Aurora Innovation, Inc. (AUR) Q3 2022 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Aurora Third Quarter 2022 Business Review Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Stacy Feit, VP, Investor Relations. Ma'am, the floor is yours.

Thank you, Pat. Good afternoon, everyone, and welcome to our third quarter 2022 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 is Chris Urmson, Co-Founder and CEO; and Richard Tame, CFO. Chris will provide an update on the progress we have made across the key pillars of our business, and Richard will recap our third quarter financial results. We will then open the call to Q&A. 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 will be making forward-looking statements. This include statements relating to the achievement of certain milestones around the development and commercialization of the Aurora Driver on our anticipated timeframe, the timing of availability of autonomy-enabled truck platforms, the expected performance of our business and potential opportunities with partners and pilot customers, expected cash runway 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 report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 12, 2022, as well as the current uncertainty and unpredictability in our business, the markets and economy. You should not rely on our forward-looking statements as predictions of future events. All 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 be also be found on our Investor Relations website. With that, I will now turn the call over to Chris.

Thank you, Stacy. It's great to get a chance to connect with everyone today. We had the honor of hosting our first Analyst and Investor Day as a public company as we wrapped up the third quarter. We shared our progress towards the commercial launch of Aurora Horizon, our autonomous trucking subscription service and attendees experienced Aurora Driver-operated autonomous truck ride along I-45 near Dallas and from Dallas to Houston. I have the privilege of working with our incredible team every day and this was a great opportunity for them to engage with the investment community and share their passion for Aurora and the progress we're making. The energy of the event was great and the enthusiasm for our technology was palpable. As we shared at the event, we've continue to make strong progress across each of the core elements of our business, the Aurora Driver, operations and service delivery and the truck platform. We introduced a range of new driving capabilities with our Beta 4.0 release that enable the Aurora Driver to navigate more of the unexpected obstacles, vehicles can face every day, moving us another step closer to our Feature Complete milestone. We continue to scale our operations, achieving our commercial load booking target and expanding our pilot with Uber Freight. And we've built and deployed our next generation fleet of trucks with the latest version of Aurora Driver Hardware. These accomplishments underscore the advancements we're making in our roadmap to launch Aurora Horizon by the end of 2024. During the third quarter, we released Aurora Driver Beta 4.0 as part of our commitment to deliver quarterly technical updates that advance the Aurora Driver. This quarter's update includes new capabilities and improvements on ones released in past betas. Each release builds on those that came before, a cycle of iterative improvement that advances us towards our Feature Complete milestone, which we expect to achieve at the end of the first quarter of 2023. If you look at our roadmap on Page 3 of the slide deck, we committed to releasing two new collections of capabilities this quarter, detecting lane markings that have shifted due to construction and responding to road debris. I'd like to take a moment to remind everyone why these are critical technical advancements. To travel America's major freight corridors, the Aurora Driver must be able to navigate all types of complex construction zones. We have built - we have put a significant amount of development effort into enabling the Aurora Driver to handle the numerous elements of construction and we made further progress on this front during the third quarter. Temporary lane lines due to construction zones appear frequently along our commercial routes in Texas. With a Beta 4.0 release, the Aurora Driver can now perceive the new lane lines in real time and understand that it should follow that new path instead of the path that exist in the Aurora Atlas, our HD map. In the video on Page 5 of the slide deck, you can see a new center line has been painted on the highway while the older line is still visible. The Aurora Driver perceives the new lane line and knows to deviate from the Atlas to remain centered in its lane. Additionally, the Aurora Driver can now detect and respond to road debris we encounter while we are hauling goods for our commercial pilots across Texas. Our trucks often have to adjust for tire shreds, garbage, fallen boxes, vegetation and even abandoned furniture. Road debris is extremely common and can be dangerous, especially for vehicles moving at highway speeds. To achieve this new capability, we exposed the Aurora Driver to over 10,000 virtual road debris tests and simulation and then validated its performance on private test tracks before launching on the road. In the video on Page 6 of the slide deck, you can see the Aurora Driver on the Fort Worth to El Paso route encountering the remains of a blown tire. The Aurora Driver detects it and shifts to the right to navigate around it before it then makes a courtesy lane change to create space around the truck stop on the side of the road. During the fourth quarter, we plan to expand on the shifted lane