Lidar Cash Runways - Q1 Results Review

May 20, 2022 12:10 PM ETAEVA, CPTN, INVZ, LAZR, LIDR, OUST, QNGY, VLDR18 Comments
Robert Dydo profile picture
Robert Dydo
1.01K Followers

Summary

  • Immediate cash concerns seem to affect Cepton and Quanergy.
  • Poor revenue and negative gross margins make Velodyne a concern.
  • Luminar has enough cash to outlast most competition.

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Sezeryadigar/E+ via Getty Images

Cash is a vital source of funding in the pre-revenue stage. Every business wants to generate the cash from its operations, break even and build its cash reserves. The cash runway timeline is essential to investors who always fear dilution. If the business does not generate revenues, it must sell equity or take on debt to continue.

In today's environment, selling equity would significantly affect the share price when the visibility of revenue, not even earnings, is unclear. Lidar companies have just delivered Q1 results. Negative margins and low revenue continue to dominate the industry; for almost all, the timeline to expect meaningful revenue is still measured in years, but the cash resources are depleting.

In my first article, I looked at the technology and how hard it was to distinguish what type of technology would dominate. My bet on digital lidar, Ouster (OUST), announced the shipment of A sample to its OEM partner, while the technologies it competes with made new relationships in automotive.

Luminar Technologies (LAZR) partnered with Nissan Motor Co. (OTCPK:NSANF), and one of the largest automotive OEMs globally selected Innoviz (INVZ) as a lidar supplier. Great-sounding wins had a usual script of years of development before revenue.

The flawed estimates from the SPAC time coupled with ambiguous revenue generation models continue to add vulnerability to the lidar segment.

SPAC Forecasts

I thought it would be interesting to look at what the companies thought about their future through the lenses of SPAC forecasts. For one, it is interesting to see who came closest to expectations. I am also interested in how cash used in operations today compares to those predictions.

I put a few assumptions to make the exercise easier. A reader should remember that an increase in revenue will reduce cash usage in the operating section of cash flow. Stock-based compensation in accounting treatment is reversed in the cash flow, a reason why operating expenses are higher than cash spent. The revenues are not seen as a significant influence on all companies but Ouster because only a positive margin counts. Without a positive margin, cash usage will continue mostly unchanged. The higher the revenue from product sales, the gross margin should be easier to reach. The average selling price and the cost of goods sold will heavily influence the gross margin.

The first table compares net cash used in operating activities taken from the Cash flow statement. I have multiplied the Q1 result by 4 to deliver an estimated usage for a year. Then I compared it to cash on hand. The table also shows Q1 gross margins. Only Ouster and Cepton, Inc. (CPTN) will experience a potential reduction in cash spent because of positive gross margins when increasing revenue. However, it is necessary to note that for Cepton, that contribution is minimal, only $230K per quarter; therefore, as it stands in Q1, the positive margin here has no influence on cash spent.

Financial data table

Net Cash In Operating Activities (Author sourced from financial statements)

The second table is an extract of SPAC presentations. It contains the 2022 gross margin forecast, which I can compare to the Q1 actual forecast. Secondly, I calculated operating expenses based on gross margin and EBITDA forecasts. They are estimates. Another interesting comparison is the estimate of net cash used in operating activities in 2022 versus OPEX in the year of profitability. The premise of net cash spent in 2022 being higher than OPEX in 2024 may likely indicate an unfavorable change in the business operating costs, and I highlighted those in yellow.

Financial data information

SPAC Presentation Forecasts (Author -sourced from companies publications)

Quanergy - No Cash

Quanergy Systems, Inc. (OTCPK:QNGY) looks like it's run out of cash already. The last to become public, the company had $21M in cash left at the end of Q1. The company's net use of cash was about $22M leaving Quanergy with enough money for the current quarter. No surprise, this has not gone unnoticed by the market, which sold the stock down to $104M in the market capitalization. According to the filing, Global Emerging Markets Group ("GEM"), a Luxembourg-based private alternative investment group, is on standby to buy shares worth $125M to refinance the company as an alternative source. Even though the company offered guidance of up to $18M revenue, which is somewhat of a surprise to the upside, I have difficulty seeing this refinancing take place and, if it does, be favorable for investors. SPAC's forecast of just a year ago saw $255M in revenue for 2024, at 56% margins. The gross margin was supposed to be 35% in 2022 but turned out to be negative 36% in Q1.

Cepton and Thousands of Sensors

Cepton, Inc. (CPTN) is worth around $397M. It had $45M of cash in Q1 left. The company spent around $20M in Q1, so there will be very little left when Q3 ends. Cepton planned to go EBITDA positive also in 2024 on $250M in revenue at a modest 46% gross margin. It predicted 37% gross margins for this year. According to the Q1 presentation, the company plans to ship thousands of units in 2022 to General Motors Company (GM) in preparation for full-scale production, which could likely bring the gross margin up.

The company started to ship equipment to its partner Koito Manufacturing (OTCPK:KOTMY), which will be the manufacturer of sensors for this agreement. The $15M estimate for 2022 from the SPAC presentation would require 15 thousand sensors if Cepton achieved a $1000 average selling price. Koito is not only the manufacturing partner but also an investor in the company, with around $50M put into it. There is the possibility that Koito will come to the rescue of Cepton, buying more equity for it to see a 2023 estimate of a much more substantial $62M revenue. Despite the appearance of an attractive development, the market does not seem to put a lot of faith in Cepton. The ambiguity of the relationship with GM and lack of precise details on volumes, brands, and finally, orders are most likely reasons for the skepticism.

