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spk02: Good afternoon, and thank you for joining AI's first quarter 2023 earnings call. With me today are Matt Fish, Chief Executive Officer, and Connor Tierney, Chief Financial Officer. Earlier today, we announced our financial results for the first quarter 2023. A copy of our press release can be found on our website at investors.ai.ai. Before we begin, I would like to remind participants that today's discussion may include forward-looking statements as defined in the securities laws and regulations of the United States with reference to future events, future operating results, or financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the industry, and other conditions. These forward-looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are difficult or impossible to predict. Our actual results may differ materially from those contemplated by these forward-looking statements. We caution you therefore against placing undue reliance on any of these forward-looking statements. You can find more information about the risks, uncertainties, and other factors in our reports filed from time to time with the Securities and Exchange Commission, including in our more recent periodic report. All information discussed today is as of May 11, 2023, and we do not intend and undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures. These non-GAAP measures are presented for supplemental information purposes only and should not be considered as a substitute for financial information presented in accordance with GAAP. A reconciliation of the measures to the most directly comparable GAAP measures is available in our press release, and you should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our earnings release. Now, let me pass the call over to Matt.
spk03: Thank you, Jen. Here with me today is Connor Tierney, who has recently assumed the role of our chief financial officer, and we're delighted to have Norbert Hammerschmidt, vice president of the components business at Continental, also speak today. I'll begin with our strategic plan and market opportunity. Norbert will discuss our Continental partnership, and Connor will review our first quarter financial results. We have a lot to cover today, so I'll jump right in. Over the last three months since joining AI, I have met with our teams and partners, and I'm even more enthusiastic about where we stand on the cusp of commercialization and our enormous market opportunity. I've also met with some of you in the investment community and appreciate the feedback you provided. We are committed to investor relations and will work hard to rebuild Wall Street support. After these initial meetings, it was clear to me that we have the best business model in the industry, a gifted team, and exceptional products featuring best in class LiDAR technology. It was also clear to me that we need to hyper focus on automotive and our path to commercialization with Continental. We believe that we have both product and business model advantages in automotive. Our technology's reliability, range, and reconfigurability delivers the dependability, performance, and adaptability that OEMs need. And our licensing model, cost structure, and continental partnership enables us to drive down our cash burn rate, deliver strong margins, ramp lighter volumes quickly, and pivot to emerging technology trends faster. We have right-sized our resources and cost structure to align with our automotive first strategy. This includes a company restructuring, which took place in April, as well as an across-the-board reduction in operating expenses. As a result of these actions, we have a plan to extend our cash runway through the end of 2024. AI's go-forward operational model is now realigned with our business model, which is based on licensing for automotive markets. This will continue to allow us to further reduce our operating expenses without hampering our ability to deliver to our customers and partners. Our automotive approach is very different from many of our competitors who now face increased operational and capital expenditures to scale in-house manufacturing. With our licensing model, we can ramp to large volume production quickly by leveraging partners such as Continental while minimizing OpEx and CapEx at AI, accelerating our path to scalability and profitability. Achieving automotive scale will open our doors to even more opportunities in other markets longer term. In the industrial space, we have narrowed our focus to select opportunities that are fit from a product and revenue generation standpoint. Our Foresight M product is market validated in the ITS sector with key automated tolling, smart intersection, and automated incident detection deployments in Virginia, Minnesota, Turkey, and Kazakhstan. We continue to receive accolades on our product's performance, most recently with a Best of ITS award for our collaboration with the Minnesota Department of Transportation. Our ultra-long-range solution was shown to improve road safety even in the most challenging weather conditions. In the automotive space, validation is already in progress at Continental, who is building the HRL131 long-range LIDAR product using AI's LIDAR technology. Together in 2023, we're on track to hit key milestones by putting the product through its paces to ensure automotive grade robustness. This entails rigorous product testing with extreme temperatures, humidity, and vibration for thousands of hours. Once design validation is complete, we can scale quickly with Continental, who has a global production footprint. AI is set up for success with our deep and complementary partnership with Continental and our jointly developed HRL131 long-range LIDAR. Now, we are honored to have Norbert Hammerschmidt, Vice President, Components Business at Continental, say a few words on our partnership. Welcome, Norbert.
