Q1 2021 TuSimple Holdings Inc Earnings Call
Good day and welcome to debt two simple first quarter 2021 results conference call.
All participants are in a listen only mode.
Later, we will conduct a question and answer session.
Section will follow at that time keep in mind that this call is being recorded.
And there will be a replay.
I would now like to turn the call over.
Lauren Heartburn.
On the relation associate.
Simple Ms Harper Lee's go ahead.
Thank you good.
Good day, everyone and welcome to choose simple first quarter 2021 results conference call.
With us today are president and Chief Executive Officer Chang, There on Chief Financial Officer, Pat Kelly Cheng.
Impactful reviewed the operating and financial highlights and then we will take questions.
After the Q&A session I will now some upcoming investor events and will conclude the call.
Before I turn the call over to Chang, Let me cover a couple of housekeeping items.
As a reminder, two simple shareholder letter and a replay of this call will be available later today on the Investor Relations page on our website. This call is being recorded.
If you object in anyway. Please disconnect now.
Note that two simple shareholder letter press releases on this call I'll contain forward looking statements that are subject to risks and uncertainty.
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 certain forward looking non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Please.
Please refer to the safe Harbor disclaimer on non-GAAP financial measures discussion in our shareholder letter for more details.
I will now turn the call over to Ching to begin Shang.
Thank you Laura and Hello, everyone welcome to our first earnings call. After completing our IPO on April we're excited to share with you. Our first quarter results. We made significant progress both in terms of our technology and commercial development.
The IPO was a significant milestone for us and for entire autonomous driving industry.
We are the first and only autonomous driving company to go public.
As part of the IPO, our investors came to understand the two simple as unique unique business that can reshape the masses four trillion dollar global trucking industry.
We have proprietary artificial intelligence technology backed by large current portfolio and real life proof points.
Since 2018, we have been the only autonomous driving company operating level for Thomas truck from terminal to terminal driving on both highways and surface streets.
Second we have a comprehensive set of commercial partnerships incurred by OEM partners allows us to scale.
We are the only company with a clear path to a purpose built production truck by 'twenty 'twenty four.
Lastly, we're building a network based business model to enable low cost reliable free capacity, allowing too simple to offer a differentiated service.
On a long term sustainable competitive advantage.
We're grateful for our strong industrial base that believes in our technology and continue to support us in our journey.
Capital raised in the IPO will allow us to invest more in our people technology and operations allows us to further drive world class talent.
Our recruiting team is already seeing early benefits.
The IPO has increased our brand recognition and will give our partners more confidence and working with too simple.
Our mission is to make trucking safer more efficient lower cost.
We measure progress by achieving milestones on our path to enable autonomous free capacity at scale.
<unk> framework that we used to measure progress is based on three key components.
First the development of the level four autonomous driving system broadly speaking the software.
Second is to hardware, meaning the production of purpose built autonomous trucks, our skill in conjunction with our OEM and tier one partners.
Third is our go to market strategy, which is expansion of our Thomas freight network, where ethane and this is measured by the growth of high definition map routes terminals customers and free capacity.
Our unique and scalable go to market strategy allows us to accelerate adoption of our technology.
Forms our long term competitive advantage.
We recognize the dethomas driving industry does not have a common standard to track progress.
We believe it's important to lay out our framework to help shareholders to better visualize our development from.
Each quarter, we will have a shareholder letter that described in greater detail. The progress we made in each of these work streams.
And so with that let's dive into our first quarter highlights.
As the chronology company our people are our most valuable assets the commercialization of autonomous driving.
Both technically challenging and extends across multiple disciplines from artificial intelligence machine learning to software and hardware engineering to vehicle design and production to testing a free operations just to name a few and.
In the first quarter 2021, our global head count grew to 970 employees of which 84% are dedicated to research and development.
We continue to bring on experienced senior leaders to help us growth, including Barbara Rossi, who joined us as our VP of maps.
In the first quarter, we issued 31, new patents expanding our global portfolio to 280 patents. These patents helped to protect our advancements in algorithm training vehicle control hardware and Thomas operations.
We believe that we have a larger time portfolio and all of the 80 total startups combined.
We believe our first mover advantage and investing heavily in a global patent portfolio will be a key competitive advantage as the autonomous driving midstream matures.
With our fleet of 70 retrofitted autonomous trucks, we accumulated over 700000 role miles in the first quarter.
Our total miles driven is now at $3 7 million miles Roma.
<unk> is a combination of miles driven autonomously during testing and revenue operations with safety drivers on board or in data collection, we're shadow more driven by our human drivers. We believe there is no substitute for real world role models and advanced the autonomous driving technology.
Accumulating real world data, coupled with our advanced automated data pipeline that employs AI algorithms to analyze and detect rare events allows us to have a deep understanding of the edge cases, where the promise debt and our operational design domain, which for US is surface streets and highways from terminal to terminal.
All major freight corridors.
A key milestone in our technology development is to demonstrate the ability to safely operate to truck without a human on board.
We're targeting our driver out pilot program operating level four autonomous trucks without a safety driver on board from terminal to terminal between Tucson, and Phoenix. It is over a 100 mile Route will conduct fully Thomas driver outruns over a number of weeks the runs will be a night, which is <unk>.
On a feature for long haul trucking.
