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spk01: Good day and welcome to the Two Simple fourth quarter 2021 earnings conference call. All participants are now in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Keep in mind that this call is being recorded and there will be a replay available at ir.twosimple.com following this call. I would now like to turn the conference over to James Mann, Head of Investor Relations for Two Simple. Mr. Mann, please go ahead. Thank you, Lateef.
spk02: Good afternoon, everyone, and welcome to our fourth quarter 2021 earnings call. With us today are Two Simple's President and Chief Executive Officer, Chang Liu, and Chief Financial Officer, Pat Dillon. Chang and Pat will review the operating and financial highlights, and then we will take questions. As a reminder, two simple shareholder letter and a replay of this call will be available later today on our Investor Relations 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 four looking statements that are subject to risks and uncertainties. These four looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors. Please refer to the risk factors detailed in our SEC filing. 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 to comparable GAAP measures. I will now turn the call over to Chang to begin. Chang?
spk05: Thank you, James. Hello, everyone, and welcome to our fourth quarter earnings call. We have a lot of exciting developments to cover, so I'll dive right in. Since our founding in 2015, we've had a single vision of building the first-to-market, scalable, level-four autonomous trucking solution that would transform the freight industry. In December, we took a huge step in realizing our vision when our truck completed the world's first drive-route semi-truck run on open public roads in an 80-mile terminal-terminal route. This is a massive achievement for TuSimple and a huge milestone for the industry. Since then, we have further shown that our drive-around operations are repeatable. To date, we have successfully completed seven runs. The uncut videos of the seven completed runs are all available online. And to recap, this is on a real freight route covering over 80 miles. The route starts at a Union Pacific rail yard in Tucson and ends at a large distribution center in the Phoenix metro area, covering both surface streets and highways. There was no human beings in the vehicle, no teleoperation. Our autonomous driving system is in complete control of the vehicle during the entire time. The system was able to smoothly handle challenging driver situations, including emergency lane vehicles, cut-ins, non-compliant drivers, and construction zones. The truck is also able to enter into fail-safe operations should anything out of the ordinary happens. In fact, we did have one driver outrun that triggered a minimum risk condition or fail-safe operations due to equipment failure in the chase vehicle. The minimum risk condition was triggered by design. The vehicle came to a control stop and further proved our safety case. fixed the equipment issue, and completed six perfect continuous drive-out runs afterwards. As part of initial drive-out operations, we put three safety precautions in place, all of which we will aim to gradually remove to show that drive-out is scalable. First, we have a chase vehicle that follows and monitors the drive-out truck. The chase vehicle does not influence normal operations and only has the ability to put the drive-out truck into a fail safe mode as an extra layer of safety precaution. As we scale, the chase vehicle will be replaced by our centralized oversight system. Second, we have a survey vehicle that runs five to six miles ahead of our drive route truck. Given the distance, it does not impact operations or traffic, nor communicates with the drive route truck in any way. We expect to remove the survey vehicle from operations later this year. Lastly, There are Arizona state and local law enforcement that observed our driver out operations. The police vehicles are primarily unmarked cars and stay approximately half a mile behind the driver out vehicle. To ensure they do not interfere with traffic, they'll occasionally exit and re-enter the highway. We strongly value our collaboration and ongoing relationship with law enforcement. And going forward, we remain committed to working transparently with them and with regulators. We believe at TuSimple it is important to have these early safety precautions and to help to normalize driver out operations and to help to build trust with the general public. As I mentioned, we plan to systematically remove them as we scale up. So what is the significance of driver out? First, it is a clear proof of our technology leadership. Everyone in this industry is trying to create a driverless truck. Only TuSimple has been able to accomplish repeatable drive route operations on a real freight route on open public roads. In the autonomous driving world, big claims are common. With this achievement, not only are we the clear industry leader, but further show our track record of hitting milestones on time. Second, we are more confident than ever about our technology. Our previous guidance was that drive route program was a one to two month pilot. We're pleased to share that we expect to continue our driver out operations on a permanent basis. Furthermore, our driver operations will start expanding, including hauling freight for Union Pacific later this spring. Third, and most importantly, driver out was a zero in one moment. Driver out proves we are feature complete. which means our autonomous driving system has all the capabilities required for true driver operations along commercial routes, and that is able to safely mitigate or contain all the edge cases during operations. You cannot perform safe continuous driver operations on a commercial route without having all the capabilities developed. And so from here, We believe we have a clear pathway to commercialization in the next two years. From drive route to commercialization, the key words are optimization and scaling. In the freight industry, shippers and carriers care about two things, cost and level of service. To commercialize, it requires us to have continuous autonomous freight operations on high-volume routes at a competitive per-mile operating cost relative to that of manually driven trucks. Post-driver-out, commercialization is a linear progression that we can make step by step. With our driver-out runs as a starting point, we plan to scale the ODD and reduce autonomous operating costs, including removing all non-scalable operations. Later this year, we plan to add daytime runs, followed by expansion into new routes in Texas. We also expect to remove the survey and chase vehicles. By the end of 2023, our goal is to have a fleet of driver-out retrofitted semi-trucks that support continuous commercial freight operations. We expect to be hauling customer freight on multiple routes in the Texas Triangle and along the I-10. And we expect to have a clear line of sight on per-mile unit economics being lower than that of human-operated trucks. To date, no one in this industry has clearly defined what is the end point. And where are they relative to their endpoint? No one can clearly articulate the steps needed to reach commercialization or show evidence that those milestones are met. At TuSimple, we are doing just that. Over the coming quarters, you should expect to see us hit these visible milestones as we scale to commercialization. In summary for DriverOut, our technology has advanced significantly even from six months ago. Driver operations on