Q2 2022 AEye Inc Earnings Call
Good afternoon, and welcome to the <unk>.
Hi.
Second quarter 2022 update conference call.
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Martha Virginia plants go ahead.
Thank you and welcome everyone to AI second quarter 2022 earnings call with me today are Blair Law Court, our Chief Executive Officer, and Bob Brown, Our Chief Financial Officer.
Earlier today, we announced our financial results for the second quarter 2022, a copy of our press release can be found on our website at investors Dot AI Dot AI before we begin I would like to remind participants that during this call management may make forward looking statements, including without limitation statements regarding our future operating results.
Future performance growth strategy and financial outlook.
Forward looking statements are based on our current expectations and assumptions regarding our business the industry and other conditions. These forward looking statements are subject to inherent risks uncertainties and changes in circumstances that are difficult or impossible to predict.
Our actual results may differ materially from those contemplated by the forward looking statements.
We caution you therefore against placing undue reliance on any of these forward looking statements.
You can find more information about the risks uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission, including in our quarterly report on Form 10-Q for the period ended June 32022.
All information discussed today is as of August 15, 2022, and we do not intend and undertake no obligation to update any forward looking statements, whether as a result of new information future developments or otherwise, except as may be required by law.
In addition, today's discussion will include references to certain non-GAAP financial measures. These non-GAAP measures are presented for supplemental informational purposes, only and should not be considered as a substitute for financial information presented in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures is available on our press release and you should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our earnings release with that I'll pass it over to Blair.
Thank you Claude and thank you for joining us and investing your time to participate in our quarterly update as you have seen in our earnings release today, we had a solid finish to our second quarter meeting our revenue expectations and significantly outperforming our expense and cash plan.
Our main investor themes and objectives for 2022 remain unchanged.
Strong evidence that customer demand for adaptive Lidar will continue to accelerate as we prepare to launch the AI foresight platform in Q3.
As always our focus on execution remains Paramount.
Given the present global market and macro business environment instability, you'll see that we have proactively taken actions in Q2 to optimize schedules and modulate our spend.
As a result, we ended the quarter with a cash balance that was $11 million higher than our plan.
They will be highlighting four of our key 2022 objectives and will update you on our progress in Q2.
First in Paramount is the release of both the AI and continental products on our next generation fore sight platform.
In Q2, we made the initial transfer of our platform to our contract manufacturing partner Semina on schedule.
So I mean, it will be manufacturing, our AI fore sight product line for the industrial markets.
Well, we have not experienced a reduction in demand the disruption in global supply chain has delayed the startup production to late Q3.
In Q2, we also transferred to our lead customer continental there be sample on schedule Continental will be manufacturing their H O. L 131, eight as product in their state of the art Ingolstadt, Germany facility.
We believe we're the only lidar company expects to have the capability to manufacture completed lidar units.
In high volume production lines with two industry, leading global partners in 2023.
Second since our hardware design freeze earlier this year, we have been advancing our ability to utilize our sensor based operating system to configure hardware performance dynamically as a key differentiator from our peers.
These software definable sensors allow AI to continually innovate between hardware cycles.
And today, we'll show you several new groundbreaking capabilities, we added in Q2.
Third.
We have been engaging with all of our key end user markets as we prepare to rollout our new products. For example, we will share with you how quickly we have extended our reach into aerospace and defense with several new strategic engagements.
Fourth we continue to build out a world class team public company infrastructure and optimize our liquidity in the currently volatile financial markets.
In short today, we will show you a material progress across all four of our stated objectives I will focus today on our product our manufacturing progress and customer traction.
Bob will discuss financial results and metrics that support. These efforts I will then conclude by sharing a few closing remarks.
The call will then be open for Q&A.
As I've outlined in our executive summary, we have made significant progress on our path to product position, both on our AI product with our partner Sanmina and our first AI Adas licensed product with our customer continental.
For our AI product you can see Sanmina is ramping up our initial sensor production lines.
Our precision optical components are sourced from top tier suppliers worldwide for final sensor Assembly and this sanmina facility.
We also jointly developed and deployed an automated state of the art calibration and end of line testing and validation facility, where each sensor has put through its paces to ensure that it reliably delivers AI is renowned superior performance.
As we head towards large scale distribution. We are also testing, our new ruggedized lower cost environmentally friendly packaging.
For our automotive Adas product, we are excited to publicly share for the first time, a major milestone for AI we.
We have transferred manufacturing of the B sample Continental HR around 131 high performance Lidar to Continental's World class manufacturing facility in Ingolstadt, Germany.