We will be holding real commercial cargo.
The selective route includes nearly all of the scenarios than typical free operations terminals surface streets, and highways passing through city centers and urban areas.
Our driver our pilot program, we will publicly demonstrate the safety maturity and functionality of autonomous driving system.
Our learnings and designed from this project are important to the production of our purpose built autonomous trucks at scale.
What makes this challenging is that for level four autonomous driving system, all failures and all roll scenarios must be detected and mitigated by the drive by the vehicle self.
Needs to be significant advancements in the performance and reliability of both software and hardware.
Lower level two level three system, where the human still maintains full responsibility to vehicle.
The system is expected to make mistakes even safety critical ones.
One a mistake is made were detected the system hands of control back to the human driver.
And compared to passenger cars, achieving fully driver our operations for class eight truck is also more challenging.
This is because trucks operating at highway speeds have significantly more kinetic energy.
Given the consequences of the safety incident on highway so overall, we'd liabilities threshold must be higher in the truck.
When a mistake in the system is detected mitigation maneuvers for truck are significantly harder and take longer time to make than those on passenger cars.
As example, unlike a passenger car to drive the lower speeds in urban setting a truck cannot just come to emerging stop in the middle of the road.
Starting in early 2020, we felt we're in a good place with our future developments and a clear line of sight on achieving driver operations. We began a systematic approach separate into four phases.
This one was focused on designing the virtual drivers system architecture without single points of failure.
This too was to develop our first prototype of a driver out truck.
We're currently in phase III, which is to bring up our testing fleet of 10 next generation fully redundant drive route trucks and face for his final validation.
Yeah.
We have made significant achievements in technology and engineering to make US confident we will essentially complete the program in the coming months.
These include removed all single point of failure on the vehicle and for some critical components, having triple double and triple redundancy built in.
Design in house electrical components to support self diagnostics and resistance any hardware failure design.
Designed integrated is still operational steering and braking systems and collaboration with our tier one partners.
Completed in Aten Magic data pipeline that employs AI algorithms to analyze and discover where events utilizing the millions of miles of raw data we collected.
Giving a full reputation of the potential role incidents along our routes.
In addition, we have made significant progress in the design and development of two features that will safely low four level for deployment at scale, which is our two simple connect oversized system and our ability and ability for our vehicles to enter into a minimum risk condition.
We will highlight these features later in the year.
The key takeaway I want to leave you with four fully driver our truck development is that this is not a matter if but when.
We're confident of our technology, we do not see this as the R&D problem, there still needs to be figured out, but a complex engineering project and a long list of to dos.
As with any large scale engineering project, there are challenges and risks to overcome.
We have been impacted by supply issues and the worldwide chip shortage caused by the pandemic and severe weather conditions in Texas.
That impacted the delivery of new truck purchases.
Our ability to add more computational power and we had to rework certain customized design components.
Internally, we also have had a big learning curve and operations and assembly.
The team at two simple is working diligently operating or testing day and night to get this done and we're confident in our ability to do so.
Now switching gears to our hardware development, we continue to work closely with our OEM partner now to start the design and purpose built Thomas trucks that will be manufactured at scale in 2024.
We first started working with Navistar in 2018.
It was a development arrangement, whereby we retrofitted navistar trucks in our Tucson facility for research and development.
In 2020 after a long betting process us on Navistar announced a formal partnership to build the first fully integrated autonomous truck, serving the North American market.
We also received an equity investment from Navistar.
Today, we have teams from engineering product procurement marketing and customer accounts working closely together towards our joint go.
Starting last year, we entered into a formal gator automotive production process with Navistar.
Working together on the design and development of a purpose built truck manufacture by Navistar empowered by the two simple autonomous driving system.
Supers and carrier customers will be able to purchase a truck from navistar on 'twenty 'twenty four and subscribe to two simple path, which is a per mile subscription fee to too simple to operate the autonomous vehicles.
We have launched an autonomous truck reservation program for slight group of key customers and have seen significant interest.
How will highlight this in more detail in his section.
In the first quarter, our joint production program passed another production gate called the implantation readiness gate.
The significance of this case is that we have kicked off key engineering work streams, including vehicle packaging electrical electronics mechanical designs software controls functional safety and cyber security.
We're laying out our vehicle imputation plan and identify key program risks.
We're excited about progress to date and remain on track for Targa start production in 2024.
Our partnership with trade on group has also yielded very positive results in 2020 treat on in two simple form the global partnership to develop self driving trucks.
<unk> also took a minority equity interest in our company as.
As part of our partnership will begin a development program to operate the first level four autonomous hub to hub route in Sweden, using Scania trucks.
Engineered teams from Scania and two simple have worked effortless effortlessly together between Sweden U S and China over the past several months to retrofit a scania truck with autonomous driving system.
In the first quarter, we commenced testing on public roads in Sweden. This.
This is the first program of its kind in Europe. The fact that we could do this despite restrictive travel conditions due to the pandemic highlights the robustness and scalability of our technology.
We're very excited about collaboration with trade on and will continue to update you on additional developments.
And lastly in terms of our go to market strategy, we continue to scale, our Thomas freight network in the first quarter the.
The commercial scale of our ethane is important metric of progress because of celebrates adoption of autonomous technology.
Using a telecom analogy the purpose built Thomas truck is a <unk> phone.
