Good day, and welcome to AEye's, Inc. First Quarter 2022 Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Clyde Montevirgen, VP of Investor Relations and Strategic Finance. Please go ahead.

Thanks and welcome everyone to AEye's first-quarter 2022 earnings call. With me today are Blair LaCorte, our Chief Executive Officer, and Bob Brown, our Chief Financial Officer. Earlier today, we announced our financial results for the first quarter of 2022. A copy of our press release can be found on our website at investors.aeye.aeye. Before we start, I'd like to remind participants that during this call, management may make forward-looking statements, including without limitation, statements regarding our future performance, growth strategy, and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the industry, and other conditions. These forward-looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are difficult or impossible to predict. Our actual results may differ materially from those contemplated by these forward-looking statements. We caution you therefore against placing undue reliance on any of these forward-looking statements. You can find more information about the risks, uncertainties, and other factors in our reports filed from time to time with the Securities and Exchange Commission, including in our quarterly report on Form 10-K due for the period ending March 31, 2022. All information discussed today is as of May 13, 2022, and we do not intend and undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures. These non-GAAP measures are presented for supplemental information purposes only and should not be considered as a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release, and you should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our earnings release. With that, I'll pass it over to Blair.

Thank you, Clyde, and thank you all for being here today and investing your time to participate in our quarterly update. As you have seen in our earnings release today, we finished our first quarter solidly meeting both our financial and operating expectations. In addition, we remain on track to achieve our full-year plan. While we continue to follow external global events closely and monitor market volatility, our main investor themes and objectives for 2022 remain consistent and our focus on execution remains paramount. In our year-end earnings call, we outlined our go-forward strategy and our progress to date building product partnerships and infrastructure to meet our key objectives. We also spent time differentiating our unique business model and disruptive technology platform versus peers in our last call. You also had a chance to hear from several customers in the automotive and industrial markets directly. They shared with us the value that the AEye intelligent sensing platform brings to their solutions. We would like to first emphasize the importance of 2022 as we intend to both begin shipping the 4Sight product for industrial markets with our partner Sanmina, as well as transferring the B-sample of our first joint automotive ADAS product to our partner Continental. In today's call, we intend to do a quick review of the market dynamics, the differentiation of our disruptive intelligent sensing platform, and illustrate why we and our partners believe AEye's sensor-based operating system is uniquely positioned to enable the evolution of smart vehicles, infrastructure, and assets. We will use the majority of our time today to focus on our execution with an update on the fourth key investment theme: commercialization, industrialization, and capital-light manufacturing. We will touch on both the 4Sight product line, as well as our joint Continental ADAS product. We believe we will be the only company in our peer group to bring up volume production capabilities with multiple manufacturers. The market headline is that sensors are a highly desired addition to many vehicles, infrastructure, and other assets. Cameras and radars are interpretative sensors with unique strengths and weaknesses, but they have one attribute in common; they collect information and intelligently guess. Lidar is a deterministic sensor, which can provide definitive data for many decisions, enabling new value-added features that can be standalone, like hub-to-hub trucking or highway autopilot for consumer vehicles, or Lidar can also complement radar and cameras to increase reliability or accuracy for existing features, such as in slower speed traffic jam assist. What is clear is that Lidar's commercial performance has continued to increase substantially over the last several years. Concurrently, its manufacturability is maturing, and therefore size, weight, power, and cost continue to be optimized as Lidar is being applied across numerous industries. Many of us already have a Lidar sensor in our smartphones, Advanced Driver Assistance Systems in our cars, and we experience traffic flow optimization on toll roads and other parts of our infrastructure. We believe Lidar has a wide range of applications well beyond what most people have imagined. That said, not all Lidar are the same. Many traditional Lidar systems collect data in a fixed and limited manner and then pass it along to a perception engine. This is a one-way flow from the sensor into an application software layer. AEye's software on the edge is different. First, we can control hardware components individually, using a software-based operating system located on the sensor with two-way communication to change the way the sensor works, depending on different environments. In addition, the 4Sight operating system does not silo itself from other sensors. Customers can create unique systems that can use maps, cameras, radars, and IMUs to trigger the Lidar, so they can be more intelligent and efficient when collecting critical information. As recently demonstrated with Continental's integration of its current Aedes suite, including radar and camera with our joint Lidar product, we believe our software-defined architecture is natively compatible to manage data over its local sensor network and to be enabled for over-the-air updates. So we can change the way the hardware performs through software, allowing our customers in the future the ability to upgrade new features and functionalities. While this seems too good to be true, you only have to look to your smartphone to see the path that has already been taken by many durable goods manufacturers and infrastructure providers in automotive. Specifically, the acceleration of EVs provides a natural greenfield opportunity to create software definable platforms for cars. The future is now; one powerful example of the software-defined ability is adaptive placement. The 4Sight platform enables automotive OEMs to embed the same Lidar sensor in various integrated locations using AEye's proprietary sensing software. This optimizes performance for vehicle specific packaging and integration without detracting from design or limiting performance. AEye's operating system provides OEMs with the ability to transform the sensor performance and enhance data capture across various mounting locations and vehicles. This is in contrast to most traditional sensors today which cannot be optimized for placement tolerances and applications, making them sub-optimal across a platform with multiple brands and models. At the end of the day, the ability to change the mounting locations and the height, as well as correct for curvature and transmissivity of external surfaces allows us to increase platform adoption, optimize feature implementations, and reduce cost and complexity. This same adaptive placement capability and software definability, conversely, allows AEye to customize across markets. Along the use of the same hardware on a roof mount at four meters and a negative 40-degree angle on a Class A truck, as a ground mount at 65 centimeters and a negative 15-degree angle on a trendy sports car. Up until this point, we have been talking about how our adaptive systems can add intelligence into current vehicles, infrastructure, and assets. So let's take a step back and discuss the future and what differentiates the Software-Defined Vehicle from a traditional vehicle. On the left, you see a vehicle with all of its technology and functionality set when you purchase it. In many cases, you would need to physically change or alter a component to adjust the hardware functionality of the vehicle. On the right, you see a vehicle with a more streamlined platform reference design, reducing complexity, and allowing for the flexibility to control the hardware more efficiently as part of an overall system. As we continue to advance cars with software, you will see systems begin to consolidate into software definable platforms with more connectivity both within and outside the vehicle. With this added connectivity and distributed intelligence within the vehicle, the opportunity to add value and increase revenue from software expands. The AEye operating system model is architected to complement this migration, focusing not on hardware alone, but on collecting the best data for decision making, adding features to enhance safety and performance for the consumer and driving profitability for the OEM. For example, in the future, a range sensor may trigger a rain performance mode or a camera may trigger a Lidar to confirm an object. This distributed intelligence is key to what we consider a software-enabled vehicle. In a recent report, it was estimated that a Tesla today makes 67% of its profits from these types of software-enabled features. While our products already have the adaptability to be definable across multiple applications using the same hardware, the real power in the future is the ability to continue to adapt over time and update remotely using over-the-air updates. As an example, as new vehicles increase software content, OEMs will be able to update software over the life of the vehicle, similar to how your phone gets updates today. Vehicles will be able to send and receive data, enabling them to continuously increase in value. These updates will allow new features and functionalities, translating to improved safety and performance. As vehicles and infrastructure head towards over-the-air evolution, we believe our software-defined sensors will be key enablers of these new business models. In summary, we believe the power of AEye's unique sensor platform is that it is intended to be a set of hardware components that can be manufactured, then configured for any high-value use case in the software. For instance, OEMs or Tier ones could use the sensors operating system to enable ADAS features that can be bundled for a range of consumer vehicles. The same operating system could be used by system integrators in the ITS or intelligent traffic systems market, who are able to optimize the sensor for pedestrian safety at intersections, or forecasting traffic flow on toll roads. Trucking can leverage high performance, high reliability sensors designed for first mile, last mile, or hub-to-hub applications. In the high demand rail and aviation markets, each sensor can be optimized for the extreme range and resolution they require. So let's talk about execution and our progress around commercialization and scalability. There's no better place to start than our latest product, the 4SightM, which we intend to transfer to volume production later this year. I would now like to introduce Tom Fallon, Executive Vice President of Strategic Business Development at Sanmina, our 4Sight manufacturing partner. Take it away, Tom.

