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

All right, everyone, let's kick it off. Chris McNally, Head of Global Automotive and Mobility here at Evercore ISI. David Maday, CFO of Aurora. David, let's kick it off. Just a little brief overview of Aurora. We've had a very busy week.

Great. Thanks. Thanks, Chris. Thanks for inviting me. This is an impressive forum with an impressive group of leaders and companies doing great things in the industry. So I am very excited to be here. First and foremost, maybe I'll spend a little bit of time before the Q&A, just talking about Aurora for those that maybe aren't quite as familiar. As Chris outlined in his earlier material, there's a lot of debate on technology and what types of modeling and end-to-end and frontier models and mapping and things like that. You'll get a lot of that later. You're not going to get any of that from me. I'm going to talk about the business. That's the stage that we're at, and that's what we're going to focus in on today, plus I'm really not good at answering those questions. So -- let's get started. But before I do, I am going to be providing some forward-looking statements. So please take a moment to read our forward-looking statements disclosure. So I don't get in trouble. Okay. We just had our Analyst and Investor Day. So we're just going to -- for those that might have seen us, we're going to repeat some of this stuff. But like I think the thing for us is like really we are at a point where we're at this inflection point where we believe that all the investments that we've made today have put us in a position to be highly successful. So today, we are, in fact, the only company that is operating driverless on public roads. This is driveless nobody behind the wheel, no safety drivers. This is not a pilot. This is everyday operations. And it has its own challenges, of course, of everyday operations, but this is where we're headed. This is this inflection point. If you talk to Chris Urmson our founder, he would tell you, and he does a lot of comparisons of like it takes a long time and a lot of investment to get to this point. For him, it's about 20 years of it. Aurora has been around since 2017. We've made major investments to get ourselves into this position. Earlier this summer, we launched what we call Aurora Driver 2. This is our second version major leap forward. Again, it's built on our verifiable AI software. It has our second-generation hardware. This is the hardware that actually will allow us to start to scale our commercial business. And obviously, you need all the tools and services. So we really do feel we're at a commercial inflection point with the business. But at the same time, we also want to remind ourselves that there are some things we're really good at. And there are some things where we believe the best approach is a partnership approach. And we've been pretty proud of our partnership approach. I came to Aurora in 2020, specifically to work on building up a lot of these partnerships. And many of them on the board today are a result of our strategy to do what we do really well and rely upon others to do what they do very well. And so we're proud to be partnering with some of the very best OEMs in the U.S. market. We're proud to be partnering with many of our industry-leading logistics partners. Some of these people we started back working with back in 2021. Some of them are in the room. Some of them have been with us along the way and will continue to support us. And some of them are our harshest critics, right? They want to see the very best from Aurora, and they help us and they guide us in that pursuit. And then we obviously have a lot of pioneering hardware partners that support our strategy going forward. So we're really excited about the commitment that we have from each of them, all aligned on this long-term vision that we have, which is it's a match with our vision, and it's to create tremendous value. Now I had said that we started back in 2017. We've made tremendous progress. We've also made significant investment to get us to this point, right? And so we truly believe we have all of the elements in place to start to scale and have meaningful value in the market. So whether it's our verifiable AI software, whether it's our hardware. We're the only company that not only has our second-generation hardware which is a complete redesign from the first generation, which is manufactured by Fabrinet. But we also have our third-generation hardware in development, actually starting to test on roads today from AUMOVIO. And so these are significant investments towards scaling the business. On the supply side, we're working with multiple OEM partners. Our goal is that our logistics customers can choose the truck that they want with the Aurora driver. Not the Aurora driver with the truck that they have to take. And then finally, from a demand perspective, we continue to make great progress with our customers and filling out the demand. Obviously, we're fully allocated for '26. We've got tremendous potential in 2027. I'd say the or 2 to 3x where we need to be in terms of the allocation that we can deliver. So we're very excited about the opportunities that are in front of us. But of course, to be successful at the -- with the Aurora driver, we have to deliver value, and we truly believe that this is transformational from the freight industry. And I think any other AV trucking company that comes up here is going to agree with this and probably say the same damn thing, right? We are going to be safer. There's -- you talked about the number of deaths, there's roughly 5,000 deaths on the U.S. highways from trucking accidents. So that's too many. Our ability