And as soon as our <unk> network when the <unk> phone has produced a scale we need to have the network in place in order to offer a true service.
Our case, the greater the scale and density of the ethane in terms of free capacity trucks terminals high definition map routes that means all customers on the ethane will be able to enjoy greater access to reliable efficient and low cost free capacity.
In the first quarter, we may revenue generating deliveries to approximately 25 unique user terminals and launched two new major commercial freight lanes from Dallas to Austin, and Dallas or San Antonio.
Free office operations will continue to expand all the way to east coast by the end of 2021 to meet our strategic customers needs.
In addition to our <unk> user terminals two simple operating out of four dedicated terminals with two full service terminals in Tucson, and Dallas, Our Tucson terminal is currently undergoing sniffing significant expansion and.
And we have we are near completion of our fifth terminal in Fort worth, Texas slated to open in the second quarter.
Our dedicated terminals supplement our runs to and from our ethane customer terminals.
In terms of expanding our high definition map routes, we mapped over 200 miles of new lanes, completing the Texas triangle and bringing our cumulative mapped network to approximately 5000 miles.
We announced a partnership with Liberty mutual to better understand how autonomous technologies perform in comparison to the same type of trucks driven by human drivers insurance is important aspect of free operations and a trucking industry has experienced significant increases increases in insurance costs over the past.
Okay.
We believe that our Thomas technology, we'll be able to bring down the cost of insurance over time.
Starting to work with Liberty mutual in this critical area to bring autonomous free capacity to market scale.
Lastly, autonomous truck reservations are an important and leading indicator of future capacity they'll be on the F N b.
Also important validation from our customers and strategic partners on the progress of our technology and production vehicle.
I will turn it over to Pat our CFO to discuss in more detail our reservation program and our financial results for first quarter. Thank you.
Thank you Cheng.
First I'll provide an update on our carrier owned capacity reservation program, which continues to grow steadily.
As a reminder, jus simple and Navistar began approaching a small group of approximately 15 first wave reservation customers last fall.
Our reservations represent an opportunity for our customers to be among the first to receive our purpose built production semi trucks starting in 2024.
To date, we have received 6775 reservations from approximately a dozen blue chip carriers and shippers.
Each reservation holder has gone through a full procurement process within their organization in order to sign the reservation document.
So while the reservations are all fully cancel of all we are very confident in the seriousness of intense time each one.
Today, we announced the names of some of our reservation partners U S Express Penske and Schneider National.
These are some of the largest most sophisticated names in trucking and that's indicative of the strong value proposition that too simple as carrier on capacity can deliver.
The truck reservation itself act as a springboard for deeper engagement with our carrier on capacity customers ahead of production.
After the reservation is made we worked with customers to implement HD map claims between their existing terminals connect our oversight systems with their transportation management systems and generally begin building our commercial relationships ahead of delivery of the production trucks.
For many of our reservation partners, we are hauling freight for them today with our own retrofitted fleet deepening our relationship and allowing our customers to participate as our autonomous technology advances we.
We're currently preparing to broaden our reservation program beyond our initial first wave customers from <unk>.
We need to be highly targeted in our reservation program and work with sophisticated truck fleets that are best suited to early implementation of our core technology on their networks.
Now shifting gears to our financial results for the first quarter.
We reported $944000 of revenue in the quarter, a four fold increase from the same period last year.
We expect to continue growing our revenue via increased commercial utilization of our fleet in the United States and continued build out of our AFM partner network.
Our freight revenue generation, while relatively small today. It is very important strategically as it helps us to develop our technology in real World on road applications and build commercial relationships with long term customers are.
Our freight operations create autonomous conversion ready wins that will launch full scale commercialization beginning in 2024.
We invested significantly in our core R&D function in Q1 spending $41 million, including $2 million of stock based compensation.
The $41 million figure represents a two fold increase from the same period last year with the largest portion of that increase coming from incremental R&D head count.
Our G&A spend was $15 million during the period inclusive of $4 million on stock based compensation.
The $15 million total is also on roughly two fold increase from the same period last year as we made the necessary investments to scale our company.
You'll also note a significant noncash item for change in fair value of warrants liability on our income statement.
This is related to the exercise of warrants by trades on a navistar and is a noncash charge, reflecting the mark to market of the warrant liabilities as of the end of the quarter. There are no remaining warrants.
During the quarter, we invested $1 2 million in capital expenditures and made principal payments on capital leases of approximately $200000.
Moving to our IPO. This is a huge milestone not only for two simple, but for the autonomous vehicles industry in general.
While we considered several options to become the first publicly traded autonomous vehicle company.
He chose the traditional IPO path in order to be as transparent as possible and go through a rigorous vetting process with legal counsel the underwriting committees of our syndicate banks and equity research analysts. Additionally.
Additionally, we wanted the investor community to have the benefit of a fully SEC reviewed prospectus prior to making their investment decision.
It was a long and rigorous process, but it was the right choice for us.
The IPO raised over $1 billion in net proceeds and supplements the incremental investment from our partners Navistar on traits on who exercised warrants that delivered $183 million of proceeds.
Our cash position at the end of the first quarter of $509 million reflects from warrant exercise transactions.
The IPO proceeds.
