Aurora Innovation Inc (AUR) 2023 Q4 法說會逐字稿

Greetings, and welcome to the Aurora innovation fourth quarter 2023 Business Review Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stacy Feit, Vice President, Investor Relations.

You may begin.

Thanks, Diego, and good afternoon, everyone, and welcome to our fourth quarter 2023 business review call, we announced our results earlier this afternoon.

Our shareholder letter and a presentation to accompany this call are available on our Investor Relations website at ir.aurora.tech. The shareholder letter was also furnished with our Form 8-K filed today with the SEC.

On the call with me today are Chris Urmson, Co-Founder and CEO; and David Maday, CFO.

Chris will provide an update on the progress we have made across the key pillars of our business, and David will recap our fourth quarter and full year financial results.

We'll then open the call to Q&A recording of this conference call will be available on our Investor Relations website at ir.aurora.tech shortly after this call has ended.

I'd like to take this opportunity to remind you that during this call, we'll be making forward-looking statements include statements relating to the achievement of certain milestones around and realization of the potential benefits of the development, manufacturing, scaling and commercialization of the award driver and related services, our anticipated timeframe, the expected performance of our business and potential opportunities with partners and customers expected contract commitments from customers for our products and services, regulatory tailwinds and framework in which we operate, expected cash runway and our ability to complete any opportunistic fundraising opportunities and overall future prospects.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call.

In particular, those described in our risk factors included in our quarterly form report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC as well as the current uncertainty and unpredictability in our business and markets and economies.

Additional information will also be set forth in our annual report on Form 10-K for the year ended December 31, 2023.

You should not rely on our forward-looking statements as predictions of future events are forward looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Aurora disclaims any obligation to update any forward-looking statements except as required by law.

Our discussion today may include non-GAAP financial measures.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our shareholder letter, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website.

With that, I'll now turn the call over to Chris.

Thanks, Stacy. 2023 was a pivotal year for us as we put into place many of the final future pieces to support our planned commercial launch and operations at scale.

We continue to lead in autonomous trucking by executing a focused strategy centers centered on technological commercial and financial progress.

From a technology perspective, the Aurora driver became feature complete at the end of the first quarter of 2023.

Since then, we've meaningfully advanced the Aurora drivers, Autonomy performance.

Commercially, we established the first commercial ready autonomous trucking lane in the US while deepening and expanding our customer base, we now consistently schedule over 100 loads per week and are in the process of contracting our launch and 2025 capacity.

We've made great progress with our OEM partners, Volvo Trucks and packer on our co-developed autonomy enabled truck platforms with delivery of late-stage prototypes into our fleet.

And with the addition of our industry-first partnership with continental, we've built an autonomous trucking partnership ecosystem that is unmatched by any of our competitors.

We are confident that this holistic partnership approach is the right one for the future.

Self-driving trucking as a business and believe it positions Aurora as the only company capable of driverless commercial operations at scale.

We accomplished all of this while maintaining financial discipline spending well below our quarterly target, and we strengthened our liquidity position with a meaningful capital raise last summer.

You can't bring a commercially viable driverless trucking product to market without a deep integration with OEMs and suppliers.

Our work with partners supports our path to a driverless launch on an OEM and supplier approved platform and also sets the stage for long-term deployment at true commercial scale.

In the fourth quarter, we completed the bring-up of the first hardware complete Volvo Trucks capable of fully autonomous operations and began track testing these trucks in autonomy.

In January, Volvo Trucks unveiled the new all new Volvo VNL., which will serve as the platform for Volvo Autonomous Solutions trucking product powered by the Aurora driver.

We also continued to bring up of our new fleet of packers, Peterbilt 579 trucks upgraded with the latest generation of the Aurora driver kit.

This truck platform is equipped with prototype systems that will be necessary for driverless operations, including redundant braking, steering and power, which we are actively testing and packer has continued to highlight our progress together, including our joint showcase at their exhibit at the 2024 Consumer Electronics Show, Volvo Am-Pac, our shared commitment to safety makes them excellent partners as we continue the co-development of these autonomous ready trucks platforms.

