Aeva Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion of Aeva’s results of operations and financial condition should be read in conjunction with the information set forth in the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon Aeva’s current expectations, estimates, and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) under the heading “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references in this section to “we,” “our,” “us” “the Company” or “Aeva” refer to the business of Aeva Technologies, Inc., a Delaware corporation, and its subsidiaries.

On March 18, 2024, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”) of shares of common stock, $0.0001 par value (the “common stock”). Pursuant to the Reverse Stock Split, every five (5) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock. All share and per share amounts presented herein have been retroactively adjusted to reflect the Reverse Stock Split. There was no change to the shares authorized or in the par value per share of common stock of $0.0001.

The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity. The Company did not issue fractional shares in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment. The number of shares of common stock issuable under our equity incentive plans and exercisable under the outstanding warrants were also proportionately adjusted.

Overview

Our vision is to bring perception to broad applications. Through our Frequency Modulated Continuous Wave ("FMCW") sensing technology, we believe we are introducing the world’s first 4D LiDAR-on-chip that, along with our proprietary software applications, has the potential to enable the adoption of LIDAR across broad applications.

Founded in 2017 by former Apple engineers Soroush Salehian and Mina Rezk and led by a multidisciplinary team of engineers and operators experienced in the field of sensing and perception, Aeva’s mission is to bring the next wave of perception technology to broad applications from automated driving to industrial automation, consumer device applications, and security. Our 4D LiDAR-on-chip combines silicon photonics technology that is proven in the telecom industry with precise instant velocity measurements and long-range performance for commercialization.

As a development stage company, we work closely with our customers on the development and commercialization of their programs and the utilization of our products in such programs. Thus far, our customers have purchased prototype products and engineering services from us for use in their research and development programs. We are expanding our manufacturing capacity through third-party manufacturers to meet our customers’ anticipated demand for the production of our products.

Unlike legacy 3D LiDAR, which relies on Time-of-Flight (“ToF”) technology and measures only depth and reflectivity, Aeva’s solution leverages a proprietary FMCW technology to measure velocity in addition to depth, reflectivity and inertial motion. We believe the ability of Aeva’s solution to measure instant velocity for every pixel is a significant advantage over ToF-based sensing solutions. Furthermore, Aeva’s technology is free from interference from other LiDAR and sunlight, and our core innovations within FMCW are intended to enable autonomous vehicles to see at significantly higher distances of up to 500 meters.

We believe Aeva is uniquely positioned to provide a superior solution with the potential to enable higher level of automation for vehicles. Furthermore, we believe the advantages of our 4D LiDAR-on-chip allow us to provide the first LiDAR solution that is fully integrated onto a chip with superior performance at scale, with the potential to drive new categories of perception across industrial automation, consumer devices, and security markets.

Key Factors Affecting Aeva’s Operating Results

We believe that Aeva's future performance and success depends to a substantial extent on our ability to capitalize opportunities, which in turn is subject to significant risks and challenges, including those discussed in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors.”

Pricing, Product Cost and Margins. Our pricing and margins will depend on the volumes and the features, as well as specific market applications of the solutions we provide to our customers. We have customers with technologies in various stages of development across different market segments. We anticipate that our prices will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Aeva’s future performance will depend on our ability to deliver on economies of scale. Our customers will require that our perception solutions be manufactured and sold at per-unit prices that are competitive. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective perception solutions that are competitively priced and affordable for our commercial-stage customers.

Additionally, the macroeconomic conditions in the industry, the growing emergence of competition in advanced assisted driving sensing and software technologies globally can negatively impact pricing, margins and market share. If Aeva does not generate the margins we expect upon commercialization of our perception solutions, Aeva may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous or highly dilutive to our stockholders.

Commercialization of LiDAR-based Applications. We expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our customers continue on research and development projects and begin to commercialize advanced driver assist, autonomous and industrial automation solutions that rely on LiDAR technology. As more customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced.

