Earnings Call Transcript - AEVA Q3 2023

Operator, Operator

Good day. My name is MJ and I will be your conference facilitator. I would like to welcome everyone to Aeva Technologies Third Quarter 2023 Earnings Conference Call. During the opening remarks, all participants will be in 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.

Andrew Fung, Director of Investor Relations

Thank you, and welcome, everyone, to Aeva's Third Quarter 2023 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 2023 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 most recent Form 10-Q and Form 10-K. 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. And with that, let me turn the call over to Soroush.

Soroush Salehian, CEO

Thank you, Andrew, and good afternoon, everyone. It's been an incredibly exciting time at Aeva as the adoption of FMCW, LiDAR continues to build. Aeva is leading this trend, delivering production wins in both automotive and industrial. With growing interest in Aeva's unique 4D LiDAR-on-Chip technology, and continued advancement of a number of large opportunities, we have strategically positioned Aeva to be in the strongest position for success and to secure additional wins. I would like to highlight key accomplishments that are summarized on slide four. First, I'm thrilled to share that Aeva was selected by May Mobility to be the exclusive production supplier of long-range LiDAR for their autonomous vehicle. This is a multiyear production agreement where Aeva's 4D LiDAR will replace conventional time-of-flight long-range LiDAR and was selected to help May Mobility further scale by enabling a broader operational design domain. Second, Aeva was also awarded a multiyear production program with Nikon for their high-precision industrial inspection products. We have been working with Nikon for some time now and we're excited to leverage our LiDAR-on-chip technology with micron-level precision to advance to the production phase and open new opportunities in the established and growing industrial automation market. Third, we continue to make strong progress with a top 10 OEM and are now in the final phase with this OEM. This quarter, we received the OEM's highest available rating for manufacturing readiness. This paves the way to be a potential direct supplier to the OEM and is a clear indication of Aeva's ability to support major global automotive programs. We expect the OEM to make the production program award decision over the next quarter. And fourth, we further strengthen Aeva's position for success. We are pleased to welcome Dr. Stefan Sommer, former CEO of ZF Group and Board member at the Volkswagen Group, responsible for procurement, to Aeva’s Board to help further advance our automotive OEM opportunities. Lastly, as we move to the production phase on the heels of our two multiyear production wins in automotive and industrial, and our continued momentum with top global OEMs, including a top 10 OEM, we're making a strategic decision to further bolster our already strong balance sheet with the rate of new capital of $145 million through an approximately $20 million private placement and $125 million preferred share facility with existing long-term stockholders. This strengthens Aeva's position to win additional OEM programs and support them beyond their startup production in a way that minimizes near-term dilution. I would now like to provide more color on our recent business development, which begins on Slide 6. Let's start with our production wins in automotive with May Mobility, a leader in the development and deployment of AV technology. The company has strategic partnerships with some of the largest automotive and transportation companies in the world including with Toyota, where they currently provide paid autonomous rides on the Toyota Sienna autonomous vehicle platform. Through long-term contracts with transit agencies, municipalities, and other businesses, May Mobility operates transit services across a growing number of markets in the US, including Michigan, Texas, Minnesota, Arizona, and upcoming in California. To date, May Mobility has provided more than 350,000 rides using its proprietary multi-policy decision-making autonomous vehicle technology with additional deployments planned to begin in 2024. To further scale, May Mobility has been looking for next-generation sensors that can enable expansion of the operational design domain. They selected Aeva's 4D LiDAR because they believe in the unique capabilities of FMCW technology and want to leverage Aeva to scale their operations. Compared to time-of-flight LiDAR, Aeva’s combination of long-range and direct velocity measurement for every pixel detects and classifies small hazardous objects faster and more accurately to provide the necessary reaction time across a broader range of conditions. Together with Aeva’s Ultra resolution, which utilizes our proprietary velocity data differentiating between dynamic points, we offer near camera-level resolution bringing more reliable perception that provides the confidence to expand. We believe other inherent benefits of FMCW also bring value to May Mobility's AV stack to provide real-world examples, retro reflector blooming and