Our mission is to deliver the benefits of self-driving technology safely quickly and broadly, safety is our first commitment.

And as the guiding principle at the core of everything we do at Aurora in order to prove the safety of our product and our public trust, we utilize a safety case framework.

We can't quantify our progress toward closing our launch lane safety case via our autonomy readiness measure or ARM, which is a weighted measure of completeness across all claims of the safety case for our launch lane, we are the only company in the industry who provides this level of transparency.

When we introduced the ARM 18 months ago, we estimated a road driver ready would correspond with an arm of approximately 95% and that we would be ready for commercial launch with the remaining approximately 5% of the safety case claims corresponding to the vehicle.

We're complete.

As of mid January of this year, we achieved an ARM of 93%.

Our focus and the road driver ready milestone enabled this rapid progress as we work with our OEM partners to prepare their autonomy enabled trucks for integration with prototypes of our intended truck launch truck in hand, our focus now turns toward closing the final 7% of our safety case jointly between the Aurora driver and the truck platform to enable our planned commercial launch at the end of the year.

This alignment of our road driver ready and commercial launch milestones and time line allows us to most efficiently allocate resources to final preparation of our complete product.

We will continue to report the ARM as we work toward closing the safety case for the launch line.

At the same time, the Aurora driver continues to get more capable and requires less support the autonomy performance indicator (API). serves as a key metric for assessing the Aurora drivers performance.

The indicator penalizes the use of on-site support, which will be the most expensive support provided for the fourth quarter of 2023.

The API was 99%, demonstrating another quarter over quarter increase across the commercially representative loads completed in pilot operations on our launch lane in the fourth quarter 62% at 100% API throughout 2024.

We will focus on driving up the percentage of 100% API loads.

And we'll continue to support the report on this metric, which we believe will be a strong indicator of our progress toward commercial launch.

However, as a reminder, we did not anticipate aggregate API will ever reach 100%, even at launch because certain situations like flat tyres always require on-site support.

In our presentation on page 8, we've shared some recent examples of the ROE drivers, excellent performance and some very challenging situation.

In the first video the Aurora driver is approaching an intersection on the surface streets near our Houston terminal and has a green light.

However, because the road driver predicts that the red pickup truck will run their red light, it slows to avoid a collision instead of proceeding at speed through the green lights.

Other vehicles are not as quick to react.

So they proceed through the intersection and get hit by the red pickup.

You may notice that our vehicle operator disengaged autonomy when the other vehicles collided.

This is a protocol we have in place until our system is fully validated and the safety case is closed as we step as we are steadfastly committed to our safety first approach to development and deployment in the second video, the road drivers traveling south bound on the surface streets near our Houston terminal.

This patiently waiting at a red light in the left turn only lane for an intersection.

You then see the road drivers less turn lights turn green, but a passenger vehicle traveling westbound runs their red lights.

The real driver detects the red light runner and wait until the coast is clear before safer proceeding into the intersection to make its term just seconds later.

The road driver then detects yet another unpredictable vehicle.

This one suddenly weaving into its lane.

The road driver breaks to avoid a collision with this vehicle, which is making an illegal left turn from an outside lane after successfully avoiding these two consecutive potential collisions at the same intersection, the road driver proceeds on its way to our Houston terminal, senior or drives performance in scenarios like these further reinforces the conviction we have and the safety benefits our technology can deliver to our customers as we continue to work toward closing our safety dates for our planned commercial launch.

We made solid commercial progress with several of our customers.

We have secured contractual commitments on volume and pricing for a portion of our 2024 and 2025 capacity, and we have several additional contracts nearing execution.

We continue to demonstrate to our customers that value the Aurora driver can deliver to their networks through our active pilots.

During the fourth quarter, we deepened and expanded our customer relationships.

We began autonomously hauling intermodal trailers for an existing customer, and we also launched a new commercial pilot on the Dallas to Houston lane.

We now consistently schedule over 100 loads per week with our customers and our logging approximately 25,000 commercial models weekly cumulative to date, through January 31, we've autonomously delivered under the supervision of vehicle operators, 4,300 loads, driving more than 1 million commercial miles with nearly 100% on-time performance for our pilot customers, including FedEx foreigner, Schneider, Hershberg and Uber Freight, among others.

