AEye, Inc.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the AIQ3 2025 earnings conference call. All lines has been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Jeremy Apple. You may begin.

Good afternoon, and thank you for joining AI's third quarter 2025 earnings call. With me today are Matt Fish, Chief Executive Officer and Chairman, and Connor Tierney, Chief Financial Officer. Earlier today, IAI announced its financial results for the third quarter. A copy of this press release can be found on the investor relations section of the company's website. 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, operating results, or financial performance, and such 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 the reports AI files from time to time with the Securities and Exchange Commission, including in the most recent periodic report. The statements to be made are, as of today only, and AI does not intend to update any forward-looking statements regardless of any new information, future developments, or otherwise, except as may be required by law. In addition, we will be discussing non-GAAP financial measures on this call, which we believe are relevant in assessing the financial performance of the business. These measures are presented as supplemental information only and should not be considered a substitute for financial information presented in accordance with GAAP. You can find reconciliations of these metrics to the most directly comparable gap measures within the press release. Now I'll pass the call over to Matt.

Thanks, Jeremy, and thank you all for joining our third quarter 2025 earnings call. This quarter marked another step forward for AI as we continue to build on the progress made over the past year. Over the last several quarters, we've executed the strategy that we set forth, brought spending under control, developed and launched a differentiated product ready for commercialization, and established a foundation for scalable growth. Now, with Apollo in the market and gaining traction, our focus has shifted to building and converting a strong revenue pipeline. We're winning new customers, expanding partnerships, and gearing up to scale Apollo. As we just announced, increased investor confidence in what we've been building has allowed us to secure the capital needed to ramp our production line. With a strong cash position providing visibility for the next few years, we are well positioned to translate momentum into sustained revenue growth. Further, Apollo's unique combination of long-range sensing from behind the windshield compact design, software-driven versatility, and competitive pricing continues to resonate with customers, and we're securing new contracts across our target markets. We believe no one else offers this same blend of performance and adaptability, which continues to fuel our commercial momentum. Today, we want to focus on sharing details around our progress towards revenue growth via commercialization of Apollo and Optus. I'll start with where we're seeing the most momentum right now, our growing customer base and the real-world programs that are putting Apollo to work. We doubled our customer base since the end of the second quarter, bringing us to 12 customer contracts signed year-to-date. One of those wins came from a global defense contractor using Apollo on UAVs to improve wire detection, a perfect example of Apollo's strength in identifying small objects at long range and high speed. These kind of programs not only create near-term revenue opportunities, but also open the door to broader adoption across defense and aerospace OEMs. Our commercial pipeline also continued to strengthen in Q3, with two dozen active quotes tripling last quarter's level. The pull from customers is real, and we're converting more opportunities into active programs. The pipeline is deepening, giving us better visibility to future revenue and a solid base to build from as we grow. Across these programs, interest is growing rapidly in physical