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spk00: Good day. My name is Stacey, and I will be your conference facilitator. I would like to welcome everyone to AVA Technology's second quarter 2022 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference call is being recorded and spontaneously webcast. I will now turn the call over to Andrew Fung, Director of Investor Relations. Andrew, please go ahead.
spk06: Thank you and welcome everyone to Ava's second quarter 2022 earnings conference call. Joining on the call today are Soroush Salahian, Ava's co-founder and CEO, and Saurabh Sinha, Ava's CFO. Ahead of this call, we issued our second quarter press release and presentation, which we will refer to today and can be found on our investor relations website at investors.ava.com. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our Form 10-Q for the quarter ended March 31st, 2022. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of AVIS performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. The webcast replay of this call will be available on our company website under the investor relations link. With that, let me turn the call over to Soroush.
spk02: Thank you, Andrew, and good afternoon, everyone. Q2 was a pivotal quarter at Ava as we achieved a major milestone on the path towards the production of our next generation 4D LiDAR technology. I'm excited to highlight that and a few of our other accomplishments starting with slide five. First, we began deliveries of Ares II units to our strategic customers on time and according to the objectives we set out at the beginning of this year. This is a significant milestone, not only for AVA, but also for the industry, as this is the first time an FMCW 4D LiDAR with a combination of high performance and automotive reliability is commercially available.
spk05: Second, with the commercial launch of Ares II, seeing stronger traction in the market.
spk02: We believe ARIES II offers a combination of performance and level of maturity that OEMs have been looking for, enabling us to advance to the next phase of development with our strategic customers and progress forward on a number of other engagements across automotive and industrial automation. Third, we are excited to announce a multi-year strategic collaboration with SICK AG, a leader in sensing solutions for industrial automation, to deploy 4D LiDAR for a broad range of industrial sensing applications. SICK selected AVUS 4D LiDAR due to the unique performance capabilities enabled by our FMCW technology that address specific challenges limiting 3D LiDAR and cameras today. This collaboration is a first indication of the market demand for ARIES II and further solidified our expansion into industrial automation with the start of production targeted in 2024. And fourth, we continue to apply a strategic and deliberate approach to how we invest our capital and resources, which has enabled us to reach crucial milestones towards production and expand our commercial momentum while maintaining strong discipline on capital allocation. Moving now to slide seven, I would like to provide more color on key business development over the past quarter. Let's start with ARIES II. The start of ARIES II delivery is a significant achievement that represents five years of development of AVA's FMCW technology. With up to 500 meters of range, instant velocity detection, and camera level resolution, we're excited to demonstrate to more customers how ARES II can unlock new levels of automation and machine perception across automotive and industrial applications. Encouraged by the strong demand for ARES II, we are focused on scaling up manufacturing. Along with this, we continue to work towards our ultimate goal to bring 4D LiDAR to production. ARES II defines the final architecture for our first production programs and we anticipate completing the next phase of qualification work with strategic customers over the next nine to 12 months. Turning to slide nine, I want to provide an update on the substantial progress we have made towards our cost targets. From the very beginning at ABAP, we took a different approach to perception with our FMCW LiDAR on chip technology, with the understanding that achieving low cost and scalability are just as critical as delivering high performance to enabling wide adoption. This is why we have designed a proprietary silicon photonic chip module, which integrates all of the key optical elements of LiDAR sensing onto the single chip module and significantly reduces the number of components within the system. To our knowledge, AVA remains the only company to have successfully achieved this level of integration and performance to date. ARIES II utilizes our third generation LiDAR on-chip module, which has helped us drive over 55% reduction in total system costs from our A sample. It reflects our focus on scalability and cost that goes deep into the individual component level. For example, high performance LiDARs on the market today often use costly fiber-based lasers that are prone to lower yields and poor durability. In contrast, AWOS approach removes all fiber optics from our system due to our proprietary FMCW approach, which lowers costs and we believe is a game changer for reliability and the durability of any LiDAR system. Integration of the core components onto a silicon chip platform results in a much simplified and highly automated assembly process. This removes the need for active alignment at the system level, reducing the overall complexity and cost for manufacturing. From here, our focus will be on the integration of our final components and the bring-up of production processes to achieve our cost targets. Moving to slide 10, we have spoken before about the growing consensus among customers that FMCW LiDAR's differentiated capabilities can enable new levels of automation not achievable with legacy technologies. With ARES II, our engagements are simultaneously solidifying and broadening. We are engaged on a number of programs that span across applications in passenger and mobility vehicles, commercial vehicles, as well as industrial automation, targeting between the 2024 to 2026 