AEye, Inc. Q3 FY2025 Earnings Call

Thank you all for joining us. I am pleased to welcome you to the AEye Q3 2025 Earnings Conference Call. I will now hand it over to Jeremy Apple. Please proceed.

Good afternoon, and thank you for joining AEye's third quarter 2025 earnings call. With me today are Matt Fisch, Chief Executive Officer and Chairman; and Conor Tierney, Chief Financial Officer. Earlier today, AEye announced its financial results for the third 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. 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 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 third quarter 2025 earnings call. This quarter marked another step forward for AEye as we continue to build on the progress made over the past year. Over the last several quarters, we've executed the strategy that we set forth, brought spending under control, developed and launched differentiated products ready for commercialization, and established the foundation for scalable growth. Now with Apollo in the market and gaining traction, our focus has shifted to building and converting a strong revenue pipeline. We're winning new customers, expanding partnerships, and gearing up to scale Apollo. As we just announced, increased investor confidence in what we've been building has allowed us to secure the capital needed to ramp our production line. With a strong cash position providing visibility for the next few years, we are well positioned to translate momentum into sustained revenue growth. Further, Apollo's unique combination of long-range sensing from behind the windshield, compact design, software-driven versatility, and competitive pricing continues to resonate with customers. We're securing new contracts across our target markets. We believe no one else offers the same blend of performance and adaptability, which continues to fuel our commercial momentum. Today, we want to focus on sharing details around our progress towards revenue growth via the commercialization of Apollo and OPTIS. I'll start with where we're seeing the most momentum right now, our growing customer base and the real-world programs that are putting Apollo to work. We doubled our customer base since the end of the second quarter, bringing us to 12 customer contracts signed year-to-date. One of those wins came from a global defense contractor using Apollo on UAVs to improve wire detection, a perfect example of Apollo's strength in identifying small objects at long-range and high speed. These kinds of programs not only create near-term revenue opportunities, but also open the door to broader adoption across defense and aerospace OEMs. Our commercial pipeline also continued to strengthen in Q3 with two dozen active quotes tripling last quarter's level. The pull from customers is real, and we're converting more opportunities into active programs. The pipeline is deepening, giving us better visibility to future revenue and a solid base to build from as we grow. Across these programs, interest is growing rapidly in Physical AI, a concept focused on bringing vision to intelligence. Put another way, this is the equivalent of giving eyes to an AI model like ChatGPT. We're already seeing this come to life through real deployments, including the UAV wire detection application I just mentioned as well as optical detection for rail and waystation automation powered by OPTIS Analytics. Together, these programs show how Apollo and OPTIS are enabling intelligent perception in challenging environments, while we continue to drive expanded engagement with automotive OEMs who value Apollo's long-range behind the windshield visibility. Next, I'll touch on our expanding manufacturing capacity. As I mentioned earlier, we've announced an expansion of the agreement with our Tier 1 manufacturing partner, LITEON, and an investment from a leading global institutional investor to fund a new dedicated production line for Apollo with capacity to produce up to 60,000 units annually. We're seeing an inflection point in customer demand, and this expansion ensures we can meet the growth head-on. Our capital-light model allows us to channel investment directly into working capital for production rather than fixed infrastructure, enabling rapid and efficient scaling. This decision reflects our conviction in Apollo's commercial momentum and positions us to capture the accelerating demand ahead. In addition, recent developments in the lidar industry have validated and reinforced our conviction that our capital-light model is the most viable path to sustainable commercialization. Turning to markets and partnerships, engagement with the automotive industry remains strong with active discussions underway with about two-thirds of major Western OEMs. What's capturing their attention is Apollo's compact design. It sits cleanly behind the windshield without compromising long-range performance, giving OEMs a vehicle packaging solution for meeting hands-off, eyes-off sensing requirements that doesn't require exterior vehicle modifications. We believe that this packaging advantage provides AEye with a key differentiator as the next generation of programs are sourced. As automotive programs progress, we forged critical software partnerships that are opening new markets and already translating into sales across defense, aviation, rail, and smart infrastructure. These collaborations are helping us mature Apollo, enhance cost efficiency, and expand adoption. Recent examples include partnerships with Blue-Band, which uses Apollo's long-range sensing for AI-driven traffic management, and Flasheye, whose 3D perception software enhances safety and logistics applications in complex scenarios such as at airports and transportation hubs. Internationally, our partnership with Black Sesame Technologies in China combines Apollo's 1550-nanometer sensor with their automotive-grade compute platform to deliver a full stack obstacle detection capability. This solution has already been selected by a leading transportation OEM, representing a potential multimillion-dollar revenue opportunity and underscoring Apollo's performance, reliability, and scalability in one of the world's most competitive mobility markets. Together, these partnerships are turning opportunity into action, driving real Apollo and OPTIS sales today. In closing, we're executing with focus and delivering results. Apollo's clear differentiation is driving real sales and strengthening our customer base, and our strategic partnerships are translating into commercial wins. We're adding customers, broadening our market reach, and scaling production alongside partners who share our vision, backed by a strong cash position that gives us a clear path to execute our plans for growth in the coming years. We have the resources and flexibility to advance commercialization. The pieces are in place. We have the technology, the partnerships, and the balance sheet to continue this progress and drive consistent revenue expansion. I'll now turn the call over to Conor to review our financial performance.