Our cash position pro forma for the IPO is in excess of one five claims which provides us an excellent runway for investing in our technology and our path to full commercialization.
Looking forward to the rest of 2021, we've provided guidance for the full year.
Revenue of $5 million to $7 million.
R&D of $165 million to $185 million and G&A of $45 million to $55 million.
Please note that both the R&D and G&A guidance figures exclude the impact from stock based compensation.
Expected capital expenditures for the year of $5 million to $8 million.
We expect to end 2021, with the cash position in excess of $1 3 billion.
I'll now hand, it back to Chang to wrap up our prepared remarks.
Thank you Pat.
To summarize we're pleased by the progress we made in the first quarter.
We know that IPO is just the beginning of our journey.
And Theres a lot of hard work ahead of us.
Our people are committed to the mission of making trucking safer more environmentally friendly and more efficient.
And we're very confident there'll be a first to enable autonomous free capacity of scale and quantified to see others recognized our leadership.
The barriers to entry and autonomous driving industry, you only get higher.
Do you think about the required level of proprietary technology access to capital hardware partnerships and comprehensive go to market strategy.
We believe we have all the key ingredients to win and to create long term value to our shareholders.
We're ready to start the Q&A session.
As a reminder, so that's a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question.
Moving from the line of Ravi Shanker of Morgan Stanley.
Sir Your line is now open.
Thank you.
Good afternoon Cheng pattern team.
Congrats on the IPO.
Just a couple of questions here first of all thanks for the incremental detail on the driver outburst.
Sorry to be greedy, but can I push you for a little more detail even.
You said, you're going to do it at night I mean is there any plans to run it during the day when there's gonna be like traffic as well and do you think it's more challenging to do it at night worse. During the day also how many runs do you plan to do over what period of time and what controls what do you have clarity there would be nobody in the driver on the passenger seat whether there'd be any.
In the cabinet all when you have a control car upfront or behind any further detail would be great.
Sure.
Thanks, Ravi all great questions.
So in terms of.
Well I think one question is we're operating at night and it's because Knight is one of the main tie.
Times of course for free operations the benefit of a Thomas trucking is that our trucks can run 20 hours a day day and night.
One of the two.
One of the criticism of our camera based perception is that it doesn't work that well at night and I think this actually is a really good proof point that it does.
They are night, there are different challenges to both.
So <unk>.
Right now, we decided to pick the nighttime and.
We don't have plans to do.
Do the pilot program a day at this point on it.
In terms of how long, we'll be able to do this we intend to pilot program, it's not a PR stunt we.
We do intend is to run over several weeks.
It will be certainly more than a few runs but we don't have those details at this point in and once we do we'll certainly share that with you.
Got it and do you have a sense of when we might get a finer point on timing, obviously, it's use but no <unk> 'twenty, one any sense of when we might get the.
Months I guess.
Sure.
So this is not.
This is not a.
We're going to ensure safety above all else and we think about where we are we're in phase III of a of a four phased approach.
We are bringing up our autonomous trucks 10 of them for a purpose built for.
<unk> project, which is fully redundant.
We are doing more feature developments, we feel pretty good about that were doing extensive testing.
As it is today.
The next phase is just will undergo a much more intensive end to end functional safety.
Process and.
And then just final validation, which is putting the vehicles to a series of AV test on <unk>.
Scenarios.
And then having to hit a very high threshold of safety actually where we're facing off with aerospace.
Criterias.
And then we will feel safe enough to to start this test without any humans on board to choke at all so.
We believe that it will be in the fourth quarter. This year, that's what we're targeting for.
I cannot comment on exactly which week, we'll start because it is a very complex engineering project and as I mentioned Theres, a theres allowed to do.
So we're working on as far as we can to get there.
Very helpful. Thank you.
Thank you. Our next question coming from the line of Chris Wetherbee of Ci Ti Sir Your line is now open.
Yeah, Hey, thanks, good afternoon guys.
Maybe just following up on on some of the supply chain issues. You mentioned before do you mind going into a little bit more detail in terms of maybe what is impacted and it doesn't sound like that's impacting the driver out test for later this year, but maybe if you could confirm that and any impact it might be having.
In terms of getting new trucks delivered into the networks you can increase your mileage there would be helpful.
Sure.
We.
Just give example in terms of of new trucks.
We've actually placed orders of trucks at the end of last year of 25 new ones.
We're hoping to get delivered by March and it looks like our new delivery date is going to be June or July.
So that gives you a <unk>.
Flavor for sort of what that delay looks like in terms of specific components.
We have some components that were sourced overseas and of course, there's been disruption. There. We also have some suppliers debt.
Just take longer because of some of the challenges of staffing and training around faster so.
These are not anything that cannot be overcome these unfortunately do take time and we have a lot of different plan BS on planes sees in place too to ensure that this isn't isn't.
A big impediment.
Impediment.
Okay. Okay. That's helpful. And then maybe a quick follow up just in terms of your miles technically that that continues to ramp should we expect as the new trucks are delivered into the fleet that that number will be a little bit more of a parabolic ramp as we move forward any guidance you want to get in terms of how we should be thinking about sort of the mileage ultimately.
I'll offer that you've added some personnel on the marketing side.
Sure sure.
So it will be.
On the probe on rent just because by nature, having more trucks on our fleet, we do see the size of our autonomous fleet to grow to close to 100 trucks. This year.