Sales Volume. Each product program will have an expected range of sales volumes, depending on the end market demand for our customers’ products as well as market application. This can depend on several factors, including market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development or production phase. In certain cases, we may provide volume discounts or strategic customer pricing on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes which in turn could adversely impact our gross margins. Aeva’s ability to ultimately achieve profitability is dependent upon progression of existing relationships to production and our ability to meet required volumes and required cost targets and gross margins. Delays of our current and future customers’ programs could result in Aeva being unable to achieve our revenue targets and profitability in the time frame we anticipate. Such delays could result in Aeva requiring to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous or highly dilutive to our stockholders.

Basis of Presentation

Our condensed consolidated financial statements include the accounts of our wholly owned subsidiaries. We have eliminated intercompany accounts and transactions.

Components of Results of Operations

Revenue

Revenue consists of sales of perception solutions or sensing systems and non-recurring engineering services.

Aeva is engaged in design, manufacturing and sale of LiDAR sensing systems and related perception and autonomy-enabling software solutions serving customers in automotive, industrial, and other markets. Under our customer agreements, Aeva delivers a specified number of sensing systems at a fixed price under customary terms and conditions. The sensing system units sold under these agreements are typically prototypes that are used by the customer for its research, development, evaluation, pilot, or testing purposes. We also enter into non-recurring engineering service arrangements with certain of our customers to customize Aeva’s perception solution to meet customer specific requirements.

Cost of revenue and gross profit

Cost of revenue principally includes direct material, direct labor and allocation of overhead associated with manufacturing operations, including inbound freight charges and depreciation expense. Cost of revenue also includes the direct cost and appropriate allocation of overhead involved in execution of non-recurring engineering services. Aeva’s gross profit equals total revenue less total cost of revenue.

Operating expenses

Research and development expenses

Aeva’s research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development. Research and development expenses consist primarily of:

• Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in Aeva’s research and engineering functions; and
• Expenses related to materials, software licenses, supplies, and third-party services.

Aeva recognizes research and development expenses as incurred.

General and administrative expenses

General and administrative expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s executive, finance, information systems, human resources, and legal teams, as well as legal and accounting fees for professional and contract services.

Selling and marketing expenses

Selling and marketing expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, and public relations.

Interest income and interest expense

Interest income consists primarily of income earned on Aeva’s cash equivalents and investments in marketable securities. Interest income varies based on Aeva’s cash equivalents and marketable securities balance and changes in the interest rates.

Other income and expense

Other income and expense primarily consist of changes in the fair value of Series A warrants, fair value of private placement warrants and foreign currency transaction gains and losses, as well as realized gains and losses on marketable securities.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended September 30, 2024, and 2023

The following table sets forth Aeva’s results of operations data for the periods presented:

(in thousands, except percentages)

Revenue

Revenue increased by $1.4 million or 178% during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily due to an increase in the total number of units sold and an increase in non-recurring engineering revenue recognized during the current period, which is dependent upon the timing of the work performed for our customers. This increase was partially offset by a decrease in the per unit average selling price of the units sold.

Cost of revenue

Cost of revenue increased by $0.4 million or 18%, during the three months ended September 30, 2024, from the three months ended September 30, 2023. The increase was primarily due to an increase in the cost of revenue related to units sold and an increase in non-recurring engineering revenue recognized during the current period as compared to the prior period.

Operating expenses

Research and development expenses

Research and development expenses increased by $3.3 million, or 14%, to $27.1 million for the three months ended September 30, 2024, from $23.8 million for the three months ended September 30, 2023. Research and development expenses increased primarily due to an increase of $2.8 million in material expenses related to product development, a $0.4 million increase in software subscription expense, a $0.3 million increase in facility and other related expense and a $0.2 million increase in depreciation expense, partially offset by a $0.1 million decrease in payroll related expense, a $0.1 million decrease in legal expense, a $0.1 million decrease in lab supplies, and a $0.1 million decrease in travel expense.

General and administrative expenses

General and administrative expenses were virtually flat for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

Selling and marketing expenses

Selling and marketing expenses increased by $0.1 million, or 4%, to $1.6 million for the three months ended September 30, 2024, from $1.5 million for the three months ended September 30, 2023. The increase was primarily due to an increase in payroll related expense.