road time interference from other sources of light, such as the sun, challenging LiDAR performance. FMCW is inherently immune to retro reflector blooming and ambient light, enabling LiDAR to predict critical objects with no degradation in these scenarios and will clearly define object implementation. These are just some of the differentiated capabilities that we hope to bring to our partner May Mobility. As part of our production program win, Aeva's 4D LiDAR will be the exclusive long-range LiDAR on May Mobility's autonomous vehicles globally and replaces the conventional time-of-flight long-range LiDAR. The agreement includes a five-year volume commitment through 2028 with deliveries already starting this quarter and production ramping in 2025. Moving now to slide 7. We achieved an important milestone in industrial automation with the award of our first production program with Nikon to use Aeva’s LiDAR-on-chip technology to power the next-generation high-precision industrial inspection products. This suite of products is used for industrial metrology and quality control during high-volume manufacturing, and Nikon's current generation is already deployed to customers across the automotive, aerospace, and renewable energy industries, including some of the largest OEMs such as BMW, Savantis, and other automation companies. Being the same silicon photonics chip architecture used for our automotive applications, but with different algorithms to achieve micron-level precision. Aeva’s technology will enable Nikon to offer a faster and smaller solution than is currently available, bringing added value to Nikon's current customers as well as opening new opportunities for additional applications. The production award comes after two years of close collaboration with Nikon, developing and validating our LiDAR-on-chip technology which meets Nikon’s stringent performance requirements. Aeva’s start of production is on track to the target we set two years ago and is planned for late 2024. This production agreement includes minimum volume commitments from Nikon over the multiyear program. Beyond this, we continue to be engaged on additional opportunities in the industrial space. As we have previously discussed, the industrial automation market is an established and growing multibillion-dollar opportunity and high-precision measurement is a growing field within industrial automation where we are seeing strong interest in Aeva's unique capability. Because of this pull from the market, we developed a perception platform for high-precision measurements that utilize software to adapt performance for different requirements across multiple non-automotive applications. Nikon will be the first to use this perception platform, and we look forward to bringing additional applications to the market. Let's turn to slide 8 to discuss the latest in our collaboration with a top 10 OEM. This quarter, we continued to make strong progress with the OEM, most notably, the approval of Aeva’s manufacturing processes and ability for Aeva to be a potential direct supplier to the OEM. I'm incredibly proud to say that Aeva received the OEM's highest rating category for manufacturing readiness, which the OEM indicated is only given to a small percentage of their supplier base. The rating is based on a comprehensive audit of Aeva’s manufacturing team and processes and an on-site assessment of Aeva's manufacturing partners' automated production facility. This is a clear validation of Aeva's maturity and ability to operate as a direct Tier 1 supplier for a large global automotive program. Over the quarter, this OEM has continued to expand their vehicle fleet with Aeva's 4D LiDAR to support their milestones and overall AV stack. We remain highly encouraged by our progress and ability to help the OEM achieve their stringent requirements and use cases. This has resulted in Aeva being further down-selected to the final phase of this OEM. We expect the OEM to award the production program in the next quarter and hope to have more to share soon. Moving now to Slide 9. We are excited to have Dr. Stefan Sommer join Aeva's Board of Directors. Stefan brings an extraordinary breadth of experience as an automotive industry veteran with a history in leadership roles in the automotive sector. Stefan's past leadership roles include some of the largest global automotive car makers, including Member of the Board at Volkswagen Group and Head of Component and Procurement at VW Group, as well as leading some of the most renowned automotive Tier 1 suppliers, including as the CEO of ZF Group, where he led and executed a strategy that helped ZF to become one of the world's largest Tier 1 suppliers. With Aeva's commercial momentum in automotive, Dr. Sommer's experience will be invaluable as we work together to bring automotive programs to SOP and work towards winning additional opportunities. Given his deep knowledge of the automotive industry, Dr. Sommer's interest to join Aeva's Board points to the significant potential of Aeva's differentiated technology. We look forward to working together to accelerate the adoption of Aeva's 4D LiDAR. And with that, let me turn the call over to Saurabh to discuss the financials.