spk00: Thanks, Matt. I would like to start by saying that Continental is very pleased with the new management and the go-forward plan presented by AI. AI's decision to take an automotive-first strategy further strengthens our partnership and provides the focus and velocity needed to secure automotive series production awards and expand our LiDAR business case. As a 150 year old automotive tier one supplier, we at Continental deeply understand the processes, time and capital required to industrialize products for passenger and commercial vehicles. So when we choose partners like AI, we do so with our brand and reputation with OAMs in mind. We are as committed to AI today as we were three years ago when we began this journey, and even more so as we work together to accelerate through the design validation stage, which is a precursor to OEM integration and higher volume production. The Conti and the AI engineering teams are working collaboratively during this stage to perform stringent accelerated lifecycle testing on the HIL131 long-range LiDAR products in our labs. while also replicating real-world scenarios in a variety of adverse weather conditions at our closed-course tracks in Michigan and Germany. In parallel, our business teams have progressed tremendously on quoting activities with multiple large-volume LiDAR programs from both passenger and commercial vehicle OEMs, where we believe we are well positioned to win. As the global leader in ADAS products, Continental began this journey with AI with the belief that the automotive LiDAR adoption curve will mimic that of Radars, which saw exponential growth over the last 25 years. And these recent RFQs from OEMs confirm our belief. The future looks very bright for our LiDAR market and our partnership with AI. With that, back to you, Matt.
spk03: Thank you, Norbert. I'd like to take a moment to talk about our product advantages. We think, ultimately, LiDAR products are going to be measured against what we call the three Rs, reliability, range, and reconfigurability. Reliability, this is make or break for every player in the automotive LiDAR industry. And it's where our MEMS solution gives us a distinct advantage. The key is our size. At roughly one millimeter, it is orders of magnitude smaller than anything in the industry. You can see this visually in the presentation. Range. At 300 meters, we see further down the road than anyone else. As you might imagine, this is a crucial element when it comes to maximizing safety while driving at any speed. Reconfigurability. ADAS is continually evolving and presenting an ever-growing list of driving scenarios. This is where our software-defined LiDAR solution shines, due to its ability to be easily reprogrammed in the field to adapt to the evolving needs of ADAS. You can refer to our presentation for examples of some of these real-world scenarios. The product is perfectly suited to enable new advanced driver assistance system features and functionality, an important source of recurring revenue for OEMs in an era of software-defined vehicles. Before I turn it over to Conor, I'd like to speak briefly on the market opportunity in 2023. We are seeing that OEMs are continuing to build momentum around ADAS as a service, and we ourselves see this momentum via the 2023 quoting activities through Continental that represent a 5 to 10 million LIDAR unit opportunity. With that, I'll now turn it over to Conor for his financial review. Conor?
