Aurora Innovation, Inc. Q3 FY2024 Earnings Call

Greetings and welcome to the Aurora Third Quarter 2024 Business Review Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Feit, Vice President of Investor Relations. Thank you, Stacy. You may begin.

Thanks, Paul. Good afternoon, everyone and welcome to our third quarter 2024 business review call. We announced our results earlier this afternoon. Our shareholder letter and a presentation to accompany this call are available on our Investor Relations website at ir.aurora.tech. The shareholder letter was also furnished with our Form 8-K filed today with the SEC. On the call with me today are Chris Urmson, Co-Founder and CEO; and David Maday, CFO. Chris will provide an update on the progress we have made across the key pillars of our business and David will recap our third quarter financial results. We will then open the call to Q&A. A recording of this conference call will be available on our Investor Relations website shortly after this call has ended. I’d like to take this opportunity to remind you that during the call, we will be making forward-looking statements. This includes statements relating to the benefits of integrating artificial intelligence into our product, the safety benefits of our technology, the achievement of certain milestones around the development, manufacturing, scaling and commercialization of the Aurora Driver and related services, including relationships and anticipated benefits with partners and customers. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC as amended as well as current uncertainty and unpredictability in our business, the markets and economy. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2024. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof and Aurora disclaims any obligation to update any forward-looking statements, except as required by law. Our discussion today may include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our shareholder letter, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website. With that, I’ll now turn the call over to Chris.