to have scalable, flexible demand for drivers is super important. There are driver shortages, there's turnover, there's all the things that make it challenging for logistics customers to run their business. We believe we'll have 2x the utilization as the human-driven fleet today. We're seeing that today with customers on the road with our driverless trucks right now, okay? Some of our customers even tell you the examples, and you can go listen to some of them, but it's super important. And then from a total cost of ownership. This is the thing that I think separates trucking from ride hailing, to be frank. And the ride hailing, which is awesome, really cool, kind to be safe, they are cool-looking vehicles. The cost structure isn't there to drive down the cost. Today, the economics and trucking allow us to provide value to trucking customers right now in the total cost of ownership. They do in our initial customer adoption launch model, which is our Transportation as a Service business. But when we shift over to our driver as a Service business, they get even more leverage to create real value. We can deliver value on all 4 of these right now. And so that's really what we're excited about. That's why we truly believe the Aurora driver will be transformational. I mentioned a little bit about cost. I'm not going to spend a ton of time on here, but let me just kind of talk about 3 things. The total cost of ownership is a real issue in the trucking industry. Their cost structure is growing on all levels. Driver costs are growing. Insurance costs are growing fuel is really high right now and growing. And these operating ratios that they work on, they're tough, they're challenging. This is a tough business. For us, we can drive down the cost for the driver. This is ATRI data on the left. It's got $1.03 plus indirect of $1.15. We have Aurora's pricing, everybody has their own pricing. This is real value that we're delivering to customers today. In addition, we believe -- I'm just going to talk about 3 of these. In addition, we're going to talk about fuel. Obviously, fuel is really high we're experiencing 10% fuel efficiency today. We believe that number is going to go to 15%. And probably with working with OEMs has the potential to go up to even 30%, but it's a real value today. And then from an insurance market. We strongly believe that you're going to continue to see 2 things happen. Number one, the cost of ensuring in the human-driven fleet is going to continue to kind of grow and creep up. And the cost of driving an autonomously driven fleet is going to continue to reduce. And so those 3 things by themselves give us a 20% reduction. So we're really excited about this. How does this translate to a customer? So today, this is a really simple graph. This is on our Fort Worth of Phoenix lane that we operate on. Today, there's 2 things that are happening. Number one, a truck can operate at double the utilization. So it can make a round trip in a day, which it could not make in the normal world. So you're doubling the revenue side of the equation. And then from a margin perspective, you're getting 6x of the value because of the 20% reduction overall. So it is a really good value equation. And you might hear people say, hey, we got to work on the pricing, even some of our customers push us on our pricing and things like this. There's a lot of potential here. They understand the value, and we know that this is going to be tremendously important for our customers going forward. And then finally, maybe this is a chart we used at our Investor and Analyst Day, I got a lot of excitement. We talked about it. We really believe we're at this commercial inflection point. Again, 200 trucks operating by the end of '26. We expect more than 1,000 trucks operating by the end of '27. And we truly believe that this is just a starting point. We expect over 30,000 trucks operating by 2030. So we are really at this point. We have all the enablers in place, both from the technology standpoint, from the supply side and from the demand side to really start to spur transformational growth. When we talk about what this means to Aurora, we are really expecting to see substantial growth in our revenue. So obviously, for the last several years, not a big revenue story for us. This has all been about the technology. I told you, I'm not going to talk about technology today, I'm going to talk about our business outlook. Our business outlook is going to also be transformational. We are going to achieve a positive gross margin and roughly $200 million in 2027. When you look forward to 2030, we expect this number with the 30,000 trucks to be over $5 billion in revenue, exceeding 60% margins really on our path to a 70% margin. In 2028, we continue to expect that we will achieve positive cash flow on a run rate basis. All the enablers are in place to support this. We're really excited about where we're headed. And I guess I'll just close with this. It's going to be a tremendously exciting few years. For the industry. There are a lot of players out there that are going to do and create some great things. We believe that we are in a leadership position today because of the investments that we've made because of our strategy to really focus in on scaling the commercial business, and if you look at where we stand in terms of our partnerships in terms of the fact that we have a scalable hardware supply for our Aurora driver kit, with our hardware as a service partnership with AUMOVIO, when you look at the progress we've made thus far, we're really excited about what the future is going to hold. So with that, I think we're at our commercial inflection point, and maybe we'll go over to questions.