Thanks, Blair. Sanmina is one of the world's leading integrated manufacturing solutions providers. Headquartered in Silicon Valley with a global footprint, we have earned a reputation for innovation, reliability, and quality, with a passion for customer success. It is important to understand that we only win when our partners win, so we're very selective in where and when we invest in new processes and emerging companies. Each year, with our customers, we bring about 3,000 new products to market. Therefore, we are approached by a lot of companies. We proactively choose to partner with the companies where we see mutual alignment around ideas and processes. We also look for a well-defined market opportunity that is large and rapidly approaching. With AEye, we found that alignment. We also found that AEye has a compelling vision and business model. We believe AEye's smart software-definable sensors will be a driving force in the automation of cars, infrastructure, and assets across many industries. At the core of our relationship with AEye, there are three fundamental pillars we have found important to increasing the probability of success. First, AEye decided early not to build a factory but rather to invest their time and resources in designing their systems for outsourced manufacturability, with an eye toward optimizing efficiency and cost without compromising on industry-leading performance and reliability. Second, AEye's innovative approach of aligning component suppliers with their reference system design, utilizing modular component sources for improving automotive-grade suppliers, not only allows accelerated innovation but also provides a tremendous advantage in helping us to scale and harden our global supply chain. We believe this approach creates a strategic differentiation from others by optimizing time-to-market volume, quality, and cost. Third, AEye has transferred much of the system complexity from hardware to the software layer in its unique sensor-based operating system. We don't usually see companies make that leap until four or five generations of product release cycles. This allows one manufacturing line to produce the sensor hardware at scale, with software used to customize the sensor per market or partner, enabling continuous enhancements in functionality over time. Most importantly, AEye and Sanmina have worked as one team from the beginning. We have leveraged each other's strengths to develop integrated design, manufacturing, and testing processes that will bring the AEye 4Sight Lidar systems to market faster and with greater reliability and performance. Sanmina believes that what we make makes a difference, and we're very proud of our partnership with AEye. Back to you, Blair.