spk01: Thanks, Matt. Welcome, everyone. I share Matt's enthusiasm that AI has a tremendous opportunity ahead, and I'm excited to be speaking with you for the first time from this seat. I'll start by discussing the steps we've taken to reduce our cost structure to better align our expenses with our go-forward strategy and our plan to extend our cash runway out to the end of 2024. As we previously announced in March, we made a difficult decision to reduce our workforce by about one-third and to curtail other expenses primarily related to professional services and real estate. As a result of these actions, we incurred $1.3 million in one-time related restructuring charges in the first quarter. Including the steps we took in the first quarter to reduce our expenses, our goal is to reduce our cash burn by about 50% by the first quarter of next year. We will achieve this through a combination of the previously announced workforce reductions, exiting certain office locations, vendor savings, and other cost efficiencies. Now turning to our first quarter financial results. Given the significant changes we made to our business model and cost structure in the first quarter, we believe that comparisons of our first quarter 2023 and fourth quarter 2022 results are not helpful in evaluating our performance. For reference, all of those details are included in our earnings presentation. We will revert to discussing quarter-over-quarter results in our second quarter earnings call. Revenue in the first quarter was $636,000 which was above consensus estimates. We resumed shipments of our Foresight industrial product during the quarter and are expecting an increase in order volumes towards the back half of this year. Due to tighter expense management, first quarter GAAP operating expenses came in better than anticipated at $24.3 million. non-GAAP operating expenses were $16.5 million in the first quarter. There were some one-time non-recurring items in the first quarter and we expect that operating expenses will decline in the second quarter. For the first quarter, we reported a GAAP net loss of $26.3 million, or a loss of 16 cents per share. On a non-GAAP basis, our net loss was $17.7 million, or a loss of 11 cents per share in the first quarter, which was 2 cents better than consensus estimates. We're also expecting GAAP and non-GAAP net loss to decrease in the second quarter because of the cost-saving initiatives we outlined earlier. We continue to manage our cash carefully. Net cash used in operating activities for the first quarter was $17.2 million. CapEx in the first quarter was modest at $599,000. We closed the quarter with a strong balance sheet with $74.1 million of cash, cash equivalents, and marketable securities. As an additional source of liquidity, we also have access to our equity line of credit facility. Subject to certain conditions, we have the right to issue another $10 million convertible note to the same lender under this facility. As noted earlier, the steps we have taken to focus our business model on automotive and to align our expenses accordingly have extended our cash runway. Looking ahead, we will continue to manage and allocate our cash carefully to critical areas of the business that directly support our strategy and product development. Now turning to our guidance for the second quarter of 2023. We expect second quarter revenue to be in the range of $500,000 to $700,000. Given the production slowdown and our foresight platform that we discussed on our last earnings call, we expect most of our 2023 revenue to be generated in the second half of the year. We expect second quarter non-GAAP EPS to be a loss of approximately $0.09, which is lower than last quarter as a result of our cost savings initiatives. In conclusion, I'm pleased with the steps we've taken to align our expenses with our go-forward business model and our plan to extend our cash runway through the end of 2024. We are excited about our future and our entire organization is focused on achieving our number one goal, design validation of our HRL product that we jointly developed with Continental. With that, I'll pass it back to Matt to wrap things up.
spk03: I'd like to conclude by saying I'm incredibly excited about how AI is positioned to succeed in the market. Our software-defined LiDAR solution is differentiated in the marketplace through the three Rs, reliability, range, and reconfigurability. Focusing on AI's business model has allowed us to drive down our cash burn rate, minimizing CapEx and OpEx requirements, accelerating our path to scale and profitability. We have a very strong go-to-market partner in Continental, which is offering the HRL131 as part of its full-stack automated and autonomous driving platform for passenger and commercial vehicles. All told, we believe the value of our company, our technology, our unique model, and our future opportunity are not reflected in our current valuation. For 2023, the AI team will be focused on executing our go-to-market strategy in the automotive space with a focus on meeting automotive design validation as a key operational milestone. We look forward to updating you as OEM RFQs progress this year and trust that as we put execution proof points on the board, we will deliver significant shareholder value. With that, I'll turn the call back over to the operator for questions.
spk06: Thank you. We will now take questions from Matt Fish, CEO, and Connor Tierney, CFO of AI. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question is from John Roy of Water Tower Research. Your line is now open.
spk04: Thank you. So Matt, we've heard from a number of your competitors this week. that you all seem to be going after the same OEM RFQs. Can you give us some color on the competition and how you guys expect to win this?
spk03: Thanks, John. Great question. So a couple of things to point out to context the answer here. Number one, from what we can see through our opportunities with Continental, these are mainly new opportunities. They're not extensions of existing vehicle lines, but new OEMs, new vehicle lines. And one of the things that is a key factor in this type of situation is that, so first of all, I spent quite a few years bringing new tech into automotive OEMs. And one of the things I've learned about that process, it's not simply a rinse and repeat. Well, I have a product and now I sold it to one OEM and I just keep doing the same thing. Every OEM wants to differentiate. And so there's always going to be unique heavy lifting involved with getting those OEMs into the market. So one of the obvious vectors on all of these opportunities that are being vied for is product performance and capability. We addressed that earlier in the call, but I think another key viewpoint on this is that at the end of the day, when the OEM procurement department makes a decision on who to source, One of the key questions they're going to ask is to any supplier in this space is how busy are you and how vast are your resources to support us in that heavy lifting? And that's going to be a key consideration. The thing that makes me feel great about being part of this partnership with Continental is we literally have an army standing behind us, a very seasoned and experienced and very resource rich automotive tier one provider. And I really think that's going to be a really key factor as we get to this next series and resolving the next series of quotes and RFQs this year.
