David Becker
Ouster (NYSE:OUST) has finally released its long-awaited Q4 results, achieving the highest quarterly revenue in its history at $24.4M and closing the year with record revenue of $83.3M, the highest among Western companies. This marks a remarkable 103% growth.
The merger with Velodyne yielded exceptional results, surpassing operating expectations by an additional 40% saved from the goals set out at the beginning of the consolidation process. The company’s operating cash flow hit a quarterly low of $24.2M spent, potentially setting a run rate of $96M or better for 2024. The company has reaffirmed its 30% to 50% revenue growth expectations, with a gross margin projected to be around 35% to 40% for the year.
The expectations for Q1 are $25M to $26M, using the higher range as a running rate of $104M for 2024, but it’s important to note that Q1 is typically the slowest quarter of the year. Ouster bookings reached $142M during 2023, doubling the bookings from 2022, which were $70M. The question is whether the company can repeat the success of doubling bookings in 2024.
Managing a merger, especially when combining two entities of equal size, presents significant challenges for any organization and has undoubtedly tested most investors of Ouster. It was a costly year, with $140M spent. Due to various cleanup exercises, the company maintained only a 10% gross margin for the year while reporting an actual gross margin of 22.5% for Q4. The company incurred a loss of $374M for the year, not as severe as Luminar’s (LAZR) $567M but much worse than Innoviz’s (INVZ) $123M. Among those losses was a $166.7M cashless goodwill impairment due to a drop in market share value. This may explain why Ouster’s share value did not appreciate throughout the year; however, I believe that perception will likely change with the company’s reports in 2024, as a much cleaner income statement is expected to be much more attractive to most investors.
The critical focus regarding Ouster’s capabilities, which applies to the entire peer group, is to identify a future that offers investment without concerns about potential bankruptcy or running out of cash. After Q4, Ouster is the only Western LiDAR company almost free of those conditions.
The forecast for 2024 projects Ouster to reach $115M, with 2025 expected to get at least $183M. So far, Ouster has booked $87M for 2024, so the bookings in Q1 could quickly push the estimate for 2024 while also contributing to the 2025 revenue model.
Once again, in this category, Ouster is setting itself apart from the pack of Western LiDAR companies. Other companies offer limited visibility, if any. While the market seems to continue awarding consumer auto ADAS strategies in the market caps, little value has materialized. Companies like Luminar are struggling financially and will likely dilute investors while facing a huge debt burden in 2026.
In my other article, I highlighted Aeva’s (AEVA) not-lasting value creation with a $1B win of the Torc/Daimler Truck design deal, expected to materialize sometime in 2027. This victory will cost Aeva an expenditure of $123M from a yet-to-be-sold preferred share facility. Then, the company of ex-Apple engineers will need another round of financing to reach 2027. Companies ranging from Luminar to AEye (LIDR) are seeking more money. This trend underscores the need for these companies to secure funding, which means dilution with uncertainty. On the other hand, Ouster distinguishes itself as a conservative in selling its equity, with instead defined goals.
Unlike its peers, Ouster minimized the sale of equity, ensuring flexibility in its financial operations but doing it sparingly. In 2023, Ouster sold $14M worth of stock utilizing ATM, including options and its compensation program; the total reached $15M. Luminar did $80M, MicroVision (MVIS) $72M, Innoviz $61M, and Aeva $21M. Cepton (CPTN), a company that will likely go private, did $54M in equity in 2023. While Ouster may not be done with the ATM, I do not expect hundreds of millions of dollars in equity sales from it but from every other company on the list.
The table below illustrates the Runway model with revenue forecasts and operating cash flows.
Cash Runway LIDAR Companies 2024-2026 (Financial Statements, SA, Author)
Ouster distinctly stands out in this comparison. This unique position opens up possibilities for future development, and I eagerly anticipate further news about the DF. The sensor, often called the endgame by Angus Pacala, the CEO of Ouster, has taken extensive time to develop. The same can be said for the Chronos chip, a SPAD first mentioned in a news release over two years ago. To shed light on this situation, I will quote Angus Pacala from the Q4 conference call:
Now, what Ouster is doing differently is focusing on building a product that we believe can capture that market in the long run, build to the Holy Grail of what the market needs, which is a high-performance, compact, and affordable sensor, a sensor suite actually that can play across many different form factors, vehicle types, models, and levels of autonomy. And that’s represented with the DF sensor. And here, it’s much more important to build the right thing and build it on a timeline that actually sets us up for decades of success versus being first to the market, and waiting in some cases now as we’re seeing for automakers to actually adopt a product that has come before the market is really ready for it.
So, I’m really happy. We actually made major progress on the DF product line in 2023. I was able to personally be present to demo the DF sensors with automakers and Tier 1s. In 2023, we got great feedback on the architecture. Again, small form factor, high-pixel density, great range resolution field of view, and fully solid state to meet the ruggedness of the automotive industry. And now we’re back to executing on building the final devices, and that really hinges on this Chronos chip, where we have a world-class team of silicon designers that are building the final Chronos silicon that’s going to go into the high-volume DF product, and that’s something that is going to happen this year”
One thing is clear to me: Ouster’s ability to deliver OS products, the commanding value of the REV7, the potential of the L4 chip to enable new capabilities in future generations, and the verticals that appear uniquely positioned for Ouster to dominate, all suggest that Ouster is driving this vision more effectively and efficiently than its competitors.
The merger produced good results but also some negative aspects. In March, a settlement motion was filed in a shareholder’s case against Velodyne, resulting in a $4M payout recorded in the income statement in Q4.
In September, Hesai petitioned the Patent Trial and Appeal Board (PTAB) for the validity of five Ouster patents. Recently, two were instituted for review, with three more pending decisions. A review or a trial allows Hesai to argue against the patents and Ouster to defend them. This process is expected to take around a year. While democratic institutions have enabled Hesai to challenge successfully, a more significant challenge lies ahead for the Chinese company, with the Department of Commerce concerning so-called connected cars, featuring lidar and China as a point of interest. The review will likely conclude with a ban on Chinese-made lidar, potentially limiting Hesai’s ability to be on any moving vehicle in the US. Similarly, lidar from Western companies will likely not be allowed in China.
To conclude, I continue to rate Ouster a “strong buy.” Before the release, Ouster closed at $4.98, reaching just over $200M in market cap. The company holds $192M in cash and $43M in debt, with the opportunity to bring in $43M in gross profit in 2024 if it achieves a median revenue growth of 40% and a gross margin of 37.5%. In November, I issued a target of $12 per share or about $490M in market capitalization. I still believe this is a very reasonable target for the shares.