And when.
When you think about what that means each truck if you're operating.
It's 15 hours a day.
50, 50 miles an hour times.
Third 30 days a month that used truck you are getting about 20000 miles and so.
You can get literally.
Over close to 2 million miles with our with our fleet of 100 trucks or so so that does help in terms of just validating our test plants and so we will see increase in the mouse driven.
Okay. Okay. That's very helpful. I appreciate the time thank you.
Thank you.
Next question from the line of Brian Olsen Beck of J P. Morgan Sir your line is open.
Alright. Thank you good afternoon Cheng in pet I appreciate you taking the question.
Wanted to ask you about the F. N map it looks like you did a bit of an bit of an update can you just walk us through the rationale behind that was it anything related to where you're getting the reservations and therefore, where you're looking to put some of these dots down ahead of others.
Is there anything from a regulatory perspective.
And it's changed I guess I'm looking at specifically you've got a couple of routes going through.
Rates that are in progress from a regulatory perspective so.
Don't know if that really has any impact if you expect anything to change, but maybe if you can just walk us through the updates to the map and retrofits.
Hi, Brian that's right.
Related to our our work with collaboration with our strategic partners on our reservation partners.
And the.
The benefit of a book.
Customer that puts a reservation today is that we start a a long term collaboration to help implement autonomy into the supply chain and so we look at their network, where do I O D pairs to automate and influences, where we will not first and so are our reservation cuts.
Let's get the benefit of.
Basically cutting first adoption and on.
Understanding on how to really get autonomy to be embedded in through supply chain. So that that's really the primary reason.
For what makes our decision in terms of mapping.
Okay understood and then if you can just give us an update if there is one on the <unk> review, where where that stands if theres anything you can share from that perspective that'd be helpful.
Sure in terms of the <unk> review, we are planning to submit our voluntary filing.
Conjunction with Sina together was seen.
As soon as this week.
Actually next week.
That will kick off a 45 day review period for cities. This is a very standard process.
And a 45 day. So if you can say that this is not seen us investment in two simple in 2017 at one particular transaction does not constitute a national security risk.
Or they could have a second 45 day review period at which point they could lead to same conclusion or potentially.
Some change of governance in terms of with Sina has or asking us to divest a portion or all of their investment into simple so.
To answer your question, we believe debt.
<unk>.
Next quarter, we will certainly have a lot more.
On to share with you in terms of on where we are.
Okay got it.
Thank you Cheng I appreciate it.
Thank you.
Next question from the line of Ken Huckster.
Bank of America.
Your line is now open.
Great Hey, Chang patent team congrats on the IPO on the progress maybe just talk a little bit about the the 700000 miles that you generate in the quarter can you talk to us a little bit about how many times debt safety driver touch the wheel or add disengagement just to understand the progress of the technology is on those.
Added miles does it mean anything if the driver is touching it lasts are there different things you're throwing at the trucks to see if that matters, maybe walk us through that a little bit.
Okay sure.
So we don't disclose disengagement numbers on a whole because it's very easy to take out context, and as we talked about during the road show.
How people disclosed as engagement what counts as a disengagement.
There are quite subjective so that's why we.
Avoid just giving a number and I think the whole industry is actually moving away from debt.
What I can share is so today, we're doing on the routes that we're doing the driver our pilot program. We're doing tremendous amount testing every night actually every day and I think just this past week we did.
These trips without any disengagement.
And so most of them work aside from trips.
So can you give you I hope that gives them much context, but but where.
We're doing quite well in terms of.
Our Congress.
And again, we feel confident that this will allow us to do a driver out pilot program towards the end of this year.
That's helpful perspective at least the debt.
We're on consecutive trips with without escape.
So noted youre getting more new orders or are you signing up new carriers and shippers are these all just from existing maybe maybe talk about the process to expand that that reach with customers.
Maybe add whatever steps are left to get from here to the driver out you mentioned the four stages, but is there something specific you would point to.
Thanks.
Sure I think there's two questions on the reservation side.
The increase in reservations are still from our first wave customers. These are about 15 select customers that we went out to together with navistar towards the end of last year and it's.
Just kind of trickled in.
Some took a bit longer to sign.
Steve Reservation agreements.
We.
Do you have plans to go out to a second wave of customers.
Later this year and.
But more importantly on a highlight there's a lot of things we're doing with our existing reservation customers. This is not a lets accumulate as many reservations as possible for the sake of having reservation. This is we're hosting voice of customer weeks with our key partners and understand what their needs are.
As we mentioned earlier, we're working with them exploring their network today to understand which lanes makes sense to automate. So theres a lot of resources that we have to commit as well as they had to convince and so.
You will see increase on reservations this will more be more like a step ladder function rather than a linear function is what you should expect and.
We need to digest, our first wave of reservations first before we go out there and on trust Brent spread those too.
I think your second question was around the driver out and does any key hurdles to overcome was that yes exactly yes.
So.
The really the key takeaway is there's not one key hurdle one technology breakthrough that we have to overcome in and.
I did read in some of the research and that was of course that this is a binary risk it is not a.
I wouldn't call. This a.
A key to FDA approval of a new drug. This is we know what we have to do it is a long list of two dues on engineering project at this point for US and we have the features we have to add redundancy reliability, we have to undergo a very thorough from.
