Q2 2023 Ouster Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Please standby were about to begin.
Good afternoon, and welcome everyone to <unk> second quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to have.
Draw your question simply press Star one again.
The call today is being recorded and a replay of the call will be available on the <unk> Investor Relations website, an hour. After the completion of this call I'd now like to turn the conference over to MS. Sarah Ewing director of Investor Relations. Please.
Please go ahead. Thank you and good afternoon, everyone. Thank you for joining us for 2023 second quarter earnings call.
I'm joined today by outsourced Chief Executive Officer, Angus, Nicola and Chief Financial Officer, Marc One quick before we begin the prepared remarks, we would like to remind you that earlier today <unk> issued a press release announcing its second quarter 2023 before.
The company also published an investor presentation, which is available on the Investor Relations section of Astro Dot com.
I'd like to remind everyone that during the course of this conference call <unk> management will discuss certain forward looking information regarding the company, including forecasts targets statements from its press release potential future customer orders and shipments near and long term revenue opportunity strategic customer agreement market share industry.
Right.
The pace of synergies from the company's merger with Teledyne ability to recognize the benefits of cost savings initiatives future product release dates anticipated benefits and the applications of new product releases manufacturing expectation technological.
In commercial pest potential future market opportunity customer traction and the company's business outlook and the third quarter 2023 financial guidance and trajectory are forward looking statements that are intended to be covered by the safe Harbor provision of the private Securities Litigation Reform Act of 1995 for forward looking statements there's no guarantee.
That's such plans estimates and expectations will be achieved.
Yeah.
These statements represent managements expectations future results and performance <unk> actual results are subject to several risks and uncertainties that may cause actual results to differ materially from current expectations that we may share with you today.
In addition to any risks highlighted during the call you should carefully consider other important risk factors and disclosures that may affect <unk> future results as described in our most recent annual report on Form 10-K, and other reports the company filed with or fresher to SEC.
Except as required by law or regulation. The company undertakes no obligation to update any of these forward looking statements for any reason after the date of this call.
Information discussed on this call concerning the company's industry competitive position in the markets in which it operates as based on the information from independent industry and research organization. Other third party sources and management estimates, which are derived from publicly available information the least by independent industry analysts and other third parties.
As well as data from the company's internal research and are based on reasonable assumptions in computation made upon reviewing such data that experience and knowledge of such industry markets high.
By definition assumptions are subject to uncertainties and risks, which could cause results to differ materially from those expressed in yet.
During this call, we'll discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP.
For a reconciliation of non-GAAP financial measures discussed during the call to the most directly comparable GAAP measures. Please refer to today's press release.
Now like to turn the call over to Angus.
Good afternoon, everyone and thank you for joining us today.
Following our merger with <unk> in the first quarter, we set out to expand our product offering to broaden our serviceable market strengthen our overall financial position and build an operating model for aster.
Enable us to buy at least scale and catalyze growth across the business.
<unk> exited the second quarter 2023 with record revenues of over $19 million record bookings of $43 million increased average selling prices of approximately $6300 per sensor on shipments of over 3000 sensors and a sustainable cash balance of $224 million.
That coupled with a meaningful reduction in expenditures across the business and our cutting edge product roadmap positioning the company for long term success and puts us on an achievable path to profitability.
Last quarter, we shared our four strategic priorities for the business in 2023, as we build <unk> into a global leader in autonomy solutions and digital lidar across our diverse end markets.
Number one drive new business through a targeted sales approach to deliver near term growth.
To execute on the digital Lidar roadmap for OSU DF series to expand our serviceable market three develop a robust software ecosystem to accelerate later adoption and for build a financially strong business to support our long term growth.
<unk> had a record quarter with increased sales of <unk> sensors.
At certain centers now account for the majority of our <unk> sensor revenue with bookings. We also shifted the list 128 centers to emotional and capability, coinciding with new and expanded multiyear customer agreements in the first and second quarters.
Additionally, we expanded the number of customers licensing the ouster germanium Please city software solutions.
