Aeva Technologies, Inc. Q3 FY2021 Earnings Call

Good day. My name is Betsy. And I will be your conference facilitator. I would like to welcome everyone to Aeva Technologies Third Quarter 2021 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference call is being recorded and simultaneously webcast. I would now like to turn the call over to Andrew Fung, Director of Investor Relations. Andrew, please go ahead.

Thank you. And welcome everyone to Aeva's third quarter 2021 earnings conference call. Joining on the call today are Soroush Salehian, Aeva's Co-Founder and CEO; and Saurabh Sinha, Aeva's CFO. Ahead of this call, we issued our third quarter press release and presentation, which we will refer to today and can be found on our Investor Relations website, at investors.aeva.ai. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today, and should not be relied upon as representative of our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our Form 10-Q for the quarter ended June 30, 2021. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Aeva's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A webcast replay of this call will be available on our company website under the Investor Relations link. With that, let me turn the call over to Soroush.

Thank you, Andrew. And good afternoon everyone. Q3 was an exceptional quarter for Aeva as we achieved a number of important milestones that solidify our path towards commercialization. I would like to highlight a few of our accomplishments, which are summarized on Slide 5. First, today, we announced a key production win with the automated trucking company Plus, to implement Aeva’s breakthrough 4D LiDAR composite driver on PlusDriver and fully autonomous trucks at volume scale. This win is significant because it further confirms the industry's increasing transition to FMCW LiDAR to enable safe automated driving, as well as the leading performance and scalability of Aeva’s automotive grade LiDAR on chip solution. We also remain on track with key development milestones across our other automotive and non-automotive collaborations. Second, we continue to strengthen our supply chain to bring our 4D LiDAR to market. We have announced our agreements with Fabrinet, a leader in advanced precision optical and electronic manufacturing, to produce our 4D LiDAR chip module, which accelerates our manufacturing capabilities and automotive grade certified production line. And third, Aeva achieved the important milestone of completing the design release of our B Samples, which finalizes the architecture and provides the path to our final cost structure. Turning now to Slide 8, I would like to provide more color on our key business updates. We are incredibly excited to share that Plus, a leader in self-driving truck technology, has selected Aeva 4D LiDAR for long-range perception on their production autonomous trucks. This multiyear production program includes Plus’s intention to deploy trucks globally, starting in late-2022 with Plus’s driver in solution, followed by their fully autonomous system. Plus plans to deploy over 100,000 trucks by the end of 2025. We have been working with Plus since 2019 to test and validate Aeva’s 4D LiDAR. Plus selected Aeva for its unique combination of ultra-long range and instantaneous velocity measurement, which enhances Plus’ long-range perception system and provides faster response time in safety-critical situations. The combination of Aeva’s 4D LiDAR and Plus’s proprietary autonomy stack also addresses many critical edge cases, such as previously unseen obstacles that may confound the networks in the perception stack. Adequate response time is crucial to enabling safe automated driving, particularly for heavy-duty trucks, since they take much longer to stop than passenger vehicles. This has been a challenge to reliably achieve with legacy time-of-flight LiDARs. While the industry has for some time understood the potential for FMCW to significantly improve perception, with its unique advantages over legacy time-of-flight LiDAR, such as direct velocity measurements and lack of interference, the trade-off between range and resolution with conventional approaches has held back the adoption of conventional FMCW technology. However, Aeva’s 4D LiDAR breaks that dependency. Enabled by our proprietary signal processing algorithms that leverage the strength of FMCW to sense precise velocity and position, it has more than 500 meters of range while simultaneously achieving millions of points per second. This enables Aeva’s solution to reliably measure and classify objects with higher confidence and at longer distances than legacy LiDAR solutions and already does so today. And because FMCW uses a continuous beam to constantly transmit data, we can use our same core LiDAR chip and scale performance through software. This flexibility provides our customers, including Plus, with the ability to not only leverage Aeva’s 4D LiDAR for their Driver-in solution but also enable them advanced capabilities as they bring their fully driverless solutions to market utilizing the same 4D LiDAR hardware. Plus shares a similar focus with us to deploy their self-driving technology to volume scale. The company's customers include some of the largest freight carriers and OEMs, including Amazon and FAW, the largest heavy-duty truck OEM in the world. We are excited to be selected for production and look forward to supporting Plus’s volume ramp. Let's now move to Slide 9, which highlights a key development in solidifying the path to bringing Aeva’s 4D LiDAR to market. Earlier this week, we announced that Aeva has selected Fabrinet to produce our 4D LiDAR chip module as the engine of Aeva’s unique FMCW LiDAR technology. The chip module is the critical element that integrates all core sensing components onto a single silicon photonics platform. We are pleased to work with Fabrinet, a leading manufacturer of silicon photonics integrated devices and advanced precision optical systems and equally important, a trusted automotive qualified supplier to many global OEMs and Tier 1s. As part of the agreements, we are bringing online an advanced production line at Fabrinet that accelerates Aeva’s production capabilities. The new line will produce our third-generation chip module and scale for series production. By securing capacity with a leading manufacturer now, we feel confident in our ability to supply the expected volume at automotive grade quality for our customers' programs. Ahead of that, we are working with Fabrinet to increase automation and process efficiency as well as establishing a local engineering team in Thailand to support the manufacturing ramp well before the start of series production. I would now like to update everyone on our 2021 objectives, which are detailed on Slide 11. We have already achieved three of the four goals set for 2021, and we are confident in delivering on the final remaining goal to finish the sample development this year based on the significant progress already made to date. First, we have reached our goal for two additional programs toward production with Plus and Nikon, two leaders in their respective markets with opportunities to scale to large volumes. Importantly, we also continue to deliver on development milestones for our other partners. With our growing team, we believe we are well positioned to support ongoing work across all of our programs. Second, on accelerating engagements and non-automotive applications. This goal was met with our Nikon collaboration announced last quarter, which we expect to accelerate Aeva’s non-auto opportunity in the $10 billion and growing industrial automation and metrology markets. As I mentioned earlier, there is growing interest in Aeva’s unique 4D LiDAR for both automotive and non-automotive applications. We will continue to put our focus and resources towards opportunities that align with our mission to bring Aeva 4D LiDAR to mass scale. Third, we have significantly strengthened our supply chain for production, with a number of key developments throughout this year, including finalizing the key supply chain for our silicon processing chip, and most recently, selecting Fabrinet to produce Aeva’s 4D LiDAR chip module, which accelerates our manufacturing capabilities towards startup production. And fourth on our B Sample developments. This quarter, we completed the product design release, which is a key milestone to finalizing the product architecture and provides us a path toward the final cost structure. As mentioned earlier, we expect to complete development this year and are planning to deliver B Sample units to our partners for qualification starting in 2022. This leaves us well on track with our timeline to commercialization. And with that, I will turn the call over to Saurabh to discuss the financials.