It is our belief that this is the first time that a major tier one has transferred into production a license long range Lidar technology with the intention to delivering it to their installed customer base.
This is a validation of our unique capital light business model in automotive now, let's switch gears.
Excuse the pun.
Today, we would like to share something remarkable in the next two minutes, we will demonstrate how we utilize our sensor based O S to instantaneously transform our lidar hard work into a completely new system Reconfiguring all of the individual components entirely through our software operating system.
As sumita pointed out in our last earnings call. We can quickly add capabilities to enter new markets enhance features within existing markets and customized performance for evolving use cases.
All without we are tooling the manufacturing line.
You can think of this software configure ability similar to how smartphones utilizing O S dad capabilities to the same phone using apps and completely transforming the same hardware into a different product such as a predominant or a document scanner or even a geiger counter.
Today, we're demonstrating what we believe are two industry first capabilities that could power new applications, our foresight platforms, new zoom and stabilization.
Let's start with zoom camp.
Similar to how cameras change between wide angle and telephoto modes foresight can dynamically zoom in on objects on the fly Tad resolution at extremely long distances remember passive lighter systems are limited as a scan with fixed patterns at fixed distances. This new capability not only opens.
New markets, but improves competence and object tracking for existing customers and this automotive example on the highway we received three points on an SUV at 300 meters.
With zoom Cam enabled we improve resolution on distant objects ahead, and now received 19 points from the same SUV beyond 400 meters.
Is six times increase in resolution is a game changer and autonomous decision making.
And rail trains equipped with foresight could have one mode designed for scanning a station or platform.
Can use zoom can while in transit to detect track obstructions at extremely long ranges to allow adequate train stopping distance.
In aerospace and defense helicopters could utilize zoom cam for longer ranges to detect wires or birds and their path and switch to a wider field of view to locate the ground during landing maneuvers.
Now, let's show you Steadycam.
Similar to what a gimbal does and hardware to help cameras compensate for unsteady movement.
Foresight can dynamically adjust the software for any vehicle or use case, all roads aren't flat smoother straight.
As an autonomous vehicles require this capability to enable horizon tracking to compensate for a less than optimal road conditions. This becomes even more important for off road high speed or weather impaired scenarios.
In this video we were using our automated testing rig to move the sensor pitch to stimulate very road conditions, you'll notice with Steadycam disable the dense region of interest moves up and down with the sensor pitch, which we know is a problem when a vehicle is going over speed bumps potholes or slow growth.
If we look at the same scene with Steadycam enable you'll see foresight automatically adapting to the change in pitch dynamically by repositioning its laser scan pattern to keep the region events social work needs to be right on the horizon.
When you look at the two I'll put side by side the importance of software enabled steadycam becomes apparent as the AI sensor is able to put more density where you need it.
This patented horizon tracking capability. We believe is a key to adoption of highway autopilot a popular feature consumers have been requesting from automotive Oems.
This is a game changer not only in automotive, but also for off highway applications, such as mining construction and agriculture stead.
Steadycam allows these autonomous industrial vehicles to easily navigate a constantly changing ground elevation, which impacts vehicle pitch.
As we prepare to launch our new AI and continental licensed products in Q3.
We already have significant traction across several key markets again in automotive in trucking, we use a licensing model our lead customer is continental who is building their next generation high performance long range Lidar on the AI foresight intelligent sensing platform. We are jointly engaged on multiple opportunities with major.
Global automotive and trucking Oems.
Continental's be sample of their high performance H R. L. 131, Lidar has been well received the performance of its product combined with continental's ability to scale production quickly puts us on track to move to see sample phase in 2023.
And the smart infrastructure market, Hey, guys fore sight sensors are being installed by top tier system integration partners for applications, such as automatic incident detection.
Our tolling.
Wrong way driver detection and smart intersections.
Implementations had been worldwide.
From intersections in California, and Florida to pedestrian and bicycle detection systems in Ireland to highway incident detection, and Virginia and automated tolling applications across Europe .
We will be showcasing solutions for many of these partners at the upcoming I T. S World Congress event in Los Angeles. This September .
Today, However, we want to highlight our progress in a market that is well known to AI as executive team.
Aerospace and defense.
Our collective defense industry experience is encapsulated in our systems approach.
Hey, guys fore sight sensors are uniquely capable of long range detection exceeding three kilometers with custom optics.
Our flexible enough to track a bullet at greater than 20000 frames per second and can either Q off of other sensors or south Q adapting to place high density regions of interest of up to 1600 points per square degree around targets. These capabilities enabled by four sites in sensor for.