Turning to execution on our product roadmap, our ability to improve sensor hardware through custom silicon Cmos chipsets will continue to set us apart and keep our OS scanning sensors on the front end of innovation and performance.
We have demonstrated this through multiple chipset ship outs over the years, including the L. Three chip last fall.
We intend to do it again with the tape out of our next generation custom silicon for.
For chip later this year.
We also completed the integration of our early be sample Salt state digital flash for DF sensors.
At only 40 millimeters, Paul and fully solid state. These final form factor sensors, and detect 10% reflective objects and up to 200 meters range with camera like resolution.
The DF advantages are key for automakers looking to integrate reliable sensors that can be manufactured affordably and at scale and high volume production vehicle programs are.
<unk> samples will be sample to leading automakers in third quarter of 2023, which is a critical milestone in our automotive roadmap and in our commercial engagements of automakers next year, we will upgrade our P samples by integrating our next generation silicon the Chronos chip, which is also expected to tape out later this year.
Turning to software after has made major product and commercial strides since the start of the year as we now offer our flexible Gemini smart infrastructure platform and are highly optimized blue city traffic actuation and control solution to an ever expanding set of customers.
We now have over 200 active deployments of our software solutions running an array of in house developed machine learning algorithms that make real time observations of the environment around these.
These AI enabled sensor solutions allow companies and governments to solve a range of challenges involving logistics security and transportation.
We're cameras have been used in the past.
Hardware and software solutions to provide more actionable and reliable data in all manner of low light environment conditions to detect and track objects or people in real time and aggregate analytics in the cloud.
We are on track to complete the full unification of Blues city with Aster Gemini in the third quarter to pave the way for more features and a unified technology stack for faster development both platforms in the future.
I expect the demand for lighter hardware and software solutions across the smart infrastructure vertical will be a major growth driver for our business over the coming years I spoke at a white house event in June to formally launch the advanced research projects agency for infrastructure or ARPA.
Our new agency within the Department of Transportation to Foster the development and adoption of technologies that can improve the safety sustainability and efficiency of our transportation infrastructure.
U S government's recognition lidar as a critical transportation technology combined with accelerating adoption of sensors that state and municipal level make me confident that we're on the cusp of the wide scale deployment of this technology and <unk> is well positioned to supply that demand.
And finally all of this progress is backed by an increasingly strong operating model with an eye on profitability. This is why alastair decisive steps in the second quarter to further reduce our expenditures across the business.
As a result of those actions as well as additional steps to streamline our operations. We are now targeting over $110 million in cost savings exiting the fourth quarter of 2023 compared to our original goal of over $75 million at the close of the merger as baseline against the Standalone cost structures I've asked during <unk>.
As of the third quarter of 2022.
As part of these efforts <unk> also continued to execute on its outsourced manufacturing strategy for the former <unk> products the.
We completed the transition the PLP 32 sensitive in Thailand. Following the full transition that <unk> 16 in the first quarter of 2023 and remain on track to fully transition. The BLS 128 by the end of the year.
We look forward to providing the market with more information on how these actions fit into our detailed financial plan next quarter.
I will turn the call over to our CFO Mark Weinberg to provide more context on our financial results for the second quarter and outlook for the third quarter.
Thank you Andrea and good afternoon, everyone. The.
Second quarter marked continued commercial traction and strong asps of our Rev. Seven product family as well as significant progress towards completing our merger integration efforts and realigning our stores business model with our expected growth trajectory.
Turning off with our second quarter 2023 results, we recognized a record $19 million in revenue a 13% increase over the first quarter.
Industrial and robotics customers continued to drive the majority of our revenue in the second quarter accounting for approximately 56% of sales closely followed by sales in the smart infrastructure vertical.
In the second quarter, we booked $43 million in business with new and existing customers up from $33 million in the first quarter 2023.
This represents a book to bill ratio of over two in the second quarter.
In the first half of this year, we have already booked a combined $76 million in business up from a total of $70 million in the fiscal year 2022.
Similar to the first quarter, we saw continued commercial traction driven by strong demand and improved average selling prices for our <unk> sensors in.
