Aurora Innovation, Inc. Q4 FY2023 earnings call

• Technology: Aurora Driver became feature complete in Q1 2023, advanced autonomy performance, achieved an Autonomy Readiness Measure (ARM) of 93% in mid-January 2024, and the Autonomy Performance Indicator (API) was 99% in Q4 2023 with 62% of loads in Q4 having 100% API.
• Commercial: Established first commercial-ready autonomous trucking lane, schedules over 100 loads per week, contracting launch and 2025 capacity, made progress with OEM partners (Volvo Trucks, PACCAR) and Continental partnership.
• Safety: Utilizes a Safety Case framework, API metric tracks autonomy performance, shared videos showing Aurora Driver's performance in challenging situations like avoiding collisions with unpredictable vehicles.
• Partnerships: Strong partnerships with OEMs, suppliers, and government bodies; Chief Safety Officer Nat Beuse on DOT's Transforming Transportation Advisory Committee, and government relations team member Melissa Wade as Chair of AVIA's Board.
• Financial: Fourth quarter 2023 operating expenses totaled $198 million, excluding stock-based compensation $161 million; 2024 quarterly cash use expected $175 million to $185 million on average, with capital expenditures expected to increase relative to 2023, and strong balance sheet with over $1.3 billion in cash and investments.

There is no traditional product segment breakdown in the transcript. The focus is on the autonomous trucking business. Key aspects include progress in technology development, commercial activities, safety measures, partnerships, and financials related to the overall autonomous trucking operations.

• 2024 quarterly cash use is expected to be approximately $175 million to $185 million on average, reflecting savings from workforce alignment and non-personnel cost savings, offset by increased capital expenditures for Commercial Launch preparation.
• Focus on continuing to work towards closing the Safety Case and improving the API metric towards achieving Commercial Launch at the end of 2024.

• Uncertainties in business, markets, and economy that could cause actual results to differ from forward-looking statements.
• Risks related to the forward-looking statements not materializing as projected, including uncertainties in achieving milestones, regulatory framework, and market adoption.
• Risks associated with the autonomous vehicle industry's unpredictability and potential operational failures.

Q: Hey, everyone. Thank you for taking my questions. I’d like to dig into FirstLight, some merchant suppliers have made some recent inroads at some of your competitors. Do you see a point in the future where it’s possible that the advantages you have in Lidar are overwhelmed by progress in the merchant market or is that still a ways off?

A: Can you say the -- I’m not familiar with the term merchant market?... So we feel very strongly about the advantage we have with FirstLight. This is technology that the team, when we acquired them a few years back, had already been working on it for between 10 years and 15 years. 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 that tight integration allows us to turn the innovation crank more quickly than folks on the outside would be able to. 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.

Q: Hi, everyone. This is Justine Laufer speaking on behalf of David Vernon. Thanks for taking my question. So, first, I’d just like to ask about the 4Q cash spend of $133 million. So it was well below that target of $175 million to $195 million, which I know you attributed to one less payroll cycle, also to financial discipline. 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?

A: So I would say, and thanks for the question, I think, it’s kind of an equal mix of what we did. I mean, we found and identified a lot of efficiencies that we started putting in place probably about six months ago, where we were really active in looking at the overall organization and they all bear fruit at different times in terms of how they spend. So we had substantial savings that, if you look at it on an annualized basis, will continue to pull-forward. So we were able to bring in $10 million to $15 million of just pure financial discipline savings that we’re able to carry forward on a regular basis. There’s some things that we did in terms of spending for like reducing future expenses, like at D&O, we -- our expenses on D&O cut in half and so we had a -- pay all that up front. So that was in the -- it was in the Q3 number 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 and what we’ve communicated with investors in the past.

Q: Yes. Good afternoon. Thanks very much for taking my questions. I guess, first, now that 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?

A: Yeah. Hey, Mark. 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 are -- we’ve been fairly consistent about pricing 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 in terms of the revenue. 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.

Q: Hi. Good afternoon and thanks for taking our question, and congrats on the quarter and all of the recent developments. I guess, our first question is, how should we think about future routes following the Sunbelt, trying to get a sense, 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.

A: 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’ve 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 El Paso, the big difference is we have to be able to drive down a hill and we have to be able to deal with a customer border patrol station and we do both those things today and we need to expand, we’ll need to validate that work. As we move to other lanes, it’ll 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, the opening expansion will become along the Sunbelt and then it’s going to be really just tracing the corridors of 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 more.

A: Yeah. I think 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 hit 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, you think about it, it’s Sunbelt, then 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 endpoints for specific customers and we’re going to let the customer help drive the demand because of the self-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 roadmap there aren’t any today. We’ll really let demand be the driver.