AEVA - Lidar Quarterly Insights: Q3 2023 Update

2023-11-10 10:58:34 ET

Summary

• Ouster and Innoviz had positive financial performance in Q3, with Ouster achieving expected milestones and Innoviz maintaining its revenue forecast.
• Cepton and Luminar revised their forecasts downward, while MicroVision set a lower target for the year.
• Cash runway analysis shows that AEye and MicroVision will run out of cash in 2024, while Innoviz may exhaust its cash by 2025.

Background

In this article, I have consolidated the recent financial disclosures from lidar companies, reflecting on their Q3 results and giving readers an insight into their cash runway and overall progress within the sector. I have built on the groundwork in my previous article and revised the table format to offer a richer view that helps readers better understand what to expect in 2024. The aim is to inject more clarity into the data.

In response to feedback regarding potential bias towards Ouster, Inc. ( OUST ) in my modeling, I want to clarify that my investment decisions are rooted in an objective comparison facilitated by the tables presented here. Acknowledging concerns that my work may lack prominent design wins or brand recognition, as narrated by companies in their conference calls, I contend that the viability of any company is fundamentally tethered to its revenue, gross margins, and profitability.

While recognizing that the present state may not perfectly predict the future, focusing on revenue, gross margins, and profit metrics offers tangible and predictive benchmarks. This article explores these dimensions, evaluating companies based on their financial health rather than relying on promises and methodology to translate promises into actual economic outcomes. To mitigate risk, in my opinion, investors should prioritize these metrics to identify risks or opportunities.

Quarterly Overview

In the last quarter, two companies made a positive impact - Ouster and Innoviz Technologies Ltd. ( INVZ ). Ouster achieved expected milestones, such as a decrease in cash used for operations, a non-GAAP gross margin increase to 33%, and conservative guidance projecting 30% to 50% annual growth over the next 18 months. Innoviz also demonstrated commendable financial performance by maintaining its revenue forecast of $20M for 2023. The company anticipated approximately $21M in customer collection income for Q4, which aligns with this year's $30M yearly guidance for this item, with $8.5M collected to date.

If the $27M of cash used in operating activities repeats in Q4, along with income collection, it will result in a modest cash depletion of only $6M, leaving Innoviz with $157M at the beginning of 2024. However, the company may exhaust its cash by 2025, leading to another equity offering, unless Non-Recurring Engineering contributions or NREs are successfully collected in 2024.

On the other hand, Cepton, Inc. ( CPTN ) and Luminar Technologies, Inc. ( LAZR ) revised their forecasts downward, with Cepton adjusting to $11M from $17M and Luminar to $75M from $86M. MicroVision, Inc. ( MVIS ) set a target of $8M for the year, down from the initial $15M, requiring $6M in revenue for Q4. Luminar, in particular, has a lofty target of no less than $27M to deliver in Q4, which would be the highest quarterly revenue of any Western company.

There were no significant changes in Q3, with the same information flow of RFIs moving to RFQs as in Q2. No new decisions were made. Innoviz expects to win two deals this year. AEye, Inc. ( LIDR ) is bidding with Continental on one OEM, and Cepton suggests winning one. Aeva Technologies, Inc. ( AEVA ) announced a multiple-sensor opportunity for May Mobility to replace Prime Alpha, a legacy Velodyne long-range sensor currently sold by Ouster. The collaboration between Gatik and Luminar, announced sometime last year, will see the Iris sensor replace the same Prime Alpha sensor on Gatik's trucks. Ouster is on May Mobility cars with 4 OS1s and Hesai Group ( HSAI ) on Gatik.

Financing Update

Aeva has announced a private placement worth $20M, which involved the sale of around 39 million shares to existing shareholders. The company has also revealed plans to offer $125M in preferred equity to one of these shareholders on the condition that they confirm a design win with one of the top 10 OEMs the company has been working with over the past two quarters. Aeva expects to win the bid in Q4 and will require the funds to develop the sensor into SOP.

In the meantime, other companies have also been pursuing equity-related financing. For example, MicroVision and Ouster have been using an At-The-Market ((ATM)), while Innoviz has opted for a public offering, as noted in my pre-quarter article. I have incorporated the new $20M into Aeva's cash runway analysis.

The 2024 Revenue Estimates

It's worth noting that Luminar, Cepton, and MicroVision have all lowered their guidance for the year. In contrast, Ouster has provided a percentile range for growth in 2024 based on a revenue foundation of $84M in 2023. This foundation comprises actual earnings of $58.9M and an expected contribution of at least $25M in Q4.

Based on the range provided by Ouster, I estimate that their revenue in 2024 will be between $109M (with 30% growth) and $126M (with 50% growth), assuming a gross margin between 35% and 40%. Assuming a mid-range growth rate of 40%, the projected revenue would be around $118M, with a gross margin of 37%. However, it's important to note that this estimate doesn't include the potential revenues from consumer auto ADAS, as DF sensor technology is still in the evaluation stage with OEMs.

Comparatively, I believe the forecasts for all other participants are too optimistic, given the recent reductions. I'll maintain those forecasts until more analyst updates become available or the year's financial conclusion arrives. The financial conclusion will be around March 2024, when companies offer yearly projections.

Cash Runway

From this data table, my analysis yields the following findings: companies running out of cash in 2024 are AEye and MicroVision. By the end of 2025, Innoviz is out of cash unless NREs are collected.

Aeva will have to reach for that $125M preferred financing, likely doubling the share count from Q3 2023 when converted sometime before 2025. Luminar's margin, shown at 20% currently, if at zero, will make the company out of cash in 2025. Reduction of the guidance to $150M at a 15% gross margin leaves Luminar with $11M by the end of 2025, which is not sustainable and requires more financing. A similar reduction exercise shows that when Cepton drops to $40M with a gross margin of 14%, it will end with $20M by 2024. For Luminar, 2026 is the year the $600M debt becomes convertible

Ouster repaid a $40M loan in October using the UBS line of credit. This repayment will lead to a reduction in interest expense in the future. The loan had various amounts in variable and fixed interest rates with different repayment terms. As a result of this action, Ouster is now required to show $52M as restricted cash for the collateral accounts. This change is expected to take place in the Q4 financials.

Valuation

The final addition to the article is the new valuation dashboard with statistics that compare each company. Once again, Ouster seems to provide the most attractive valuation based on those statistics, as being significantly undervalued among the group. Ouster remains my pick for lidar investment in the aftermath of excellent results of the third quarter.

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