AEye, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise stated. AEye develops active lidar and sensing technology for automotive, ADAS, industrial, and mobility applications.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $767 | $127 | $2,555 | $1,203 |
| Gross loss | $(1,941) | $(339) | $(3,062) | $(334) |
| Operating expenses | $21,333 | $16,545 | $71,767 | $39,365 |
| Net loss | $(23,624) | $(17,393) | $(74,972) | $(39,977) |
| Net loss per share | $(0.15) | $(0.15) | $(0.48) | $(0.39) |
Revenue remained very small relative to costs. Gross margin, calculated from reported revenue and gross loss, was approximately negative 253% in Q3 and negative 120% for the nine-month period. Management attributed higher cost of revenue to the Tier 1 development contract, higher prototype sales, labor, warranty costs, and inventory-related costs.
- Revenue mix: Nine-month prototype sales were $1.182 million and development-contract revenue was $1.373 million. Q3 revenue was $652,000 from prototypes and $115,000 from development contracts.
- Cash flow: Operating activities used $55.525 million in the first nine months, versus $39.588 million used in the prior-year period. Investing activities provided $90.190 million, mainly from marketable-security redemptions; financing activities provided $9.642 million.
- Liquidity: Cash, cash equivalents, and marketable securities totaled $112.189 million at September 30, 2022; cash and cash equivalents alone were $58.490 million. Management stated existing liquidity was adequate for at least 12 months from quarter-end, while also anticipating continued losses and possible need for additional capital.
- Balance sheet: Total assets were $150.690 million and total liabilities were $39.669 million. The company reported a $9.512 million current convertible-note liability at fair value and $19.494 million in operating lease liabilities. Accumulated deficit was $226.767 million.
Material changes versus prior period
- Nine-month revenue increased 112% to $2.555 million, but cost of revenue rose 265% to $5.617 million and operating expenses increased 82% to $71.767 million.
- Nine-month net loss widened 88% to $74.972 million. Research and development, sales and marketing, and general and administrative expenses all increased substantially; stock-based compensation was $18.003 million, compared with $6.522 million.
- Cash and marketable securities fell from $164.007 million at December 31, 2021 to $112.189 million at September 30, 2022. Cash increased partly because the company redeemed marketable securities and received $10 million from the first convertible-note closing.
- Common shares outstanding rose to 160.838 million at quarter-end from 155.137 million at year-end 2021. The company issued 1.145 million shares under its Tumim Stone purchase agreement during the nine-month period.
Outlook, risks, and unusual items
- Outlook: The filing provides no specific revenue or earnings guidance. Management expects significant losses to continue for at least several years; the risk-factor discussion says losses are expected through at least 2024. Management expects R&D, sales and marketing, and administrative spending to remain significant.
- Commercialization: Automotive programs require extended development, testing, and validation; design wins and production revenue are uncertain and may be delayed. A Tier 1 partner was bidding for long-range lidar production awards that management said could represent a substantial portion of forecasted 2026 revenue. Continental represented about 49% of nine-month 2022 revenue, creating customer and partner concentration risk.
- Convertible financing: In September, AEye issued a note with $10.5 million principal for $10 million cash proceeds, bearing 5% interest and maturing March 15, 2024. Monthly redemptions begin December 15, 2022. The company may settle in shares only if contractual equity conditions are met; otherwise cash repayment, premiums, and potential dilution are relevant risks. A possible second closing is conditional and not assured.
- Other financing: The company had a $125 million Tumim Stone common-stock purchase facility, subject to share, price, and other limits; proceeds depend on future sales and may dilute shareholders. The filing also notes that the potential second note tranche depends on restrictive conditions, including share authorization and trading-price and volume tests.
- Controls: Management concluded disclosure controls were not effective as of September 30, 2022 because a previously identified material weakness in financial reporting controls remained unremediated. Remediation work was ongoing.
- Other risks and contingencies: The filing highlights early-stage losses, uncertain lidar adoption, competition, supply-chain and manufacturing dependence, customer concentration, macroeconomic and geopolitical disruption, and possible future capital needs. A PIPE investor defaulted on a 2021 subscription agreement, and AEye had initiated litigation to enforce it. Management reported no ordinary-course legal matter expected to have a material effect.
- Listing risk: The company disclosed that its stock had closed below $1.00 since October 14, 2022 and could face Nasdaq minimum-bid-price compliance requirements if that condition continued.
Important facts for investors to verify
- Whether revenue, design wins, and production programs progress enough to improve the very low revenue base and negative gross margins.
- Cash burn, liquidity runway, and the terms, repayment capacity, and potential dilution from the convertible note and any additional financing.
- Customer concentration and the status of Continental-linked OEM bids and other commercialization milestones.
- Progress in remediating the material weakness and whether disclosure and financial reporting controls become effective.
- Nasdaq bid-price compliance status, the PIPE subscription litigation, and the availability and limits of the Tumim Stone facility.