Ouster(OUST) - 2022 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements Financials show revenue growth but a widening net loss, decreased assets, and increased inventory, with new financing secured Condensed Consolidated Balance Sheets Balance Sheet Summary (as of June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | 159,707 | 182,644 | ▼ | | Inventory | 17,181 | 7,448 | ▲ | | Total current assets | 194,786 | 207,358 | ▼ | | Total assets | 290,550 | 307,702 | ▼ | | Liabilities & Equity | | | | | Total current liabilities | 23,412 | 22,103 | ▲ | | Debt | 19,119 | — | ▲ | | Total liabilities | 59,579 | 47,002 | ▲ | | Total stockholders' equity | 230,971 | 260,700 | ▼ | - Inventory levels significantly increased to $17.2 million as of June 30, 2022, up from $7.4 million at the end of 2021[17] - The company took on new debt, with a balance of $19.1 million as of June 30, 2022, compared to zero at the end of 2021[17] Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $10,329 | $7,360 | $18,887 | $13,971 | | Gross profit | $2,782 | $1,895 | $5,373 | $3,638 | | Gross Margin | 26.9% | 25.7% | 28.4% | 26.0% | | Loss from operations | $(33,189) | $(21,390) | $(67,377) | $(37,692) | | Net loss | $(28,000) | $(32,011) | $(60,397) | $(52,968) | | Net loss per share | $(0.16) | $(0.21) | $(0.35) | $(0.50) | - Revenue for Q2 2022 grew 40% year-over-year to $10.3 million, while revenue for the first six months of 2022 grew 35% to $18.9 million[18] - Operating expenses increased significantly, with R&D expenses more than doubling for both the three and six-month periods year-over-year, contributing to a larger loss from operations[18] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (55,393) | (28,346) | | Net cash used in investing activities | (1,002) | (659) | | Net cash provided by financing activities | 33,599 | 257,791 | | Net (decrease) increase in cash | (22,884) | 228,786 | - Cash used in operating activities nearly doubled to $55.4 million in the first six months of 2022 compared to the same period in 2021[27] - Financing activities in H1 2022 provided $33.6 million, primarily from $19.1 million in debt proceeds and $14.6 million from an at-the-market (ATM) stock offering[27] Notes to Condensed Consolidated Financial Statements - The company has experienced recurring losses and negative cash flows, with an accumulated deficit of $363.8 million as of June 30, 2022[35] - On April 29, 2022, the company entered into a loan agreement for up to $50.0 million and an At Market Issuance Sales Agreement to sell up to $150 million in common stock[42][43] - The company is involved in an SEC investigation regarding projected financial information and is in a patent lawsuit with Velodyne Lidar USA, Inc[102][103] Revenue by Geography (Six Months Ended June 30) | Region | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | United States | 5,840 | 4,426 | | North and South America (ex-US) | 663 | 528 | | Asia and Pacific | 4,932 | 2,947 | | Europe, Middle East and Africa | 7,452 | 6,070 | | Total | 18,887 | 13,971 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 40% in Q2 from higher sales volume, but rising R&D costs and supply chain pressures impacted margins and profitability - Key factors affecting performance include supply chain continuity, the pace of commercialization of lidar applications, competition creating downward pressure on ASPs, and continued investment in R&D[149][150][154][155] Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $10.3M | $7.4M | +40% | | Gross Profit | $2.8M | $1.9M | +47% | | Gross Margin | 27% | 26% | +1 ppt | | R&D Expense | $15.9M | $6.5M | +145% | | Total Operating Expense | $36.0M | $23.3M | +54% | - The company's liquidity position as of June 30, 2022, included $159.7 million in cash and cash equivalents, a new loan facility of up to $50.0 million, and a $150.0 million ATM equity offering program[204][205][206] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate fluctuations affecting debt and cash, with minimal foreign currency exposure - The company is exposed to interest rate risk on its $159.7 million of cash and cash equivalents and its $19.1 million of variable-rate debt[221][222] - A hypothetical 1% change in the effective interest rate on the company's debt would result in an approximate $0.2 million change in interest expense over the next 12 months[222] - Foreign currency exchange risk is not considered material as revenue is almost entirely in U.S. dollars[223] Item 4. Controls and Procedures Disclosure controls were deemed ineffective due to material weaknesses in financial reporting and IT, with a remediation plan in progress - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of June 30, 2022[225] - Material weaknesses were identified in the control environment, specifically a lack of sufficient personnel with appropriate accounting and internal controls experience[227] - Contributing material weaknesses included ineffective controls over the period-end financial reporting process and certain IT general controls[227] - A remediation plan is in progress, focusing on recruiting personnel, enhancing entity-level controls, strengthening IT governance, and designing additional financial controls[228] Part II - Other Information Item 1. Legal Proceedings The company faces an SEC investigation regarding financial projections and is engaged in patent litigation with Velodyne Lidar - The company received a letter and document subpoena from the SEC on June 10, 2021, regarding an investigation into projected financial information in its Form S-4 registration statement[231] - On June 14, 2022, Velodyne Lidar USA, Inc. filed a lawsuit against Ouster related to two patents and requested an International Trade Commission proceeding[232] - Ouster filed a complaint against Velodyne on July 8, 2022, alleging intellectual property misappropriation and false advertising[232] Item 1A. Risk Factors Key risks include adverse economic conditions, costs from ongoing legal proceedings, and challenges in protecting intellectual property - Adverse economic conditions, including rising inflation and interest rates, could negatively impact the business by increasing operating costs and decreasing customer capital for purchases[234][235] - Ongoing legal proceedings, such as the Velodyne patent lawsuit and the SEC investigation, could result in substantial costs and divert management resources[236][237][238] - The company faces risks in protecting its intellectual property rights and may be subject to costly litigation if accused of infringing on third-party IP[240][244][245] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold or repurchased during the quarter - The company did not sell any securities during the three months ended June 30, 2022, that were not registered under the Securities Act[249] - The company did not purchase any of its equity securities during the three months ended June 30, 2022[250] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - There were no defaults upon senior securities[251] Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - This item is not applicable to the company[252] Item 5. Other Information No other material information is reported for the period - There is no other information to report for this item[253] Item 6. Exhibits. This section lists all exhibits filed with the report, including required officer certifications - The exhibits include CEO and CFO certifications pursuant to Rules 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350 (Sarbanes-Oxley Act of 2002)[256]