In total we shipped over 3000 sensors in the second quarter, our ASP increased to 6300 from 5700 per sensor and the first quarter, primarily due to the strength of <unk> seven and a positive mix shift within the DLP product category.
We believe <unk> isn't a strong position as we move through the remainder of 2023, we have the most performance family of sensors on the market one of the broadest customer base in the industry and a strong balance sheet with $224 million in cash cash equivalents and short term investments as of June 30.
As anticipated <unk> slightly improved GAAP gross margins in the second quarter the.
Second quarter gross margins of 1% included certain expenses outside of our ordinary operations, including excess and obsolete costs and losses on firm purchase commitments of $3 8 million associated with the consolidation of product lines.
And manufacturing transition to the Rev. Seven OS sensors.
<unk> non-GAAP gross margins were 26% in the second quarter of 2023, given the transient nature of integration related activities. We will continue to breakout merger integration product transition and other expenses outside of our ordinary operations.
An effort to provide a clear delineation between infrequent or unusual impacts and the fundamentals of the business to help baseline future operating performance.
In an effort to meet customer demand reduce costs and ultimately expand long term gross margins. We made further progress in our effort to transition all validating sensor production lines to our contract manufacturer in Thailand.
We have completed the full transition of the DLP 32 sensor following the full transition of the <unk> 16 in the first quarter and we remain on track to transition the BLS 128 by the end of the year.
As a result of these efforts we expect to see improved gross margins in the second half of 2023 as these activities are completed and the savings begin to be realized.
Turning to our cost reduction efforts, we took additional actions in the second quarter to reduce our cash burn rate and align our cost structure with a path to profitability.
Building off the actions already taken in the first quarter the company reduced annual run rate costs by an additional $40 million in the second quarter of 2023.
We implemented further cost reductions across the organization, which resulted in a onetime cash expense of over $3 million.
With these cuts we are now on track to exceed our previously announced cost savings target of $80 million to $85 million, increasing our estimate to over $110 million in annualized cost savings exiting the fourth quarter of 2023 as baseline against our Standalone cost structure of our <unk> as of the third quarter of 2020.
Two.
During our third quarter earnings call, we expect to present, a long term plan for the business as well as greater detail on our combined company cost structure on a go forward basis.
The actions we have taken have been difficult we believe they put us in a great position to improve our financial results, providing us with strong operating leverage as we grow the business.
We are working to position <unk> for long term success and are taking the necessary steps to grow top line revenues, while also containing costs and improving margins.
Now turning to guidance.
For the third quarter of 2023, <unk> is targeting between 20 million and $22 million of revenues we.
We are pleased that our growth rate over the past couple of quarters, driven by the strong bookings activities and key design wins.
We expect to see continued progression on our gross margins over the next two quarters as we complete the merger integration work outsourced manufacturing of iodine lidar sensors and migrate more of the business to a more performance <unk> sensors as.
As we continue to make progress on these activities, we do expect our GAAP gross margins and non-GAAP gross margins to start to converge in the second half of the year.
Overall, the second quarter performance saw a number of financial improvements over the first quarter, including higher bookings and revenues a strong book to bill higher gross margins lower operating expenses and an improved adjusted EBITDA.
And with that I would like to turn the call back over to Hank.
Thanks Mark.
<unk> is now the largest U S producer of <unk> Lidar, we have a proven ability to manufacture at scale with positive gross margins and have demonstrated strong growth with record revenue and bookings in two consecutive quarters increasingly.
Increasingly we provide AI enabled sensor solutions to companies and governments worldwide to solve a range of challenges involving logistics security and transportation.
By leveraging Moore's law, and our silicon roadmap, we continue to release, new sensor products and capabilities annually and it typically increase the performance of our devices substantially with each release the.
The success of our <unk> sensors is the latest example of the effectiveness of our digital first strategy.
This quarter, we hit another major milestone completing the integration of our first DF sensors are line of affordable low energy quite extremely high resolution lidar sensors tailored for the global automotive industry.
With our continued product and commercial advancements and recent actions to reduce costs across the business. I believe we can achieve the revenue growth margins and cost targets necessary to become a highly profitable supplier lidar sensors in solutions and with that I'd like to open it up for Q&A.
