Q2 2022 Ouster Inc Earnings Call
To support steady growth, which is exemplified by our over 600 customers, including a growing number of multiyear FCA across our foreign market vertical.
While market uncertainty can impact our customers ramp rate and the timing of purchase orders are flexible demos digital architecture enables us to sell into multiple vertical eliminating dependency on adoption within a single market.
And then it gets mentioned the fundamentals of <unk> fitness remain unchanged, our differentiated technology backed by a leading cost structure and our multimarket approach positions out there to take advantage of global trends towards increased automation and improve roadway and Worksite safety.
As a result, we remain confident in our ability to continue to win deals and head to head competition across each of our core market vertical to grow our market share and to maintain our long term growth trajectory.
We plan to focus on three key areas to strengthen our financial position strategic.
Strategic fundraising targeted spend and accelerated growth in.
In the second quarter, we continued to bolster our financial position through balance sheet initiatives, including our previously announced term loan facility of up to $50 million and an after market offering or ATM of up to $150 million available through 2025.
By June 30, we drew $20 million on the term loan facility and raised approximately $15 million from the sales of common stock through the ATM.
With this additional financing we maintained a cash balance of approximately $162 million at the end of the second quarter.
We plan to coupled these financing options with internal initiatives to continuously improve our overall cost structure.
Well on the manufacturing side, we continue to reduce our bill of materials and improve margins over time.
Finally, we are fine tuning our commercial efforts to focus on our largest customers in our most established markets with plans to introduce new products that are expected to accelerate our ability to capture market share.
We believe these initiatives will strengthen our business and provide us with the flexibility and liquidity to execute on our business plan.
Turning to our revised full year 2022 guidance given the significant increase in macroeconomic uncertainty our customers are facing some short term growing pains impacting our outlook for the remainder of the year.
We are seeing a slowdown in consumer production and deployment schedule and within our perspective and current customer base companies are taking proactive financial measures to conserve cash by implementing layoffs and staggering their purchasing cycle.
In addition supply chain bottlenecks have affected some of our customers ability to build to meet demand.
As a result, we've seen a significant number of our large deal delay or spread out over a longer period of time than previously anticipated.
In response to these dynamics and their effect on our near term bottoms up analysis, which takes into account delays ramp rates across vertical we have revised our full year 2022 revenue guidance to $40 million to $55 million in revenue.
Our gross margin guidance of 25% to 30% remains unchanged given our industry leading cost structure.
Yes in light of sustained customer demand for Lidar technology, our growing customer base continued success in head to head commercial competition and steady revenue growth, we remain confident in our growth business strategy and overall competitiveness.
While some large deals have been delayed the size of our opportunity set remains the largest we have seen in <unk> history.
By revising our revenue guidance for this year and taking prudent financial measures to ensure access to capital and manage our cost structure in the current environment, we are better positioned to navigate headwinds while simultaneously scaling the business to achieve industry leading growth.
Now I'd like to turn the call back over to Angus.
Thanks, Sean that we.
We have confidence in the business because of the success of our unique digital platform, our exciting lineup of upcoming product releases as well as the positive customer response across each of our market verticals.
Turning first automotive we shipped our first digital flash.
A sample sensors April delivering on a major milestone in our strategic development agreement with a global automotive OEM partner.
Since then we've advanced our commercial traction with automakers driven by strong demand for our first day samples.
Automotive team embarked on a global road show to demonstrate the performance capabilities of our solid state central platform with automakers tier ones and <unk> companies.
Also automotive can offer a package of sensors for a lower price smaller overall five and the <unk>.
Forward looking analog like ours offered by some of our competitors.
Again, with small and affordable suite MDF sensors can be integrated around the vehicle just like digital cameras to provide 360 degree of awareness and a rich set of let's say for autonomy features.
Also short medium and long range ladders looking to the front side behind the vehicle provides the critical data necessary for safe automated lane changes confidence would be willing to four way intersection reliable high speed mergers and so much more.