Our proactive partnership approach also extends to lawmakers regulators and law enforcement who have a vested interest in the potential for safer, more efficient transportation.

In the fourth quarter, we worked with the Frisco police department in Texas to conduct Mach traffic stops on I-45 to simulate how autonomous trucks can recognize and respond to emergency vehicles.

We appreciate their partnership and working toward making Texas roads safer for everyone.

I will use their feedback to further hone the road drivers interactions with emergency vehicles.

We endeavor to launch the road driver in close partnership with our public safety officers who will be on the road with our vehicles on a daily basis.

We believe this collaborative approach will continue to foster goodwill in Texas, which is a supportive environment for our commercial launch lane, and we expect to replicate the same model in our lane expansion across the country.

Transparency and proactive external engagement are paramount in a safety critical industry at a time when reputations in the autonomous vehicle industry have been tested.

We're particularly proud of the culture we've built around safety and integrity, which we believe has positioned Aurora as a trusted partner and thought leader in the space to that end, we're delighted to share that our Chief Safety Officer, Nat Beuse has been selected to join the newly formed transforming transportation Advisory Committee of the US Department of Transportation.

We expect this committee to play a meaningful role in shaping the future of transportation.

That's inclusion underscores Aurora's commitment to responsible innovation and self-driving, and we are honored to have such a prominent Boys at the federal level.

We're also proud to share that a member of our government relations team, Melissa Wade, will serve as the chair of the autonomous vehicle industry association's Board of Directors.

Ava is the unified voice of the autonomous vehicle industry, working with lawmakers regulators and the public to realize the technologies, safety, mobility and economic benefits as shareholders will have an even stronger platform as a champion for the safe commercialization of this critical technology.

As we look beyond commercial launch, we're charting our path to scale and profitability.

In addition, to the work we're doing with our OEM partners to support the manufacturing of AMI enabled trucks at scale.

We also have a long-term exclusive partnership with Continental to jointly develop manufacture and service future generations, the Aurora driver hardware.

This partnership gives us a path to deploy autonomous trucks at scale with a cost structure in place intended to support our long-term profitability objectives in January, Continental and Aurora achieved a key development milestone.

We announced the finalization of the design and architecture of the future or driver hardware generation, inclusive of new fall back system that Continental plans to start producing in 2025, 2027.

We further jointly showcased our work together with an on-road truck on display at Continental's exhibit at the Consumer Electronics Show with the system architecture at hand, Continental will build initial versions of the hardware for testing at its new facility in New Braunfels, Texas and across its global manufacturing footprint.

With Continental's automotive development and manufacturing expertise.

The future Aurora driver will be designed to deliver customer value and Mark and under the hardware as a service business model will pay for that hardware on a per-mile basis, that means we expect the cost to the customer to purchase an autonomous truck will be relatively in line with that of a traditional truck, thereby limiting the capital investment necessary to adopt autonomy in their operations.

In closing, the tremendous progress we made in our second full year as a public company would not have been possible without our world-class team partners and investors.

Thank you for your continued support.

We will continue to responsibly drive toward our planned commercial launch at the end of 2024 and look forward to sharing more with you at our upcoming Analyst and Investor Day next month.

With that, I'll now pass to David, who will review our financial results.

Thank you, Chris.

And let's discuss our financial results.

We have provided a summary on page 11 of the slide deck for reference.

During the fourth quarter of 2023, we continued to demonstrate strong fiscal discipline while executing towards commercial launch.

Fourth quarter 2023 operating expenses, including stock-based compensation, totaled $198 million.

Excluding stock-based compensation, operating expenses were $161 million.

Within operating expenses, our R&D expenses, excluding stock-based compensation, totaled, totaled $138 million.

This amount reflects $640,000 in pilot revenue, which more than doubled year-over-year and which we recorded as a contra R&D expense.

SG&A expenses, excluding stock-based compensation, were $23 million during the full year of 2023, we used approximately $598 million in operating cash and capital expenditures totaled $15 million.