markings capability to enable navigating lanes made by temporary barriers and we expect to launch additional new capabilities, including responding to active emergency vehicles and returning from the shoulder after recovering from a fault, which will build on the fault management capabilities we released during the second quarter. As we're advancing our software capabilities, we're also maturing the Aurora Driver's hardware to support our commercial launch. During the third quarter, we entered the driverless ready phase of our hardware roadmap. We're already making rapid progress in hardening both our sensors and computer. This means we are preparing our hardware for manufacturability and high reliability in an automotive setting. We have enabled our hardware to monitor its own health, to fall back on key redundancies when needed and to operate in the demanding environments it will be exposed to, all while improving its performance in measurable ways. As an example, we've extended the technological lead of our proprietary FirstLight Lidar. FirstLight uses a unique light modulation scheme to achieve long-range interference immunity and velocity sensing, not possible with traditional pulse Lidar. Over the last several months, we have designed the latest generation for increased reliability and ruggedness. We've incorporated systems that allow it to monitor and report problems with itself as well as integrated both liquid cooling and cleaning directly into the units. In the process, we have not only produced a highly reliable and manufacturable sensor but also increased its already extraordinary range and probability of detection. To put this into perspective, our FirstLight Lidar previously had an approximately 7 seconds lead time in detection relative to a traditional time of flight lidar sensors. With these improvements, that lead time versus traditional lidar is now approximately 8.5 seconds, which at highway speeds is the equivalent of nearly three football fields in incremental detection time giving the Aurora Driver even more time to respond. We've demonstrated similar progress with our next generation computer. It not only has redundant processing, self-health monitoring and reporting and liquid cooling, but also has been designed to meet ISO 16750-3 mechanical reliability targets. In addition, we upgraded the Aurora Driver's camera system including quadrupling its resolution and significantly increasing its dynamic range. Between now and through 2023, we'll continue to mature our software and hardware to work towards a commercially ready Aurora Driver. And by the end of the first quarter of 2023, we expect the Aurora Driver to be Feature Complete, which means we will have implemented all of the capabilities necessary for our launch lane and removed all policy interventions for that lane. The most frequent question we get from the investment community is how our progress towards our critical Aurora Driver ready milestone and commercial launch can be measured. We've been a leader in transparency in the AV industry and we're taking another step further by enabling the investment community and all of our stakeholders to track our progress through our Autonomy Readiness Measure. As a reminder, the launch bar for the Aurora Driver is a closed Safety Case, which is our evidence-based approach to demonstrate that our self-driving vehicles are acceptably safe to operate on public roads. When we achieve our Feature Complete milestone, we plan to begin quantifying and sharing our progress against closing our Safety Case. Each quarter, via the Autonomy Readiness Measure, we will share the percentage of completeness of our Safety Case taking into account waiting that has been applied to individual pieces of evidence supporting the claims. At Aurora Driver Ready, we expect to have close the Aurora Driver Safety Case for our launch lane, excluding the truck platform. We expect to achieve this milestone at the end of 2023. At this time, we anticipate approximately 95% of our commercial launch safety case claims to be implemented with evidence for each claim. We expect to receive the scalable autonomy-enabled truck platforms in the first half of 2024. We then plan to complete the remaining approximately 5% of the safety case that requires integration testing of the Aurora Driver with the final autonomy-enabled truck platform. We then expect Aurora Horizon to launch commercially by the end of 2024. When the Aurora Driver is Feature Complete, we'll also provide quarterly a supplemental measure of the Aurora Driver's on road autonomy performance as an indicator of its progress in everyday driving scenarios. The Aurora Driver's autonomy performance indicator will be reflected as a percentage of total commercially representative miles driven over the quarter that incorporates three components. Miles driven during the quarter that did not require human assistance, such as the vehicle operator touch or other on-site support. Miles driven in autonomy with remote input from Aurora Beacon. The miles where the vehicle receive support, but where it's determined through internal analysis, including simulation that the support was not required by the Aurora Driver. Since Aurora's founding, we've made safety the center of everything we do. We fundamentally believe it's important to build and maintain a strong safety culture and our commitment to safety is reflected in our approach to both autonomy development and our commercial pilot operations. Conducting internal analysis after vehicles receive support is one of the ways we further this culture. Our vehicle operators are empowered to intervene in the autonomous system without fear of reprisal including on how such support would affect