Thanks, Tom. Earlier this year, we mentioned the convergence of our components across markets and the focus on shared volumes and cost reduction to drive adoption. Tom also referenced our joint efforts to design for manufacturing, reliability, and the power of converged supply chains. One example of this collaboration we would like to share for the first time publicly is how this effort drove advancements in our MEMS components. Custom designed and built around standard industry processes for manufacturability. The small dot in the center of the chip in this picture is our micro MEMS, significantly smaller, faster, and more adaptable than any we have seen in commercial production. Proving that record-breaking performance indeed does come in small packages. Another concrete example of how AEye and Sanmina are innovating together is our new joint calibration and testing facilities located on Sanmina's San Jose campus. This facility is a perfect complement to AEye's indoor range. Industrialization and reliability are at the core of any successful path to scale and to highly regulated and mission-critical systems. This large, dedicated, state-of-the-art facility not only allows us to do environmental and performance testing, but also to bring customers and integration partners into an immersive and flexible testing environment. This jointly developed facility gives us tremendous flexibility in validating the performance of our 4Sight sensors. Working with Sanmina and our end-user customers, we have developed rigorous testing methodologies that help us fine-tune the performance of our sensors in a wide variety of use cases and applications. You can see in our video, our ability to quickly reconfigure the operation to run customer-driven tests this week. From small object detection at speed or rider down motorcycle scenarios, intersection pedestrian safety to much larger applications for acquisition and countermeasures in the aerospace and defense markets. In addition to our extensive in-house testing with Sanmina, we have extended domain-specific testing resources by partnering with some of the largest Tier 1 automotive suppliers in the world. In this process, we're exposed to their world-class processes, including environmental standards, product validation, functional safety, and performance benchmarking. This has led us to collaborate with some of the most influential and respected third-party testing groups in the world. We have also taken the unique step of releasing these results when appropriate to the public. As an example, we work closely with VSI, a leading independent researcher of active safety and automated vehicle technologies, to validate the performance of our Lidar for AEye's applications. We do this at locations such as the American Center for Mobility, where we were able to test and independently verify the ability of our products to perform. In this VSI-designed, produced, and verified testing scenario, we were able to detect very small objects such as bricks at long range, in inclement weather while inside a tunnel. On top of that, we're demonstrating these capabilities with our Lidar looking through windshield glass, opening yet another unique placement opportunity not available to most traditional Time-of-Flight Lidars. We have progressed on plan and are executing on track and on time with our development, testing, and transition to production later this year. I will now turn things over to Bob Brown, our CFO, to discuss our financial update.

Thanks, Blair, and good afternoon, everyone. I'd like to discuss our financial performance for Q1 and our near-term outlook. Revenue in the first quarter of $1.1 million was up 229% over the first quarter of 2021. The top line growth largely reflects an increase in development contract revenues, as we complete work with key partners, as well as higher prototype sales relative to the prior year. As we've discussed previously, the sizable percentage of our revenue is driven by one of the largest Tier 1 automotive suppliers in the world, which is a strong validation of our technology and strategy. GAAP Operating Expenditure of $24.5 million in the first quarter rose $14.1 million from the first quarter of last year. As we've continued down the path to commercial production over the last year, we scaled our team and spending to support that progress, as well as to support the infrastructure required as a public company. Our non-GAAP Operating Expenditures were $19.2 million in the first quarter, which excludes $5.3 million in stock-based compensation expense. Net loss was $24.9 million on a GAAP basis, and GAAP EPS was a loss of $0.16. The net loss on a non-GAAP basis was $19.5 million in Q1, and the non-GAAP EPS was a loss of $0.13. Net cash used in operating activities for the quarter was $16 million, and our CapEx was less than $1 million. We'll continue to manage our cash carefully going forward, and our team is managing to a strict budget. The vast majority of our spending is focused on R&D, operations, and sales and marketing, with the goal of scaling our business as efficiently as possible. We exited the quarter with $144 million of cash, cash equivalents, and marketable securities on our balance sheet. When we include up to $125 million of potential proceeds from our Common Stock Purchase Agreement, we believe our total available liquidity of $269 million provides us with a sound financial base to execute on our strategy. We anticipate that we will begin accessing the Common Stock Purchase Agreement this year. While we're on the balance sheet, I wanted to note that we adopted the new lease accounting standard, ASC 842, in Q1. As a result, you'll notice increases in right-of-use assets and operating lease liabilities. These amounts are primarily related to our office lease obligations. It's exciting to see how we've grown over the last few years from an R&D-focused entity into a commercial operation. We're starting to reap the benefits of our capital-light strategy by focusing our time, effort, and money on our core competencies and the activities that will extend our technological lead while getting our products to market faster. We're executing our plan to develop products for both the automotive and industrial segments based on the same revolutionary architecture. This is key because, unlike most of our competitors, we don't need to develop different products for different applications. We will use one software-defined architecture for all applications across all end markets. We expect that this strategy will provide us with economies of scale and improve our margins as we grow the business. Relative to our near-term outlook, we expect revenues in the second quarter to be about $700,000 as we wind down prototype sales in preparation for the ramp of the commercial version of our 4Sight end product in Q3. Combined with the Q1 performance, our revenue for the first half of the year in total should be slightly ahead of expectations. As we mentioned on our call last quarter, we expect to see revenue growth in the second half of this year as manufacturing of our commercial product starts to ramp at Sanmina. We expect that growth in the second half will enable us to deliver on our revenue goal of $4 million to $6 million for the full year. We continue to expect a non-GAAP net loss of approximately $100 million for 2022. I'm pleased with our team's performance in Q1, and we're tracking to our plan. We continue to execute well against our strategic milestones, and we look forward to sharing further progress against our financial, commercial, and technical objectives in the coming quarters. With that, I'll pass it back to Blair to wrap things up before we open the line for questions.