one route is a step that any autonomous trucking technology company will need to take to reach commercialization. What made it even more challenging is the fact that we're working with prototype components in a retrofitted truck. Nevertheless, we accomplished this feat, and we believe our technology is ready to start scaling now, not years down the road, but today. This is a good segue to our hardware partnerships. We continue to have a very strong relationship with Trayton Group and its OEM brands, including Navistar and Scania. Navistar is a critical partner in our driver out program. They were with us every step of the way, helping us to develop our retrofitted trucks, providing insights as we develop our safety case, and supporting us with suppliers of critical components. We're excited to keep moving forward with Navistar as we scale our driver out operations. For our U.S. production truck program with Navistar, we have made tremendous progress in the supplier selection process, as well as setting a clear strategy for components where the supply base requires additional maturity. As a reminder, when we say maturity, we do not mean that hardware components require any type of advanced technology breakthroughs, but rather suppliers have to go through a process to have automotive-grade components that can support scaled production. This is critical because autonomous trucks sold to third-party customers require certification, aftermarket support, and warranties. We will continue to be proactive with the supply base to push forward the component-level development schedules. We'll also continue to work with Trayton and Navistar to continuously pressure test our production process and timeline. In Europe, we have successfully concluded our Phase 1 pilot program with Scania. We have conducted over 40,000 kilometers of autonomous operations along Sweden's main freight corridor. We believe this is the first of its kind in Europe, and together we have started to work on the next phase of our European partnership. This January, we announced our most significant efforts to address the supply base immaturity. We and our longtime partner, NVIDIA, are developing a proprietary autonomous domain controller, or ADC. The ADC is a powerful edge computing solution where all of the critical processing and decisions of our autonomous driving systems are made. The ADC is a proprietary design that incorporates NVIDIA's next-generation Orion system-on-a-chip hardware and TuSimple's autonomous driving software. While many in the autonomous driving industry are partnering with NVIDIA, This partnership is truly unique because we're not using an off-the-shelf integrated NVIDIA hardware or software solution. We're working directly with NVIDIA to match our system requirements to the ADC specifications, including how much compute is required, the type of operating system, and other onboard software and hardware requirements, the type of sensors the ADC can support, and so forth. No one knows our technology better than us. Being hands-on with the ADC development And vertically integration allows it to be better control of our timelines and allows us to build a better product. To our knowledge, we're the first and only player to take this bold step of developing an integrated and proprietary compute solution. And we believe it will create tremendous strategic advantage as we proceed to commercialization. Next, I'll give an update on the CFIUS process. I'm happy to share that we've made significant progress with CFIUS. We believe we're in the final stages of the process, and we believe that we'll come to a satisfactory outcome. With that, I'll turn the call over to Pat to discuss our financial results and guidance.
spk03: Thank you, Chang. Beginning with our reservation program, we added 100 new truck reservations this quarter, coming from two large trucking fleets. This brings our reservation total at quarter end to just under 7,000 trucks. After quarter end, we added two new reservation partners who reserved a combined 350 trucks. This brings our total reservations to 7,325 trucks as of today. Importantly, our reservation book is composed of a diverse group of major fleets and logistics players who are eager to implement our technology into their networks. We continue to hold high standards for reservations. We only work with partners capable of implementing our AV technology and those that are ready to make a financial commitment alongside their reservation. The continued additions of high-quality reservation partners, such as DHL, speaks to the broad-based demand for our technology. Now shifting gears to our financial results for the fourth quarter. We reported $2.1 million of revenue in the quarter, which increased nearly threefold versus the same period last year, and represents a 15% increase quarter over quarter. We reported $6.3 million in revenue for full year 2021, which also represents a roughly threefold increase year over year. While we received new semi-trucks towards the end of 2021, our revenue growth for the year was primarily driven by increasing asset utilization. Moving to expenses, we spent $82 million on total R&D in the quarter, including $22 million of SVC. This compares to $32 million in the same period last year. The R&D expense declined by 3% quarter over quarter, as certain discrete items in Q3 were not repeated in Q4. We spent $32 million on SG&A during the period, including $10 million of SBC. This compares to $10 million in the same period last year. Please note that we have changed our financial statement presentation to combine G&A and sales and marketing into a single SG&A line. Our net loss from operations was $116 million in the fourth quarter of 2021, and our net loss from operations was $411 million for full year 2021. Our adjusted EBITDA in the fourth quarter was negative $81 million, which compares to negative $38 million in the same period last year. For the full year 2021, our adjusted EBITDA loss was negative $279 million. The adjusted EBITDA loss reflects our sustained investment in our technology and commercial development. We invested $1 million in the purchase of property and equipment during the quarter, primarily related to equipment purchases and facility investment. We ended the quarter with a cash balance of over $1.3 billion. We remain very well capitalized to execute on our roadmap through 2024. Now to provide our full-year 2022 guidance. In 2022, we expect full-year revenue of $9 to $11 million. As Chang mentioned, we are prioritizing our resources to scale up our driver out operations. This means focusing a significant portion of our resources on automating dense routes in the Texas triangle area and using our own fleet of autonomous trucks. We will be less focused on adding human operated trucks or partner fleet capacity to our AFM this year. We also do not expect meaningful revenue contribution from our China operations during 2022. We expect a full year 2022 adjusted EBITDA loss of negative 400 to 420 million, reflecting continued investment in our technology and commercialization. The guidance includes our recently announced ADC development with NVIDIA, as well as costs related to scaling driver ad operations. We expect stock-based compensation expense for the year of 155 to 175 million, reflecting our investment in our team. and a philosophy of strong alignment between employees and shareholders. We expect purchases of property and equipment of 30 to 40 million for the full year. We expect to end the year with approximately 900 million in cash on the balance sheet. I'll now hand it back to Chang for a few last remarks.