During the fourth quarter, we used approximately $133 million in operating cash capital expenditures totaled $4 million.

This fourth quarter cash spend was significantly below our target of $175 million to $185 million per quarter on average, reflecting one less payroll cycle in the quarter and our continued commitment to financial discipline.

To that end, we need to continuously adapt to meet our evolving needs of our business.

As we move towards commercial launch, we recently reviewed the entire organization to ensure we are working as effectively as possible and with the velocity required to achieve our ambitious goals.

Through this process, a limited number of roles were eliminated, which impacted 3% of our total workforce.

While these changes are difficult, they are necessary steps that are up to achieve our mission while operating efficiently and effectively as a team in 2024, we continue to expect quarterly cash use of $175 million to $185 million on average.

This reflects savings from the workforce alignment action as well as approximately $12 million in non-personnel cost savings, offset by an expected increase in capital expenditures relative to 2023.

As we prepare for commercial launch, we ended 2023 with a very strong balance sheet, including over $1.3 billion in cash and short-term and long-term investments.

We continue to expect this liquidity to support our planned commercial launch and fund our operations into the second half of 2025.

With that, we'll now open the call to Q&A.

Thank you.

(Operator Instructions)

George Gianarikas, Canaccord Genuity.

Hey, everyone, and thank you for taking my questions.

I'd like to dig into first like some merchant suppliers have made some recent inroads there.

Some of your competitors, do you see a point in the future where it's possible that the advantages you have in light are overwhelmed by progress in the merchant market or is that still a ways off?

Can you say that I am not familiar with the term merchant market,

In other words, merchant suppliers of lighter equipment in there?

Yeah.

Okay.

So we feel very strongly about the advantage we have with first slide.

This is technologies that the team when we acquired them a few years back, had already been working on it for between 10 and 15 years.

And we feel like we have fairly strong intellectual property protections around that technology.

And by having that team in house, we've been able to share very tightly between what the needs are from our perception system with what we can deliver through the hardware solution.

And we see -- that tight integration allows us to turn the innovation crank more quickly than folks on the outside would be able to so.

So would it ever is a very long time, but in a practical sense, no, we think this is a material strategic advantage for us.

Maybe just as a follow-up, there have been some very recent out of their failings quite yet, but there's a lot of tumult on the passenger side of the autonomous marketplace.

Does that create a potential opening for Aurora Connect?

Have you had any incoming inquiries on partnering?

Are you continuing to test them?

And can you remind us again of the synergies between your Connect and the trucking side?

Thank you.

Yes, absolutely.

We still very strongly believe the right first application for automated vehicles is in trucking.

We see that because of the size of the markets, the development of the market, we see that because of the unit economics and the ability for that to support early-stage products where the COGS will be higher.

We see that because of the self similarities, the freeway network and thus the ability to scale more rapidly.

And we see it partly because the customers will be really driven by view of the dollars and cents the TCO and deliver the value we can create for them in a much less emotional way than what's associated with moving people through the world.

That all said, we do strongly believe and are committed to in the long term, delivering a product to the personal mobility space.

The fact that we've architected the road driver to work both for heavy duty trucks and light vehicles.

And the fact that today we are currently operating our fleet of Toyota Sienna has with the same hardware and software that we operate.

Our trucks really gives credence to this expectation, design that we've made around transferability and common core of hardware and software.

And so when it makes economic sense.

And there's a strong business case that we look forward to introducing the technology in that space, working with the great partners we have there in Toyota and Uber.

Thank you.

Pleasure.

Thanks for great questions, George.

Thank you.

(Operator Instructions).

David Vernon, Bernstein.

Hi, everyone.

This is Justin for speaking.

On behalf of David Vernon.

Thanks for taking my question on.

So first, I'd just like to ask about on the 4Q cash spend of $133 million does well below that target of $175 million to $185 million.

Now on which I know you attributed to one less payroll cycle also to financial discipline.

And so I'm wondering how much of that is actually coming from the payroll cycle impact and how much is actually attributed to financial discipline?