Thanks, Stacy. Today, we stand on the brink of a new era in mobility and logistics that will bring a safer, more efficient and more accessible future for everyone. With the commercial launch now within sight, we are closer than ever to unlocking the benefits of the Aurora Driver for our customers and the motoring public. We are excited that the broader industry shares our vision. Enthusiasm for our technology continues to build among many of the industry’s most respected carriers. This sentiment was particularly evident at our recent partner summit and is further underscored in our commercial contracting progress. With another launch customer signed, our expected launch capacity is now fully contracted and we are in the final stages of contracting our remaining second half capacity to match our anticipated supply. Importantly, with the support of many of Wall Street’s largest institutional investors, we completed another successful capital raise in August, adding nearly $0.5 billion to our balance sheet. This incremental capital extends our runway well into 2026 and we expect to fund the initial phases of our scaling strategy. As we press towards commercial launch, we continue to lead the industry with our commitment to safety and autonomy performance transparency. To begin driverless operations, we must close our safety case for the Dallas to Houston launch lane. Our safety case framework is a comprehensive evidence-based approach to confirming that our self-driving vehicles are acceptably safe to operate on public roads. We quantify our progress toward closing our Dallas to Houston launch lane safety case through the Autonomy Readiness Measure, or ARM, which is a weighted measure of completeness across all claims in the safety case for our launch lane. We remain the only company in the industry that has provided this level of transparency. As of the end of October, ARM was at 97%. With our most recent software release, we have validated the majority of highway driving. We are now primarily focused on final behavior refinement and validation for components of surface streets that we sequenced later in our work plan, some rare construction elements, and closing a small number of vehicle claims, specifically related to redundant systems. Validation of the Aurora Driver’s perception system is virtually complete, with over 400 modes validated and just 6 remaining. The perception capabilities are truly outstanding, not just in everyday conditions, but also in just about any condition the world throws at it. On Page 5 of our presentation, we have shared a collection of our challenging scenarios that while rare, do occur. In one case, the Aurora Driver detects a motorcycle speeding down the road at an astonishing 150 miles per hour. In another, it detects someone lying under a car on the freeway from over 150 meters away. The Aurora Driver also skillfully tracks a work convoy blocking multiple lanes. And in one of the most unpredictable and dangerous scenarios, it detects a jaywalking pedestrian suddenly emerging from behind trees on a dark, rainy night when visibility on the highway is very limited. Each of these situations poses extreme danger, yet in every case, the Aurora Driver perceives the scenario. These perception capabilities enable the Aurora Driver to navigate the complex environments it encounters. In the video on Page 6 of the presentation, you can see the Aurora Driver’s superhuman perception capabilities on the road. The Aurora Driver is navigating heavy traffic on I-45 just outside of Houston while a Texas motorcycle 100 meters behind is illegally lane splitting through a narrow space between trucks. The Aurora Driver quickly identifies the motorcycle as what we refer to in the self-driving industry as a vulnerable road user and adjusts, creating as much space as possible. Unlike the human driver who would likely focus on the vehicle directly ahead and not anticipate this behavior from behind, the Aurora Driver has 360-degree awareness and can respond proactively to mitigate danger. Similarly, in the video on Page 7 of our presentation, we see the Aurora Driver traveling through Huntsville, Texas on a dark night at speed from 230 meters away; it detects a person attempting to run across the highway and immediately takes action, slowing down while lane changing away from the pedestrian’s path to create additional safe space. With further confidence in the Aurora Driver’s performance, we are transitioning to single vehicle operator for some of our commercial loads as we approach driverless operations. This operating mode also provides the discipline to fully implement our remote assistance capabilities and supports our analysis for remote assistance efficiency for driverless operations. Based on our current modeling, we expect to be able to operate at least 10 trucks per remote assistance specialist by the end of 2025, which is a meaningful threshold that supports our path to achieving positive gross profit. We expect to continue increasing this ratio throughout 2026 and beyond. Another key metric we use to assess the Aurora Driver’s performance and commercial readiness is the autonomy performance indicator, or API. The indicator penalizes the use of onsite support, which will be the most expensive support provided to enable the Aurora Driver. We are focused on driving up the percentage of commercial loads that do not require any form of onsite support, which we refer to as 100% API loads. During the third quarter, 80% of the commercial loads on the Dallas to Houston launch lane had 100% API, which is 5 percentage points higher than last quarter and consistent with the performance we saw in the June stable software release. To supplement our internal ARM and API metrics, during the third quarter, we invited leading authorities in commercial driver license training and evaluation, J.J. Keller and Road Master, to assess the Aurora Driver’s proficiency. They evaluated our system as they would assess a traditional truck driver and found the Aurora Driver performed exceptionally well, meeting or surpassing the expected standards of a professional driver. We feel good about our progress and are confident in our ability to close the safety case for driverless operations on our launch lane. With additional visibility on the time needed to complete the aforementioned remaining validation, we now expect to launch commercially in April 2025. While this is modestly later than we had intended, this timing remains within the margin of error we had anticipated and conveyed throughout 2024. With our intention to introduce the Aurora Driver with a crawl, walk, run approach, this shift to our timeline will have a negligible financial impact and does not affect our scaling efforts on our path to self-funding. During launch, we expect to deploy up to 10 driverless trucks in commercial operations, starting with one driverless truck and transitioning the balance to driverless. We are deliberately starting this way as our early efforts will be focused on exercising the full product suite to ensure a seamless product launch while demonstrating the value proposition for our customers and continuing to build trust with all of our stakeholders. In the second half of 2025, our focus will be expanding our product capabilities, adding new lanes and increasing capacity to tens of trucks by the end of 2025. To ready our customers for driverless operations, in September, we hosted our annual partner summit where we were joined by more than 20 of the nation’s largest and most sophisticated carriers. In aggregate, these businesses operate well over 100,000 Class 8 trucks. We brought these customers together with industry safety experts, regulators, first responders, and law enforcement for collaborative conversations on driverless operations. The enthusiasm was palpable. Some participants on average rated the ride experience 4.7 out of 5 across a set of 20 criteria. While all eyes are first on the Dallas to Houston launch lane, our customers have also been keenly interested in when the Aurora Driver will begin to operate beyond Texas. We regularly gather feedback from many of the industry’s leading carriers regarding where the Aurora Driver can add the most value. At the summit, we announced that in 2025, we plan to extend our Fort Worth to El Paso Lane, on which we are autonomously hauling loads daily to Phoenix, one of our customers' most frequently requested lanes. The Fort Worth to Phoenix lane spans over 1,000 miles and takes at least 15 hours to complete, making it particularly compelling for autonomy since the Aurora Driver isn’t subject to hours of service limitations and can operate nearly 24/7. We expect to begin commercial pilots for customers between Fort Worth and Phoenix in the first half of 2025 with the intent to go driverless on that route later in the year. With the promise of how the Aurora Driver can benefit not just operations between Dallas and Houston but also their network more broadly, Schneider recently executed their contract for 2025 volume and joins our commercial launch cohort. As we prepare for commercial launch, we continue to autonomously haul freight for all our pilot customers, including FedEx, Werner, Schneider, Hirschbach, Uber Freight, and others. We are scheduling nearly 160 commercial loads per week or more than double the commercial volume we were executing a year ago. Cumulative to date, we have autonomously delivered under the supervision of vehicle operators more than 8,200 loads driving over 2.2 million commercial miles, with nearly 100% on-time performance for our pilot customers. As our customers gained confidence through hands-on experience, we are also seeing growing optimism around autonomous technology from state governments, including a request from the California DMV for informal public input on draft regulatory language regarding the testing and deployment of autonomous trucks. While preliminary, we view this as an encouraging step toward a process that would explicitly allow deployment of self-driving trucks in the state. We examined data from 14 fatal crashes on I-5 in Sacramento County that occurred between 2018 and 2022. We recreated these collisions in simulation to understand how the Aurora Driver would have acted if placed in these situations. Our analysis found that the Aurora Driver would not have caused any of the fatal collisions. In the meantime, under existing law and regulation, autonomous trucks can be deployed today in the vast majority of states in the U.S. All the work we are doing to launch driverless operations in Texas is supporting the development of our playbook for rapid lane expansion to capitalize on the significant autonomous trucking opportunity. We anticipate the Aurora Driver’s capabilities to transfer across lanes with the opening of new lanes requiring limited development just for incremental features. We expect the efficiency of our validation process to support more expeditious safety case closure for future lanes as the subsequent turns of the crank will naturally be faster. These factors give us the confidence in our plan to rapidly expand driverless operations to the Fort Worth to El Paso Lane and then further to Phoenix before unlocking additional lanes across the Sunbelt. We continue to make good progress with our OEM partners on our vehicle programs. During the third quarter, we integrated several new Aurora Driver equipped Volvo VNL autonomous trucks into our fleet and they are now operating in autonomy on the road alongside our path for our Peterbilt 579 trucks. Our exclusive partnership with Continental is designed to support scaling of the Aurora Driver hardware for high-volume line-side installation at our OEMs. Our teams are preparing to start initial testing in the first half of 2025 as we continue to progress towards the start of production planned for 2027. At Aurora, we are driven by a mission to deliver the benefits of self-driving technology safely, quickly, and broadly. That mission has led us to now where the Aurora Driver is on the cusp of making self-driving trucks the new standard for safety, efficiency, and sustainability in the logistics industry. Tremendous opportunity lies ahead and we are working tirelessly to capitalize on it. With that, I’ll now pass it over to Dave who will review our financial results.