Section greatly expand the utility of AI and machine learning for defense applications, adding additional capabilities like zoom Cam and Steadycam and you can see why these customers are so excited.
I would be remiss if I also did not mention at this point capabilities enabled by our recently granted a patent on optical communications that directly expands our ability to extend our solution envelope for aerospace and defense.
With this capability the same sensor can not only navigate and acquire targets, but could allow the lidar to optically communicate between assets and theater, enabling the ability to coordinate and swarm with Wi Fi and other communication systems aren't available. Most importantly today, we are announcing a cornerstone.
<unk> partnership with Booz Allen Hamilton, one of the Department of Defense's Premier Digital systems, integrators, and a leader and data driven artificial intelligence and.
In addition, we will be integrating ai's foresight lidar platform to enhance booz Allen's real time embedded processor perception stack with high quality spatial information and ultimately to enable their digital battle space vision.
This vision combined technologies like high performance Lidar artificial intelligence machine learning and edge computing, providing an information driven fully integrated conflict space to realise information superiority and achieve overmatch across all warfighting domains. This partnership with.
Booz Allen Hamilton significantly accelerates, our time to market and the aerospace and defense domain.
In addition to our strategic partnership with Booz Allen. We are also excited to announce another highly respected partner in the aerospace market like fusion technologies, a company with a proven history of delivering lidar based perception and software applications, we will be working with like fusion to create airborne applications for deployment in 2023.
To support these expanded engagements we have opened a new office on the space coast of Florida that will be the focal point of our efforts in this area, our new Florida office will be led by industry veteran Steve Frye, who has extensive aerospace and defense experience at companies like L. Three Harris and Lockheed Martin.
Now, let's turn to our financial update with our CFO Bob Brown.
Thanks, Blair and good afternoon, everyone I.
I would like to discuss our Q2 financial performance, our strategic cash management, and then speak briefly on our outlook for the balance of the year.
Revenue in the second quarter was $706000, which was consistent with our guidance of $700000 of revenue for the quarter.
We have been managing our spending carefully over the last quarter, given the slowing economy and market volatility.
We're continuing to grow our team and advance our technology, we are doing so in a very thoughtful way.
GAAP operating expenses were $25 $9 million in the second quarter, an increase of $1.4 million from the prior quarter, which relates to strategic investments to scale, our team and advance our R&D and sales and marketing efforts.
Conversely, our G&A expenses declined by $1.5 million quarter over quarter.
In addition, our non-GAAP operating expenses were $19 $1 million in the second quarter down slightly relative to Q1.
Net loss was $26 $5 million on a GAAP basis, and GAAP EPS was a loss of 17 cents.
Net loss on a non-GAAP basis was $19 $8 million and non-GAAP EPS was a loss of 13.
Our Tucson is better than the consensus estimate for Q2.
We continue to manage our cash carefully net.
Net cash used in operating activities for the quarter was $17 $1 million, which increased by $1.1 million from the prior quarter.
Our capital expenditures in the quarter were nominal under $1 million.
We exited the second quarter with $125 $8 million of cash cash equivalents in marketable securities on our balance sheet that.
That includes $1.4 million in proceeds during the quarter from issuing shares under our $125 million common stock purchase agreement, which now has up to $123 $6 million of potential proceeds remaining so when you consider our cash cash equivalents in marketable securities together with the potential proceeds from our remaining common stock purchase agreement.
And we have total available liquidity of approximately $250 million.
We believe that provides us with a solid financial base to support our growing business.
We expect to make modest use of our common stock purchase agreement in the third quarter.
We continue to make improvements as an organization and have grown from an R&D focused entity into a scalable product focused commercial operation.
We believe that our capital light business model will allow us to optimize our resources in order to mitigate risks and take advantage of market shifts faster and more effectively than our peers.
Focusing on our core competencies, we intend to continue to extend our industry leading position.
Let me turn now to our near term outlook.
We expect to see modest revenue growth over the next few quarters as manufacturing of our commercial product begins to ramp up at Sanmina setting up our ability to scale volumes in 2023.
As Blair mentioned, our initial ramp is getting underway in Q3.
However, we have not been immune to the impact of supply chain challenges, which has had a direct impact on our ability to build product at expected volumes requested by our customers.
Because of these industry wide constraints, we're taking a more cautious view on revenue for the second half overall.
We expect our revenue for the third quarter to be in the range of $700000 to $900000.
While we have not seen a reduction in demand we expect that these global supply chain challenges are going to be with us for a while longer.