Saurabh Sinha, CFO

Thank you, Soroush, and good afternoon, everyone. Let's turn to Slide 11, which summarizes Aeva's financial results for Q3 2023. Revenue for Q3 was $0.8 million, which continued to be driven by growing deliveries of Aeries II. Non-GAAP operating loss was $30.3 million, as we maintained a deliberate and strategic approach to R&D and other operating spend. Reflecting on our cash spend for the quarter, gross cash used, which we define as operating cash flow, less capital expenditure, was $29.1 million. Our balance sheet remains strong with $233.7 million of cash, cash equivalents, and marketable securities at the end of Q3 and weighted average shares outstanding in the quarter was 222.8 million. To sum it up, Aeva is maintaining strong financial discipline while making significant progress on our commercial momentum. As we move to the important stage of preparing for the start of production, we will continue to be thoughtful in managing our capital with a focus on positioning Aeva to support our existing customers as well as winning additional programs. As part of this focus, we made a strategic decision to further bolster our already strong balance sheet with additional capital, as summarized on Slide 13. I would like to share more about what drove this decision. This year, we have been making significant progress on our objectives, from multiple production program wins to advancing other engagements, such as with the top 10 OEM, and demonstrating the maturity of Aeva's manufacturing ability to support production programs. Because of this, we continue to see growing interest in our 4D LiDAR and are near the final decision stage on a number of opportunities. We believe the additional capital strategically puts Aeva in a stronger position to win additional programs. By building OEM confidence in our ability to support multiple programs, including with other major automotive OEMs looking to select few suppliers who can support their high-volume production programs beyond SOP. In total, we reached agreements for additional capital of 145 million with some of our largest and longest-standing stockholders, Adage and Sylebra, demonstrating their continued strong conviction in Aeva's unique technology and potential. Importantly, the financing structure minimizes near-term dilution with approximately $20 million of the total through a private placement of common stock. The remaining $125 million is a non-voting preferred shares facility that is currently undrawn and can be drawn at Aeva's discretion upon a new automotive OEM production win. This flexibility will enable us to be strategic in how and when we may utilize the additional capital, demonstrating our continued focus on taking a prudent approach to capital deployment. And with that, I will hand the call back to Soroush for closing remarks.

Soroush Salehian, CEO

Thank you, Saurabh. When we started Aeva, we set out to bring a unique perception solution to a broad range of applications from automated driving to industrial automation and beyond. While the macro environment has been challenging, I can say that I've never been more convinced in Aeva's potential and future outlook. Our transition from development phase to production phase is gaining momentum with our latest production program wins with May Mobility and Nikon highlighting both the broad applications for 4D LiDAR and bringing us on track for production deployments by 2025. We believe this is only the beginning. We continue to advance on a number of other large near-term opportunities, such as with a top 10 OEM, expanding our board with leading automotive executive experience, and strategically bolstering our balance sheet to put Aeva in a further position of strength to secure additional production wins and support OEMs beyond their start of production. I would like to thank our talented and dedicated team at Aeva, who are enabling us to achieve these milestones. Together with our stakeholders, I am excited to continue executing on our mission and bringing 4D LiDAR to market. With that, we will now open the line up for questions.

Operator, Operator

Today's first question comes from Joe Moore with Morgan Stanley. Please go ahead.

Joe Moore, Analyst

Great. Thank you. I wonder if you could talk about the progress with the Tier 1 win that you talked about. I guess if you're going to be able to make the announcement in the next quarter, does that mean that their business has already won and that the announcement is kind of more of a formality? And I guess, will you be able to disclose what the customer is, at that time?

Soroush Salehian, CEO

Hey, Joe, yes, happy to answer the question. Look, what I can say is as we talked on the call and as we have talked throughout the past few months, we have continued to make step-by-step progress in a stronger and stronger way with this OEM. In the past few months of the past quarter, they have deployed additional vehicles using our LiDARs with our technology on the road. And what we are now is really in that final phase of the discussions, the negotiation, and the commercial topics as it goes towards the production award. It has not been awarded yet, but as mentioned, we're feeling strong about that, and we intend to receive the nomination award decision from the OEM in the next quarter. Of course, we fully hope that we can also talk about and name the OEM at that time. So, and obviously, this is a top 10 OEM. So we think this is definitely a very important program that we've been working towards for some time. And on the heels of some of these wins and all the announcements we talked about today, we continue to make progress with this OEM, but also with other top global OEMs that we're progressing and advancing with across automotive as well as industrial applications.

Joe Moore, Analyst

I wanted to ask about that. If you are close to making an announcement with a top 10 OEM, considering the capabilities of your technology, it seems that would generate enthusiasm. What timeframe should we expect if there's interest from other OEMs? How long would it take to translate that into potential revenue in the future?

Soroush Salehian, CEO

Yeah. So as we have talked about, the programs we're talking about here, first of all, the two wins that we actually announced this week are both for mid-decade SOPs, right? So May Mobility in 2025, Nikon in 2025, different industries. We have been talking about this for some time. We said we're going to go to production in 2025. Now we are showing validation, and these are, I think, two big points that are showing then. Additionally, this other program, including a top 10 OEM, also has similar mid-decade type SOPs. We have not shared that yet, and at the right time, once we can talk about it, we will. But that's when things are going to also start transitioning as we go along as we're moving now from this kind of development phase towards the production phase, we believe that's going to start to translate towards those increasing revenues and also actual shipments with multiple of these customers. So that's what I can say right now. But I think from a timing standpoint, those timelines remain as we have discussed before.