Thank you, Soroush. Let's turn to Slide 13, which summarizes our financial results. Revenue in the third quarter was $3.5 million reflecting substantial progress we continue to make towards our customer development milestones and our path towards production. Our non-GAAP operating loss was $19.9 million comprising R&D expenses related to product development, and to a lesser extent G&A and sales and marketing expenses. Growth cash used, which we define as operating cash flow less capital expenditure was $24.2 million for the third quarter. Our balance sheet remains strong, with cash, cash equivalents, and marketable securities totaling $478 million at the end of the third quarter, demonstrating continued discipline in how we spend and invest for growth. Finally, our weighted average shares outstanding in the third quarter was 212.6 million. In summary, our results reflect the great progress we have realized with a growing list of customers. As we continue to advance towards commercialization, we are in a strong financial position to execute on our program and bring Aeva’s 4D LiDAR to mass scale.

Thank you, Saurabh. Before taking questions, I would like to first thank the Aeva team for their relentless dedication to our mission, which is resulting in our growing commercial traction. And to all of our stakeholders, we appreciate the commitment and confidence in Aeva’s breakthrough 4D LiDAR technology, which we hope will enable the next wave of perception. I am incredibly excited by Aeva's accelerating momentum. The production win with Plus marks an important milestone for us, and with all of our progress towards commercialization in the last quarter, I have great confidence in the increasing demand for our unique technology and the upcoming opportunities that lay ahead. We remain laser-focused on supporting our customers on the path to production and Aeva’s mission to bring perception to all devices. Thanks everyone for your time today. We will now open the line for questions.

We will now begin the question-and-answer session. The first question today comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, guys. Can we start with Fabrinet? I wanted to get a little bit better understanding of what sort of value-added engineering and specialized procurement expertise they're bringing to the table formally and the agreement you've made with them?

Sure, Colin. Yeah, thanks for the question. So obviously, Fabrinet is a leader in silicon photonics integration and manufacturing. We've worked with them for quite some time already. And what they really bring to the table is the capability to manufacture automotive-grade LiDAR chip modules. That chip module is at the heart of our system. And to be clear, their expertise is in LiDAR chip module manufacturing. They are already automotive certified and a supplier to both OEMs and Tier 1s. So today, Fabrinet is already manufacturing hundreds of thousands of silicon photonics integrated modules. So they're really capable and experts at what they do, which is one of the reasons that we actually decided to work with them. The other thing I think what's interesting about Fabrinet is they're already manufacturing our LiDAR module at their auto-grade facilities. We do plan to continue using them for production as we scale our volumes in those same facilities.

