Aeva Technologies, Inc. Q2 FY2022 Earnings Call

Good day. My name is Stacy, and I will be your conference facilitator. I would like to welcome everyone to Aeva Technologies' Second Quarter 2022 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 turn the call over to Andrew Fung, Director of Investor Relations. Andrew, please go ahead.

Thank you, and welcome, everyone, to Aeva's second quarter 2022 earnings conference call. Joining me 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 second quarter press release and presentation, which we will refer to today and can be found on our Investor Relations website at investors.aeva.com. 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 March 31, 2022. 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. The 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. Q2 was a pivotal quarter at Aeva, as we achieved a major milestone on the path towards the production of our next-generation 4D LiDAR Technology. I'm excited to highlight that and a few of our other accomplishments, starting with slide five. First, we began delivering Aeries II units to our strategic customers on time and according to the objectives we set out at the beginning of this year. This is a significant milestone, not only for Aeva but also for the industry, as this is the first time an FMCW 4D LiDAR with the combination of high performance and automotive reliability is commercially available. Second, with the commercial launch of Aeries II, we are seeing stronger traction in the market. We believe Aeries II offers a combination of performance and level of maturity that OEMs have been looking for, enabling us to advance to the next phase of development with our strategic customers and progress forward on a number of other engagements across automotive and industrial automation. Third, we are excited to announce a multiyear strategic collaboration with SICK AG, a leader in sensing solutions for industrial automation to deploy 4D LiDAR for a broad range of industrial sensing applications. SICK selected Aeva’s 4D LiDAR due to the unique performance capabilities enabled by our FMCW technology that address specific challenges limiting 3D LiDAR and cameras today. This collaboration is a first indication of the market demand for Aeries II and further solidified our expansion into industrial automation with a start of production targeted in 2024. And fourth, we continue to apply a strategic and deliberate approach to how we invest our capital and resources, which has enabled us to reach crucial milestones towards production and expand our commercial momentum while maintaining strong discipline on capital allocation. Moving now to slide seven. I would like to provide more color on key business developments over the past quarter. Let's start with Aeries II. The startup Aeries II delivery is a significant achievement that represents five years of development of Aeva’s FMCW technology, with up to 500 meters of range, instant velocity detection, and camera-level resolution. We are excited to demonstrate to more customers how Aeries II can unlock new levels of automation and machine perception across automotive and industrial applications. Encouraged by the strong demand for Aeries II, we are focused on scaling up manufacturing. Along with this, we continue to work towards our ultimate goal to bring 4D LiDAR into production. Aeries II defines its final architecture for our first production programs, and we anticipate completing the next phase of qualification work with strategic customers over the next nine to twelve months. Turning to slide nine, I want to provide an update on the substantial progress we have made towards our cost targets. From the very beginning at Aeva, we took a different approach to perception with our FMCW LiDAR on chip technologies, with the understanding that achieving low cost and scalability are just as critical as delivering high performance to enable wide adoption. This is why we have designed a proprietary silicon photonic chip module, which integrates all of the key optical elements of LiDAR sensing onto the single chip module and significantly reduces the number of components within the system. To our knowledge, Aeva remains the only company to have successfully achieved this level of integration and performance to date. Aeries II utilizes our third-generation LiDAR architecture module, which has helped us drive over a 55% reduction in total system costs from our A-Sample. It reflects our focus on scalability and cost that goes deeply into the individual component LiDAR. For example, high-performance LiDARs on the market today often use costly fiber-based lasers that are prone to lower yields and core durability. In contrast, Aeva's approach removed all fiber optics from our system due to our proprietary FMCW approach, which lowers costs and we believe is a game changer for reliability and durability in any LiDAR system. The integration of core components onto a silicon chip platform results in a much simplified and highly automated assembly process. This removes the need for active alignment at the system level, reducing the overall complexity and cost of manufacturing. From here, our focus will be on the integration of our final components and to bring up our production processes to achieve our cost targets. Moving to Slide 10, we have spoken before about the growing consensus among customers that FMCW LiDAR differentiated capabilities can enable new levels of automation not achievable with legacy technologies. With Aeries II, our engagements are simultaneously solidifying and broadening. We are engaged in multiple programs that span applications in passenger mobility, commercial vehicles, as well as industrial automation targeting between the 2024 to 2026 time frame. Based on our progress, we anticipate Aeries II evaluations to drive a growing number of additional programs toward production over the next twelve months. Now let's move to Slide 11, which highlights a new strategic collaboration that solidifies Aeva's expansion into industrial automation. We are thrilled that SICK decided to partner with Aeva to bring 4D LiDAR to industrial sensing applications. Headquartered in Germany, SICK is a global leader in logistics, factory, and process automation technology, with major global accounts across a diverse mix of industries, driving around €2 billion in annual revenues. Our multiyear collaboration will start with Aeries II for applications within SICK's logistics automation and factory automation businesses, which together total around €1.6 billion in segment revenues. A number of applications within those segments currently use 2D and 3D LiDAR. However, after working with Aeva for the past two years, SICK will expand to leveraging Aeva's 4D LiDAR and our unique FMCW technology to deliver superior performance in applications that limit the use of cameras and 3D LiDARs. For Aeva, this collaboration will enable us to leverage SICK's leading market position and large sales force to efficiently scale 4D LiDAR across a wide range of industrial sensing applications for SICK's numerous customers worldwide. We look forward to working closely with SICK toward our target start of production in 2024. Turning to slide 12, you can see some examples of our target applications with SICK. This includes a variety of outdoor sensing for logistics automation, including ports, grains, airports, and mining. Long-range instant velocity detection and immunity to the sun and retroreflector blooming are critical advantages Aeva's 4D LiDAR offers, which can enable safer operations compared to our competitors' solutions currently available. Importantly, we plan to use the same foundational LiDAR on chip architectures that we have developed for automotive, with adaptable software to deliver the specific performance requirements required by SICK's diverse mix of customers worldwide. Let's now turn to slide 14, where I will provide an update on our key objectives for 2022. We have made great progress in the first half of the year and have completed a number of critical steps that we believe lays the foundation to achieve our key objectives for 2022. I would like to share a bit more on each one. First, on Aeries II deployment and qualification with customers. We began shipping units to our strategic customers in late Q2 on schedule and consistent with the timeline we provided at the beginning of the year. Moving forward, we will be working closely on qualification in the second half of 2022, as well as ramping up manufacturing. Second, on converting two additional programs toward production, one of the two programs was met with the SICK collaboration. Beyond that, we are progressing with multiple other engagements, as well as receiving new inbound interest in both automotive and non-automotive applications. Third, on accelerating the release of our first non-automotive applications with the SICK collaboration, we have further solidified our expansion into industrial automation, and we also remain on track with our first industrial precision product with Nikon launching in 2024. Meanwhile, we are on schedule to complete development of a common LiDAR on chip perception platform for industrial automation by Q4 of this year, which we expect to further drive momentum in these markets. And fourth, on preparing the supply chain and processes for commercial deployment. We continue to work closely with our supply chain partners to scale up manufacturing, and efforts also continue on working towards certification in the automotive space. And with that, let me turn the call over to Saurabh, who will discuss the financials.