spk05: Thank you, Brett. 2021 was an amazing year for TuSimple. At the beginning of the year, we started our IPO journey. We knew it was going to be critical to earn the trust of our investors And we're proud to say that we achieved all of our major goals during the first year as a public company, including the start of driver out. As we enter the new year, we're also entering a new phase of our development. Our pathway to commercialization is clear. We expect to continue to scale driver operations and lower autonomous driving operational costs to be the first to market with a commercially viable solution. We're proud of all we've accomplished in 2021, and we look forward to the new year. With that, we're ready to start the Q&A session.
spk01: Thank you. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Robbie Shanker of Morgan Stanley. Your line is open.
spk12: Thank you, Dr. Iban. Chang, obviously 2021 is a big year for you with the IPO and driver out. But I'm just wondering kind of how we can track your progress with milestones through 2022. Obviously, you've given us guidance, but guidance is kind of meaningless given where you are in the stage of your development right now. So anything in particular in terms of miles mapped or number of driver outruns or specific milestones we can use to track your progress through 2022?
spk05: That's a great question, Ravi. Well, we do expect to give more detailed milestone guidance in the coming quarters, especially during analyst day. But I think the way you think about it is what is the finish line or what is commercialization? And as I mentioned earlier, commercialization means that we can scale driver operations to have continuous driver out freight operations in a dense and on dense routes. So Texas triangle, the I-10. And more importantly, the cost per mile of operations has to be lower or clear line of sight lower than that of a human driver, right? That's how ultimately we provide a service or benefit to the shippers and carrier customers. And so I also mentioned that from drive route as a starting point, when you think about, I wouldn't think so much about sort of metrics or KPIs, but really the milestones that show us getting closer to that commercialization goal. So we'll show you, for instance, an additional drive route routes from nighttime driving to daytime driving. We'll intend to show you the cost of per mile operations and how that's going to scale over time. So, of course, today we do have some safety precautions that we talked about. As we remove those things, the cost will come down. As we optimize our features, optimize data usage, the cost will come down. So those are things that we do intend to lay out in a much more easy to understand way. But at a very high level, you know, today from driver out, there really is a clear path. There's things that we can check off one by one to show you. And more importantly, we can show you where we are on that path into commercialization. So hopefully that answers your question a little bit better. But more to come. But really think of this as where is it we're trying to go? Because even if we give you numbers, like, for instance, number of miles, right, or disengagement or something before, what does that really mean? How do you know? how far we are to commercialization, right? And that's, I think, the problem the industry has today. And I think what we're saying now and what we're laying down in terms of our path to commercialization is a much better way to frame where we are and where we need to go.
spk12: Great. That does make a lot of sense. And maybe as a follow-up, clearly it sounds like your seven driver outruns were successful in and kind of no nasty surprises or anything, but can you just share with us if there were any kind of manageable surprises or any learnings from these seven runs that you've kind of changed the way you either do the runs or tweak your algorithm or change your hardware, kind of any specific incremental learnings from any of these seven runs? Thank you.
spk05: Yes. I mean, there's a lot of learnings we have from the runs. A lot of them are built in. I mean, I wouldn't call them surprises, but really the next set of developments, optimization improvements that we're going to do. And as I mentioned, we have a clear path to commercialization. So from here on, there are these clear milestones that we intend to achieve over the coming quarters. You know, I think the biggest takeaway for us was we felt actually even more confident about And really, you know, huge credit to our technology team, our operations team. But we feel so confident that the previous guidance we gave was driver out would be sort of a one- to two-month pilot program. And now we intend to scale this and to make this a permanent part of our operations. So I think that's something that really is a very positive development for TuSimple. Great. Thank you.
spk01: Thank you. Our next question comes from Brian Ostenbeck of J.P. Morgan. Your line is open. Hey, good afternoon.
spk09: Thanks for taking the questions. Ching, just to follow up on that and the path to commercialization, you basically said that you're ready to scale now. So excuse me, just wanted to make sure we understood what that was in the context of it. It sounds like, correct me if I'm wrong, but it sounds like you're scaling into further driver out demonstrations in certain ODDs in certain areas, at least here in the near term. But maybe putting that aside, is there anything left technically that you feel like needs to be handled and figured out and tested before you were able to really scale? So I just wanted to really understand the difference between the scaling you're working on now and just kind of the broader end game, as it were.
spk05: Yeah. There's scaling to commercialization, right, which ultimately is critical. No one's been able to clearly articulate what is commercialization and how we get there. So it's going back to kind of what Ravi asked, and we can give you a lot of metrics, but really how does that tell you where we are, right? And so we planted a flagpole of what does it mean to commercialize. In the freight industry, you know very well it's cost, and level of service or reliability uptime, right? So we have to have continuous operations with our autonomous trucks. We have to have them in high-density routes, and we have to be able to show a pathway on a per-mile cost that's lower than a human-operated truck. Otherwise, why would shippers or carriers use this technology? So when we say scaling, And going back to your question about what is left to develop technically, to be able to demonstrate driver-out operations repeatably, we do believe that we are feature-complete. And when we define feature-complete, it means that we have all the capabilities of operating a vehicle from terminal to terminal on a commercial route. And if you look at most commercial routes, they're quite the same. And so, for instance, we can't do driver-out operations if our truck isn't able to handle emergency lane vehicles, right? I mean, who's going to take over when you run into an emergency lane vehicle? I think in our 550 miles of drive route runs, those 36 emergency lane vehicles, you know, your truck has to be able to be defensive driving and be able to adhere to non-compliant drivers. And so those are additional features we built in. So really today we are future complete. We're also able to mitigate, I think what gives comfort is being able to mitigate or contain all the edge cases that you can encounter on a route. So from that standpoint, that is already significant technology development. And when we say scaling, we believe that it's more of a linear progression, as we mentioned earlier in the prepared remarks. we can show you that systematically. We can show you that from step-by-step. We don't see that as any sort of technical hurdles, but these are, it takes capital, it takes manpower, and it takes engineering work, but we'll be able to show these things to you.