Perfect, I'll take a couple of other questions with that relationship offline. But then, as you enter into production agreements now, and you look at your pricing model, the velocity data and capabilities that you bring to the table are pretty significant. So I'm curious how you're thinking about pricing and how that conversation is going with the handful of customers that you're working with right now, particularly as you move into these production agreements?

Sure. Yeah. Look, obviously, I can't provide details on exact pricing. But we are seeing strong traction in the market. We are really encouraged by the increasing momentum, as evidenced by the number of engagements and wins we've had in past quarters. With this Plus plan obviously, as an example for automated trucking, this also laid the foundation for us to scale up into the automated trucking space. And as far as the pricing goes, for each customer, we work closely with them to ensure that we have the ability to support them all the way through to volume production. And in general, we're in line with what we have discussed before in terms of that.

Next question comes from Tristan Gerra with Baird. Please go ahead.

Hi, good afternoon. Any color that you could provide in terms of potential volume and the timing plan for the Plus design win that you've announced today? And is the functionality pretty much the same as previously announced with another player like TuSimple?

Sure. Thanks for your question. First of all, look, we are very excited to be selected by Plus for this key production program. I'll give you a little bit of color about this. So this is a multiyear supply agreement for global deployments. It is actually beginning in late-2022. Plus selected Aeva because they believe in our unique capabilities, including instant velocities and ultra-long-range capability, which really enhance long-range perception for Plus and help us to bring safe automated driving to scale. That is why they see significant value, as you mentioned, in not just incorporating Aeva in fully autonomous solutions, but also in their driver-focused solution as well. That's how they're starting with driver solutions a bit earlier but intend to continue and implement the same Aeva 4D LiDAR hardware into a fully autonomous or driverless solution. I think that really shows the importance of Aeva’s unique value-add and flexibility for both assisted driving and autonomous driving. And with our work on the B Sample, we're starting to really see that traction pick up. In general, regarding the scale, as I mentioned on the call, Plus plans for a total of over 100,000 units by 2025. What's interesting is we have the right to supply a majority of the truck volumes with the long-range LiDAR in this timeframe. That should give you a sense of the scale that we're talking about here.

Thanks. That's very useful. And then for a follow-up, you've talked about getting to design wins on your range and velocity. I know that in the past, some people have talked about latency being very different for FMCW than other LiDAR technologies. So the question will be, given the design win traction that you have, people must not see latency as an issue. Is that because of the algorithms that you have that allow you to enhance latency compared to perhaps other FMCW LiDAR suppliers?

Sure. Look, what I think is interesting is the traditional way, what we call a traditional conventional way that FMCW is done actually has several challenges in terms of meeting both high resolution and long-range simultaneously. I am not sure exactly what you mean by the latency, but that is part of what I think we have really figured out to break. Aeva is not the traditional conventional FMCW system. That's why we are starting to see continued momentum with the wins under our belts, because we have solved some of those key challenges. I think that is important and is evidenced by now you're seeing traction in trucking, but we are also starting to see that across other automotive and non-automotive applications.

The next question comes from Suji Desilva with ROTH Capital. Please go ahead.

Hi, Soroush, hi, Saurabh. Congrats on the progress here and the Plus announcement. In trucking, I know you’ve been working with them for a while, but it seems like that market might come to volume sooner than say passenger cars. Is that because of the business case or because it's a more controlled environment? Any color there? If that is the case, it would be helpful.

I think it's clear that there's a persistent shortage of truck drivers in the market. The case for commercial trucking is quite strong. We are beginning to notice an increase in the market's acceptance of autonomous trucking on the roads. More importantly, we are seeing a growing agreement on the type of perception capability required to support autonomous trucking. It appears that this is moving toward FMCW-based technology, as highlighted by the partnership we announced today with Plus, along with previous partnerships, including one with TuSimple.

Okay. And I just want to get some color on the B Sample that you're planning to ship to quality customers at the end of the year. Just to understand the implications for the schedule, maybe the C Sample that comes after that, and whether the Tier 1 production line is needed before you go to production or whether a partner like Fabrinet obviates the need for the C Sample production line build by the Tier 1s? Any color there would be helpful.

Sure. Fabrinet makes our LiDAR chip module; they don't assemble the full system, but that's at the heart of our system. We are working with our partners to manufacture the B Sample. As I mentioned in the call today, we recently crossed the key milestone in our product design release of the B Sample, which establishes an architecture. The B Sample, of course, is critical because it provides us with the final cost structure of the path to system design across the structure. In 2022, our partners will be validating our B Sample, and those learnings will continue to refine our system towards production. In parallel, we'll continue our work on the supply chain to ensure we have all the capacity well into production. With all the work we have done on the supply chain side, including securing key suppliers for the silicon processing chip and the Fabrinet announcement with our LiDAR chip module, we have great confidence in our ability to not just meet the timeline but also meet the demand of the customers with the capacity and quantities needed.

