Yahoo Finance Ouster, Inc. (NYSE:OUST) Q1 2024 Earnings Call Transcript
Ouster, Inc. (NYSE:OUST) Q1 2024 Earnings Call Transcript May 9, 2024
Ouster, Inc. beats earnings expectations. Reported EPS is $-0.55, expectations were $-0.72. OUST isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to Ouster's First Quarter 2024 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website in hour after the completion of this call. I'd now like to turn the conference over to Chen Geng, VP of Strategic Finance and Treasurer. Please go ahead.
Chen Geng: Good afternoon, everyone. Thank you for joining us for our first quarter 2024 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 first quarter 2024 results. An investor presentation was published and is available on the Investor Relations section of Ouster's website. Today's earnings call and press release reflect management's views as of today only and will include statements related to our business and financial outlook that are forward-looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business.
For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's SEC filings and today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and, other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events. Information discussed on this call concerning Ouster'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 Ouster'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 would now like to turn the call over to Angus.
Angus Pacala: Hello, everyone, and thank you for joining us today. I'll start with a brief recap of the quarter, overview of the market, and update on our strategic priorities. Mark will cover our results in more detail before I close with some final thoughts. In the first quarter, we continued to build upon the positive operational momentum that we generated throughout 2023. We reported record revenues of $26 million, which was at the high end of our guidance range. This represents growth of 51% year-over-year, and our revenues exceeded an annualized run rate of $100 million for the first time in Ouster's history. Our customers' continued adoption of REV7 sensors, combined with our operational leverage, drove non-GAAP gross margin expansion to 36%, which represents our highest level to date.
During the quarter, we closed on numerous large deals in our smart infrastructure and industrial verticals. Within smart infrastructure, we continued to extend our collaboration with a leading global logistics company to install additional REV7 sensors and Ouster Gemini at their distribution yards. We see potential for further expansion as we are currently deploying our solutions on only 5% of their global footprint. Moreover, we estimate that this single customer represents only a fraction of the market opportunities for this use case. Last year alone, 10 of the largest retail and logistics companies collectively invested nearly $50 billion in capital expenditures. Our Gemini solution is designed to offer a myriad of benefits, such as reducing operating costs, boosting operating efficiency, fortifying perimeter security, enhancing workplace safety, and alleviating labor constraints.
We believe that these compelling value propositions will help secure an increasing portion of this spend. The industrial vertical is a perfect example of our belief that ultimately everything that moves will become autonomous. During the first quarter, we landed million-dollar deals to bring REV7 to agriculture and ports applications. Within agriculture, we see the potential for agricultural automation to become one of our largest end markets. Based on industry data, there are over 2 million tractors sold each year. Assuming two sensors per vehicle, each 1% penetration rate represents 40,000 sensors, or nearly triple the amount of sensors we sold during 2023. Our solutions also bring a convincing value proposition to ports around the world.
Throughput in ports globally surpassed 850 million containers in 2023. Our solutions can enable increased efficiency in tasks such as container positioning, tracking, collision avoidance, and twist lock detection. By saving one second per container, we estimate that ports can move an additional 20 million units per year. At an average terminal handling charge of $500 per container, this represents $10 billion of incremental revenue for the port industry. Governments worldwide are investing in their infrastructure, and the U.S. alone has committed to spending over $20 billion on U.S. port infrastructure over the next five years. We feel well-positioned to capitalize on this investment. Turning to our strategic business priorities for 2024, our first priority is to expand software and grow the installed base.
During the first quarter, Ouster trained a new deep learning perception model that advances our ambition to become a world leader in lidar powered perception solutions. With enhanced operating performance, our Gemini and Blue City customers now benefit from improvements to object detection at longer distances and multiple object tracking accuracy. We continue to expand Ouster Gemini and Blue City deployments and close millions in software-attached sales in the first quarter. Ouster collaborated with a recipient of the U.S. Department of Transportation's, SMART Grant to empower pedestrian safety improvements, near-miss detection, traffic counting, and traffic flow analytics. Compared to competing solutions, Ouster provides superior all-weather performance, privacy protection, and the ability to accurately detect and classify multiple types of road users.
With over 300,000 signalized intersections in the U.S. alone, we view the market for intelligent transportation systems as a tremendous future growth opportunity. Our SMART infrastructure team also recently attended major industry events, including the United States' largest security trade show. There were a few anecdotes that I'd like to share. First, one of the world's largest retailers noted that Ouster was one of the true gems of the show. While one of the largest security integrators in North America said Ouster was the most interesting technology he had seen in 20 years. This positive feedback reinforces our conviction that lidar is poised to become the preeminent technology for the next generation of SMART infrastructure applications.
