AEye, Inc. Q4 FY2022 Earnings Call

Good afternoon, and thank you for joining AEye's fourth quarter and year end 2022 earnings call. With me today are Matt Fisch, Chief Executive Officer; and Bob Brown, Chief Financial Officer. Earlier today, we announced our financial results for the fourth quarter and full year 2022. A copy of our press release can be found on our website at investors.aeye.ai. Before we begin, I would like to remind participants that today’s discussion may include forward-looking statements, as defined in the Securities Laws and Regulations of the United States with reference to future events, future operating results or financial performance. 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 more recent period report. All information discussed today is as of March 15, 2023, 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 the 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. Now let me pass the call over to Matt.

Thank you, Steve. Good afternoon, and welcome to our fourth quarter and year end 2022 earnings call. I'm Matt Fisch, AEye's CEO. I am joined on the call today by our CFO, Bob Brown. I'll begin the call by introducing myself, sharing some insights into what I've learned in my first month on the job and some initial thoughts on where we go from here. I will then hand the call to Bob, who will review AEye's financial performance for the fourth quarter and full 2022 fiscal year, as well as a few comments on our 2023 outlook. Then we will open the call for questions. Let me start by telling you a bit about myself and why I'm thrilled to be here. Over the past 30 years, I have delivered transformational products that have supported the rapid evolution of the automotive and technology industries. I am excited about the opportunity for AEye to become a premier sensing technology provider. To do this, I will leverage my extensive experience with systems, software and scaling large product organizations, as I did during my prior leadership roles at Gentherm, Harman and Intel. I recently led the technology team at Gentherm, a $1.3 billion developer of thermal management technologies. Under my leadership, we delivered innovative products to the automotive market that align with the industry shift to electrification and created new value propositions with systems and software. At AEye, our software-definable lidar is also at the center of this transformation. I will lead our team to enhance, productize and monetize AEye's platform and product portfolio to power the next generation of advanced driver assistance systems and drive greater efficiency, productivity and safety in smart infrastructure and other industrial markets. Throughout my career, I've consistently pursued opportunities that have the vision and capacity to change the world to have an impact to create opportunities that didn't previously exist. This is more than a passion. My track record shows I thrive and succeed when presented with the challenge of bringing revolutionary technologies to market. My greatest satisfaction and success comes from making a difference, and AEye's technology has the potential to be transformative. I joined AEye because I believe it has all the ingredients for commercial success. We have industry-leading technology, a unique and compelling business model, a healthy commercial pipeline, a stellar team and exceptional business partners like Continental. Continental has a proven ability to deliver full stack advanced driver assistance systems to the automotive and trucking markets. Over the years, they have delivered over 150 million sensors across dozens of product lines, making them one of the leading integrated ADAS solution providers in the world. For me, the most powerful market validation is that Continental selected AEye's technology for productization and integration into their industry-leading ADAS product portfolio. And we continue to receive positive feedback from OEM customers regarding Continental's automotive production intent B sample, giving me great confidence that we have the right product market fit for the next generation of advanced driver assistance systems. In my first month at AEye, I'm thoroughly impressed with the vitality and creativity of the team. The culture and energy here is remarkable and has me excited about what's to come. My immediate task at hand is to set clear objectives and focus our efforts and remove impediments so that our team can successfully execute and achieve our goals. To that end, I've been working with the executive team to develop a go-forward plan that aligns our strengths with our objectives. We are well underway, but this takes time and careful consideration. My commitment to you is that we will come back to you in our May earnings call with my plan for the company and a timeline to which you will be able to hold me and the executive team accountable. We will align our innovative 4Sight platform with the most promising opportunities and focus on a set of achievable objectives that will define success for AEye and its shareholders. I'm excited to be here. AEye is well positioned with exceptional technology and talent, and I look forward to sharing our vision for the next phase of AEye's evolution at our earnings call this May. At this point, I will turn it over to Bob Brown to review the details of our financial performance last quarter and last year.

