OUST - Ouster: Hidden Lidar Boom

2023-11-28 16:22:02 ET

Summary

• Ouster, Inc. reports consistent bookings far exceeding quarterly revenues, with $114 million in bookings YTD.
• The company sees strong bookings tailwinds in the automotive and mapping segment, with binding commitments tripling purchases and an overall book-to-bill ratio of 2x.
• Ouster stock currently trades at nearly cash value and hardly above 1x '23 bookings.

The Lidar sector continues to report spectacular growth, but stocks like Ouster, Inc. ( OUST ) trade close to the lows. The non-automotive Lidar leader even reports spectacular bookings totals, yet the market is mostly ignoring the orders in hand. My investment thesis is ultra Bullish on the former SPAC stock still trading below $1 pre-split.

Big Bookings

Ouster has now reported a consistent pattern of bookings far in excess of quarterly revenues. The Lidar company reported the following quarterly numbers for Q3 2023 a few weeks ago:

The key Q3 metric was that Ouster reported a bookings total of $38 million versus only $22 million in revenues. The company has now reported $114 million in bookings YTD:

• Q3'23 - $38 million
• Q2'23 - $43 million
• Q1'23 - $33 million
• 2022 - $70 million.

Ouster combined with Velodyne Lidar back towards the end of 2022 leading to the bookings numbers from 2022 not completely comparable to the quarterly 2023 numbers. Also importantly, the bookings numbers are for the next year with binding orders versus other Lidar companies using contracted future order values that aren't necessarily binding.

In total, Ouster has booked $114 million YTD versus revenues of only $59 million for a book-to-bill ratio of nearly 2x. The Lidar company has seen strong bookings tailwinds in the automotive and mapping segment with binding commitments tripling purchases versus 2023 levels.

While all of these bookings are positive, Ouster provided multiple examples of where bookings levels could soar in 2024 and beyond. On the Q3 '23 earnings call , CEO Angus Pacala provided great indications the company has a future in the automotive sector where orders can reach the billions:

We completed DF product demonstrations of our early B-samples with over a dozen automotive OEMs and Tier 1 partners across North America, Europe, Japan and Korea during the third quarter. Feedback was resoundingly positive on the richness of the point cloud, system stability and architecture simplicity. At only 40 millimeters tall, the final form-factor DF sensors can detect 10% reflective objects at up to 200 meters range with camera-like resolution and with absolutely no moving parts.

Also, the CEO provided a great example how a small segment like forklifts could provide a $50 million annual business based on only 1% market share (emphasis added):

For example, we are engaged with leading OEMs in the forklift industry, which manufactures over 2 million units annually. We estimate a 1% penetration rate in this single sub vertical representing over $50 million of annual lidar hardware revenue opportunity with substantial upside from retrofitting the installed base. Similar size opportunities exist with other large end markets like autonomous mobile robots, earthmovers and agriculture.

The Lidar company guided to Q4 '23 revenues in the $23 to $25 million range, leaving the business competing with Luminar Technologies ( LAZR ) for the leading revenue base in the domestic sector. Luminar guided to Q4 revenues topping $27 million.

Cost Picture

Ouster has now reportedly achieved annual cost savings of $120 million since closing the merger. In addition, the company leads the domestic Lidar sector with 33% gross margins, providing a quarterly gross profit of $7 million.

A doubling of revenues, as suggested by the bookings level, will provide a substantial boost to gross profits to offset the current operating expense base. Quarterly revenues of $38 million in 2024 with gross margins of 35% would provide $13 million in gross profits next year.

Ouster reported an $18 million adjusted EBITDA loss in Q3'23 and the company spent $25 million on operating expenses during the quarter. The company appears to forecast a run rate in the $100 million range.

The Lidar Company forecasts a 30% to 50% annual revenue growth rate, which doesn't help the stock. These revenue growth targets are solid over the long term, but the bookings ratio supports far higher growth over the next few years and a large automotive deal would lead to massive growth beyond just 30%.

Despite all this good news, Ouster trades at a market cap of only $210 million with a cash balance of $202 million. The cash balance doesn't have huge value due to the ongoing quarterly losses, but the company has made progress to reduce any need to raise additional capital at weak stock prices.

The biggest risk is that the Lidar business fails to grow as expected over the next few years despite large reported bookings. The company has cut the cash burn to levels where Ouster has multiple years of runway, but a requirement to raise capital at the current weak stock prices would devastate the stock and cap any upside.

Takeaway

The key investor takeaway is that Ouster is far too cheap here. The market is completely ignoring the binding order book and the path to cash flow breakeven setting up the Lidar company for a strong future while the stock has a minimal market valuation.

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