# Aeva Technologies, Inc. (AEVA) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Aeva Technologies, Inc.'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1789029/000095017025042849/aeva-20241231.htm Accession: 0000950170-25-042849 Filing date: 2025-03-21 Report date: 2024-12-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/AEVA/ All MD&A years: /company/AEVA/mda/ Previous year: /company/AEVA/mda/fy2023/ (FY 2023) Next year: /company/AEVA/mda/fy2025/ (FY 2025) Overview Our vision is to bring perception to broad applications. Through our 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 and security applications. 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, virtually all of 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 major 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 46 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 our 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 below and in the section of this Annual Report on Form 10-K entitled “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. Our 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. Our business is impacted by various macroeconomic factors, including inflation, interest rates, levels of consumer confidence and consumer debt, fuel and energy costs, and other economic conditions. In addition, we are susceptible to supply chain disruptions, which may be exacerbated by changes to tariffs and trade policies. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future. If we do not generate the margins we expect upon commercialization of our perception solutions, we 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 to Aeva’s 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. The development cycles of our products with new customers varies widely depending on the application, market, customer and the complexity of the product, and can vary from several months to seven or more years depending on the industry. These development cycles result in us investing our resources prior to realizing any revenue from the commercialization or obtaining any firm commitments of pricing, volume or timing of purchases of our products by our customers. As 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. Our 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 in our current and future customers’ programs could result in us being unable to achieve our revenue targets and profitability in the time frame we anticipate. Such delays could result in us requiring to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders. Basis of Presentation We currently conduct our business through one operating segment. 47 Components of Results of Operations Revenue Revenue consists of sales of perception solutions or sensing systems and non-recurring engineering services. We are engaged in the 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, we deliver 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. Gross profit equals total revenue less total cost of revenue. Operating expenses Research and development Our 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 our research and engineering functions; and • Expenses related to materials, software licenses, supplies, and third-party services. We expense research and development costs 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 our executive, finance, information systems, human resources, and legal, 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 our business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, and public relations. We expect that our operating expenses in fiscal 2025 will decrease as compared to fiscal 2024. Interest income and Interest expense Interest income consists primarily of income earned on our cash equivalents and investments in marketable securities. Interest income will vary based on our cash equivalents and marketable securities balance and changes in interest rates. 48 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 Comparison of Year Ended December 31, 2024 and 2023 The following table sets forth our results of operations for the periods presented: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023","","","Change $","","","Change %"],["","","(in thousands, except percentages)"],["Revenue","","$","9,065","","","$","4,312","","","$","4,753","","","","110","%"],["Cost of revenue","","","12,855","","","","10,198","","","","2,657","","","","26","%"],["Gross loss","","","(3,790",")","","","(5,886",")","","","2,096","","","","(36",")%"],["Operating expenses:"],["Research and development expenses","","","102,667","","","","102,503","","","","164","","","","0","%"],["General and administrative expenses","","","33,259","","","","31,761","","","","1,498","","","","5","%"],["Selling and marketing expenses","","","7,156","","","","7,638","","","","(482",")","","","(6",")%"],["Litigation settlement, net","","","11,500","","","","\u2014","","","","11,500","","","","100","%"],["Total operating expenses","","","154,582","","","","141,902","","","","12,680","","","","9","%"],["Net loss before income taxes","","","(158,372",")","","","(147,788",")","","","(10,584",")","","","7","%"],["Interest income","","","7,712","","","","8,925","","","","(1,213",")","","","(14",")%"],["Other income (expense), net","","","(1,430",")","","","(10,470",")","","","(9,040",")","","","86","%"],["Net loss before taxes","","","(152,090",")","","","(149,333",")","","","(2,757",")","","","2","%"],["Income tax provision","","","171","","","","\u2014","","","","171","","","","100","%"],["Net loss","","$","(152,261",")","","$","(149,333",")","","$","(2,928",")","","","2","%"]] [[/GREPCENT_TABLE]] Revenue Revenue increased by $4.8 million, or 110%, to $9.1 million during the year ended December 31, 2024, from $4.3 million for the year ended December 31, 2023. This increase was primarily due to an increase in the sale of prototype units sold in 2024 as compared to 2023, and activity related to non-recurring engineering services which is dependent upon the timing of the