Thanks, Matt. AEye is demonstrating solid financial discipline and operational resilience, positioning the company for durable long-term growth. With $84 million in cash at the end of Q3, we have the runway to operate well into 2028, providing a solid foundation to scale and execute our growth strategy with confidence. Importantly, we have cleaned up our capital and debt structure, leaving us in a stronger financial position compared to our peers. We're approaching growth in three deliberate phases, each designed to unlock value and build momentum. This is a disciplined road map, not just for the next quarter, but for the next several years. Phase 1 is laying the foundation and gaining traction, and we're already seeing solid progress here. Strategic partnerships are taking shape, particularly in non-automotive markets, and proof-of-concept deployments are validating our technology in real-world scenarios. These early wins are critical because they set the stage for everything that follows. Phase 2 is where we accelerate, and we expect the inflection point for this phase to come next year. To prepare, we're putting in place the infrastructure we need, strengthening our supply chain, expanding manufacturing capabilities, and building deployment readiness so we can meet the demand we anticipate. This is when revenue should begin to climb and margins turn positive as we optimize costs and streamline operations. It's the bridge from promise to performance. Phase 3 is the breakthrough moment when profitability becomes real. Each phase builds on the last, creating a clear path to unlock adoption, drive revenue, and ultimately create shareholder value. It's a disciplined approach to scaling with confidence. As Matt noted, our commercial pipeline continues to expand at an impressive pace. In fact, our non-automotive funnel has grown sixfold from fewer than 100 prospects earlier this year to nearly 600 today. Quarter-over-quarter technical engagements increased by nearly 50%. Quotes issued tripled, and signed contracts doubled to 12 since Q2. These metrics tell a clear story. We're seeing stronger alignment with customer needs and growing confidence in our technology. Intelligent Transportation Systems lead the way in funnel volume and proof-of-concept activity, while rail shows some of the highest engagement rates. Aerospace and defense are also maturing nicely. What's driving this traction is Apollo's unique value proposition. Combining powerful lidar capabilities with flexible software control and a compact design, Apollo fits seamlessly behind the windshield for streamlined automotive integration. This flexibility allows us to tailor solutions for specific applications and lead in sectors where alternatives appear limited, creating a distinct competitive advantage that strongly resonates with customers. OPTIS is moving our partnership strategy forward. We've moved OPTIS from concept to structured offering with initial deployments already completed. Now we're enhancing system performance by adding compute and perception capabilities. At the same time, we're expanding our ecosystem beyond perception-only solutions, engaging in technical discussions with new partners, and exploring reseller opportunities to extend our reach. Recent additions to our partner network include Black Sesame, Blue-Band, and Flasheye. I'll now move on to Slide 7 to address our cash burn and our capital-light model. Excluding net financing proceeds, third-quarter cash burn decreased by approximately $0.7 million to $6.4 million. This reduction follows an elevated burn rate in the second quarter, which included a one-time $1.4 million lease settlement payment, partially offset in the third quarter by higher engineering and professional service costs. Our capital-light model remains instrumental to our growth strategy, allowing us to expand efficiently by leveraging strategic partnerships rather than making heavy capital investments in manufacturing or software infrastructure. As shown on this slide, our unique operating model translates into meaningfully lower expenses compared to peers, providing a distinct advantage in capital efficiency as we continue to scale. Now turning to our third-quarter financial results on Slide 8. Third-quarter GAAP operating expenses were $7.8 million, down from $8.6 million in the second quarter of 2025, primarily due to lower costs associated with our proxy contest, personnel expenses, and contract development costs. Third-quarter non-GAAP operating expenses were $6.1 million, a decrease of $0.7 million compared to the prior quarter, primarily driven by the same cost drivers as described above. We reported a GAAP net loss of $9.3 million or $0.30 per share in the third quarter, which was comparable to the GAAP net loss of $9.3 million or $0.48 per share in the second quarter of 2025. On a non-GAAP basis, our net loss was $5.4 million or $0.17 per share, beating consensus estimates in the third quarter compared to a non-GAAP net loss of $6.7 million or $0.35 per share in the prior quarter. This improvement was driven primarily by operating expense reductions noted above and increased interest and investment income. Net cash used for operating activities decreased to $6.1 million in the third quarter from $6.4 million in the second quarter of 2025. We ended the quarter with cash, cash equivalents, and marketable securities of $84.3 million, more than quadrupling our cash balance compared to prior quarter end. Since quarter end, we've raised an additional $10 million. Importantly, we remain focused on maintaining a strong, simplified balance sheet. The convertible note executed earlier this year has been fully repaid. And during the quarter, we eliminated legacy warrants, further cleaning up our capital structure. These actions position us in a much healthier financial state compared to many peers in the sector who continue to carry significant debt. Overall, we're maintaining strong liquidity, disciplined capital management, and a balance sheet that supports our long-term growth strategy. Moving on to our cash burn outlook on Slide 9. We continue to expect full-year 2025 cash burn to be at the high end of our previously communicated range of $27 million to $29 million, reflecting planned investments to scale Apollo production and support commercial expansion. In summary, we're thrilled by the momentum that we are seeing across the business. Apollo's differentiated value proposition is strengthening our customer pipeline, while we continue to have the most efficient cost structure among our peers. Financial discipline remains our top priority as we look ahead to scaling to meet growing demand for our advanced lidar technology. With that, I'll pass it back to Matt to wrap things up.

