Aurora Innovation, Inc.

Greetings and welcome to the Aurora Innovation fourth quarter 2022 business review call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Stacey Fite, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Diego. Good afternoon, everyone, and welcome to our fourth quarter and full year 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 are Chris Urmson, co-founder and CEO, and Richard Thame, CFO. Chris will provide an update on the progress we have made across the key pillars of our business, and Richard will recap our fourth quarter and full year 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 includes statements related to the achievement of certain milestones around the development and commercialization of the Aurora driver and Aurora Horizon on our anticipated timeframe, 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 nervous factors included in our quarterly report on Form 10-Q for the quarter ended September 30th, 2022, filed with the SEC on November 3rd, 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 also be found on our Investor Relations website. With that, I will now turn the call over to Chris.

Thank you, Stacey. Fourth quarter marked our first full year as a public company, and in that time, we made remarkable progress building the Aurora Driver, our self-driving system, and toward commercialization of Aurora Horizon, our autonomous trucking subscription service. We furthered these goals in the fourth quarter with our Aurora Driver Beta 5.0 release, which we believe puts us on track to achieve our critical feature-complete milestone by the end of the first quarter of 2023. As I regularly tell our team, we're reaching the end of the beginning, We are looking ahead to significant milestones with incredible enthusiasm as we prepare to enter the next phase, refining and validating our technology as we work toward closing the Aurora Driver safety case by the end of 2023. At the same time, we've also continued to strengthen our operations and we've made steady progress with our OEM partners on autonomy-enabled truck platforms to support our planned commercial launch by the end of 2024. During the fourth quarter, we released Aurora Driver Beta 5.0 continuing our commitment to deliver quarterly product updates that advance the Aurora driver. This update introduced new capabilities to detect and appropriately respond to emergency vehicles, like ambulances, fire engines, and law enforcement vehicles. As I'm sure many of you have experienced, emergency vehicles do not always behave predictably or follow customary rules of the road, so the proper response by a self-driving vehicle is critical to being a safe and courteous driver. When the Aurora driver perceives an emergency vehicle on the shoulder ahead, it knows to slow down or change lanes according to Texas laws. When the Aurora driver detects an active emergency vehicle ahead of or behind the truck, it alerts a specialist in our command center via Aurora Beacon for additional guidance to include coming to a stop off the roadway if necessary. In the video on page six of the slide deck, an Aurora driver-powered truck is traveling from Houston to Dallas when it encounters an emergency scene. You can see the Aurora driver execute a lane change to maneuver around a stopped fire engine that is partially encroaching on the truck's original lane, followed by police vehicles, an ambulance, and emergency personnel on the shoulder. Beta 5.0 also established the ability for the Aurora driver to re-enter traffic from the shoulder, building on the fault management system, or FMS as we call it, that we introduced last year. Completing this end-to-end flow of pausing and resuming operations while en route is a mission-critical capability. As a quick refresher, the FMS is designed to actively monitor the health of the vehicle and the Aurora driver and mitigate any adverse events. So now, if the system deems it necessary to pull off to the shoulder for something such as an extreme weather event, the Aurora driver also now has the ability to re-enter the flow of traffic once the issue has been resolved. You can see an example of this end-to-end capability in the video on page seven of the slide deck. The Aurora driver's FMS has been triggered, which initiates communication with a specialist in our command center via Aurora beacon. The Aurora driver then executes on the command from the specialist to pull over to the shoulder. After addressing the situation, you can then see the Aurora driver wait for a safe opportunity to merge back into traffic, begin to accelerate, and then successfully return from the shoulder. Lastly, as we've talked about in previous updates, construction is one of the biggest challenges an autonomous vehicle faces while operating on the highway. New road signs, changing traffic patterns, and varying road blockages create situations that require a specific capability set. One of the most common situations faced is the need for a truck to partially or completely deviate from its current lane due to construction barriers, which may include driving on the shoulder of the road. With the Beta 5.0 release, we built on previously released capabilities that address construction scenarios, introducing the ability to navigate lanes with temporary barriers. We also extended the distance that the Aurora driver is able to nudge around obstacles outside of the current lane, including driving partially on the shoulder for an extended period of time. The addition of these capabilities equips the Aurora driver with the skills necessary to handle even more construction scenarios it may encounter while hauling commercial loads for our customers. In the video on page 8 of the slide deck, you can see these capabilities come to life. The Aurora driver is traveling from Fort Worth to El Paso when it encounters a complex construction scene. The Aurora driver recognizes that a lane has been created, first with cones, and then with cones and jersey barriers. The Aurora driver confidently proceeds through this construction zone. utilizing the extra buffer we enabled by driving partially on the shoulder to give itself the extra space it needs since the cones are encroaching in its lane. The Beta 5.0 release continues our work of building on our previous updates and advancing Aurora toward the feature-complete milestone, which we expect to achieve at the end of the first quarter of 2023. As we begin to shift our focus to the next stage of preparing for commercialization, I'm excited to share that the first lane that we plan to launch the Aurora driver on is Dallas to Houston. Once the Aurora driver is feature complete, this will indicate that we have implemented all of the capabilities necessary for the Dallas to Houston launch lane and removed all policy interventions for this route. Following this step, we then plan to enter the final phase of refining the Aurora driver's performance through subsequent beta releases and completing the necessary validation to close the safety case for the Aurora driver to operate without a person on board by the end of 2023. The completion of this is the milestone we call Aurora Driver Ready. One of the ways we measure continuous improvement is by how often a vehicle operator needs to intervene to support a particular capability. A great example of this is our ability to handle road debris, which can be dangerous and is also common on highways. As you can see in the chart on page 9 of the slide deck, through incremental refinement to our road debris detection capability that we introduced in September, We achieved an approximately 70% decline in vehicle operator interventions due to road debris. While we continue to advance our software, we are simultaneously maturing the road driver's hardware to support our commercial