Earnings Call Transcript - AEVA Q4 2022

Operator, Operator

Good day. My name is Doug and I'll be your conference facilitator. I'd like to welcome everyone to Aeva Technologies' Fourth Quarter and Full Year 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'd 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 fourth quarter and full year 2022 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 fourth quarter and full year 2022 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 Dardashti, Co-Founder and CEO

Thank you, Andrew, and good afternoon, everyone. 2022 was a significant year at Aeva, that was marked by a number of milestones that moved us forward on the path towards production. I would like to summarize our key achievements on Slide five. First, we introduced Aeries II, the world's first commercially available 4D LiDAR offering high performance and a smaller form factor. Over the course of 2022, we shipped to more than 40 customers. Importantly, this has enabled us to progress on a growing number of vehicle programs to the advanced or RFQ stage with leading OEMs. Second, our commercial progress was possible because of our ability to bring up our initial manufacturing line; launching a new product is not trivial, and I am very proud of the work the Aeva team accomplished to increase the pace of production by approximately three times by year-end, and enable us to meet more of the growing demand for our unique products. Third, we solidified our accelerator expansion into the established and growing industrial automation markets, with the addition of our collaboration with SICK AG. We also completed core development of our LiDAR-on-Chip perception platform for industrial automation, which we are using for our existing customers, including Nikon, as well as to grow our opportunities in industrial automation and fourth, all of this was accomplished while maintaining a sharp focus on spend. OpEx came in below the outlook we provided for 2022 by more than 10% without limiting our ability to execute. We ended the year with $324 million in cash and marketable securities, which positions us well to continue investing strategically to bring Aeva 4D LiDAR to market. Turning now to Slide seven, I would like to provide more color on recent business developments. The Aeva team has been laser-focused on advancing our growing commercial momentum and our efforts are beginning to show meaningful progress. In particular, I'm excited to share that Aeva has been selected by a top 10 global OEM for their vehicle development program. We are starting to deploy Aeva 4D LiDAR as the long range LiDAR on this OEM on-road development fleet, where valuable real-time data with a new dimension of velocity will be used to define the specifications for production vehicles with a targeted 2025 start of production. We have been engaged for some time with this OEM and now they can start to incorporate Aeva's unique velocity data and the perception software to achieve their high standards for safety. Because FMCW can instantly measure velocity for every pixel and is immune to interference from other LiDARs or the sun, it can provide unique advantages over time of flight or 3D LiDAR in detection and classification of critical objects on the road. We believe this helps OEMs with a better margin of safety and to achieve the performance needed for broad deployment of advanced ADAS and autonomous capabilities. We hope to share more details on this collaboration over the course of this year. Moving to Slide eight, I would like to discuss our progress in industrial automation. In Q4, we completed the core development of our LiDAR-on-Chip perception platform for industrial automation, which utilizes the same chip architecture we are using for automotive, but with different software to pursue the large and growing precision distance measurement market, which is a subset of the large industrial automation sector. Precision distance measurement is used across many industries for manufacturing, inspection and quality control. While the market is already multi-billion dollars in size, broader adoption has been limited by current solutions that are typically challenged in meeting the right balance of performance, cost and size all in one solution, often resulting in multiple product architecture skews for each application to achieve; for example, short, mid or long range distance measurements. Through adaptable software, Aeva's LiDAR-on-Chip can achieve the needed level of precision across multiple applications from short to longer ranges, all on the same scalable, silicon photonics architecture at affordable costs in a compact form factor. We think this performance flexibility can bring immense value to the end user and allows us to pursue multiple opportunities with the same platform. We're using this platform starting with our collaboration with Nikon, leveraging Aeva's ability to achieve micron-level precision for industrial metrology applications. Additionally, our plan this year is to leverage our LiDAR-on-Chip perception platform to respond to a growing pool from the market and distance measurements for large scale opportunities. Let's turn to Slide nine. After successfully bringing up our initial manufacturing line last year, I am pleased to share that we are expanding to a new manufacturing line in 2023 to support our growing commercial momentum. This line simplifies the overall manufacturing process and is where we complete our LiDAR system assembly, calibration, and testing. We expect this new added capacity to sufficiently support our product deployment needs to existing customers and new opportunities until mass production. Earlier this year, we began manufacturing on this new line and expect process optimizations to continue over the next few months. Along with the higher capacity, our new line will allow us to also implement increasing levels of automation as we progress towards production. Turning now to Slide 11, I would like to share more about our key goals for this year. Our priority is to convert more of our commercial progress to program wins and focus on the following objectives in 2023. First, we target winning two additional programs towards production. We're progressing on a growing number of vehicle programs to the advanced or RFQ stage with leading OEMs. In addition, this year we are looking to further our engagements within major industrial sensing opportunities where we can leverage our LiDAR-on-Chip perception platform. We do not expect to win all of our engagements, but do believe we are in a position to secure additional programs towards production this year. Second, we plan to complete key product development in automotive and industrial. In automotive, this includes completing the final form factor that will be used for series production. For industrial automation, we will continue to iterate on our platform this year to prepare for market release and expand additional opportunities for deployment at scale. Third, complete the expansion of our new manufacturing line, which we expect to provide sufficient capacity to support our existing customers until production and secure additional production programs. And fourth, we are focused on maintaining strong financial discipline as we work to bring Aeva 40 LiDAR to market. As Saurabh will discuss in more detail next, we target OpEx in 2023 to be similar to 2022. We have a strong balance sheet and will continue to strategically invest to meet the increasing demand for our unique 40 LiDAR technology. With that, let me turn the call over to Saurabh, who will discuss the financials.