Interest income

Interest income decreased by $0.4 million, or 20%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was due to a decrease in the overall balance of interest-bearing cash equivalents and marketable securities for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Other income (expense), net

Other income decreased by $1.3 million for the three months ended September 30, 2024 primarily due to an increase in the fair value of Series A warrants during three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2024, and 2023

The following table sets forth Aeva’s results of operations data for the periods presented:

(in thousands, except percentages)

Revenue

Revenue increased by $3.7 million, or 136% during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to an increase in units sold and an increase in non-recurring engineering services recognized during the current period, which is dependent upon the timing of the work performed for our customers. The increase was partially offset by a decrease in per unit average selling price of the units sold.

Cost of revenue

Cost of revenue increased by $1.6 million, or 21%, during the nine months ended September 30, 2024, from the nine months ended September 30, 2023. The increase was primarily due to an increase in the sale of the prototype units sold during the current period as compared to the prior period, an increase in cost of revenue related to the non-recurring services revenue and an inventory impairment during the nine months ended September 30, 2024.

Operating expenses

Research and development expenses

Research and development expenses increased by $2.0 million, or 3%, to $78.3 million for the nine months ended September 30, 2024, from $76.3 million for the nine months ended September 30, 2023. Research and development expenses increased primarily due to a higher employee cost related to research and development, including a $1.3 million increase in payroll related expense, a $0.9 million increase in software subscription expense, and an $0.8 million increase in consulting and service fees, as well as a $0.5 million increase in depreciation expense, and a $0.3 million increase in facility related expense. This was partially offset by a $1.1 million decrease in research and development materials cost, a $0.3 million decrease in stock-based compensation expense, a $0.2 million decrease in lab supplies, and $0.2 million decrease in legal expense.

General and administrative expenses

General and administrative expenses increased by $1.5 million, or 6%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. General and administrative expenses increased primarily due to an increase in employee related expenses of $1.8 million, a $0.7 million increase in professional fees, a $0.3 million legal expense, and a $0.3 million increase travel expenses and other expense, partially offset by a $0.8 million decrease in insurance expense, a $0.4 million decrease in recruiting expenses, a $0.2 million decrease in depreciation and a $0.2 million decrease in stock-based compensation.

Selling and marketing expenses

Selling and marketing expenses increased by $0.2 million, or 4%, to $5.8 million for the nine months ended September 30, 2024, from $5.6 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in payroll related expenses.

Litigation settlement, net

During the nine months ended September 30, 2024, we recorded a litigation settlement expense (net) of $11.5 million, related to the Delaware Stockholder Litigation (as defined in Note 15 to our condensed consolidated financial statements).

Interest income

Interest income decreased by $0.2 million, or 3%, during the nine months ended September 30, as compared to the nine months ended September 30, 2023. The decrease was due to a decrease in the overall balance of interest-bearing cash equivalents and marketable securities, partially offset by a change in the interest rate.

Other income (expense), net

Other income increased by $1.8 million for the nine months ended September 30, 2024, primarily due to a decrease in the fair value of Series A warrant liability during nine months ended September 30, 2024.

Liquidity and Capital Resources

Sources of Liquidity

Aeva’s capital requirements will depend on many factors, including production capacity and sales volume, the timing and spending to support research and development efforts, investments in information technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features.

On November 8, 2023, we entered into Subscription Agreements providing for the purchase of common stock resulting in net proceeds of $20.6 million (“November PIPE”). Also on November 8, 2023, we entered into a Standby Equity Purchase Agreement (as amended from time to time, the “Facility Agreement”) with entities affiliated with Sylebra. Pursuant to the Facility Agreement, we have the right, but not the obligation, to sell to Sylebra up to $125.0 million of shares of preferred stock, at our request until November 8, 2026, subject to the terms of the Facility Agreement and the satisfaction of certain conditions as described in Note 10 to our condensed consolidated financial statements. Each sale we request under the Facility Agreement may be for a number of shares of preferred stock with an aggregate value of at least $25.0 million but not more than $50.0 million (except with Sylebra’s consent). We paid Sylebra a facility fee in the amount of $2.5 million, an origination fee in the amount of $0.6 million, and an administrative fee in the amount of $0.3 million and reimbursed $0.4 million to Sylebra for its fees and expenses. In addition, we issued to Sylebra Series A warrants to purchase 3,000,000 shares of common stock at an exercise price of $5.00.