Thank you Mr. <unk> and we will now begin the question and answer session to ask a question you May Press Star then one on your telephone if you are using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press star one again and we ask that when called upon please limit yourself to two questions.
Well first Stephanie to Andres Sheppard at Cantor Fitzgerald.
Hi, good afternoon, everyone. Congratulations on the quarter and thank you for taking our questions.
I want to start by maybe asking about gross margins, maybe particularly on a GAAP basis, it's great to see that you are back in positive territory there.
I think that was the surprise at least to US curious on how you're thinking about it throughout the rest of the year I know there was some commentary in the prepared remarks, but maybe just to expand from there what might we expect from margins throughout the rest of the year. Thank you.
Thank you for the question in gross margins is something that we're very passionate about.
Gross margins for the quarter were 1% and that included a number of nonrecurring unusual or infrequent items, including our excess and obsolete costs and certain losses on purchase commitments that totaled about $3 8 million knees were mainly associated with consolidation of product lines and the manufacturing transition from the <unk> six to <unk> seven sensors.
Our non-GAAP gross margins were up to 26%, which was sequentially up and reflected both higher revenues and the higher asps.
Associated with our <unk> sensors.
We do believe looking forward into the second half of the year with.
With continued commercial traction and higher revenues the cost reduction efforts, we've undertaken and also our move to outsource manufacturing that we should see our margins expand in the second half of the year and with our GAAP gross margin starting to get more aligned with our non-GAAP gross margins.
Got it okay. That's it.
Super.
Super helpful.
And maybe just a quick follow up.
In terms of the $43 million in bookings, which you alluded to and it's a combination of business with new and existing customers just remind us how quickly does that translate into into revenue is that all reported in the quarter or is that maybe spread out throughout the.
The few quarters that are left thank you.
Yes, thanks for the question Andreas.
It's good to highlight the vast majority.
<unk> first of all encompasses.
All business that we closed that binding in the quarter, whether we recognize some of that business in the quarter as revenue or whether we push it off is bought backlog into subsidy subsequent quarters or in the subsequent years I.
I would say that the.
The majority of what we book is for the same year that we book again.
But with a book to Bill of one.
Of over to this quarter you can imagine that there is actually a multi year component to a certain percentage of the bookings that we do make and we highlighted that really.
Well with emotional as a good example of this where we announced a multi year three.
<unk> 2026 supply agreement with emotional and that booking obviously has a near term component, but that is layered in over the next couple of years.
No.
The majority of our bookings are not that long length, I'd say the majority of bookings tend to be within the year or the two years following the booking.
But overall the takeaway there is that it's.
Very strong forward indicator of the business and again, we closed $76 million so far in bookings.
In the first half of this year compared to $70 million in bookings for all of 2022, So we're off to a great start.
Got it that's super helpful. That's it for me. Thank you so much congrats again, we'll pass it on thank you.
Thank you good luck now to Kevin Garrigan at West Park capital.
Yeah, Hey, good afternoon guys.
Echo my congrats and thanks for letting me ask a question.
I think you noted you're in you're in 200 active deployments with Blues city in Gemini can you give us a sense of how much revenue came from from these from the software or is it still kind of too minimal and then does the combination of both come with higher pricing.
Thanks, Kevin for the question. This is a really interesting area of the business. It's one that I believe.
<unk>.
Thank you.
A major growth driver for us.
And the future of the company.
And so just to reiterate the smart infrastructure.
Software that we're selling is focused on the smart infrastructure vertical.
Selling into security logistics, and transportation networks, with our Gemini and Blue City solutions.
It's still the early days, we announced Gemini in the first quarter of this year Blues City was a product that we have now incorporated from <unk> merger and have two quarters of that under our belts, but the early progress with these 200 deployments is incredibly compelling.
In terms of breaking this out we're going to wait until this is a significant enough.
Part of our business that.
We start breaking this out as a separate metric.
Kind of show the momentum that we have in the in the software side of the business.
And absolutely I expect that we'll be driving higher asps or order.