For the full year 2022 we now expect our revenue to be in the range of $3 million to $4 million.
In response to this uncertain environment as we noted earlier, we have been managing our spending carefully without compromising our expected growth in 2020 three.
As a result, even at the lower end of our revenue guidance, we expect our full year net loss on a non-GAAP basis, excluding stock based compensation expense to be in the range of $90 million to $95 million improving from the $100 million non-GAAP net loss, we guided to at the beginning of the year.
We do expect our capital expenditures to grow modestly in the second half as we work with our contract manufacturing partners on the production ramp.
While we anticipate slower growth in the broader economy and supply chain challenges to persist in the near term we have an experienced team to manage through that and we're confident in both the superiority of our product and the market opportunity in front of us.
With that I'll turn the call back to Blair to wrap things up before the Q&A.
Blair. Thank you Bob I want to close by thanking each AI team member for their impactful contributions for this successful quarter, where we made great strides in product development customer engagement and enhancing our financial strength.
We look forward to continued progress in the second half of 2022 and believe we are well positioned to scale in 2023.
Now, let's open the call for questions.
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Okay.
And our first question will come from <unk>.
Of Roth capital. Please go ahead.
Hi, Blair Hi, Bob just wanted to get a sense.
The changes in the near term outlook, if that has any impact on what you may have communicated during this back merger in terms of the intermediate opportunity and the timing of the volume ramp up.
The auto and non auto businesses.
Yeah, Hey, Suzie, it's Bob I think what we're not going to give a longer term outlook on today's call. So we're going to continue to give annual guidance, but I think this is a in terms of the near term impact that we talked about this is really supply chain challenges primarily affecting the industrial business.
So it's really us working through some of those basically component shortages that have impacted us in the short term in terms of the ramp. So again it was primarily relates to the industrial business I'm here for Q3 and Q4. So that's the impact Youre really seen. Meanwhile, we continue to move full speed ahead with continental.
On the beef samples and are working very closely with them on a number of opportunities. So Blair may want to comment on on.
On the automotive side and the opportunities there.
Yeah, No I think that was that was well said what youre seeing in the guidance today.
Today has to do with our ability to get products out of the factory versus the demand in the industrial markets were seeing for those products.
Okay. I appreciate that color and then you know you talk about highway autopilot, that's clearly being watched carefully in terms of timing of adoption I'm. Just curious if that's a L. For feature if that can come in L. Two plus L. Three and what are the key features like steadycam, they're gonna be needed.
To make that something that the.
Tier ones of Carnival implementing.
Alright. So you know we've talked before so you know the kind of the way we contextualize, adding.
Adding lighter and that the market number one we believe that cameras that radar arent going away a number two we believe that there is a huge advantage and use of orthogonal data for certain features. So you know one of those features and auto is auto.
We auto pilot because as you've seen others try with different solutions, it's very difficult at higher speeds or you need reaction time with small objects and in highly dense.
Metal environments, where you have guardrails to actually enable a highway autopilot without having a high performance Lidar system that can do a couple of things right. One is you need to be able to have the density to find no small objects on the road number two you need to be able to have the distance at those higher speed.
Feeds to allow lane changing or stopping number three which is I think probably one of the things that is most difficult for non adaptive systems is while you're doing that you need to also be able to follow.
Paulo cut ins or wide angle or lateral entry type of activities. So when we talk about the the steadycam capability well, we're really addressing is finding those very small objects like bricks on the road, where you're not bouncing and you're not going to miss it because that you can.
Actually attached to the road surface.
At the longer distances.
Okay.
Okay. That's helpful. Thanks, and then you talked about in several end markets in the prepared remarks, but could you give a sense of maybe which ones have drilled some opportunity. Besides the beach I know it's just.
Or just kind of relative notions and more importantly, which ones have the near time to production revenue ramp just kind of refresh us on that.
Sure as you.
As you know the automotive market because of the functional safety requirements. When the demand moved from say b to b or the autonomous vehicles into the AWS type systems.
That had been coming together faster that's.
That's a consumer product and therefore, you're not only need to have a product, but you need to put it through functional safety testing. So the revenues ramp up over a number of years you you've got a pilot you get a contract and then ultimately your system is tested.
<unk> tested and it will be implemented and then overtime either youll continue to scale up the number of car brands or models or you'll stay in a small section and someone else will come in right. So that's the way the automotive.
Market moves so when you look across our sector today.
Automotive market the way up to judge it is who you know what's the performance of your product because you're working with and where you're getting traction and pilots and then ultimately.