work performed for our customers. Cost of revenue Cost of revenue increased by $2.7 million, or 26%, to $12.9 million during the year ended December 31, 2024, from $10.2 million for the year ended December 31, 2023. The increase was primarily due to an increase in the number of units sold in 2024 and also due to an increase in non-recurring engineering services during 2024 as compared to 2023. Operating expenses Research and development Research and development expense increased slightly by $0.2 million, to $102.7 million during the year ended December 31, 2024, from $102.5 million for the year ended December 31, 2023. Research and development expenses increased primarily due to a $3.0 million increase in professional expenses, a $1.0 million increase in subscription expenses, a $0.4 million increase in miscellaneous expenses and a $0.4 million increase in depreciation expense; this was partially offset by a $3.0 million decrease in research and development material cost, a $0.6 49 million decrease in facility expenses, a $0.4 million decrease in legal expenses, a $0.3 million decrease in lab supplies, a $0.2 million decrease in payroll and other employee related expenses, and a $0.1 million decrease in travel expenses. General and administrative General and administrative expense increased by $1.5 million, or 5%, to $33.3 million during the year ended December 31, 2024, from $31.8 million for the year ended December 31, 2023. General and administrative expense increased primarily due to a $2.2 million increase in payroll and other employee related expenses, a $0.7 million increase in stock based compensation, a $0.5 million increase professional expenses, a $0.2 million increase in travel expense, a $0.2 increase in facility expenses, and $0.1 million increase in other expenses; this was partially offset by a $1.1 million decrease in insurance expenses, a $0.7 million decrease in legal expenses, a $0.3 million decrease in depreciation and a $0.3 million decrease in recruiting expense. Selling and marketing Selling and marketing expense decreased by $0.4 million, or 6%, to $7.2 million during the year ended December 31, 2024, from $7.6 million for the year ended December 31, 2023. Selling and marketing expense decreased due to a $0.3 million decrease in travel expenses, a $0.2 million decrease in recruiting expenses, and a $0.1 million decrease in marketing program expenses; this was partially offset by a $0.2 million increase in payroll and other employee related expenses. Litigation settlement, net During the year ended December 31, 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 consolidated financial statements included elsewhere in this report). Interest income Interest income decreased by $1.2 million during the year ended December 31, 2024. The decrease was due to a decrease in the overall balance of interest-bearing cash equivalents and marketable securities. Other income (expense), net Other income (expense), net decreased by $9.0 million for the year ended December 31, 2024. In 2023 we issued Series A Warrants of $6.7 million and paid $3.8 million in financing transaction fees for the Facility Agreement (as defined below). In 2024 we recorded a change in fair value of Series A warrants of $1.5 million. Liquidity and Capital Resources General Our capital requirements 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. 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 consolidated financial statements included elsewhere in this report. 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 of $2.5 million, an origination fee of $0.6 million, and an administrative fee of $0.3 50 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, and on December 6, 2024 entered into a formal settlement agreement, 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 December 31, 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 consolidated financial statements included elsewhere in this report 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 $611.9 million as of December 31, 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 December 31, 2024, we had cash and cash equivalents and marketable securities totaling $112.0 million. We also have the ability to draw on the Facility Agreement up to $125.0 million through November 8, 2026 in exchange for the issuance of preferred shares, and we intend to draw down on the Facility Agreement if and as required by our capital needs. As of December 31, 2024, all conditions to draw under the Facility Agreement were met. We believe that our liquidity, including financing available to us through the Facility Agreement, will be sufficient to fund our operating and capital expenditure for at least 12 months from the date of issuance of the consolidated financial statements included elsewhere in this report. Cash Flow Summary The following table summarizes our cash flows for the periods presented: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["","","2024","","","2023"],["","","(in thousands)"],["Cash used in operating activities","","$","(106,913",")","","$","(118,826",")"],["Cash provided by investing activities","","","97,901","","","","69,277"],["Cash provided by (used in) financing activities","","","(671",")","","","20,676"],["Net decrease in cash and cash equivalents","","$","(9,683",")","","$","(28,873",")"]] [[/GREPCENT_TABLE]] Operating Activities Net cash used in operating activities during the year ended December 31, 2024 of $106.9 million, was primarily attributable to a $152.3 million net loss, partially offset by a $13.0 million net change in net operating assets and liabilities and by $32.3 million of non-cash charges. Non-cash charges primarily consisted of $23.7 million in stock-based compensation, $5.5 million in depreciation of property, plant and equipment and amortization of intangibles, $3.5 million in amortization of right-of-use assets, $1.5 million in change in the fair value of warrant liabilities, and $1.1 million in impairment of inventory, partially