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

Great. Thank you, and welcome, everyone, back to the 14th Annual Morgan Stanley Laguna Conference and over the next 3 days. We have a ton of freight transportation and airlines content for you, but very, very happy to kick off with Aurora Innovation and Co-Founder and CEO, Chris Urmson. Chris, welcome back to Laguna.

Glad to be here. Thanks so much for having me.

Absolutely. So maybe if you are unfamiliar with Aurora story, we believe Aurora is a leader in autonomous trucking if not autonomous driving of any kind in the U.S. today, maybe the world today. And you had, again, -- it's been a great year for the stock. It's been a great year with commercial progress. I think 2025 was a great year for you, '26 has kind of built on top of that. So maybe it's a great to start with just kind of recapping the commercial milestones you've hit so far and kind of where the story is right now.

Yes. So again, thanks for having me. I appreciate folks taking the time out of the day to listen to us today. It is just an incredible model for us of the company. We're at this inflection point where for the last better part of a decade, we have been toiling away to make safety critical, self-driving capabilities available to deliver the benefit of self-driving technology safely, quickly and broadly. Last year, we had the major milestone of beginning driverless operations. This April, we launched our second-generation hardware, which is really about scaling and building the business. And so this inflection point is real. With this hardware now, we expect to build on order of 1,500 tractors with that. We work with amazing customers, FedEx, Werner, Hirschbach, Demar, McLean, Schneider, if you are in trucking, hopefully, we will get a chance to work with you, and we're very privileged to work with these amazing companies. And this new technology, more reliable, lower cost for us, which allows us to get to ultimately our profitability goals. And then it sets us up to build over the course of next year into '27 where we'll launch our third-generation hardware, which will unlock true automotive scale 10, 5,000 units. So really amazing moment for us at the company.

Got it. Congratulations on that. Maybe a couple of follow-ups on the Gen 2 here, expected to drive a 50% plus reduction in hardware costs. I think 20 to 25 trucks is the run rate right now. You plan to exit the year with a 200-plus or 200-ish run rate, like you said, the capacity is for 1,000 plus. How do we see that Gen 2 ramping and handing off the Gen 3 next year?

Yes. So as you said, we expect to end the quarter with 20, 25 trucks in operation, which is a huge step from the handful we have had for a while. And in Q4, we expect to be producing the trucks at a rate of 20 trucks a week. So that's very exciting, and that's working with our partner, Roche, taking international trucks, delivering them up to our facilities with them in Livonia, upfitting those, turn them into automated trucks and then getting them out into the market, serving customers. That ramp will continue to grow, and we expect, like I said, to be about 1,000 units a year run rate with them. Very excitingly in Q1 of next year, we expect to be launching the autonomous Volvo VNL, and they have said publicly, they expect to do that in Q1, and they expect to have 300-plus trucks on the road next year. I can tell you those will predominantly be driven, if not all driven by the Aurora driver. So that scale will kind of get us to on order of 1,000-plus trucks end of next year. And then really, the investment we've been making with Aumovio will then kick in. And Aumovio [indiscernible] you're not familiar, is one of the world's leading Tier 1 manufacturers. So there's spinout of the Tier 1 business from Continental. We've been working with them for many years to put in place the supply chain, the manufacturing and design this third-generation hardware, which will take yet another step function in cost out of the system, and that will truly be scalable. And so our strategy has been to bridge from first generation hardware to prove the concept that we could build ourselves, second generation to bridge the gap between what we can build ourselves versus where Tier 1 is actually interested in engaging, right? The Tier 1 doesn't get out of bed for fewer than 10,000 units a year or 10,000 units here. And and we're kind of on the low end of that for the near term. And so the second-generation hardware allows us to bridge the gap between 10s and 10,000 and allows us to get the customer demand in place to actually support the supply that will come off the line with them. And then, of course, that Tier 1 partnership with Aumovio is really allows us to fit nicely into the manufacturing supply chain for our OEM partners, right? It's all well and good to build the technology. It's good to be able to manufacture it, but to really actually support a having a Tier 1 partner who knows how to do that is profound. And this is kind of core to the way we've built our business is focused on what we do best in world -- sorry about that, which is the driving technology and then work in partnership with others who know how to do the other parts of the business that enable it to ultimately flourish.

Got it. So it sounds like you're pretty set for next year with Aumovio and the Gen 3. Just maybe one more follow-up on Gen 2 here. Is it just bridging the hardware gap between Gen 1 and Gen 3? Or are there learnings to be had? Are there tests you're running or kind of what's the ramp-up like?

It's really about commercialization, right, and building that. So it allows us to both reduces the cost of the hardware, the bill of materials, but it's also roughly triple the durability of what we had with our Gen 1 hardware. And so the combination of that durability at reducing costs helps drive down the amortized cost per mile, which gets us to this point where we expect to be able to be profitable on a unit economic basis.