Safety test and of course about <unk>.
Foundation, so it's almost like launching.
Rocket if you will you kind of know where just needs to do.
It's very complex engineering projects as well as operational projects. So.
So if there is not one thing I can point to but its really if you look at our R. R.
Our work streams, there is theres a lot on the whole company.
Body is involved and interest in this part of the.
I've been getting a drug route.
On a program up and running so.
Yes, I wouldn't I wouldn't point to one specific thing.
Alright.
Okay. Thanks.
Next question from the line of Colin Rusch.
Opened primer.
Sir your line is open.
Great. Thank you for taking our questions. This is Christian on for Colin.
If you could speak to the regulatory process across state lines as you're preparing for the driver out.
Offering that on a more regular basis.
Sure. So our route for the driver out is all within Arizona.
It's a terminal in Tucson to a terminal near Phoenix over 100 miles on them, both surface streets and highways.
There is no costing a state orders, where we work very closely with Arizona DLT.
And there is a self certification process.
There is no additional sort of federal.
Regulation regulatory approval, but we are of course, keeping the USD Ot and federal regulators are aware.
Aware of our of our progress.
Okay.
I think what we were looking for something that you are beginning to offer that on a more regular basis. So beyond these initial pilot program.
We.
As the regulation stands today.
There's no gating factor to cross state lines as long as these two states have allow for.
So as we allow for.
Steve full commercialization of self driving trucks and right now there is 24 states on all four so where we operate the Thomas free now where today between Arizona, New Mexico, Texas, and basically all the way east to Florida.
We don't see any challenges of crossing state lines with.
Autonomous fully driverless autonomous trucks.
I appreciate the clarification and then as a follow on.
Yep.
As you are looking to grow the team. This year can you speak to any headwinds are having on the hiring.
Hiring side, just getting the right people on planes.
Headwinds we.
We brought on over 120 people last year last quarter. So it's just one quarter alone. So we're growing very fast.
We have.
On multiple of disciplines to hire four so we have a very strong recruiting team.
It is a challenging.
It's a very competitive hiring environment, especially for machine learning artificial intelligence.
Products and so forth so.
It really just this is I think being being public.
<unk>.
Being very transparent about our growth prospects.
It really helped a lot and I think if anything.
We're seeing less headwinds.
So we did it.
Last year or two years ago, I think people really want to work for two simple energized too to be on the team.
Great. Thank you.
Next question from the line of Joseph Spak of RBC capital markets.
Your line is open.
Thank you good afternoon, everyone.
I wanted to go back to.
The driver out.
On phases, which would you laid out which are which are helpful.
Maybe you could talk about like how long is the road validation process like what do you need to see to go from and driver on development to drive around deployment and then I know you mentioned some from Knight runs here is there are there any more details you'd be willing to provide about the ODT you're targeting for driver on it.
Hi, Joe Yes.
The OTT is.
What you see in a real free operations alone to Eitan from terminal to terminal and really the IGN is I think 30 plus percent of all Interstate free volume unless you're doing a lot of.
Growth roll mile collection data collection.
Two recognized I really along the I 10, Arizona is very similar to I 10 in Texas for instance, so so we feel good about so if we if we do.
Do this.
Easier for us to scale density compared to passenger car, where really every city, especially dense urban cities are quite different.
Just in terms of.
So what does it what does Intel's two to validate so when you think about the key components. There is of course features of what did the virtual driver and with the at home system needs to do.
Understand windows fault and be able to mitigate it so theres nishu redundancy and mitigation.
Measurements.
And then there's a full functional safety a validation.
It's not the same cultural safety that you do from building a vehicle, it's going to be there's going to be.
Oh.
It's dynamic and it's going to be a little bit different.
And what we're back solving for is it.
A very high level of confidence of very high low reliability Duchy.
Based on our total safety debt does.
On spit out or debt does generate sort of what our number of runs you have to do how many you have to do consecutively right. How many where you can't do any minimum risk condition. So I can't disclose what the number looks like but I can tell your debt there is a.
Scientific method.
<unk> tried and true.
For most part debt.
It will make us feel debt this is reliable and confident to do so.
We will also have of course on oversized system.
We will have.
Uh huh.
On the chase vehicle.
Two block traffic, but just to be to be close in case of.
If it does interim minimum risk condition and so there are things that we do to try to mitigate.
Sort of the.
The runs.
Great.
Thanks, Matt and then just on the from.
Come back to the map miles.
And it does seem like.
That number picked up a little bit quarter over quarter, but.
I was wondering if you.
New offhand, maybe the debt.
The targeted on a number of miles you would need to hit.
In line with what you are showing on page 10 of that shareholder letter, which which is the near term expansion by the end of this year.
Sure.
So I don't have the exact number of miles off top my head four for near term expansion 2021.
But I don't see us having a problem.
Hitting it.
Our peso mapping and how scalable the system is quite robust and of course, we are continuously making progress there. So.
It's several thousand but but we feel very confident that we can on map out those routes in time for this year.
Okay. Thank you very much.
Okay next question from the line of Rajeev Hill of Needham and company.
Your line is open.
Yes, Thank you and congrats on the IPO as well.
Pat I was wondering if you could give us a sense of the revenue guidance for the year of kind of five two.
