OUST - Ouster: Drop In The Bucket Move

2023-08-13 04:37:02 ET

Summary

• Ouster reports strong bookings numbers for Q2'23, signaling that the company is in growth mode.
• The Lidar company is implementing cost controls and expects $110 million in savings.
• OUST stock hardly trades above 1x the binding bookings run rate, highlighting the cheap valuation.

After a brutal year that included a reverse stock split, Ouster ( OUST ) finally appears ready to ride the Lidar wave higher. The company is now reporting strong bookings numbers to hopefully provide the market with confidence the business is in full growth mode. My investment thesis remains ultra Bullish on the stock trading at a major disconnect to the current bookings levels and opportunity ahead.

Growth Mode

The key story coming out of the Q2'23 earnings report for Ouster is that the company is officially in growth mode. The combination with Velodyne Lidar and cost cutting efforts had made the quarterly results difficult to compare.

For the June quarter, Ouster reported revenues of $19.4 million. The prior year, and even quarter, numbers aren't comparable due the merger making the only real useful number the guidance for Q3 revenue of $20 to $22 million.

Ouster isn't reporting massive sequential growth, but the Lidar company does provide a metric that should derive investor interest. Since the sector went public via SPAC, Lidar companies have struggled with providing investors with useful metrics on backlogs and future orders.

Luminar Technologies ( LAZR ) and Innoviz Technologies ( INVZ ) both provide multi-billion dollar future contract order books, but the amounts include orders for vehicles not starting production for years. Originally, Ouster and Velodyne Lidar provided such metrics suggesting a combined future contract order book topping $1 billion, but the companies pulled the metric and have started providing a quarterly bookings metric.

The bookings metric provided by Ouster is a more traditional metric of actual binding orders received in the quarter providing a more traditional book-to-bill ratio as follows:

• Q2'23: $43 million - 2.22
• Q1'23: $33 million - 1.94

The stock has jumped on this news with Ouster finally providing a consistent bookings metric with the ability to compare to prior periods. In addition, the company gave some promising details on new Lidar sensors and especially promising information surrounding software deployments.

The new digital flash sensor is only 40 millimeters and can detect 10% reflective objects at up to 200 meters away. These digital sensors can be manufactured at scale and affordably for high-volume production vehicle programs with B samples at leading automakers this quarter.

Ouster now has over 200 deployments of their software solutions. The Gemini smart infrastructure platform and BlueCity traffic control solution will be further integrated this quarter to provide a unified software solution.

Cost Controls

The Velodyne Lidar merger hasn't worked out on a revenue picture with a bright growth story only finally emerging with Q2. At times, Velodyne Lidar alone was delivering up to $20-something million in quarter sales, but the really impressive story now is cost controls.

Ouster is now forecasting $110 million in annualized cost savings from the merger. The original fears with the recent additional cost cuts was a scaling back of the revenue opportunity, but the company actually grew the bookings total in the last quarter to an impressive $43 million.

The company ended the merger with a goal for $75 million in cost cuts and increased the amount to $85 million after Q1. The new cost targets would reduce expenses by at least $5 million more per quarter for a company with only a $24 million adjusted EBITDA loss in Q2.

At the same time, Ouster has transitioned the Velodyne Lidar sensor production to Thailand generating 26% gross margins in Q2. The goal is to top 30% gross margins this year with even higher margins in the future. The combination of higher revenues and gross margins above 30% will help Ouster to start generating industry leading gross profits to offset spending levels.

The company ended the quarter with a cash balance of $224 million. Unlike other Lidar companies, Ouster doesn't appear to need to raise additional cash.

Considering the company completed a 10-for-1 reverse split, the stock is exceptionally cheap here. Ouster only has a listed market cap of $250 million for a company on the pace for $150 million in binding bookings this year.

If not for the split, the stock would still trade around $0.65 in a sign of how the market hasn't caught up with the opportunity. Ouster already has a Lidar sensor company with revenues topping $20 million quarterly and booking now topping $40 million.

Takeaway

The key investor takeaway is that Ouster appears to have finally turned the corner. The stock will take time to recover from the black eyes of a bad SPAC deal leading to a reverse stock split, but the company is starting to report some really strong growth metrics.

The stock has jumped on initial trading after the earnings report, but Ouster trading at the equivalent of $0.65 pre-split is still a drop in the bucket of the opportunity in the Lidar space.

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