Perfect. Maybe we can start some of our industry views and then we can work it back into your Analyst Day. So we came to visit, right? In March, we did an AB truck tour. We saw yourself Kodiak abird -- and we came away with this idea that the software was ready when we talked about the bottleneck of the 4 parties involved being the actual physical truck itself with, essentially, we all know Volvo maybe in 2027, the only OEM to produce an on-the-line truck. Everyone else is using upfitters as you discussed. Why do you think the OEM has been this choke point thus far because then it gives us an idea about how that gets unlocked for the supply side over the years to come?

Yes. It's a great question. It's a very common question. Certainly, supply of OEM platforms has been a constraint for a lot of folks. I don't know that I would describe it as a choke point. I think you have to remember where we are at a stage in our industry of AVs and where the OEMs are in their industry. So today, not a lot of us, everybody is making great progress doing all kinds of cool things, but there are very few people that have been at a commercial inflection point. They run a business where they're building 250,000 trucks in the U.S. a year, right? They have that main business to invest in. They have mandates with fuel economy. They have competitive situations that they need to do. They have drivers and customers that they need to satisfy every day. Our market today is all about the promise. This is why I've been so excited about where we're changing this from about the promise to actually a commercial inflection point. Where they can start to see tangible real value. There's a difference between saying you're going to be somewhere in the future and actually showing them that today. I think the excitement level of our OEM partners, at least for us, the excitement of our OEM partners seeing the Aurora driver operate on the road with nobody behind the wheel has really energize them. I think Volvo is kind of all in right? They've really made a commitment in terms of that, and they're going to start to scale. But every OEM partner, when they do a line sight installation, that's a significant capital investment impacts their higher production line, their tack time and everything. And so for them to do it for a handful of trucks it doesn't make any sense.

Yes. The chicken and egg.

Right. So for them, they really need to see the promise and be able to capitalize on that scaling. And so maybe for us, we should have been a little bit more realistic as an industry. But for us, I know one of the things that was exciting at Aurora is this upfit option with [indiscernible] and putting this drive by wire system in the international it really was a big enabler to build excitement for the OEMs. And I got to say, we have a lot of conversations with the OEMs today and their C-suite we host all of them and their excitement level has never been higher.

So they can see the product. Yes. So let's play that through to the Analyst Day comment, right, about the inflection point from now to 30,000 trucks in 2030. Is it fair to just assume that by 2030 to get to that 30,000 that the major -- I mean, basically, all of the major OEMs will have a production fit AV, meaning over the next 3 to 4 years, we can expect that to happen?

Yes. I think if you ask every OEM, they would tell you that they will have a production level line sight install of an AV on their lines. I think for us, we have a very clear path of where everybody is at and how we're going to get there. I think Volvo has been the most outspoken about it, right, in terms of their path. I think Daimler who we're not currently partners with today also has a path. International is very excited about the trucks operating on the road. Our interest level or their interest level with the Aurora driver has never been higher. And PACCAR while maybe a little bit more conservative on what they like to announce, continues to be a strong supporter. They were at our event. They talked about the opportunity. And so I think we're still well positioned I think it's taken a little bit longer than some people want. But by 2030, not really a concern. I'd also say that like 30,000 trucks sounds like a lot and for the AV industry, it probably is a lot for the trucking market.

You're talking order of magnitude for those in the room, if you're adding 10,000 trucks per year to get to a fleet of that, you're talking about 3% to 4% of annual builds. Just to go back to the Volvo comment, just triangulating industry data points. So 30,000 is a cumulative fleet you're expecting by 2030. Volvo kind of less -- typically considered the AV bowl here in this space thus far. They gave a number that was about 25,000 for the units in 2031. Can you talk a little bit about triangulating some of that -- because you've probably seen the VAS projections. How do we think about sort of triangulating the 2 data points?

I think they have their own business around. We have our own business run. So we don't talk a lot about like how they build up their commercial side of that. I think we focus in on like the production allocation that we're going to achieve over the next several years and how we're going to place those. And so we have an idea of how many trucks they would like to be operated by the Aurora driver. And it's a substantial amount. But we don't have as much insight into like the commercial piece. We think that Volvo Autonomous Solutions and however they choose to do it, I think Sesco was on our event and mentioned, they like the Mobile tomo solutions, but they're going to meet the customer where they need to be, and that might include different business models and...

And the story that business subscription as well.

And so I think what we see is a really solid outlook for all OEMs of once they start to line side install, they have really good growth aspirations. And for us, we like to match it up with like the fact that we also have an AUMOVIO partnership, and we have a build schedule to actually build the Aurora advocates. It's going to be impossible to achieve any of these numbers if you didn't have a partner that would be able to actually build that kind of hardware, and I think we're in a unique position in that regard.