Thank you, Chris. Let’s discuss our financial results. We have provided a summary on Page 18 of the slide deck for reference. During the third quarter of 2024, we continued to demonstrate strong fiscal discipline. Third quarter 2024 operating expenses, including stock-based compensation, totaled $196 million. Excluding stock-based compensation, operating expenses totaled $161 million. Within operating expenses, our R&D expenses, excluding stock-based compensation totaled $139 million. This amount reflects $834,000 in pilot revenue, which is up 75% year-over-year and which we record as a contra R&D expense. After our commercial launch, pilot revenue will be recognized as standard revenue rather than as a contra R&D expense. SG&A expenses, excluding stock-based compensation, were $22 million. We used approximately $143 million in operating cash during the third quarter of 2024. Capital expenditures totaled $7 million. This cash spend was below our externally communicated target, reflecting our continued commitment to fiscal prudence. For the fourth quarter of 2024, we expect cash use to be within the $175 million to $185 million quarterly average range. We expect our 2025 quarterly average cash use to be in this range as well. During the third quarter, we opportunistically raised $483 million in gross proceeds from a public offering of our Class A common stock. Net proceeds totaled $466 million. We ended the third quarter with a very strong balance sheet, including approximately $1.4 billion in cash and short-term and long-term investments. We expect this liquidity to support our planned commercial launch and fund our operations well into 2026. With that, we will now open the call to Q&A.