Longer term contracts the near term revenue across our industry is really industrial revenue right in the industrial market for Lidar has been around for a decent amount of time.
In the aerospace.
Aerospace and defense and telecom business, we're talking about 60 years, but in a traditional industrial markets Theres been about 20 years of use of a lighter systems now I'll caveat that by saying, it's been bimodal theres been a lot of very low and mapping systems.
So net of G. I S. And then Theres also been very very high end systems that were very very expensive for very unique or specialized things like being able to see in the dark in a mine with dust. Okay. So when you take a look at the industrial markets in the shorter term our belief is that I T S.
It has actually been the opposite is the I T. S had been expanding for a couple of reasons. One is you've already seen a lot of cameras and radar implemented in everything from stop lights to toll roads.
And this system actually has a tremendous value either as an addition, or replacing those systems and most governments around the world, including the new transportation Bill from the United States are actually setting records for funding to initiate these type of activities. So I think youre going to see and I T S and smart cities.
A significant ramp over the you know the next 2345 years, we redoing infrastructure.
The second market that we often talk about.
Is that the the more industrial construction and agriculture.
And mining type markets again smaller markets, but with high value.
And system, they're ready for systems today.
Value proposition is different and I T. S system is obviously, a safety based system and its selling data to the cities the models and those industrial markets tend to be more closed loop within a certain site and they tend to have a much higher value in keeping safety high and throughput high so.
Two things are unfortunately related where if you have a safety accident. It can cost you $50 million a day to close down a segment of a of a mind the third area, which we also highlighted today is really a back to the future type area, whereas I said for the past 60, 70 years Aerospace and defense is as really use lidar.
I think a new emerging market and aerospace defense is coming.
Coming in which is really using Carter.
Commercial off the shelf products better now, we entering aerospace and defense and that's one of the things that we announced today with our partnerships is we're seeing a great demand I think that ultimately is probably.
In the near term may dwarf some of the other industrial markets, just because they've been using sensing systems and quite honestly. If you saw top gun you would've seen system that that a bunch of our engineers did which is the lighter system on the side of Tom cruises jet right. They they understand.
The value of spatial data so again our opinion.
Is that I T S and smart cities, you'll see the narrower niche and agricultural construction and mining, but higher value and pricing and then you're also going to see the emergence of aerospace and defense.
Thanks Blair Israeli conference. One last quick question, then I'll pass it along the alcohol optical communications technology, you talked about is that applicable potentially for consumer if you get a X.
Thanks.
Sure you know and there's this is a more complicated question.
In the sense that every every single.
Technology has to be actually weighed against that.
You know what's there today you know what's the what are you going to be actually moving out. So there is an opportunity.
For it but it's much more applicable in the short term, we believe incentives and some of the more industrial markets, but again, we wouldn't say that it's you know that it couldnt be used.
For <unk>.
Maybe even more for V to X, but I think the industrial markets and tend to have a closed loop infrastructure.
And it's easiest to implement there. So I think if you start to see some some traction indeed acts in industrial it's easier to actually migrated back into the consumer markets.
Thanks Blair Thanks, a lot.
Thanks, Susan.
Our next question comes from Hans Chung of D. A Davidson. Please go ahead.
Hi, Thank you for taking my questions. So.
First I want to follow up on me.
The supply chain issue can you.
Can you provide some color around that.
The shortage I think amazing surety and some kind of corner.
Wondering.
What kind of be the.
The component of that.
Some kind of chips.
Kipp or.
I don't know maybe laser or.
And then.
Oh, so how you count it than we are.
The ramping I mean tracking to at the end of third quarter.
And.
Any any potential challenges here in terms of a selection.
As we move along.
Sure I'll handle the first part and I'll, let Bob handle the second part of the question.
Clearly the the chip crisis still impacts us I wouldn't say it is the main driver of what we've been.
Dealing with in the last few months Ironically, it's been some things that we that.
You wouldn't think of very very small connectors or.
Very small bom cost pieces of the system that Unfortunately, what you realize is although you've locked down all of your main components suppliers. If the entire Bom is not ready you can't finished full assembly.
So I you know I appreciate the question because.
I think it's there there are still challenges around shifts, but it's mostly it could be solved with price. If we wanted to but some of the shakeout now it's just that these really small things.
I will get Mad at me, if I go into too much detail, but one of the challenges you know we spent.
A decent amount of time on was a $2 part.
That just wasn't available right and.
It was unexpected, but I would I would leave you thinking.
