Good day, and thank you for standing by. Welcome to the AEye Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeremy Apple. Please go ahead.

Good afternoon, and thank you for joining AEye's first quarter 2025 earnings call. With me today are Matt Fisch, Chief Executive Officer; and Conor Tierney, Chief Financial Officer. Earlier today, AEye announced its financial results for the first quarter. A copy of this press release can be found on the Investor Relations section of the Company's website. 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, operating results, or financial performance, and such 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 the reports AEye files from time to time with the Securities and Exchange Commission, including in the most recent periodic report. The statements to be made are as of today only, and AEye does not intend to update any forward-looking statements regardless of any new information, future developments, or otherwise, except as may be required by law. In addition, we will be discussing non-GAAP financial measures on this call, which we believe are relevant in assessing the financial performance of the business. These measures are presented as supplemental information only and should not be considered a substitute for financial information presented in accordance with GAAP. You can find reconciliations of these metrics to the most directly comparable GAAP measures within the press release. Now I'll pass the call over to Matt.

Thanks, Jeremy, and thank you all for joining our first quarter 2025 earnings call. We appreciate your continued support and interest in AEye. Q1 was a quarter of significant momentum for AEye. We reached a critical milestone with the first units of our Apollo lidar solution coming off the manufacturing line of our Tier 1 supplier partner, LITEON, a key achievement that demonstrates the maturity of Apollo and ultimately the path to mass production. I'll provide more detail on Apollo's progress shortly. Separately, we are in the final test and validation stage of our integration to NVIDIA DRIVE. We're also gaining traction with new customers and have continued to manage our burn rate well. At the same time, we're well positioned to navigate global market dynamics, especially as it relates to tariffs by continuing to prioritize supply chain flexibility and resilience. Before I dive into more detail, I want to acknowledge the remarkable progress our management team has made over the last 18 months to get us to where we are today. When I stepped into the CEO role in early 2023, AEye was a company with world-class technology, but facing real challenges. We were pursuing too many markets and weren't fully committed to our capital-light strategy, leading to a high burn rate and hindering our product maturity. This, combined with delays in the automotive industry and declining access to institutional capital as the spec boom faded, had the Company on course for bankruptcy. We acted quickly and decisively to stabilize the business and set a clear path forward for sustainable growth. We made a strategic pivot, focusing our resources on the automotive sector to develop a single high-quality product for ADAS applications with the flexibility to serve adjacent markets. We also fully committed to the capital-light model and began prioritizing strategic partnerships as a more efficient path to growth. Our new strategy has revitalized AEye, positioning the Company for commercialization and long-term stockholder value creation. We then restructured the business around our updated strategy by significantly cutting operating expenses by 75%. This included a nearly 60% reduction in headcount across all levels of the organization and a rightsized executive team better aligned with our needs. We renewed our focus by investing in engineering and product development, exited multiple unfavorable real estate and supply chain agreements, and consolidated our footprint around our Silicon Valley headquarters. These were difficult but necessary steps to ensure the long-term sustainability of the Company. Together, these actions reshaped AEye into a leaner, more product-focused organization, one that is better equipped to navigate macroeconomic uncertainty and adapt to industry change with a culture grounded in operational discipline, innovation, and high performance. In the past 18 months, AEye has achieved many significant strategic milestones, most notably successfully launching our Apollo sensor in under a year. That timeline is virtually unheard of in this industry and speaks volumes to the outstanding expertise and execution of our engineering and operations teams. Not only did we bring Apollo to market at incredible speed, but our teams have continued to innovate and deliver industry-leading breakthroughs. Apollo has already demonstrated sensing performance at distances of up to 1 kilometer, an unparalleled capability that puts us well ahead of the curve. At the same time, we position AEye to capitalize on the immense market opportunity in ADAS and autonomous driving. We evolved our partnership model to take direct ownership of customer relationships and deepen engagement with OEMs and key players in the automotive industry. We're now working closely with industry leaders like NVIDIA