launch, as well as taking steps toward a longer-term scalable hardware kit. During the fourth quarter, we demonstrated the performance of a prototype of our proprietary First Light LiDAR using our in-house designed silicon photonics chip. The prototype has demonstrated the compatibility of our silicon photonics technology with our LiDAR architecture by meeting or exceeding the performance of our existing LiDAR. The ability to consolidate fragile fiber optic cables within complex assemblies into silicon chips, each the size of a fingernail, is a key step toward a fully integrated and fiberless first light LiDAR. Our silicon photonics are designed to create a clear path to our longer-term cost and reliability targets for first light at scale. Turning to our operations, in the fourth quarter, we exceeded our target to autonomously haul 30 loads per week for our pilot customers. And I'm happy to share that we have already achieved our first quarter goal of 40 loads per week, well ahead of schedule. Customers continue to increase their usage of Aurora Horizon, which allows us to further leverage commercial runs to help offset the cost of development and validation of the Aurora driver while operating in a commercially representative setting. To date, through February 12th, we have autonomously delivered, under the supervision of vehicle operators, 1,150 loads, driving 324,000 miles, with 98% on-time performance for our pilot customers, including FedEx, Werner, Schneider, and Uber Freight. Additionally, our commercial-ready terminals offer partners a defined flow and a complete end-to-end experience, allowing them to see how easily Aurora driver-powered trucks can be integrated into their networks. In the fourth quarter, we also announced a strategic collaboration with Rider to pilot an on-site fleet maintenance program. This will put Rider technicians on the ground at our terminal in Dallas to provide inspections, maintain trailers, and help minimize downtime. Through this collaboration, our goal is to reduce maintenance costs and unlock higher utilization to bring added value to our pilot customers and further position Aurora Horizon for autonomous operations at scale. In addition to optimizing our operations, we continue to work closely with regulators, elected officials, law enforcement, and local communities to drive positive momentum for self-driving commercialization. We had an exciting development last quarter in Pennsylvania, which started 2022 as one of the few states where self-driving vehicles were not permitted to operate without a human driver. Through continuous engagement, we helped shape legislation that was signed into law in November. unlocking the state for driverless testing and deployment of passenger vehicles and trucks. Our commitment to the Commonwealth is substantial and is underscored by the Robotics and Autonomous Engineering Associates degree program we recently launched in partnership with the Pittsburgh Technology College. This is a program designed to support local communities and open the door to unique jobs we expect to be creating in the autonomous vehicle industry. We have seen great interest in the program and are working to replicate it with several institutions across the country. Additionally, we are encouraged by the continued progress we are seeing in California toward permitting deployment of autonomous trucks in the state. Following the open letter submitted by the AV industry to Governor Newsom last summer, the state held a workshop last month to discuss modifying regulations around heavy-duty autonomous vehicles. Further, as part of Aurora's commitment to safety and transparency, in December we released an updated safety report, our 2022 Voluntary Safety Self-Assessment or VSSA. I encourage you to review the paper, which can be found on our website. It outlines our safety approach, centering around five pillars, proficiency, fail-safe, continuous improvement, resilience, and trustworthiness. Safety is at the core of our work with our truck OEM partners, PACCAR and Volvo Trucks. In the fourth quarter, we worked in collaboration with PACCAR to build an important prototype of their truck platform designed specifically for autonomous commercial scalability. and we were proud to have our joint development of a Peterbilt 579 equipped with the Aurora Driver showcased by PACCAR at their booth at the 2023 Consumer Electronics Show in January. Additionally, we were excited to have a prototype Volvo VNL with Aurora Driver hardware showcased at the American Trucking Association Management Conference and Exhibition in October. We continued development with Volvo Autonomous Solutions on an autonomous VNL featuring enhanced control interfaces braking, steering, and power systems to achieve the reliability needed for safe driverless operations. We're always pleased to see our customer and OEM partners find opportunities to work together and drive progress toward the commercialization of autonomous vehicles. In the fourth quarter, Volvo Autonomous Solutions and Uber Freight announced a strategic partnership that involves the planned deployment of Volvo's autonomous transport solution on Uber Freight's network, which is made possible by the joint work we're doing with VAS to develop and scale autonomous transportation solutions with the Aurora driver. In closing, I'd like to reiterate the progress Aurora has made over the last year. We've built, expanded, and strengthened key partnerships while maturing the key elements of Aurora Horizon, the Aurora driver, operations, and truck platforms. We have continued to successfully execute against the objectives we identified on our roadmap to commercialization on time or early every quarter. And we've continued to attract top talent and make strategic hires to help us achieve our upcoming milestones. I'm pleased to share that we've recently appointed Osa Fisher as our new president to help further support our business. Osa, who will be based in Dallas and brings more than 20 years of leadership experience to Aurora, will help us unlock more efficiencies across our company and further strengthen our existing relationships with industry-leading partners as we scale and prepare for commercial launch. We also welcomed Chris Barrett to lead people operations. Chris brings extensive leadership experience in fostering strong culture and high-performing teams spanning the tech and medical industries, and I'm thrilled he has joined the team. Earlier in February, we were also honored to be named by LexisNexis as one of the companies leading the future of science and technology in its Innovation Momentum 2023, the Global Top 100 Intellectual Property Report. This distinction is particularly notable as Aurora was the only AV technology company recognized and one of just three companies in the automotive industry. Aurora's inclusion in this report, which is an external and independent measure of global technological strength, innovation momentum, and patent quality, validates our belief that we have one of the strongest self-driving intellectual property portfolios, which we expect to support our path to commercial launch. 2023 will be a pivotal year for our business as we focus on reaching future complete by the end of the first quarter, closing the Aurora driver safety case for our launch lane in Texas, and preparing for commercial launch by the end of 2024. We're incredibly excited to share our progress during the coming year and showcase all of the work that has been years in the making to reach what we expect to be incredible milestones for Aurora. Despite macroeconomic conditions, I'm the most optimistic about the state of our business and our progress that I've ever been. With that, I will now pass it over to Richard, who will review our financial results. Thank you, Chris.

