Aurora Innovation, Inc. Q3 FY2024 earnings call

• Commercial launch is within sight with commercial contracting progress, having signed another launch customer and contracted expected launch capacity. - Completed a successful capital raise in August, adding nearly $0.5 billion to the balance sheet, extending runway into 2026. - Progressed on closing the safety case for the Dallas to Houston launch lane with an ARM of 97% as of the end of October. - Validated majority of highway driving with the most recent software release, focusing on final behavior refinement and validation for surface streets and construction elements. - Perception system validation is nearly complete with over 400 modes validated. - Transitioning to single vehicle operator for some commercial loads, expecting to operate at least 10 trucks per remote assistance specialist by the end of 2025. - 80% of commercial loads on the Dallas to Houston launch lane had 100% API in the third quarter, a 5 - percentage - point increase from the previous quarter. - Invited J.J. Keller and Road Master to assess the Aurora Driver, which performed exceptionally well. - Expect to launch commercially in April 2025, with plans to deploy up to 10 driverless trucks at launch and expand product capabilities and lanes in the second half of 2025. - Hosted partner summit in September, announced partner success program, and plan to extend Fort Worth to El Paso lane and begin commercial pilots between Fort Worth and Phoenix in the first half of 2025. - Continues to autonomously haul freight for pilot customers with nearly 100% on - time performance. - Submitted public comments regarding regulatory framework for autonomous trucks in California. - Made progress with OEM partners, integrated new Aurora Driver equipped Volvo VNL autonomous trucks, and finalized system and component level architecture with Continental for scalable hardware.

During the third quarter of 2024, operating expenses including stock - based compensation totaled $196 million. Excluding stock - based compensation, operating expenses were $161 million. R&D expenses excluding stock - based compensation were $139 million, which included $834,000 in pilot revenue, up 75% year - over - year. SG&A expenses excluding stock - based compensation were $22 million. Cash used in operations during the third quarter was approximately $143 million. Capital expenditures were $7 million. In the third quarter, the company raised $483 million in gross proceeds from a public offering of Class A common stock, with net proceeds of $466 million. The company ended the third quarter with approximately $1.4 billion in cash and short - term and long - term investments.

• Expect to launch commercially in April 2025. - Expect cash use in the fourth quarter of 2024 to be within the $175 million to $185 million quarterly average range, and expect 2025 quarterly average cash use to be in this range as well. - The incremental capital from the August raise extends the runway well into 2026 and is expected to fund the initial phases of the scaling strategy.

• Forward - looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected, including risks described in the annual report on Form 10 - K and current uncertainty and unpredictability in business, markets, and economy.

Q: Could you please give us a little bit more detail on the remaining validation required to launch commercially in April of next year? And also given that the timeline has been somewhat extended, can you help us understand your conviction that this is the last target and that it’s not going to move from April to another date after that in the future?

A: We are excited with the progress made. The remaining work is primarily in some elements of surface street driving and some elements of construction on the freeway. Our conviction in the ability to launch is increasing with each step. We see the modest delay as consistent with the error bars we have anticipated, and currently see the error bars in our estimate as weeks. The 100% API number, which encompasses driving through construction and service streets, shows our system handles these scenarios well today, but we want high confidence.

Q: So, these require this validation is it sounds like it’s software and training issue. It’s nothing – has nothing to do with your OEM partners, commitment to the product or other partners commitment to the launch state?

A: No, this is our internal execution. We continue to have a very strong working relationship with our OEM partners. The work we are doing is primarily focused on validating the redundant systems in the vehicles.

Q: And maybe as a follow - up to the extent there are commercial loads that you are committed to carrying in 2025 and now looks like the timeline has been extended by a few months. Is there any impact financially? Are there any penalties you have to pay, or any other issue with regards to those contracts?

A: No. There aren’t and we will continue to be building our load volume over this time. And we will operate as we are today, in a pilot mode, with an operator onboard. We will have an increasing number of our operations operating with single vehicle rather than two vehicle operators as we go forward as well.

Q: I just wanted to ask you if you could maybe sort of help me understand the commentary around the technology, sort of adopting wealth of Phoenix. I am just looking at it from lenses, was kind of sitting here watch you guys going and working on the autonomous readiness measurement index and trying to get yourself very, very experienced in the Dallas the Houston lane. Why wouldn’t there be additional time in that to extend to new lanes as you go forward, in terms of just making sure that the system would be ready and capable of adapting to that new operating environment?