Saurabh Sinha, CFO

Thank you, Soroush, and good afternoon, everyone. Let's turn to Slide 13 to discuss our full year 2022 financial results and 2023 financial outlook. Revenue for full year 2022 was $4.2 million, which included revenue of $8.1 million, that was partially offset by an adjustment of $3.9 million due to an existing customer's roadmap revision towards less customization. This aligns with our standard product line capabilities. We look forward to continuing our collaboration with this customer on their program. Non-GAAP operating loss for the full year 2022 was $127.7 million, which primarily consisted of R&D expenses. In addition, we continue to efficiently manage operating expenses and it came in below our annual outlook for 2022 by more than 10%. Our gross cash use, which is operating cash flow less capital expenditures was $117.4 million for the full year 2022. This enabled us to end the year with a strong cash, cash equivalent and marketable securities position of $323.8 million. Weighted average shares outstanding for the fourth quarter was $218.4 million. Turning now to a financial outlook for 2023; as Soroush said, this year we are focused on increasing our wins and supporting our customers on product validation and development of their end product. We are targeting revenue in 2023 to grow by at least 50% year-over-year, driven by higher product deliveries to our key customers. As we are bringing up our new manufacturing line and optimizing processes in the first half of the year, we expect 2023 revenues to be back-end loaded. We are targeting non-GAAP operating expenses, which exclude stock-based compensation and other potential non-recurring charges to be similar to 2022. And lastly, Aeva's balance sheet is strong and we continue to have significant capital to execute on our plan to ramp up product shipments, support our existing customers and convert additional programs toward production. I will now turn the call back to Soroush for closing remarks.

Soroush Dardashti, Co-Founder and CEO

Thank you, Saurabh. In summary, we are really excited about our growing commercial momentum and the opportunities ahead in 2023. Over the past quarter, we have made substantial progress on multiple programs with global OEMs, thanks to the tremendous work by the Aeva team. Similarly, we are actively engaged on growing opportunities to use our LiDAR-on-Chip perception platform for large scale implementation and industrial automation. Our focus in 2023 is on winning these opportunities and continuing to work towards production with our existing partners. We are in a strong position with our unique technology and financial position to do so, and I look forward to sharing our progress over the course of this year. With that, we will now open up the line for questions.

Operator, Operator

Our first question comes from Colin Rusch at Oppenheimer. Please go ahead with your question.

Colin Rusch, Analyst

Thanks so much, guys and congratulations on all the progress. With the increased availability of product, and having been able to get samples out, can you talk a little bit about the availability of samples and how it's changing the scope and scale of the customer engagement that you're able to work on at this point?