Put simply multicenter digital Lidar suites of the bridge from driver assistance to safe affordable iceberg autonomy.
While we expect our solid state sensors to be adopted on passenger vehicles started production in 2025, we have a meaningful automotive business today for trucks buses and shuttles using our OS scanning sensors.
Our second largest order this quarter was shipped to a new FCA customer, but its test and commercial deployment of its fully autonomous and electric logistics trucks here in the U S.
We also shipped a large order of sensors to a major U S automaker with plans to bring its autonomous shuttle in the large scale production as well as a major European OEM, which recently showcased the new bus output with their OS sensors.
Yeah.
Within the industrial and robotics verticals, we continue to benefit from automation trends as more companies take steps to increase productivity and salt for a lack of skilled labor in the market.
As predicted last quarter warehouse automation important logistics automation and off highway mining and agricultural vehicles continued to be major growth drivers for our business.
The industrial and robotics verticals alone accounted for more than two thirds of our revenue in the second quarter again, we are working with a wide range of industrial customers from Oems to global E Commerce and logistics companies developing their own in house solutions we.
Each of these design wins and head to head competition against analog wider solutions, leading us to believe that digital lidar, the reliable performance and cost efficient sensor.
Choice for automation.
Finally, turning to smart infrastructure.
Only just beginning to unlock the many opportunities within smart infrastructure with digital Lidar combined with the right software analytics can provide incredibly valuable information to end users, we can bring greater intelligence connectivity and safety to public and private spaces with solutions for Ics for intelligent transportation systems security.
And cloud analytics.
The multibillion dollar security market, where we see a massive opportunity to disrupt the status quo with the joint security solution that we released last quarter after accurate fishing and benefit from relatively high asps and faster sales cycles.
Largely dominated by cameras to date these nascent submarkets within smart infrastructure hold the opportunity for incredible upside.
Okay.
Turning to product updates, we're focused on achieving vertical specific product that safety certifications aimed at expanding market opportunities and displacing legacy analog sensors, which opens up entirely new segments of the market.
We also achieved a major milestone on our path towards automotive and industrial safety certifications with the achievement of our ISO 9001, and ISO 14001 certification. This is a huge step towards achieving April be functional safety and sell to industrial safety for our products.
We also reached a critical milestone in the past quarter by taking delivery of our first samples of the L. Three chip.
L. Three chip represents the most significant advancement in the performance of our L series chips since <unk> founding in 2015, I simply can't wait to unveil the ultra chip later this year and provide further evidence for wide digital Cmos technology represents the end state for the Lidar industry.
Yeah.
Also is focused on building a great team and great products, winning customers and growing faster than our competitors all on a path to building a more efficient convenient and safer world.
I'm confident we're doing exactly what we should be we remain singularly focused on our goal of being the leading water company across our end markets now and for decades to come.
With that I'd like to open it up for Q&A.
Thank you and we will now begin the question and answer session to ask a question you May Press Star then one on your phone. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press star one again when called upon please limit yourself to two questions.
First question today comes from the line of Andre Shepard from Cantor Fitzgerald. Your line is open.
Hey, good afternoon, guys and congratulations on the quarter.
Quick question just in regards to the revenue guidance.
I know in the past you had mentioned that you expected.
A ramp in the second half of the year.
I'm just wondering could you give us any color in terms of is that evenly spread across Q3 Q4 or do you expect kind of the bigger ramp up to come in the in the last quarter. Thank you.
Yeah, I mean, I think we're still expecting to see strong revenue growth in the back half of the year I mean, as we as we mentioned earlier our pipeline right now is as strong as it's ever been in <unk> history and so.
Even looking at our revised guidance projections, we're still guiding up for the rest of the year.
Got it that's very helpful. Thanks, and maybe one quick follow up for me in terms of the strategic customer agreements right. So obviously, great news there rising the number of agreements to 80 versus 72 previously I.
I guess just two questions on that number one so how binding are these agreements and could you give us any color in terms of when exactly they will start to translate into into revenue and kind of how that works. Thanks.