Thinking look we're not going to get out of supply chain challenges.
Challenges anytime soon.
Because the world is what it is but I think what you're seeing is we and the rest of us the rest of the industry, we're working through how to manage those.
Think the little bit of this this last bump in the road was just the unexpected.
At tiny little things not big things.
Could've actually caused some consternation and how we get the the final assembly done.
So Bob why don't you handle that the next yes, so just to add to that Hans Yeah, I think blurs exactly right and so we're doing our best to get those parts that we need as quickly as we can we think we're going to be able to solve a much of that during this quarter, we won't have.
Necessarily access to as many parts as early as we'd like so it is putting more ramp into the back end of the quarter as Blair said in his remarks. So consequently, there's there's some risk there of course on.
On the revenue side for Q3 with more of that revenue coming in later in the quarter.
So we did contemplate that as part of the guidance, we gave on revenue for the quarter of 700 to $900000.
So part of that that range incorporates some risk around getting these parts as quickly as quickly as we'd like and actually getting into production.
So it has set us back both in terms of the production as well as some testing that we need to do on the products. So we're working through all that expeditiously and we think we.
We'll make some good progress against that in the quarter, but there does remain some risk there right that we've got to work through right behind your U I know when you will go back do the math in your head and what Youll see when you look at this is that.
It's probably put us back two months right. When you take a look at what Bob said about.
Getting testing done early enough. So that we wanted that we feel comfortable on you know product that a O L and the why now you know.
<unk> and also and just getting enough parts into the system you know one of the so I don't we don't feel like this is a.
A structural problem that will continue over time, we do believe it's something we're going to live we're going to live with a low level of this and we're just going to have to like everyone else.
Mitigated mitigate the risk and plan for it.
Got it.
And.
So our next question is about the new Aero defense business. So is.
Is that the kind of incremental opportunities based on the current fore sight possible or sort of new location based on new platform.
Right, but it's not it's not a new business to many of US in the company. It was not considered a large portion of our plan in the short run because we werent sure.
You know how it would be how the product would be accepted and what we found is that there's been a bunch more pull than we thought so I don't know if there's if Bob is that a fair yeah. I think we had always contemplated the aero and defense as an opportunity Hans but we haven't necessarily built out explicitly in the.
In the models for the reason lower suggested so as you said, there's really a commercial off the shelf solution, but because we've got this unique software capability, we're able to adapt to different solutions like a defense sort of application right. So that's one of the strengths of this model and this technology is that it is very adaptable to different mark.
It's using that same platform.
So we think we will get synergies out of that overtime and defense is one example of that where we can address that market with the same fundamental platform with different software implementations and to emphasize that part of your question was this product will be coming off the semi semina line. It was not going to be a new.
Our new line. It's the same it's within the industrial now there may be times, you know in the future.
Just like you know with everything else, where there may be a customer who wants to do something that's very different and then we'll address those opportunities as they come up but today. We're assuming this is just another application.
Off of off of our fore sight operating system.
Got it got it Okay, and then and then that's so some recently one of your peers.
Got deal with Volkswagen group, and it seems that could kind of a long term a big deal.
I know that the implied that these kind of close that door.
You Wouldnt count continental to Volkswagen or.
It's not necessary.
No no and in fact that you know.
What I sent a note to congratulate them they.
Are those guys come from actually the same background, we do in a sense from the military background. We were that was a deal that we were not involved in and it actually predated the Ars and continental's.
Partnership and remember in our model, we don't go direct automotive without a licensee.
So.
You know we were not necessarily involved in that deal also when you look take a look at our Volkswagen. They you know they have multiple different radar systems they'll have multiple different lidar systems multiple different camera systems. This is state you know theres been a initial.
Selection of nomination for a certain application.
The beauty of you know I think we talked about this the last call the beauty of where the automotive industry is moving is to software definable cars. So the point there is that they will have multiple sensors with multiple applications that they can add value to the consumer and ultimately be able to charge for that so we look at this as a.
Is a good sign that these initial CIS.
Our systems are getting specced in.
And.
There'll be many many more opportunities not only in people like VW, but you know the other 25 OEM brands.
Got it Okay, and then one last quick.
So what you will.
We'll be able to benefit from recently passed its the Chip Act deal.
In some way.
Alright, so well first of all we are a huge supporter of this because it drives innovation.
And we need that and we think we have a lot of opportunities. There. We are actually number one participating in the lighter coalition.
At the at the highest levels to actually help everybody in the industry.