spk09: Okay. This is a follow-up. You mentioned the CFIUS process. They didn't give too much detail behind it. I don't know if there's anything else you can share in terms of, you know, what, I guess, what is an acceptable outcome and maybe something on the timing. And then I think Pat mentioned that your China operations aren't really going to have too much of a contribution here in 2022, at least. So maybe just update on where that stands, if anything's changed on the strategy or how you see that operation going forward. Thank you.
spk05: On CFIUS, We want to say a lot, but unfortunately we cannot at this time. But just to iterate, our belief is that we'll come to a satisfactory outcome for TuSimple, and we're near the final stages. So unfortunately we cannot talk more, but when we do, of course we'll be able to share and we'll have to file an 8K around the details. In terms of China, as Pat mentioned, we do not – We do not see China having meaningful revenue contribution this year. That doesn't mean that our China strategy isn't sound. We do believe that our strategy in China is sound. We've always said that China has regulatory risk, just given that today autonomous trucking for pure level four is still permit by permit, sort of lane by lane. We have what we believe the best project to commercialize in near term in China, which is the Shanghai Deepwater Seaport. And that's too simple. We're always pressure testing and optimizing our resources to make sure we have the highest ROI and value to our shareholders. So today the U.S. will be first commercialized. But at the same time, we want to ensure that we have upside to our shareholders of when China does take off. I mean, after all, it is the second largest freight market in the world. It's growing very fast.
spk01: All right. Thank you, Chang. Thank you. Our next question comes from Raji Gill of Needham & Company. Your line is open.
spk10: Yes, thanks, and congratulations on the driver out program. That's a great validation of the technology. So, Pat, just wanted to talk a little bit about the fiscal year 22 guidance of 9 to 11 million. You mentioned that you're prioritizing resources for your driver out programs, focusing on those instead of partnership capacity to AFN. Wondering if you could elaborate a little bit further on that decision to prioritize the driver out programs. And within that context, when we're thinking about going from six million to 10 million, What are the revenue growth drivers to get it from 6 to 10? Thank you.
spk03: Great. Thanks, Raji. You know, when you think about what our revenue operations, what the strategic goals are, it's really around first supporting our technology development in real-world great conditions, and then also to develop and maintain our long-term commercial partnerships with customers who are going to implement our technology over the long term. For us, as you said, there are different components of it. Where we see the highest ROI is really around the AV operations, both scaling the driver out operations as well as continuing to scale AV operations with the safety driver behind the wheel. This is actually what our customers have told us as well. This is where they want us to focus. They want to be able to participate in the technology and have us haul freight for them using AV technology. And that is a bigger priority versus more manual freight. We do retain a lot of strategic flexibility to add either more of our own human-operated trucks or more partner freight. And we will, whenever the time is right or whenever it's strategically advantageous, we can pull some of those levers to do so. But trying to be as capital efficient and focus on what's most important to drive value, we think it's really around the AV operations today. And our customers have validated that, too, that that's where they want us to be focusing our time and making sure that we're getting them more AV miles as opposed to more manual miles hauling freight for them. The guide from kind of 6 to 10 million at the midpoint, it's really a function of the number of trucks that we have in our commercial operations and the utilization of those trucks. So we did add more trucks at the end of the year here. You'll see in our letter we have approximately 100 trucks globally, about 75 of those. are in the US and roughly half of those trucks are dedicated to commercial operations. So we're adding more trucks to the count and we're increasing the utilization of those trucks, notwithstanding some of the challenging market conditions around hiring drivers and dealing with some of the pandemic related outages where we've had to have drivers who have taken time off due to COVID restrictions. You know, hopefully that gives you a little bit of the building blocks around how we go from six to ten.
spk10: Yeah, that's really helpful. And for my follow-up, when you're thinking about over the next two to three years and kind of getting to that kind of billion-dollar number when you're kind of fully commercializing these trucks, these autonomous trucks, I know, Chang, you had mentioned that, you know, in expanding in Texas and elsewhere are going to be major kind of proof points to validate that you guys can scale and commercialize driver out technology. I'm wondering what you've completed in December, what you intend to complete this year and your focus on that, how that will help. You know, either potentially accelerate, you know, the transition to your, you know, to that two-year kind of commercialization. Will it reinforce it? I'm curious to see how you're thinking about the drive route programs now and when you're thinking about it, you know, during the IPO process or prior to that and kind of bridging the gap there. Hopefully that makes sense. Thank you.
spk05: Yeah, no, good question. For us, after driver out completion, um, you know, again, we, we did this not because we want to hit a timeline. We did this because you felt it was safe and we're ready. Uh, we truly believe that, uh, more confidence that we can actually pull forward commercialization despite you're not having a serious production trucks. We're having integrated trucks on the market yet. And again, We define commercialization, you know, there's kind of many definitions of it, right? Is it, are you selling it to third party? Are you, how many are you selling it to, right? How many trucks do you need to be commercialized? But for us, commercialization ultimately is the ability to provide a reliable autonomous freight service to shippers. And from commercialization to series production is something that we'll continue to do with our partners, Trayton, Avastar, Scania. And that's something that requires production-ready parts, warranty, services, certification. You know, that's going to continue, and that's how you get even more trucks onto the network, like tens of thousands. So at a very high level, really it hasn't. change at all. I think anything we pull forward, one we believe will commercialize and be able to show you. And now we're actually giving you more detail about the roadmap to commercialize over the next two years. And we'll continue to give you more detail over the coming months. So please stay tuned.
