TuSimple Holdings Inc.

Welcome to the Two Simple Second Quarter 2021 Earnings Conference Call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to James Mann. Mr. Mann, you may begin.

Thank you, Sylvia. Good afternoon, everyone, and welcome to our second quarter 2021 earnings call. With us today are Two Simple's president and chief executive officer, Chang Liu, and chief financial officer, Pat Dilling. Chang and Pat will review the operating and financial highlights, and then we'll take questions. Before I turn the call over to Chang, let me cover a few housekeeping items. As a reminder, Two Simple's shareholder letter and a replay of this call will be available later today on the investor relations page of our website. This call is being recorded. If you object in any way, please disconnect now. Note that two simple shareholder letter, press release, and this call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Please refer to the Safe Harbor disclaimer and non-GAAP financial measures presented in our shareholder letter for more details, including our reconciliation of the non-GAAP measures to the comparable GAAP measures. I will now turn the call over to Chang to begin. Chang?

Thank you, Chang. Hello, everyone. Welcome to our second quarter earnings call. Our mission at TuSimple is to bring the safest, most reliable, and low-cost autonomous freight capacity to the market. To achieve this goal, we have a focused, four-pronged strategy, which includes, one, the development of the most advanced autonomous driving system for trucks, two, first to market with production of purpose-built autonomous trucks at scale with our OEM and Tier 1 partners, three, the expansion of our go-to-market strategy, the Thomas Freight Network, and lastly, investment in our people and operations. I will discuss our progress across these areas and then turn a call over to Pat to discuss our financial results. Overall, the second quarter represented an impressive acceleration across all areas of our business. The capital we raised and the recognition we received from the IPO further elevated TuSimple's position as a leader in autonomous trucking. It helped to de-risk our commercial execution and accelerated our ability to hire world-class talents. In terms of people, We continue to invest heavily in building our team of exceptional technical and operational experts to complement our existing team. We hired Robert Rossi to lead our proprietary HD maps ecosystem and further build out that team during the quarter. We've already seen early returns from Robert's leadership as unique map miles increased by 3,500 miles in the quarter for a total of 8,500 miles at the end of June. HD maps are the core infrastructure that enables autonomous freight operations. In July, we hired Adrian Thompson as our vice president of systems engineering. Adrian brings extensive experience from his prior roles in the aerospace and autonomous driving industries. His systems engineering team is responsible for developing our technical capabilities, tools, and processes to ensure the performance and reliability of autonomous driving systems. This is critical as we integrate our ADS with purpose-built production vehicles alongside our OEM partners. Adrian's team also played a key part in the development process as we continue to invest in the supply chain, including critical Tier 1 components such as braking, steering, and onboard compute units. The supply chain for Level 4 autonomous driving is still far from mature, and we believe our investments and partnerships further enable us to be first to market. Overall, our R&D team continues to represent approximately 80% of our workforce. This quarter, we added 188 new R&D personnel to bring the R&D team's headcount to just over 1,000 employees as of June 30th. We're pleased with the quality of talent that's choosing to join Too Simple, and we expect to continue to hire at a similar pace for the foreseeable future. Moving to the development of our autonomous driving system, We're confident we have the most advanced virtual driver in the industry. In the second quarter, our fleet of 70 autonomous retrofitted vehicles drove over 900,000 miles. Total road miles driven now stand at 4.6 million, which is a 26% quarter-over-quarter growth. Our road miles, conducted in fully autonomous mode and data collection mode via human drivers, provide valuable data to refine our autonomous driving system. In terms of our IP portfolio, we awarded 38 new patents in the second quarter, a 14% increase from last quarter, for a total of 318 patents granted at the quarter end. Our newly awarded patents include technology advancements in rear-facing perception systems and automatic weighing sensor systems that further distinguish TuSimple's ability to automate our trucks at scale. As an update on our driver out pilot program, we continue to make significant progress through the second quarter. We're on the third phase of our four-phase plan, which includes the offset and the autonomy reliability acceptance of our 10 new pilot test trucks, continued refining of our risk management systems, and the launch of TuSimple Connect, a proprietary transportation management and oversight system specifically designed to manage autonomous trucks. We have increased the frequency of our test runs on the pilot lane which is a hub-to-hub route from Tucson to Phoenix, covering close to 100 miles. We feel very confident in the performance of the Thomas Driving System. We aim to move to the fourth phase of our development plan in the coming months. The last phase is the verification of the safety case and final acceptance. Safety comes before all else at TuSimple, and this is particularly important for the Driver Out Pilot Program. The safety case verification process is multifaceted, to mitigate the risk inherent in the system. And this includes significant work in systems engineering, functional safety reviews, as well as internal audits of our process. It includes proper testing, verification, and validation of various software and hardware modules. Given the complexity of an autonomous driving system and this mission, we have to clearly understand what systems are on the truck that the truck performs the way it's intended to perform at all times, and