During the fourth quarter of 2022, we recognized the remaining $2 million in collaboration revenue under our development agreement with Toyota for a total of $68 million recognized in 2022. Cumulative to date, we have now recognized all $150 million for our development work under the collaboration framework agreement, and all cash payments have been received. 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. During the fourth quarter, our market capitalization declined below our carrying value of net assets, triggering a $114 million non-cash reduction in the carrying value of Goodwill. This brought the total non-cash reduction in Goodwill to $1.1 billion in 2022. There is no change to our outlook for the businesses Aurora has acquired, nor how we expect them to contribute to our commercialization. Including the reduction in the carrying value of Goodwill and stock-based compensation of $44 million in the fourth quarter and $156 million in 2022, fourth quarter and 2022 operating expenses, totaled $314 million and $1.9 billion, respectively. Excluding these non-cash expenses, fourth quarter operating expenses were $156 million. Within operating expenses, fourth quarter R&D expenses, excluding $38 million in stock-based compensation, totaled $131 million. SG&A expenses, excluding $6 million in stock-based compensation, were $25 million. 2022 cash operating expenses totaled $650 million. 2022 R&D expenses excluding $137 million in stock-based compensation totaled $540 million. 2022 SG&A expenses excluding $19 million in stock-based compensation were $110 million. Turning to cash flow, we used $141 million in operating cash during the fourth quarter. During fiscal 2022, we used $508 million, which reflects a $100 million inflow related to the Toyota Agreement. Capital expenditures totaled $3 million in the fourth quarter and $15 million in fiscal 2022. We ended the year with a very strong balance sheet, including $1.1 billion in cash and short-term investments, Taking into account cost savings and cost avoidance actions we took in 2022, we continue to expect our cash to fund Aurora through mid-2024, enabling us to continue to execute on our Aurora Horizon roadmap. With that, we'll now open the call to Q&A.