Thanks, Conor. We're proud of the progress AEye has made, both technically and commercially this quarter. Sales are ramping and our pipeline is accelerating as we see rapidly increasing pull from the market, strong leading indicators of the revenue growth we expect in 2026. The team is fully aligned around execution, and we look forward to updating you on our continued progress in the quarters ahead.

Our first question comes from Poe Fratt from Alliance Global Partners.

Congratulations on the progress. Matt, would you expand on your confidence in the capital-light model, especially in the context of recent industry events?

Poe, yes, sure, happy to do that, and thanks for joining us again this quarter. I think there are two pieces to think about here. One is what I'd call the more obvious piece, which is manufacturing capital investment. And then the second, I do want to talk about software a bit because that's important as well. Our capital-light model on the manufacturing side relies on a partnership with LITEON who has a very global footprint. Also, very importantly, they're experienced in dealing with the automotive industry. Just to give you an example, I'm out here in Detroit today, I was meeting with an OEM talking about our progress in their supplier audit process. OEMs are now starting to use a word called resiliency, which means can you quickly change your manufacturing site from one part of the world to the other? And as a small company, that's incredibly expensive to be able to invest in something like that. Our capital-light model says we partner with someone very seasoned and experienced in this area. So we can have this flexibility, nimbleness, and resiliency through our partner as opposed to having to make massive investments. And this allows us to essentially look at just-in-time delivery and ordering of components. So we're really focused on looking at the pull from the market and then ensuring that our working capital is lined up and ready for just-in-time delivery. And that keeps our upfront costs incredibly low. This also extends to our focus in the software space as well. We just want to be great at building best-in-class lidar, and we're also very adept at helping customers solve particular problems. With this capital-light model, we rely on partners to write perception software, for example. That's a big expense to create perception software and maintain it. We're happy to offer that through our OPTIS platform via our partners, again, avoiding the upfront investment of having to build the software ourselves. I think the results speak for themselves. I mean, the cash balance in the company is very strong. Our debt structure is very strong, and we're able to manage that through just-in-time delivery, thanks to our capital-light model.