I would say and thanks for the question.

I think it's I think it's kind of an equal mix of what we did and what we found and identified a lot of efficiencies and that we started putting in place probably about six months ago where we were really active and looking at the overall organization.

And you know, they all bear fruit at different times in terms of how they spend.

So we had substantial savings.

If you look at an annualized basis, we'll continue to pull forwards and we were able to bring in $10 million to $15 million of just, you know, pure financial discipline savings that we're able to carry forward on a regular basis.

There are some things that we did in terms of spending for like reducing future expenses like D&O, we are expenses and D&O cut into half.

And so we had a we pay all that upfront.

So that was in -- it was in the Q3 number and then it and then it flows through and flows out of that.

So you'll start to see some of those benefits as well.

I think we need to create enough of these positive momentums as we think about moving forward for next year because our capital expenses will increase as we prepare for commercial launch.

And so we're trying to develop enough of these in there so that we are committed to our plan that we've mentioned before, which is how much capital we need to achieve or how much additional capital we'll need before we get to free cash flow positive.

So we're still committed to that plan plan and what we've communicated with investors in the past.

Great.

Thank you.

And one other question on related to Continental.

So I'm just wondering how the progress on development of a fallback system with continental going on kind of like what is the progress look like, what's the timeline for completing that development?

Yeah, so that we can't get into much details, obviously, given the proprietary nature of the relationship, but it's moving on.

We internally have a series of Milestone gates that we move through with them and the team is making great progress towards them.

We are still working towards that 2027 launch of the hardware kits, and we're excited about the progress we're making.

Great.

Yeah, I think the other thing to point out in here is that we have again, it's a new fallback system.

We have an existing fallback system and that's going to be the default.

If this one ends up, we haven't any potential issues and things like that where it's a little bit delayed.

So it's not going to prohibit our overall launch.

But where we are in the progress thus far is going very well.

But we're not going to be bound by that in terms of introducing our new hardware solutions.

We have a fallback for a fallback system sort of screen.

Thank you.

(Operator Instructions) Mark Delaney, Goldman Sachs.

Yes, good afternoon.

Thanks very much for taking my questions.

I guess first, you have some contracts in place.

Can you share any details or context on what margins and cash flow may do compared to the current baseline as the company starts its commercial launch at the end of 2024 and ramps in 2025?

Yeah.

Hey, Mike, how are you doing?

And I think right now, obviously these are all commitments that are confidential.

So I can't really share any of the details on them.

I can tell you that we've been fairly consistent about and the pricing of this product similar to what the market has overall in terms of like a price per mile.

And it varies by the lanes that we operate in.

And so we have a consistent framework with that for our contracts that we're signing today.

The other thing in terms of like a margin basis like we're going to still, as we've said before, we're starting out with up to a fleet of 20 vehicles.

So it's going to be pretty modest, right when we first launch and so you're not going to see a substantial amount of change, right in terms of the revenue.

And we're going to provide a little bit more context at Analyst Day, our Investor Analyst Day coming up in March in terms of how to think about this on a forward-looking basis.

So stay tuned for more details on that one.

And then Martin, thanks for the color.

You're able to share that.

My other question was around of closing the software safety case.

I think the company had a target on the software safety case and do that around the end of 1Q 24?

I apologize if I missed it, but are you able to share an update on when you plan to complete that.

Thanks.

Yeah, great questions.

So we've been making really strong progress in that.

And it's reflected where if you look at we're about 93% closed of the safety case when we set the roadmap for the company about 18 months ago, we laid out three major milestones to get to feature complete, where all the parts were in place to get to a lower driver ready where we had closed the we convinced ourselves that the parts that were controlled to save and then get to commercial launch where we are then taking the closest safety case for our system, integrating with vehicle and getting it on the road serving customers.

As we've made the progress through that, we expected to get to about 95% at the end of the year.

We achieved about 93% at the end of January or mid-January.

As we look forward for this year.

We do we cover the conclusions of the right step forward for us is instead of sequencing.

The sequentially is to be working on them in parallel and we talked last time about how we began moving some of our resources of the closing the safety case and working on the next-generation work and expanding the performance of the system as it moves past the safety case closed.