Thank you. Our first question is from George Gianarikas with Canaccord Genuity. Please proceed with your question.

Hi, good afternoon and thank you for taking my questions. If you don’t mind, could you please give us a little bit more detail on the remaining validation required to launch commercially in April of next year? And also given that the timeline has been somewhat extended, can you help us understand your conviction that this is the last target and that it’s not going to move from April to another date after that in the future? Thank you very much.

Yes. Thank you, George. I appreciate the question. First, we are just really excited about the progress we have been making. If you look at some of the performance we are highlighting in this call, and what we see regarding the quality of driving and the safety of what we are putting on the road, we are becoming more and more proud of it. My conviction about our ability to get across the finish line and get this launched is only increasing with every step. For us, we had an internal milestone recently where we assessed the progress we have been making, and we concluded that due to the work that we had scheduled in front of us, we weren’t going to be able to finish it by the end of the year. We thought it prudent to share that as early as we could. When looking back over the last 1.5 years, we’ve noted that our error bars have been in months. We see this modest delay as very consistent with that. At this point, we see the error bars in our estimate as being weeks. So, we are very excited about where we stand. In terms of the work that’s left, it’s primarily some elements of surface street driving and construction scenarios that we see on the freeway. It’s important to mention that the 100% API number we share, which is currently at 80% of trips being without the need for driver intervention, encompasses driving through construction and on the service streets between our terminals. Our system handles these scenarios very well today; we just want to have extremely high confidence in the system as we move forward. The work we had scheduled is simply taking a little bit longer.

So, is this validation primarily related to software and training issues? Does it have nothing to do with your OEM partners' commitment to the product or other partners' commitment to the launch date?

No, this is our internal execution. We continue to have a very strong working relationship with our OEM partners. The work we are doing on the vehicles is focused primarily on validating the redundant systems in the vehicles.

And maybe as a follow-up, could you address if any commercial loads you are committed to carrying in 2025 might be impacted financially due to the delay? Any penalties or other issues with those contracts?

No. There aren’t any penalties, and we will continue to build our load volume during this time. We will operate as we are today, in a pilot mode with an operator on board and we will have an increasing number of our operations running with a single vehicle operator instead of two as we move forward.

Thank you. Our next question is from David Vernon with Bernstein. Please proceed with your question.

Hey, Chris and Dave, thanks for hosting the call today. I just wanted to ask you if you could maybe sort of help me understand the commentary around the technology scaling to Phoenix. I’m looking at this, considering your focus on the autonomous readiness measurement index and getting experienced in the Dallas to Houston lane. Why wouldn’t there be additional time needed to extend that experience to new lanes, ensuring that the system is ready and capable of adapting to that new operating environment?

Yes. We do anticipate there being a small amount of work, but a core thesis we have had is that driving on a freeway, whether you are in Texas or California or Montana, is basically the same. We believe this and are starting to see it empirically as well. We wanted to validate that hypothesis. We built out that lane and we know that members of the investment community have questions about whether you can map this efficiently. The answer is yes, we can. This is before we have optimized the mapping process, and the execution on driving quality is consistent with what we would have expected. We have a strong relationship with the Border Patrol team, and so we have engaged closely with them. The work we have completed so far has mostly been focused on validation of the construction zones.

I understand the point about freeway consistency, but from a sampling aspect, the number of operational hours in the Dallas to Houston lane is significantly higher than you would have for Phoenix. So, how quickly will this be scalable lane to lane?

