Ouster, Inc. (NYSE:OUST) Q3 2023 Earnings Call Transcript November 9, 2023
Ouster, Inc. beats earnings expectations. Reported EPS is $-0.00089, expectations were $-1.16.
Operator: Hello. Welcome to Ouster’s Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today’s presentation and remarks, there will be an opportunity to ask questions. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website one hour after the completion of this call. I’d now like to turn the conference over to Mr. [Chen Geng], Vice President of Strategic Finance and Treasurer. Please go ahead, sir.
Unidentified Company Representative: Thank you and good afternoon, everyone. Thank you for joining us for our 2023 third quarter earnings call. I am joined today by Ouster’s Chief Executive Officer, Angus Pacala and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks, we would like to remind you that earlier today, Ouster issued a press release announcing its third quarter 2023 results. The company also published an investor presentation, which is available on the Investor Relations section of ouster.com. I’d also like to remind everyone that during the course of this conference call, Ouster’s management will discuss certain forward-looking information regarding the company, including commentary regarding the company’s growth strategy and go-forward financial framework, the company’s fourth quarter 2023 financial guidance and other matters described in today’s press release that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements.
There is no guarantee that such plans, estimates, and expectations will be achieved. And Ouster’s actual results are subject to risks and uncertainties that may cause actual results to differ materially from current expectations that we may share with you today. In addition to any risks highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect Ouster’s future results as described in the reports the company files with or furnishes to the SEC, except as required by law, rule, or regulation, the company undertakes no obligation to update any of these forward-looking statements for any reason after the date of this call. Information discussed on this call concerning the company’s industry competitive position, and the markets in which it operates is based on information from independent industry and research organizations, other third-party sources and management estimates, which are derived from publicly available information, released by independent industry analysts and other third-party sources, as well as data from the company’s internal research and are based on reasonable assumptions and computations made upon reviewing such data, and its experience in and knowledge of such industry and markets.
By definition, assumptions are subject to uncertainty and risks, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to today’s press release. I’d now like to turn the call over to Angus.
Angus Pacala: Hello, everyone, and thank you for joining us today. Ouster had a fantastic third quarter as we continue to realize the benefits of our merger with Velodyne. We exceeded guidance, recording over $22 million in revenue and maintained strong quarterly bookings of $38 million. We continue to improve gross margins across the board, in line with our expectations for the second half of the year. We shipped over 3,300 sensors, improved our product mix and recorded GAAP gross margins of 14% and non-GAAP gross margins of 33%. Importantly, we exceeded our cost reduction goal and did so a quarter sooner than expected achieving over $120 million in annualized cost savings and bringing our spending below pre-merger levels as compared to when we’re a stand-alone company.
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On top of all this, we continue to execute on our product roadmaps for the OS and DF series and achieved major milestones that we believe will further advance our Software Solutions business. Finally, we built an operating model for the company in line with our growth strategy that we believe puts us on a clear path to profitability. Turning to our four strategic priorities for the business this year, which are to drive new business through a targeted sales approach to deliver near-term growth, execute on the digital lidar roadmap for OS and DF series to expand our serviceable market, develop a robust software ecosystem to accelerate lidar adoption and build a financially strong business to support our long-term growth. Ouster continued to drive new business, booking over $110 million in business with new and existing customers in the first three quarters of 2023, including $38 million in the third quarter alone.
This includes a multi-million dollar award to supply REV7 sensors for use in a mapping application and demonstrates how REV7’s enhanced range, accuracy, and precision is expanding the addressable market. We also booked large orders for tolling application, warehouse logistics and port automation. Ouster continues to supply a diversified base of hundreds of customers with lidar solutions from startups to establish Fortune 100 companies. We believe our expanded product portfolio, reliable hardware, top-tier customer support and simplified integration tools enable us to consistently drive new business. Turning to execution on our product roadmap. We are on track to tape out the L4 chip, our next-generation custom silicon to power the OS sensor family as well as the Chronos chip our automotive-grade custom silicon to power the solid-state digital flash or DF sensor suite.
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. Furthermore, Ouster’s DF and OS sensors share the same patented VCSEL SPAD digital architecture that provides numerous advantages, including manufacturability, reliability and best-in-class performance. As a result, many of the OS learnings we have gained have already been quickly implemented on the DF sensor to improve performance.
We believe our customers clearly recognize the value and straightforward path to final B-samples with the integration of the Chronos chip next year. Turning to software. We achieved several milestones in the third quarter, which are expected to accelerate product adoption and signal growing demand for lidar-powered smart infrastructure solutions, namely in the security and intelligent traffic system submarkets. This included unifying Blue City under that Ouster Gemini platform paving the way for more features and faster development. Adding new deep learning AI perception models that improve overall accuracy and reliability of Ouster Gemini and enabled advanced object classification and more complex use cases, completing integrations with lean real-time video management systems to provide customers more flexibility and accelerate adoption.
Expanding software adoption to over 375 licensed sites and booking millions of dollars worth of software coupled sales, where cameras, radar or inductive loops have been used in the past. Our lidar hardware and software solutions provide more actionable and reliable data in all manner of low light and environmental conditions to detect and track objects or people in real-time and aggregate analytics in the cloud. One example of this is a significant deal we signed to deploy our digital lidar hardware coupled with Ouster Gemini at approximately 130 logistics sites. This commitment includes the purchase of hundreds of REV7 sensors and subscription licenses to Gemini software for security, which are expected to drive recurring revenue for our business.
For the customer, the addition of deep learning AI models to the Gemini platform, which improved detection accuracy and expanded classifiable objects was a key selling point, given the challenges they faced with alternative solutions that resulted in frequent false positives and poor analytics. We were able to solve this with our solution and are in discussions about additional site deployments in the coming year. Ouster Gemini has already opened up new and cost-effective use cases for lidar, and we’re just getting started. The improvements to the Gemini platform have been met with excitement by current and prospective customers. We see major opportunities to scale software coupled sales with existing customers and a multi-billion dollar market for legacy sensing technologies within security, transportation and retail that is ripe for lidar adoption.