Higher gross margins and our combined kind of software attach sales because keep in mind with every piece of software that we sell or every software license were also selling hardware selling lidar sensors as well. So the software attach sale is it really really positive.
Dynamic that we built into the business.
From every indication we have seen for customer feedback to government response.
Just the raw product performance.
<unk> off to a great start.
Okay, great I appreciate that color.
And then on an ASP is congrats on the strong growth. There can you can you give a sense on how we should kind of think about asps as we kind of head into the second half of the year and should we expect kind of the typical seasonal effects in Q4.
Yeah.
Well, it's hard to.
Hard to anticipate exactly where asps will go but what we've seen so far is a very positive trend and the FERC.
Upward direction and it's for 111 main reason that's the route seven release. So if you recall, we started we had $5600 ASP last quarter that was rebound from the fourth quarter of 2022 for <unk> and it was really driven by the <unk> seven release why why is it come.
Landing higher Asps.
Because we built fundamentally more capability of performance into L. Three chip that went in those devices boosted the performance of the sensor and commanding premium Asps as a result, and having this kind of outsized impact on the entire business. We saw that continue this quarter was 60 308 at one dollar asps versus 56.
Last quarter. So the trend is in the right direction and I would say that now we announced the majority of our sales per rep seven.
The majority of our OS sensor sales are now for Red <unk> sensors.
But that doesn't mean that all of them are so we're still seeing more uptake from the customer basically.
See how that plays out with.
Asps for the second half of the year, but I have a lot of confidence in where we're going.
Okay perfect I appreciate the detail thanks, guys.
Thank you Greg <unk> at Chardan.
Hey, guys, Greg <unk> in for Brian Dobson. Thanks for taking my question just real quick trying to frame how much left is.
On the gross margin upside from transitioning to Thailand. So could you just kind of help us understand how much of an impact would be our last 128 will have just assuming your gross margins on a non-GAAP basis were 27% and in this quarter and how we should be thinking about that maybe.
As a tailwind in the second half.
Yes. Thank you for the question so our non-GAAP gross margins for the quarter were 26%.
We do believe that there is a significant amount of expansion opportunities.
Due to both the cost reductions that we've put in place that we're executing on over the next couple of quarters and also the transition of the manufacturing over to.
To our contract manufacturer in terms of individual product lines are the margins on either we typically do not disclose what those are but I can tell you as you have seen the increase in our Asps and obviously as our Asps continue to be robust, we would expect that that should flow right through to the gross margins and give us additional operating leverage down to the bottom line.
Okay. That's helpful. Thanks.
Thank you the next Matt to Kevin Cassidy at Rosenblatt.
Hi, This is Madison the palette from Rosenblatt Securities calling in for Kevin Cassidy. Thank you for taking my question could you give me a breakdown of the end markets for the bookings.
Hi, Madison and thanks for the question.
We don't give a breakdown and never have given a breakdown for the bookings side of the business by vertical.
But I can't point to the revenue breakdown, where mark W. <unk> mentioned that we had driven.
Majority of our revenue from the robotics and industrial sector, that's become a trend for <unk> we.
We see a lot of strength in that side of the business.
Our products really drive to the cost centers of industrial businesses.
Our warehousing and logistics customers. It's one of the reasons why we've had so much success in things like automated forklifts and automated ground vehicles that are operating in warehouses and manufacturing facilities. So.
Yes, the majority of our business.
Business driven right now in industrial in robotics, but I've also made a lot of comments on this call about my expectations for smart infrastructure and how much traction we're seeing now that we have some.
Mature software offerings in that space to kind of spur the adoption of that technology.
Okay, great. Thank you so much.
Thank you we'll go next now to Richard Shannon at Craig Hallum.
Alright, guys. Thanks for taking my question as well.
Mark can I follow up on the gross margin question clearly understanding you see some upside potential from a number of different vectors.
I guess I'll ask specifically, if you can quantify or give us a kind of a range of where do you think this can go.
Assuming of course, the same mix Youre, obviously automotive may change that but you've got some manufacturing transition and some other cost reductions and.
Certainly mix shift towards <unk> seven.