and our major OEM investor to support the platform that is shaping the future of mobility. Further, we are setting the pace by partnering with an automotive Tier 1 supplier to manufacture Apollo, the only real path to scale for lidar in the automotive space. We are excited that Apollo is attracting the attention of OEMs, which strengthens our ability to access growth capital and execute our long-term strategy. This growing interest in our technology is opening doors to expansion into key international markets and new sectors such as security, rail, and intelligent transportation systems. A key step in this global expansion has been our partnership with ATI, providing us access to the Chinese market, a leader in lidar innovation and adoption. These are important value-creating milestones that underpin our ability to attract additional growth capital, as evidenced by the $24 million we've successfully raised over the past 14 months. The future for AEye has never been brighter. With the right technology, strategy, and team, I'm confident in our ability to lead our business forward and continue building on our track record of execution. I'll now share some of our operational highlights for the quarter. As mentioned at the start of the call, the first Apollo units are now being produced by LITEON, marking a critical step toward high-volume production. We believe partnering with a Tier 1 manufacturer is the only path automotive OEMs will ultimately accept as they demand the highest levels of product quality and consistency that we believe can only be delivered at scale by an experienced supplier such as LITEON. This alliance not only proves our ability to meet those standards, but also sets us apart in the lidar industry. Our success hasn't gone unnoticed. Competitors are beginning to realign their strategies to follow this automotive Tier 1 partnership model. Through our manufacturing collaboration, we successfully completed Apollo's first B-samples, which represent a level of maturity essential to the automotive OEM quoting process. These units are targeted for production deployment in nonautomotive markets as well. Reaching this stage in just a few months highlights our ability to execute and scale with speed and precision. We expect to begin delivering the first B-samples to customers in the coming weeks. Moving on to our commercial updates. In February, we launched an Apollo customer outreach campaign. And since then, we've entered into technical engagements with over 20 potential customers. In this final evaluation phase, we are working with these customers to determine Apollo's use case to fit their needs. As the next step, we will deliver proof-of-concept Apollo samples to these customers for in-application testing, which will inform larger purchasing decisions with meaningful near-term revenue potential. Several proof-of-concept contracts are already in negotiation with the process taking about six months to move from proof-of-concept to the start of scaled customer deployment. These engagements are extending beyond automotive, and we are reaching potential customers in traffic management, airport safety, rail safety, and other sectors that demand precision sensing over long distances. The key advantage lies in our software-defined lidar, which allows us to address a wide variety of use cases with minimal effort. Apollo's flexibility enables us to engage dozens of customers across different markets without increasing overall spending. Apollo can be modified in a matter of days, not weeks or months, making it a singular solution that can seamlessly fit into various applications. This capability significantly accelerates our customers' development timelines, offering a clear edge in both speed and cost efficiency. Our progress with NVIDIA and integration into their ADAS ecosystem is proceeding well, and Apollo has entered their final independent testing phase. We look forward to announcing more details later this quarter. Furthermore, we are excited to hear about NVIDIA's recent announcement of a major new OEM partnership, driving increased momentum for AEye and industry interest in ADAS overall. Now I'd like to address the resilience of our supply chain and how we are positioned to withstand the impacts of potential tariffs. Thanks in large part to our Tier 1 partnership, as well as our collaboration with ATI, we've established a highly adaptable and globally diversified supply chain that can navigate an evolving geopolitical landscape. With manufacturing capabilities in the U.S., Mexico, Western Europe, and Asia, we can strategically position production to help mitigate the impact of tariffs, giving us a key advantage and supporting our long-term stability. In closing, we're accelerating the execution of our strategic priorities to drive commercial success for Apollo as we capitalize on growing demand for lidar from global OEMs. With a solid cash position, a capital-light model, and effective cost management, we've built a strong foundation for the year ahead. Additionally, our resilient supply chain helps ensure that we can navigate the current landscape and continue to meet customer needs effectively. We're excited to share more updates, including new industry partnerships and the first Apollo lidar deployments later this year.