On July 2, 2024, Aeva and the parties to the Delaware Stockholder Litigation entered into a term sheet, which is being memorialized into a formal settlement agreement and which will be subject to court approval, to fully and finally resolve the Delaware Stockholder Litigation. In connection with the settlement, we have agreed to pay a total settlement cost of $14.0 million in exchange for a release of all claims related to the business combination and expect to recover $2.5 million from insurance carrier. The settlement is being paid pursuant to our indemnification obligations and from available director and officer insurance policies. As of September 30, 2024, we have accrued a contingent liability of $14.0 million connection with the settlement of the Delaware Stockholder Litigation, and a $2.5 million insurance recovery. See Note 15 to our condensed consolidated financial statements for more information about the Delaware Stockholder Litigation.

To date, we have incurred negative cash flows from operating activities and incurred losses from operations as reflected in our accumulated deficit of $575.7 million as of September 30, 2024. We expect to continue to incur operating losses due to continued investments that we intend to make in our business, including development of products. As of September 30, 2024, Aeva had cash and cash equivalents and marketable securities totaling $134.8 million. Aeva also has the ability to draw on the Facility Agreement up to $125.0 million through November 8, 2026 in exchange for the issuance of preferred shares, and we intend to draw down on the Facility Agreement if and as required by our capital needs. We believe that our liquidity, including financing available to us through the Facility Agreement, will be sufficient for Aeva to fund operating and capital expenditure for at least 12 months from the date of issuance of these unaudited condensed consolidated financial statements.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

(in thousands)

Operating Activities

For the nine months ended September 30, 2024, net cash used in operating activities was $86.0 million, attributable to a net loss of $116.1 million and a net change in net operating assets and liabilities of $9.9 million, partially offset by non-cash charges of $20.2 million. Non-cash charges primarily consisted of $17.1 million in stock-based compensation, $4.0 million in depreciation and amortization expense, $2.6 million in amortization of right of use assets and $1.2 million in inventory reserves and others, partially offset by $1.8 million change in the fair value of warrant liability and by a $2.9 million in accretion of discount on available for sale securities. The change in net operating assets and liabilities was primarily due to a $15.6 million increase in other current liabilities arising from a $14.0 million accrual for litigation settlement cost, a $0.3 million decrease in other non-current assets, and a $2.0 million increase in accrued liabilities, partially offset by a $1.6 million decrease in accrued employee cost, a $2.6 million increase in other current assets, a $2.7 million decrease in lease liability, a $0.6 million increase in inventories and a $0.6 million decrease in accounts payable.

Investing Activities

For the nine months ended September 30, 2024, net cash provided by investing activities was $78.3 million, attributable to maturity of available-for-sale investments of $144.1 million, partially offset by purchase of investments of $62.8 million and purchase of property, plant and equipment of $3.0 million.

Financing Activities

For the nine months ended September 30, 2024, net cash used in financing activities was attributable to payment of taxes withheld on net settled vesting of restricted stock units.

Off-Balance Sheet Arrangements

As of September 30, 2024, Aeva has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts Aeva reports as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Aeva’s actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

For the nine months ended September 30, 2024 there were no significant changes to our critical accounting policies and estimates. For a more detailed discussion of our critical accounting policies and estimates, please refer to our 2023 Form 10-K and Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.

Aeva is exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. There has been no material change in our exposure to market risks from that discussed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Form 10-K.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our business, reputation, results of operations and financial condition, as well as the price of our common stock, can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, our business, reputation, results of operations and financial condition, as well as the price of our common stock, can be materially and adversely affected. There have been no material changes to our risk factors since the 2023 Form 10-K.