OUST - Ouster CEO says stock is 'misunderstood' eyes upside post Velodyne merger

2023-04-21 12:00:19 ET

Ouster ( NYSE: OUST ) CEO Angus Pacala took time to chat with Seeking Alpha to discuss the prospects for the company moving forward in the always-active LiDAR industry.

While shares of the company he helms have slumped since going public via a SPAC merger, Pacala remains confident on the upside still ahead. At the very least, the pricing of the stock implying the company’s imminent demise are eminently premature.

“Our shareholder base has experienced immense pain in the last couple of quarters, but I am confident that, ultimately, our quarterly results and quarter over quarter momentum is what is needed to turn our stock around and change market perception,” he told Seeking Alpha in an interview. “I think Ouster stock is incredibly misunderstood.”

Pacala noted that the stock is currently priced as though it will go out of business in short order, a key perception he intends to disabuse the market of. He warned, however, that changing market sentiment is not likely to be achieved with just one quarterly result and will instead need to be proven throughout the remainder of the year.

“My goal is that we’ll change the perception of the stock publicly because ultimately Ouster is here to prove through its financial results that it is a market leader,” he commented. “Ouster has a viable route with the cash on hand, the revenue base, positive gross margin structure in our product portfolio to really drive toward profitability without requiring a fundamental change in the business.”

Making Sense of the Velodyne Merger

A key factor underwriting his confidence in a coming inflection for Ouster ( OUST ) is its recent acquisition of Velodyne. Pacala said that the two companies “fit together like puzzle pieces” as Velodyne provided a boost to the balance sheet and “accelerating commercial growth” for the combined companies. The combined companies held over $315M in combined cash at the close of 2022, according to regulatory filings.

However, analysts have remained skeptical on the synergies, with many noting that Velodyne was a business in decline ahead of the merger.

“Velodyne could add a revenue and gross margin burden in the medium term, in our view,” Baird wrote in a review of the deal earlier this year. “We note Velodyne has lost significant design wins since going public, with revenue this year expected to be just above one-third of 2020 run rates. Velodyne notably has lost automotive design wins, while Amazon has placed its Scout home-delivery project on hold.”

Pacala pushed back on the criticism by highlighting the long-term prospects and downplaying the one-time costs causing near-term noise. Further, he pointed to $75M in cost synergies that the company identified and continues to push for in 2023.

These cost cutting efforts included hundreds of employees being made redundant and multiple facilities being consolidated in order to streamline operations. The company expects to take significant one-time charges to be recognized in Q1, but Pacala expects the company to be healthier in the long run as a result.

“There is unfinished business, just because we have closed the merger does not mean we have fulfilled the final profile of the company that we need to be in order to be healthy going forward,” Pacala concluded. “That work is going to take the better part of the year to realize.”

Macro Concerns and M&A Considerations

In terms of assessing the difficult macro environment confronting many companies in 2023, Pacala expects that much of the headwinds many now see confronting the industry have been baked into the share price already in 2022.

“We already had an adjustment to the new reality of the macro environment,” he told Seeking Alpha. “I don’t think there is a new surprise on the horizon.”

He added that the company is well diversified and is not overly reliant upon just the R&D spend in robotaxis or other moonshots that may see a reduction in spending as OEMs tighten their belts. Industrial applications, logistics, and robotics are markets that may still thrive as companies seek to reduce costs through automation.

“There are very different dynamics going on across different segments of our customer base,” Pacala said. “2022 was a tough year for robotaxis and that has continued this year as companies are tightening their belts, but that is baked into last year’s results and our outlook this year.”

Finally, Pacala eschewed the notion of pursuing any further M&A in the near term, either as an acquirer or a firm to be acquired. He indicated that he is confident that the company’s balance sheet and backlog should sustain it through the close of 2023, by which time he expects to shift market sentiment on Ouster.

Read more on the company’s 1-10 reverse split, which took effect on Friday .

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