Thank you, Soroush, and good afternoon, everyone. I would like to review our second quarter financial results, which are on slide 16. Revenue of $1.5 million in the second quarter was driven by the progress on our customers' development milestones and product sales. Non-GAAP operating loss was $29.3 million in the second quarter, which reflects the combination of continued R&D expenses for product development and Aeva’s ongoing discipline in capital investment. The second quarter gross cash use, which we define as operating cash flow less capital expenditures, was $34 million. As a result, we continue to maintain a strong cash, cash equivalents, and marketable securities position, which totaled $378.9 million at the end of the second quarter. Lastly, weighted average shares outstanding in the second quarter were $216.9 million. To summarize, in the first half of the year, we executed well on our plan for 2022 in terms of both product and commercial objectives. In the second half of the year, we aim to continue to execute on our plan and believe we have the financial resources to continue to invest to bring 4D LiDAR to market. And with that, I will hand the call back to Soroush for closing remarks.

Thank you, Saurabh. I am incredibly proud of our accomplishments in Q2 and want to especially thank and congratulate the Aeva team on achieving the significant milestone of delivering the first Aeries II units to our strategic partners. This is a major step forward towards bringing our unique FMCW LiDAR chip technology into production. I would also like to thank all of our stakeholders and customers for their ongoing support. Looking ahead, we continue to see growing commercial momentum for our technology. Our collaboration with SICK AG is another example of the diverse and significant opportunities ahead. As we work towards scaling up Aeries II and our Perception solutions, we look forward to working with our partners and responding to the growing demand to enable the next generation of perception in automotive and beyond. Thanks, everyone, for your time today. We will now open up the line for questions.

Thank you. The first question comes from Antoine Chkaiban with New Street Research.

Hi, guys. Thanks for taking our question. Congratulations on the master contract with SICK. You've announced several deals outside of the automotive segment. Are the non-automotive businesses tracking in line or ahead of your initial expectations? In particular, any update on how you see automotive versus non-automotive opportunities ramping in your revenues? Any color on timing and relative size of each opportunity would be very helpful. Thank you.