Yes. Thanks for the question this is Angus here.
So the SBA is as a reminder, they are our efforts to provide a high quality signal to the market.
<unk> been very open on what the definition of an FCA as it's a contract that we signed with the customer that contains a three to five year forecast for specific elster products with specific pricing.
And unit quantity demand forecast, but it is a non binding forecast some of our <unk> do have a binding component, but all of that we what we report as the contracted revenue opportunity, which is in total $575 million right now and we're using this to build better signal on forward projections.
On the business last year, we actually saw really good alignment of revenue to the.
The forecast from our customers.
We recognized about 80% of the 2021 revenue revenue that was forecast and estimates for that year. In 2021. So it was really great high quality signal, just indicating that customers that are willing to spend the time to go through all that paperwork and give us so much information about their long term efforts that they mean.
They've entered into a kind of a design win territory and production.
And so.
So in 2022, we're also seeing SBA customers are a major driver of our business, we're not having to wait for those to contribute there is still a major driver of the business. So we're very happy with how that has turned out but again, it's not binding.
Contracted revenue opportunity, which is appears to be a pretty high single.
Got it understood. Thanks, very much English that's that's very helpful and very thorough congrats again guys I'll pass it on thank you. Thank you.
Your next question comes from the line of Brian Dobson from Chardan capital markets. Your line is open.
Alright, thanks, very much for taking my questions.
Okay.
So when youre thinking about the back half of this year as it pertains to your guidance could you give us a little bit more.
Color on the seasonality.
The third and the fourth quarter.
Yeah, I mean, we always seem to have we've talked about this quarter to quarter. You know the last couple of years, we've had a really strong fourth quarter and we've talked earlier this year about how our pipeline is projecting a strong fourth quarter again this year. So.
That just seems to be how it's working out with our customers in terms of their ordering cycles and.
So, yes, I think thats the color there, yes, and keep in mind things like our <unk>, our forecasted on a year basis. So there is a strong.
Push for year end.
<unk>, but not a strong Q3 push so there is still a steep ramp for things like the contracts that we have in place.
Yes, that's helpful. So I guess.
Expanding on your call. It order book could you maybe point to any specific things that give you guidance in meeting your revised guidance range considering.
It seems like the year will be <unk>.
Yeah, well I think we do our revenue projections is a bottoms up projection customer by customer from our 600 customers and I think <unk> talked about how a good number of those customers about 80 or under Sba's with us, giving us three or five year forecast. So based on that we rolled those numbers up and Thats how.
We get to our forecast for this year.
Yes, okay great.
To add a little extra color color.
The revision excuse me the revision in guidance.
Is not a reflection on our overall competitiveness in the market right, we're still winning customers.
Time and time again, we feel very good about the products in market that we have today, we have an incredibly strong back half.
Product roadmap set for release and so all of that is building a huge amount of confidence.
And our ability to meet the revenue guidance that we have on top of the customer information and I'd also point out that our run rate this quarter is.
In line with the low end of revised guidance. So there's a lot of competence in the numbers that we're providing.
Okay.
Some clients, reducing expenses and decelerating production.
As you are looking around at your core industries, which do you see being the most challenged over the next 12 months in which presents the most opportunity and if you could give just a little bit more color on the opportunity presenting itself in security that would be great. Thank you.
Well I mean, I can start and maybe Angus can add some color.
In terms of our growth this year, it's primarily coming from a few areas that we've talked about repeatedly throughout the year. One is that we're kind of emerging as a leader in robo Tech trucking, we have several strong AOS customers. There we've talked a lot about warehouse automation, where we're seeing a lot of rules that.
It's difficult to find labor for it these days and so more and more companies I think are investing in warehouse automation to supplement the human potential in their workforce as well as to provide safer and more efficient workplaces and so that that's a strong area of growth that we're seeing this year and then lastly in a smart infrastructure, where we announced that we've been signing quite a few.
And partnerships there and I saw the ingots also wanted to weigh in so I'll, let him take that Mike.
