Good day, and thank you for standing by. Welcome to the AEye Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, [Jeremy Apple]. Please go ahead.

Good afternoon, and thank you for joining AEye's first quarter 2025 earnings call. With me today are Matt Fisch, Chief Executive Officer; and Conor Tierney, Chief Financial Officer. Earlier today, AEye announced its financial results for the first quarter. A copy of this press release can be found on the Investor Relations section of the Company's website. Before we begin, I would like to remind participants that today's discussion may include forward-looking statements as defined in the securities laws and regulations of the United States with reference to future events, operating results or financial performance, and such 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 these 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 the reports AEye files from time to time with the Securities and Exchange Commission, including in the most recent periodic report. The statements to be made are as of today only, and AEye does not intend to update any forward-looking statements regardless of any new information, future developments or otherwise, except as may be required by law. In addition, we will be discussing non-GAAP financial measures on this call, which we believe are relevant in assessing the financial performance of the business. These measures are presented as supplemental information only and should not be considered a substitute for financial information presented in accordance with GAAP. You can find reconciliations of these metrics to the most directly comparable GAAP measures within the press release. Now I'll pass the call over to Matt.

Thanks, Jeremy, and thank you all for joining our first quarter 2025 earnings call. We appreciate your continued support and interest in AEye. Q1 was a quarter of significant momentum for AEye. We reached a critical milestone with the first units of our Apollo lidar solution coming off the manufacturing line of our Tier 1 supplier partner, LITEON, a key achievement that demonstrates the maturity of Apollo and ultimately the path to mass production. I'll provide more detail on Apollo's progress shortly. Separately, we are in the final test and validation stage of our integration to NVIDIA DRIVE. We're also gaining traction with new customers and have continued to manage our burn rate well. At the same time, we're well positioned to navigate global market dynamics, especially as it relates to tariffs by continuing to prioritize supply chain flexibility and resilience. Before I dive into more detail, I want to acknowledge the remarkable progress our management team has made over the last 18 months to get us to where we are today. When I stepped into the CEO role in early 2023, AEye was a company with world-class technology, but facing real challenges. We were pursuing too many markets and weren't fully committed to our capital-light strategy, leading to a high burn rate and hindering our product maturity. This, combined with delays in the automotive industry and declining access to institutional capital as the spec boom faded had the Company on course for bankruptcy. We acted quickly and decisively to stabilize the business and set a clear path forward for sustainable growth. We first made a strategic pivot, focusing our resources on the automotive sector to develop a single high-quality product for ADAS applications with the flexibility to serve adjacent markets. We also fully committed to the capital-light model and…

Thanks, Matt. I'd like to begin by adding to Matt's comments on the progress that AEye has made since early 2023. It's not an exaggeration to say that the Company has undergone a financial transformation in the past 18 months. We addressed unfavorable cost dynamics by simplifying our supply chain, reducing overhead and streamlining manufacturing to unify around a single product, Apollo. Through our capital-light model, we have built the lowest cost structure since AEye went public, putting us on a path towards sustainable growth. We've continued to leverage market enthusiasm for our technology to access growth capital, raising an additional $13 million in the first quarter, bringing our total capital raised to $24 million over the past 14 months. This is a particularly impressive feat to have accomplished in one of the most challenging capital markets in decades. We ended the quarter with $25.9 million in cash, cash equivalents and marketable securities, securing our cash runway into mid-2026. We're pleased to announce that we've resolved our lease dispute, which arose in 2024 as a result of our exit from an unfavorable real estate agreement. Through this resolution, we successfully mitigated our potential cash liability exposure from $6.4 million to $1.4 million. Now that Apollo is ready for prime time, we kicked off our new customer funnel process, leading to a targeted outreach to a diverse set of potential customers. As Matt mentioned earlier, we are currently in advanced negotiations on several proof-of-concept contracts, marking an important step forward towards commercialization. Software definability and adaptability are our secret sauce, making the Apollo sensor highly reconfigurable for different scenarios and offering unmatched flexibility well beyond traditional radar, camera and lidar systems. We're seeing intelligent transportation systems and security as early standout opportunities where Apollo has a clear edge. With reliable detection…

Thanks, Conor. In closing, Q1 was all about execution. We achieved key product development milestones, started the first Apollo manufacturing line and engaged new customers to bring us closer to capturing significant revenue opportunities. With Apollo ready for market, we are well positioned to drive growth, not only in automotive, but also across industries where performance, programmability and reliability are critical. Thanks for your time today. We'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Poe Fratt from Alliance Global Partners.