Thank you, Bob. I want to close, as we always do, with our talented team and culture. We're fortunate that we continue to attract the brightest minds in the industry. This includes our global advisory board. We started our advisory board very early in our history and it has been a valuable resource for us as we have built our business. We expect the latest additions to continue to be a vital part of AEye. Let me introduce you to a few new members. Marcus Lipinski, our newly appointed advisor, and Dr. Erlich Weinman. Marcus was most recently the Managing Director at Aptive, a global automotive tier one supplier. Previously, he had been a leading executive at VW, MAN trucks, and Daimler. He has a history of delivering digital innovation in both the automotive and software industries. Erl has been an executive at Qualcomm and Autoliv, two leading Tier-1 suppliers, where he led global teams focusing on active safety solutions. Erl brings a breadth of high-performance business operations and sales strategy to the team. And finally, Dr. Wyman has extensive knowledge in the OEM space, predominantly as global SVP at Harman and COO at Alpine Electronics, as well as Senior Executive at BMW. We welcome you all to AEye and look forward to working together. Culture is a powerful force, and I would like to share with you today an employee-driven initiative that we are very proud of. Over the last two years, we have partnered with Richard Branson and Virgin Galactic, Virgin Orbit, and Virgin Hyperloop to bring together our technologists and engineers to explore the future of transportation. Part of this exploration has been to look at how we invest in the future and share this knowledge with the next generation. One key element of this has been the development of the BLAST program. BLAST stands for Black Leaders in Aerospace Scholarship and Training. By providing mentoring and internships, BLAST aspires to change the funnel by creating a village with a network of support that helps black students find connections and opportunities. This program has also changed AEye. In the process of mentoring, we learn, and we become inspired. I can honestly say this program has been a significant value-add to our culture and to our effectiveness. We hope BLAST is also an example of how AEye serves as a role model within our industry and as a leader in providing opportunities to talented minorities pursuing a career in engineering and technology. Looking forward, I want to first thank the team for all their hard work, as we've been busy this quarter setting ourselves up for the rest of 2022 and setting the stage to scale in 2023. As we mentioned at the beginning of the call, the world is changing quickly. As a company, we're staying focused on the things we can control and leveraging tight relationships and the community of our employees and our partners. During this call, we discussed our software platform and how we're implementing disruptive intelligent sensing. We also talked about how we have made significant progress in delivering cost and scalability efficiencies by utilizing a capital-lite business model. Finally, I'd like to reiterate what Bob stated in our financial review; we are on track to deliver our 2022 guidance. I want to again, thank everyone who joined the call today. Operator, let's move over to Q&A.

Our first question comes from Suji Desilva with ROTH Capital. Please go ahead.

By Blair. Hi, Bob. Congratulations with the progress here. So you talked about Blair in the prepared remarks, the B-sample transferring to Continental. I'm wondering what that entails in terms of it moving to Continental for you guys. And also, has Continental been addressing OEM, RFPs, RFQs ahead of the B-sample transfer or is that kind of one of those things that happens before that? Those are our fees get addressing.

Sure, thanks Suji. The transfer of the B-sample can be a bit misleading because, as we have mentioned in previous calls, we have fully integrated our teams; our engineers are based at both locations. We have been collaborating from the start of the HRL design until now. When we refer to the transfer, we mean moving a single stock, where we have sample lines established in the U.S. and are starting the sample lines in Germany. This highlights the testing and safety concerns that Continental primarily oversees. Nonetheless, we are currently working on the product together and will continue to do so until the product is shipped and beyond for support. Regarding customers, we've been collaborating, and while I don't have the precise number, there are between 15 and 17 RFPs and RFQs that we are working on together. As you know, people in the industry often want to see engineering samples, particularly the B-sample, and they want to provide input before finalizing the C-sample. Additionally, we are heavily involved in R&D projects with around 25 to 27 automotive and trucking OEMs, focusing on next-generation developments and making them aware of what's possible. Our sales teams are closely integrated, and we have functional teams around the globe, each with specific regional priorities.

Okay, great. Both of the questions. No, it did, Blair great job and I just wanted to stand as we see auto OEMs commit to the AEye Lidar, how would we become aware of those wins and what do you think the time frame is from this point forward as to those sort of announcement just awareness of those wins being secured.

