Ouster(OUST) - 2022 Q4 - Annual Report

Part I Business Ouster, Inc. provides digital lidar sensors and software for automotive, industrial, robotics, and smart infrastructure, leveraging its patented technology and the Velodyne merger to expand market reach - Ouster is a global provider of lidar sensors and software solutions targeting four main markets: automotive, industrial, robotics, and smart infrastructure[22] - On February 10, 2023, Ouster completed its merger with Velodyne Lidar, Inc., aiming to enhance product offerings, increase operational efficiencies, and strengthen its financial position[29] - The company's core technology is its patented digital lidar architecture, based on custom semiconductor chips, which it believes provides a significant cost and performance advantage[32][33][36] - In 2022, the company shipped sensors to over 690 customers, and post-merger with Velodyne, the combined entity supports over 850 customers in approximately 50 countries[69] - Key manufacturing partners include Benchmark Electronics and Fabrinet, with production primarily located in Thailand to reduce costs and enable scaling[25][79][95] Our Product Portfolio Ouster's portfolio includes OS scanning and DF solid-state digital lidar sensors, legacy Velodyne analog sensors, and software solutions like Ouster Gemini and BlueCity AI - The OS product line features four models (OSDome, OS0, OS1, OS2) with the latest REV7 series, powered by the L3 chip, offering significant performance upgrades like doubled range and enhanced object detection[44][45] - The DF product line is a suite of solid-state digital lidar sensors designed to meet automotive OEM requirements for ADAS, focusing on high resolution, adaptability, and scalability for series production[52][55] - Following the Velodyne merger, Ouster now also offers legacy Velodyne sensors, including the Alpha Prime (VLS-128) for autonomous driving and the Puck family (VLP-32, VLP-16) for robotics, mapping, and other applications[56][57][58] - Software solutions include Ouster Gemini, a perception platform for crowd analytics and security, and BlueCity AI, which provides real-time traffic data analytics[61][65] Our Growth Strategies Ouster's growth strategies focus on advancing digital lidar technology, introducing value-added software, and executing commercial plans, including strategic mergers and global distribution expansion - Pursue strategic transactions, such as the completed merger with Velodyne, to strengthen the company's financial position, technology portfolio, and software offerings[87] - Expand the global distribution network to reach more customers efficiently and grow sales[89] - Commercialize the solid-state DF sensor to meet the automotive industry's requirements for ADAS applications and build relationships with global OEMs and Tier 1 suppliers[91] - Grow sales volumes from existing accounts by supporting customers as they move from evaluation to series production, which can materially increase order volumes[93] Risk Factors The company faces significant risks from its limited operating history, net losses, Velodyne merger integration, intense competition, supply chain reliance, regulatory changes, and identified material weaknesses in internal controls - The company has a limited operating history and has incurred significant net losses, reporting a net loss of $138.6 million in 2022 and an accumulated deficit of $441.9 million as of year-end[119][123] - Successful integration of the Velodyne merger is critical, and failure to realize anticipated synergies or manage the expanded operations could adversely affect the business[121][122] - The company relies on third-party manufacturers (Benchmark, Fabrinet) and limited or single-source suppliers for key components, making it vulnerable to supply chain interruptions[179][181] - Material weaknesses in internal control over financial reporting have been identified, which could result in material misstatements of financial statements or failure to meet reporting obligations[238][239] - The company faces risks related to its $40.0 million in outstanding debt as of December 31, 2022, and may require additional capital to execute its business plan[153][156] - The company is subject to an SEC investigation initiated in June 2021 regarding projected financial information in a prior S-4 registration statement[204][278] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[276] Properties Ouster's corporate headquarters are in San Francisco, with additional leased office and manufacturing spaces in California and internationally following the Velodyne merger - The company's corporate headquarters are located in San Francisco, California, consisting of two leased properties totaling 46,157 square feet, with leases expiring in August 2027[277] - As a result of the Velodyne Merger, Ouster assumed additional leases, including approximately 205,000 square feet of space