offset by $3.5 million in accretion of discount on available for sale securities. The net change in operating assets and liabilities of $13.0 million was primarily due to a $16.6 million increase in other current liabilities arising from a $14.0 million accrual for litigation settlement cost, a $2.3 million increase in accrued liabilities, a $1.8 million increase in accounts payable and a 0.3 million decrease in other noncurrent assets; partially offset by $3.6 million decrease in lease liability, a $1.1 million increase in inventories, a $0.6 million increase in accounts receivable, a $2.6 million increase in other current assets, and a $0.3 million decrease in accrued employee cost. 51 Investing Activities Net cash provided by investing activities during the year ended December 31, 2024 of $97.9 million, was attributable to $183.0 million of cash received from the maturity and sale of available-for-sale investments, partially offset by $80.0 million used in the purchase of investments, and $5.1 million used for the purchase of property, plant and equipment. Financing Activities Net cash used in financing activities during the year ended December 31, 2024 of $0.7 million, was attributable to a $0.8 million payment of taxes withheld on net settled vesting of restricted stock units, partially offset by $0.1 million of proceeds from stock option exercises. Off-Balance Sheet Arrangements As of December 31, 2024, we have not engaged in any off-balance sheet arrangements. Critical Accounting Estimates We prepare our financial statements in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report 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. Our 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. Stock-Based Compensation We recognize the cost of stock-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. We elected to recognize the effect of forfeitures in the period they occur. The fair value of the RSUs is equal to the closing price of Aeva’s common stock on the grant date. We determined the fair value of each stock option grant using the Black-Scholes option-pricing model, which is impacted by the following assumptions: • Expected term is the length of time the grant is expected to be outstanding before it is exercised or terminated. This number is calculated as the midpoint between the vesting term and the original contractual term (contractual period to exercise). If the option contains graded vesting, then the vesting term would be based on the vesting pattern. • The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries. • The dividend rate used is zero as we have never paid any cash dividends on our common stock and do not anticipate doing so in the foreseeable future. • The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. We also grant performance based restricted stock units (the “PBRSUs”) to executives and our leadership team. PBRSUs have vesting conditions either based on pre-established performance goals of the Company or the performance of the Company’s total shareholder return. For the former, the fair value is determined based on the closing quoted price of Aeva’s common stock on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period. For the latter, we use a Monte Carlo simulation model to determine the fair value on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period. 52 Revenue The most critical accounting policy estimates and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the identification of performance obligations and accounting for certain contracts recognized over time. In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period. Revenue from product sales is recognized upon transfer of control of promised products. Revenue is recognized in an amount that reflects the consideration that Aeva expects to receive in exchange for those products and services. Product sales to certain customers may require customer acceptance, in which case revenue recognition is deferred until acceptance takes place. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of contract at estimated collectible amounts. For certain custom products that require engineering and development based on customer specifications, we recognize revenue over time using a cost-to-cost measure of progress which we believe faithfully depicts the transfer of control of the goods or services to the customer. Amounts billed to customers for shipping and handling are included in revenue. Some of our arrangements provide software embedded in hardware, and promises to update the software represent immaterial promises in contracts with customers. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition. Warrant Liabilities We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to Aeva’s common stock, among other conditions for equity classification. This assessment requires the use of professional judgment, and is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at fair value on the date of issuance, and each balance sheet date thereafter. We utilize the Black-Scholes option pricing model to value the liabilities classified warrants at each reporting period. The key assumptions in the option pricing model utilized include the following: • The expected volatility assumption is based on Aeva's historical equity volatility or a blend of guideline public companies equity volatility. • The expected term of the warrants is assumed to be the expected period until the expiry of the contractual term. • The risk-free interest rate is based on the U.S. Treasury rate for the applicable expected terms. • The dividend yield is based on the historical rate, which we anticipate to remain at zero. 53 Recent Accounting Pronouncements See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the consolidated financial statements included elsewhere in this report for a full description of recent accounting pronouncements including the respective expected dates of adoption and estimated effects, if any, on our consolidated financial statements.