Yes so.
On the security question specifically.
There are markets today that we're focused on because their existing line or markets that we can convert to digital lidar and grow.
And that's a real driver of the business and we are.
A lot of near term opportunity that is building the year over year growth security as an example of a new market new potential.
Lidar is not really.
Yes.
An existing technology, but the market is huge and we're investing in it because the market Association has over $32 billion worth of security camera hardware security cameras that are sold every year and so even small penetration rates into that market could be an immense opportunity for us there. So thats why we are investing into new areas like that.
I'm expecting a much higher market share from the kind of established that our markets.
But we're also operating in.
Excellent could you expect to see a meaningful contribution from security in 2023.
That would be our goal.
Absolutely.
Significant contribution over time.
And trying to do that as quickly as possible. Thanks.
Excellent. Thank you very much.
Your next question comes from the line of Colin Rusch from Oppenheimer <unk> Company. Your line is open.
Thanks, So much guys could you talk about your competitive positioning around signal processing.
It seems like Theres, some key advantages that you've got in place that are helping with your customers right now.
Yes and.
You are talking about is an interesting question I haven't gotten before but youre talking about signal processing on the sensor.
Yes, exactly and the efficiency of that and how that gets levered through the software applications that you have.
Sure I think that.
Digital Lidar is actually a collection of technologies, the first and foremost as just putting lidar onto a single silicon chip and riding Moore's law.
For decades to come.
But by putting our technology on to that chip, we're actually unlocking immense computational resources into our technology and computational resources are used for signal processing. So we're deriving performance and features from the signal processing that exists on those chips.
We talk about just getting onto the chip but.
If you actually look at our IP portfolio, which spans much more than just semiconductor.
Signal processing design algorithm design chip architectures, which all drive at getting better performance point clouds better data.
Higher data rates and things like that which directly impact kind of the competitiveness of our products in market.
So that's really core to the technology.
But not something that we have exposed them explicitly kind of turned the investors or analysts.
That's super helpful.
Very helpful and then.
The customer commentary around.
Delays and lower production could you talk a little bit about the root source of those supply chain issues that they're experiencing customer demand just general preparations for the potential for a recession or the fundamental product delays, obviously theres going to be a handful of reasons, but if we could just get some quantification around some of those elements that would be really helpful.
Yes, I mean, thanks for the question I think Thats a good point to.
A little bit of time to talk about.
What we've been seeing from our customers is really they are slowing their deployment schedules and just taking steps to conserve their cash by staggering are lengthening their purchasing cycles because of concerns around economic recession in the macro environment and so.
Additionally, we're also hearing that customers are experiencing supply chain bottlenecks and that's impacting their ability to build products to meet their own demand.
And so what <unk> mentioned before is what we're not seeing as we're not seen us losing customers we're not seeing.
Some kind of feedback about the product not being a good fit or something of that nature. We're just simply seeing delays and so we are continuing conversations and to execute with these customers and so while we see these economic headwinds really kind of impacting our near term top line growth, we don't see them impacting our overall competitiveness the strength of our product.
<unk> map or our expectations for long term growth.
That's super helpful. Thanks, so much.
Your next question comes from the line of Richard Shannon from Craig Hallum Capital Group. Your line is open.
Well thanks again.
To ask a couple of questions here I think I'll follow up on the last topic here on the guidance you very.
Very helpful detail, you just provided but maybe if you can.
Looking at it a different way here, which is there any specific end markets or geographies that are you seeing more of the effect that the push out I think I heard you say, you're seeing some strength in Europe and middle East.
Maybe it does that mean more strength in some of the areas. Maybe you can delineate by the end markets that would be helpful too. Please.
Yes, I can take that.
Richard and thanks for the question.
First off the trends that are slowing growth with some customers are pretty global in nature.
The economic environment is global the supply chain crisis is global and so.
I wouldn't say that there is a specific region or set of markets that are getting impacted more or less.
We saw some great traction in Europe , this quarter, but I wouldn't attribute it to a difference.
