Aurora Innovation, Inc. (AUR) Earnings Call Transcript & Summary

Great. So let's keep it going. Next up, we have Aurora Innovation, autonomous trucking company that's actually running driverless trucks on public roads in the U.S. today, $10 billion in market cap and very happy to welcome back to Laguna, CFO, David Maday. David, thanks for being here. So what a difference a year makes. Last Laguna, your stock was I think under $2, and you were very much a show-me story. And since then, you've actually launched commercial driverless operations that you've now started to expand to second line, you're doing it at night and many boxes have been checked and your market cap is approaching $11 billion. So well done, I'd say. It's a good 12 months. With that, I think you have some few opening remarks, though.

Yes. So perfect. And thanks a lot, Ravi, Nancy and the entire Morgan Stanley Group. This is a great event, not just the venue itself, it's very well attended. And we get lots of great questions in the one-on-one. So really excited about that. Just a little bit for those that aren't super familiar with Aurora, right? I think for us, everything starts with the fact we're a mission-driven company. Our mission is to deliver the benefits of self-driving technology safely, quickly, broadly. It guides everything that we do. As Ravi mentioned, we are the only company operating driverless on public roads in the trucking space. We're super proud of that. We just passed 50,000 miles this last weekend, and we continue to deliver towards our mission. The Aurora Driver is our product. It is a combination of industry-leading like hardware, cutting-edge technology and our verifiable software, AI software, data services and et cetera. Trucking is our first market. It's big. It's a $1 trillion market. it's $200 billion in VMT and we think that the Aurora Driver can create tremendous value for this industry. So we're really excited about that. I'm sure we'll talk more about it. We think that having a partnership ecosystem is not only important. Honestly, it's critical, essential to actually achieving a scalable business. And so we're proud to have partners on the OEM front with the likes of PACCAR and Volvo. We think all of our customers, our partners, right? So we've got our customers like Hirschbach and Uber Freight. They're actually operating driverless on our launch lane and many of our other partners who are customers, the FedExes, Schneiders, Warners of the world, and we're really excited about this progress. We also have and rely upon partners to develop our future hardware generations like Continental or Aumovio when they officially change. So we're really excited about the opportunity, but we also understand we can't go without partnerships. We've got a really solid financial position at the end of last quarter. We ended with $1.3 billion in cash and short-term investments. We believe that will push us into at least the second quarter of 2027. We're very fortunate to have a very supportive long focused investor base who has continued to support our journey, and we'll continue to be opportunistic in terms of fundraising in the future. I mean a little bit about what's next. So the remainder of '25, it's all about proving the technology promise. It's great to have driverless trucks on the road. It was an incredibly important milestone but it does not make a viable product for the industry. When we launched, we launched in daytime and dry conditions. Now we're operating day and night, we're able to pull it ahead. We have to operate in rain. We have to operate on longer lanes. So we still have to prove the promise for our customers, and we're really excited and are very confident in our path for the remainder of this year. For '26 and 27, it's all about scaling the business, right? Introducing our second and third generation hardware kits, introducing scalable platforms with our OEM partners, delivering to customer endpoints and generating meaningful revenue. So it's a really important time. One little plug at the end, which is we're really focused on building public trust and transparency. You go to our YouTube channel at Aurora Driver, any day, you can watch our trucks actually operating. We livestream it, rotate through a series of those every day and it's available anytime. It's basically 8 to 5 p.m. Central. So check out the trucks. It's pretty cool. With that, let me turn it back to you.

You're right. We should have put it on the screen back here.

I told you.

Anyway, thank you for that great intro. So maybe I'll start with kind of my stupid intro, which is it has been incredible 12 months for you. Kind of what has it been like on the inside, right? Has it been like putting out fires on a daily basis. Has it been cool, calm, collected with Chris kind of just putting in the strings or what's it been like?

Well, I'd be lying to you if it was cool, calm and collected. I think -- so I think it's a combination of things. Number one, a tremendous amount of pride in and excitement of what we've delivered to date. And we set a series of big milestones that we put out there for the public to evaluate. And one of them was to show it's real. And we did that. But that, in its own right does not create a business. It doesn't create value for customers. It doesn't create value for our partners. So while we enjoyed that, and we think it's a hell of an accomplishment, ultimately, at the end of the day, for us, it's all about execution of the plan. And we continue to be really focused in on this, '25, as I mentioned, is about the technology promise. And it's proving to folks that we can do what we said that we can do and we can do it really well. And it's working collaboratively with our customers, with our partners and really developing something that can be outstanding and transformational in the future. So we're really excited. We're really proud. We're the only company that's doing it. We're really excited about that. But again, all that excitement we have to transform that and focusing on execution and execution is something I think about almost every day.