timeframe. Based on our progress, we anticipate ARES II evaluations to drive a growing number of additional programs towards production over the next 12 months. Now let's move to slide 11, which highlights a new strategic collaboration that solidifies AVA's expansion into industrial automation. We are thrilled that SICK has decided to partner with AVA to bring 4D LiDAR to the industrial sensing applications. Headquartered in Germany, SICK is a global leader in logistics, factory, and process automation technology, with major global accounts across a diverse mix of industries, driving around 2 billion euros in annual revenues. Our multi-year collaboration will start with Ares II for applications within SICK's logistics automation and factory automation businesses, which together total around 1.6 billion euros in segment revenues. A number of applications within those segments currently use 2D and 3D LiDAR, but after working with AVA for the past two years, SICK will expand to leveraging AVA 4D LiDAR and our unique FMCW technology to deliver superior performance in automation applications that limit the use of cameras and 3D LIDARs. For AVA, this collaboration will enable us to leverage SICK's leading market position and large sales force to efficiently scale 4D LIDAR across a wide range of industrial sensing applications for SICK's numerous customers worldwide. We look forward to work closely with SICK toward our target startup production in 2024. Turning to slide 12, you can see some examples of our target applications with SICK. This includes a variety of outdoor sensing for logistics automation, including ports, cranes, airports, and mining, where long-range instant velocity detection and immunity to the sun and retroreflector blooming are critical advantages AVA-40 VIDAR offers that can enable safer operation as compared to what legacy solutions can achieve today. Importantly, we plan to use the same foundational LiDAR on chip architecture that we have developed for automotive with adaptable software to deliver the specific performance requirements required by six diverse mix of customers worldwide. Let's now turn to slide 14, where I will provide an update on our key objective for 2022. We have made great progress in the first half of the year and have completed a number of critical steps that we believe lays the foundation to achieve our key objectives for 2022. I would like to share a bit more on each one. First, on ARIES II deployment and qualification with customers. We began shipping units to our strategic customers in late Q2 on plan and consistent with the timeline that we provided at the beginning of the year. Moving forward, we will be working closely on qualification in the second half of 2022, as well as bringing up manufacturing. Second, on converting two additional programs towards production. One of the two programs was met with the SIG collaboration. Beyond that, we are progressing with multiple other engagements, as well as receiving new inbound interest in both automotive and non-automotive applications. Third, on accelerating the release of our first non-automotive application. With the SIG collaboration, we have further solidified our expansion into industrial automation. And we also remain on track with our first industrial precision product with Nikon, launching in 2024. Meanwhile, we are on schedule to complete development of a common LiDAR on chip perception platform for industrial automation by Q4 of this year, which we expect to further drive momentum in these markets. And fourth, on preparing the supply chain and processes for commercial deployments. We continue to work closely with our supply chain partners to scale up manufacturing, and efforts also continue on working towards certification in automotive spice. And with that, let me turn the call over to Saurabh, who will discuss the financials.
spk07: Thank you, Soroush, and good afternoon, everyone. I would like to review our second quarter financial results, which are on slide 16. Revenue of $1.5 million in the second quarter was driven by the progress on our customers' development milestones and product sales. Non-GAAP operating loss was $29.3 million in the second quarter, which reflects the combination of continued R&D expenses for product development and AVA's ongoing discipline in capital investment. Second quarter gross cash use which we define as operating cash flow less capital expenditure, was 34 million. As a result, we continue to maintain a strong cash, cash equivalent, and marketable securities position, which totaled 378.9 million at the end of the second quarter. And lastly, weighted average shares outstanding in the second quarter was 216.9 million. So to summarize, in the first half of the year, we executed well on our plan for 2022 in terms of both product and commercial objectives. In the second half of the year, we aim to continue to execute on our plan and believe we have the financial resources to continue to invest to bring 4D LiDAR to market. And with that, I will hand the call back to Suruj for closing remarks. Thank you, Saurabh.
spk02: I am incredibly proud of our accomplishments in Q2 and want to especially thank and congratulate the AVA team on achieving the significant milestone of delivering the first Ares II units to our strategic customers. This is a major step forward towards bringing our unique FMCW lighter-on-chip technology to production. I would also like to thank all of our stakeholders and customers for their ongoing support. Looking ahead, we continue to see growing commercial momentum for our technology. Our collaboration with SICK-AG is another example of the diverse and significant opportunities ahead. As we work towards scaling up ARES II and our perception solutions, we look forward to working with our partners and responding to the growing demand to enable next generation of perception in automotive and beyond. Thanks, everyone, for your time today. We will now open up the line for questions.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. We ask that you limit your question to 1 so that others may have an opportunity to ask. One moment while we poll for questions.