Thank you. And ladies and gentlemen, at this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Tom White with DA Davidson. Please state your question.

Hey, this is Wyatt Fawlinson on for Tom. Thanks for taking our questions. My first one is, Do you guys provide a bit more detail on the progress of your OEM partners as it relates to the platform work happening on their end? Any notable milestones or developments reached since you last updated us? And then any aspects of the roadmap there that might be tracking behind schedule due to either inflationary forces, macro pressures, or any other reasons?

Sure. Having to talk a little bit about this, and obviously there's a limit to how much we can say about those programs given the confidential nature of the relationship with them on that. I think we shared a couple of examples of progress we're making on prototype vehicle development that are on the path to the commercial scale. We've done that with – we shared about the progress with PACCAR on that and also with Volvo. I don't know that there's much more, unfortunately, that I can say about that at this time. I think in regards to the roadmap, we still believe we're on track to achieve feature complete and further to achieve Aurora driver ready at the end of this year and are looking to hit the commercial launch milestone that we've set out for next year as well.

Understood. Okay. Thank you. And then just to follow up, I'm kind of curious how you guys are thinking about your headcount levels for this year, you know, relative to maybe what your headcount expectations for 2023 were this time last year. I've seen a bunch of tech companies laying people off recently. Has there been any headcount reductions contemplated in your outlook? And then can you maybe talk a bit about how you're managing rising labor costs and inflation and other parts of your expense base?

So early last year, we were able to see that the economic conditions were changing from what they had been, right? I think we all got the cold water in the face on that. And so at the time, we went back and revisited our plans for growth, and that led us to change strategically how we're operating. We've talked about the fact that we've taken a stance of focusing primarily on the trucking product first while keeping the long lead work on the light vehicle programs working. moving from more of a parallel development to a sequential development on those programs, and we think that has served us well. It's allowed us to limit our headcount growth, and we continue to expect modest headcount growth over the coming year, which is, of course, lower than what we would have anticipated, again, at this time last year. This very early and proactive approach to this, along with our kind of measures even before that in 2021, mean that our headcount over that time period has grown substantially slower than, you know, tech broadly and certainly our AV competitors. And so we feel with the combination of our strong balance sheets and the practices we put in place to manage costs that we're in a very strong position there. Richard, do you want to add some more color to that?