Yes. We expect it to be relatively rapid and to get faster over time. We have structured our validation around three buckets: common scenarios, rare scenarios, and complex ones. This provides a granular view of the Aurora Driver’s capabilities. When we open a new lane, we evaluate whether new features or capabilities are required. Freeways tend to look similar across the U.S., and we don’t expect to add much in terms of new validation requirements. We anticipate that the second lane will require slightly more work compared to the third lane, the fourth lane, and so on. At some point, much like a human driver can navigate the vast majority of places without retraining, we expect the Aurora Driver to do the same.

Awesome. Thanks so much.

Our next question is from Mark Delaney with Goldman Sachs. Please go ahead with your question.

Alright. Good afternoon and thanks very much for taking my questions. First, I was just hoping you could share an update on operational readiness of the supply chain, including working with parts suppliers in areas like sensors and compute truck OEM partners, including Volvo and PACCAR, and also some of your contract manufacturing partners.

Absolutely. We see no parts constraints or blockers in getting to commercial launch, and we are in a good position there. We have pre-purchased everything we need for those launch vehicles. I believe we have established strong relationships, which means we can move smoothly without any interruptions. You have heard us discuss engagement with Fibernet, which will help us ramp up to thousands of vehicles, and our long-term partnership with Continental will facilitate scaling up to tens of thousands of vehicles. We continue to work closely with both parties and are beginning to bring up hardware for the mid-generation.

Thanks for that Chris. My second question was around the contracting, and you mentioned additional progress that occurred in the last quarter and doing well with the 2025 bookings in total. The view from Investor Day was that pricing would be relatively in line with market rates. Can you provide insight into whether that has materialized as expected?

Hey Mark, it’s Dave. Thanks for the question. Yes, without getting into specifics, as we don’t release individual contract details, the market itself is down a little bit this year on pricing. We generally set our pricing consistent with market rates, with adjustments needed for our launch partners. Overall, we are in line with our expectations and what the market rates indicate. Building a solid base of business and establishing footholds with our partners is key for us, and we are happy with the progress.

Thanks Dave. One more financial question, if I could please. You mentioned in your prepared remarks that once the company begins commercial operations, loads that are hauled even with a human driver in the truck will move from contra R&D to being recognized as revenue. Can you give us a sense of the run rate of what’s contra R&D at this point to help us build our 2025 and beyond estimates? Thanks.

Yes. For this last quarter, we were a little under $1 million for contra R&D based on our pilot revenue. Essentially, every load we carry for a customer gets billed out. You will continue to see that revenue build over time.

Thank you. Our next question is from Jeff Osborne with TD Cowen. Please proceed with your question.

Great. Thank you. Just a couple of quick ones on my side. I was wondering if you quantified the launch capacity that you have contracted in the duration of the contracts that you signed?

No. What we discussed in the remarks is that we are going to begin with one truck and then scale that up to 10. However, we haven’t shared the duration of the contracts, but they align with industry practices.

To add to that, the market generally contracts on an annual basis, and we follow this practice since we have been working with these partners for a long time. All contracts have automatic renewals set up. We aim to start with up to 10 trucks, focusing on execution first and then scaling up in the latter half of the year.

It makes sense. And just to be clear, did any previously signed contracts contain termination clauses or delays? Does the four-month delay create any issues for the counterparty?

Not at all. The last thing we want to do is force something out before we get it right. All our partners share the same value that safety is paramount, which is much more important than meeting an arbitrary date. None of our contracts have penalties or restrictions for not launching within a specific timeframe.

Thanks.

I think that’s consistent with our philosophy; we seek partners who view this as a strategic long-term opportunity and are ready for the next generation of full logistics business.

Thanks, David. One last question for you, Chris: Could you provide more detail on challenges faced regarding interactions with construction zones?

It’s not about edge cases but ensuring we have validated the variability of different construction site configurations. When driving between Dallas and Houston, construction settings are often consistent, and it’s not surprising. It’s taken us longer to finish some of the work intended, but importantly, when we assess our on-road performance, we haven’t had a disengagement caused by construction zones since May on the Dallas to Houston lane.

That’s good to hear. Thank you. That’s all I had.

Thank you for your questions.

Thank you. There are no further questions at this time. This does conclude today’s conference call. You may disconnect your lines at this time. Thank you for your participation.