spk05: First question comes from Anton Shashkaban with New Street Research.
spk03: Hi, guys. Thanks for taking our question. Congratulations on the most year contract with FIC. And you've announced a number of deals outside of the automotive segment since your D-SPAC. Are the non-auto businesses tracking in line or ahead of your initial expectations? And in particular, any update on how you see auto versus non-auto opportunities ramping your revenues? Any color and timing and relative size of each opportunity would be very helpful. Thank you.
spk02: Yeah, thanks for the question. So first of all, yes, we're absolutely excited by the win we have with SICK that we announced earlier. So, obviously, we're seeing a growing demand across the board for in-auto, but also in non-automotive. That's your question about non-automotive. As a matter of fact, it is accelerating. It is really driven by a lot of inbound interest, as we said, with the collaboration also with Nikon, where we were able to pull that forward by one year at the beginning of this year for 2024. And now with SICK, we're further establishing and solidifying that, which we are also targeting the same 2024 startup production. So overall, we're highly encouraged with ability to really use ARIES II and leverage the additional growing demand with our customers to also qualify ARIES II and be able to lock additional program opportunities. Right now, of course, with ARIES II on a lot of our on-chip development and deployment, we continue to see a growing momentum in the market, and we're looking forward to lock those opportunities in the next number of months.
spk03: Great. Thank you. And maybe as a quick follow-up, can you provide a bit more color on why they chose FMCW technology over time of flight? Any details on the core use cases? I'm talking about SICK here.
spk02: Yeah, absolutely. So obviously, you know, from a SICK standpoint, maybe I'll give you a little bit of color on SICK first. So SICK actually is a multi-year strategic agreement that we have. As I mentioned, we're targeting startup production in 2024. This offers a meaningful revenue opportunity for AVA. So SICK is a leader, one of the foremost leaders, in logistics and factory automation with major global accounts across diversities of customers and industries. They have over 11,000 employees and a large sales force, which we really plan to leverage to efficiently scale our FortiLIDAR to a broad range of customers. In general, you know, to give you a rough also idea of the size of the scale, we're talking about opportunities here that SICK is already providing as a supplier in 2D and 3D LiDAR sensors. And this is for the logistics and factory automation businesses. And, you know, that segment already is over 1.6 billion opportunities. So with SICK, They have been working with us for the past two years, and they have looked at other LiDAR technologies and ended up deciding to go with us because of the fact that FMCW provides unique advantages, including long-range measurements, instant velocity, and ability to actually not have things like ghosting or blooming effects on retroreflectors, which is really critical, especially for outdoor applications where we're initially focused with. And we start with Ares II, the work there with them, And really from there, we're looking to bring this out to a number of applications, pretty much anything that's outdoor. But just to answer that question specifically, SICK really is a believer in the advantages of FMCW, similar we have seen in automotive, but now also we are seeing that further solidify into the industrial applications.
spk05: Great. Thanks a lot for the call. That's super helpful.
spk00: Next question, Arvind Ramani with Piper Sandberg.
spk01: Hi. Thanks for taking my question. You know, I just wanted to ask, I mean, you certainly have, you know, from the beginning kind of approaching the unique approach to LIDAR, and you're starting to see, you know, kind of progress with additional clients, and, you know, as you talked about earlier on the call, kind of recognition to be able to sort of move forward or should I pull forward some of your deals? Can you talk a little bit more about should we see further progression? Is there a broader recognition in the industry where people are recognizing your differentiated approach and should we continue to see some additional pull forward and will that have an impact on your overall revenue?
spk02: Sure, yeah. Thanks a lot for the question. So First of all, as I mentioned before, there is growing consensus that FMCW will play a key role in enabling next-level automation, really due to the superior performance versus 3D LiDAR, but also because of the fact that we've been able to now integrate the LiDAR-on-chip in the Ares II. So with that, we've been able also to demonstrate the ability to reduce costs dramatically since the A sample, as I mentioned on the call, over 55%, right? So with that, we really expect to... you know, work with the OEMs both in auto as well as on auto to continue to enable them to progress on the next phase of development and qualifications. We've already started shipping the first two units and the feedback there has been quite positive. So with SICK and Outspend, this is one of our, you know, recent wins. It's an example of the solidification expansion that we see for the growing consensus around FMCW. But also, as we continue to scale up manufacturing and bring Ares II to customers, we expect that to continue to drive and capitalize on the new inbound interest for both auto and non-auto applications. So we expect it to drive additional program source production over the next number of months.
spk01: Perfect. Perfect. And then just a quick follow-up on that. Certainly, you're starting this journey a couple of years back, and some of your competitors, are they kind of looking at what you've done, if they decide to kind of re-pivot to kind of follow your production and your approach, will they be able to sort of catch up, or do you think it's sort of too far along where it may be a little bit more challenging for some of the competitors to sort of catch up to your approach?