Thanks, Matt. I'd like to begin by adding to Matt's comments on the progress that AEye has made since early 2023. It's not an exaggeration to say that the Company has undergone a financial transformation in the past 18 months. We addressed unfavorable cost dynamics by simplifying our supply chain, reducing overhead, and streamlining manufacturing to unify around a single product, Apollo. Through our capital-light model, we have built the lowest cost structure since AEye went public, putting us on a path towards sustainable growth. We've continued to leverage market enthusiasm for our technology to access growth capital, raising an additional $13 million in the first quarter, bringing our total capital raised to $24 million over the past 14 months. This is a particularly impressive feat to have accomplished in one of the most challenging capital markets in decades. We ended the quarter with $25.9 million in cash, cash equivalents, and marketable securities, securing our cash runway into mid-2026. We're pleased to announce that we've resolved our lease dispute, which arose in 2024 as a result of our exit from an unfavorable real estate agreement. Through this resolution, we successfully mitigated our potential cash liability exposure from $6.4 million to $1.4 million. Now that Apollo is ready for prime time, we kicked off our new customer funnel process, leading to a targeted outreach to a diverse set of potential customers. As Matt mentioned earlier, we are currently in advanced negotiations on several proof-of-concept contracts, marking an important step forward towards commercialization. Software definability and adaptability are our secret sauce, making the Apollo sensor highly reconfigurable for different scenarios and offering unmatched flexibility well beyond traditional radar, camera, and lidar systems. We're seeing intelligent transportation systems and security as early standout opportunities where Apollo has a clear edge. With reliable detection up to 1 kilometer, it requires fewer sensors, which should reduce installation, maintenance, and operational costs. And Apollo consistently delivers superior performance in low light and adverse weather conditions, providing a cost-effective alternative to traditional night vision systems. To put this in perspective, for new markets and applications in the nonautomotive space, we don't see ourselves competing directly with traditional lidar given that other lidar implementations aren't capable of achieving Apollo's level of performance. In addition, we're expanding the market by displacing applications that use radar and camera systems as it's increasingly clear that these traditional sensors cannot meet the evolving and more complex needs of end users. I'll now move on to address our cash burn and capital-light model. Excluding financing costs, first quarter cash burn was $8 million, which includes $3.1 million of one-time payroll spend. Due to seasonality, we typically see higher cash burn in the first quarter and expect it to come down in subsequent quarters. Our nimble cost structure remains a key differentiator with both GAAP operating expenses and free cash flow burn significantly lower than our peers. In fact, some competitors incur as much as 12 times higher annual operating expenses. This efficient model gives us a clear advantage, enabling us to navigate the current macroeconomic environment with greater resilience than the competition. Now turning to our first quarter's financial results. First quarter's GAAP operating expenses were $6.8 million, down sequentially from $9 million in the fourth quarter of 2024. This was primarily due to lower compensation expenses and a favorable noncash adjustment related to the reduction in our lease liabilities following the resolution of our lease dispute. First quarter's non-GAAP operating expenses were $6 million, an $800,000 decrease from the prior quarter due primarily to lower personnel expenses, partially offset by increased professional fees and R&D spend. We reported a GAAP net loss of $8 million or $0.46 per share in the first quarter versus a GAAP net loss of $8.5 million or $0.93 per share in the fourth quarter of 2024. The decrease in GAAP net loss was primarily due to the lease liability noncash adjustment discussed above, which was partially offset by increased financing costs associated with the convertible note, of which a large portion were noncash transaction costs. On a non-GAAP basis, our net loss was $5.8 million or $0.33 per share in the first quarter compared to a non-GAAP net loss of $6.3 million or $0.69 per share in the prior quarter. Net cash used for operating activities increased to $7.8 million in the first quarter from $4.8 million in the fourth quarter of 2024. As we mentioned on our last call, this expected sequential increase was attributable to seasonal factors such as one-time payroll-related costs. Again, we closed the first quarter with $25.9 million of cash, cash equivalents, and marketable securities. Our total potential liquidity, which includes cash on hand and our ELOC and ATM facilities is now approximately $74 million. Moving on to our cash burn outlook. We now expect full year 2025 cash burn to be in the range of $27 million to $29 million, up from our prior estimate of $25 million. The increase reflects costs related to the resolution of our lease dispute and if we elect to repay certain obligations in cash. Importantly, our underlying operational cash burn remains unchanged. Excluding litigation-related expenses, our cash burn is consistent with previous expectations. Overall, we started 2025 with strong momentum and are excited to continue our significant progress throughout the year. Our relentless efforts to raise capital and rapidly develop Apollo have provided us with a robust platform to attract customers. We remain laser-focused on utilizing Apollo's superior performance to pursue new customer opportunities and continue expanding our market share.