A: We do anticipate there being a small amount of work, but our core thesis is that driving on a freeway is basically the same regardless of location. We have built out the lane and validated our hypothesis. We have a strong relationship with the Border Patrol team. The work with the El Paso inland station was engaged closely, and there was some complicated construction to operate through. We expect it to be relatively rapid to scale lanes, and we have a granular view of the Aurora Driver’s capabilities, with new lanes requiring limited additional development as freeways look similar across the nation.

Q: Hey. Chris and Dave, thanks for hosting the call today. I just wanted to ask you if you could maybe sort of help me understand the commentary around the technology, sort of adopting wealth of Phoenix. I am just looking at it from lenses, was kind of sitting here watch you guys going and working on the autonomous readiness measurement index and trying to get yourself very, very experienced in the Dallas the Houston lane. Why wouldn’t there be additional time in that to extend to new lanes as you go forward, in terms of just making sure that the system would be ready and capable of adapting to that new operating environment?

A: We do anticipate there being a small amount of work, but our core thesis is that driving on a freeway is basically the same regardless of location. We have built out the lane and validated our hypothesis. We have a strong relationship with the Border Patrol team. The work with the El Paso inland station was engaged closely, and there was some complicated construction to operate through. We expect it to be relatively rapid to scale lanes, and we have a granular view of the Aurora Driver’s capabilities, with new lanes requiring limited additional development as freeways look similar across the nation.

Q: Alright. Good afternoon and thanks very much for taking my questions. First, I was just hoping you could share an update on operational readiness of the supply chain, including working with parts suppliers in areas like sensors and compute truck OEM partners. You mentioned Volvo and PACCAR, and then also some of your contract manufacturing partners.

A: Absolutely. We see no parts constraints or blockers in getting to commercial launch. We have pre - purchased everything we need for those launch vehicles. We continue to build relationships with partners like Fibernet and Continental. We are beginning to bring up hardware for the mid generation and have made progress with Continental on the longer - term Hardware as a Service platform.

Q: Thanks for that Chris. My second question was around the contracting, and you mentioned additional progress that occurred in the last quarter and doing well with the 2025 bookings in total. I believe the view from Investor Day was that pricing would be relatively in line with market rates. And hoping to better understand, as you have gone further into the bookings process, is that still materializing and as you had expected?

A: Hey Mark, it’s Dave. So, without getting into any specifics, the market itself is down a little bit this year on pricing. We generally set up our pricing very consistent with what the market rates are, with any adjustments for our launch partners. So, generally speaking, we are in line with what we expected and what the market rates are indicating.

Q: One more financial question, if I could please. You mentioned in your prepared remarks, if I heard correctly, that once the company begins commercial operations loads that are hauled even with a human driver in the truck will move from contra R&D and be considered revenue. Can you give us a sense of the run rate of what’s contra R&D at this point, so we can better understand purpose as we build 2025 and beyond estimates.

A: Yes. This last quarter, we were a little under $1 million for contra R&D based on our pilot revenue. And essentially every load that we carry for a customer we bill out, so it will build up over time.

Q: Great. Thank you. Just a couple quick ones on my side, I was wondering, I might have missed it, but did you quantify the launch capacity that you have contracted in the duration of the contracts that you signed?

A: No. What we talked about is that we are going to begin with one truck, and then we are going to scale that up to 10. And that, no, we haven’t shared the duration of the contracts, but they are in line with industry practices.

Q: It makes sense. And just to be clear with the – were there any contracts signed before that you might have, like, termination causes or delays? Does the four - month delay lead to any hardship for the counterparty?

A: Yes. Not at all, as a matter of fact that I think George might have mentioned that as well. The last thing we want to do is, incentivize to get something out before we get it right. And so all of our partners, all of our customers, all have the same value and perception of what this can provide for us. And the number one element is safety. And it’s much more important to ensure that we get it right than to try to meet some arbitrary date, and none of our contracts have any penalties, restrictions or anything like that for not launching in a certain timeframe.

Q: Maybe the last one for you, Chris is just, could you be more granular? I think when you have done the writing drives with investors and analysts, we have gone through construction zones. Could you just give us a few examples of edge cases that you are still overcoming as it relates to the interaction with construction zones?

A: Yes. It’s not really about edge cases. It’s about ensuring that across the variability of how a construction site can be configured, that we have validated that. It turns out when you drive back and forth between Dallas and Houston. The construction kind of looks the same every day. And so there is limited exposure to different ways that folks can close off lanes and whatnot. And so it’s not that this is something new and surprising. It’s just that it – it’s kind of it’s been in this particular place in the schedule of work, and it’s just taken us a little bit longer to get some of the stuff done that we had intended. And I think important to note is that when we look at the actual on - road performance of the trucks that we actually haven’t had a disengagement caused by construction zones since May on the Dallas to Houston lane.