Sure, I know there's been a lot of talk at least there was last year about the forward-looking order book and we talked about that in every executive meeting that we have. But for the automotive market, that is our partners, the Tier ones we work with, specifically the one that is moving to manufacturing first is Continental, so they will make the decision on when they announce. As you know, the tradition in the automotive industry for radar and Lidar, the other Lidars that have been before this, as well as cameras have been to wait closer to the SOP. I think that we'll be talking about it much sooner just because tradition has started to morph, as there's been more talk out there. Continental will be in charge of talking about their industrial automotive. In the industrial markets however, in the second half of the year, we will start as we are the direct sales arm; we will start to talk about those wins much sooner.

Great. And I look forward to the industrial announcement that's going to help drive second half revenue, as you said. One last question on the Industrial side. Great to have the Sanmina Executive on to help with getting insight there. What was it about your tech, the way you approach the technology, software, and hardware that allows you to leverage high-volume proven components, which obviously is something Sanmina likes to by you guys a lot? Other Lidar guys we know are using some more exotic components. So if you could talk about how the software is allowing you to pull that off, that would help us understand some of your differentiation.

I think having spent enough time with him, I will try to tell you what we heard from them was that we made a decision very early that we would move from being an R&D company to a high-volume production company because we believe although this has taken a while for LiDAR to come to commercialization, that the curve will be much faster. I've said in the past that it took 15 years really for extreme penetration for radar into almost everything, and it took about 11 years for cameras. We think that that curve is on track to be less than five or six years, which is at light speed. If you believe that, then you would want to get out of what R&D companies do, which is vertical integration, exotic design, and building your own factories where you have to spend time on tooling that you then have to get rid of if there's an advancement in the technology. We decided early on that we would design for manufacturability, and that we would use custom designs, but standard component processes. So one of the things we've been doing over the last three years is working with the largest component suppliers, Tier-2 suppliers, as they say in automotive, in the world and convincing them that they can build our designs using their standard lines, which then brings down costs and increases volume across the different types of components. So that's when we talk about this; when we talk about our relationship with Sanmina, they really appreciate this as the final manufacturer because they're dealing with not only Tier-2's who already have standard processes, but Tier-2's that are already automotive-grade compatible.

Okay, great. Thanks, Blair. Appreciate it, thanks, guys.

Thanks, Suji.

The next question comes from Joseph Osha with Guggenheim Partners.

Hello, everybody, Happy Friday.

Thanks, Joe you too.

A couple of questions. First, Bob, I'm just wondering if you can just talk us through a little bit of the cadence of the burn as you work through the rest of the year here. And where I'm headed with this is that given your relatively modest burn so far and the amount of cash and equivalents you've got, I'm surprised that you're tapping the equity facility this year. It seems like you've got some breathing room there that would not require you to do that. So I'm wondering if that's just belt and suspenders being careful, or the message there is that the burn is going to go up as the year progresses. Thanks. And I have a couple other ones.

Yes, we do expect the OpEx to go up a bit this year. So, for modeling purposes, I'd assume the non-GAAP OpEx will probably increase on the order of about 15% per quarter sequentially, so I would probably build it out that way in terms of modeling. But to your point, the burn has been fairly modest. We don't have to tap the common stock purchase agreement; we don't want to do that. That said, there may be some advantage to doing some dollar cost averaging over time and just using a fairly moderate basis. We've got 11 quarters left to utilize that facility, so if you can do the math on that, and we've got a $125 million facility, that's a little over $11 million per quarter, so it's not a huge amount by any means if you were to average it out over those 11 quarters. So we're expecting to obviously look at the volumes, look at market conditions, and then decide how much we will do each quarter. But the idea is to be fairly moderate about it over time.

Yeah. I think Joe, you also hit on one of our cultural imperatives, which is there's a lot of ambiguity in the world, and if you take a look back to last year, what we raised was the largest pipe because we wanted to offset the possibility that redemptions would go up and that actually did happen. We also executed the E-lock on the heels of our IPO, probably a year before most people would have done it, and that was again, I think credit to Bob's conservatism. We got a great partner and we got tremendously good terms on that, so I would say that this is more us taking a look at how to be prudent and how to be pragmatic. We don't intend to do anything that would be radical, surprising, or detrimental to investor value.

Okay, Thank you that's interesting. Second question that relates to the ramp of 4Sight, right. And so obviously, it's an early stage product, but as you point out, this is being done in the high volume fulfill with commercially available products into it. So I would think that on that basis, we'd begin to get a fairly early on kind of one aside as to what gross margin for that part of the business might look like. Can you understand the insight into how we might think about that?

Yes, we probably have more to say about that next quarter's call Joe, so we're expecting to get some early production here in Q2. These will be more samples in Q2, so we'll get some initial volume we think coming out of Sanmina later this quarter. But then the ramp you say really starts to happen in Q3. So we'll probably provide a little bit more color on that when we have our next earnings call, which I believe is in August.

If I asked them in a different way, I mean understand you get perhaps you can't discuss the numbers per say now, but would it be logical to assume that it gets to some acceptable gross margin reasonably quickly because it's this combination of the capital light approach and focused on off-the-shelf input?