in San Jose, California, and other offices in Alameda, CA, Germany, China, and India[277] Legal Proceedings Ouster faces an ongoing SEC investigation and inherited multiple stockholder lawsuits post-Velodyne merger, alongside disputes with Quanergy Systems and shareholder derivative actions - The company received a letter from the SEC on June 10, 2021, notifying it of an investigation and document subpoena regarding projected financial information in a Form S-4 registration statement[278] - Following the Velodyne merger, the company is now party to several lawsuits filed against Velodyne by its purported stockholders, alleging that disclosures related to the merger were materially incomplete and misleading[281][555] - The company inherited a settlement with Quanergy Systems, which subsequently filed for Chapter 11 bankruptcy, leaving $2.25 million of the settlement unpaid[282] - A putative shareholder derivative lawsuit and a class action lawsuit, both filed in 2021 against former Velodyne directors and officers, are ongoing[287][288] Mine Safety Disclosures This item is not applicable to the company - Not applicable[290] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ouster's common stock and warrants trade on NYSE, with 418 registered holders as of March 2023, and the company does not anticipate paying cash dividends - The company's common stock and warrants trade on the NYSE under the symbols "OUST" and "OUST-WS", and on NYSE American under "OUST WTA"[293] - As of March 23, 2023, there were 418 registered holders of record of the company's common stock[294] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business growth[296] Management's Discussion and Analysis of Financial Condition and Results of Operations Ouster's 2022 revenue grew 22% to $41.0 million, but operating expenses and R&D significantly increased, leading to a $138.6 million net loss, with liquidity supported by debt and ATM proceeds Results of Operations In 2022, revenue increased 22% to $41.0 million driven by volume, but operating expenses rose 44% and R&D 86%, widening the net loss to $138.6 million Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $41,029 | $33,578 | 22% | | Gross Profit | $10,930 | $9,086 | 20% | | Gross Margin | 27% | 27% | 0% | | Operating Expenses | $156,353 | $108,796 | 44% | | R&D Expenses | $64,317 | $34,579 | 86% | | Loss from Operations | ($145,423) | ($99,710) | 46% | | Net Loss | ($138,560) | ($93,981) | 47% | Revenue by Geographic Location (2022 vs. 2021) | Region | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Americas | $15,977 | $15,656 | 2% | | Asia and Pacific | $9,510 | $7,334 | 30% | | Europe, Middle East and Africa | $15,542 | $10,588 | 47% | | Total | $41,029 | $33,578 | 22% | Liquidity and Capital Resources As of December 31, 2022, Ouster had $122.9 million in cash and $441.9 million accumulated deficit, with liquidity from debt and ATM proceeds, and anticipates needing additional capital - As of December 31, 2022, the company had $122.9 million in cash and cash equivalents and an accumulated deficit of $441.9 million[354] - In 2022, the company sold 7.8 million shares of common stock under its ATM Agreement for net proceeds of $15.8 million[352] - The company has drawn $40.0 million under its Term Loan Facility with Hercules Capital as of December 31, 2022[356] Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($110,690) | ($71,061) | | Net cash used in investing activities | ($5,147) | ($15,229) | | Net cash provided by financing activities | $55,602 | $258,304 | Quantitative and Qualitative Disclosures About Market Risk Ouster faces market risks from inflation, interest rate fluctuations on its floating-rate debt, and foreign currency exchange, but does not currently employ hedging strategies - The company is exposed to interest rate risk on its debt arrangements, which bear floating interest rates; a hypothetical 100 basis point increase in interest rates would have increased interest expense by $0.4 million for the year ended December 31, 2022[379] - Foreign currency exchange risk arises from operations in Asia and Europe, as expenses are denominated in local currencies while revenues are primarily in U.S. dollars; the company does not currently engage in hedging strategies[381] - Inflation is identified as a risk that could increase operating costs and potentially decrease customer capital available for purchasing the company's products[377] Financial Statements and Supplementary Data This section presents Ouster's audited consolidated financial statements and PricewaterhouseCoopers LLP's unqualified opinion, highlighting interim goodwill impairment assessments as a Critical Audit Matter Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on Ouster's financial statements, identifying interim goodwill impairment assessments as a Critical Audit Matter due to significant management judgment - The auditor's opinion states