Thanks, Conor. In closing, Q1 was all about execution. We achieved key product development milestones, started the first Apollo manufacturing line, and engaged new customers to bring us closer to capturing significant revenue opportunities. With Apollo ready for market, we are well positioned to drive growth, not only in automotive but also across industries where performance, programmability, and reliability are critical. Thanks for your time today. We'll now open the line for questions.

Your first question comes from the line of Poe Fratt from Alliance Global Partners.

Could you clarify if the real estate litigation occurred in the first quarter or if it will take place in the second quarter? Also, when do you expect a decision on the potential cash payment for the convert?

Okay, Poe, how is it going? I can answer those questions. This is Conor here. So I'll answer the first question first. On the lease, we actually trued up the liability in Q1. So that was a GAAP true-up that you'll see come through the financial statements, you'll see we took the liability down. But the actual cash payout itself will hit in Q2. So you'll see that come through in the Q2 cash burn numbers. In terms of the convertible note, payable over 15 months. And so the first payment became due in April. And so we have the ability to sell the note in cash or equity. That's at our discretion. And so we've now paid the first two payments in cash. Now there is an acceleration as well where we can do at least one acceleration per month, which they've chosen to do as well. So the short answer is we basically paid two months in cash, and there has been some acceleration in the form of equity as well.

Great, Conor. And then when you look at your cash burn over the rest of the year, you're saying it's going to trend down. Can you give me an appreciation for how it trends down? Is it like $0.5 million a quarter? $0.5 million to $1 million a quarter of sorts so that you exit the year closer to $6.5 million on a cash burn run rate?

Yes, like a normalized run rate for us is about $5 million per quarter. Now we're expecting Q2 to be slightly higher because we do have that lease settlement liability that we need to take care of. So that's probably going to be about $6 million. But then we should start trending down to about a $5 million run rate there in Q3 and into Q4. Poe, we think we've baked in everything on the demand side for Apollo. But obviously, if volumes start to ramp, then there might be more investment needed in supply chain and also in manufacturing, but that's obviously a high-class problem to have.

Yes. And you sort of hit the next question from a 40,000-foot level. You're in the final stages of getting through the integration issue or integration test with NVIDIA. When do you anticipate that? You said by the end of the second quarter. And then can you help me appreciate what that actually means for the scaling of manufacturing?

So, I'm going to turn that over to Matt. He has had a close relationship with NVIDIA, so I think he's probably best suited to address that.

Hey, Poe. Yes. Thanks, Conor. Absolutely take that. Look, there's two steps in the process of NVIDIA. The first is to get all the software communicating between our sensor and their ecosystem. That's done. Then they go through what we call an independent test phase, right, to view them as an independent body to validate the performance of our sensor before making particular recommendations to their OEM ecosystem. I think you should look at that as the sales part of the pipeline, right? So, completion of this integration process opens up NVIDIA's ecosystem and allows us to scale our conversations into more OEMs. It's not directly connected to the manufacturing process, right? Step one is NVIDIA pitches us based on the results of the testing. And then we work on the contract end with the OEM side, and those contracts will determine how much we need to dial up our manufacturing. Where we think we stand today, we have enough inventory to deal with our anticipated short-term demand, but we'll be watching the progress of those contracts closely so that we can dial up quickly if we need to. LITEON is very adept at this process. They know they have a tremendous amount of supply chain leverage, and they can dial it up or down very, very responsibly.

Matt, since you have enough inventory, does that mean we are unlikely to see any scaling up of manufacturing this year? Could you provide more details on the potential timing for that scaling?