Got it. So you're a CFO, you're good at math. So correct me if I'm wrong here. You did your first driver out run end of April. End of June, you did 20,000 miles, so 2 months and now you did 50,000 miles, a little over 2 months. So is the pace of that mile collection kind of accelerating? And how do you see that trending in the course of the next few months?

Yes. It is trending and it will continue to go up. And -- but I think it's important for us to kind of measure like where we are. And we've said all along that we are approaching this as a crawl, walk, run. So it is really important for us to continue not to focus just on one particular like metric. That's why we don't say, hey, we're going to get hit 100,000 miles by X day. Like -- because I think that, that's really not what you're trying to achieve. It doesn't create any better of a business than the other one. And really, this is about balancing the driverless miles and continuing to exert the muscle and that you need to, to create a viable long-term business. But it's also -- we're supporting at the same time, we have a driverless fleet of vehicles, which we have, we use them for development, too, right? So we're actually trying to continue to not only build up the driverless miles, but we're also trying to launch our next feature capability. In this case, it's rain and in additional lanes, Fort Worth to El Paso and El Paso to Phoenix. So we're balancing both, and we're doing it deliberately. We have 3 trucks that regularly run the driverless route in Dallas, Houston today. We are going to increase that in the future, but we're also going to continue to focus on the technology because running a whole bunch of miles on just one lane and without doing any of the other stuff also not super interesting, right? So we've got to do all the things really well.

Got it. So in the first 6 months, the first 50,000 miles, any surprises so far? Any kind of edge cases that you guys have not evaluated or any good surprises or any bad press?

No. Honestly, it's been surprisingly...

Maybe it's good that we didn't have the thing in the back.

No. If we weren't confident, we wouldn't have an Aurora Driver live out there for everybody.

Yes, obviously.

We always were part of the safety case framework, part of the mentality is continuous learning. We're not going to do everything perfect. There are times when you have to learn and it makes the product better. But the product itself, from the time we launched it, that's been great. We send them out every day. They do a great job. It's -- we're constantly learning how to scale a business, but the driverless trucks themselves, they're -- it's been amazing and remarkable. And every time I go and watch one of them live, I'm always amazed. You see all kinds of different scenarios. I was watching the other day with an extra-wide vehicle blocking some of the lanes. And you get to see something new every day and you get to see the Aurora Driver perform. And to date, most of you know we have a front seat observer in the vehicle as we operate in our driverless mode. We do that at the request of PACCAR. And it's still driverless mode. It operates every day, the front-seat observer never has to do anything. And it's been really exciting for us. And it continues to build the confidence that we know what we're doing, and we are the leader in this, and we're looking forward to actually adding rain and opening up our next lane. So we're really excited.

Yes. This is a serious question. How do you ensure the Front Street observer stays awake? Because, I mean, a lot of the companies I speak to say that it's going to be a crawl, walk, run on their side where once they get the truck, they're going to put their own observer in it for a while or they do a team thing. And -- like honestly, if he's got to -- the driver is going to be there to like take over if something bad happens, he needs to be engaged. So have you noticed this guy fall asleep? Or is he playing video games? Or what is he doing?

They're observing, No, they don't fall asleep. It's really important to have good standard operating procedures and trainers. It's important to also note that like our observers, when they do it, they're still providing feedback to the development team on how the truck is operating and what they like and don't like. Drivers are a critical element of our business and our company. And so their feedback is always useful. And we also -- if we're going to have somebody in there at the request of PACCAR, we need them to be available to do it in case something did happen. Look, we know that the Aurora Driver is confident. We pass our safety case when we see it do all the things we do. We even know that if there's failures that Aurora Driver is going to be there. But it wouldn't be very useful for us to just be disingenuous about it. So -- and again, the driver is providing feedback -- I mean the observer is providing feedback every day. If you're -- the analog is the ride-hailing side. Like ride-hailing has been doing it for a long time. They get feedback all the time. It's called having somebody in the rear seat observing the vehicle and telling you what they like and didn't like. We haul toilet paper, coke or something like that. So for us you don't get that same benefit. So we are -- we take a look at this as an opportunity to continue to give feedback.