7 million.
Talked about.
Some acceleration.
And utilization of your fleet.
And your partner operation, but I Wonder if you can kind of elaborate a little bit further in terms of kind of what's driving the revenue growth for the year relative to 2020.
Alright, Hey, Ravi Thank you.
So I think the.
The factors that will drive our revenue will be multiple first one is adding more trucks that will be able to add to our fleet to haul freight as you heard John say earlier, our order from Navistar has been pushed back from the first quarter to mid year. So that obviously has impacted.
Once we get those trucks up and running we expect that to help us to.
Increase our revenue base. In addition, we will bring on more on partners to help us all free.
On the as we add more partners and more capacity <unk> partners.
All.
Got it.
Net revenue.
Subsequent quarters throughout the course of this year.
So that will drive.
US to hit those five to 7 million dollar figures that we provided in the guidance.
Okay got it.
In terms of you mentioned a little bit about this on in terms of the regulatory environment.
But I'm just wondering if you could remind us again in terms of the federal versus state like does the free.
No supersede the state by state regulatory environment, or the b or the independent with respect to <unk>.
Approval of these networks on.
And wondering how you see kind of the new administration.
Any changes there any effect in terms of the.
The regulatory environment with the new administration.
We in terms of federal estate.
The federal will supersede the state today.
Today on the federal side.
As no regulatory this says that there has to be a driver on board and water for trucks to operate.
There was 24 states today that have either recycled water legislation.
Regulation that allows this does positively low four four.
Driverless the commercial operations of trucks.
So so really as of today. The regulations ahead of technology and of course, we're working very closely on a state by state level as well as the federal level.
To ensure debt has continued that.
The pace.
In terms of New administration, where we can't because we can't comments, where we pretend to.
Do you understand.
On what their intent is what we can say is from all of the public.
Speaking income.
Comments that the new Secretary interest vision has made.
A quite favorable for the development of autonomous driving.
It will create new jobs.
The safety benefits of it's Super important.
And so.
Where we stand today, we feel pretty good about.
The fact that autonomous driving the benefits of interest in terms of safety.
And of course, the driver shortage issue that we will continue to be the case and I think that will continue to.
<unk> be a positive.
Carlos.
Why we need a more supportive regulatory environment.
I appreciate it and just if I could squeeze in one more question regarding the supply constraints.
You talked about debt that you expect to get the trucks.
June July versus March wondering how youre thinking about like a truck delivery.
In 2022, and then in terms of the specific components that were disrupted overseas.
That's been resolved or are there still kind of supply constraints on specifics semiconductor components.
There are.
It's actually.
I think on the on the computational side I think is that you are getting worse.
And so.
So, but I think our view is we're optimistic by 'twenty two that should go away.
<unk>.
I know that those your question, but we're still.
We're still working through some of that in.
Great I appreciate it thank you.
Okay next question from the line of Ben Tallow of bad.
Your line is open.
Alright, Thanks Scott.
<unk> growth.
Yeah.
Maybe just talk about the two different business models.
Two different strategies for revenue.
Maybe just talk us through or do you compete with your customers are you thinking about debt.
Got it.
Hi.
Back to you Mike.
<unk>.
Reported capital to build out your own trouble on that work.
How we should think that.
We will be a bolt on.
Okay.
Near term next.
Next year as well.
Sure maybe I'll I'll answer first one.
Sort of a path for the second question.
In terms of first one having two business models.
Both models enable autonomous free capacity and really Thats, what we believe is what's needed for this industry for truck industry because of it.
The imbalance between demand.
Truck freight and the supply of.
The driver shortage driver turnover to safety considerations and so.
Having both business models allow us to do.
Complementary per one also allows us to accelerate adoption of our of our services.
We're very sensitive to channel conflicts and.
This is also something thats not new to industry.
You do have players who are leasing trucks to carriers at the same time to offer dedicated services.
You have others debt.
Uh huh.
Both of intermodal and then.
And directly to <unk>.
Shippers so so so so channel conflict.
That happens, but I think as a whole our customers recognize that this is a very large market.
Early adopters of this analogy can be able to offer a more comprehensive service themselves can't.
Only grow their footprint.
And.
And so today, we don't see sort of.
The challenges with channel conflicts.
And then in terms of the tunnel terminal expansion over next two years and the Caso alternative Pat Greg Yes.
And then I think as we continue to build out the <unk> and you see the maps are Matt miles expanding across the southeastern United States Youll see us.
A combination of our partners terminals as destination on our origination points, which is obviously, a very capital efficient option for us and supplement that with our own terminals like we're doing in Texas, both with our Dallas and Fort Worth, Texas facilities, I think while we have used.
Several of the more tier one type terminals that are larger and more sophisticated terminals over the coming year or two you will start to see us with more of what we call our tier three terminals, which are much lower cost.
Essentially paved a lot with just the essential facilities to do drop and hook operations to expand our family on a capital efficient way. So as we continue to expand that out we'll provide more guidance about that.
And wall, so provide more about the specific cost structure.
If I can sneak on board.
Plus.
With respect to balance what's the.
No.
More companies coverage target you guys outlined you'll be the first public.
Public company.
Thank you.
We will book more.
Yes.
Right.
On.
Public portal.
Changes you're on.