that the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the three years then ended[387] - A Critical Audit Matter was identified concerning the interim goodwill impairment assessments; this was due to significant management judgment in developing fair value estimates, which involved assumptions about implied control premiums and comparable company market transactions[392][393] Consolidated Financial Statements Ouster's consolidated financial statements show $256.1 million in total assets, $84.5 million in liabilities, $41.0 million revenue, and a $138.6 million net loss for 2022 Consolidated Balance Sheet Data (as of Dec 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $122,932 | $182,644 | | Total current assets | $162,498 | $207,358 | | Goodwill | $51,152 | $51,076 | | Total assets | $256,137 | $307,702 | | Total current liabilities | $29,492 | $22,103 | | Debt | $39,574 | $0 | | Total liabilities | $84,518 | $47,002 | | Total stockholders' equity | $171,619 | $260,700 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total revenue | $41,029 | $33,578 | | Gross profit | $10,930 | $9,086 | | Total operating expenses | $156,353 | $108,796 | | Loss from operations | ($145,423) | ($99,710) | | Net loss | ($138,560) | ($93,981) | | Net loss per share | ($0.78) | ($0.70) | Notes to Consolidated Financial Statements Notes detail accounting policies, the $72.5 million Sense Photonics acquisition, $40 million debt, $16.6 million lease obligations, $28.6 million purchase commitments, $33.3 million stock-based compensation, and the Velodyne merger as a subsequent event - The acquisition of Sense Photonics in October 2021 was accounted for as a business combination with total consideration of $72.5 million, resulting in $51.2 million of goodwill and $23.4 million of intangible assets[476][478][479] - As of Dec 31, 2022, the company had $39.6 million in total debt outstanding under its Loan Agreement with Hercules Capital[528] - The company has non-cancelable purchase commitments of approximately $22.3 million with a contract manufacturer and $6.3 million with other vendors as of year-end 2022[553] - Total stock-based compensation expense was $33.3 million in 2022, primarily from RSUs ($24.2 million) and stock options ($8.9 million)[595] - As a subsequent event, the company completed its merger with Velodyne on February 10, 2023, and initiated restructuring expected to impact 180-200 employees and result in $27-$30 million in charges[618] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022[623] - The ineffectiveness was due to material weaknesses, including: not maintaining a sufficient complement of personnel with appropriate accounting knowledge, ineffective controls over the financial reporting process, and ineffective IT general controls[627] - Remediation measures are underway, including recruiting additional personnel, enhancing board oversight, strengthening IT governance, and implementing additional controls for financial reporting[629][634] Other Information The company reports that there is no other information to disclose for this item - None[632] Part III Directors, Executive Officers and Corporate Governance This section lists executive officers and directors, confirms the adoption of a Code of Business Conduct and Ethics, and incorporates further details by reference from the 2023 proxy statement - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees[636] - A table lists the company's executive officers and directors, including Angus Pacala (CEO), Mark Frichtl (CTO), Mark Weinswig (CFO), and Theodore L. Tewksbury (Executive Chairman)[638] Executive Compensation Information on executive compensation is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding executive compensation is incorporated by reference from the 2023 Annual Meeting proxy statement[639] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under equity compensation plans as of December 31, 2022, and incorporates other security ownership information by reference from the 2023 proxy statement Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 37,527,355 | $1.01 | 15,051,217 | | - Restricted Stock Units | 16,510,193 | N/A | N/A | | - Options to Purchase Common Stock | 21,017,162 | $1.01 | N/A | | - Employee Stock Purchase Plan | — | N/A | 6,627,990 | Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Annual Meeting proxy statement[643] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2023 Annual Meeting proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the 2023 Annual Meeting proxy statement[644] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, including corporate governance documents, material contracts, and certifications - This item lists all exhibits filed with the 10-K, including corporate governance documents, material contracts, and certifications[647] Form 10-K Summary The company reports that there is no Form 10-K summary provided - None[653]