Got it. That makes sense. So for those who are unfamiliar with the story, can you just very quickly tell us why PACCAR said they wanted that?

Like any great partnership, there's always going to be good things, and we're not always going to agree on things. For us, I think PACCAR's philosophy they can talk about why they are concerned about it. But as we've discussed it, they -- we have prototype parts in the truck that haven't passed their validation process to be what they determined to be safe for them for the Aurora Driver, our responsibility is the Aurora Driver. We know that it is safe, and we have to assume that parts fail, unfortunately. That's the point of having redundancies, and that's the point of doing everything. So we have a different philosophy on this, but you can agree to disagree and still move forward, and we still think they're a great partner, and we'll respect the differences. And it does not impact our development. And that's the thing that was really important for us in agreeing to this is we still have to do a whole bunch of stuff. We have an observer in there. We have them sit in the front seat, make sure they're a license driver. But there's a ton of work that we still have to do in terms of the development. And when we launch future fleets of vehicles, there will not be a requirement for an observer. And so that's kind of like how we think about it.

Got it. Let's talk about scalability. You absolutely surprised the upside by launching nighttime driving early in the third quarter. So you reported it on your 2Q conference call. So what can we expect for -- I mean, the next conference call, I think -- what's the pipeline for rain? what's the time line for Volvo?, What's the time line for the second lane?

So time lines for rain and for the additional lanes still is by the end of the year. So we're going to continue to focus on delivering that. And again, we are going to do the necessary steps to ensure that we're safe on public roads. Our families drive on those same roads, and it's incumbent on us to do that. But I can tell you, for certain, we'll launch it when we know it's safe. And like we get asked the question a lot, there is no technological challenges here. Like it's not that we need to continue to develop stuff. We just have to turn the crank and do our validation process and do the necessary steps that are important to ensure we have a safe product on the road. So there's no invention that's required. We just have to continue to do the work and I expect that we'll see a really great progress towards the end of '25.

Got it. And second OEM?

We're going to be operating Volvo trucks later this year with our second-generation hardware that's being developed by Fabrinet in Thailand. It will be B sample hardware and then eventually moving into C sample. It will be started off with development, and we'll operate autonomously with vehicle operators to ensure the safety because we have not approved it for driverless, both us for the second-generation hardware as well as Volvo. Volvo needs to approve the platform. This is their scalable platform, what they call C build. So it's basically their scalable platform design, but they still have more work to do to validate it. So when they're ready to validate and operate driverless and when we have validated the second-generation hardware on that, then we'll take that and we'll operate driverless.

Got it. Remind me, the PACCAR is not Fabrinet.

No, the PACCAR trucks are on our first generation that we've designed and manufactured.

Got it. So the next level of scalability is, to your point, it kind of -- it makes no sense to just keep ramping up on the same lane, doing the same conditions kind of it doesn't really serve any purpose. One of the debates we've had with investors and with companies in the industry is how long it's going to take to expand not from 1 to 2 lanes, but to 5, 10, 50, 100 lanes across the country, right? So we have seen this with -- on the robotaxi side where Waymo took years, maybe a decade to launch their first city and then the second one came pretty quickly and the third one came really quickly, and then now it's like a city, a month or something. So can -- is that the kind of time line we're looking at? Or how does that scalability go?