spk02: Yeah, no, that's a good question. So generally, obviously... With FMCW, as you know, it is a technology that we see growing consensus. At the same time, it is a technology that is not easy or trivial to achieve, and that's evident by the fact that EVA is really the only public company that's actually able to provide this level of technology at this level of innovation and performance to our knowledge. we have been able to make significant progress in the past number of years and also be able to actually get to level maturity with the B sample stage that I am not aware of anybody else having yet. So that by itself is the fruit of labors of multiple years of development. And so there are certain things that you have to really do that you cannot just bypass in terms of developing the core components and more importantly also validating them with the customers in real-world scenarios on the road or industrial settings. And all of that is time that it takes. Second is actually around technology and IP. FMCW, the conventional way of doing it, is very different from what Evo has done. And we have been able to address some of the key challenges that anybody who tries to go, you know, initially develop those FMCW technologies would face. And so with that, we have created one of the largest, I think, portfolio patents relevant to FMCW, and we continue to add on additional IP on a regular ongoing basis. So, you know, that being said, obviously, there are folks now that are going towards FMCW, including some of the largest players that It started with vision-based sensors, moved to 3D LiDAR, and now have publicly talked about going to FMCW. That's important, but we also see that as validation for this technology. So for us, we will continue our focus on making sure that we make the best perception technology on the planet with our FMCW approach, and that's going to be our focus. And we hope that others follow suit.
spk01: This is really helpful. Thank you very much.
spk00: Next question, Richard Shannon with Craig Hallam.
spk04: Oh, great, guys. Thanks for getting me in the queue here. I appreciate it. I think I'll follow up on the question of your SIC partnership. I didn't hear any comments about whether this was an exclusive arrangement or whether they're able to work with other LiDAR players and then kind of an ancillary question. the technology you're developing with Nikon seems potentially relevant to that kind of a partnership, and is that something in future products beyond Ares II that you might be able to use in that relationship?
spk02: Yeah, thanks for the question, Richard. So, first of all, I'm not going to go into details of the commercial arrangement that we have first with SICK, but I really believe this is a strong collaboration that enabled us to expand further industrial automation In terms of the application, of course, again, SICK has been looking at many of the players in the space of the past two plus years and decided to converge on 4D to expand the portfolio from 2D to 3D now to 4D and decided on AVA to do that. So that's important. I think in terms of the differences between the collaboration we already have in Icon and SICK, Obviously, Nikon is different in the sense that it's an industrial metrology for precision measurement. So there, what we're really focused on is to leverage our ability to achieve micron-level precision for applications which include manufacturing inspection, quality inspection on the assembly lines, starting with actually automotive manufacturing, aerospace, and others. Whereas with SICK, it's about the scanning applications as well as outdoor and longer range sensing. But importantly, all of the applications we have talked about, including Nikon, SICK, and automotive applications, all use the same foundational LiDAR on-chip module with different optimizations for algorithms and software to enable us to achieve these very different performance levels and perception capabilities, which has been critical and crucial for our ability to be able to address these very different sets of requirements. And now with SICK, we have the ability in a reliable, qualified, and really reputable partner to be able to scale our technology as a channel partner to a number of applications. And we don't have to go and make partnerships with many, many other smaller companies to do that. That's hopefully gives you an answer to the question.
spk04: That's very helpful. Thanks for that. My follow-up question here is, you've used this language, I think, since you came public more than a year ago about moving programs toward production. You said you want to do that by the end of the year. I wonder if you give kind of a thought process of what this really means. Are we going to see a press release with some important milestone, potentially even with a named customer,
spk02: or uh or or not be able to do that by that by that point in time i don't know what you know what exactly toward production means maybe provide more clarification that'd be great please sure yeah absolutely so obviously um you know with uh you know in terms of progress towards production so first of all i want to clarify with six this represents one of our two programs that we have targeted for this year towards production. As I said, this is a meaningful opportunity that we're working towards with targeted production starting in 2024. So that really focuses on that. And in general, obviously, as I mentioned in an earlier question, we're continuing to make good progress with customers, both existing as well as new engagements, and working towards them to really now qualify Ares II for their next phase of development. We have already provided Ares II to a number of customers, and we're going to continue to do that. And even existing folks will continue to upgrade their platforms to use that. And our goal is, of course, to continue using Ares II to then lock in additional program wins in the next number of months. So that's really where we're focused. But again, from the types of the two wins that we talked about, SIG already represents one of those.
spk03: Great. Thanks, Bruce.
spk00: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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