spk10: Got it. If I could just squeeze in one more question. You mentioned that you're developing a proprietary ADC custom chip with NVIDIA and kind of working hand-in-hand with that, with NVIDIA. Can you discuss the rationale of working closely with NVIDIA, making sure that your software can run on their own SOC processor? What was the rationale for that? And how do you feel that differentiates your technology versus other self-driving technologies or other approaches to the market? Thanks.
spk05: Sure. maybe to use some examples or situations that we're facing. So today we look in the markets, there's not a readily available or even a clear path of an ADC product that has the amount of computational power that our system requires. And so that's one of the benefits of being vertically integrated and working with NVIDIA. We can have a design that has the right number of ORIEN, that allows us to have enough computational power to operate our virtual driver software application layer. You know, we have to ensure that the ADC can take in all the sensor inputs that support our autonomous driving system. The ADC is not just our software and their hardware, but there's also other software and chips on the ADC. And so what are those? What are the requirements? Does that fit with our system or not? You know, those are designs that we now have ability to make, rather than if you have this being built by, for instance, a tier one supplier, of course, their goal is to have scale, right? You're taking requirements from everyone. One small change will take a long time. And so that delays when ADC comes to market. And also, it creates a lot of uncertainty whether or not this component or this ADC can meet the requirements of our autonomous driving software. So For those reasons, this ADC is really geared towards ensuring that we have serious production as soon as possible. And I think it was a step that we felt that we needed to take.
spk01: Thank you. Our next question comes from Dan Levy of Credit Suisse. Your line is open.
spk08: Hi. Good evening. Thank you for taking the questions. First, I want to ask about just the capital requirements over the next couple of years. Pat, I think you made a comment that the IPO proceeds are enough to carry you to commercialization in 2024. Maybe you can just unpack that. And has the driver out pilot changed your view on the cost or the capital outlay required to reach commercialization? Maybe you could just give us a flavor for that. As you continue to work up just how much more capital intense this gets, if this is any different from what you previously expected.
spk03: Good question, Dan. I think there's no material deviation from what we've been saying on our capital deployment plan for the next three years. We feel very fortunate to have the kind of balance sheet that we have where we are fully capitalized on our base plan. um and we you know feel very confident in our capital efficiency and our ability to get through to 2024 uh commercialization uh with the capital that we have on the balance sheet today okay so capital is not a constraint for you in your path to commercialization no no i mean we we're very focused on being capital efficient but i think You should interpret from our remarks that we are proceeding full speed ahead on the development of the technology and commercialization and very confident that the balance sheet we have today will get us through to commercialization in 2024.
spk08: Got it. Thank you. And then I'd like to follow up on some of the prior questions on driver out. If we could just maybe focus on this one Tucson to Phoenix route and give us a flavor. I know you said you're going to give us more details in the future, but give us a flavor of what we can extrapolate to future commercialization, and more specifically, between where you are today to what you would ultimately need for commercialization, showing that it's continuous, that it's lower cost, what would be the remaining items that you would need to complete on this route to show that, hey, a route like this, which you said technologically is already feature-complete, you know, that that's ready for commercialization? I know the vehicle plays into it, but maybe you could unpack, you know, what we could extrapolate from that to commercialization.
spk05: Yeah, great question. So commercialization is uptime, level of service for the shippers, and cost. So level of service, right, we can't only be hauling freight at nighttime, although nighttime is where freight gets hauled and moved quite the most. So daytime, for instance, that's something that we can demonstrate or demonstrate next. We also need to have more continuous operations, and that's a function of actually hardened hardware, so better hardware, as well as optimization of the operations so that the turnaround time is fast. I mean, we demonstrated it. the ability to do back-to-back operations, drive-out runs on the same night. And, of course, we have to increase the number of those. In terms of cost, we are technically future complete. There are these safety precautions that we put in place. So, for instance, a survey vehicle. I mean, we can turn that survey vehicle, if you have 30 trucks on one route, those 30 trucks all become service vehicles of each other. So that's something that naturally will go away, and we can show that to you over the next coming quarters. We had a chase vehicle. We'll have to remove that as part of our centralized oversight system. So that's in the works now, but that's not something that, again, technically we cannot achieve. So if you think along the framework of scaling means expanding the the operational design domain. So daytime, nighttime, new routes, uptime, and then also cost, right? Because everything comes down to cost. If you can get from point A to point B on a per mile basis to have a clear line site that is lower than human driven truck, then that becomes a real service, a real product. So in that cost is these operational items, these non-scalable operational items, and and it kind of anything associated with that so That's really comes to optimizing the technology the features more and in doing away with some of these non-scalable items But let me today think about it. We have optimized one route Automized sorry optimized automated one routes and this is a truly a a commercial routes, you know, and this route alone can generate significant revenue. And actually, in a way, for trucking, density is our friend. Actually, the more dense routes, because we put more trucks on them, that updates the maps faster, that becomes a fleet of service vehicles for each other, like that becomes our friend. And so, you know, that allows us to really commercialize.
spk01: Thank you. Our next question comes from Alex Potter of Piper Sandler. Your line is open.
spk15: Great. Thanks, guys. I have two hardware-related questions. So the first one, I think I can understand the strategic rationale and the benefits regarding, I guess, pace, speed to market with regard to vertical integration and the partnership with NVIDIA. Are there any other areas... hardware specifically where you're seeing bottlenecks in the supply chain or things that you just can't buy off the shelf that you feel like you need to take, I guess, more, devote more time and energy to in-house designs? Or is that just on the controller and other than that you can more or less farm everything else out?