Just to clarify on the litigation, the real estate litigation, was that a first quarter event? Or is that going to be a second quarter event? And then also the timing on the convert, potential cash pay on the convert, will that be -- when do you think that will be decided?

Okay, Poe, how is it going? I can answer those questions. This is Conor here. So I'll answer the first question first. On the lease, we actually trued up the liability in Q1. So that was a GAAP true-up that you'll see coming through. Coming through the financial statements, you'll see we took the liability down. But the actual cash payout itself will hit in Q2. So you'll see that come through in the Q2 cash burn numbers. In terms of the convertible note, payable over 15 months. And so the first payment became due in April. And so we have the ability to sell the note in cash, our equity. That's at our discretion. And so we've now paid the first two payments in cash. Now there is an acceleration as well [indiscernible] can do at least one acceleration per month, which they've chosen to do as well. So the short answer is we basically paid two months in cash, and there has been some acceleration in the form of equity as well.

Great, Conor. And then when you look at your cash burn over the rest of the year, you're saying it's going to trend down. Can you give me an appreciation for how it trends down? Is it like $0.5 million a quarter? $0.5 million to $1 million a quarter of sorts so that you exit the year closer to $6.5 million on a cash burn run rate?

Yes, like a normalized run rate for us is about $5 million per quarter. Now we're expecting Q2 to be slightly higher because we do have that lease settlement liability that we need to take care of. So that's probably going to be about $6 million-ish, but then we should start trending down to about a $5 million run rate there in Q3 and into Q4. Poe, we think we've baked in everything on the demand side for Apollo. But obviously, if volumes start to ramp, then there might be more investment needed in supply chain and also in manufacturing, but that's obviously a high-class problem to have.

Yes. And you sort of hit the next question from a 40,000-foot level. You're in the final stages of getting through the integration issue or integration test with NVIDIA. When do you anticipate that? You said by the end of the second quarter. And then can you help me appreciate what that actually means for the scaling of manufacturing?

So, I'm going to turn that over to Matt. He has [Technical Difficulties] had a close relationship with [Technical Difficulties] So, I think he's probably best suited to address that.

Hey, Poe. Yes. Thanks, Conor. Absolutely take that. Look, there's two steps in the process of NVIDIA. The first is to get all the software communicating between our sensor and their ecosystem. That's done. Then they go through what we call an independent test phase, right, to view them as an independent body to validate the performance of our sensor before making particular recommendations to their OEM ecosystem. I think you should look at that as the sales part of the pipeline, right? So what completion of this integration process does, it opens up NVIDIA's ecosystem and allows us to scale our conversations into more OEMs. It's not directly connected to the manufacturing process, right? Step one is NVIDIA pitches us based on the results of the testing. And then we work on the contract end with the OEM side, and those contracts will determine how much we need to dial up our manufacturing. Where we think we stand today, we have enough inventory to deal with our anticipated short-term demand, but we'll be watching the progress of those contracts closely so that we can dial up quickly if we need to. LITEON is very adept at this process. They know they have a tremendous amount of supply chain leverage, and they can dial it up or down very, very responsibly.

And so, Matt, you have enough inventory. Would you -- does that imply that we're probably not going to see anything this year as far as scaling up manufacturing? Or can you give me a little more color on sort of the potential timing of that scaling?

Yes. We'd like to see a bit more of the customers run through this pipeline first before we start talking about guidance, and I'll let Conor chime in on that in a bit. But essentially, we will expect to see some ramp this year for sure.