And one of these these macro trends.
That we're talking about so.
Hopefully that's some helpful color.
Okay Thats helpful.
So a quick question on the <unk>.
One of the things I do look at the numbers you can give us every quarter is kind of look at the incremental contract value here.
If I'm doing my math right.
The deals here seem to be averaging about $3 million at or FCA to the overall.
Binding number here, which is pretty low compared to the last several quarters of course that assumes that there is no reduction in the CA. So maybe if you could ask if I could.
It's kind of a two part question are these deals you are seeing less in the second quarter smaller than most quarters and were there any.
<unk> commitments in any way from <unk>.
C as in the past.
Yes, Thanks, Thats a great question. So again this is our effort to make a high signal metric for us and for external communication and I'm perfectly happy.
Three to $5 million to $10 million total contracted revenue opportunity FDA deals.
I think that's the way to build conservatism in high high high signal into our FTE count and the data that we're sharing.
That's right in line with our expectations and I think we're we don't want to have SBA that are hundreds of millions of dollars of potential opportunity that's not the goal here.
We have hundreds of fca's with credible information that we're providing and have strengthened their aggregate numbers.
Okay, but just to be clear do you have any commitments on the Esa use from the bus.
I think Richard to be Frank with you I know from time to time, we have but usually like I think we had one company that went out of business a couple of quarters back into things of that nature do happen.
And then I think if youre, if youre trying to understand the quality of the SBA is better we did take a historical look at at how that how the SBA the forecast that we get versus the orders that the customers place trend and we have been seeing about 80% traction to the numbers that were given so like Angus said. These are these are.
Perfect numbers, but they are the best indicators. The most conservative indicators that we can give to share with you guys.
Okay I appreciate that detail that's all from me. Thank you.
Your next question comes from the line of <unk> Lee from Citi. Your line is open.
Great. Thanks, good afternoon everybody.
I did join the call late so sorry, if you covered this but just two questions for me first just can you give us a sense of how you expect second half revenue that the cadence to proceed between Q3 in Q4, and then more broadly as you kind of look at the macro slowdown just curious kind of how you are managing cost cash burn liquidity kind of different.
Scenarios that you might be running internally.
Manage various potential outcomes here.
Yes, great question. Thank you.
Yes, we did talk a little bit about the ramp in the back half of the year and we did talk about how our pipeline is actually the strongest that we've ever seen it. So we still feel great about the business and we do still expect to see a good ramp in Q4 like we have in our last two Q4s from our last two fiscal years.
But we also expect to see continuous growth in our business and so.
So I think I think I think that's what we expect.
You also had some questions around <unk>.
Some of the other initiatives that I talked about in my prepared remarks, where we view ourselves as having kind of three key areas to strengthen our financial position right now when we're kind of facing these macroeconomic headwinds and one of them is to put into place strategic fundraising, which we didn't previously announced and one is to really focus on targeting our spend and ensuring that every dollar that we spend.
<unk>.
Is necessary because it's just so important that we're weighing the cost of dilutive capital against the cost to grow the business and so we're taking that to heart and then lastly, just really focusing on ways to accelerate our growth to focus on.
Our commercial efforts on our largest customers in our most established markets.
And as you know on the manufacturing side, we continue to reduce our bill of materials over time and continue to get stronger and stronger margins as we increase our volumes and so I think combining those things we feel like we're on a good path right now and that we have.
The strength in our business plan the flexibility in our business plan and the liquidity in our business plan to really execute on the business growth that we're seeing now and into the future.
Great. That's all very helpful. Thank you.
Yeah.
And this does conclude our question and answer session I would like to turn the conference back over to Angus Mccullough for any closing remarks.
Alright, well, thanks, everyone for joining the call and for all the questions. I also wanted to thank all the all star team for all their hard work.
The first half of the year, we have all built alastair into the largest growing public ladder company and.
And our team and our products and our competitiveness have never been better.
And I'm truly looking forward to our continued success. So I want to thank everyone again and have a great evening.
Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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