But we specifically see opportunities within our domain because we work with so many partners. We're an open system with modular hardware, so either with us working on design or with some of our partners. We think this is a good opportunity to accelerate innovation out Bob actually came from that industry. I don't know if you had any thoughts yeah.
Our motto Hans really benefits from development in the semiconductor ecosystem right because of what Blair said really this open modular architecture and our strategy has been to use components that are developed by major players in the semiconductor industry.
So the chips Act, we think supports certainly that whole ecosystem and therefore, we're going to benefit from that probably indirectly world. We'll also look at whether there are some direct benefits as well, but anything that supports the semiconductor ecosystem supports our platform.
I.
Thank you.
The next question comes from Michael <unk> of B Riley. Please go ahead.
Yeah.
Good afternoon. This is Michael money on behalf of Craig Ellis, Thanks for letting us ask a few questions to start I just wanted to begin with your industrial segment.
Given the <unk>.
Focus on the high performance and long range sensors.
In this market.
Various applications can you just talk about the competitive landscape in this particular area what kind of Greenfield opportunities are there like aerospace and defense as you mentioned as an emerging opportunity and how do you think theyre currently served or underserved and where where does it fit into that mix.
Sure sure.
So what I would say first is that the way we look at it.
The industrial markets is a through value based use cases right. So we you know, although we have to say it's a T S.
Mining its agriculture aerospace and defense.
There's a set of things that you can do.
With a very fast powerful deterministic sensor like lidar and so the way we've actually.
Approached each market is to take a look at what we can do that helps them either to increase safety increase efficiency or to add features that they can they can make more money on.
If you take a look at the business model behind that part of the challenge has been that some of these markets will pay a great deal because it's high value, but theres not a lot of volume.
You know one of the things in the automotive business is everyone's always looking for a big volume to drive a full manufacturing line.
Bob alluded to it but one of the strengths of our model is that our manufacturing line at Sanmina can be used for any industrial market no matter, how big or small because all the customization for the high performance comes in the operating system. After the manufacturer of the hardware. So that's really the way we look at it and Bob said.
Quickly.
But it also gives us the ability to actually.
Take advantage of things.
Faster if I T. S gets big legislation, there's a big uptick in people that want it we can ramp up our volume using that line or we can ramp down if theres any delay.
And in that type of market. So that's the way we look at industrial is that.
So there's a tremendous amount of different markets based on similar use cases, but they're all in our model. We're building the technology on one manufacturing line and then we're using the software they add those capabilities.
Great. Thank you for that and maybe just a follow up on your new features are so nice to see the color. There I was just wondering given that particularly.
Particularly with the industrial market.
Given that there is typically a higher asp's and maybe an auto and.
What do you think.
What do you think about pricing considerations are gross margin margin considerations.
For these kind of new features and how does that fit into your long term strategy and maybe what other features if you can give us any color do you plan to roll out that can also be.
Sam expansive.
Sure and you bring up something that's a you know a more a larger context and the business model of sensors right. So if you take a look at auto and you take a look at Ada has a lot of the software is automotive grade software functionally.
Safe and integrated with other systems is done by the Oems or by the tier ones. So we're unique in the sense that we actually licensed software to our tier one partners and we highlighted continental our lead lead customer, but there's a there's a limit on how much you can make.
On software using the traditional model, where you're just selling a hardware product usually that's bundled in so we have a very different model. It's a very high margin licensing model in the industrial markets. However to your point, we think the markets are maybe smaller in hardware volume, but that theres a lot more value to be added and therefore are.
A lot more software.
Margin to be gained if you can produce.
They need to again, either make it safer. So my mind doesn't shut down to make it more efficient so I can increase throughput or to add a new feature so that I can actually do something I couldnt do before I mean at the end of the day you have to look through the eyes of of the customer. So we actually believe that there's going to be more software opportunity in the industrial markets.
Over the next couple of years.
For us.
Then maybe people would expect.
Great. Thank you and maybe for my final question, so nice to see the.
Progress with the beef sample with Continental could you just walk us through the rest of the timeline.
In terms of timing and when it gets a few sample and the other stages before our production.
Over the next few years.
Yeah.
Sure I mean, you and I know you're familiar with the automotive vernacular. It's tough you know some people talk about a b C D.
But in reality in the automotive industry. It's a it's a very distinct it's a very formal and a very structured process.
This process for us.
Are we.
Transfer at the sample so that the industrialization can be done by continental in their facilities, where they pick up all the costs of the manufacturing line. They pick up all the cost of the warranty and liability and they pick up all the working capital so.