We expect progress on gross margins as we transition from selling prototypes, leading to improvements over time. While we can't specify exactly what this will look like yet, we’ll share more details in the upcoming quarters. For 2022, we anticipate negative gross margins overall. However, as we scale up, we expect improvements in future years, although volumes will still be relatively modest in 2022 as we conduct proof-of-concept deployments with customers. It's essential to have the product tested before widespread deployment, meaning that for this year, the volumes will remain limited. We won't fully realize the leverage right away, but we anticipate seeing that starting in 2023 and onward.

And I know you've done a lot of research on this and dug into the models before. The way that I think about it is in the automotive markets where we're getting a standard licensing fee, we know from the beginning of the contract without any risk what our margins are going to be. In the industrial markets where we are selling direct, we have two variables. One is a positive variable where you don't have to wait for SOP, functional safety testing, and then SOP. We can go from pilot in 3 to 6 months to more of a production rollout in those markets. That's one thing we have to get through the pilots to figure out how it's going to be deployed. The second piece, as we've talked about before, is that we believe that in the ADAS market there's not a lot of room for add-on software. As I think many people have alluded, they may be able to get to. Our opinion is that once these contracts are set, there's not a lot of room for add-on. We're happy to get our licensing fee, which is a different model. But in the industrial market, we're also looking at building on top of that operating system. It's much easier for us now that we have an operating system on the sensor to build out custom software applications. Or you'd look it in your iPhone as an app. So we don't know how that's going to play out and how fast that will play out; that could as well impact product margins over time. But I would, as we've been conservative and again, pragmatic in the past, this is the early stages of rollout this year, and I would agree with Bob, we're not expecting to optimize on gross margins. We're out there to get customers to use the product, show value, and build opportunities to do production rollouts.

Okay. Thanks. I understand that's useful color, and then the third and final question would be, with regards to kind of platform vision, you articulated it, I can't remember which slide it was showing the two different sort of vehicle platform visions, which is something that I hardly agree with and you and I have spoken about, but it does imply that at some point there needs to be a fairly high level of engagement with whatever large semiconductor company you think is providing that big, powerful compute platform. How do you think about that? Can we see you make an announcement or form some kind of venture with an Intel or Broadcom or Qualcomm or something like that?

I completely agree with your assessment. Ultimately, as we've previously discussed, value hardware margins will narrow over time as we improve software efficiencies. The key to adding value and making decisions lies in the data within the network, particularly when it comes to achieving autonomy. Good data is essential for informed decision-making, and every participant in this field will need a data platform strategy that complements these computing platforms, which I believe will propel us forward. While electric vehicles will aid in this progress, it's important to note that many vehicles already have over a hundred electronic control units. Transitioning to a unified platform will simplify things, but challenges will still remain regarding data optimization and computing capabilities. You can expect us, as well as other leading firms in our sector, to contribute data to ensure the system operates effectively. Our advantage lies in having an operating system on the sensor that allows for two-way communication. We've been engaging with stakeholders who see this as an enhancement to the network. In the future, there will be various implementation types, from passive point sensors that send information to active sensors that process and integrate data. I believe your hypothesis is accurate: over the next two to five years, we will continue to develop new computing platforms. In some instances, they may merely transport children to soccer practice.

Right. Thanks. I'll jump back in the queue.

The next question comes from Hans Chung with D.A. Davidson. Please go ahead.

Hi, Blair. Thank you for taking my questions. A few questions. So first, just from your perspective, are there any potential technology or capacity constraints on the supply chain? For example, maybe it's laser, receivers, scanner, etc; just how to get a sense that we have to identify maybe 1 or 2 factors, like potentially using more challenges, regarding the supply chain. Just wondering here, any comment.

Sure, I appreciate your question. You brought this up last time, and it feels even more relevant today. I'll address it in two ways. Firstly, we share your concerns and have spent significant time focusing on the key components. We can reduce costs in three main ways: simplifying system design, introducing new materials and innovations, and increasing volume production. Our system design consists of just a few components, typically viewed as three: a laser that emits energy, a scanner — specifically, an adaptive scanner that analyzes the environment — and a receiver that gathers information. We've dedicated substantial effort to securing our supply chains to avoid short-term disruptions. However, it's interesting how a small component you initially overlook can create challenges during system assembly. While we've focused on the major components, we're continuously learning about unexpected small pieces, like one sourced from Shanghai that then closes down, necessitating a shift to a secondary source. Currently, we feel confident about our supply situation, although "good" is relative. We believe we've taken adequate steps regarding our supply chain, but this issue isn't going to disappear in the next couple of years. It's required us to reconsider our entire approach to inventory management since, during full assembly, all components need to be available simultaneously. That's the concise version. If I weren’t compensated by the word, I’d summarize it by saying we are focused on the core components, but we are still uncovering unexpected challenges as we progress, which likely reflects the broader tech industry as well. It’s a great question.

Got it, that's fair. So next question, just yet interestingly, just you pointed out, you highlight managed technology in the slides. Actually, I am just curious to be; can you elaborate more on these, I think it's MEMS scanner? And what's the differentiators for your technology? And maybe you can address the point of cloud density or the scan, maybe something like that, and just curious how your technology?