AI, a concept focused on bringing vision to intelligence. Put another way, this is the equivalent of giving eyes to an AI model like ChatGPT. We're already seeing this come to life through real deployments, including the UAV wire detection application I just mentioned, as well as optical detection for rail, and waystation automation powered by Optus Analytics. Together, these programs show how Apollo and Optus are enabling intelligent perception in challenging environments, while we continue to drive expanded engagement with automotive OEMs who value Apollo's long range behind-the-windshield visibility. Next, I'll touch on our expanding manufacturing capacity. As I mentioned earlier, we've announced an expansion of the agreement with our Tier 1 manufacturing partner, LightOn, and an investment from a leading global institutional investor to fund a new dedicated production line for Apollo with capacity to produce up to 60,000 units annually. We're seeing an inflection point in customer demand, and this expansion ensures we can meet the growth head-on. Our capital light model allows us to channel investment directly into working capital for production rather than fixed infrastructure, enabling rapid and efficient scaling. This decision reflects our conviction in Apollo's commercial momentum and positions us to capture the accelerating demand ahead. In addition, Recent developments in the LIDAR industry have validated and reinforced our conviction that our capital light model is the most viable path to sustainable commercialization. Turning to markets and partnerships. Engagement with the automotive industry remains strong, with active discussions underway with about two-thirds of major Western OEMs. What's capturing their attention is Apollo's compact design. It sits cleanly behind the windshield without compromising long-range performance, giving OEMs a vehicle packaging solution for meeting hands-off, eyes-off sensing requirements that doesn't require exterior vehicle modifications. We believe that this packaging advantage provides AI with a key differentiator as the next generation of programs are sourced. As automotive programs progress, we forge critical software partnerships that are opening new markets and already translating into scale across defense, aviation, rail, and smart infrastructure. These collaborations are helping us mature Apollo, enhance cost efficiency, and expand adoption. Recent examples include partnerships with Blueband, which uses Apollo's long-range sensing for AI-driven traffic management, and FlashEye, whose 3D perception software enhances safety and logistics applications in complex scenarios, such as at airports and transportation hubs. Internationally, our partnership with Black Sesame Technologies in China combines Apollo's 1550 nanometer sensor with their automotive-grade compute platform to deliver a full-stack obstacle detection capability. This solution has already been selected by a leading transportation OEM, representing a potential multi-million dollar revenue opportunity in underscoring Apollo's performance, reliability, and scalability in one of the world's most competitive mobility markets. Together, these partnerships are turning opportunity into action, driving real Apollo and Optus sales today. In closing, we're executing with focus and delivering results. Apollo's clear differentiation is driving real sales and strengthening our customer base, and our strategic partnerships are translating into commercial wins. We're adding customers, broadening our market reach, and scaling production alongside partners who share our vision. Backed by a strong cash position, that gives us a clear path to execute our plans for growth in the coming years. We have the resources and flexibility to advance commercialization. The pieces are in place. We have the technology, the partnerships, and the balance sheet to continue this progress and drive consistent revenue expansion. I'll now turn the call over to Connor to review our financial performance.

