Earnings Call Transcript - AEVA Q1 2023

Operator, Operator

Good day, Ladies and gentlemen, and welcome. My name is Judith and I'll be your conference facilitator. I'd like to welcome everyone to Aeva Technologies' First Quarter of 2023 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 first 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 first 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 risk 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, Co-Founder and CEO

Thank you, Andrew, and good afternoon everyone. In Q1, the Aeva team was focused on advancing the commercial momentum for Aeva's unique 4D LiDAR-on-Chip technology, and I'm happy to share that we made significant progress in a number of notable areas. I would like to highlight our key accomplishments this quarter, which are summarized on Slide 4. First, progress with the Top-10 OEM is going well. We have recently received feedback that Aeva 4D LiDAR is enabling a key safety use case that was previously unattainable by the OEM. I am excited to share that we are also in discussions to deepen our relationship to include joint perception software development, leveraging Aeva's unique combination of high resolution, long-range, and instant velocity. Second, we are seeing encouraging progress with other opportunities in automotive. This includes a joint development engagement with a passenger vehicle OEM looking to switch from 3D Time of Flight LiDAR as well as advancing to a growing number of RFQs. And third, reception for our perception platform for precision distance measurement has been quite positive. We are engaged with multiple leaders in industrial sensing to use Aeva's perception platform and hope to share more later this year. I would now like to provide more color on recent business developments. Starting on Slide 6. As mentioned earlier, we are off to a strong start with the Top-10 OEM on providing a perception solution that meets their high standards of performance, safety, and scalability. The first vehicles integrating Aeva 4D LiDAR have been built, and we have already achieved important development milestones including feedback from the OEM that we successfully enabled a key safety use case for highway driving that was previously unachievable with 3D ToF LiDAR for this customer. This was possible because of Aeva's unique FMCW technology that simultaneously offers high resolution, long-range, and instant velocity capability. Together with our perception software, Aeva's 4D LiDAR reliably detected and classified critical objects on the road from far away. This is a particularly important capability in use cases such as highway automation, where faster speeds require greater reaction time and higher sensing fidelity. I'm excited to share that we are also in discussions with the OEM around the use of Aeva's perception software, looking at ways to help accelerate the autonomous stack developments. This gives us further confidence in our perception software capabilities and highlights the importance of leveraging direct velocity measurements in an automated driving system. Let's move now to Slide 7. As we have shared, we have been making significant progress on our engagements and wanted to provide more color on our ongoing opportunities. Our focus remains on programs for large-scale deployment, and we are seeing strong interest from leading automotive and industrial companies looking to bring next-generation perception to market. This includes progressing from the RFI to RFQ stage with some of the top global passenger vehicle and commercial vehicle OEMs. And in industrial automation, we are currently in multiple discussions to deploy our perception platform for precision distance measurement applications. Many of our opportunities are with companies that have experience with LiDAR or have previously selected 3D time-of-flight LiDAR for initial pilot deployments in the past and are now increasingly interested in Aeva for the next generation due to the advantages of our FMCW approach. While we may not win every opportunity, each program offers meaningful revenue potential. As an example, the passenger vehicle program opportunities we are working on target volumes of over a hundred thousand units per year at steady-state production. These programs have target starter production between 2025 and 2027, and we expect award decisions approximately over the next six to twelve months. Turning now to Slide 8, following the successful bring-up of our new final assembly manufacturing line, we are working with Fabrinet to similarly expand our LiDAR-on-chip module manufacturing. This expansion will add capacity to support the growing interest in both automotive and our perception platform for industrial automation with the ability to ramp further for mass production. As part of this, we will automate 100% of the LiDAR-on-chip module assembly steps. This will enable higher throughput that will further bring down costs on the path toward production. We expect to complete the bring-up of the new line by year-end. With that, let me turn the call over to Saurabh, who will discuss the financials in more detail.

Saurabh Sinha, CFO

Thank you, Soroush, and good afternoon everyone. Let's turn to Slide 10 to discuss our Q1 2023 financial results. Revenue for the first quarter was $1.1 million, driven by Aeries II deliveries to existing partners as well as to new customers for our unique 4D LiDAR capabilities. Non-GAAP operating loss was $31.3 million, as we continue to strategically invest in product and other research and development initiatives consistent with our work plan. Gross cash use, which we define as operating cash flow less capital expenditure, was $37.3 million, reflecting operating expenses and timing of working capital. As such, we ended Q1 with $288.4 million in cash, cash equivalents, and marketable securities. The weighted average shares outstanding were $219.6 million in Q1. To sum it up, Aeva is in a solid financial position to support our commercial momentum. We are making good progress on the key objectives we laid out for 2023, and we will continue to take a disciplined and strategic approach to execute on our plan. I will now turn the call back to Soroush for closing remarks.