spk04: Great. So as a follow up, talking about, you know, Conti and what's next, you know, can you give us some milestones that investors can look at your go forward plan to see if you're making them in a timely manner? And what would you suggest that we look for?
spk03: Great. I'd break it down into three categories. One is the technical side. The other is the financial. And the third is the customer pipeline. So as we mentioned earlier, this design validation activity, which we're putting up front in our process, can the LIDAR system live in an automobile for 10 years or more under very harsh conditions? This is a technical milestone. We're running this process with Conti throughout a good chunk of the year. We'll come back and talk about our progress as we go on that activity. And then there's the burn rate, which Connor alluded to. Are we managing our business in such a way that we have enough runway and burn rate to continue to support our partner in the OEMs? And then there is the customer pipeline. We use the term RFI, RFQ, quoting, and awards. You've heard probably many of those terms. There's a sequence to this, right? And the first step is assessing every supplier's product and then determining a set of finalists for who will get to buy and auctioning or quoting the price for the product. And then there's the awarding of the series production contract itself. I just roughly described three phases of pipeline as we go through this process, and this is something that we can speak to as we go forward about which phase that we're in and how we're doing according to those phases with the various OEM activities in which we're engaged.
spk04: Great. Thanks, Matt.
spk06: Thank you. One moment for our next question, please. Our next question comes from Kevin Garrigan of West Park Capital. Your line is now open.
spk05: Yeah. Hey, guys. Thanks for letting me ask a few questions. Hey, so at the beginning of the year, you know, some LIDAR companies were expecting automotive OEM award decisions kind of in the, you know, the first three to six months. Now it seems like, you know, there might be a little bit of a delay in OEM decisions. You know, I know you guys have partnered with Continental, but, you know, just wondering on your thoughts on, you know, if the macroeconomic environment is causing any potential pushouts with OEM decisions and kind of causing them to shift their focus or, you know, any color you guys think.
spk03: Yeah, thanks, Kevin. Good to hear your voice again. Look, I think you rightfully pointed out that the decision of when to source is ultimately up to the OEM. And so then it leads to, okay, what environment are OEMs facing? So I can answer that basically on two indicators that we have visibility into. First and foremost is that coding pipeline that I mentioned, and what are the dates? What are the decision dates? What are the conclusion of testing and early product evaluation? We're seeing those hold relatively stable to what has been announced by the OEM so far. This has not changed. We haven't seen any major slips in the RFQ dates that are out there. I think the second piece is what's going on. I did mention earlier what's going on in the industry, and we believe that ADAS itself is one of the more, if not most, tangible ways for OEMs to drive software revenue and service revenue. And I think we heard Jim Farley in the last week speak to this. I think he got a similar question. And Jim's response to that, I'm not going to quote it, but he did reiterate the importance of ADAS. I think Ford also made a recent announcement in the UK about a service for autonomous type features and safety features. So given that ADAS is an important part of the OEM's promise to deliver a certain percentage or large number of software and software as a service revenue, we're feeling very positive about what's happening in the market right now.
spk05: Okay. Got it. Got it. That makes sense. Thank you for that. Then just, you know, as a quick follow-up, can you kind of give us an update on, you know, if you're gaining any more traction in the trucking market? You know, are you seeing any more engagements there?
spk03: So what I can say on that is when we talk about the six RFQ and quoting activities we're involved in that certainly covers both the automotive in the trucking space. And again, we're continuing to see strong traction there as well as strong traction by Continental, our partner in that space.
spk05: Okay. Got it. Thanks, guys.
spk06: There seems to be no further questions. This brings us to the end of our Q&A session. Thank you for your participation. In today's conference, this does conclude the program. You may now disconnect.
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