That's great information. Can you explain the significant increase? You have doubled your customer base to 12. Can you elaborate on that customer pipeline? Also, within those 12 customers, can you discuss the distribution between automotive and non-automotive clients?

Poe, this is Conor here. I can jump in for that question, and then maybe Matt can add his thoughts at the end. But first off, addressing this question, I'd just like to preface it with the fact that we've really only had Apollo out in the market and in customers' hands since early in the year. We're talking February timeframe. So I think the amount of traction that we've shown on the funnel is just amazing, in my opinion. If you look at the number of prospects that we have in the funnel, we've increased that from 100 at the beginning of the year to almost 600 today. If you look further down the funnel, if you look at technical engagements that we have with customers, that's increased by almost 50%. If you look at quoted activity, that's almost tripled. And then as you alluded to just now, we've seen a lot of traction on the contract side as well. We've grown that, almost doubled it from six to 12 in just one quarter. When I think about that, there's a certain amount of commonality with the customers that are engaging with us. What we're seeing is there is an appetite for high-performance sensors. The value prop that we're bringing is quite unique in the marketplace right now. It's a combination of long-range; we can see up to a kilometer, but also ultra-high resolution. The software reconfigurability piece is something that really resonates. Each customer has unique use cases. That adaptability, being able to work with the customer, being able to customize a solution that works for them is very compelling. That’s really the value prop. Thinking about the market, up to now, if you think about high-performance sectors, Matt alluded to it in his script, you're talking about defense, smart infrastructure, and rail. Especially in the defense sector, you think about the solutions that have been on the market for the last 30 years, high-performance lidar sensors we've sold for millions of dollars. Other sensor modalities such as radar and camera had limitations and deficiencies. What we're offering right now is a high-performance sensor at a competitive price point. That's compelling to the end user. We're seeing a lot of growth in the funnel and a healthy conversion rate, moving from two customers at the beginning of the year to almost 12 today. That’s a strong signal that customers are engaged and interested in what we're doing. Matt, I'm not sure if you want to chime in.

Yes. Well said, Conor. I think I'd just add one thing, and that is talking about the automotive space. You may think, why does a passenger vehicle need a one-kilometer range? What we're bringing into that space in the same small size and low-cost package is the ability to put the lidar inside the cabin behind the windshield. Glass does terrible things to lidar, and you can't see very far or when you try to shine the lidar through glass. This one-kilometer performance allows us to meet the automotive and passenger vehicle requirements through the windshield inside the cabin. That's getting us a lot of meetings with OEMs right now. They're very interested in avoiding that bump on the roof, the taxi sign, so to speak. It's not just the defense and other industries that if you look at a kilometer, wow, that's amazing. We need to have that. Shining the lidar through the glass in the vehicle through the windshield greatly simplifies the OEM lidar integration problem. So we're getting a lot of interest on the automotive side from that perspective as well.

Our next question comes from Casey Ryan from WestPark Capital.

Matt, Conor, lots of progress, great update here. There's a lot to look at. I just wanted to ask, Matt, you used the more technical appropriate term of UAV as the defense opportunity. Is it fair to say that, that covers all drone applications potentially within defense? But then my question is, have you also seen an uptick or more interest from commercial drone manufacturers, particularly domestic as I know DJI is under review and there's a potential loss of them from the market? So presumably, other people are stepping up now at this point.

Yes. Casey, just starting with the defense piece first. We are seeing interest in the UAV space, but it's not just UAV; it's also manned aerial vehicles as well. So it's not just the drone piece. I would say, yes, there is an opportunity on the commercial side. That's something that we're actively pursuing. If you think about drones, they're used for all sorts of use cases, obviously, disaster mitigation, aerial mapping, all those kinds of things. The same attributes that attract DoD customers to us apply to all those use cases as well. They're looking for a solution that can see long-range and also see with a high degree of resolution.