Happening here. So I'm wondering if you can give us a sense of where it can peak out and this is a number that you can start with a three year, possibly higher just any way you can quantify a range it would be great. Please.
Yeah. Appreciate the question and great hearing from you Richard.
Alastair prior to the merger had been able to.
Being able to attain margins that were north of 30% and obviously our goal is to even strive that even for even higher as we go forward through the year. There are a couple of levers for us to do that one is obviously revenue is a key thing we have to.
We're going to need to grow the great news is that as you heard from Angus in our prepared remarks, the bookings have been very strong the book to bill being over two and just the bookings through the through the whole fiscal year have been give us a lot of confidence that we can actually grow the business. So obviously increasing revenue as one aspect. The other one is just getting higher asps.
And having an ability to actually bring some of those higher asps down too.
The gross margin line and finally, the cost reduction so we previously talked on the call and just in terms of overall cost reduction that the efforts that we've taken both in the first quarter and in the second quarter and in addition to that the transition over to our contract manufacturing but.
One aspect that I think is important.
Angus also mentioned and that we are probably not given enough time to at this point is this.
The software the software enabled products that we actually are going to be providing as part of the smart infrastructure should give us additional leverage as those become a higher part of our revenue.
That's not going to be tomorrow, thats not going to be probably this quarter that we start to see that breakout, but we are making very very good progress. There. So I think that this is something where we hope that we should be able to start seeing some type of quarter on quarter expansion of gross margins throughout this year and hopefully into 2024.
Okay helpful. Mark Thanks for that.
And I guess my follow up question is on the automotive market here really looking at your digital flash products, maybe quantify the.
A number of gauge engagements that you have a timeframe by which you might expect some sort of decision and ultimately.
The SLP that youre targeting there I assume it probably isn't before 'twenty six but just wanted to get your sense of the progress there.
Yes. Thanks for the question I was hoping you're going to ask about DF and because we're doing something really special there and.
I am looking forward to providing a more fulsome update it's been a lot of hard work for a couple of years to bring together.
Accretable technology Thats driving the sensor.
And so this quarter, we finished the integration of the world's first long range truly solid state Flash Lidar sensor based on this digital technology.
Really nothing like it in the world.
Other than this device and we're putting it in an automaker's hands. This quarter, so I am going to be out on the road, leading with a number of automakers, we a team doing worldwide.
Worldwide toward getting this into the hands of OEM customers for the very first time.
What makes it special was a couple of things, but first of all we're building technology that we think can win the majority of this industry long term.
And we're building to meet the market.
Don't need to beat first as long as Youre building the thing Thats kind of be sustainable long term and Thats, an integrated itself state digital technology and so the DF shines because it's low cost it's solid state digital there's a multicenter platform that is required to really.
Get into all the vehicle makes and models that make this a saturated technology.
And its high performance.
We're hitting 200 meter range at 10% with a flashlight or this is something that fits us five years ago said couldn't be done.
And we're doing it in a form factor that's incredibly slim. So this thing is only $40 million tall.
So, yes, we'll be providing a more fulsome update next quarter.
We're tracking our progress we said we'd get this thing out and the automakers hands this quarter and we're doing it so I couldn't be more pleased.
Okay.
Okay, well, great. Thanks for the update and I guess, that's all for me.
Yeah.
Yes.
Thank you and just a reminder, star one police for any further questions today.
And it appears we have no further questions. This afternoon, Mr. Carlo I would like to turn things back to you for closing comments.
Well I want to thank everyone for joining the call today.
I did want to highlight.
In a quarter and a half since we completed the merger with <unk>.
I'm incredibly pleased that we have delivered so far on the thesis of the combination of the two companies we have significantly growing revenues expanding products.
Product portfolio record bookings.
And trajectory on cost margin.
And bookings that really is speaking to the bright future for the company. So thanks again for joining the call.
Thank you ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Yeah.
Please wait the conference will begin shortly.
Yes.
Yes.
[music].
Okay.
Sure.
[music].
Yes.
Yes.
Yes.
Yes.
[music].
Okay.
[music].
Sure.