matters, but disclosed an SEC investigation and document subpoena received June 10, 2021 concerning projected financial information in the merger registration statement; Ouster said it intended to cooperate.
- Disclosure controls were deemed ineffective due to material weaknesses in staffing and accounting expertise, period-end reporting, segregation of duties, and IT general controls. Remediation efforts were underway.
- The company restated Colonnade’s 2020 financial statements to reflect warrant accounting and warned of possible regulatory, litigation, stockholder and reputational consequences. Private-placement warrants are liability-classified and fair-value changes may materially affect reported results without corresponding cash impact.
Investor verification priorities
- Track product revenue, shipment volumes, average selling prices and gross margins, particularly the impact of chip availability and negotiated customer pricing.
- Assess cash burn against the stated liquidity runway, ongoing investment plans and any need for additional financing.
- Review warrant-liability remeasurement and confirm the direction and components of non-cash gains or losses in subsequent filings.
- Monitor remediation and testing of the disclosed internal-control material weaknesses, and any further SEC inquiry or restatement-related developments.
- Verify customer production ramps, purchase commitments, supplier concentration and the status of the $11.9M in disclosed non-cancelable purchase commitments.