The next question comes from Pierre Ferragu with New Street. Please go ahead.

Hey, thanks, guys, for taking my question. Congrats on the new win. I have two particular questions on trucking. First, related to Aurora, Plus, and TuSimple, they all use FMCW. So I'm not sure how you can talk about the market share of those three names represented. So is it fair to say that FMCW remains specifically in trucking? If that's the case, why is that? Is there similar traction in passenger cars, and it's just less visible because of the timing of press releases and things like that? If that's the case, yes, maybe let us know analytically?

Hi, Pierre. Sure. Thanks for the question. Look, I think, as I mentioned, yes, we do agree that there is a general consensus on the increasing transition to FMCW for autonomous driving in general. But I think it's becoming first evident with the trucking side because of the fact that some of the timelines were earlier. That is clear. As you mentioned with the names there, we see that as critical. The reason is multifaceted. The key benefits of Aeva’s unique FMCW approach include long-range traction capability, the ability to go past 500 meters, and the ability to take instant velocity immediately, which is super crucial for trucking. This is because you need to see objects that are quite far out. When you have even a few points or pixels on an object at those distances, adding the dimension of velocity quickly informs you of what you should care about. You don’t have to keep looking at it and taking effectively frame snapshots, which is typically done with legacy time-of-flight LiDAR. This is crucial because trucks take a long time and need a lot of stopping distance; you want to be able to see further out. These factors, along with our ability to scale this on the LiDAR chip module, is coming together, along with the lack of interference as you have more of these on the road. This is a manifestation of what we mentioned before, and we are starting to see that transition happening.

Thanks, that makes sense. My second question, very pragmatically, you've given a lot of specifics about how Plus and their partnership with Plus is today. Can you give us a description of where you stand with TuSimple in terms of visibility on their ramp? Have you already entered similar agreements to be part of the system through January 2025?

Sure. So look, I can’t obviously comment on the details of customers on this call today. But we are progressing well with TuSimple across the globe, a milestone that we continue to support with our LiDAR technology as it continues to expand their fleet. We look forward to doing that throughout the next years as we continue to build out a robust platform for automated trucking and driver-out functionality.

The next question comes from Sam Peterman with Craig-Hallum. Please go ahead.

Hi, guys. Thanks for taking my question. I wanted to ask on automotive as well, but specific to passenger cars rather than trucking. Our sense of the industry right now is that OEMs are starting to make decisions on LiDAR for production in the 2024-2025 timeframe. And obviously, that aligns with your timeline for ramping sales in automotive. So I was curious if you could share where you guys are in discussions with auto customers today? Do you have any RFI RFQs?

Sure, Sam. Yeah, thanks for the question. So obviously, we are involved in almost all RFIs and RFQs that we see around not just trucking, but also passenger cars in this space for those timeframes. We are seeing strong traction in the market in general, and we are encouraged by the increasing number of engagements in both automotive across passenger trucking mobility and also non-automotive applications. I think some of the examples we talked about, here we spoke about Plus today quite a bit. But also our foundational agreements to deploy our 4D LiDAR for the undisclosed customer that we talked about earlier this year. Others we haven’t discussed yet theoretically give us a lot of visibility in the timeline and the selection ramp-up with our customers that's coming up. As I also mentioned, we'll continue to align with partners who are highly capable and have the desire and also importantly the capability to bring advanced perception technologies to mass scale. That's what we want to focus our efforts on.

Okay, fair enough. Thanks for that. My second question is, we haven't heard anything on the consumer side in a while; is there development ongoing to scale your platform down to consumer products like mobile phones, especially now that you've got this B Sample almost locked down? Any color on kind of developer work that's going on there? And when we might see samples there would be great.

Sure. Yeah. So in terms of opportunities, of course, we do see significant opportunities in the consumer electronics space as well. As I've discussed previously, we're focused currently on enabling foundational capability. This means the raw level performance needed for our perception solutions. As we have talked before, we have so far focused on very long-range performance and more recently working also to provide completely different levels of performance with our micron of accuracy, which trades off the range of perception. These levels of performance, this raw fundamental capability, is what really allows us to pursue other applications, including consumer. Measuring things at the micron level changes the game of perception. To our knowledge, FMCW technology is the only technology capable of doing that from a distance, meaning without contact. As we continue to develop this capability, we will work with customers to effectively bring it to market, and we will share more updates as they come along.

This concludes our question-and-answer session and also concludes the conference call. Thank you for attending today's presentation. You may now disconnect.