perceived performance. As we've shared, we believe there are significant limitations to the data that on-road driving provide for autonomous development and validation. On-road driving performance alone will not determine when Aurora Horizon launches and we do not anticipate that this indicator will be 100% even at launch. The reason for this is certain situations such as a flat tire will always require on-site support. Instead and to be crystal clear about this point, the launch bar for the Aurora Driver is a closed Safety Case. Now for an update on our operations and service delivery. It takes more than just a compelling value proposition to deliver innovative and scalable technology into the logistics industry. Just as important, our technology will need to integrate seamlessly into customers' networks. Through our pilots with freight customers like FedEx, Werner, Schneider, and Uber Freight, we're developing and employing the operational services, processes and infrastructure required by both Aurora and our customers to deploy Aurora Horizon at scale. It starts with deliberately structuring our pilot programs with a complete terminal-to-terminal model we will use to operate Aurora Horizon at commercial launch. Doing it this way, we're able to refine our product and our joint operational model to best integrate into existing operations. Cumulative to-date through October 31st, we've autonomously delivered under the supervision of vehicle operators, 660 loads driving over 180,000 miles with nearly 100% on-time performance. Just as importantly, we're demonstrating the scale we're building operationally as we achieved our end of quarter commercial load booking target of 22 loads per week, which is a 50% increase over the second quarter. Last year, we launched our commercial pilot with Uber Freight to haul loads for customers between Dallas and Houston and to also explore integrating access to Uber Freight's digital freight network with Aurora Horizon. In October, we expanded that pilot to also autonomously haul freight along the 600 mile Fort Worth to El Paso Lane. The combination of Aurora Horizon and Uber Freight's digital freight network is expected to provide carriers with powerful tools to further maximize utilization potential of their Aurora powered trucks, broaden opportunities to haul goods and streamline supply chain operations. We've now shared some of the progress we've made advancing our autonomy development as well as the infrastructure to support our operations and service delivery. A key third element to support our commercial launch are the relationships we've built with our OEM partners, PACCAR and Volvo and our ongoing work in preparation for delivery of scalable autonomy-enabled truck platforms. As we shared last quarter, key supplier contracts for these truck platforms have been awarded. Since then, we have received a set of vehicles with one of the key systems needed to achieve the reliability necessary for safe driverless operations. This was integrated by the OEM and we've begun testing in preparation for our pre-launch truck platform that we expect to come online next year. In the meantime, we've made meaningful progress scaling our fleet during the third quarter. We have built, brought up and integrated 21 new Peterbilt 579 trucks with the latest generation of our commercial hardware. These vehicles included dual-lane, liquid-cooled computer design for enhanced levels of ruggedness and reliability. Importantly, these computers include redundancy and fallback capabilities, a critical component of our Fault Management System, which is the Aurora Driver's ability to detect system issues and respond safely without any human involvement. With the addition of these new trucks to our fleet, we have retired some of our older models with the prior generation of hardware. These new trucks will be integral in scaling up the loads we are autonomously hauling in our pilots and to validate the commercial readiness of the Aurora Driver. In addition to our work with PACCAR on the Peterbilt 579, last month, we reviewed the first autonomous Kenworth T680 prototype designed for the Aurora Driver's sensor suite, which rounds out PACCAR's autonomous vehicle platform. We also began integration testing with a Volvo truck built with critical driverless systems in place. As we wrap up this business review, it's helpful to put into perspective just what we're building as a company and the meaningful benefit self-driving vehicles will deliver to our society. We continue to believe autonomous technology will be the next fundamental change in ground transportation. To deliver any transformational change in the world, it's essential to be all-in, that's why Aurora's position as an independent company is a strategic advantage. It enable us to have a singular focus on our mission and what we do best. Independence has enabled us to build a differentiated technology stack, a diversified set of incredible partners and a compelling commercialization strategy. In turn, this has allowed us to raise, what we believe to be enough capital to drive through the current storm in the capital markets, positioning Aurora for success in what we view as an incredibly important and valuable space. We continue to believe the size, customer demand and unit economics of the trucking market make it the best entry point for our self-driving technology and the value we can provide to our freight customers is tremendous. We remain squarely focused on launching Aurora Horizon by the end of 2024 and look forward to continuing to share with you the progress we're making on this journey. Thank you for your continued support. I'll now pass it over to Richard who will review our financial results.