Yes. I think once we're able to operate in rain, so then, therefore, we've got day night in the rain, you're able to operate in most all of the environmental conditions that need to be. And then the self-similarity of the U.S. highway system, whether you operate in Dallas or in Arizona or in Louisiana, like self-similarity of the highway system is pretty evident. It's the same reason I can drive a car in multiple states, right? So I would expect that this will actually happen quite quickly. I think it will look actually probably even more aggressive and faster than what you might compare Waymo's first, second and third markets in driverless we do expect that we'll be operating throughout the Sun Belt in 2026. So we're fairly confident. Again, it's the same thing. It's like there's nothing new that we need to invent, there's nothing new that we need to experience. We drive the rail. We -- it becomes part of our mapping environment or we drive it a couple of times. We determine if there's anything new that we haven't experienced in another area, if there is, then we have to go design the test and validate the system for that. We would expect that you're only not seeing a lot of new stuff as you go through there. Again, traffic is the same throughout. You have to be able to handle heavy traffic, even if the frequency of heavy traffic is more, you still have to handle heavy traffic, you still have to handle merging. You still have to handle hard braking, you still have to handle people cutting in like you still have to be present and be aware of animals crossing in the road. So I think all the really challenging things that people talk about it's evident already. And so it's really just turning the crank on the next area. And one of the things that I think what really separates us a little bit is our validation process. And our ability to go from the next lane, and it was one of the reasons why we're able to pull night ahead actually, our ability to validate the software and to pass all the appropriate tests and to know that we're going to be acceptably safe on the public roads, that turning that crank and that flywheel is just increasing for us every time. So I do totally expect we're operating throughout the Sun Belt in '26.

Got it. And other somewhat misnomer out there is that you guys only do highway and like point-to-point in the highway kind of you have said that you can do surface street as well as to the customer endpoint. So can you just specifically talk about what the capability of the truck is expected to be at commercial serial production launch. Where can it -- like can it go from a warehouse to a factory?

So today, we operate between our terminals. So here are some facts. Our terminal in Houston is 5 miles off the highway. So the route that we take to go to our terminals 5 miles off the highway, it happens to be right by several of our partners' DCs, right? So generally speaking, most all warehouses, DCs in the trucking industry are really close to highways. As a matter of fact, 80% of them are within 5 miles of a highway, right? And that's just the setup of the industry, it's just different. And so for us, there isn't anything new to develop, like we operate on surface streets today. There is -- we'll obviously look at it. If I saw something that was challenging, we would code it as hard and we'd even need to do it. Like one of the things is if we go through a school zone, you have to make sure that you validate through a school zone. But aside from that, we've already experienced everything we do. And again, it's the same way as the highways. We're really just kind of going off highway. It would be true if like all of them were in urban city centers and things like that, then you could argue that that's a little bit harder. But in this particular case, it's not. And the data is pretty apparent. And there's a reason like people need big space. They need to put a lot of tractors. Warehouses need a lot of space, depots need a lot space. So for us, I don't think that, that's really a valid argument or consideration. I think we're doing it today. We expect like 80% of America to fall within what we're doing today.

Yes. Got it. So when you look at the competitive environment, again, there is this -- I push back our investors all the time and people say, hey, who's going to win? I am like there doesn't have to be one winner here, right? So what do you think this industry looks like in 2030? How many players are there? If you want to name names, go ahead? What do you think sourcing looks like? Is it an 80-20 on the OEM side? Who's running their own operations, who's not? And like what's industry structure in 5 years?

So like, look, when I think about 2030, so we've got a crawl, walk, run approach. I think by 2030, we're running, right? Like we're operating throughout most of the U.S. We've integrated with a lot of our partners. We've got our third-generation hardware kit that's being produced -- being manufactured by Continental, being directly shipped to OEMs and lineside installed. We got customers buying kits and doing subscriptions, and I expect this to be an integral part of the industry. I don't expect that today, like today, this is the crawl portion of this and like that's a little bit of the misnomer of what's going on. It is going to take some time. But by 2030, I think we're going to be there. The market's $1 trillion, 200 billion vehicle miles are traveled per year, there's going to be competition. I don't know who they are. I'm not going to guess or predict who they are, there's going to be competition. I think our customers want competition. Our OEMs want competition, like this industry is set up, so you're not single sourcing everything. And I think we have a multiyear lead just to be honest, my personal belief is we have a multiyear lead. My belief is that we are the only player today that is actually thinking long term about commercialization. We're the only one that has 2 generations of hardware and development plus one on the road. So we think about building a business, and I think we're going to continue to work on that lead. If there's other competition out there, that's great. I think it's just going to make us even better, right? And I think competition breeds innovation. And you shouldn't be afraid of it.

Got it. You guys are talking about crawl, walk, run. Let me ask you a marathon question, which is, obviously, you're not going to be autonomous trucking only. You also absolutely have sights on the robotaxi market, on the commercial delivery market over time. When do you think you get enough escape velocity in the trucking business that you can start putting serious resources into robotaxi?