Thanks, Matt. AI is demonstrating solid financial discipline and operational resilience, positioning the company for durable long-term growth. With $84 million in cash at the end of Q3, we have the runway to operate well into 2028, providing a solid foundation to scale and execute our growth strategy with confidence. Importantly, we've cleaned up our capital and debt structure, leaving us in a stronger financial position compared to our peers. We're approaching growth in three deliberate phases, each designed to unlock value and build momentum. This is a disciplined roadmap, not just for the next quarter, but for the next several years. Phase one is laying the foundation and gaining traction, and we're already seeing solid progress here. Strategic partnerships are taking shape, particularly in non-automotive markets, and proof-of-concept deployments are validating our technology in real-world scenarios. These early wins are critical because they set the stage for everything that follows. Phase two is where we accelerate, and we expect the inflection point for this phase to come next year. To prepare, we're putting in place the infrastructure we need, strengthening our supply chain, expanding manufacturing capabilities, and building deployment readiness so we can meet the demand we anticipate. This is when revenue should begin to climb and margins turn positive as we optimize costs and streamline operations. It's the bridge from promise to performance. Phase three is the breakthrough moment when profitability becomes real. Each phase builds on the last, creating a clear path to unlock adoption, drive revenue, and ultimately create shareholder value. It's a disciplined approach to scaling with confidence. As Matt noted, our commercial pipeline continues to expand at an impressive pace. In fact, our non-automotive funnel has grown six-fold from fewer than 100 prospects earlier this year to nearly 600 today. Quarter over quarter technical engagements increased by nearly 50%. Quotes issued tripled and signed contracts doubled to 12 since Q2. These metrics tell a clear story. We're seeing stronger alignment with customer needs and growing confidence in our technology. Intelligent transportation systems lead the way in funnel volume. and proof-of-concept activity, while rails for some of the highest engagement rates. Aerospace and defense are also mature investments. What's driving this traction? It's Apollo's unique value proposition. Combining powerful radar capabilities with flexible software control and a compact design, Apollo fits seamlessly behind the windshield for streamlined automotive integration. This flexibility allows us to tailor solutions for specific applications and lead in sectors where alternatives appear limited, creating a distinct competitive advantage that strongly resonates with customers. Optus is moving our partnership strategy forward. We've moved Optus from concept to structured offering with initial deployments already completed. Now we're enhancing system performance by adding compute and perception capabilities. At the same time, we're expanding our ecosystem beyond perception-only solutions, engaging in technical discussions with new partners and exploring reseller opportunities to extend our reach. Recent additions to our partner network include Black Sesame, Blue Band, and FlashHack. I'll now move on to slide seven to address our cash burn and our capital life model. Excluding net financing proceeds, third quarter cash burn decreased by approximately $0.7 million to $6.4 million. This reduction follows an elevated burn rate in the second quarter, which included a one-time $1.4 million lease settlement payment. partially offset in the third quarter by higher engineering and professional service costs. Our capital-like model remains instrumental to our growth strategy, allowing us to expand efficiently by leveraging strategic partnerships rather than making heavy capital investments in manufacturing our software infrastructure. As shown on this slide, our unique operating model translates into meaningfully lower expenses compared to peers, providing a distinct advantage in capital efficiency as we continue to scale. Now turning to our third quarter financial results on slide eight. Third quarter gap operating expenses were $7.8 million, down from $8.6 million in the second quarter of 2025. primarily due to lower costs associated with our proxy contest, personnel expenses, and contract development costs. Third quarter non-GAAP operating expenses were $6.1 million, a decrease of $0.7 million compared to the prior quarter, primarily driven by the same cost drivers as described above. We reported a GAAP net loss of $9.3 million, of 30 cents per share in the third quarter, which was comparable to the GAAP net loss of $9.3 million, or 48 cents per share in the second quarter of 2025. On a non-GAAP basis, our net loss was $5.4 million, or 17 cents per share, beating consensus estimates in the third quarter, compared to a non-GAAP net loss of $6.7 million, or 35 cents per share in the prior quarter. This improvement was driven primarily by operating expense reductions noted above and increased interest and investment income. Net cash used for operating activities decreased to $6.1 million in the third quarter from $6.4 million in the second quarter of 2025. We ended the quarter with cash, cash equivalents, and marketable securities of $84.3 million, more than quadruple our cash balance compared to prior quarter end. Since quarter end, we've raised an additional $10 million. Importantly, we remain focused on obtaining a strong, simplified balance sheet. The convertible note executed earlier this year has been fully repaid, and during the quarter, we eliminated legacy warrants. further cleaning up our capital structure. These actions position us in a much healthier financial state compared to many peers in the sector who continue to carry significant debt. Overall, we're maintaining strong liquidity, disciplined capital management, and a balance sheet that supports our long-term growth strategy. Moving on to our cash burn outlook on slide nine, we continue to expect full-year 2025 cash burn to be at the high end of our previously communicated range of $27 to $29 million, reflecting planned investments to scale Apollo production and support commercial expansion. In summary, we're thrilled by the momentum that we are seeing across the business. Apollo's differentiated value proposition is strengthening our customer pipelines, while we continue to have the most efficient cost structure among our peers. Financial discipline remains our top priority as we look ahead to scaling to meet growing demand for our advanced LiDAR technology. With that, I'll pass it back to Matt to wrap things up.