Sure, I'll do my best to be concise. Luiz's original design was focused on creating network software to gather data, which often requires hardware for data acquisition. He aimed for a modular hardware approach so that as technology advances, components could be easily swapped out. Over the years, both Luiz and I observed changes in telecommunications and military technologies. Additionally, Luiz emphasized the importance of adaptability in our product's bi-static design, which separates the sending and receiving functions, allowing for a flexible sending component. Our MEMS, some of which are 250 times smaller than typical MEMS, can operate without being hardwired to the receiver, enabling faster response times and longer distances. While physics remains constant, our design allows for quicker movements, contributing to both increased distance and higher density. Though I am not an engineer, I've learned that the small size of our MEMS enables us to operate in ways others cannot, achieving speeds of up to 20,000 Hz. In August, we'll showcase some applications of this technology, which we've already demonstrated can surpass one kilometer in distance, and possibly much more. The capability to adjust patterns during operation enhances our density by effectively segmenting and identifying objects. The balance between speed, distance, and density is vital, and our adaptive system optimizes performance for specific applications. We believe we have set records in these areas, but ultimately, effective networks aim to deliver the information necessary for computers to make decisions better than humans—this is the essence of automation. Our micro MEMS and unique receiver design provide significant advantages in adaptability and intelligence.

Yeah. That's definitely very helpful. And a quick follow-up. So is manufacturing, the process, technology on the macro segment mature or is it also new?

As we've said, we may have custom designs, but we actually try to stay within standard processes to help our suppliers and to drive down our costs. So in any way we can, we always drive to existing standard processes for manufacturing.

I understand. For my last question, I want to ask about the equity purchase agreement. You've mentioned that you might approach this moderately over time. Do you have any specific guidelines or price limits in place for this? It seems like you won't need immediate clarity on this for this year, but I'm interested in how you plan to strategize or implement this. Is there a cap on how much you would commit, or any insights you can share?

Yeah. We do internally have some of those metrics, nothing that we're going to share at this point, but we're going to be very thoughtful as Blair said about how we use it. So we're not going to want to put undue pressure on the stock as we use, of course, so we're going to be very thoughtful about how we approach it. So as we said, it's about $11 million per quarter, over 11 quarters. If you average it out, some quarters will certainly be below that, and some quarters we might be above that, and the differentiation there is really going to come from both the trading volume of our stock and the market overall, as well as general market conditions. So that's how we're going to approach it. So we're not going to have a specific table that we're going to lay out for folks on how we're going to use it. So we expect to be nimble with it, and thoughtful about how we use it.

Right, and you know, I have to invoke my father every time I get a chance. But look, at the end of the day, there is some ambiguity but the answer to ambiguity is probably not going to be certainty, it will be trust. What Bob is saying to you is that our philosophy is do no harm, but also be pragmatic and conservative and smart about how to run a business that we believe will be here for a long time. So that's our commitment is we're going to be smart, and I hope you won't be surprised by anything you do. I hope you'll look back and say that was stocks.

Got it, okay, thank you guys.

Great. Thank you, Hans.

Good question comes from Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Good afternoon, guys, and congrats on the quarter and thanks for squeezing me in here, and I know we're about out of time. Most of the good questions have been asked already, but maybe just to take a step back, I was curious if you could remind us again on the strategy in terms of both short-term and long-term. And by that, I mean, in terms of your target markets. Do you anticipate, do you prioritize the automobile sector which will ramp up over the next few years, or is the strategy maybe in the short term to pursue and target some non-automobile markets while the automobile ramps up? Thank you.

The answer is yes. I appreciate the question because it's a common concern. While many of our peers are focused in specific areas, we are concentrating on network information, enabling us to optimize our products through software and utilizing the same manufacturing lines and hardware components. We believe it's essential to be prepared with components and manufacturing capabilities in both markets. While it's true that the automotive market will see SOPS in a few years, there have been pilot programs, and over the next two years, most OEMs will commit to initiatives. We need to present a product to Continental that meets automotive standards for reliability, cost, and manufacturing setup. It's important to note, even reaching a million units involves significant costs, including $150 million for the production line and $250 million in working capital, plus warranty and liability costs. Our model differs because we earn a royalty on every unit sold while partnering closely with Tier 1s and Continental, who manage those costs. Many companies are exploring RFPs and RFQs, looking to commit to programs across various applications like highway autopilot and traffic control, recognizing that LiDAR adds value and potential revenue. In contrast, the industrial markets have utilized LiDAR primarily for mapping and specialized applications, such as in mines, where efficiency and reliability have been concerns with past systems. These markets have quicker turnarounds because they don't need to wait for functional safety, and they value high-quality, reliable automotive-grade components. The industrial sector is focused on deploying profitable systems within a year, especially with the new funding for smart cities and ITS in transportation bills. We anticipate these markets will progress rapidly. As Suji mentioned, we must prepare with Sanmina to deliver complete products that can be implemented for several years, as installation costs can match or exceed sensor costs. Our automotive focus enhances our reliability and the capacity to upgrade infrastructure over time. Most major city intersections already have cameras and radar, which allows us to analyze data comprehensively. In summary, both markets are currently engaging; we are just adapting our market approach. In automotive, we collaborate with large Tier 1s like Continental, while in industrial sectors, we work directly with system integrators and offer fully-manufactured products through Sanmina.