Soroush Salehian, Co-Founder and CEO

In summary, I am excited by the progress and feedback from both existing and prospective customers on Aeva 4D LiDAR. Our differentiated FMCW technology is increasingly resonating with leaders in the markets we are pursuing, and our priority remains on converting more of our commercial traction to program wins. I want to especially acknowledge the dedication of the Aeva team that is making all of this possible, as well as the ongoing support of all of our stakeholders. Aeva is laser-focused on delivering on our objectives and is well-positioned with our unique technology and our balance sheet to continue to execute on our mission to bring 4D LiDAR to markets. With that, we will now open the line for questions.

Operator, Operator

Thank you, sir. Our first question comes from Colin Rusch of Oppenheimer.

Colin Rusch, Analyst

Thanks so much guys and appreciate you taking the time today. With the process with Fabrinet Thailand and the automation, can you talk a little bit about what your sampling capacity is right now and how it's going to change over the balance of the year, and when you think the impact might be with some of these customer relationships?

Soroush Salehian, Co-Founder and CEO

Yes, Colin. Happy to answer the question. Look, we are obviously working closely now with Fabrinet to build up our further automation on the line. This is important, of course, because we are going to be working to automate 100% of the assembly steps as I mentioned inside the LiDAR chip. This has a couple of different effects, right? First of all, this line is going to help us to support our series production ramp. This also allows us to further simplify the system assembly process as we have talked about before. And at the end of the day, this gives us the ability to really provide the scale that's needed to support the customers. And it's important because increasingly both on the automotive, as we have talked about with the Top-10 OEM, the advancements from RFI to RFQ, as well as on the industrial side with the multiple engagements we have, we are seeing this demand that we are now responding to so that we can build up additional capacity. This time we will also increase our throughput. So, what I can say is, we will sufficiently satisfy our demand quantity needs as we go towards production. And also this gives us further confidence in our ability to really keep us on track towards achieving our targets for the cost.

Colin Rusch, Analyst

All right. That's super helpful. And then just shifting gears around the software development. Can you talk a little bit about the level of activity that you have got in terms of building out the ecosystem and the different software pieces that you are going to need to develop for each of the different end markets, and I'll take the rest of it off the line after that? Thanks guys.

Soroush Salehian, Co-Founder and CEO

Sure. Yes. Look, first of all, as I mentioned on the call, we are excited that we are seeing increasingly OEMs such as the Top-10 OEMs start to see significant value. And not just in our 4D LiDAR but also in the perception software. And as our software gets embedded into the AV Stack or ADAS Stack as well as in some of the industrial applications, on the automotive side, it provides added value for the OEMs and we see it to start creating this flywheel effect for deeper engagement and the use of our capabilities. And that's why with, for example, the Top-10 OEM, we are talking further to strengthen our relationship there, and they are looking to leverage our perception software to help them accelerate the AV Stack. This is important because for us, obviously, we have the added dimension of velocity, the unique data products that we have, and the OEM is able to use those and work with us together jointly to really tune it. Building effectively a system that consists of the hardware and the software on top of that, it's really tuned for their specific applications. And what we are hearing is that this is going to also help them differentiate some of their capabilities compared to their competition. So, we are really encouraged by that, and I think over time, we're going to start seeing more of these types of engagements, hopefully that we can continue to engage on a deeper level with the perception software side.

Operator, Operator

The next question comes from Joseph Moore of Morgan Stanley.

Joseph Moore, Analyst

Great. Thank you. Wonder if you could talk about when you start going to production, there's a mention in the slide deck of 2025 through 2027. I had thought there was some industrial stuff going into production 2024. Is that still the case?

Soroush Salehian, Co-Founder and CEO

Look, as we've talked about, we're on track with our customers on the industrial and automotive side. We continue to engage multiple customers on the industrial side in addition to automotive. What we talked about on the call today, 2025 and 2027 are really some of those opportunities, especially on the automotive side that are new opportunities that we are targeting and opportunities that we are advancing from RFI to further stages, including RFQ. So, we are on track with the engagements that we have and will obviously provide more color around these new opportunities.