Thanks, Connor. We're proud of the progress AI has made, both technically and commercially, this quarter. Sales are ramping, and our pipeline is accelerating as we see rapidly increasing pull from the market, strong leading indicators of the revenue growth we expect in 2026. The team is fully aligned around execution, and we look forward to updating you on our continued progress in the quarters ahead.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening by a speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question. Our first question. It comes from Paul Frack from Alliance Global Partners. Please go ahead.

Hey, good afternoon. Congratulations on the progress. Matt, would you expand on your confidence in the capital white model, especially in the context of, you know, recent industry events?

Yeah, sure. Happy to do that. And thanks for joining us again this quarter. I think there's two pieces to think about here. One is what I'd call the more obvious piece, which is manufacturing capital investment. And then the second, I do want to talk about software a bit because that's important as well. We've got our capital light model in the manufacturing side relies on a partnership with LightOn, who has a very global footprint. And also, very importantly, they're experienced in dealing with the automotive industry. Just to give an example, I'm out here in Detroit today. I was meeting with an OEM talking about our progress in their supplier audit process. OEMs are now starting to use a word called resiliency, which means can you quickly change your manufacturing site from one part of the world to the other? And as a small company, it's incredibly expensive to be able to invest in something like that. And our Capital Light model says we partner with somebody who's very seasoned and experienced in this area. So we can have this flexibility, nimbleness, and resiliency through our partner as opposed to having to make massive investments. And this allows us to essentially look at just-in-time delivery, ordering of components. So we're really focused on looking at the pull from the market, and then ensuring that our working capital is lined up and ready for just-in-time delivery. And that keeps our upfront costs incredibly low. This also extends to our focus in the software space as well. We just want to be great at building best-in-class LIDAR, and we're also very adept at helping customers solve particular problems. With this Capital Light model, we rely on partners to write perception software. For example, that's a big expense to create perception software and maintain it. And we're happy to offer that through our Optus platform through our partners, again, avoiding the upfront investment of having to build the software ourselves. And I think the results speak for themselves. I mean, they Cash balance in a company is very strong or debt structure is very strong. And we're able to basically manage that through just-in-time delivery thanks to our Capital Light model.

That's great, Keller. And then can you look at – you know, there's a big jump. You doubled your customer base to 12. Can you just talk more about that pipeline of customers and, you know, within the 12 customers now – Can you talk about the mix between auto and non-auto?

Hey, Poe, this is Connor here. I can jump in for that question. And then maybe Matt can add his thoughts at the end. But first off, addressing this question, I'd just like to preface it with the fact that we've really only had Apollo out in the market and in customers' hands since early in the year. We're talking February timeframe. So I think the amount of traction that we've shown on the funnel is just amazing, in my opinion. So if you look, you know, just referring back to the script, if you look at the number of prospects that we have in the funnel, we've increased that from, you know, 100 at the beginning of the year to almost 600 today. If you look further down the funnel, if you look at technical engagements that we have with customers, that's increased by almost 50%. If you look at quoted activity, that's almost tripled. And then as you alluded to just now, We've seen a lot of traction on the contract side as well. We've grown that almost double that from six to 12 in just one quarter. And so, you know, when I think about that, there's a certain amount of commonality with the customers that are engaging with us. And what we're seeing is there is a appetite for high performance sensors. And so, The value prop that we're bringing is quite unique in the marketplace right now. It's a combination of long range. We can see up to a kilometer, but also ultra-high resolution as well. And the software reconfigurability piece is something that really resonates because you think about each customer. They have unique use cases, and so that adaptability, being able to work with the customer, being able to customize a solution that works for them, is something that's very compelling. to the end customer. Uh, and that's really the value prop. And then the other thing, just thinking about the market up to now, if you think about those high performance sectors, you know, Matt alluded to it in his scripts, you know, you're talking about defense, you're talking about smart infrastructure, rail, um, you know, you think about, especially in, in the defense sector, you think about the solutions that have been on the market for the last 30 years, you know, high performance lighter sensors, um, we're selling for even millions of dollars, right. Um, And then you think of other other sensor modalities, such as radar and camera. You know, there was some limitations and deficiencies in those solutions. So what we're offering right now is really a high performance sensor at a really competitive price point. And I think that's really compelling to the end user. And that's why we're seeing a lot of growth in the funnel. You know, a healthy conversion rate by moving from two customers at the beginning of the year to almost 12 today. That's a really strong signal that customers are engaged and they're interested in what we're doing. So, Matt, I'm not sure if you want to chime in or if you have anything else to add there.