Got it. Let's shift gears to talk about commercial momentum. You've done 6 million miles in total, almost 0.5 million fully driverless miles here. You announced Hirschbach and McLean food orders earlier this year. You've announced others with Dehmar and valued truck and charge of logistics. So the logos are starting to show up. How would you characterize what that process has been like and where this eventually becomes a bit of a virtuous circle?

Yes, it is accelerating is how I'd characterize right? We are fortunate that there were some amazing companies who were willing to take a bet on us when the technology wasn't a proven, have been along the journey with us. they've been learning, we've been learning. It's been, I think, mutually beneficial on that front. But if you look at the cycle from going from conversation to kind of order it was years, right, where we would run the pilots, we were generating commercial income from that, but it wasn't what we would think of as building the business. At this point, when we have a conversation with a customer, that conversation kind of gets to the point and then we're handing them at the end of that first conversation. Here's a contract to start. All the conversations we've had have really been selective. It's been about, is this a customer who wants to embrace the technology. It actually importantly has the capacity to do so at a reasonable scale. And so it's been exciting. We've seen kind of momentum. We were able to share that we're fully allocated for 2026. And there's nothing like a little bit of FOMO to help moving conversations along. And then the proof points stack up, right? Our customers are all rational, thoughtful folks. They can see kind of conceptually the benefit of this for their business, but they need to see it derisked. They need to see that the technology works. They want to see proof of it actually operating in their business. They want to see is their neighbor using it, right? And I think as we get more and more evidence of that piling up and we're seeing that quarter-on-quarter, the energy and enthusiasm is kind of is going fantastically.

Great. Maybe a couple of follow-ups on that. On the last point, is it as we -- again, shoutout our big autonomous trucking deep dive port we published on Friday that Nancy worked on. But we kind of characterize it as A lot of the stakeholders in the industry need to dot their eyes and cross their Ts over the next 12 months until we hit the run rate commercial production here. Is that a fair characterization? And can you kind of help unpack what that dotting of eyes?

Yes. And I think, first, it's important to recognize that I haven't had a chance to read the whole report, but what I have seen of it is pretty on.So thank you for that. It's good to have folks helping make the case for what we believe in as well. But first, it's important to recognize that the customers -- it's not a homogeneous set, right? There are different kind of risk tolerances across that. And there's different scale and kind of entrepreneurial energy, let me go with about how quickly they want to bring this technology into their business. And so for some, it's actually a relatively quick process right, where they come in, we talk them through our safety case. We talk them through all the work we do. We talk through the economic opportunity. And generally, this is with the relatively small, but still good sized carriers and those move very quickly. I think you'd look at a customer who has tens of thousands of trucks, they're going to be a little more deliberate like you would expect. But in all those cases, if I look at one of those potential customers, having third parties come in and do an audit of what we've done, having in-depth conversations with our engineering teams, having a lot of conversations, of course, for their corporate teams and our business development teams. But I do think that what happens -- and I think it's not unexpected for new technology come to market. But as you have more of these marquee players say, yes, this has got my blessing, then I think that we will -- and we are seeing that cycle kind of compress, which I think is important for us in the long term.

Got it. And just following up again on something you said be the other side of the argument about how you want an appropriate customer partner as well what are those attributes that you look for in signing up with someone.

Yes. So again, there's an importance that they are able to achieve a level of scale that we're not in the business of doing demos. We're pretty convinced that technology works. It's where can we actually go build traction? And where does it allow us to learn in this early stage of the business. And where do we see kind of committed partner who's going to be able to go through what will be inevitable little bumps along the way of deploying something new in their market. We also need to have belief that they're going to be willing to transition from a state where we own and operate the asset, what we call task to driver as a service where they own and operate the asset. And the good news is that's not really a high bar to get over. Most carriers believe that they are effective and have an advantage in the way that they operate on those assets. And so -- but we need to know that they're going to make that step.

Got it. Maybe switching gears here. Obviously, you spoke about your customer partnerships. You spoke about the Aumovio partnership, the OEM side -- so you mentioned earlier that Volvo has committed to manufacturing 300 trucks off-line, commercial line next year, you said the very vast majority of all of them are going to be Aurora power. What's the PACCAR relationship like? And how does that -- what are some of the milestones there, and maybe if you can talk about kind of other OEMs and kind of how do you think is evolving over the time?