Soroush Dardashti, Co-Founder and CEO

Sure, Colin, happy to answer that. This is Soroush. So, obviously as we set the goal last year to release Aeries II, this was a key milestone for us. We did achieve that goal. We really delivered on launching Aeries II and this has been a key factor for us, right? As I mentioned on the call, that launch resulted in us being able to shift over 40-plus customers. We have further expanded with that, our ability to secure new partners in industrial as well including with the collaboration with SICK AG, of course, in addition to our existing collaboration with Nikon and, we've also made good progress in bring up our initial manufacturing in mind. So all of that has really resulted us to actually now continue our progress towards advancing to the late stage or our few stages with multiple customers, which obviously if we could not deliver Aeries II would've been a problem. So that's been a big win-win for us. I think also generally the feedback customers have been quite positive and we are making now meaningful progress and case in point is the top 10 OEM decision that I mentioned on the call to start implementing our LiDAR on their vehicle fleet, which is a significant milestone for us as well. So hopefully that answers your question.

Colin Rusch, Analyst

Yes, that's helpful. And then with the manufacturing process, can you talk a little bit about the key areas of maturation that you're working on right now, this year, and then also the CapEx spend that you're planning to put into that line this year as you work towards a larger scale?

Soroush Dardashti, Co-Founder and CEO

This year, we are expanding our manufacturing to a new line, which will significantly enhance our capacity. It's important to note that our overall LiDAR system manufacturing process is being simplified, and we are increasing automation. With this new line, we will have enough capacity to support our customers and new wins until we reach full production. This new line is crucial for setting us up for future opportunities and securing those wins. The focus is on continuing process optimizations over the next few months and further elevating our automation levels to scale our product deliveries to key customers for the rest of the year.

Operator, Operator

Our next question comes from the line of Antoine Chkaiban with New Street Research. Please proceed with your question.

Antoine Chkaiban, Analyst

Hi, Andrew, Soroush. Thanks for the update and for taking my question. So yeah, maybe my main question is, recent news flow suggests that multiple LiDAR enabled L3 designs are getting pushed out by one to two years and can you maybe please give us your latest perspective on the situation what you are hearing in conversation with OEMs and in particular, has anything changed with regards to whether those L3 platforms will adapt LiDAR when they eventually ramp, and what their latest thoughts are on time of flight versus FMCW?

Soroush Dardashti, Co-Founder and CEO

Yeah, sure, Antoine, happy to answer that. So, I think generally obviously OEM-to-OEM vehicle type to vehicle type and level automation, there is differences and approaches from between across these folks, there is differences in the timings. I think some of the can assume from what we hear in the industry, some of the very, very high level, super high level automation obviously has, timelines wise, is what we are seeing is pushed out. But from those L3 plus and ADAS applications from automation, that's actually where a lot of the focus is and this has been critical for our case in terms of our advancement throughout the opportunities evidenced by the fact that we've been able to actually provide units to our customers and start delivering samples so they can actually validate, but also importantly, that now these OEMs starting to actually make progress towards RFQ stages. So we're now in multiple RFQ programs as a result of our ability to ship last year with Aeries II and there are a number of decisions that are happening. We expect to happen this year and one of course, case in point of this clear evidence is that this top-10 OEM that we talked about, which is an established leader in automotive, as I mentioned on the call with significant scale and we've been working with this OEM for some time now, and this OEM was tested with other three LiDARs in the prior development stages since our close collaboration is now in the next stage is actually decided to adopt our LiDAR technology, the four LiDAR as the long range LiDAR on the fleet vehicle. So that's, to your point about what the advantages that the folks are seeing; I think that's now starting to take shape and it continues to build on our belief that the industry over time is going to transition to FMCW, but again, we are pretty encouraged by the progress we've made and excited to start off the year with this growing momentum here.

Antoine Chkaiban, Analyst

Thank you for the information. As a quick follow-up, you mentioned that you're making good progress on multiple vehicle programs and are at the advanced RFQ stage with leading OEMs. Could you provide us with an update on how things have progressed compared to 90 days or 180 days ago? This would help us better understand how the momentum is building. That would be greatly appreciated.

Soroush Dardashti, Co-Founder and CEO

Yeah, sure. Look, as I said, as a direct result of our ability to actually ship product to customers and also some of the customers now decisions happening this year, and we are now fortunate to be advancing to those RFQ stages and advances on multiple programs with decisions happening in the next number of months. One, two is we are seeing some of those OEMs after they start actually implement and use our technology to really start realizing how they can leverage the key dimensions such as velocity, the differentiation of our technology. And this in large part is helping some of those folks to achieve some of the high level standards that they could not achieve before with other solutions, right? So that I think is some of the traction and actually evidence that we're seeing from the customer before we expect to continue working through these program opportunities, RFQs with these customers as well as supporting this top-10 OEM as they work towards production as I mentioned with the targeted SOP of 2025.