Joseph Moore, Analyst

And then in terms of the cash balance, obviously you have a pretty healthy balance sheet, but the burn rate of $37 million in Q1. I guess what over the next, say eight quarters or so before you start to really ramp revenue, can you just kind of give us a guide to what happens to the cash balance?

Saurabh Sinha, CFO

Hey Joe, this is Saurabh. I can answer that for you. So, we have a strong balance sheet, as I mentioned in the prepared remarks, $290 million of cash and marketable securities. That gives us a lot of strength as we execute on our plan. In terms, we only provide FY 2023 guidance and what we mentioned at the last call that we expect our OpEx, non-GAAP OpEx to be similar to 2022 levels, which was around $124 million. And we are on track for that. Non-GAAP OpEx is a good indicator of the cash burn for the year.

Operator, Operator

The next question comes from Pierre Ferragu of New Street Research.

Pierre Ferragu, Analyst

Hi, everyone. I appreciate the opportunity to ask my question. I would like to follow up on your cash burn outlook. If your burn rate is around 120, in the low 120s for operating expenses, when you begin ramping up production, will there be any additional cash consumption? Starting production typically involves more capital expenditures. Could there be unfavorable yield that increases cash burn on top of what you already expect? Or should we anticipate an almost immediate, gradual increase in cash contribution?

Saurabh Sinha, CFO

Hey, Pierre. This is Saurabh. Yes, I think your latter is true. We expect that the OpEx as well as the CapEx to be steady because certain R&D activities are already completed, and there will be – CapEx needs will be light given that we are leveraging the CMs.

Operator, Operator

Thank you. The next question comes from Suji Desilva of Roth MKM.

Suji Desilva, Analyst

Hi, Soroush. Hi, Saurabh on the progress here. Question on the Top-10 OEM. I'm just trying to understand, a lot of LiDAR companies’ competitors have announced partnerships. I'm just wondering how this one feels different to you guys so you can differentiate it. It sounds like a deeper relationship. I just want to really kind of get that nuance so it should be good. And just what was the key safety feature that 3D LiDAR couldn't handle? It sounds like identifying a low-lying object in the road that's at a distance, but if you can clarify that, they'd be great.

Soroush Salehian, Co-Founder and CEO

Sure, Suji. Let me answer your second one first. So obviously, with this OEM we have been working actually for quite some time, right? And so, I can't go into specifics of the use case, but they obviously have multiple safety use cases including those on the highway driving applications to really reliably detect and classify safety-critical objects on the road, especially from a long distance. What sets us apart is our ability to simultaneously deliver high-resolution and long ranges, and added that dimension of velocity to really help us consistently detect objects across ranges. So, as I've mentioned before, for example, when you have at long distances with, let’s say, 3D LiDAR only a few points, when you look at that object and you only have the dimension of distance, you have to – you are not sure exactly what you are looking at those far distances. So, all you can do is keep looking. And over time at highway speeds, that is a critical aspect. But then you have added the measurement of velocity, those same five points start to have now velocity contribution. So, if you have all the same velocity, they are all moving towards you at 75 miles per hour. You better know that that's a vehicle or something like that on the road. So, that's something that is I think unique provided by us. And I think for this OEM contributed also in a significant way, this added the mission of velocity to help them achieve the safety use case. And also, just to be clear to your point from before, this OEM has worked in the past with other 3D LiDAR before. And from the OEM feedback and us continue to deepen this relationship, are now the first provider that can actually enable the safety use cases. So, that's I think is really encouraging for us. We are working to further strengthen our relationship to add in the capabilities of our perception software and collaborate there around the use of our perception software.

Suji Desilva, Analyst

Just have one quick follow-up. And this may be a trivial point. I mean having a test vehicle mentioned relatively quickly in my mind, is that because of Aeva's two products and something specific about them or can any LiDAR vendor just equally easily get a test vehicle up and running the way you did?

Soroush Salehian, Co-Founder and CEO

Yeah. Look, I think we have made significant progress around our maturity over the past couple of years here and even months. And I think that's – our ability to scale and provide a product in a way that works out of the box for the OEMs and our ability to support those OEMs directly, where we put our attention and focus, has been a direct contributor to enabling the OEM to move quickly. And this is our model; we're looking to help them to accelerate their development. So, obviously, they have also experience working with hardware stacks and implementing sensors on the road. So, we've been working pretty closely to support this and looking forward to continue supporting them as they build up the rest.

Operator, Operator

The next question comes from Tristan Gerra of Baird.