spk05: Yeah, good question. It's primarily a controller. For other sensors and components, we do see either a clear line of sight or actually many, many suppliers working towards that problem. Like, for instance, LiDAR. I mean, there's plenty of well-capitalized LiDAR companies now that are working towards, between startups and tier ones, that are working towards building production-ready LiDAR solutions. So we feel good about that, even though today it's not something that's readily available in terms of production solutions. You know cameras and and radars and GPS units those are pretty easy and in the braking and steering components The large tier ones are working on that. There's a clear role map on when the next generation Components are coming out and we feel good about that right. It's not something that hasn't been developed before it's just an iteration of of a generation of new hardware. So we feel generally pretty good about those things. So, yeah, no, just to summarize, I mean, I think the compute is something that's unique to level four driving because only we need something this powerful and also has to be quite tailor-made to simple solution just because it's where the application layer sits in. So really that's the main one that we feel vertical integration is the most important.
spk15: Okay, great. Very helpful. And then the last question is just on, I guess, the timing of finalization for the bill of materials. I know that this compute platform and a lot of these other components that we're talking about, you know, next gen versions coming available, all of that will play into the ultimate timing. But how long do you think it'll be before you can set that design in stone and send it over to Navistar?
spk05: What we – I mean, we're continuing to evaluate the supply base. What we gave guidance was that we'll look to set the bill of materials in spring of 2022, and so that's part of our production process. You know, I think we'll definitely have more details in the coming month. And I think two things to take away. Right now, working with non-production-ready components actually puts more onerous on the software. So we're actually, I would say, doing more work, more development than we might need to otherwise. So I think the path actually gets easier from here, not harder. I think that's point number one. And then point number two is that we're proactively taking steps to address the supply chain maturity. We're not making, we're not using this as excuse, but we're really taking steps to address it. Of course, the ADC being one of the proof points. Next question.
spk01: Our next question comes from Joseph Speck of RBC Capital Markets.
spk16: Thanks, everyone. I guess one near term on the guidance and one longer term. The 22 revenue guidance, I mean, it's basically at the run rate you're currently at. But you mentioned you plan on adding trucks. I think you said you have 75 trucks. in the U.S., but it sounds like maybe only half of those are running. So maybe you could sort of help us with that a little bit and what you expect the trucks running to be at by the end of the year. And then on the EBITDA loss, it's about 25%, 26% worse than the current run rate. And I heard you talk about some of the investment with NVIDIA, and I know you're hiring engineers, but maybe you could help us a little bit breaking down that additional cost for next year.
spk03: Yeah, sure. So we will continue to see the revenue run rate on a quarterly basis increase throughout the course of 2022. So the trucks that we've mentioned that are coming in, some of which are being upfitted for AV, including the commercial operations trucks, those will be placed into service and start to generate more revenue every quarter. So we continue to see a steady ramp in the revenue base throughout 2022. With respect to the EBITDA loss, there's a couple things at play here. One is just full year impact of some of the hiring that we made throughout the course of 2021. 2021 was a year where we did add significantly to our team. And as a reminder, over half of our Our cash cost is really around compensation for our team. So you're starting to see a lapping effect of the full year impact of some of those hires. We'll continue to add new hires to the team this year. I think 21 was probably, when you think about the rate of growth and the absolute number of hires for the year, was probably more significant than where the hiring will be for 2022 because we have hit a critical mass. We'll continue to add and selectively where we need to to add to the team. And then the items that you mentioned, like the ADC project, as well as just concentrating our efforts around expanding the driver out operations so that we can scale those to commercialization through the year.
spk16: Okay, thank you. In the letter, you made mention of some of the mapping team enhancements and the technology and getting maps to update quicker and be more robust as you get ready for commercialization. I mean, without, I guess, getting too technical, can you help us understand what that means? Are you automating that process so that you have the ability to scale and map routes quicker than prior? How does that sort of really play into the story here?
spk03: Yeah. I think when you think about where the mapping technology is going, it is to some extent about mapping new routes faster, although we do that very quickly already. Really where a lot of our technology is going is the updating of the maps so that every time one of our trucks travels a particular route, if there's a new element that we're able to almost instantaneously update the map and send the updates to the map to any truck that's following on that same route behind us. So as you mentioned, or as Chang mentioned earlier, we're going to be removing the survey vehicle from our drive route operations this year and having the quicker map updates so that if there is a pop-up construction zone or some other element of the road which was previously mapped has changed, that we can efficiently push that update to any truck that comes behind it for the next route. So it's really critical to making the technology and our drive route operations more scalable, and that's where you've heard us talk for several quarters now about some of our investments in mapping, and it's really starting to pay off in terms of making this scalable and a critical piece of getting to commercialization.
spk01: Thank you. Our next question comes from Colin Rush of Oppenheimer. Your line is open.
spk14: Thanks so much, guys. Can you talk about your progress in terms of integrating or potentially replacing some of the existing logistics and workflow solutions that are out there?
spk05: Could you be a little bit more specific?
spk14: Yeah, I mean, I'm just looking at, you know, with these fleets that already have existing solutions around, you know, managing logistics and workflow, and as you move towards commercialization. It's not just around the hardware and the functionality of the vehicles, but really having your system integrate with the existing programs that you're going to be integrating into with some of these clients. I just want to get a sense of how far along you guys are in that process.