Joe Moore, Analyst

Great. Thank you very much.

Operator, Operator

Thank you. The next question is from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch, Analyst

Thanks so much, guys. As you've gotten OEMs starting to work with some of the velocity data in a little bit more detail. Can you talk about what you're seeing in terms of how they're using it and what it's allowing them to do in terms of differentiating between different types of objects as well as simplifying navigation systems?

Soroush Salehian, CEO

Yes, Colin. I'm glad to address that. We've been discussing the gradual shift in perception and sensing technologies over time, moving from time of flight, particularly in long-range sensing, towards FMCW. This transition is evident in automotive applications and is also occurring in industrial settings. Our recent analyses and validation efforts, including our production deal with May Mobility and Nikon, are bringing these developments to fruition. In the automotive industry specifically, OEMs are interested in transitioning to Aeva to enhance their capabilities. The focus is not just on making a switch but on enabling functionalities that were previously unattainable, which allows them to broaden their operational design domains. As they transition from lower to highway speeds, numerous use cases emerge that need to be addressed. Many of our OEM partners have faced challenges related to the risks associated with their previous technologies. By utilizing Aeva and our unique TW approach, they can critically leverage velocity parameters, benefiting from reduced interference, long-range sensing, and enhanced features. This is not just about specifications; it’s about solving real-world use cases to facilitate safe highway autonomy, which is an exciting development as we see it materialize during real-world testing. For example, May Mobility is aiming to expand their design domain, a difficult task with their prior solutions. However, with our strategy, they recognize the potential to scale their operational capabilities. In addition to automotive, we also identify growing opportunities in industrial applications, illustrating the adaptability of our technology to improve performance, size, and cost. We are witnessing momentum through collaborations, such as with Micron, which is validating and moving towards production. Ultimately, it’s about enabling new use cases and assisting customers in achieving what they couldn’t do before, which is our primary focus. I hope that clarifies your question.

Colin Rusch, Analyst

Yes. It's incredibly helpful. And then on the manufacturing side, as you ramp up with Fabrinet, can you talk about where the real meaningful challenges are for you guys right now, between now and when we start delivering to Micron? It seems like you guys have to be getting awfully close, so I want to understand what sort of hurdles are remaining before you feel really confident on scaling out.

Soroush Salehian, CEO

Yes. As we mentioned, I’d like to briefly discuss the opportunity with Micron in response to your question. We've been working on this for approximately two years now, and we set a goal to begin production by 2025. This week, we confirmed that we are not only on track but have also completed the validation process, meeting the strict requirements for micron-level precision, which is a distinctive aspect of FMCW, as we understand it. From a timing perspective, this indicates that we will need to initiate our production ramp for Micron by late next year to ensure availability by 2025. We have been focusing on this for quite some time. Earlier this year, we planned to enhance our manufacturing capabilities on the system side, and we are actively working to incorporate additional automation for the production of our LiDAR-on-Chip module, which is the core component we supply to Micron. Moving forward, we will provide updates on our progress as we get closer to the timeline. Meanwhile, we are collaborating with Fabrinet and the team on-site to prepare and expand our output, throughput, and yield in our automated manufacturing process.

Colin Rusch, Analyst

Thanks so much. Appreciate it.

Operator, Operator

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

Suji Desilva, Analyst

Hi Soroush. Hi, Saurabh. Question on the top 10 OEM as well for me. I just want to be clear, the one you're talking about here, is that the same one with the award win you announced and the perception stack? I just want to clarify that.

Soroush Salehian, CEO

Yes. This is the same.

Suji Desilva, Analyst

All the same, well, okay.

Soroush Salehian, CEO

Yes. One that we’ve been talking about.

Suji Desilva, Analyst

Great.

Soroush Salehian, CEO

It's not the only one that is hedged, obviously...

Suji Desilva, Analyst

Understood.

Soroush Salehian, CEO

There are multiple OEMs that are…

Suji Desilva, Analyst

Understood. And then for this OEM, have you specified whether this engagement is for a broad platform win for the OEM that will be multiple models and across whether it's a target sort of vehicle, just to understand if you've kind of clarified the breadth of your opportunity here.

Soroush Salehian, CEO

Yes. No, we have not discussed that. I think that will be, I think, the right opportunity in the future as we go towards the final decision coming up. But what I can tell you is, obviously, the opportunity is from a top 10 OEM with large volumes and production in the middle of the decade as we've talked about. So this is not some sort of a pilot program or something like that that we're talking about here.