Operator, Operator

Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Joseph Moore, Analyst

Thank you. Regarding the new OEM arrangement you mentioned, you referred to it as a development agreement with the intention to move to manufacturing in 2025. Could you explain what that development agreement entails? Is it a commitment to a certain volume? Are there prospects for volume contingent upon meeting specific milestones? How should we interpret what a development agreement signifies in terms of the certainty of revenue commitment?

Soroush Dardashti, Co-Founder and CEO

I'm happy to answer that. Let me provide some background. This OEM is a well-established leader in the automotive industry with a significant presence, and we've been collaborating with them for a while. They previously evaluated other 3D time-of-flight LiDAR systems, but after working closely with us, they've chosen to utilize our technology as their long-range LiDAR solution. This means we anticipate that our product will replace the 3D time-of-flight LiDAR across their vehicle fleet. Regarding your question about the development process, it involves several elements. First, we are deploying our LiDAR technology on their vehicles, providing them with sensors that they are integrating. Additionally, they're beginning to incorporate our velocity data products and perception software into their systems, which is crucial as we aim to define the overall setup for their production vehicles using our velocity data. We’re collaborating to establish the specifications for production, targeting a start of production in 2025. A key factor in their decision to adopt our technology for their vehicle fleet is that they couldn't meet the safety and performance standards they sought with other solutions. With our technology, they are beginning to understand the capabilities they can achieve by adding velocity, especially concerning long-range detection—an area where other time-of-flight solutions face challenges. This further illustrates the unique advantages of FMCW technology.

Joseph Moore, Analyst

Great. It sounds like a great win. When you think about attach rates out in the 2025 timeframe, is this the kind of thing that would be part of sort of an option package that people would buy for the car? Would it be standard in all the vehicles? May maybe not, if you can't talk to the specific one as you just think about 2025 types of production, is it more of like a driver assistance package or is it part of the standard delivery?

Soroush Dardashti, Co-Founder and CEO

Yeah, so I obviously can't comment on the specific details yet, but, our expectation is that this is for higher level automation product and it's obviously using the LiDAR sensor technology is crucial for the OEM achieving their specific use cases specifically as we talked about on, for example, highway driving, long range sensing. So that's what I can say at this time. And we're really focused on helping this OEM achieve those requirements that they could not really be able to achieve before for their production vehicle program.

Operator, Operator

Our next question comes from the line of Tristan Gerra with Robert W. Baird. Please proceed with your question.

Unidentified Analyst, Analyst

Hi, this is Tyler on for Tristan. Thanks for taking the questions. How has the competitive landscape for FMCW technology changed? Are Intel's Mobileye and other players still working to develop the technology, or have you seen any changes there?

Soroush Dardashti, Co-Founder and CEO

I can't speak for others, but it's clear that we are not the only ones bringing this technology to market. We believe we have an edge in our technology approach, having invested significantly in protecting our intellectual property and currently holding one of the largest portfolios of granted patents in this field. Additionally, we have been developing our product for nearly seven years, which has required substantial investment and development. This effort has allowed us to secure key partnerships and prepare for upcoming production programs. While there are others in this space, we take competition seriously. We anticipate a shift from time of flight to FMCW technology over time, and the actions of major players, like Mobileye, adopting this strategic approach are positive for the industry. It demonstrates the advantages of FMCW, which we see as beneficial for the broader market. We expect more players to enter the field in the coming years, but we aim to maintain our leadership in FMCW through our unique technology and our focus on ramping up manufacturing and launching our first product.

Unidentified Analyst, Analyst

Great. And maybe a quick follow-up to what you just said and to a previous question, can you provide an update on the timing that you expect for that transition to FMCW both for robotaxis and then also personal vehicles?