So let's talk a little bit about the unit economics, right, which you've shown before, I think the proposition is clearly there. Everyone knows the $250 per mile, numbers like $0.85 of your driver as a service software and hardware. Can we talk a little bit sort of to my initial point about the messy between now and then if you're pitching to the Werner, the night CTO, CCO, what are some of the start-up costs that they have to put in to get this up and running, right? We're moving away from drayage. We're going 2 customer facilities. But what other things do they have to put in on cost on their side to start to get ready for autonomous. What prep do they have to think about when they're considering the size of their launches over the next couple of years?

I think in the near term, there isn't much they have to do at all, right? We're going to be going to customer end points that will be the predominant delivery model by the end of the year. We're already starting to do that today. So the drayage thing was super useful if you were running commercial and development at the same time, and you were just operating predominantly as development and you wanted to take advantage of what the commercial market looked like. We're kind of beyond that point. We still do development, but now we have like a separate commercial operations. So we will just go to customer end points. So there's no drayage that they have to do. So if you drop off at a customer site or if you land at a customer site, you essentially need WiFi. They will have an Aurora terminal app that will allow them to launch and land trucks. So we'll have to train them and have standard operating procedures on how to do that. And they will need somebody dedicated there to actually receive those trucks here. If you talk to customers, most every customer in a shipping yard has somebody to do that role already today. And most everything else, we're going to try to eliminate. So as an example, if we need to fuel, we will go to truck stops and fuel with our fueling partners. If we need to scale the vehicles we will go to our truck shops and scale the vehicles. So we're going to do as much as we can with a partnership approach and try to make it as seamless as possible. It's the near term. So when we first launch with every customer site, they want to be handheld. We're going to put people on site at the yards, making sure that everything goes seamless. The issue for our customers is not are we driving extra cost? The issue with our customers is, are we reliable? Because if we're not reliable, then they will lose the business that they have, and they will not want to use driverless trucking. So it is more about operational excellence than it is, are we adding anything specific to there. In the long term, it's going to be super seamless like we're going to be adding new end points. The time that it takes to do it from the first to the last is going to -- from -- to a new endpoint, it's going to be less than a week. It's going to be really easy. They're going to already have the standard operating procedures. We'll have launch teams that go out and set up every group really quickly. I think in the long term, what you're going to see is carriers are going to take advantage of the unique abilities of the Aurora driver to operate 24/7 to kind of go wherever. And every carrier is going to try to optimize their network to them. And they're not going to broadcast it to the world because they're going to look at this as a competitive advantage. How can I optimize my network? How can I improve my efficiency and they're really good at it. Like they got a lot of models, they figure out where to go. So in my opinion, their focus is going to be how do I optimize? I actually think that the total cost of ownership story in 3 years is so much better for them because they're going to take advantage of their inefficiencies and they'll know them a hell a lot better than we will.

Can we talk about some of the 24x7, I think from maybe some of the best examples of what you've been running so far. Think our mind, we all thought this is going to be a 15-hour journeys, one single long haul. But I'm hearing more about these 2 hour high-efficiency back and forth. Like, what are we seeing in terms of an uptime per day in some of your best runs?

Yes. It really depends. Detmir was the example where basically they do basically 2 trips a day, and we're doing 6 now. So they're basically doubling, tripling their utilization of the trucks. Part of this has been limited on where we drive today, but there is a world in the not-too-distant future, like by the end of this year, where you're going to see people going across the country, right? They're going to be going from Atlanta to Phoenix to L.A., whatever the case is. They're going to go from Phoenix to Houston. These are all trips that you can just run throughout the day. And to be honest, trucks are slightly more efficient when they're operating at longer cycles. Where they get inefficient, and where do they get a lot of where is this constant stopping and starting or cycling back up or getting cold and then trying to go run again. So a truck is really efficient when it's operating in its normal mode. So you're going to start to see this more. Most of our customers see a lot of value if you're like an FTO at this 500-plus mile range. And they would like to get to 1, 1,500 pretty quick. The Detmir and some of the other examples, everybody -- and that's what I talked about with network optimization, everybody is going to optimize their network to work for them. I would not have anticipated Detmar be the greatest use case when we first thought about it. It's actually a great use case for them, right? And so you have to meet the customer where they're at, and you have to understand their business challenges.

Let's stay on the customer. I think when we think about fleet demand, logically, I would have thought the larger fleets are the ones that can invest can think larger about TCO. But so far in some of the announcements like it's been some of the smaller fleets. What do you think is the last thing to bring the -- I mean, obviously, we've seen announcements, but the FedExes of this world, the Walmarts what's when we get these big headlines? Is it just complicated contracts? What's the -- what brings the largest fleets to bring this to scale?