Yes. So today, our deepest relationships are with PACCAR and Volvo and together, they represent about 50% of the trucks in the U.S. market. With Volvo, we've been working for several years and have seen the fruits of this labor pay off where we're working to not just integrate with the truck, but integrate into their manufacturing line. And that is a big step, right? There's a lot more than just kind of bolt some stuff on the truck and hope it works, right, actually making sure that we have all the processes and procedures that they can actually assemble the thing aligned with their [indiscernible] times and the line. And so that's been a multiyear effort. And we will see that with the trucks that are coming off the line now in the 300 next year. They will ultimately transition to our third-generation hardware for Aumovio as well, and that will really unlock what they would think of as commercial scale. So that's exciting and moving forward. With PACCAR, we continue to work closely with them. Those of you who follow PACCAR know that they will not announce when they're going to launch something effectively until they've launched it. And so I can't say more about the time line for that. But what I can say is that we expect them to launch our third-generation hardware. And of course, we expect that to be a line sight install as well. And then, of course, we also work with international. This is a bit of a different model where we are actually taking a stock truck from international, taking to our partner Roche, up in Lavonia in Michigan. And there, we're adding our by wire capability. We're adding our driverless capability, the UroDriver kit onto it and then delivering that to customers. That has allowed us to move safely, but quickly to meet the customer need, we have a market. We see this as a technique we continue to use for the foreseeable future. Ultimately, we'd love, of course, to work with international to line sight it directly with them. But we'll figure out when that comes along. And then finally, the fourth potential partner is Daimler and Freightliner in the U.S. We continue -- they have 40% market share. They're clearly a market leader in the space. We're the leader in autonomous trucking. It makes a lot of sense to work together. And hopefully, at some point, we'll be able to do so.

Got it. That's very exciting. Just kind of on the OEM partnership itself. Again, you spoke about what do you expect from a prospective customer. What do you expect from a prospective OEM partner? Is it a case of -- like how closely involved are you -- do you help them design like the basic of the truck or the steering, braking as well. Do you just give them a bunch of ODD kind of parameters.

Just hope and YOLO it? No, we know we don't do that. No. So yes, let's -- no, we work very closely with them. We have been for many years. Again, I said earlier, we believe we can be -- we are best in the world of delivering the driving capability for these trucks. We work with partners. They've been around for 80 years. They know what they're doing. They're very confident. We want to complement them. So we work with them in helping define the requirements and specifications. They understand the trucking business better than we do, of course. They've been at it for a long time so they can bring that side of it. We can help make sure that they're meeting what we see as the necessary requirements to deliver a safe product. And so we're very intimately engaged with them in those conversations that have been for a long time.

Got it. Maybe switching gears a little bit and talking about some of the financials here. 2026 revenue guidance, $14 million to $16 million, 4Q expected to contribute over half of that, obviously, very back uploaded as you ramp up to 100 trucks. Exiting with 200 trucks implies about an $80 million tax revenue run rate, which is kind of a healthy starting point for next year. How does that TaaS to DaaS transition look like in '27? And kind of what is -- how does that change the financial profile?

Yes. And just a reminder for those folks who aren't around this all time. So Transportation as a Service, we own and operate the asset. We get paid basically as a 3PL. We don't go out and seek the business from shippers, but we contract to the carriers to provide capacity into their business. In Driver as a Service, we basically provide the driver. And so it looks very much like the model that our carrier customers and private fleet customers think about today where they buy a truck and then they pay someone to drive it just happens to be that they pay Aurora to drive it. We like the Transportation as a Service model as a way to introduce the technology to customers in a very white glove way in a way that allows them to learn and experience it and then be able to make the commitment into their fleet purchase plans. We expect to cap the number of trucks we have on our Transportation as a Service fleet at about 500, if not less, right? We do not want to be a trucking company that is not our business. We want to support trucking companies and grow their businesses. And so over the course of '27, we expect to transition from TaaS to Daas, Inc.S. We will keep the TaaS fleet because it will be a tool that we can use in new customer acquisition and help kind of grow and help them learn, but we don't expect to scale it. By the end of '27, we expect the majority of the vehicles in our fleet to be Driver as a Service. So owned and operated by customers.

Got it. And just kind of on that note, on the liquidity side, you ended 2Q with approximately $1.2 billion in liquidity, gives you plenty of runway into 2027. How are you thinking about capital means, the ATM program, kind of how you use that as you get up to that catalyst?

Yes, we feel very good about the balance sheet we have. It's a pretty strong position to be in. We look at the ATM and we found ways to use that. We have historically used and intend to use it to cover things like the tax on RSU so we can kind of spread that out rather than have the vendor we use for management to kind of hit it out on the market on one day. We're also using it to cover our cash bonus. And historically, we've used it as a way to fund the business, and we've been pretty capital efficient in doing that. So we'll expect to continue to have that tool available. We do expect at some point to probably do something a little more structured to be the kind of the last capital we ultimately have to raise for the business.

Got it. Just on that note, kind of how are you guys with resources headcount, chips, kind of everything you need to scale up because it seems like you're ready to go from your side, the supply chain...

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