spk05: That's a good question. I think it's too simple. We're the first, and we've always said that Ultimately, what we're developing is a solution that has to integrate, a holistic solution that integrates into our partners' supply chain, right, in order to make it more efficient for them. And so they can provide a better end-to-end logistics solution. Because ultimately, that's where everybody wants to go, is providing that best end-to-end logistics solution for their customers. And we, integration of our system into their TMS is a process. That is why we have reservation partners today. because really it's not just collecting truck count, but starting that integration process. If you reflect on 2021, we have over 160,000 miles, actually now more than that, of autonomous miles driven with UPS. So again, really getting deep into their supply chain and integrating with their service. We're starting to haul freight for Union Pacific, How do we integrate with the railroad and help improve or expand their service? We have great partners on traditional truckload carriers. We have partners, of course, parcel with UPS and DHL. So to really answer your question, that's absolutely what we're doing today. And that's where we see diversity. the highest ROI in terms of our resources is ensuring that we can have more of our trucks working with these strategic partners to go deeper with them, to integrate with them. And I think that also creates a bearish entry for latecomers.
spk14: That's super helpful. And then the second question is really around, you know, the significance of the driver out. testing for your learning cycles and the cadence of those learning cycles. Obviously, it's still early days, and you've got your plan that you've laid out for us. But I'm just wondering, in these early runs, if you're starting to get a sense of just how accelerated the learning cycle is for you and some of the things that you're starting to see that you're going to have to solve, but also bringing this to market and the pace of that for the organizations.
spk05: Yes, and I think you hit the word, the significance of driver out. And I think what's important for us to keep saying is that driver out is not a demo. It's not a shiny object that happened once. And driver out is significant because we can now show you from driver out what is the linear roadmap to getting to commercialization. And that's something that no other a Thomas driving company can do today. Where's the end and where are we relative to the end? So that beats any sort of metrics that we can share with you, number of miles driven and number of trucks. I mean, all these things, again, are nice metrics, but how do you know where you are relative to the endpoint? And that's something that I think today we have a marker of continuous drive route operations on one route And this is where we need to go in terms of commercialization. So I think in terms of significance, too, it took us six years as a company to get to driver operations on one route. So if we scale now, of course, the time, the development cycle gets shorter and shorter. I mean, ultimately, what is it we're trying to do? We're trying to automate more lanes. and deliver freight and enable freight capacity to our shippers, right? So as we show you that we can automate more lanes faster than six years, we definitely will be. As we show you that we can expand the operational design domain, as we show you that the cost on a per mile basis will come down. I mean, all those things should give confidence that development cycle is being shorter and that we're closer to commercialization at a reasonable scale.
spk01: Thank you. Our next question comes from George Gianaricas of Baird. Your line is open.
spk07: Hi. Good evening, everyone. I guess you mentioned on the call and in your prepared remarks that the development roadmap is linear, and you hired a 10% sequential increase in R&D personnel. Can you just sort of explain to us what the over 1,000 people in R&D are working on incrementally, and you have the NVIDIA co-development, but what are the incremental problems that your R&D team is working on over the next couple of years?
spk05: Well, I think this goes back to, I mean, there's still, this is a very long answer, but it still goes back to there's still a lot of engineering work If you start from drive route to optimize the features, which we have completed, to do daytime operations, to do a new route in Texas Triangle, to do more than one route in Texas Triangle. There's engineering work to update, you know, to have mapping as a more live process. Update so that every truck can they become a service vehicle for each other right and as you have more trucks on the same routes That's hauling freight then actually that makes it safer for the whole the whole route that we're automating So there's still a ton of work. Of course. There's just work on the hardware side of our production vehicles with Trayton Navistar There's just work that we're doing with different suppliers in terms of partnerships of working with them and requirements and testing those components and So, really, the list can go on, but I think when we say linear, it's that, again, going back to driver route is significant because from here we can show you what are the steps required to get to commercialization. And as we check each one off, that should give you more confidence that we're closer and closer to commercialization. And, again, today we look at the whole industry, how do you get confidence that, people are moving closer to commercialization. How do you get confidence of where is commercialization and where people are relative to that goal? And I think that's really the significance of this driver operations.
spk07: Got it. And one more on your patents. You guys have done a good job of every quarter outlining your total patents issued and the sequential growth. How core are those to your long-term competitive advantage relative to the other companies in your industry?
spk05: Yeah, it's going to be critical. And, I mean, this is not something that's new to autonomous driving. If you look across the mobile sort of telephone, right, cell phones, telecom, electric vehicles, I mean, you get to a certain point in maturity where you do have patents, infringements, you have patent cores. I mean, you have companies being sold off for the patents that they own, right? So today is not something that shows up in terms of the company advantage, but fast forward three years, five years, it will definitely be a huge advantage for TuSimple.
spk01: Thank you. Our next question comes from Todd Fowler of KeyBank Capital. Your line is open.
spk06: Great. Thanks, and good evening. So I wanted to ask on the reservations, and I know that these can be a bit lumpy, but it seems like there was a nice couple of orders that came in early this year. Chang, do you think that that's a reflection of the success of the drive route runs that you've had? And can you maybe speak to the interest level that you've seen post-drive route at this point?
spk05: Yeah. I mean, absolutely. Because the drive route is significant. It's a real proof point of where we are to commercialization. It's also, you know, interesting because now you have, now people start thinking about what is, what is a Thomas trucks can do for the industry, right? You have players that historically, you know, aren't in trucking now get into trucking. Potentially you have players that can leverage Tommy to expand their business. So, so now I think also creates a little bit of competitive dynamic among different different types of carriers and shippers. So all those, and of course, lastly, is the supply chain. I mean, the driver shortage is getting significantly worse. You're seeing labor costs going higher. You're seeing fuel costs rising really fast. So I think those confluence of factors are leading to interest. I mean, interest is always there, but certainly we're seeing even more interest now.