Yeah, well said, Connor. I think I'd just add one thing, and that is talking about the automotive space. You may think, well, why does a passenger vehicle need a one-kilometer range? What we're bringing into that space in the same small size and low-cost package is the ability – to put the LIDAR inside the cabin behind the windshield. Glass does terrible things to LIDAR, and it can't see very far, or when you try to shine the LIDAR through glass. This one-kilometer performance allows us to meet the automotive and passenger vehicle requirements through the windshield inside the cabin, and that's getting us a lot of meetings with OEMs right now. They're very interested in avoiding that bump on the roof, the taxi sign, so to speak. So it's not just sort of the defense and other industries that, you know, you look at a kilometer and go, wow, that's amazing. We need to have that. Shining the LiDAR through the glass in a vehicle through the windshield greatly simplifies the OEM LiDAR integration problem. We're getting a lot of interest on the automotive side from that perspective as well.

Our next question comes from Casey Ryan from West Park Capital. Please go ahead.

Thank you. Matt Connor, lots of progress. Great update here. There's a lot to look at. I just wanted to ask, Matt, you used, I think, the more technical appropriate term of UAV as the defense opportunity. is it fair to say that that covers all drone applications potentially within defense? But then my question is, have you also seen, you know, an uptick or more interest from, you know, commercial drone manufacturers, particularly domestic as, you know, I know DJI is under review and there's a potential loss of them from the market. So presumably other people are stepping up now at this point.

Yeah. Hey, Connor, going to have you jump in on that since you've been a, directly involved in those conversations.

Yeah. Hey, Casey, just starting with, I guess, the defense piece first. We are seeing interest in the UAV space, but it's not just UAV. It's also manned aerial vehicles as well. So it's not just the drone piece. I would say, yeah, there is an opportunity on the commercial side. That's something that we're actively pursuing. And if you think about, you know, drones are used for all sorts of use cases, obviously, you know, disaster mitigation, aerial mapping, all those kinds of things. And I think the same attributes that attract DoD customers to us apply to all those use cases as well, right? These guys are looking for a solution that can see long range, but also see with a high degree of resolution as well. So I would say we're actively engaged across the board in all those sectors.

Okay, tremendous. And then quickly, on the auto OEM side, you know, for mass market, which I realize we're still some years away from, where do you sense the focus is? Are OEMs building for level three and level four, or are they still kind of trying to optimize for level two and sort of hands-free type applications?

Yeah. Hey, thanks, Casey. By the way, welcome back. Thanks for joining us. I'll take that one. I'll look at... I'm not necessarily going to speak on behalf of the OEMs, but in terms of the specs that are coming to us through RFIs, I would say that in the last six months, we've seen a significant shift into the L3 and L4 states. I think you can track some of that in the media as well. But if you look at the requirements that are coming in these RFIs from the OEMs, I think we're seeing that shift to L3 and L4 very very quarterly in the last six months, I would say.

Okay. Terrific. Well, it's helpful, and it's a great update. So thank you for the time today. Thanks for joining us.

Thanks, Casey.

Again, if you would like to ask a question, please press star 1 on your telephone keypad to join a queue. Our next question comes from Paul Frack from Alliance Global Partners.

Hey, Connor, would you mind just giving us a little more detail or a little more color on the institutional investor that you've lined up? Can you frame maybe the potential size of their investment and also the timing of the investment? And also, is that required? to get to full production, you know, that full production number of 60,000 units per year by the middle of next year?