Realistically speaking, I think when we launch our third-generation hardware, which would drive down the BOM cost, again, I think we're at a cost structure that would allow us to be successful in the ride-hailing business. I think the ride-hailing business is -- and you got to hats off to Waymo and what they've done in the ride-hailing business. I give them a ton of credit and I took a ride in it the last time I was in San Francisco. It's a great product. Just like in the trucking business, I expect there's going to be other players, and I expect we'll be one of them in the ride-hailing business. But the business model is challenged, and we need to be able to create value and have a value proposition. We're not going to be the leader. Obviously, Waymo is already there. We need to make sure that when we enter a market, we have a value proposition and ability to carve out a market opportunity for us. So I wouldn't say before '27, but who knows what happens to the world like maybe there's an opportunity that presents itself. But generally speaking, I wouldn't say until our third generation hardware comes in that I think we have the right cost structure to really change the landscape.

God it. Why do you say the business model is challenged? Do you think the revenue per ride is just not enough? Or is it a hard thing to do? Or why is that?

I think -- so the trucking market is a much bigger market today. If the ride-hailing market grows, it needs cost to reduce to increase the number of rides and if I just look at driver wages today, there are 3x as much as like gig economy workers.

That's right, labor arbitrage.

Yes. So there's fundamentally some cost structure differences that make it just way more attractive. The other thing is look at it today, I can go into the trucking space. I can create immediate value by being safer, by improving fuel efficiency, providing predictable, stable supply that integrates within the existing network of drivers that are already there today, and I can create value, right? That's the cost structure on that. I honestly don't know that, that's the same in the ride-hailing space. I think I can provide supply, and I think I can be safe, but I don't know that I'm creating a ton of value because the value piece of it has to help grow the market. And I just -- in ride-hailing you got to grow the market and in trucking, I think you've got to support the market.

Got it. Maybe switching gears a little bit. Obviously, you guys have achieved a lot in the last 12 months in your history since 2017. How well known do you think that is in the trucking space? And I ask you because to be super candid, at this conference, we've had multiple carriers. We asked questions on, hey, what do you think about autonomous trucking. And to be honest, the answers haven't been great. Like it's been a lot of skepticism, a lot of doubt, a lot of, honestly, misinformation. And when the largest carriers in the country don't really understand what you're doing -- like does there need to be a little bit of a teaching tour or something to demonstrate your capabilities? Or kind of how do you get past that skepticism?

Yes. I mean, we could always do a better job on getting our message out and the value proposition of the teaching. But I might describe it differently. I think anytime you have technology adoption of something of this magnitude, you're going to have folks that are the leaders in technology adoption. You're going to have the fast followers and then you're going to have the laggards. The show me it's actually real and the money and everything else. I think everybody, if they see the value, will eventually adopt it, but certainly not in that area. So like if I look at our existing group of partners, we have some folks that are really early tech adopters. If you talk to Hirschbach like they're hugely optimistic on the opportunities in the AV space. And they've been a great partner to help us test things and work on things. We've got a variety of partners of FedEx, Schneider, the Warners of the world. I wouldn't call them like the leaders, but they're all exploring this technology. So they're pretty close to leaders, but they might be more of the fast followers, right? And they're very knowledgeable of the business. If you go talk to the folks at Werner, they talk to everybody, right? And so they're not talking to everybody because they don't believe in the business, right? And so I think they want to be a part of it. And then you've got groups of people that we don't partner with today, and that's conscious. We know they're not interested in it today. We know that we'll have to prove it over time. And that's okay, right? We have a crawl, walk, run approach for a reason. And we do have to demonstrate the value and we have to execute and I think over time, it's impossible for me to say that if you can provide a safer product that is less expensive, and it solves some of the major industry pain points why it can't be accepted. And so like we'll have to continue to prove it.

Does it feel like it's easier to penetrate private fleets first?