Yes. Thanks for the question. First of all, yes, we're absolutely excited by the win we have with SICK that we announced earlier. We're seeing a growing demand across the board, both in automotive and non-automotive. Regarding non-automotive, it is indeed accelerating and is driven by a lot of inbound interest. As we said, the collaboration with Nikon, where we were able to pull that forward by one year at the beginning of this year for 2024, and now with SICK, we're further establishing and solidifying that, which we are also targeting the same 2024 start of production. Overall, we're highly encouraged with our ability to leverage Aeries II and grow the demand with our customers to qualify Aeries II and lock additional program opportunities. Right now, with Aeries II on chip development and deployment, we continue to see growing momentum in the markets, and we're looking forward to many opportunities in the coming months.

Great. Thank you. As a quick follow-up, can you provide a bit more color on why you chose FMCW technology over time of flight? Specifically, any details on the core use cases regarding the SICK partnership?

Absolutely. From the SICK standpoint, this is a multiyear strategic agreement. As I mentioned, we're aiming for a production start in 2024, which presents a meaningful revenue opportunity for Aeva. SICK is a leader in logistics and automation with significant global accounts in various industries. They have over 11,000 employees and a large sales force, which we plan to leverage to efficiently scale our 4D LiDAR for a broad range of customers. To provide a rough idea of scale, we are targeting an opportunity with SICK that currently uses 2D and 3D LiDAR sensors for logistics and factory automation businesses, representing a segment valuation of approximately $1.6 billion. After working with us for the past two years, SICK decided to move forward with our FMCW technology due to its unique advantages, including voltage measurements, instant velocity, and the ability to mitigate challenges like retroreflector blooming which is critical in outdoor applications. We aim to bring Aeries II into various outdoor applications, while SICK's confidence in the advantages of FMCW technology aligns with both automotive and industrial applications.

Great. Thank you for the clarity. That’s super helpful.

Next question comes from Arvind Ramnani with Piper Sandler.

Hi. Thanks for taking my question. I just wanted to ask, I mean, you certainly have a unique approach to 4D LiDAR and you're starting to see progress with different clients. As you talked about earlier in the call, you're seeing recognition and progress as you move forward. Can you discuss the broader recognition in the industry regarding your differentiated approach, and should we expect to see further progression or additional pull forward which will impact your overall revenue?

Sure. Yes. Thanks for the question. As mentioned before, there is a growing consensus that FMCW will play a key role in enabling next-gen automation, mainly due to superior performance versus 3D LiDAR. Additionally, as we are able to integrate LiDAR on chip in Aeries II, we have achieved dramatic cost reductions since the samples, as noted earlier, over 55%. We expect to collaborate with OEMs in automotive and non-automotive sectors to continue progressing on development phases and qualification. We have already started shipping the first Aeries II units, and the feedback has been quite positive. Our collaboration with SICK is a recent win and exemplifies the expansion we're seeing for FMCW technology as we continue to scale manufacturing and bring Aeries II to customers. We anticipate this will drive new inbound interests for both automotive and non-automotive, leading to additional programs moving toward production in the coming months.

Perfect. Thank you very much.

Next question comes from Richard Shannon with Craig-Hallum.

Well, great, guys. Thanks for getting me in the queue here. I appreciate it. Maybe a follow-up on your SICK partnership. I didn't hear any comments about whether this was an exclusive arrangement, or if they're able to work with other LiDAR players. Another question: the technology you're developing with Nikon seems potentially relevant to that partnership. Is that something in future products beyond Aeries II that you might be able to utilize in that relationship?

Yes. Thanks for the question, Richard. I'm not going into the details of the commercial agreement but I can say that we believe this is a strong collaboration that enables us to expand further into industrial automation. SICK has been evaluating several players in the space for over two years and has decided to leverage our 4D technology. Regarding the Nikon partnership, this is distinct as Nikon focuses on industry metrology for precision measurement purposes. Here, we emphasize achieving micron-level precision for applications, which includes manufacturing inspection and quality assurance in automotive manufacturing. SICK, however, focuses on scanning applications and longer-range sensing. Importantly, both collaborations leverage the same foundational LiDAR chip module, yet are optimized differently based on the unique performance requirements of each application.

That's very helpful. My follow-up question concerns your frequent mention of moving programs toward production. Are we going to see a press release with some significant milestones, potentially with named customers? What exactly does 'toward production' mean? Could you clarify that, please?

Sure. Yes, absolutely. In terms of target gross production, I want to clarify that this represents one of our two programs we have targeted for this year. This is a meaningful opportunity that we are working towards with a targeted production start in 2024. We are continuing to make good progress with customers, both new and existing engagements, and working to prepare Aeries II for that production phase. We've already delivered units to several customers, and we plan to continue doing so while expanding opportunities in the coming months.

This concludes today's teleconference. You may disconnect your lines, and thank you for your participation.