Our transfer point is the B sample and then continental having shipped over 20 million Litres of 150 million radars will move it into the sea sample and they will decide when they actually want to watch.
As part of their <unk>.
You'll offering or is it part of a system offering to their installed base. So we're in.
We've moved through you know b, we're transferring over and continental will decide when they are in the C. Sample, we can't talk too much about their business because it is their product.
Other than we did.
Allude to the fact that we believe that our you know.
Given the normal standards that 2023 is when the C sample will will come out.
Got it that's helpful. Thank you very much.
No. Thank you.
Okay.
Our next question comes from John Roy of Water Tower Research. Please go ahead.
Thank you so Blair I wanted to talk about the Booz Allen deal just a little bit I mean, obviously you won that business I was curious as to you know.
What were the key elements of the technology or the business.
It allowed you to actually win that business.
Yeah, you know I think it's.
It may say at seem counterintuitive, but it's really around data architecture.
Alright, whereas.
You know most people talk about the hardware the acquisition of data first but because Louis when he designed the system design different military perspective, he designed the network and the software first and then how do you acquire it through whether it's a lidar system work.
Combination of Lidar and other sensors and I think that was refreshing and very attractive because in most aerospace and military situations, they're actually trying to solve a problem first which means it's about data most people and maybe you wouldn't put it. This for most people don't think about this but at the end of the.
A day you can't be autonomous without making decisions you can make decisions without data. So we're really in the data business better spatial data faster and that's really I believe what.
Impressed our partners at Booz Allen.
They are the experts at AI and machine learning and one of the challenges that they have as they've said publicly before is that a lot of times people are bringing them in to build out this system, but they have to deal with whatever data that's being put through the pipeline and they can't change it.
Well with us.
Our system can actually it's two way communication they can actually ask for the type of data that they want so it's much more impactful and their perception stack because we together can actually acquire and pre processed data in a way that makes it easier for AI and machine learning to add value to make decisions faster. So.
I think that's the.
First thing I think the other thing is just that we were.
We're adaptive.
And I think that that in the aerospace and defense is very rarely.
You know a one size fits all solution and the fact that we could give them a commercial off the shelf hardware system that had the kind of performance envelope. They were looking for yes, they could customize and software and on the sensor I think that was also very attractive so I think data and adaptability of the operating system.
So is this giving you a pretty big barrier to others getting into the market and Booz Allen's going after with their own versions.
Look again I said this at the very beginning of the call and our philosophy I think.
Look sensors or a heterogeneous environment I think that there will be.
You know places in aerospace and defense have been using sensors for a long time I don't really look at it as.
Defensibility as much as I look at it as value added I think we have a unique opportunity to add value that maybe others aren't designed to add.
But that I think that will ultimately work with cameras and radars and infrared and other types of sensors.
And almost every every application that we do and they are.
Defense area is it just makes sense.
Even if you take a look at human vision, 80% of your envision is actually preprocessing, the visual cortex at the edge of the network and 40% of human vision has impacted heavily by other sensors touch smell sound. When you rotate in 48. So I think it's just a you know if we want to be better than humans.
There's a lot to be learned from.
<unk> inspiration.
So I'd say.
What I've said, Bob because I ended with philosophical, but I was able to get that in there right at the Red again.
Maybe one maybe one final question so the aerospace and defense strategy that you have I mean, obviously partnering is going to be key can you give us any more color on what your thinking is there.
Yeah, well I think that this do you look at these are things that they're a mirror in and.
In the.
Consumer areas, we're trying to find.
Detect acquire and make a decision on objects so that we're safer.
And I think that there's a <unk>.
Two is that in defense, which is they have a different terminology they call it call it fine and feel and fix right. So we're doing the same thing we're trying to actually give computer systems, the ability to to find things to acquire them.
Detect acquire and then to act on those and that's really again I'll say it again the basis for autonomy is the correct data to make decisions without human involved. That's the definition of autonomy is the final sensor is not a human sensor to make the decision. So our philosophy is to go out and give this adaptive platform to a bunch of people.
Who need to solve that problem and let them help.
US help them.
Thank you very much.
Well thanks for the questions.
This concludes our question and answer session I would like to turn the conference back over to Blair Clark for any closing remarks.
As always thank you for those of you who joined US today I think this was a record.
For our earnings call and I'll kind of give a clouded our head of IR.
Kudos for that and as always.
Thank you to all the employees.
Who really made this possible Bob and I are just actually out here at to actually report and this presentation and the videos will be available on our website in our investors section. So thank you.
Thanks, everybody.
Yeah.
Conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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