But you can think of this as the continuous improvement so that we're at this point.

We're really focused on how do we get the quality and performance the product to a point where it's going to deliver for our customers in the ways that they needed to.

Understood.

Thank you.

Andres Sheppard with Cantor Fitzgerald.

Hi, good afternoon and thanks for taking our question and congrats on the quarter in all of the recent developments, and I guess our first question is, how should we think about future routes following the Sun Belt?

Trying to get a sense, you know, maybe at a high level medium to longer term, what are some target routes that would make sense in addition to what you have currently targeting?

Thank you.

I'm happy to start and then we'll hand over to Dave to add a little more color.

So as we think about it, it's very much going to be driven by demand once we kind of unlock the initial routes as we talked about, we see small incremental work for whatever the new feature is that's on lanes that we go to after that we've talked about between [Fort Worth] and I'll pass the big differences.

We have to be able to drive down a hill and we have to be able to deal with the customer and border patrol station.

And we do both those things today, we need to expand.

We'll need to validate that work as we move to other lanes.

It will be okay.

There's a whatever the new thing is if there is anything that we have to add for us.

We see the as you mentioned, that the opening expansion will become along the Sunbelt and then it's going to be really just tracing the quarter's demand and economic opportunity for us from there as we move up across the Midwest and up both coasts.

Dave, I don't know if you had.

Yes, I think that that's right.

Like we look at the commercial, the regulatory and the technology, and we look at them together, our customers are a really good guide on their priority for the lane expansion.

But I think Chris said it well, we'll go and we'll provide a little bit more context on this also at our Investor Analyst Day.

But I mean, if you think about it.

It's Sunbelt than it's starting to head north and continuing to head north, and we'll prioritize the higher demand lanes for our particular customers.

I think it's a balance between both operating between our terminals but also starting to unlock end points for specific customers.

And we're going to let the customer help drive the demand because of the similarity of the highway systems, we can pick one or another, and it's roughly the same technology wise as long as there's no regulatory hurdles, which in our road map, there are any today and we'll really let demand be the driver.

Got it.

No, that's super helpful.

And insightful, I really appreciate all that color.

And maybe as a follow up following my remarks, conversation and I understand there will be more details on this on the Analyst and Investor Day, but maybe at a high level, is there a what is the best way to think about price per mile on understanding that obviously next year will be up to 20 initial units.

But as you begin to ramp up and given all the recent exits in the industry.

Is there any color maybe at a high level you can kind of give us on what price per mile or what's the best way to think about that?

Thank you.

Yeah.

So let me start, I think and we will provide a bit more context on this at our upcoming event.

I think we think about the comparison of we're trying to offer a product that creates additional value for our customers.

And the value is in the safety.

It's in the total cost of ownership in the fuel savings, which falls under total cost of ownership.

So there's a lot of increments to that.

We expect to price when we first launch prior to, we're a driver as a service business models, and we expect to price when we first launch roughly similar to what a traditional line rate would be.

So if you look at DAT. pricing as example, for lanes, you'll get a pretty good guide of what each lane is.

And so that will kind of be our boundary of where we're thinking about it when we move to driver as a service, which is our long-term asset-light business model.

We will be pricing roughly similar to what a human driver equivalent would be doing some adjustments for the value creation out there.

So ATRI does a really good example of what the cost of the human drivers today for carriers and private fleets.

And that's a really good source to kind of benchmark against.

Of course, we are just going to add like the I think it's the heart of our price January is that we see this great pricing umbrella with humans driving trucks, right?

And for a long time, that's going to be the dominant form of transportation of freight.

And so as we think about pricing, we think we see that as really the competition.

And we see that the ultimately we'll be offering a product that is safer that can move freight more quickly, and we see it as really is that the way to think about where to set the price point.

Excellent.

Thank you very much again, very helpful.

I'll pass it on.

Thank you.

Thank you.

Thank you.

And ladies and gentlemen, we do not have any further questions at this time.

That concludes today's conference call.

All parties may now disconnect it.

Have a great day.