And then the non…

Yes, I think -- sorry, Poe, just to add there. The great thing about our manufacturing partner is it's extremely flexible relationship. With some CMs, right, there's a minimum order volume that you need to give to them. We don't have the same constraints with the CM, and that gives us a lot of flexibility so we can dial up down the line on short notice. So that's why we're not overly worried about scaling up because we have that flexibility. And then just the last thing I want to hit on, I guess I should have mentioned it earlier. On the lease dispute, I just want to go back a second and just make sure it's absolutely clear, right? Cash burn is going to go up in the near term. But if you think about it overall, we've mitigated the exposure from $6.4 million to $1.4 million. So that's monumental for the Company, right? If you think about it, when this lease was entered into, it was a $20 million commitment, and that's been like a noose around our heads. And we've worked really diligently since Matt's come on board to get out of that lease. And we've finally been able to do it. And I think that's really going to provide a great foundation for the Company. And then obviously, this was a big distraction for the team. We've now put that behind us, so we can obviously focus on the product and customer execution and all those things that we should be focused on.

Hey, Conor, also, [indiscernible] but, Poe, I appreciate the question, and we're also pleased to announce that a couple of these contracts have been closed. So we're already -- had a couple of those customers come out of the pipeline. And we're really pleased to talk about a couple of statements of work that we've signed for two POC, proof-of-concept, type deployments. One of them is in the intelligent transportation systems and the other is in the defense market. So we're looking forward to sharing more details about those in the coming weeks here, but we're all ready to talk about the fact that in that pipeline we've now closed two of those contracts.

Sorry, Matt, are you talking about the pipeline of roughly in the non-auto business? It sounds like that.

That's right. Right. As one of the challenges we've had is the timing on the OEM side. We don't set that timing. The OEMs have. And so I think the way you look at this is we're diversifying a bit. The latency and the amount of time it goes to start proof-of-concept and then ramp production is shorter than the time line we're seeing in automotive. So we are diversifying a bit. And we're able to do that now because Apollo is our single platform, single product, and we're able to use that same product in both markets. Again, due to that software programmability that we believe is fairly unique with us, we're able to do that without any product changes on the hardware side.

And just to add to Matt's point, I think the other important thing here, Poe, is that we're still keeping true to our capital-light business model and our partnerships model. And so if you think about this nonautomotive business, it's a little bit different than automotive. End customer expects a fully bundled solution. So they expect the sensor, they expect the perception software, the compute box and the visualization dashboards, analytics platforms, all of those things. And so what we're doing is we're partnering with partners for perception, for visualization, dashboards, all of those things. And the great thing about that strategy is that those partners have been around for decades. They already have pre-existing relationships in the market. So we're just tapping into an ecosystem that's already in place. And we think that's really going to accelerate our go-to-market strategy. And so I'd say we're really an enabler from that point of view. So that's what we're really excited about that we can get into the market in an accelerated manner, keeping true to our capital-light business model.

And could you give me appreciation for the scale or the size of the market, auto versus non-auto? Clearly, the sales cycle is shorter so that you don't have as many hurdles from the validation standpoint to get through. But the size of the market, can you just sort of discuss the relative sizes of both markets?

Yes. Maybe I could talk to that to a certain extent. Obviously, the automotive market is huge, right? There's 90 million passenger vehicles that are sold every year. So obviously that's where the volumes are going to come from. But if you think about all these different markets, there's also huge opportunities as well, and Matt listed out a few of them. But even just the ITS sector alone, I think that's a $20 billion TAM opportunity, not just for lidar, obviously, but for all the different sensor modalities. So that's a tremendous opportunity there. I think the key difference is, obviously, automotive, you're going to have higher volumes. On the nonautomotive side, the volumes are going to be a little bit smaller. But at the same time, the price point is going to be higher. And so there's that kind of trade-off. And if you think about our model overall, it doesn't take a lot to get us to profitability. And we're talking about a $25 million burn rate. So it doesn't take a lot of wins to get us to profitability. We obviously have two in the bag right now, and we're working on 20-plus more. So that's why we're feeling really confident here in terms of just outlook, our ability to penetrate the market and ultimately get the profitability at a sooner clip than everybody else.

[Operator Instructions] There seems to be no further questions at this time. I would like to hand back for closing remarks.

Okay. Thanks so much, Heidi, and thank you all again for joining our call today. We look forward to providing further updates on our progress in our second quarter call. Thanks, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.