Thanks, Matt. Welcome, everyone. Revenue in the fourth quarter was $1.1 million, up 42% from the third quarter. Our development contract services revenue was stronger in the fourth quarter due to contract-specific progress in our automotive business. Revenue for the full year was $3.6 million, up 21% from the prior year. We managed our spending carefully throughout the year as we continue to focus our resources on the most impactful areas of our business. GAAP operating expenses were $22 million in the fourth quarter, an increase of 2.9% from the prior quarter due to a favorable item in the third quarter that did not repeat in the fourth quarter. Our non-GAAP operating expenses were $16 million in the fourth quarter, up from $15.1 million in the third quarter. Net loss in the fourth quarter was $23.7 million on a GAAP basis, up slightly from a net loss of $23.6 million in the third quarter. GAAP EPS was a loss of $0.15 per share in the fourth quarter, which was flat relative to the prior quarter. Net loss on a non-GAAP basis in the fourth quarter was $17.5 million and non-GAAP EPS was a loss of $0.11, which was flat relative to non-GAAP EPS in the third quarter. Non-GAAP net loss for the full year was $73.8 million, which represented a substantial improvement relative to our initial expectations for a non-GAAP net loss of $100 million at the beginning of 2022. Net cash used in operating activities for the fourth quarter was $16.1 million, which improved from $22.4 million in the third quarter. The quarter-over-quarter improvement was primarily driven by cash used in the third quarter for working capital and for annual prepaid insurance costs that did not recur in the fourth quarter. We're continuing to manage our cash very carefully, especially in this environment, and we're focusing our cash outlays on critical areas that clearly support our strategy and product development. Our capital expenditures in the quarter were very modest at $800,000, reflecting our unique capital light model and our partnerships with manufacturers like Continental and Sanmina. We ended the year with $94.2 million of cash, cash equivalents and marketable securities on our balance sheet. We believe this provides us with a solid financial base to support our business as we head into what's expected to be a challenging economic climate in 2023. We've received many questions over the last several days about our exposure to Silicon Valley Bank, or SVB. The vast majority of our cash, cash equivalents and marketable securities are held in our account with a much larger bank, which was unaffected by SVB's issues. While we were also an SVB customer, we regained full access to our SVB accounts as of Monday morning. Turning to our external sources of funds. You may recall that we issued a convertible note in September, which provided us with $10 million of proceeds. Thus far, we have paid the monthly installments required under the note in cash rather than shares. We have the right, subject to certain conditions, to issue another convertible note to the same investor in 2023 in the same amount and on the same terms. We also continue to have access to our equity line of credit facility as an additional source of liquidity. We did not issue any shares under that facility in the fourth quarter. Now let me address our near-term outlook. We are maintaining a cautious view on the business in the first quarter. We expect revenue for the first quarter to be in the range of $500,000 to $700,000. We have temporarily slowed production of our 4Sight industrial product in Q1 as we complete the second phase of the transfer of production to our manufacturing partner and complete the planned validation of the product built in the production environment. While volumes are expected to be modest in the near term, we are continuing several proof-of-concept deployments of our lidar with key customers, particularly in the ITS market. In response to the uncertain environment we noted earlier, we have been managing our spending carefully. However, we expect our first quarter operating expenses to be up approximately 10% to 15% from the fourth quarter based primarily on the timing of certain development projects. We expect our non-GAAP EPS to be a loss of approximately $0.13 in the first quarter. Let me conclude by saying that while we expect to feel the impacts of a potential recession and ongoing supply chain challenges in the near term, we are well positioned to navigate through this period. The secular backdrop for lidar adoption across the automotive and industrial markets remains compelling. And the feedback we're getting from OEM customers on Continental's automotive production intent B sample continues to be very encouraging.

Thank you, Bob. To elaborate on that, we are discovering some differences in requirements between the industrial and automotive markets during our manufacturing transition. For instance, the need for a 24/7 operation of lidar systems is essential in the industrial sector, while this level of requirement is not as pronounced in the automotive sector. This illustrates the insights we're gaining as we expand beyond automotive into other markets. The positive aspect is that the software programmability of our platform allows us to address these challenges without needing to completely redesign the product.

Yes, I'll take that one. So we have line of sight at this point in time into six very clear automotive OEM engagements. Look, I've been in the automotive business for several years and have some very good insight at this point into the signals of how these deals are going. And based on that, I feel very confident that before the end of this year, we're going to get some clear decisions on a subset of those for sure.

Absolutely. We have top-notch long-distance detection capabilities for objects, which is crucial for higher levels of autonomous driving. This is a significant point of differentiation for us. I'm also very impressed with the product's design, which reduces the size and number of moving parts, providing a clear advantage as we progress into design validation and reliability testing required in the automotive industry. This will be a significant challenge for everyone. Our design is as close to solid state as possible at this stage. Additionally, the flexibility and programmability of the design, such as the ability to modify scan patterns, helps us address various challenges and insights we encounter in the field. These are the main three factors that influenced my decision to join this company. I think it's fantastic.

Yes, absolutely. Thanks for the question, Joe. So yes, as you said, we had $94 million in cash at 12/31. So from where we're staying today, we feel confident we've got at least a year's worth of cash on the balance sheet from today. So we're in reasonably good shape from that perspective. We do intend to raise more capital in the future. So you'll see that in our 10-K that we mentioned that when that is published here shortly. But as you know, given the cash balance, we do have some flexibility on timing. So there's not an urgency to do something, although we do intend to raise some capital at some point here. So we'll see more about that in the future. We're not going to guide further than that at this moment. Given Matt's only been in the chair for 30 days here, I think I want to give Matt a chance to finish his strategic analysis here. And then I think we'll come back in May with some further thoughts about how we're going to take the company forward and what that implies for the cash.

And I'll just add one thing to that. I've been digging into especially the customer engagements. Over the last 30 days, there's definitely opportunity for focus and looking at those signals and that I mentioned earlier, I think we can get more focused. That's really a key initiative from my end.

Yes, you bet. Thank you, Linda. So in terms of the supply chain challenges, some of those problems are still there. So there are still some key parts that we would classify as long lead time types of parts. So it's taking longer to get those. There are also still some PPV challenges where parts are still priced above where you would normally see them priced if there were not the supply chain challenges in place. I'd say it's getting better. So we are seeing some improvement, but I would say those issues are still lingering. So it's not hurting us too much in terms of the production at this point. As we said, for Q1, the key issue there is just doing this software revision and then the testing and validation. So I don't think that will be a big limiter in terms of production for this year. We are working closely with customers, as we said in the prepared remarks, we are focusing and we're going to spend quite a bit of time at focusing on that area this year.

All right. No, I think it's a good summary, Bob. And as we're looking at things right now, it's the software and getting those updates done, that's really on the critical path.

Yes. We think there's an opportunity for modest growth this year. That won't be easy from where we're starting, right? It's a slow start to the year as you see in terms of the guidance. But we feel like we've got the opportunity to generate some modest growth this year. So that's what we're going to be working towards on the top line.

I want to thank everybody for joining our call today. In closing, I believe AEye is well positioned with exceptional technology, talent and partners, and I look forward to your vision for the next phase of AEye's evolution in our May earnings call.