Yeah, no. I think you're right, Chris. I think we believe we're appropriately staffed now to kind of continue to make progress against the Aurora Horizon roadmap and get to commercialization. I think you'll see us continue to add headcount very strategically where it's necessary. I think Chris alluded to hiring Osa Fisher as president and a new SVP of people. So you'll see things like that happen. And it's a good sign when you can attract this level of talent at the company as well. They can see what we're doing. They can see where we're headed and they're excited to be on board and we're certainly excited to have them. But yeah, we would expect to see kind of modest head growth at most. We've continued to do significant work internally around cost avoidance and cost saving measures. So there's a lot of things, some very small, some more substantial that we've done and that just gives us the confidence that the capital that we have in the balance sheet, the $1.1 billion that we ended the year with, will continue to fund us through to mid-2024.

Great. Thank you both. Thank you.

Thank you. And once again, to ask a question, press star 1 on your telephone keypad. Our next question comes from David Vernon with Bernstein. Please state your question.

Hey, good afternoon, guys. Thanks for taking the time. So, Richard, I know you're not going to give us guidance, but that 149 exit rate on adjusted EBITDA, kind of gets you to the middle of next year. You guys are mentioning a little bit of a headcount increase, but is that just going to be sort of modest to replace attrition, or are we actually expanding the R&D footprint as we get through 2023?

Yeah, I would say very modest, primarily to replace attrition. But, again, if there's really great talent out there, I think, and we feel like that can help us achieve the mission, then I think we would be on the market for that talent. But, you know, we have what we think is a solid base of people, and we do not project significant headcount growth from today.

Okay. And then, Chris, a couple questions for you. First is can you help us as laymen understand the significance of the – the silicon-based LIDAR and what that does to the cost of the system over time. I'm assuming that's going to have some sort of benefit in terms of maintenance, reliability, upfront costs. Could you just kind of help us turn that into something that we can think about from an investment standpoint?

Yeah, absolutely. It is – I think just from a technology point of view, you can think of this as the equivalent of moving from discrete components in electronics, you know, capacitors, resistors, and whatnot – into an integrated circuit. And it's the same type of approach that we're using, but with optical components instead of electrical components. The massive benefits we see from this is, one, it's instead of having a significant amount of labor and cost in those components, labor and assembling and costing those components, we can print them effectively out of fab and get dozens of them on a wafer. So that makes the economics for each of these LIDARs going forward dramatically better. They're dramatically more reliable because instead of having these fragile fiber links between places, you're able to get to integrated components that are like little pieces of rock, right? There's not going to be a whole lot of risk to them. So we see this as one of the strategic investments as we begin to scale the business. If you look at the cost structure of delivering the Aurora driver, the largest part of that, certainly early on, is the hardware costs. And within the hardware costs, the computer and the LiDAR are the two largest pieces of that. And this is one of the biggest steps we can take in reducing that cost.

And from a unit economic standpoint, that would become like a fraction of the cost of the the existing LIDAR, or is there a magnitude you can kind of help me understand?

Yeah, you can think of that as a meaningful fraction reduction. So I don't know if it's quite order of magnitude, but it's probably in that ballpark.

I appreciate that extra comment. If I could just squeeze one last one in here. You mentioned you're getting up to 30, 40 loads a week. As you guys are thinking about the sort of reliability of the equipment on the trucks, the maintenance and the turnaround times, can you give us a sense for sort of the operating cost per mile, how that's sort of progressing from maybe where we were a year ago to the exit rate of where we are today?

Yeah, so on the reliability of the components on the vehicle, our engineering team runs a rigorous reliability process. We have shake and bake systems here and You know, we look through the failure of the components so we can drive performance up. And so we see that as maturing very nicely. We aren't providing guidance on the cost structure at this point directly, no.

Okay. Thanks very much for your time, Dave. Thanks.

Pleasure. Thank you. Thank you. Thank you. And ladies and gentlemen, there are no further questions at this time. And with that, we conclude today's conference call. You may all disconnect your lines at this time. Thank you for your participation.