Yes, that's wonderful information. I appreciate all of that info; very helpful. Maybe one last quick follow-up for me. This is maybe more directed towards Bob, but looking at the liquidity – so $144 million in cash plus the $125 million in the CSPA is the thought now that that should be sufficient to, again, to go through that ramp-up period in terms of being fully funded, or do you anticipate additional capital raises in the next few years? Thank you.

I think for now we feel good about where we are and liquidity and where we are with our plan. We're not going to give long-term projections on the call today. So we're going to stick with just our annual guidance and updating that. But we feel good about where we are, as you said, from our liquidity position. We've got quite a bit of cash on the balance sheet and access to the common stock purchase agreement. So we feel that puts us in a very good position today. And as we said, we're going to be thoughtful and careful about how we deploy our OpEx going forward, and also how we use our common stock purchase agreement to access that additional liquidity as we needed. But we feel very good that we've got a sound liquidity base to execute the strategy from. So for now that's what we feel like we need.

And Bob's not lottery spending money, and he keeps cutting me out from being able to pay for lunch, he's got a very focused strategy on liquidity.

That's excellent. Well, thank you so much, congrats on the quarter. I'll pass it on, thank you.

Thanks, Andres.

Our next question comes from John Roy with Water Tower Research. Please go ahead.

Thank you. So Blair, obviously you've been talking a lot about two different markets and you've been building this product; you really want to make it reliable, scalable, and industrialized. And it seems like you expect some cross-pollination from the two manufacturers. Can you go into how you expect those two to work together or not? And is this part of your business model differentiation? Will you be able to leverage that?

Sure, thank you. In our previous call, we briefly mentioned our plan for a product rollout that initially focused on industrial products, followed by automotive products in 2022, and a potential convergence of both in 2023. We have since decided to accelerate this process by merging the products. This means that the software and operating system are being developed to support both markets, triggered by specific sensors unique to each market. Interestingly, I believe over 80% of the components in these releases are shared, which simplifies our design, enhances reliability, and should ultimately lower costs due to increased volume on common components. The size of our products has also been optimized, particularly as the industrial market can accommodate larger dimensions while the automotive sector requires more compact designs due to space constraints. Our business model has always prioritized a software-driven approach, allowing us to effectively collaborate with computing platforms and utilize the same hardware across different markets. As mentioned in relation to Sanmina, we aim to streamline our manufacturing process while customizing the software for each market.

That's really helpful. The AEye percent number is interesting. Now, also you've certainly talked a lot about software definability, the on sensor OS, etc. We're starting to hear others use the software definable Lidar term; maybe you could just give us a little bit of differentiation between what you mean by that and what maybe others might mean by that. How is your software going to really be that different? I understand it controls a hardware understanding bi-statically, but maybe if you can give us more of a Layman's explanation as to what it really means to the end-user.

It would be presumptuous of me to assume I understand exactly what others are thinking. However, I propose that if your product is hardware-centric, you sometimes utilize software-defined capabilities for configuration. This allows for minor adjustments in the hardware during design or implementation, albeit within certain limits. When we talk about software definability and refer to an operating system on a sensor, it means we've constructed it from the software level up so that each component can be individually controlled. This allows me to modify the laser's functionality without altering the receiver. This is crucial because I can adjust the field of view based on specific applications or mounting situations without needing different hardware; it can be done through software adjustments. I can also alter the way I handle data density during scanning, possibly increasing the number of points collected on objects within a single frame for better definition before relaying that information to external perception systems. Moreover, I might decide to incorporate data from an external sensor; for example, if it rains, I could adjust the system to switch from two returns to four, or even six, which would enhance data collection significantly. All of these features are part of software-defined capabilities that require an operating system. They represent customization and optimization, enabling two-way communication between systems, rather than mere configuration. We recognize that people excel at scanning their surroundings when they are moving, which explains why most accidents result from distractions. To effectively replace human scanning through automation, we must be significantly better, not just in avoiding distractions but also in intelligent scanning capabilities, balancing temporal and spatial scanning within the same frame. Achieving this in a functionally safe manner provides considerable value; both consumers and original equipment manufacturers will appreciate it, and safety for existing industrial assets will improve overnight. Our objective is not to develop technology for its own sake but to create technology that can gather data for decision-making. This aligns with our approach of being software definable, integrated with an operating system. Our focus remains on creating intelligent Lidar systems that possess their unique advantages. We anticipate multiple types of Lidar systems, similar to various cameras and radar systems, and we believe in the substantial value of our offerings. The key is to make it through this year so we can begin scaling and getting our products into customers’ hands, leading to more specific feedback and inquiries next year.

Great. Thank you so much.

Thanks.

Alright. I think that wraps up our Q&A session. Operator, I think we're going to end the call at this point. Thank you all for joining us, and we hope you all have a great weekend. Thanks so much.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.