I don't know if it's really private fleets. I think it's the -- I think it's just the type of customer and what I said like Hirschbach is an LTL and like they're super tech forward, right? So I don't know. I think it just depends on their business. It depends on like how they feel about their driver pool and how they message it. Like Hirschbach leaned in heavily. We actually had their most cynical drivers come and drive our trucks, and they allowed us to videotape it and they gave us interviews, and they walked away saying, "We got to have this technology. So I just think it's how you approach it. And again, and we have to demonstrate value. I think we're demonstrating value. I think we're doing it the right way. I don't think every AV company in the trucking space in the past did it the right way. Folks that said, "Hey, I'm going to launch. I'm going to have 15,000 trucks on the road in year 1." It's like that's completely idiotic and really not understanding the market. right? And so that's why we've been very focused on our crawl-walk-run approach and thus far, we've been delivering.

Got it. Questions from the audience?

Could you talk a little bit about what you view as kind of the advantages of being a first mover and maybe some of the moats that you think the business is building above and beyond the tech itself? And I ask that maybe just to preface within the context of if being a self -- if self-driving tech itself is kind of -- there's an end point to it because once we prove the case, they can self-drive, then how does being there first being a couple of years ahead allow us to maintain that lead even as others get to a tech that is fully self-driven?

Does that lead go away after 2 years -- 2 years of that one?

It's a good question. I think there is a -- we view it as running a business and commercializing a business. I think some people characterize it as a race to get to a driverless product that they can demonstrate, I think we've never been that way. Like we don't talk about it that way. We talk about driving miles, integrating with our customers like what I think is what gives us this multiyear lead in my mind is that we're not talking about like the product we have today. We're working on our second and third generation hardware, we're talking about integrating with OEM partners in the long term. We're talking about how we integrate with our customers today. We're signing agreements like we had with McLeod, to have a TMS solution that can reach thousands of the smaller carriers. So for us, we think about actually driving to a business and I think the further you work on that and the more you understand the needs of those customers, getting to their endpoints, I think it just builds credibility. Like a lot of people are talking about like -- and honestly, most of the carriers would tell you that they're so tech talked-out. I don't even know how they differentiate between them. The simple fact of the matter is we're operating driverless, we're integrating with our folks. We're thinking about the future. Other people are talking about like elements like cheaper and faster. This is a safety critical industry. I don't know that cheaper and faster is my best talking point. We want to talk about how we build the business and transform it together. And I think our partnership strategy and a little bit of humility goes a long way. I think the other thing is we want to be the standard bearer. Like we want to be the leader. So when it comes to regulatory questions, they go to Aurora, when it comes to building trust, they look at Aurora Driver Live. When it comes to talking about your road map, they see the Aurora Driver road map. I think we have an obligation to help lead this industry and lead it in the right direction, and we take that seriously. So I think that also gives us an advantage over others.

Yes. What happens when there's an issue with the truck, meaning do you have like a central system that can take over if there's an issue? Or there's like some unique situation? Or does the observer intervene at that point? Or does the truck just pull over on the side?

So the system is designed to have like redundancies everywhere, including backup compute systems. If there is an issue, let's say, bird hits the LiDAR, right? Our system would do what we call a minimal risk maneuver and they would pull off the highway to a safe spot, right? That's what our customers want. They want us to be off the highway into a safe haven. If for whatever the reason we couldn't get off the highway, we'd pull over to the side of the road in a safe spot. All of that happens today even if there was an observer in the vehicle, all that happens with the Aurora Driver. The observer does not take over if that happens. The system is designed to operate driverless. So it has to handle everything driverless. If we relied upon a crutch that says, "Well, PACCAR wanted us to put the server back in, so we don't have to do X, Y, Z." All you're doing is masking the challenge. We are a driverless, and that's why we use the word. We are driverless. They're not there and intended to drive, right? We have to operate a driverless business, and it goes to everything that we do. And so in this particular case, we just pull over to the side of the road or off the highway.

You mentioned the rollout across the Southwest in different states. Maybe talk about the challenges to accomplishing that vis-a-vis the regulatory environment?

Yes. So the regulatory environment today, 39 of the states either explicitly or implicitly allow driverless operations everywhere where we're going to be heading in the Sun Belt allows driverless operations today. There is no laws or regulations that need to be achieved. I think the framework and the sentiment at the federal level has been pretty positive, right? Kind of pro support technology leadership, especially in areas of AI and also reducing regulatory burden. So I would say the feedback in the federal landscape has been pretty positive, but we don't actually need anything to operate in all the states that we plan to in 2026.

Very exciting story. We look forward to further catalysts. David, thanks so much for joining us.

I look forward to being here next year.

Appreciate it. Thanks.