spk06: Yeah, no, that certainly makes sense. And I guess just for my follow-up, you know, Pat, I'm not sure if you want to share any color around the potential cadence of EVA-DA throughout the year, throughout 22. And I guess what I'm really kind of curious about is as we exit 22, you know, was your expectation that the EVA-DA losses would start to narrow as we exit the year, or is it pretty consistent with an even run rate with your guidance? Thanks. Thanks.
spk03: Yeah, I think you'll see some modest increase in the EBITDA losses as we progress through the quarters in 2022. That's because we will continue to hire folks, and that'll increase the labor base that drives a meaningful percentage of the EBITDA loss. But I do think what you'll see is consistent with 2021 being a big hiring year and 2022 being more selective to fill out specific spots on the team, you'll see a deceleration in the losses. They'll continue to grow, but the second derivative will be, I think, indicative of the fact that we are hitting a critical mass on this and pushing forward towards these final stages of development over the next few years as we get towards commercialization.
spk01: Thank you. Our next question comes from Ken Hoekstra of Bank of America. Please go ahead.
spk13: Hey, good afternoon, Cheng and Pat. Congrats on the driver out ramp. Can you talk about the scaling, though? I mean, you mentioned the number of trucks. You've got 100 trucks in the fleet globally. But last quarter, you talked about Navistar having delays. Can you talk about where that stands now, what we should expect to come online? And it sounds like are you putting them all toward the commercial development? Is there still Are you still scaling up the driver-filled seats? I just want to understand the size and scale we should look for.
spk03: I think we'll probably have roughly still this 50-50 split in the U.S. between trucks that are dedicated entirely to testing and technology development and the other half. hauling freight commercially. I would say the penetration of autonomy within our commercial fleet is continuing to increase, which is important. That's what our customers are really demanding is freight capacity, but increasingly they want more autonomous freight capacity so that they can participate in the technology development. So the penetration is continuing to increase. including being able to do driver-out operations commercially, which is what we announced around our Union Pacific partnership, which will start this spring hauling freight for them on a driver-out basis. So you'll see more trucks coming online over the course of the first part of this year, and that will show up in the cadence of the revenue ramp throughout the year.
spk13: And is there a relation to the delay last year in terms of getting the physical equipment? Can you update on that? Finding that the trucks should arrive?
spk03: Yeah, the trucks have arrived, you know, roughly 20-plus new trucks that have arrived. Some of those are going through the upfit process right now to get fitted for AV equipment. Some are being placed into service for both commercial and testing operations. So we're starting to see that. relief. Hiring drivers is still challenging. I think, as you know, from the ecosystem, this continues to be extremely challenging. But we're able to, you know, I think we've been able to be successful in bringing in drivers and, you know, making sure that all of our trucks are seated. But it is certainly a, you know, a tight labor market, which obviously makes it difficult in the near term for us. But just further underscores the need for our technology over the long term.
spk01: Thank you. Our next question comes from Scott Group of Wolf Research. Your line is open.
spk04: Hey, thanks. Good evening, guys. I apologize if I missed this. Is there any driver out plan for a new route or a different route this year?
spk05: Scott, we haven't shared exact details, but that is something that we expect to get more guidance in the coming months.
spk04: Okay. And then just bigger picture, if I think about 2025 or so, how have your assumptions evolved from a year ago when you think about number of trucks, miles per truck, rate per mile? Where are you getting that? more optimistic about 2025, or are you getting less optimistic about 2025? And if you have a different year you want to talk about, that's fine.
spk05: Yeah, I mean, I think directionally, the rate per mile looks like it's going up. And, you know, can't predict the future, but I think trends are going higher. I think in terms of, you know, number of trucks, you know, that is our series production. As we said, we have to have integrated trucks with our OEM partners in order to get to thousands and tens of thousands. One of the risks that we have identified more and more of over the last year is the supply-based maturity. Of course, we're taking active steps to address that. We feel confident about our strategy. So that's something that we continue to pressure test the timeline, and we'll have more updates on that as our production program with Navistar naturally runs its course. Well, no, I mean, I think if anything, again, as you mentioned in an earlier call, we are pulling forward commercialization. You know, I think end of 2023 in terms of actually be able to have a continuous autonomous freight service for customers on dense routes, that's something that we actually feel more, even more confident of today compared to a year ago.
spk01: Thank you. Our next question comes from Jeff Osborne of Cohen and Company. Your line is open.
spk11: Hey, great. Good evening. I just had one question. I was curious if you could touch on, Chang, some of the things that you can't control. You've done a great job on the call talking about the things you can control, but in particular, insurance, any update on the Liberty Mutual Partnership and any new developments on the regulatory side that we should be aware of would be great to hear.
spk05: No, no, no. On the regulatory side, there hasn't been material changes, nothing, I think, to signal a change in regulation. I think, actually, the continued rhetoric and messaging from the federal and state governments have been positive for autonomous trucking, especially given how supply chain is today and the driver shortage is getting, I think, worse and worse. I think, you know, I think, obviously, the supply chain is something that we need to do more to control. No, I mean, I think generally speaking, we feel like given the team that we have, given the capital that we have, the partners that we have, and where we are in technology development, really the fact that we could do driver out continuously means that things are in our control, right? And this is not a, like I said a year ago, this is not about tech stock, right? This is not a zero and one. Hey, maybe it works, maybe it doesn't work. Today it works. And now we're scaling to commercialization through expanding ODD and optimizing the cost.
spk11: Got it. Thank you.
spk01: Thank you. This does conclude today's conference call. Thank you for participating. You may now disconnect.
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