Hey, Casey, let me, I'm sorry, hey, Casey, hey, Cole, let me address that. What I would say is we haven't really released all those details or all that information in the PR, but I'll try to at least address some of it. So it's a well-known institutional investor. That's for sure. The name will definitely resonate with everybody. What I would say is the investment itself was made after quarter end. So it's part of that $10 million that I alluded to in the script. In terms of giving us enough runway, what I would say is, you know, we had $84 million in cash at the end of the quarter. When you take into consideration the additional capital that we raised post quarter end, We're up above 19 million at this point. And we feel at this point in time that that's more than enough capital to go out and execute to our growth, to basically go out and execute and accelerate our go-to-market strategy. You know, there could be opportunities to raise capital down the road, but I think we would have to carefully evaluate those opportunities. But at this point in time, I think we're generally feeling relatively comfortable that we have enough capital at least for the immediate strategy that we're pursuing here. Great. Thank you. Yep.

Our next question comes from Richard Shannon from . Go ahead.

Hi guys, thanks for taking my question. Apologize for the ambient noise here. I'm trying to watch my daughter's volleyball tournament here at the same time. I may have missed the prepared remarks to this topic here, but the next six new wins you talked about in the quarter here, can you describe the applications and volume opportunity that you're looking at here?

Hey, Connor, why don't you go ahead and take that one?

Yeah, hey Richard, I can just give you a general idea of about what those use cases relate to. As I said earlier, they're for high-performance use cases. So, generally, think about the aviation and sector, rail, and transportation systems. And so, what I would say is right now, in phase one of the three-phase process, and so this is really foundational. So, we're working with the customer basically to put proof of concepts together and, you know, That's part of that overall strategy. So it's really laying the foundations for a volume ramp that we expected. And indeed, we're really getting very positive, you know, indications from customers that they're willing to sign up for higher volumes. And that's indeed why we, you know, made the decision with LightOn to invest in infrastructure and invest in the line so we have the capacity to meet that demand when it does come through.

And maybe just to follow on that, Connor, what are we talking about in terms of the investments that you're going to be making here with Liton? I assume this is in the form of some cap factors being conferred to them or whatever, but maybe you can just help us understand what that investment is and the magnitude of it over what time.

Yeah, look, what I would say is we don't expect a dramatic increase in our burn rate next year. And, you know, I frame this from the point of view that If you look at our burn rate for this year, we're guiding to about $29 million, but there's a lot of one-time items included in that. So if you look at our baseline burn for this year, it's really more like $25 million. So I would say probably at a minimum next year, we're looking at around $30 million. There's obviously the opportunity for that to go up a little bit if we invest in working capital. But for us, I mean, what we're really looking at is – gating some of the investment to specific milestones and specific commitments on the customer side. But the great thing is that we're working with a partner that's extremely flexible. And, you know, the upfront capital might come in the form of long lead commitments that we need to make. But we think we can be very flexible in that regard and gate spending to, you know, guaranteed demand.

Question, I'll jump out of line here. So you talked about investing in capacity or 60,000 units annually here. Do you have any visibility on the timeframe by which you might be approaching high utilization with that kind of a unit volume here? I assume it's not next year or two, but if it is, I'd certainly love to get some context on that.

I don't think that's going to come overnight. I think it's going to be more sequence, it's going to be more phase. But the important thing is to be ready, right, and to have that flexibility. And that's why we want to work with the partner. like LightOn. And what I would see is there's some upfront investments, like I mentioned earlier, right? We're going to probably have to make investments in working capital or maybe a little bit of CapEx. But because we're a capital light model, we're able to keep those investments low. And we're getting a lot of support from LightOn as well in that regard.

Okay, perfect. That's all I need, guys. Thank you very much.

Thank you, Richard. That concludes the question and answer session. I would now like to turn the call over to Matt Fish for closing remarks.

Thank you all for your time today. We appreciate your continued support and confidence in our vision.

Have a great day. This concludes today's conference call. You may now disconnect.