Tristan Gerra, Analyst

Hi, good afternoon. Just a follow-up question on the customer engagement that you've provided an update on. What are the pending thresholds for existing engagements to ramp in volume production with the timing of those thresholds? And how many engagements, if any, are actual signed deals with the OEM for a volume ramp?

Saurabh Sinha, CFO

Sure, Tristan, I'm glad to address that. We're discussing various programs across passenger and commercial vehicle applications that focus on level three and higher automation. Regarding scale and timing, as mentioned, we consider these programs to have significant scale. For instance, on the passenger car front, we anticipate target volumes exceeding a hundred thousand vehicles annually. This is crucial, and we expect key decisions to be made in the next six to twelve months, with production timelines projected for 2025 to 2027. We've been actively working on this. Many of the OEMs we engage with have prior experience with time of flight technology, and while they initially selected it for early deployments, they are now looking at FMCW as a viable, scalable solution for their next-generation capabilities. We're optimistic about this development and will continue our efforts with these partners.

Operator, Operator

The next question comes from Richard Shannon of Craig Hallum.

Richard Shannon, Analyst

Well, thanks guys for taking my question. I think my first one's going to be based on slide seven in your deck here, talking about your advancing the opportunities in automotive industrial, talking about programs starting SOP in 2025 to 2027 specifically, are any of these auto programs that you're targeting looking at SOP in 2025 or would they be later than that?

Soroush Salehian, Co-Founder and CEO

Yeah, Richard, absolutely. Yeah, they are the auto programs fit in the same timeframe starting from '25 to '27 timeframe.

Richard Shannon, Analyst

Okay. And in any way that you'd kind of count the number in the automotive space specifically?

Soroush Salehian, Co-Founder and CEO

I can provide exact numbers, but it's multiple programs, right? It's not just one. Again, as I mentioned, across different segments, automotive, passenger, commercial, and industrial. We see programs that are offering meaningful potential with production scale once they reach those.

Richard Shannon, Analyst

Okay, that makes sense. My quick follow-up question is about the broader automotive landscape, specifically regarding the OEMs you are not currently working with. What do you think are the reasons for that? Is it related to their levels of maturity, or is there another factor at play? Additionally, how do you plan to engage with them moving forward?

Soroush Salehian, Co-Founder and CEO

Yes, that's a great question. So far, we have had strong engagement throughout the RFI to RFQ stages. Currently, I am not aware of any engagements that we are not moving forward with, which is quite positive. Historically, our progress has been tied to the maturity of our product—something we have been actively working on. This includes enhancing our in-house capabilities, strengthening our manufacturing and supply chain teams, and advancing our product to a deployable level like Aeva Dew. A lot of this groundwork has been laid, and from here, we are focused on collaborating with OEMs to qualify our product for sea samples and production scale. Many organizations that previously experimented with time-of-flight technology are increasingly working with us because they recognize that their current solutions are lacking. They see FMCW technology as a means to address those shortcomings, which is encouraging to us.

Richard Shannon, Analyst

Okay. Fair enough. Thanks for taking my questions, guys.

Operator, Operator

Thank you. The final question comes from Kevin Garrigan of WestPark Capital.

Kevin Garrigan, Analyst

Hey, guys. Thanks for letting me ask a question. So, at the beginning of the year, some LiDAR companies were expecting automotive OEM award decisions in the first three months to six months. I think on the last call you guys had said, you were expecting some award decisions in the next number of months and now it's six months to 12 months. It kind of seems like there might be a little bit of a delay in OEM decisions, but can you kind of give us any color on what's going on there? Is this timeline kind of inline with your expectations or the macro environment kind of playing a role with OEM decisions where they are kind of shifting their focus a little bit?

Soroush Salehian, Co-Founder and CEO

Yes, I can address that. The timeline aligns with our expectations now that we have clearer insights from the OEMs as we progress through our five stages. We are gaining more clarity on when decisions will be made, with some expected earlier and others later. We don't control the timing of the OEMs’ decisions, but from our experience and understanding of their communications, there may be some variability in our estimates. Overall, we are witnessing increased activity among the OEMs regarding the deployment of sensors and products in ADAS. While some companies are taking time to finalize their plans, we believe the next six to twelve months will be crucial for them to make necessary decisions to meet their timelines. Additionally, all the OEMs we engage with are indeed planning to implement LiDAR technology in their vehicles, which is significant for enhancing their capabilities.

Operator, Operator

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and this also concludes today's conference. Thank you for attending. And you may now disconnect your lines.