Suji Desilva, Analyst

Okay. That color definitely helps. And then lastly, on the OEM or just in general, with the auto OEM waterfall wins, is there anything that gets easier after you secure this first one publicly to start kind of delivering to them in terms of the second, third, and fourth? Just want to understand how that might be or whether they're each kind of fresh starts.

Soroush Salehian, CEO

Yes. First of all, I hope you can already see some of the trends emerging. We've been discussing our progress and growing momentum in this area and converting more programs into wins. This week, we announced two wins in each sector, which is very exciting for us. For instance, in May's case, they have previously used some of our solutions and are familiar with the technology. This familiarity allows us to capitalize on opportunities and accelerate our progress because they know what to expect. Many of them recognize the benefits that help them expand operations and ramp up deployments. We firmly believe that all the efforts we've put in, especially in the last few months with two OEM wins, the addition of Dr. Sommer to our board, his extensive experience as CEO of ZF, and his role at Volkswagen, combined with strengthening our financial position, puts Aeva in a strong spot to secure more programs as we approach production. It also reassures our customers that they can rely on select players who not only win contracts but also support them beyond the start of production. This is part of our multi-step strategy. We believe that winning our first major OEM program will make it easier to secure subsequent wins.

Suji Desilva, Analyst

Okay. Very helpful, Soroush. Thank you.

Operator, Operator

Thank you. The next question is from Richard Shannon with Craig-Hallum. Please go ahead.

Richard Shannon, Analyst

Hi everyone. Thank you for taking my questions as well. I wanted to touch on the top 10 OEMs. Soroush, you mentioned that you were down selected this past quarter. Does that mean you're the only supplier they are considering, or are there others?

Soroush Salehian, CEO

So, look, at the end of the day, we never know in terms of what the customer does, and that is not something that necessarily we look at. I think what we really look at is, there has been multiple layers of down-selection that's happened. At this stage, we're in the final phase. As I mentioned, with the decision coming up in the next quarter. But also importantly, we haven't worked with this OEM for some time and they have already started deploying our sensing technology on their vehicles, which actually replaces some of our technology as we have talked about in the past, right? That is what I can say right now that gives us that additional further information and support that we're looking for. Obviously, we're also working on providing some of our perception and collaborating with the OEM on the perception to really utilize FMCW advantages, improving the velocity. Since the last time we spoke, of course, OEM has also deployed our LiDAR on additional vehicles that they have continued to build. So, a number of things happening, but I think that would stop there for the information.

Richard Shannon, Analyst

Okay. Fair enough. Appreciate that color. My follow-on question here is related to May Mobility. How do we think of them in terms of the ultimate scale of opportunity that exists with them through 2028? I don't know if this is something that's even within our expected magnitude of a typical automotive OEM you're going with? Any way you could give us some color on hoping that could be relatively speaking.

Soroush Salehian, CEO

Sure. Happy to. So let me give you a little bit of color about May and answer your question hopefully there. So obviously, we're very excited about this. It's one of the first deployments for us in the mobile sector, starting with our deployment this year. I'll give a little bit of background on May and kind of give you some context about the size and the comparison you mentioned. First of all, May has been around for a long time, working with a number of players, and they're partnered with some of the largest automotive companies, including Toyota. They're operating paid autonomous rides today in four states with more coming next year. They have done over 350,000 rides and are taking a more measured approach when it comes to scaling compared to some of the other players, really through paid contracts in new municipalities and cities. In terms of scale, I may have talked about this; they're scaling the operations by thousands of vehicles in the next few years here. Again, what they see in Aeva is the unique FMCW approach, enabling them to really expand their current operations' design domains from where they are now to really enable scaling as they continue to expand. We're talking about a multiyear production deal where Aeva is the exclusive long-lived LiDAR supplier for many vehicles globally. We have minimum volume commitments starting from this quarter every year through the end of 2028. In terms of the size of this opportunity, we actually believe this is similar to the potential size of some of the initial luxury passenger vehicle programs that are coming to the market. That's what we can say; May probably has about 1,000 vehicles, and we're talking about multiple LiDAR per vehicle. The other thing that I think that's interesting here is as converted to the luxury passenger or on the luxury passenger car model. The mobility business model does enable us in a mutually beneficial scenario to have higher ASPs than typical passenger vehicles, which are considerable. That's why in terms of the overall size, we're actually pretty excited about this. This aligns to the timing of what we have always talked about in 2025 with our solar production, so we're working hard towards delivering our commitments and really excited to partner with them for years to come.

Richard Shannon, Analyst

Okay. Appreciate that detail as well. I will jump on the line, guys. Thank you very much.

Operator, Operator

Thank you very much. This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.