Velodyne 2022 Miss

Velodyne Lidar, Inc. (VLDR) will fail to be profitable in 2022, only expecting $50M from that $246M forecast. A negative rate of 32% now represents a reversal of 82% from the company's 50% gross margin goal. The current net cash used in operating activities, extended over a year, comes to $141M, about $33M more than the operating expenses forecasted two years ago. The company has about $256M in cash, which will run out in less than two years. With losing market share and uncertain cash conditions, the company may have to sell equity to continue. Then there is Amazon (AMZN), owning the warrant to buy 40M shares at $4.18 per share until 2030.

2024 Cash Runway Companies

Based on their operating usage of cash, Innoviz and AEye, Inc. (LIDR) are two companies on a path to running out of cash in 2024. AEye has $144M in cash, and Innoviz has $274M. Innoviz is much more interesting as the business added no less than $4B to its book with a new design deal. A book that already had $2.6B in it. The only identified selling relationship Innoviz has is the BMW buyer agreement with the supplier Magna. InnovizOne, the company's sensor, is going into the BMW i7. Innoviz is forecasted to have $13M in revenue this year and $45M next.

If Innoviz delivers $1000 per sensor, it can reach revenue of $6 to $8M based on 7,700 7is sold in 2021. The number is slightly lower so far this year, with 1.5k cars sold in Q1. All other sources of revenue are not transparent at this point.

The company SPAC numbers also saw positive EBITDA in 2024 with $237M revenue at a 50% gross margin. Innoviz predicted a 26% gross margin in 2022, but it is 37% negative so far. Considering that a third party would have to build 8000 sensors in 2023, the margins could also be off in that year.

Ouster sold 6,500 sensors in 2021 at a 30% margin and a $5K per unit average. Innoviz selling 8K sensors in 2023 at $1000 each and planning to land a gross margin between 37% to 50% will become a record of manufacturing prowess when accomplished.

2024 is also a year for a positive EBITDA forecast for AEye. The company was looking at a stratospheric 81% gross margin on a modest $142M revenue for that year. It plans to do $6M this year and about $30M in revenue in 2023. The company had no plans for gross margin in 2022. In Q1, the margin was a negative 37%. AEye sports an $845M in market capitalization, which is equally puzzling as delivery of the 81% gross margin.

Cash Kings of Lidar

Luminar and Aeva Technologies, Inc. (AEVA) have most of the cash and the most considerable timeline to spend it. SPAC's presentation for Aeva saw 2024 as a year of positive EBITDA with a 62% gross margin. So far, Aeva had a 21% negative margin in Q1, predicting in SPAC days to have 53% in 2022. In my opinion, the company is more of a research and development business today than an actual manufacturer of lidar sensors. When it arrives at this state, the spending is likely to increase, which may not have a favorable outcome for the cash runway.

Luminar has got the most money and can last the longest, all the way to 2027. The company expected 2024 to be the profit year with $418M revenue modeling and a 61% gross margin. Luminar has design deals with Volvo launching Luminar sensors on vehicles at the end of this year but likely in 2023, starting with the XC90. The model sold 108,231 cars in 2021, offering Luminar real potential to reach the 2023 analyst forecast of $129M if every car is equipped. A $3B plus capitalization reflects the enthusiasm over the company's agreements and their potential. Still, the company seems to be fully valued compared to others, and I remain skeptical about adopting the Iris sensor because its form factor is the largest among competitors.

Ouster

The company guided 2023 as a year of profitability with $324M in revenue. Unfortunately, the 2022 forecast of $107M is now $85M. As a consequence of this year's reduction, analysts see $180M in 2023. If Ouster delivers $85M in revenue, in my estimate, the net cash used in operating activities will be reduced to $72M from $87M. $21M already drawn in Q1 will leave $50M as a deduction to have Ouster's end-of-year cash at $110M. Ouster is the only company that came close to the gross margin estimate for 2022, at 30% versus 31%.

In recent news, Ouster has opened up a $50M line of credit and taken $20M upon conclusion of the agreement. Within 12 months, the company can add another $20M. My estimate for Q1 2023 is $130M of cash ample to carry the company to profit in 2024. I must accept that very few will pay attention to it until it happens. For now, the market seems convinced that registration of an at-the-market indicates near-time use than an ability to avoid selling equity.

Conclusion

Understanding the cash runways should be essential for due diligence in the lidar sector. Technology advancement and design deals will produce revenues, but the long timelines risk depleting current cash resources before it happens. Therefore, investors should put great effort into monitoring those relationships. As it stands today, two companies, Cepton and Quanergy, are at the end of their cash runways, offering the first glimpse of existential crisis and ways they plan to survive it.

This article was written by

Robert Dydo profile picture
1.01K Followers
In the past, I evaluated solar manufacturers and renewable yieldcos based on their operational, financial, and growth factors. Currently, I am interested in lidar companies' technology, adoption, and revenue growth..

Disclosure: I/we have a beneficial long position in the shares of OUST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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