that our operational plan is designed to execute the pilot program safely. In addition, it includes validation that our risk management system will identify any issues and signs of degradation from both software and hardware, ensure that the system reacts appropriately, including pulling over or stopping the lane safely, what we call enter into a minimum risk condition, or MRC. And lastly, of course, The safety case includes the final on-road validation of the pilot with safety drivers on board. As you can see, we have a holistic safety case verification process to ensure that we have correctly identified and mitigated risk. Furthermore, this process is critical in advancing our autonomous driving truck production programs and us being first to market. Our target timing for start of the driver out missions is still end of the year. As we move into the fall, we'll continue to provide updates on our safety case verification progress and the overall pilot program status. We believe we are confident that our Driver Out pilot program will be the first of its kind in the industry. We believe our timeline is several years ahead of any competitors, and it is certainly an indication of the advancement and maturity of our technology. Further highlighting the importance of safety We recently kicked off a safety performance study with Geotab, a leader in vehicle tracking and fleet telematics. This study will analyze the comparative safety performance of our level four fully autonomous trucks versus manually driven trucks. The data will be sourced in various conditions to measure industry standard indicators for unsafe driving that can increase the risk of accidents. We expect the study to add to our growing list of data illustrating two simple autonomous driving technology benefits. Now, moving on to the next pillar of our strategy, which is being first to bring reliable, purpose-built autonomous trucks to market scale. Our production program with Navistar continues to advance. During the quarter, we made progress toward our supplier downslide process. Downslide is an important milestone as we move from research and development to setting the final specifications for components with Navistar required for series production. We'll be narrowed down the list of suppliers for key components over the next several months, especially those with long lead time items, such as braking and steering systems, as well as LIDAR and onboard compute units. To our knowledge, we're the only autonomous trucking company approaching this critical milestone. In addition to the work we're doing with Navistar, our partnership with Trayton continues to progress well. Pinnacle teams from TuSimple and Scania, one of Treyton's truck brands, are expanding the scope of our concept programs. We expect to continue to increase our development activities in Europe, and we'll be investing in expanding our team there as well. In China, our team continues to focus on testing on the Donghai Bridge and the Yangshan Deepwater Port near Shanghai. As we shared with you in the past, this is a 20-mile bridge that connects the mainland to the world's busiest deep water container port. We believe this project has the most near-term commercial viability in China. The last pillar of our strategy is our go-to-market for the development of our Thomas Freight network. The coverage and density and efficiency of the ASN, we believe, is Two-Symbol's long-term competitive advantage. The size and coverage of the ASN comes from high-definition map routes and strategic terminal locations. Terminals are the starting and ending point of Thomas operations. Our technology can leverage terminals from our customers, strategic partners, and ones that we lease ourselves, thus enabling more coverage, better access to Thomas freight capacity, while being very capital efficient. We announced our Alliance Texas terminal opening in June. to support our new freight lanes, providing us prime access to the Texas Triangle that runs between Dallas, Houston, San Antonio, and Austin. The new Texas facility is located near a premier intermodal hub and will serve as a central logistics terminal to Dallas-Fort Worth area. In July, we entered into an agreement with Rider Systems that will accelerate our ASM Rider will supplement our existing network with dedicated terminal space for autonomous trucks, service and maintenance, roadside systems, and integration with Rider's existing transportation solutions. There's also strong potential for Rider's leasing and asset management services to better support our customers' needs. The relationship will offer Rider new and expanding revenue opportunities including its ability to leverage its financial resources to underwrite vehicle leases for our customers in the years to come. We're excited by the potential of our collaboration with Rider, and we'll continue with our strategy to expand the ASN ecosystem with best-in-class partners. Lastly, before handing off to Pat, I want to provide a brief update on the CFIUS review status. In terms of timing, our shareholders Sina Corp and TuSimple submitted a voluntary joint filing to the committee, and that filing is currently in the 45-day review phase. It is not uncommon for these reviews to move into the second phase, particularly for companies engaged in new technology areas like artificial intelligence. An additional phase, if that were to occur, would not be a definite signal of the ultimate outcome of the process. We were recently informed by CFIUS that the transaction being reviewed is the 2017 acquisition of U.S. assets of TuSimple LLC by TuSimple Cayman Limited. Additional information on the CFIUS process as well as some factual information regarding the 2017 transaction and our ownership is included in the 8 . At this stage, we're fully participating in the process with CFIUS and sharing information, but we cannot predict the outcome of the review at this time. We pride ourselves in being transparent and the level of vetting we have gone through as part of our private capital raises and our traditional IPO speaks to that. We will continue to provide record updates, and we look forward to the resolution of this process. With that, I'll now hand over the call to Pat to discuss our financial results and guidance.