Thank you, Chris. We recognized approximately $3 million in collaboration revenue during the third quarter and $148 million cumulative to-date for development work associated with our agreement with Toyota. As of September 30, 2022, we have received all cash payments under the collaboration framework agreement with Toyota. While our first priority is commercialization of Aurora Horizon, we continue to believe our work with Toyota and other long-lead efforts will spring load us for the eventual launch of Aurora Connect, our subscription service for the ride-hailing market. Third quarter operating expenses, including stock-based compensation totaled $203 million. Excluding stock-based compensation of $37 million, operating expenses totaled $166 million. Within operating expenses, R&D expenses, excluding $32 million in stock-based compensation, totaled $139 million, primarily comprised of personnel costs as we continue to invest in our industry-leading autonomy technology. SG&A expenses excluding $5 million in stock-based compensation were $27 million. Turning to cash flow. We used approximately $142 million in operating cash, which reflects a $5 million inflow during the quarter related to the Toyota agreement. Capital expenditures totaled $3 million. We ended the third quarter with a very strong balance sheet, including over $1.2 billion in cash and short-term investments. We expect this cash runway to fund Aurora through mid-2024, enabling us to continue to develop the Aurora Driver for commercial deployment at scale. With that, we'll now open the call to Q&A.

Thank you. [Operator Instructions] And our first question comes from Tom White from D.A. Davidson. Go ahead, Tom.

Hi. This is Wyatt Swanson on for Tom. My first question is, we are kind of hoping you guys could elaborate a bit more on what Argo's shutting down means? If anything for the near and intermediate term evolution of the space? And kind of specifically as it relates to further consolidation or partnerships, does it hurt or help Aurora in any way?

Yes. So we've been talking about consolidation basically since the company was founded. As we think about the future here, what we're seeing is just the natural evolution of any industry. If you think of the automotive industry, at the beginning of the 20th century, there were 250 manufacturers and by the 1930s, there were three. And so like any other space, you're going to see a proliferation of companies to begin and I think that's a very healthy part of building the ecosystem. And then over time, those of us who have the team, have the technology and have the ability to execute are going to be positioned for success. We look at Argo, as I said in my post about this, these are folks who are aligned on the mission with us and many of them are friends, so we're a little sad to see that happen, but we think it's just a natural course of business. For us, it really puts into stark relief the value of being an independent company. The fact that we -- will have to align people behind the mission that we're on and be able to steer the ship where it needs to go to be successful, right? And it is the bet as opposed to one of the bets and we believe that from day one.

Right. That makes sense. And then just one more from me. It's more of a high-level question on like how the self-driving industry/ecosystem may be impacted by a prolonged period of high interest rates, inflation and recessionary pressures and what sort of impact might that have on your timetable for commercialization or rate of cash burn, if any?

So maybe I'll start Richard then I will pitch it to you. So I think when we look at the opportunity in the space, nothing has changed. If anything, there's even more demand for freight than there was a few years ago. And so having a company that has the right business model, the technology and the approach to the market and going after what is clearly the right entry point, I think sets us up for success. And I expect most of our investors when they look at the opportunity in this space, if we are able to continue to execute as we expect, we expect to be in a very strong position and if anything, this downturn is kind of helping clear the table and make it more clear who the winners are and who the losers will be. In terms of the economic environment, internally, we've taken efforts to focus our spending, be efficient with the money we're using and to push out the runway for the company. And I don't know Richard, if you care to add more to that?

Sure. I agree with everything Chris said and we are fully aware of the macroeconomic environment and how that's not favorable for growth stocks like ours but, as Chris said, the opportunity underlying the business is still the same, if not bigger and it's all about our ability to execute against our roadmap. And we certainly feel very fortunate that we raise the capital that we did in the past, so as we said, at the end of Q3 with $1.2 billion cash and short-term investments on the balance sheet, we really feel that gives us the opportunity to ride out the current situations in the market, gives us the ability to continue execute on the roadmap and we feel confident that we will have the opportunity to raise more capital that we will need to execute into the future. So we've never shied away from the fact that we do need to raise more money and our current run rate gets us through mid-2024, but we certainly feel that gives us plenty of time for the macroenvironment to change for us to execute and we feel good about our position.

Great. Thanks.

Thank you.

[Operator Instructions] And there appear to be no -- and there is a question from Mark Delaney from Goldman Sachs. Go ahead, Mark.

Hi, guys. You have Ryan Heeb on for Mark Delaney, and thank you very much for taking the question. And are you guys seeing the macroeconomic backdrop at the moment impact any suppliers timelines as it relates to when AV truck platforms could be ready, perhaps if they're being a little bit more disciplined on the R&D?

I think I listened into the PACCAR earnings call the other day and I think they had a record quarter. So I think the demand for freight is just increasing and so they seem to be doing great work. I think Preston had great answer to a question about how much they invest in R&D and it's where they see immense value for customers and from where I say see -- where I sit, the benefits of what we're building together are profound for customers, increasing safety on the road for their customers, improving efficiency, increasing truck utilization. So we're excited and continue to be really happy with the execution with our partners.

Thank you.

Thank you.

And that appears to be -- sorry, that appears to be the last question. At this time, I'd like to now turn it back to management for any closing remarks.

Thank you, everyone, for joining us and we look forward to connecting on our next call to share our progress.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.