Soroush Dardashti, Co-Founder and CEO

As we've discussed, the first launches with our top 10 OEM partners are expected to occur around 2025. In the automotive sector, programs typically have multi-year cycles, and these changes won’t happen immediately. I anticipate that there will be further successes in the time-of-flight domain even this year. The fact that OEMs are beginning to adopt and implement the FMCW approach is a significant indication that the transition is underway. It's important to note that while this process will take a few years to fully complete, we believe that multiple technologies will coexist in the coming years, and it will take time for these shifts to materialize.

Operator, Operator

Our next question comes from the line of Suji Desilva with ROTH Capital Partners. Please proceed with your question.

Suji Desilva, Analyst

Hi, Soroush. Hi, Saurabh, congratulations on the progress. Soroush, regarding the top 10 global OEM development, what milestones should we be mindful of leading up to 2025? If you can't provide specific details about the top 10 you've just secured, could you share general expectations after announcing an on-road development? What should we anticipate in the first couple of years before ramping up volume?

Soroush Dardashti, Co-Founder and CEO

Thanks for the question, Suji. The key for us is collaborating with this OEM to integrate their technology stack with our unique capabilities. We believe this combination will be powerful as they utilize our unique data products. For instance, transitioning from black and white to color cameras will provide valuable new insights. Our focus is on deploying our LiDAR systems in their fleets, integrating our data products, and helping them develop their software stack for production vehicles. This collaboration will be critical in the upcoming months. Regarding the fleet process, the next steps typically involve the traditional awarding process, including RFQs. We are currently advancing with several others towards the RFQ stages over the next few months, and we anticipate some decisions will be made this year. These are a couple of key points to keep an eye on.

Suji Desilva, Analyst

Okay. For a follow-up, I think I know the answer to this, but does every customer have to go through the phase of accessing your velocity data and capabilities for the first time, integrating it with their own, or can some customers simply leverage the knowledge you've built in-house over the past few years and move forward without that? Will all customers need to go through this process?

Soroush Dardashti, Co-Founder and CEO

The short answer is that as we implement this for initial customers, one key point is that even for this top-10 OEM, they are starting to utilize not only the velocity but also our perception software. This is an important value proposition because it helps them speed up their integration process. It’s not an overly lengthy process, and our considerable experience with FMCW data, along with our development of the perception software in tandem with our hardware, is crucial. As we communicate more in the future, we will elaborate on this. This specific top-10 customer, among others, will be able to leverage our perception software to enhance those integration aspects. What I mean is that they typically have a standard process to follow while building their vehicle fleets before an official launch. This is significant, and we view this as a validation point that allows us to gather insights and offer the perception software and its outcomes to other customers as well.

Operator, Operator

Our next question comes from the line of Kevin Garrigan with WestPark Capital. Please proceed with your question.

Kevin Garrigan, Analyst

Yeah. Hey guys. Thanks for letting me ask the question. Just one quick one for me. So besides Nikon with industrial metrology and SICK with industrial sensing, what are some other applications customers are looking to deploy your LiDAR for, and can you kind of remind us of your strategy in industrial market? I don't think you guys are going after every single application, but what are some areas you're focusing on, if any?

Soroush Dardashti, Co-Founder and CEO

Thank you for your question, Kevin. This is an important area for us as we are seeing increased interest in industrial applications. Industrial is a broad term, and while we are not targeting every aspect, I can break this down into a few segments. One area is industrial sensing, highlighted by our collaboration with SICK AG, a leading company in that space. We are offering sensor solutions starting with our Aeries II products for applications related to safety, automation, and logistics. The other focus is precision distance measurements, which are applications that don't involve scanning but require precise measurement of distances or features throughout the manufacturing process. This includes inspection, metrology, and safety interactions between humans and manufacturing equipment. With our recently completed LiDAR-on-Chip module, we can now achieve micron-level precision. One of our first customers in this space is Nikon, which is using our technology for high-volume automotive manufacturing. We also see interest for distance measurement applications across other areas, suggesting clear business potential for large-scale deployment. Our technology can measure distances from a few centimeters to hundreds of meters, and unlike other solutions on the market, we provide a compact silicon chip platform that delivers high performance and micro-level precision at an affordable cost. This enables one solution to address multiple applications across various ranges. We believe there is significant opportunity here and are actively engaged with various prospects, and we will share more details as they become available.

Operator, Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. Soroush Dardashti

Soroush Dardashti, Co-Founder and CEO

Thank you for joining the call and we will see you next time.

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.