Okay. Tremendous. And then quickly, on the auto OEM side for mass market, which I realize we're still some years away from, where do you sense the focus is? Are OEMs building for Level 3 and Level 4? Or are they still trying to optimize for Level 2 and through hands-free type applications?

Yes. Thanks, Casey. By the way, welcome back. Thanks for joining us. I'll take that one. I'm not necessarily going to speak on behalf of the OEMs. But in terms of the specs that are coming to us through RFIs, we're seeing a significant shift into the L3 and L4 states in the last six months. You can track some of that in the media as well. The requirements that are coming in these RFIs show that shift very clearly in the last six months.

Our next question comes from Poe Fratt from Alliance Global Partners.

Conor, would you mind just giving us a little more detail or a little more color on the institutional investor that you've lined up? Can you frame maybe the potential size of their investment and also the timing of the investment? Also, is that required to get to full production, that full production number of 60,000 units per year by the middle of next year?

Poe, let me address that. What I would say is we haven't really released all those details or that information in the PR, but I'll try to at least address some of it. It's a well-known institutional investor. That's for sure. The name will definitely resonate with everybody. What I would say is the investment itself was made after quarter end. It's part of that $10 million that I alluded to in the script. In terms of giving us enough runway, we had $84 million in cash at the end of the quarter. When you take into consideration the additional capital that we raised post-quarter end, we're up above $90 million at this point. We feel that that's more than enough capital to execute and accelerate our go-to-market strategy. There could be opportunities to raise capital down the road, but at this point in time, we're feeling relatively comfortable that we have enough capital for our immediate strategy.

Our next question comes from Richard Shannon from Craig-Hallum Capital Group.

I apologize for the ambient noise. I'm trying to watch my daughter's volume at the same time. I may have missed the prepared remarks to this topic, but the six new wins you talked about in the quarter, can you describe the applications and volume opportunity that you're looking at here?

Conor, why don't you go ahead and take that one?

Richard, I can give you a general idea about what those use cases relate to. As I said earlier, they're for high-performance use cases. But generally, think about the aviation sector, rail systems. Right now, we're in Phase 1 of a three-phase process, and this is really foundational. We're working with customers to put proof of concepts together. That's part of our overall strategy. We're laying the foundation for a volume ramp that we expect to see. We're getting very positive indications from customers that they're willing to sign up for higher volumes, and that’s why we made the decision with LITEON to invest in infrastructure and the line, so we have the capacity to meet that demand when it does come through.

And maybe just a follow-up, Conor, what are we talking about in terms of the investments you're going to be making with LITEON? I assume this is in the form of CapEx being conferred to them or whatever. But maybe you can help us understand what that investment is and its magnitude over what time?

What I would say is we don't expect a dramatic increase in our burn rate next year. If you look at our burn rate for this year, we're guiding to about $29 million, but there are a lot of one-time items included in that. If you look at our baseline burn for this year, it's really more like $25 million. So at a minimum next year, we're looking at around $30 million. There's the opportunity for that to go up a little bit if we invest in working capital. What we're looking at is gating some of the investment to specific milestones and commitments on the customer side.

You talked about investing in capacity of 60,000 units annually. Do you have any visibility on the time frame by which you might approach high utilization with that volume? I assume it's not in the next year or two, but if it is, I'd certainly love to get some context.

I don't think that's going to come overnight. I think it's going to be more phased. The important thing is to be ready and to have that flexibility. That's why we want to work with a partner like LITEON. What I would say is there are some upfront investments, like I mentioned earlier. We're probably going to have to make investments in working capital. There may be a little bit of CapEx. Because of our capital-light model, we can keep those investments flowing. We're getting a lot of support from Apollo as well.

That concludes the question-and-answer session. I would now like to turn the call over to Matt Fisch for closing remarks.

Thank you for your time today. We appreciate your continued support and confidence in our vision. Have a great day.

This concludes today's conference call. You may now disconnect.