Yes. We'd like to see a bit more of the customers run through this pipeline first before we start talking about guidance, and I'll let Conor chime in on that in a bit. But essentially, we will expect to see some ramp this year for sure.

Yes, I'd like to add that we have a very flexible relationship with our manufacturing partner. Unlike some contract manufacturers that require a minimum order volume, we don't face the same limitations. This flexibility allows us to adjust production levels quickly. This is why we aren't overly concerned about scaling up. Additionally, I want to clarify that while our cash burn will increase in the near term, we've managed to reduce our exposure from $6.4 million to $1.4 million, which is a significant improvement for the company. When we first entered this lease, it was a $20 million commitment that weighed heavily on us. Since Matt joined, we have worked diligently to exit that lease, and we have successfully done so. This will provide a strong foundation for our company moving forward. Now that this issue is behind us, we can focus on product development and customer execution, which are our primary priorities.

Hey, Conor, thank you for the question. We are excited to announce that we have successfully closed a couple of contracts. Some of our customers have already moved out of the pipeline. We're happy to share that we have signed statements of work for two proof-of-concept deployments, one in the intelligent transportation systems and the other in the defense market. We look forward to providing more details in the coming weeks, but we are ready to confirm that we have closed two contracts in our pipeline.

Sorry, Matt, are you talking about the pipeline of roughly in the non-auto business? It sounds like that.

That's right. As one of the challenges we've had is the timing on the OEM side. We don't set that timing. The OEMs have. And so I think the way you look at this is we're diversifying a bit. The latency and the amount of time it goes to start proof-of-concept and then ramp production is shorter than the time line we're seeing in automotive. So we are diversifying a bit. And we're able to do that now because Apollo is our single platform, single product, and we're able to use that same product in both markets. Again, due to that software programmability that we believe is fairly unique with us, we're able to do that without any product changes on the hardware side.

And just to add to Matt's point, I think the other important thing here, Poe, is that we're still keeping true to our capital-light business model and our partnerships model. And so if you think about this nonautomotive business, it's a little bit different than automotive. The end customer expects a fully bundled solution. So they expect the sensor; they expect the perception software, the compute box, and the visualization dashboards, analytics platforms, all of those things. And so what we're doing is we're partnering with others for perception, for visualization, dashboards, all of those things. And the great thing about that strategy is that those partners have been around for decades. They already have pre-existing relationships in the market. So we're just tapping into an ecosystem that's already in place. And we think that's really going to accelerate our go-to-market strategy. And so I'd say we're really an enabler from that point of view. So that's what we're really excited about that we can get into the market in an accelerated manner, keeping true to our capital-light business model.

And could you give me appreciation for the scale or the size of the market, auto versus non-auto? Clearly, the sales cycle is shorter so that you don't have as many hurdles from the validation standpoint to get through. But the size of the market, can you just sort of discuss the relative sizes of both markets?

Yes. Maybe I could talk to that to a certain extent. Obviously, the automotive market is huge, right? There's 90 million passenger vehicles that are sold every year. So obviously that's where the volumes are going to come from. But if you think about all these different markets, there's also huge opportunities as well, and Matt listed out a few of them. But even just the intelligent transportation systems sector alone, I think that's a $20 billion total addressable market opportunity, not just for lidar, obviously, but for all the different sensor modalities. So that's a tremendous opportunity there. I think the key difference is, obviously, automotive, you're going to have higher volumes. On the nonautomotive side, the volumes are going to be a little bit smaller. But at the same time, the price point is going to be higher. And so there's that trade-off. And if you think about our model overall, it doesn't take a lot to get us to profitability. And we're talking about a $25 million burn rate. So it doesn't take a lot of wins to get us to profitability. We obviously have two in the bag right now, and we're working on 20-plus more. So that's why we're feeling really confident here in terms of just outlook, our ability to penetrate the market and ultimately get to profitability at a sooner clip than everybody else.

There seem to be no further questions at this time. I would like to hand back for closing remarks.

Okay. Thanks so much, and thank you all again for joining our call today. We look forward to providing further updates on our progress in our second quarter call. Thanks, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.