Turning to hardware technology, Ouster continued to execute on its product roadmap in the first quarter. We introduced new firmware designed to enhance the performance capabilities of our REV7 sensors and coincides with heightened interest for AI and robotics customers. Delivered over the air, the update supports improved accuracy and zero minimum range and will enable operations in tighter spaces and closer proximity to other objects. Our next generation L4 custom silicon chip is taped out and is expected to bring significant improvements in performance, reliability, and manufacturability, along with safety certifications to the OS sensor family. We continue to develop our automotive-grade custom silicon and plan to integrate the Chronos chip into our final form factor, solid-state digital flash or DF sensors in the next year.
DF represents a first-of-its-kind truly solid-state, compact, affordable, and performant family of automotive-grade lidar sensors. Finally, we progressed on our long-term financial framework during the first quarter. Our first quarter revenue growth of 51% and margin expansion to 29% aligned well with the parameters we had laid out. While we are pleased that our GAAP operating expenses of $33 million were 14% lower than the third quarter of 2023, we do expect our GAAP operating expenses to fluctuate quarter-to-quarter, primarily due to changes in non-cash stock-based compensation expenses and other items. We continue to look for further opportunities to optimize our cost structure and reduce our cash burn. The first quarter marked strong operating results and progress on all three of our strategic business objectives.
I'll now turn the call over to our CFO, Mark Weinswig to provide more context on our financial results for the first quarter.
Mark Weinswig: Thank you, Angus, and good afternoon, everyone. In the first quarter, we recognized a record $25.9 million in revenue, a 51% increase over the first quarter of 2023, and a 6% increase over the fourth quarter of 2023. We also shipped a record 4,500 sensors in the quarter. Overall, we saw strong revenue contributions from each of our four verticals, automotive, industrial, robotics, and smart infrastructure. The robotics vertical was the largest contributor to revenue and more than doubled on a year-over-year basis, followed by automotive, which generated the highest quarterly revenue in our history. This quarter illustrates the benefits of our strong customer and market diversity, which provides us with the opportunity to capitalize on multiple emerging industry trends.
GAAP gross margin improved to 29% from negative 2% in the first quarter of 2023 and increased 700 basis points from 22% in the prior quarter. Non-GAAP gross margin improved to 36% in the first quarter and reached the highest levels in Ouster's history. This marks our fourth consecutive quarter with higher GAAP and non-GAAP gross margin. The margin expansion over the past year reflects the operating leverage inherent in our business model, along with our premium-performing REV7 sensors. Over the past year, we have lowered our cost structure as we transition manufacturing to contract manufacturing partners in Thailand and streamlined our internal processes. These actions have positioned Ouster to be a low-cost provider of high-performance sensors.
GAAP operating expenses of $33 million were lowered by 81% year-over-year and 22% sequentially. We have continued to make strides on reducing our cost structure while substantially growing revenues. We are carefully managing our cost structure while at the same time continuing to invest in new products and technologies to drive future growth avenues. Our balance sheet remains strong with cash, cash equivalents, restricted cash, and short-term investments of $189 million at March 31. This cash balance includes approximately $4 million raised via our ATM during the first quarter, reflecting our strategy to maintain a strong balance sheet to help fund our future growth. Since Q1 of 2023, we have significantly reduced our operating cash burn. As the lidar industry transitions into its next phase of growth, we intend to maintain our financial position as a point of differentiation.
We believe our customers are placing increased emphasis on their partners' balance sheets. Moving to our guidance for the second quarter of 2024, we expect to achieve between $26 million and $28 million of revenue. At the midpoint of the range, this represents approximately 40% year-over-year revenue growth. Now with that, I'll turn the call back over to Angus.
Angus Pacala: Thanks, Mark. I'm proud of the notable accomplishments Ouster achieved during the first quarter. Our revenues exceeded an annualized run rate of $100 million for the first time. We shipped a record 4,500 sensors, and we reported the highest non-GAAP gross margin in Ouster history. We also marked the one-year anniversary of our merger with Velodyne. Compared to the first quarter of 2023, we have grown our revenues by 51% and expanded our gross margin by over 3,000 basis points. We are the only publicly traded lidar company over the past year to deliver four straight quarters of sequential revenue growth, margin expansion, and lower cash burn. Over the past year, our focused operational execution combined with a leading product portfolio has established us as one of the strongest Western lidar companies in the industry.
This positions us well for the substantial opportunity ahead of us, as we are firm believers that everything that moves in the future will be robotic. The adoption of lidar among our customers and across industries remains in its infancy, and we are determined to capture the multibillion-dollar market for a global ecosystem of autonomy solutions. With our REV7 sensors and Gemini and Blue City software solutions, Ouster is creating the critical technologies at the core of autonomy. 2024 is off to a positive start, and I'm confident that our persistent execution will continue to set Ouster apart from the rest of the industry. With that, I'd like to open it for Q&A.
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