Crosswords behavior at all.
Hum.
Have you seen that because I imagine that day notice before we do.
I don't think it changes our customer behavior.
We had to.
Really work with all of our customers and partners.
Each one has some of them we had to convert from being a non believer just one day believes we have to prove ourselves with technology and operations and our willingness to partner so that doesn't change everyone understands the benefit of economy, and we have to continue to be the best and to be a leader in the industry.
The wise.
We will get replaced so so I don't think this changes anything.
We welcome having more autonomous trucking companies were at home is driving companies to go public I think it gives more awareness to this industry and they also promote transparency. This is industry debt historically a lot of people have made big claims historically sort of underachieved some of those.
And so I think that level of transparency is good for the overall.
Development of this industry.
Thank you guys.
Thank you.
Next question from the line of Alex Potter of Piper Sandler.
Your line is open.
Yeah, great. Thanks very much.
I had a question you talked about having 700000 miles in the quarter.
With 70 trucks. So if you define 700000 by 70, that's 10000 miles per truck in the quarter. So if you annualize that that's about 40000 miles per year per truck and I know one.
Once we're in full commercial operations will be doing closer to 200000 miles a year per truck. So what I'm wondering I guess is between now and 2020 for 2025.
Is this a meaningful metric to track you know should we be seeing that number move higher and if it's not a meaningful metric attract then I guess I'd be interested in hearing what.
Yes.
Great question.
Hmm.
Hello Hello.
It's meaningful if we're looking at only.
Revenue generating trucks, that's on the Thomas Free network. So if you look at our 70 trucks, we have 50 in the U S 20 in China and so.
And also within 15 U S. There's probably half dart theyre focused on testing.
And we're a little bit less than half. So so those trucks are not meant to be driving.
10, 15, 20 hours a day.
They are on test operations, they're doing feature testing and so there are a number of miles per.
Per week per month is actually not as big price. So so I think of course as our free site growth.
More will be dedicated to revenue runs.
As we do run we're still collecting data in and so.
So if you do apples to apples I think is a meaningful metric to track the efficiency realization of assets, but.
But I think right now, it's probably a little premature to to track this.
I don't think we should think growth on a linear progression from a 40000 to $200 and this is probably also not the right so apples to apples comparison.
Sure. Okay. That's that's helpful color.
And then I guess one follow up question you mentioned.
From previous comments about hiring.
You added incremental hundred people I'd be interested in knowing where those people are they in the U S are they in China and if you look out over the next couple of years or next couple of quarters, a couple of months even.
Where do you think youre going to be adding head count both regionally and in terms of.
I guess departmental you where do you need the most.
Human resources.
Sure.
So as of today were about 650 people in the U S and about 300 in China, and actually about 15 or so in Sweden.
We're becoming a true global company.
The majority of new head count is in the U S.
We actually have about in glass on my checks 300.
In the U S alone.
And.
If you actually look at our career page on our website, it's really across many many disciplines.
But I mean.
A lot of it is on the.
The software software side.
Just because.
There's a lot more work there.
We are no interest.
Things debt.
A year ago with two years ago, we didn't need so things like procurement functions.
You know things like more more more freight revenue related things. So those are also new features or functions we're adding.
But it really is across the board.
As mentioned, 84% for of our people our focus on R&D. So so of course, the majority of hires are still around our technology.
Okay perfect. That's all from me Thanks, a lot.
Thank you.
And last question from the line of Jeff Osborne of Cowen and co.
Your line is open.
Yes. Thank you. Good afternoon, most of my questions have been answered, but just two quick ones pad I didn't know if you could give us any context on stock based compensation expenses for the year was question one and question two for Cheng is was there any learnings from the winter storms in Texas in February or were you completely.
Forecasting that and off the roads at that time.
Yes, Hi, Geoff it's Pat.
In terms of stock based compensation, we did have our IPO in the second quarter as we mentioned that will be a catalyst for recognition of a significant sum of a noncash charge for stock based compensation.
Moving to the equity instruments that had a performance condition that is satisfied by the IPO satellites.
So as we get into the second quarter, we will disclose that amount that's recognized in the quarter as well as.
We expect to be able to give you more update for what stock based compensation will be for the rest of the year at that time.
In terms of your second question.
Just to clarify we're going to wait for the <unk> results. So it would be a bit of a surprise then but at that point at least youll tidy up the third and fourth quarter.
Correct.
On it.
And Jeff on your second question.
In terms of the Texas Winter storm we.
We didn't.
I would say generally speaking we didn't operate.
If a human or a good human driver cannot drive our Thomas systems, Nice 22 to operating those conditions either.
When you think about really winter testing in an icy conditions, we would do on an infrastructure to interest if you. So.
I think the learnings on more rounds on managing supply chain and just overall operations rather than on.
On trade train the algorithm to drive over.
We're very big snow.
Thank you that's all I had.
Thank you.
Thank you there are no further question at this time I will now turn the call over to Laurie.
Laurie Hopper Lauren.
I just wanted to thank you all for attending the call today. If you have any follow up questions. Please give me or panic call have a great day you can all disconnect now.
Thank you and ladies and gentlemen that concludes today's conference. Thank you for participating.
I'll disconnect.
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Okay.
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Yeah.
Net.
The growth.
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Income.
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Okay.
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